annual report 2011 - Draeger · 2018. 7. 2. · 2011 single entity financial statements of Drägerwerk AG & Co. KGaA (condensed) 214 The Company’s Boards 218 220 aDDitiOnaL infOrMatiOn

annual report 2011

DiVisions oVer the past fiVe years

2007 2008 2009 1 2010 2011

Medical division

Order intake € million 1,223.5 1,276.9 1,339.6 1,441.9 1,518.8

Orders on hand € million 190.9 219.8 300.5 280.6 319.8

Net sales € million 1,209.4 1,243.8 1,260.9 1,472.0 1,484.5

EBIT 1 € million 81.1 75.5 76.7 186.6 191.8

in % of net sales (EBIT margin) % 6.7 6.1 6.1 12.7 12.9

Capital employed 3 € million 601.1 641.6 546.6 514.7 547.2

EBIT 2/ capital employed (ROCE) % 13.5 11.8 14.0 36.3 35.1

DVA 4 26.2 20.3 23.6 136.5 144.0

Headcount as of December 31 6,077 6,326 6,305 6,386 6,717

Safety division

Order intake € million 735.8 679.6 665.9 731.7 805.0


Net sales € million 637.5 706.8 676.9 733.8 802.7

EBIT 2 € million 69.4 61.0 30.2 61.0 76.1



EBIT 2/ capital employed 3 (ROCE) % 31.5 27.3 15.9 33.6 39.5

DVA 4 49.2 40.9 9.6 43.1 57.5


1 Due to the integration of Dräger Medical AG & Co, KG in September 2010, the previous year’s values were adjusted accordingly,2 Earnings before net interest result and income taxes3 Capital employed = Total assets less deferred tax assets, current securities, cash and cash equivalents and non-interest bearing liabilities4 Dräger Value Added = EBIT less cost of capital

DIV

ISIO

NS

AT

A G

lA

NC

E A

ND

T

hE

DR

ÄG

ER

GR

Ou

p

the DrÄger group oVer the past fiVe years

2007 2008 2009 2010 2011

Order intake € million 1,933.9 1,930.4 1,978.3 2,145.5 2,293.2


Net sales € million 1,819.5 1,924.5 1,911.1 2,177.3 2,255.8

EBITDA 1 € million 180.3 166.3 146.0 246.7 269.6

EBIT 2 € million 124.3 105.8 80.1 192.8 213.8


Interest result € million (26.6) (27.8) (30.8) (39.1) (33.0)

Income taxes € million (33.0) (28.6) (16.8) (48.9) (55.7)

Net profit € million 64.7 49.4 32.5 104.8 125.1

Of which attributable to shareholders € million 45.4 31.8 14.9 90.7 120.7

Earnings per share 3, 5

per preferred share € 3.60 2.53 1.20 6.25 7.35

per common share € 3.54 2.47 1.14 6.19 7.29

Earnings per share on full distribution 3, 6

per preferred share € 2.33 1.50 0.83 4.36 4.60

per common share € 2.27 1.44 0.77 4.30 4.54

Equity € million 545.2 553.8 393.8 636.6 729.6

Equity ratio % 33.3 33.5 20.9 32.2 34.5


EBIT 2/ capital employed 4 (ROCE) % 13.2 11.1 11.3 23.1 24.4

Net financial debt 7 € million 251.3 258.0 374.4 90.3 39.8

DVA 8 39.5 20.4 (1.8) 114.5 134.6


Drägerwerk AG & Co. KGaA dividends

Preferred share € 0.55 0.35 0.40 1.19 0.19

Common share € 0.49 0.29 0.34 1.13 0.13

1 EBITDA = Earnings before net interest result, income taxes, depreciation and amortization2 EBIT = Earnings before net interest result and income taxes3 Conversion to a partnership limited by shares on December 14, 20074 Capital employed = Total assets less deferred tax assets, current securities, cash and cash equivalents and non-interest bearing liabilities5 On the basis of the proposed dividend (see Note 21)6 On the basis of an actual full distribution of earnings attributable to shareholders (see Note 21)7 Since the end of fiscal year 2009, finance lease liabilities are recognized in net financial debt, previous year’s figures were adjusted accordingly,8 Dräger Value Added = EBIT less cost of capital

3 shaping the future

Employer Branding 3

Safety Shop 11

Dräger Academy 19

35 sharehOLDer infOrMatiOn

Letter to the shareholders 27

The Executive Board 35

Report of the Supervisory Board 38

Report of the Joint Committee 42

Corporate Governance Report 43

57 ManageMent repOrt

The Dräger Shares 57

MarKet enVirOnMent

Important changes in fiscal year 2011, German financial reporting enforcement panel (DPR), Group structure 63

Control system 64

Main accounting features of the internalcontrol and risk management system asit relates to the financial reporting process 66

Overall economic environment 68

Business perfOrManCe

Business performance of the Dräger Group 72

Cash flow statement 76

Financial management of the Dräger Group 79

Business performance of the medical division 82

Business performance of the safety division 88

Business performance of DrägerwerkAG & Co. KGaA/other companies 94

funCtiOnaL areas

Research and development 95

Purchasing 98

Quality, Production and logistics 99

Marketing, Sales and Service 100

Corporate IT 102

Environmental protection 103

Executive Board and Supervisory Board remuneration, Personnel and social matters 106

pOtentiaL

Risks and opportunities relating to future development 109

Operational risks 111

Opportunities 114

Disclosures pursuant to Sec. 315 (4) of the German Commercial Code (HGB) and explanations of the general partner 115

Subsequent events, Outlook 118

Ausblick 122

125 annuaL finanCiaL stateMents

Consolidated income statement of the Dräger Group 125

Consolidated statement of comprehensive income of the Dräger Group 126

Consolidated balance sheet of the Dräger Group 127

Consolidated cash flow statement of the Dräger Group 128

Notes of the Dräger Group for 2011 131

Management compliance statement 211

Auditor’s opinion 212

2011 single entity financial statements of Drägerwerk AG & Co. KGaA (condensed) 214

The Company’s Boards 218

220 aDDitiOnaL infOrMatiOn

Glossary 220

Imprint, Financial calendar 222

Dräger worldwide U7

Review of key events in 2011 U5

Shaping the Future 1

int

ro

du

ct

ion

Current trends and developments don’t just influence our day-to-day lives – they also affect our business. To keep up, we need to look ahead and generate momentum for the future.

Shaping the Future2

EmployEr Branding 5

Dräger is a company that lives by passion: the passion nearly 12,000 employees bring to their work every day.

EmployEr ranking 8

Dräger is a popular graduate employer in several categories.

intErviEw 9

Marcus Rosenthal got his foot in the door at Dräger as an intern from Stralsund university of applied sciences.

Competition for qualified specialists is one of the toughest challenges facing employers. Applicants are increasingly finding themselves in a position to pick and choose their employer – and not the other way around. Some have even called the situ a- tion the “war for talent.” Companies which don’t want to end up on the losing side need to engage with fundamental questions:

How can we stand out from the rest on the employer market? How can we be so appealing as an employer that we attract the best possible people to apply for our vacancies? Employer branding is today’s hot topic – and it’s set to be tomor-row’s too.

There’s no shortage of job vacancies on the market at the moment. The right applicants, however, often prove more elusive.


int

ro

du

ct

ion

Shaping the Future4

StratEgy dEvElopmEnt aS tEamworkHow can we be the employer of choice for the employees we need?

Their expertise and dedication are key in continuing the Group’s success story. We want it to stay that way. That’s why we place top priority on attracting tomorrow’s talents today.

Dräger is a company that lives by passion: the passion of almost 12,000 employees.

The search for the right employees is a competition. It’s a competition a company only has a hope of winning if it can find a way to stand out from the crowd and if it genuinely has something to offer prospective employees. We at Dräger are acutely aware of this fact. This is why, for some years now, a team within our HR department has been working on what is known as employer branding. Our colleagues have been making a conscious effort to establish Dräger as an attractive em -ployer brand. But how to succeed in this undertaking?

Anne Bauer, a specialist for social media, is part of employer branding. She tells us: “We weren’t interested in forcing any old marketing message onto the company. We wanted to know what makes Dräger special as an employer.” To this end, HR talked to a large number of employees and spent sev-eral months listening carefully to what was going on in the

company. What emerged was that “our employees are happy working for Dräger because their work tasks have a deeper meaning. We all do our part to make sure our products protect, support and save lives when in use. This fills us with pride.”

The findings of independent studies looking at job market trends verify the observations made by the Dräger HR team: Today’s generation of jobseekers is no longer just interested in good career opportunities or job security. They are in search of a challenging role – and one, above all, which gives them a sense of their work being needed. They often place a higher priority on working atmosphere, corporate culture and the ability to identify with their employer than on salary. Dräger views this as a positive development. Anne Bauer explains: “What makes us different from a lot of other companies is that when we communicate with potential applicants, we don’t have to limit


int

ro

du

ct

ion

ourselves to ten-a-penny messages about career opportunities, salary or childcare. Of course we offer them all that, but behind the roles we offer there is a greater meaning: We don’t just make technology, we make Technology for Life. What more could anyone want?”

We formulate this meaningfulness in a message as brief as it is simple: “Something worth working for”. These four words are a dominant theme in all Dräger’s communication media aimed at potential applicants – whether they’re job specs, image advertisements or online measures. Along with real live contact with prospective applicants at career fairs, Dräger is increas-ingly focusing its recruiting activities on multimedia content such as online videos. “We’ve realized that people love Dräger once they know us and are keen to find out more, but a lot of applicants don’t actually know us yet. This is why we need to raise Dräger’s profile and make it more possible for applicants to experience the company. We want applicants to be able to get a real feel for the world of Dräger from their computers at home.”

We’re in on the act with social media platforms as well. Anne Bauer believes firmly that companies need to adapt to the changes that have taken place in applicants’ information-gather-ing habits. Dräger’s employer branding wouldn’t be complete without social media. “We want to present an authentic image of ourselves as an employer. We can only do this if we enter into genuine dialog with both our employees and prospective applicants.”

To this end, we are always ready to engage with employees’ and applicants’ critical online reviews of us. We score very well on important employer review sites, while one platform for interns has seen Dräger gaining the most, and best, reviews of all. Anne Bauer on this success: “We’re proud of it, of course. Interns are absolutely key for Dräger, because we fill many start-ing positions with former interns. We’re moving in the right direction.”

Our success appears to be bearing this out: Applicant numbers in Germany in 2011 increased by 38 percent on the previous year’s figures, enabling HR to fill over 400 vacant roles. Dräger has improved its position in Germany’s major employer rank- ings considerably on its placing three years ago. And things are looking good in-house too: A global employee survey conducted in fall 2011 found that 90 percent of all employees are proud of working for us, while 85 percent wouldn’t hesitate to recom-mend Dräger to someone else as an employer. Anne Bauer is pleased with these positive findings: “The backing we experi-ence from employees is extremely valuable to us. They’re our ambassadors to the outside world. If our colleagues recom-mend Dräger to others, that’s ten times better than any ad cam-paign you could think of.”

So what’s next? Objective attained, mission accomplished? The employer branding team is not one to rest on its laurels. It’s already busy planning the next step. “The message we’ve been transmitting so far is a pretty general one. But we know that engineers, for instance, respond to different messages than do designers. This is what we’re going to be addressing now – adapting our messages to specific target groups.” Thorough discussions with colleagues provided detailed insights into what factors of a career each individual employee group values most highly. While those working in R&D set great store by oppor-tunities to develop their careers and team spirit, vocational train-ees, for example, put trust in their employer and inclusion in the workforce at the top of their priority list. The employer brand-ing team has now brought all these insights together to devel - op new employer branding campaigns, which recently completed their test stage. An online survey gave potential applicants from all age groups and job categories the opportunity to eval-uate the campaign. So far the results have shown that Dräger’s clear positioning as a brand is appealing to exactly those applicants we want to reach: people who are more interested in work that makes a difference than in career progression at all costs. People who want to do something worth working for.

Shaping the Future6

dEvEloping SpEcifica appEal to targEt groupSThe new employer branding campaign has just completed its test phase.

vocational trainingWe prepare our junior employees specifically for a role in our company later on.


int

ro

du

ct

ion

01 Something worth working for

For over 120 years now, we at Dräger have been developing and producing Technology for Life: innovative devices and solutions which protect, support and save lives right across the globe. It’s a big job. A great responsibility. We’re looking for people who aren’t just out to get to the top as quickly as possible, but who want more: people who want something worth working for from their career. People who aren’t afraid to follow inno-vative new directions in their thinking. People who are keen to discover new things and listen carefully. People who put their passion and their commitment into an idea and are able to inspire others with it. In short: People who want to help us transform technology into Technology for Life.

Shaping the Future8

a lEap forwardDräger has climbed considerably up the ranking of Germany’s most popular graduate employers.

rankS aChieved in the trendenCe

graduate Barometer

voCational training at dräger

Every year, Dräger trains up young people for our recruitment needs. This not only helps us secure our future growth, but also ensures we meet our social responsibility to provide young people with career prospects. All those involved in training the next generation at Dräger are highly commit-ted to giving our vocational trainees and students on combined study programs the best possible preparation for their future careers. In 2011, we took on 75 new vocational trainees and com-bined-study students in 14 different career paths, and offered 62 trainees and students a perma-nent contract with us after successful completion of their courses.

trEndEncE graduatE

BaromEtEr

Engineering rank 39Previous year’s rank 43

it rank 65Previous year’s rank 71

Business rank 100First appearance in Top 100 Employers Business Edition

a joB with a futurEDräger is full of opportunities for career development.


interview

02

Why Dräger?Marcus Rosenthal is what you might call a traveler between two worlds: He started at Dräger in the safety division and now works for the medical division. He’s someone who makes it clear that you can’t separate what belongs together from the start: One Dräger.

Mr. rosenthal, how did you first become aware of dräger?Through my university of applied sciences. I studied industrial engineering in Stralsund. My department regularly visited companies in the region to listen to talks and take tours of company grounds. In 2010, Dräger was one of our stops. That’s how I became aware of the company – also as a potential employer.

What was your first impression?Dräger seemed very human and familial to me. This impression proved to be true when I started working at Dräger.

how did you get started?The traditional way: First, I completed an internship in the safety division in the Central Europe region. After the internship, I continued working for Dräger as a student trainee and wrote my diploma thesis in the safety division. In summer 2011, I got a permanent position in the medical division as Junior Product Manager. Now I’m in charge of service activities in Monitor- ing, Systems and IT as well as the continued development of Remote Services.

What appeals to you about working at dräger?I’m amazed at the high level of dedication with which Dräger keeps on trying to make the impossible possible. We don’t give up quickly when it comes to continuing to develop devices and services that are essential to life. That makes me proud and keeps me going.

in your opinion, what does it take to work at dräger?There are a lot of different jobs at Dräger and just as many different challenges. But what connects all of us in my opinion is the passion and perseverance to work toward goals and achieve them. It can take years in Research and Development until products are ready to be launched.

What makes dräger an attractive employer?You have a lot of opportunities to grow here. For example, I started in the safety division and now I work for the medical division. It’s exciting being able to combine my experiences from both divisions. At Dräger, work has many aspects and is never pointless, and you can feel that Dräger is a family-run company. We think on a long-term basis and always persevere regardless, even in the face of difficulties or setbacks. We have the time to think things through and bring them to fruition. Dräger has staying power.

int

ro

du

ct

ion

Shaping the Future10

SafEty Shop 13

Dräger doesn’t just develop technology; we create solutions that pay off.

a madE-to-mEaSurE Solution 16

We configure the Safety Shop individually for each customer, working closely with them.

Shutdown managEmEnt 17

Complex tasks call for smart solutions – shutdown and rental management courtesy of Dräger.

The only way to truly understand what customers want is to listen. And the only way to meet customers’ needs and requirements is to know them inside out. In other words, a company that wants to remain successful in the long term needs to answer questions such as:

What do our customers need our products for? What are the problems and challenges they face in their day-to-day work? And what do our customers need us to do so they have the best possible support? Devices alone are rarely the answer to these questions. What’s wanted are solutions.

A company’s success is founded on working closely and engaging con-tinuously with its cus-tomers.


int

ro

du

ct

ion


SolutionS comE from communicationWhat do our customers require, and which concept fits their needs best?

In order to achieve best results, people should focus on the thing they are best at. It’s a principle that applies just as much to Dräger as to its customers. But how to work out when your core business has reached its limits and it would be a good idea to seek external support? Dräger’s way is to talk about it – in close dialog and from every angle. Bernhard Mohr, head of what is known as Shutdown and Rental Management, speaks from experience when he says: “We are in very close contact with our customers and listen to them when they speak of what matters to them. We take what we hear very seriously and are pre-pared to work with it. This sort of cooperation can be relied on to produce new ideas for how we can work together.” The Dräger Safety Shop is one of them.

The Safety Shop has a frequent role to play in shutdown situa-tions in chemical and petrochemical industry plants. Shut-

downs, also known as standstills or turnarounds, are among the most critical situations that occur in these industries. A number of tasks need to be done in parallel within an extremely short space of time, during which there may be up to 3,000 addi-tional workers on site – these workers are known as contractors. Such a situation is, of course, a particular challenge in terms of safety. Operators of shut-down systems need a considerable amount of extra safety technology, such as gas detection and respiratory protection devices, fall protection devices and fire protection equipment – technology they are required not just to purchase, but to continuously calibrate, service and maintain. It’s work that is not part of their core business.

This is where the Dräger Safety Shop comes in. Bernhard Mohr explains: “Of course we don’t want to take tasks away from our customers that they can perform just as well and efficiently

Dräger doesn’t just develop and produce tech-nology. We provide solutions that pay off.

Again and again, our customers’ needs inspire us to discover solutions which make people’s lives safer and their work easier. The Dräger Safety Shop does both at once.


int

ro

du

ct

ion

themselves. We want to provide them with support where it makes sense for them. This is why we offer customers a Safety Shop service: We’ll run a shop on your site during the shutdown – just send your employees to us to get the devices they need on loan.”

The Safety Shop is stocked with a range of over 2,000 safety products, and has theoretical scope to expand and encompass Dräger’s entire product range. The customer and Dräger agree in each case on the precise stock; the Dräger Safety Shop is every bit as individual as each shutdown situation – it’s made to measure, so to speak. “We take a close look at the customer’s processes and ask ourselves what they need in this situation and how we can provide concrete, on-the-ground support.”

When doing this, Dräger doesn’t think in terms of indi-vidual products, but rather of complete applications. Indus-trial plants principally call for hot work operations, work carried out at heights and entry into containers and enclosed spaces. Dräger, of course, has everything on hand that is desperately needed to make these tasks safe – even prod-ucts it doesn’t produce itself, such as blowers or radio equipment.

All devices are calibrated and benefit from tip-top servicing, and are permanently supplied with the requisite consumables, thanks to the service provided by Dräger on the ground. And best of all, the customer pays only for the time during which the devices are used. The equipment itself remains the property of Dräger. “For our customers, this system spells maximum service and maximum safety with minimum costs,” explains Bernhard Mohr.

But how exactly does it work? The Safety Shop is run by Dräger employees, who register each device in a specially developed software program by means of a barcode and, if necessary, explain how to use the product. The software saves a record of who has borrowed which device, as well

as the stipulated time of return and all maintenance services carried out on the device. This gives customers complete con-trol over their costs, even when several thousand rental devices are involved.

Furthermore, every employee of the industrial plant is given an electronic ID card which permits him or her to borrow safety products in the Safety Shop. Employees are only permitted to borrow devices for which they have received training, which reduces the risk of accidents. The training is provided by Dräger. “We give employees a thorough theoretical grounding and put them through practical exercises using our training devices, which we developed ourselves. This helps them to practice situations such as entering containers and tightly confined spac-es. It’s only by experiencing the situation that people can really learn the processes by heart,” Bernhard Mohr reveals.

Customers value this wraparound service: “We’re the only com-pany that offers this kind of complete package. An all-encom-passing concept is always more helpful to customers than a mosaic of individual services. This is something we’ve no doubts about.” Dräger uses this successful formula to lend their devices and their support in shutdowns on all scales all around the world, always with one aim paramount: no acci-dents and as little idle time as possible. The Safety Shops are already well-established in Germany and across Europe, and Dräger is currently busy bringing the concept to the Asia- Pacific region.

This project-based business frequently opens the door to a long-lasting customer relationship. Bernhard Mohr explains: “Once a shutdown is over, the customers often come to us and ask: Why are you closing your shop? It saves us so much work. Can’t you stay?” And then the Safety Shop does indeed stay. A growing number of industrial customers are already permanently entrusting management of their safety devices to Dräger and putting their trust in the Dräger Safety Shop concept – truly a concept that will help take Dräger success-fully into the future.


SafEty ShopThe Safety Shop stocks over 2,000 different safety technology products.

ShouldEr to ShouldErThe prime objective is to eliminate on-site accidents and reduce idle times to a minimum.


int

ro

du

ct

ion

a permanent Safety Shop

One of Germany’s largest refineries commis-sioned Dräger to take care of all its safety devic-es over a period of five years. In 2010, the com-pany set up three permanent Safety Shops on the customer’s site. Here, Dräger employees loan out and maintain approximately 4,000 portable gas detection devices belonging to the customer and supplement the range available with their own devices. The contract is worth a medium seven-digital sum in euros.

taking Care of thingS around

the CloCk

The Rental Robot is our automatic materials logistics system for safety technology. Once you sign up, it ensures that you are always provided with the right appliances and necessary supplies 24 / 7, regardless of the Safety Shop’s opening times. Your staff members can enter their user IDs to access the sections and material they have been authorized for. The system is laid out in a modular fashion, and users can obtain the prod-ucts they want from these modules. The Rental Robot contains products from Dräger and other suppliers alike. And, just like in the Safety Shop, every rental transaction is documented so it is easy to keep track of where safety material is at any given time.


03

SafEty Shop concEpt We work with customers to configure the individual on-site Safety Shop, providing optimum support for their processes.

the Safety Shop: Bringing

together CuStomer needS

and dräger SolutionS

maintEnancEWe ensure product availability by means of continuous servicing on site.

coSt tranSparEncyWe document every device we lend out.

coSt controlWe plan resources with the customer and report back continually, meaning everyone involved keeps to budget.

productSThe product range available is designed to suit workflows on site.

SafEtyWe implement customers’ safety regulations; industrial accidents and production downtimes are kept to a minimum.

SupportWe make management of maintenance processes less complex for customers.

Safety Shop

targEt

SErvicE

Shutdown management

04

German law requires refineries and comparable plants to carry out a technical inspection every five years. These are carried out during planned standstills, also referred to as shutdowns or turnarounds. During these shutdowns, production, which in many petrochemical plants generally runs 365 days a year, goes on hold. These standstills are also used for cleaning, mainte-nance, repairs and modifications, meaning the number of work-ers on site increases sharply during these periods. Most of the additional headcount is made up of external staff. Dräger Shut-down and Rental Management’s mission is to provide them with the safety equipment they need.


Shutdown: No standing still

in partnErShipContinuous communication means the shutdown comes off smoothly and without incidents.

on-SitE inductionPrecise knowledge of the situation on the ground means people and resources are used where they’re needed.

int

ro

du

ct

ion


drägEr acadEmy 13

We take on responsibility for life. A responsibility that goes above and beyond our products.

madE-to-mEaSurE training 24

The Dräger Academy develops true-to-life training solutions for customers across the globe.

intErviEw 25

Dr. Ernst Bahns on his experiences in the Asia / Pacific region.

What do our customers want to learn so they can get the maximum benefit from our products? What do they need to know in order to tackle their work successfully? Answering these questions and providing customers with what they need is a matter of creating added value. Seminars and training courses are a real key to success.

You live and learn. It’s a truism for individuals – and should be a guiding principle for companies.

Information has never been easier to access than it is today. We are flooded daily with endless streams of news, making it a real challenge to stay afloat and locate what’s really important in this overwhelming information surplus. Providing excellent support to customers means helping them to do just that.


int

ro

du

ct

ion


focuS on trainingWhat do our customers want to learn so they can get the best possible use out of our products?

What good are up-to-the-minute products and complex systems if nobody has any idea how to best use them? Not a lot. And it’s for this very reason that training for customers and employ-ees forms an integral part of the services we offer. We’ve been delivering theoretical and practical training to customers throughout our history. But it’s only recently that this service has acquired a name: the Dräger Academy.

The Dräger Academy’s mission is to establish uniform quality standards worldwide for service, sales and customer training. Whether training courses or sessions are for Dräger employees, hospitals, fire services or industry, Dräger wants them all to adhere from now on to the same standards in terms of their content. To this end, the Academy will provide an overarching umbrella for all Dräger’s in-house and external training cours-es. Project manager Ulrike Grebner fills us in: “Every country

within the Dräger organization runs training courses. But none of them know how the others do it. We want to change that and build up a worldwide network, so that we can learn with and from one another.”

The training specifications are intended to be flexible supports rather than restrictive frameworks. To fulfill this aim, Ulrike Grebner and her team put a lot of time into establishing the status quo: Who is it we’re actually training? What are the needs we should be meeting? The result: Among Dräger employees alone, approximately 5,200 are part of the Academy’s target group. They are directly customer-facing and need to know how to understand, use and explain Dräger’s products. The Academy’s offerings for on-the-job learning are intended to support these employees as best as possible. Ulrike Grebner: “We’ve done the math: Our colleagues in sales and service

We take on responsibility for life. A responsi-bility that goes above and beyond our products.

Protecting, supporting and saving life requires outstanding technology and highly-trained staff. Our training brings the two together.


int

ro

du

ct

ion

have at least nine million instances of customer contact every year. They undertake every single one of them as represen-tatives of our company. This is why it’s so important for us to provide all our employees access to knowledge of a consis-tently high quality to, wherever they are in the world.” The acad-emy provides knowledge employees need during their work for Dräger – from their first contact with the products to their daily encounters with the customer. There are points at which overlaps with customer training arise: “Sometimes, employees and customers even attend the same training sessions. This is something we’ve had good experiences with, since they can then share their experiences directly with each other.”

The Dräger Academy’s external target groups are highly diverse: from high-level managers and direct users of products to tech nicians and service staff. Doing justice to them all is a formidable challenge. “Our customers only know our prod-ucts as well as they have been trained to do so.” This is why people have a firm place at the very top of the Dräger Academy priority list: “Our principal objective is to tackle the issues that matter to our customers. It might be standards or statutes. We are in very close contact with our customers, and they tell us exactly what they want to learn about.” This means that training catalogs can only ever reflect the basic range of training on offer and serve as a rough guide. Working closely with the customer, we create a made-to-measure training package for them.

Our customers often benefit from seminars before they have to integrate new system solutions or government regulations into their internal processes. When workflows change, it makes sense to practice with it before it’s actually up and run-ning. Individual training is a must in these sorts of cases.

But how can we bring these complex sets of needs together with the legitimate desire for overarching standards? The Dräger Academy team is currently developing training modules, which will start with fundamental topics such as “The Basics of Respiration and Ventilation” or provide an introduction to more

complex contexts in connection with product trainings such as “Conduct and Working in Small Rooms and Containers” for industry. In the future, all modules will have a fixed structure and use the same training materials throughout the world. In other words, a seminar on “The Cardiovascular System” held in Shanghai will be exactly the same as one held in Lübeck. In this way, the Academy will be able to guarantee consistently high quality for its training. Ulrike Grebner: “Our many years of experience have already provided us with a huge amount of tested learning concepts and materials. All we need to do is compile them and then we can benefit from this Dräger-wide treasury of knowledge.”

When designing the training modules, the Academy is careful not to lose sight of the pressures on time and costs our employees and customers are exposed to. In response, it is strengthening its focus on combining online applications such as e-learning and webinars with face-to-face training ses-sions to create learning paths. “When it comes to practical training, of course, seminars on the customer site remain invalu-able. However, we can cover a great deal of fundamentals using online training modules. For us, the key is engaging, illus-trative content that comes together and delivers practical knowledge – it’s the only way to achieve the desired effect.”

Later on, Dräger employees across the globe will bring the indi-vidual training modules together to form complete seminars in accordance with customer needs. The new Dräger Academy will provide a web-based training platform as a key interface for this work. The platform will act as a repository for all training materials, for Dräger employees to access when needed. In addition to this, customers will be given password-protected access to training content. Summing up, Ulrike Grebner ob- serves: “The Dräger Academy means we’re living up to our own aims. We don’t just want to sell customers individual products. We provide them with solutions. And part of that is delivering high-quality training - all over the world.”


product trainingExperts give a guide to the finer points of the respiratory protection mask.

handS onThe participants practice entering and working in confined spaces.


int

ro

du

ct

ion

prof. wu dawei, iCu direCtor of Qi lu

hoSpital

“Intensive care units in our province have been growing rapidly, so now as there are more and more patients, the number of young doctors has also increased rapidly. Many young doctors have not received standardized training on mechanical ventilation, and they lack sufficient knowledge and experience to deal with problems during their clinical work. Therefore, systematic training is very important to the development of our dis-cipline.”

markuS fiSCher, dräger ServiCe

teChniCian from the Bielefeld offiCe

“The training in the Academy is the basis of our day-to-day work as service technicians. We need high-quality training in order to do high-quality work for our customers. The training also enables me to draw on a sound knowledge of our devices and systems so I can respond confidently and helpfully to customers’ questions.”


target groupS of the dräger

aCademy around the gloBe and

aCroSS induStrieS

tailor-madE training for EmployEES and cuStomErS

From intensive care specialists in China to Dräger service technicians in Germany – the Dräger Academy offers training modules and solutions for numerous sectors and target groups.

dräger academy

intErnal EmployEES get to know Dräger products and solutions through the training.

cuStomErS improve their technical expertise and application knowledge through training sessions that are tailored exactly to their needs.

Still in the planning stages everywhere else in the world, it’s already becoming tangible in Asia: It’s the Dräger Academy, and it’s gathering initial customer training experience in China. Dr. Ernst Bahns has been in Singapore for Dräger for one and a half years now, heading up the pilot project.

dr. Bahns, what exactly is your role?I am responsible for introducing customer training for our medi-cal technology products in the Asia-Pacific region. To under-stand the market, I first took a look at how doctors and care personnel are trained in East Asia. We focused on China because the large market there has a lot of growth opportunities for Dräger. Then, I developed a total of 28 training modules on the topic of critical care ventilation in close cooperation with our Chinese colleagues. We have training materials for the participants and a handbook for course leaders to accompany each module.

how do you develop a training concept for china in Sin-gapore?Although that’s obviously a special challenge, our colleagues in China were enthusiastic right from the start. They translated each module and even took care of technical editing. As a result, we had all materials ready in Chinese before the first training seminars. This close cooperation over a distance of thousands of kilometers was one of the best experiences in my 25 years at Dräger.

do you deliver the seminars yourself?Indeed I did – at least the first sessions, together with a trans-lator and support from Lübeck-based personnel. We needed to get a feeling for whether the training concept was working as planned. It all went very well. However, as a basic principle, we like the course leaders to come from the country where the courses are being held – they speak the local language and know local training needs. For this reason, we’re currently heav-ily involved in training up course leaders in China, with other East Asian countries to follow. We teach them the training con-tent and didactical methods. In order to fulfill our expectations for quality, we check our trainers’ abilities with an exam on the subject matter and a sample session at the end of their train-ing.

how can the dräger academy use your experiences on a worldwide basis?In teaching specialized knowledge, we have to strike a balance between global training concepts and local needs. While there’s no doubt that it’s absolutely right, and very important, for Dräger to be as standardized as possible in its practices, we do always need to leave room for regional adaptation. Language and culture are key in training, and not every method is suit-able for use in every country. Chinese people, for instance, are used to have a series of ten hours of training with the course leader up front. They’re incredibly motivated and see knowledge as a gift. Other countries require a more varied, interactive style of training. We need to do justice to these learning styles and ideas when we design our training.

training in aSiaThe structure and content of training courses has to meet local needs.


interview

05

Project in China

int

ro

du

ct

ion


27letter to the shareholders 27letter to the shareholders

“I am very pleased that we generated such positive results in 2011.”

We once again clearly exceeded our order, net sales and income targets in 2011 − and

generated more orders, net sales and income than ever before. But our joy about a

good year should not delude us: We will have to achieve much more if we want to meet

our own expectations. Now and in the future, we will always strive for Dräger to keep

its place among the global market leaders in generations to come and to ensure that our

“Technology for Life” will provide even more value for our customers, employees and

shareholders than it already does today. A glimpse at just one year can only be regarded as

a snapshot in this context. This is why I would like to give you an idea of our approach

to long-term development lines and success parameters.

int

ro

du

ct

ion

28 letter to the shareholders28 letter to the shareholders

IncreasIng group profItabIlIty

Our growth kept up with the growth rate of the global economy. This is acceptable in view

of the strong momentum in the previous year. We came a good bit closer to our medi-

um-term target – an EBIT margin of at least 10 percent – with a margin of 9.5 percent.

We have therefore clearly exceeded our January forecast of 7.5 to 8.5 percent. In the

fourth quarter, we even surpassed our medium-term target with an EBIT margin of 10.7

percent. The work of our almost 12,000 employees created an impressive DVA (Dräger

Value Added) of EUR 134.6 million – around EUR 20 million more than in the previous

year.

stefan dräger


advantageous product mIx

Both growth and EBIT margin developed very positively in the full year as a result of a

strong product portfolio and excellent sales performance. An unusually advantageous

high-margin product mix and a large sales volume in countries with above-average mar-

gins also led to an impressive net sales and income growth in our medical division.

takIng prevIously unused opportunItIes

We did not advance as much as we had hoped in all areas, such as Corporate IT, for

instance. Although this function has improved the performance of our systems, it will

hardly be able to contribute to efficiency improvements in the short term. We increased

our investments in research and development, as planned, so that we can expand our

market shares and strengthen our profitability with a larger proportion of improved

and new products. Although we managed to pretty accurately estimate future demand

for a promising special application in the Monitoring business, Marketing as well as

Research and Development are taking longer than expected to develop a solution that is

up to our quality standards. Overall, we will therefore continue focusing our invest-

ments on the Monitoring business in the next two years and determinedly steer this area

toward achieving its very clearly stated internal targets. Another area in which we are

behind in our efforts is the launch of our new marketing structure which we now expect

to implement in 2013. As a consequence, we will only be able to benefit from the result-

ing net sales and market opportunities at a later date. The marketing organization we

have in mind will support our continued development, from product orientation to

customer orientation. The central global sales and service structure is already showing

its effects. Both safety and medical division have started to reduce inefficient double

structures by implementing a joint infrastructure. By the end of 2014, the positive syner-

gies and improved use of existing market potentials are expected to lower relative

marketing and sales costs by at least one percentage point compared to the cost structure

in 2011. Our 2012 target EBIT margin of 8.0 to 9.5 percent shows that we will not

be able to reach our fullest potential once again in 2012. But it will provide us with a

foundation on which we can strongly grow and generate an EBIT margin in excess

of 10 percent – and in so doing protect the future of our Company.

30 letter to the shareholders30 letter to the shareholders

creatIng leeway for strategIc actIon

By generating additional medium-term net sales and income potentials, we remain

attractive to our lenders – and continue to increase our leeway for strategic action. This

is the basis for an investment offensive into knowledge, new products, technologies and

markets − even in a difficult environment. We want to avoid having to limit our freedom

for strategic action due to our capital base being too low. Quite the contrary: we want

to solidly secure our future. In view of the volatile market situation and the continuing

economic uncertainties, we therefore aim for a medium-term equity ratio of 40 per-

cent. This would place us just above the average of the 25 DAX-listed industrial, trade and

service companies, of which ten already have an equity ratio of over 42 percent.

reorganIzIng the capItal structure

An important step in that direction is to reorganize our capital structure. As our partici-

pation certificates have largely ceased to act as equity instruments, they are no longer

serving their original purpose. But we are bound by the terms and conditions of these

participation certificates to grant them a rather high interest relative to our shares.

The division of Drägerwerk AG & Co. KGaA’s market capitalization into several types of

participation certificates in addition to existing shares is inefficient and stands in the

way of optimized capital financing through shares. We therefore decided to discontinue

most of our financing through participation certificates and made a fair offer to our

participation certificate holders for buying back their certificates at a premium of up to

26 percent above the average price in the past three months. If all participation certifi-

cates were returned at the offer price, the total purchase price would be EUR 296.8 mil-

lion. We can pay this amount from our existing liquidity of more than EUR 400 million

at year end. We also have sufficient unused credit lines available.

strengthenIng the share as a refInancIng Instrument

In the future, we particularly aim to give our shareholders, who provide our equity, an

even more attractive return on capital employed. The added value we earn will be dis-

tributed to our customers, employees and shareholders. This way we want to strengthen

our share as a refinancing instrument. The new capital structure will assist us in this

task. At the same time, we ask our shareholders to participate in the financing of this


improved capital structure, which will benefit them in the future. The Executive

Board and Supervisory Board therefore resolved to propose a dividend of just EUR 0.13

per common share and EUR 0.19 per preferred share at the annual shareholders’

meeting on May 4, 2012. In the coming years, we plan to distribute around 30 percent

of Group net profit (less the share for non-controlling interests) as soon as Dräger

achieves an equity ratio of 40 percent. If the equity ratio ranges between 30 percent and

40 percent, the distribution volume will be approximately half this value. Our goal is

to use this improved capital structure to generate a long-term higher return on capital

employed for our shareholders than we were able to up to now.

Although the road ahead is still long, we have completed the first steps. I am very pleased

that we generated such positive results in 2011 and that we were able to work on the

foundation for our future at the same time. We will continue to positively use the coming

years and create leeway for our strategic actions. We are convinced that this will

make the defining difference to our competitive position within the next five to ten years.

Best regards,

Stefan Dräger

32 letter to the shareholders32

33technik für das leben

35 shareholder InformatIon

Letter to the shareholders 27

The Executive Board 35

Report of the Supervisory Board 38

Report of the Joint Committee 42

Corporate Governance Report 43

34

3d-tool: Visions taking shape: The Dräger 3D tool provides for configuring operating rooms, intensive care and neonatal workstations, or shock rooms as a realistic 3D view in real time. Teams of medics, designers, architects and sales staff are all equally up to speed on the plans’ progress at all times.

*

The project team can easily use the 3D tool, enabling team members to develop technically and commercially complex solutions during a customer meeting. The 3D display, featuring freely selectable per-spectives, gives viewers a realistic sense of the space available and always puts the focus on designing ergonomic workstations.

Using the laptop, everyone involved can see their ideas directly on the screen, discuss them and adapt them flexibly as required.

The 3D glasses help customers experience the planned workstation almost as if it were really there.

35corporate Governancejoint committeereport of the supervisory boardthe executIve board

the executive boardthe executive boardThe Executive Board is made up of four members, with their areas of respon-sibility covering the Company's core functions. This enables us to make the best possible use of the economies of scope available in an integrated technology company.

36 the executive board

stefan dräger assumed the position of Chairman of the Executive Board in 2005 and has been managing the Company ever since. He has been with Dräger since 1992 and became a member of the Executive Board in 2003.

anton schrofner joined the Company in September 2010. He manages Production, Logistics, IT and (temporarily) Marketing in the safety division.

37corporate Governancejoint committeereport of the supervisory boardthe executIve board

dr. herbert fehrecke joined the Company in 2008. He is Vice-Chairman of the Executive Board, responsible for the Research and Development, Purchasing, Quality and (temporarily) Marketing in the medical division.

gert-hartwig lescow has been responsible for the Company’s Finance function since 2008.

38 report of the supervisory board

report of the supervisory boardDräger looks back on a very successful fiscal year 2011. The Supervisory Board continued its trusting working relationship with the Executive Board, dealing in detail with the Company’s economic situation and prospects. The Supervisory Board was involved in all decisions directly and in time.

Dear Shareholders,

Your Company was extraordinarily successful in fiscal year 2011 – also the view of the Super visory Board. Dräger clearly exceeded its targets published in January 2011: a slight rise in Group sales and an EBIT margin between 7.5 and 8.5 percent. As announced, the Company also increased its investments in research and development from the previous year and began to implement an effi-cient new sales structure that at the same time focuses on growth. Both measures aim to contribute toward meeting the medium-term growth and income targets. Unlike originally planned, Dräger will only be able to introduce the new marketing organization in 2013. The expected costs for this measure are accounted for in the annual financial statements. We believe that the new marketing and sales structure will create a push on net sales and in-come − overall savings of at least one percentage point for marketing and sales costs until the end of 2014.

In 2012, the Executive Board expects the Company to grow at least as fast as the entire global economy and antici-pates an EBIT margin between 8.0 and 9.5 percent, provided that the global economy remains on a stable, positive course of development and that the financial situation sta-bilizes. The Supervisory Board is confident that this esti-

mate is realistic as long as these conditions prevail. In addi-tion, business developments in 2011 already showed that the medium-term target – to grow faster than the market and to achieve an EBIT margin of at least 10 percent – can be met. The Supervisory Board also deems this target to be realistic in view of the initiated structural improve-ments and will closely cooperate with management in moni-toring the defined milestones and goals.

In the past fiscal year 2011, discussions focused on the Company’s functional orientation, long-term strategic targets and regional growth options as well as the develop-ment and launch of new products.

In fiscal year 2011, the Supervisory Board carefully and regularly monitored the work of the Executive Board of the general partner in accordance with the law and the articles of association, and provided advice on the strategic development of the Company as well as all major mea-sures. The Supervisory Board was involved in all decisions of importance to the Company. The extensive written and oral reports by the Executive Board formed the basis for these decisions. Also outside of Supervisory Board meetings, the Chairman of the Supervisory Board was regu-larly informed by the Chairman of the Executive Board about current business developments and major transac-tions.

39

meetIngs

In four regular meetings and three special meetings, the Supervisory Board dealt in detail with the business and strategic development of the Dräger Group, the divisions and their German and foreign subsidiaries, and com-prehensively advised the Executive Board on such matters. No member took part in less than half of the Supervisory Board’s meetings.

focal poInts of the supervIsory board

delIberatIons

The Group’s development, particularly the future ori-entation of the functional structure, was one of the focal points. Another main topic was the development and launch of new products.

The medium-term planning as well as the planning pre-sented for fiscal year 2012 was approved by the Joint Com-mittee, which is responsible for approving the catalog of transactions requiring approval, in its meeting on Decem-

corporate Governancejoint committeereport of the supervIsory boardthe executive board

prof. dr. nikolaus schweickart

40 report of the supervisory board

ber 15, 2011. Deliberations on this topic focused on research and development, planned product launches and cost development, particularly personnel expenses. Additionally, the Executive Board gave an overview of the Company’s financing.

The Supervisory Board of Drägerwerk Verwaltungs AG, which acts as the general partner, and the Joint Commit-tee approved the transactions requiring approval after careful consideration of the documents provided by the Executive Board.

matters relatIng to the executIve board

Dr. Carla Kriwet, Executive Board member responsible for Sales and Marketing, left the Company on December 31, 2011 by mutual agreement. Both parties agreed to maintain secrecy about the reasons for her resignation. The Super-visory Board of Drägerwerk Verwaltungs AG, which is solely responsible for making decisions on Executive Board appointments, approved the termination of Dr. Kriwet’s contract effective December 31, 2011 at its meeting on November 2, 2011.

actIvItIes of the audIt commIttee

The Audit Committee held three meetings, one video con-ference and two conference calls in the year under review. Representatives of the statutory auditor and the internal audit department participated regularly in these meetings.

At its meetings, the Audit Committee reviewed the single entity and Group financial statements, the quarterly reports, the half-yearly report as well as the profit appro-priation proposal. In addition, the Committee audited and assessed the financial reporting process, the risk report-ing system as well as the audit activities of the Internal Audit and the auditor. A sample test of the financial state-ments for 2010 performed by the German Financial Reporting Enforcement Panel (Deutsche Prüfstelle für Rechnungs legung) was also a topic of the meetings.

The Audit Committee also informed the plenary Supervi-sory Board of the results of its deliberations.

corporate governance and effIcIency audIt

The Supervisory Board regularly deals with the application and enhancement of corporate governance principles within the Dräger Group. The declaration of conformity has been reproduced on page 44 of this annual report. We also evaluated our Supervisory Board activities in fiscal year 2011 and conducted an internal efficiency audit.

sIngle entIty and group fInancIal statements

The statutory auditor elected by the annual shareholders’ meeting, Frankfurt-based PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, was appointed by the Supervisory Board to audit the financial statements for fiscal year 2011. Subject of the audit were the single entity financial statements of Drägerwerk AG & Co. KGaA, prepared in accordance with German Commercial Code (HGB), as well as the Group financial statements, prepared in accordance with IFRS, and the management reports of both Drägerwerk AG & Co. KGaA and the Dräger Group.

The auditors examined the single entity financial state-ments of Drägerwerk AG & Co. KGaA prepared in accord-ance with the provisions of the German Commercial Code, the IFRS Group financial statements, as well as the management reports of both Drägerwerk AG & Co. KGaA and the Group, and issued an unqualified audit opinion. The auditors confirmed that the Group financial state-ments prepared in accordance with IFRSs and the Group management report conform with IFRSs as adopted by the EU.

The members of the Supervisory Board carefully exam-ined the single entity and Group financial statements and accompanying management reports as well as the audit reports. Representatives of the statutory auditor attended

41

the Audit Committee’s meeting on March 8, 2012, during which Dräger’s single entity and group financial state-ments were deliberated on, as well as the Supervisory Board’s meeting on March 9, 2012, to discuss the financial statements. These representatives reported on the per-formance of the audit and were available to provide addi-tional information. At these meetings, the Executive Board explained the single entity financial statements of Drägerwerk AG & Co. KGaA and the Group financial statements along with the risk management system. On the basis of the audit reports on the single entity and Group financial statements and the management report, the Audit Committee came to the conclusion that both sets of financial statements with their respective management reports give a true and fair view of the net assets, financial position and results of operations in accordance with the applicable financial reporting framework. To do so, the Audit Committee deliberated on significant asset and liabil-ity items and their valuation as well as the presentation of the earnings position and the development of certain key figures. The chairman of the Audit Committee reported on the discussions to the Supervisory Board. Further ques-tions by members of the Supervisory Board led to a more detailed discussion of the results. The Supervisory Board was convinced that the proposed dividend was appropri-ate considering the net assets, financial position and results of operations. The liquidity of the Company and the inter-ests of the shareholders have been taken into account in equal measure. There were no reservations concerning the efficiency of the Executive Board’s actions.

Based on the conclusion drawn by the Audit Committee following its own preliminary review, the Supervisory Board audited the single entity financial statements of Drägerwerk AG & Co. KGaA and Group financial state-ments as well as both management reports and approved them without raising any objections. The financial statements of Drägerwerk AG & Co. KGaA must be approved by the annual shareholders’ meeting. The Super-

visory Board agreed with the recommendation made by the general partner to approve the financial statements of Drägerwerk AG & Co. KGaA. This also applies to the general partner’s proposal concerning the appropriation of net earnings.

conflIcts of Interest

There were no conflicts of interests involving members of the Executive and Supervisory Boards, which must be disclosed to the Supervisory Board without delay and about which the annual shareholders’ meeting must be informed.

The Supervisory Board would like to express its recogni-tion of the Executive Board for its successful work in this fiscal year. Furthermore, the Supervisory Board thanks management and all employees, including employee rep-resentatives, for their hard work in the fiscal year 2011.

Lübeck, Germany, March 2, 2012

Prof. Dr. Nikolaus Schweickart Chairman of the Supervisory Board

corporate Governancejoint committeereport of the supervIsory boardthe executive board

42

report of the Joint committee

Dear Shareholders,

Since the change in legal form to a partnership limited by shares in 2007, the Company has had a Joint Committee as an additional voluntary body which comprises four members of the Supervisory Board of the general partner and two members each representing the shareholders and the employee representatives of the Supervisory Board of Drägerwerk AG & Co. KGaA.

The Chairman of the Supervisory Board, Prof. Dr. Nikolaus Schweickart, is the Chairman of the Joint Committee. This Committee is responsible for transactions requiring approval (pursuant to Sec. 111 [4] Sentence 2 AktG [“Aktiengesetz”: German Stock Corporation Act]). The Joint Committee held four regular meetings in the reporting year and one extraordinary meeting, dealing in detail with the business and strategic development of the Dräger Group. After reviewing the documents provided by the Ex - ecutive Board, the Joint Committee approved all transac-tions requiring authorization.


Prof. Dr. Nikolaus Schweickart Chairman of the Joint Committee

report of the joint committee | partnership limited by shares

43

Dräger has always attached great importance to corporate governance as a management and control process which focuses on a responsible, transparent and long-term increase in the value of the Company. In an effort to empha-size this, we will continue to apply the German Corpo- rate Governance Code – which is only aimed at stock corpo-rations – even after the transformation of Drägerwerk AG into Drägerwerk AG & Co. KGaA. The corporate gover-nance report describes the features of the management and control structure and the significant rights of the share-holders in Drägerwerk AG & Co. KGaA and explains the special features com pared to a stock corporation.

partnership limited by shares

“A partnership limited by shares (KGaA) is a company with a separate legal personality where at least one part-ner is fully liable to the Company’s creditors (general partner) and the remaining shareholders have a financial interest in the capital stock, which is divided into shares, without being personally liable for the company’s liabilities (limited shareholders)” (Sec. 278 [1] AktG). Hence it is a hybrid between a stock corporation and a limited partner-ship, with a greater emphasis on the stock corporation side. As is the case at a stock corporation, a partnership

limited by shares has a two-tier management and oversight structure by law. The general partner manages the com-pany and its operations, and the supervisory board oversees the company’s management. Significant differences compared to a stock corporation are the existence of a gen-eral partner, that manages operations, the absence of an executive board, and the restriction of the rights and obligations of the supervisory board. The supervisory board is not responsible for appointing the general partner or its management bodies or for determining their con-tractual conditions, whereas in a stock corporation it appoints the executive board. In a partnership limited by shares, the supervisory board is not legally authorized to adopt rules of procedure for the company’s management or a catalog of transactions requiring approval. There are also differences relating to the annual shareholders’ meeting. Certain resolutions must be approved by the general partner (Sec. 285 [2] AktG), in particular the reso-lution to approve the financial statements (Sec. 286 [1] AktG). Many of the recommendations of the German Cor-porate Governance Code (hereinafter also referred to as the “Code”), which is designed for stock corporations, can therefore only be applied by analogy to a partnership limited by shares.

corporate governance report

Corporate governance at Dräger represents responsible business management. It fosters trust among investors, customers, employees and the public. The recommendations of the German Corporate Governance Code Government Commission are applied with only one exception.

corporate governanceJoInt commItteereport of the supervisory boardthe executive board

44 partnership limited by shares | declaration of conformity

The sole general partner of Drägerwerk AG & Co. KGaA is Drägerwerk Verwaltungs AG, which does not hold an equity interest and is a wholly-owned company of Stefan Dräger GmbH. Drägerwerk Verwaltungs AG manages the operations of Drägerwerk AG & Co. KGaA and repre-sents it. It acts through its Executive Board.

Stefan Dräger GmbH selects the six members of the Supervisory Board of Drägerwerk Verwaltungs AG. They are currently identical to the shareholder representatives on the Supervisory Board of Drägerwerk AG & Co. KGaA. The Supervisory Board of Drägerwerk Verwal- tungs AG does not have any employee representatives. It appoints the Executive Board of Drägerwerk Verwal- tungs AG.

The Supervisory Board of Drägerwerk AG & Co. KGaA, which has twelve members, has half of its members elected by employees. Its chief purpose is to oversee the manage-ment by the general partner. It cannot appoint or remove the general partner or its Executive Board. Nor is it autho-rized to define a catalog of management transactions for the general partner which require the approval of the Supervisory Board. Moreover, it is not the Supervisory Board but the annual shareholders’ meeting that must approve the financial statements of Drägerwerk AG & Co. KGaA.

Pursuant to Sec. 22 of the Company’s articles of associa-tion, a Joint Committee has been set up as a voluntary, additional body. It comprises eight members. Four mem-bers each are appointed by the Supervisory Boards of Drägerwerk Verwaltungs AG and Drägerwerk AG & Co. KGaA. The Supervisory Board of Drägerwerk AG & Co. KGaA must appoint two shareholder representatives and two employee representatives. The Joint Committee de-cides on the extra ordinary management transactions by the general partner which require approval as set out in Sec. 23 (2) of the articles of association of Drägerwerk AG & Co. KGaA.

declaration of conformity

The joint declaration of conformity by the general partner and the Supervisory Board of Drägerwerk AG & Co. KGaA was discussed and approved in the meeting of the Super-visory Board of the Company on December 15, 2011. It states that the recommendations of the German Corporate Governance Code Government Commission are being applied with one exception.

This declaration was puplished 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 according to the characteristics specific to this 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 exclu-sively takes into account qualifications of the available persons. In this respect, the Supervisory Board of the general partner does not comply with the recommen-dations stated in 5.1.2. clause 3 of the Code.”

45

supervIsory board

The Supervisory Board of Drägerwerk AG & Co. KGaA has twelve members, half of whom are elected by shareholders and half by employees in accordance with the German co-determination 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 independence of the mem-bers. The Supervisory Board of Drägerwerk Verwaltungs AG has six members who are also the shareholder represen-tatives 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 records in finance and accoun-ting and know-how in financing and capital market communication

drägerwerk ag & co. kgaa

stefan dräger gmbh

drägerwerk ag & co. kgaa

Joint committee

supervisory board ofdrägerwerk verwaltungs ag

limited shareholders

supervisory board ofdrägerwerk ag & co. kgaa

drägerwerk verwaltungs ag

executive board

General partner decision on actionsrequiring approval

oversight

oversight and appointment of the executive board

management / representationappointment

appointment

100%

0%

corporate governancejoint committeereport of the supervisory boardthe executive board

46 declaration of conformity | investor relations | compliance

– 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 implemen-tation 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 recommen-dation to the annual shareholders’ meeting for a resolution to approve the financial statements and the group finan-cial 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 represen tative of the general partner, is the task of the Supervisory Board of Drägerwerk Verwaltungs AG.

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 fur-ther members, two of which are shareholder representa-tives 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 moni-tors the adequacy and functionality of the Company’s exter-nal and internal financial reporting system. Together with the statutory auditors, the Audit Committee discusses the reports drawn up by the Executive Board during the year, the Company’s financial statements and audit reports. On this basis, the Audit Committee draws up recommen-dations for the approval of the financial statements by the annual shareholders’ meeting. It deals with the Compa-ny’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 com-

47

piles the Company’s quarterly reports, the financial statements of Dräger werk 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 compre-hensive information on all issues relevant to the Compa-ny: strategy and its implementation, planning, business performance, financial position and results of opera-tions as well as business risk. The Supervisory Board of Drägerwerk Verwaltungs AG approved the rules of pro-cedure for the Executive Board at its meeting on Decem - ber 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 exchang - es and are divided into 10,160,000 common shares and 6,350,000 preferred shares without voting rights. The Dräger family holds 71.3 percent of the 10,160,000 common shares. Dräger reports to its shareholders on business performance, net assets, financial position and results of operations in two quarterly reports, one half-yearly report and the annual report.

The annual 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, amongst other things. 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 shareholder representatives to the Supervisory Board, approves amendments to the articles of association and changes in capital, which the general partner implements.

The shareholders exercise their rights at the annual shareholders’ meeting in accordance with the legal require-ments and the Company’s articles of association. In sofar 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 Chairman of the Executive Board and the CFO, as well as the other Executive Board members hold regular meetings with analysts and institutional investors. Besides an annual ana-lysts’ conference, a conference call also takes place when the quarterly figures are announced or for other impor-tant 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 sup-port all managing bodies and employees in correctly applying laws and internal guidelines and acting accor-ding to Dräger’s values. At Dräger, compliance forms the natural basis for all daily business and is part of the Company’s corporate culture.

All employees and business partners are expected to act with integrity and show respect toward other people. Natu-rally, this includes compliance with current laws. These basic principles were updated at the end of 2011, compiled in the principles of business and conduct in the Dräger Group and translated into 18 languages. The principles of business and conduct are complimented by further Group guidelines which describe and explain in more detail the underlying legal requirements and internal regula-tions.


48 compliance | remuneration report

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 Company expanded the Compliance unit of the Legal department in 2011. Employees at this unit are responsible for realiz-ing, managing and developing the Compliance Program. Their activities include regular training on major legal requirements and internal guidelines, and they are avail-able to answer individual questions. Each employee can also enquire at any time about any compliance-related issue on the compliance helpline specifically set up for this purpose. Dräger also launched a special compliance hotline at the end of 2011, which is now going live in one country at a time. This hotline will be made available glob-ally. Employees will be able to use it for reporting any suspected infringements of business laws and anti-trust laws as well as other breaches of the compliance regulations; they may do so anonymously.

remuneration report

The remuneration report also forms part of the manage-ment 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 trans-parency for our shareholders.

This report gives an overview of the current level and struc-ture of Executive Board remuneration at Dräger and also 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 illus-trating how Dräger implements the requirements of the

Act on the Appropriateness of Executive Board Remunera-tion (VorstAG) and the German Corporate Governance Code (GCGC):

– The remuneration structure is designed to support sus-tainable 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 member, 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 members have been concluded with Drägerwerk Verwaltungs AG. The Supervisory Board of Drägerwerk Verwaltungs AG determines the remuneration of the Executive Board. 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 Drägerwerk 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 Chair-man. 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 dis-closed individually.

Since 2010, Dräger has been using a holistic value man-agement approach with the aim of managing the Company 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 Company value. Dräger Value Added is the result of EBIT in the past twelve months less calculated capital costs (basis: average capital employed in the past twelve months). DVA-driven man-

49

agement forms an integral part of all management pro-cesses. 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-related variable remuneration of the Dräger management also reflects DVA. In the pre-vious 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 indi-vidual functions. Each year, the Supervisory Board sets the Executive Board members’ personal targets in consulta-tion with each member of the Executive Board.

In fiscal year 2011, remuneration included five components: 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 ben-efits.

– Fixed remuneration is paid monthly as a salary. The fixed remuneration of existing Executive Board members 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 there-fore based on a long-term, sustainability-focused meas-urement period. When targets are fully met, this por-tion corresponds to around 60 percent of total remu-neration 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 correspond-ing amount is added or deducted from the bonus re-serve. For fiscal year 2011, Executive Board members 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 recognized in the bonus reserve already. The factor is the ratio between the DVA 2011 and the DVA 2010.

– 20 percent of total variable remuneration for Executive Board members who are responsible for operating functions (Research and Development, Purchasing, Pro-duction, 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 positive impact on Dräger’s company targets. Each year, the Chairman of the Supervisory Board determines KPI targets in consul-tation with each member of the Executive Board. They should not exceed five individual targets. Again, if a target has been exceeded to a considerable 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 per-formance drops below 0 percent (–100 percent maximum cap), a corresponding amount is added to 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.


remuneration report50

The Supervisory Board may choose to pay a special bonus for extraordinary performance or services rendered by individual Executive Board members in the respec-tive reporting year.

– Fringe benefits awarded to members of the Executive 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 Exec-utive Board. In the opinion of the German tax authori-ties, 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.

Dräger integrated a bonus reserve in the remuneration system for Executive Board members and top managers to further emphasize sustainability. Bonuses corresponding 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 recog-nized 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 there-fore 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 Exec-utive Board members and top managers. The absolute

amount of remuneration for Executive Board members 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 mem-bers 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 per-formance-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 agreement with Dr. Carla Kriwet to terminate her employment con-tract dated September 15, 2010 with effect from December 31, 2011. Additional benefits include a compensation pay-ment of EUR 1,785,256.

The employment contracts of all active Executive Board members contain regulations regarding the early termina-tion of their contracts without good cause. These regula-tions cap compensation at one year’s remuneration; 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 compensation 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

51

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 as-sumption of personal liability, regardless of profit and loss, of 6 percent of the equity disclosed in its financial state-ments, payable one week after the general partner prepares its financial statements. For fiscal year 2011, this remu-neration amounts to EUR 73 thousand (2010: EUR 71 thou-sand) 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 Board 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 Ex- ecutive Board. The defined benefit is based on an annual


executIve board remuneratIon

2011 2010

non-performance- related

performance-related

non-performance- related

performance-related

fixed remuneration

additional benefits

short-term component

total fixed remuneration

additional benefits

Variable remuneration

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 21,984 805,072 1,204,764

Fehrecke, Dr, Herbert 400,000 20,192 1,111,596 1,531,788

Schrofner, Anton 330,000 35,248 777,586 1,142,834

Amount of other Executive Board Members 1,107,708 77,424 2,694,254 3,879,385 796,330 102,035 1,428,000 2,326,365

active executive Board members 1,707,708 87,678 5,187,054 6,982,439 1,367,781 112,683 3,415,500 4,895,964

Members who left the Executive Board in the fiscal year

Kriwet, Dr, Carla 350,000 1,808,922 1,278,832 3,437,754 0 0 0 0

Members who left the Executive Board in the previous year 0 0 0 0 481,392 1,385,416 776,375 2,643,184

total 2,057,708 1,896,600 6,465,886 10,420,193 1,277,722 1,487,452 2,204,375 7,539,148

52 remuneration report

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 annu-al remuneration can be made. Stefan Dräger receives a further contribution of 50 percent from the Company on deferred compensation, 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 surviving dependents. EUR 3,022,224.03 was paid to former members of the Executive Board and their surviving dependents (2010: EUR 2,963,612). Pension commitments to former members of the Executive Board and their surviving dependents amounted to EUR 36,720,320 (2010: EUR 37,793,139).

supervIsory board remuneratIon

The remuneration report also includes information on the shares owned by 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 share holders’ meeting of Drägerwerk AG & Co. KGaA on May 6, 2011 stipu-lated the remuneration for Supervisory Board members in the articles of association, effective for the first time in fiscal year 2011.

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

pensIon oblIgatIons for actIve executIve board members (€)

addition obligation addition obligation

2011 dec. 31, 2011 2010 dec. 31, 2010

Chairman of the Executive Board

Dräger, Stefan 155.356 659.619 128.083 504.263

Other Executive Board Members

Lescow, Gert-Hartwig 24.156 103.549

Fehrecke, Dr. Herbert 31.511 105.217

Schrofner, Anton 50.001 63.177

Amount of other Executive Board Members 105.668 271.943 75.853 166.275

active executive Board members 261.024 931.562 203.936 670.538

53

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 Com-mittee receive an additional fixed annual remuneration of EUR 10,000 (2010: EUR 5,000) and the Chairman 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 no longer receive a per diem.

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 mem-bers of the Supervisory Board of the general partner, Drägerwerk Verwaltungs AG, amounted to EUR 135 thou-sand (2010: EUR 135 thousand). In addition, the Super-visory Board members receive annual flat fees for out-of-pocket expenses totaling EUR 55 thousand (2010: EUR 55 thousand). No remuneration was paid to Supervisory Board members of Group companies.

shares owned by the executIve and

supervIsory boards

As of December 31, 2011, the members of the Executive Board of Drägerwerk Verwaltungs AG and their related parties directly held 6,000 preferred shares in Drägerwerk

supervIsory board remuneratIon (€)

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 0 60,000 15,000 47,250 0 62,250

Daniel Friedrich 20,000 20,000 0 40,000 10,000 31,500 0 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 0 40,000 10,000 31,500 0 41,500

Uwe Lüders 20,000 20,000 0 40,000 10,000 31,500 0 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 0 40,000 10,000 31,500 0 41,500

Thomas Rickers 20,000 20,000 0 40,000 10,000 31,500 0 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 0 40,000 10,000 31,500 0 41,500

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


54 remuneration report | related-party transactions

AG & Co. KGaA, equivalent to 0.04 percent of the Com-pany’s total shares, and 119,300 common shares, correspon-ding to 0.72 percent of the Company’s total shares.

Dr. Heinrich Dräger GmbH holds 67.19 percent of com-mon shares of Drägerwerk AG & Co. KGaA with 68.36 per-cent of voting rights attributable to the Chairman of the Executive Board Stefan Dräger, whereby 67.19 percent are attributable to him in accordance with the terms of Sec. 22 (1) Sentence 1 No. 1 WpHG (Wertpapierhandelsgesetz – 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 less than 0.01 percent of the Company’s total shares and 295 com-mon shares (directly or indirectly), corresponding to less than 0.01 percent of the Company’s total shares.

dIrectors’ dealIngs

In fiscal year 2011, the Company was informed about the business transactions mentioned above with executive employees pursuant to Sec. 15a WpHG (Wertpapierhandels- gesetz – German Securities Trading Act).

Announcements of transactions with executive employ ees pursuant to Sec. 15a WpHG (Wertpapierhandels- gesetz – German Securities Trading Act) are published at www.dgap.de in the Directors’ Dealings section.

related-party transactions

Services were rendered for companies related to Stefan Dräger and for the Dräger Foundation totaling EUR 92 thousand in the fiscal year 2011 (2010: EUR 69 thousand). 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 conditions.


Drägerwerk AG & Co. KGaA

The general partner Drägerwerk Verwaltungs AG The Executive Board

dIrectors’ dealIngs

date name isin Quantityacqusition/

sale price Volume

€ €

May 17, 2011 Uwe Lüders DE 0005550602 300 Verkauf 58.00 17,400.00

May 17, 2011 Uwe Lüders DE 0005550636 1,000 Verkauf 72.06 72,060.00

55Technik für das leben

57 MANAGEMENT REPORT

The Dräger Shares 57

MARKET ENVIRONMENT

Important changes in fiscal year 2011, German financial reporting enforcement panel (DPR), Group structure 63

Control system 64

Main accounting features of the internalcontrol and risk management system asit relates to the financial reporting process 66

Overall economic environment 68

BUSINESS PERFORMANCE

Business performance of the Dräger Group 72

Cash flow statement 76

Financial management of the Dräger Group 79

Business performance of the medical division 82

Business performance of the safety division 88

Business performance of DrägerwerkAG & Co. KGaA/other companies 94

FUNCTIONAL AREAS

Research and development 95

Purchasing 98

Quality, Production and logistics 99

Marketing, Sales and Service 100

Corporate IT 102

Environmental protection 103

Executive Board and Supervisory Board remuneration, Personnel and social matters 106

POTENTIAL

Risks and opportunities relating to future development 109

Operational risks 111

Opportunities 114

Disclosures pursuant to Sec. 315 (4) of the German Commercial Code (HGB) and explanations of the general partner 115

Subsequent events, Outlook 118

56 100 % dräger

PULMOVISTA 500: Patients’ lungs can be overstretched if pressure is too high when ventilating them, but too little pressure can also lead to lungs collapsing. Generating 50 images per second, our PulmoVista 500 electrical impedance tomograph provides a constant overview of the lungs and helps gauge and adjust machine-assisted ventilation with perfect accuracy.

*

Designed with patients’ needs in mind and for optimized processes, PulmoVista 500 permits the non-invasive monitoring at the bedside without the generation of ionizing radiation.

Dynamically generated images, chart curves and parameters show the distribution of ventilation volumes in the lungs. The evalua-tion of trend data makes it possible to assess the effects of therapeutic measures.

57POTenTialMarkeT enVirOnMenT fUncTiOnal areasbUsiness PerfOrManceThE dRäGER ShARES

STOCK MARKETS

In the beginning of 2011, economic data and consequent-ly the general sentiment in the international stock mar-kets were positive. However, this changed in February and March on account of the crisis in Libya and the natural and nuclear disaster in Japan. Although the markets man-aged to recover for a short period of time in April, new negotiations regarding financial aid of the European Union for highly indebted euro countries around the middle of the year led to fresh uncertainty among investors. Apart from the continuing euro crisis – as well as the US debt crisis – various rating downgrades by the rating agencies Standard & Poor’s and Moody’s, such as for the US and Italy, and increasing concerns about a global recession put pressure on the capital markets in the third and fourth quarter.

ShARE PRICE

Dräger common and preferred shares opened the year 2011 at EUR 49.81 and EUR 63.00 respectively. Even though both share prices initially recorded an upward trend after the publication of the preliminary figures for fiscal year 2010 on January 14, 2011, they were unable to escape macro-economic developments in March. Preferred shares, for instance, dropped to their annual low on March 15, 2011 at EUR 57.05. After the annual accounts press confer-ence and the analysts’ meeting on March 16, 2011 how-ever, both share prices rose again steeply to EUR 59.85 and

EUR 73.50 respectively on May 6, 2011, the day of the annual shareholders’ meeting, on account of the published financial figures for the first quarter of 2011. Both com-mon and preferred shares reached their respective highs after Dräger had published an ad-hoc report regarding an increased 2011 earnings forecast on July 19, 2011. The highest price for common shares rose to EUR 69.84 on August 1, 2011; the price for preferred shares came to EUR 89.30 on July 19, 2011. Like the capital markets how-ever, both shares went on a steep trip south from the beginning of August, then started fluctuating significantly. Two of the reasons for this development were the con-tinuing euro crisis and the US debt crisis. Common shares amounted to EUR 52.89 and preferred shares to EUR 70.42 on November 3, 2011, the day the report as of Septem-ber 30, 2011 was published. Afterwards, developments in the capital markets continued to be volatile and driven by these activities and common shares fell to their annual low at EUR 45.98 on December 16, 2011. On 31 Decem-ber 2011, both Dräger common and preferred shares returned to their annual opening price of EUR 49.92 and EUR 62.70 respectively despite a turbulent year in the capital markets.

ANNUAL ShAREhOLdERS’ MEETING

Some 629 preferred and common shareholders attended the annual shareholders’ meeting of Drägerwerk AG & Co. KGaA on May 6, 2011, at the Lübeck Music and Congress

The dräger SharesThe performance of the Dräger shares was stable in 2011. The prices of both Dräger common and preferred shares remained on par with those at the beginning of the year (+/– 0 percent) whereas the benchmark indices DAX (–16 percent) and TecDAX (–20 percent) dropped significantly.

58 The dräger share

Center. In total, 84.55 percent of the Company’s common shares and 42.21 percent of its preferred shares were represented. 69 preferred shareholders, representing 41.73 percent of preferred shares, attended the separate meeting of preferred shareholders on the same day.

The annual shareholders’ meeting authorized the Execu-tive Board of Drägerwerk Verwaltungs AG to increase the capital stock of the Company, subject to approval by the Supervisory Board, until May 5, 2016, by issuing new bearer common shares and/or preferred shares (no-par shares) in return for cash and/or deposits in kind by up to EUR 21,132,800.00 (authorized share capital) in one or several tranches. The Executive Board can opt 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. The shareholders must be given subscription rights. Under certain circumstances however, the subscription right may be excluded, with the approval of the Supervisory Board, to offset fractional amounts if the shares are issued in return for contributions in kind and when the issuing of new shares in return for cash does not make the issue price per share fall signifi-cantly below the price of a similar, already listed share of the same type. In the case of common and preferred shares being issued together, the right of holders of one share

ShARE PRICE dEVELOPMENTS

(indexed) in percent Dräger common shares Dräger preferred shares DAX TecDAX Ad-hoc-reports

150

140

130

120

110

100

90

80

70

January february March april May June July august september October november december

March 16, 2011

annual accounts

press conference,

analysts’ meetingMay 6, 2011

2011 annual

shareholders’ meeting

August 4, 2011

report as of

June 30, 2011

November 3, 2011

report as of

september 30, 2011

May 4, 2011

report as of

March 31, 2011

59POTenTialMarkeT enVirOnMenT fUncTiOnal areasbUsiness PerfOrManceThE dRäGER ShARES

type to subscribe to the other type of shares (“crossed exclu-sion of subscription rights”) can be excluded.

The authorization to increase the capital stock pursuant to Sec. 6 (4) of the articles of association (authorized share capital) of Drägerwerk AG & Co. KGaA issued last year, was lifted by the annual shareholders’ meeting to the extent that it had not yet been used.

The separate meeting of preferred shareholders approved the resolution by the ordinary annual shareholders’ meet-ing to cancel the authorized share capital and the authori-zation to increase the capital stock to a total of EUR 21,132,800.00 (authorized share capital) with the option to exclude subscription rights with a clear majority of 89.27 percent.

CASh COMPENSATION FOR PARTICIPATION CERTIFICATE

hOLdERS

Pursuant to the terms and conditions of participation cer-tificates, the annual shareholders’ meeting on May 6, 2011 had to make a decision with regard to issuing new par-ticipation certificates at terms and conditions similar to the capital increase. As the shareholders’ meeting rejected the proposal by the Supervisory Board and the general part-ner to issue new participation certificates, Dräger paid cash compensation of EUR 5.48 for each series A participa-tion certificate, EUR 5.51 each for series K and EUR 5.53 each for series D in addition to the distribution of EUR 11.90 each on May 9, 2011. The amount of cash compensa-tion corresponded to the value of a theoretical subscrip-tion right for new participation certificates on the due date June 16, 2010. Unlike in the case of the previously issued participation certificates, the distributions for the theoreti-cal new participation certificates are based on the divi-dends for common shares instead of the dividends for pre-ferred shares. The mathematical principles published during the capital increase on June 16, 2010, which were explained in more detail at the annual shareholders’

meeting on May 6, 2011, form the basis for the calculation of cash compensation. In addition, each cash compensa-tion has carried interest at five percentage points above the prime rate – corresponding to EUR 0.25 per participation certificate – since June 16, 2010. The paid compensa-tion therefore offsets the disadvantage caused to partici-pation certificate holders by the capital increase in June 2010.

ShAREhOLdER STRUCTURE

The capital stock of Drägerwerk AG & Co. KGaA amounts to EUR 42,265,600 and consists of 10,160,000 common shares and 6,350,000 preferred shares with a mathematical share in capital stock of EUR 2.56 each. On August 30, 2010, Drägerwerk AG & Co. KGaA also issued share options for a total of 1,250,000 non-voting preferred shares. The share options mature on April 30, 2015. The mathematical share in capital stock of the shares to be issued also comes to EUR 2.56 each. In order to service the share options, Dräger conditionally increased its capital stock by EUR 3,200,000 with an entry in the commercial register on August 5, 2010.

The common shares were admitted to the regulated market in the Prime Standard subsection of Frankfurt Stock Exchange on June 21, 2010. According to Deutsche Börse AG, 71.46 percent of common shares are held by the Dräger family and 28.54 percent are in free float. 67.19 per-cent of Drägerwerk AG & Co. KGaA’s common shares are held by Dr. Heinrich Dräger GmbH. They account for almost the entire assets of this company. The majority of shares of Dr. Heinrich Dräger GmbH are held by mem-bers and companies of the Dräger family.

This structure places the voting rights associated with the common shares in the hands of the Dräger family. Mem-bers of the Dräger family also hold 4.26 percent of voting rights in person, resulting in the family being in posses-sion of 71.46 percent of voting rights in total. In accordance

60 The dräger share

with Sec. 22 WpHG (Wertpapierhandelsgesetz – German 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, Munich/Lübeck. The voting rights of Stefan Dräger GmbH are to be allocated to its partner, Stefan Dräger, pursuant to Sec. 22 WpHG.

In addition, DWS Investment GmbH, Frankfurt/Main, informed Dräger on November 9, 2010, that it holds 335,000 common shares and therefore 3.297 percent of voting rights. Within the scope of an allocation of assets, Oddo Asset Management, Paris, reported on September 1, 2011 and Oddo Et Cie, Paris, on September 5, 2011 that both companies hold 305,609 common shares, corresponding to a 3.01 percent share in voting rights.

The non-voting preferred shares are listed on the regulated market of Frankfurt Stock Exchange (Prime Standard) and on the stock exchanges in Berlin, Düsseldorf, Hamburg, Hanover and Munich. They are also included in the TecDAX share index of Deutsche Börse. All non-voting pre-ferred shares are 100% in free float according to Deutsche Börse AG. As the shares take the form of bearer shares, the Company does not have a share register. The duty to

report the acquisition or sale of voting rights to an issuer pursuant to Secs. 21 et. seq. WpHG relates exclusively to shares with voting rights and therefore does not apply to the non-voting Dräger preferred shares. No detailed infor-mation about the shareholder structure of Dräger preferred shares is therefore being provided at this point.

EARNINGS PER ShARE

Earnings per Dräger common share amounted to EUR 7.29 in the reporting year (2010: EUR 6.19). Earnings per preferred share were higher, as the dividend claim is EUR 0.06 higher than that of common shares (EUR 7.35; 2010: EUR 6.25).

dRäGER ShARES – BASIC FIGURES

Common shares Preferred shares

Securities identification number (WKN) 555060 555063

ISIN 1 DE0005550602 DE0005550636

Ticker symbol DRW8 DRW3

Reuters symbol DRWG.DE DRWG_p.DE

Bloomberg symbol DRW8 DRW3

Main stock exchange Frankfurt / Xetra Frankfurt / Xetra

1 international stock identification number

ShAREhOLdING OF dR. hEINRICh dRäGER GMBh

58.73% stefan dräger gmbh 1

23.15% dräger foundation 2

18.12% successors of dr. heinrich dräger 3 1

2

3

61POTenTialMarkeT enVirOnMenT fUncTiOnal areasbUsiness PerfOrMance

Earnings attributable to non-controlling interests amounted to EUR 2.8 million in fiscal year 2011 (2010: EUR 2.2 million). EUR 1.6 million of net profit was attributable to participation certificates (excluding minimum dividend, after taxes) (2010: EUR 11.9 million).

Earnings per Dräger common share amounted to EUR 4.54 for 2011 in the case of a full distribution (2010: EUR 4.30). Including the entitlement to a EUR 0.06 higher divi-dend, earnings per preferred share came to EUR 4.60 in the case of a full distribution (2010: EUR 4.36).

The initially recognized amount of earnings per share in the case of a full distribution assumes an actual full distri-bution of net profit less the share in net profit of non-con-trolling investments to common and preferred sharehold-ers as well as to holders of participation certificates.

Dilution in fiscal year 2011 resulted from the option rights issued to Siemens, whose initial exercise price is below the average market price of the preferred shares for the first time. For further information, please refer to page 159 in the notes.

dIVIdENdS

The calculation of the dividend to be distributed to pre-ferred and common shareholders is based on certain fac-tors: particularly profitability, financial position, capital requirements, business outlook, the Company’s general economic environment and the share of net profit to be issued to participation certificate holders (including mini-mum dividend). As participation certificates are entitled to receive ten times as much as the dividend paid to pre-ferred shareholders, it must be remembered when deter-mining the dividend for preferred and common shares that an increase in the dividends of these shares will always result in an increase of the dividend for participation certificates. In case of an increase of dividends, a little less than half of the total amount paid to participation

certificate holders and shareholders together was generally paid to participation certificate holders in the past.

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, plan to propose to the annual shareholders’ meeting on May 4, 2012 a dividend on pre-ferred shares to EUR 0.19 and a dividend per common share of EUR 0.13 for the purpose of financing the current improvements to the capital structure (see also “Subse-quent events” on page 118).

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 uncertainties. 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 divi-dend 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 than before in the long term, on the basis of the improved future capital struc-ture.

ANALYSTS

14 analysts from various institutions regularly monitored and evaluated Dräger’s business performance during the course of 2011 (2010: 14), including Bankhaus Lampe, CA Cheuvreux, Commerzbank, Deutsche Bank, DZ Bank, equinet, CBS Research, HSBC, LBBW, M.M. Warburg & Co., NORD/LB, Silvia Quandt & Cie. and WestLB. Since November 2011, when UniCredit discontinued its equity research business, 13 analysts have been monitoring the Company.

ThE dRäGER ShARES

62 The dräger share | iMPOrTanT changes in fiscal year 2011 | gerMan financial rePOrTing enfOrceMenT Panel (dPr) | grOUP sTrUcTUre

dRäGER ShARES INdICATORS

2011 2010

Common shares 1

No. of shares as of December 31 10,160,000 10,160,000

Annual high (in €) 69.84 55.29

Annual low (in €) 45.98 40.40

Share price as of December 31 (in €) 49.92 50.00

Average daily trading volume 2 6,709 22,836

Earnings per common share (in €)

Undiluted (in €) 7.29 6.19

Diluted (in €) 7.23 6.19

Earnings per common share in the case of a full distribution (in €) 3


Diluted (in €) 4.52 4.30

Preferred shares

No. of shares as of December 31 6,350,000 6,350,000

Annual high (in €) 89.30 67.93

Annual low (in €) 57.05 31.35

Share price as of December 31 (in €) 62.70 61.40

Average daily trading volume 2 29,321 52,241

Earnings per preferred share (in €)


Diluted (in €) 7.29 6.25

Earnings per preferred share in the case of a full distribution (in €) 3


Diluted (in €) 4.58 4.36

Market capitalization 905,332,200 897,890,000

1 initially listed at frankfurt stock exchange on June 21, 20102 all german stock exchanges (source: designated sponsor)3 based on an assumed actual full distribution of earnings attributable to shareholders (see also pages 156 et seq. of the notes)

63POTenTialfUncTiOnal areasbUsiness PerfOrManceMARKET ENVIRONMENTThe dräger share | iMPOrTanT changes in fiscal year 2011 | gerMan financial rePOrTing enfOrceMenT Panel (dPr) | grOUP sTrUcTUre

Important changes in fiscal year 2011

ChANGES 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.

German financial reporting enforcement panel (dPR)

In fiscal year 2011, the German Financial Reporting Enforcement Panel (“Deutsche Prüfstelle für Rechnung-slegung”: DPR) performed a sample audit of the Group financial statements and management report, as well as the single entity financial statements and management report of Drägerwerk AG & Co. KGaA as of December 31, 2010 pursuant to Sec. 342b (2) Sentence 3 No. 3 HGB (“Handelsgesetzbuch”: German Commercial Code). In November 2011, the DPR informed Dräger that the audit had been completed. The DPR did not find any errors in the accounting process for fiscal year 2010.

Group structure

The parent company of the Dräger Group is Drägerwerk AG & Co. KGaA. It 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, Drägerwerk AG & Co. KGaA also holds a few equity investments which do not form part of the two divisions’ operations (see pages 206 et seq. in the notes). All the shareholdings which form part of the global operations of the two divisions are either directly or

indirectly owned by the respective parent. At Drägerwerk AG & Co. KGaA, central functions like Legal, Compliance, Customs and Export Control, Taxes, Audit, Accounting, Treas ury, Controlling, Corporate Communications, Mar-keting Communications, Insurance and Capital Marketing Communications as well as the functions IT, Strategic Purchasing and HR are organized as jointly used service areas.

As of the balance sheet date on December 31, 2011, 11,924 people were employed worldwide, of which 50.0 percent work in Sales, Marketing and Service, 29.7 percent in Pro-duction, Quality Assurance, Logistics and Purchasing, 9.3 percent in Research & Development, and11.0 percent in Administration.

Dräger is represented in over 190 countries on all conti-nents, and the Company has its own sales and service com-panies in more than 40 countries. The Group operates development and production sites in Germany (Lübeck), the Czech Republic (Policka), the US (Andover and Telford) and China (Shanghai and Beijing) as well as production sites in Germany (Hagen), Great Britain (Blyth and Plymouth), the Czech Republic (Chomutov), Sweden (Sven-ljunga), Brazil (São Paulo), the US (Pittsburgh) and South Africa (King William’s Town).

OPERATING ACTIVITIES OF ThE MEdICAL dIVISON

In the medical division, Dräger develops, produces, and markets system solutions, equipment and services for the acute point of care (APOC) process chain. These include emergency care, perioperative care (in connection with the operation), critical care and perinatal (neonatal) care. The Group’s portfolio comprises products for therapy, moni-toring information management and process support. Dräger is one of the global market leaders with its products for ventilation, anesthetics, ongoing surveillance of vital signs as well as their accessories and consumables. In

ThE dRäGER ShARES

64 grOUP sTrUcTUre | cOnTrOl sysTeM

recent years, Dräger considerably improved its market position as a system provider with products such as inte-grated IT solutions for the operating room and gas man-agement systems.

OPERATING ACTIVITIES OF ThE SAFETY dIVISION

Dräger’s safety division develops, produces and markets products, system solutions and services for personal pro-tection, gas detection technology and integrated hazard management. Its customers come from industry, mining and public sectors such as fire departments, police and disaster protection. The portfolio includes stationary and mobile gas detection systems, personal protective equip-ment, professional diving systems, alcohol and drug testing devices, a varied range of training and services and also projects such as entire fire training systems.

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 unnec essary 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 members will assume regional responsibilities in addition to their functional tasks: Gert-Hartwig Lescow will head the Americas region, Dr. Herbert Fehrecke all of Europa and Anton Schrofner the Middle East, Africa and Asia/Pacific. As part of Dräger’s functional orientation, the mem-bers 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 compa-nies’ Supervisory Boards will be manned by the same members on the capital side.

On a regional level, Dräger already appointed one Region-al Sales and Service Manager each in 2011 who will assume the responsibility for the previously divided medi-cal and safety divisions in 2012. At a national level, the Group aims to strengthen 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 coor-dinating 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 addition 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 quickly. 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 gener-ate steady growth as well as stable and sustainable eco-nomic performance. The Group uses a value-driven man-

65POTenTialThe dräger shares fUncTiOnal areasbUsiness PerfOrMance

agement system to increase the Company value in the long term. 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 tar-gets within the Group and all relevant key figures. This way, business decisions can be adjusted so as to assist in in-

creasing Company value. The major proportion of annual variable remuneration of Executive Board members is measured by DVA performance for this reason. The DVA key figure also has been integrated in internal reporting and the managers have been given specific training regarding this topic.

DVA is the difference between 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 calculat-ing the cost of capital was the current rate of 9.0 percent (2010: 9.0 percent) before taxes.

MARKET ENVIRONMENT

ALLOCATION OF RESPONSIBILITIES

functional responsibilities

Stefan dräger CEO

dr. herbert Fehrecke CTO

Vice CEO

Anton SchrofnerCOO

Purchasing

Research and development

Marketing Medical division (temporary)

Patents

Quality

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

IT

Logistics

Marketing Safety division(temporary)

Production

Real estate

hR

Legal

Audit

Company development

Corporate Communications

Sales

regional responsibilitiesregional responsibilities regional responsibilities

66 cOnTrOl sysTeM | Main accOUnTing feaTUres Of The inTernal cOnTrOl and risk ManageMenT sysTeM

In fiscal year 2011, Dräger generated DVA of EUR 134.6 mil-lion (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 per-cent 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 OF ThE

dRäGER GROUP

The internal control system of the Dräger Group includes all principles, processes and measures for guaranteeing the effectiveness, efficiency and correctness of the financial reporting system and ensuring compliance with all rele-vant 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 of the Dräger Group.

This primarily comprises both process-integrated and pro-cess-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 Commit-tee and specific Group functions like the central tax and Group legal departments ensure process-integrated moni-toring.

The Supervisory Board of Drägerwerk AG & Co. KGaA, particularly its Audit Committee, and Internal Audit imple-ment audit activities as part of the internal monitoring system. Internal Audit carries out regular audits at foreign Group companies. The auditor of the Group financial statements implements process-independent audit activi-ties. The audit of the financial statements of the consoli-

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 % 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 twelve months


dated subsidiaries is an essential process-independent con-trol measure of the Group’s reporting process. The risk management system is aimed at avoiding incorrect entries during the Group accounting process and the external reporting process, among other things. It comprises opera-tional risk management and a Group-wide systematic ear ly-warning system for detecting business risks.

USE OF IT SYSTEMS

The consolidated subsidiaries report data relevant to the reporting system in their individual financial statements (see pages 206 et seq. in the notes). Dräger mainly uses the SAP and Microsoft standard software. This ensures that each month, the single entity financial statements and additional, standardized information on the accounting process are consolidated in the SAP EC-CS system.

Group Accounting uses a uniform accounts structure throughout the Group, which also stipulates the reconcili-ation methods for items in the financial statements. Local accounting methods are adjusted to comply with the International Financial Reporting Standards (IFRS) by making corresponding entries in the local accounting sys-tems or by reporting an adjustment on a Group level. Once the entry has been translated into the Group currency euro, all internal business transactions are consolidated.

The data is transferred from the SAP EC-CS consolidation system to SAP Business Warehouse so it can be ana-lyzed and the financial statements can be prepared. 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 auditors of the Group financial statements carry out an indepen-dent audit of the entire IT control system, change man-agement, 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

GROUP FINANCIAL REPORTING SYSTEM

Dräger has an internal control system to ensure the com-pliance and reliability of the Group financial reporting system and also to ensure that business transactions are recorded completely and promptly and in accordance with IFRS.

Amounts reported in the income statement and consoli-dated statement of comprehensive income 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 trans-parent accounting and reporting guidelines, and by using highly reliable IT accounting systems in the Group companies. In addition, the subsidiaries’ monthly reports are checked by Controlling and reconciled with planning and the latest forecast.

Regular alignment meetings and institutionalized report-ing requirements within the Finance function ensure that Group-wide restructurings or changes are recorded promptly in the Group financial statements. When a new company has been acquired or founded, Dräger provides the new employees in the Accounting department with training on the preparation of the financial statements according to IFRS, which is the authoritative reporting

MARKET ENVIRONMENT

68 Main accOUnTing feaTUres Of The inTernal cOnTrOl and risk ManageMenT sysTeM | OVerall ecOnOMic enVirOMenT

standard in the Dräger Group, including the reporting sys-tem and reporting dates. Quality is ensured by holding an annual central training seminar for the managers of the Accounting departments of all subsidiaries on the report-ing processes as well as amendments of the Dräger account-ing policies and all relevant IFRSs.

Separating administrative, executive and authorization functions by issuing different access profiles in the account-ing systems reduces the potential for fraudulent acts against the Company. The Dräger accounting policies are applied throughout the Group to ensure that all German and foreign subsidiaries consolidated in the Group financial statements use the same standard. These policies apply to general accounting policies, balance sheet, income state-ment, consolidated statement of comprehensive income and notes. It goes without saying that the accounting poli-cies are regularly updated to comply with current EU legislation.

Group accounting determines the scope of consolidation and the elements of the reporting packages the Group companies have to prepare. Prior to the preparation of the financial statements, the Group companies and local auditing firms are provided with additional information – including the schedule and deadlines – to ensure that the Group financial statements can be prepared in good time and in accordance with all applicable reporting standards and laws.

Each subsidiary sends its reporting package in electronic form to Group Accounting in Lübeck where the data is reviewed on the basis of internal check lists and transferred into the SAP EC-CS consolidation system. The Company’s local auditors examine each reporting package regarding compliance with Dräger accounting policies and issue a comment, if necessary. By implementing the validation rules of the local reporting tool and the SAP EC-CS con-solidation system, Dräger guarantees a high degree of data quality.

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 started 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 mar-kets like China, India and Brazil, restrictive fiscal and par-ticularly 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 appreciation of the yen prevented stronger growth in Japan. Although at 1.8 percent the US economy grew significantly less strong than in the previous year (+3.0 percent), it gained momentum through increased consumer spending and capital investments in the last two quarters 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,

69POTenTialThe dräger shares fUncTiOnal areasbUsiness PerfOrManceMain accOUnTing feaTUres Of The inTernal cOnTrOl and risk ManageMenT sysTeM | OVerall ecOnOMic enVirOMenT

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 euro-zone 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 economic 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 per-cent (previous year: +3.7 percent): The private consump-tion growth rate was the highest in five years.

INFLATION: UP 2.3 PERCENT IN GERMANY

The very strong global economic recovery at the beginning of 2011 significantly increased demand for raw materials at first. Political instability in oil-producing countries in the Middle East and North Africa sent the oil price up even further to over USD126 per barrel at times. The announce-ment by the International Energy Agency (IEA) in the summer that it was placing 60 million barrels of oil in the market and the flattening out of the global economy – and consequently demand for crude oil – then pushed pric-es down again. Crude oil was traded at an annual average price of USD 110 per barrel – significantly up from 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 percent mark in the eurozone, up to which the European Central Bank (ECB) believes that prices will remain stable. In Septem- ber 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 Novem-ber and December to 1.00 percent. In the US, the Federal Reserve did not impose restrictive monetary 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 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 Euro-pean currency. The euro initially gained significantly com-pared to other central currencies. Then the worsening 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 impor-tant trading partners in the eurozone) in 2011 remained almost stable year-on-year. In the final quarter of 2011, how-ever, it depreciated among continuing volatility 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: On January 11, the due date of the January 2012 ECB report, the nominal effec-tive exchange rate of the euro was 4.1 percent down from the figure of 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

MARKET ENVIRONMENT

70 OVerall ecOnOMic enVirOnMenT

as much as 8.6 percent compared to the annual average in 2011. The average 2011 euro-US dollar 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


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 developments. 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 technology 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 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 important 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.

MEdICAL dIVISION – INdUSTRY PERFORMANCE

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 coun-tries had an increasingly negative impact. Government 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 presi-dential election. In the Americas – particularly in the US – demand for medical technology was still strong in the first half of the year, then dropped significantly in the sec-ond half on account of the US budget deficit. With China’s and India’s help, which both continued 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 – INdUSTRY PERFORMANCE

Demand for safety technology products developed very positively overall in 2011 in line with global economic devel-opments, 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 subdued 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 positively 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 perfor-mance.

MARKET ENVIRONMENT

72 bUsiness PerfOrMance Of The dräger grOUP

Business performance of the dräger Group

BUSINESS PERFORMANCE OF ThE dRäGER GROUP

Fourth quarter Twelve months

2011 2010 Change in % 2011 2010 Change in %

Order intake € million 613.5 577.1 +6.3 2,293.2 2,145.5 +6.9

Orders on hand 1 € million 461.3 421.7 +9.4 461.3 421.7 +9.4

Net sales € million 698.5 635.3 +10.0 2,255.8 2,177.3 +3.6

EBITDA 2 € million 90.2 70.2 +28.5 269.6 246.7 +9.3

Depreciation / amortization € million (16.1) (14.1) +14.2 (55.9) (53.9) +3.7

EBIT 3 € million 74.1 56.1 +32.1 213.8 192.8 +10.9

Interest result € million (11.6) (9.7) +19.2 (33.0) (39.1) (15.5)

Income taxes € million (16.8) (11.8) +41.9 (55.7) (48.9) +13.9

Net profit € million 45.7 34.6 +32.3 125.1 104.8 +19.3

Earnings per share 7 € million

per preferred share € 2.73 1.53 +78.4 7.35 6.25 +17.6

per common share € 2.72 1.52 +78.9 7.29 6.19 +17.8

Earnings per share on full distribution 8

per preferred share € 1.61 1.36 +18.4 4.60 4.36 +5.5

per common share € 1.60 1.35 +18.5 4.54 4.30 +5.6

R&D costs € million 45.3 43.2 +4.8 160.5 148.4 +8.2

Equity ratio 1 % 34.5 32.2 34.5 32.2

Cash flow from operating activities € million 77.4 120.8 (36.0) 159.9 219.1 (27.0)

Net financial debt 1 € million 39.8 90.3 (56.0) 39.8 90.3 (56.0)

Investments € million 24.9 21.9 +13.4 71.5 55.8 +27.9

Capital employed 1, 4 € million 877.1 833.4 +5.3 877.1 833.4 +5.3

Net working capital 1, 5 € million 362.8 312.4 +16.1 362.8 312.4 +16.1

EBIT 3/ net sales % 10.6 8.8 9.5 8.9

EBIT 3, 10/ capital employed 1, 4 (ROCE) % 24.4 23.1 24.4 23.1

Net financial debt 1/ EBITDA 2, 10 Factor 0.1 0.4 0.1 0.4

Gearing 1, 6 Factor 0.05 0.14 0.05 0.14

DVA 9 134.6 114.5 +17.6 134.6 114.5 +17.6

Total headcount 1 11,924 11,291 +5.6 11,924 11,291 +5.6

1 Value as of december 312 ebiTda = earnings before net interest result, income taxes, depreciation and amortization3 ebiT = earnings before net interest result and income taxes4 capital employed = Total assets less deferred tax assets, current securities, cash and cash equivalents and non-interest bearing liabilities5 net working capital = current, non-interest bearing assets less current, non-interest bearing debt6 gearing = net financial debt /equity7 On the basis of the proposed dividend (see note 21)8 On the basis of an actual full distribution of earnings attributable to shareholders (see note 21)9 dräger Value added = ebiT of the last twelve months less cost of capital10 Value of the last twelve months

73POTenTialMarkeT enVirOnMenTThe dräger shares fUncTiOnal areasBUSINESS PERFORMANCE

Dräger increased order intake by 7.6 percent (net of cur-rency effects) in fiscal year 2011, despite GDP growth declining (3.8 percent compared to 5.2 percent in 2010) and the continuing European debt crisis. Net sales growth of 4.4 percent (net of currency effects) was below order intake growth. In the first quarter of the previous year, business in connection with the H1N1 virus had led to above-average net sales. Orders on hand went up by 8.5 percent (net of currency effects).

Net sales and order intake in both divisions increased in fiscal year 2011. Order intake in the medical division rose by 6.3 percent (net of currency effects) and net sales by 1.8 percent (net of currency effects). With 10.3 percent (net of currency effects) order intake growth and 9.7 percent (net of currency effects) net sales growth, the safety division was up on the previous year’s figures. Group EBIT went up by 10.9 percent to EUR 213.8 million in 2011 (2010: EUR 192.8 million), corresponding to a rise in EBIT margin from 8.9 percent in the previous year to 9.5 percent.

Extraordinarily high net sales volume – especially in coun-tries with above-average margins – and a favorable prod-uct mix in the fourth quarter of 2011 were the main con-tributors to this positive development. The fact that no further non-recurring expenses like those in fiscal year

2010 were recorded had a positive impact on earnings in 2011.

ORdER INTAKE

In fiscal year 2011, order intake rose by 7.6 percent (net of currency effects) year-on-year. The fourth quarter con-tributed an above-average share to this positive development. Order intake in the medical division went up by 6.3 per-cent (net of currency effects) in the full year, primarily on account of strong order intake from Russia, China and Saudi Arabia. In terms of products, order intake grew, in particular, in Lifecycle Solutions and Neonatal Care. Order intake in the safety division increased by 10.3 percent (net of currency effects) as a result of the Company receiving large orders from the Middle East, Australia and Scandinavia in product areas such as Stationary Gas Detection and Alcohol Testing Devices. With exception of the Americas region, all regions recorded growth (net of currency effects). Although order intake developed posi-tively in most of the countries in the Americas region, this was not enough to fully compensate for the large order volume in Brazil in the previous year.

ORdERS ON hANd

As of December 31, 2011, orders on hand (net of currency effects) were up 8.5 percent against the prior-year period.

ORdER INTAKE


€ million 2011 2010 Change in %

Net of currency

effects in %

2011 2010 Change in %

Net of currency

effects in %

Germany 113.3 102.9 +10.0 +10.0 451.9 428.2 +5.5 +5.5

Rest of Europe 259.9 233.8 +11.2 +11.9 878.2 794.7 +10.5 +10.6

Americas 107.4 119.2 (9.9) (8.2) 438.4 475.7 (7.8) (4.0)

Asia /Pacific 96.4 85.6 +12.6 +9.9 360.3 314.3 +14.6 +13.0

Other 36.5 35.6 +2.5 +5.2 164.4 132.6 +23.9 +25.6

Total order intake 613.5 577.1 +6.3 +6.7 2,293.2 2,145.5 +6.9 +7.6

74 bUsiness PerfOrMance Of The dräger grOUP

Orders on hand in the medical division increased by 12.7 percent (net of currency effects). Orders from Saudi Arabia, Iraq and Singapore were the main reason behind this rise. In the safety division, orders on hand at the end of 2011 were 0.2 percent (net of currency effects) slightly up year-on-year. At the end of 2011, equipment orders on hand went up, covering a 2.6-month period (December 31, 2010: 2.4 months). This figure is based on the average net sales over the past twelve months.

NET SALES

In fiscal year 2011, Group net sales increased by 4.4 per-cent (net of currency effects) to EUR 2,255.8 million (2010: EUR 2,177.3 million). While net sales in the medi-cal division grew by merely 1.8 percent (net of currency effects) year-on-year, net sales in the safety division went up by 9.7 percent (net of currency effects). Overall, all regions developed positively (net of currency effects). The Asia/Pacific region was the strongest growth driver, mainly on account of large demand from China and India. In Germany, net sales increased considerably in both divisions. The safety division also achieved very positive results in the rest of Europe region. Particularly in Scandinavia, demand for alcohol detection and respiratory protection devices went up. In the fourth quarter of 2011, net sales came to EUR 698.5 million, 10.4 percent (net of currency effects) up on the same period in the previous

year and therefore higher than the average growth in the previous nine months.

EARNINGS

Gross profit in fiscal year 2011 went up by EUR 64.2 million to EUR 1,108.3 million, the main reasons being the increase in net sales and especially the gross margin, which rose by 1.1 percentage points to 49.1 percent (2010: 48.0 percent). The primary factors for this development were an improved product mix in both divisions in favor of high-margin products, better production capacity utili-zation as well as the positive effect on earnings from the deep sea diving system of EUR 3.4 million in the safety division. It also has to be taken into account that the prior-year gross margin had still been impacted by a negative effect from the deep sea diving system business to the amount of EUR 2.7 million. In fiscal year 2011, an in-crease in valuation adjustments on inventories in the safety division – particularly due to changes to the warehous- ing policy for replacement parts and discontinued products, which now focuses on customer requirements – had a negative effect on earnings. Negative currency effects also impacted gross profit.

Functional costs increased by 6.6 percent year-on-year, the main reasons being a rise in expenses for additional sales activities and more intensive customer relations. As

ORdERS ON hANd

€ million December 31, 2011 December 31, 2010 Change in %

Net of currency effects in %

Germany 67.3 71.1 (5.4) (5.4)

Rest of Europe 154.0 148.3 +3.9 +4.3

Americas 98.0 98.4 (0.4) (1.1)

Asia /Pacific 89.8 73.1 +22.8 +17.6

Other 52.2 30.9 +68.8 +69.1

Total order on hand 461.3 421.7 +9.4 +8.5

75POTenTialMarkeT enVirOnMenTThe dräger shares fUncTiOnal areas

planned, Dräger also increased its investments in Service, Research and Development and IT.

Research and development expenses went up by 8.2 per-cent to EUR 160.5 million compared to the previous year. This is equivalent to 7.1 percent of net sales (fiscal year 2010: 6.8 percent). The targeted optimization of the IT infra-structure as well as the global launch of customer rela-tionship management (CRM) software also caused expens-es in this area to rise. In addition, expenses for imple-menting the new sales organization, which was originally planned for 2012, were already recognized in the last quarter of 2011. Personnel expenses rose considerably by 8.9 percent due to headcount being increased to account for the company’s growth as well as pay rises in accordance with wage agreements. It also has to be considered that in 2010, one-time income from the sale of software codes had a positive effect on functional costs and that a non-recurring increase in expenses in Brazil had a negative impact. The exchange rate of the euro changed in Dräger’s favor, which reduced functional costs by around EUR 7.1 million.

The other financial result went up by EUR 13.4 million year-on-year. In the previous year, the cash settled option, which Dräger had issued as part of the buyback of the

25 percent Siemens share in the medical division, decreased earnings by EUR 11.8 million.

Group earnings before interest and taxes (EBIT) grew by 10.9 percent to EUR 213.8 million, and the EBIT margin consequently came to 9.5 percent (2010: 8.9 percent).

The interest result went up by EUR 6.0 million to EUR –33.1 million year-on-year. The reasons for this were the repayment of the Siemens vendor note in the third quarter of 2010 and the repayment of two note loans in Decem-ber 2010 and April 2011. Two new note loans totaling EUR 96.0 million, which were taken out in December 2011, did not create any significant interest expense yet in fiscal year 2011. No further loan commitment fees were incurred, which also had a positive impact on the interest result. This pertained to the loan agreement concluded with the KfW (Kreditanstalt für Wiederaufbau) in Sep-tember 2009 and the syndicated loan, which was conclud-ed at the beginning of 2010 and terminated at the end of the same year.

Compared to the prior year, the tax rate went down to 30.8 percent (2010: 31.8 percent). Especially the above-average earnings growth in Germany had a positive impact on the Group tax rate.


NET SALES



Net of currency

effects in %

2011 2010 Change in %

Net of currency

effects in %

Germany 136.4 125.5 +8.6 +8.6 457.7 433.2 +5.7 +5.7

Rest of Europe 299.0 252.3 +18.5 +19.2 866.4 834.1 +3.9 +4.0

Americas 118.6 129.7 (8.5) (6.6) 440.3 455.6 (3.4) +0.7

Asia /Pacific 103.2 86.6 +19.2 +16.3 346.1 307.8 +12.5 +10.9

Other 41.3 41.2 +0.4 +2.8 145.3 146.5 (0.9) +0.7

Total net sales 698.5 635.3 +10.0 +10.4 2,255.8 2,177.3 +3.6 +4.4

76 bUsiness PerfOrMance Of The dräger grOUP | cash flOW sTaTeMenT

Earnings after income taxes amounted to EUR 125.1 mil-lion, up 19.4 percent on the prior-year period (2010: EUR 104.8 million).

In fiscal year 2011, Dräger exceeded its own forecast from 2010: Dräger aimed for order intake to grow at least as fast as the entire global economy (World Bank forecast Jan-uary 2011: +3.3 percent). Dräger had expected net sales growth to fall between one and two percentage points short of order intake growth and an EBIT margin of 7.5 percent to 8.5 percent. Order intake in 2011 increased by 6.9 percent, a considerably higher figure than that for global economic growth, which according to the IMF estimate in January 2012 came to 3.8 percent, which constitutes a slightly bigger rise than originally expected. Due to the high order intake, net sales also grew more strongly than anticipated and at 3.6 percent almost matched the global economic growth rate. Profitability developed much more positively than initially forecast. The EBIT margin came to 9.5 percent, one percentage point above the upper limit of the guidance on March 16, 2011 (7.5 percent to 8.5 percent). The EBIT margin therefore even reached the upper limit of the bandwidth that was raised to between 8.0 percent and 9.5 percent on July 19, 2011.

INVESTMENTS

In fiscal year 2011, Dräger invested EUR 60.6 million in property, plant and equipment (2010: EUR 49.5 million)

and EUR 10.8 million in intangible assets (2010: EUR 6.3 million). Investments included EUR 6.0 million for a new production and logistics building for the medical division (2010: EUR 6.9 million before deduction of an investment allowance). This investment totaling approxi-mately EUR 14 million was largely completed in the first quarter of 2011.

In 2011, depreciation on property, plant and equipment came to EUR 48.5 million (2010: EUR 43.8 million) and covered 80.0 percent of investments (2010: 88.5 percent).

Cash flow statement

Due to the elimination of exchange rate effects, the underlying changes recognized in the cash flow statement cannot be directly reconciled with the items of the pub-lished balance sheet.

Dräger Group’s cash inflow from operating activities came to EUR 159.9 million in fiscal year 2011 compared to EUR 219.1 million in the previous year. This develop-ment was aided by net profit of EUR 210.2 million (2010: 216.4 million), which was adjusted for write-downs, changes to provisions not recognized in income and other earnings not affecting profit and loss. The main reason, however, was the rise in trade receivables of EUR 52.4 mil-

Forecast Expected values on Mar. 16, 2011 Result on Dec. 31, 2011

Order intake growthAt least at the same rate as global

economic growth ≥ 3.3% 1 6.9%

Net sales growth1–2 percentage points below

order intake growth > 1.3–2.3% 3.6%

EBIT margin 7.5%–8.5% 7.5%–8.5% 9.5%

1 global economic growth (according to January 2011 World bank forecast)


lion (2010: EUR 2.2 million). Trade payables fell by a total of EUR 11.6 million (2010: rose by EUR 43.7 million). The main counteractive effect was the drop in inventories by EUR 19.2 million (2010: rise of EUR 42.6 million).

EUR 6.7 million of the cash outflow from investing activi-ties of EUR 65.7 million (2010: EUR 52.2 million) were for further investments in the new production and logistics building for the infrastructure projects business at the Lübeck site, which is under construction.

On the one hand, the cash outflow from financing activities of EUR 4.6 million (2010: EUR 210.1 million) resulted from the dividend payment of EUR 35.3 million and the paid cash compensation for participation certificate hold-ers of EUR 7.8 million. On the other hand, two note loans totaling EUR 96.0 million were issued, two note loans totaling EUR 54.5 million were repaid and one bank loan of EUR 5.8 million was repaid as contractually agreed.

In contrast, a bank loan of EUR 10.8 million was taken up for the construction of the new production and logistics building in Lübeck. The cash outflow in the prior-year period was marked by the part payment of EUR 235.9 mil-lion (total purchase price: EUR 250.6 million) to Siemens for acquiring a 25 percent share in Dräger Medical AG & Co. KG in April 2010 , which was faced by a EUR 100.4 million capital increase in June 2010.

The cash inflow from operating activities includes EUR 54.9 million (2010: EUR 43.3 million) in income taxes paid, EUR 5.5 million (2010: EUR 3.7 million) in interest received, and EUR 27.6 million (2010: EUR 30.8 million) in interest paid.

Cash and cash equivalents include EUR 14.6 million in cash (2010: EUR 10.2 million) which is subject to restric-tions.


FINANCIAL FIGURES


Total assets 2,115.2 1,976.9 7.0

Equity 729.6 636.6 14.6

Equity ratio 34.5% 32.2%

Capital employed 877.1 833.4 5.3

Net financial debt 39.8 90.3 (56.0)

INVESTMENTS/AMORTIZATION ANd dEPRECIATION

2011 2010

€ millionInvestments

Depreciation/ amortization Investments

Depreciation/ amortization

Intangible assets 10.8 7.4 6.3 10.1

Property, plant and equipment 60.6 48.5 49.5 43.8

78 cash flOW sTaTeMenT | financial ManageMenT in The dräger grOUP

AddEd VALUE CREATEd BY ThE dRäGER GROUP

The Dräger Group’s added value is calculated by deducting input expenses such as the cost of materials, deprecia-tion and amortization and other operating expenses from total operating performance (net sales and other operating income). The added value is then broken down into the percentage attributable to the Group’s major stakeholders, thus showing the Dräger Group’s contribution to the income of the public and private sectors.

In 2011, Dräger created added value of EUR 1,022.3 mil-lion, a 7.1 percent increase on the previous year. The largest

portion of this added value, EUR 793.5 million (77.6 per-cent), was attributable to Dräger employees compared to EUR 728.9 million (76.4 percent) in 2010. With a 4 per-cent increase in headcount (annual average), added value per employee amounted to EUR 88 thousand (2010: EUR 85 thousand), a 3.5 percent increase on the previous year. Personnel expenses per employee increased by 4.6 percent to EUR 68 thousand (2010: EUR 65 thousand) in the Dräger Group, which was due to factors such as pay rises in accordance with wage agreements as well as a rise in variable remuneration.

AddEd VALUE STATEMENT OF ThE dRäGER GROUP

Figures in € million

Total operating performance 2,269.0 Added value 1,022.3 Employees 793.5

creation distribution share in added value employees

634.0cost of materials

94.0 (11.8 %) research and development

299.2 (37.7 %)Production and service

301.2 (38.0 %)sales and marketing

99.1 (12.5 %)administration

793.4employees

55.9depreciation /amortization

119.7company

63.1government

36.9 lenders

3.9Participation certificate holders

2.8Minority interests

2.5shareholders

556.8Other input expenses

1,022.3added value


Financial management in the dräger Group

BORROWING

Dräger Group’s 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 (December 31 2010: EUR 89.5 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 the 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


FINANCIAL POSITION OF ThE dRäGER GROUP

2006 2007 2008 2009 2010 2011

Cash flow from operative activities € million 95.7 165.0 104.7 193.5 219.1 159.9

Cash flow from investing activities € million (59.8) (125.5) (76.2) (42.5) (52.2) (65.7)

Free Cash flow € million 35.9 39.5 28.5 151.0 166.9 94.2

Cash flow from financing activities € million (28.8) (56.0) (60.4) 64.9 (210.1) (4.6)

Change in liquidity(excluding exchange rate effects) € million 7.1 (16.5) (31.9) 215.9 (43.2) 89.7

CASh FLOW RECONCILIATION

January to December 2011 in € million

600

550

500

450

400

350

300

250

200

150

100

50

cash and cash equivalents as of december 31, 2010

net cash provided by operating activities

net cash used in investing activities

net cash provided by financing activities

effect of exchange rates on cash and cash equivalents

cash and cash equivalents as of december 31, 2011

320

157.8 (65.7)

(2.5) 2.6 412.3

80 financial ManageMenT in The dräger grOUP

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 percent 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. Another tranche of EUR 24.5 million carried fixed annual interest of 4.75 percent. Total note loans amounted to EUR 365.8 million on December 31, 2011 (December 31, 2010: EUR 324.4 million).

At present, Dräger does not have a rating from agencies such as Standard & Poor’s, Moody’s or Fitch. Please refer to pages 179 et seq. of the notes for further details on Dräger Group’s loans and liabilities.

LIQUIdITY FORECAST

Liquidity came to EUR 412.3 million at the end of the year (2010: EUR 320.0 million). For its medium and long term planning, Dräger forecasts a positive development of cash and cash equivalents. This will be influenced by a moderate drop in operating cash flow – reflecting expected business developments – and solid financing, which has already been arranged for the coming year as a prudent measure. Future payment obligations from note loans fall-ing due, which will result in payments of EUR 55.0 mil-lion in 2012 and EUR 79.0 million in 2013, as well as the planned dividend distributions will have a negative impact on liquidity. The short and medium term liquidity supply of Dräger Group is secured by existing cash in hand and bank balances and the limits of the existing credit lines, of which most have a term of more than one year.

TASKS ANd STRUCTURE OF ThE TREASURY

dEPARTMENT

The treasury department is responsible for treasury man-agement, secures the Group’s liquidity and credit facilities and manages its interest and currency risks. The depart-ment acts as a service center with a focus on the corporate risks. The organizational structures and processes and the Group’s internal treasury policy ensure transparency and security. The treasury back office, for example, checks and confirms all financial transactions. Treasury control-ling monitors compliance with the limits available and that the conditions agreed are in line with market condi-tions.

dERIVATIVE FINANCIAL INSTRUMENTS

Dräger generally uses financial instruments for hedging purposes and not to optimize earnings, although the prin-ciples of economic efficiency are also applied to such decisions. Transactions of this type are selected and con-cluded in a uniform manner throughout the Group. Please go to pages 142 and 190 et seq. of the notes for detailed information on the derivatives used by the Com-pany.

NET ASSETS

The Dräger Group’s equity rose by EUR 93.0 million to EUR 729.6 million in 2011, with the equity ratio increasing from 32.2 percent on December 31, 2010 to 34.5 percent.

Total assets increased by EUR 138.3 million to EUR 2,115.2 million in fiscal year 2011. An increase in receivables (EUR +53.3 million) and cash and cash equivalents (EUR +92.3 million) was faced by a decrease in inventories (EUR –16.4 million). At the same time, equity went up on the liabilities side (EUR +93.0 million), in particular, as well as non-current loans (EUR +47.3 million).


Non-current assets of EUR 690.2 million are fully funded by the total non-current capital.


NET ASSETS OF ThE dRäGER GROUP

2006 2007 2008 2009 2010 2011

Non-current assets € million 497.6 566.4 577.4 657.7 681.0 690.2

Current assets € million 1,138.7 1,071.1 1,077.4 1,228.1 1,295.9 1,425.0

thereof cash and cash equivalents € million 185.6 160.7 125.2 344.1 320.0 412.3

Equity € million 576.9 545.2 553.8 393.8 636.6 729.6

Debt € million 1,059.4 1,092.3 1,101.0 1,492.0 1,340.3 1,385.6

thereof liabilities to banks € million 365.3 449.6 380.1 465.9 407.5 449.8

Total assets € million 1,636.3 1,637.5 1,654.8 1,885.8 1,976.9 2,115.2

Long-term equity-to-fixed-assets ratio 1 % 267.0 236.4 233.3 211.3 254.5 253.8

1 long-term equity-to-fixed-assets ratio = Total equity and long-term debt divided by total intangible assets and property, plant and equipment

82 bUsiness PerfOrMance Of The Medical diVisiOn

Business performance of the medical division

BUSINESS PERFORMANCE OF ThE MEdICAL dIVISION



Order intake € million 421.3 385.6 +9.3 1,518.8 1,441.9 +5.3


Net sales € million 486.3 443.1 +9.8 1,484.5 1,472.0 +0.9

EBITDA 2 € million 90.8 64.8 +40.1 215.7 209.8 +2.8


EBIT 3 € million 84.0 58.3 +44.0 191.8 186.6 +2.8

R&D costs € million 31.3 28.0 +11.7 111.1 101.1 +9.9

Cash flow from operating activities € million 47.0 90.7 (48.1) 127.8 178.4 (28.4)

Investments € million 9.3 11.5 (19.1) 33.5 29.1 +15.0



EBIT 3/ net sales % 17.3 13.2 12.9 12.7

EBIT 3, 7/capital employed 1, 4 (ROCE) % 35.1 36.3 35.1 36.3

DVA 6 144.0 136.5 +5.5 144.0 136.5 +5.5

Total headcount 1 6,717 6,386 +5.2 6,717 6,386 +5.2

1 Value as of december 312 ebiTda = earnings before net interest result, income taxes, depreciation and amortization3 ebiT = earnings before net interest result and income taxes4 capital employed = Total assets less deferred tax assets, current securities, cash and cash equivalents and non-interest bearing liabilities5 net working capital = current, non-interest bearing assets less current, non-interest bearing debt6 dräger Value added = ebiT of the last twelve months less cost of capital7 Value of the last twelve months


ORdER INTAKE

In fiscal year 2011, order intake in the medical division increased by 6.3 percent (net of currency effects). An extraordinarily high order volume in Russia in the fourth quarter of 2011 contributed to this development.

In terms of products, order intake grew, in particular, in Lifecycle Solutions and Neonatal Care. In Lifecycle Solu-tions, orders for both service and accessories increased in all regions as did net sales. In Neonatal Care, Dräger profited from factors such as strong demand in Russia and a large order for warming therapy in Iraq. The Ventila- tion business was also boosted by a very strong fourth quar-ter in Russia and Saudi Arabia and recorded positive, unexpectedly high order intake growth compared to the previous year. Anesthesia more than compensated for weak demand in the US with unexpectedly large demand from China and Russia.

The positive performance in Germany in the full year as well as the fourth quarter of 2011 was mainly due to ser-vice and accessories orders in Lifecycle Solutions and orders for technical device management by large customers in North Germany.

In the rest of Europe, order intake was also clearly up year-on-year, particularly in the fourth quarter. The main driver behind this development was the large demand from Russia. However, Poland and Turkey also recorded significant growth year-on-year. In Great Britain, on the other hand, order intake fell sharply. Hospitals were very reserved with their investments – one reason being tighter budgets. In some South European countries such as Spain and Italy, order intake dropped in the course the financial crisis.

Order intake in the Americas was slightly down year-on-year, as growth in almost all countries in this region – especially in Venezuela and Canada – was unable to fully compensate for the large orders from Brazil in the previ-ous year. At +1.0 percent (net of currency effects), order intake in the US was only slightly higher than in the pre-vious year, the reason being high order volume in the prior year on account of a large order from the United States Department of Defense. In the fourth quarter of 2011, order intake was therefore 14 percent (net of currency effects) down on the prior-year value.


ORdER INTAKE



Net of currency

effects in %

2011 2010 Change in %

Net of currency

effects in %

Germany 78.3 67.8 +15.4 +15.4 311.5 295.8 +5.3 +5.3

Rest of Europe 169.2 149.4 +13.3 +14.3 548.0 504.7 +8.6 +8.7

Americas 76.9 87.0 (11.6) (9.8) 314.4 338.5 (7.1) (3.2)

Asia /Pacific 68.7 57.0 +20.6 +17.6 233.0 208.8 +11.6 +10.9

Other 28.2 24.4 +15.6 +17.0 111.9 94.1 +18.8 +20.2

Total order intake 421.3 385.6 +9.3 +9.7 1,518.8 1,441.9 +5.3 +6.3


Once again, the continuously growing Chinese market was the main driver behind the rise in order intake in the Asia/Pacific region. However, order volume in Singapore and India also developed positively. In Singapore, for instance, Dräger received two large orders for infrastruc-ture projects, among other things. The positive conditions in the Indian market – simulated by a need to catch up with investments in medical devices – also contributed greatly to growth in the region.

In the other countries region, order intake was up year-on- year, primarily on account of the large order volume from the Saudi Arabian Ministry of Health as well as a large order for warming therapy from Iraq.

ORdERS ON hANd

On December 31, 2011, orders on hand were EUR 319.8 million, up 12.7 percent (net of currency effects) on the previous year’s figure of EUR 280.6 million.

Orders on hand grew, particularly in other countries and the Asia/Pacific regions, as a result of the above-men-tioned orders from Saudi Arabia, Iraq and Singapore. In the rest of Europe, however, orders on hand also increased. The rise in the region spread across numerous countries such as Portugal, Switzerland and Sweden. Especially high order volume from Russia in the fourth quarter

also boosted orders on hand. Orders on hand in Germany dropped, mainly on account of the invoicing of several large projects in December 2011.

Equipment orders on hand covered a 2.9 month period – based on the average net sales over the past twelve months (December 31, 2010: 2.5 month).

NET SALES

After strong net sales growth in the fourth quarter (+10.4 percent net of currency effects), total net sales in the medical division increased by 1.8 percent (net of currency effects) in fiscal year 2011.

In terms of products, net sales increased, particularly in Lifecycle Solutions, Anesthesia and Neonatal Care. Like order intake, service and accessories net sales in Lifecycle Solutions grew in all regions. The Anesthesia business developed particularly positively in China, the US and Rus-sia. The main driver behind net sales growth in Neonatal Care were orders for warming therapy in Russia. Net sales in Monitoring, Systems and IT as well as Ventilation decreased, mainly due to the large orders from Brazil in the previous year. In fiscal year 2010, Dräger had also recorded high net sales in Ventilation in connection with the H1N1 virus, as not all orders could be delivered in 2009.

ORdERS ON hANd



Germany 41.6 46.6 (10.8) (10.8)

Rest of Europe 95.9 84.7 +13.2 +13.8

Americas 82.0 76.6 +7.0 +5.8

Asia /Pacific 63.3 50.9 +24.5 +18.6

Other 37.0 21.8 +69.5 +69.0



Similar to order intake, most of the net sales growth in Germany originated from service and accessories orders in Lifecycle Solutions. The completion of Infrastructure Projects contracts, some of them from the large number of orders on hand in the previous year, gave an additional boost to net sales.

Despite a very strong fourth quarter, net sales in the rest of Europe were on par with the previous year. Individ- ual countries in this region, however, developed very dif-ferently. Strong net sales growth in Russia and Poland, for instance, and a recovery in Turkey in the fourth quarter were able to make up for a large order from the Ukraine in the previous year as well as steep drops in net sales in countries like Great Britain, Spain and Italy.

In the Americas, Dräger recorded a slight decline in net sales, as it was impossible to fully compensate for large orders in Brazil in the previous year with growth in other Latin American countries and the US. Net sales in the US were nevertheless significantly up year-on-year by 17.8 percent in the fourth quarter and by 12.3 percent (net of currency effects) in the full year, as the majority of orders from the United States Department of Defense were invoiced.

Net sales in the Asia/Pacific region also grew steeply, par-ticularly in the fourth quarter, on account of rising demand from China and India. In Australia, on the other hand, net sales declined in the full year as well as the fourth quarter following the floods in Queensland.

Net sales in the other countries regions were slightly up overall and considerably up in the fourth quarter as many orders in this region are for projects. Net sales in all countries in this region are subject to strong project-related fluctuations. Net sales in the North African countries affected by unrest dropped sharply.

EARNINGS

In fiscal year 2011, gross profit in the medical division was higher than in the previous year as a result of net sales growth as well as an increased gross margin. The latter rose primarily on account of a favorable product mix for example in Lifecycle Solutions, Anesthesia and Neonatal Care, as well as corresponding good capacity utilization. A f avorable country mix and very good overall capacity utili-zation gave an additional boost to the particularly strong margin in the fourth quarter.

Dräger’s functional costs in fiscal year 2011 were up year-on-year due to increased research and development and


NET SALES



Net of currency

effects in %

2011 2010 Change in %

Net of currency

effects in %

Germany 93.9 88.0 +6.7 +6.7 317.9 301.3 +5.5 +5.5

Rest of Europe 209.3 176.2 +18.8 +19.8 534.7 535.8 (0.2) (0.1)

Americas 85.4 91.4 (6.5) (4.2) 309.1 327.8 (5.7) (1.6)

Asia /Pacific 72.4 58.9 +22.8 +20.1 223.7 204.9 +9.2 +8.6

Other 25.3 28.6 (11.3) (9.9) 99.2 102.2 (3.0) (1.6)

Total net sales 486.3 443.1 +9.8 +10.4 1,484.5 1,472.0 +0.9 +1.8


IT expenses, growth-related marketing and selling expenses as well as provisions for legal risks arising from Dräger enforcing its patent rights. Expenses in connection with the implementation of the new sales strategy − planned for 2012 − which were already recognized in 2011, increased costs further. Overall, favorable currency effects in 2011 had a positive effect of around EUR 6 million on functional expenses, especially on research and development spending.

Dräger improved its spending on research and development by 9.9 percent year-on-year (12.0 percent net of currency effects), to be able to continue offering attractive and com-petitive products in the future. The euro, which was rela-tively strong compared to the currencies of many subsidiar-ies, had a positive effect in this respect as this reduced both research and development and selling expenses in US dollars by around EUR 6 million.

The total EBIT margin rose by 2.8 percent to EUR 191.8 million (2010: EUR 186.6 million). The EBIT margin of 12.9 percent was slightly up on the previous year’s value of 12.7 percent.

INVESTMENTS

In fiscal year 2011, Dräger invested EUR 33.5 million in intangible assets and property, plant and equipment (2010: EUR 29.1 million), predominantly in connection with replacements. Dräger also invested EUR 6.0 million in the construction and fitting of a new production and logistics building for the Infrastructure Projects business (2010: EUR 6.9 million). Project investments totaling approxi-mately EUR 14 million were largely completed in the first quarter of 2011. Dräger also capitalized EUR 1.6 million for investments in the new Dräger Design Center at head-quarters in Lübeck. There, Dräger will be able to present products to its customers in a realistic environment and configure the workstations according to customer require-ments.

Depreciation on property, plant and equipment came to EUR 22.0 million and covered 68.8 percent of investments in fiscal year 2011. In the same period in 2010, EUR 19.7 million in depreciation on property, plant and equipment covered 69.9 percent of investments.

FINANCIAL POSITION ANd NET ASSETS

As of December 31, 2011, capital employed increased by EUR 32.5 million to EUR 547.2 million (December 31, 2010: EUR 514.7 million). The main drivers behind this development were a volume-related rise in receivables as well as a rise in non-current assets from the construction of the new Infrastructure Projects building. Dräger improved its total days working capital (coverage of work-ing capital) by 5.3 days to 116.8 days. Cash flow from operating activities came to EUR 127.8 million at the end of the year (2010: EUR 178.4 million). This EUR 50.6 million drop resulted from a baseline effect. In the previous year, measures for optimizing the structure of working capital, particularly in receivables management, led to extraordinarily high cash inflow.

87POTenTialMarkeT enVirOnMenTThe dräger shares fUncTiOnal areasBUSINESS PERFORMANCE

88 bUsiness PerfOrMance Of The safeTy diVisiOn

Business performance of the safety division

BUSINESS PERFORMANCE OF ThE SAFETY dIVISION



Order intake € million 200.2 199.0 +0.6 805.0 731.7 +10.0


Net sales € million 221.4 202.2 +9.5 802.7 733.8 +9.4

EBITDA 2 € million 15.1 19.1 (20.7) 96.6 81.8 +18.0

Depreciation / amortization € million (5.7) (5.2) +11.1 (20.5) (20.8) (1.5)

EBIT 3 € million 9.4 13.9 (32.5) 76.1 61.0 +24.6

R&D costs € million 12.4 13.6 (8.8) 44.8 43.9 +1.9

Cash flow from operating activities € million 34.3 34.3 +0.0 59.0 74.3 (20.6)

Investments € million 6.6 7.4 (9.8) 22.9 21.0 +9.1



EBIT 3/ net sales % 4.2 6.9 9.5 8.3

EBIT 3, 7/Capital employed 1, 4 (ROCE) % 39.5 33.6 39.5 33.6

DVA 6 57.5 43.1 +33.3 57.5 43.1 +33.3

Total headcount 1 4,531 4,409 +2.8 4,531 4,409 +2.8

1 Value as of december 312 ebiTda = earnings before net interest result, income taxes, depreciation and amortization3 ebiT = earnings before net interest result and income taxes4 capital employed = Total assets less deferred tax assets, current securities, cash and cash equivalents and non-interest bearing liabilities5 net working capital = current, non-interest bearing assets less current, non-interest bearing debt6 dräger Value added = ebiT of the last twelve months less cost of capital7 Value of the last twelve months


ORdER INTAKE

Despite the fourth quarter being considerably weaker (+0.9 percent net of currency effects), order intake in the safety division rose 10.3 percent (net of currency effects) in fiscal year 2011. All business areas contributed to this growth.

Global catch-up effects regarding investments in safety tech-nology systems and devices – particularly in Germany and the US – significantly boosted demand in 2011. Dräger once again received numerous orders from industrial customers and the public sector thanks to its portfolio of high-performance products and customer-specific ser-vices. Particular attention should be drawn here to growth in the stationary gas detection devices business: Dräger received large orders from customers in the petrochemical industry in the Middle East and Australia, for instance. The alcohol testing devices business also developed very positively as a result of a large number of orders for the alcohol testing devices “Dräger Alcotest” and “Dräger Inter-lock” in Scandinavia. Dräger managed to once again exceed its positive figures in the prior-year quarter, even though growth dropped as expected in the fourth quarter of 2011.

In Germany, the Group profited from the good economic position and achieved solid order growth of 6.2 percent – on the back of, in particular, orders from the industrial sector, technical retailers and fire services. Compared to the previous year’s period, growth was especially strong in the second and third quarter. The focus here was mainly on respiratory protection and mobile gas detection products and services as well as the maintenance and rental busi-ness with major oil refining industry customers. At 3.5 per-cent, growth in the fourth quarter declined compared to the previous quarters, but was still considerably up on the positive prior-year quarter.

In the rest of Europe, Dräger recorded extraordinarily steep order volume growth in many countries and across all product areas. The alcohol testing devices business, in par-ticular, was successful in Scandinavia, Spain and France. The stationary gas detection business, however, also devel-oped very positively, especially in Denmark, France, Italy and the Netherlands. Dräger was able to create additional 6.5 percent (net of currency effects) growth in the rest of Europe in the traditionally strong fourth quarter.


ORdER INTAKE



Net of currency

effects in %

2011 2010 Change in %

Net of currency

effects in %

Germany 43.9 42.4 +3.5 +3.5 170.0 160.1 +6.2 +6.2

Rest of Europe 89.8 84.5 +6.3 +6.5 331.2 290.3 +14.1 +14.0

Americas 30.5 32.2 (5.3) (4.0) 124.0 137.2 (9.6) (6.0)

Asia /Pacific 27.7 28.7 (3.5) (5.6) 127.3 105.6 +20.5 +17.1

Other 8.3 11.2 (25.9) (20.5) 52.5 38.5 +36.4 +38.7

Total order intake 200.2 199.0 +0.6 +0.9 805.0 731.7 +10.0 +10.3


Order intake in the Americas fell short of the prior-year value due to the delivery of deep sea diving system compo-nents to a US customer in the previous year. Net of this order and currency effects, order intake would have risen by 9.8 percent. Order intake in the US was 1.6 percent (net of currency effects) down year-on-year, when disregard-ing the deep sea diving system order. Catch-up effects regarding investments of industrial customers in saftey technology systems – particularly gas detection devices – contributed to the rise in demand. Growth, however, was impeded by the government’s financial problems, which led to budget cuts for the police force and fire services – and therefore to a decline in business for Dräger respiratory protection and alcohol testing devices. Business in Canada and Mexico, on the other hand, developed particularly positive. In Canada, for instance, Dräger received large orders from the mining industry for respiratory protection devices and refuge chambers (containers with breath-ing supply and emergency equipment for use in dangerous underground situations). Order intake in the Americas continued dropping in the fourth quarter, primarily on account of the significant decrease in order intake from the fire services sector related to the budget cuts.

Dräger recorded extraordinarily strong growth in the Asia/Pacific region. The main driver behind this was the

large demand for respiratory protection and alcohol testing devices from Australia and New Zealand. Australia’s positive economic situation and the strong Australian dollar also had a positive impact on Dräger as a company with production facilities in the eurozone. The Group profited from this positive market environment as it has a strong market position in the mining, police force and fire services sectors. Dräger also recorded steep growth in China and Japan. Although industrial demand was still considerably lower in the first half of the year as a result of the natural and nuclear disaster in Japan, this figure increased significantly in the fourth quarter. Order intake in the Asia/Pacific region nevertheless dropped year-on-year in the fourth quarter of 2011 due to a large order from the Malaysian fire service in the previous year.

Although business performance in the other countries region greatly depended on large projects in the export business, this region also recorded extraordinarily high growth. The Company managed, for instance, to acquire an order for a breathing supply system from a customer in the oil and gas industry in Kazakhstan. Dräger also received large orders from the Arab world, such as for stationary gas detection systems – also from customers in the oil and gas industry – and for diving systems and the corresponding diving gas logistics equipment. As many

ORdERS ON hANd



Germany 26.5 25.5 +3.9 +3.9

Rest of Europe 58.6 63.6 (7.9) (7.7)

Americas 16.0 21.9 (26.9) (25.6)

Asia /Pacific 26.5 22.2 +19.4 +15.8

Other 15.2 9.1 +67.0 +69.2



orders were for projects and the basis of comparison was therefore high, order intake in the fourth quarter of 2011 was considerably down year-on-year.

ORdERS ON hANd

As of December 31, 2011, orders on hand were slightly up year-on-year (net of currency effects). As many orders were at an advanced stage of production, deep sea diving system project orders on hand declined by EUR 18.8 million. Net of currency effects and deep sea diving systems, orders on hand also rose in the rest of Europe (+16.0 percent) and the Americas (+4.7 percent) regions. Total growth consequently amounted to 16.0 percent. Orders on hand increased on account of strong demand for station-ary gas detection and alcohol testing devices in the rest of Europe, Asia/Pacific and other countries regions.

In relation to net sales in the past twelve months, equip-ment orders on hand covered 2.1 months in the fiscal year (previous year: 2.3 months).

NET SALES

Net sales in the safety division went up by 9.7 percent (net of currency effects) in fiscal year 2011 and for the first time exceeded the EUR 800 million mark. Net of the impact from net sales in the deep sea diving systems project

business, net sales in the core business would have risen by 11.0 percent. The extraordinarily high number of orders in the first three quarters, most of which were deliv-ered and invoiced in the third and fourth quarter, con-tributed to this development.

Net sales growth in Germany was primarily backed by cus-tomers from the industrial, technical retail and fire ser-vices sectors. The focus here was mainly on respiratory pro-tection and mobile gas detection products and services as well as the maintenance and rental business with major oil refining industry customers. In the fourth quarter, Dräger continued delivering numerous orders to public sec-tor customers – such as fire services and the German Armed Forces (Bundeswehr) – as well as industrial custom-ers.

In the rest of Europe, Dräger recorded steep net sales growth in all product areas and most of the countries. The growth in Scandinavia should be particularly pointed out in this respect: Dräger delivered large orders for alco-hol testing and respiratory protection devices in this region. The Group also had great success in the Nether-lands, France, Spain, Turkey and Austria with its mobile and stationary gas detection devices, personal protection equipment and fire training systems for fire services and


NET SALES



Net of currency

effects in %

2011 2010 Change in %

Net of currency

effects in %

Germany 51.2 47.4 +8.0 +8.0 169.0 160.2 +5.5 +5.5

Rest of Europe 90.2 76.1 +18.5 +18.5 334.0 298.5 +11.9 +11.9

Americas 33.2 38.4 (13.5) (12.2) 131.2 127.9 +2.6 +6.6

Asia /Pacific 30.8 27.7 +11.2 +7.9 122.4 102.9 +19.0 +15.5

Other 16.0 12.6 +27.0 +31.7 46.1 44.3 +4.1 +6.1

Total net sales 221.4 202.2 +9.5 +9.6 802.7 733.8 +9.4 +9.7


industrial customers. Net sales growth in the traditionally strong fourth quarter was carried by numerous deliveries of respiratory protection and mobile gas detection devices in Great Britain, Denmark, Switzerland, Italy and the Netherlands.

Despite an order for the delivery of deep sea diving system components to a US customer in the previous year, net sales in the Americas were slightly up year-on-year. The bulk of the unevenly sized part deliveries, which were shipped throughout 2010 and 2011, was sent out in the fourth quar-ter of 2011. Net of currency effects and without account-ing for net sales from this deep sea diving system, net sales in the Americas would have grown by 12.9 percent in fiscal year 2011. This growth was also supported by a large number of orders from the mining industry and fire ser-vices in Canada and Mexico. In the US, net sales increased by 1.3 percent (net of currency effects) and by 10.0 per-cent (net of the sales of the deep sea diving system), despite the country’s tight budget. A rise in industrial demand for respiratory protection and mobile gas detection devices had a positive effect here. The “Dräger X-Zone 5000” gas detection device enjoyed particularly high order volumes.

Net sales in the Asia/Pacific region developed positively in line with order intake. Especially in Australia and New Zealand, Dräger delivered large orders for respiratory pro-tection and alcohol testing devices to mining industry customers and the police force. In China and Southeast Asian countries, however, Dräger respiratory protection and gas detection devices continued to be in great demand among customers in the industrial and public sectors. The business volume in Japan was slightly down year-on-year (net of currency effects) due to a slump in industrial demand in connection with the natural and nuclear disaster. After the extraordinarily strong growth in the first nine months, growth in the Asia/Pacific region declined to 7.9 percent (net of currency effects) in the fourth quarter.

This region also started to see first signs of an economic slowdown and a considerably loss of growth momentum.

Despite the political unrest in many Middle Eastern and North African countries, Dräger exceeded the prior-year net sales level in the other countries region by acquiring many small and medium sized projects in the stationary gas detection devices business. Special mention should be made here of a major order for the installation of a fresh air supply system for a customer in the petrochemical indus-try in Kazakhstan. Net sales growth was particularly positive in the fourth quarter of 2011 on account of an order for a stationary gas detection system for a customer in the oil and gas industry in the Middle East being invoiced.

EARNINGS

The gross margin in the safety division in fiscal year 2011 was up year-on-year as a result of a positive earnings con-tribution from the deep sea diving systems project business. Net of this influence and currency effects, the gross margin would have been on par with the previous year. Shifts in the product mix toward more profitable products also had a positive impact on the margin. Compared to the previ-ous year, the number of small and medium sized orders in the personal protection equipment business and in the gas detection devices business increased, which was one of the reasons for this development. This favorable margin effect, however, was overshadowed by additional impair-ment losses in the medium one-digit million range in the fourth quarter. These were recognized for project-related individual risks as well as individual price and stockpiling risks for discontinued products and replacement parts.

Research and development costs increased only slightly by 1.9 percent. A rise in personnel expenses on account of capacity expansion was largely made up for by reducing third-party services. Marketing, selling and administrative expenses were considerably higher than in the previous


year – primarily on account of the rise in personnel expens-es. The main reasons for this development were pay rises in accordance with wage agreements as well as prof-it shares. An increase in IT costs − such as for global infrastructure and software licenses – also contributed to the rise in functional costs.

The significant increase in business volume and the improved gross margin resulted in EBIT rising by 24.6 per-cent to EUR 76.1 million (2010: EUR 61.0 million) despite a slightly above-average increase in functional costs. The EBIT margin went up from 8.3 percent in the previous year to 9.5 percent in 2011.

INVESTMENTS

In the safety division, Dräger invested EUR 0.9 million (2010: EUR 0.6 million) in intangible assets and EUR 22.1 million (2010: EUR 20.4 million) in items of property, plant and equipment. Depreciation on property, plant and equipment of EUR 18.5 million (2010: EUR 17.1 million) covered 83.7 percent of the investment volume (2010: 83.8 percent).

NET ASSETS

Capital employed went up as planned by 6.1 percent to EUR 192.7 million (December 31, 2010: EUR 181.6 million). Trade receivables, in particular, increased as a result of the considerable rise in business volume. The reduction in stock and an increase in provisions were unable to compen-sate for this development. Dräger improved its total days working capital (coverage of working capital) in the safety division by 0.2 days to 99.2 days. Cash flow from operating activities came to EUR 59.0 million at the end of the year (2010: EUR 74.3 million). This EUR 15.3 million drop resulted from a basis effect. In the previous year, mea-sures for optimizing the structure of working capital, particularly in receivables management, led to extraordi-narily high cash inflow.


94 bUsiness PerfOrMance Of drägerWerk ag & cO. kgaa / OTher cOMPanies | research and deVelOPMenT

Business performance of drägerwerk AG & Co. KGaA/other companies

BUSINESS PERFORMANCE OF dRäGERWERK AG & CO. KGAA/OThER COMPANIES


2011 2010 6 Change in % 2011 2010 6 Change in %

Order intake € million 4.5 5.5 (17.2) 16.2 16.7 (2.6)

Orders on hand 1 € million 0.0 0.0 +0.0 0.0 0.0 0.0

Net sales € million 4.5 5.5 (17.2) 16.2 16.7 (2.6)

EBITDA 2 € million 15.4 (82.3) (118.7) 149.0 76.2 +95.5


EBIT 3 € million 11.8 (84.9) (113.9) 137.5 66.2 +107.9

R&D costs € million 1.7 1.7 +0.4 4.7 3.3 +40.5

Cash flow from operating activities 6, 7 € million 21.7 (79.6) (127.2) 128.2 41.5 +209.3

Investments € million 7.8 3.6 +116.5 13.9 6.2 +123.6


Net working capital 1, 5 € million (37.3) (36.5) +2.2 (37.3) (36.5) +2.2

Total headcount 1 676 496 +36.3 676 496 +36.3

1 Value as of december 312 ebiTda = earnings before net interest result, income taxes, depreciation and amortization 3 ebiT = earnings before net interest result and income taxes4 capital employed = Total assets less deferred tax assets, current securities, cash and cash equivalents and non-interest bearing liabilities5 net working capital = current, non-interest bearing assets less current, non-interest bearing debt6 due to the integration of dräger Medical ag & co. kg in september 2010, some companies are now being recognized in the financial statements of the medical division

Previous year’s figures were adjusted accordingly7 The fourth quarter of 2010 includes the loss from the integration of dräger Medical ag & co. kg

95POTenTialMarkeT enVirOnMenTThe dräger shares FUNCTIONAL AREASBUSINESS PERFORMANCE

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, Tax, Customs and Export Control, Audit, Insurance, Accounting, Controlling, Investor Relations, IT and Corpo-rate Communications as well as Corporate Development, Strategic Purchasing, Marketing Communications and Basic Research. The functions HR and Accounting were also centralized at Drägerwerk AG & Co. KGaA in fiscal year 2011. The services to the divisions are closely coordinated with them and invoiced at arm’s length.

EBIT in this area increased by EUR 71.3 million to EUR 137.5 million year-on-year (2010: EUR 66.2 million) and comprised the operating results of the companies grouped here and the results from profit transfer agreements of EUR 190.2 million (2010: EUR 120.8 million), including tax allocations, mainly as a result of larger profits being transferred by Dräger Medical GmbH and Dräger Safety AG & Co. KGaA. Dräger Medical GmbH transferred its profit of EUR 150.6 million to Drägerwerk AG & Co. KGaA (2010: EUR 90.2 million). The profit of EUR 39.0 million trans-ferred by Dräger Safety AG & Co. KGaA was around EUR 8.1 million higher than in the previous year (2010: EUR 30.9 million).

The result excluding investment income is negative, as Drägerwerk AG & Co. KGaA in particular performs group functions.

Drägerwerk AG & Co. KGaA spent EUR 4.7 million (2010: EUR 3.3 million) on research and development in fiscal year 2011. 49 employees (December 31, 2010: 48 employ-ees) worked in research and development in Lübeck on December 31, 2011.

INVESTMENTS

In fiscal year 2011, investments in intangible assets and property, plant and equipment totaled EUR 13.9 million

(2010: EUR 6.2 million). The majority of this amount was invested in the IT infrastructure.

RECONCILIATION OF FIGURES AT GROUP LEVEL

To reconcile figures at group level, consolidations between medical, safety and Drägerwerk AG & Co. KGaA and other companies have to be accounted for (see page 196 in the notes).

Research and development

Research and development expenses amounted to EUR 160.5 million in fiscal year 2011, 12.1 million higher than in the previous year (2010: EUR 148.4 million). This cor-responds to 7.1 percent of net sales (2010: 6.8 percent). Of these expenses, EUR 25.5 million (2010: EUR 22.4 mil-lion) were used for ordering goods and services from exter-nal development partners in 2011. This amount accounts for 15.9 percent of total research and development expens-es (2010: 15.5 percent), meaning that the ratio has risen by 0.4 percentage points year-on-year. Dräger purchased external research and development services, primarily for the development of individual components for devices and accessories, so as to gain access to expert knowledge in niche technologies. This measure increases product qual-ity and shortens development periods, meaning that devices can be launched more quickly, and it also increases flexibility. Dräger enters into long-term exclusive partner-ships to protect the results of such external development work.

On the balance sheet date of December 31, 2011, a total of 1,060 employees worked in research and development of the medical and safety divisions world-wide (December 31, 2010: 957). 49 people worked in Central Basic Research in Lübeck at that time (December 31, 2010: 48).

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

96 research and deVelOPMenT

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

In fiscal year 2011, Basic Research systematically monitored over 20 technology sectors, including electrochemical and micro-electromechanical sensor technology, software and signal processing technology. This measure aims to identify significant risks and opportunities for the Compa- ny’s technological competitiveness at an early stage. Find-ings with particularly high potential were scrutinized in more detail alongside employees’ ideas within the scope of almost 30 small research activities. They included patent applications, identifying customer benefits and sugges-tions 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 impor-tant contributions to product development from topics such as “secure networking and interoperability”, “interface human-machine” and “nano-materials”. The Company cooperates with around 50 external partners worldwide for this purpose, including university laboratories, clinics and research institutions, as well as small, innovative

companies. Some projects are also part of government-sub-sidized undertakings.

MEdICAL dIVISION

In fiscal year 2011, Dräger again developed numerous new and existing products: A total of eight new devices and device expansions were launched (2010: two) and five prod-ucts were added to the accessories portfolio (2010: nine).

The “PulmoVista 500”, a brand new product, was launched in the Ventilation business. It features the innovative elec-trical impedance tomography technology and thus optimiz-es ventilation therapy. It provides a continuous visualiza-tion of the lung function of ventilated patients and there-fore makes it possible to carry out precise analyses of the air distribution in individual parts of the lung. A heated filter was added to the “Infinity Evita V500” ventilation system. It filters the patient’s exhaled air and protects the user of the device from infection. This caters for specific customer requirements in the US market. The external “PS500” battery module provides sufficient power to oper-ate the “Evita V500” and “Babylog VN500” ventilators for approximately three hours without being attached to an electricity supply. This makes it possible to transport ventilated patients within a clinic, for instance.

RESEARCh ANd dEVELOPMENT

R&D costs in € million 2006 2007 2008 2009 2010 2011

Medical division 89.3 89.1 104.7 107.8 101.1 111.1

in % of net sales 7.2 7.4 8.4 8.5 6.9 7.5

Safety division 28.3 31.2 34.6 39.3 43.9 44.8

in % of net sales 4.8 4.9 4.9 5.8 6.0 5.6

Drägerwerk AG & Co. KGaA 0.4 1.6 2.7 2.3 3.3 4.7

Dräger Group 118.0 121.9 142.0 149.4 148.4 160.5

in % of net sales 6.6 6.7 7.4 7.8 6.8 7.1

Headcount 896 949 1,058 992 1,005 1,109

97POTenTialMarkeT enVirOnMenTThe dräger shares bUsiness PerfOrMance

An upgrade for the “Isolette 8000” incubator was launched globally in Neonatal Care and Thermo Regula-tion. Innovations for the humidification system have further increased hygiene in the care sector. Users can now remove the complete humidification system for cleaning and thus quickly and easily sterilize it.

The “Polaris 100/200” operating room light provides a relaxed working environment in the operating room with its white, high-contrast light, natural colors and latest light technology. With the “Advanced Workplace Design”, Dräger also launched new components for ceiling supply units. They improve ergonomics and occupational safety for hospital employees and at the same time create a patient-friendly atmosphere.

Monitoring, Systems and IT launched the “Vista 120” patient monitor, a product that is tailored for the fast-grow-ing emerging markets. Customers in these markets demand particularly robust and low-maintenance devices that can be operated without requiring much training. The new version of the “Innovian Solution Suite” clinical information system, an electronic medical record in acute care, helps to improve the quality of documen tation by carrying out automatic plausibility checks, thus sup-porting hospital employees in making sound decisions regarding the next therapeutic steps.

Lifecycle Solutions added a new disposable ECG cable for patient monitoring to its product portfolio to reduce the risk of infection in hospital environments.

Dräger continued to improve the quality of its products in 2011 and successfully integrated the newly developed “Reliability Engineering” business in several development projects, among other things. Product quality is increased even further thanks to improved systematics and competent method support. Software-based tools and databases increase the effectiveness of the knowledge management

regarding customer needs. In addition, potential product defects can be detected and corrected at an early stage of the project.

SAFETY dIVISION

Research and Development at the safety division went into an ongoing innovation offensive and once again launched a large number of products in 2011. The safety division brought a total of 18 new products to market (2010: 18).

The “Dräger UCF 7000” and “UCF 9000” thermal imaging cameras for the firefighting sector were the real high-lights among these new products. They complement the “Dräger UCF 6000” thermal imaging camera, which had been introduced in the previous year, and are the first cameras that can be used in areas prone to explosions. The “Dräger FPS COM Plus” integrated communications solution was also developed for firefighters. Equipped with state-of-the-art digital acoustic filtering, it provides reliable communication, even in the most difficult circumstances. Dräger cemented its position as provider of systems and solutions for firefighters and emergency services by starting the series production of testing devices for protection equipment – the “Dräger Quaestor 5000” and “Dräger Quaestor 7000”.

The “Polytron 5000” transmitter product group was suc-cessfully launched in the field of stationary gas detection systems for industrial use. It can be combined with all popular Dräger sensors and therefore adjusted to meet a varied range of customer requirements. The “Dräger X-Zone Switch On/Off Box” is an addition to the “Dräger X-Zone 5000” portable gas detection system for monitoring industrial facilities. In addition to emitting an optical and acoustic warning signal, the system now also switches off electrical devices in case of emergency.

The new poisoning-resistant sensor for combustible mate-rials, “Catex 125 PR”, has a longer stability time than

FUNCTIONAL AREAS

98 research and deVelOPMenT | PUrchasing | QUaliTy | PrOdUcTiOn and lOgisTics

its predecessor. It is also extremely resistant to impurities such as silicone that are specific to the industrial sector.

The area monitoring system “Dräger X-Zone 5000”, the smallest portable personal six-gas detector “Dräger XAM-5600”, and the compressed air breathing systems “Dräger PSS 3000” and “Dräger PSS 5000” were all approved for distribution in the US.

New technologies make it possible to create more user-friendly products and develop new product features. Dräger follows trends that increase customer safety as much as possible and also lower costs on account of an optimized process chain, some important examples being the wire- less transmission technology for gas detectors and improved communication solutions for firefighters. Thanks to new materials, respiratory protection filters, for instance, can be even more specifically tailored for various areas of application and the performance of gas sensors can be improved.

Dräger once again focused on continuously improving its product development processes and methods in the reporting year. The improved platform management is just one such example: This method accelerates the parallel use of suitable components in various devices to shorten development times and increase efficiency.

The internationalization of research and development activities was another focal point. In September 2011, Dräger opened a research and development center in Bei-jing, China, where it develops local product modifications and expansions for the growing Asian market.

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 suf-ficient to ensure supply capability at still reasonable prices. Dräger’s purchasers are focusing their efforts on com modities purchasing concepts with the aim of in -creas ing volumes so as to strengthen the Company’s market position. The same was applied to Dräger’s suppliers, which were intensively included in mastering these chal-lenges 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 Devel-opment 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 purchase of non-production materials and IT in 2011, generating excellent savings for the purchase of goods and services.

SUPPLIER QUALITY – A BASIC REQUIREMENT FOR

dRäGER QUALITY

The objective of the supplier quality improvement program, 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 managed, for instance, to lower one electronics supplier’s rate of internal pro-duction 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 coop-eration with suppliers. An efficient initial sampling process and an optimized complaints procedure are just two examples of long-term improvements of a partnership.

Dräger is now also using the quality improvement program 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, innova-tive 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, logis-tics, competitiveness and services and one supplier will be declared the overall winner in all categories.

Quality

In fiscal year 2011, Dräger once again focused its quality management activities on improving the quality and reli-ability of its products. The “Six Sigma” method again proved to be an important instrument as well as the Failure Mode and Effects Analysis (FMEA). Dräger’s trained experts used the tried and tested “DMAIC” circle (Define − Measure − Analyze − Improve – Control) in their daily work for continuously improving processes and products. By applying this method, the Company considerably improved its quality key figures in 2011 for factors such as delivery quality and guarantee costs, among other things. Several times a year, employees trained in these methods are given the opportunity to exchange their knowledge and experiences with colleagues from other functions to continuously increase the use for the Company.

In addition, Dräger continued to firmly integrate quality management instruments in the development process. The Company had started implementing this action in the previous year. It also further strengthened the early inte-gration of strategic suppliers.

PROdUCT QUALITY ANd SAFETY

Effective quality management systems are extremely important for Dräger’s economic performance. Clearly and concisely described and documented processes help to economize the production of products and the delivery of services. They also are a legal requirement in many coun-tries for the launch of products such as medical technology. Furthermore, customers often demand to see proof of the Company’s management systems prior to placing an order. For this reason, all 14 production sites have man-agement systems certified in accordance with DIN EN ISO 9001. As in the previous year, this corresponds to a rate of 100 percent. The management systems of around 60 per-cent of Dräger production sites are also certified in accor-dance with OHSAS 18001, an international standard for occupational health and safety. The Group aims to further increase this figure in 2012.

Internal and external audits were carried out in 2011 for both divisions’ management systems and confirmed that they were working effectively. You can find more information on this subject on the Dräger website at www.draeger.com/certificates.

Production and logistics

PROdUCTION

One year after the production of emergency ventilation equipment was transferred from the site in Best, Nether-lands, to Lübeck, the expected synergies have started to take their effect – materials availability, for instance, as well as floor space utilization and capacity planning have improved.

FUNCTIONAL AREAS

100 PrOdUcTiOn and lOgisTics | MarkeTing, sales and serVice

Dräger continued to invest in its Lübeck site in 2011: The new production and logistics building for the Infrastruc-ture Projects business was occupied in April 2011. This – together with further process improvements – increased productivity, considerably reduced work in progress and significantly improved delivery quality. Dräger opened another soda lime plant in September 2011 to meet the continuously rising demand for this product. A production plant for a new oxygen sensor was also started up.

The future collective agreement (“Zukunftstarifvertrag”), which was concluded for the German Dräger companies at the end of 2010, is aimed at making production increas-ingly flexible: In the medical division’s production, the flexibility of personnel capacities was improved by intro-ducing part time employment contracts. Productivity also improved as considerably less effort was expended on repeatedly training up temporary employees.

The site in Blyth won the “Manufacturing Excellence (MX) Award” of the British “Institution of Mechanical Engi-neers” in the category “Logistics and Operational Efficien-cy”. This prize was given for successful lean production as well as employee communication and development.

In Beijing, China, Dräger produced numerous medical technology products that are specifically tailored for local customer requirements in Asia. In September 2011, the Company opened a new production and development build-ing at the site which provides a larger and highly modern production floor.

LOGISTICS

Dräger switched the service provider for its replacement parts and consumables business in December 2011. This move is aimed at increasing flexibility, optimizing IT systems and also at benefitting from the professional expertise of the new service provider.

Marketing, Sales and Service

CUSTOMER SEGMENT OVERVIEW

The customer segments of the medical division include the functional areas along the hospital patient process chain where therapy devices are used on the patient. Dräger offers its customers a large portfolio of acute care equip-ment and system solutions, from individual devices to work-stations in a department and complete system solutions for the entire hospital – from gas supply systems to wire-less patient monitoring components. Most of the devices are used in operating rooms as well as critical care and neonatal care units. Outside the hospital environment, Dräger ventilators, for instance, are used in emergency vehicles and helicopters. Dräger anesthesia workstations are used in the operating rooms of acute care hospitals as well as in day clinics.

The safety division targets customers in the industrial sec-tor. The petrochemical industry, including oil and gas exploration, the manufacturing as well as the mining indus-try are all examples of important customer segments. Companies in the logistics sector, from haulers to shipping companies and harbor managements, are also interested in Dräger products and system solutions. Further segments are to be found among public sector customers such as fire services, the police force and the armed forces. Complete service packages that ensure the safety of operations and employees during scheduled maintenance of industrial plants and machinery as well as complete tunnel rescue systems and fire training facilities for fire services are all part of the Dräger product portfolio.

ABOVE-AVERAGE GROWTh IN ThE ACCESSORIES ANd

SERVICE BUSINESS

Intelligent accessories and consumables, which are addi-tions to the operation of Dräger products and solutions throughout their entire lifecycles and which ensure that the products function correctly at all times, are just as


much part of the Dräger portfolio as innovative service solu-tions that provide, for instance, remote monitoring of Dräger devices and systems via network connections. Such solutions compliment Dräger’s traditional service portfo-lio. The Company’s range of hands-on training helps cus-tomers to efficiently use Dräger devices and systems.

FOCUS ON GROWTh MARKETS

Dräger generated its largest growth in the rest of Europe and the Asia/Pacific regions in 2011. Especially the suc-cess in Russia, China and India contributed to this devel-opment. One of the main success factors last year was the Company’s activities in expanding its presence in these growth markets. Brazil was the only country without any growth in 2011 as the prior-year figures had been signifi-cantly boosted by a large order.

The emerging and developing countries are in particular need of economical products and solutions that suit the specific market conditions. The production site in China enables Dräger to actively position itself in market seg-ments that are increasingly being played by local competi-tors.

TRAdE ShOWS ANd EXhIBITIONS

Dräger’s employees once again successfully presented the Company’s products and solutions at numerous events around the globe in the past year. The Group participated in the “MEDICA” in Düsseldorf, the world’s largest medical technology trade show, as well as in the “Arab Health” in Dubai and the “CMEF” in China. These regional medical technology trade shows are increasingly gaining importance as the markets in their regions are showing above-average growth. Dräger’s safety technology prod-uct and service portfolio was successfully presented to visitors of events such as the important occupational health and safety trade show “A&A” in Düsseldorf and the “Interschutz” in Leipzig.

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 sub-sidiaries in the majority of key markets. In addition, the Company reaches out to customers via established region-al specialist retailers wherever this serves its purpose. The proportion in the growth regions Asia/Pacific, the Mid-dle East and Africa as well as South America is dispropor-tionately large. The retailers in these regions often provide the momentum for Dräger’s growth. In some established markets like Canada, the US, Australia and some European countries, 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 synchro-nized 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 contribute almost 50 percent of total net sales. For the future, Dräger plans to launch this program in all sales companies to generate new opportunities in customer relationship manage-ment, both locally and strategically for the whole Group.

Dräger also maintains personal customer relationships at its headquarters in Lübeck, where visitors can experience 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, visitors can attend workshops to develop virtual floor plans for clini-cal workstations or whole departments and document them with a 3D tool.

FUNCTIONAL AREAS

102 cOrPOraTe iT | enVirOnMenTal PrOTecTiOn

Corporate IT

IT STRATEGY

Dräger’s fundamental goal is to support its business pro-cesses with IT. This primarily pertains to the ongoing adjustments of IT systems to suit requirements, a high tech-nological standard and the constant striving for simplify- ing the use of IT as much as possible for employees.

In the past year, the Company launched a new pilot plat-form for supporting cooperation between its employees and business partners. Based on the Microsoft Sharepoint application, virtual team rooms will be available to provide more effective teamwork between several locations. Addi-tional functions will be added to this platform in the com-ing years and in the future it will also be used for the Intranet and Internet. Old applications from various pro-ducers 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 versions, new mechanisms were implemented for increas-ing 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 has been started some years ago. 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 in ERP and CRM Project and Application 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, Dräger reduced the extent of external services in these areas in the medium term, in turn internally accumulating strategically impor-tant know-how and improving its support for internal IT management processes. The Company plans to continue expanding its core IT 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.

IT COSTS

IT costs in the Dräger Group rose to around EUR 100.6 mil-lion in 2011 (2010: around EUR 80.2 million), mainly on account of the previously mentioned modernization of the application business. This represents some 4.5 percent of total net sales of the Dräger Group (2010: 3.7 percent). These costs break down between operating expenses of EUR 76.7 million (2010: EUR 73.6 million) and project expenses of EUR 23.9 million (2010: EUR 6.6 million). The trend, which is showing in the ratio of expenses that increase at disproportionately high rates, will only reverse itself in the medium term. The consolidation of key applications and the resulting simultaneous operation of old and new systems over a period of several years create additional costs. The same applies for the ongoing long-term insourcing program, where parallel activities of inter-nal and external resources during the transfer of knowl-edge are negatively impacting the cost structure.


Environmental protection

Comprehensive environmental protection as well as occu-pational 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 sub-sidiaries in 2011. A total of 31 Dräger companies now have certified environmental management systems in com-pliance with DIN EN ISO 14001 (2010: 28 companies). In relation to headcount, this corresponds to a coverage of around 64 percent. 22 of the safety division’s 42 foreign subsidiaries (52 percent) are certified in accordance with this standard as well as with OHSAS 18001 (2010: 40 percent). In the medical division, the two US production sites of Dräger Medical Systems Inc. in Andover, Massachu-setts and Telford, Pennsylvania, as well as the sales and service company Dräger Medical Inc., Telford, were includ-ed for the first time last year in the environmental certifi-cation. Four of the medical division’s important subsidiar-ies 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 in accordance with OHSAS 18001.

The systematic documentation and assessment of energy and resource consumption was expanded further in 2011. 89 Dräger companies around the world (2009: 65 com-panies) − their number of employees accounting for almost of 96.2 percent of Dräger’s total headcount − participated in the “Carbon Disclosure Project” reporting system for fiscal year 2010. The participating companies record their direct and indirect carbon dioxide emissions from the use of electricity, heating, vehicles and air travel and assess 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 emissions were recorded, of which 50 percent was created in Germany.

While the data for direct CO2 emissions remained rela-tively stable, the first-time inclusion of the logistics data resulted in a rise of around 25 percent in total CO2 emis-sions. Unlike in the case of direct CO2 emissions from local energy consumption, there are very few possibilities of reducing the emissions of customer-specific logistics pro-cesses as these are largely pre-determined by the volume and regularity of goods transports.

ENERGY MANAGEMENT

At headquarters in Lübeck, the main environmental factors were electricity, water, natural gas and heating oil con-sumption as well as waste volumes. The development of environmental data over the past 10 years is shown in the illustration on page 104. In 2011, Dräger managed to further reduce its relative energy consumption in all seg-ments.

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

dIRECT ANd INdIRECT CO2 EMISSIONS 2010 1

24% (29,200 t) electricity consumption 1

13% (16,300 t) heating 2

26% (31,400 t) Vehicles 3

13% (15,700 t) air travel 4

25% (30,100 t) distribution logistics 5

1 data for each period becomes available in the middle of the following year.companies recorded: 89

1

2

3

4

5

FUNCTIONAL AREAS

104 enVirOnMenTal PrOTecTiOn

oil consumption to only 2.4 percent, resulting in direct CO2 emissions of approximately 10,200 tons. This corre-sponds 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 con-sumption decreased slightly by 0.3 percent.

The local gas-fuelled cogeneration plant produced a steady 6.2 million kWh/a of environmentally-friendly elec-tricity. 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 fluctua-tions in annual electricity production are due to the weather, as heat, the generated byproduct, 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 cogeneration plant,

a similar amount to that in the previous year. In relation to the Dräger companies alone, which consumed 23.5 mil-lion kWh in electricity, the share of self-produced elec-tricity 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 headquar-tered in Lübeck. Its important production processes, like the soda lime and filter production, 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 management in accordance with DIN EN ISO 50001:2011, Dräger aims to further increase the efficiency of its energy consumption 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. Dräger

REdUCTION OF ENVIRONMENTAL LOAd IN RELATION TO NET SALES

(in %, reference year 1995 = 100 %)

90

80

70

60

50

40

30

20

10

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Total solid waste cO2 emissions Water consumption energy consumption a continuous decline in environmental load indices at the lübeck site as measured against net sales


aims at further reducing water consumption in this area by constructing a new energy and water-saving filter fleece production plant in 2012.

WASTE MANAGEMENT

The waste volume recorded by Dräger Abfallwirtschafts-verband 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 carbon production decreased by around 20 percent − con-trary to paper and cardboard waste, which increased; a sign of improved waste separation. The waste recycling ratio of Dräger Abfallwirtschaftsverband 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 dis-posing of and recycling materials in a legal manner, espe-cially those used in devices and products containing critical chemicals and substances, the Company makes an important contribution to protect 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 imple-ment 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 Com-pany’s suppliers to bring all relevant aspects of RoHS com-pliance 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 haz-ardous emissions into the air. For process security and prod-uct safety reasons, cleaning agents, adhesives and coat- ings 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 regulatory authori-ties. 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 underscored by the results of exposure measurements which fall far below the legal workplace concentration limits. Regular examinations by a Company doctor and systematic occu-pational safety training are also provided. Regular exami-nations by a Company doctor and systematic occupa-tional safety training are also provided.

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

FUNCTIONAL AREAS

106 execUTiVe bOard and sUPerVisOry bOard reMUneraTiOn | PersOnnel and sOcial MaTTers

HR and Accounting from the divisions to Drägerwerk AG & Co. KGaA for organizational reasons. Dräger also increased headcount in its administrative functions such as IT (+34) and HR (+24).

In the medical division, the Company hired a total of 331 additional employees, of which 72 were added to Dräger Medical GmbH’s Production. These were mostly temporary employees taken over as part of flexible working time models. Headcount in Research and Development also went up by 42. The number of employees working at the for-eign subsidiaries rose in Service (+49), Sales (+34) and Marketing (+25). At the production and development sites in Shanghai, China, and Andover, USA, headcount was increased in Research and Development (+31). In Shang-hai, an additional 17 people were also hired in Production.

Compared to December 31, 2010, Dräger raised the num-ber of employees in the safety division by a total of 122 in fiscal year 2011. This increase focused on the German functions Production (+26), Sales (+25), Research and Development (+22) and Logistics (+20). 48 employees were added in the safety division outside Germany, 20 of which in Production, 14 in Sales and 9 in Research and Development.

The 8.9 percent rise in personnel expenses was the result of growth-related hiring as well as pay rises in accor-dance with wage agreements in Germany. The variabili-zation of special payments within the scope of the future collective agreement (“Zukunftstarifvertrag”) also pushed up these costs.

The personnel cost ratio in fiscal year 2011 was 35.2 per-cent (2010: 33.5 percent).

ATTRACTIVE EMPLOYER

The increasing competition for qualified professionals and managers made it necessary for Dräger to increase its

Executive Board and Supervisory Board remuneration

The basic features of the remuneration system for the Executive Board and Supervisory Board are described on pages 48 et seq. of the remuneration report, included in the corporate governance report, which also forms part of the Group management report.

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 students and positions itself as an attractive employer in the labor market. It systematically secures its future demand by devel-oping young talent in its own ranks. Dräger also continu-ously trains and supports its existing employees, as it knows that the Company can only grow as far as its employees.

On December 31, 2011, Dräger had a total of 11,924 employees worldwide, 633 employees (+5.6 percent) more than in the previous year (December 31, 2010: 11,291).

In Germany, headcount was 386 up year-on-year and the number of employees abroad rose by 247. Most of the new employees were hired in Production (+135), Research and Development (+104), Service (+96), Marketing (+42) and Sales (+73). On December 31, 2011, a total of 54.1 percent (December 31, 2010: 55 percent) of employees were working outside Germany.

On December 31, 2011, headcount in the Drägerwerk AG & Co. KGaA/other companies segment was up 180 employees compared to December 31, 2010. A major reason for this change was the transfer of 90 employees in the Company’s


profile and attractiveness for potential employees further in 2011. The Company focused even more strongly on direct-ly approaching applicants from an even more diverse background in the reporting year. By employing active mar-keting strategies and expanding its online activities, it attracted more visitors to its German career portal as well as more job applicants. 19,691 applications were submit- ted in Germany alone, a rise of 38 percent (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 mod-ern training facility at the Lübeck site in 2011. In addition, 75 new trainees and dual students were taken on for 14 different career paths last year; 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 reporting year, of which 97 percent took this opportunity.

FUNCTIONAL AREAS

WORKFORCE TRENd

Headcount as of the balance sheet date Headcount (average)

December 31, 2011 December 31, 2010 2011 2010

Medical division 6,717 6,386 6,586 6,357

Safety division 4,531 4,409 4,469 4,370

Drägerwerk 676 496 615 459

Dräger Group total 11,924 11,291 11,670 11,186

Women 3,478 3,303 3,401 3,266

Men 8,446 7,988 8,269 7,920


Turnover in % of employees 5.1 5.3

Sick days in % of work days 3.1 3.2

Average age (years)

41.6 41.6

Personnel development costs in € million 13.8 12.3

thereof training expenses 8.3 6.8

108 PersOnnel and sOcial MaTTers | risks and OPPOrTUniTies relaTing TO fUTUre deVelOPMenT

Dräger identifies promising talent in all parts of the world. Its 2011 trainee program 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 qualifica-tions and development of its young colleagues in the form of comprehensive training measures to prepare them as well as possible for their future tasks in a responsible position. The Company places special importance on inter-national cooperation and global knowledge transfer. It therefore deliberately promotes “networking” – developing 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 university recruitment days and further intensified its cooperations with 11 select-ed universities and technical colleges. In 2011, Dräger offered 331 young people the chance to gain practical expe-rience and often even get a start on the career ladder with a Dräger internship or by writing their final papers at

the Company, as the majority of Dräger trainee positions are filled from the ranks of interns.

ACTIVELY COMMITEd TO hEALTh ANd SAFETY

Since Dräger was founded in 1889, occupational health and safety has been of utmost importance for the Company. For this reason, occupational health management is regard-ed as a crucial part of strategic HR management. And this commitment pays off: With 34 accidents (2010: 38), this number was low again at all German Dräger compa-nies in 2011. In addition, 1,008 employees participated in one of the Company’s health promotion programs on subjects such as 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 at a low level of 4.26 percent (2010: 4.23 percent). This is lower than the average record-ed by the member companies of the employer association NORDMETALL (5.05 percent).

SUPPORTING ANd dEVELOPING EMPLOYEES

In 2011, Dräger invested EUR 13.8 million in employee training and education (2010: EUR 12.3 million). In the reporting year, 9,247 days were spent on training in Ger-many (2010: 7,686 days). This corresponds to 1.9 training

EMPLOYEES – FULL TIME EQUIVALENTS (FTES)

FTEs as of the balance sheet date FTEs on average

December 31, 2011 December 31, 2010 2011 2010

Medical division 6,420 6,202 6,365 6,147

Safety division 4,323 4,206 4,268 4,173

Drägerwerk 623 457 565 421


Germany 5,047 4,711 4,915 4,605

Other 6,319 6,154 6,283 6,136


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 eLearning portfolio with online-based training courses and webinars, raising the standard of spe-cialist, 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 specifically trained change managers went up by 12 to 26 in the report-ing 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 targeted improve-ment measures. The consistently high attendance rate of 82 percent (2009: 82 percent) is proof of the large accep-tance of the survey among employees. Dräger is pleased that in the reporting year, 90 percent of employees who par-ticipated in the survey were proud to work for Dräger (2009: 86 percent) and 85 percent would recommend Dräger as an employer (2009: 78 percent).

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 uncer-tainties of doing business. The system enables Dräger to meet its targets by consistently taking advantage of opportu-nities without losing sight of the associated risks. Since risks are identified early and updated regularly as part of risk management, the Company can implement measures in a timely manner in order to ensure that the Com-pany’s objectives are met. This applies in particular to identifying developments that could threaten the existence of Dräger. The risk management system therefore meets the requirements of the Control and Transparency Act (Gesetz zur Kontrolle und Transparenz im Unterneh-mensbereich – KonTraG).

FUNCTIONAL AREAS

BREAKdOWN BY OCCUPATION AS OF dECEMBER 31

Occupation 2011 2010

Business/ technical vocational training 79 72

Industrial business managers 60 60

Chemical laboratory assistants 6 7

Qualified warehouse logistics personnel 10 2

Shipping and logistics services business administrators 3 3

Industrial vocational training 63 55

Mechatronics 24 25

Devices and systems electronics engineers 29 23

Qualified warehouse personnel 6 5

Technical draftsmen /women 4 2

College and university studies 69 67

Bachelor of Science “industrial engineering” 32 35

Bachelor of Engineering “medical technology” 7 7

Bachelor of Science “computer science” 9 8

Bachelor of Engineering “mechanical engineering” 11 10

Bachelor of Engineering “electrical engineering” 8 6

Bachelor of Science “business informatics” 2 –

Graduate business managers – 1

Total apprentices in vocational careers 211 194

110 risks and OPPOrTUniTies relaTing TO fUTUre deVelOPMenT | OPeraTiOnal risks

The long-term basis for our opportunity management is the strategic planning process and the resulting development and market positioning plans for products over their respective life cycles. 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. Strate-gic corporate planning constitutes the basis for recogniz -ing potential risks: even during the planning process, poten-tial uncertainties are specified in the assumptions under-lying the plans. The internal control system (see page 64) continuously monitors these uncertainties and communi-cates 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 catego-ries and aggregated at the Company level. Information on risks and opportunities is exchanged between the respec-tive 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 Com-mercial Code (Handelsgesetzbuch – HGB) and Sec. 107 (3) of the German Stock Corporation Act (Aktiengesetz – AktG). The Dräger early risk identification system is a part of the Dräger risk management system and remains part of the annual audit.

As a matter of course, the medical and safety divisions sub-mit 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 (see Quality management on page 99).

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 con-sidered 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 individu-al 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 impuls-es 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 Septem-ber 2010 to 3.3 percent in January 2012. There is a possibility, however, of basic economic momentum slowing down even further.

Natural disasters in countries rich in raw materials as well as the artificial scarcity of commodities due to specula-tive 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 Brit-ain and China are instrumental in reducing the currency risks associated with global business.

111MarkeT enVirOnMenTThe dräger share bUsiness PerfOrMance POTENTIALfUncTiOnal areas

Numerous other factors such as global, political and cul-tural 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 likely to affect the structure and intensity of competition. The pooling of purchasing volumes due to the consolidation of hospitals or the establishment of purchasing coopera-tives 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 cus-tomer base. These include public hospitals, fire services, the police force, the military and disaster management. Public spending cuts were evident in numerous industri-alized countries over the last few years, for example in the US and Europe. This trend could continue given the current market environment. Dräger is meeting these challenges through customer orientation, innovation, 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 exten-sive 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 technologies and the assem-bly of purchased parts and components. To manage the risks this entails, information processes are structured, the necessary internal and external interfaces in the global processes are optimized and the performance of external partners is carefully reviewed. Quality standards safe-guard the supplier selection and procurement processes. The operating processes are continuously being improved.

Risks due to increases in the cost of metals were confirmed in fiscal year 2011 and are expected to continue in 2012. The supply situation in the area of electronic components 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. Experi-ence has shown that new products are more profitable than products in a later phase of the product lifecycle. This is why Dräger continuously invests in research and develop-ment in order to keep the proportion of new products as high as possible. This necessitates making both top tech-nological products and products which appeal to a large section of the market available in a timely manner. Togeth-er 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 con-trol operating processes, from development, sales and

112 OPeraTiOnal risks

order fulfillment through to maintenance of the product portfolio. Risks may therefore arise from factors such as the unexpectedly high complexity of development projects, delayed product launches and changes in market require-ments.

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, con-cerning the limitation of use of certain hazardous substanc-es in electric and electronic devices (RoHS – Regulations of Hazardous Substances). Up to now, medical devices have been subject to special regulations. In summer 2011, however, the decision was made that medical devices must also comply with the RoHS regulation by July 2014. Due to their long life- and development cycles, the switch-over 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 products by mid-2014. The conse-quence 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 margins may deviate from the actual margins for reasons such as cost changes or lost productivity. Possible risks include qual-ity problems, the loss or shortage of qualified skilled work-ers, delivery problems on the part of suppliers or payment difficulties on the part of customers. If specific contrac-tual 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 pos-sible with the help of project management 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, enhanc-ing their identification with the Company and motivating them for maximum performance. Dräger Group invests in employee qualification measures in order to counter-act 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 quali-fied professional and executive employees by maintaining close contact with universities 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 collective agreements are to be expected for the subsequent period. The terms and duration of pending collective agreements in the planning period are uncertain.

113MarkeT enVirOnMenTThe dräger shares fUncTiOnal areasbUsiness PerfOrMance

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. 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 award-ing of contracts, export control regulations and more are also relevant to business operations. Drägerwerk AG & Co. KGaA is also subject to legal regulations governing capital markets.

The Dräger companies are currently involved in legal dis-putes 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 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 per-

mitted 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, for instance interest rate, cur-rency 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 divi-sions.

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

Dräger uses various financing instruments to reduce liquid-ity risk: In addition to participation certificates, Dräger Group has outstanding note loans with various terms 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 financing. 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 respec-tive bilateral agreements have a term of five years. The framework agreement for the bilateral credit lines stipu-lates 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 deterio-

POTENTIAL

114 OPPOrTUniTies | disclOsUres PUrsUanT TO sec. 315 (4) Of The gerMan cOMMercial cOde (hgb) and exPlanaTiOns Of The general ParTner

rate 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 fig-ures is monitored continuously and the findings are regu-larly 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. 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 and swap hedging transactions with selected banking partners, wherein the payment streams are hedged on a transaction-specific basis. Details on the management of financial risks are found in the notes on pages 187 et seq.

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 Company (e. g. in case of a class action lawsuit). However, the prob-ability 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-tional safety and fire protection, these also include obtain-ing comprehensive industrial insurance cover to financially secure the insurable operating risks and resulting 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 com-petitive 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 perfor-mance 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 continued 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 out-standing technological know-how, high product quality, brand awareness and long-term customer relationships. In this context, Dräger focuses on attractive market seg-ments and niches where the Company sees above-average profitability and growth opportunities. Dräger also strives to develop new markets by developing new products.

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 oppor-tunities for profitable and sustained expansion in the rap-idly growing developing and emerging countries.

EXPANSION OF ThE SERVICE ANd ACCESSORIES

BUSINESS

Dräger Group intends to pursue the further growth of sales in the stable and attractive service and accessories busi-ness; here both divisions of the Company 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 organizational merger of marketing and sales activities, which have been separated to date, in keeping with the functional man-agement structure, and through the implementation of a uniform Group-wide CRM (customer relationship man-agement) 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 mar-gins and a greater market share by improving efficiency in sales.

disclosures pursuant to Sec. 315 (4) of the German Commercial Code (hGB) and explanations of the general partner

The following disclosures pursuant to Sec. 315 (4) HGB describe the conditions as they were on the balance sheet date.

COMPOSITION OF CAPITAL STOCK

The capital stock of Drägerwerk AG & Co. KGaA amounts to EUR 42,265,600. It consists of 10,160,000 voting bear - er 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 com-mon shareholders. If the profit is not sufficient to dis-tribute the advance dividend for preferred shares in one or more years, the amounts are paid from the profit of sub-sequent 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 pre-ferred shareholders have voting rights until the arrears have been paid. In the event of liquidation, the preferred shareholders receive 25 percent of net liquidation pro-ceeds in advance. The remaining liquidation 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 vot-ing rights of those common shares held by Dr. Heinrich Dräger GmbH in the case of the annual shareholders’ meet-ing of Drägerwerk AG & Co. KGaA passing resolutions on agenda items within the meaning of Sec. 285 (1) Sen-tence 2 AktG. There are no further restrictions which relate to voting rights or the transfer of shares, even though they could arise from agreements between shareholders.

dIRECT OR INdIRECT ShAREhOLdINGS EXCEEdING

10 PERCENT

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. Hein-rich 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 remain-

POTENTIAL

116 disclOsUres PUrsUanT TO sec. 315 (4) Of The gerMan cOMMercial cOde (hgb) and exPlanaTiOns Of The general ParTner

der 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 Foun-dation), respectively. In accordance with Sec. 22 WpHG (Wertpapierhandelsgesetz – German 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 part-ner, 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. Consequently, in the cases covered by Sec. 285 (1) Sen-tence 2 AktG, he is generally not entitled 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 association.

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 repre-sent the Company, a regulation derived from partnership law. Drägerwerk Verwaltungs AG, Lübeck, is the sole general partner of Drägerwerk AG & Co. KGaA. The Super-visory Board of Drägerwerk AG & Co. KGaA, which has half of its members elected by employees, is not authorized to appoint or remove the general partner or its Executive Board. The general partner joined the Company with a cor-responding 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 Article 8 of the articles of association and by-laws 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 sharehold-ers’ meeting, is responsible for appointing and removing members of the Executive Board. It appoints members


of the Executive Board for a maximum of five years. Repeat appointments or extensions of the term of office are per-missible.

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 Com-pany and its general partner – and not the annual share-holders’ meeting, decides on the management transac-tions by the general partner which require approval 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 a resolution requires a majority of at least three quarters of the capital stock represented at the time of the vote. The articles of associa-tion may stipulate a different majority of capital stock, but for changes in the purpose of the Company this can only be a greater majority (Sec. 179 (2) Sentence 2 AktG). At Drägerwerk AG & Co. KGaA, pursuant to Art. 30 (3) of the articles of association, resolutions by the annual general meeting are adopted by a simple majority of votes cast (sim-ple voting majority) if this does not conflict with any legal provisions. If the law additionally requires a majority of capital they continue to be 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) Sen-tence 3 AktG to define further requirements in the articles of association for amendments to the same agreement. In addition to the relevant majority of limited shareholders, amendments to the articles of association also require the approval of the general partner (Sec. 285 (2) AktG). Pur-

suant 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 association 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’ meet-ing 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 association). 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 share-holders’ meeting on May 7, 2010 regarding agenda 7. a. The option rights have not been exercised up to now.

In accordance with the resolution agreed upon at the annu-al 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 autho-rization 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 subscrip-tion right that can be excluded, with the approval of the Supervisory Board, under certain conditions. In the case

POTENTIAL

118 sUbseQUenT eVenTs | OUTlOOk

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.

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 part-ner 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 Drägerwerk 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 cash dividend of EUR 0.13 per common share and EUR 0.19 per preferred share, hence a total EUR 2.5 million, and carry forward the balance of EUR 155.7 million. The preferred share dividend also governs the dividend for par-ticipation 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 (“Deutsches 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 addi-tion, the turbulences in the capital markets caused by the debt problem are having an adverse effect on sentiment 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 industrial nations as well as the emerging countries such as China, India and Bra- zil. The likely reasons are reduced demand impulses from international trade partners and also a decline in domestic demand. The IMF has therefore lowered its global eco-nomic forecast compared to September 2011: It now expects global gross domestic product (GDP) to expand by 3.3 percent – after 3.8 percent growth in 2011. The indus-


trial 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 Euro-pean 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 compa-nies and consumers in the eurozone. The continuing ten-sion on the government bond markets in the eurozone and the necessary budget consolidations are slowing down domestic demand. According to some current poll indica-tors 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 recovering very grad-ually during the course of 2012 – on the back of global demand, very low short-term interest rates and the mea-sures for boosting the business operations of the financial sector in the eurozone. The economic outlook, so ECB, will however remain burdened by high uncertainty and con-siderable 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 per-formance 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. Eco-nomic 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, especially on account of currently still existing uncertainties regard-

ing the question if a sustainable solution can be found for resolving the euro debt crisis. Despite Dräger’s diversi-fication in various product markets and its geographi- cally well-balanced portfolio, poor overall economic per-formance is likely to also negatively affect the Company’s order situation. The Group expects the part of the safety division’s industrial business, which is more dependent 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 moder-ately. Public sector order policies are expected to be restrictive, particularly in Europe but also in the US. This, in turn, is likely to lead to lower or stagnating order vol-umes in the police force and fire services customer groups as well as in the medical division. In Asia and South America, Dräger anticipates growth to be higher than the overall economic momentum. 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 com-modity prices is generally low in view of the global eco-nomic slowdown and the resulting drop in demand. Due to the weaker growth and realized capacity expansions in global logistics, Dräger should profit from slightly declin-ing 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 disproportionately 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 refinanc-ing markets arising from such a step are therefore likely to be low.

POTENTIAL

120 OUTlOOk

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 coun-tries in the eurozone remains in 2012, the Group cur-rently does not anticipate any major burdens to arise from this when taking into account its outstanding receivables and agreed hedges for them. Should it be impossible, how-ever, 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 uncer-tainty, 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 medical 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 European countries like the Netherlands and Austria are also posi-tive. 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 hos-pitals were closed by the end of 2011 with further savings

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 medical tech-nology continues to be high in Brazil, as both the private and public healthcare sectors are being developed inten-sively. 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 professional association Spectaris, for instance, expects investments in medical technology to be made in Algeria, Tunisia 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 efficien-cy. 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 technology 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 overshad-owed 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. Rus-sia is also expected to continue showing momentum as it is about to join the World Trade Organization (WTO). The Americas, on the other hand, will develop cautiously, with exception of the oil and gas production and mining sectors. The forecast for Brazil, for instance, is only mod-erate growth compared to the strong previous years. In view of the reduction 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 markets 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 coun-tries region − in South Africa, for example − demand is expected to rise in various sectors due to investments in modernization and the expansion of production volumes. All in all, Dräger forecasts a solid performance in the safety technology markets − in a changed general eco-nomic environment.

FUTURE SITUATION OF ThE COMPANY

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, con-tinued economic recovery in North America, sustained market growth in developing countries and stable exchange rates. The majority of Dräger’s growth will likely be sup-ported by non-European regions like the emerging coun-tries and the US. In the medical division, Dräger expects above-average growth in the equipment business. The Com-pany also anticipates for Lifecycle Solutions to make major contributions to net sales growth. In the safety divi-

sion, the Group forecasts further business volume increases in all product areas. New products will boost growth in both divisions: The Company plans to launch a total of twelve new medical technology products and 19 new safety technology products as well as product developments in both divisions. Dräger therefore expects the percentage of new and improved products in net sales to rise.

In the medical division, changes in the very favorable coun-try 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 mar-gin.

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 products adhere to the RoHS/Reach regulations by 2014. The improvement of the Group-wide IT infrastructure will again push up IT costs by a dispro-portionately 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 per-cent for fiscal year 2012 (2011: 9.5 percent).

In 2012, 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 cer-tificates, which will amount to a figure in the lower to higher one-digit million euro range, depending on the rate

POTENTIAL

122 OUTlOOk

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 expects cash inflow from operating activi-ties 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 vol-ume is likely to be higher than depreciation and amortiza-tion at around EUR 75 million to EUR 85 million (2011: EUR 71.5 million) on account of real estate investments for the purpose of increasing production capacities. The repayment of two note loans 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 par-ticipation 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 con-tinues to work on raising its capital efficiency and reduc - ing 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 Com-

pany’s relevant markets continue their positive perfor-mance. In the medium term, the new sales structure will reduce sales expenses and tap into additional growth prospects. Overall, Dräger expects to achieve at least one percentage point in savings regarding the relevant mar-keting and sales costs by the end of 2014. The Company also plans to continue to grow faster than the market in the medium term and achieve a minimum EBIT margin of 10 percent.

FORWARd-LOOKING STATEMENTS

This management report contains forward-looking state-ments. The statements are based on the current expecta-tions, presumptions, and forecasts of the Executive Board as well as the information available to it to date. The for-ward-looking statements do not provide any warranty 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 respon-sibility for updating the forward-looking statements made in this report.

Lübeck, Germany, February 28, 2012

Drägerwerk AG & Co. KGaA

The general partner Drägerwerk Verwaltungs AG represented by its Executive Board

Stefan Dräger Herbert Fehrecke Gert-Hartwig Lescow Anton Schrofner

123The company’s boardsNotesfinancial sTaTemenTsJahresabschluss organe der gesellschafTANhANg

125 ANNuAl fiNANciAl stAtemeNts

Consolidated income statement of the Dräger Group 125

Consolidated statement of comprehensive income of the Dräger Group 126

Consolidated balance sheet of the Dräger Group 127

Consolidated cash flow statement of the Dräger Group 128

Notes of the Dräger Group for 2011 131

Management compliance statement 211

Auditor’s opinion 212

2011 single entity financial statements of Drägerwerk AG & Co. KGaA (condensed) 214

The Company’s Boards 218

124

tRt 7000 tRuck Rescue tRAiNeR: The TRT 7000 is Dräger’s training system for simulating truck accidents and incidents involving hazardous materials. Rescue services can use the TRT 7000 to practice their responses to serious situations until every action has been perfected. The unit can be hitched to a truck so it can be towed into position at every training site.

*

Rescue teams can use the tank training system to practice how to handle leaks.

The loading surface can be used for practicing how to secure hazardous substances.

When practicing freeing people from car wrecks, rescue crews can saw or cut through car parts – these parts can be replaced afterwards.

125The company’s boardsnoTesfiNANciAl stAtemeNts

Annual financial statements 2011 of the Dräger groupcoNsoliDAteD iNcome stAtemeNt of the DRÄgeR gRouP – JANuARY 1 to DecemBeR 31

Note 2011 2010

€ thousand € thousand

Net sales 11 2,255,847 2,177,281

Cost of sales 12 (1,147,507) (1,133,190)

Gross profit 1,108,341 1,044,091

Research and development costs 13 (160,548) (148,361)

Marketing and selling expenses 14 (575,258) (571,188)

General administrative costs 15 (149,508) (117,943)

Other operating income 16 7,514 9,831

Other operating expenses 16 (16,741) (11,092)

(894,541) (838,752)

213,800 205,339

Profit from investments in associates (372) 377

Profit from other investments 182 329

Other financial result 167 (13,262)

Financial result (before interest result) 17 (23) (12,556)

EBIT 213,777 192,783

Interest result 17 (33,050) (39,107)

Earnings before income taxes 180,727 153,676

Income taxes 18 (55,675) (48,893)

Net profit 125,052 104,783

Net profit 125,052 104,783

Non-controlling interests in net profit 2,783 2,194

Earnings attributable to participation certificates (excluding minimum dividend, after taxes) 1,558 11,861

Earnings attributable to shareholders 120,711 90,728

Undiluted earnings per share 1 21

per preferred share (in €) 7.35 6.25

per common share (in €) 7.29 6.19

Diluted earnings per share 1 21



Undiluted earnings per share on full distribution 2 21



Diluted earnings per share on full distribution 2 21



1 based on the proposed dividend (see note 21)2 based on an imputed actual full distribution of earnings attributable to shareholders (see note 21)

126 sTaTemenT of comprehensive income | balance sheeT

coNsoliDAteD stAtemeNt of comPReheNsiVe iNcome of the DRÄgeR gRouP

2011 2010


Net profit 125,052 104,783

Currency translation adjustment for foreign subsidiaries 2,911 31,784

Change in the fair value of financial instruments recognized directly in equity (1,222) (443)

Deferred taxes on changes in the fair value of financial instruments recognized directly in equity 373 141

Actuarial gains / losses from defined benefit pension plans 2,820 (13,258)

Deferred taxes on actuarial gains / losses from defined benefit pension plans (1,071) 3,244

Other comprehensive income 3,811 21,468

Total comprehensive income 128,863 126,251

of which earnings attributable to non-controlling investments 2,407 2,247

of which earnings attributable to participation certificates (excluding minimum dividend, after taxes) 1,558 11,861

of which earnings attributable to shareholders 124,898 112,143


coNsoliDAteD BAlANce sheet of the DRÄgeR gRouP

Note December 31, 2011 December 31, 2010


Assets

Intangible Assets 22 280,309 277,351

Property, plant and equipment 23 263,363 253,715

Investments in associates 24 306 904

Other non-current financial assets 25 9,766 11,403

Deferred tax assets 26 104,454 109,502

Other non-current assets 27 32,013 28,160

Non-current assets 690,211 681,035

Inventories 28 340,292 356,666

Trade receivables and receivables from construction contracts 29 586,488 533,163

Other current financial assets 30 19,883 22,514

Cash and cash equivalents 31 412,309 320,037

Current tax refund claims 7,531 13,027

Other current assets 32 58,475 50,465

Current assets 1,424,978 1,295,872

Total assets 2,115,189 1,976,907

Equity and liabilities

Capital Stock 42,266 42,266

Capital reserves 158,098 158,098

Reserves retained from earnings, incl. group result 469,763 380,285

Participation capital 35 50,405 50,404

Other comprehensive income 2,549 111

Non-controlling interests 34 6,535 5,399

Equity 33 729,616 636,563

Liabilities from participation certificates 35 31,164 29,916

Provisions for pensions and similar obligations 36 179,418 183,448

Non-current income tax provisions 37 562 0

Other non-current provisions 38 62,749 44,973

Non-current interest-bearing loans 39 365,266 318,042

Other non-current financial liabilities 40 8,849 6,893

Deferred tax liabilities 41 1,629 2,581

Other non-current liabilities 782 715

Non-current liabilities 650,419 586,568

Current income tax provisions 37 39,876 41,584

Other current provisions 38 228,198 226,026

Current loans and liabilities to banks 42 84,519 89,496

Trade payables 43 172,073 171,301

Other current financial liabilities 43 72,451 68,499

Current income tax liabilities 11,269 18,552

Other current liabilities 44 126,768 138,318

Current liabilities 735,154 753,776

Total equity and liabilities 2,115,189 1,976,907

128 consolidaTed cash flow sTaTemenT of The dräger group | consolidaTed sTaTemenT of changes in equiTy of The dräger group

coNsoliDAteD cAsh floW stAtemeNt of the DRÄgeR gRouP

2011 2010


Operating activities

Group net profit 125,052 104,783

+ Write-down /write-up of non-current assets 56,575 53,737

+ Increase in provisions 24,881 81,793

+/– Other non-cash expenses / income 3,712 (23,913)

+ Loss from the disposal of non-current assets 389 794

+/– Decrease / increase in inventories 19,233 (42,611)

– /+ Increase /decrease in trade receivables (52,440) 2,198

– Increase in other assets (5,101) (14,656)

– /+ Decrease / increase in trade payables (11,637) 43,738

–/+ Decrease / increase in other liabilities (756) 13,278

Cash inflow from operating activities 159,906 219,141

Investing activities

– Cash outflow for investments in intangible assets (11,195) (6,797)

+ Cash inflow from the disposal of intangible assets 1,213 26

– Cash outflow for investments in property, plant and equipment (59,523) (49,563)

+ Cash inflow from disposals of property, plant and equipment 2,634 2,082

– Cash outflow for investments in non-current financial assets (196) (195)

+ Cash inflow from the disposal of non-current financial assets 1,410 2,241

Cash outflow from investing activities (65,656) (52,206)

Financing activities

– Distribution of dividends (including dividends for participation certificates) (35,310) (9,806)

– Payment of cash compensation for the participation certificates (7,798) 0

+ Cash provided by raising loans 106,800 342

– Cash used to redeem loans (65,224) (49,166)

– Net balance of other liabilities to banks (646) (13,857)

– Net balance of finance lease liabilities repaid / incurred (705) (853)

– Cash outflow from the change in shareholdings in subsidiaries (1,060) 0

+ Cash inflows from capital increases 0 100,445

– Cash outflows from the purchase of the 25 percent share in Dräger Medical GmbH (formally: Dräger Medical AG & Co. KG) 0 (235,872)

– Profit distributed to non-controlling interests (643) (1,337)

Cash outflow from financing activities (4,587) (210,104)

Change in cash and cash equivalents in the fiscal year 89,663 (43,169)

+/– Effect of exchange rates on cash and cash equivalents 2,609 19,155

+ Cash and cash equivalents at the beginning of the fiscal year 320,037 344,051

Cash and cash equivalents as of December 31 of the fiscal year 412,309 320,037


coNsoliDAteD stAtemeNt of chANges iN equitY of the DRÄgeR gRouP

Other comprehensive income

Capital stock

Capital reserves

Reserves retained

from earnings

incl. Group result

Partici-pation capital

Actuarialgains and

lossesrecognized

directlyin equity

Currencytranslation

differences

Derivativefinancial

instruments

Total other compre-hensive income

Total equity of share-

holder Drägerwerk

AG & Co.KGaA

Non- controlling

interests

Equity

€ thousand

€ thousand

€ thousand

€ thousand

€ thousand

€ thousand

€ thousand

€ thousand

€ thousand

€ thousand

€ thousand

Jan. 1, 2010 32,512 39,449 303,326 56,086 (10,725) (30,928) (390) (42,043) 389,330 4,490 393,820

Reclassification of actuarial gains / losses recognized directly in equity – – (10,725) – 10,725 – – 10,725 – – 0

Capital increase incl. cash compensation for participation certificate holders 9,754 92,109 – (5,682) – – – 0 96,181 – 96,181

Option compo-nent purchase price Siemens share (equity settled option) – 26,540 – – – – – 0 26,540 – 26,540

Net profit – – 102,589 – – – – 0 102,589 2,194 104,783

Other compre-hensive income – – (10,014) – – 31,731 (302) 31,429 21,415 53 21,468

Total compre-hensive income 0 0 92,575 0 0 31,731 (302) 31,429 124,004 2,247 126,251

Distributions – – (9,806) – – – – 0 (9,806) (1,337) (11,143)

Changes in the scope of con-solidation / other – – 4,915 – – – – 0 4,915 (1) 4,914

Dec. 31, 2010 42,266 158,098 380,285 50,404 0 803 (692) 111 631,164 5,399 636,563

Net profit – – 122,269 – – – – 0 122,269 2,783 125,052

Other compre-hensive income – – 1,749 – – 3,287 (849) 2,438 4,187 (376) 3,811

Total compre-hensive income 0 0 124,018 0 0 3,287 (849) 2,438 126,456 2,407 128,863

Distributions – – (35,310) – – – – 0 (35,310) (643) (35,953)

Change in the shares in subsidiaries, excluding loss of control – – (432) – – – – 0 (432) (628) (1,060)

Changes in the scope of con-solidation / other – – 1,202 1 – – – 0 1,203 – 1,203

Dec. 31, 2011 42,266 158,098 469,763 50,405 0 4,090 (1,541) 2,549 723,081 6,535 729,616

130 noTes of The dräger group for 2011

131The company’s boardsNotesfinancial sTaTemenTs

Notes of the Dräger group for 2011

1 geNeRAl

The Dräger Group is managed by Drägerwerk AG & Co. KGaA, Moislinger Allee 53 –55, D-23542 Lübeck, Germany. Drägerwerk AG & Co. KGaA is entered in the commercial register of the Local Court of Lübeck under HR B No. 7903 HL. The financial statements are published in electronic form in the Federal Gazette. The Group’s business activities and structure are described in the segment reporting as well as management report of this annual report.

2 BAsis of PRePARAtioN of the gRouP fiNANciAl stAtemeNts

As in 2010, Drägerwerk AG & Co. KGaA prepared its group financial statements for fiscal year 2011 in accordance with International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Boards (IASB) and the interpre-tations of the International Financial Reporting Interpretations Committee (IFRIC). Drägerwerk AG & Co. KGaA applied all the IASs/IFRSs adopted by the IASB as of Decem-ber 31, 2011 to its 2011 group financial statements, provided that these standards were endorsed by the European Commission and published in the Official Journal of the European Union by the date of publication of the Group financial statements and that application of such standards is mandatory for fiscal year 2011.

Dräger has applied the following new or revised standards issued by the IASB for the first time in fiscal year 2011:

– Within the scope of IAS 24 “Related Party Disclosures (revised 2009)”, simplified dis-closure obligations for state-controlled entities were granted. The definition of related parties was also fundamentally reviewed and inconsistencies eliminated.

– Due to the amendments to IAS 32 “Classification of Rights Issues (revised 2009)”, put-table financial instruments and financial instruments that trigger a liability on the pro rata fair value of a company’s net assets in the case of its liquidation may be classed as equity if they fulfill certain criteria. In addition, comprehensive disclosures must be made in the notes.

– The small changes of six standards and one interpretation under the “Improvement to IFRSs (2010)” are applied if they are relevant to the Dräger Group’s financial state-ments.


The following financial reporting standards, applicable for the first time or revised in fiscal year 2011, are not relevant for the Dräger Group or had no significant impact on the Group’s net assets, financial position and results of operations.

– The amendment to IFRS 1 “Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters (issued January 2010)” grants first-time adopters of IFRS exemptions for the disclosure of comparative information on financial instruments.

– IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments” stipulates that equity instruments, which a debtor issues to creditors to fully or partially repay its financial liabilities are to be treated as “consideration paid” pursuant to IAS 39.41. The debtor therefore has to fully or partially derecognize the financial liability.

– Due to the amendment to IFRIC 14 “IAS 19 – The Limit of a Defined Benefit Asset, Minimum Funding Requirements and their Interaction”, a company may recognize the advantage from a prepayment within the scope of minimum contributions as an asset as soon as the company is subject to minimum funding requirements for defined benefit plans and makes prepayments for contributions in order to fulfill these minimum funding requirements.

The following amendments of existing standards, which have already been endorsed and which become effective for fiscal years beginning on or after July 1, 2011, were not applied to these financial statements.

– In line with the amendment to IFRS 7 “Disclosures – Transfers of Financial Assets (revised 2010)”, additional disclosures for the transfer of financial assets must be made for financial assets in which the transferring entity retains a continuing interest, if an unusually large amount is transferred by the end of a reporting period.

Voluntary early adoption would not have had any significant effects on the financial state-ments.

Further standards were published, which become effective for fiscal years starting on or after July 1, 2011 and which have not been endorsed yet:

– The main amendments to IAS 19 “Employee Benefits (revised 2011)” pertain to the abo-lition of the corridor approach and consequently the statutory recognition of actuarial gains and losses in other earnings. In addition, the expected return on plan assets and the interest expense on pension obligations are replaced by a standardized net interest component. In the future, total past service costs will have to be recognized in the period of the related plan amendment. The obligations to disclose information and explana-tions are also being amended and increased.

– The amendments to IFRS 1 “First-time Adoption of IFRS” include two adaptations. The removal of fixed application dates for first-time adopters and also regulations for preparing IFRS financial statements after reporting periods during which it was impossible to prepare fully IFRS-compliant financial statements due to hyperinflation.

– The amendments to IAS 12 “Income Taxes” include an exception for the recognition of deferred tax on investment properties.


– The presentation of items of other comprehensive income is part of the amendments to IAS 1 “Presentation of Financial Statements”.

– IFRS 9 “Financial Instruments” deals with the classification, recognition and mea-surement of financial assets and liabilities. This standard replaces the sections of IAS 39 that describe the classification and measurement of financial instruments. According to IFRS 9, financial assets are now only classified into two measurement categories: at fair value and at amortized cost. Most of the regulations regarding financial assets in IAS 39 still apply.

– IFRS 10 “Consolidated Financial Statements” builds on existing principles. It focuses on the introduction of a standardized consolidation model for all companies, which is based on the parent company controlling the subsidiary.

– The new IFRS 11 “Joint Arrangements” states that a company must disclose the con-tractual rights and obligations arising from the joint agreement. According to the amended definitions, there are now two types of joint arrangements: joint activities and joint ventures. Joint ventures are no longer permitted to choose whether to apply proportionate consolidation; equity must be recognized at all times.

– IFRS 12 “Disclosures of Interests in other Entities” combines the disclosure obligations of IAS27/IFRS 10, IAS 31/IFRS 11 and IAS 28.

– IFRS 13 “Fair Value Measurement” aims at improving measurement continuity and reducing complexity. It describes how to define fair value, how to determine the mea-surement method and which disclosures must be made. The scope of application of measurement at fair value is not expanded; the standard explains instead how to mea-sure fair value.

– IAS 27 “Separate Financial Statements (revised 2011)” still includes rules on the rec-ognition of investments in individual financial statements, keeping in mind the control concept that has been defined in the new IFRS 10.

– IAS 28 “Associates and Joint Ventures (revised 2011)” explains how to recognize the equity of joint ventures and associates.

– The amendments to IAS 32 “Financial Instruments – Presentation” pertain to the net-ting of financial assets and liabilities.

– The disclosures in the notes regarding the netting of financial assets and liabilities are dealt with by the amendments to IFRS 7 “Financial Instruments – Disclosures”.

– IFRIC 20 “Stripping Costs in the Production Phase of a Surface Mine” clarifies when costs for the disposal of mine spoils have to be initially reported as assets and how these assets have to be recognized at first-time application and thereafter.

The management is currently evaluating the effects of these amendments on the Company.The provisions of Art. 4 EC Regulation No. 1606/2002 of the European Parliament

in conjunction with Sec. 315a HGB (Handelsgesetzbuch – German Commercial Code) governing a company’s exemption from its obligation to prepare group financial state-ments in accordance with German commercial law have been met. To ensure that the Group financial statements are equivalent to consolidated financial statements prepared in accordance with the German Commercial Code, all disclosures and explanations required by German commercial law above and beyond the provisions of the IFRSs have been provided in accordance with Sec. 315a HGB.


The Group financial statements were prepared in euros. Unless stated otherwise, all figures were disclosed in thousands of euros (EUR thousand); rounding differences may arise as a result. The balance sheet is classified according to the current/non-current distinction; the income statement was prepared according to the cost of sales method. Where certain items of the financial statements have been grouped with a view to enhancing the transparency of presentation, they are disclosed separately in the notes. The single entity financial statements of the companies included in consolidation, with the exception of two minor companies (2010: two), were prepared as of the balance sheet date of the Group financial statements on the basis of uniform accounting policies.

3 cAPitAl iNcReAse 2010

On June 30, 2010, Drägerwerk AG & Co. KGaA increased its capital stock by EUR 9,753,600 to EUR 42,265,600 by issuing 3,810,000 new bearer common shares (no-par shares) with a share of EUR 2.56 each in capital stock (new common shares) with full dividend rights as from January 1, 2010, in return for cash. Net proceeds amounted to EUR 100.4 million after deducting EUR 4.6 million in transaction fees. The common shares have a pro-rata share of EUR 2.56 each in capital stock (new common shares). The new shares carry full dividend rights as from January 1, 2010.

The general partner of Drägerwerk AG & Co. KGaA, Drägerwerk Verwaltungs AG, used the authorization issued by resolution of the annual shareholders’ meeting of Drägerwerk AG & Co. KGaA on May 8, 2009. The annual shareholders’ meeting had authorized Drägerwerk Verwaltungs AG to increase the capital stock of the Company by May 7, 2014, with the approval of the Supervisory Board of the Company, through a single or multiple issue of new bearer common shares (no-par shares) in return for cash and/or deposits in kind by up to EUR 16,256,000 (authorized share capital). This resolution was nullified by another resolution of the annual shareholders’ meeting on May 6, 2011.

The capital increase also has an effect on participation certificates. According to the terms and conditions of series A, K and D participation certificates, if the Company carries out a capital increase and issues subscription rights for new shares to sharehold-ers, holders of participation certificates have comparable subscription rights. Holders of participation certificates have the right to acquire further participation certificates with subscription rights similar to those of the capital increase. The participation capital has to be increased accordingly. The subscription right and increase of participation capital is subject to the Company’s annual shareholders’ meeting giving its approval and the exclusion or limitation of any other legal subscription rights, if necessary. The annual share-holders’ meeting on May 6, 2011 did not approve of participation certificate holders exercising their subscription rights. In accordance with the terms and conditions of par-ticipation certificates, the Company therefore had to issue cash compensation to the amount of the loss it deemed participation certificate holders would incur through the capital increase (Sec. 315 BGB [“Bürgerliches Gesetzbuch”: German Civil Code]). Dräger had recognized EUR 7.8 million for this purpose in the financial statements for fiscal year 2010, which was paid out in May 2011. This resulted in participation capital decreasing by EUR 5.7 million, adjusted for a tax advantage, in fiscal year 2010.In addition, the annual shareholders’ meeting on May 7, 2010, resolved to conditionally increase the Company’s capital stock up to EUR 3,200,000 by issuing up to 1,250,000


new no-par preferred bearer shares (no-par shares) in return for cash and /or contribu-tions in kind (conditional capital). The conditional capital was used for issuing the option rights to Siemens.

4 DRÄgeR meDicAl Ag & co. kg BecAme DRÄgeR meDicAl gmBh

The restructuring of Dräger Medical AG & Co. KG resolved by Drägerwerk AG & Co. KGaA on August 31, 2010, became effective on September 20, 2010 (effective date). The legal successor of Dräger Medical AG & Co. KG is the former Dräger Medical Holding GmbH, now trading as Dräger Medical GmbH since the effective date. Dräger Medical GmbH is a wholly-owned subsidiary of Drägerwerk AG & Co. KGaA. The aim was to simplify the shareholder structure within the scope of the buyback of Siemens’ 25 percent share in the medical division.

5 PuRchAse of the 25 PeRceNt shARe iN DRÄgeR meDicAl gmBh (PReViouslY:

DRÄgeR meDicAl Ag & co. kg) fRom siemeNs

On March 26, 2010, the European Commission approved the purchase of all shares in Siemens Medical Holding GmbH. The transaction was executed on April 30, 2010. As pre-viously explained in the annual report 2009, Dräger was already entitled to the acquired shares on December 31, 2009, from a financial point of view.

The purchase price of the 25 percent share in Dräger Medical GmbH (previously: Dräger Medical AG & Co. KG) consists of the following components:

– a cash settled component of EUR 175 million,– a vendor note of EUR 68.5 million divided into three tranches of EUR 18.75 (tranche I),

EUR 40.0 million (tranche II) and EUR 9.75 million (tranche III), and– a variable option component.

Dräger repaid the cash component on the effective date. As well as tranches I and II of the vendor note to the total amount of EUR 58.75 million plus interest early on July 20, 2010, from the inflow of cash and cash equivalents provided by the capital increase.

The variable option was originally a cash settled option. In order to replace this, Dräger issued warrant bonds with option rights guaranteed in the form of warrants to the total nominal value of EUR 1.25 million to Siemens on August 30, 2010. The option rights entitle their holders to acquire a total of 1.25 million preferred shares. They are divided into 25 individual options, entitling holders to acquire 50,000 preferred shares each. The option rights were exercised at EUR 63.68 on December 31, 2011 (2010: EUR 64.12) and expire on April 30, 2015. When one of the options is exercised by its holder, Dräger will issue new preferred shares from conditional capital. If all options were exercised, Dräger would receive EUR 79.6 million for issuing 1.25 million new preferred shares on the reporting date (2010: EUR 80.15 million).

As the option rights issued to Siemens had a higher fair value than the original cash settled option, Dräger received a EUR 8.5 million reduction on tranche III of the vendor note from Siemens, as agreed. Siemens paid the nominal value of the warrant bonds by offsetting it against the payable from tranche III of the vendor note. On September 30, 2010, Dräger repaid the warrant bonds at their nominal value plus interest to Siemens.


With this transaction, Dräger fully repaid all liabilities arising from the acquisition of the 25 percent Siemens share in Dräger Medical GmbH (previously: Dräger Medical AG & Co. KG) in fiscal year 2010.

The positive development of the preferred share compared to December 31, 2009 increased the value of the originally agreed option component during the course of fiscal year 2010. In the period January 1, 2010 until August 30, 2010, Dräger subsequently rec-ognized EUR 11.8 million as an expense in other financial result.

The cash settled option was replaced with an equity instrument on August 30, 2010. This enabled Drägerwerk AG & Co. KGaA to strengthen its equity base by EUR 26.5 million. Since then, changes in value no longer impact earnings.

6 scoPe of coNsoliDAtioN

The consolidated group of Drägerwerk AG & Co. KGaA is composed of the following entities:

scoPe of coNsoliDAtioN

Germany Abroad Total

Drägerwerk AG & Co. KGaA and fully consolidated companies

January 1, 2011 22 98 120

Newly formed entities 1 2 3

December 31, 2011 23 100 123

Associates

January 1, 2011/ December 31, 2011 1 1 2

Total 24 101 125

Besides Drägerwerk AG & Co. KGaA, fully consolidated companies include all subsidiaries in which Drägerwerk AG & Co. KGaA holds a direct or indirect majority of voting rights and is therefore able to govern financial and operating policies so as to obtain benefit from their activities. As in prior years, the consolidated group includes four real estate compa-nies and two other special purpose entities (SPEs) whose assets are attributable in sub-stance to the Group. Drägerwerk AG & Co. KGaA directly and indirectly exerts a signifi-cant influence on its associates. Associates are accounted for according to the equity method. The consolidated companies of the Dräger Group as of December 31, 2011, are listed under Note 53.

7 effects of the chANges iN the scoPe of coNsoliDAtioN

There was no significant impact on the Group’s net assets, financial position and results of operations as a result of the change to the scope of consolidation in fiscal year 2011. Effects between the divisions are explained in the segment report.

8 coNsoliDAtioN PRiNciPles

Purchases are accounted for according to the acquisition method. On initial consolidation of subsidiaries, the identifiable assets and liabilities (including contingent liabilities)


are measured at their fair values at the date on which control of the subsidiary is obtained. The excess of the cost of the investment over the acquirer’s interest in the net fair value of the identifiable assets and liabilities is recognized as goodwill. Incidental purchase costs are recognized as expenses at the time they are incurred. Adjustments to components of the contingent purchase price that are recognized as expenses at the time of acquisition are to be recognized in income. Non-controlling interests have to be measured either at fair value (“full goodwill method”) or at the proportionally fair value of the acquired assets and assumed liabilities. Goodwill is subject to an annual impairment test pursu-ant to IAS 36 (impairment-only approach). Any excess of the Group’s share in equity over the cost of the investment is recognized in profit or loss at the date of acquisition.

Successively acquired interests that do not affect the controlled status of an entity are treated as transactions between providers of equity capital (“entity concept”). The carrying amounts of assets and liabilities remain the same. The value shift between Dräger and the non-controlling investments is recorded directly in equity. Any non-controlling interests in equity are shown in the consolidated balance sheet as such (see also Note 34).

When swapping or exchanging shares or in similar transactions, the fair value of the shares given is attributed to the shares received. Any resulting step-ups in fair value are transferred to retained earnings without affecting income. For associates, the cost of investments is adjusted to reflect their share in net profit or loss for the period and divi-dend distributions. The goodwill is included in the carrying values of the investments. Impairments are accounted for separately.

Intercompany receivables and liabilities are netted (elimination of intercompany balances). The carrying values of assets from intercompany goods and services are adjusted for unrealized intercompany profits and losses (elimination of intercompany profits and losses); therefore, these assets are measured at group cost. For associates, elimination of intercompany profits and losses is waived due to immateriality. Internal net sales are eliminated. Any other intercompany income and expenses are mutually offset (elimination of income and expenses). Deferred tax assets or liabilities from consolidation entries that affect profit or loss are recognized whenever differences in tax expenses or income are expected to reverse in subsequent years.

9 cuRReNcY tRANslAtioN

In the single entity financial statements of Drägerwerk AG & Co. KGaA and its subsidiar-ies, foreign currency transactions are translated at the mean exchange rate at the date of initial recognition.

Exchange differences from the settlement of monetary items in foreign currencies during the year and the measurement of open foreign currency positions at the rate on the balance sheet date are recognized in profit or loss.

The foreign consolidated subsidiaries prepare their financial statements in the local currency in which they mainly operate (functional currency). These financial state-ments are translated into the Group reporting currency, the euro, at the mean exchange rate on the balance sheet date (closing rate) for assets and liabilities and at the annual average rate for the items of the income statement. All resulting translation differences are recognized under other comprehensive income. To account for the effects of inflation, the financial statements and comparative figures of economically independent foreign entities operating in a hyperinflationary environ-ment and reporting in a currency of a hyperinflationary economy are restated in terms of


the measuring unit current on the balance sheet date pursuant to IAS 29 using a general price index for the country in question. As in the previous year, one operating subsid-iary in Venezuela had its registered office in a hyperinflationary economy in the year under review. The effects of inflation were not recognized as the subsidiary is of only minor importance to the Group.

The exchange gains /losses on operating foreign currency items included in cost of sales and in functional costs gave rise to income of EUR 4,360 thousand (2010: expenses of EUR 5,259 thousand). The exchange gains/losses on foreign currency items dis-closed in the financial result led to income of EUR 432 thousand (2010: expenses of EUR 795 thousand).

Currency translation for foreign subsidiaries gave rise to an increase in other compre-hensive income of EUR 3,287 thousand as of the balance sheet date (2010: EUR 31,731 thousand).

The major group currencies and their exchange rates developed as follows:

RAtes

Closing rate Average rate

1 € = Dec. 31, 2011 Dec. 31, 2010 2011 2010

USA USD 1.29 1.34 1.40 1.32

UK GBP 0.84 0.86 0.87 0.86

Japan JPY 100.20 108.65 111.31 115.27

People’s Republic of China CNY 8.16 8.82 9.03 8.93

10 AccouNtiNg Policies

The single entity financial statements of Drägerwerk AG & Co. KGaA and its consolidated German and foreign subsidiaries as of December 31 of the fiscal year are prepared on the basis of uniform accounting policies and included in the Group financial statements. The following accounting policies are applied:

intangible AssetsGroup-controlled intangible assets from which future economic benefits are expected to flow to the Group and which can be reliably measured are recognized at cost less straight-line amortization over their expected useful lives. Borrowing costs that are mate-rial and directly attributable to the acquisition, construction or production of a qualify-ing asset are capitalized as part of the cost of that asset in accordance with IAS 23.

Purchased and internally developed software not disclosed under inventories is recog-nized as a separate asset unless it is an integral part of the related hardware. Costs incurred for changing existing software systems (e. g. new versions) are recognized as expenses. Costs incurred in connection with the installation and implementation of purchased software are classed as incidental purchase costs of the same. Internal development costs are recognized as an asset if the asset’s future economic benefit is sufficiently probable. However, due to strict legal and safety requirements for Dräger Group products, this means that the product must have already been approved


for sale in the major markets. Until all criteria for recognition as an asset are met, inter-nal development costs are expensed as incurred (just as research costs).

Intangible assets generally have a useful life of four years, patents and trademarks are amortized over their term (eleven years on average) using the straight line method.

Goodwill recognized as an intangible asset is disclosed at cost less accumulated impair-ment losses. Under IAS 36, amortization is no longer charged on a systematic basis.

Property, plant and equipmentItems of property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

The cost of purchase of an item of property, plant and equipment includes its purchase price and any costs directly attributable to bringing the asset to the location and con-dition necessary for it to be capable of operating in the manner intended. Production costs comprise direct and overhead costs attributable to production as well as proportional depreciation. Borrowing costs that are material and directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset in accordance with IAS 23. Subsequent expenditure incurred after the assets have been put into operation and which serves to maintain these assets, such as ongoing repairs and maintenance and overhaul costs, is charged as expense in the period in which the costs are incurred.

Whenever it is probable that the expenditure will result in future economic benefits in excess of the originally assessed standard of performance of the existing asset flowing to the Company, the expenditure is recognized as an additional cost of property, plant and equipment.

Depreciation is computed on a straight-line basis over the following estimated useful lives:

– Office and factory buildings 20 to 40 years– Other buildings 15 to 20 years– Production plant and machinery 5 to 8 years– Other plant, factory and office equipment 2 to 15 years

Where significant parts of property, plant and equipment contain components with substantially different useful lives, such components are recorded separately and depre-ciated over their useful lives.

The useful life and depreciation methods used for property, plant and equipment are reviewed annually to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equip-ment.

Assets under construction are stated at cost. Low-value assets (costing less than EUR 500) are fully expensed in the year of their addition and recognized as disposals in the statement of changes in non-current assets.


investment allowances Investment allowances (government grants) for assets are deducted from the carrying value of the relevant asset. Grants are therefore recognized in profit or loss through a reduced depreciation charge over the useful life of the depreciable asset.

impairment losses on intangible assets and property, plant and equipment If there are external or internal indicators of impairment of intangible assets or property, plant and equipment pursuant to IAS 36.12 on the balance sheet date, these items are subjected to an impairment test pursuant to IAS 36. If the carrying value of the asset exceeds its recoverable amount (the higher of its value in use and net realizable value), an impairment loss is charged. If no future cash flows independently generated from other assets can be attributed to individual assets, the recoverable amount is tested for impair-ment on the basis of the cash-generating unit to which the asset belongs.

An impairment test is performed annually on goodwill and intangible assets with inde-terminable useful lives. The impairment test for goodwill is performed on the basis of the cash generating unit to which the asset belongs. The discounted cash flow method based on the operational four-year plan and an assumed sustained growth of 1 percent in the subsequent period is used to test the goodwill of the individual cash generating units. A risk-adjusted interest rate is used for discounting. Goodwill is based on the operating business segments in accordance with IFRS 8.

If the reasons for an impairment loss cease to apply, write-ups are performed, except in the case of goodwill.

financial instrumentsA financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

The following items in particular are recognized as financial assets: investments in associates, other investments, securities, loans and other receivables, derivative financial assets, other financial assets and cash and cash equivalents.

The following items are recognized as financial liabilities: liabilities to banks, loan liabilities, trade payables, derivative financial liabilities and other financial liabilities. All financial assets and liabilities may be classified, upon initial recognition, at fair value through profit or loss if they fulfill the requirements of the IASB (fair value option). This option has not been exercised by the Dräger Group to date.

For purchases at normal market conditions or sales of financial assets (purchases or sales of assets that have to be delivered within the statutory or conventional time scale applicable to the location where the transaction took place), the settlement date is relevant (in other words the date on which the asset is delivered to or supplied by Dräger).

Financial instruments are initially recognized at fair value. Transaction fees directly attributable to the acquisition or issuance of financial instruments are only taken into account when calculating the carrying value if the financial instruments are not recog-nized at fair value in income.


financial assets Loans and receivables are non-derivative financial assets with fixed or determinable pay-ments that are not quoted in an active market. After initial recognition, loans and receiv-ables are recognized at amortized cost less any impairment losses and discounting (effective interest method).

Impairment losses are charged on loans and receivables when there is objective evi-dence that the amount is not fully recoverable (i. e. it is highly probable that the bor-rower will become insolvent or the obligor is in considerable financial difficulties). The carrying values of loans and receivables are generally adjusted through the use of allow-ance accounts.

The effects of the impairment loss and of the application of the effective interest method are recognized in profit or loss.

Securities with fixed or determinable payments and fixed maturity that the Dräger Group has the positive intent and ability to hold to maturity are classified as held-to-matu-rity investments and recognized at amortized cost using the effective interest method.

Available-for-sale financial assets are those non-derivative financial assets that are des-ignated as available for sale and are not classified as belonging to any of the other cate-gories. This category comprises investments in associates that are not accounted for in accordance with the equity method due to immateriality as well as other investments and securities. They are measured at fair value or, if not determinable, at amortized cost. Unrealized gains and losses from the change in fair value are recorded in equity, taking the tax effects into account. Changes in fair value are not recognized in profit or loss until the asset is permanently impaired or sold.

Financial assets held for or due in more than twelve months are disclosed as non-current financial assets.

financial liabilitiesFinancial liabilities are disclosed at amortized cost (amount repayable) in subsequent periods. Any differences between the payment (less transaction fees) and repayment are recognized in the income statement over the term of the loan, using the effective interest method.

Non-current liabilities that do not bear interest or bear interest at a rate substantially below market rates are disclosed at present value. Premiums and discounts are allocated over the term of the liability using the effective interest method.

Financial liabilities held for or due in more than twelve months are disclosed as other non-current financial liabilities.

fair value of financial assets and liabilitiesWhere the fair value of financial assets and liabilities is disclosed or stated, it is always derived from the market or stock exchange value. In the absence of an active market, the fair value is determined according to recognized methods of financial mathematics such as the discounting of expected future cash flows.


Derivative financial instruments The Dräger Group uses derivatives as part of its risk management to hedge currency and interest rate risks.

Derivatives are recognized at fair value. For derivative financial instruments that meet the hedge accounting criteria of IAS 39, the changes in fair value are recognized depending on the type of hedge.

In a hedge of the exposure to changes in fair value of a recognized asset or liability (fair value hedge), the changes in the fair value of both the hedged item and the deriva-tive are recognized in profit or loss. Changes in the fair value of the exposure to vari-ability in future cash flows (cash flow hedge) are recognized directly under equity, taking tax effects into account, if the hedge is effective. These amounts are not removed from equity and recognized in profit or loss until the hedged item affects profit or loss. Changes in the fair value of derivatives used to hedge future cash flows between group companies are recognized as cash flow hedges if they fulfill the relevant criteria.

Derivative financial instruments that are not designated as effective hedging instru-ments in accordance with IAS 39 are classified as held for trading and recognized at fair value, or, if not determinable, at amortized cost. The fair value of listed derivatives is the positive or negative market value. In the absence of a market value, the fair value is determined according to recognized methods of financial mathematics such as the dis-counting of expected future cash flows.

In hedging foreign currency risks posed by recognized assets or recognized liabilities, the Dräger Group does not use hedge accounting in accordance with IAS 39 to recognize hedges as the profit or loss from the currency translation of the hedged item pursuant to IAS 21 affects the income statement at the same time as the profit or loss from the mea-surement of the hedging instrument.

We refer to Note 45 for details of the nature and scope of the Dräger Group’s existing financial instruments.

construction contracts In accordance with IAS 11, construction contracts are recognized using the stage of com-pletion method. The stage of completion which has to be established to this end in the case of fixed price contracts is determined using the cost-to-cost method (input-based method). This method determines the stage of completion based on the costs incurred as of the balance sheet date in relation to the estimated total cost. If the outcome of a con-struction contract can be estimated reliably, the revenues are recorded at the amount of contract costs incurred plus a profit margin. The contracts are recognized under receiv-ables from construction contracts or, if a loss is expected, under liabilities from con-struction contracts. Part payments received are deducted from the receivable. If the part payments received exceed the receivable, the balance is recognized under liabilities.

inventoriesInventories comprise raw materials, consumables and supplies, work in process and finished goods and merchandise. They are measured at the lower of cost and net realizable value. Costs are measured using the average cost method. Cost comprises production-related full costs calculated on the basis of normal capacity utilization. In addition to direct materials and production costs, it includes materials and production overheads as well


as special direct production costs allocable to the production process. Depreciation on items of property, plant and equipment used in the production process is also included. Borrowing costs that are material and directly attributable to the acquisition, construction or production of a qualifying asset are capitalized as part of the cost of that asset in accordance with IAS 23.

Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Unrealizable inventories are written off.

Finished goods and merchandise also comprise loan and demo equipment. 25 percent straight-line depreciation is charged annually for the decrease in the net realizable value of these items.

cash and cash equivalents Cash and cash equivalents comprise cash in hand and bank balances, including short-term deposits.

Participation capital In accordance with IAS 32 and IAS 39, the individual Dräger participation certificate series are recognized pursuant to the commercial value of their contractual agreements. Series A certificates must generally be classified as equity; however, they include an obligation with a value to the amount of the minimum return which is recognized as liability.

Series K and D certificates are generally classified as debt, but the premium on the issue price exceeding Dräger’s obligation is recognized as equity.

Effects recognized in equity reflect the participation certificates’ equity component (including deferred tax effects) and corresponding past compounding effects.

The components recognized as debt are measured at amortized cost using the effective interest method (present value of repayment obligation). Please refer to Note 35 for further information on the individual Dräger participation certificate series.

The compounding of liabilities from participation certificates to the amount of the effective interest rate and the minimum dividend for series A and K are included in the interest expense of the period in question. The dividend for series D certificates and the amount exceeding the minimum dividend for series A and K certificates are paid with equity capital.

Provisions for pensions and similar obligations Provisions for pension obligations and similar obligations are calculated according to IAS 19 using the projected unit credit method allowing for future adjustments to salaries and pensions and employee turnover.

The provisions were measured on the basis of pension reports. The Dräger Group has decided to exercise the option under IAS 19.93A of fully recognizing actuarial gains or losses in equity immediately, taking account of deferred taxes. The actuarial gains or losses recognized in equity are reconciled in a separate statement of recognized income and expenses presented before the notes.

The interest portions contained in pension expenses are disclosed in interest and sim-ilar expenses and netted with the expected return on plan assets.


With effect as of December 2007, funds from the German pension plan were paid into a new fund including a settlement account and secured in favor of the employees via a contractual trust arrangement (CTA), meaning that they only serve to cover and finance the Company’s direct pension obligations in Germany.

Any excess of plan assets over the pension obligations is recognized as an asset at a maximum of the present value of the economic benefit to the Company (due to a refund of contributions or reduction of future contributions) plus any past service cost not yet recognized (asset ceiling).

other provisionsA provision is recognized when, and only when, the entity has a present obligation (legal or constructive) to a third party as a result of a past event and it is probable that an out-flow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are stated at the amount expected to be required to settle the obligation. This settlement amount also includes cost increases that have to be taken into account on the balance sheet date. Non-current provisions are discounted to the balance sheet date using appropriate market rates. Provisions are not offset against rights of recourse.

income taxesThe tax expense for the period was made up of actual and deferred taxes. Taxes are reported in the income statement, unless they relate to items recognized directly in equity or in other earnings. In this case, the taxes are also recognized directly in equity or in other earnings.

Actual tax expenses are determined using the tax regulations applicable on the balance sheet date (or soon to be applicable) in the countries in which the subsidiaries are based and where they generate taxable income. Management regularly assesses tax dec-larations, especially in relation to matters open to interpretation and, if necessary, sets aside provisions based on the amounts that are likely to be payable in tax.

Deferred taxes are recognized for differences between the IFRS financial statements and the tax accounts of the consolidated companies as well as for consolidation entries and loss carryforwards.

The deferred taxes are measured at the amount expected to be paid or recovered in subsequent fiscal years. Deferred tax assets are only recognized if it is sufficiently probable that they will be realized. Deferred tax assets and liabilities are only netted if they relate to the same taxation authority.

Deferred tax liabilities resulting from the temporal difference in connection with investments in subsidiaries are stated unless the timing of the reversal of the temporary difference can be controlled by the Group and it is probable that the temporary differ-ence will not be reversed in the foreseeable future due to this effect.

leasesLeases are all agreements whereby the lessor conveys to the lessee in return for payment the right to use an asset for an agreed period of time.


A) fiNANce leAses

Dräger group as lesseeAt inception of the lease, finance leases are recognized as assets and liabilities in the bal-ance sheet at amounts equal at the inception of the lease to the fair value of the leased property or, if lower, at the present value of the minimum lease payments. In calculating the present value of the minimum lease payments, the discount factor is the interest rate implicit in the lease if this is practicable to determine. If this is not the case, the les-see’s incremental borrowing rate is used. Initial direct costs are included as part of the asset. Lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to periods during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

A finance lease gives rise to a depreciation expense for the recognized asset as well as a finance expense for each period. The depreciation policy for leased assets is consistent with that for corresponding depreciable assets which are owned by the Company.

Dräger group as lessorAssets held under a finance lease are recognized in the balance sheet and presented as a receivable at an amount equal to the net investment (present value of the gross invest-ment) in the lease. The recognition of finance income is based on a pattern reflecting a constant periodic rate of return on the lessor’s net investment outstanding in respect of the finance lease. Initial direct costs are capitalized and allocated as an expense over the term of the lease.

B) oPeRAtiNg leAses

Dräger group as lesseeLeases of assets under which substantially all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under an operating lease are recognized as an expense.

Dräger group as lessorAssets subject to operating leases are presented in the balance sheet according to the nature of the asset. Lease income from operating leases is recognized in profit or loss on a straight-line basis over the lease term.


overview of selected valuation methods

selecteD VAluAtioN methoDs

Assets Valuation method

Goodwill as well as other intangible assets with indefinite useful lives

Costs (subsequent valuation using an impairment test)

Intangible assets with limited useful lives (Amortized) costs

Property, plant and equipment (Amortized) costs

Investments in associates (Amortized) costs

Financial assets

– Loans and receivables (Amortized) costs

– Derivatives (held for trading) Fair value (recognized in profit or loss)

– Available for sale Fair value (recognized in equity)

InventoriesLower value of average costs and the net realizable value

Cash and cash equivalents Costs

Liabilities Valuation method

Liabilities from participation certificates (Amortized) costs

Provisions for pensions and similar obligations Projected unit credit method

Other provisions Expected settlement amount

Financial liabilities

– Derivatives (held for trading) Fair value (recognized in profit or loss)

– Loans and other financial liabilities (Amortized) costs


use of estimates and assumptionsIn preparing the Group financial statements in accordance with IFRSs, assumptions and estimates have to be made which have an effect on the recognition of assets and liabili-ties, the disclosure of contingent liabilities as of the balance sheet date and the recognition of income and expenses. Actual amounts may differ from these assumptions and esti-mates.

The estimates pertain to the following areas in particular:

As part of the annual assessment of the recoverable amount of capitalized goodwill, Dräger’s management uses estimates to arrive at its conclusions. Management uses data from internal analyses and forecasts with regards to anticipated earnings trends and data from external information sources with regards to other analysis parameters.

Other assumptions and estimates mainly relate to the determination of useful lives throughout the Group and the liquidability of receivables. At least once a year, the Group assesses the applied useful lives and carries out adjustments if necessary. Useful lives are determined on the basis of market observations and empirical values.

Customer-specific construction contracts are recognized using the stage of comple-tion method. The most important measurements used for the careful determination of the stage of completion include total costs, total revenues and risks related to the contract as well as other estimates. Management continuously assesses all estimates made in con-nection with such construction contracts.

Defined benefit pension plans and similar obligations are recognized in accordance with actuarial methods. These methods are based on actuarial assumptions such as the discount rate, expected return on plan assets, wage and salary trends, increases in pen-sion and employee turnover. The recognized discount factors are calculated on the basis of the effective market return on high-quality corporate bonds. The expected return on plan assets is determined using a standard calculation, taking into account historical long-term assumptions. Deviations of actuarial assumptions from actual developments could have serious implications for the measurement of defined pension plans and simi-lar obligations.

The Group has set aside provisions for various risks. The likelihood of these provisions being used is assessed on the basis of previous experience and assessments of indi-vidual business transactions. Adjusting events were taken into account accordingly. The Group has to pay income taxes in several countries. This involves a specific calculation of the expected actual income tax exposure for each tax object and an assessment of tem-porary differences resulting from the different treatment of certain items for IFRS and tax reporting purposes. Management has to make assumptions when calculating effective and deferred taxes. Tax estimates are made in accordance with local laws.

148 noTes To The income sTaTemenT

Notes to the income statement

11 Net sAles

Net sales are recognized when control, for instance the risks and rewards incident to ownership, has been transferred to the buyer, if the amount of income can be deter-mined reliably and it is probable that the economic benefit will flow to the entity. Net sales are net of sales deductions, if any. Net sales from services are recognized when the service has been rendered.

For the breakdown of net sales by business segment and geographical segment, please see the tables below. A detailed segment report is provided in Note 48 and in the manage-ment report.

Net sAles – DiVisioNs

Breakdown by divisions in € million 2011 2010 Change in %

Medical division 1,484.5 1,472.0 0.8

Safety division 802.7 733.8 9.4

Drägerwerk AG & Co. KGaA / other companies 16.2 16.7 (3.0)

Segment net sales 2,303.4 2,222.5 3.6

Intersegment net sales (47.6) (45.2) 5.3

Net sales 2,255.8 2,177.3 3.6

Net sAles – RegioNs

Breakdown by region in € million (sales areas) 2011 2010 Change in %

Germany 457.7 433.2 5.7

Rest of Europe 866.4 834.1 3.9

Americas 440.3 455.6 (3.4)

Asia /Pacific 346.1 307.8 12.4

Other 145.3 146.6 (0.9)

Net sales 2,255.8 2,177.3 3.6

Net sales include EUR 75.8 million (2010: EUR 80.6 million) from construction contracts in accordance with IAS 11. This amount is disclosed in the net sales from the following regions: Germany EUR 39.5 million (2010: EUR 38.5 million), rest of Europe EUR 26.9 million (2010: EUR 26.2 million), Asia/Pacific EUR 0.6 million (2010: EUR 3.0 mil-lion), Americas EUR 0.4 million (2010: EUR 1.2 million), and other countries EUR 8.4 million (2010: EUR 11.7 million).


12 cost of sAles

Cost of sales include the following:

cost of sAles

2011 2010

Direct materials 633,977 642,588

Direct labor 188,803 185,332

Direct costs 822,780 827,920

Material overheads 45,469 43,131

Production overheads 206,035 201,381

Other indirect costs 73,223 60,758

Indirect costs 324,727 305,270

Cost of sales 1,147,507 1,133,190

Production overheads comprise amortization of production related intangible assets and depreciation of property, plant and equipment as well as costs of internal transportation until delivery to the sales depot.

Cost of warranties and inventory allowances are recognized in other indirect costs. Costs of sales include inventory variances, measurement differences and scrapping.

Income from the reversal of previously impaired inventories reduces the cost of sales. Any borrowing costs included in the valuation of inventories are contained in the cost

of sales at the time of delivery or performance.

13 ReseARch AND DeVeloPmeNt costs

Research and development costs comprise all costs incurred during the research and development process, including registration costs, costs of prototypes and the costs of the first series, if they are not capitalized as separate development costs.

14 mARketiNg AND selliNg eXPeNses

Marketing expenses comprise all costs associated with corporate marketing and product marketing, including expenses for advertising and trade shows. Selling expenses include the costs of sales management, logistics costs, where they relate to the sales depot or shipping, and the costs of the internal and external sales force, including order processing. The costs of the sales companies are allocated to selling expenses, unless they belong to the cost of sales. Income arising in direct connection with the costs is netted.

15 geNeRAl ADmiNistRAtiVe eXPeNses

General administrative expenses comprise the costs of administrative activities not relat-ed to other functions. This includes in particular the cost of management, corporate controlling, legal, accounting and consulting fees, audit fees and general infrastructure costs. Income arising in direct connection with the costs is netted.


16 otheR oPeRAtiNg iNcome/ eXPeNses

otheR oPeRAtiNg iNcome/ eXPeNses

2011 2010

Reversal of bad debt allowances 4,661 3,031

Rental income 2,264 2,370

Gains on the disposal of non-current assets 589 4,430

Other operating income 7,514 9,831

Allocations to bad debt allowances and write-downs on receivables 14,907 8,298

Expenses for leased assets 892 1,047

Losses on the disposal of non-current assets 942 1,747

Other operating expenses 16,741 11,092

17 fiNANciAl Result

fiNANciAl Result (BefoRe iNteRest Result)

2011 2010

Income from investments in associates 225 286

Write-downs of investments in associates (597) 0

Write-ups on investments in associates 0 91

Profit from investments in associates (372) 377

Income from other investments 182 329

Profit from other investments 182 329

Net result from foreign exchange transactions 432 (795)

Earnings from the disposal of other financial assets and securities 1 0

Write-downs on other financial assets (191) 0

Write-ups on other financial assets 2 7

Other financial income 3 10,042

Other financial expenses (80) (22,516)

Other financial result 167 (13,262)

Financial result (before interest result) (23) (12,556)

The other financial result increased considerably year-on-year on account of the valuation effect of EUR 20.3 million recognized in income in the previous year for the option component agreed on with Siemens for the period from January 1, 2010 to August 30, 2010. On the other hand, other financial income in the previous year included a EUR 8.5 million reduction on tranche III of the vendor note that Siemens had issued to Dräger as agreed (see also Note 5).


iNteRest Result

2011 2010

Income from other securities and loans 211 111

Interest income from bank balances 3,901 2,058

Income from interest hedges 67 129

Interest contained in lease payments 165 135

Other interest and similar income 1,292 1,428

Interest and similar income 5,636 3,861

Interest expenses from bank liabilities (18,990) (20,761)

Other interest and similar expenses (9,077) (11,244)

Expenses from interest hedges (414) (509)

Interest contained in lease payments (260) (230)

Interest portion contained in pension provisons (8,150) (8,500)

Distribution for participation certificates (547) (547)

Compounding of participation certificates (1,248) (1,177)

Interest and similar expenses (38,686) (42,968)

Interest result (33,050) (39,107)

18 iNcome tAXes

comPositioN of tAX eXPeNse

2011 2010

Germany (8,025) (14,850)

Abroad (43,991) (57,181)

Current tax expense (52,016) (72,031)

Germany

Deferred tax income /expense from temporary differences 1,721 (1,794)

Deferred tax income /expense from loss carryforwards (10,065) 16,940

Deferred tax income/expense (Germany) (8,344) 15,146

Abroad

Deferred tax income /expense from temporary differences 6,650 14,578

Deferred tax income /expense from loss carryforwards (1,965) (6,586)

Deferred tax income/expense (abroad) 4,685 7,992

Deferred tax income/expense (3,659) 23,138

Income taxes (55,675) (48,893)

Deferred tax expenses include tax income of EUR 10 thousand (2010: tax expenses of EUR 344 thousand) from the change in tax rates.


A deferred tax liability of EUR 4,042 thousand (2010: EUR 2,861 thousand) was recog-nized for temporary differences in connection with retained profits of foreign subsidiaries. No deferred tax liability was recognized for temporary differences in connection with proportional values of subsidiaries to the amount of EUR 15,866 thousand (2010: EUR 13,915 thousand) as the sale of these companies or a distribution of retained profits is unlikely in the foreseeable future.

Payment of dividends to the shareholders of the parent companies does not have any income tax consequences.

RecoNciliAtioN of eXPecteD iNcome tAX eXPeNse to RecogNiZeD iNcome tAX eXPeNse

2011 2010

Earnings before income taxes 180,727 153,676

Expected income tax expense (tax rate 30.92%; 2010: 30.92%) (55,881) (47,517)

Reconciliation:

Effects from other periods 2,039 (8,513)

Effect from change in tax rates 10 (344)

Effect from different tax rates 5,907 4,646

Tax effect of non-deductible expenses and tax-free income (6,005) (15,920)

Recognition and measurement of deferred tax assets (1,555) 19,143

Other tax effects (190) (388)

Recognized income tax expenses (55,675) (48,893)

Effective tax rate (%) overall 30.8 31.8

The parent company’s tax rate of 30.92 percent (2010: 30.92 percent) was used as the expected tax rate. The expected tax rate is composed of a corporate income tax component of 15.83 percent, including the 5.5 percent solidarity surcharge (2010: 15.83 percent), and a trade tax component of 15.09 percent (2010: 15.09 percent).

After the purchase of the 25 percent share in Dräger Medical AG & Co. KG from Siemens in 2009, the Dräger Group assumed a 100 percent corporate income tax liability. Due to the integration of Dräger Medical & Co. KG in the former Dräger Medical Holding GmbH (now: Dräger Medical GmbH) effective according to civil law on Septem-ber 20, 2010, and effective for tax purposes retroactively from January 1, 2010, the company’s net profit since fiscal year 2010 is directly subject to corporate income tax.

The following deferred tax assets and deferred tax liabilities relate to recognition and measurement differences in the individual balance sheet items:


DefeRReD tAX Assets/ DefeRReD tAX liABilities

Deferred tax assets Deferred tax liabilities

2011 2010 2011 2010

Intangible assets 9,221 10,161 4,220 4,786

Property, plant and equipment 4,055 2,481 8,120 8,497

Other non-current financial assets 37 7 361 322

Other non-current assets 10,609 8,770 0 873

Non-current assets 23,922 21,419 12,701 14,478

Inventories 21,557 13,431 991 2,350

Trade receivables and receivables from construction contracts 6,455 4,230 5,956 5,696

Other current financial assets 710 557 5,654 1,820

Other current assets 720 554 1,820 2,419

Current assets 29,442 18,772 14,421 12,285

Liabilities from participation certificates 0 0 13,492 13,877

Provisions for pensions and similar obligations 9,734 9,904 12,322 8,727

Other non-current provisions 8,886 7,285 207 232

Non-current interest-bearing loans 1,602 1,790 219 158

Other non-current financial liabilities 2,433 1,534 156 259

Non-current liabilities 22,655 20,513 26,396 23,253

Other current provisions 24,418 15,675 731 832

Current loans and liabilities to banks 188 2,105 10 16

Trade payables 181 162 232 363

Liabilities from construction contracts 664 4,216 0 0

Other current financial liabilities 8,800 12,186 459 721

Other current liabilities 3,243 3,952 13,137 9,385

Current liabilities 37,494 38,296 14,569 11,317

Capitalized tax loss carryforwards 29,019 35,077 0 0

Capitalized interest carryforwards 5,727 11,629 0 0

Gross amount 148,259 145,706 68,087 61,333

Netting (75,031) (66,457) (75,031) (66,457)

Deferred taxes from consolidation entries 31,226 30,253 8,573 7,705

Carrying amount 104,454 109,502 1,629 2,581

The recoverable amount of the recognized deferred tax assets on recognized tax loss carryforwards and temporary differences at the consolidated companies is tested for impairment and written down where necessary once a year on the basis of the future taxable profit, which in 2011 was determined on the basis of a five-year operating plan taking risk markdowns into account.


The deferred taxes on consolidation entries mainly relate to deferred taxes from the elimi-nation of intercompany profits in inventories as well as in intangible assets and property, plant and equipment.

Deferred taxes are determined on the basis of the tax rates which, under the legislation in force, apply in the individual countries at the time of realization or which are expected.

Tax loss carryforwards were as follows at the end of the year:

cAPitAliZeD tAX loss cARRYfoRWARDs

2011 2010

Corporate income tax 60,097 73,783

Trade tax 135,924 169,651

Interest carryforwards 21,096 42,837

State Tax USA 13,242 18,685

Total 230,359 304,956

NoN-cAPitAliZeD tAX loss cARRYfoRWARDs

2011 2010

Corporate income tax 54,380 39,812

of which will expire in the next 12 months 469 0

of which will expire after more than 12 months 1,132 0

of which does not expire 52,779 39,812

Trade tax 16,381 6,399

of which will expire in the next 12 months 0 0

of which will expire after more than 12 months 0 0

of which does not expire 16,381 6,399

Total 70,761 46,211

Deferred taxes were recognized on loss carryforwards of EUR 13,242 thousand (2010: EUR 18,685 thousand) of a US company which is subject to state tax of an average of 4.12 percent (2010: 4.30 percent).

The unrecognized corporate income tax loss carryforwards expire in a maximum of 20 years.

Despite losses in the current and/or previous year, deferred tax assets of EUR 10,858 thousand (2010: EUR 12,586 thousand) were recognized for loss carryforwards and temporary differences, as the companies in question are expected to generate taxable profits in the future.

The income from the reversal of a previous valuation adjustment on deferred tax assets came to EUR 14 thousand in fiscal year 2011 (2010: EUR 26,783 thousand).

Current income taxes of EUR 1,194 thousand were recognized directly in equity and primarily related to the share of the dividend for participation certificates relating to the equity component. In the previous year, current income taxes of EUR 5,932 thousand and deferred taxes of EUR 712 thousand had been recognized directly in equity. These


principally pertained to transaction fees incurred in connection with the capital increase and the share of the dividend for participation certificates relating to the equity component.

The deferred tax assets recognized in equity decreased by EUR 698 thousand (2010: increased by EUR 3,385 thousand) during the period and mainly concerned the recogni-tion of actuarial gains and losses directly in equity.

19 PeRsoNNel eXPeNses/ heADcouNt

PeRsoNNel eXPeNses

2011 2010

Wages and salaries 666,419 610,197

Social security, pension expenses and related employee benefits 127,008 118,662

793,427 728,859

Personnel expenses include the remuneration of the members of the Executive Board of the general partner Drägerwerk Verwaltungs AG, Lübeck. Please refer to our comments in the remuneration report (Note 50).

heADcouNt As of the BAlANce sheet DAte

2011 2010

Germany 5,472 5,085

Abroad 6,452 6,206

Total headcount 11,924 11,291

Production: Production, service, exterior fitting 5,288 5,0481

Other 6,636 6,2431


1 The purchasing and logistics functions are no longer included in “production”. The prior-year figures were adjusted accordingly.

heADcouNt (AVeRAge)

2011 2010

Germany 5,322 4,980

Abroad 6,348 6,206


Production: Production, service, exterior fitting 5,192 5,0121

Other 6,478 6,1741


1 The purchasing and logistics functions are no longer included in “production”. The prior-year figures were adjusted accordingly.


Please see the comments in the management report for more information on the develop-ment of headcount.

20 AmoRtiZAtioN of iNtANgiBle Assets AND DePReciAtioN of PRoPeRtY,

PlANt AND equiPmeNt

DePReciAtioN/AmoRtiZAtioN

2011 2010

Intangible assets 7,407 10,091

Property, plant and equipment 48,460 43,772

55,867 53,863

EUR 29,437 thousand in amortization and depreciation charges is contained in cost of sales (2010: EUR 21,554 thousand), EUR 2,742 thousand in research and development costs (2010: EUR 2,760 thousand), EUR 5,398 thousand in marketing and selling expenses (2010: EUR 10,493 thousand) and EUR 18,290 thousand in general administrative expenses (2010: EUR 19,056 thousand).

As in the previous year, no impairment losses were charged on intangible assets or prop-erty, plant and equipment in fiscal year 2011.

21 eARNiNgs/ DiViDeND PeR shARe

Dräger has determined and illustrated the earnings per share as well as the earnings per share in the case of a full dividend distribution to provide its shareholders with com-prehensive information. The calculation of earnings per share is based on Dräger’s cur-rent dividend policies and takes into account the actual proposed distribution as well as a fictitious full distribution of the remaining earnings to common and preferred share-holders. The method used for calculating earnings per share in the case of a full distri-bution assumes an actual full distribution of net profit less the share in net profit of non-controlling investments to common and preferred shareholders as well as to holders of participation certificates.


eARNiNgs/ DiViDeND PeR shARe

2011 2010

Net profit 125,052 104,783

Earnings attributable to non-controlling interests (2,783) (2,194)

Earnings attributable to participation certificates (excluding minimum dividend, after taxes) (1,558) (11,861)

Earnings attributable to shareholders 120,711 90,728

Weighted average of outstanding preferred shares 6,350,000 6,350,000

Potentially dilutive preferred shares 123,239 0

Weighted average of outstanding preferred shares on dilution 6,473,239 6,350,000

Weighted average of outstanding common shares 10,160,000 8,255,000 1

Potentially dilutive common shares 0 0

Weighted average of outstanding common shares on dilution 10,160,000 8,255,000

Undiluted earnings per common share (in €) 7.29 6.19

Preference per preference share (in €) 0.06 0.06

Undiluted earnings per preferred share (in €) 7.35 6.25

Diluted earnings per common share (in €) 7.23 6.19


Diluted earnings per preferred share (in €) 7.29 6.25

1 weighting 2010: 6,350,000 common shares by June 30, 2010 and 10,160,000 common shares since July 1, 2010


The structure of the proposed distribution is as follows:

cAlculAtioN of PRoPoseD DistRiButioN

Number of shares Dividend per share Dividends in € less taxes and minimum dividends

Total

Common shares 10,160,000 0.13 1,320,800.00 1,320,800.00

Preferred shares 6,350,000 0.19 1,206,500.00 1,206,500.00

Participation certificates 1,413,425 1.90 2,685,507.50 (1,127,585.20) 1,557,922.30

4,085,222.30

The proposed distribution corresponds to 3.34 percent (2010: 30.12 percent) of net profit less the share in net profit of non-controlling investments.

The method used for calculating earnings per share in the case of a full distribution assumes an actual full distribution of net profit less the share in net profit of non-control-ling investments to common and preferred shareholders as well as to holders of partici-pation certificates. If an actual full distribution of net profit is assumed, earnings per share are calculated as follows in the case of a full distribution due to the effects on earnings attributable to participation certificates with an unchanged average number of shares out-standing:

eARNiNgs/ DiViDeND PeR shARe oN full DistRiButioN

2011 2010

Net profit 125,052 104,783

Earnings attributable to non-controlling interests (2,783) (2,194)

Earnings attributable to participation certificates (excluding minimum dividend, after taxes) 1 (46,954) (39,367)

Earnings attributable to shareholders 1 75,315 63,222

Undiluted earnings per common share (in €) 1 4.54 4.30


Undiluted earnings per preferred share (in €) 1 4.60 4.36

Diluted earnings per common share (in €) 1 4.52 4.30


Diluted earnings per preferred share (in €) 1 4.58 4.36

1 on an imputed actual full distribution


The subscribed capital – which authorized the general partner to increase the capital stock of Drägerwerk AG & Co. KGaA until May 7, 2014, with the approval of the Supervisory Board, by up to EUR 16,256,000 by issuing new bearer common shares (no-par value shares) in return for cash and/or contributions in kind, in either one or several tranches – was rescinded by way of shareholder resolution on May 6, 2011.

By resolution of the annual shareholders’ meeting on May 6, 2011, the general partner was authorized to increase the capital stock of the Company, with the approval of the Supervisory Board, until May 5, 2016 by issuing new bearer common shares and/or pre-ferred shares (no-par shares) in return for cash and/or deposits in kind by up to EUR 21,132,800.00 (authorized share capital) in one or several tranches. In accordance with the articles of association, the general partner is not entitled to exclude the sharehold-ers’ subscription right for exercising option and/or conversion rights or fulfill conversion obligations from participation certificates.

With effect from June 30, 2010, Drägerwerk AG & Co. KGaA increased its capital stock by issuing 3,810,000 new bearer common shares (no-par shares) with a pro rata share of EUR 2.56 each in capital stock (new common shares) with full dividend rights as from January 1, 2010.

Drägerwerk AG & Co. KGaA has issued 1,413,425 participation certificates for which, in accordance with the terms and conditions of participation certificates, the holder receives either ten common or preferred shares per certificate or ten times the current stock market price of preferred shares upon termination. The factor 10 is due to the share split, which did not apply to the participation certificates (please refer to the infor-mation on participation certificates provided in Note 35).

Diluted earnings per share do not have to be calculated, as the owners of the partici-pation certificates do not have the right to exchange their participation certificates against shares and Drägerwerk AG & Co. KGaA irrevocably relinquished its right to exchange its participation certificates against shares in favor of the holders of participation certifi-cates and their legal successors by way of Executive Board resolution.

Likewise, the possibility of acquiring treasury shares cannot lead to dilution due to the provisions governing the use of such shares.

Unlike in the previous year, the option rights issued to Siemens caused dilution as of the balance sheet date, as the average market price of EUR 70.65 for preferred shares exceeded the exercise price of option rights of EUR 63.68 on December 31, 2011. The result-ing 123,239 potentially diluted preferred shares were consequently taken into consider-ation in the calculation of diluted earnings per share.

160 noTes To The consolidaTed balance sheeT

Notes to the consolidated balance sheet

22 iNtANgiBle Assets

iNtANgiBle Assets As of DecemBeR 31, 2011

Goodwill Patents, trademarks

and licenses

Purchasedsoftware

Internally generated

intangible assets

Payments made 2011Total

Cost

January 1, 2011 267,128 17,585 76,377 17,602 1,555 380,247

Additions – 104 7,580 – 3,158 10,842

Disposals (2,838) (32) (4,663) – – (7,533)

Reclassifications – – 687 – (687) 0

Currency translations effects 480 434 628 22 – 1,564

December 31, 2011 264,770 18,091 80,609 17,624 4,026 385,120

Accumulated amortization and impairment losses

January 1, 2011 7,793 14,049 65,813 15,241 – 102,896

Additions (amortization) – 899 5,561 947 – 7,407

Disposals (2,838) (32) (3,375) – – (6,245)

Currency translations effects 141 356 234 22 – 753

December 31, 2011 5,096 15,272 68,233 16,210 0 104,811

Net carrying value 259,674 2,819 12,376 1,414 4,026 280,309


iNtANgiBle Assets As of DecemBeR 31, 2010

Goodwill Patents, trademarks

and licenses

Purchasedsoftware

Internally generated

intangible assets

Payments made 2010Total

Cost

January 1, 2010 265,903 16,457 72,124 17,525 358 372,367

Additions 7 67 4,981 26 1,226 6,307

Disposals (435) (271) (2,398) – – (3,104)

Reclassifications – 11 520 – (29) 502

Currency translations effects 1,653 1,321 1,150 51 – 4,175

December 31, 2010 267,128 17,585 76,377 17,602 1,555 380,247

Accumulated amortization and impairment losses

January 1, 2010 7,671 12,454 60,705 12,648 – 93,478

Additions (amortization) – 1,055 6,483 2,553 – 10,091

Disposals (435) (271) (2,303) – – (3,009)

Currency translations effects 557 811 928 40 – 2,336

December 31, 2010 7,793 14,049 65,813 15,241 0 102,896


Goodwill mainly resulted from the transfer in fiscal year 2003 of the “Electromedical Systems” business unit of Siemens Medical Solutions to Dräger Medical GmbH. Goodwill increased further on account of the buyback of Siemens’ 35 percent share in Dräger Medical GmbH (previously: Dräger Medical AG & Co. KG) in fiscal years 2007 and 2009.

The amortization of intangible assets is contained in the cost of sales and the other functional costs.

The discounted cash flow method is used for measuring the recoverable amount of goodwill by determining the net realizable value, based on the operational four-year plan for the individual cash generating units. The business segments form the basis for the cash generating units. The main planning assumptions are market growth, development of market shares, price trends and the discount rate. In the current planning, a discount rate of 6.32 percent (2010: 6.1 percent) and a growth rate of 1 percent (2010: 1 percent) were taken into account for perpetual annuity of the medical division. Due to the fact that the safety division is continuously developing, a discount rate was derived on the basis of this division’s risk profile for the first time in fiscal year 2011. In the current planning, a discount rate of 7.78 percent (2010: 6.1 percent) and a growth rate of 1 percent (2010: 1 percent) were therefore taken into account for perpetual annuity. These assumptions are backed up by external sources of information on market development. No impairment loss was required on the basis of this multi-year plan. Even if the perpetual annuity was to grow by 0 percent and the discount rate were to increase by another 2 percentage points, no impairment loss would have to be recognized.

As of December 31, 2011, goodwill was made up of EUR 257.6 million for the medical division (2010: EUR 257.2 million) and EUR 2.1 million for the safety division and Drägerwerk AG & Co. KGaA (2010: EUR 2.1 million).


23 PRoPeRtY, PlANt AND equiPmeNt

PRoPeRtY, PlANt AND equiPmeNt As of DecemBeR 31, 2011

Land, equivalent titles and buildings

Production plant and machinery

Other plant, factory and office

equipment

Leased assets(Finance lease)

Prepayments made and

assets under construction

2011Total

Cost

January 1, 2011 306,286 97,720 236,864 6,015 18,823 665,708

Additions 8,732 5,468 25,934 281 20,195 60,610

Disposals (3,041) (2,413) (15,747) (1,166) (366) (22,733)

Reclassifications 15,653 4,913 5,392 134 (26,092) 0

Currency translations effects 869 741 222 (138) 189 1,883

December 31, 2011 328,499 106,429 252,665 5,126 12,749 705,468

Accumulated depreciation and impairment losses

January 1, 2011 163,540 75,351 169,809 3,219 74 411,993

Additions (amortization) 11,949 7,568 28,388 555 – 48,460

Write-ups – (70) (10) – – (80)

Disposals (2,378) (1,831) (15,159) (810) – (20,178)

Reclassifications – 43 89 (132) – 0

Currency translations effects 206 838 890 (24) – 1,910

December 31, 2011 173,317 81,899 184,007 2,808 74 442,105



PRoPeRtY, PlANt AND equiPmeNt As of DecemBeR 31, 2010

Land, equivalent titles and buildings

Production plant and machinery

Other plant, factory and office

equipment

Leased assets(Finance lease)

Prepayments made and

assets under construction

2010Total

Cost

January 1, 2010 302,101 88,210 225,767 5,338 6,328 627,744

Additions 2,941 4,891 21,168 823 19,716 49,539

Disposals (3,543) (1,526) (18,609) (629) (265) (24,572)

Reclassifications 433 3,494 2,221 471 (7,121) (502)

Currency translations effects 4,354 2,651 6,317 12 165 13,499

December 31, 2010 306,286 97,720 236,864 6,015 18,823 665,708

Accumulated depreciation and impairment losses

January 1, 2010 152,964 67,369 158,689 2,715 74 381,811

Additions (amortization) 10,988 7,016 24,908 860 – 43,772

Write-ups (15) – – – – (15)

Disposals (2,481) (1,166) (18,019) (627) – (22,293)

Reclassifications (25) 82 (308) 251 – 0

Currency translations effects 2,109 2,050 4,539 20 – 8,718

December 31, 2010 163,540 75,351 169,809 3,219 74 411,993


The assets leased under finance leases mainly comprise factory and office equipment (also see Note 46).

Additions include EUR 5,969 thousand for the production and logistics building for the Infrastructure Projects business in Lübeck, which was completed in April 2011. In fiscal year 2010, EUR 5,892 thousand had been recognized in additions to prepayments made and plants for this new building. Additions for this new building include EUR 31 thou-sand in borrowing costs (2010: EUR 27 thousand). The underlying capitalization rate is 3.75 percent (2010: between 1.9 percent and 2.04 percent). Government grants of EUR 1.8 million (2010: EUR 1.0 million) for this building were deducted from the carrying value. Finance for this building has been secured with a mortgage of EUR 10.8 million.

24 iNVestmeNts iN AssociAtes

As in prior years, Drägerwerk AG & Co. KGaA has investments in two unlisted companies over which it has indirect and direct significant influence. These entities are included as associates in the Group financial statements according to the equity method (over 20 percent interest).

One of the companies’ fiscal year ends on March 31 of each calendar year.The following figures are based on the last annual financial statement of each company:


iNVestmeNts iN AssociAtes

2011 2010

Total assets 5,865 4,943

Total liabilities 3,590 2,796

Net sales 9,025 7,498

Earnings 804 735

25 otheR NoN-cuRReNt fiNANciAl Assets

otheR NoN-cuRReNt fiNANciAl Assets

2011 2010

Trade receivables 4,676 4,140

Other loans 1,755 3,199

Finance lease receivables (lessor) 747 1,396

Positive fair values of derivates 57 248

All other non-current financial assets 2,531 2,420

9,766 11,403

The non-current receivables do not carry any discernible risks nor have they been impaired by any bad debt allowances.

The positive fair values of derivatives came to EUR 7 thousand and derived from inter-est rate hedges relating to the repurchase of the 10 percent share in Dräger Medical GmbH (previously: Dräger Medical AG & Co. KG) from Siemens in fiscal year 2007. The remaining EUR 50 thousand pertained to currency forwards and futures.

For more information on finance lease receivables, please refer to our comments on the recognition of finance leases by the lessor (Note 46).

26 DefeRReD tAX Assets

Deferred tax assets are explained in Note 18.

27 otheR NoN-cuRReNt Assets

otheR NoN-cuRReNt Assets

2011 2010

Equipment leased out 10,058 9,362

All other non-current assets 21,955 18,798

32,013 28,160


Other non-current assets contain the available excess of plan assets over pension obligations totaling EUR 17,341 thousand (2010: EUR 13,593 thousand, see also Note 36).

For assets leased under operating leases, we refer to our comments in Note 46.

28 iNVeNtoRies

iNVeNtoRies

2011 2010

Finished goods and merchandise 179,174 170,488

Work in progress 59,351 60,318

Raw materials, consumables and supplies 100,467 98,872

Payments made 1,300 26,988

340,292 356,666

The carrying value of inventories written down to their net realizable value as of Decem-ber 31, 2011, is EUR 50,119 thousand (2010: EUR 63,803 thousand).

Impairment losses of EUR 13,100 thousand (2010: EUR 11,194 thousand) were charged on inventories in the fiscal year and recognized in cost of sales. In addition, EUR 1,016 thousand (2010: EUR 4,473 thousand) of impairments recognized in previous years were reversed. Finished goods and merchandise comprise loan equipment and demo equipment lent to customers in the short term worth EUR 33,633 thousand (2010: EUR 32,958 thousand). Loan and demo equipment is taken over by the customers after a short period of time and is therefore disclosed in inventories. Appropriate allowances were made for wear and tear over the period of use.

Prepayments made in the previous year mainly include payments in connection with two large projects in the safety divisions.

29 tRADe ReceiVABles AND ReceiVABles fRom coNstRuctioN coNtRActs

tRADe ReceiVABles AND ReceiVABles fRom coNstRuctioN coNtRActs

2011 2010

Trade receivables 562,000 514,592

Receivables from construction contracts 24,488 18,571

586,488 533,163

The risks associated with trade receivables are adequately accounted for by bad debt allowances. Bad debt allowances developed as follows:


sPecific BAD DeBt AlloWANces

2011 2010

January 1 32,724 30,580

Allocation 12,391 8,193

Utilization (3,226) (5,328)

Reversal (2,542) (2,069)

Change in consolidated group 29 0

Currency translations effects (309) 1,348

December 31 39,067 32,724

The remaining credit risks from trade receivables after specific bad debt allowances are as follows, according to the age of the receivables:

AgiNg of oVeRDue ReceiVABles Not suBJect to BAD DeBt AlloWANces

2011 2010

Receivables neither impaired nor overdue 391,171 368,261

Receivables subject to bad debt allowances 7,068 10,354

Overdue receivables not subject to bad debt allowances

– less than 30 days 76,338 58,638

– between 30 and 59 days 23,786 20,066

– between 60 and 89 days 18,247 15,660

– between 90 and 119 days 14,640 11,645

– more than 120 days 55,238 48,539

188,249 154,548

Carrying amount 586,488 533,163

In addition to costs incurred for the contracts, receivables from construction contracts include the corresponding profit and were offset against part payments received.

The cost incurred for the contracts in process plus the corresponding profit according to the percentage of completion method amount to EUR 60,772 thousand (2010: EUR 40,454 thousand) as of the balance sheet date and were offset against part payments received of EUR 36,284 thousand (2010: EUR 25,546 thousand). This led to receivables from construction contracts of EUR 24,488 thousand (2010: EUR 18,571 thousand) and liabilities from prepayments on construction contracts of EUR 0 thousand (2010: EUR 3,664 thousand).

No specific bad debt allowances were recognized on receivables from construction contracts. There are no overdue receivables which require bad debt allowances.


30 otheR cuRReNt fiNANciAl Assets

otheR cuRReNt fiNANciAl Assets

2011 2010

Positive fair values of derivates 1,052 1,562

Notes receivable 13,457 14,765

Receivables from employees 1,620 1,873

Finance lease receivables (lessor) 763 879

Receivables from associates 0 646

Other 2,991 2,789

19,883 22,514

For more information on finance lease receivables, please refer to our comments on the recognition of finance leases by the lessor (Note 46). For the derivative financial instru-ments recognized as other financial assets, please refer to the table of derivative financial instruments in the Dräger Group presented in Note 45. Notes receivable chiefly stem from the Turkish, Chinese, Japanese and Spanish subsidiaries where the bill of exchange is a common method of payment.

No specific bad debt allowances were recognized on current financial assets (2010: EUR 12 thousand). There are no overdue receivables which require bad debt allowances.

31 cAsh AND cAsh equiVAleNts

Cash and cash equivalents comprise cash in hand and balances at various banks in dif-ferent currencies. Cash and cash equivalents which were subject to restrictions as of the balance sheet date amount to EUR 14,558 thousand (2010: EUR 10,175 thousand).

32 otheR cuRReNt Assets

otheR cuRReNt Assets

2011 2010

Prepaid expenses 23,732 21,118

Other tax refund claims 19,809 16,865

Other 14,934 12,482

58,475 50,465

Specific bad debt allowances were recognized in the amount of EUR 4 thousand (2010: EUR 57 thousand) on other current assets.

33 equitY

For the breakdown and changes in equity in fiscal years 2011 and 2010, please see the statement of changes in equity of the Dräger Group.


The subscribed capital, which authorized the general partner to increase the capital of Drägerwerk AG & Co. KGaA until May 7, 2014, with the approval of the Supervisory Board, by up to EUR 16,256,000.00 by issuing new bearer common shares (no-par value shares) in return for cash and/or contributions in kind, in either one or several tranches, was rescinded by way of shareholder resolution on May 6, 2011.

By resolution of the annual shareholders’ meeting on May 6, 2011, the general partner was authorized to increase the capital stock of the Company, with the approval of the Supervisory Board, until May 5, 2016, by issuing new bearer common shares and/or pre-ferred shares (no-par shares) in return for cash and/or deposits in kind by up to EUR 21,132,800.00 (authorized share capital) in one or several tranches. The authorization includes the entitlement to optionally issue new common shares and/or non-voting preferred shares up to the statutory maximum as stipulated in Sec. 139 (2) AktG, which carry the same status as the previously issued non-voting preferred shares with regard to the distribution of profits and/or Company assets.

In the case of common and preferred shares being issued at the same time while maintaining the ratio of both share types at the time of issuance, the general partner is being authorized, subject to approval by the Supervisory Board, to exclude the right of the case of common and preferred shares to subscribe to the other type of shares (“crossed exclusion of subscription rights”).

With effect from June 30, 2010, Drägerwerk AG & Co. KGaA increased its capital stock by issuing 3,810,000 new no-par bearer shares (no-par shares) and raised the number of limited no-par bearer shares from 6,350,000 to 10,160,000. The number of preferred shares remains 6,350,000. At the same time, the existing 6,350,000 no-par bearer shares were admitted to the regulated market of Frankfurt Stock Exchange on June 18, 2010. The nominal value of both share types is EUR 2.56.

The capital increase in fiscal year 2010 put up the capital stock of Drägerwerk AG & Co. KGaA from EUR 32,512 thousand to EUR 42,266 thousand. Drägerwerk Verwaltungs AG, the general partner, holds no shares in capital. All shares have been fully paid in. As before, the preferred shares are traded on the capital market. 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 com-mon shares. As compensation for the lack of voting rights, an advance dividend of EUR 0.13 per preferred share is distributed from net earnings. If sufficient profits are available, a dividend of EUR 0.13 per common share is then paid. Any profit in excess of this amount, if distributed, is allocated so preferred shares receive EUR 0.06 more than com-mon 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 liqui-dation proceeds in advance. The remaining liquidation proceeds are distributed evenly to all shares.

The annual shareholders’ meeting on May 7, 2010, resolved to conditionally increase the Company’s capital stock up to EUR 3,200,000 by issuing 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). The conditional capital was used for issuing the option rights to Siemens. Drägerwerk AG & Co. KGaA does not grant any share-based payments (share option plan).

capital reserves The capital reserves originated from share premiums from Drägerwerk AG & Co. KGaA’s establishment (transformation) in 1970 and from capital increases in 1979, 1981, 1991 and 2010.

cAPitAl ReseRVes

2011 2010

Capital reserves as of January 1 158,098 39,449

Increase of capital reserves – 118,649

Capital reserves as of December 31 158,098 158,098

iNcReAse of cAPitAl ReseRVes iN fiscAl YeAR 2010

Number Premiumper share in €

Amount in € thousand

New common shares (total) 3,810,000

Common shares not yet placed as of June 30, 2010 (18,963)

Common shares placed as of June 30, 2010 3,791,037 24.94 94,548

Common shares placed on July 5, 2010 18,963 38.44 729

Less transaction fees, taking into account tax advantage (3,168)

Issue of new common shares 92,109

Replacement of option component with equity component 26,540

Increase of capital reserves in fiscal year 2010 118,649

In financial year 2010, the new common shares were offered to the shareholders at a ratio of 10:3 at a subscription price of EUR 27.50 each by way of an indirect subscription right (Sec. 186 [5] AktG [“Aktiengesetz”: German Stock Corporation Act]). In the sub-scription period from June 17, 2010 to June 30, 2010, all previous subscription rights for common shares (1,905,000) as well as 1,886,037 of a total 1,905,000 subscription rights for preferred shares were exercised. The subscription rate therefore totals 99.5 percent. The premium of the shares placed on June 30, 2010, is calculated from the issue price of EUR 27.50 less par value of EUR 2.56. Taking into account transaction fees of EUR 3,150 thousand, EUR 91,398 thousand were therefore added to capital reserves on June 30, 2010. The 18,963 unsubscribed new common shares were sold for EUR 41.00 each on July 2, 2010. When deducting the par value of EUR 2.56 per share, the premium totaled EUR 729 thousand for which transaction fees of EUR 18 thousand were incurred. Capital therefore went up by another EUR 711 thousand in the third quarter of 2010. Overall, capital reserves rose by EUR 92,109 thousand after deducting EUR 3,168 thousand in trans-action fees in June and July 2010.


In addition, the cash settled option was transformed into an equity settled option in fiscal year 2010, increasing other capital reserves by EUR 26,540 thousand.

Retained earnings Retained earnings comprise the earnings generated until fiscal year 2011 by the companies included in the Group financial statements, where they were not attributed to minority interests or paid as a dividend by Drägerwerk AG & Co. KGaA. Deferred taxes on partici-pation capital recognized in equity are stated in this item. Actuarial gains/losses from the Company’s pension provisions, including deferred taxes, are also included in retained earnings.

Participation capitalPlease refer to Note 35 for details on participation capital.

other comprehensive income

otheR comPReheNsiVe iNcome

2011 2010

Currency translation adjustment 4,090 803

Fair value of financial instruments (2,210) (989)

Deferred taxes recognized directly in equity 669 297

2,549 111

In fiscal year 2011, the fair values of financial instruments to the amount of EUR 1,635 thousand (2010: EUR 952 thousand) were recognized directly in equity. In addition, EUR 414 thousand (2010: EUR 509 thousand) were reclassified from equity to the interest result due to interest hedging.

capital managementOne of Dräger’s most important goals is to increase the business value. The key function of capital management in this respect is to minimize the cost of capital while ensuring solvency at all times by coordinating of the due dates of financial liabilities with the expected free cash flow and creating sufficient liquidity reserves.

Capital is monitored regularly using various key metrics, which include gearing and the equity ratio. Dräger’s medium-term goal is to achieve an equity ratio of 35 percent.


The Dräger Group’s equity and liabilities broke down as follows as of the balance sheet date:

equitY AND liABilities

2011 2010

€ million € million

Equity interest held by shareholders of Drägerwerk AG & Co. KGaA 723.1 631.2

+ Non-controlling interests 6.5 5.4

Equity of the Dräger Group 729.6 636.6

Share of total equity and liabilities 34.5% 32.2%

Non-current liabilities 650.4 586.5

Current liabilities 735.2 753.8

Total liabilities 1,385.6 1,340.3

Share of total equity and liabilities 65.5% 67.8%

Total equity and liabilities 2,115.2 1,976.9

In fiscal year 2011, the equity of Dräger Group increased, particularly due to net profit achieved. In fiscal year 2010, the capital increase and the transformation of the cash settled option (from the purchase of the 25 percent Siemens share in Dräger Medical GmbH (previously: Dräger Medical AG & Co. KG) into an equity settled option also put up equity.

The Dräger Group’s gearing had developed as follows as of the balance sheet date:

geARiNg

2011 2010


Non-current interest-bearing loans 365.3 318.0

+ Current loans and liabilities to banks 84.5 89.5

+ Current and non-current liabilities from finance leases 2.3 2.8

– Cash and cash equivalents (412.3) (320.0)

Net financial debt 39.8 90.3

Equity 729.6 636.6

Gearing (= net financial debt /equity) 0.05 0.14


34 NoN-coNtRolliNg iNteRests

The non-controlling interests mostly relate to the following subsidiaries:

NoN-coNtRolliNg iNteRests

Non-controlling interests thereof net profit

2011 2010 2011 2010

Shanghai Dräger Medical Instrument Co. Ltd. 4,049 3,446 694 1,413

Dräger Medical South Africa 1,209 1,375 245 299

Draeger Medikal Ticaret ve Servis (1,187) (1,125) 587 (582)

Dräger Safety MSI GmbH – 242 – 63

Draeger Arabia Co. Ltd. 2,366 1,017 1,142 866

Other 98 444 115 135

6,535 5,399 2,783 2,194

35 PARticiPAtioN cAPitAl/ liABilities fRom PARticiPAtioN ceRtificAtes

PARticiPAtioN cAPitAl/ liABilities fRom PARticiPAtioN ceRtificAtes

Number Par value Premium Payments received thereof recognized as debt

thereof recognized in equity

€ € € € €

Series A until June 1991 315,600 8,066,736.00 12,353,585.70 20,420,321.70 6,839,001.70 13,581,320.00

Series K until June 27, 1997 105,205 2,689,039.80 1,758,718.44 4,447,758.24 2,657,581.09 1,790,177.15

Series D from June 28, 1997 992,620 25,371,367.20 24,557,921.23 49,929,288.43 9,215,196.34 40,714,092.09

1,413,425 36,127,143.00 38,670,225.37 74,797,368.37 18,711,779.13 56,085,589.24

Accumulated interest effect until 2010 11,204,041.41 –

Compensation for participation certificate holders in 2010 – (5,682,300.00)

Recognition as of December 31, 2010 29,915,820.54 50,403,289.24

Compounding 2011 1,247,767.91 –

Compensation payment adjustment in 2011 – 1,197.54

Recognition as of December 31, 2011 31,163,588.45 50,404,486.78

fAiR VAlue

2011 2010

Number Price Dec. 31

Fair value Price Dec. 31

Fair value

€ € € €

Series A until June 1991 315,600 160.00 50,496,000.00 113.50 35,820,600.00

Series K until June 1997 105,205 165.00 17,358,825.00 112.00 11,782,960.00

Series D from June 28, 1997 992,620 160.00 158,819,200.00 117.50 116,632,850.00

1,413,425 226,674,025.00 164,236,410.00


PARticiPAtioN cAPitAl coNDitioNs

Termination right of Drägerwerk

AG & Co. KGaA

Termination rightof participation

certificate owner

Loss share Minimum return Dividend for participation certificates

€

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

No participation certificates were issued in fiscal year 2011.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 the corresponding tranche. Series K may be terminated for the first time as of December 31, 2021, with five years’ notice; the period of termination thereafter is again five years.

Series D may be terminated for the first time as of December 31, 2026. Series D partici-pation certificates share in losses. The proportionate loss attributable to the participa-tion capital is offset by future profits. The cases in which the minimum return is not paid are the same as those in which the preferred dividend is not paid. As with the subsequent payment of preferred dividends, the dividend for participation certificates is paid in arrears.

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

The capital increase carried out in 2010 also affects 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 have the right to acquire further participation certificates with subscription rights similar to those of the capital increase. The participation capital has to be increased accordingly. The subscription right and increase of participation capital are, however, subject to the approval of the Company’s annual shareholders’ meeting as well as the exclusion or limi-tation of any other legal subscription rights, if necessary. The annual shareholders’ meeting on May 8, 2011 did not approve of participation certificate holders exercising their subscription rights. The Company therefore issued participation certificate holders cash compensation to the amount of the loss it deemed they would incur through the capital increase (Sec. 315 BGB [“Bürgerliches Gesetzbuch”: German Civil Code]). The EUR 7.8 million in provisions recognized for this contingency in the financial statements 2010 was paid out in May 2011.

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

36 PRoVisioNs foR PeNsioNs AND similAR oBligAtioNs

As of December 31 2011, the Dräger Group mainly had defined benefit pension plans and similar obligations in addition to a small number of defined contribution pension plans.


Defined benefit pension plans and similar obligationsUnder the Group’s defined benefit pension plans, provisions for pensions and similar obli-gations have been accrued for benefits payable in the form of old-age, disability and surviving dependent pensions. The amount of the obligations is determined using the pro-jected unit credit method. The obligations are partly funded by plan assets.

The Dräger Group has decided to exercise the option under IAS 19.93A of disregarding the 10 percent corridor and fully recognizing actuarial gains or losses in equity immedi-ately, taking account of deferred taxes. The actuarial gains or losses recognized in equity are reconciled in the separate statement of income and expenses recognized directly in equity.

The defined benefit pension plans of the German companies account for some 89 percent (2010: 90 percent) of the provisions for pensions and similar obligations disclosed as of the balance sheet date. As of January 1, 2005, the new company pension plans “Rentenplan 2005” for almost all employees of the Dräger Group’s German subsidiaries and “Führungskräfteversorgung 2005” for management came into effect, superseding the former “Versorgungsordnung ’90” and “Ruhegeldordnung ’90” schemes.

Under the old pension plan, employees received pensions based on their salaries and period of employment. As part of the transition to the new plan, employees were guar-anteed a pension based on the old plan for their years of service prior to the transition. The new plan is now composed of the employer-funded basic level, the employee-funded top-up level (deferred compensation) and the employer-funded supplementary level.

The pension cost for the employer-funded basic level is based on the respective employ-ee’s income. The employee funded top-up level allows employees to increase their pen-sion entitlement through deferred compensation.

The contribution made at the employer-funded supplementary level depends on the employee contribution through deferred compensation and on the Company’s business performance (EBIT).

Since December 2007, these funds from the pension plan as well as the employee con-tributions from the respective fiscal year have been paid into a new fund (WKN [secu-rities identification number] AOHG1B) and secured in favor of the employees via a con-tractual trust arrangement (CTA), meaning that they only serve to cover and finance the Company’s direct pension obligations. The employees’ pension accounts have a mini-mum guaranteed return of 2.75 percent. Hence, the assets of this fund fulfill the criteria of plan assets pursuant to IAS 19; the EUR 33,094 thousand (2010: EUR 27,944 thousand) in assets secured by the CTA were offset against the gross pension obligations in fiscal year 2011.

The available excess of plan assets over the relevant pension obligations totaling EUR 17,341 thousand (2010: EUR 13,593 thousand) is disclosed under other non-current assets.


The changes in the projected benefit obligation and plan assets are as follows:

chANges iN the PRoJecteD BeNefit oBligAtioNs AND PlAN Assets

2011 2010

Defined benefit plans

Similar obligations

Total Defined benefit plans

Similar obligations

Total

Changes in the projected benefit obligation

Projected benefit obligation as of January 1 243,885 7,018 250,903 225,167 6,225 231,392

Service cost 4,380 397 4,777 2,622 315 2,937

Interest expense 11,141 290 11,431 11,257 277 11,534

Actuarial gains / losses (8,200) (504) (8,704) 6,931 456 7,387

Benefits paid (12,674) (233) (12,907) (11,301) (255) (11,556)

Employee contributions 2,724 – 2,724 2,182 – 2,182

Transfer of obligations and other effects (1,021) 42 (979) – – 0

Currency changes 1,420 – 1,420 7,027 – 7,027

Projected benefit obligation as of December 31 241,655 7,010 248,665 243,885 7,018 250,903

thereof with plan assets 81,711 2,473 84,184 78,195 2,514 80,709

of which without plan assets 159,944 4,537 164,481 165,690 4,504 170,194

Change in plan assets

Fair value of plan assets as of January 1 80,690 29 80,719 70,608 76 70,684

Expected return on plan assets 3,284 – 3,284 3,025 – 3,025

Actuarial gains / losses (5,885) – (5,885) (5,871) – (5,871)

Employer contributions 7,521 – 7,521 5,268 – 5,268

Employee contributions 2,706 – 2,706 2,164 – 2,164

Benefits paid (2,345) – (2,345) (1,118) (47) (1,165)

Transfer of obligations and other effects (870) – (870) (6) – (6)

Currency changes 1,108 (1) 1,107 6,620 – 6,620

Plan assets as of December 31 86,209 28 86,237 80,690 29 80,719

Funding status

Other amounts stated in the balance sheet 0 (351) (351) 20 (349) (329)

Net obligation as of December 31 155,446 6,631 162,077 163,215 6,640 169,855

thereof:

Available excess of plan assets 17,341 0 17,341 13,593 0 13,593

Provisions for pensions and similar obligations 172,787 6,631 179,418 176,808 6,640 183,448

The current component of provisions for pensions and similar obligations, and therefore the expected pension payments for fiscal year 2012, amount to EUR 12,285 thousand (2010: EUR 11,935 thousand).

The obligations similar to pensions of EUR 6,631 thousand (2010: EUR 6,640 thousand) mainly comprise obligations to employees based on local regulations governing the departure of employees from the Company.


Plan assets are composed as follows:

comPositioN of fuND Assets

2011 2010

Shares and securities 76% 72%

Real estate 21% 23%

Other assets 3% 5%

The expense for defined benefit pension plans is made up as follows:

eXPeNses foR DefiNeD BeNefit PlANs AND similAR oBligAtioNs

2011 2010

Defined benefit plans

Similar obligations

Total Defined benefit plans

Similar obligations

Total

Current service cost 4,380 397 4,777 2,622 315 2,937

Interest expense on obligations 11,141 290 11,431 11,257 277 11,534

Expected return on plan assets (3,284) – (3,284) (3,025) – (3,025)

Other effect on profit or loss (172) – (172) 28 – 28

12,065 687 12,752 10,882 592 11,474

The expected return on plan assets and the interest expense on the pension obligations are disclosed as a net total under interest expenses (Note 17).

The actual losses on plan assets totaled EUR 2,601 thousand (2010: return on plan assets of EUR 2,846 thousand).

For fiscal year 2012, additions to plan assets are expected to amount to EUR 10,058 thousand (2010: EUR 9,139 thousand for fiscal year 2011).

The following actuarial assumptions were made in measuring the projected benefit obli-gation:

ActuARiAl AssumPtioNs

2011 2010

Discount rate 2.40–5.50% 2.50–5.25%

Future wage and salary increases 0.00–4.00% 0.00–4.00%

Future pension increases 0.00–3.00% 0.00–3.00%

Average employee turnover 0.00–7.00% 0.00–7.00%

Expected income from fund assets 3.00–4.70% 3.50–4.75%


A discount rate of 5.5 percent (2010: 5.25 percent), a future increase in wages and sala-ries of 3.0 percent and 4.0 percent (2010: 3.0 percent and 4.0 percent), a future increase in pensions of 1.0 percent and 2.0 percent (2010: 1.0 percent and 2.0 percent), average employee turnover of 3.0 percent (2010: 3.0 percent) and an expected return on plan assets of 3.5 percent (2010: 3.5 percent) are applicable to the German companies, to which around 89 percent (2010: 90 percent) of pension obligations are allocable. The 2005 G Heubeck mortality table has been used as a basis of calculation.

The discount rate reflects the effective market return on high-quality corporate bonds (calculated on the basis of modified iBoxx indices) with the same term as the pension obligations as of the balance sheet date.

The expected return on plan assets was based on the assumption of a long-term trend of 3.5 percent (2010: 3.5 percent) for shares and securities and 4.5 percent (2010: 4.5 percent) for real estate. Interest on other assets is expected to come in between 3.0 percent and 4.7 percent (2010: 4.75 percent).

In fiscal year 2011, additional benefits of EUR 1,460 thousand (2010: EUR 1,292 thou-sand) were paid out to pensioners.

In recent years, the experience adjustments of defined benefit obligations and plan assets amounted to:

eXPeRieNce ADJustmeNts

2011 2010 2009 2008

Defined benefit obligations 1,321 140 4,383 4,278

Plan assets (fair value) 5,885 5,871 (3,154) 4,938

7,206 6,011 1,229 9,216

In the above table, an increase in defined benefit obligations and a decrease of plan assets (both actuarial losses) are preceded by a plus sign.

The projected benefit obligation and plan assets have changed as follows in recent years:

multi-YeAR oVeRVieW of DefiNeD BeNefit PeNsioN PlANs

2011 2010 2009 2008 2007

Projected benefit obligations 241,655 243,885 225,167 210,551 207,701

Plan assets (fair value) 86,209 80,690 70,608 56,942 43,895

Total projected benefit obligations and plan assets 155,446 163,195 154,559 153,609 163,806

thereof:

Unfunded obligations 172,786 176,788 164,365 163,678 165,557

Available excess of plan assets 17,341 13,593 9,806 10,069 1,751


Defined contribution plans In addition to the defined benefit plans and similar obligations described above, Dräger pays voluntary and statutory contributions to government and private pension insurers (defined contribution plans).

The cost of other defined contribution plans came to EUR 8,386 thousand in fiscal year 2011 (2010: EUR 7,678 thousand). Dräger also paid statutory pension contributions in Germany of EUR 27,250 thousand (2010: EUR 25,102 thousand).

37 NoN-cuRReNt AND cuRReNt imcome tAX PRoVisioNs

NoN-cuRReNt AND cuRReNt iNcome tAX PRoVisioNs

January 1, 2011 41,584

Allocation 18,109

Utilization (19,239)

Reversal (551)

Reclassifications 88

Currency translations effects 447

December 31, 2011 40,438

38 otheR NoN-cuRReNt AND cuRReNt PRoVisioNs

(eXcluDiNg iNcome tAX PRoVisioNs)

otheR PRoVisioNs

Provisions for personnel and

welfare obligations

Warrantyprovisions

Provisions for potential losses

Provisions forcommissions

Provisions for other obligations

in the normal course of business

2011Total

January 1, 2011 107,623 40,130 12,317 6,078 104,851 270,999

Allocation 96,389 19,137 1,307 5,051 72,231 194,115

Unwinding of the discount 857 – 712 – 455 2,024

Utilization (70,544) (21,750) (1,249) (3,741) (57,167) (154,451)

Reversal (8,599) (5,234) (481) (442) (9,440) (24,196)

Change in consolidated group (1) – – – (87) (88)

Currency translations effects 2,419 781 – 304 (960) 2,544

December 31, 2011 128,144 33,064 12,606 7,250 109,883 290,947

Provisions for personnel and welfare obligations were mainly recognized to cover bonus-es and sales compensation as well as phased retirement and long-service awards. This item also includes EUR 7 million in expenses from the implementation of the new sales structure.

The warranty provisions were measured by reference to the warranty claims made in the past and specific known risks.


Provisions for potential losses mainly resulted from long-term leases of unused business premises.

On December 31, 2010, provisions for other obligations in the normal course of busi-ness included provisions of EUR 7.8 million for cash compensation to be paid to holders of series A, K and D participation certificates, which was paid in May 2011.

Provisions of around EUR 10 million (2010: around EUR 11 million) were recognized for legal disputes within a South American company. Existing risks were assessed by international lawyers and auditors. According to the information available to the Company at this point in time, no further risks exist in addition to those for which provisions were accrued that would have a material adverse effect on the Company’s net assets, financial position and results of operations.

In addition, obligations in the normal course of business were mainly covered by provisions for customer bonuses, sales commissions, audit of financial statements, litiga-tion costs and risks, rental obligations and purchase guarantees.

The expected utilization of other provisions is as follows:

otheR PRoVisioNs BY mAtuRitY

Up to 1 year 1 to 5 years Over 5 years Total

Provisions for personnel and welfare obligations 95,853 21,934 10,357 128,144

Warranty provisions 30,644 2,420 – 33,064

Provisions for potential losses 1,074 4,223 7,309 12,606

Provisions for commissions 7,250 – – 7,250

Provisions for other obligations in the normal course of business 93,377 15,744 762 109,883

228,198 44,321 18,428 290,947

39 NoN-cuRReNt iNteRest-BeARiNg loANs

NoN-cuRReNt iNteRest-BeARiNg loANs

2011 2010

1 to 5 years Over 5 years Total 1 to 5 years Over 5 years Total

Non-current liabilities to banks 14,764 39,710 54,474 12,422 35,633 48,055

Note loansa) issued 2005 – – – 54,937 – 54,937

b) issued 2007 99,923 – 99,923 99,957 – 99,957

c) issued 2009 115,207 – 115,207 115,093 – 115,093

d) issued 2011 57,298 38,364 95,662 – – –

287,192 78,074 365,266 282,409 35,633 318,042

The non-current note loans in place as of the balance sheet date are not subject to any con-tractually agreed termination options.


Variable interest rates are partly hedged. Please see our information on derivative financial instruments (Note 45).

Liabilities to banks arising from the construction of the medical division’s new office and laboratory building that was completed in fiscal year 2008 have been collateralized by a mortgage of EUR 55 million. The finance for the new production and logistics build-ing for the Infrastructure Projects segment in Lübeck, which was completed in fiscal year 2011, has been secured with a mortgage of EUR 10.8 million. There are no other mort-gages on land and buildings or assignments as security for recognized liabilities.

40 otheR NoN-cuRReNt fiNANciAl liABilities

otheR NoN-cuRReNt fiNANciAl liABilities

2011 2010

1 to 5 years Over 5 years Total 1 to 5 years Over 5 years Total

Finance lease liabilities (lessee) 1,387 125 1,512 1,831 150 1,981

Negative fair value of derivative financial instruments 25 2,406 2,431 40 1,184 1,224

All other non-current liabilities 1,743 3,163 4,906 1,742 1,946 3,688

3,155 5,694 8,849 3,613 3,280 6,893

For an explanation of finance lease liabilities, please refer to our comments on recognition of finance leases by the lessee (Note 46).

41 DefeRReD tAX liABilities

Deferred tax assets are explained in Note 18.

42 cuRReNt loANs AND liABilities to BANks

cuRReNt loANs AND liABilities to BANks

2011 2010

Liabilities to banks 29,551 35,048

Note loans 54,968 54,448

84,519 89,496

In fiscal year 2011, note loans of EUR 54.5 million (2010: EUR 45.0 million) were paid and note loans of EUR 55.0 million (2010: EUR 54.5 million) were reclassified from non-current to current liabilities.

Variable interest rates are partly hedged. Please also see our information on derivative financial instruments (Note 45).


43 All otheR cuRReNt fiNANciAl liABilities

All otheR cuRReNt fiNANciAl liABilities

2011 2010

Trade payables to third parties 172,073 171,301

Other current financial liabilities

Other liabilities to employees and for social security 33,602 31,483

Liabilities to Drägerwerk Verwaltungs AG 13,053 7,214

Negative fair values of derivate financial instruments 1,426 3,283

Finance lease liabilities (lessee) 771 865

Distribution for participation capital 547 547

Liabilities to associates 48 36

Other financial liabilities 23,004 25,071

72,451 68,499

244,524 239,800

For the derivative financial instruments recognized as other financial liabilities, please refer to the table of derivative financial instruments in the Dräger Group presented in Note 45.

For an explanation of finance lease liabilities, please refer to our comments on recog-nition of finance leases by the lessee (Note 46).

44 otheR cuRReNt liABilities

otheR cuRReNt liABilities

2011 2010

Prepayments received 48,864 51,320

Deferred income 41,612 36,360

Liabilities from construction contracts 2,149 13,636

Other tax liabilities 33,114 34,433

Other current liabilities 1,029 2,569

126,768 138,318

As in the previous year, liabilities from construction contracts are the result of higher project development costs for one deep sea diving system in the safety division. Prepayments received do not include any prepayments on construction contracts (2010: EUR 3,664 thousand) in accordance with IAS 11 which exceeded the respective recognized value of the contract.


45 fiNANciAl iNstRumeNts

structure of financial instruments and their measurementThe structure of financial instruments in the Group, and therefore the basis for their measurement as well as their reconciliation to the Group balance sheet, was as follows as of the balance sheet date:

fiNANciAl iNstRumeNts As of DecemBeR 31, 2011 – Assets

Financial instruments Other Total

Measurement in accordance with IAS 39

Measurement in accordance with other IAS

Fair Value

(Held forTrading)

Fair Value

(Availablefor Sale)

Amortizedcost

(Loans andReceivables)

Amortizedcost

(Held toMaturity)

(Amortized)cost in

accordancewith IAS 17

(Amortized)cost in

accordance with IAS 28

Intangible Assets – – – – – – 280,309 280,309

Property, plant and equipment – – – – – – 263,363 263,363

Investments in associates – – – – – 306 – 306

Other non-current financial assets 57 8371 8,006 118 747 – – 9,766

Deferred tax assets – – – – – – 104,454 104,454

Other non-current assets – – – – – – 32,013 32,013

Inventories – – – – – – 340,292 340,292

Trade receivables and construction contracts – – 586,488 – – – – 586,488

Other currentfinancial assets 1,052 – 18,068 – 763 – – 19,883

Cash and cash equivalents – – 412,309 – – – – 412,309

Income refund claims – – – – – – 7,531 7,531

Other current assets – – – – – – 58,475 58,475

Total assets 1,109 837 1,024,871 118 1,510 306 1,086,437 2,115,189

1 including investments of eur 237 thousand, which are measured at amortized cost as their fair value cannot be determined


fiNANciAl iNstRumeNts As of DecemBeR 31, 2011 – equitY AND liABilities




Fair Value

(Held for Trading)

Amortized cost

(Other Liabilities)

Fair Value (Amortized)cost

Equity – – – – 729,616 729,616

Liabilities from participation certificates – 31,164 – – – 31,164

Provisions for pensions and similar obligations – – 179,418 – – 179,418

Other non-current provisions – – – – 63,311 63,311

Non-current interest-bearing loans – 365,266 – – – 365,266

Other non-current financial liabilities 25 4,906 – 1,512 2,406 8,849

Deferred tax liabilities – – – – 1,629 1,629

Other non-current liabilities – – – – 782 782

Current income tax provisions – – – – 39,876 39,876

Current provisions – – – – 228,198 228,198

Current loans and liabilities to banks – 84,519 – – – 84,519

Trade payables – 172,073 – – – 172,073

Other current financial liabilities 1,426 70,254 – 771 – 72,451

Income tax liabilities – – – – 11,269 11,269

Other current liabilities – – – – 126,768 126,768

Total equity and liabilities 1,451 728,182 179,418 2,283 1,203,855 2,115,189


fiNANciAl iNstRumeNts As of DecemBeR 31, 2010 – Assets




Fair Value

(Held forTrading)

Fair Value

(Availablefor Sale)

Amortizedcost

(Loans andReceivables)

Amortizedcost

(Held toMaturity)

(Amortized)cost in

accordancewith IAS 17

(Amortized)cost in

accordance with IAS 28

Intangible assets – – – – – – 277,351 277,351

Property, plant and equipment – – – – – – 253,715 253,715

Investments in associates – – – – – 904 – 904

Other non-current financial assets 248 8911 8,868 – 1,395 – – 11,403

Tax refund claims – – – – – – – 0

Deferred tax assets – – – – – – 109,502 109,502

Other non-current assets – – – – – – 28,160 28,160

Inventories – – – – – – 356,666 356,666

Trade receivables andconstruction contracts – – 533,163 – – – – 533,163

Other currentfinancial assets 1,562 – 20,073 – 879 – – 22,514

Cash and cash equivalents – – 320,037 – – – – 320,037

Income tax refund claims – – – – – – 13,027 13,027

Other current assets – – – – – – 50,465 50,465

Total assets 1,810 891 882,141 0 2,274 904 1,088,886 1,976,907

1 including investments of eur 269 thousand, which are measured at amortized cost as their fair value cannot be determined


fiNANciAl iNstRumeNts As of DecemBeR 31, 2010 – equitY AND liABilities




Fair Value

(Held for Trading)

Amortized cost

(Other Liabilities)

Fair Value (Amortized)cost

Equity – – – – 636,563 636,563

Liabilities from participation certificates – 29,916 – – – 29,916

Provisions for pensions and similar obligations – – 183,448 – – 183,448

Other non-current provisions – – – – 44,973 44,973

Non-current interest-bearing loans – 318,042 – – – 318,042

Other non-current financial liabilities 40 3,688 – 1,981 1,184 6,893

Deferred tax liabilities – – – – 2,581 2,581

Other non-current liabilities – – – – 715 715

Current income tax provisions – – – – 41,584 41,584

Current provisions – – – – 226,026 226,026

Current loans and liabilities to banks – 89,496 – – – 89,496

Trade payables – 171,301 – – – 171,301

Other current financial liabilities 3,283 64,351 – 865 – 68,499

Income tax liabilities – – – – 18,552 18,552

Other current liabilities – – – – 138,318 138,318

Total equity and liabilities 3,323 676,794 183,448 2,846 1,110,496 1,976,907

The measurement categories are explained in our comments on the measurement of financial assets and liabilities in Note 10 of this annual report.

Other non-current financial assets include investments with a carrying value of EUR 237 thousand (2010: EUR 269 thousand). These investments are not quoted in any active market. Other methods for calculating an objective market value also rendered no reliable result. The investments are therefore carried at cost.


In the following table, the carrying values of financial assets and liabilities are compared with their fair values:

cARRYiNg VAlues AND fAiR VAlues of fiNANciAl Assets/ liABilities

2011 2010

Carrying value

Fair value Carrying value

Fair value

Financial assets

Trade receivables 586,488 586,488 533,163 533,163

Other financial assets 29,649 29,716 33,917 33,984

Cash and cash equivalents 412,309 412,309 320,037 320,037

Financial liabilities

Liabilities from participation certificates 31,164 31,164 29,916 29,916

Loans and liabilities to banks 449,785 462,765 407,538 421,905

Trade receivables 172,073 172,073 171,301 171,301

Other financial liabilities 81,300 81,493 75,392 75,748

fair value measurement of financial instrumentsFinancial instruments recognized at fair value were allocated to the following levels of the fair value hierarchy:

fAiR VAlue meAsuRemeNt of fiNANciAl iNstRumeNts

Level 2011 2010

Assets measured at fair value

Derivatives with positive fair value (non-current) Level 2 57 248

Derivatives with positive fair value (current) Level 2 1,052 1,562

Securities (non-current) Level 1 602 622

Liabilities measured at fair value

Derivatives with negative fair value (non-current) Level 2 2,431 1,224

Derivatives with negative fair value (current) Level 2 1,426 3,283

level 1:Prices in the active markets are assumed for identical financial assets or liabilities.

level 2: Uses input factors that do not include any listed prices taken into consideration in level 1 but which can be directly (i. e. price) or indirectly (i. e. derived from prices) observed for financial assets or financial liabilities.

level 3:Uses factors not based on observable market data for the measurement of financial assets and liabilities (unobservable input factors). Dräger Group does not hold any level 3


financial instruments. No material reclassifications between level 1 and level 2 were car-ried out in the past two fiscal years.

Net profit/ loss from financial instrumentsThe net profit/loss from financial instruments recognized in profit or loss in fiscal year 2011 is summarized below (by measurement category):

Net PRofit/ loss BY meAsuRemeNt cAtegoRY

2011 2010

Financial assets and financial liabilities held for trading 6,346 (8,453)

Loans and receivables (9,728) (4,833)

Available-for-sale financial assets (57) 14

Other financial liabilities (645) 584

(4,084) (12,688)

The net profit/loss of the financial assets and liabilities in the held for trading category comprises profit and loss from changes in fair value as well as interest income/expenses for these assets and liabilities. The net profit/loss in the category loans and receivables contains impairment losses of EUR 14,907 thousand (2010: EUR 8,298 thousand).

interest income/expenses from financial instrumentsIn fiscal year 2011, interest income/expenses from financial instruments not measured at fair value through profit or loss was as follows:

iNteRest iNcome/ eXPeNses fRom fiNANciAl iNstRumeNts

2011 2010

Interest income

Loans and Receivables 4,229 2,289

Available for Sale 267 14

4,496 2,303

Interest expenses

Other Liabilities (21,045) (22,715)

(16,549) (20,412)

financial risk management As an international company, the Dräger Group is especially exposed to exchange rate and interest rate risks, in addition to liquidity risks. The aim of financial risk management is to mitigate these market risks arising in the course of operating and financial activities. Derivative financial instruments are used to hedge the currency and interest exposure


of current and forecast transactions. Derivatives are only transacted with banks of prime standing.

Financial risk, management is based on the annually revised strategic plans of the Group and divisions and the resultant short and medium-term plans. Financial risk manage-ment of liquidity and interest rate risk is implemented centrally at Drägerwerk AG & Co. KGaA, whereas currency risk management based on regular risk reports is the joint responsibility of Drägerwerk AG & Co. KGaA and its divisions. Please see our comments in the management report for more general information on risk management.

liquidity risk Drägerwerk AG & Co. KGaA mitigates its liquidity risk by diversifying the maturity structure of its financing instruments. These include in particular participation certificates and note loans due in one to seven years. Drägerwerk AG & Co. KGaA also has various non-current and current liabilities to banks as well as a liquidity reserve comprising freely available credit facilities with numerous banks with which it has concluded bilateral agreements. Due to the maturity structure of these financing instruments, Drägerwerk AG & Co. KGaA has only a limited repricing risk.

A syndicated credit line with an original total volume of EUR 240 million and a matu-rity of three years was obtained during the purchase of the Siemens share in March 2010. The outstanding amount of EUR 190 million was repaid early in December 2010 and replaced with bilateral credit lines of EUR 240 million and a term of five years.

The following analysis of the maturities of financial liabilities (contractually agreed, non-discounted payments) shows the influence on the Group’s liquidity situation:

mAtuRities of fiNANciAl liABilities 2011

2012 2013 2014 to 2016

from 2017 Total

Derivative financial liabilities

Foreign currency derivatives – cash outflow 86,571 545 242 – 87,358

Foreign currency derivatives – cash inflow (84,857) (524) (232) – (85,613)

Interest rate swap (hedge accounting) – cash outflow 603 592 1,704 3,130 6,029

2,317 613 1,714 3,130 7,774

Non-derivative financial liabilities

Liabilities from participation certificates 547 547 1,641 61,900 64,635

Loans and liabilities to banks 84,551 89,819 242,827 96,203 513,400

Trade payables and payables from construction contracts 172,073 – – – 172,073

Liabilities to employees 33,620 120 89 3,025 36,854

Finance lease liabilities 771 749 894 131 2,545

Other financial liabilities 36,634 1,088 477 200 38,399

328,196 92,323 245,928 161,459 827,906

330,513 92,936 247,642 164,589 835,680


mAtuRities of fiNANciAl liABilities 2010

2011 2012 2013 to 2015

from 2016 Total

Derivative financial liabilities

Foreign currency derivatives – cash outflow 121,748 540 780 – 123,068

Foreign currency derivatives – cash inflow (118,110) (529) (756) – (119,395)

Interest rate swap (hedge accounting) – cash outflow 614 603 1,741 3,686 6,644

4,252 614 1,765 3,686 10,317

Non-derivative financial liabilities

Liabilities from participation certificates 547 547 1,641 62,037 64,772

Loans and liabilities to banks 89,548 59,774 228,204 41,698 419,224

Trade payables and payables from construction contracts 184,937 188 94 – 185,219

Liabilities to employees 31,483 151 19 1,946 33,599

Finance lease liabilities 865 752 1,463 157 3,237

Other financial liabilities 32,868 1,160 458 – 34,486

340,248 62,572 231,879 105,838 740,537

344,500 63,186 233,644 109,524 750,854

Cash outflow from currency hedges of EUR 87.4 million (2010: EUR 123.1 million) faced cash inflow of EUR 85.6 million (2010: EUR 119.4 million) as of December 31, 2011.

currency risk The Group’s currency risks within the meaning of IFRS 7 relate to the financial instru-ments used in connection with operating activities or investing and financing activities. Drägerwerk AG & Co. KGaA mainly counters any risk that remains after offsetting cash inflows and outflows in the same foreign currency by entering into derivatives. In order to better illustrate existing currency risks, the effects of hypothetical changes in relevant currencies on net profit and equity are discussed below on the basis of a currency sensi-tivity analysis. For this purpose, it was assumed that most monetary financial instruments are already denominated in the functional currency or have been converted into the functional currency using derivative financial instruments. Currency risks therefore lie in the remaining unhedged financial instruments in foreign currencies in respect of which currency fluctuations affect profit or loss. If the euro were up/down 10 percent against the US dollar, the main foreign currency in the Dräger Group, as of the balance sheet date, with all other variables remaining the same, earnings after taxes (pursuant to IFRS 7) would be EUR 2.3 million lower (2010: EUR 0.5 million higher)/EUR 2.8 million higher (2010: EUR 0.6 million lower).

interest rate risk As well as variable rate non-current receivables and liabilities from operations, variable rate non-current loan liabilities also give rise to an interest rate risk due to changes in market rates. Drägerwerk AG & Co. KGaA counters this risk with a combination of fixed and variable rate financial liabilities and by using interest rate caps. Changes in the market interest rates for primary financial instruments with fixed interest only affect the Group’s profit or loss if such instruments are recognized at fair value. Thus none of the


fixed-interest financial instruments recognized at amortized cost poses an interest rate risk that would affect cash flows. In order to better illustrate existing interest rate risks, the effects of hypothetical changes in market interest rates on net profit and equity are discussed below on the basis of an interest rate sensitivity analysis. For this purpose, it was assumed that interest rate changes affect primary financial instruments measured at fair value and derivative financial instruments that are not part of a hedging relation-ship, whose changes in value are recognized in profit or loss. Derivative financial instru-ments that are part of a cash flow hedge are also affected by interest rate changes, with the changes in value recognized directly in equity.

A hypothetical increase/decrease of 100 basis points in market interest rates as of the balance sheet date, with all other variables remaining the same, would increase/decrease earnings before taxes by EUR 1,994 thousand (2010: EUR 1,282 thousand) and increase equity by EUR 1,301 thousand (2010: EUR 1,278 thousand)/decrease equity by EUR 1,454 thousand (2010: EUR 1,438 thousand).

credit riskThe maximum exposure to credit risk is represented by the carrying value of each financial asset, including financial derivatives, in the balance sheet. The Group does not expect any counterparties to derivatives to fail to meet their obligations as they consist exclusively of prime financial institutions. Consequently, the Group considers that its maximum exposure is reflected by the amount of trade receivables and other current assets, net of valuation adjustments recognized as of the balance sheet date.

Derivative financial instrumentsLike the hedged items, derivative financial instruments are recognized at fair value, and resulting unrealized gains and losses are recognized in profit or loss as part of the cost of sales or the financial result providing the instruments are not part of a cash flow hedge. If a derivative financial instrument serves as a cash flow hedge, the unrealized gains and losses are recognized directly in equity.

The following positions were held as of the balance sheet date:

DeRiVAtiVe fiNANciAl iNstRumeNts

Nominal volume Fair value

Positive Negative

December 31, 2011

Currency hedges 174,547 1,102 1,451

Interest rate caps 103,500 7 –

Interest rate swaps 14,736 – 2,406

292,783 1,109 3,857

December 31, 2010

Currency hedges 120,722 1,562 3,257

Interest rate caps 123,500 248 –

Interest rate swaps 19,983 – 1,250

264,205 1,810 4,507


The positive fair values of the derivatives are disclosed as current and non-current finan-cial assets, the negative fair values as current and non-current financial liabilities.

The currency hedges cover selected foreign currency cash flows from operating activi-ties over the next three years (2010: four years). Currency hedging mainly relates to operations in US dollars and to a lesser extent to operations in pounds sterling, Australian dollars as well as dividends distributed in Swiss francs.

In order to offset the effects of future changes to interest rates on cash flows, the Group concluded interest rate swaps and interest rate caps.

The interest rate hedges have remaining terms of up to two years (interest rate caps) or 12 years (interest rate swaps). For the swap, the only contract for which the Group uses hedge accounting, the Group pays variable interest and in turn receives fixed interest. It is used for hedging variable interest rates from a real estate lease agreement. Inter- est rate swaps are recognized at fair value. The ineffective part of the changes in fair value is recognized in income.

46 leAsiNg

The contracts recognized under IFRIC 4 as leases are explained below.

lessee – finance leases Property leased by the Dräger Group primarily includes machinery and equipment. The most significant obligations assumed under the lease terms, other than the rental pay-ments themselves, are the upkeep of the facilities and equipment, insurance and taxes on capital. Lease terms generally range from one to five years with options to renew at varying conditions.

The Group had no finance leases with conditional payments in the fiscal year or the prior year.

For a list of assets used under finance leases, please see our explanations in connection with the statement of non-current assets in Notes 22 and 23.

Minimum lease payments for the above finance leases are as follows:

miNimum leAse PAYmeNts

2011 2010

During the first year 903 1,262

From the second to the fifth year 1,643 2,215

After five years 131 157

Minimum lease payments 2,677 3,634

During the first year 771 865



Present value of minimum lease payments 2,283 2,846

Interest portion contained in the minimum lease payments 394 788


No future income from non-cancelable subleases was expected as of December 31, 2011, as in the previous year.

lessee – operating leases Drägerwerk AG & Co. KGaA and its subsidiaries have various operating lease agreements for buildings, machinery, office equipment and other facilities and equipment. Most leases contain renewal options. Some of the leases contain escalation clauses and provide for contingent rents based on percentages of net sales derived from assets held under operating leases. Lease conditions do not contain restrictions concerning dividends, addi-tional debt or further leasing.

Lease expenses comprise the following:

leAsiNg eXPeNses

2011 2010

Basic lease costs 48,827 47,347

Contingent costs 43 116

Income from subleases (113) (115)

48,757 47,348

Future minimum lease payments outstanding under non-cancelable operating leases are as follows:


2011 2010

During the first year 38,704 35,890


After five years 17,091 38,561

Minimum lease payments 102,891 117,838

Total expected future minimum income from subleases under non-cancelable operating leases amounted to EUR 30 thousand as of December 31, 2011 (2010: EUR 94 thousand).

lessor – finance leases The Dräger Group’s main finance leases relate to medical equipment of the medical division, and solutions and personal protection products of the safety division. A receivable was recognized equal to the present value of the minimum lease payments.

Receivables from future lease payments outstanding are shown below:


ReceiVABles fRom futuRe leAse PAYmeNts outstANDiNg

2011 2010

During the first year 981 1,011

From the second to the fifth year 588 1,225


Total gross investments in finance leases 1,856 2,621

During the first year 763 879

From the second to the fifth year 509 1,084


Present value of minimum lease payments outstanding as of the balance sheet date 1,510 2,275

Unearned finance income 346 346

As in the previous year, bad debt allowances for uncollectible minimum lease payments were not required as of December 31, 2011.

lessor – operating leasesThe Dräger Group’s main operating leases relate to medical equipment of the medical division, and solutions and gas detection products of the safety division.

The following table shows the assets leased out under operating leases:

oPeRAtiNg leAses

2011 2010

Equipment 40,146 34,832

Accumulated depreciation (30,088) (25,470)

Net carrying value 10,058 9,362

Future minimum lease payments outstanding under non-cancelable operating leases are as follows:


2011 2010

During the first year 8,737 6,396


37,261 37,589

As in the prior year, no contingent rents were recognized in profit or loss in fiscal year 2011.

47 coNtiNgeNt liABilities AND otheR fiNANciAl oBligAtioNs

As in the previous year, the Dräger Group did not have any contingent liabilities.

194 oTher financial obligaTions

other financial obligations

A) ReNtAl AND leAse AgReemeNts

For other financial obligations from rental and lease agreements, please refer to our com-ments in Note 46 (lessee – operating leases).

B) 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 assumed all existing long-term obligations to IT service providers of the medical and safety divisions. As a result of outstanding orders, the Group had obligations to pur-chase intangible assets of EUR 1,022 thousand (2010: EUR 1,225 thousand) and items of property, plant and equipment of EUR 13,280 thousand (2010: EUR 7,289 thousand) as of December 31, 2011.

c) iNVestmeNt AlloWANce foR molViNA

Based on the decision of Investitionsbank Schleswig Holstein on November 1, 2005, Dräger Medical GmbH and MOLVINA Vermietungsgesellschaft mbH & Co. Finkenstrasse KG, both jointly and severally liable, were granted an allowance for investment costs of EUR 7,829 thousand for the medical division’s new building, which has been fully paid out. The grant can only be used for this specific purpose and is subject to the fulfillment of specific conditions, all of which relate to Dräger’s use of the building. If these conditions are not fulfilled within the contractually stipulated period of seven years (ending 2015), the amount paid out must be repaid.

D) iNVestmeNt AlloWANce foR DReNitA

Based on the decision of Investitionsbank Schleswig Holstein on August 18, 2010, Dräger Medical GmbH and DRENITA Grundstücks-Vermietungsgesellschaft mbH & Co. KG, both jointly and severally liable, were granted an allowance for investment costs of a maxi-mum of EUR 2,230 thousand for the new production and logistics building for the Infra-structure projects business in Lübeck, which was completed in fiscal year 2011. If the full amount is used, EUR 450 thousand will be paid out in 2012 and EUR 1,780 thousand in 2013. The grant can only be used for this specific purpose and is subject to the fulfillment of specific conditions, all of which relate to Dräger’s use of the building. If these condi-tions are not fulfilled within the contractually stipulated period of five years (ending 2016), the amount paid out must be repaid.

e) litigAtioN

Companies of the Dräger Group were involved in litigation and claims for damages in connection with business activities as of December 31, 2011. The Executive Board of the general partner believes that the outcome of such litigation and claims will not have any further material adverse effect on the Company’s net assets, financial position or results of operations over and above the provisions which have already been recognized.

It is not to be expected for these contingent liabilities to materialize into actual liabili-ties for which no provision has been recognized yet.


196 segmenT reporT

BusiNess PeRfoRmANce of the segmeNts

Dräger medical division Dräger safety division Drägerwerk AG & Co. KGaA /other companies

Consolidation Dräger Group

2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Order intake € million 1,518.8 1,441.9 805.0 731.7 16.2 16.7 (46.8) (44.8) 2,293.2 2,145.5

Orders on hand € million 319.8 280.6 142.8 142.3 – – (1.3) (1.2) 461.3 421.7

Net sales € million 1,484.5 1,472.0 802.7 733.8 16.2 16.7 (47.6) (45.2) 2,255.8 2,177.3

thereof intersegment net sales € million 1.5 1.6 32.1 29.2 14.0 14.3 (47.6) (45.2) – –

thereof third party net sales € million 1,483.0 1,470.4 770.6 704.5 2.3 2.4 – – 2,255.8 2,177.3

EBITDA € million 215.7 209.8 96.6 81.8 149.0 76.2 (191.6) (121.1) 269.6 246.7

Depreciation / amortization € million 23.8 23.2 20.5 20.8 11.5 10,0 0.1 (0.1) 55.9 53.9

EBIT € million 191.8 186.6 76.1 61.0 137.5 66.2 (191.7) (121.0) 213.8 192.8

Interest result € million 33.0 39.1

Income taxes € million 55.7 48.9

Net profit € million 125.1 104.8

thereof profit / loss from investments in associates € million (0.4) 0.4

Research and development expenses € million 111.1 101.1 44.8 43.9 4.7 3.3 – – 160.5 148.4

Cash flow from operating activities € million 127.8 178.4 59.0 74.3 128.2 41.5 (155.1) (75.0) 159.9 219.1

Capital employed € million 547.2 514.7 192.7 181.6 747.8 747.5 (610.7) (610.4) 877.1 833.4

Assets € million 1,005.6 959.2 373.7 357.6 829.3 824.8 (640.2) (628.1) 1,568.4 1,513.4

thereof investments in associates – – – 0.6 0.1 0.3 0.2 – 0.3 0.9

Liabilities € million 419.6 396.4 166.2 165.8 83.3 77.2 (39.1) (27.7) 630.0 611.8

Net financial debt € million 39.8 90.3

Investments € million 33.5 29.1 22.9 21.0 13.9 6.2 1.1 (0.5) 71.5 55.8

Non-cash expenses € million 166.2 167.5 76.3 56.8 27.4 30.8 (0.1) – 269.7 255.1

EBIT /net sales % 12.9 12.7 9.5 8.3 – – – – 9.5 8.9

EBIT/capital employed % 35.1 36.3 39.5 33.6 – – – – 24.4 23.1

Net financial debt / EBITDA Factor 0.1 0.4

Gearing factor Factor 0.05 0.14

DVA1 € million 144.0 136.5 57.5 43.1 – – – – 134.6 114.5

Headcount as of December 31 6,717 6,386 4,531 4,409 676 496 – – 11,924 11,291

1 dräger value added

The medical division develops, produces, and markets system solutions, equipment and services for the optimization of processes at the acute point of care. These include emer-gency care, perioperative care (in connection with the operation), critical care and also perinatal care (in connection with childbirth). The safety division develops, produces and markets products, system solutions and services for personal protection, gas detec-tion technology and comprehensive hazard management. Its customers come from indus-try, mining and public sectors such as fire departments, police and disaster protection.

48 segmeNt RePoRt

Drägerwerk AG & Co. KGaA reports on the medical and safety divisions. The Executive Board bases its business decisions on information provided by these two operating segments. Drägerwerk AG & Co. KGaA/other companies comprises all group companies that are not directly allocated to one of the two operating segments. These companies mainly deal with strategic cross segment controls or real estate management.


BusiNess PeRfoRmANce of the segmeNts

Dräger medical division Dräger safety division Drägerwerk AG & Co. KGaA /other companies


2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Order intake € million 1,518.8 1,441.9 805.0 731.7 16.2 16.7 (46.8) (44.8) 2,293.2 2,145.5

Orders on hand € million 319.8 280.6 142.8 142.3 – – (1.3) (1.2) 461.3 421.7

Net sales € million 1,484.5 1,472.0 802.7 733.8 16.2 16.7 (47.6) (45.2) 2,255.8 2,177.3

thereof intersegment net sales € million 1.5 1.6 32.1 29.2 14.0 14.3 (47.6) (45.2) – –

thereof third party net sales € million 1,483.0 1,470.4 770.6 704.5 2.3 2.4 – – 2,255.8 2,177.3

EBITDA € million 215.7 209.8 96.6 81.8 149.0 76.2 (191.6) (121.1) 269.6 246.7

Depreciation / amortization € million 23.8 23.2 20.5 20.8 11.5 10,0 0.1 (0.1) 55.9 53.9

EBIT € million 191.8 186.6 76.1 61.0 137.5 66.2 (191.7) (121.0) 213.8 192.8

Interest result € million 33.0 39.1

Income taxes € million 55.7 48.9

Net profit € million 125.1 104.8

thereof profit / loss from investments in associates € million (0.4) 0.4

Research and development expenses € million 111.1 101.1 44.8 43.9 4.7 3.3 – – 160.5 148.4

Cash flow from operating activities € million 127.8 178.4 59.0 74.3 128.2 41.5 (155.1) (75.0) 159.9 219.1

Capital employed € million 547.2 514.7 192.7 181.6 747.8 747.5 (610.7) (610.4) 877.1 833.4

Assets € million 1,005.6 959.2 373.7 357.6 829.3 824.8 (640.2) (628.1) 1,568.4 1,513.4

thereof investments in associates – – – 0.6 0.1 0.3 0.2 – 0.3 0.9

Liabilities € million 419.6 396.4 166.2 165.8 83.3 77.2 (39.1) (27.7) 630.0 611.8

Net financial debt € million 39.8 90.3

Investments € million 33.5 29.1 22.9 21.0 13.9 6.2 1.1 (0.5) 71.5 55.8

Non-cash expenses € million 166.2 167.5 76.3 56.8 27.4 30.8 (0.1) – 269.7 255.1

EBIT /net sales % 12.9 12.7 9.5 8.3 – – – – 9.5 8.9

EBIT/capital employed % 35.1 36.3 39.5 33.6 – – – – 24.4 23.1

Net financial debt / EBITDA Factor 0.1 0.4

Gearing factor Factor 0.05 0.14

DVA1 € million 144.0 136.5 57.5 43.1 – – – – 134.6 114.5

Headcount as of December 31 6,717 6,386 4,531 4,409 676 496 – – 11,924 11,291

1 dräger value added

The medical division develops, produces, and markets system solutions, equipment and services for the optimization of processes at the acute point of care. These include emer-gency care, perioperative care (in connection with the operation), critical care and also perinatal care (in connection with childbirth). The safety division develops, produces and markets products, system solutions and services for personal protection, gas detec-tion technology and comprehensive hazard management. Its customers come from indus-try, mining and public sectors such as fire departments, police and disaster protection.

198 segmenT reporT

Consolidation amounts essentially relate to elimination of order intake and net sales between segments, the elimination of income from investments and, in the case of assets, the effects of consolidation of investments.

The segment reports were prepared in accordance with IFRS as applied in the Group financial statements.

The key figures from the segment report are as follows:

eBit/ eBitDA

2011 2010


Net profit 125.1 104.8

+ Interest result 33.0 39.1

+ Income taxes 55.7 48.9

EBIT 213.8 192.8

+ Depreciation / amortization 55.9 53.9

EBITDA 269.6 246.7

cAPitAl emPloYeD

2011 2010


Total assets 2,115.2 1,976.9

– Deferred tax assets (104.5) (109.5)


– Non-interest bearing liabilities (721.3) (714.0)

Capital Employed 877.1 833.4

Assets

2011 2010


Total assets 2,115.2 1,976.9

– All other financial assets (2.7) (4.1)

– Deferred tax assets (104.5) (109.5)

– Tax refund claims (current and non-current) (27.3) (29.9)


Assets 1,568.4 1,513.4


liABilities

2011 2010


Liabilities recognized in the balance sheet 1,385.6 1,340.4

– Provisions for pensions and similar obligations (179.4) (183.4)

– Tax liabilities, tax provisions, tax accruals and deferred tax liabilities (92.9) (105.0)

– Interest-bearing liabilities (483.3) (440.2)

Liabilities 630.0 611.8

Net fiNANciAl DeBt

2011 2010


Non-current interest-bearing loans 365.3 318.0

+ Current loans and liabilities to banks 84.5 89.5

+ Finance leases 2.3 2.8


Net financial debt 39.8 90.3

NoN-cAsh eXPeNses

2011 2010


Write-downs on inventories 29.3 20.6

+ Losses from bad debt allowances 14.9 8.3

+ Allocations to provisons 225.5 226.2

Non-cash expenses 269.7 255.1

DVA

2011 2010


EBIT 213.8 192.7

– Cost of capital (79.2) (78.2)

DVA 134.6 114.5

Gearing is the ratio of net financial debt to equity.The business performance of the individual segments is detailed in the management

report. Services rendered between the divisions follow the arm’s length principle.

200 segmenT reporT

segmeNt PeRfoRmANce BY RegioN

Dräger medical division Dräger safety division Drägerwerk AG & Co. KGaA/other companies


2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Net sales by region € million 1,484.5 1,472.0 802.7 733.8 16.2 16.7 (47.6) (45.2) 2,255.8 2,177.3

Germany € million 317.9 301.3 169.0 160.2 16.2 16.7 (45.3) (45.2) 457.7 433.0

Rest of Europe € million 534.7 535.8 334.0 298.5 – – (2.3) – 866.4 834.3

Americas € million 309.1 327.8 131.2 127.9 – – – – 440.3 455.7

Asia /Pacific € million 223.7 204.9 122.4 102.9 – – – – 346.1 307.8

Other € million 99.2 102.2 46.1 44.3 – – – – 145.3 146.5

Assets by region € million 1,005.6 959.7 373.7 357.5 841.7 832.8 (652.7) (636.7) 1,568.4 1,513.3

Germany € million 465.9 457.9 149.1 157.7 839.3 830.2 (756.1) (748.5) 698.2 697.3

Rest of Europe € million 262.3 258.2 126.4 111.7 – – 116.8 116.5 505.5 486.4

Americas € million 162.8 142.5 53.3 47.7 2.4 2.6 (13.1) (4.1) 205.4 188.7

Asia /Pacific € million 91.3 86.2 39.9 35.7 – – (0.2) (0.3) 130.9 121.6

Other € million 23.3 14.9 5.0 4.7 – – – (0.3) 28.2 19.3

Investments 1, 2 by region € million 33.5 29.1 22.9 21.0 13.9 6.2 1.1 (0.5) 71.5 55.8

Germany € million 21.1 18.2 11.8 12.1 13.8 6.1 1.1 (0.5) 47.9 35.9

Rest of Europe € million 4.9 4.8 4.3 4.4 – – – – 9.1 9.2

Americas € million 4.6 4.1 3.3 1.5 0.1 0.1 – – 8.1 5.7


Other € million 0.4 0.3 0.1 0.5 – – – – 0.5 0.8

1 excluding other financial assets, tax refund claims and non-interest-bearing assets2 intangible assets and property, plant and equipment


segmeNt PeRfoRmANce BY RegioN

Dräger medical division Dräger safety division Drägerwerk AG & Co. KGaA/other companies


2011 2010 2011 2010 2011 2010 2011 2010 2011 2010

Net sales by region € million 1,484.5 1,472.0 802.7 733.8 16.2 16.7 (47.6) (45.2) 2,255.8 2,177.3

Germany € million 317.9 301.3 169.0 160.2 16.2 16.7 (45.3) (45.2) 457.7 433.0

Rest of Europe € million 534.7 535.8 334.0 298.5 – – (2.3) – 866.4 834.3

Americas € million 309.1 327.8 131.2 127.9 – – – – 440.3 455.7


Other € million 99.2 102.2 46.1 44.3 – – – – 145.3 146.5

Assets by region € million 1,005.6 959.7 373.7 357.5 841.7 832.8 (652.7) (636.7) 1,568.4 1,513.3

Germany € million 465.9 457.9 149.1 157.7 839.3 830.2 (756.1) (748.5) 698.2 697.3

Rest of Europe € million 262.3 258.2 126.4 111.7 – – 116.8 116.5 505.5 486.4

Americas € million 162.8 142.5 53.3 47.7 2.4 2.6 (13.1) (4.1) 205.4 188.7

Asia /Pacific € million 91.3 86.2 39.9 35.7 – – (0.2) (0.3) 130.9 121.6

Other € million 23.3 14.9 5.0 4.7 – – – (0.3) 28.2 19.3

Investments 1, 2 by region € million 33.5 29.1 22.9 21.0 13.9 6.2 1.1 (0.5) 71.5 55.8

Germany € million 21.1 18.2 11.8 12.1 13.8 6.1 1.1 (0.5) 47.9 35.9

Rest of Europe € million 4.9 4.8 4.3 4.4 – – – – 9.1 9.2

Americas € million 4.6 4.1 3.3 1.5 0.1 0.1 – – 8.1 5.7


Other € million 0.4 0.3 0.1 0.5 – – – – 0.5 0.8

1 excluding other financial assets, tax refund claims and non-interest-bearing assets2 intangible assets and property, plant and equipment

202

49 Notes to the cAsh floW stAtemeNt

The consolidated cash flow statement is presented separately in the management report. The cash flows are broken down according to net cash provided by/used in operating activities (using the indirect method), investing activities and financing activities. Due to the elimination of exchange rate effects, the underlying changes recognized in the cash flow statement cannot be directly reconciled with the items of the published balance sheet.

The cash flow from operating activities includes EUR 54,947 thousand (2010: EUR 43,255 thousand) in income taxes paid, EUR 5,527 thousand (2010: EUR 3,650 thousand) in interest received, and EUR 27,550 thousand (2010: EUR 30,792 thousand) in interest paid.

Cash and cash equivalents include EUR 14,558 thousand in cash (2010: EUR 10,175 thousand) which is subject to restrictions. The changes in the cash flow statement are explained in the management report.

Unused credit lines came to EUR 271.7 million as of December 31, 2011 (2010: EUR 230.1 million) and are subject to restrictions applicable in the market.

50 RemuNeRAtioN of the eXecutiVe AND suPeRVisoRY BoARDs

executive Board remunerationIn fiscal year 2011, total Executive Board remuneration amounted to EUR 10,413,878 (2010: EUR 7,539,148) and comprised a fixed component of EUR 3,954,308 (2010: EUR 3,347,273) and a performance-related short-term component of EUR 6,459,570 (2010: EUR 4,191,875).

A total of EUR 1,852,362 was added to the bonus reserve as a long-term, performance-related component for the members of the Executive Board.

Performance-related remuneration includes components with long-term incentives of EUR 6,149,520 (2010: EUR 315,000).

On November 2, 2011, the Company came to an agreement with Dr. Carla Kriwet to terminate her employment contract dated September 15, 2010 with effect from Decem-ber 31, 2011. Fixed remuneration includes a compensation payment of EUR 1,785,256.00.

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, 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,

noTes To consolidaTed balance sheeT


this remuneration amounts to EUR 73 thousand (2009: EUR 71 thousand) plus any VAT incurred.

Obligations to Executive Board members under pension plans are stated in the financial statements 2011 at EUR 931,562 (2010: EUR 670,538). 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 261,024 for members of the Executive Board (2010: EUR 203,936 ).

EUR 3,022,224.03 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 36,720,320 (2010: EUR 37,793,139).

If an Executive Board member dies during his or her active service on the Board, the surviving spouse is entitled to Dräger widow’s pension and any remaining children have claim to Dräger orphan’s pension.

Annual Dräger widow’s pension comes to 55 percent of the Dräger pension, which the deceased Executive Board member has or would have received if he or she would have become unable to work at his or her time of death (fictitious reduction in earning capac-ity pension). The amount of Dräger orphan’s pension is 10 percent of the fictitious reduction in earning capacity pension or the current Dräger pension of the deceased Executive Board member.

supervisory Board remuneration The remuneration report also includes information on the shares owned by 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 631,750.00). In order to increase the transparency of the remuneration system, the annual sharehold-ers’ meeting of Drägerwerk AG & Co. KGaA on May 6, 2011 stipulated the remuneration for Supervisory Board members in the articles of association, effective for the first time in fiscal year 2011.

Supervisory Board remuneration for fiscal year 2011 came to EUR 640,000 (2010: EUR 631,750) and comprised 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, 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 Super-visory Board members is one and a half times their fixed annual salary.

The employee representatives on the Supervisory Board receive remuneration at arm’s length terms and conditions within the scope of their employment contracts.

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 thousand (2010: EUR 135 thousand). In addition, the Supervisory Board members receive annual flat fees for out-of-pocket expenses totaling EUR 55 thousand (2010: EUR 55 thousand). No remuneration was paid to Supervisory Board members of Group companies.

204 noTes To consolidaTed balance sheeT

For further information on individual remuneration for Executive Board and Supervisory Board members, please refer to the Corporate Governance Report. Its remuneration report also forms part of the Group management report.

51 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 67.19 percent of common shares of Drägerwerk AG & Co. KGaA with 68.36 percent of voting rights attributable to the Chairman of the Executive Board Stefan Dräger, whereby 67.19 percent are attributable to him in accor-dance with the terms of Sec. 22 (1) Sentence 1 No. 1 WpHG (Wertpapierhandelsgesetz − 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 less than 0.01 percent of the Company’s total shares and 295 common shares (directly or indirectly), corresponding to less than 0.01 percent of the Company’s total shares.

Related-party transactions Services were rendered for companies related to Stefan Dräger and for the Dräger Foun-dation totaling EUR 92 thousand in fiscal year 2011 (2010: EUR 69 thousand). Receiv-ables amounted to EUR 75 thousand on December 31, 2011.

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 con-

ditions.

52 fuRtheR iNfoRmAtioN

Auditor’s fee The total fee charged by the auditor – PricewaterhouseCoopers Aktiengesellschaft Wirt-schaftsprüfungsgesellschaft – in fiscal year 2011 for the audit of the Group financial statements amounted to EUR 950 thousand (2010: EUR 917 thousand) for the audit of the financial statements, EUR 81 thousand (2010: EUR 11 thousand) for tax consultancy and EUR 260 thousand (2010: EUR 1,374 thousand) for other audit services. In fiscal year 2010, other audit services included EUR 1,051 thousand in connection with the capital increase and the case-based insurance covering the maximum liability.

corporate governance declaration Drägerwerk AG & Co. KGaA’s declaration of conformity under the terms of Sec. 161 AktG (Aktiengesetz − German Stock Corporation Act) has been issued and made available to the shareholders at www.draeger.com (please also see the corporate governance report).


Annual document in accordance with sec. 10 of the german securities Prospectus Act (Wertpapierprospektgesetz – WpPg) Shareholders can now access the annual document in accordance with Sec. 10 WpPG of Drägerwerk AG & Co. KGaA online at www.draeger.com in the “Investors” section (Corporate Governance, annual document).

206 noTes To consolidaTed balance sheeT

53 coNsoliDAteD comPANies of the DRÄgeR gRouP

coNsoliDAteD comPANies

Name and registered office Capital stock in LCU thousand

Share-holding

in %

Germany

Dräger Medical GmbH, Lübeck 4 200 EUR 100

Dräger Safety AG & Co. KGaA, Lübeck 4 25,739 EUR 100

Dräger Medical Deutschland GmbH, Lübeck 4 2,000 EUR 100

Dräger Electronics GmbH, Lübeck 2,000 EUR 100

Dräger Medizin System Technik GmbH, Lübeck 1,023 EUR 100

Dräger Safety Verwaltungs AG, Lübeck 4 1,000 EUR 100

Dräger TGM GmbH, Lübeck 4 767 EUR 100

Dräger MSI GmbH, Hagen 1,000 EUR 100

Dräger Medical ANSY GmbH, Lübeck 4 500 EUR 100

Dräger Interservices GmbH, Lübeck 4 256 EUR 100

Dräger Gebäude und Service GmbH, Lübeck 4 250 EUR 100

Dräger Medical International GmbH, Lübeck 4 100 EUR 100

MAPRA Assekuranzkontor GmbH, Lübeck 1 55 EUR 49

Fachklinik für Anästhesie und Intensivmedizin Vahrenwald GmbH, Lübeck 26 EUR 100

Dräger Energie GmbH, Lübeck 25 EUR 100

FIMMUS Grundstücks-Vermietungs GmbH, Lübeck 4 25 EUR 100

Dräger Finance Services GmbH & Co. KG,Bad Homburg v. d. Höhe (SPE) 2, 5 511 EUR 95 3

OPTIO Grundstücks-Verwaltungsgesellschaft mbH & Co. KG, Grünwald (SPE) 2, 5 26 EUR 100 3

FIMMUS Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Lübeck KG, Lübeck (SPE) 2, 5 10 EUR 100 3

HAMUS Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Lübeck KG, Düsseldorf (SPE) 2, 5 10 EUR 100 3

MOLVINA Vermietungsgesellschaft mbH & Co. Objekt Finkenstraße KG, Lübeck (SPE) 2, 5 5 EUR 100 3

DRENITA Grundstücks-Vermietungsgesellschaft mbH & Co.Objekt Fertigung Dräger Medizintechnik KG, Lübeck (SPE) 2, 5 10 EUR 100 3

Dräger Grundstücksverwaltungs GmbH, Lübeck 25 EUR 100

Europe

Belgium Dräger Medical Belgium NV, Wemmel 1,503 EUR 100

Dräger Safety Belgium NV, Wemmel 789 EUR 100

Bulgaria Draeger Medical Bulgaria EOOD, Sofia 705 BGN 100

Draeger Safety Bulgaria EOOD, Sofia 500 BGN 100

Denmark Dräger Safety Danmark A /S, Herlev 5,000 DKK 100

Dräger Medical Danmark A /S, Allerod 4,110 DKK 100

Finland Dräger Suomi Oy, Helsinki 802 EUR 100

1 These companies are treated as associates as defined by ias 282 These companies were consolidated as special purpose entities pursuant to sic 12 in conjunction with ias 273 in the limited shares4 relief in accordance with sec. 264 (3) hgb5 relief in accordance with sec. 264b hgb




Share-holding

in %

Europe (continued)

France Dräger Médical SAS, Antony 8,000 EUR 100

Draeger Safety France SAS, Strasbourg 1,470 EUR 100

AEC SAS, Antony 70 EUR 100

Greece Draeger Hellas A.E. for Products of Medical and Safety Technology 1,000 EUR 100

Great Britain Draeger Safety UK Ltd., Blyth 7,589 GBP 100

Draeger Medical UK Ltd., Hemel Hempstead 4,296 GBP 100

Ireland Draeger Medical Ireland Ltd., Dublin 25 EUR 100

Italy Draeger Medical Italia S.p.A., Corsico-Milan 7,400 EUR 100

Draeger Safety Italia S.p.A., Corsico-Milan 1,033 EUR 100

Croatia Dräger Medical Croatia d.o.o., Zagreb 4,182 HRK 100

Dräger Safety d.o.o., Zagreb 2,300 HRK 100

Netherlands Dräger ST-Holding Nederland B.V., Zoetermeer 10,819 EUR 100

Dräger Medical B.V., Best 1,460 EUR 100

W.S.P. Safety Equipment B.V., Rotterdam 18 EUR 100

W.S. Poppeliers Brandblusmaterialen B.V., Rotterdam 18 EUR 100

Safety Service Center B.V., Rotterdam 18 EUR 100

Dräger Finance B.V., Zoetermeer 11 EUR 100

Dräger MT-Holding Nederland B.V., Zoetermeer 18 EUR 100

Dräger Safety Nederland B.V., Zoetermeer 18 EUR 100

Dräger Medical Netherlands B.V., Zoetermeer 18 EUR 100

Norway Dräger Safety Norge AS, Oslo 1,129 NOK 100

Dräger Medical Norge AS, Drammen 16,371 NOK 100

Austria Dräger Medical Austria GmbH, Vienna 2,000 EUR 100

Dräger Safety Austria GmbH, Vienna 500 EUR 100

Poland Dräger Polska sp.zo.o., Bydgoszcz 4,655 PLN 100

Dräger Safety Polska sp.zo.o., Bydgoszcz 1,000 PLN 100

Portugal Dräger Portugal, LDA, Lisabon 1,000 EUR 100

Romania Dräger Medical Romania SRL, Bucharest 205 RON 100

Dräger Safety Romania SRL, Bucharest 1,540 RON 100

Russia Draeger Medizinskaja Technika ooo, Moscow 3,600 RUB 100

Sweden Dräger Safety Sverige AB, Svenljunga 6,000 SEK 100

Dräger Medical Sverige AB, Bromma 2,000 SEK 100

ACE Protection AB, Svenljunga 100 SEK 100

Switzerland Dräger Medical Schweiz AG, Liebefeld-Bern 3,000 CHF 100

Dräger Safety Schweiz AG, Dietlikon 1,000 CHF 100

Dräger Finanz AG, Zug 500 CHF 100

Slovakia Dräger Slovensko s.r.o., Piestany 597 EUR 100

Slovenia Dräger Slovenija d.o.o., Ljubljana-Crnuce 344 EUR 100

Serbia Draeger Tehnika d.o.o., Beograde 21,385 RSD 100

Spain Dräger Medical Hispania SA, Madrid 3,606 EUR 100

Dräger Safety Hispania SA, Madrid 2,404 EUR 100

208



Share-holding

in %

Europe (continued)

Czech Republic Dräger Medical s.r.o., Prague 18,314 CZK 100

Dräger Safety s.r.o., Prague 29,186 CZK 100

Dräger Busch Helmets Production s.r.o., Chomutov 14,000 CZK 51

Danisevsky spol. s.r.o., Policka 5,000 CZK 100

Turkey Draeger Medikal Ticaret ve Servis Limited Sirketi, Istanbul 1,270 TRY 67

Draeger Safety Korunma Teknolojileri Limited Sirketi, Ankara 70 TRY 90

Hungary Dräger Safety Hungaria Kft., Budapest 66,300 HUF 100

Dräger Medical Hungary Kft., Budapest 94,800 HUF 100

Africa

Morocco Draeger Maroc SARLAU, Casablanca 8,720 MAD 100

South Africa Dräger South Africa (Pty.) Ltd., Bryanston 4,000 ZAR 100

Dräger Medical South Africa (Pty.) Ltd., Johannesburg 1 ZAR 69

Dräger Safety Zenith (Pty.) Ltd., King William’s Town 5,000 ZAR 100

Americas

Argentina Dräger Medical Argentina S.A., Buenos Aires 4,281 ARS 100

Brazil Dräger do Brasil Ltda., São Paulo 27,021 BRL 100

Dräger Industria e Comércio Ltda., São Paulo 8,132 BRL 100

Dräger Safety do Brasil Ltda., São Paulo 13,354 BRL 100

Chile Dräger Medical Chile Ltda., Santiago 1,284,165 CLP 100

Canada Draeger Safety Canada Ltd., Mississauga /Ontario 2,280 CAD 100

Draeger Medical Canada Inc., Richmond Hill /Ontario 2,000 CAD 100

Colombia Draeger Colombia SA, Bogota D.C. 1,500,000 COP 100

Mexico Draeger Safety S.A. de C.V., Queretaro 50 MXN 100

Dräger Medical Mexico S.A. de C.V., Mexico D.F.D. 50 MXN 100

Panama Draeger Panama S. de R.L., Panama 180 USD 100

Peru Draeger Peru S.A.C. 900 PEN 100

USA Draeger Medical, Inc., Telford 356 USD 100

Draeger Safety, Inc., Pittsburgh 1,930 USD 100

Draeger Safety Diagnostics, Inc., Durango 1 USD 100

Draeger Medical Systems, Inc., Telford 1 USD 100

Draeger Interservices, Inc., Pittsburgh 40 USD 100

Venezuela Draeger Medical Venezuela S.A., Caracas 460 VEF 100

noTes To consolidaTed balance sheeT




Share-holding

in %

Asia /Australia

People’s Republic of China Shanghai Dräger Medical Instrument Co., Ltd., Shanghai 22,185 CNY 67.5

Beijing Fortune Draeger Safety Equipment Co., Ltd., Beijing 15,238 CNY 100

Dräger Medical Equipment (Shanghai) Co., Ltd., Shanghai 3,311 CNY 100

Draeger Medical Hong Kong Limited, Wanchai 500 HKD 100

Draeger Medical Systems (Shanghai) Co., Ltd., Shanghai 70,000 CNY 100

India Joseph Leslie Drager Mfg., Pvt. Ltd., Mumbai 1 2,500 INR 36

Draeger Medical (India) Pvt. Ltd., Mumbai 150,000 INR 100

Indonesia PT Draegerindo Jaya, Jakarta 3,384,000 IDR 100

PT Draeger Medical Indonesia, Jakarta 18,321,000 IDR 100

Japan Draeger Medical Japan Ltd., Tokyo 549,000 JPY 100

Draeger Safety Japan Ltd., Tokyo 81,000 JPY 100

Saudi Arabia Draeger Arabia Co. Ltd., Riyadh 2,000 SAR 51

Singapore Draeger Safety Asia Pte. Ltd., Singapore 3,800 SGD 100

Draeger Medical South East Asia Pte. Ltd., Singapore 5,200 SGD 100

South Korea Draeger Medical Korea Co., Ltd., Seoul 2,100,010 KRW 100

Taiwan Draeger Safety Taiwan Co., Ltd., Hsinchu City 5,000 TWD 100

Draeger Medical Taiwan Ltd., Taipei 10,000 TWD 100

Thailand Draeger Medical (Thailand) Ltd., Bangkok 3,000 THB 100

Draeger Safety (Thailand) Ltd., Bangkok 15,796 THB 100

Vietnam Draeger Medical Vietnam Co., Ltd., Ho Chi Minh City 4,555,478 VND 100

Australia Draeger Safety Pacific Pty. Ltd., Notting Hill 5,875 AUD 100

Draeger Medical Australia Pty. Ltd., Notting Hill 3,800 AUD 100

New Caledonia Draeger NC SARL, Noumea 1,000 XPF 100

1 These companies are treated as associates as defined by ias 28

210

54 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 certifi-cates were offered at the offer price, the total purchase 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.

Drägerwerk Verwaltungs AG as general partner intends together with the Supervisory Board of Lübeck-based Drägerwerk AG & Co. KGaA to propose to distribute out of the net earnings of EUR 158.2 million for fiscal year 2011 a dividend of EUR 1.19 per preferred share (2010: EUR 1.19) and EUR 1.13 per common share (2010: EUR 1.13), hence a total EUR 2.5 million, and carry forward the balance of EUR 155.7 million to new account. The preferred share dividend also governs the dividend for participation certificates, which will amount to EUR 1.90 each (2010: EUR 11.90). Participation certificates entitle the holder to a dividend 10 times the preferred share dividend, since their arithmetic par value is 10 times that of a preferred share.

On March 14, 2012, the Executive Board is approving the publication of the Group financial statements of Drägerwerk AG & Co. KGaA for fiscal year 2011.


The general partnerDrägerwerk Verwaltungs AGrepresented by its Executive Board


noTes To consolidaTed balance sheeT | managemenT compliance sTaTemenT


management compliance statement

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


The general partnerDrägerwerk Verwaltungs AGrepresented by its Executive Board


212

AuDitoR’s RePoRt

We have audited the consolidated financial statements prepared by Drägerwerk AG & Co. KGaA, Lübeck, comprising the balance sheet, the income statement and statement of comprehensive income, the statement of changes in equity, the cash flow statement and the notes to the consolidated financial statements, together with the group management report for the business year from January 1, 2011 to December 31, 2011. The preparation of the consolidated financial statements and the group management report in accor-dance with the IFRSs, as adopted by the EU, and the additional requirements of German commercial law pursuant to § (Article) 315a Abs. (paragraph) 1 HGB (“Handelsgesetz-buch”: German Commercial Code) is the responsibility of the management of the man-aging general partner. Our responsibility is to express an opinion on the consolidated financial statements and on the group management report based on our audit.

We conducted our audit of the consolidated financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer (Institute of Public Auditors in Germany) (IDW). Those standards require that we plan and perform the audit such that misstate-ments materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in consolidation, the deter-mination of the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the management of the managing general partner, as well as evaluating the overall presentation of the consolidated financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

audiTor’s reporT


In our opinion based on the findings of our audit the consolidated financial statements comply with the IFRSs as adopted by the EU and the additional requirements of German commercial law pursuant to § 315a Abs. 1 HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the consolidated financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.

Hamburg, February 29, 2012

PricewaterhouseCoopers

AktiengesellschaftWirtschaftsprüfungsgesellschaft

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

214 2011 single enTiTy financial sTaTemenTs of drägerwerk ag & co. kgaa (condensed)

2011 single entity financial statements of Drägerwerk Ag & co. kgaA (condensed)

The single entity financial statements of Drägerwerk AG & Co. KGaA have been prepared in accordance with the provisions of the German Commercial Code (Handelsgesetzbuch – HGB).

Drägerwerk AG & Co. KGaA reported a net profit of EUR 101.5 million in fiscal year 2011 (2010: EUR 19.5 million).

The increase in net profit was chiefly attributable to higher profit and loss transfer amounts for Dräger Safety AG & Co. KGaA and Dräger Medical GmbH.

Including the profit of EUR 56.7 million brought forward from the prior year, Drägerwerk AG & Co. KGaA reported net earnings of EUR 158.2 million.

The Executive Board of Drägerwerk Verwaltungs AG, together with the Supervisory Board of Drägerwerk AG & Co. KGaA, proposes to distribute out of the net earnings of approximately EUR 2.5 million for fiscal year 2011 a cash dividend of EUR 0.13 per com-mon share and EUR 0.19 per preferred share and carry forward the balance of EUR 155.7 million to new account.

PRoPoseD APPRoPRiAtioN of Net eARNiNgs

€

EUR 1.13 dividend for 10,160,000 common shares 1,320,800.00

EUR 1.19 dividend for 6,350,000 preferred shares 1,206,500.00

A dividend of 10 times the preferred share dividend will be paid for participation certifi-cates since their arithmetic par value is 10 times that of a preferred share. Based on the proposed dividend, the dividend for participation certificates will be EUR 1.90 per cer-tificate. The dividend for series A and K participation certificates has been included in the interest expense item of these financial statements. The distribution for series D par-ticipation certificates is shown in a separate line, “Distribution for participation capital”, in the income statement, after taxes and before net profit. The complete financial state-ments, including an unqualified opinion from the auditor of Drägerwerk AG & Co. KGaA, will be published in the electronic version of the German Federal Gazette under HR B No. 7903 HL. A hard copy may be requested from Drägerwerk AG & Co. KGaA or a copy downloaded on the internet at www.draeger.com.

215

iNcome stAtemeNt of DRÄgeRWeRk Ag & co. kgAA

2011 2010


Other operating income 144,142 123,369

Personnel expenses (50,866) (36,114)

Amortization of intangible assets and depreciation of property, plant and equipment (8,614) (6,435)

Other operating expenses (139,309) (143,888)

Income from a profit transfer agreement 190,164 120,751

Income from other investments 2,109 271

Interest result (23,294) (36,173)

Results from ordinary operations 114,332 21,781

Extraordinary income 0 1,957

Extraordinary expenses 0 (16,482)

Extraordinary result 0 (14,525)

Income taxes (10,453) 24,335

Other taxes (478) (315)

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

Distribution for participation capital (1,886) (11,812)

Net profit / loss 101,515 19,464

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

Net earnings 158,221 75,744

noTesfinancial sTaTemenTs The company’s boards

216 2011 single enTiTy financial sTaTemenTs ofdrägerwerk ag & co. kgaa (condensed)

BAlANce sheet of DRÄgeRWeRk Ag & co. kgAA

2011 2010


Assets

Intangible assets 9,934 5,598

Property, plant and equipment 38,770 38,125

Financial assets 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 47,400 135,542

Bank balances 243,191 196,415

Current assets 290,591 331,957

Prepaid expenses 7,681 6,541

Deferred tax assets 61,886 69,421

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

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

BAlANce sheet of DRÄgeRWeRk Ag & co. kgAA

2011 2010


Equity and liabilities

Capital stock 42,266 42,266

Capital reserves 161,266 161,266

Retained earnings 199,191 199,191

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

Net earnings 158,221 75,744

Participation capital – par value: € 25,371 thousand (in 2009: Series D) 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 127,672 126,656

Participation capital – par value: € 10,756 thousand (in 2009: Series A + K) 24,868 24,868

Liabilities to banks 366,592 325,399

Trade payables 17,027 15,153

All other liabilities 121,947 284,850

Liabilities 530,434 650,270

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

217noTesfinancial sTaTemenTs The company’s boards

218 The company’s boards

the company’s Boards

suPeRVisoRY BoARD of DRÄgeRWeRk Ag & co. kgAA

chairman

Prof. Dr. Nikolaus schweickartlawyer, bad homburgformer 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-innovations gmbh (advisory board)– g.e.b.b. mbh, cologne (chairman of the supervisory report)

vice-chairman

siegfrid kasangworks council chairman of dräger medical gmbh, lübeckgroup works council chairman of the medical divisiongroup works council chairman of drägerwerk ag & co. kgaa, lübeck

supervisory board memberships:– dräger medical gmbh, lübeck (vice-chairman)

Daniel friedrichdistrict secretary of the metalworkers’ union ig metall küste, hamburg

supervisory board memberships:– dräger medical gmbh, lübeck

Dr. thorsten grenzchairman of the management teamveolia umweltservice gmbh, hamburg

supervisory board memberships:– drägerwerk verwaltungs ag, lübeck

Peter-maria grosse works council chairman of dräger safety ag & co. kgaa, lübeck, until september 30, 2011works council member of dräger safety ag & co. kgaa, lübeck, since october 1, 2011

supervisory board memberships:– dräger safety ag & co. kgaa, lübeck

uwe lüderschairman of the executive board of l. possehl & co. mbh, lübeck

supervisory board memberships:– nordex ag, norderstedt (chairman)– drägerwerk verwaltungs ag, lübeck

Walter Neundorf officer of dräger medical gmbh, lübeck

Jürgen Peddinghausself-employed business consultant, hamburg

supervisory board memberships:– faber-castell ag, nuremberg (chairman), until July 31, 2011– Jungheinrich ag, hamburg (chairman)– drägerwerk verwaltungs ag, lübeck– Zwilling J. a. henckels ag, solingen

Prof. Dr. klaus Rauscherformer chairman of the management board of vattenfall europe ag, berlin

supervisory board memberships:– endi ag, halle (chairman)– deutsche annington immobilien gmbh, düsseldorf– drägerwerk verwaltungs ag, lübeck

thomas Rickers1st delegate of the metalworkers’ union ig metall, lübeck / wismar, lübeck

supervisory board memberships:– dräger medical gmbh, lübeck

ulrike tinnefeldworks council vice-chairperson of dräger safety ag & co. kgaa, lübeck, until september 30, 2011works council chairperson of dräger safety ag & co. kgaa, lübeck, since october 1, 2011group works council chairperson of dräger safety ag & co. kgaa, lübeckgroup works council vice-chairperson of drägerwerk ag & co. kgaa, lübeck

supervisory board memberships:– dräger safety ag & co. kgaa, lübeck

219the comPANY’s BoARDsnoTesfinancial sTaTemenTs

Dr. Reinhard Zinkannmanaging partner of miele & cie. kg, gütersloh

supervisory board memberships:– falke kgaa, schmallenberg (chairman)– drägerwerk verwaltungs ag, lübeck

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 neundorfJürgen peddinghausprof. dr. nikolaus schweickartulrike Tinnefeld

members of the Nomination committee:prof. dr. nikolaus schweickart (chairman)uwe lüdersdr. reinhard Zinkann

members of the Joint committee:representatives of drägerwerk verwaltungs ag:dr. Thorsten grenzuwe lüdersJürgen peddinghausprof. dr. klaus rauscher

representatives of drägerwerk verwaltungs ag:prof. dr. nikolaus schweickart (chairman)siegfrid kasangThomas rickersdr. reinhard Zinkann

memBeRs of the eXecutiVe BoARD of DRÄgeRWeRk VeRWAltuNgs Ag, ActiNg foR DRÄgeRWeRk Ag & co. kgAA

stefan Drägerchairman of the executive boardceo safety division

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)chief general manager of dräger medical gmbh, lübeck, from february 1, 2012

supervisory board memberships:– dräger medical gmbh, lübeck (chairman), until January 31, 2012– sparkasse zu lübeck, lübeck

Dr. herbert fehreckepurchasing, quality, research and development and (until october 31, 2011) iTvice-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, from february 1, 2012

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

member of the executive board of drägerwerk verwaltungs ag, lübeck, (general partner of drägerwerk ag & co. kgaa)general manager of dräger medical gmbh, lübeck, from february 1, 2012

supervisory board memberships:– dräger safety ag & co. kgaa, lübeck – dräger safety verwaltungs ag, lübeck– dräger medical gmbh, lübeck, until January 31, 2012

Anton schrofner production, logistics and (since november 1, 2011) iT

member of the executive board of drägerwerk verwaltungs ag, lübeck, (general partner of drägerwerk ag & co. kgaa)general manager of dräger medical gmbh, lübeck, from february 1, 2012

220 glossary

glossary

“Arm’s length principle” principle used in tax law for business conducted as if between unrelated parties.

carbon Disclosure Project The carbon disclosure project (cdp) is a recognized independent reporting organization for information on climate change. it has the world’s largest database of company key figures regarding climate change.

cash Pool The target account of a company’s fund transfer accounts that are pooled on a daily basis as part of cash management. a cash pool is established to reduce the interest on debit balances in the company accounts by netting all account balances in the target account.

compliance committee as a central part of the compliance organization, the compliance committee regularly reports to the executive board. This body is responsible for selecting and implementing measures that are aimed at ensuring an effective compliance program.

Derivatives instruments whose value is mainly derived from a specified price and price fluctuations and expectations of an underlying asset (e. g. shares, foreign currency, interest securities).

Directors’ dealings directors’ dealings are securities transactions conducted by persons with management functions at a listed stock corporation in that cor-poration’s own shares or in related financial instruments. according to sec. 15a wphg (“wertpapierhandelsgesetz”: german securities Trading act), these persons, including those who are closely related to them, must report securities transactions of this kind immediately.

Dräger Abfallwirtschaftsverband w. V. in accordance with sec. 17 of the german recycling and disposal law (kreislaufwirtschaft- und abfallgesetz), member companies of this business association have transferred to it their legal duties arising from the generation and ownership of waste. This provides for a more efficient and law-abiding waste collection and disposal system.

ePeR abbreviation for “european pollutant emission register”, the euro-pean hazardous emission register for defined industrial emissions (air and water), whose volumes must be recorded and reported by companies.

forward transactions currency future. contractual agreement between two parties to exchange two agreed currency amounts on a specified future date and at an agreed exchange rate.

free float shares of a company which are traded freely on the stock exchange.

german corporate governance code The german corporate governance code is an important piece of legislation governing the management and oversight of german listed companies and contains nationally and internationally recognized standards for proper and responsible corporate governance. The pur-pose of the code is to make the corporate governance system clearer and easier to understand and to foster the trust of investors, customers, employees and the public in the management and over-sight of german stock corporations.

ifRs abbreviation of “international financial reporting standards”. stan-dards for the preparation of financial statements by companies. in the eu, the application of ifrss for the consolidated financial state-ments of listed companies has been mandatory since 2005.

interest rate capinterest rate caps are interest derivatives which offer an upper ceil-ing on the variable interest rate on underlying transactions.

interest rate swapsan interest rate swap is an agreement between two contractual par-ties to exchange different interest cash flows with each other. as an interest rate derivative, it can be used both to hedge interest rate risk and as a speculative investment which benefits from certain changes in interest rates.

221

Net earnings net earnings (or accumulated loss) pursuant to sec. 158 aktg (“aktiengesetz”: german stock corporation act) is the net profit/ loss for the year plus/minus the following items:

+/– profit/ loss brought forward from prior year + Transfers from additional paid-in capital +/– Transfers from/to retained earnings

ohsAs abbreviation of “occupational health and safety assessment series”. a british standard for occupational health and safety management systems for continuously improving occupational health and safety in companies. The structure is similar to those of the international standards for quality and environmental management systems (iso 9001 / iso 14001).

ReAch abbreviation of “registration, evaluation, authorization and restriction of chemicals”. ec regulation.

Roce abbreviation of “return on capital employed”. The figure shows how effectively and profitably a company employs its capital. it is the ratio of ebiT before non-recurring expenses to capital employed.

Rohs abbreviation of “restriction of the use of certain hazardous substances in electrical and electronic equipment”. ec directive.

shared services centralized service processes within a company. similar processes from different areas of a company are pooled and provided by a cen-tralized department.

surety surety is an umbrella term for both suretyships and guarantees. a surety is issued when a customer has to prove to third parties that certain liabilities such as rent, guarantees and bids will be paid by their due date.

sVhc abbreviation for “substances of very high concern”. These include substances that are regarded as particularly dangerous for humans and the environment and which are earmarked for restricted or pro-hibited use in accordance with the eu regulation reach. specific reporting obligations apply for these substances when they exceed the threshold of 0.1 percent by weight of a product.

swap transactions simultaneous conclusion of a cash currency transaction and a cur-rency future with the same counterparty. The amount purchased in cash is sold on the future date or vice versa.

trendence rankingThe “trendence graduate barometer” is a study by the trendence institut gmbh, berlin. every year, it records the expectations of students almost ready to graduate regarding their career start and determines the most popular employer choices. The survey is carried out in the engineering, information technology, business and law sectors.

noTesfinancial sTaTemenTs The company’s boards

222 imprinT

imprint

Drägerwerk Ag & co. kgaAcorporate communicationsmoislinger allee 53–5523558 lübeck, germanywww.draeger.com

concept and designheisters & partner,büro für kommunikationsdesign, mainz, germany

Publicationmarch 14, 2012

Reproductionsgold gmbh, munich, germanykoch lichtsatz und scan gmbh, wiesbaden, germany

Printed bydräger + wullenwever pm gmbh & co. kg, lübeck, germany

Photographydrägerwerk ag & co. kgaa

fiNANciAl cAleNDAR 2012

Preliminaries 2011 February 15, 2012

Annual accounts press conference, Hamburg March 14, 2012

Analysts’ meeting, Frankfurt / Main March 14, 2012

Report as of March 31, 2012 May 3, 2012

Conference call, Lübeck May 3, 2012

Annual shareholders’ meeting, Lübeck May 4, 2012

Report as of June 30, 2012 August 2, 2012

Conference call, Lübeck August 2, 2012

Report as of September 30, 2012 November 1, 2012

Conference call, Lübeck November 1, 2012

Disclaimer: Some articles provide information on products and their possible applications in general. They do not constitute any guarantee that a product has specific properties or of its suitability for any specific purpose. All specialist personnel are required to make use exclusively of the skills they have acquired through their education and training and through practical experience. The views, opinions, and statements expressed by the persons named in the texts do not necessarily correspond to those of Drägerwerk AG & Co. KGaA. Such views, opinions, and statements are solely the opinion of the respective person. Not all of the products named in this report are available worldwide. Equipment packages can vary from country to country. We reserve the right to make changes to products. Furthermore, 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.

DrÄger worlDwiDe

Headquarters, sales and service organizations, production plants, logistic centers

Dräger employs approximately 11,900 people worldwide and is active in more than 190 countries across the globe. The company has sales and service subsidiaries in over 40 countries. Dräger has development and production facilities in Germany, the uK, the Czech Republic, Sweden, the uSA, Brazil, South Africa, and China. As of December 31, 2011, 6.452 Dräger employees were working outside Germany.

headquarters Sales and service organizations production plants logistic centers

americas pittsburgh Telford Andover São paulo

europeplymouth Blyth hagen lübeck Svenljunga Chomutov policka

africaKing william’s Town

asia Beijing Shanghai

RE

VIE

w O

f T

hE

yE

AR

20

11

01 02 03January feBruary MarCh

first infinity ContraCt in the us: A hospital in Chicago orders Infinity Acute Care Systems components for a double-digit million dollar amount.

CoMpresseD air Breathing

apparatus for new ZealanD: Dräger delivers thousands of respiratory protection devices plus accessories to New Zealand’s fire services. It is the second-largest single compressed air breathing apparatus order in the Company’s history.

reinforCeMents in south

aMeriCa: Dräger launches a new subsidiary in Peru.

Breathing apparatus for Miners: An American mining supplier orders thousands of “Dräger Oxy K” escape devices.

life on the oCean waVes: A large Canadian ferry operator commissions Dräger to supply gas detectors and matching function testers for its entire fleet.

a Closer looK at the lungs: Dräger presents its “PulmoVista 500” Electrical Impedance Tomography unit in Brussels. The device shows in real time how air is distributed around the lungs.

* * *

07 08 09July august septeMBer

hD iMages froM or: The “Polaris” surgical light is now also available with a High Definition camera.

MaKing sChool ChilDren safer: Dräger equips hundreds of school busses in France with the “Dräger Inter-lock XT” breath alcohol electronic immobilizer.

Coal Mining in the CZeCh repuBliC: Dräger supplies a Czech coal mine with gas detection equipment and escape apparatus worth an amount at the lower end of the single-digit million euro range.

serViCe ContraCt in italy: Dräger receives an order from a shipping company in Italy for the regular mainte-nance and service of hundreds of gas detectors.

suCCess in sweDen: Dräger wins the largest public breathing apparatus tender in Sweden since the 1960s. The products will be provided to the Nerike fire department.

eMergenCy Breathing apparatus: Russia’s largest bank orders tens of thousands of “Parat C” fire escape hoods.

* * *

review of the year 2011

04 05 06april May June

area Monitoring in aMeriCa: Dräger launches the “X-zone 5000” area monitoring device for industrial use in the US. The device closes the gap between stationary and mobile gas detection products.

large orDer in polanD: Dräger wins a large order from the University of Gdansk for anesthesia and ventilation devices.

fire training in CanaDa: 40 fire department chiefs get to know Dräger’s products and training systems at a flashover exercise.

shutDown in luDwigshafen: Dräger takes over shutdown management during maintenance work at one of the largest plants of a chemical company and provides safety officers as well as a complete safety shop.

one DrÄger: In a pilot project, Dräger decides to pool the medical and safety divisions in the “Middle / East Africa” sales region.

new BuilDing in lüBeCK: Dräger celeb-rates its new production and logistics building with an official opening ceremony.

* * *

10 11 12oCtoBer noVeMBer DeCeMBer

foCus on Central anD south

aMeriCa: Dräger decides to set up an independent “Central /South America” sales region. The regional headquarters are in Panama City.

new leD lights: Dräger presents the “Polaris 100” and “Polaris 200” surgical lighting systems at the Medica trade fair.

fire training faCility in franCe: Dräger provides a firefighter training school with a replica Boeing 747 fire training facility.

alCohol on the roaDs: A law comes into effect in the Netherlands that allows for electronic immobiliz- ers to be used as an alternative to a driving ban for drivers who have committed alcohol-related offences. The “Dräger Interlock XT” is the only system to meet the stringent requirements. As a result, Dräger is currently the only licensed provider in the Netherlands.

* * *

Drägerwerk ag & Co. KgaaMoislinger Allee 53 – 5523558 lübeckwww.draeger.com

Corporate CommunicationsTel. + 49 451 882 – 3998fax + 49 451 882 – 3944

investor relationsTel. + 49 451 882 – 2685fax + 49 451 882 – 3296 90

70

312

Documents

annual report 2011 - Draeger · 2018. 7. 2. · 2011 single entity financial statements of Drägerwerk AG & Co. KGaA (condensed) 214 The Company’s Boards 218 220 aDDitiOnaL infOrMatiOn