2005 Annual Report Deutsche Bahn Agdeutsche Bahn 2005 Annual Report

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2005 Annual Report Deutsche Bahn AGDeutsche Bahn 2005 Annual Report

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DB AG as management holding company Vertically integrated Group structure 25.1 Excellent ratings: Aa1/AA billion € revenues

Successful internal growth Cost structures further improved 1.4 Group portfolio focused on core billion € EBIT business – further growth potential through M&Atransactions

# 1 in European rail passenger transport # 1 in European regional and urban transport 11.2 # 1 in bus transport in Germany billion € revenues in Passenger Transport

# 1 in European rail freight transport # 1 in European land transport 12.4 # 2 in global air freight billion € revenues in # 3 in global sea freight Transport and Logistics

Functioning competition on the rails: more than 320 railways using track 1.1 infrastructure billion € revenues in Largest rail track infrastructure Infrastructure and Services in Europe Efficient services for internal and external customers

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At a Glance

Revenues (€ million) EBIT (€ million)

2005 25,055 2005 1,352

2004 23,962 2004 1,144

0 5,000 10,000 15,000 20,000 25,000 0 250 500 750 1,000 1,250 1,500

2004 to 2005: + 4.6% 2004 to 2005:€ + 208 million

ROCE (%) Total assets (€ million)

2005 5.0 2005 47,101

2004 3.8 2004 47,616

0 1 2 3 4 5 0 10,000 20,000 30,000 40,000 50,000

2004 to 2005: +1.2 percentage points 2004 to 2005: –1.1%

Key Figures € million 2005 2004 Change Change

Revenues 25,055 23,962 1,093 + 4.6% Revenues – comparable 25,055 23,879 1,176 + 4.9% Profit before taxes on income 490 154 336 – Net profit for the year 611 180 431 – EBITDA 4,153 3,866 287 +7.4% EBIT 1,352 1,144 208 +18.2% Non-current assets 42,907 43,200 – 293 – 0.7% Current assets 4,194 4,416 – 222 –5.0% Total assets 47,101 47,616 –515 –1.1% Equity 7,675 7,067 608 + 8.6% Financial debt 19,974 20,276 –302 –1.5% Capital employed 27,013 26,490 523 + 2.0% EBIT adjusted for unusual items 1,350 1,011 339 +33.5% ROCE 5.0% 3.8% – – Gross capital expenditures 6,379 7,238 – 859 –11.9% Net capital expenditures1) 2,360 3,251 – 891 – 27.4% Cash flow from operating activities 2,652 2,736 – 84 –3.1% Employees2) as of Dec 31 216,389 225,632 – 9,243 – 4.1% 1) Gross capital expenditures less investment grants from third parties

Performance Measures 2005 2004 Change Change 2) Full-time employees, part-time employees Rail passenger transport are accounted for on a pro-rata basis Passengers (million) 1,785.4 1,694.8 90.6 +5.3% Transport performance (million pkm3)) 72,554 70,260 2,294 +3.3% 3) Passenger kilometers: product of number of Train kilometers (million train-path km4)) 711.4 717.7 – 6.3 – 0.9% passengers and mean travel distance Rail freight transport 5) 4) Train-path kilometers: Freight carried (million t) 266.5 283.6 –17.1 – 6.0% driving performance Transport performance (million tkm6)) 83,111 83,982 – 871 –1.0% in km of trains on rail

Mean transport distance (km) 311.9 296.1 15.8 +5.3% 5) Please note: all ton figures Train kilometers (million train-path km) 193.7 205.1 –11.4 –5.6% represent metric tons (1,000 kg = 2,200 lbs)

Passenger stations7) 5,707 5,697 10 + 0.2% 6) Ton kilometers: product of freight carried and mean transport distance Train kilometers on track infrastructure (million train-path km) 997.7 1,000.7 –3.0 – 0.3% thereof non-Group customers 110.0 88.0 22.0 + 25.0% 7) Thereof in 2005: 5,454 assigned to the Passenger Length of line operated (km) 34,211 34,715 –504 –1.5% Stations business unit

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Mission Statement

DB Group

Passenger Transport Transport and Logistics

Rail Activities in Germany

Infrastructure and Services Key Figures and Mission Statement and Mission Figures Key

We optimize services and productivity in German rail transport as the basis of our business.

We expand our business portfolio when it is useful to our customers or where our skills and resources suggest to do so.

We are evolving into a leading international mobility and logistics service provider. We create value for our customers, employees, and owners, and are a long-term, attractive investment on the international capital markets.

Group Structure

Supervisory Board

Management Board

Chairman and CEO Finances and Controlling Economic and Personnel Political Affairs pendi- ment parties Integrated Systems Rail Passenger Transport Infrastructure and Transport and ees, Services Logistics yees r sis Group functions Long-distance Transport Track Infrastructure Schenker eters: er of mean Regional Transport Passenger Stations Railion

eters: Service functions Urban Transport Energy Stinnes nce n rail Services on figures tons 00 lbs) product and distance

: 5,454 assenger s unit

216 mm 16 mm Contents

Chairman’s Letter 2 The Management Board 6 Financial Communication 8 11 Rating /Deutsche Bahn Bond Issues 12 Value Management 13 Corporate Governance Further Improvements in 2005 15 Report of the Management Board 48 50 Group Profile 62 Group Management Report 118 Employees 124 Environmental Protection Rolling Stock and Stations 128 Consolidated Financial Statements 134 137 Auditor’s Report 139 Consolidated Statement of Income 140 Consolidated Balance Sheet 142 Consolidated Statement of Cash Flows 143 Consolidated Statement of Changes in Equity 144 Notes 201 Major Subsidiaries 204 The Boards of Deutsche Bahn AG Additional Information 208 208 Major Activity Relationships Within the DB Group 209 Explanation of Grant Types Report of the Supervisory Board 212 BahnBeirat (DB Advisory Board) 217 Glossary 218 Imprint 220

1 Chairman’s Letter Deutsche Bahn Group | 2005 Annual Report

Ladies and Gentlemen,

I am reporting to you on a successful financial year. In 2005, we continued to win new customers by delivering superior service quality, and we strengthened our market position and succeeded in increasing revenues and profit substantially. We are all the more pleased that this was achieved against the backdrop of a challenging environment, ever-fiercer competition, and additional cost pressures resulting from a sharp increase in energy prices. In the year under review, we exceeded the financial targets we had set ourselves. Year-on-year, revenues improved by 4.9 percent to 25.1billion euros, driven by strong growth in the Schenker and Long-distance Transport business units. The Regional and Urban Transport business units continued to make substantial revenue contributions. EBIT rose to well over 1.3 billion euros, with ROCE up to 5.0 percent. This means that our efforts to prepare for a future initial public offering are on target. The positive profit trend reflects not only revenue increases but also the progress made in implementing our efficiency programs. In that respect, I should like to highlight our “Qualify”program. This will help us achieve further efficiency gains and cost reductions, providing the basis for further hard work on improving quality of service and tapping our growth potential. Let me briefly discuss developments in selected business units. The Long-distance Transport business unit has received special attention over the past few years. Attractive offerings have helped us win a large number of new customers and considerably increase our transport performance and market share. After posting strong revenue and profit growth, this business unit is back on track, with a faster-than-expected recovery and a promising future ahead. In a market that remains characterized by intense tender- related competition, the Regional and Urban Transport business units again managed to increase their transport performance. This success was essentially attributable to the constant high quality of our services. In summary, our Passenger Transport division is well positioned as a strong provider of mobility in major cities, conurbations, and across regions. In the context of future growth potential, the Schenker business unit plays a very strong role. Thanks to its global market presence, Schenker is already participating in the positive economic trends of major growth regions in Asia and America and of world trade in general. According to forecasts, trade flows – and, hence, the market potential for transport and logistics services – are set to grow faster than gross domestic product. The interdependence of national economies will continue to increase, as the process of globalization and European integration advances further. Therefore, it is crucial to establish a strong presence in all countries of relevance to our customers. In addition Hartmut Mehdorn to organic growth, we further strengthened our portfolio by acquiring BAX Global CEO and Chairman of the in January 2006. We now have an excellent global position in transport and logistics, Management Board of Deutsche Bahn AG with Schenker and Railion operating in Europe, BAX in America, and Schenker and BAX joining forces in Asia. The combination of Schenker and BAX makes us a market

3 leader in global sea and air freight markets. So we are not only the largest rail company in Europe, but also – beyond our traditional rail business – a leading player in global logistics. This leading position in logistics is a crucial prerequisite for providing our customers with efficient and competitive services. At the same time, our rail freight transport operations, which have built up their presence on the European market in several steps since 1999, are now benefiting from their integration with larger networks and logistics operations. In the past financial year, our core rail business in Germany made consistent progress in passenger transport, freight transport, and infrastructure development. The latter benefits not only us as the leading rail operator, but also a large number of non-Group railways that are using our infrastructure under non-discriminatory access rules. In passenger transport, rail operators managed to increase their combined share of the overall transport market, with a substantial contribution coming from us. In addition, rail transport was the fastest growing mode of transport in the overall freight market. This trend provided above-average gains to non-Group rail companies, but Railion, too, fared far better than expected. Increased use of our infrastructure by non-Group rail companies underlines the efficiency of competition on the rails. The deregulation and liberalization of rail transport markets that has been agreed at the level of the European Union will gradually open up new avenues for European rail operators. As our neighboring countries prepare to liberalize their rail freight and passenger transport markets in 2007 and 2010 respectively, Deutsche Bahn and other large rail operators face the opportunity of expanding their international offerings or developing new ones. Rail companies can put their strengths to good use with enhanced services that move faster and more smoothly across borders. In view of our multi-year track record, we may draw the following conclusions: We seized the opportunity of the German Rail Reform in 1994 to turn a mode of transport that was no longer up to market standards into a competitive player. Today, the railway sector has regained its ability to participate successfully in the growth of the German transport markets. We, as Deutsche Bahn Group, have become a profitable high- performance rail operator able to tackle the challenges of today’s markets by offering international mobility and logistics services and multi-modal transport solutions for conurbations and across regions. There are some similarities to the period 10 years ago when we accomplished the changeover from a state agency to a stock corporation. Our company, along with transport policy makers, now once more has to take highly important decisions and faces deep-seated changes. We must not fail to seize the great opportunity afforded to rail transport in Europe. As a market leader across all business units, we are well prepared to take on the challenges of the future. Our aim is to make best use of the potential for growth by defending and expanding the Group’s strong position. At the same time, we will continue to modernize our infrastructure, which is a critical factor for quality.

4 Deutsche Bahn Group | 2005 Annual Report Chairman’s Letter

We look forward to introducing a number of improvements to our services in the 2006 financial year. In passenger transport, traveling time on various services will be considerably reduced, as the new Nuremberg–Ingolstadt–Munich line starts operation and Berlin’s new Central Station is inaugurated to become the hub of a new customer-oriented transport system. In the Transport and Logistics division, we will be merging the networks of Schenker and BAX. In rail freight transport, the “RailPlus” program is expected to improve our competitiveness and cost structure. And, of course, the modernization of our infrastructure remains high on our agenda. Some very exciting opportunities in all areas are linked to our service offering in the context of the 2006 FIFAWorld Cup™, for which we act as a national sponsor and mobility provider. And with regard to our key financials, we expect further increases in our revenues and profit. Our financial prospects hinge on our ability to keep all options open to strengthen our capital base and, hence, our overall financial position. In view of the progress since the launch of the German Rail Reform, and the positive forecasts for the current financial year, we have engaged in intense discussions with our shareholder to determine the future of Deutsche Bahn. A number of crucial decisions need to be made on the timing and structuring of a potential initial public offering of Deutsche Bahn AG. In that context, our vertically integrated Group structure, which has so far been both successful and increasingly effective, will have to demonstrate its advantages over alternative models. We expect this process to foster a fruitful debate preparing the ground for our shareholder’s ultimate decision on a prospective IPO. That decision will certainly take into consideration the progress the DB Group has made as an integrated company and secure the basis for its future development. We, the Management Board and staff of Deutsche Bahn, will make every effort in the 2006 financial year to offer our clients competitive services and superior quality, and thus lay the financial foundations for the decisions discussed above.

Yours sincerely,

Hartmut Mehdorn CEO and Chairman of the Management Board of Deutsche Bahn AG

5 The Management Board

Hartmut Mehdorn Diethelm Sack Margret Suckale Dr. Otto Wiesheu Chairman and CEO CFO Personnel Economic and Political Affairs

Appointed until: 2008 Appointed until: 2011 Appointed until: 2010 Appointed until: 2010 Born 1942 Born 1948 Born 1956 Born 1944

Hartmut Mehdorn holds a master’s Diethelm Sack earned his master’s Margret Suckale studied law at After completing his law studies degree in Engineering and began degree in Business and Manage- the University of Hamburg and in Munich, Dr. Otto Wiesheu was his career in design development ment Economics and then initially acquired a Master of Business Ad- a member of the Bavarian State at aircraft manufacturer Focke- worked as business manager at ministration at Northwestern Parliament from 1974 to 2005. Wulf. Mr. Mehdorn has held po- Franz Garny AG. He then served University/WHU. From 1985 to From 1984 to 1990 he was Man- sitions at VFW-Fokker, on the as head of finance and accounting 1996, Margret Suckale worked aging Director of the Hanns Management Board of Airbus at VDO Adolf Schindling AG from in different executive positions in Seidel Foundation. From 1990 he Industrie S.A., as director of the 1976–1991. He was appointed to the Legal and Personnel divisions was Secretary of State in the State Management Board of the MBB the Deutsche Bundesbahn Man- at the Mobile Oil Group as well as Ministry for Education, Cultural Transport- und Verkehrsflugzeuge agement Board in 1991 where he on international projects in Ger- Affairs, Science and Art, and Ba- Group and member of the Man- assumed the position of CFO. He many and Europe. She joined varian State Minister for Economic agement Board of MBB, as CEO assumed the same responsibilities Deutsche Bahn AG in 1997 and Affairs, Transport and Technology of Deutsche Airbus GmbH and for Deutsche Reichsbahn in a dual was responsible for the Group’s from 1993 to 2005. He has been member of the Management posting starting in 1993. He has legal division, before later assum- a member of the Management Board of Deutsche Aerospace AG, been CFO of Deutsche Bahn AG ing responsibility for the Central Board of Deutsche Bahn AG since as CEO of Heidelberger Druck- since its founding. and Legal department in a dual January 1, 2006 and is responsi- maschinen AG, and as a member position. She became a member ble for the Economic and Political of the Management Board of of the Management Board at Affairs Board division. RWE AG. He joined the Manage- Deutsche Bahn AG in March 2005. ment Board of Deutsche Bahn AG as Chairman and CEO in 1999.

6 Deutsche Bahn Group | 2005 Annual Report

Roland Heinisch Dr. Karl-Friedrich Rausch Dr. Norbert Bensel Stefan Garber Integrated Systems Rail Passenger Transport Transport and Logistics Infrastructure and Services

Appointed until: 2007 Appointed until: 2010 Appointed until: 2010 Appointed until: 2010 Born 1942 Born 1951 Born 1947 Born 1955

Roland Heinisch earned his mas- Dr.Karl-Friedrich Rausch holds a After completing his master’s de- Stefan Garber began his career as ter’s degree in Engineering be- doctorate in Industrial Engineer- gree in Chemistry, Dr. Norbert a lawyer at a law firm in Frank- fore he began an internship at ing and began his career as a re- Bensel initially worked at Schering furt. In 1986 he transferred to Deutsche Bahn in 1970. After search associate at TH Darmstadt. AG. He moved to insurance com- Metallgesellschaft AG. He took holding various positions of re- He worked at Deutsche Lufthansa pany R+V Versicherung in 1987, over the position of Corporate De- sponsibility within Deutsche AG from 1985–2000 – in his last where his last position was head velopment Vice President at the Bundesbahn he was appointed position as Chairman of the divi- of Human Resources. He worked Metal Mining Corporation in 1990. deputy member of the Manage- sional Board of Management at at Daimler-Benz Aerospace AG In 1997 he transferred to Heidel- ment Board for Corporate Devel- Lufthansa Passage Airline. He has starting in 1992 and became a berger Druckmaschinen AG as the opment at Deutsche Bundesbahn been a member of the Manage- member of the Management head of the Central department. in 1991. In 1992, he became a ment Board at Deutsche Bahn AG Board at Daimler-Benz InterSer- He began at Deutsche Bahn AG full member of the Management since 2001, responsible for the vices (debis) AG and member of in April 2000 – also initially as Board at Deutsche Bundesbahn Technology Board division until the Management Board at debis the head of the Central depart- and Deutsche Reichsbahn, where 2003, and since then for the Pas- Systemhaus GmbH in 1996. He ment – and was appointed to the he was responsible for the areas senger Transport Board division. became a member of the Manage- Management Board of DB Netz of research and technology. He has ment Board at DaimlerChrysler AG in June 2000. He became Chief been a member of the Manage- Services AG in 2001, and he joined Representative with responsibil- ment Board at Deutsche Bahn AG the Management Board at Deut- ity for Group purchasing in 2002 since its founding. Mr.Heinisch sche Bahn AG in 2002, where he and Chief Representative for the was in charge of the Technology was initially responsible for Technology and Procurement area Board division until the year Personnel, before taking over re- in 2003. He has been responsi- 2000, and subsequently assumed sponsibility for the Transport ble for the new infrastructure and responsibility for the Track Infra- and Logistics Board division in Services Board division since structure Board division until March 2005. April 2005. 2005. Since March 2005 he has been responsible for the Integrat- ed Systems Rail Board division.

7 Financial Communication Deutsche Bahn Group | 2005 Annual Report

Contents

11 Rating / Deutsche Bahn Bond Issues

12 Value Management

13 Corporate Governance

9 Capital Market Activities

Highlights

Outstanding ratings reconfirmed

Successful bond issue: wide-scale investor interest for USD 0.8 billion bond

Value management: positive development of all relevant key performance measures – ROCE climbs to 5.0%

Further expansion of investor relations activities

10 Deutsche Bahn Group | 2005 Annual Report Financial Communication

Rating

Rating agency Long-term rating Short-term rating

Moody’s Aa1 Outlook“Stable” P-1 Standard & Poor’s AA Outlook“Stable” A-1+

The annual rating reviews by rating agencies Moody’s and Standard&Poor’s took place in June 2005.We also held detailed discussions with the rating agencies on significant events, including in particular the acquisition of BAX Global. Moody’s and Standard&Poor’s confirmed their ratings in the year under review, both of which have remained unchanged since their first reviews in 2000.

Deutsche Bahn Bond Issues

Volume Duration ISIN Issuer Currency (millions) Coupon Due date in years

Deutsche Bahn January XS 0238 773 849 Finance B.V. USD 800 5.125 % 2011 5

In 2005, investors once again showed a high degree of readiness to absorb corporate bonds with high credit quality. We leveraged this opportunity – predominantly to finance the further strategic development of the DB Group acquisition BAX Global. In December 2005, we issued a five-year bond for USD 800 million (with a coupon of 5.125 %) via Deutsche Bahn Finance B.V., Amsterdam/Netherlands. However, the cash inflow from this transaction was not realized until the current 2006 financial year. We once again made a number of financial presentations to important European and Asian finance markets within the framework of our IR activities.We are placing a growing emphasis on one-on-one discussions with a number of analysts and major investors.You can find important information on our IR activities on our website www.db.de/ir-english.

11 Key Figures for Value Management

Increase in ROCE to 5.0% Our ﬁnancial management policies are designed to generate a sustainable increase in corporate value. We use the return on capital employed ratio (ROCE) as the central key performance measure for our Group portfolio as well as for capital expenditures allocation. ROCE is calculated as the ratio of EBIT to capital employed, where EBIT are adjusted for non-recurring effects in the interests of comparability. ROCE further improved during the period under review:

Return on Capital Employed € million 2005 2004 Change

EBIT adjusted for unusual items 1,350 1,011 +339 ÷ Capital employed 27,013 26,490 +523 = ROCE 5.0% 3.8%

The positive development of the ROCE is attributable to the clear improvement in EBIT adjusted for unusual items.We are thus continuing to generate successive improvements in accordance with the Group’s stated strategy and remain on course to achieving the Group’s desired target return of 10 %, even though, in line with expectations, we are not currently covering our cost of capital. As part of the management system, to control debt we use two further key performance ratios, redemption coverage and gearing. Redemption coverage is calculated as the ratio of operating cash flow to adjusted net financial debt. Gearing is the ratio of net financial debt to total shareholders’ equity. In the mid-term, we plan to achieve 30 % redemption coverage and gearing with a ratio of net financial debt to shareholders’equity of 1:1. Following an unavoidable increase in financial debt due in part to our capital expenditures and modernization programs as well as the pro-rata financing of key strategic acquisitions in recent years, we expect to witness a further rise in cash flow and thus generate successive improvements in the key performance measures in the next few years.

Redemption coverage and gearing % 2005 2004

Redemption coverage 14.7 12.7 Gearing 256 276

For a detailed derivation of the above ﬁgures, we refer to the presentation on pages 90–92 of the Group Management Report.

12 Deutsche Bahn Group | 2005 Annual Report Financial Communication

Corporate Governance – Transparency and Efficiency of Corporate Management

In light of our broad-based capital market presence on the debt side and our focus towards getting in shape for a possible initial public offering, we have elected to observe the German Corporate Governance Code in the form of our own “Corporate Governance Principles”on a voluntary basis, so as to augment trust in our corporate management among our business partners, investors, employees, and the general public. The current version of DB AG’s comprehensive Corporate Governance Principles can be viewed on the Internet at www.db.de/ir-english. Basis: Deutsche Bahn AG’s Corporate Governance Principles establish the best practices to be used in the management and monitoring of the Company. These are based on the German Corporate Governance Code (“Code”) issued by the German Corporate Governance Code Government Commission on February 26, 2002. The Government Commission revises the Code at regular intervals and adapts it to suit national and international developments. The Code was last revised in June 2005. The Code is directly aimed at listed companies that have to issue an annual declaration of compliance in accordance with Section 161of the German Stock Corporation Act. Deutsche Bahn AG’s Corporate Governance Principles are primarily based on the standards governing good and responsible corporate management presented in the Code, which are also relevant for non-listed companies. Deutsche Bahn AG will regularly examine and adapt its Corporate Governance Principles in accordance with changing statutory requirements and developments at national and international level. Cooperation between the Management Board and Supervisory Board: The Management Board and Supervisory Board cooperate closely for the benefit of the Company within the framework of the parameters established by the German Stock Corporation Act, the Articles of Association, the Rules of Procedure of the Supervisory and Management Boards, as well as the resolutions adopted by the executive bodies. The Management Board coordinates the strategic approach and regularly discusses the current state of strategy implementation with the Supervisory Board. The Manage- ment Board reports regularly, extensively and on a timely basis, on all issues regarding planning, business development, risk exposure, and risk management. It addresses deviations of the actual business development from previously formulated plans and targets. In order to guarantee effective corporate management, the Management Board and Supervisory Board are committed to discussing issues openly, yet under an obligation of confidentiality. All board members ensure that the members of staff they employ observe the same duty of confidentiality. The list of board members including their mandates is shown on pages 204–207. Supervisory Board: The Supervisory Board advises and monitors the Manage- ment Board in its management of the Company. The Supervisory Board consists of 20 members. In accordance with the German Codetermination Act, half the members

13 are shareholder representatives and half are employee representatives. The shareholder representatives are partly appointed by the shareholder and partly elected by the Annual General Meeting. The employee representatives are elected in accordance with the German Codetermination Act. The Supervisory Board has formed the following committees: an Executive Com- mittee, a Mediation Committee pursuant to the provisions of the CodeterminationAct, and an Audit Committee. The Audit Committee deals in particular with issues involving accounting and risk management and the issuing of the audit mandate to the auditor. Management Board: The Management Board is responsible for the independent management of the Company. In doing so, it is obliged to act in the Company’s best interests and undertakes to increase the Company’s long-term corporate value. It also ensures adequate risk management and risk controlling. Management Board members must disclose all conflicts of interest that arise to the Supervisory Board without delay and also inform their colleagues on the Management Board. No such cases occurred during the year under review. The Management Board’s remuneration consists of fixed and variable components. The amount of the variable component is largely tied to the performance of the DB Group’s operating business. The remuneration of the Management Board is listed by fixed and variable components on page 198 of the notes to the consolidated financial statements. Risk management: The strict control of opportunities and risks poses a major challenge for the Company’s management. The early identification and reduction of risks resulting from the Company’s business activities are a priority for the Management and Supervisory Boards. Accordingly, the integrated, Group-wide risk management system focuses on the early identification of risks, opportunities, and the implementation of counteractive measures. The Management Board and Supervisory Board are regularly informed of the outcomes of risk management procedures. The risk management system is refined on an ongoing basis. For further information, please refer to the information provided in pages 99–103 of the risk report. Financial reporting and accounting: Financial communication comprises the publication of financial statements and consolidated financial statements, as well as a semi-annual report. We report on current developments on a timely basis through our investor relations activities and corporate communication. Dates of major recur- rent publications (including the annual and interim reports) are released with sufficient lead-time in a “financial calendar”. We use the Internet to ensure information is posted on a timely and comprehensive basis. The consolidated financial statements and interim reports have been prepared in accordance with International Financial Reporting Standards (IFRS) since the 2004 financial year. Efficiency: The Management Board and Supervisory Board reviewed DB AG’s Corporate Governance Principles in the reporting year following amended statutory requirements and developments at domestic and international level. No adjustments were considered necessary. Efficiency and compliance with the Corporate Governance Principles were also confirmed.

14 A Busy Year– Our Financial Year in 2005 Further Success in the Year Under Review

The 2005 financial year was a very successful year for the DB Group. In 2005, we introduced or concluded a series of further major and smaller measures designed to secure our current and future economic success. These have either already enabled us to progress or have provided a basis for future development. The same applies to our more attractive customer offerings including our modernization programs and the enhancement of our business portfolio.

Our Markets: Mobility, Networks and Logistics On the following pages we invite you to take a brief look at selected highlights of the 2005 financial year. These relate either to general events that impacted DB, as well as events of quite specific nature. We have categorized these in accordance with the markets we currently cover: Mobility, Networks or Logistics. These terms – which derive from our markets – also characterize the brand strategy, which we enhanced during the reporting year, and, together with the DB logo, stand for the DB Group’s performance spectrum and activities. We expect to establish an even more incisive market presence through clearly delineated, strong brands.Thus, Stinnes, Schenker and Railion, our business units in the Transport and Logistics division, will form a joint market presence under the name “DB Logistics”. In future, the DB logo will serve solely as the divisional brand of the Infrastructure and Services division, while the “Die Bahn DB” brand will stand exclusively for activities in the Passenger Transport division. > January

February

DB – Mobility Networks Logistics March Agreement on the Takeover of RAG’s Logistics Operations April The takeover of the logistics operations of RAG AG, an energy and chemicals group based in Essen, May will help us enhance our position in European bulk logistics. RAG’s former 100 percent subsidiary June RAG Bahn und Hafen GmbH handles, transports and warehouses approximately 48 million metric July tons of bulk goods per year and operates110 locomotives and 2,300 freight cars. RAG also held August a 55 percent stake in DAP Barging B.V., based in Rotterdam /Netherlands, which is a cargo space September broker for waterway transport in the Amsterdam, Rotterdam and Antwerp region. The purchase October will take effect upon clearance by the competition authorities in the second half of the year. November

www.rag-bahnhafen.de December

DB – Mobility Networks Logistics

www.bahn.de Remains Germany’s Most Popular Travel Website DB – Mobility Networks Logistics Our homepage for DB’s mobility offerings is once again Germany’s busiest travel website, a study by market research Schenker and Railog Demonstrate Strength in Project Logistics, institute Nielsen Netratings concluded after evaluating Shipping an Entire Factory to Kazakhstan a total of 800 IP addresses. According to Nielsen, one in Our logistics experts took no more than 20 days to ship the machinery three travel-related searches is registered by DB’s travel and equipment for a new production line of Austrian quality pipe portal www.bahn.de, which provides a comprehensive ser- manufacturer Hobas to Kazakhstan in Central Asia. To prepare this vice range including online purchasing of train tickets extraordinary transport project, Schenker first collected the equip- and BahnCards, timetable enquiries and a personal journey ment from Austrian, German, Slovenian and Czech suppliers and trans- planner. ported them to Peine near Hanover where they were checked and

www.bahn.de packed. Twelve partial shipments were sent to Hamburg, from where Railog securely channeled the containers through five different coun- 01 tries. In Brest / Belarus, the containers were transferred from European Januarycars to Russian broad-gauge cars. In Zhinishke /Kazakhstan, Hobas’ staff stood ready to receive the equipment, and before long the first polyester pipes will be rolling off the line. > January

February

DB – Mobility Networks Logistics March Expansion of Scandinavian Activities April Stinnes Freight Logistics and ScandFibre Logistiks AB, a logistics partner of the Swedish paper industry, signed a framework agree- May ment providing for a rail transport volume of 1.4 million metric tons. Swedish companies mainly ship packaging paperboard and sawn June timber to Continental Europe. Rail transport will be organized by Railion and Sweden’s national rail company Green Cargo. Under July the terms of the agreement, 20 unit trains with a capacity of up DB – Mobility Networks Logistics to 2,000 metric tons each will travel from Sweden to Maschen August near Hamburg every week. Further Expansion of Schenker’s Network in Belgium September and Latvia A new logistics hub in Willebroek /Belgium and a new land October transport terminal in Riga, the Latvian capital, are further DB – Mobility Networks Logistics milestones in the expansion of Schenker’s European network. November With a shipment capacity of 240,000 metric tons and a DB Supports Aid Operation handling capacity of 23 million boxes, the Willebroek hub will in South East Asia December be a new benchmark for productivity and service quality. DB Group organized a Group-wide fund- The new facility is in a very accessible location close to the raising campaign for the victims of the Antwerp–Brussels expressway and has a 51,000 square tsunami disaster in South East Asia. Thanks meter storage area with 75,000 pallet spaces. It further consoli- to donations from DB employees in Ger- dates Schenker’s position in the consumer goods market. The many and abroad, collections in passenger new Riga terminal uses parts of Schenker’s existing logistics stations, and funds and in-kind benefits hub and boasts a service area of 1,000 square meters and provided by DB, the people in South East 14 mobile loading docks. It provides a link between Schenker’s Asia’s disaster zone received a relief European network and its activities in Latvia. package worth € 1 million. 01 JanuaryDB – Mobility Networks Logistics

Ground Breaking for Leipzig City Tunnel At the end of the month, preliminary work began for the city tunnel beneath Leipzig’s central station. From the end of March onwards, ground work was underway for the 600-metre entry and exit ramp of the city tunnel and the future underground platforms at Leipzig’s central rail hub. By the end of 2009, two tunnel tubes and four underground metro-train (S-Bahn) stations will be operational to improve local passenger transport. The Leipzig City Tunnel is one of the largest city center transport projects in Europe.

www.citytunnelleipzig.de DB – Mobility Networks Logistics

Twenty Million City Ticket Customers Together with the Association of German Transport Undertakings (VDV), we congratulated our 20 mil- lionth City Ticket customer at Düsseldorf Central Sta- 02 tion. As our way of saying “Thank You”, she received Februarya BahnCard100, with which she can travel throughout Germany for one year free of charge. With the City Ticket included in the BahnCard, customers can use buses, trams, subways, and S-Bahn (metro) lines in 86 cities to take them to their final destination and back to their departure train station with no extra charge. To take advantage of this offer, travelers need a ticket to a destination 100 kilometers or more away, with a BahnCard discount.

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> February

DB – Mobility Networks Logistics March

Commissioning of New Electronic April Interlocking In Eutin in the north of Germany, a new elec- May tronic interlocking started operations. It represents the latest control and safety technology June introduced as part of our strategy to modernize our track infrastructure. The first plans July were drawn up in1996 to upgrade our signaling equipment along the 70 kilometers of August DB – Mobility Networks Logistics tracks between Kiel and Bad Schwartau. Three years later, Westinghouse Rail Systems Ltd. September Schenker Assumes Logistics Responsibility for the Soccer Globe (WRSL) from the United Kingdom set up a pilot at 2006 FIFA World Cup™ project to introduce new signaling and con- October Six semi-trailers filled with 60 tons of steel, almost five kilometers of cables, 20,000 trol technology in Germany and was awarded mini spots and large quantities of other equipment went on tour as Vienna artist the Kiel contract. After the successful com- November André Heller staged his multi-media show ‘Soccer Globe’ at venues throughout Ger- pletion of the project, DB can now draw upon many. Schenker’s global sports events team coordinated the transport to ensure the services of a new rail equipment supplier. December the equipment arrived in good time. After the Gelsenkirchen stage had been dis- mantled, the ‘Soccer Globe’ was put into the able hands of Schenker, and our experts took responsibility for moving the equipment to other FIFA World Cup Host Cities including Dortmund, Nuremberg, Hanover, Stuttgart, Munich, and Berlin. For the show, Schenker was making its debut as an official logistics service provider for the 2006 FIFA World Cup™. DB – Mobility Networks Logistics

DB – Mobility Networks Logistics Successful Implementation of a New Shuttle Scheme for Wacker Chemie Stinnes Freight Logistics began operating a new shuttle scheme for Wacker Local Spin-offs Look Back on Three Successful Years Chemie GmbH based in Burghausen. Thanks to very flexible train capacity As part of our initiative to promote medium-sized busi- utilization, the Wacker chemicals group awarded its contract to Stinnes nesses, we set up independent entities for our regional net- Freight Logistics and Railion. A daily unit train with a loading capacity of works throughout the country and for four secondary local up to 1,400 metric tons, carrying tank and box containers, operates be- (Regio) networks in 2002. The four Regio operators include tween Burghausen, the Hamburg-Maschen marshalling yard and the German Kurhessenbahn (KHB) in North Hesse, Oberweissbacher seaports of Bremerhaven and Hamburg. This gives our customer unique Berg- und Schwarzatalbahn (OBS) in the Thuringian Forest, flexibility in making shipments to all German seaports. Erzgebirgsbahn (EGB) in Saxony and SüdostBayernBahn (SOB) in South-East Bavaria. On the basis of long-term transport contracts, they provide services with a transport performance of approximately 10 million train kilometers. Moreover, third-party rail companies and other entities 02 of DB Group make use of the 1,000 kilometers of tracks February run by the local operators. As a result of successful restruc- DB – Mobility Networks Logistics turing, the entities returned to profits in 2004. Our ob- January jective is to put an end to the high losses of the past and Schenker Supports Sports Events in Australia make secondary lines profitable on a permanent basis. and New Zealand > February As an official cooperation partner of Union Cycliste Inter- nationale (UCI), Schenker offered active support at the March Track Cycling World Cup Classics 2005 in Sydney, Australia, providing cycling teams from 40 countries, press repre- April sentatives, sponsors, and equipment suppliers with a complete range of logistics services, including transport and May technical assistance. As an official logistics partner of the “International 14 World Sailing Championships” held in June Auckland, New Zealand, Schenker made sure the event was all plain sailing. Its responsibilities included the coordi- July nation of worldwide shipments, customs clearance, and on-time delivery of the equipment.

August www.uci.ch

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October DB – Mobility Networks Logistics

November A State-of-the-Art Logistics Hub in Budapest Strengthens Schenker’s Network In Hungary, Schenker moved into a new logistics hub at the Budapest Intermodal Logistics Center (BILK). The new hub, located December on a tarmac-covered 65,000 square meters site, includes a 24,000 square meters building complex. There is a storage area of 17,000 square meters in a hall that is eleven meters high. Moreover, there is a 5,000 square meters terminal for part-load consignments.The new logistics hub also includes a 1,300 square meters hazardous materials storage area. The facility complies with the security standards of the “Technology Asset Protection Association”(TAPA) for theft-endangered goods. It is conveniently located close to major highway and railroad networks. BILK is one of the largest logistics parks in Europe and one of the largest terminals for intermodal transport providing a link between rail and road transport. DB – Mobility Networks Logistics

Non-Smoker Drive Emphasized at DB The station in Idstein (Hesse), became our 1,000th smoke-free passenger stations. In September 2002, January we implemented our “Smoke-Free Station”campaign in 54 major stations and were able to achieve signifi- February cantly cleaner stations, reduced cleaning costs, and more protection for non-smokers. Because of its suc- > March cess, the campaign was extended to cover 1,000 stations. In smoke-free stations, smoking is only allowed April in designated smoking areas, restaurants, and in designated areas within DB Lounges. Smoking in station May areas below street level is banned totally for safety reasons. Signs in all smoke-free stations designate June smoking and non-smoking areas. On long-distance trains, the proportion of smoker seats has been steadi- July ly lowered from 50 percent in the mid-1970s to 20 percent today. This reflects a continuous decline in cus- August tomer demand for seat reservations in smoking areas. Smoking is also prohibited in DB restaurant cars on September ICE and IC/EC trains.

October

November December 03 MarchDB – Mobility Networks Logistics Cooperation Agreement With the Bundeswehr Renewed Schenker will provide logistics services for the central government-owned army depot (Zebel-H) in Kaufungen near Kassel for another four years. We have been working for the German Federal Armed Forces (Bundeswehr) on behalf of Elektroniksystem- und Logistik-GmbH (ESG) for five years. The 12,000 square meter depot for military and non-military maintenance contains over 50,000 different spare parts on 12,000 pallets and in over 100,000 hardware bin locations – everything from tiny adjuster springs to Leopard 2 tank gearbox units and tank tracks. By using advanced ESG software and Schenker IT services for inventory and transport management, Schenker and ESG can secure delivery 24 hours a day, 365 days all year. DB – Mobility Networks Logistics

Award for Catering on Long-distance Trains Since 2004 we have been offering catering services on selected routes, accommodating passengers at their seats with snacks and beverages such as coffee, tea, soft drinks, candy bars, sandwiches and freshly baked pretzels, and in the summer ice cream. Catering services on our January ICE high-speed trains were awarded the Golden Mercury Award in Copenhagen, presented by the International Travel Catering Association (ITCA). The 21-year-old prize in gold, silver and February bronze is awarded for distinctive quality in innovative catering in rail and air travel.

> March

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May DB – Mobility Networks Logistics

June New Season Starts for DB “Call a Bike” Bike Rental System Our innovative bike rental system “Call a Bike”started into a new season and the July strikingly designed DB bikes are once again helping to set the scene all over Berlin, Frankfurt/Main, Cologne, and Munich. We began “Call a Bike”as a pilot project August in Munich in October 2001 and extended it to Berlin in summer 2002. We expanded “Call a Bike”again with Frankfurt/Main in May 2003, and Cologne in June 2004. September In all four cities, a total of 92,000 customers used “Call a Bike”for 450,000 rentals during the 2005 season.

October www.call-a-bike.de

November DB – Mobility Networks Logistics

December Schenker Takes Polar Ice to The Fifth Continent Transporting twelve tons of polar ice to Australia is not something Schenker does every day. In blocks weighing two tons each, the ice was picked up in Jukkasjärvi in northern Sweden and shipped to Melbourne, where ice 03 sculptor Daniel Rosenbaum formed them into public- ly displayed works of art. Schenker also became part Mof Rosenbaum’s transient art. At a gala dinner in the presence of Sweden’s Crown Princess Victoria, some of Rosenbaum’s sculptured ice blocks, which showed logos of both Schenker and the Ice Hotel in Jukkasjärvi, artfully melted during the evening. Each November, the Ice Hotel in Lapland is built out of ice and snow and lasts up to six months before it begins to melt. DB – Mobility Networks Logistics

Further Improvements in Franco-German Rail Freight Transport At the Cologne marshalling yard, Louis Gallois, Chairman of the National French Rail Company SNCF, and Hartmut Mehdorn, CEO of DB AG, launched the next stage of a project to improve interoperability in rail freight transport between Germany and France, as they signed an interoperability framework agreement to harmonize the operating regulations and coordinate dispatching processes. The agreement paves the way for seamless Franco-German rail freight transport as freight trains can now cross the border without stopping at the Forbach/Saar border station or at any other border checkpoint. The trains use multisystem locomotives that can handle the power sup- DB – Mobility Networks Logistics ply and signaling systems of both countries. The result is a two hour reduction in border-crossing One Hundred DB ServiceStores waiting and dispatching times. With our new convenience store in Bad Salzungen (Thuringia), we celebrated the opening of our 100th DB ServiceStore in Germany. We want to be present where our customers need us and offer quality service even in small and mid-sized passenger stations. In DB ServiceStores, our customers, nearby residents, and bus travelers can find everything under one roof – train tickets, travelers’supplies, snacks, a wide selection of newspapers and magazines, tobacco products, and even small gifts. DB ServiceStores are independently run franchise businesses. To date, more than 400 jobs have been created at the 100 ServiceStore locations. By the end of 2005, DB ServiceStores were operating at 130 locations.

DB – Mobility Networks Logistics archSuccessful Freight Train Test From China To Germany The first freight train from China reached its German destination after merely 16 days, covering a distance of 9,814 kilometers on a route through Mongolia, Russia, Belarus, and Poland. This makes the rail option considerably faster than sea transport. The objective of the trial run was to gain experience and collect data on a direct rail route from China to Russia via the so-called Mongolian vector (from Ulan Bator to Brest and on to Germany). Railion assumed responsibility for the train at the German-Polish border and took it on overnight to the Duisburg Ruhr port. Earlier, the train, which comprised a total of 101 containers and measured approximately 1,000 meters in length, was divided in two upon crossing the Belarusian-Polish border to comply with European rail regulations. DB – Mobility Networks Logistics

Service Range at DB ServicePoints Expanded DB Station&Service AG has expanded its services at DB ServicePoints. Travelers can now book hotel rooms, become members of our car rental service DB Car- DB – Mobility Networks Logistics sharing, and book a car directly at the ServicePoint counters. With these new offerings, DB ServicePoints Attractive Spring Special Bargains in Long-distance January achieve new dimensions in customer service and re- Transport main key information sources for travelers. In large pas- After the great success of our special price offers the year February senger stations, DB ServicePoints are open around before, our customers were looking forward to another the clock. round of attractive spring bargains: Holders of the “Spring > March Special”ticket were entitled to a second-class journey to 04any German destination for no more than € 29 or € 39, sub- April 03 ject to availability, while tickets to Vienna, Zurich, Brussels, March or Amsterdam sold for € 39. The“Spring Special”was on offer May at all German trainA stations. The tickets had to be pre- booked for fixed journeys (excluding the right of switching June to other trains).

NORWAY July SWEDEN Murmansk FINLAND January

August Arkhangelsk DB – Mobility Networks Logistics St. Petersburg BELARUS February Smolensk Yaroslavl Yakutsk September Moscow Nizhnij Novgorod Comprehensive Mobility and Logistics Offering for Kazan Voronej Perm UKRAINE March the National Garden Show Saratov Samara Ekaterinburg Rostov on Don October Volgograd Chelyabinsk Timashevsk Ufa DB offered a broad variety of services at the 2005 Omsk Krasnoyarsk Krasnodar Novosibirsk Tchita > April National Garden Show (BUGA) in Munich. Schenker was Prokopievsk Irkutsk Barnaul November KAZAKHSTAN Ulan Ude involved in the preparations while our Passenger

MONGOLIA May Transport division came up with some attractive mobility

CHINA December features for BUGA visitors. As a logistics service pro- June vider, Schenker was responsible for the transport of DB – Mobility Networks Logistics all plants on display at BUGA. And for some greenery July from abroad, they also had to obtain customs clear- Schenker Expands Distribution Network in Russia ance. After the end of the show, Schenker made sure Schenker is building up its own distribution network in Russia with August the plants were returned safely. The services Schenker direct links to the 20 largest cities in the European part of the coun- offered included use of temperature-controlled vehi- try, in the Ural region, and in Western Siberia. Scheduled services September cles to carry sensitive plants, and continuous supply are starting gradually with the distribution network expanded logistics to provide material for seasonal exhibitions. step by step. Freight collection and distribution to smaller cities will October Our Passenger Transport division devised special price be carried out via new regional hubs. In addition, we will open packages for BUGA visitors to travel to the show and a new 5,000 square meters distribution center in Moscow, which November back by train. There were bargain offers for families will serve as the main hub for Schenker’s new distribution net- with children under 15 traveling free if accompanied work and is easily accessible because of its location on the loop December by their parents or grandparents.

surrounding the city. www.buga2005.de DB – Mobility Networks Logistics

Schenker Opens a New Terminal in Paris Schenker has adapted its capacity in the greater Paris area to growing demand by opening a new logistics terminal. The facility includes an 11,000 square meters handling area and a 6,000 square meters high-bay storage area. The terminal complies with TAPA regulations for high-value freight and is also equipped to handle hazardous materials. Thanks to the new facility, we are now in an even better position to meet the demand for value-added logistics services. DB – Mobility Networks Logistics

Large Order for New City Buses 23 regional bus operators of DB Stadt- verkehr are exploring new avenues in purchasing vehicles for scheduled bus services. For the first time, they pril have teamed up to replace their old buses by placing a joint order for192 brand new vehicles worth more than € 42 million. The joint order allows us to save a seven-digit figure, while improving quality and comfort in public road passenger transport.

DB – Mobility Networks Logistics

75th Anniversary of Motorail Services DB – Mobility Networks Logistics DB introduced two attractive offerings to mark the 75th birthday of motorail services. It was back on April 1,1930 that Deutsche Reichsbahn authorized travelers to check in a Start of Modernization Work at the Hagen- motorcar as part of their baggage. In 1996, DB AutoZug GmbH was set up to assume re- Vorhalle Marshalling Yard sponsibility for all motorail and night train operations within DB Group. It has created attrac- With a view to strengthening rail freight transport tive and customer-oriented service for travelers wishing to avoid traffic jams and save in the Ruhr area, we are spending € 55 million time by traveling overnight to destinations as far afield as France, Italy, Austria, and Croatia. on the modernization of the Hagen-Vorhalle mar- DB AutoZug carries approximately 200,000 vehicles and 400,000 passengers per year. shalling yard. After the completion of the project,

www.db-autozug.de the yard will be able to handle up to 200 freight cars per hour (i.e. 25 more than before). The performance increase is achieved by fitting the forty marshalling tracks with fully-automatic brake, handling and control technology. DB – Mobility Networks Logistics

Russian Railways and Railion Set Up a Joint Venture Hartmut Mehdorn, CEO of Deutsche Bahn AG, and Gennady Fadeyev, the head of Russian Railways JSC, signed an agreement at the Hanover Trade Show to set up a joint venture to improve the cooperation between both railways with a particular focus on production and distribution processes. The joint entity will be head- DB – Mobility Networks Logistics quartered in Moscow and will develop a one-stop product range. It will also offer DB Group Welcomes 1,100 Young Women on Girls’ Day 2005 value-added services like tracking and On Girls’ Day 2005,1,100 young ladies enjoyed a varied program providing first- tracing, customs clearance, warehousing, hand information on jobs at DB Group. At over 60 DB locations, young women and incident management. At the same January students from grade five to ten were given the opportunity to visit high-speed train time, a package of measures was adopted maintenance plants and operation centers, acquire some practical skills in metal- to improve transport handling procedures. February working and electrical engineering, and gain insight into the rail business. At some locations, it was even possible to ride on board a locomotive. In our training March centers, our trainees presented their occupation and, along with their trainers, provided information on the great variety of jobs available in the rail sector. > April The young ladies were also able to get some hands-on experience in the practical work of a modern logistics service provider, as they spent an entire day accom- May panying staff in specialized departments.

www.girls-day.de June

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August 04 DB – Mobility Networks Logistics

September New Sales Record of BahnCards ApIn the first quarter of 2005, sales of BahnCards rose by more than 230,000 year-on-year October to a total of 918,000, taking the total of BahnCards used by our customers to 3.1 million. The new sales record shows that our efforts to increase the attractiveness of the fare-reduc- November tion pass are bearing fruit. For instance, additional destinations are now covered by the City Ticket feature, which entitles long-distance passengers to one free ride on local public December transport systems in the city of destination. Moreover, there was a special offer in February and March for a free BahnCard 25 for spouses. BahnCard customers can have fares debited to their bank account. And if passengers buy their tickets on www.bahn.de or via telephone, they no longer have to register in writing. DB – Mobility Networks Logistics

Efficient Competition in the German Rail Market 05 In 2004, rail transport successfully held its own May against other modes of transport, winning back market share in the passenger and freight trans- January port segments. This was one of the conclusions of the fourth Competition Report published by February Deutsche Bahn AG, which for the first time covers such topics as intermodal competition and Euro- March pean transport policies. In Germany there are now 320 licensed rail operators using the network, April including 300 non-Group companies. This is the highest figure since establishment of Deutsche > May Bahn AG, making the pace of competition on the German network. June

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DB – Mobility Networks Logistics September Porsche Opts for Schenker At the Porsche Suppliers’Conference, Schenker received the “Porsche October DB – Mobility Networks Logistics Supplier Award 2004”in the service provider category. Porsche AG started producing the Carrera GT at its Leipzig plant in the fall of November Railion Italia Enters the Market 2003. Schenker is responsible for transporting the luxury sports Railion Italia is the fourth national organization with- cars from the factory to their new owners. Every year, about 300 December in the Railion network. It has been established to Carrera GTs travel by air, sea and road to their destinations. Schenker complement the existing cooperation with Trenitalia, provides a special delivery service for all Porsche models, en- RailTractionCompany (RTC) and Ferrovie Nord Cargo abling foreign Porsche purchasers to pick up their new car at the (FNC). The new company has gone into business Leipzig plant and take it on a vacation tour through Germany and with a fleet of seven modern diesel locomotives, with Europe, before returning it to a pre-agreed location and have it plans for further purchases. Railion Italia is based safely delivered to their home address. Porsche also relies on in Alessandria at the center of an important industrial rilSchenker’s know-how to meet the tough requirements of trade show region between Milan, Turin and Genoa. During the and events logistics. For the Detroit Motor Show 2005, for in- start-up phase, it will operate some 50 international stance, Schenker transported the latest Porsche models to the US, freight trains per week. At Luino, Domodossola and along with a complete set of exhibition equipment. Chiasso, the trains are taken over by Railion Deutsch- land and their partner BLS Cargo to cross the Alps and move further north to Sweden and the Netherlands.

www.railion.it DB – Mobility Networks Logistics

Ticket Sales at Food Discounter Exceed all Expectations In an effort to bring non-train customers on to January the rails, our sales team got off the beaten track and started a campaign with the retail group February Lidl to sell rail tickets. Bypassing our existing sales channels, we proposed an introductory offer to March food retail customers, consisting of two tickets for no more than € 49.90. Each of the two tickets April was valid until October 3, 2005 for a second-class journey to any destination in Germany. Children > May under the age of six were allowed to accompany ticket holders for free. Demand for this bargain June offer exceeded all expectations. Large numbers of customers were queuing outside supermarkets July at eight o’clock in the morning. One hour after the campaign started, most of the one million tickets August were gone.

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DB – Mobility Networks Logistics

Siemens Enlists Schenker’s Support for Eastern Europe Every year, Siemens transports approximately 33,000 consignments to Hungary, Poland, Rumania, Croatia, Bosnia, the Baltic States, and Albania. The consolidation of the shipments will, henceforth, be effected at Schenker centers in Berlin, Friedewald, Hagen, and Nuremberg. In the destination countries, the consignments are taken over by Schenker’s country organizations and cleared through customs, if required. Key factors for winning this05 contract were attractive transit times and service quality, which Schenker is able to guarantee for all destinations in Eastern Europe. As in the rest of Europe, we are also among the leading logistics companies in the countries to theM east of Germany. In all ten EU accession countries, Schenker ranks among the top-3 logistics service providers. DB – Mobility Networks Logistics

BMW Awards Leipzig Contract to Schenker In May 2005, the BMW Group officially inaugurated its new Leipzig plant. In late 2003, Schenker had been awarded the warehousing and assembly supply contracts for the new plant, and our staff had been working on-site since May 2004. Large-scale production of the new 3-series began in March 2005. Our services includes responsibilities in handling incoming DB – Mobility Networks Logistics materials, warehousing, order picking, inventory withdrawals, sequencing, and just-in-time supply of Germany’s Young Top Chefs Offer Delicious Dishes in the Diner parts to the assembly line. Schenker is also respon- In May, travelers were pampered with some culinary delights in sible for smooth and seamless processes in the loading our dining cars. The recipes came from Wiesbaden’s number-one bays for incoming materials and in on-site truck chef Gerd Eis of Restaurant Ente at Hotel Nassauer Hof. The coop- waiting areas as well as various tasks in the dispatch eration with the “Jeunes Restaurateurs d’Europe”, an association department. of young top chefs from nine European countries, started in Decem- ber 2004 and is now one of our most successful collaborations in the catering business. On average, 25,000 travelers order meals from Jeunes Restaurateurs every month. And for those who wish to prepare these specialties in their own kitchen, there is a cookery book available – “Deutschlands junge Spitzenköche kochen deutsch”.

www.jre.de

DB – Mobility Networks Logistics

Construction Work Began at the First Tube of the Katzenbergtunnel In May, the first of two tunneling machines with a power of 3.2 megawatts and a thrust force of 8,600 metric tons started excavations at the Katzenberg tunnel project. Combining thrust and rotary forces, the cutters eat away at the rocks, moving into the mountain at a speed of up to 15 meters per day, depending on geological conditions, and leaving a hole of more than 11 meters in diameter. Once completed, there will be two tunnels passing through the mountain, both 9.3 kilometers long and up to 110 meters below the surface. The structural work is expected to cost ayapproximately € 250 million and will be completed by 2008. The Katzenbergtunnel is the largest individual construction site of a major project upgrading the Karlsruhe–Basle route and building additional tracks. The upgrading of the Rhine Valley route to four tracks is of outstanding importance for national and international transport. Work on the second tube will start in October. DB – Mobility Networks Logistics

Modernization of the Hall Roof of Frankfurt’s Central Station At Frankfurt’s central rail station, workers fitted the last aluminum parts of the new outer roof cover, which has a size of 25,000 sqm, completing the modernization of the roof surface. The entire roof surface of the central rail station is 50,000 square meters, seven times the size of a soccer field. Half of it is now covered by glass, half of it by opaque materials. In the fall of 2003, workers started to take down the old roof cover. The construction work has to be completed before the 2006 FIFAWorld Cup™ begins. A total of € 117 million is being spent on the modernization of the five halls of Frankfurt’s central rail station, which are listed as national monuments.

DB – Mobility Networks Logistics

Further Progress in Enabling Disabled Travelers DB – Mobility Networks Logistics In Berlin, we presented our program to remove barriers for disabled travelers. 06 A large number of umbrella organizations of the disabled and the disability officer Attractive Summer Specials in Long-distance Transport of the Federal government have been involved in drawing up the program that During the summer, DB again offered attractive bargain runs until December 31, 2009. In recent years, we have achieved a great deal in fares in the form of the“Summer Special”andJ the“European this field. As part of a project to redesign 59 ICE1 high-speed trains, we have Special”. The “Summer Special”ticket entitled its holder decided to increase the number of places for wheelchair travelers. Moreover, our to a second-class journey to any German destination star- passenger stations are important hubs to enable barrier-free travel for the dis- ting at € 29, subject to availability, with free travel to abled. Whenever stations with more than 1,000 travelers per day are modernized children under 15 accompanied by parents or grandpar- or rebuilt, they are fitted with elevators and ramps to give wheel chair-bound ents;“European Summer Special” tickets starting at € 39 passengers access to the platforms. Optical and tactile floor indicators help people for journeys from any train station in Germany to Brussels, with a vision impairment to find their bearings. And our mobility service center Amsterdam, Zurich, Vienna, and Prague. Finally, with the operates a special hotline for all passengers who need assistance during train “European Special”, customers were able to choose among journeys. 37direct services from nine German cities to major Euro-

www.db.de/handicap pean destinations, starting at € 19. DB – Mobility Networks Logistics

Additional Long-distance Services Since minor changes to the current timetable took effect on June 12, additional trains are serving a number of high-demand routes. More seats were made available on the new high-speed line between Hamburg and Berlin that started operating in December 2004. The market has responded favorable to reduced January journey times. Average capacity utilization on ICE and InterCity services is running at about 50 percent, making this line the most popular in Germany. February

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DB Group Ready for the 2006 FIFA World Cup™ DB – Mobility Networks Logistics DB Group contributed to making a brilliant success of FIFA > June Confederations Cup 2005, the dress rehearsal for the BahnCard 100 Becomes a Mobility Pass 2006 FIFAWorld Cup™.The official opening ceremony of Holders of BahnCard 100, which allows free travel on all DB trains, now July the Confederations Cup was still weeks away, and yet our enjoy even greater mobility through attractive prices for cars from DB Car- sports logistics specialists were busy as bees. In the FIFA sharing and rental bikes from “Call a Bike”.The new Mobility BahnCard August World Cup™ stadia in Cologne, Frankfurt, Nuremberg, 100 is equipped with a chip that allows cardholders to unlock the doors Leipzig and Hanover, they ensured availability of the tech- of any DB Carsharing vehicle. This new feature turns the card into a key September nical equipment required by FIFA and the media. Five for more than1,500 cars at 90 train stations. Our “Call a Bike” rental offering special trains and numerous scheduled services took the is available in Berlin, Munich, Cologne and Frankfurt/Main. This is Ger- October Confederation Cup supporters to the venues. Service many’s first single travel pass that provides seamless mobility from the start staff answered questions about convenient connections to the end of a journey. Only holders of the Mobility BahnCard 100 have November and the quickest way to the stadium. The drivers of DB Fleet a single card in their pockets to drive cars, hop onto trains, ride bikes, and Management took players, referees and FIFA represen- use numerous other means of public transport. December tatives from the airport to the hotels and stadia. And the German players and managers traveled on the ICE 3 high- speed service from Frankfurt/Main to Cologne for the match with Tunisia. DB – Mobility Networks Logistics

Construction Work Began at the Second Tunnel of the Buschtunnel uneThe new second tunnel of the Buschtunnel with a length of 711 meters is the largest single construction site of a project to upgrade the line between Aachen’s central station and the German-Belgian border. As a result of the upgrading measures, train speed in this section of the line will increase to 160 kilometers per hour. This will improve service quality on the important international high-speed line between Paris, Brussels and Cologne or Amsterdam. After 18 months of construction work, the tunnel is due to be commissioned when the new timetable for 2007/2008 is introduced. A total of € 50 million is being spent on the three-kilometer tunnel. DB – Mobility Networks Logistics

Schenker Wins Transport Contract in Sweden For the European business of Dow, a global chemicals group, Schenker assumed responsibility from October on for shipping insulating (styrofoam) boards from Norrköping in Central DB – Mobility Networks Logistics Sweden to Dow customers in Scandinavia and Russia.This means that Schenker won a contract Strong Performance at Opel IRONMAN GERMANY for almost the entire light-freight transport The fourth Opel IRONMAN GERMANY event took place in Frankfurt, volume in the Scandinavian market.The con- with more than 2,000 athletes from over 40 countries competing in tract runs for a period of three years and cov- three disciplines– a 3.8 km swim, a 180 km cycle race and a 42.2 km ers nearly the entire transport volume of rigid marathon run. Schenker provided road barriers, spectator stands, cour- foam panels that are shipped at Norrköping. se markings and ten refreshment points. As a co-sponsor of the event, The volume corresponds to a total of 2,100 it was responsible for providing competitors with drinks, fruit, sponges truck loads per year. January and energy bars along the cycle and marathon courses. In addition, Schenker collected the clothing and gear that had been left behind at February the start so that athletes could retrieve their belongings at the finish.

www.ironman-germany.de March

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June 07DB – Mobility Networks Logistics > July UniqueJul Security Network Developed for European Land Transport Schenker now operates the most closely-knit land transport security network in August Europe, comprising 26 certified hubs in 17 European countries that comply with the strictest TAPA freight security requirements. This makes Schenker the market September leader among European logistics networks designed to protect theft-endangered goods such as consumer electronics, sportswear and cosmetics. From January 1 October on, audits have been carried out in line with the reviewed FSR requirements. Our sites in Budapest (Hungary), Dresden and Kelsterbach/Frankfurt (Germany), November Kouvola (Finland), Linz (Austria) and Oslo (Norway) have been awarded the A classification certificate, which is the highest standard for facility and process December security. In the near future, five more sites will join the European security network – Barcelona (Spain), Malmö and Stockholm (Sweden), Paris (France) and Rotterdam (Netherlands). No other logistics service provider in the European land transport segment has a security network with such a high number of hubs that meet the strictest security standards. DB – Mobility Networks Logistics

Technical Feat: Arches Lowered on Berlin’s Central Station Lowering of two arched structures and fitting of the north-south roof marked a new stage of materialization of Berlin’s brand-new Central Station. Tens of thousands of onlookers watched the spectacular tilting maneuver, Technical details of the arched structures as the two structures were swung down like arms of a bascule bridge. Attached to two steel ropes with a dia- Each structure is 43.5 meters long, 21.4 meters wide and 15 meters high. meter of 30 centimeters, four 70-meter towers at a height of 23 meters were tilted downwards on a hinge and The weight that had to be lowered during the lowered over the east-west roof into their final position above the tracks. Over two weekends, the two arched tilting of the structures was 1,250 metric structures with a weight of 1,250 metric tons each were moved into their position at a speed of 6 meters per tons each, including 800 tons of steel, 400 tons of concrete and 50 tons of working plat- hour. Completion of this high-precision operation closed the two-meter gap between the two structures. Later, y forms and support structures. experts began to insert the north-south roof with a length of 200 meters between the two arched structures, The lifting and lowering device consisted of while other teams started working on the façade and the interior of the towers. four to eight pulley mechanisms, each made up of 20 ropes www.hbf-berlin.de After the lowering, a two-meter gap remained between the arched structures and the hall roof.

1. Vertical assembly of the arches 2. Lowering 3. Completion of the shell In a first step the steel construction and the concrete The lift and lowering facilities are active to keep the The arising gaps are completed with steel girders. ceilings of the two arches are built up. Thereafter the bridges solid. After reaching the level of 37 degrees Train traffic is allowed again. two bridges become erected. the bridges are lowered only. At the point of 31 degrees the center of gravity is exactly above the link.

Approx. 183 m January

February DB – Mobility Networks Logistics

March New Security Center Commissioned We commissioned our new rail security center (Sicher- April heitszentrum Bahn) in Berlin, where a total of 30 Group security officials will be working together with federal May police officers. Should security problems arise, short and direct communication channels now enable us to June resolve the situation even faster by optimally pooling our resources with those of the police, for the protec- July tion of our customers. This way, the safety of our customers, our employees, and our company will be further > August increased.

DB – Mobility Networks Logistics September January Schenker Opens European Logistics October February Center in Friedewald Schenker has added additional services to the November DB – Mobility Networks Logistics March product range at its Friedewald site, opening the Schenker European Logistics Center (SELC) December Track Infrastructure Renewal in the Port of Rostock April in the immediate vicinity of the Northern Hesse By renewing its track infrastructure, we will give the Central Hub. With an area size of 15,000 square port of Rostock the modern, business-oriented structure May meters, the SELC has an above-average capa- it needs for transferring freight between ships and trains. city. The services are geared to customers who In the next few years, some € 36 million will be invested, June require fast, flexible distribution of their goods including the laying of 38 kilometers of new tracks and and have no warehousing capacities of their 91new points. In addition, the new track infrastructure will > July own. Schenker takes care of warehousing and be equipped with modern command and control techno- demand-oriented distribution in line with the logy and, in order to modernize its energy supply, four new August delivery terms and transit times required by transformer stations with a capacity of 1.2 megawatts the customer. Apart from the close distance will be installed. At the same time, the port development September SELC 08 to the central hub, the offers a number of agency will begin to expand transfer facilities for combined other competitive advantages, including over- rail/road transport at the terminal. October night delivery and daily connections to major A business centers across Europe. It opens up November a new dimension in terms of quality, as our central hub becomes a nerve center for Euro- December pean transit operations with a broad range of customer-oriented value-added services. 07July DB – Mobility Networks Logistics

Make 3 out of 1 – ICE 1 Gets Beefed Up When the ICE 1 was commissioned in 1991, it marked the beginning of a new era in rail traffic. Since then, the ICE 1 fleet has traveled about 400 million kilometers, three times the distance between the Earth and the Sun. Motor train set 111“Nuremberg”is now the first unit to welcome passengers with a new design. First, all the interior parts were taken out. Then the train went to the Nuremberg plant for a complete technical review and component overhaul. It was fitted with new seats and received a similar design as the ICE 3. In each of the twelve cars of a multiple unit, 12,000 parts had to be taken out, cleaned, overhauled or replaced and put back into place. As part of our comprehensive modernization program, all 59 ICE 1 trains will receive a complete overhaul by 2008. Special emphasis is put on the interior of the passenger cars. Modern seats, tables and floor coverings in new colors will give them a look and feel similar to that of the ICE 3. The revamp also includes the restaurant and the bistro cars. Customers may look forward to numerous improvements in comfort and DB – Mobility Networks Logistics service which have been implemented. As the new passenger seats require less space, an additional Schenker Wins METRO Bid for the Ukraine 60 seats will be available on each train. The mo- Schenker and METRO have been cooperating successfully for four and a half years, and Schenker ugustdernization will prolong the service life of the is METRO’s logistics provider in Poland. Four months ago, Schenker took over logistics services 59 trains by another ten to fifteen years. in Russia for METRO. Goods are transferred over Schenker networks and supplier information is transmitted“just-in-time”to METRO supermarkets. Schenker’s successful cooperation with METRO in Poland and Russia was an important factor in METRO’s decision to engage Schenker to provide logistics services for the Ukraine’s domestic market. DB has already begun to develop a special network for nationwide goods distribution in the Ukraine, which, with a population of 48 million, represents a very promising Eastern European market. January

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> August DB – Mobility Networks Logistics April

September Logistics for World Youth Days Managed with Ease May Every division of the DB Group was well prepared for the XX.World Youth Days (WYD). Even October before the event began, we wanted to offer special tickets to all visitors to the WYD. With the June WYD Special starting at € 39 and the WYD Group Special starting at € 29, participants were given November an inexpensive way to reach the event. All across Germany, Schenker transported tarpaulins to July Düsseldorf for the construction of a large campground for approximately 5,000 campers on December the Rhine Meadows. The challenges for DB and for the traffic infrastructure during the WYD were August huge, and peaked after the closing mass, where Pope Benedict XVI spoke to nearly a million people on the Marienfeld near Cologne. Just like on the five previous days, DB personnel were > September extremely committed, with approximately 1,000 staff at 25 passenger stations directing the flow of people. Immediately after the closing mass, many people used the Horrem station for their October journey back home. In order to accommodate them, we organized 27 special long-distance trains and 400 local trains. In total, DB organized 140 special long-distance and1,250 local November trains during the WYD, helping to make the event a memorable one for young people from all over the world. December 08August www.wjt2005.de DB – Mobility Networks Logistics

Ingenious Concept for Ballast Disposal Successfully Implemented 09 On behalf of DB Netz AG, Stinnes Freight Logistics developed an ingenious concept for the disposal of 60,000 metric tons of old ballast and transported the first batch sooner S than expected to the former main freight station in Frankfurt/Main for loading. Each day at the station, two Railion trains are loaded with 1,815 metric tons of ballast by means of a special loading track normally used for waste disposal. The ballast is then transported 273 kilometers to the Vereinigte Schotterwerke in Stolberg, where it is cleaned and recycled. The ballast is used again as recycled ballast at various track construction sites. DB – Mobility Networks Logistics

New Logistics Center in China Schenker celebrated the opening of a new logistics center in Beijing at a ceremony with businessmen and politicians. The new multi-functional terminal is the most modern logistics center in the city, with more than 13,000 square meters of storage space, more than 10,000 pallet bays, and 13 freight loading docks. In addition to air, sea, and land transport services, it offers tailor- made logistics solutions, especially for the high-tech, electronics, and automobile industries. Schenker has been active in the Chinese market since the 1970’s and has steadily expanded its network, which, at present, includes over 30 offices. Our Chinese subsidiary has an A certificate to handle international freight transport as well as licenses for customs clearance, overland truck transport, air freight transport, and open customs warehouses. We are therefore one of the few transport and logistics service providers in China that render all their services independently.

DB – Mobility Networks Logistics

Career Start at DB for 2,700 Young People Throughout Germany, we welcomed 2,300 young school graduates beginning their careers at Deutsche Bahnby starting vocational training or studying at vocational academies. In addition to placing young people directly into an apprenticeship program, we considerably expanded our “Chance plus”program, a one-year internship program introduced last year for up to 120 participants. Within the scope of “Chance plus”, we offered about 400 young people who could not find an adequate apprenticeship program a perspective career and employment again this year. As one of the largest vocational trainers in Germany, we feel that it is our duty to help young people find employment and by means of our diverse training programs, im- DB – Mobility Networks Logistics prove the vocational training outlook for young people in Germany and secure qualified personnel Logistics Center in Silesia Strengthens European Network for the transport services industry. eptemberSchenker’s Kattowitz (Katowice) branch is one of the largest and most important in Poland. The new logistics center, with 79 loading gates and encompassing an area of 111,000 square meters, allows for fast shipping and tracking of consignments, which will reduce the storage time of goods considerably. Furthermore, the center complies with all safety standards and has easy access to important traffic hubs leading to the economically important regions in Silesia and all of Poland. Schenker’s network in Poland consists of an IT-supported network of 17 terminals and logistics centers with more than 200 regular connections between Poland’s most important business regions. DB – Mobility Networks Logistics

ICE 3 Licensing Process for France Draws to a Close An important step toward realizing pan-Euro- pean high-speed passenger transport service DB – Mobility Networks Logistics is almost completed: With the last test run on the approximately 280 kilometer-long line Schenker, as Logistics Provider for the “real,– BERLIN MARATHON” in southern France between Lyon and Aix-en- January Schenker was the logistics service provider for the “real,– BERLIN MARATHON” Provence and with speeds up to 320 km/h, we again proving its expertise in event logistics. A two kilometer-long automobile con- ended the practical phase for approval of our February voy of almost 100 trucks and 51 clothes stands – the longest mobile wardrobe in ICE 3 in France. The most important conclu- the world – stored the suit bags for the participants. Provision logistics stored and dis- sion drawn from the series of tests is that our March tributed the donated drinks,vitamin snacks, awards, and provided additional facili- ICE technology complies with French tech- ties for the athletes, who were supplied medals, flowers, and wrap-arounds “just-in- nical standards. At the same time, we will imple- April time” at the finish line. ment the necessary supplementary measures

www.berlin-marathon.de to adapt our trains to the French rail network. May This clears the way for the introduction of the ICE 3 in Franco-German rail traffic. This will June be inaugurated with the opening of direct connection service on the high-speed line Paris- July Eastern France–Frankfurt/Main–Stuttgart in 2007. August 09Septem > September

October DB – Mobility Networks Logistics

November DB Leads in Comfort and Service in Long-distance Passenger Transport December According to an international survey by Actima AG, a marketing consulting firm, concerning the quality of furnishings, catering, and service in passenger rail transport, our services were rated top across Europe. Actima studied 29 European railroad com- DB – Mobility Networks Logistics panies in 21 different countries and distinguished 33 service and comfort criteria, with the emphasis put on restaurant quality, DB Regio Rates High in Customer Satisfaction customer information, telecommunications, cleanliness, comfort, Our local passenger transport services for 2005 received entertainment, and services for the handicapped. Our ICE 3, ICE T high ratings in customer satisfaction surveys. According and ICE 2 trains ranked 1st, 2nd and 3rd in service and comfort. to a study carried out by Infas, our local passenger transport Long-distance trains from Spain, Sweden, Finland and Portugal services received the best marks“1”and“2”from nearly rounded out the rankings. 50 percent of those questioned. The excellent marks are the result of improved basic services, such as providing information, improved service performance, and increased punc- tuality, as well as higher vehicle quality. DB – Mobility Networks Logistics

DB BahnPark to Improve Parking at Passenger Stations Within the scope of a cooperation between DB Station&Service AG and Contipark International, both partners agreed to establish a joint venture, DB BahnPark GmbH. The goal of DB BahnPark is to get DB customers to and from their destinations seamlessly by offering more and improved parking facilities, for example by planning, further developing, and operating parking garages and parking lots in the immediate vicinity of passenger stations. DB BahnPark will begin by focusing on 460 large and medium-sized stations. We want to optimize parking by offering options that make parking less complicated, while presenting a single face to our customers. These measures are part of our “seamless travel”strategy. 10October

DB – Mobility Networks Logistics

SCHENKERart Transports Two Thousand Year-Old Relics from Herculaneum For the first time outside of Italy, relics from Herculaneum, the neighboring city of Pompeii, were shown in an exhi- berbition entitled “The Last Days of Herculaneum”. The first January stop for the exhibition was Haltern am See in Westphalia, which lasted from May until August.Our museum logistics February experts cooperated with Borghi, an Italian firm specialized in transporting works of art. After three days of travel and March DB – Mobility Networks Logistics accompanied by security vehicles, the 18 meter-long trailer arrived in Germany. In addition to the relics from April Tragic Blaze in Nuremberg Destroys Historic Locomotives Herculaneum, loans from museums in Salzburg, St.Pölten, On October 18, a fire in a storage depot of the DB Museum in Vienna, Dresden, Meissen, Berlin, Dessau, Karlsruhe, May Nuremberg destroyed many historical vehicles, including Rostock, Bonn, and Düsseldorf were transported. The exhi- 25 locomotives and train cars. They either burned out com- bition was then taken to the Pergamon Museum in Berlin, June pletely or were buried by the roof of the building that caught where four art experts from Schenker and two restoration fire and collapsed. Among other vehicles, the true to the experts from the museum supervised the packing and July original reconstruction of the “Adler”,the first locomotive in unpacking of the art. When transporting the valuable relics, operation in Germany,was destroyed. The original “Adler” we used tailor-made packaging, climate-controlled safes, August marked the beginning of the train era in Germany in 1835 on as well as special transport crates and insulation material the Nuremberg–Fürth line.The“Adler”will be reconstructed that met the specific requirements set by the restoration September again in our special facility in Meiningen (Thuringia).We hope experts. Moreover, we used modern, climate-controlled to complete reconstruction work by 2010 at the latest, en- transporters that reduced mechanical and temperature > October suring that the“Adler” can take part in our175th anniversary strains during transport. celebration.

www.herculaneum-ausstellung.de November www.db.de/dbmuseum

December DB – Mobility Networks Logistics

Green Cargo and Railion Expand Cooperation The Swedish rail freight company Green Cargo AB and Railion Deutschland AG agreed to expand their cooperation. The goal of both companies is to improve the quality of rail freight transport, especially on the Sweden–Germany–Italy line. In addition to improving transport quality, the companies want to reduce product manufacturing costs. Moreover, Green Cargo and Railion want to optimize freight car management, to boost fleet utilization while at the same time offering customers track and trace services with current status information regarding their shipment. Over three million tons of goods are transported back and forth between Sweden and Germany each year and freight traffic between these two countries has been growing at an annual rate of 5 percent since 2001. Most shipments are handled as single freight DB – Mobility Networks Logistics cars, with the majority of the goods transported between Sweden and Germany (and some to and Mannheim Central Station and Weimar Voted Train Stations of the Year from Italy) coming from the steel, automobile, The Mannheim Central Station and Weimar station were each voted“Train Station of paper and cellulose industries. the Year”by the “Allianz pro Schiene”, the alliance for the promotion of environmentally friendly and safe rail transport in Germany. This marks the second year that “Allianz pro Schiene” has awarded this prize, each time to one larger and one smaller train station that, according to customers, is exemplary or has particularly innovative concepts. Jury members praised the excellent accessibility of the Mannheim Central Station and the outstanding customer information system for bus transport provided at the station forecourt in Weimar. The screening process for the stations was based on a customer poll taken by Infas, which rated service, cleanliness and customer 10friendliness, in which bothOct stations received top marks. DB – Mobility Networks Logistics

DB Carsharing Attracts New Customers Our car rental service DB Carsharing is becoming increasingly popular and attracting more and more customers. During the year, about 6,000 new customers, including those of regional contract partners, joined DB Carsharing, bringing the total to some 57,000. Customers can use our Carsharing service in more than 80 cities throughout Germany and can choose from a total of 1,800 cars, which they can pick up right at the train stations. DB Carsharing is not only for travelers arriving by rail, but also for those who usually don’t need a car, but would like to have one available for transporting, shopping, or for a short vacation.

www.db-carsharing.de

DB – Mobility Networks Logistics

Schenker Strengthens Market Position in Norway Schenker acquired the minority interests in its affiliate Linjegods AS in Norway. Linjegods, the market leader in Norway and spe- January cialized in domestic logistics services, offers state-of-the-art logistics systems tailored to the needs of its customers, and February has a tight network of more than 20 sites in Norway. Linjegods employs some 1,100 people and achieves revenues of more than March € 250 million annually. The acquisition of Linjegods strengthens our position in the Scandinavian Market. April

www.linjegods.no May

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DB – Mobility Networks Logistics August

New Service in DB Travel Centers September The newly established position of head receptionist is yet another step to enhance our customer service in the 38 largest DB Travel Centers (ReiseZentren). The idea is that head receptionists welcome customers upon entering > October the travel centers and answer many of their questions to save them standing in line at the counters. They might also direct them to modern ticket vending machines where special guides stand ready to assist them. The positive November effect of this permanent new feature is that customers are happier because they spend less time waiting. The roughly 450 DBTravel Centers are the most important of our seven sales channels, generating almost 40 percent of our reve- December obernues in the passenger transport business. DB – Mobility Networks Logistics

Attractive Offers for Long-Distance Travel in the Fall We had a lot to offer our customers again this year for the autumn season.With the “Autumn Special”ticket, passengers were able to take ICE or InterCity trains to any destination in Germany starting at € 29. Small groups were able to travel especially inexpensively this time, with up to four people paying only €19 each. To meet the high demand,we made an additional 200,000 tickets available shortly after the offering went on sale.The “Autumn Special” ticket continued our series of successful promotions, following the January nearly 1 million tickets sold as part of our “Summer Special”offer. February 11 March NovDB – Mobility Networks Logistics

April Five Years of ICE International Five years ago, in November 2000, Deutsche Bahn and the Netherlands Railways began May cross-border ICE passenger transport service between Cologne and Amsterdam.To celebrate our fifth year of service, we offered our customers an anniversary special: an June economy class ticket from Cologne, Düsseldorf, Duisburg, or Oberhausen to Amsterdam for only € 5. Our ICE International offer has become one of our most successful interna- July tional long-distance passenger transport services.To date, over 4.8 million passengers have used this direct service. With the new Cologne/Rhine-Main line, passengers also August have a direct connection to Frankfurt/Main.

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> November First DB Mobility Center in Germany Opens We opened our first DB Mobility Center in Germany in Frankfurt/Main. December Soon, Mobility Centers will be offering the complete range of DB services, Ameropa services, DB Carsharing, the DB bike rental system“Call a DB – Mobility Networks Logistics Bike”, as well as BahnShop products. In addition, customers can receive comprehensive mobility advice upon request. Our DB Mobility Centers Deutsche Eisenbahn-Reklame Sold to Ströer will supplement existing sales channels, to reach people who do not Within the scope of concentrating our Group portfolio usually travel by train.We intend to expand our network of sales and on core business, we sold our advertising subsidiary information services and strengthen our presence on the market. In Deutsche Eisenbahn-Reklame GmbH (DERG) to the addition to DB Travel Centers and DB Agencies, tickets can be pur- German market leader Ströer. Some 270 DERG employ- chased from a number of other channels, including automatic ticketing ees have been guaranteed employment until 2010. machines, the internet, subscriptions via our AboCenter, call centers, With annual revenues of around € 80 million, DERG and sales directly from train personnel. places placard and billboard advertising on trains, train station façades, and on bridges. According to Ströer, the company has approximately 170,000 advertising spaces at its disposal.

www.derg.de DB – Mobility Networks Logistics

Pilot Train From Berlin to Moscow Demonstrates Rail Service Performance At the Seddin freight train station near Berlin, four European railways gave the go-ahead for the start of an extraordinary train.The train was to travel 1,800 kilometers between Berlin and Moscow in just three and a half days – much faster than any truck – and thus speed up freight transport between Germany, Poland, Belarus, and Russia.The train was 600 meters long, weighed 1,600 metric tons, traveled at up to 100 km/h and carried containers, automobiles, and pallets loaded with goods. emberThe train arrived in Moscow ahead of schedule, taking only three days.

DB – Mobility Networks Logistics

BAX Global Strengthens Our Market Positions in Asia and America Deutsche Bahn AG concluded an agreement with the American Brinks Company to acquire a 100 percent share of BAX Global Inc., based in Delaware, California.This strengthens our position as an international logistics service provider in key growth markets in the Asia/Pacific region, in China, and in the U.S. In addition, we will be able to strengthen our position in air and sea freight transport considerably.The acquisition of BAX Global fits our market strategy perfectly and ideally supplements Schenker’s company profile. The acquisition will make Deutsche Bahn AG one of the world’s leading service providers in transport and logistics.The deal is scheduled to be closed in January 2006.

www.baxglobal.com January

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March DB – Mobility Networks Logistics August Wireless Internet Service in 7 ICE 3 Trains April DB Regio Wins Important Bid Tenders and in 20 Train Stations With the Nuremberg diesel network, the new and expan- September DB now offers high-speed communication May sion Nuremberg–Ingolstadt–Munich line, and the Baltic in high-speed trains. Together with T-Mobile, coast region, DB Regio won three important passenger October we have launched a broadband internet service June transport bid tenders. In addition, we managed to regain in selected ICE trains on the pilot Cologne– services we had lost, for example in local passenger trans- November Dortmund line. Now, passengers can access July port service between Hamburg and Flensburg, which the internet, their company-own intranet will be branded under “Schleswig-Holstein-Express”starting > December services, and download and write e-mails. For August in December 2005. the pilot project, seven ICE 3 trains were equipped with broadband communication September technology and can be recognized by T-Mobile’s “HotSpot”logo. In a further step in our coop- October eration with T-Mobile, major passenger stations DB – Mobility Networks Logistics will be equipped as “HotSpots”,T-Mobile’s > November public WLAN sites.Twenty major stations have Schenker Takes on Logistics for the “Volvo already been upgraded. December Ocean Race 2005–2006” The“Volvo Ocean Race”regatta is the most impor- 12 tant sailing competition in the world. Lasting D nine months and connecting five continents, the competition takes athletes around the globe. Within this framework, Schenker will provide logistics services including air and sea freight transport, overland transport, customs clearance, material handling, storage services, and spare parts supply services. Furthermore, Schenker will provide on- 11 scene logistics services for the Volvo Ocean Race NovemberGroup, for their sponsors and suppliers, for tele- vision networks and the press, and for organization teams in the ports stopped at around the world.

www.volvooceanrace.org DB – Mobility Networks Logistics

New Timetable Brings Many Improvements Our new 2006 timetable took effect on De- cember 11, offering our customers many major and minor improvements. In addition to numerous new and optimized train connections, our City Ticket offer was expanded and now includes 86 cities. Another highlight is the new ICE Sprinter train service between Cologne and Stuttgart, cutting traveling time between the two cities to less than two hours.The new timetable is valid until May 28, 2006.The commissioning of the new Berlin Central Station and the new Nuremberg–Ingolstadt–Munich line will improve services further, starting at the end of May 2006.

DB – Mobility Networks Logistics

DB Installs ETCS Technology ecemberThe two IC locomotives 2519 and 2518 made history on the Berlin–Leipzig DB – Mobility Networks Logistics line. For the first time, a scheduled DB passenger train was guided by the new international European Train Control System ETCS and tested the prac- “bahn.bonus” with Attractive Premiums ticality of the system on our ETCS pilot line.Together with Siemens and for BahnCard Customers Alcatel,we installed the ETCS level 2 (ETCS and GSM-R) on a 100 kilometer Within the framework of our “bahn.bonus”offer, BahnCard stretch between Jüterbog and Leipzig and at the same time, five 101 series customers can exchange their premium points for benefits. vehicles were equipped with ETCS.The new command and control technology We began our“bahn.bonus”frequent traveler program in will be installed on the most important pan-European lines and will gradu- September having already gained 400,000 members to ally replace the more than20 different systems currently in use. date.“bahn.bonus”offers our regular customers attractive benefits such as free train travel, free upgrades to 1st class seating, or free admission to the DB Lounges. The “bahn.bonus”system is simple: a premium point is earned for each euro a customer spends on a DB ticket with a BahnCard discount and the purchase of a BahnCard. January

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April Record Sales for “State Tickets” and Further Expansion of All-Inclusive Offers May Sales of our “State Tickets”,which allow passengers unlimited travel within a particular German federal state, have been hitting record highs. Over 9 million June tickets were sold in 2005, an increase of 17 percent compared to the previous year. In addition, the validity of the State Ticket in Bremen, Lower Saxony, July Saxony-Anhalt,Thuringia, and Saxony was extended to include weekends. As a result, State Tickets are now valid Saturdays and Sundays in all of Germany. At August the same time, our “Single-Ticket”, already a big success in Bavaria and Lower Saxony, was introduced in Baden-Württemberg. We also introduced another September attractive offer in Bavaria, Brandenburg, and Berlin – the “State Ticket Night” valid between 7pm and 6am the following day for up to 5 adults traveling in October economy class.

November

DB – Mobility Networks Logistics > December Construction on Munich S-Bahn Completed With the construction of a separate S-Bahn (metro) line to Dachau, the last phase of the expansion of the Munich S-Bahn (metro) was completed and ended the largest capital expenditures program in the history of the Munich S-Bahn – a total of over € 300 million in modernization work. Over a million passengers a day use our Bavarian regional network, including 720,000 on the Munich S-Bahn.

DB – Mobility Networks Logistics

DB Is “On the Ball” for You at the FIFA World Cup™ In line with our slogan for the 2006 FIFA World Cup Germany™,“On the Ball”, and as Official Supplier of the 2006 FIFA World 12Cup™, we were not only chosen as the official logistics provider for the team-up draw for the final round of the championships in Leipzig, but also offered a special service to fans and customers. While football fans eagerly looked to Leipzig for the Dece2006 FIFA World Cup™ final team-up draw, Schenker produced and distributed game schedules. As soon as the results of the final round team-up draw were made public, we prepared the game schedules and had them printed that same evening. Twelve Schenker trucks then transported the 300,000 schedules to the cities where the games will take place and 80 assis- tants distributed them to football fans in the city centers. DB – Mobility Networks Logistics

Great Offers to the 2006 FIFA World Cup™ As an official partner of the 2006 FIFA World Cup™, DB will offer all soccer fans DB – Mobility Networks Logistics inexpensive, comfortable, and environmentally friendly ways to get to the matches. Only two days after the first team-up draw, DB began to offer two attractive tickets: New Electronic Interlocking for The “Weltmeister-Ticket”, which is valid for people who have admission tickets to Frankfurt/Main Central Station the matches, costs € 54, € 74, or € 90 round-trip in economy class, depending on With the symbolic click of a mouse, the new the travel distance, and can be bought from DB ticket machines or through the inter- electronic interlocking at Frankfurt/Main net. People with or without an admission ticket can use the “Weltmeister-Pass”, Central Station was officially put into operation. a ticket valid for our entire local and long-distance passenger rail service network Work began on the new interlocking at the throughout Germany from June 7, 2006 to July 11, 2006.The “Weltmeister-Pass” Frankfurt/Main Central Station in the beginning costs € 349 for economy class and € 549 for 1st class seating. of November. In four phases, a total of 25 tracks in and around the station were connected to the new interlocking and thus to the operation center, from which traffic supervisors monitor and control train traffic on 60 video screens. Thanks to the resulting higher arrival and departure speeds, as well as shorter dispatch periods, station performance has increased considerably. We invested a total of €132 million for these improvements.With 280,000 passengers and 1,100 departures and arrivals daily, Frankfurt/Main Central Station is one of the busiest in Europe.We invested a total of some € 900 million in 33 electronic interlocking projects in 2005.

DB – Mobility Networks Logistics

Traveling through Germany for € 59 DB – Mobility Networks Logistics Between Christmas and New Year’s Day, a special All-Over-Germany Ticket was up for sale for a limited period of three days. Selling for € 59, the ticket allowed Modern IT Services, Even for Non-Group Customers customers to spend one day in January traveling all around the country without We run one of Europe’s largest computer centers – including any limit on kilometers.The idea behind the special offer was that the ticket high-availability systems – and operate a modern IT service was exclusively available at licensed DB travel agencies and the DB Travel desk for some 80,000 users.We have been offering more and Centers.The promotion campaign for this special offer focused on those approxi- more of these services to non-Group customers as well, for mately 3,500 DB-licensed travel agencies that work with us on a regular basis. example within the scope of a cooperation between DB Systems mberThey are important pillars among our seven different sales channels, allowing and Software AG aimed at modernizing IT systems for public broad retail presence throughout Germany. DB-licensed travel agencies account authorities.To achieve this, both companies employ a combi- for just over 20 percent of our revenues in the passenger transport business. nation of software products and services that allow us to set up service-oriented ITarchitectures, as well as operate and service major IT systems. Report of the Management Board Deutsche Bahn Group | 2005 Annual Report

Contents

50 Group Profile

62 Group Management Report

118 Employees

124 Evironmental Protection

49 Group Profile

Highlights

Focused Group Portfolio Built on Three Strong Pillars

Vertical Integration Serving as the Basis for Enhancement of the Integrated Rail System – With Open Access Rules Providing Non-Discriminatory Market Opportunities to all Users

Market Leadership in Relevant Markets as a Strong Basis for Profitability and Business Development

Additional Opportunities for Growth in Domestic and Foreign Markets – on the Rail and Beyond

50 Deutsche Bahn Group | 2005 Annual Report

Our Markets: Mobility, Networks, Logistics At a Glance

25.1 billion € revenues In line with our organizational structure, DB AG acts as the management holding company 1,352 million € EBIT that heads the integrated DB Group. Our Group portfolio comprises ten strategic business 216,389 employees units, which have been assigned to three Board divisions. This structure is complemented by central Group and service functions including the Legal, Purchasing, as well as Finance and Treasury departments. Since the German Rail Reform was launched in 1994, the DB Group has undergone comprehensive restructuring and implemented some very effective modernization and efficiency improvement programs to shore up its position as a strong performer on the rail and beyond. In all relevant markets, we are striving for a competitive edge by offering customer-oriented services, while further enhancing our profitability and financial strength through internal quality and efficiency programs. To achieve this aim, we make sure that our portfolio is well-focused and clearly structured. From an organizational point of view, our business units are grouped into three Group divisions – Passenger Transport, Transport and Logistics, and Infrastructure and Services. They represent the three strong pillars of the DB Group, geared to the three markets reflected in the Group branding strategy and in the slogan ‘mobility, networks, logistics’. These three words stand for seamless mobility, powerful logistics services and a high-performance infrastructure, which is open to other rail operators on a non-discriminatory basis. Our domestic rail business in Germany is at the core of our business portfolio, providing the overarching theme. With our vertically integrated structure, which puts us in the position of the primary user of our own infrastructure, we assume responsibility for the focused development of the rail as a mode of transport, which is of outstanding importance for the German economy and for European traffic patterns.

Revenue and Headcount Structure of the DB Group

Revenue structure (%) Employees (%)

Infrastructure and Passenger Transport: 45 Infrastructure and Passenger Transport: 25 Services: 5 Services: 35

Transport and Transport and Logistics: 49 Other:1 Logistics: 30 Other: 10

2004 to 2005: + 4.6% 2004 to 2005: – 4.1%

51 In order to meet our customers’ needs as best we can, we have stepped beyond our traditional core business, using our transport offerings to build comprehensive mobility solutions. This is equally true for international mobility and for multi-mode solutions, both of which hinge on smooth interfaces between various modes of transport. We have taken strategic decisions to prepare not only our Passenger Transport division, but also our Transport and Logistics division for the current and future needs of the markets. DB Logistics epitomizes our strength and efficiency in clearly defined segments of international logistics markets. Our comprehensive portfolio, which is broadly diversified in terms of geography and the services provided, affords us numerous opportunities to develop our business in major growth markets. At the same time, this approach lays a strong foundation for the future of rail freight transport by integrating it into larger and more powerful transport networks. It helps us not only to strengthen our contacts with existing customers but also to seize some excellent new opportunities for growth. The strategy and prospects of our rail business are strongly influenced by the forthcoming liberalization of European transport markets, which will take effect in the rail freight and passenger transport segments in 2007 and 2010 respectively. We are making careful preparations to tap the new potential arising from this development in the rail transport markets by introducing even more competitive services on our own account and along with other rail operators. Against this backdrop, our business portfolio offers a broad range of opportunities for profitable growth in the medium term, apart from further efficiency gains that will result from internal programs. We are determined to seize these opportunities with enthusiasm,

Crucial development paths

Ongoing modernization and optimization of rail transport in Germany EBIT (€ million) Optimized mobility offerings across various modes of transport in the domestic market –44 1,144 1,352 Prospects for the European market: additional opportunities for growth in rail transport 1,500 as liberalization also advances in neighboring countries

750 Participation in above-average growth opportunities in domestic, European and global transport and logistics markets 0 Further efficiency gains through the consistent implementation of our internal programs

2003 2004 2005

52 Deutsche Bahn Group | 2005 Annual Report Group Profile

to convince our customers of the high productivity and quality of our services and to further strengthen our profitability and financial capabilities. This strategy and business plan is backed up by comprehensive action packages at the business unit and Group levels, as exemplified by the “Qualify” program.

Passenger Transport Group Division At a Glance Comprehensive Mobility Offerings From a Single Provider 11.2 billion € external revenues One of the crucial core competencies of the DB Group is to provide customers with a com- 719 million € EBIT 53,830 employees pelling mobility offering. Our operations include rail transport and bus services, with the latter gaining in signiﬁcance. Our objective is to identify intelligent combinations of rail services and to ensure seamless integration with other modes of transport. In the Long- distance, Regional and Urban Transport units, we are working to provide attractive mobility solutions that meet the true needs of our customers. In revenue terms, we are Europe’s leading mobility provider. The liberalization of European passenger transport markets is underway, but progress differs from one country to another. In the long-distance rail passenger transport segment, Germany is taking a clear lead as far as open market access is concerned. However, in the local passenger transport segment, a growing number of European countries have also begun to award transport contracts by tender. Local transport markets that used to be iso- lated from one another are increasingly opening up for competitors from all over Europe. Due to our strength in our domestic market, we are the largest mobility provider in Europe with a leading position in the long-distance rail transport, regional and urban transport markets. Against this backdrop, we will continue to accord top priority to consolidating and expanding our position as the leading mobility provider in Germany.

Market Positions of the Passenger Transport Group Division

# 1 in Rail Passenger Transport in Europe 2004 (€ billion) # 1 in Regional and Urban Transport in Europe 2004 (€ billion)

DB 9.9 DB 8.2 SNCF 9.5 SNCF 6.1 Trenitalia 3.4 Veolia 2.9 National Express 2.4 National Express 2.7 SBB 1.7 First Group 2.6

2.0 4.0 6.0 8.0 10.0 2.0 4.0 6.0 8.0 10.0

All data on competitors is based on annual or interim reports, independent research or in-house estimates.

53 Long-distance Transport Business Unit At a Glance DB Fernverkehr AG is responsible for national and European long-distance services. Along 3,068 million € external with its subsidiaries, this entity makes up DB’s Long-distance Transport business unit. revenues The core business of the Long-distance Transport unit consists of daytime line services 50 million € EBIT 14,739 employees provided by DB FernverkehrAG. Fast and comfortable connections right into the heart of the cities at attractive price levels should pave the way for further growth above the overall market average. In addition, DBAutoZug GmbH and CityNightLine CNL AG function as independent subsidiaries operating motorail services and night trains with sleeping cars. Rather than stopping at Germany’s external borders, our long-distance trains also serve destinations in neighboring countries. At the same time, long-distance lines are intelligently intertwined with regional and urban services, as for example the City Ticket feature of the BahnCard reduced-fare rail pass grants long-distance passengers a free ride on public transport at many destinations.

Regional Transport Business Unit At a Glance The Regional Transport business unit offers extensive services for further travel within 6,452 million € external major conurbations and to rural areas. Integrated public transport providers run by revenues DB Regio its subsidiaries ensure that the scheduling and provision of rail and bus ser- 554 million € EBIT 26,842 employees vices smoothly intermesh at the regional level. Our aim is to offer integrated regional transport services that are tailored to the needs of the local population. In that context, customer orientation and economic efﬁciency have been the determining factors for building a lean and market-oriented organizational structure. The regional rail passenger transport market is undergoing profound changes. An increasing number of contracts for regional services are up for bidding. Over the next 15 years, the entire market will be put out to tender. Integrated transport solutions, a modern ﬂeet and compelling service quality will help us maintain our position as the largest service provider in the German regional transport market. What is more, we are in the process of identifying numerous opportunities to open up new markets and win additional customers. By optimizing our services in line with the needs of passengers and regional contract awarders, we are paving the way for future growth.

Urban Transport Business Unit At a Glance The Urban Transport business unit is the most recently established unit within the 1,708 million € external Passenger Transport division and is in charge of S-Bahn (metro) operations in Berlin revenues and Hamburg and our bus services. Road passenger transport services are provided 115 million € EBIT 12,249 employees independently or at the request of the local authorities. The Urban Transport unit enables us to beneﬁt from the liberalization and growth of a market that is still strongly fragmented. Alliances with local transport operators and the integration of rail passenger transport with city bus services, metro city and subway lines offer a huge growth potential, and the same is true for international opportunities as other European countries continue to liberalize their markets.

54 Deutsche Bahn Group | 2005 Annual Report Group Profile

Transport and Logistics Group Division At a Glance Global Logistics Expertise Coupled With Rail Know-How 12.4 billion € external revenues Since the successful integration of Stinnes/Schenker in 2003 we have not only devel- 272 million € EBIT 63,698 employees oped into the leading European provider of rail freight transport services but also a leading company in the transport and logistics markets in general. Here, the division operates through its Schenker, Railion and Stinnes (Stinnes Freight Logistics and Stinnes Intermodal) business units. Schenker has a leading position in European land transport markets and in global sea and air freight markets. Railion is the leading provider of rail freight transport services across Europe. In 2005, we expanded the integrated Railion unit by setting up our own country organization Railion Italia as a bridgehead in the important Italian transport market. Moreover, we took advantage of consolidation trends in global logistics markets by acquiring BAX Global. In addition we have acquired the rail logistics activities of RAGAG to strengthen our Railion business unit. In particular the market and competitive environment in freight transport is characterized by a high degree of change and intense competition, which offers major opportunities for further business development. The increasing internationalization of the economy and society and the cross-border realignment of production structures and material ﬂows lead to a continuing increase in demand for international logistics services. The pending deregulation at the European level by 2007 gives rise to major opportunities for rail as a mode of transport overall and hence for us as a powerful provider. At the same time, it is necessary to integrate rail freight transport into across-the-board logistics offerings in view of current and future customer requirements. We have already today focused our operations strategically to the changed, more demanding requirements of our customers.

Market Position of the Transport and Logistics Group Division

# 1 in European rail freight transport # 1 in Rail Freight Transport in Europe 2004 (billiontkm) # 1 in European land transport DB 84 # 2 in air freight PKP 48 SNCF 45 # 3 in sea freight Trenitalia 23 RCA 19

20 40 60 80 100

All data on competitors is based on annual or interim reports, independent research or in-house estimates.

55 Schenker Business Unit At a Glance Over 38,000 employees and more than 1,100 locations in over 100 countries make our 8,878 million € external Schenker business unit a true global player that is successfully defending its position in revenues a market environment characterized by strong growth, ﬁerce competition and accelerating 257 million € EBIT 38,237 employees consolidation trends. Schenker is a market leader in the European land transport and the global air and sea freight segments, and we are determined to retain and expand this position in the future. Schenker makes us one of the leading international providers of integrated logistics services designed to assist trade and industry in handling the international ﬂow of goods. This applies to the land transport, air and sea freight segments and to the provision of all related logistics services. Our staff devise seamless solutions that are tailored to the current and future needs of our customers, while international teams of experts use our range of comprehensive service modules to build complex value chains that safely channel goods and information to their destinations. This makes us a one-stop provider of all critical services our customers might need:

Schenker and BAX: Strong International Presence

Schenker and BAX Schenker BAX

56 Deutsche Bahn Group | 2005 Annual Report Group Profile

As European land transport specialists, we offer a tightly-knit network of scheduled line services operating among the major industrial centers of more than 30 European countries; at the same time, we offer global solutions in the air and sea freight segments and provide all related logistics services; our integrated logistics hubs provide a strong inter-modal link at the cross- roads of global transport routes and offer a comprehensive range of value-added services.

BAX At a Glance (2004) In January 2006, we successfully completed the acquisition of BAX Global (BAX). 2.4 billion USD revenues BAX offers international air and sea freight forwarding services, transport services 11,500 employees in its domestic US market, and supply chain management. Furthermore, BAX is the number one heavy-lift cargo business in the US and is among the 20 largest US logistics companies, operating in more than 130 countries. BAX has focused its activities on America and Asia, where it has a strong market presence. In view of the sectors and regions in BAX’ business portfolio, the acquisition nicely complements our existing activities. With our Schenker business unit and BAX our Group portfolio features top-notch logistics service providers that operate on a global scale, enabling us to participate actively in international market growth. In doing so, we rely on their powerful global networks of land, air and sea freight services and their strong logistics expertise in major industries (such as the automotive and the technology sectors). One of the central objectives for the 2006 ﬁnancial year will be the integration of BAX into the DB Group.

Stinnes Business Unit At a Glance The Stinnes business unit comprises our bulk logistics activities (Stinnes Freight 718 million € external Logistics) and our combined rail/road transport activities (Stinnes Intermodal). revenues Stinnes Freight Logistics is responsible for marketing and organizing pan-European 3 million € EBIT 1,939 employees transport solutions for bulk goods.We offer comprehensive logistics packages, working closely with our customers to develop and implement innovative ideas. Stinnes Intermodal has braced itself for the challenges of a highly competitive intermodal market. In close cooperation with high-performance operators, we offer our combined transport solutions on a European scale.

57 Railion Business Unit At a Glance At the present stage, Railion is no less than Europe’s largest and most powerful rail 2,830 million € external freight carrier. Cross-border transports account for more than 50 % of our business. The revenues European market offers a huge growth potential because Railion comes into its own 12 million € EBIT 23,522 employees when long distances must be covered and large freight volumes can be consolidated. We have developed these particular strengths for the European market by gradually expanding the integrated Railion unit, gaining access to foreign rail networks and promoting international cooperation. Single freight car transport is the largest open production system in the European transport market.We offer a system where customers can choose from a variety of services depending on the price level and product features they require. For instance, our “Classic”, “Quality” and “Prime” product lines differ in terms of guaranteed arrival time and price. Block trains are used to transport large volumes from point A to point B and particularly from one plant to another. Our “Plantrain”, “Variotrain” and “Flextrain” basic product lines offer different features in terms of order lead time and price. In the combined transport segment, we enhance rail transport by drawing on the beneﬁts of other modes of transport. For instance, containers that arrive from overseas at the large European ports of Rotterdam and Hamburg are transferred onto rail cars to be moved to the destined region.

Railion: Strategic Focus on Europe

Our mission: Green Cargo One-stop provider (3) of high-quality cross- border transports

Our network: (2) Railion Deutschland (1) (1) Railion Nederland (2) since 2000 Czech Railways (CD) Railion Danmark (3) Rail Euro Concept (with SNCF Fret) Rail Cargo Austria since 2001 BLS Cargo AG Railion Italia (4) since 2005 BrennerRailCargo Alliance Lokomotion Rail Traction Company Our perspective: (4) Opening of the European rail freight transport markets by 2007 Railion network and Railion Railion network Railion partnerships/affiliates partnerships/affiliates

58 Deutsche Bahn Group | 2005 Annual Report Group Profile

Infrastructure and Services Group Division At a Glance A Strong Backbone for Efficient Rail Transport in Germany 1.1 billion € external revenues The smooth functioning of rail transport hinges on the high quality of our infra- 379 million € EBIT 76,280 employees structure and on reliable and affordable services.This is a crucial requirement for the long-term competitiveness of the rail system. With a view to optimizing our organizational setup, we consolidated all activities related to infrastructure and services in 2005. The new Infrastructure and Services division is in charge of passenger stations, the rail network, energy supplies, and a broad range of services including ancillary services, facility management, ﬂeet management, IT, telematics, and vehicle maintenance. In addition, it is responsible for project construction activities. The new structure is aimed at reducing the complexity of interfaces particularly among infrastructure operators and infrastructure service providers, but also vis-à-vis local authorities that are involved in our infrastructure-related activities.

Open Access to Germany’s Rail Infrastructure

The German Rail Reform of 1994 established the Train kilometers of non-Group railways using the DB network principle of non-discriminatory access to Germany’s (million train-path km) rail infrastructure. 13 20 26 39 50 70 88 110 By European standards, Germany is clearly in the 100

vanguard of market liberalization. 75

An independent study entitled ‘Rail Liberalization Index’ 50

confirms how far Germany has advanced across all 25 market segments compared to other European countries. 1998 1999 2000 2001 2002 2003 2004 2005 When the timetable for 2006 was drawn up, we worked closely with our customers to eliminate approximately 11,000 cases of time and route overlaps.121 cases were settled on a priority basis. There was no need to use the Track usage (%) maximum bid procedure. DB Group Other railways: 11 The Federal Network Agency (Bundesnetzagentur) companies: 89 ensures compliance with the principle of non-discriminatory access to the rail infrastructure.

2004 to 2005: – 0.3% Total: 997.7 million train-path km

59 Track Infrastructure Business Unit At a Glance The Track Infrastructure business unit is made up of DB Netz AG, a service provider 511 million € external to approximately 320 rail companies, including almost 300 non-Group railways which revenues use a rail network of 34,000 km.The German rail network is the largest in the whole 17 million € EBIT 42,950 employees of Europe. DB Netz AG acts as an independent network operator responsible for providing non-discriminatory access to its infrastructure. The train kilometers of non-Group railways using the DB network have been increasing for a number of years. DB Netz operates a sophisticated infrastructure including long-distance, metropolitan and regional networks, marshalling yards and transshipment terminals. It is also responsible for marketing track usage packages tailored to the customers’needs, drawing up timetables in close cooperation with customers, and infrastructure maintenance and repair. The latter also involves the development of the rail infrastructure by investing in the existing rail network, in modern command and control technology, and in building new lines or upgrading old ones.The funding provided by the federal government and the state governments is of central importance for DB Netz AG’s work in this area. All railways enjoy non-discriminatory access to our rail network.

Passenger Stations Business Unit At a Glance Our passenger stations are the gateway to the world of railroads; they are hubs where various 287 million € external modes of transport intersect; they may be something like a central town square or a shopping revenues arcade; and they are often the first thing a visitor sees in a city or a region. The activities 136 million € EBIT 4,791 employees covered by the Passenger Stations business unit include the operation of passenger stations as traffic stations and the development and marketing of commercial premises inside station buildings. DB Station& Service AG acts as an independent rail infrastructure operator responsible for providing non-discriminatory access to its infrastructure. The number of station stops of non-Group railways has been rising for many years. Since the start of the German Rail Reform, a large number of stations have been re- vamped and modernized to make sure they meet the needs of travelers and other visitors. Our modernization efforts have put special emphasis on a high degree of service-mindedness and safety, on making information easily accessible to travelers, on providing a functional layout, and on increasing profitability, particularly of stations with large passenger numbers.

Energy Business Unit At a Glance The Energy business unit is responsible for supplying DB Group and non-Group railways 207 million € external with energy from various sources and providing related technical know-how and control revenues technology. In doing so, the Energy unit relies on a comprehensive and technically 98 million € EBIT 1,671 employees sophisticated infrastructure. Acting as an independent energy supply manager, it ensures smooth operation of all facilities and provides non-discriminatory access to 16.7-hertz traction power, 50-hertz lighting and heavy current, and diesel for all railways in Germany.

60 Deutsche Bahn Group | 2005 Annual Report Group Profile

Services Business Unit At a Glance The Services business unit plays a central role in further improving the quality of our 124 million € external services and cost structures. It covers a broad range of services which are consistently revenues adapted to market needs. This unit, first and foremost, has a support function, which is why 128 million € EBIT 26,868 employees it works primarily for intra-Group customers. DB Systems is the Group’s provider of a full range of IT services, including the development and operation of solutions for the passenger travel and logistics markets. Its portfolio covers the entire IT value chain, ranging from consultancy, engineering and development to operation and support services. DB Telematics plans, implements, operates and maintains fixed-line and mobile telecommunications solutions for the DB Group and other companies. For instance, it runs our entire telecommunications network, which is one of the largest independent networks in Germany. DB Telematics also operates digital radio networks like GSM-R that are relevant for implementing the highest security standards. DB Communications Technology is our specialist provider of technical support services. It takes care of the maintenance of IT and network facilities, security and safety technology, passenger information systems, automatic ticketing machines, as well as printing and information logistics. DB Security consolidates the security functions within the DB Group, offering professional security services for travelers, staff, freight, rail facilities and real estate in almost 100 locations. DB Security is the leading security provider for public transport facilities in Germany. DB Services is a systems provider of services related to real estate and transport facilities, including professional facility management for commercial, administrative, transport and industrial buildings and property. In addition, DB Services prepares and cleans rail cars and other means of transport and provides various services related to track maintenance (e.g. vegetation control, the securing of construction sites etc.). The entity also works for ship and airport operators and airlines. DB Vehicle Maintenance is a reliable service provider to the DB Group and many other private and public railways across Europe. It operates specialized plants for inspection, conversion, modernization and component overhaul work. Additional services include maintenance work and the repair of accident-related damage. DB Fleet Management provides mobility and fleet management services to DB Group, the German army and other companies, including the Swiss Post Office. It is also one of the largest car leasing companies in Germany with more than 100,000 vehicles. Its DB Carsharing feature and its innovative “Call a Bike” bicycle rental service offer additional mobility to our customers.

61 Group Management Report

Highlights

Revenues increased by 4.9 % on a comparable basis

Market position strengthened through internal growth and acquisitions

Market share gains in passenger transport – strong development in long-distance transport

EBIT improved significantly to € 1,352 million – ROCE increased to 5.0 %

62 Deutsche Bahn Group | 2005 Annual Report

Overview

Positive Business Trends Strengthening of Group Portfolio Through Acquisitions Enhanced Management Structure

Revenues and Profits Continue to Grow A further increase in operating profit in the 2005 financial year added to the successful track record we have built since the start of the German Rail Reform in 1994 was mainly driven by organic growth. Revenues on an absolute basis grew by 4.6 % to € 25.1 billion, and grew by as much as 4.9 % year-on-year on a comparable revenue basis. In the context of further progress made in streamlining the business, earnings before interest and taxes (EBIT) improved significantly by € 208 million to € 1,352 million. At the same time, we spent € 6.4 billion in gross capital expenditures on further modernization. The largest revenue increase was recorded by the Schenker business unit, which operates in global markets. The highest EBIT growth was generated by the Long- distance Transport business unit, achieving turnaround much faster than expected. The profit decline the Railion business unit had forecast in view of an extraordinarily difficult market environment was softened by resolute counter-measures. We recorded a successful performance despite a very challenging environment in terms of market changes and competition. Macroeconomic trends in the important domestic market were lackluster. Germany’s growth rate again lagged behind many other EU member states and the much more dynamic countries of Asia and the Americas. At the same time, national and international competition intensified further. In addition to fierce competition for sales, there were various challenges in procurement. The 2005 financial year was marked by very high prices for fuel and electricity supplies.

Optimization of the Group Portfolio Through M&A Activities In addition to organic growth, we are seeking to identify M&A opportunities. The purpose of acquisitions is to enhance our market position in our core businesses not to diversity. However, any transaction is subject to the availability of acquisition targets that are strategically and economically attractive. Conversely, discontinuing operations that are no longer part of our core portfolio of businesses is another essential element of our value-based management strategy. The resources freed up from such discontinued operations are used to further develop our core business.

63 In the 2005 financial year, we made significant progress through our M&A transactions: Expansion of our logistics division through the acquisition of BAX Global (BAX) – By signing a purchase agreement in November 2005 to acquire 100 % of the shares in Irvine/California-based BAX Global Inc., incorporated in Delaware, USA, from The Brink’s Company, a listed US group, we took a major step forward in expanding our logistics activities. BAX offers worldwide air and sea freight forwarding services, transport services in the USA and supply chain management. The company operates in more than 130 countries around the world. Looking at the sectors and regions represented in BAX’ business portfolio, the acquisition complements our own previous activities. The combination of Schenker and BAX will help us considerably in enhancing our position as an international logistics service provider in the major growth markets of the Asian-Pacific region, China and the USA in particular. In addition, it boosts our market position as a leading global transport and logistics company. DB Group by the acquisition of BAXhas become a major player in air and sea freight business. BAX also gives us more clout in contract logistics. The purchase price was based on an enterprise value of about USD 1.1billion (approximately € 950 million). The integration process of BAX began after the successful closing in January 2006. BAX will be consolidated for the first time in the 2006 financial statements. Acquisition of the StarTrans Group – After the Supervisory Board had given its approval in December 2005, we signed a purchase agreement in early 2006 for acquiring, in a first step, an 80 % stake in the StarTrans Group based in Hong Kong/ China. StarTrans currently has 14 operating entities in Hong Kong, Southeast Asia and the US, concentrating on the air freight market with a focus on the textile industry. StarTrans is the market leader in chartering activities from Hong Kong and is, at the same time, a leading provider of air freight forwarding services between Hong Kong and China to North America. The StarTrans investment more than doubles Schenker’s market share on the crucial trans-Pacific route between Hong Kong and North America and provides better access to US customers. As with the BAX acquisition, StarTrans will generate synergies with the existing logistics activities, due to advantages arising from higher overall volumes in freight scheduling and capacity procurement. The purchase price was based on an enterprise value of approximately € 0.1 billion. The StarTrans business will be consolidated for the first time in the 2006 financial statements.

64 Deutsche Bahn Group | 2005 Annual Report Group Management Report

Strengthening of the Railion business unit through the acquisition of RAG Bahn und Hafen GmbH –We bought the rail logistics activities of RAG AG in order to strengthen our Railion business unit. The agreement for the acquisition of RAG’s subsidiary RAG Bahn und Hafen GmbH (RBH) in Gladbeck, Germany became effective when the antitrust authorities gave the green light in the fourth quarter of 2005. The acquisition of RBH, which transships or transports approximately 48 million metric tons of bulk goods per year, is aimed at bolstering our position in European bulk logistics. The purchase price was based on an enterprise value of € 85 million. RBH was consolidated for the ﬁrst time in the ﬁnancial statements as of December 31, 2005 with its balance sheet. Disposal of non-core activities – In the year under review, we sold a number of investments that were no longer part of our core business. For instance, we disposed of our stake in Deutsche Touring GmbH (DTG) (82.8 %). The sale became effective retroactively as of January 1, 2005. Our shares in DTG were purchased by Ibero Eurosur S.L., a Spanish-Portuguese consortium of long-distance coach operators. As of December 1, 2005, we also sold Deutsche Eisenbahn-Reklame GmbH to STRÖER Media Deutschland GmbH&Co. KG.

Other changes to our business portfolio were aimed at improving our competitive position or streamlining the portfolio structure. These changes included the acquisition of another 66.7 % in Linjegods AS, Oslo, Norway, to become a wholly owned subsidiary. Linjegods AS was consolidated in the ﬁnancial statements as of December 31, 2005 with its balance sheet; previously, the shares held in this company had been accounted for using the equity method. However, the above described and other changes had no material effect on the comparability of results with the previous year.

Market-Oriented Structures: Strengthening the Role of the Business Units In March 2005, we adopted a comprehensive plan to reorganize the management structures of the DB Group. The plan took effect on July 1, 2005, and included such measures as the streamlining of the management hierarchy and the establishment of a more direct link between the business units, which will be managed via the “Passenger Transport”, “Transport and Logistics” and “Infrastructure and Services” board divisions. The structure of the business units in the Passenger Transport division remains unchanged and includes the Long-distance Transport, Regional Transport and Urban Transport units. The Transport and Logistics division is made up of the Stinnes business unit (which comprises the former activities of Stinnes Freight Logistics and Stinnes Intermodal) and the Schenker and Railion business units. The Infrastructure and Services division

65 consists of the Track Infrastructure, Passenger Stations and Services business units, which were previously known as Group divisions. The Energy business unit, which used to be part of the Services division, is now operated independently. Moreover, the Passenger Transport division is now in charge of the Sales service center, while the Infrastructure and Services division has assumed responsibility for the project construction unit called DB ProjektBau. A new “Integrated Systems Rail” board division has been set up to control processes associated with the necessary coordination and expansion of integrated rail systems across business units. The reorganization implemented is in accordance with the organizational provisions of the Law Governing the Founding of Deutsche Bahn (Deutsche Bahn Gründungs- gesetz; DBGrG), other relevant railroad and EU legislation, and complies with the General Railways Act (Allgemeines Eisenbahngesetz; AEG) and the rules set forth in EU Directive 2001/14 on the independence of DB Netz AG as infrastructure operator with regard to the allocation and pricing of train path usage. On the basis of our new management structure, we have further enhanced our segment reporting. The ﬁgures of the previous year have been restated to ensure comparability.

66 Deutsche Bahn Group | 2005 Annual Report Group Management Report

Overall Economic Situation

Macro-Economic Development: Positive Momentum From General Business Trends in our German Domestic Market Weakened Cost Pressure From Soaring Energy Prices

Economic Growth in Germany Slowed Down Compared to 2004 While our global logistics activities beneﬁted from the continuing strong trends in world trade, but a very large part of our business remained highly dependent on our domestic market and general economic activity in Germany. The growth rate of the German economy in the year under review was lower than in 2004.

Macro-economic trends: growth rate of gross domestic product (GDP) % 2005 2004

Global 3.0 3.9 EMU 1.4 1.8 Germany 0.9 1.6 US 3.5 4.2 Japan 2.0 2.6 China 9.5 9.7

All data for 2005 are based on information and estimates available as of February 15, 2006.

Global: Despite soaring crude oil prices, the world economy advanced strongly in 2005, although momentum dwindled somewhat compared to the previous year. The US, which continued to record above-average growth rates, provided a strong impetus to the global upswing. Asia was again the top-performing region in terms of economic growth. China, for instance, maintained its growth rates at the previous year’s high level, while the growth rate of the Japanese economy slowed mildly. Europe: The economy of the Euro zone experienced a modest upturn in the course of 2005, but on average its annual performance declined against the previous year. Growth was driven by robust global demand and a pickup in capital goods spending. By contrast, private consumption failed to gain momentum, as real wages increased slowly because of high energy prices and the sluggish recovery of the labor market dampened consumer conﬁdence. Much more momentum was again displayed by the new EU member states, whose GDP rose by approximately 4 %.

67 Germany: According to preliminary estimates by the Federal Statistical Ofﬁce (Statistisches Bundesamt), German economic growth was weaker in 2005 compared with 2004. However, there were also fewer working days in 2005; after adjusting for that, the growth rates were about the same. The economy was supported by a strong expansion of exports and by spending on plant and equipment which increased on a year-on-year basis. The critical impetus for this trend came from a sound global economy which also boosted demand for capital goods. However, this effect was counteracted by the accelerated decline in construction spending. Private consumption did not make any headway on a year-on-year basis, as a larger part of disposable income was spent on energy supply. According to the data available at this point, retail sales growth of 1.1% was slightly less than the previous year.

Energy Costs Driven up by High Crude Oil Prices Ongoing strong demand, political tensions in major oil-producing countries and production outages in the wake of devastating hurricanes in the US sent the crude oil price to record levels above USD 70 per barrel (bbl). As the year drew to a close, a barrel of Brent crude was trading between USD 55 and 60, which was well above the 2004 average, when prices had last peaked. Diesel fuel prices soared even further than the underlying crude value due to scarce reﬁnery capacities. Since the oil sector has neglected capital spending for many years, and continued economic growth will likely boost demand from China and the US, crude and petroleum product prices are set to remain highly volatile. In the German electricity market, 2005 witnessed new price records almost daily. A useful indicator of price developments is the base load forward price (2006 future contract). While in early 2005 the 2006 future contract was trading below € 33/MWh, the market price for the same delivery reached € 53/MWh by the end of 2005. This increase was mainly attributable to rising oil and gas prices. Another crucial factor determining the trends in the German electricity market was the high price level in other European countries (particularly in the United Kingdom), which led to power exports to the UK via France. Prices are expected to remain high for the foreseeable future, as it will take three to ﬁve years for additional generating capacity to ease the current supply squeeze.

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Major Currencies Present a Mixed Picture After the euro had reached a historical high against the dollar of USD 1.36 at the end of 2004, the US currency steadily strengthened throughout 2005. This trend was furthered by the interest rate policy of the US Federal Reserve, which successively raised key interest rates. As a consequence, the euro was trading at USD 1.18 at the end of 2005. The widening of the interest rate differential between the Japanese yen and US dollar had an even stronger effect on cross exchange rates. This helped the euro make up for previous losses against the Japanese currency in the second half of the year.

69 Developments in Relevant Markets

Gains in Market Share in National Passenger Transport Markets Logistics Continues to Show Strong Growth Momentum Rail Freight Transport Performs Satisfactorily Amid Formidable Competition Increased Usage of Rail Infrastructure by Non-Group Customers

Strong Growth in Rail Passenger Transport and Gains in Market Share

Growth rates / market share in German passenger transport Market share % 2005 2004 2005

Rail passenger transport 3.5 2.2 9.0 DB Group (3.3) (1.0) (8.6) Other rail operators (11.0) (49.0) (0.4) Public road passenger transport – 0.5 0.6 9.0 DB Group (0.8)1) (0.6)1) (1.1) Motorized individual traffic –1.5 –1.5 80.9 Air traffic (domestic) 2.1 1.2 1.1 Total market volume2) –1.0 –1.0 100.0

1) On a comparable basis 2) We define the total market as comprising all motorized means of transport: motorized individual traffic (MIT), rail transport, public road passenger transport (PRPT), and domestic air travel. All data for 2005 is based on the information and estimates available as of February 15, 2006.

The business units of the Passenger Transport division operate primarily in our German domestic market. Over large distances, our main competitors are private cars and airlines. The critical parameters are travel time, quality and price. Our regional and urban transport activities are facing intermodal competition, but there is also fierce intramodal competition, as long-term transport contracts are awarded by tender. According to our own statistics, mobility demand in the passenger transport markets declined in the 2005 financial year. This was mainly due to the continuing decline in demand in the motorized individual traffic (MIT) segment, which dominates the market – a decrease that can be attributed to a sharp increase in fuel prices (+8.1% versus 2004), a slight decline in personal income (– 0.5 %) and stagnant private consumption. Against this background, it is fair to say that our results in the year under review were excellent. On a comparable basis, i.e. adjusted for disposals that were deconsolidated, our performance in rail and road transport increased by 3 % in total and market share increased.

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A very gratifying development was recorded by the Long-distance Transport business unit, which successfully increased its transport performance by 4.1% to 33.6 billion passenger kilometers (pkm). This result was attributable to various special price offers which were repeatedly available for a limited period of time (including tickets on sale at food discounter Lidl and such seasonal offers as the spring special, the summer special and the autumn special), the enthusiastic response of the market to the new high- speed service between Hamburg and Berlin, a further increase in passenger numbers on the high-speed route from Cologne to Frankfurt and positive feedback from customers to quality improvements. Demand for regional and S-Bahn (metro) services, too, grew more strongly than in the previous year. Although the Regional Transport unit lost several high-volume lines to competitors, its rail transport performance rose by 1.6 % to 33.8 billion pkm. The Urban Transport unit increased its rail transport performance by 9.3 % year-on-year to 5.1 billion pkm. Special “State Tickets” that each allow free travel within one speciﬁc federal state (Ländertickets) proved a huge marketing success, as sales volume rose by almost 17 % to over 9 million. However, this trend was hampered by the ongoing crisis in the labor market where the number of jobs was declining further. Our bus operations increased their performance on a comparable basis by 0.8 % to 9.1 billion pkm. According to our estimates, non-Group rail companies, which mainly run regional lines, improved their transport performance by approximately 11%, by taking over former DB routes. The overall local rail passenger transport market, including DB Group and non-Group services, reached the highest passenger volume ever, totaling just over 2 billion. The transport performance of the entire rail transport market (including the local and long-distance services of all operators) rose by 3.5 %. The estimated market share of non-Group rail companies in the rail passenger transport segment amounted to approximately 4 % in terms of transport performance or more than 13 % in terms of train kilometers traveled in regional transport. This market development came at the expense of public road passenger transport (PRPT), where non-scheduled bus services were losing passengers, while regular services by bus, streetcar or subway recorded a slight increase. In the PRPT segment, tender-related competition heated up considerably in 2005. In view of this strong competition and a highly fragmented supply structure, market consolidation is likely to continue. As regards the size of the market players, it is quite noticeable that the subsidiaries of large international groups are gaining in signiﬁcance in the PRPT segment. In the last few years, low-cost airlines initially achieved high growth rates through aggressive pricing. Their marketing methods prompted traditional airlines to review their strategies and fundamentally changed the price perception of customers. But as

71 a result of the rise in aviation kerosene costs in 2005, average ticket prices for regular scheduled domestic ﬂights soared dramatically, restraining growth in comparison to European and intercontinental services.

Dynamic Development of International Transport and Logistics Markets The markets covered by the business units within the Transport and Logistics division continued to expand in the year under review. In line with the differences in general economic activity, global markets grew faster than the German and European freight transport markets. European land transport suffered from persistent margin pressure due to capacity increases. Competition was growing fiercer due to ongoing market consolidation in third-party logistics and an ever-larger number of carriers from the new EU member states and other Eastern European countries that were aggressively pushing into the market. Moreover, higher fuel costs drove up the prices of transport services. Differ- ences in diesel fuel taxation in various European countries put different cost burdens on freight forwarders in Western Europe versus Eastern Europe, thus resulting in different costing bases. This situation was drastically aggravated by the liberalization of diesel fuel imports. Customers were not only making more use of ancillary services, but were increasingly shifting their internal logistics processes to locations in Eastern Europe. In this challenging environment, our European Land transport segment managed to raise the volume of shipments by almost 4 % year-on-year, while posting double-digit growth in the EU accession countries. Growth momentum in the global air freight market continued at high levels in the year under review. Routes from North America to Europe, Asia and South America continued to experience strong market growth at stable freight rates. Trans-Pacific routes, in particular, recorded a strong increase of 10 %. There were also sustained positive trends on routes from Asia to Europe and North America and within Asia. Year-on-year, our Schenker business unit raised its volume of import and export shipments by 9 % and 6 % respectively. High-volume routes from Asia to Europe and in the opposite direc- tion recorded stable freight volume growth of 10 %. On routes between Europe and South America, volumes rose by approximately 12 %. However, freight rates are now under considerable pressure, as potential overcapacities in the market create increased competition that is further intensified by fuel and security surcharges. Exports from Asia to Europe and America as well as intra-Asian routes were the main growth engine in the global sea freight market, although the current expansion rate of about 10 % was not quite up to last year’s figure. One of the essential drivers is the ongoing trend of shifting production capacities to Asia. However, Asian routes were

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still characterized by strong imbalances between import and export segments. While on routes from Europe and North America to Asia competition was intense due to overcapacities, routes from Asia to Europe and North America were operating to capacity at stable rates. Intra-Asian volumes continued to grow at a fast pace. There was also an imbalance in goods ﬂows on trans-Atlantic routes. While services from North America to Europe had free capacities at low freight rates, the very tight transport capacities on offer for shipments from Europe to North America pushed up freight rates. The situation on South American routes was just the opposite, as scarce capacity and high freight rates for transport to Europe contrasted with low rates for shipments to South America. Our Schenker business unit beneﬁted from the dynamic market environment, and its sea freight segment experienced growth (+17 %) in excess of the market average.

Stiff Competition Prevails in the German Freight Transport Market

Growth rates / market share in German freight transport Market share % 2005 2004 2005

Rail freight transport 5.0 8.2 17.1 DB Group (–1.0) (5.0) (14.5) Other rail companies (60.0) (49.2) (2.6) Road freight transport 3.5 5.6 70.7 Inland waterway transport 1.5 9.5 12.2 Total market volume1) 3.5 6.5 100.0

1) We define the total market as comprising the following modes of transport: rail (Railion Deutschland AG and other rail companies), road (German trucks ex. local transport; foreign trucks) and inland waterway. All data for 2005 is based on the information and estimates available as of February 15, 2006.

The sustained positive trend in the global economy had an overall positive impact on the German freight transport market. Although the growth rate of the total market almost halved, falling from an exceptional 6.5 % to 3.5 %, the ﬁgure was still above the long-term average. The main cause for the slowdown was a marked deceleration in the growth rate of the domestic economy. By contrast, competitive and price pressures continued to be strong. In the ﬁerce battle over market share in Germany, rail freight transport prevailed as the strongest mode of transport. As a result the market share of rail freight transport expanded for the third year running. Within the German rail freight sector, non-Group railways again recorded a substantial increase in their transport performance amid mounting intramodal competition. Their

73 share of the rail freight transport market rose to almost 15.5 % after 10.2 % the year before. The essential cause was that contracts that had previously been awarded to our Railion business unit now went to other operators. Against this background, the slight drop in our rail freight transport performance to 76.8 billion ton kilometers (tkm) is still a positive result, particularly as many of the underlying trends, unlike last year, had an adverse effect on the market. Such trends included a sharp decline in crude steel production and a surprising slump in the building industry. The negative impact was only partially offset by growth in cross-border services, which account for nearly 60 % of the total transport performance of Railion Deutschland AG. The Railion business unit as a whole (including its international subsidiaries Railion Nederland N.V., Railion Danmark A/S and – as a new entry as of May 2005 – Railion Italia) was not able to repeat the positive results of the previous year. As a consequence, the transport performance of the Railion business unit also dropped by 1% to 83.1 billion tkm. The transport performance of road freight transport (including German trucks – without local transport – and foreign trucks) continued to grow, albeit at a slower pace. Again, foreign trade was the driving force behind this development, which above all benefited foreign trucks. Dominating the cross-border sector, they continued to expand their market share, as the cost base of truck fleets operating from neighboring countries was considerably lower. The breakdown by freight type shows that the fastest increase by far was accounted for by vehicles, machinery, as well as finished and semi-finished goods, and special freight (particularly containers), while non-metallic minerals and iron and steel were on the decrease. After the low water levels of 2003 and the catch-up effect of 2004 had somewhat distorted the year-on-year changes, inland waterways returned to a moderate level of growth.

Rising Number of Non-Group Rail Companies Benefit From Non-Discriminatory Access to DB’s Rail Infrastructure Since non-discriminatory access to Germany’s rail infrastructure was established in 1994, an increasing number of non-Group rail companies have been entering the market and expanding their market share. The number of station stops of non-Group companies continued to increase substantially by 16 % to 13 million stops. Track usage rose by 25 % to 110 million train path kilometers. All told, almost 300 non-Group rail operators were using the infrastructure of DB Group in 2005.

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Business Performance

Strong Revenue Increase by 4.6% to € 25.1 Billion or 4.9% on a Comparable Basis The Share of our International Activities Revenue Increased to 24% EBIT Growth of € 208 Million to € 1,352 Million

Strong Revenue Growth to € 25.1 Billion

Group revenues € million 2005 Share 2004 Change

DB Group – actual – 25,055 23,962 + 4.6% of which from MITROPA AG, Deutsche Touring GmbH – (83) DB Group – comparable – 25,055 23,879 + 4.9%

External revenues by business unit Long-distance Transport 3,068 12% 2,922 +5.0% Regional Transport 6,452 26% 6,437 + 0.2% Urban Transport 1,708 7% 1,688 +1.2% Schenker 8,878 35% 8,024 +10.6% Railion 2,830 11% 2,907 – 2.6% Stinnes 718 3% 638 +12.5% Track Infrastructure 511 2% 480 + 6.5% Passenger Stations 287 1% 268 +7.1% Services 124 1% 163 – 23.9 % Energy 207 1% 131 +58.0% Other / consolidation 272 1% 304 –10.5% DB Group 25,055 100% 23,962 + 4.6%

Revenues by region1) Germany 76% 78% Europe (ex Germany) 18% 17% Global (ex Europe) 6% 5%

1) Based on segment revenues = external revenues plus other external segment revenues

In the 2005 financial year, we achieved a significant increase in revenues by € 1,093 million or 4.6 % to € 25.1 billion. The Schenker and Long-distance Transport business units, in particular, experienced strong growth. Adjusted for the revenues of Deutsche Touring GmbH (disposal as of January 1, 2005) and MITROPA AG (disposal as of April 1, 2004), which had been included in the figures of the previous year, DB Group revenues on a comparable basis rose by 4.9 %. Other changes in the companies included in the scope of consolidation did not materially affect comparability. The breakdown of revenues highlights the traditional predominance of the business units included in the Passenger Transport division (45 % of Group revenues; previous year: 46 %) and the Transport and Logistics division (almost 50 % of Group revenues

75 versus 48 % the year before). As a result of strong revenue growth at the global Schenker unit, the revenue share of our transport and logistics activities again edged up slightly. At the same time, the share of non-German activities increased from 22 % to 24 %. The business units included in the Infrastructure and Services division generated a very large part of their revenues from intra-Group customers, although the number of non- Group railways using the rail infrastructure under non-discriminatory access rules continued to rise.

Marked Improvement in Profitability

Key figures from the income statement € million 2005 2004 Change

Revenues 25,055 23,962 + 4.6%

Overall performance 26,728 25,890 +3.2% Other operating income 2,366 2,860 –17.3% Cost of materials –12,650 –12,054 – 4.9% Personnel expenses – 9,211 – 9,556 +3.6% Depreciation – 2,801 – 2,722 – 2.9% Other operating expenses –3,080 –3,274 +5.9% Operating profit (EBIT) 1,352 1,144 +18.2%

Financial result – 862 – 990 +12.9% thereof net interest income (– 945) (– 984) (+ 4.0%)

Profit before taxes on income 490 154 Taxes on income 121 26

Net profit for the year 611 180

In the year under review, we continued to substantially improve our operational profitability. This favorable result can be ascribed not only to the positive revenue trend discussed above, but also to measures that were successfully implemented in speciﬁc business units or throughout the Group to improve efﬁciency and lower the cost base. Additional measures were taken to compensate for adverse external factors. A strong negative effect resulted from the extraordinarily high level of energy prices, which led to an increase in the cost of materials. Higher expenses for purchased transport services arose from Schenker’s expansion and from substantially higher freight rates. In spite of salary and wage increases set down in collective labor agreements, personnel expenses went down due to lower employment levels. This development was supported by a reduction of working hours in major group companies, which took effect on July 1, 2005, under a new collective agreement.

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The continued decrease of other operating expenses is a result of resolute cost management measures. Slightly higher depreciation resulted from the ongoing high volume of our capital expenditure programs with emphasis on the modernization of our rail operations and the development of our logistics activities. A major cause of the greater profitability was an improvement in net interest income, brought about by a slight improvement in the share of net interest income from the capital markets and a non-market-related improvement of net interest income which reflects the accumulation respectively release of deferred charges on the equity and liabilities side for interest-free loans. Additionally, income from investments accounted for by using the equity method was also higher than in the previous year. On balance, the positive trends mentioned above helped achieve another substantial increase in profit before taxes on income by € 336 million to € 490 million. As deferred tax assets rose, and the ‘taxes on income’ item climbed by € 95 million to € 121 million, moving even deeper into positive territory than in the previous year, net profit for the year improved by € 431 million to € 611 million.

Operating Profit (EBIT): Growth Across the Board

Operating profit (earnings before interest and taxes – EBIT) by business unit € million 2005 2004 Change

Long-distance Transport 50 – 331 + 381 Regional Transport 554 508 + 46 Urban Transport 115 106 + 9 Schenker 257 260 –3 Railion 12 35 – 23 Stinnes 3 – 2 +5 Track Infrastructure 17 35 –18 Passenger Stations 136 107 + 29 Services 128 – 8 +136 Energy 98 60 +38 Other / consolidation –18 374 –392 DB Group 1,352 1,144 + 208

EBIT – actual – 1,352 1,144 + 208 – Adjustment for unusual items during the respective financial year – 2 –133 +131 =EBIT adjusted for unusual items 1,350 1,011 +339

In absolute terms, the Long-distance Transport, Regional Transport and Services business units posted the highest earnings growth. The Urban Transport, Passenger Stations and Energy business units also advanced satisfactorily. Schenker maintained the earnings level achieved in the previous year. The decline in earnings posted by Railion came as no surprise. Faced with a very challenging market, this business unit is currently

77 undergoing restructuring. We expect results to improve steadily in the 2006 financial year. EBIT posted under the item Other/consolidation was mainly attributable to the Brenntag/Interfer divestment in the previous financial year, while it was affected in the year under review by charges arising from the intra-Group employment pool. Our ROCE calculation, which we use to assess our value management performance, is based on an EBIT figure adjusted for unusual items to ensure better comparability. In the year under review the overall adjustments to EBIT were immaterial. The adjustments made in the 2005 financial year related to accounting gains from the disposal of investments and the establishment of provisions for potential liabilities, which more or less offset each other. They also included some minor items of negative non-operating income posted by Stinnes and Schenker. The adjustment made in the previous year related to the disposal of Brenntag/Interfer and to some risk provisions.

Strong EBIT Growth at the Long-distance Transport Unit

Long-distance Transport € million 2005 2004 Change

Rail transport performance (million pkm) 33,641 32,330 +1,311 External revenues 3,068 2,922 +146 EBIT 50 – 331 + 381 Gross capital expenditures 260 264 – 4 Employees (FTE1) as of December 31) 14,739 15,960 –1,221

1) FTE =full-time employees; for better comparability part-time employees are converted into equivalent full-time employees in accordance with their share of the normal annual work time.

Increases in transport performance and revenues, and continued optimization efforts targeting the internal cost structure helped generate substantial EBIT growth in the Long- distance Transport unit. The success of the comprehensive “Long-distance Campaign” program, in particular, paved the way for the strong progress in the year under review. This business unit substantially improved its market share in a challenging competitive environment by increasing its transport performance by 4.1%. The share of ICE services in transport performance rose to 62 % (previous year: 61%). Necessary price adjustments were successfully implemented in response to additional cost pressures resulting from higher energy costs. At the same time, repeated low-price offers which were available for limited time periods were very successful. The market’s excellent response to high- speed services from Cologne to Frankfurt/Main and from Hamburg to Berlin also produced a positive effect. The attractiveness of our service offering was further enhanced, when along with the introduction of the new train timetable, a new high-speed service from Cologne to Stuttgart started operating in December 2005.

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Resilient Performance of the Regional Transport Unit

Regional Transport € million 2005 2004 Change

Rail transport performance (million pkm) 33,809 33,262 +547 External revenues 6,452 6,437 +15 EBIT 554 508 + 46 Gross capital expenditures 362 652 – 290 Employees (FTE as of December 31) 26,842 28,944 – 2,102

The Regional Transport unit completed another successful year. Any comparison with the previous year needs to take into account contracts for high-volume lines that were awarded to competitors. Despite this, transport performance improved by +1.6 % to 33.8 billion pkm, and revenue growth was also positive. The moderate expansion of revenues resulted solely from higher fare revenue, while revenue from ordered-service contracts declined (€ 4,240 million from € 4,270 million in the previous year). The need to pass on higher energy costs to customers was addressed by adjusting fares and ordered-service fees. Revenue growth and further cost optimization helped achieve a slight rise in EBIT. A major part of the current volume of ordered services is protected by long-term contracts that were concluded in 2004 and 2005. In the year under review, we won the following contracts by tender: the Nuremberg diesel network, the new and expansion Munich–Nuremberg line and the Baltic coast region. We have also submitted a bid for the Central Rhine Railroad contract.

Urban Transport Unit on the Growth Path

Urban Transport € million 2005 2004 Change

Rail transport performance (million pkm) 5,104 4,668 + 436 Bus transport performance (million pkm) 8,164 8,253 – 89 External revenues 1,708 1,688 + 20 EBIT 115 106 + 9 Gross capital expenditures 96 94 + 2 Employees (FTE as of December 31) 12,249 12,624 –375

79 In the Urban Transport business unit, the S-Bahn (metro) companies of Berlin and Hamburg as well as bus service operators recorded a positive development. Rail transport performance grew by 9 % year-on-year. Revenues were expanding, driven by higher transport performance and fare rises. Our efﬁciency program in the S-Bahn business made good progress. Despite a challenging environment, both S-Bahn and the bus companies managed to increase their contributions. The ratio of successful bids for bus transport contracts nearly doubled from 17 % to 31% in the year under review. What is more, many subsidiaries convinced existing customers of their high performance level and had their contracts renewed. Berlin’s S-Bahn provides its services under a transport contract that runs until 2017, and Hamburg’s S-Bahn is seeking renewal of a transport contract due to expire in 2009. In recent tenders, bus service operators have been facing ever-ﬁercer competition that also looms over future contract bids. The need for streamlining businesses in order to improve their competitiveness has been addressed through a comprehensive action package, which will also help prepare the companies for the forthcoming liberalization of local transport markets.

Continued Growth at the Schenker Business Unit

Schenker € million 2005 2004 Change

External revenues 8,878 8,024 + 854 EBIT 257 260 –3 Gross capital expenditures 170 163 +7 Employees (FTE as of December 31) 38,237 35,190 +3,047

Schenker again posted a significant revenue increase. Thanks to its strong market position and its global presence, the Schenker business unit was able to participate in the rapid economic expansion of the growth regions of the world. Revenues improved across all segments and in all major regions. Revenues generated by the European land transport operations rose significantly against the backdrop of continued market growth, which is characterized by increasing margin pressure. An important in- gredient in this success was a further increase in freight volumes. Schenker tapped further growth potential by expanding logistics hubs and setting up new ones, particularly in Eastern Europe. In addition, existing networks were consolidated and enlarged. Schenker’s Air and Sea Freight operations also posted significant revenue growth in the year under review. Both Air and Sea Freight operations achieved this

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increase on higher volumes. In geographical terms, particularly strong growth was repeated in intra-Asian shipments and in services from Asia to Europe and Asia to Amer- ica. The relatively young Logistics operations also made headway. Business expansion was underway, particularly in Germany and America. In the year under review, Schenker stepped up capital expenditures spending to expand its networks and thus consolidate the basis for growth. While special factors had a positive impact on EBIT in the 2004 financial year, restructuring charges following the loss of a German key account resulted in a decline in EBIT in the year under review. In addition, margins were eroded by higher freight rates reflecting energy price hikes and revenue increases were yet to translate into EBIT growth, but even so, Schenker confirmed the positive results of the previous year.

Challenging Market Conditions Affect Railion’s Business Development

Railion € million 2005 2004 Change

Transport performance (million tkm) 83,111 83,982 – 871 External revenues 2,830 2,907 –77 EBIT 12 35 – 23 Gross capital expenditures 244 366 –122 Employees (FTE as of December 31) 23,522 24,900 –1,378

Considering the unfavorable market environment characterized by strong intermodal and intramodal competitive pressure, particularly in the block train transport business, the Railion business unit performed relatively well. Total transport performance of 83.1 billion tkm (–1%) remained almost unchanged year-on-year. In line with our strategy, transactions with non-Group customers were passed on to subsidiaries in the Stinnes or Schenker business units. Therefore, the drop in external revenues of this business unit was offset by an increase in intersegment revenues. Efficiency programs were initiated in time to cushion the negative impact, but they could not entirely avert an EBIT downturn. However, the decline was less than initially expected. In particular, these programs were not able to offset the significant increase in energy costs compared to the previous year. A comprehensive program called “RailPlus”, which addresses market and cost issues, was introduced in the second half of 2005, in an effort to stabilize and gradually improve the profit contributions over the next few years.

81 Revenue Growth at Stinnes

Stinnes (subsidiaries) € million 2005 2004 Change

External revenues 718 638 + 80 EBIT 3–2+5 Gross capital expenditures 10 11 –1 Employees (FTE as of December 31) 1,939 2,027 – 88

In the 2005 financial year, the subsidiaries of Stinnes Freight Logistics (bulk good transport) and Stinnes Intermodal (combined rail/road transport), which make up the Stinnes business unit, were well able to hold their own against competitors. The subsidiaries of Stinnes Freight Logistics increased revenues and profits. The subsidiaries of Stinnes Intermodal were still suffering from unsatisfactory margins in the combined transport segment, and while revenues rose, their profit contribution was still disappointing.

Track Infrastructure Business Unit: Efficient Market Mechanisms and Rising Demand From Non-Group Customers

Track Infrastructure € million 2005 2004 Change

Train kilometers on track infrastructure (million train-path km) 997.7 1,000.7 –3.0 thereof non-Group customers (million train-path km) (110.0) (88.0) (+ 22.0) External revenues 511 480 +31 EBIT 17 35 –18 Gross capital expenditures 4,038 4,681 – 643 Employees (FTE as of December 31) 42,950 46,764 –3,814

The Track Infrastructure business unit recorded further increased usage by non-Group rail companies in the year under review, while demand from intra-Group customers decreased due to optimized operating programs. External revenues beneﬁted from higher train-path usage than in the previous year, but this trend was counteracted by shrink- ing revenue contributions from construction entities that are part of the Track Infra- structure unit. These construction entities had generated extraordinarily high revenues the year before, when major construction projects related to the new Nuremberg–Ingol- stadt–Munich line were billed. We continued to pursue our modernization program which places special emphasis on the existing network and on command and control

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technology. Additional measures were taken to increase up maintenance in order to secure the high quality and availability of the network. Higher expenses related to these efforts resulted in a temporary dip in EBIT in the year under review.

Passenger Stations Make Further Progress

Passenger Stations € million 2005 2004 Change

Station Stops (million) 139.1 140.6 –1.5 thereof stops by non-Group customers (million) (13.0) (11.2) (+1.8) External revenues 287 268 +19 EBIT 136 107 + 29 Gross capital expenditures 739 639 +100 Employees (FTE as of December 31) 4,791 4,983 –192

In the year under review, the Passenger Stations unit recorded higher external revenues. A 16.1% increase in station stops performed by non-Group customers generated higher revenues in the Trafﬁc Station segment. Moreover, external revenues from the rental business improved despite unfavorable macro-economic trends and subdued retailing activity. This development was supported by the completion of building projects designed to modernize or reconstruct passenger train stations and by determined steps to increase the average revenue per square meter of sales ﬂoor space. Accompa- nied by resolute cost management, the measures bore fruit, leading to further EBIT growth.

Services Unit Improves its Competitiveness

Services € million 2005 2004 Change

External revenues 124 163 –39 EBIT 128 – 8 +136 Gross capital expenditures 226 261 –35 Employees (FTE as of December 31) 26,868 28,638 –1,770

The business trends at the Services business unit were essentially determined by its support function to intra-group customers. Comprehensive efﬁciency programs that were implemented across business units showed positive effects in the year under review. By further optimizing the quality of its services, the unit also improved its competitive strengths in the external market. External revenues are mainly generated by

83 DB FuhrparkService GmbH (fleet management), DB Systems GmbH (IT) and DB Tele- matik GmbH (telematics). DB Fahrzeuginstandhaltung GmbH (vehicle maintenance), too, was successfully operating in the external market in the year under review. Positive EBIT trends were largely attributable to profitability gains due to efficiency measures that were introduced under the “Qualify” program, particularly at DB Systems. In the previous year, EBIT had been adversely affected by anticipated restructuring charges.

Energy Unit With Strong Revenue Growth

Energy € million 2005 2004 Change

External revenues 207 131 +76 EBIT 98 60 +38 Gross capital expenditures 126 94 +32 Employees (FTE as of December 31) 1,671 1,825 –154

The Energy business unit posted a substantial increase in external revenues for the year under review. This result was largely attributable to the consistent expansion of the energy services business. Revenue trends reﬂect the increase in energy purchase prices, which had to be passed on to customers. In addition, the transport performance of non-Group customers increased considerably, which resulted in an additional increase in external revenues from supplying 16.7 hertz traction power and diesel. Revenue growth along with stringent cost management resulted in a strong EBIT increase compared to the previous year, when facility retirement charges had reduced proﬁts.

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Capital Expenditures

Modernization Course Continued Gross Capital Expenditures of € 6.4 Billion Again at a High Level Focus of Capital Spending Remains on Infrastructure

€ million 2005 Share 2004 Change

Total capital expenditures including asset additions from business acquisitions 6,547 103% 7,334 –10.7% – Asset additions from business acquisitions –168 –3% – 96 – = Gross capital expenditures1) 6,379 100% 7,238 –11.9%

By business unit Long-distance Transport 260 4% 264 –1.5% Regional Transport 362 6% 652 – 44.5% Urban Transport 96 1% 94 + 2.1% Schenker 170 3% 163 + 4.3% Railion 244 4% 366 –33.3% Stinnes 10 <1% 11 – 9.1% Track Infrastructure 4,038 63% 4,681 –13.7% Passenger Stations 739 12% 639 +15.6% Services 226 3% 261 –13.4% Energy 126 2% 94 +34.0% Other/consolidation 108 2% 13 –

Net capital expenditures2) 2,360 37% 3,251 – 27.4%

1) Gross capital expenditures = capital expenditures on tangible and intangible assets; excluding additions to goodwill 2) Net capital expenditures = gross capital expenditures less non-repayable investment grants from third parties

We continued our modernization course in the year under review with another high level of gross capital expenditures of € 6.4 billion. Significant focal points were actions for improving performance capability and efficiency in our infrastructure, continued modernization of rail stations, as well as further modernization of our rolling stock and bus fleet. We also invested in enhancing the logistics networks of the Schenker business unit. The decline in gross capital expenditures compared to the previous year was mainly due to scheduled shifts in additions of rolling stock as well as delays in carrying out capital expenditures on infrastructure. Proportionately, the Track Infrastructure business unit continued to dominate capital expenditures with emphases on the existing network, the Nuremberg–Ingolstadt–Munich line, construction projects in Berlin, as well as the further expansion of the GSM-R network. In accordance with the relevant legal regulations, our capital expenditures in infrastructure are generally financed by means of interest-free federal loans, investment grants netted with properties and – to a lesser extent – funds obtained under the Local, Regional and Municipal Traffic Financing Act and the Railroad Crossings Act, as well as internaly generated funds.

85 Financial Situation

Operational Financing Needs Covered by Internal Financing Financing of Growth Potentials via the Capital Market Excellent Ratings Reconfirmed in the Year Under Review

Consolidated cash flow summary € million 2005 2004 Change

Cash flow from normal operating activities 2,652 2,736 – 84 Cash flow from investing activities – 2,375 – 2,906 +531 Cash flow from financing activities –749 661 –1,410 Net increase (decrease) in cash and cash equivalents – 4601) 4942) –954 Cash and cash equivalents at year’s end 305 765 – 460

1) Including exchange rate effects of € 12 million 2) Including consolidation effects of € 3 million

Operational Financing Needs Covered by Internal Financing Once again the relevant ratios improved in the year under review. This is attributable to cash inflow from normal operating activities was approximately the same level in 2005 as the previous year with a concurrent slight decline in capital expenditure volume. Therefore, cash flow from financing activities in the year under review was characterized by the repayment of interest-free loans, loans, and commercial papers. In other words, we were able to reduce financial debt slightly, and also reducing liquidity reserves at the same time. Taking the liquidity reserve into account, net financial debt was slightly above the previous year’s level. We also made use of international financial markets to finance the acquisition of BAX. In December 2005, we placed a five-year bond issue of USD 800 million (with a coupon rate of 5.125 %) via Deutsche Bahn Finance B.V., Amsterdam, Netherlands. With this bond issue, we were able to address investors at an international level and satisfy substantial demand by European, African, Asian, and American fixed-income investors. However, the cash inflow from this bond issue, which had been timed to coincide with the date of the closing of the BAX deal, was not received until the 2006 financial year and so is not included in the 2005 financial statements. We have a long-term debt issuance program of € 10 billion, under which, taking the aforementioned bond issue into account, approximately € 2.5 billion was still available for placement as of December 31, 2005. With respect to short-term financing, similar to the previous year, guaranteed unused credit facilities of approximately € 2.5 billion and a multi-currency multi-issuer commercial paper program of over € 2 billion (also unused) were available as of December 31, 2005. No major lease transactions were concluded in the year under review.

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Excellent Ratings Reconfirmed in the Year Under Review The rating agencies Moody’s and Standard& Poor’s (S& P) conducted their annual rating reviews in June 2005. Both rating agencies subsequently conﬁrmed their positive assessment of Deutsche Bahn’s creditworthiness. Both rating agencies also did the same in November 2005 after the signing of the agreement to acquire for BAX. Our Inves- tor Relations department maintained close contact with the respective analyst teams both with regard to the BAX acquisition and DB Group’s overall business development. S&P’s “AA” rating and Moody’s “Aa1” rating have remained unchanged since they were ﬁrst issued in 2000. Both ratings have a “stable” outlook.

Resource Pooling Through a Centralized Group Treasury DB AG’s treasury is the central treasury for the DB Group. This structure ensures that all Group companies are able to borrow and invest funds at optimal conditions. Before obtaining funds externally, we conduct intra-Group financing transactions. When bor- rowing external funds, DB AG takes out short-term loans in its own name, whereas long-term capital is generally obtained through the Group’s financing company, Deutsche Bahn Finance B.V., Amsterdam, Netherlands. These funds are passed on to the Group companies as time deposits or loans. This concept enables us to pool risks and resources for the entire Group, as well as consolidate our expertise, capture synergy effects, and minimize refinancing costs. After the Schenker organization was integrated into this concept in the years 2003 to 2005, a corresponding integration of the BAX treasury department is planned following the successful conclusion of the BAX acquisition.

87 Balance Sheet

Decline in Total Assets by 1.1% to € 47.1 Billion Equity Ratio Improved to 16.3% Financial Debt Reduced by € 302 Million

Development of the balance sheet € million Dec 31, 2005 Dec 31, 2004

Total assets 47,101 47,616 Change year-on-year –1.1% –1.9%

Asset structure % Dec 31, 2005 Dec 31, 2004

Property, plant and equipment 84.0 84.0 Other non-current assets 7.1 6.7 Non-current assets 91.1 90.7 Inventories 1.5 1.7 Current receivables 6.7 6.0 Cash and cash equivalents 0.6 1.6 Other current assets < 0.1 < 0.1 Current assets 8.9 9.3

Total assets 100.0 100.0

Equity and liabilities structure % Dec 31, 2005 Dec 31, 2004

Equity 16.3 14.8 Non-current liabilities 59.4 61.9 Current liabilities 24.3 23.3 Total assets 100.0 100.0

For information purposes: Financial liabilities (current and non-current) Interest-free loans from the German Federal Government 7.7 7.6 Financial debt excluding interest-free loans from the German Federal Government 34.7 35.0

With the continuation of our modernization program, as of December 31, 2005, property, plant and equipment was just under the prior year’s level due to depreciation and write- downs. The deferred tax assets contained in non-current assets increased by € 255 million to € 1,556 million, primarily due to the continued positive earnings expectations within the currently foreseeable planning horizon. With respect to the other items in non-current assets, in which positive and negative movements otherwise balanced out for the most part, non-current assets declined overall by € 293 million or 0.7 % to € 42,907 million. Our business expansion was reﬂected in the changes in current assets in the form of

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increased net receivables, but active working capital management across the DB Group is continuing. Cash and cash equivalents at € 305 million were below the previous year’s value (as of December 31, 2004: € 765 million). Structurally, there was a further small shift towards non-current assets. The major changes to liabilities and equity in the year under review related to equity and financial debt. Equity increased due to earnings by 8.6 % to € 7,675 million, with the equity ratio increasing correspondingly. Non-current liabilities again dominated the outside capital structure – including the Federal Government’s interest-free loans for infrastructure financing reported here – accounting for 59.4 % of total liabilities and equity (as of December 31, 2004: 61.9 %). In line with our orientation toward a financing strategy of extensively matching maturities, the percentage of current liabilities was significantly lower at 24.3 % (as of December 31, 2004: 23.3 %). Interest-free loans, recognized at present value under IFRS, increased slightly by € 21 million to € 3,640 million. Financial debt (including the present value of finance leases), excluding interest-free loans, declined to € 16,334 million (previous year: € 16,657 million). Including interest-free loans, financial debt declined by € 302 million to € 19,974 million.

89 Value Management

Continual Progress: ROCE Increased to 5.0% Redemption Coverage and Gearing Improved

As part of our value-oriented management, we evaluate the prospects for business units and capital expenditure programs with respect to their strategic potentials as well as their contributions to the long-term increase in our enterprise value. Our return on capital employed (ROCE) is the primary tool used in this connection for value-oriented steering of resources. We also use the gearing and redemption coverage ratios for controlling the level of debt.

ROCE Concept as a Control Instrument Conforming to Capital Market Requirements ROCE is a significant benchmark for the development of our Group portfolio and for allo- cating capital expenditures. We use target yields to manage the Group as well as individual business units, taking the nature and risk of each operating business into account. We measure the performance of our business activities against these target yields. Further- more, we also use these targets to orient our planning and capital expenditures programs. We thereby ensure an efficient resource allocation aimed at meeting or exceeding the average yield demands. As a minimum, the target yields are set at the level of the weighted (pre-tax) average cost of capital (WACC). The cost of capital is derived based on capital market conditions taking the mid-term nature of the control concept into consideration. The DB Group implemented the concept of ROCE target yields back in 1999. We adjusted the method for deriving the ROCE during the accounting changeover to IFRS. Material adjustments concern the inclusion of the present values of interest-free loans and finance leases as a component of financial debt in capital employed, as well as the non-inclusion of other provisions, which are predominantly interest-free. Analogously to the treatment under IFRS, in the ROCE concept, the cost of capital or interest expense is imputed to the present value of the interest-free loans. Under IFRS, this interest expense is eliminated within the income statement by recognizing interest income from the reversal of deferred income, which reflects the cumulative financing benefit of interest-free loans. In the interest of simplification, in the ROCE concept, we have fore- gone adjusting the financing benefit from interest-free loans or correcting the compounding on other non-current provisions, respectively. Overall, such corrections would have a slightly positive effect on the ROCE. All adjustments result in mirror-image changes when calculating the cost of capital. Compared to the previous approach under the German Commercial Code (HGB), the slight increase in the ROCE attained based on the accounting method is countered by

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a congruent slight increase in the cost of capital. However, this increase is eliminated by the lower long-term interest rate level that has arisen in the capital markets in the interim. Accordingly, the mid-term ROCE target for the DB Group is 10 % under IFRS as well. We estimate the cost of capital to be 8.8 % based on a mid-term target capital structure.

Further on Course With an ROCE Increase to 5.0%

Return on capital employed € million 2005 2004 Change

EBIT adjusted for unusual items 1,350 1,011 +339 ÷ Capital employed 27,013 26,490 +523 = ROCE 5.0% 3.8%

Once again, we increased our ROCE in the year under review. This positive development is attributable to the signiﬁcant improvement in EBIT adjusted for unusual items, which also more than compensated for the moderate rise in capital employed. This keeps us on the course we announced toward successive improvements aimed at attaining the Group’s desired target yield of 10 %; however, the cost of capital is not currently fully earned. Capital employed represents the interest-bearing operational capital employed by the Group. The increase in net working capital resulted in a slight increase in capital employed of 1.9 % to € 27.0 billion in the 2005 ﬁnancial year.

Derivation of capital employed from the balance sheet € million Based on Based on assets liabilities and equity 2005 2004 2005 2004

Property, plant and equipment/intangible assets 40,430 40,861 Equity 7,675 7,067 + Inventories 716 797 + Financial debt 19,974 20,276 + Receivables/other assets 3,4621) 3,184 + Pension liabilities 1,414 1,341 + Liabilities from derivatives 397 563 + Deferred tax liabilities 46 17 – Other liabilities –7,5601) –7,638 – Assets from derivatives –112 –150 – Other provisions – 6,387 – 6,730 – Deferred tax assets –1,556 –1,301 – Deferred income –3,648 –3,984 – Financial assets –520 –558 – Cash and cash equivalents – 305 –765 = Capital employed 27,013 26,490 = Capital employed 27,013 26,490

1) Including assets and liabilities held for disposal

91 Redemption Coverage and Gearing Improved The management ratios for controlling the level of debt are gearing: the ratio of net financial debt to equity, as well as redemption coverage: the ratio of operating cash flow to adjusted net financial debt (including the present value of liabilities from operating leases). We strive for a level of debt commensurate with our current outstanding credit rating: The mid-term goal for redemption coverage is 30 %; for gearing our target is an equity to debt ratio of 1:1.

Gearing € million or % 2005 2004 Change

Net financial debt 19,669 19,511 +158 ÷ Carrying amount of equity 7,675 7,067 + 608 = Gearing 256% 276%

Redemption coverage € million or % 2005 2004 Change

EBITadjusted for unusual items 1,350 1,011 +339 + Net operating interest1) –8662) –8912) +25 + Depreciation 2,7652) 2,6752) +90 Operating cash flow 3,249 2,795 + 454 ÷ Adjusted net financial debt 22,152 21,964 +188 = Redemption coverage 14.7% 12.7%

1) To properly determine redemption coverage we utilize net operating interest by eliminating those components of net interest income/expense related to the compounding of non-current liabilities and provisions and the reversal of deferred income. 2) Adjusted for unusual items

Derivation of net financial debt/ adjusted net financial debt € million 2005 2004 Change

Financial debt 19,974 20,276 –302 – Cash and cash equivalents –305 –765 + 460 = Net financial debt 19,669 19,511 +158 + Present value of operating leases 2,483 2,453 +30 = Adjusted net financial debt 22,152 21,964 +188

In the year under review, we increased our redemption coverage compared to the prior year. As was the case with the development of ROCE, this development was primarily driven by profits. The increase in profits was reflected in the improvement in operating cash flow. Gearing improved compared to the previous year through the increase in equity with only a slight increase in net financial debt.

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Employees

Additional Advances in Efficiency Result in Reduced Headcount Increase in Employees in the Schenker Business Unit Trend-setting Collective Bargaining Agreements Secure Jobs at the DB Group

Headcount by business unit as of Dec 31 (in FTE1)) 2005 Share 2004 Change

Long-distance Transport 14,739 7% 15,960 –7.7% Regional Transport 26,842 12% 28,944 –7.3% Urban Transport 12,249 6% 12,624 –3.0% Schenker 38,237 18% 35,190 + 8.7% Railion 23,522 11% 24,900 –5.5% Stinnes 1,939 1% 2,027 – 4.3% Track Infrastructure 42,950 20% 46,764 – 8.2% Passenger Stations 4,791 2% 4,983 –3.9% Services 26,868 12% 28,638 – 6.2% Energy 1,671 1% 1,825 – 8.4% Other 22,581 10% 23,777 –5.0% DB Group 216,389 100% 225,632 – 4.1%

1) FTE =full-time employees; for better comparability part-time employees are converted into equivalent full-time employees in accordance with their share of the normal annual work time.

The additional advances in efficiency achieved overall are reflected in the decline of 4.1% in the number of employees in 2005 compared to the previous year. In addition, the collective bargaining agreements for ensuring competitive employment conditions concluded in the first quarter of 2005 had a considerable influence on the number of employees as reported as full-time equivalents. Among other things, these agreements provided for a collective reduction in work hours, under which the reference value for annual work hours was increased in a great many of the Group companies from 1,984 hours (38 hours per week) to 2,088 hours (40 hours per week), and employees’ leave entitle- ment was reduced by one day. As of July 1, 2005, there was a collective reduction in work hours in the affected companies – i.e. for around 140,000 employees – that is scheduled to last until June 30, 2007. This measure secured approximately 3,300 jobs in the Group. In addition, agreements at operations level resulted in a further reduction in work hours to up to 35 hours per week, thus securing approximately 900 additional jobs. While the productivity advances obtained resulted in a declining headcount in most business units, the number of employees in the Schenker business unit once again increased due to the expansion of its activities. 283 jobs were eliminated as a result of the disposal of DTG.

93 Integrated Systems Rail

Organizational Enhancements Strengthen System Competencies ICE 1 Redesign Project Successfully Launched Trend-setting Enhancements in Command and Control Technology High Demands on Quality and Safety

Organizational Enhancements Strengthen Deutsche Bahn’s System Competencies Well coordinated technical facilities – from rail lines, to equipment, systems, operating sites, and on to rolling stock – are just as necessary for high quality of output in rail transport as are employees who can handle cross-functional processes. To further optimize interfaces, in the year under review we bundled responsibilities for technology and procurement, quality management, environmental protection, and technical enhancements of the rail system in the new “Integrated Systems Rail” board division.

Our Technology Strategy is Aimed at High Reliability and Economic Efficiency Our strategic alignment toward high-quality mobility and logistics offerings requires we make high quality demands overall on ourselves, our suppliers, as well as our partners included in providing our overall service. Additional improvements in the rail system using fully developed, reliable, and economical technology are the basis for bringing more trafﬁc onto the rails. This requires continuous and extensive communication with the rail industry, from systems development, to operations, and on to maintenance functions. In this context, we consider it part of our mission to accelerate competitive product developments across Europe. We expect the rail industry to deliver reliably functioning rail technology and to develop technical innovations.

Modernization and Internationalization of Rolling Stock We pushed forward with the modernization through new purchases of rolling stock as well as redesigns. For example, in the year under review, we already adapted the interior design of the first eight out of 59 ICE 1 multiple units to the ICE 3 and upgraded their technology to meet the demands of the next 15 operating years. In connection with an additional redesign project, we completely modernized two electric multiple units of the 420 series used in S-Bahn (metro) services and thus demonstrated the economic advantages of redesign measures for vehicles used in regional transport as well. Following the successful approval of the ICE 3 in Belgium in 2004, the third and final measurement campaign of the ICE 3 was successfully concluded in France in the year under review. In the current year, we intend to convert at least five ICE 3 multiple units for use in France as of 2007.

Trend-setting Modernization of Command and Control Technology In the telecommunications ﬁeld, we have developed concepts for integrating the command and control technology and remote control systems. In connection with implementing the “Technical Speciﬁcations for Interoperability” (TSI) prescribed by the EU,

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we will introduce the European Train Control System (ETCS) on high-speed lines during the coming years to replace the continuous train control system (Linienzugbeeinflus- sung; LZB). As a necessary transitional solution, we will equip selected routes with both systems. At the heart of the technical implementation is a new interface between the electronic interlockings (ESTW) and the operations control centers for the LZB and the ETCS. Approval of the new interfaces has already been obtained for the combined use of ESTW and LZB. We also continued to upgrade our interlockings in the year under review. Among other things, a new electronic interlocking type, which features significantly simpler technology compared to its predecessor, was placed in regular operation in Annaberg- Buchholz in November. Modern, modular electronic interlocking technology for regional routes is behind the German abbreviation“ESZB”(electronic interlocking for signal- controlled rail dispatching). In contrast to the multifunctional technology of electronic signal boxes, the ESZB system can be adapted exactly to the requirements of a specific line. This new technology went into operation for the first time on the Korbach-Brilon Wald pilot line in April 2005.

Quality Management and a High Degree of Safety as the Basis for Sustainable Competitive Advantages Thanks to the integrated wheel/rail system with track-guided wheel and command and control technology, rail traffic has a significant safety advantage compared to other modes of transport. We are making every effort to maintain this high safety standard and are continually improving the related systems and processes. In the year under review, we further developed our quality management by consolidating existing standards already established for individual business units or throughout the DB Group – such as the Quality Management System (DIN ISO 9000 et seq.) or the Environmental Management System (DIN ISO 14001) – into a comprehensive Integrated Management System (IMS) for processes related to quality. We also bundled the management systems for occupational safety and health, emergencies/fire prevention, safety, and hazardous goods into this comprehensive system.

Our Engineering Service Provider has a Good Reputation Among Non-Group Customers The competence and competitive ability of our engineering service provider, DB System- technik, is reﬂected in the demand by non-Group customers. Following the successful major cooperative projects with the Chinese and Taiwanese railways in 2004, DB System- technik also provided consulting to the Russian railways in the year under review in connection with a project to procure the ﬁrst Russian high-speed train. On behalf of Alstom LHB, DB Systemtechnik handled the overall approval process for operations of the Swedish X60 electric multiple unit sets on the German rail network.

95 Purchasing

Procurement Volume Once Again at a High Level Priorities on Infra- structure Projects and Procurement of Rolling Stock Internal Processes Further Optimized Trusting Cooperation With our Suppliers

Excluding the domestic and international contracts of the Schenker business unit, we were once again one of the largest investors in Germany with a procurement volume in excess of € 9.1 billion in the year under review. According to our estimates, this secured more than 600,000 jobs in industry either directly or indirectly. Our focal points were once again industrial products as well as construction and engineering services, although order volumes in the latter area were scaled back significantly. Our sourcing of third- party services also declined slightly. In contrast, spending on utilities and fuel increased due to high energy prices. In accordance with our capital expenditures priorities, major orders were placed for infrastructure in particular, as well as for further modernization of our rolling stock. For example, the contract for the new construction of a four-kilometer long second tunnel tube at the Schlüchtern Tunnel was awarded in August. The Schlüchtern Tunnel lies on one of the busiest long-distance transport lines between Hanau and Fulda, which is the most important connection for all trains heading to Frankfurt from the north and east. The first trains should be driving through the new tunnel in 2008. Extensive rolling stock orders concerned passenger cars, double-deck cars for regional transport, as well as electric locomotives. In addition, substantial procurement actions resulted from DB’s role as the leading mobility and logistics service provider for the 2006 FIFAWorld Cup™, where we are responsible for equipping the FIFAWorld Cup Host Cities and important rail stations with modern customer information technology. In addition, we are equipping hubs such as the Frankfurt (Main) Sportfeld station with new overpasses, platforms, retaining walls, and rail embankments and are adjusting the superstructure and track plan as needed. Systematic maintenance and standardization of our business relationships with more than 40,000 suppliers increases the quality of our cooperation during the purchasing process. Prequalification procedures for suppliers, such as those implemented in the year under review for the procurement of consulting and construction supervision services, are designed to improve quality and reduce expenses in award procedures. With respect to the procurement of mechanical installations, we continued to optimize procurement costs in the year under review. After positive experiences in standardization and modularization of escalators and elevators and their procurement through general agreements, we extended this procedure to include additional product groups, such as vehicle exterior cleaning installations, floor conveyor technology, hydraulic jack systems, and mobile wheelset changing installations.

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Supplemental Information

New Station Pricing System Implemented Amendment to the General Railways Act Reassigns Supervisory Functions “2006 Timetable” Launched Smoothly Discussions on Future Amounts of Funding Under the German Regional Restructuring Act

New Station Pricing System Implemented as of January 1, 2005 As of January 1, 2005, DB Station& Service AG implemented a new station pricing system. It includes a price catalog with six price categories, specific to the German Federal States, which are based on the importance of the rail stations in terms of traffic – such as the number of train stops, number of passengers, and their function as a hub – as well as integrating the German state-specific infrastructure requirements and support funding arrangements. This takes the federal states’ specific concepts regarding regionalization comprehensively into account. Each rail station is assigned a category based on nation- ally uniform characteristics. The new station pricing system reduces the number of station prices to 96 state-specific prices (16 German states times six categories) with two train length factors in each case. Compared to the previous station pricing system, the new station pricing system resulted in a significantly simpler settlement procedure and more adequate consideration of the higher demands placed by longer trains on the train station infrastructure.

Implementation of the EC Infrastructure Package into German Law In the process of incorporating the “EC Infrastructure Package” into German law, the German General Railways Act (Allgemeines Eisenbahngesetz; AEG) and the Ordinance on Railway Infrastructure Usage (Eisenbahninfrastruktur-Benutzungsverordnung; EIBV) were extensively revised in the year under review. At the same time, the ﬁndings of the “Future Rail” task force from September 2001 were also implemented by statute. The amendment of the AEG set forth the following signiﬁcant changes in particular: Regulatory authority is bundled and assigned to the Federal Network Agency for Elec- tricity, Gas, Telecommunications, Post and Railway (Bundesagentur für Elektrizität, Gas, Telekommunikation, Post und Eisenbahnwesen). This body assumed its corresponding supervisory functions as of January 1, 2006. At the same time, its regulatory authority was expanded to include access to service facilities, the services provided at them, terms of use, and compensation principles. Finally, the German Monopolies Commission will prepare expert opinions at regular intervals based on its observation of the market. Overall, a broad consensus on the statutory regulations governing the integrated DB Group is emerging based on these changes. The EIBV has been adapted to match the amendment of the AEG.

97 “2006 Timetable” Successfully Launched The timetable change, coordinated across Europe, went into effect as scheduled at the end of the year under review. The transition to the “2006 Timetable” on December 11, 2005 went smoothly. This timetable change brought further improvements in service offerings into effect, such as the new Cologne–Stuttgart Sprinter connection in long-distance transport. Additional improvements will go into effect with the next timetable change on May 28, 2006. These will include, in particular, integration of the Berlin central station, and thus the Berlin north-south line, as well as commencement of operations on the new and expansion Nuremberg–Ingolstadt–Munich line. Together with the timetable change in December 2005, price adjustments in long distance and regional transport went into effect, primarily due to increased energy costs.

Discussion on Funding Under Regional Restructuring Act From 2007 Onward Started Currently, the German Regional Restructuring Act (Regionalisierungsgesetz) stipulates the amount of resources for ﬁnancing local rail passenger transport, among others, as well as the distribution of these resources to the German federal states up through the end of 2007. A revision of the act is planned for 2007, in which the amount of the resources to be made available shall be re-determined. Initial discussions on this process are currently taking place in the political arena. From our viewpoint, it is conceivable that corresponding legislative resolutions will be adopted in 2006, effective as of 2007. However, we are currently unable to assess what the outcome of the discussions in the political arena will be. We support the goal of ensuring high-performance, public local mass transit at the highest possible level, combined with a solid ﬁnancial foundation for the years after 2007 as well. Accordingly, we are prepared to exchange all necessary factual information and arguments and to defend our position in the upcoming discussions.

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Risk Report

Integrated Risk Management System Ensures Transparency Active Risk Management Risk Portfolio Free of Risks Jeopardizing our Continued Existence

Our business activities entail not only opportunities but risks as well. Our business policies target the appreciation of opportunities and active control of identiﬁed risks through our risk management system. The necessary information for this is prepared in our integrated risk management system, which is designed to meet the requirements of the German Act on Corporate Control and Transparency (Gesetz zur Kontrolle und Transparenz im Unternehmensbereich; KonTraG). This system is continually enhanced.

Opportunities Arising From Internal Programs or Favorable Market and Business Environment To secure our strategy of earnings-based growth, we have implemented comprehensive action plans, which we expect will ensure or improve our quality of service, efficiency, and cost basis. We see opportunities here for additional organic growth, which may be reflected in additional improvements to profits and key financial ratios. We would also refer you to the “Strategy”section in this connection. In spite of the high degree of competition in our markets, we also see market-related opportunities in being able to actively shape foreseeable market consolidations from a leading competitive position. With regard to overall business conditions, further improvements in the relevant macroeconomic environment are conceivable, but are expected only to a lesser extent in the 2006 financial year. Reference is also made to the remarks in the “Outlook” section regarding the corresponding estimates.

Integrated Risk Management System Our risk policy guidelines are formulated by the DB Group management and implemented at DB AG and its subsidiaries. The Management Board and Supervisory Board of DB AG receive quarterly reports as part of our risk early warning system. Risks arising suddenly or undesirable developments must be reported immediately. Acquisition plans are subject to additional special monitoring. In the DB Group’s risk management system, all risks are presented in a risk portfolio as well as in a detailed listing, taking materiality thresholds into account. The risks mentioned in the risk report are categorized and classiﬁed based on the probability of occurrence. In addition to the possible consequences, risk analyses also suggest protection strategies and list costs of countermeasures. Organizationally, DB’s Group Controlling is the risk management coordination center for the DB Group. In connection with Group ﬁnancing, which is strictly oriented on our operating business, the Group Treasury is responsible for limiting and monitoring the resultant credit risks, market price risks, and liquidity risks. By consolidating the

99 related transactions (money market, securities, currency trading, derivative transactions) at DB AG level, the associated risks are centrally controlled and limited. Our Group Treasury is organized based on the “Minimum Requirements for Trading” (Mindestan- forderungen an das Betreiben von Handelsgeschäften; MAH) formulated for ﬁnancial institutions and, applying the criteria derived from these guidelines, satisﬁes all requirements of the KonTraG.

Active Risk Management in the DB Group Active risk management is part of our business strategy. Risks to which the DB Group is exposed include in particular: Market risks: These are, for example, overall economic development and the partially cyclical changes in demand. Key drivers for passenger transport – consumer spending, employment figures – were once again somewhat constrained in the year under review; a slight improvement is forecast for the current financial year. Com- pared to the 2003 and 2004 financial years, the market momentum stemming from the aggressive pricing strategies of competing low-cost airlines declined in 2005, while competition continued to be intense. In the meantime, our particularly attractive price offers enabled us to reduce the risks from travelers’ price perceptions, which were unfavorable to Deutsche Bahn compared to the low-cost airlines. The Long- distance Transport business unit in particular, offering high quality of service and attractive, fast connections, was able to stem the general decline of the overall market. There is intense competition for long-term ordered service contracts in local rail passenger transport, directly affecting DB’s Regional and Urban Transport business units. The results of current discussions on the amount of mid-term federal funding provided to the states under the Regional Restructuring Act will be decisive for the development of this transport segment as well. In rail freight transport, i.e. the Railion and Stinnes business units, the most important factors are demand for transport of consumer goods, steel and mining products, petroleum products, chemical products, and construction materials. On the one hand, these are subject to economic fluctuations, and on the other hand, changes in production structures of customers who are often exposed to global competition must be taken into account. In addition to the increasing intensity of competition in intramodal transport, there is considerable intermodal competitive pressure, which has further intensified due to the growing market significance of more economical truck fleets from the new EU countries. When examined in isolation, market risks emanate for rail freight transport from the need to adapt to increased competition in intermodal transport both domestically and internationally due to increasing globalization. We took the necessity of increased internationalization into account early on by establishing the Railion network, making international equity investments, and entering into international cooperative agreements. The pending opening of the Euro- pean rail freight transport markets in 2007 represents a new challenge. Rail traffic

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as well as our logistics business is affected across the board by the dynamic consolidation processes within the logistics industry, the continuing liberalization of the European transport markets, as well as increasing customer requirements. We are responding to these developments with extensive measures to further enhance efficiency and reduce costs. We are also optimizing our rail service offering and our services are designed to integrate rail freight transport into more comprehensive logistics offerings. The breadth of our business portfolio ensures a good diversifica- tion of risks, as does the strong international presence of our business units. Given DB’s strong competitive position, we also consider the upcoming consolidation process an opportunity, not just to defend our current position, but rather expand it. Due to the special nature of its business, the Schenker business unit faces risks from the submission of non-objection certificates to airlines, which could have significant consequences in individual cases. Schenker has continually revised and improved its rules for granting customs guarantees in recent years. Appropriate insurance has been obtained to cover the risks relating to air transport. In addition, Schenker monitors strict compliance with country-specific regulations regarding security precautions for air and sea freight. We counter risks resulting from changes in customer demand, including ordering organizations, or from shifts in traffic patterns, by closely monitoring the market and continually enhancing our service portfolio. With regard to market risks from modifications to the legal framework at both domestic and international level, we actively represent our position in the preceding consultations and debates. Operating risks: In its rail transport operations, the DB Group operates a techno- logically complex, networked production system. We counter the risk of service interruptions through systematic maintenance, the use of qualified staff, and continuous quality assurance and process improvement measures. As the quality of our own services also depends to a large extent on the reliability of the production resources employed, purchased materials and services, and the performance quality of partners, we conduct in-depth quality dialogs with the relevant suppliers and business partners. Project risks: The modernization of the overall rail system involves high amounts of capital expenditures as well as a large number of highly complex projects. Changes in the legal framework, delays in implementation, or necessary adjustments during project lifecycles, which often extend over several years, may result in project risks that may also have consequences across business units due to our networked production structures. We take such risks into account by closely monitoring our projects. This applies in particular for our major projects such as the Berlin hub (including the Berlin Central Station), the new and expansion Nuremberg–Ingolstadt–Munich line, and the establishment of the GSM-R network. Operation of the Berlin hub will com- mence incrementally. In general, new projects are implemented only after a plan approval procedure has been concluded.

101 Security and predictability of governmental infrastructure financing: The federal government’s constitutional obligation to finance the rail infrastructure is a key element of the German Rail Reform. Not only is a sufficient amount of resources decisive, but so is the predictability of the financing resources to be made available. Overall, we are striving for a long-term, sustainable, and modern infrastructure partnership with the federal government that accommodates our business interest as the owner and operator of the infrastructure, which is available to third parties in a non-discriminatory manner, with the federal government’s constitutional obligation to ensure the rail infrastructure and which significantly simplifies the process. To this end, we want to commit ourselves to maintaining the high quality of our existing network infrastructure. Financial risks: Among other things, we use original and derivative financial instruments to hedge against interest rate, currency, and energy price risks arising from our operating business. These instruments are described in the Notes. Legal and contractual risks: Legal risks may arise, for instance, in the form of claims for damages as well as from legal disputes. Specifically, such risks often concern construction projects or real estate matters. Provisions are established for legal and contractual risks after estimating the respective probability of occurrence. The actual utilization of these provisions is dependent on whether the risks materialize in the amounts as set forth in our current estimates. General uncertainties and risks: Our political, legal, and social environment is subject to constant change. Stable general conditions are required for sufficient planning security for our future Group activities. We endeavor to positively influence these framework conditions or eliminate existing disadvantages through open dialog.

As in 2004, in the year under review our risk management efforts were concentrated on high-volume infrastructure projects, as well as on project and market related risks due to the high level of competition. Extensive regular analyses are conducted to this end. Our operative countermeasures include extensive efficiency and streamlining programs for specific business units and our comprehensive “Qualify”program. We also obtain insurance policies to safeguard against unavoidable risks and limit the financial consequences to the DB Group from liability claims and claims for damages that may arise.

Risk Portfolio Free of Existence-Threatening Risks Based on our current assessment of risks, countermeasures, hedges, and provisions, no risks are discernible that would threaten the existence of DB Group, now or in the foreseeable future.

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Management Board Report on Relationships With Affiliated Companies

The Federal Republic of Germany holds all shares in DB AG. Pursuant to Sec. 312 German Stock Corporation Act (Aktiengesetz; AktG), the Management Board of DB AG has therefore prepared a report on its relationships with afﬁliated companies, which concludes with the following (translated) declaration:

“We hereby declare that, based on the circumstances known to us at the time at which the legal transactions were entered into, our company received reasonable consideration in each and every legal transaction. In the year under review, the company did not take or refrain from taking any action at the instigation or in the interest of the federal government or parties related to it.”

103 Events After the Balance Sheet Date

Supplemental Expert Opinion Prepared BAX Acquisition Process Success- fully Closed

Supplemental Expert Opinion Creates Basis of Discussion on DB’s IPO In September 2004, the expert opinion “Privatization Options for Deutsche Bahn AG, With or Without Rail Network” was placed for tender by the Federal Ministry of Transport, Building and Urban Affairs (BMVBS) upon the request of the Bundestag’s Transportation Committee. It was to supplement the current expert opinion, “Deutsche Bahn AG’s Ability to Access Capital Markets” by Morgan Stanley from 2004, by comparing all possible options under consideration from financial management as well as budgetary, competitive, and transport policy viewpoints. In March 2005, a consortium under the leadership of Booz Allen Hamilton (BAH) received the order to prepare this expert opinion. After the initially envisaged preparation period from March until June 2005 was extended by several months, the expert opinion was submitted to the Bundestag’s Transport Committee in January 2006. Pursuant to the contracting party’s guidelines, the expert opinion does not contain any definitive recommendation with regard to the structural concept, but rather is intended to pinpoint and describe the advantages and disadvantages of the various options. Accordingly, the Bundestag’s Transport Committee is currently reviewing its findings on the expert opinion. A final clarification of the structure issue is a material requirement for an IPO of DB AG. A political decision can be made based on this expert opinion in 2006.

Successful Closing of the BAX Acquisition After the agreement on the acquisition of BAX was signed on November 15, 2005, the conditions precedent to this agreement could be fulﬁlled and the transaction was successfully closed in January 2006. This provided the legal basis for BAX’ integration into the DB Group, which is now being made incrementally.

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Strategy

Focused Group Portfolio Vertical Integration as a Fundamental Prerequisite for Competitiveness Leading International Mobility and Logistics Service Provider Taking Advantage of Market Opportunities and Additional Growth Enhancing Rail Transport in Germany

Focused Group Portfolio The 1994 German Rail Reform set forth the task of converting the former Federal Railways into a commercial enterprise managed under private law, a task which we accepted. This resulted in four major challenges: extensive modernization of our infrastructure and rolling stock, continuous productivity increases and competitive cost structures, market-driven solutions with regard to all dimensions relevant from the customer’s viewpoint and appreciating growth opportunities, as well as sustainable improvement in proﬁtability and internal ﬁnancing capability.

While particular emphasis was necessarily placed on restructuring and eliminating the investment backlog in the first few years after the start of the German Rail Reform, further development of our service portfolio to meet market needs as well as taking advantage of growth opportunities – while continuing consistent cost management and additional modernization – are now increasingly at the forefront. In addition, we are striving to meet the capital market’s needs with regard to yield, balance sheet structure, and financing power. We have established a comprehensive value management system and appropriate capital market targets to meet these needs. We are established as an integrated Group with regard to our business portfolio and consider the focus on interrelated business units a significant success factor. Our core business is determined to a considerable extent by rail activities in Germany, our home market. Our primary task here is maintaining our strong market position in passenger and freight transport as well improving the intermodal competitive ability of the overall rail system. Our Group’s vertical integration, which includes the infrastructure, is a fundamental prerequisite if DB AG is to be fully responsible for enhancing the overall rail system. This is the only way to ensure that the market pressure to which the transport divisions of the DB Group are exposed is also reflected in the infrastructure and service segments. All infrastructure users benefit equally from this, as well as from our modernization programs, in a non-discriminatory manner. To ensure the high quality of our infrastructure and the targeted further development of the network over the long term, we strive to maintain a long-term and modern infrastructure partnership with the federal government. This partnership should be based on a service and financing agreement, which accommodates our entrepreneurial interests with the federal government’s constitutional obligation to ensure the rail infrastructure.

105 The targeted further development of our core business – in particular in transport and logistics – has aligned Deutsche Bahn to the changed, more demanding requirements of our customers. The addition of Schenker in 2002 and BAX at the beginning of 2006 strengthened our organization and opened up additional growth potentials in the European land transport, international air and sea freight segments, as well as in contract logistics. These additions to our portfolio are also a significant building block for ensuring the future of rail freight transport, which profits from its integration into high-performance, international networks. We develop our strategies based strictly on market and competitive factors. This corresponds to market requirements as well as our Group philosophy that our business units always strive for leading positions in the relevant markets. At the end of 2004, we launched the “Qualify” program, a package of comprehensive measures to ensure the necessary further improvement in our quality of service, competitive strengths, and profitability.

On Track to Becoming a Leading International Mobility and Logistics Service Provider As current business analyses and the known forecasts show, our market and competitive environment is and will continue to be characterized by a high degree of change and intense competition, which results in significant challenges. But at the same time, these conditions offer major opportunities for further Group development. The increasing internationalization of the economy and society and the cross-border realignment of production structures and material flows lead to a continuing increase in demand for international mobility and logistics services. Last but not least, the Eastern expansion of the EU has created new perspectives, in that this expansion has changed the rules of the game in freight forwarding markets and created additional cost pressure in shipping services, while concurrently strengthening the importance of our domestic market as a transit country. This places considerable demands on all modes of transport. In this connection our core business, rail transport, is particularly indispensable for managing the growing transport flows in a commercially sound and environment-friendly manner. The pending deregulation at the European level gives rise to major opportunities for rail as a mode of transport overall and hence for us as a powerful provider. The rail markets in Europe will be opened in freight transport by 2007 and in passenger transport by 2010. In the future we will have the same opportunities on the rails abroad, which international carriers have been taking increasing advantage of here at home based on the open access to the market in Germany since 1994.

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At the same time, it is necessary to integrate rail transport into across-the-board mobility and logistics offerings in view of current and future customer requirements. The logistics sector is expected to grow disproportionately more than GDP due to the globalization of industrial structures entailing a significant trend of relocating production sites within Europe, or particularly to Asia. However, only those companies which are able to offer their customers comprehensive global logistics services will participate in this development over the midterm. Leading positions in terms of quality of service and profitability thus play a decisive role in today’s market structures, which are still partially fragmented. In the passenger transport segment, the “mobility” challenge is combined with the need to intelligently network various modes of transport, thus allowing integrated solutions. In this context, further optimization efforts are also called for not least by the foreseeable demographic changes and hence new requirements with regard to high- performance and cost-efficient transport in high density areas. Against this backdrop, we are pursuing the goal of further developing DB Group into a leading international mobility and logistics service provider. To this end, we will further improve our core services, offer integrated solutions to combine systemic strengths of various modes of transport, and optimize the interfaces to the upstream and downstream elements of the value chain. We will expand our operations in the future focusing exclusively on areas where there is reasonable customer demand and where our skills and resources suggest this. By focusing the enhancement of our service spectrum on our core business, we try to ensure at the same time that the German rail system will continue to participate more than proportionately in the growth in the mobility market in the future. We will also be able to realize additional profit potentials from internal process optimizations and cost reductions. In addition, we expect growth and development opportunities for our business units from continued internationalization and entry into related markets. In preparation for the opening of the European rail passenger market by 2010, we are focusing on establishing our international business, expanding our position in urban transport, as well as offering attractive mobility chains. Further strengthening of the Railion business unit’s international position in rail freight transport is improving our competitive ability against other modes of transport.The continued improvement of skills along the logistics chain at Schenker and BAX represents important development paths for logistics activities, as does the optimization and further expansion of networks in a consolidating market. In the infrastructure and service segments, we expect further growth in business with non-Group customers.

107 Transport and Logistics: High-Performance, Global Networks and Logistical Expertise The international freight transport and logistics markets will remain clear growth markets in the midterm. The road, sea, and air freight transport markets have been largely liberalized and are geared towards international business. Indications of similar progress in European rail freight transport are also beginning to show. Regardless of questions concerning legal market access, international rail transport must overcome historical restraints caused by different track gauges, power supplies, command and control technologies, as well as country-specific legal provisions. Due to the intense competition in the freight transport market, DB AG must continue its reorganization and restructuring efforts in order to ensure sustainable profits. For our Railion business unit, the primary task is to further increase its competitiveness in a difficult competitive environment. The “RailPlus”project launched in June of the year under review forms the basis for additional productivity increases and medium- term improvements in earnings by using a holistic approach to both markets and production. Initial progress has already been achieved in the year under review. Our customers also demand a high degree of reliability in providing our services as well as consistent quality extending beyond national borders. When considering the further internationalization of rail freight transport, we see complementary strategic options involving the expansion of the Railion network by including additional railroad companies, adding equity investments or partnerships, as well as direct market entries of our own. We are also meeting the challenges posed by technical issues – just like in cross-border passenger rail transport – with appropriate capital expenditures in multi-system, internationally approved rolling stock. The Stinnes business unit is well-positioned in European bulk goods transport as Stinnes Freight Logistics. The long-term goal here is to become one of the leading providers of freight forwarding and logistics services in the bulk goods segment in Europe. The intermodal freight transport volume in Europe will show stronger growth than the remainder of the rail freight transport market due to increasing containerization. Against this backdrop, we intend to use Stinnes Intermodal to further expand our leading market position across Europe as an intermodal rail freight transport provider and thereby participate even more strongly in this growth market. We intend to achieve this through, among other things, focusing more on high-volume European thoroughfares. Our customers also expect more comprehensive logistical solutions. Here, we are able to offer them a range of services with one-stop shopping for logistics, freight forwarding, and transport services. We will further improve our competitive position by combining the Schenker and BAX networks. We offer top-quality solutions designed

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for and targeted to the special requirements of various industries. With Schenker and BAX, DB AG has two strong global logistics service providers with high-quality worldwide networks in the land, air and sea freight transport segments and strong logistical expertise in important industries (e.g. automotive and high-tech), which will enable us to actively participate in global market growth. We intend to further expand our worldwide networks as well as enhance our logistical competency in targeted areas through internal and external growth in order to maintain and further strengthen our leading market position. One of the central tasks in the 2006 ﬁnancial year will initially be the integration of BAX into the DB Group.

Passenger Transport: Integrated Mobility in Germany and Positioning in Europe Continued growth is forecast for the passenger transport market in Europe. Liberalization of local and long-distance rail passenger transport markets has begun, but has progressed at widely varying speeds across Europe. In long-distance passenger transport, Germany is becoming the clear forerunner in Europe with regard to open market access. In contrast, the number of tender offers for local rail passenger transport has been increasing throughout Europe. Against this backdrop, our ﬁrst priority continues to be defending our position in our home market of Germany. This means further developing our individual Long- distance, Regional, and Urban business units, as well as networking them more closely and creating intermodal transport mobility services, including backup systems for information, ticketing, and settlement. Accordingly, this includes the enhancement of “www.bahn.de” by providing comprehensive mobility information regarding train connections throughout Europe as well as almost all connections in public regional and urban transport within Germany. The further development of the BahnCard into a mobility card, consistent fares up to and including the various public transport associations, as well as the operations of DB Carsharing and “Call a Bike” are aimed at offering more attractive mobility services that also extend beyond rail and bus transport. In addition, we will continue to expand cross-border transport and, should the occasion arise, take advantage of opportunities to enter foreign markets to internationalize our activities step-by-step. Our goal for the Long-distance Transport business unit is to ensure a highly competitive offering of fast connections between German metropolitan areas and foreign countries within Europe. In this context, we rely on the classical advantages of rail systems: rapid traveling, relaxed and comfortably from city center to city center with a lot of time to use. Further improving our information and service quality as well as

109 stabilizing or increasing on-time performance will be priorities. We will also continually enhance our service and pricing concepts, along with our tools to increase customer loyalty, with an eye toward specific target groups. In cross-border transport, we will continue to intensify our cooperation with railways in neighboring countries. We have combined some major initiatives in our “Long-distance Transport Campaign” program, which has already contributed significantly to this business unit’s market success and increase in earnings in the year under review. In our Regional and Urban Transport business units, it is necessary to provide economical services for seamless mobility in both town and country. To a high degree, we in particular are able to manage the optimal integration of the various transport systems. This requires further improvements in productivity, quality, and service. At present, the German urban transport market is still highly fragmented and characterized by municipal providers, but this market is beginning to open up. Given appropriate opportunities to enter markets, a stronger emphasis on economic efficiency in urban transport through increasing efficiency and utilizing synergies will offer significant growth potential. With a view to the future, we are also looking at the prospects for taking advantage of growth opportunities in neighboring European urban transport markets.

Infrastructure and Services: Built on Ensuring Reliable, Attractive, and Affordable Solutions Our infrastructure businesses and internal service providers determine the long-term competitive ability of the integrated rail system to a considerable extent. Cost reductions and performance improvements are the most important levers for further increasing the competitive ability of rail transport. Our central task here consists of providing high quality, safe and reliable railway operations that are designed to meet the requirements of rail companies. Our services and related pricing systems for the use of infrastructure are designed to be non-discriminatory. The Passenger Stations business unit is continuing to pursue its course of station modernization as required in keeping with the intended usage in close cooperation with the federal government and the respective regional administrative bodies. We are also moving forward with our programs for safety, cleanliness, and service. As part of these programs we are implementing differentiated developmental concepts for various categories of stations. Improving the parking situation at our major stations is the task of our newly-founded subsidiary, DB BahnPark GmbH. We see potentials in increasing car park rental income at high trafﬁc locations. We will continue to sell off unproﬁtable concourse buildings that are no longer in demand and make the necessary adaptations to the infrastructure of the stations.

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A central challenge in the Track Infrastructure business unit remains a further increase in efficiency accompanied by cost-optimized modernization and removing bottlenecks in the existing network. Among other things, our “Net 21” (Netz 21) strategy is aimed at segregating faster-moving from slower traffic and harmonizing speeds. The “Net 21” strategy will be implemented in three medium and long-term capital expenditure programs. The largest of these programs aims at more efficiently tapping the potential of our existing network than has been the case. The second program involves investing in modern command and control technology, which will increase network flexibility and availability. Lastly, our third capital expenditure package is aimed at supplementing the infrastructure through new line construction and line upgrading projects, where it will have the greatest effects on the network. This program should eliminate bottlenecks, especially at railway hubs, and further reduce travel times. The speed and extent of our network expansion will depend largely on transport policy targets and the amount of infrastructure funding provided by the federal government. Our service activities also make a considerable contribution to the value chain for our customers and the rail system. Their positive reception by non-Group customers as well, particularly in vehicle maintenance, telecommunications services, and facility management, is an indication of additional growth opportunities.

111 Outlook

Overall Economic Outlook Restrained – Significant Regional Differences Remain Ambitious Goals for all Business Units Continued Revenue and Profit Growth Plan for 2006 Financial Year Positive Development Also Expected for 2007

Economic Prospects: Growth Momentum Unchanged According to the estimates of economic research institutes available at the time this report was prepared, economic conditions in Germany are expected to improve slightly in the 2006 financial year. Forecasts for global economic indicators continue to be more upbeat than for the German economy. The following forward-looking statements for development in 2006 are based on the assumption that the overall global political climate will remain stable. Global economy: Growth momentum in the global economy should continue almost unabated and gain breadth in the current financial year. Overall economic growth in the USA is expected to slow down only slightly. In Japan, the economic expansion will continue at about the same rate as in the prior year. China’s economic policy measures aimed at avoiding excess industrial capacities will slightly weaken total economic growth there. The expansion in the remaining East Asian countries will continue at a slightly faster pace due in particular to an upturn in domestic demand. A central risk factor continues to be the development of energy prices. For example, if the price of oil increases above its already high current level, this may result in a considerable drag on the global economy. Europe: In the euro zone, the growth trend in GDP will probably add 0.5 percentage points. Consumer spending may increase slightly, supported by higher employment rates and concurrent moderate wage increases. If long-term interest rates increase only slightly, capital expenditures will show marked growth in view of rising corporate profits. The overall favorable situation of the global economy, the decline of the euro during the course of 2005, and the improvement in competitive ability will further strengthen exports. However, cutbacks in public spending will have a slight dampening effect. GDP growth in the Eastern and Central European EU member states will remain at 2005 levels and continue to be significantly above the EU average. Consumption as well as capital spending should also increase. Foreign trade in particular will be stimulated by the recovery in the euro zone. Germany: Current forecasts for 2006 expect growth to be about 0.5 percentage points higher compared to the previous year. In view of the continuing favorable international environment, growth in exports will accelerate slightly. Together with the improved depreciation rules for companies, this will contribute to a significant rise in capital goods spending. Construction spending, supported by, among

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other things, the federal government’s additional capital spending program for trafﬁc infrastructure, will no longer be depressed. Consumer spending, too, will recover somewhat in the second half of the year, not least by moving up purchases due to the VAT increase announced for the beginning of 2007. The 2006 FIFAWorld Cup™ will also result in positive economic effects in some areas of the overall economy.

Expected Development of our Relevant Markets The brightening of the national economic environment expected for 2006 as well as the FIFAWorld Cup™ allow to estimate a restrained growth of 0.5 % for the German passenger transport market overall. We expect a slight recovery in transport performance for motorized individual traffic. Fuel prices are expected to increase again in the current financial year, but not as much as in 2005. Growth in domestic air travel should be 1.5–2 %, the same as in the year under review. In contrast, demand in public road passenger transport will at best remain flat as a consequence of declining public resources. The rail transport situation in Germany will be influenced on the one hand by a slight recovery in the labor market, on the other hand by stagnating real income and only weak stimuli from consumption. Overall, however, we are expecting a slight increase in transport performance as well. The international transport and logistics markets will also show growth in the future. However, the excess capacities in air and sea freight already existing in the year under review, just like to some extent in land transport, will likely increase further. This will result in increased pressures on margins and the wave of consolidations in the transport and logistics services market will continue. Once again, growth markets will be the Asian exports to America and Europe. Eastern Europe will continue to be an additional growth center. The continuing shifting of industrial production to these countries and the growing per-capita income will result in increasing flows of goods between Western and Eastern Europe. Economic stimuli will increase slightly for the German freight transport market: Foreign trade will attain higher growth rates than in the prior year and domestic demand will recover slightly. Production increases in the manufacturing trades should continue to be significantly stronger than overall economic growth. After a marked decline last year, crude steel production should be able to post moderate growth. We expect somewhat greater momentum than in the year under review for the development of freight shipments in this overall economic environment. With respect to both rail passenger and rail freight transport, in addition to very intense competition in intermodal transport, we expect non-Group railways to increase in significance, and consequently, further intensification of intramodal competition. The outlook in the rental business should improve slightly in the current year due to more positive forecasts for retail trade and the hospitality industry.

113 Trends in the Political and Legal Framework Current debates on the political and legal framework and pending modifications of basic conditions are unlikely to generate any significant momentum in the 2006 financial year. In discussions on transport policy, particularly at the European level, we expect further preparations for the announced opening of rail freight transport markets by 2007. However, with regard to operational implementation in neighboring countries, considerable uncertainties still exist. Compared to the rest of Europe, Germany has already demonstrably taken a leading position in regard to liberalization by its open access to the German rail infrastructure market since 1994. Insofar, we welcome all progress toward an overall convergence along the standard already attained in Germany as a material prerequisite for strengthening the position of the railroads in intermodal competition for long-range international transport. Another transport policy issue is the convergence of competitive conditions for the different modes of transport. We will continue our involvement on behalf of the rail transport sector in all policy debates on key transport issues.

Expectations for the Development of our Business Units in 2006 Our business operations will continue to be focused to a considerable extent on the quality of our service and consistently taking advantage of growth opportunities. To this end, we have implemented extensive programs at the individual business unit level as well as programs with a Group-wide approach: The foremost example of our cross- business unit approach is our “Qualify” program. With regard to growth opportunities, we rely predominantly on internal growth, which may be complemented by M&A transactions on a case-by-case basis. However, a major challenge we are currently facing is the integration of BAX. Overall, we expect to continue reasonable participation in the growth of our relevant markets in the current financial year and to secure or expand our market shares. Forecasts relating to the development of our individual business units are basically as follows: Long-distance Transport business unit: This business unit should continue the positive trend from the year under review– not least due to increases in demand on the Cologne–Rhine/Main, Hamburg–Berlin fast connections, from the new Cologne–Stuttgart Sprinter, as well as numerous additional improvements in scheduling that go into effect as of the change of timetable in May 2006 – so that we expect transport performance to improve once again as well as increasing contributions to revenue and earnings. Regional and Urban Transport business units: Following the positive developments of these business units in the year under review, we expect moderate growth in transport performance, revenue and contribution to profits for the current financial year. Particular attention will have to be paid to further improving our cost basis – especially in the continuing competition for ordered service contracts.

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Schenker business unit: This business unit should again attain above-average revenue growth in all sectors (European land transport, air/sea freight, and contract logistics) and strengthen its contribution to profits at the same time. Non-European activities in particular will likely continue to contribute to this goal. However, Schenker’s market presence in Eastern Europe will continue to be strengthened as well. We also expect the successive integration of BAX into the DB Group to boost the Schenker business unit. Railion business unit: Development in the current year will likely be characterized to a considerable extent by strong competition and the related pressure on margins. However, we intend to improve transport performance and thus slightly increase revenue and profit performance as well, above all by implementing the “RailPlus” program. Stinnes business unit: Overall, we expect the Stinnes business unit to post a slightly higher contribution to profits overall. Track Infrastructure business unit: Non-Group revenues will again increase in the 2006 financial year in view of the significant further increase in utilization of our rail infrastructure by non-Group railways. We aim to improve profits further through an additional improvement in cost structures. Passenger Stations business unit:We expect only a slight increase in station stops for the current financial year, essentially due to the commencement of operations of the Berlin North-South link as of the middle of 2006, and only limited growth in rental business in view of general market conditions. However, a slight improvement in profits is the target of additional cost reduction measures. Services business unit:We expect a moderate increase in external revenues from the further expansion of external business at DB Telematik GmbH and DB Systems GmbH. Energy business unit: Based on a further business expansion with non-Group customers – in particular in energy services – we expect slightly higher external revenues.

Goals in the 2006 Financial Year: Additional Revenue and Profit Growth Our primary economic goal in the 2006 financial year continues to be the sustainable further improvement in our profitability and financing capability – and hence our significant performance indicators such as revenue, EBIT, ROCE, redemption coverage, and gearing.

115 Key figures € million 2005 2006 Outlook

Increase in revenue in core business as well Revenues 25,055 as from first-time consolidations EBIT 1,352 Continued profit improvements ROCE 5.0 % Further increase Gross capital expenditures 6,379 Approximately same level Slight increase/decline after adjusting Net financial debt 19,669 for BAX financing Employees 216,389 Increase from initial consolidations

Revenues: Based on current estimates, we expect an increase in revenue in the current financial year for the core business to date of 3–5 % on a comparable basis. An additional increase in revenue of more than € 2 billion will result from the initial inclusion of BAX as well as initial inclusion of revenues from RBH and Linjegods, so that total sales in 2006 should exceed € 28 billion. EBIT: Additional sustainable improvements in profits are expected in the current financial year from the aforementioned positive revenue trend coupled with our strict cost management. We wish to increase our EBIT by about another 15–20 %. ROCE: As we do not expect significant changes with regard to capital employed in the current financial year, the positive development in EBIT will further improve ROCE. From our viewpoint, we will meet the corporate requirements for establishing the conditions to access capital markets for an initial public offering in the near future. Capital expenditures and financing: Resting on the further development of federal funds for infrastructure, capital expenditures in the Track Infrastructure business unit will stabilize initially. This trend will also be reflected in the development of total capital expenditures in view of the relative significance of this business unit. Taking infrastructure financing by third parties into account, we expect to be able to finance all capital expenditure programs internally in the current financial year. Insofar we do not expect any significant change in the level of debt from the operating business either; however, recourse to the capital markets for financing the acquisition of BAX will be reflected in a slight increase in debt. Employees: As of December 31, 2006, the number of employees at DB Group will be higher than at the end of the year under review. The results of DB AG’s continued optimization program in our rail core business are offset by headcount increases in the Schenker business unit as well as by the effects from an expansion of the scope of consolidation.

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Procurement:We do not expect any fundamental bottlenecks in procurement for the current financial year. The further development of energy prices will be a decisive issue. After the steep rise in energy prices in the year under review, the positive forecasts for future profit development will only be met if procurement costs now stabilize. Regardless of this, we do not foresee major price fluctuations, increases, or reductions over the short-term in our relevant procurement markets. However, significant supplier and service provider industries are experiencing or facing considerable structural changes. This applies in particular to suppliers of rolling stock, command and control technology, and to the construction industry. Structural changes in some industries could lead to less favorable procurement terms in the medium term, which would primarily be reflected in prices. We do not yet expect any significant consequences in the current financial year from the consolidation trend observed among freight forwarders in air and sea freight. Environmental protection:We are committed to continuing our efforts to protect the environment in the 2006 financial year. Our priorities will continue to be on further reducing greenhouse gas emissions by reducing energy consumption, preventing water pollution, as well as actions to control noise.

First Report on Expected Developments for the 2007 Financial Year In accordance with German Accounting Standard (GAS) 15, for the first time we are also providing an estimate for the year following the current financial year. However, considerable forecasting uncertainties currently exist with respect to expected market, competitive, political and economic conditions. Assuming that the significant trends for 2006 will continue for the most part, we expect additional slight increases in revenue and EBIT for the subsequent year as well.

As usual, our outlook is subject to the reservations set forth below.

Forward-looking Statements This Management Report contains forward-looking statements and forecasts based on beliefs of Deutsche Bahn Group management. When used in this document, the words “anticipate”, “believe”, “expect”, “intend”, and “plan” are intended to identify forward-looking statements. Such statements reﬂect the current views of Deutsche Bahn Group, its business units and individual companies with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results to be materially different, especially those described in the “Risk Report”. Actual results may vary materially from those projected here.

Deutsche Bahn Group does not intend or assume any obligation to update these forward-looking statements.

117 Employees

Highlights

Human resources strategy focused on competitiveness and job security at the same time

Systematic approach to develop skills of senior management and employees

Intra-Group job market is central element of active employment policy

118 Deutsche Bahn Group | 2005 Annual Report

Competitive Human Resources Strategy Fundamental for DB Group

We consider a competitive and forward-looking human resources (HR) strategy and policy to be a fundamental building block for the future of DB Group, enhancing its competitive position and proﬁtability as well as improving job security for our workforce. In systematically recruiting and training specialist and management trainees, we are creating the basis for sustainable success. In view of the challenging market environment and to strengthen understanding of Group policy, we are increasingly focusing on new employee development opportunities and implementing initiatives for future growth that span over multiple business units and that take the world-wide presence of our Group into account.

Program to Ensure Future Efficiency and Employment Our primary goal is to achieve a sustainable increase in our company’s competitiveness and cost effectiveness. In addition, we renewed our commitment in 2005 to secure jobs within the Group and demonstrate employment prospects for our workforce. With the completion of essential stages within DB’s program to ensure future efficiency and employment, we have achieved important goals for our company’s future during the year under review. Together with the repositioning of DB JobService GmbH, two key agreements relating to job security helped to streamline established processes and instruments of our employment policies and include some innovative elements: the new Collective Agreement to Secure Employment (Beschäftigungssicherungs-Tarifvertrag) and the new Group works council agreement on the intra-Group employment pool. With these improvements, we were able to prove that, even in economically difficult times, it is possible to secure employment for the good of the company and its workforce. Through a joint effort of management and labor, DB AG managed to increase job security in two ways. First, the new Collective Agreement to Secure Employment has been extended to include employees who have been with the Group longer than five years. Second, this agreement was extended to include additional Group companies, for example a number of service companies. Another important aspect of DB’s program to ensure future efficiency and employment was the reduction of labor costs by 5.5 % through a general reduction in annual working time from 2,088 to 2,036 hours with proportionate wage adjustment. In addition, individual employment pacts at the legal entity level with an annual working time from 2,036 to 1,824 hours and corresponding wage adjustments also contribute to employment security by allowing both management and the workforce to flexibly react to regional or local changes. During the year under review, more than 50 employment pacts were made, saving roughly 900 jobs.

119 When the possibilities to protect jobs through ﬂexible working time have been exhausted, the active employment policy tools turn to the intra-Group employment pool. The primary goal remains placing employees affected by job cuts in other jobs. If no direct placement to new regular employment is possible either inside or outside the Group, the employee concludes an integration contract with DB JobService GmbH. During this integration phase, employees are prepared for new regular employment, which includes the creation of development plans as well as preparation by means of temporary integration jobs, internships, employment projects, and quali- fying measures. As a rule, the employees remain integrated in the labor force. In order to be even better prepared to meet the challenges of job protection in the future, the range of activities of DB’s major internal human resources service providers were extended during the year under review. DB JobService GmbH: As a service provider for companies within the DB Group whose employees are faced with losing their jobs, DB JobService GmbH aims for optimized personnel placement within the DB Group and beyond, i.e. the management of personnel transfers between legal entities having vacancies and those having redundancies. Based on the key functions performed at DB Group companies, we strengthened these efforts during the year under review. The range of activities of DB JobService focuses on job placement and personnel recruiting inside and outside the Group for trainees and specialized employees for the DB Group. During the year under review, DB JobService supported approximately 3,200 employees and civil servants of DB Group who could not be offered a position immediately after losing their job. DB JobService employed approximately 2,600 people on December 31, 2005. Job placement activities were further developed and professionalized in order to use every employment opportunity inside and outside the Group to secure employment for our staff. External hiring for a vacant position is only possible in the absence of any eligible internal applicants. Furthermore, more vigorous insourcing initiatives have been started and external (regional) placement networks have been set up to supplement current internal placement opportunities. For example, in close cooperation with Group companies, DB JobService will be making 500 to 800 insourcing jobs available each year, especially in service areas such as cleaning, security, railway safety, ﬂagman, and trackside vegetation control services. In order to improve external placement opportunities, we expanded existing regional networks at Leipzig, Frankfurt/Main, Cologne, and Berlin according to our needs, where we are collaborating with companies and local agencies outside the DB Group.Within these networks, employees have the chance to switch over to network partners. In order to supplement existing external placement and recruiting possibilities, established external employment agencies were integrated

120 Deutsche Bahn Group | 2005 Annual Report Employees

into a consortium. Because of their proximity to the external job market, they are able to quickly identify qualification requirements in specific jobs and arrange for the respective training programs. Qualification programs currently focus on developing skills required in various technical trades in the non-Group labor market, such as for welders, qualified CNC operators, and engine mechanics. DB Zeitarbeit GmbH (Personnel Leasing): DB Zeitarbeit GmbH strongly increased its revenues and the number of employees during the year under review. The company’s headcount for personnel leasing increased by 98 % on average over the previous year. In view of the need for personnel leasing within the DB Group, DB Zeitarbeit focused primarily on expanding its services to become an in-house instrument for providing temporary staff for the DB Group during the year under review. These services included its function as an agency for job starters, i.e. a platform for young people to begin their careers after a period of vocational training with DB. DB Zeitarbeit hired 517 job starters who gained considerable all-round experience by working for internal clients within the DB Group. Another main focus of activities was on the temporary placement of civil servants with a view to their permanent employment. During the year under review, 300 civil servants were leased out and one out of three was offered a permanent position by satisfied clients. To expand the range of its services on the external market, DB Zeitarbeit set up a marketing platform together with the internal DB Training and Technology and Procurement Group functions, as well as external cooperation partners Randstad Deutschland and Ferchau Engineering. Intensive marketing efforts led to a considerable increase in external revenues.

Systematic Recognition and Promotion of Potential Competent management and leadership skills are crucial to the success of a company, especially in times of major restructuring. Identifying, selecting, training, and placing qualified managers is just as important as systematically recruiting and preparing future specialists and leaders. Our management development program is based on a common understanding of leadership qualities. In order to achieve this, a comprehensive qualification program with standard learning tools for all aspects of management has been implemented. All training and qualification activities for the top management are conducted by the DB Academy, which, in the year under review, further expanded its leadership and management program with a focus on improving communication between the Manage- ment Board and other top-management levels. Programs for middle and operational management are organized Group-wide by DB Training. In addition to obtaining on-the- spot qualifications, managers simultaneously develop a common understanding of leadership and establish Group-wide networks.

121 The management planning process (MPP), a systematic procedure for promoting leadership development, is now able to reach all managers and levels of management within the Group. Since the year under review, MPP has been systematically implemented and expanded to include employees not involved in management functions in order to identify potential managers on all levels. MPP is a generally accepted management tool and has contributed to an overall improvement in management quality. Furthermore, succession plans for top management positions have been drawn up. By utilizing all internal potential, MPP has helped to further increase the share of in-house stafﬁng at all levels across all business units. Currently, 95 % of all management positions are being ﬁlled internally with junior managers. Accordingly, external recruiting decreased during the year under review. Intra-Group cooperation and especially the development of the integrated systems rail were strengthened and promoted by continued development efforts and appoint- ments to management positions involving and extending across multiple business units and Board divisions. Within this framework, we place our main emphasis on operational management. Management policy principles for these managers, who work in direct contact with our customers or are responsible for customer-oriented processes and are, therefore, crucial to the quality of our company’s products and services, were established in the year under review. Beginning in 2006, all leadership tools such as employee appraisal interviews and management seminars will also be applied Group- wide to operational management.

Continuity in the Supply of Future Staff The DB Group is and will remain one of the largest occupational trainers in Germany. Our comprehensive vocational training activities are currently securing the future careers of more than 8,200 young people. We provide training in over 25 different occu- pations at more than 40 locations. Ensuring successors is thus a major building block toward becoming the world’s leading transportation and logistics service provider. Despite the difficult situation in the German apprenticeship training market, more than 2,700 young people began their occupational training at DB Group in the year under review. Within the framework of the pact on apprenticeships signed by the German government and business and employers’ associations, we expanded our training programs to include young people whose qualifications are considered to be insufficient for apprenticeship positions. To this end, we had already initiated the Group-wide internship program ‘Opportunity plus – practical job training with a future’ in 2004. After a high percentage of ‘Opportunity plus’ participants successfully completed the program in the first year and found jobs, we, together with selected external cooperation partners, have been offering 440 internship positions at 15 different locations since the fall of 2005. The goal of this internship program is to get trainable, yet insufficiently qualified

122 Deutsche Bahn Group | 2005 Annual Report Employees

young people ready for working life so that they can then start an apprenticeship, practical training, or an entry-level job at DB, its cooperation partners or other companies. In the year under review, approximately 70 % of the participants in the internship program found training positions or jobs, a result that clearly illustrates its success. We offer numerous entry and development opportunities nationwide for people holding academic degrees from cooperative education, technical, and standard uni- versities. More than 160 university graduates joined DB Group in 2005 as trainees or first-time employees. Our TRAIN Tec trainee program is particularly attractive for engineers. During Group-wide, practical modules, TRAIN Tec solidifies social and business skills in its project work and supporting training courses. Entry positions at DB for graduates with the new (for Germany) bachelor’s degree are becoming more and more popular. As a co-initiator of the memorandum of the Federal Union of German Employers’Associations,“Bachelor Welcome”, DB focussed strongly on bachelors with degrees in the engineering sciences in the year under review. In close cooperation with German professors teaching in the field of railway engineering, we set up common curriculum guidelines specially tailored for bachelor’s programs in engineering to meet the requirements of the railway industry. At the same time, we stood by our commitment under the “Bachelor Welcome” memorandum to integrate graduates from these new bachelor’s programs into our company and hired a large number of bachelors without railway-specific training.

Active Social Policy and Equal Opportunities A family-friendly personnel policy is an important basic principle for establishing equal opportunities in the workplace. Therefore, we pursue the goal of reconciling career and family with a number of different initiatives. A program designed to facilitate going back to work after parental leave, consulting offered six months before the end of parental leave, and specific qualification programs as well as flexible working time, tele- commuting, and support programs for children allow employees to re-join the workforce. Especially noteworthy are DB’s support programs for employees’family members needing nursing care. At the same time, these models have confirmed our reputation as a company with one of most family-friendly personnel policies. Together with about 20 other member companies of the “Women in Business Forum”, we participated in the competition for enterprises entitled “Erfolgsfaktor Familie 2005” (The Family as a Success Factor – 2005) initiated by the Federal Ministry for Family Affairs, Senior Citizens, Women, and Youth. Our company’s almost 15 years of social and community commitment were judged extraordinarily innovative and awarded a special prize.

For more information on DB’s major job and career promotion programs, please see our reports on our company’s personnel and social commitment as well as our up-to-date Internet publications at www.db.de.

123 Environmental Protection

Highlights

Establishment of sustainability management

Achievement of 2005 energy saving target

Well under way: Climate Protection Program 2020

Further substantial reduction of diesel particulates

Greater cooperation in environmental matters

124 Deutsche Bahn Group | 2005 Annual Report

Orientation Toward Responsible, Sustainable Business Operations

In light of continuing growth in demand for mobility and transport, one of our primary objectives must be to minimize burdens on the environment and the atmosphere stemming from the transport sector as much as possible. We feel obligated to adhere to the principles of sustainable, responsible business operations and show this commitment by our sustainability management procedures. In an ecological comparison of modes of transport, rail transport offers considerable advantages. In addition to technical safety, performance quality, and service orientation, these advantages have proven to be an important factor for our customers when choosing a means of transport. It is not least for this reason that the rails also play a central role in transport policy and infrastructure considerations regarding the design of mobility and logistics structures in Germany and Europe that are able to meet the needs of tomorrow. One of our most important business targets is the optimization of resource consumption. In the year under review, we were able to further decrease our primary energy consumption in rail operations by 3 %. Compared to 1990, our total primary consumption has thus declined by approximately 25 % – and we have therefore achieved our target to save 25 % by 2005. In this respect, a wide array of measures helped to reduce energy consumption related to transport performance. To name just a few, these measures included the “SaveEnergy”program initially established in rail passenger transport, which included energy consumption displays and energy-saving driving recommen- dations displayed on the control panels in the driver’s cabin; these enable our locomotive engineers to keep energy consumption low. This project has already achieved energy savings of 4.8 % in long-distance transport compared to 2002. The program has meanwhile also started successfully in rail freight transport. We also take into account that the rail transport sector cannot operate every transport need in a perfect way. For this reason, we are working to intelligently combine various modes of transport as part of comprehensive transport and logistics supply chains. In the area of passenger transport, aside from improving our rail services, we are also striving to ensure smooth mobility by optimizing transfers and interfaces between the modes of transport. Since the year 2003, this has also included the innovative DB Carsharing system: Our customers can now make ﬂexible and low-cost use of around 1,600 cars at 600 stations in 90 cities with the help of their personal customer cards – and this service is not just to ensure mobility to make connections at the departure or destination station. The year under review also saw an expansion of our “Call a Bike”service, which was started in 2001.

125 Environment Program Safeguards Ecological Advantages of Rail-Bound Transport Through our Environmental Program 2004– 2008, which includes 66 individual projects in total, we have deﬁned speciﬁc, long-term environmental goals – in such areas as climate protection and noise reduction – and formulated the steps to achieve them. In the year under review, we successfully continued this program and were able to maintain our environmental advantage compared to other modes of transport. As a result,

average CO2 emissions during long-distance rail journeys are two-thirds less than comparable journeys by car and 70 % less than comparable journeys by air. Under the motto “Green Goal”, the 2006 FIFAWorld Cup Germany™ is set to become the ﬁrst climate-neutral soccer world cup. As a National Sponsor of the 2006

FIFAWorld Cup Germany™ we are notably helping to cut trafﬁc-related CO2 emissions. According to FIFAplans, half of all visitors are expected to travel to the matches using public transport. This will make the greatest contribution to the Green Goal, as around 80 % of the expected greenhouse gases are produced during travel to and from the stadiums.

Climate Protection Program Continues to Make Good Progress With our “Climate Protection Program 2020”, we have set the far-reaching aim of reducing

speciﬁc CO2 emissions, i.e. the CO2 emissions related to transport performance, by at least an additional 15% by 2020 compared to 2002. In 2005, we succeeded in reducing

the specific CO2 emissions in rail transport by 0.4 % compared to the preceding year – and hence by a total of 5.5 % in the first three years of this program. In our opinion, a reduction of up to even 25% by 2020 is conceivable. In order to reach this goal, however, the energy and environmental policy conditions that currently distort competition compared to other modes of transport would have to be improved because, now as before, transport by air and inland waterways is exempt from any and all energy taxes – in contrast to rail transport, which is fully in the grip of emissions trading. Fair competitive conditions are urgently required from the perspective of national environmental protection efforts as well if more traffic is to be shifted to environmentally-friendly rail transport.

Further Reduction of the Emission of Diesel Particulates In the year under review, we further reduced particulate emissions from diesel engines in rail transport by 13.8 %. Since 1990 we have thus been able to cut direct emissions by 83 % by continued electrification, by equipping our locomotive fleet with modern engine technology, and by lowering fuel consumption. In order to further reduce the environmental impact of diesel particulates we will – as far as this is economically reasonable – buy new diesel engines with particulate filters for our long-distance or freight transport in the future. Moreover, we are examining a possible conversion of our existing locomotives under aspects of air hygiene, technology, and economic feasibility.

126 Deutsche Bahn Group | 2005 Annual Report Environmental Protection

We are also ﬁghting for a responsible reduction of diesel pollutants on the international level. On behalf of the International Union of Railways (UIC), we have assumed the management and coordination of the “Diesel Action Plan”that is to investigate and assess all options for reducing pollutants throughout Europe. Among other things, the aim is to clarify the technical requirements that need to be fulﬁlled for and the economic effects that have to be expected from complying with the EU-wide thresholds for the emission of diesel particulates and nitrogen oxides from locomotive engines that are planned to go into effect starting in 2011/2012.

Continuation of Noise Reduction Measures Our stated goal is to halve the noise caused by rail trafﬁc by 2020. In connection with our legal obligation to take preventive measures, we have again invested in noise prevention measures on all new and expansion lines. This included passive noise protection measures such as the installation of noise protection windows and noise reduction insulation in roofs. With regard to existing lines, we ensured noise reduction by abiding by the overall noise remediation concept adopted by the federal government in the year under review. As part of the implementation of this concept, 23 km of noise protection walls were built and passive noise abatement measures were performed in 9,100 residential units in the year under review. In the area of freight transport, the focus continued to be on expanding the use of composite brake shoes (“C shoes”) that halve the audible noise of passing freight trains. At the end of 2005, a total of 3,000 freight cars equipped with these brake shoes were in use. With the aim of speeding up the noise remediation process and in cooperation with the Association of the Rail Industry in Germany (VDB), we are lobbying for the expansion of the federal government’s noise remediation program and the possibility of also subsidizing noise-reducing measures on cars such as C shoes.

“Destination Nature” Campaign Further Expanded In the year under review, the “Destination Nature”cooperation project was also continued. Within the scope of this project, we have been supporting sustainable nature tourism in Germany’s most beautiful landscapes in cooperation with the associations BUND, NABU,VCD, and WWF since 2001. The addition of new destinations such as the Eifel National Park or the Allgäu High Alps Conservation Area made it possible to create further attractive offers to our customers.

A comprehensive overview of major programs and progress made by Deutsche Bahn in environmental protection is provided by the current 2005 Environment Report that is presented on the Internet at www.db.de/environment. For the first time, the report was published exclusively online. The complete report can also be downloaded as a PDF file. As a supplement to our comprehensive Environment Report, the current brochure “Environment Key Data – Facts and Figures”offers easy access to our most important environmental data. In addition, we provide updates on our activities on the Internet at www.db.de/environment.

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Rolling Stock and Stations

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Long-distance Passenger Transport

ICE 3 (EMU) The ICE 3 is an eight-segment high-speed multiple unit. The under-floor, individual axle drive powers 50% of the Manufacturer Consortium leaders Siemens, wheelsets, thus enabling high acceleration. The 13 trains Bombardier Transportation of the multi-current version have no problems adapting to Commissioning from 2000 the power systems in other countries and can therefore Output 8,000 kW be employed in cross- border services to the Netherlands, Max. speed 330 km/h Belgium and (in future) France. Four trains of the 2nd Seats 441 (BR 403)/431(BR 406) model series, which totals 13 trains, were delivered by the end of 2005. Stock as of Dec 31, 2005 54 (41/13)

ICE 2 (EMU) The ICE 2 is an eight-segment high-speed multiple unit consisting of 6 intermediate cars, a power car, and a driv- Manufacturer Consortium leaders Siemens, ing trailer (half-set). Within minutes, two half-sets can Adtranz be coupled together or split up by means of an automatic Commissioning 1996 coupler. The seating offering can be adapted to passenger Output 4,800 kW volumes thanks to the possibility of forming the multiple Max. speed 280 km/h units into short-length trainsets. Air-sprung bogies pro- Seats 368 vide for extremely smooth running. Stock as of Dec 31, 2005 44

ICE1 (EMU) The ICE 1 – progenitor of the ICE family – first ran in service on June 2, 1991. The ICE1 set standards not only in Manufacturer Consortium: ABB, AEG, respect of the technical components – such as drive, brak- Siemens, Thyssen-Henschel, ing, control and diagnostics technology – but also for a Krupp, Kraus-Maffei particularly high level of travel comfort. This high-speed Commissioning 1991 train consists of two power cars and up to 14 intermedi- Output 9,600 kW ate cars. Some of the ICE 1 power trains also run on SBB Max. speed 280 km/h (to Zurich, for example) and ÖBB (to Vienna, for example) Seats 649 (with 12 intermediate cars) routes. The trains are currently undergoing a redesign in which all coaches will be extensively modernized by 2008. Stock as of Dec 31, 2005 59

ICE T (EMU) The ICE T is a five- or seven-segment EMU. The hydraulic tilting technology enables an up to 30% higher curving Manufacturer Consortium leaders Bombardier, speed and – depending on the profile of the line – a reduc- DUEWAG, FIAT, Siemens tion in journey times of between 10 and 20%. The “under- Commissioning from1999 floor” configuration of the drive technology results in Output 3,000 kW (BR 415) / more usable space for the passengers who – through glass 4,000 kW (BR 411) partitions at the ends of the train – can enjoy an unob- Max. speed 230 km/h structed view into the cockpit and onto the line. Some of Seats 250/357 the BR 415 series trains also run on SBB lines (to Zurich, for example). 14 of the 28 new power trains in the 2nd mod- Stock as of Dec 31, 2005 56 (11/45) el series are in commission so far.

BR101 (electric locomotive) The BR 101 series is a four-axled general-purpose locomotive for fast InterCity traffic. Thanks to its push-pull capa- Manufacturer Adtranz bility, it is suitable for employment in passenger transport Commissioning 1996–1999 services with driving trailers. To increase its utilization, it Output 6,400 kW is also used for freight transport during the night. Five of Max. speed 220 km/h the 145 vehicles are used for developing the European Train Stock as of Dec 31, 2005 145 Control System (ETCS).

IC Saloon Passenger Car (Apmz127) The Apmz 127 saloon passenger cars are cars from the Apmz 122 series that have been reconfigured as pressure- Manufacturer Waggon Union Berlin sealed, air-conditioned 1st-class saloon cars for EuroCity/ Commissioning 1975/76 InterCity traffic. The cars possess a single saloon with a Max. speed 200 km/h total of 51 seats, 39 in rowed seating and 12 face-to-face. Seats 51 Stock as of Dec 31, 2005 34

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Regional and Urban Transport

BR 146 (electric locomotive) The BR 146.0 and BR 146.1/BR 146.2 series represent an enhancement of the BR 145 and BR 185.1/BR 185.2 series Manufacturer Bombardier Transportation developed for Railion. Through the installation of newly Commissioning 2001–2008 developed bogies, speeds of up to 160 km/h are made Output 4,200 kW(146.0); possible. The locomotive is equipped with push- pull train 5,600 kW (146.1/146.2) control, selective side-door opening control and a passen- Max. speed 160 km/h ger information system for use in local transport. To date, Stock as of Dec 31, 2005 31 (146.0); 32 (146.1); the 84 locomotives have been deployed in Rhineland- 21 (146.2) Palatinate, North Rhine-Westphalia, Lower Saxony, Hesse, Baden-Württemberg and Bavaria.

BR 425 (EMU) The BR 425 series belongs to the EMU family in addition to the BR 424 (Hanover S-Bahn [metro]) and BR 426 Manufacturer Bombardier Transportation/ series. These fast, four-segment EMUs are equipped with Siemens wheelchair lifts and are designed for low platforms as Commissioning 2000–2005 well. The multiple units run in Saxony-Anhalt, North Hesse, Output 2,350 kW Lower Saxony and the Ruhr region as well as in Rhineland- Max. speed 140 km/h Palatinate, Saarland, Baden-Württemberg and South (160 km/h FSCB-controlled) Bavaria. Six trains have also been running in the Bremen Seats /standing room 206 / 228 region since 2005. Stock as of Dec 31, 2005 236

BR 612 (DMU) The two-segment, air-conditioned DMU of the BR 612 series is an innovative enhancement of the BR 611 series in terms Manufacturer Bombardier Transportation of equipment and design. By relocating the entrances and Commissioning 2000–2003 exits towards the middle of the train, getting on and off Output 2x560 kW the train has been made more convenient. The DMUs are Max. speed 160 km/h currently being used in Thuringia’s low mountain range Seats 146 as well as in Rhineland-Palatinate, Saxony, Saxony-Anhalt, Bavaria, North Rhine-Westphalia, Saarland and Lower Stock as of Dec 31, 2005 189 Saxony.

Double-deck driving trailer The DBpbzf 763.5 and 763.6 series double-deck driving Manufacturer Bombardier Transportation (DBpbzf 763.5 and 763.6) trailers operate as Regional Express trains in regions including the northeast, Hesse and North Rhine-Westphalia. (DWA) They are air-conditioned and wheelchair-accessible in ad- Commissioning 1997–2000 dition to featuring a modern passenger information system. Max. speed 160 km/h The lower deck offers multipurpose rooms with space for Seats 101 (763.5), 95 (763.6) wheelchairs, bicycles and strollers as well as a wheelchair- Stock as of Dec 31, 2005 27 (763.5), 23 (763.6) accessible bathroom.

BR 481 (EMU) The BR 481 series is the most modern train in Berlin’s S-Bahn (metro) system and replaces the older series. Manufacturer Consortium leaders Bombardier A total of 500 “quarter-sets”(two-car units) were procured (DWA), Adtranz for € 1.1 billion through 2004. Air-sprung bogies, good Commissioning 1996–2004 noise insulation and a transparent interior all offer more Output 600 kW (quarter-set) comfort. Modern three-phase current technology, light- Max. speed 100 km/h weight construction and recovery of braking energy keep Seats / standing room 94 / 200 (quarter-set) power consumption and maintenance costs low. Stock as of Dec 31, 2005 500 quarter-sets

MAN NÜ 313 CNG The low-floor overland busses operate on environment- friendly natural gas (CNG) engines with low noise and Manufacturer Neoman Bus GmbH emission levels. The consistent low-floor design enables Commissioning from1999 stair-free access to all entrances as well as a stair-free Output 228 kW center aisle. Powerful heating and ventilation systems Seats / standing room 43 /41 ensure pleasant temperatures while ergonomic bucket (depending on configuration) seats offer high seating comfort. Stock as of Dec 31, 2005 approx. 230

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Transport and Logistics

BR 145 (electric locomotive) The BR 145 series belongs to the new generation of three- phase current locomotives in freight transport. It is flexible, Manufacturer Adtranz all-purpose and has furthermore proven its effectiveness Commissioning 1998–2000 in local passenger transport. Thanks to its performance, it Output 4,200 kW not only replaces the BR 140 series, but it also makes a Max. speed 140 km/h partial advancement into the service areas of the heavy Starting tractive effort 300 kN six-axial electric locomotives. Stock as of Dec 31, 2005 79

BR 152 (electric locomotive) Procurement of the BR 152 three-phase current locomotive was started as a replacement for the heavy electric loco- Manufacturer Siemens, Krauss-Maffei motives of the BR 150 series and for application areas of Commissioning 1997–2001 the BR 151 / BR 155 series. The machines can often be Output 6,400 kW found on long-distance runs. This model series excels in Max. speed 140 km/h heavy freight transport. Starting tractive effort 300 kN Stock as of Dec 31, 2005 170

BR 185 (electric locomotive) The BR 185 series is an enhancement of the BR 145 series. The procurement plan for 400 vehicles of the BR 185 series Manufacturer Adtranz is currently underway, resulting from exercising an option Commissioning 2000–2008 with the industry. The machine’s design and configuration Output 5,600 kW allow it to be used domestically in Germany as well as in- Max. speed 140 km/h ternationally via country-specific train safety and train Starting tractive effort 300 kN communications systems. Multisystem capability Dual-frequency (AC: 15 kV / 16.7 Hz; 25 kV / 50 Hz) Stock as of Dec 31, 2005 243

Hcceerrs 330 (tube) The enclosed auto transport car is a new development in secured motor vehicle transport. The automobiles are Length above buffer 54 m optimally protected against weather exposure, theft and Ark length lower / upper 52.68 m / 52.50 m vandalism with robust side panels and closing overhead Weight limit 48 tons doors. The four single cars connected to one car unit are Lower clearance height 1.70 m equipped with an electrically powered hydraulic system Upper clearance height 1.96 m /2.36 m that operates roof, door and overdrive hatch gears. (roof lowered / raised) Stock as of Dec 31, 2005 98

Habbiins 344 This spacious multipurpose vehicle with double panel sides 3 can be loaded and unloaded laterally with industrial trucks. Volume 170 m The design is especially suited for the transport of paper Ark width 2.82 m rolls, cellulose, lumber and palletized goods. The cars are Ark height 2.80 m to lower edge designed and prepared for the installation of 6–8 move- of roof belt able and interlocking partitions. They are also equipped Area 63.8 m2 with metal liners for the securing of horizontally loaded Stock as of Dec 31, 2005 400 paper rolls. The especially robust, high-strength sides also meet the requirements for the securing of vertically standing paper rolls.

European land transport (Schenker) Schenker is one of the leading international providers of transport in Europe, whether by road or rail, Schenker connects im- integrated logistics services. The company supports in- portant economic regions in over 30 countries with a fleet of around dustry and trade with the global exchange of goods via land 20,000 vehicles using a close network of scheduled line transports. transport, worldwide air cargo and sea freight as well as Subcontractors are used for more than 90% of these transports. all services associated with logistics. As a specialist for land

213 mm db053_e_128_133_Fahrzeuge 13.06.2006 16:53 Uhr Seite 132

Passenger Stations

Baden-Baden Following a major renovation and modernization project, Baden-Baden station has been enjoying a new lease of life Year of construction 1900 since late 2005. The listed station was given a facelift cost- Year of modernization 2005 ing around € 1.7 million. From the DBTravel Center through Passengers and visitors a café to a newsagent and book store, the new facilities per day 10,000 cater for customers’every need. All of this means that the Space for rent 425m2 station of this spa town meets today’s requirements for Train stops per day 123 rail travel. Number of tracks 5

Mannheim main station Since its renovation, the station has stood out as a modern shopping and services center with a diverse range of food, Year of construction 1876 services and stores in a light and friendly atmosphere. The Year of modernization 2001 basement and first floor, accessible via escalators and Passengers and visitors glazed elevators, boast 39 retail units in an area of around per day 76,000 2 4,600 m . Allianz pro Schiene (the German Pro-Rail Alli- Space for rent 8,805m2 ance) named the station “Station of the Year 2005” in the Train stops per day 626 city stations category. Number of tracks 9

Oldenburg main station Oldenburg main station was made fit for the future in an extensive modernization program. The historic concourse Year of construction 1915 building, made of local Bockhorn clinker bricks, was thor- Year of modernization 2005 oughly renovated in 2002. The building is a prime example Passengers and visitors of construction from the art nouveau era. The traffic sta- per day 15,000 tion was modernized from the end of 2003 to mid-2005, Space for rent 4,800m2 and adapted to today’s standards. As a result, the station Train stops per day 110 is again a real jewel with many travel-related services. Number of tracks 7

Regensburg main station The commercial spaces and infrastructure of the Regens- burg main station were renovated for around € 7million. Year of construction 1891 The traffic hub of Upper Palatinate now offers an attractive Year of modernization 2004 mix of services ranging from an Internet café to a car rental Passengers and visitors agency. A travel center and a ServicePoint provide travel per day 30,000 services. In addition, the train station is now completely Space for rent 5,200m2 handicapped-accessible. The service crew of the station was appointed as “Station Service Team of the Year 2005” Train stops per day 150 because of the high level of customer satisfaction. Number of tracks 9

Schwerin main station Schwerin main station was comprehensively renovated as part of German Unity Transport Project no.1, the extension Year of construction 1847 of the Lübeck/Hagenow Land–Rostock–Stralsund line, and Year of modernization 2005 was finished at the end of 2005. The main station now Passengers and visitors offers an attractive sector mix in an area of over 2,000 m2. per day 11,800 A travel center and the ServicePoint provide travel ser- Space for rent 2,070m2 vices. In addition, the station is now completely wheelchair- Train stops per day 139 accessible. Number of tracks 4

Weimar Weimar station was one of the first stations to be modernized after the German rail reform, at a cost of around Year of construction 1922 € 10 million. Since then, it has proudly stood out as a real Year of modernization 1999 jewel. The station has had the sobriquet “Kulturbahnhof” Passengers and visitors (culture station) since 2005. This was instigated by the per day 13,550 activity of the Advertising Association, which had already Space for rent 1,548m2 initiated numerous cultural events at the station over the previous years. Allianz pro Schiene (the German Pro- Train stops per day 182 Rail Alliance) named the station “Station of the Year Number of tracks 5 2005” in the small and medium-sized stations category.

208 mm Consolidated Financial Statements Deutsche Bahn Group | 2005 Annual Report

Contents

137 Auditor’s Report

138 Report of the Management Board

139 Consolidated Statement of Income

140 Consolidated Balance Sheet

142 Consolidated Statement of Cash Flows

143 Consolidated Statement of Changes in Equity

144 Notes to the Consolidated Financial Statements

201 Major Subsidiaries

204 The Boards of Deutsche Bahn AG

135 Highlights

Profit before taxes on income improved by € 336 million to € 490 million

Total assets with € 47.1 billion 1.1% below the previous year’s figure

Equity ratio increased to 16.3 %

136 Auditor’s Report

The Consolidated Financial Statements have been audited by PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft,who added the following auditor’s report1): “We have audited the consolidated financial statements of Deutsche Bahn Aktiengesellschaft, Berlin – consisting of income statement, balance sheet, statement of changes in equity, cash flow statement and the notes – for the business year from January 1 to December 31, 2005. The preparation of the consolidated financial statements in accordance with the IFRS is the responsibility of the Company’s Board of Managing Directors. Our responsibility is to express an opinion on the consolidated financial statements based on our audit. We conducted our audit of the consolidated annual financial statements in accordance with § 317 HGB and German generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer in Deutschland (IDW).Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the consolidated financial statements in accordance with German principles of proper accounting are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and evalua- tions of 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 are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of the companies included in consolidation, the determination of the companies to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the Board of Managing Directors, as well as evaluating the overall presentation of the consolidated financial statements.We believe that our audit provides a reasonable basis for our opinion. In our opinion based on the results of our audit the consolidated financial statements are in compliance with IFRS and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with IFRS. Our audit, which also extends to the group management report prepared by the Board of Managing Directors for the business year from January 1 to December 31, 2005, has not led to any reservations. In our opinion, the group management report is in accordance with the annual financial statements and provides on the whole a suitable understanding of the Group’s position and suitably presents the chances and risks of future development. In addition, we confirm that the consolidated financial statements and the group management report for the business year from January 1to December 31, 2005, satisfy the conditions required for the Company’s exemption from its duty to prepare consolidated financial statements and the group management report in accordance with German accounting law.”

Berlin, March 8, 2006

PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

(Kämpfer) (Eggemann) Wirtschaftsprüfer Wirtschaftsprüfer

1) This English version of the original German version of the auditor’s report has been made for purposes of convenience only; in case of doubt the original German version shall prevail.

137 Report of the Management Board

The Management Board of Deutsche Bahn AG is responsible for preparing the consolidated financial statements and the consolidated management report, and is also responsible for ensuring that they are complete and accurate. The consolidated financial statements for the period ended December 31, 2005 have been prepared in accordance with International Financial Reporting Standards (IFRS). The previous year’s figures have also been established using the same principles. The Group management report comprises an analysis of the Group’s net assets, financial position and results of operations as well as additional explanations which have to be provided under the regulations of the German Commercial Code (Handelsgesetzbuch; HGB). The adequacy of the consolidated financial statements and the Group management report is guaranteed by the internal management and monitoring systems as well as the use of uniform Group-wide directives. Compliance with the legal regulations and internal Group directives as well as the reliability and functionality of the monitoring systems are constantly reviewed throughout the Group. In line with the requirements of the German Corporate Sector Supervision and Transparency Act (KonTraG), our risk management system ensures that the Manage- ment Board is able to identify potential risks at an early stage and initiate appropriate action where necessary. In accordance with the resolution of the shareholders’ meeting, PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft has audited the consolidated financial statements prepared under IFRS and the Group management report, and has issued an unqualified auditor’s opinion. The consolidated financial statements, the Group management report and the audit report have been extensively discussed by the Audit Committee and the Supervisory Board in the presence of the auditors. The result of the Supervisory Board’s appraisal is set out in the Report of the Supervisory Board (pages 212 to 216 of this Annual Report).

The Management Board

138 Consolidated Statement of Income

January 1 through December 31 € million Note 2005 2004

Revenues (1) 25,055 23,962 Inventory changes and internally produced and capitalized assets (2) 1,673 1,928 Overall performance 26,728 25,890 Other operating income (3) 2,366 2,860 Cost of materials (4) –12,650 –12,054 Personnel expenses (5) – 9,211 – 9,556 Depreciation (6) – 2,801 – 2,722 Other operating expenses (7) –3,080 –3,274 Operating profit (EBIT) 1,352 1,144

Result from investments accounted for using the equity method (8) 76 49 Net interest income (9) – 945 – 984 Other financial result (10) 7 –55 Financial result – 862 – 990

Profit before taxes on income 490 154 thereof result on disposal of discontinuing operations (0) (229)

Taxes on income (11) 121 26 Net profit for the year 611 180

Net result attributable to: shareholders of Deutsche Bahn AG 580 155 minority interests 31 25

Earnings per share (€ per share) (12) undiluted 1.35 0.36 diluted 1.35 0.36

139 Consolidated Balance Sheet

Assets

As of December 31 € million Note 2005 2004

Non-current assets Property, plant and equipment (13) 39,550 40,005 Intangible assets (14) 880 856 Investments accounted for using the equity method (15) 378 418 Available-for-sale financial assets (17) 142 140 Other receivables and other assets (19) 312 343 Derivative financial instruments (21) 89 137 Deferred tax assets (16) 1,556 1,301 42,907 43,200

Current assets Inventories (18) 716 797 Trade receivables (19) 2,625 2,388 Other receivables and other assets (19) 432 397 Current tax receivables (20) 73 56 Derivative financial instruments (21) 23 13 Cash and cash equivalents (22) 305 765 Available-for-sale assets (23) 20 0 4,194 4,416

Total 47,101 47,616

140 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

Equity and Liabilities

As of December 31 € million Note 2005 2004

Equity Subscribed capital (24) 2,150 2,150 Reserves (25) 5,259 5,227 Retained earnings (26) 84 – 493 Equity attributable to shareholders of Deutsche Bahn AG 7,493 6,884 Minority interests (27) 182 183 7,675 7,067

Non-current liabilities Financial debt (28) 18,310 19,045 Other liabilities (29) 473 553 Derivative financial instruments (21) 365 544 Retirement benefit obligations (31) 1,414 1,341 Other provisions (32) 4,161 4,427 Deferred income (33) 3,194 3,513 Deferred tax liabilities (16) 46 17 27,963 29,440

Current liabilities Financial debt (28) 1,664 1,231 Trade liabilities (29) 3,338 3,540 Other liabilities (29) 3,682 3,477 Current tax liabilities (30) 51 68 Derivative financial instruments (21) 32 19 Other provisions (32) 2,226 2,303 Deferred income (33) 454 471 Available-for-sale liabilities (23) 16 0 11,463 11,109

Total 47,101 47,616

141 Consolidated Statement of Cash Flows

January 1 through December 31 € million Note 2005 2004

Profit before taxes on income 490 154 Depreciation on property, plant and equipment and intangible assets 2,801 2,722 Write-ups/write-downs on non-current financial assets 363 Result on disposal of property, plant and equipment and intangible assets – 93 – 29 Result on disposal of financial assets 1–38 Result on sale of consolidated companies –105 – 242 Interest and dividend income –328 –358 Interest expense 1,264 1,325 Foreign currency result 125 – 88 Result from investments accounted for using the equity method –76 –49 Other non-cash expenses and income –98 –259 Changes in inventories, receivables and other assets – 269 453 Changes in liabilities and deferred income –276 –37 Cash generated from operating activities 3,439 3,617 Interest received 60 62 Dividends and capital distribution received 80 34 Interest paid –803 –880 Taxes on income –124 –97 Cash flow from operating activities 2,652 2,736

Proceeds from the disposal of property, plant and equipment and intangible assets 371 241 Payments for purchases of property, plant and equipment and intangible assets – 6,784 –7,755 Proceeds from investment grants 4,019 3,987 Proceeds from the sale of financial assets 1618 Payments for purchases of financial assets –7 –14 Proceeds from the sale of shares in consolidated companies 118 26 Purchases of shares in consolidated companies –84 –20 Proceeds from the disposal of investments accounted for using the equity method 0 12 Payments for additions to investments accounted for using the equity method – 9 –1 Cash flow from investing activities –2,375 –2,906

Distribution of profits to minority interests –29 –28 Repayment of capital amounts under finance leases –74 –85 Proceeds from issue of bonds 01,618 Proceeds from interest-free government loans 95 250 Repayment of interest-free government loans –365 –1,408 Proceeds from borrowings and commercial paper 208 658 Repayment of borrowings and commercial paper –584 –344 Cash flow from financing activities –749 661

Net change in cash and cash equivalents –472 491

Cash and cash equivalents at the beginning of the period (22) 765 271 Changes in cash and cash equivalents due to changes in the scope of consolidation 0 3 Changes in funds due to changes in exchange rates 12 0 Cash and cash equivalents at the end of the period (22) 305 765

142 Consolidated Statement of Changes in Equity

€ million Reserves Equity attributable Fair value Fair value to share- Sub- Currency reserve reserve for Other holders of scribed Capital trans- for cash flow move- Retained Deutsche Minority Total capital reserves lation securities hedges ments Total earnings Bahn AG interests equity

As of Jan 1, 2005 2,150 5,310 –56 –1 – 26 0 5,227 – 493 6,884 183 7,067 + Capital introduced 00000000000 – Dividend payments 000000000–29–29 +/– Currency translation differences 0 0 3900039039039 +/– Other changes 0001–91–7–3–10–3–13 +/– Net profit for the year 000000058058031611 As of Dec 31, 2005 2,150 5,310 –17 0 –35 1 5,259 84 7,493 182 7,675

As of Jan 1, 2004 2,150 5,310 – 47 261 –7 0 5,517 – 630 7,037 192 7,229 + Capital introduced 00000000000 – Dividend payments 000000000–28–28 +/– Currency translation differences 0 0 – 9000–90–90–9 +/– Other changes 0 0 0 – 262 –19 0 – 281 –18 – 299 – 6 –305 +/– Net profit for the year 000000015515525180 As of Dec 31, 2004 2,150 5,310 –56 –1 –26 0 5,227 – 493 6,884 183 7,067

143 Notes to the Consolidated Financial Statements

Segment Information

As of December 31 € million Long-distance Transport Regional Transport Urban Transport Railion Schenker 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Segment revenues External revenues 3,068 2,922 6,452 6,437 1,708 1,688 2,830 2,907 8,878 8,024 Other external segment revenues 105 125 135 175 53 61 141 168 105 91 Internal segment revenues 182 206 146 180 106 110 640 595 14 37 Total segment revenues 3,355 3,253 6,733 6,792 1,867 1,859 3,611 3,670 8,997 8,152

Operating profit before interest (EBIT) 50 –331 554 508 115 106 12 35 257 260 Net interest income Result from investments accounted for using the equity method 00000054126 Other financial result Profit before taxes on income Taxes on income Net profit for the year

Segment assets 1) 3,583 3,692 4,983 4,972 1,500 1,580 2,972 2,930 3,070 2,663 Investments accounted for using the equity method 1) 006221118834 Total assets 1) 3,583 3,692 4,989 4,974 1,502 1,581 2,983 2,938 3,078 2,697 Segment liabilities 1) 997 866 2,170 1,584 550 447 1,278 1,230 1,835 1,620

Segment capital expenditures 260 264 362 652 96 129 325 373 257 186 Additions to assets from acquisition of companies 00000358178723 Additions to assets from capital expenditures 260 264 362 652 96 94 244 366 170 163 Investment grants received00–30–101–41–230000 Net capital expenditures 260 264 332 551 55 71 244 366 170 163

Scheduled depreciation2) 347 340 400 383 149 151 219 237 110 113 Impairment losses recognized/reversed2) 46542710117542 Other non-cash expenditures2) 7911728221522 Other non-cash income2) 13 12 17 28 10 16 9 38 0 0 Employees3) 14,739 15,960 26,842 28,944 12,249 12,624 23,522 24,900 38,237 35,190

1) Segment assets, investments in associates and segment liabilities are stated as of Dec 31, 2005; the remaining items relate to the reporting period. 2) The non-cash items are included in the segment result shown and are also disclosed separately.

Segment Information by Region € million Germany 2005 2004

Segment revenues, external 20,781 20,834 Segment assets 44,755 43,869 Net capital expenditures 2,316 3,136

144 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

Subsidiaries/ Other/ Track Infrastructure Passenger Stations Services Other activities Consolidation DB Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

511 480 287 268 124 163 1,197 1,073 0 0 25,055 23,962

617 742 105 142 185 193 920 1,163 0 0 2,366 2,860

3,878 3,780 645 636 2,262 2,055 4,145 3,787 –12,018 –11,386 0 0 5,006 5,002 1,037 1,046 2,571 2,411 6,262 6,023 –12,018 –11,386 27,421 26,822

17 35 136 107 128 – 8 124 468 – 41 –36 1,352 1,144 – 945 – 984

0000015938007649 7–55 490 154 121 26 611 180

21,164 21,006 3,363 3,277 1,154 1,141 7,068 6,220 – 2,134 – 283 46,723 47,198

00001135037200378418 21,164 21,006 3,363 3,277 1,155 1,142 7,418 6,592 – 2,134 – 283 47,101 47,616 2,412 3,084 519 399 1,087 1,078 7,917 7,239 20,661 23,001 39,426 40,549

4,038 4,681 739 639 226 261 310 236 – 66 – 87 6,547 7,334

0000000310016896

4,038 4,681 739 639 226 261 310 205 – 66 – 87 6,379 7,238 –3,396 –3,422 –455 –408 –2 –4 –95 –29 0 0 –4,019 –3,987 642 1,259 284 231 224 257 215 176 – 66 – 87 2,360 3,251

959 938 121 115 189 187 188 185 – 44 0 2,638 2,649

4241–304–131280016373 19 19 0 29 2 – 6 44 –11 5 0 97 89 24 57 4 2 25 43 93 152 0 0 195 348 42,950 46,764 4,791 4,983 26,868 28,638 26,191 27,629 0 0 216,389 225,632

3) The number of employees represents the average number of employees for the 2005 financial year (part-time workforce converted into equivalent full-time workforce and excluding trainees).

Rest of Europe North America Asia/Pacific Rest of world Reconciliation DB Group 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

4,910 4,469 728 696 818 686 184 137 0 0 27,421 26,822 2,177 1,899 235 203 372 235 51 46 – 867 946 46,723 47,198 8914081012813–66–462,3603,251

145 Basic Principles and Methods The following standards have been adopted for the first time in these consolidated financial statements: Fundamental information Deutsche Bahn AG (referred to in the following as “DB AG”), IAS 16 (rev.2003): Property, Plant and Equipment Berlin, and its subsidiaries (together referred to in the follow- IAS 24 (rev.2003): Related Party Disclosures ing as “DB Group”) provide services in the fields of passenger IAS 27 (rev.2003): Consolidated and Separate Financial transport, transport and logistics, and operate an extensive Statements rail infrastructure which is also available to external users on a IAS 28 (rev.2003): Investments in Associates non-discriminatory basis. Whereas passenger transport acti- IAS 31 (rev.2003): Interests in Joint Ventures vities are conducted primarily in the company’s domestic IAS 39 and IFRS 4: Amendments: Financial Guarantee market of Germany, transport and logistics activities are con- Contracts ducted on a world-wide basis. IFRS 5: Non-current Assets Held for Sale DB AG is an joint stock corporation (Aktiengesell- and Discontinued Operations schaft); its shares are held entirely by the Federal Republic of Germany (also referred to in the following as the “Gov- The changes in accounting policies have been carried out in ernment”). The company is registered under the number accordance with the transitional regulations. The revised HRB 50000 in the commercial register of the local court standards are applicable retroactively, with the exception of (Amtsgericht) of Berlin-Charlottenburg. The DB Group has IAS 16 with regard to the recognition of barter transactions issued securities in accordance with section 2 (1) sentence 1of for property, plant and equipment at fair value and IFRS 5, the Wertpapierhandelsgesetz (WpHG – Securities Trading which are the subject of prospective adoption. The amend- Act); these securities are traded on organized markets in ments to IAS 39 and IFRS 4 (Amendments: Financial Guar- accordance with section 2 (5) WpHG. antee Contracts) have been the subject of early adoption. These consolidated financial statements have been pre- The initial adoption of the above-mentioned standards pared by the Management Board, and will be handed over to has not had any major impact on the consolidated financial the Supervisory Board for the Supervisory Board meeting statements for the year under review. With regard to the on March 30, 2006. Brenntag/Interfer activities which were sold as of January 1, 2004, the retroactive adoption of IAS 27 (rev. 2003) would Principles of preparing financial statements have resulted in further full consolidation of these activities The consolidated financial statements are prepared on the as of January1, 2003 and their deconsolidation as of January 1, basis of section 292a German Commercial Code (Handels- 2004. In accordance with the prevailing version of IAS 27, gesetzbuch; HGB) and in accordance with the International the Brenntag/Interfer activities have been recognized as Financial Reporting Standards (IFRS) and their interpreta- available-for-sale assets in all previous IFRS consolidated tion by the International Financial Reporting Interpreta- financial statements of DB AG. In view of the intention to tions Committee (IFRIC). Due consideration is given to the sell on the activities at the point at which they were acquir- rules of RIC 1 published by the Accounting Interpretations ed, the accounting was not converted to IFRS after the Committee (RIC) of Deutsche Rechnungslegungs Standard acquisition of Brenntag/Interfer. Accordingly, there are no Committee e.V. (DRSC). IFRS financial statements for Brenntag/Interfer for financial The financial year of DB AG and its consolidated subsid- 2003. The DB Group has accordingly not carried out a retro- iaries is the same as the calendar year. The consolidated active adjustment for this purpose. It was not necessary to financial statements are prepared in Euros. Unless otherwise take account of any other retroactive adjustments with a specified, all figures are stated in Euro million (€ million). major impact on the consolidated financial statements of the previous year.

146 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

The other adjusted standards which have to be applied after and that the currency risk would affect consolidated net January 1, 2005 are either the subject of early adoption as profit. The amendment is mandatory starting January 1, of December 31, 2004 or are currently not relevant for the 2006. With regard to the fair value option, IAS 39 amends DB Group. the definition of financial instruments recognized at fair In addition, the current consolidated financial state- value through profit or loss, and limits the possibility of ments have taken account of all interpretations adopted by selecting this category. The amendment is mandatory start- the IFRIC as of December 31, 2005 if they are relevant for ing January 1, 2006. the DB Group. IFRS 6 (Exploration for and Evaluation of Mineral The following revised standards, which had been adopt- Resources) is not relevant for the DB Group. ed in their new version although their adoption was not IFRS 7 (Financial Instruments: Disclosures) introduces mandatory at the reporting date, were not adopted at the additional notification obligations for improving informa- reporting date: tion relating to financial instruments. It replaces IAS 30 (Disclosures in the Financial Statements of Banks and IAS 1: Presentation of Financial Statements – Capital Similar Financial Institutions) and IAS 32 (Financial Instru- Disclosures ments: Disclosure and Presentation). The amendment will IAS 19: Amendment: Employee Benefits be mandatory starting January 1, 2007. IAS 39: Amendment: Cash Flow Hedge Accounting of The DB Group is currently assessing the impact on the Forecast Intra-Group Transactions consolidated financial statements of the future adoption of IAS 39: Amendment: The Fair Value Option the above-mentioned standards. IFRS 6: Exploration for and Evaluation of Mineral Resources Structure of the balance sheet IFRS 7: Financial Instruments: Disclosures and the income statement Assets and liabilities are stated in the balance sheet either as IAS 1 (Presentation of Financial Statements) has included current or non-current items. Assets and liabilities are clas- additional notification obligations regarding the aims and sified as current if they are realized or due within twelve regulations of financial management. The amendment will months after the end of the reporting period. The structure be mandatory starting January 1, 2007. of the balance sheet takes account of the requirements of The amendment to IAS 19 (Employee Benefits) intro- the ordinance relating to the structure of the financial state- duces an additional option for recognizing actuarial profits ments of transport companies. The income statement uses and losses. In addition, IAS 19 has been extended to in- the structure of the cost summary method. clude further regulations concerning joint plans of several employers for whom there is no adequate information for Major differences compared with German accounting creating provisions, and has also been extended to include law in accordance with section 292a HGB additional notification requirements. The amendment is The aim of IFRS accounting is to provide information which mandatory starting January 1, 2006. is relevant for the decisions of equity and debt investors. With regard to cash flow hedge accounting of forecast Accordingly, under IFRS, a strict distinction is made between intra-Group transactions, IAS 39 (Financial Instruments: accounting for trade law purposes and tax law purposes, dif- Recognition and Measurement) permits the recognition of ferent definitions are used in certain cases for the time at foreign currency hedges which arise in connection with which revenue is realized, accounting options are limited, future intra-Group transactions and which will occur with a and much more stringent requirements are specified with high degree of probability, provided that the transaction is regard to the information and explanations included in the conducted in a currency other than the functional currency notes to the financial statements.

147 These consolidated statements contain accounting principles Principles Underlying the Consolidated which differ significantly from German commercial law: Financial Statements Development costs for intangible assets created in-house are recognized in fixed assets if they satisfy the recognition Consolidation and group of consolidated companies criteria (IAS 38 [Intangible Assets]). a) Consolidation methods Goodwill resulting from the acquisition of shares in sub- All subsidiaries acquired after December 31, 2002 are con- sidiaries is not depreciated; instead, it is subject to an annual solidated using the acquisition method as defined in IFRS 3. impairment test (IFRS 3 [Business Combinations]). Accordingly, the cost of a business combination is calculated Foreign currency receivables and liabilities are converted using the fair values of the rendered assets and the received using the rate applicable on the reference date. Exchange or acquired liabilities at the point of exchange plus the costs rate profits are realized in a way which differs from that which can be directly allocated to the business combination. permitted under HGB (IAS 21 [The Effects of Changes in The identifiable assets, liabilities and contingent liabilities Foreign Exchange Rates]). which are acquired are stated using their fair value at the All financial instruments, including derivatives, are point of acquisition, irrespective of any minorities. Any dif- recognized and stated at amortized cost or market value ference between the purchase costs of the business combi- depending on classification in one of the categories under nation and the acquired assets recognized with fair value is IAS 39. stated as goodwill. If the purchase price is lower than the fair The criteria of IAS 17 (Leases) are used for classifying value of the acquired assets, the difference is taken directly leases as “operating lease” and “finance lease”. “Embedded” to the income statement. leases in service agreements are also recognized as finance Internal liabilities as well as expenses and income and leases if the criteria specified in IAS 17 are satisfied in con- inter-company profits between fully consolidated companies junction with a precisely specified asset. are completely eliminated; inter-company profits arising Deferred tax assets have to be recognized in relation to from transactions with associates or joint ventures are elimi- temporary differences which will be allowable in future as nated on a pro-rata basis. well as tax losses carried forward if it is likely that such losses For the purpose of uniform accounting, the affiliated will be realized in future. companies have adopted the accounting guidelines of the Non-current liabilities and provisions are recognized parent company. with their present value. Pension provisions are recognized using the projected- b) Subsidiaries unit-credit method, with due consideration being given to DB AG and all companies (subsidiaries) whose financial and future salary and pension increases. business policy can be determined by DB AG are fully con- Provisions are created only for obligations due to exter- solidated in the consolidated financial statements of DB AG. nal parties and also only if their probability of occurrence A company is incorporated in the consolidated financial exceeds 50 %. statements at the point at which DB AG acquires the possi- Obligations which are only uncertain to a limited extent bility of control. At most subsidiaries “control” is defined as (accruals) are not recognized under provisions; instead, a situation in which DB AG directly or indirectly holds a they are recognized under liabilities. majority of voting rights. In the case of Aurelis Real Estate Public grants in the form of interest-free loans are stated GmbH&Co.KG (referred to in the following as “Aurelis”), under liabilities. Frankfurt/Main, “control” is based on the fact that the com- The group of consolidated companies is defined using pany’s business policy is to a large extent focused on the the control concept and also the risk-and-reward approach needs of the Group as a result of the establishment process of SIC-12 (Consolidation – Special Purpose Entities).

148 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

and also the fact that, since that time, the majority of risks Number German Foreign Total Total and rewards resulting from the company’s operations is borne 2005 2005 2005 2004 by the Group. The group of fully consolidated companies of DB AG Subsidiaries 36 48 84 90 comprises the companies set out in the following overview: Overall, costs of € 86 million were incurred in the 2005 ﬁnan- Number German Foreign Total Total cial year (previous year: € 20 million) for company purchases 2005 2005 2005 2004 and for purchasing shares in subsidiaries which are already

Fully consolidated consolidated. subsidiaries In the year under review, the DB Group carried out several As of Jan1 175 179 354 384 company acquisitions which overall did not have any major Additions 2138 Disposals1) 14 19 33 37 impact on the consolidated financial statements. These include Addition due to change the following transactions: in type of incorporation 2357 Increasing the shareholding to 100 % by way of additio- Disposal due to change in type of incorporation 0008nal acquisition of 66.7 % of shares in Linjegods AS, Oslo/ As of Dec 31 165 164 329 354 Norway. The company was included in the consolidated financial statements of DB AG as of December 31, 2005; up to 1) Including disposals from intra-Group mergers that point, the existing shareholding in Linjegods (33.3 %) Activities in connection with the production of installa- was accounted for using the equity method. The operations tions for track infrastructure are to some extent carried out of Linjegods comprise mainly national forwarding business in the form of companies constituted under civil law using road and rail transport networks. (Gesellschaften bürgerlichen Rechts), so-called “Arbeits- Acquisition of 100 % of shares in RAG Bahn und Hafen gemeinschaften” (consortia). These consortia are terminat- GmbH (RBH), Gladbeck. This company provides rail and ed when the particular project is completed. They carry out harbor operation logistics services, and was included in their business activities mainly over a period of between the consolidated financial statements of DB AG as of Decem- one and five years. Because the consortia are assessed main- ber 31, 2005. ly as jointly conducted activities, they are not included in the scope of consolidation. In addition, 84 (previous year: 90) subsidiaries have also not been consolidated, as they are of minor significance for the presentation of the net assets, financial position, and results of operations of the DB Group. They are stated with purchase costs of € 10 million (previous year: € 11 million) in the consolidated financial statements.

149 The following calculation of goodwill based on the purchase All purchase price allocations for acquisitions in the year costs and net assets stated at fair value relates cumulatively to under review have been carried out in accordance with all additions to the group of fully consolidated companies at IFRS 3. The purchase price allocations of RBH is based on car- the DB Group: rying amounts, because the fair values of the acquired assets and liabilities are not yet available in definitive form. € million The goodwill is to a large extent substantiated by the synergy effects expected for the period after acquisition. Purchase price Payments 86 If the purchased companies had been included in the + Directly attributable costs 0 consolidated financial statements as of January 1, 2005, the = Total purchase price 86 DB Group would have reported additional revenues of € 383 – Fair value of net assets acquired 12 = Difference 74 million and additional net income of € 10 million. The companies no longer recognized in the group of fully The cumulative carrying amounts and fair values of the consolidated companies have not had any major impact on acquired assets as of December 31, 2005 are detailed in the the net assets, financial position, and results of operations following: of the DB Group. In the year under review, various companies were sold, including the following: € million Carrying Sale of 100 % of shares in Deutsche Eisenbahn-Reklame Fair value amount GmbH as of December 1, 2005;

Property, plant and equipment 93 93 Sale of 82.8 % of shares in Deutsche Touring Group as of Inventories 3 3 January 1, 2005. Receivables and other assets 50 50 Cash and cash equivalents 2 2 Assets 148 148 The sales have resulted in the following cumulative net Financial debt 48 48 cash ﬂows: Other liabilities 40 40 Retirement benefit obligations 17 17 Other provisions 16 16 € million Liabilities 121 121 Sale price Net assets 27 27 Received payments 119 + Directly attributable costs 0 Share attributable to DB Group before purchase 15 15 = Total sale price 119 Purchased net assets 12 12 Cash and cash equivalents sold with companies 1 Inflow of cash and cash equivalents through divestitures 118 Acquisition price paid by cash and cash equivalents 86 86 Cash and cash equivalents acquired with acquisitions 2 2 Outflow of cash and cash equivalents through acquisitions 84 84

150 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

The following table sets out the cumulative impact of the the voting rights in these companies and for which the related deconsolidation issues on the assets and liabilities of the DB assumption of association is not refuted. Group in 2005: Number German Foreign Total Total € million Carrying 2005 2005 2005 2004 amount Joint ventures Property, plant and equipment 21 accounted for using Intangible assets 2 the equity method Investments accounted for using the equity method 7 As of Jan 1 6066 Available-for-sale financial assets 1 Additions 0000 1) Receivables and other assets 13 Disposals 0000 Cash and cash equivalents 1 Addition due to change Assets 45 in type of incorporation 1010 Disposal due to change Financial debt 4 in type of incorporation 0000 Other liabilities 21 As of Dec 31 7076 Retirement benefit obligations 2 Other provisions 3 Associates accounted Deferred income 3 for using the equity Liabilities 33 method As of Jan 1 51 12 63 65 Additions 0002 The revenues and net proﬁts of the companies which have Disposals1) 3142 been sold and which were included in the consolidated Addition due to change in type of incorporation 0111 ﬁnancial statements up to the point of deconsolidation are Disposal due to change as follows: in type of incorporation 1123 As of Dec 31 47 11 58 63

€ million 2005 2004 1) Including disposals from intra-Group mergers

Revenues 74 138 Net result for the year 5 11 Joint ventures and associates which overall are of minor significance for the presentation of the net assets, financial c) Joint ventures and associates position, and results of operations of the DB Group have not Joint ventures are accounted for using the equity method. been accounted for using the equity method. They are Joint ventures are defined as companies which are managed reported on a cumulative basis in the consolidated financial by DB AG directly or indirectly within the framework of a statements with purchase costs of € 34 million (previous year: joint venture with another party. € 35 million), and are detailed as follows: Equity investments for which the DB Group is able to exercise a controlling influence on the financial and business Number German Foreign Total Total policy (associates) are accounted for using the equity method 2005 2005 2005 2004 in the consolidated financial statements. Joint ventures 3366 For the associates, control is normally defined as a situa- Associates 20 13 33 29 tion in which DB AG directly or indirectly owns 20 % to 50 % of

151 The following selected financial data are provided for the associates and joint ventures; this information has been taken from the consolidated financial statements or the annual financial statements of the relevant companies for the period ended December 31, 2005.

Aggregate financial information Equity Net profit € million holding Assets Equity Liabilities Revenues for the year 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

Joint ventures Scandlines AG, Rostock1, 3) 50.0% 548 548 386 444 162 104 503 503 65 75 Transfracht Internationale Gesellschaft für kombinierten Güterverkehr mbH&Co. KG, Frankfurt/Main1, 3) 50.0% 38 33 1 6 37 27 202 189 3 2 Express Air Systems GmbH (EASY), Kriftel1, 3) 50.0%431 13 228 2000 Other 7 8 1 1 6 7 8 6 0 0 597 592 389 452 208 140 741 718 68 77

Associates EUROFIMA AG, Basle/Switzerland1, 2) 23.7% 21,543 18,928 639 627 20,904 18,301 0 0 31 28 Kombi-Verkehr Deutsche Gesellschaft für kombinierten Verkehr mbH&Co. KG, Frankfurt/Main3, 4) 51.4% 42 41 14 14 28 27 304 289 1 1 intalliance AG, Hanover3, 4) 40.0% 28 11 4 4 24 7 207 1 0 0 Bw FuhrparkService GmbH, Troisdorf 3, 4) 24.9% 96 78 5 2 91 76 124 59 3 1 METRANS a.s., Prague/Czech Republic1, 3) 34.1% 52 36 32 24 20 13 105 90 15 13 ALSTOM Lokomotiven Service GmbH, Stendal1) 49.0% 20 22 14 12 6 10 32 22 3 0 POLZUG Intermodal GmbH, Hamburg1, 3) 33.3%7 63 34 426 2300 CTS Container-Terminal GmbH, Cologne3) 22.5%6 61 15 5251910 Masped Schenker Kft., Budapest/ Hungary1, 3) 49.9%5 31 14 3201611 SSG–Saar-Service-GmbH, Saarbrücken3, 4) 25.5%3 31 12 213 1300 Other 213 202 62 56151 146 274 2635 4 22,015 19,336 776 745 21,239 18,594 1,130 795 60 48

1) Based on preliminary figures 2) Relates exclusively to financing transactions 3) Figures according to local GAAP 4) Figures for previous financial year

The most signiﬁcant joint venture for the DB Group is Scandlines AG, Rostock. The DB Group has announced that it is interested in selling the shares in Scandlines AG. However, because the criteria for reclassifying the shares as “available- for-sale” are not satisﬁed, the shares are still recognized as shares in companies accounted for using the equity method.

152 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

Currency translation Recognition of income and expenditures a) Functional currency and reporting currency The revenues generated in the DB Group relate to the provi- Currency translation uses the concept of the functional cur- sion of passenger transport services, transport and logistics rency. The functional currency of all subsidiaries included services, the provision of rail infrastructure, the sale of goods in the consolidated financial statements of DB AG is the rele- and other services related particularly to rail operations, vant local currency. less value-added tax, rebates and any discounts. They are The consolidated financial statements are prepared in recognized with their fair value. Euros (reporting currency). The services provided by the DB Group are normally completed within a few hours/days. Revenues resulting b) Transactions and balances from the provision of services are therefore recognized as Transactions which are not carried out in the functional cur- soon as the service has been provided, the extent of the rency of a company included in the group of consolidated revenues and the costs is reliably measurable, and the eco- companies (foreign currency transactions) are translated nomic benefit will probably accrue to the DB Group. into the functional currency of the corresponding entity Dividend income is recognized at the point at which the using the rate applicable at the time of the transaction. right to receive the payment arises. Interest income is recog- Exchange rate gains and losses resulting from processing nized in the income statement using the effective interest such transactions and valuing monetary assets and liabilities method in the period in which the income arises. at the rate applicable on the reporting date in the financial All expense and income items are normally recognized statements are recognized in the income statement. without being netted, unless the accounting principles under IFRS permit or require netting. c) Subsidiaries Expenses are recognized in the income statement at the Subsidiaries whose functional currency is not the Euro trans- point at which the service is used or at the point at which the late their financial statements which are prepared in local cur- expenses are incurred. rency into the reporting currency (Euro) for the purpose of being incorporated in the consolidated financial statements of Accounting and valuation methods DB AG as follows: Assets and liabilities are translated using a) Property, plant and equipment the exchange rate applicable on the reporting date, income Property, plant and equipment is recognized at cost of pur- and expenditure items are translated using the average rate. chase and cost of production less cumulative depreciation and Differences resulting from currency translation are shown also with due consideration being given to impairments and separately under shareholders’ equity. reversals of prior impairments. Costs of purchase comprise Goodwill and adjustments to the fair values of assets and the purchase price plus ancillary purchase costs less purchase liabilities due to acquisitions of foreign subsidiaries are treated price reductions. If shut-down or restoration obligations exist, as assets and liabilities of the foreign companies and are trans- they are recognized as assets under the cost of purchase and lated using the exchange rate applicable on the reporting date. cost of production of the property, plant and equipment, and are also shown as a provision under liabilities. Cost of production comprises individual costs as well as overheads which are directly allocable.

153 Interest on debt capital is not included, and instead is c) Intangible assets and goodwill expensed immediately. Value-added tax incurred in connec- Intangible assets acquired for a monetary consideration are tion with the purchase or production of property, plant and recognized at cost of purchase. Intangible assets which are equipment is only capitalized if input tax is not permitted to produced in-house are recognized with their cost of produc- be deducted. tion and consist exclusively of software. The costs of the Subsequent costs are capitalized if the expenses enhance development phase are capitalized if a future economic the economic benefit of the property, plant and equipment benefit accrues to the DB Group and if the other capitaliza- and if the costs can be reliably measured. On the other hand, tion criteria are satisfied. The costs of production comprise all other repairs or maintenance are expensed. all costs which can be directly allocated and those costs Depreciation is taken to the income statement on a which are incurred in order to prepare the asset for its envis- straight-line basis over the expected service life of the asset. aged use. The underlying service lives for the main groups of property, Costs of production comprise mainly costs for mate- plant and equipment are shown in the following: rial and services, wage and salary costs as well as relevant overheads. Years Interest on debt capital is not capitalized. Value-added tax incurred in connection with the purchase and produc- Permanent way structures, tunnels, bridges 75 Track infrastructure 20–25 tion of intangible assets is only capitalized if input tax is not Buildings and other constructions 10–50 deductible. Land improvements 8–20 Intangible assets (excluding goodwill) are subsequent- Signaling equipment 20 Telecommunications equipment 5–20 ly valued at cost of purchase or cost of production less Rolling stock 15–30 depreciation and impairments plus any reversals of prior Technical equipment, machinery and vehicles 3–25 impairments. Depreciation is calculated using the straight- Factory and office equipment 2–20 line method. The adequacy of the depreciation method and the service life are subject to an annual review. The appropriateness of the chosen depreciation method The following probable service lives are used as the basis and the service lives is subject to an annual review. Our for depreciation on intangible assets: expectations regarding the residual value are also updated annually. Years Investment grants are deducted directly from the cost of Franchises, Contract purchase or cost of production of the assets for which the rights, etc. term grants have been extended. Trade marks Service life Purchased software 3–5 Software produced in-house 3 b) Finance lease assets Rented and leased assets whose underlying leases are classified as finance leases under IAS 17 are capitalized with Goodwill arises as a positive difference between the costs the lower of fair value or the present value of minimum lease of purchasing the shares and the fair values of the individu- payments at the start of the lease, and are depreciated using ally acquired assets, absorbed liabilities and contingent liabili- the straight-line method over the economic service life of ties. It is not depreciated; instead it is subject to an annual the asset or the shorter duration of the lease. impairment test.

154 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

d) Impairments of assets These cash flow forecasts are based on the medium-term plan- Impairment tests are performed for individual assets or, if ning submitted to the Supervisory Board of DB AG, which no individual value in use can be established, at the level of comprises a budget horizon of five years in each case. In the cash generating units (CGUs). case of CGUs which are used for a period which extends For this purpose, a method for the impairment test beyond the medium-term budget, the service life established based on the following definitions and assumptions has individually on the basis of economic criteria is estimated, and been implemented on the basis of IAS 36: the sustainably recoverable cash flow for this period is established on the basis of the last budget year. Structure of the cash generating units The value in use of a CGU takes account of future cash In the DB Group, each CGU consists of at least one or more flows for a CGU only in its current condition. Inflows or out- legally independent companies. The criteria for defining flows of funds resulting from major future structural changes, the CGUs are based on the structure of operating business. disinvestment measures or extension investments are not Accordingly, the CGUs to a large extent correspond to the taken into consideration. Resultant adjustments to the ori- business units of the DB Group, and thus also to the structure ginal budgets relate in particular to the major new lines and used as the basis of internal management reporting. line expansions planned in the infrastructure. A weighted average cost of capital (WACC) which Method reflects the yield requirement of the capital market for provid- The impairment test is based on a comparison of the recover- ing shareholders’ equity and debt capital to the DB Group is able amount and the carrying amount of a CGU. used for discounting purposes. In line with the method The carrying amount of a CGU is calculated by adding used for establishing the cash flows, a capital cost rate before the carrying amounts of the assets less the liabilities which taxes is used. Risks are recognized in the capitalization rate belong to the CGU or which can be allocated to the CGU. by means of a mark-up. Assets and liabilities which are shared by several CGUs are also taken into consideration on a pro-rata basis for estab- Calculation assumptions lishing the carrying amount of a CGU. After the medium-term planning has been possed by in the In the impairment test which is carried out, the recover- Supervisory Board of DB AG, a regular check is carried out able amount is calculated by comparing the higher of net dis- to establish whether there are any impairments affecting posal price and value in use with the carrying amount of the the CGUs. In addition to this annual cycle, a test is also per- CGU. The value in use is calculated as the present value of the formed if current issues arising from the development in free cash flows expected as a result of continuing the CGU. business or changes in assumptions indicate that there has Cash flows before interest and before taxes are used as the been a major deterioration in the value in use. basis for establishing the present value. The cash flow fore- The impairment method has been carried out on the basis casts are based on assumptions which represent the best esti- of a risk-adjusted cost of capital rate of 8.8 % (previous year: mate of management with regard to economic conditions. 8.9 %) before taxes. The application of a uniform capital cost rate throughout the Group thus follows the consideration of a virtually uniform pool of risk and resources within the DB Group.

155 The service lives for the individual CGUs used as part of the is not reliably measurable, the available-for-sale financial impairment test are based on the service life of the asset or a assets are recognized at cost of purchase less any impairment. group of homogeneous assets which is most significant for Shares in non-consolidated subsidiaries and other equity the specific CGU and which thus characterizes the CGU. investments are also considered to be available-for-sale finan- The growth rates which are assumed for the impair- cial assets. In view of their minor significance, they are nor- ment test and which are used for the cash flow forecast after mally recognized at amortized cost of purchase. the five-year planning period for extrapolating the cash Available-for-sale current or non-current securities are flows over the corresponding service life are consistent with recognized with their market values as of the reporting realistic assessments of the specific market development. date – where such values exist. Changes in fair value are re- In general, a growth rate of 1% p.a. is assumed (previous cognized with no impact on the income statement in the year: 1% p.a.). The cash flow forecasts take account of inter- reserve attributable to the fair value of securities. nal transfer prices based on arm’s-length assessments of the relevant companies. The published infrastructure prices are Receivables and other financial assets applicable for services between the Transport and Infra- Receivables and other financial assets are initially recognized structure units, and price increases in the forecast period are at cost of purchase, whereby the cost of purchase corres- also recognized. ponds to the fair value of the rendered service. Non-current interest-free or low-interest receivables (receivables due after e) Investments in companies accounted for using more than one year) are discounted to the present value of the equity method future cash flows. Discounted receivables are adjusted for Investments in associates and joint ventures are normally cumulative interest in subsequent periods with the effective accounted for using the equity method in accordance with interest fixed for initial valuation. IAS 28 (Investments in Associates) or in accordance with Where there are substantial objective indications of an the option defined in IAS 31 (Interests in Joint Ventures). impairment, receivables are written down by an appropriate Starting with the Group’s acquisition costs at the point of amount. acquisition, the value which is stated is adjusted to reflect the change in equity at the associate attributable to the DB Cash and cash equivalents Group. This item comprises cash in hand and checks, deposits at banks which are due on sight, as well as cash equivalents. f) Financial assets Balances at banks comprise overnight money as well as time Arm’s-length purchases or sales of financial assets are recog- deposits due within three months. nized or eliminated on the settlement date. Cash and cash equivalents are recognized with their nominal value. Available-for-sale financial assets Available-for-sale financial assets are normally recognized g) Inventories with their fair value. If the fair value of equity instruments All costs which are directly related to the procurement process are capitalized as the costs of purchase of the inventories.

156 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

The average method is used as the basis for establishing the tax is realized on the basis of existing laws or laws which have cost of purchase of fungible and homogeneous raw materials in essence been adopted. and supplies. Costs of production comprise individual costs as well as the directly allocable overheads. j) Debt and liabilities As of balance sheet date, inventories are stated with the Current liabilities are normally recognized with their nomi- lower of cost or net realizable value. nal amount, which corresponds to the fair value at the point at which the liability is initially recognized and the amor- h) Available-for-sale non-current assets tized costs of purchase up to the date at which the liability is Non-current assets are classified as available-for-sale non- settled. Financial debt and other non-current liabilities, current assets if their carrying amount is to be realized when initially recognized, are stated with the amount by way of sale and not by way of continued use. This can be which corresponds to the fair value of the received assets, an individual asset, a disposal group or part of a company. where appropriate less transaction costs. Subsequently, Non-current available-for-sale assets are stated with the they are stated at amortized costs of purchase using the lower of carrying amount or market value less costs which effective interest method. The differences between the are incurred. amount paid out less transaction costs and the amount repaid are recognized in the income statement over the life i) Deferred taxes of the liability. Deferred taxes are calculated in accordance with IAS 12 Interest-free government loans which are related to (Income Taxes). infrastructure capital expenditures are recognized with the The domestic Group tax rate used as the basis of calculat- present value of the amounts to be repaid and are adjusted ing deferred taxes is unchanged at 40.0 %, and comprises the to their nominal repayment amount over their life. The differ- corporation tax rate plus the solidarity surcharge as well as an ence between the nominal amount of the loan and the present average trade tax rate. Foreign subsidiaries use their relevant value is recognized as an interest benefit under accruals. local tax rates for calculating deferred taxes; these vary be- Interest income attributable to the pro-rata reversal of these tween 8.0 % and 47.8%. accruals compensates for the interest expense relating to A deferred asset is recognized for allowable temporary the loans. differences if, after deferred liabilities have been deducted, it Liabilities arising from leases which are classified as is likely that adequate taxable income will be available. The finance leases in accordance with the allocation criteria of IAS medium-term planning with due consideration being given to 17 are recognized with the present value of minimum leasing additional estimates is used for this purpose. Deferred tax payments at the beginning of the lease, and are subsequently assets relating to losses carried forward which will probably stated under financial debt in the amount of amortized cost of only be capable of being realized after the medium-term plan- purchase. The leasing installments are broken down into an ning period on the basis of attainable earnings are not stated, interest component and a repayment component. The inter- on the grounds of them being not reliably measurable. est component of the leasing installment is recognized in the Deferred taxes are established on the basis of the tax rates income statement. which can be expected for the period in which the deferred

157 k) Employee benefits assets to the extent that there is a right for a repayment or Pension obligations and similar commitments reduction of future payment. In the DB Group, there are defined benefit as well as defined contribution retirement pension systems. Payments on the occasion of termination of employment The provision for defined benefit retirement pension contracts (severance payments) systems stated in the balance sheet corresponds to the Severance payments become payable if an employee is represent value of the pension commitment (DBO; Defined leased from his duties before normal pensionable age or if Benefit Obligation) less any plan assets on the balance sheet an employee voluntarily terminates his employment con- date, adjusted by cumulative actuarial profits and losses tract in return for a severance package. Severance payments which are not reflected in the income statement and out- are recognized if there is a demonstrable obligation either standing past service costs which has not been recognized. to terminate the employment agreements of current em- The pension obligation is calculated annually by indepen- ployees in accordance with a detailed formal plan which dent actuarial experts using the projected unit credit cannot be reversed or to pay severance payments if the method. Actuarial profits and losses are not recognized if employment contract is voluntarily terminated by employ- they do not exceed 10 % of the higher of the obligation or ees within the framework of employment contract termina- the present value of plan assets (10 % corridor rule). The tion agreements. amount which exceeds the corridor is recognized over the Severance payment obligations for agreements entered expected average remaining service lives of the employees as of the balance sheet date are recognized as other liabilities covered by the plan. and – if they are not yet included in individual agreements Outstanding past service costs are immediately recog- and if they are part of a restructuring obligation in accor- nized in the income statement, unless the changes in the dance with IAS 37 (Provisions, Contingent Liabilities and pension scheme (retirement pension scheme) depend on Contingent Assets) – are stated as other provisions. the employee remaining in the company for a defined period (the period up to the point at which the rights become l) Other provisions vested). In this case, the outstanding past service costs are Other provisions are set aside if there is a legal or actual obli- recognized in the income statement on a straight-line basis gation resulting from a past event which is more than 50 % over the period up to the point at which the rights become likely to result in an outflow of resources and if the extent of vested. the obligation can be reliably estimated. If it is likely that a The expense arising from applying interest to the pen- provision will be refunded, for instance as a result of an sion obligations and the expected income from the plan insurance policy, the refund is recognized as a separate asset assets are recognized in financial result. only if it is as good as certain. The income from refunds is In the case of defined contribution retirement pension not netted with the expenses. systems, the DB Group pays contributions to public-sector Non-current provisions are discounted using market or private retirement pension schemes either voluntarily interest rates. Environmental protection provisions for the or as a result of a contractual or statutory obligation. The rehabilitation of existing ecological damage are discounted DB Group does not have any additional payment obliga- on the basis of real interest rates, which are adjusted to tions beyond having to pay the contributions. The contribu- reflect the risk and the period until fulfillment. The differ- tions are recognized in personnel expense when they are ence between the nominal value of the expected outflows due. Advance payments of contributions are recognized as and the present value recognized for the environmental

158 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

protection provisions is stated under deferred income, and The Management Board of DB AG has defined principles for represents the interest benefit resulting from the longer- risk management. The Group financing guidelines and the term release of the provision. The cumulative interest internal control system guidelines regulate the use of de- expense attributable to other provisions is recognized in rivative financial instruments for managing interest rate, financial result. currency and energy price risks as well as associated counterparty default risks. In the structure and procedure m) Deferred income organization, there is a clear functional and organizational Deferred public-sector grants distinction between scheduling and trading on the one The DB Group receives various public-sector grants, which hand (front office) as well as settlement and monitoring on are provided in relation to specific assets or on the basis of a the other (back office). Group Treasury operates on the glo- specific performance. The grants are recognized as soon as it bal financial markets using the Minimum Requirements is certain that the grant will indeed be provided and that the for Trading Activities of Credit Institutions (Mindest- criteria necessary for the grant to be received are satisfied. anforderungen an das Betreiben von Handelsgeschäften; The grants relating to specific assets, and in particular MAH) prepared by the Federal Financial Supervisory investment grants, are deducted directly from the assets for Authority (Bundesanstalt für Finanzdienstleistungsauf- which the grant is provided. The interest benefit (difference sicht; BaFin), and is subject to regular internal and external between nominal value and present value) of interest-free control. loans is stated as deferred items on the basis of the contrac- Derivative financial instruments are used exclusively tual grant conditions. for hedging interest, currency and energy price risks. All individual transactions correspond to on-balance-sheet or Deferred profits from sale-and-lease-back agreements anticipated underlyings (for instance bonds, commercial If capital gains have been realized in conjunction with sale- paper, purchases of diesel fuel and electricity). Speculation and-lease-back agreements and if the subsequent lease has is not permitted. Ongoing market and risk assessment takes to be classified as a finance lease, these gains are deferred place as part of risk management. and released with an impact on the income statement over the life of the relevant agreements. Interest rate risks In line with the length of time that assets are tied up, the n) Derivative financial instruments financial requirement is covered mainly by issuing long- Management of financial and energy risks term and fixed-interest bonds. Interest rate management The DB Group is exposed to financial risks as a result of comprises a reasonable amount of variable interest for opti- changes in interest rates and exchange rates. In addition, mizing interest costs. Interest rate risks are primarily hedged there are also energy price risks on the procurement side as by means of interest swaps. a result of fluctuations in the prices of diesel fuel and electricity. One of the aspects of corporate policy is to actively Foreign currency risks manage and thus limit these risks by means of the use of Foreign currency bonds are issued as part of the Group’s derivative financial instruments. financing strategy; they are swapped for Euro liabilities DB AG with its central Group Treasury is responsible with the aid of interest rate/currency swaps in order to avoid for all financing and hedging transactions of the DB Group. interest and exchange rate risks. It co-operates with the subsidiaries to identify, evaluate and hedge financial and energy risks.

159 We have international operations with our activities in the Liquidity risk Transport and Logistics division, and are thus exposed to Liquidity management involves maintaining adequate cash operational exchange rate risks. In order to minimize those and cash equivalents, constantly checking the commercial risks, the subsidiaries enter into internal currency trans- paper market for ensuring adequate market liquidity and actions with Group Treasury. Group Treasury in turn hedges depth, and the constant availability of financial resources its open foreign currency positions by way of opposite trans- via guaranteed credit facilities provided by banks. actions on the financial markets. The DB Group has numerous equity investments in Recognition of derivative financial instruments foreign subsidiaries, whose net assets are exposed to a trans- At the point at which the contract is concluded, derivative lation risk. This risk is not hedged. financial instruments are recognized as a financial asset or a financial liability in the balance sheet. They are initially Energy price risks recognized at cost of purchase. Derivative financial instru- The DB Group is one of the largest consumers of electricity ments are normally subsequently recognized with their fair in Germany. In addition, the Group also requires considerable value. The treatment of changes in the fair value depends on volumes of diesel fuel. The high energy procurement volume the type of the hedged underlying transaction. At the point and the volatility of electricity and mineral oil markets at which the contract is taken out, derivative financial in- result in substantial earnings risks. struments are generally classified as a hedging instrument Hedging strategies for managing and minimizing these (a) for hedging the fair value of certain assets or liabilities risks are implemented as part of active energy price risk recognized in the balance sheet (fair-value hedge) or (b) for management. Financial and energy derivatives are used for hedging the cash flows arising from a contractual obliga- these purposes. Physical electricity swaps are used as hedg- tion or an expected transaction (cash flow hedge). ing instruments for price risks encountered in the purchasing of electricity. Diesel price risks are for instance limited Fair-value hedges by taking out diesel swaps and zero-cost collars (hybrid The purpose of fair-value hedges is to provide protection hedges of diesel price and currency risks and individual against changes in the value of balance sheet items. In these hedges of currency risks). cases, the hedge as well as the hedged risk content of the underlying transaction are recognized with their fair value. Counterparty default risk of interest, currency Changes in value are recognized in the income statement. and energy derivatives The DB Group currently does not have any fair-value Counterparty default risk is defined as possible losses due hedges. to the default of counterparties (“worst-case scenario”). It represents the replacement costs (at fair values) of the de- Cash flow hedges rivative financial instruments for which the DB Group has Cash flow hedges are used to provide protection against claims against contract partners. The counterparty default fluctuations in the cash flows of financial assets or liabilities. risk is monitored and actively managed by way of strict When future cash flows are hedged, the hedging instru- requirements relating to the creditworthiness of the counter- ments are also recognized with their fair value. Changes in party at the point at which the transactions are concluded value however are initially recognized in shareholders’ and also throughout the entire life of the transactions, and equity with no impact on the income statement, and are also by way of defining risk limits. only recognized in the income statement at the point at

160 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

which the corresponding losses or profits from the under- a) Impairment of cash generating units (CGUs) lying transactions have an impact on the income statement Depending on specific events or circumstances, the or at which the transactions expire. DB Group regularly assesses whether there is any need for impairment of a CGU. The fundamental aspects and as- Derivative financial instruments which do not sumptions of the impairment method used in the DB Group satisfy the requirements for recognizing hedges in accordance with IAS 36 (Impairment of Assets) are de- in accordance with IAS 39 tailed in this section under the heading “Impairments of If hedges which in economic terms are used for interest, assets”. We have provided the following explanations con- currency or price hedging do not satisfy the restrictive cerning individual assumptions which have an impact on requirements of IAS 39 for being recognized as a hedge, the the value of a CGU: changes in value are immediately recognized in the income statement. EBITDA margin If at the end of the planning period the actual EBITDA mar- Calculation of the fair value gin (EBITDA; Earnings before interest, taxes, depreciation The fair value of financial instruments which are traded in and amortization) is 10 % lower than the current planning an active market is derived from the market price applicable assumption, and if this effect would also have an impact on on the balance sheet date. Current valuation methods are the cash flows forecasted after this period, the carrying used for establishing the fair value of financial instruments amounts of the property, plant and equipment and the which are not traded in an active market, and assumptions intangible assets would not have to be impaired (previous which were appropriate on the basis of the market condi- year: by € 100 million). tions applicable on the balance sheet dates are made. Option price or present value models are used for assessing the Average real growth rate of cash flows value of other derivative financial instruments. If the growth rate of operating cash flows assumed after the planning period were to be 10 % lower than the current as- Critical assessments and appraisals sumption – i.e. 0.9 % p.a. instead of the currently assumed The consolidated financial statements are based on assess- 1.0 % p.a. – there would be no need for impairment for the ments and assumptions relating to the future. Assessments property, plant and equipment and the intangible assets (as and appraisals established on this basis are continuously was the case in the previous year). reviewed, and are based on historical experience and other factors, including expectations of future events which appear Weighted average costs of capital to be reasonable in the given circumstances. Of course, the If the capitalization rate before taxes which was used for assessments will not always correspond to subsequent actual calculating the value in use were to be 10 % higher than the circumstances. current assumption – i.e. 9.7 % instead of the currently as- The assessments and assumptions which may involve sumed 8.8 % (previous year: 9.8 % instead of the assumed a significant risk in the form of a major adjustment of the 8.9 %) – the carrying amount of the property, plant and carrying amounts of assets and liabilities during the next equipment and the intangible assets would not have to be financial year are discussed in the following. impaired (previous year: by € 80 million).

161 Service life and residual value the amount of the provision stated in the balance sheet, If the residual value of the CGUs were to be 10 % lower at the the rehabilitation obligations which are currently physi- end of their service lives, the carrying amount of the pro- cally known or identifiable have been used as the basis for perty, plant and equipment and the intangible assets would estimating the expected costs in relation to the current not decline, as was the case in the previous year. price level. The environmental protection provisions are stated on b) Deferred taxes the basis of expected cash-effective outflows and the appli- The deferred tax assets calculated in relation to differences cation of a risk-adjusted real interest rate in a range between in the balance sheet and the losses carried forward are based 0.1% and 1.5 %. on the medium-term planning for the period 2006 – 2010 If major legal conditions or official covenants result which has been passed by the Supervisory Board of DB AG. in implementation times of rehabilitation measures which If the sum of net profits planned for the medium-term plan- differ considerably from the estimated time corridor, this ning period were to decline by 10 % in conjunction with might result in a changed time horizon for the expected cash otherwise unchanged tax parameters, deferred tax assets outflows, and also a changed provision. In addition, price would have to be adjusted by € 183 million (previous year: increases may also result in a higher provision. € 193 million). c) Environmental protection provisions The environmental protection provisions relate primarily to the obligation of DB AG to remedy the ecological contamination which arose before January 1, 1994 on the land of the former Deutsche Bundesbahn and the former Deutsche Reichsbahn. The ecological contamination comprises mainly contamination of soil and ground water as a result of using the properties. The obligation to rehabilitate the property is derived from the Federal Soil Protection Act (Bundesbodenschutzgesetz; BBodSchG), the Water Man- agement Act (Wasserhaushaltsgesetz; WHG), the Land Fill Site Ordinance (Deponieverordnung; DepV) as well as other additional acts and regulations. The provisions have been calculated on the basis of a discounting method using the present value, where rehabilitation measures are probable, the rehabilitation costs can be reliably estimated and no future benefit is expected to be derived from these measures. The estimation of future rehabilitation costs is subject to various uncertainties. In addition to technical developments in the rehabilitation field and the intensity of in- novation, changes in the legal background can also have a substantial impact on rehabilitation costs. For establishing

162 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

Notes to the Income Statement 3 Other operating income

1 Revenues € million 2005 2004

Services for third parties € million 2005 2004 and sales of materials 718 776 Income from the disposal Revenues from services 24,822 23,879 of property, plant and equipment thereof orderer fees and intangible assets 246 242 for rail transport 4,537 4,568 Leasing and rental income 200 266 Revenues from sale of goods 233 83 Income from the release of provisions 163 342 Total 25,055 23,962 Income from claims for damages and compensation 143 214 Income from the disposal of non-current Revenues have increased to € 25,055 million (+ 4.6 %). Adjust- financial instruments 105 37 ed by the major effects of disposals in the scope of consoli- Income from government grants 79 98 Income from the disposal dation, the increase is 4.9 %. Orderer fees for rail transport of discontinuing operations 0 229 relate to fees generated by performance-based transport Other income 712 656 contracts with the federal states. Total 2,366 2,860 thereof from discontinuing Movements in revenues broken down according to busi- operations (0) (229) ness segments and regions are set out in segment reporting. The decline compared with the previous year is attributable 2 Inventory changes and internally produced mainly to lower income attributable to the release of provi- and capitalized assets sions as well as the income from the disposal of discontinuing Brenntag/Interfer activities which were still recognized in € million 2005 2004 the previous year. The income from the disposal of non-current ﬁnancial instruments also includes the disposal income Inventory changes – 29 – 84 Internally produced and from the sale of all shares in Eisenbahn-Reklame GmbH and capitalized assets 1,702 2,012 the Deutsche Touring-Group. Total 1,673 1,928

4 Cost of materials Own capital expenditures relate mainly to construction and project business in rail infrastructure and also the moderni- € million 2005 2004 zation of rolling stock as well as the processing of appropriate Costs of raw materials, consumables spare parts. The decline compared with the previous year is and supplies 1,697 1,535 attributable mainly to lower in-house planning services for Costs of purchased services 8,315 7,985 infrastructure projects as well as lower own work in connec- Maintenance expenses 2,638 2,534 Total 12,650 12,054 tion with processing the rolling stock.

163 The adjustments to inventories recorded under cost of mate- and the expected income from the plan assets is stated under rials amount to € 8 million (previous year: € 4 million). ﬁnancial result. For detailed explanations regarding the Increases compared with the previous year were reported development of pension obligations, please refer to the mainly for energy costs and the much higher purchased Notes under [31]. input services in the Schenker segment as a result of increased The activities of civil servants in the DB Group are based levels of business. Higher maintenance services were also on statutory secondment within the framework of the section reported for the rolling stock as well as infrastructure instal- 2 (12) Rail Restructuring Act (Eisenbahnneuordnungsgesetz; lations. ENeuOG). For the work of the assigned civil servants, DB AG refunds to the Federal Railroad Fund (Bundeseisenbahn- 5 Personnel expenses and employees vermögen; BEV) those costs which would be incurred if a person subject to collective bargaining agreements were to € million 2005 2004 be employed as an employee instead of the assigned civil servant (pro-forma settlement). Wages and salaries Employees 5,986 6,035 The reduced personnel expenses are attributable mainly Civil servants assigned 1,425 1,545 to the decline in the number of employees, measured in terms 7,411 7,580 of full-time employees (full-time equivalents). The develop-

Social security costs ment in the number of persons employed in the DB Group, Employees 1,256 1,288 measured in terms of full-time employees, is detailed in the Civil servants assigned 294 323 following: Costs of adjusting staffing levels 157 272 Retirement benefit expenses 93 93 1,800 1,976 At year end Average for the year 2005 2004 2005 2004 Total 9,211 9,556 Employees 175,522 180,662 177,937 183,467 Civil servants 40,867 44,970 42,406 46,363 The ﬁgure stated for personnel expenses includes expense Subtotal 216,389 225,632 220,343 229,830 Trainees 8,235 8,145 7,280 7,057 of € 638 million for deﬁned-contribution plans (previous Total 224,624 233,777 227,623 236,887 year: € 690 million). The amount for personnel adjustment comprises mainly The development in the number of employees, based on the expenses arising from severance payment agreements, early number of natural persons, is shown in the following: retirement agreements, agreements relating to part-time working in the run-up to retirement as well as restructuring At year end At year end measures. 2005 2004

The retirement beneﬁt expenses relate to active per- Employees 185,223 187,208 sons as well as persons who are no longer employed in the Civil servants 42,990 45,940 DB Group or their surviving dependants. They are attribut- Subtotal 228,213 233,148 Trainees 8,235 8,145 able mainly to the level of pension provisions, employer’s Total 236,448 241,293 contributions to the supplementary occupational pension plans as well as the retirement beneﬁt contributions of In the event of changes in the scope of consolidation, the employees which are paid by the DB Group. The interest employees are included on a pro-rata basis up to the time of expense relating to the compounding of pension obligations deconsolidation or after the date of initial consolidation.

164 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

6 Depreciation Compared with the previous year, the expenses for leasing, Depreciation relates mainly to the property, plant and rents and leases were reduced in information technology equipment used as rail infrastructure as well as the rolling and also the rolling stock in the rail transport segments. stock. For further explanations, please refer to the details Expenses for energy hedges in particular have increased concerning the development in property, plant and equip- other purchased services in the financial year. ment or intangible assets under Notes [13] and [14]. The legal, consultancy and audit fees include fees for the Group auditor in the amount of € 15.2 million; thereof 7 Other operating expenses € 9.5 million for the audit of the Group financial statements, € 2.5 million for confirmation and valuation services, € million 2005 2004 € 0.1 million for tax consultancy services, and € 3.1 million for other services. Rental and leasing expenses 757 814 Other purchased services 331 310 In the previous year, measures were implemented in Travel and entertaining expenses 166 167 property, plant and equipment for structural streamlining Insurance expenses 163 185 of the portfolio; these measures were not repeated to the Legal, consultancy and audit fees 160 156 Loss from disposal of property, plant same extent in the year under review. For this reason, the and equipment and intangible assets 153 213 losses attributable to the disposal of property, plant and Contributions and fees 152 154 equipment and intangible assets have declined compared Damages payable 131 83 Impairments in receivables with the previous year. and other assets 89 97 The expenses attributable to claims for damages reflect Maintenance expenses 87 103 higher customer claims in the transport segments, particu- Sales promotion and advertising expenses 78 84 larly in the Railion segment and, to a lesser extent, in the Cost of printing and office supplies 72 88 passenger transport segments as a result of the ex-gratia Other taxes 63 57 payment arrangements introduced for delays. In addition, Research and not capitalized development costs 16 9 an interest rate adjustment resulted in higher expenses for Other 662 754 the valuation of claims for personal injury damages. Total 3,080 3,274 The costs for maintenance and repair outside production were particularly high in the previous year, and were reduced in the period under review. In other expenses, the cost of investment grants to third parties declined by € 40 million, personnel-related equipment declined by € 13 million and other equipment costs declined by € 39 million.

8 Results of shareholdings accounted for using the equity method The following contributions to earnings are recognized in the income statement as a result of shares in companies over which signiﬁcant inﬂuence can be exercised or which are managed as joint ventures:

165 10 Other financial result € million 2005 2004

Joint ventures € million 2005 2004 Scandlines AG 42 30 Other 2 1 Result from equity investments 9 4 44 31 Result from currency exchange gains –125 88 Result from foreign exchange-based Associated companies derivative contracts 128 – 84 EUROFIMA AG 87Result from other derivative Other 24 11 financial instruments – 2 –1 32 18 Result from disposal of financial instruments 0 1 Total 76 49 Impairments on financial instruments –3 – 63 Total 7 –55

9 Net interest income The result of exchange rate effects is attributable to the conversion of foreign currency liabilities with an impact on the € million 2005 2004 income statement using the spot rate applicable on the reference date (IAS 21). It was considerably lower compared with Interest income Other interest and similar income 59 93 previous year figure, particularly as a result of the stronger Interest income from the release US-Dollar (USD) against the Euro and the associated increase of deferred income 260 248 in USD liabilities. The result of currency-based derivatives 319 341 comprises the reclassification of currency-related changes Interest expenses in the fair value of cash flow hedges recognized under share- Other interest and similar expenses – 828 – 811 holders’ equity with no impact on the income statement. Interest accrued on non-current provisions and liabilities – 284 –364 The result from other derivatives relates to the develop- Interest element of finance ment in the fair value of derivatives which are not classified lease payments – 85 – 84 as effective hedges in accordance with IAS 39. The result of Interest cost of retirement benefit obligations – 67 – 66 exchange rate effects has to be netted theoretically with the –1,264 –1,325 result of currency-related derivatives.

Total – 945 – 984 11 Taxes on income

The moderate increase in other interest expenses is attribut- € million 2005 2004 able to the fact that capital market debt on an annual average Effective taxes payable –101 –114 basis is slightly higher than the corresponding previous Income due to lapsing year figure. In the 2004 financial year, most bond issues of tax obligations 11 7 (approx. 63 %) were attributable to the months of November Effective taxes on income expenses – 90 –107 and December. The bonds had a full impact on interest for Deferred tax income 211 133 the first time in 2005, and consequently resulted in higher Taxes on income – total 121 26 interest expense.

166 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

Actual taxes on income have been incurred primarily at The other effects in the year under review comprise in par- foreign subsidiaries. ticular effects attributable to the fact that domestic taxes on The considerable change in taxes on income is attribut- income differ from predicted taxes on income as a result of able to deferred taxes. In the year under review, deferred tax different assessment bases used for the individual types of assets resulted from additional future possibilities for taxes on income. utilizing temporary differences and losses carried forward, particularly in Germany. 12 Earnings per share Starting with the net profits of the DB Group before taxes Under IAS 33 (Earnings per Share), undiluted earnings per on income and the theoretical taxes on income calculated share are calculated by dividing the net profit of the DB using a Group tax rate of 40.0 %, the following reconciles Group attributable to the shareholders of DB AG by the the calculated taxes with the actual taxes on income: weighted average number of shares in issue during the financial year. Undiluted earnings per share correspond to € million 2005 2004 diluted earnings per share.

Profit before taxes on income 490 154 Tax rate for the Group 40 % 40 % € million 2005 2004 Expected tax expense (–)/credit (+) –196 – 61 Net profit for the year 611 180 Net profit attributable to Tax effects related to IAS 12.33 154 153 Additional existing temporary minority interests (31) (25) differences (previous year: effect due Net profit attributable to share- to temporary differences and loss holders of Deutsche Bahn AG (580) (155) carry-forwards arising in the financial year for which no deferred tax assets Number of issued shares 430,000,000 430,000,000 have been recognized) 116 – 204 Income not subject to tax 99 67 Earnings per share (€/share), Differences in tax rates of foreign undiluted 1.35 0.36 companies 24 13 Earnings per share (€/share), Expenses not deductible for diluted 1.35 0.36 tax purposes –15 – 44 thereof from discontinuing Effect of changes in tax legislation 0 –5 operations (0.00) (0.53) Other effects – 61 107 Taxes on income as reported 121 26

Effective tax rate – 24.7 % –16.9 %

The reconciliation amount as detailed in IAS 12.33 relates exclusively to additional tax write-downs resulting from the fact that tax-free grants in the IFRS ﬁnancial statements have been deducted directly from the costs of purchasing the assets. It is not permissible for deferred taxes to be created in relation to these temporary differences.

167 Notes to the Balance Sheet

13 Property, plant and equipment

Property, plant and Track infra- Rolling Other Advance equipment as of Commer- structure, stock for Technical equipment, payments December 31, 2005 cial, office Permanent signaling passenger equipment operating and assets € million and other way and control and freight and and office under con- Land buildings structures equipment transport machinery equipment struction Total

Cost of purchase and manufacturing costs As of Jan1, 2005 5,090 4,707 10,300 12,314 17,372 1,117 3,033 5,331 59,264 Changes in the scope of consolidation 10 55 0 0 48 –5 21 0 129 Additions 128 233 370 1,014 603 68 372 3,516 6,304 Investment grants –1 –50 – 285 – 813 – 45 –13 – 41 – 2,771 – 4,019 Transfers –11 102 309 756 305 –12 447 –1,896 0 Transfers related to assets held for sale 0 0 0 0 0 0 0 0 0 Disposals – 92 –39 – 22 – 80 –178 –32 –328 398 –373 Currency translation differences 0 –5 0 0 –1 1 4 0 –1 As of Dec 31, 2005 5,124 5,003 10,672 13,191 18,104 1,124 3,508 4,578 61,304

Depreciation As of Jan1, 2005 – 289 –1,260 –1,977 –5,725 – 6,678 – 647 –1,800 – 883 –19,259 Changes in the scope of consolidation – 2 –37 0 0 – 6 2 –14 0 –57 Scheduled depreciation 0 –168 –166 – 695 –1,026 –73 –384 0 – 2,512 Impairments – 24 –16 –3 –35 –73 – 2 – 6 –325 – 484 Reversal of impairment losses 0 0018000 018 Transfers 6 –5 0 – 2 92 28 –119 0 0 Transfers related to assets held for sale 0 0 0 0 0 0 0 0 0 Disposals 6 20 5 58 155 28 266 4 542 Currency translation differences 0 1 0 0 1 0 – 4 0 –2 As of Dec 31, 2005 –303 –1,465 –2,141 –6,381 –7,535 –664 –2,061 –1,204 –21,754

Net book value Dec 31, 2005 4,821 3,538 8,531 6,810 10,569 460 1,447 3,374 39,550 Net book value Dec 31, 2004 4,801 3,447 8,323 6,589 10,694 470 1,233 4,448 40,005

168 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

Property, plant and Track infra- Rolling Other Advance equipment as of Commer- structure, stock for Technical equipment, payments December 31, 2004 cial, office Permanent signaling passenger equipment operating and assets € million and other way and control and freight and and office under con- Land buildings structures equipment transport machinery equipment struction Total

Cost of purchase and manufacturing costs As of Jan1, 2004 5,104 4,630 9,908 11,475 16,159 1,143 3,043 5,413 56,875 Changes in the scope of consolidation –5 – 37 0 0 –7 –71 –110 – 8 – 238 Additions 128 279 438 1,036 1,023 101 337 3,854 7, 19 6 Investment grants –3 – 62 –312 –769 –105 – 21 – 44 – 2,671 –3,987 Transfers – 26 7 284 691 626 24 107 –1,717 –4 Transfers related to assets held for sale 0 0 0 0 0 0 0 0 0 Disposals –108 –112 –18 –119 –325 –58 –300 460 –580 Currency translation differences 0 2 0 0 1 –1 0 0 2 As of Dec 31, 2004 5,090 4,707 10,300 12,314 17,372 1,117 3,033 5,331 59,264

Depreciation As of Jan1, 2004 – 270 –1,136 –1,808 –5,141 –5,840 – 675 –1,801 –559 –17,230 Changes in the scope of consolidation 0 31 0 0 11 57 69 0 168 Scheduled depreciation –5 –163 –164 – 691 –1,066 – 80 –353 0 – 2,522 Impairments – 21 – 9 – 9 – 23 – 69 0 – 8 –369 –508 Reversal of impairment losses 0 9 0 37 0 1 0 23 70 Transfers 4 –31 –3 5 1 4 – 2 22 0 Transfers related to assets held for sale 0 0 0 0 0 0 0 0 0 Disposals 3 39 7 88 285 46 295 0 763 Currency translation differences 0 0 0 0 0 0 0 0 0 As of Dec 31, 2004 –289 –1,260 –1,977 –5,725 –6,678 –647 –1,800 –883 –19,259

Net book value Dec 31, 2004 4,801 3,447 8,323 6,589 10,694 470 1,233 4,448 40,005 Net book value Dec 31, 2003 4,834 3,494 8,100 6,334 10,319 468 1,242 4,854 39,645

Impairments and reversals of prior impairments amounting Financial debt was backed by property, plant and equipment to € 291million (previous year: € 358 million) relating to assets with carrying amounts of € 280 million (previous year: € 313 under construction refer in particular to project risks for million). This is applicable mainly to rolling stock used to DB Netz AG which have been recognized with no impact on secure loans of EUROFIMA(European company for financ- the income statement by netting a provision set aside in ing rolling stock), Basle/Switzerland. previous years with assets (see Note [32]). Property, plant and equipment includes rented assets The negative amounts of € 398 million (previous year: which are shown separately in the following overview. The € 460 million) relating to cost of purchase and manufactur- rented property, plant and equipment comprises assets which ing costs for assets under construction are attributable to are substantially but not legally owned by the DB Group, so the repayment of investment subsidies received in previous that the underlying lease agreements have to be classified as years and netted against assets. finance leases. 169 Leased assets Track infra- Rolling Other € million Commer- structure, stock for Technical equipment, cial, office Permanent signaling passenger equipment operating and other way and control and freight and and office Land buildings structures equipment transport machinery equipment Total

Assets leased from third parties under finance leases Cost of purchase and manufacturing costs 5 725 19 0 1,102 1 55 1,907 Accumulated depreciation –1 –101 –1 0 –536 –1 – 28 – 668 Carrying amount Dec 31, 2005 4 624 18 0 566 0 27 1,239

Cost of purchase and manufacturing costs 5 718 19 0 1,159 0 57 1,958 Accumulated depreciation –1 – 80 –1 0 –515 0 – 24 –621 Carrying amount Dec 31, 2004 4 638 18 0 644 0 33 1,337

The figure stated for commercial, office and other buildings The assets established from property, plant and equipment under rented assets of property, plant and equipment relates retroactively and on the basis of suitable assumptions, which mainly to concourse buildings of DB Station& Service AG. are leased by way of an operating lease (mainly land and The figure stated under passenger and freight transport buildings), have a residual carrying amount of € 2,057 million stock relates mainly to the rolling stock used by the rail as of December 31, 2005 (previous year: € 2,660 million). transport companies of the DB Group (engines, multiple Rental and leasing payments resulting from the rental and units, freight cars). leasing of these assets are expected to be received in future years as detailed in the following:

Expected rental Residual maturity and leasing income Less than More than Total more € million 1 year 1–2 years 2–3 years 3–4 years 4–5 years 5 years than 1 year Total

Dec 31, 2005 Minimum lease payments 175 129 114 97 88 257 685 860

Dec 31, 2004 Minimum lease payments 117 81 77 72 69 401 700 817

170 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

14 Intangible assets

Intangible assets Capitalized Capitalized as of December 31, 2005 development development € million costs – costs – Products Products Purchased Payments currently under intangible made on in use development assets Goodwill account Total

Cost of purchase and manufacturing costs As of Jan 1, 2005 125 15 967 246 3 1,356 Changes in the scope of consolidation 0 0 2 –3 0 –1 Additions 3 4 62 74 3 146 Transfers 9 –10 2 0 – 2 –1 Disposals – 27 –1 – 43 0 – 4 –75 Currency translation differences 002002 As of Dec 31, 2005 110 8 992 317 0 1,427

Depreciation As of Jan 1, 2005 – 80 0 – 410 –10 0 –500 Changes in the scope of consolidation 0 0 –1 0 0 –1 Scheduled depreciation – 25 0 – 89 0 0 –114 Disposals 28 0 43 0 0 71 Currency translation differences 0 0 – 2 –1 0 –3 As of Dec 31, 2005 –77 0 –459 –11 0 –547

Carrying amount Dec 31, 2005 33 8 533 306 0 880 Carrying amount Dec 31, 2004 45 15 557 236 3 856

171 Intangible assets Capitalized Capitalized as of December 31, 2004 development development € million costs – costs – Products Products Purchased Payments currently under intangible made on in use development assets Goodwill account Total

Cost of purchase and manufacturing costs As of Jan1, 2004 110 22 965 221 0 1,318 Changes in the scope of consolidation 0 0 –13 10 0 –3 Additions 20 5 34 17 3 79 Transfers 12 –124004 Disposals –17 0 – 23 – 2 0 –42 As of Dec 31, 2004 125 15 967 246 3 1,356

Depreciation As of Jan 1, 2004 – 64 0 –348 –10 0 – 422 Changes in the scope of consolidation 0 0 10 0 0 10 Scheduled depreciation –32 0 – 95 0 0 –127 Impairments 0 0 0 –1 0 –1 Disposals 16 0 23 1 0 40 As of Dec 31, 2004 –80 0 –410 –10 0 –500

Carrying amount Dec 31, 2004 45 15 557 236 3 856 Carrying amount Dec 31, 2003 46 22 617 211 0 896

The reported goodwill is attributable almost exclusively 16 Deferred taxes to the Railion and Schenker segments. € million 2005 2004 15 Investments accounted for Deferred tax assets in respect using the equity method of temporary differences 1,475 1,210 Deferred tax assets in respect € million 2005 2004 of tax losses carried forward 81 91 Total 1,556 1,301 As of Jan1 418 400 Additions 4 1 Disposals through sale –7 – 8 Group share of profit 76 49 Capital increase 5 0 Other equity movements – 9 –11 Dividends received –71 –15 Transfers – 28 0 Currency translation differences –10 2 As of Dec 31 378 418

The shares in EUROFIMA AG, Basle/Switzerland, cannot be sold without restriction.

172 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

No deferred tax assets have been created in relation to the € million Deferred Deferred following losses carried forward and temporary differences: tax assets tax liabilities 2005 2004 2005 2004

€ million 2005 2004 Non-current assets Property, plant and Tax loss carry-forwards for which no equipment 254 3 43 122 deferred tax asset has been recognized 17,886 17,608 Intangible assets 19 23 1 7 Temporary differences for which no Derivative financial deferred tax asset has been recognized 4,690 4,428 instruments 0 0 48 55 Temporary differences for which IAS 12 Other financial paragraph 33 prohibits recognition of a instruments 6 0 0 13 deferred tax asset 6,242 6,626 Total 28,818 28,662 Current assets Inventories0055 Trade receivables 7 13 48 2 The losses carried forward have resulted primarily from the Current tax receivables 4600 tax treatment of payments made in previous years by the Derivative financial Federal Government to Deutsche Bahn AG in accordance with instruments 0085 Other financial section 21 (5) and section 22 (1) Deutsche Bahn Foundation instruments 44 6 2 1 Act (Deutsche Bahn Gründungsgesetz; DBGrG) in the form of a contribution. Non-current liabilities Financial debt 465 619 2 2 According to current legislation, domestic losses carried Other liabilities 0 228 69 0 forward don’t have an expiry date. Derivative financial The temporary differences which are subject to the instruments 162 217 0 0 Retirement benefit recognition prohibition set out in IAS 12.33 relate exclusively obligations 176 170 3 3 to additional tax costs resulting from tax-free investment Other provisions 1,478 1,264 5 5 grants received previously. Deferred income 89 69 0 0 The deferred tax assets and liabilities recognized in the Current liabilities following are applicable in relation to statement and valuation Financial debt 37 23 0 3 differences for the individual balance sheet items and tax Trade liabilities 60 46 0 0 Other liabilities 294 9 2 1 losses carried forward: Derivative financial instruments 4500 Other provisions 437 483 2 1 Deferred income 7900 Liabilities in respect of assets held for sale 0004 Tax loss carry-forwards 81 91 0 0 Subtotal 3,624 3,284 238 229 Valuation allowance –1,876 –1,771 0 0 Offsetting1) –192 –212 –192 –212 Amount stated in the balance sheet 1,556 1,301 46 17

1) To the extent permitted by IAS 12 (Income Taxes)

173 Tax receivables and liabilities are netted if they relate to the in the amount of € 567 million (previous year: € 466 million), same tax authority, if they have identical maturities and if because it is not foreseeable that corresponding proﬁts will they relate to the same tax subject. be realized in the near future. If deferred taxes were to be Deferred tax assets of € 32 million attributable to provi- recognized for these time differences, the calculation of the sions set aside with no impact on the income statement prevailing withholding tax rate would have to be used, where (previous year: € 20 million) are included in the ﬁgure for appropriate considering German taxation of 5 % on paid-out deferred taxes stated in the balance sheet. dividends and realized capital gains. No deferred tax liabilities have been created in relation to temporary differences arising from shares in subsidiaries

17 Available-for-sale financial assets

€ million Investments in Other subsidiaries shareholdings Securities Total 2005 2004 2005 2004 2005 2004 2005 2004

As of Jan1 11 452 122 180 7 9 140 641 Changes in the scope of consolidation 0 – 41 –1000–1–41 Additions 0151630817 Disposals through sale 0 –399 –1 –10 0 – 2 –1 –411 Other disposals –100000–10 Reclassifications 0 0 0 –1000–1 Impairment losses 0 0 –3 – 62 0 0 –3 –62 Other 0 – 2 0 –1000–3 As of Dec 31 10 11 122 122 10 7 142 140 Non-current amount 10 11 122 122 10 7 142 140 Current amount 00000000

18 Inventories

€ million 2005 2004

Raw materials, consumables and supplies 718 750 Unfinished products, work in progress 246 268 Finished products and goods 34 40 Advance payments 12 29 Value adjustments – 294 – 290 Total 716 797

The value following the inventories which are included in Group inventories and which are stated with their net disposal value is € 351million (previous year equivalent: € 352 million).

174 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

19 Receivables and other assets

€ million Receivables Trade from Advance receivables financing payments Other assets Total

As of Dec 31, 2005 Gross value 2,983 26 82 667 3,758 Value adjustments –320 – 2 0 – 67 –389 Net value 2,663 24 82 600 3,369 thereof due from related parties (42) (20) (0) (300) (362)

As of Dec 31, 2004 Gross value 2,751 76 63 619 3,509 Value adjustments –324 –3 0 –54 –381 Net value 2,427 73 63 565 3,128 thereof due from related parties (65) (22) (0) (255) (342)

The following overview details the maturity structure of the receivables:

€ million Residual maturity Less than More than Total more 1 year 1–2 years 2–3 years 3–4 years 4–5 years 5 years than 1 year Total

As of Dec 31, 2005 Trade receivables 2,625 8 3 5 9 13 38 2,663 Receivables from financing 4 2 1 3 1 13 20 24 Advance payments 57 25 0 0 0 0 25 82 Other assets 371 207 0 0 0 22 229 600 Total 3,057 242 4 8 10 48 312 3,369

As of Dec 31, 2004 Trade receivables 2,388 15 4 2 5 13 39 2,427 Receivables from financing 58 2 0 0 1 12 15 73 Advance payments 36 13 0 1 1 12 27 63 Other assets 303 2 255 0 0 5 262 565 Total 2,785 32 259 3 7 42 343 3,128

The increase in trade accounts receivable is attributable primarily to expansion of operations in the Schenker segment. As a result of the large number of customers in the various operating segments, there is no evidence of any con- centration of credit risks with trade accounts receivable in the non-public sector. The fair values of the receivables and other assets are to a large extent equivalent to the carrying amounts.

175 20 Receivables attributable to taxes on income All derivative ﬁnancial instruments are marked to market The receivables attributable to taxes on income relate pri- on the reporting date. The following overview shows the marily to allowable withholding taxes, e.g. allowable German structure of the item stated in the balance sheet depending capital gains tax (Kapitalertragsteuer). on the type of underlying hedge:

21 Derivative financial instruments € million Assets Liabilities The volume of hedges which have been taken out is shown 2005 2004 2005 2004 in the following overview of nominal values: Interest rate-based contracts € million 2005 2004 Interest rate swaps 85 118 121 157 85 118 121 157 Interest rate-based contracts Interest rate swaps 5,624 5,927 Currency-based 5,624 5,927 contracts Currency swaps 6 1 1 10 Currency-based contracts Currency forward/ Currency swaps 618 259 future contracts 1102 Currency forward/future contracts 94 261 Interest/currency swaps 12 18 269 384 Other currency derivatives 31 45 19 20 270 396 Interest rate/currency swaps 2,972 3,019 3,715 3,584 Other contracts Energy price derivatives 8 12 6 10 812610

2005 2004 Total 112 150 397 563

Other contracts Interest rate-based Diesel derivatives in 1,000 tons 221 180 contracts 77 118 113 157 Electricity forward contracts in GWh 1,477 3,456 Currency-based contracts 12 19 252 387 Non-current portion 89 137 365 544 Current portion 23 13 32 19 There have been no major changes in interest and interest/ currency swaps compared with last year. No new business was conducted with interest swaps, and only a small amount of In order to minimize the interest and exchange rate risk, new business was conducted with interest/currency swaps. virtually all variable-interest financial liabilities have been con- The volume of currency swaps increased appreciably verted into fixed-income liabilities, and the foreign currency compared with the previous year, namely to € 618 million issues have been transformed into Euro. An exception in this (previous year: € 259 million). These are transactions designed respect is the USD 800 million issued in December 2005 for to hedge borrowings and investments of foreign subsidiaries partially refinancing the purchase of BAX Global Inc., Dela- of DB AG. Of the currency hedges with a total volume of ware/USA,which initially was not swapped as a natural hedge. € 743 million (previous year: € 565 million), € 125 million The proceeds of this issue were received in 2006. (previous year: € 306 million) was attributable to operations With the interest derivatives, the figure stated under which were hedged with currency futures and options. assets and liabilities declined as a result of the reduction in The diesel derivatives of the previous year expired the remaining maturities of the transactions. The slight flat- at the end of 2005 and were replaced by new hedges. No tening out of the interest curve in the Euro zone did not additional electricity price hedges were taken out. have much effect.

176 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

The market values of the currency swaps have increased as avoid cost-of-carry effects. Forward-start interest swaps in the USD has strengthened against the Euro, resulting in an conjunction with fixed-income bond issues and the tempo- increase in assets or a decline in liabilities. The strong USD rary exchange of fixed interest for variable interest do not was also the main reason behind the significant decline in satisfy the requirements for recognition of hedges in accor- liabilities attributable to the interest/currency swaps. dance with IAS 39, and have to be shown as “non-hedge The diesel price hedges taken out this year were slightly transactions”. The market values of the transactions are negative at year-end. The positive performance of gas-related shown under assets and liabilities as follows: electricity price hedges was to a large extent compensated for by an opposite movement among coal-related transactions. € million Assets Liabilities The market values of the cash flow hedges are shown as 2005 2004 2005 2004 follows under assets and liabilities: Interest rate-based contracts € million Assets Liabilities Interest rate swaps 85 118 95 130 2005 2004 2005 2004 85 118 95 130

Interest rate-based Currency-based contracts contracts Interest rate swaps 0 0 26 27 Currency forward/ 0 0 26 27 future contracts 1 1 0 2 11 0 2 Currency-based contracts Other contracts Currency swaps 6 1 1 10 Energy price derivatives 6 0 5 0 Interest/currency swaps 12 18 269 384 6 0 5 0 18 19 270 394 Total 92 119 100 132 Other contracts Energy price derivatives 2 12 1 10 Interest rate-based 2 12 1 10 contracts 77 118 87 130 Non-current portion 77 118 87 130 Total 20 31 297 431 Current portion 15 1 13 2

Interest rate-based The maximum counterparty default risk resulting from the contracts 0 0 26 27 derivative financial instruments as of the balance sheet date Currency-based contracts 12 19 252 387 Non-current portion 12 19 278 414 is € 112 million (previous year: € 140 million). Current portion 8 12 19 17 The decline in counterparty default risks compared with the previous year was attributable mainly to the develop- As part of Group financing arrangements, interest risks for ment in the value of the derivatives portfolio, particularly future financing arrangements have been hedged using due to the reduction of the positive figure stated for interest interest derivatives (forward-start interest swaps). Oppo- swaps. The maximum single risk – default risk in relation to site hedges were taken out when the corresponding under- individual counterparties – is € 36 million, and relates to lyings were transacted. In addition, early fixed-interest a bank with a Moody’s rating of Aa3. For transactions with financing arrangements have been converted temporarily to terms of more than one year, all banks with whom there is a a variable-interest arrangement in certain cases in order to counterparty default risk have a Moody’s rating of at least A2.

177 22 Cash and cash equivalents 25 Reserve a) Capital reserve € million 2005 2004 The capital reserve comprises reserves which have not been part of earnings since January 1, 1994. Cash at banks and in hand 292 744 Cash equivalents 13 21 Total 305 765 b) Reserve resulting from valuation with no impact on profits Reserve for currency translation differences 2005 2004 The currency translation differences resulting from the method of functional currency (IAS 21) are shown separately Effective interest rate on short-term bank deposits in % 2.23 2.10 as part of consolidated shareholders’equity. Average term of short-term As long as the subsidiary is included in the scope of con- bank deposits in months 0.1 0.1 solidation, the translation differences continue to be shown under consolidated shareholders’equity. If subsidiaries are The interest rates for current bank deposits were in a no longer included in the group of consolidated companies, range of between 1.92 and 2.38 % (previous year: 1.78 to the corresponding translation differences are taken to the 2.80 %). income statement.

23 Available-for-sale assets and liabilities Reserve for fair value valuation of securities The reserve includes the fair value changes of financial € million Carrying instruments which have been classified as “available-for-sale amount financial assets” and which have to be recognized with no

Receivables and other assets 4 impact on proﬁts. The reserve has to be reversed to the income Cash and cash equivalents 16 statement or eliminated when a ﬁnancial instrument is sold Assets 20 or in the event of a permanent reduction in the fair value of

Other liabilities 4 a ﬁnancial instrument. Retirement benefit obligations 9 Other provisions 3 Reserve attributable to the fair value valuation Liabilities 16 of cash flow hedges This item shows the interest- and currency-related changes The available-for-sale assets and liabilities relate to STINNES- in the fair value of cash ﬂow hedges applicable for effective data-SERVICE GmbH; all the shares of this company were hedges. sold as of January 1, 2006. The development of the reserve is shown in the following: Please refer to the comments relating to events occur- ring after the balance sheet date (Note [37]). € million 2005 2004

As of Jan 1 – 26 –7 24 Subscribed capital Changes in fair value 124 –118 The share capital of Deutsche Bahn AG is € 2,150 million, Reclassifications consisting of 430,000,000 no-par value bearer shares. All Financial result –127 84 Other –12 2 shares are held by the Federal Republic of Germany. Changes in deferred taxes 6 13 As of Dec 31 –35 – 26

178 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

26 Generated results 27 Minority interests Generated shareholders’equity contains all net profits gener- Minorities comprise the share of third parties in the net ated since January 1, 1994 less goodwill netted under German assets of consolidated subsidiaries. GAAP (HGB) up to December 31, 2002. This item also shows the impact on shareholders’ 28 Financial debt equity attributable to the first-time adoption of IFRS if such This item shows all interest-bearing liabilities including the impact is not included in the reserves attributable to valu- interest-free government loans stated with their present ation with no impact on the income statement. values. The maturity structure of financial debt is as follows:

€ million Residual maturity Less than More than Total more 1 year 1–2 years 2–3 years 3–4 years 4–5 years 5 years than 1 year Total

As of Dec 31, 2005 Government loans 344 281 225 547 410 1,833 3,296 3,640 Bonds 430 1,516 1,134 1,346 994 4,695 9,685 10,115 Commercial Paper 0 0 0 00000 Bank borrowings 421 66 267 113 62 1,722 2,230 2,651 EUROFIMA loans 256 0 0 656 0 953 1,609 1,865 Finance lease liabilities 66 71 127 109 168 1,008 1,483 1,549 Other finance liabilities 147 0 0 0 3 4 7 154 Total 1,664 1,934 1,753 2,771 1,637 10,215 18,310 19,974 thereof due to related companies (706) (281) (225) (1,203) (410) (2,786) (4,905) (5,611)

As of Dec 31, 2004 Government loans 350 334 265 209 510 1,951 3,269 3,619 Bonds 0 426 1,450 1,126 1,351 5,635 9,988 9,988 Commercial Paper 330 0 0 0 0 0 0 330 Bank borrowings 317 139 65 267 113 1,783 2,367 2,684 EUROFIMA loans 33 256 0 0 656 953 1,865 1,898 Finance lease liabilities 79 70 69 127 108 1,174 1,548 1,627 Other finance liabilities 122 3 0 0 0 5 8 130 Total 1,231 1,228 1,849 1,729 2,738 11,501 19,045 20,276 thereof due to related companies (497) (590) (265) (209) (1,166) (2,904) (5,134) (5,631)

179 The following fair values are summarized compared with The interest-free loans have developed as follows: the carrying amounts: € million 2005 2004 € million Carrying Fair Carrying Fair amount value amount value As of Jan 1 3,619 4,736 2005 2005 2004 2004 Addition 58 99 Repayment –365 –1,408 Government loans 3,640 4,034 3,619 4,046 Reclassification 138 –56 Bonds 10,115 10,812 9,988 10,714 Cumulative interest 190 248 Commercial Paper 0 0 330 330 As of Dec 31 3,640 3,619 Bank borrowings 2,651 2,662 2,684 2,718 EUROFIMA loans 1,865 2,019 1,898 2,068 The arrangements for repaying the loans are detailed in Finance lease liabilities 1,549 1,672 1,627 1,734 individual and collective financing agreements. In general, Other finance liabilities 154 154 130 130 Total 19,974 21,353 20,276 21,740 the loans are repaid in equal annual installments, which are based on the corresponding annual depreciation applicable The differences between the carrying amounts and the fair for the financed assets. The considerable decline in repay- values of the financial debt are due to the usually lower mar- ments in 2005 compared with the previous year is due mainly ket interest rates for debt with a comparable risk profile and to the premature one-off repayment of € 1,050 million con- the reducing remaining maturities. Other financial liabilities tained in the figure for 2004. do not show any material differences between the carrying amounts and the fair values as a result of short maturities and accordingly interest rates which are close to market interest rates. Government loans are attributable almost exclusively to financing provided by the Federal Republic of Germany for capital expenditures in expanding and replacing track. This is based on the responsibility for the transport needs of the public (Section 87e [4] GG) which is anchored in the Basic Law (Grundgesetz; GG) and specified in the Law Governing the Extension of the German Rail Network (Bundesschienen- wegeausbaugesetz; BSchwAG).The loans have been extended as interest-free loans.

180 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

The issued bonds consist of the following transactions:

€ million Residual Effective Carrying Carrying Volume Issue maturity interest rate amount Fair value amount Fair value of issue currency in years in % 2005 2005 2004 2004

Unlisted bonds: Total DB AG 67 JPY, USD 5.7– 6.5 53 54 50 52 Total DB Finance B.V. 189 HKD, JPY, CHF 6.5– 8.5 175 179 167 176 Total 256 228 233 217 228

Listed bonds of DB Finance B.V.: Bond 1997–2007 511 DEM 1.85.850510535510548 Bond 1998–2008 767 DEM 2.4 5.150 764 800 763 813 Bond 1999–2009 1,350 EUR 3.5 5.600 1,338 1,425 1,334 1,444 Bond 2000–2010 1,000 EUR 4.5 6.150 994 1,117 993 1,132 Bond 2001–2006 31 DEM 1.0 4.800 31 31 31 32 Bond 2001–2006 263 CHF 0.7 3.300 257 261 259 268 Bond 2001–2008 53 DKK 2.8 5.250 53 56 53 58 Bond 2001–2008 42 SEK 2.8 5.50042454448 Bond 2001–2008 50 NOK 2.8 7.000 50 54 48 55 Bond 2001–2013 750 EUR 7.9 5.250 744 832 743 824 Bond 2002–2007 512 CHF 1.4 3.350 482 493 485 505 Bond 2002–2007 604 USD 1.6 4.700 507 507 439 451 Bond 2002–2008 170 CHF 3.0 3.200 160 166 161 169 Bond 2002–2012 500 EUR 6.6 5.500 497 560 497 559 Bond 2002–2008 76 USD 2.0 FRN 64 64 55 55 Bond 2002–2006 51 USD 0.8 FRN 42 42 37 37 Bond 2002–2006 100 EUR 0.8 FRN 100 100 100 100 Bond 2003–2018 1,000 EUR 12.2 5.000 984 1,095 984 1,063 Bond 2003–2015 700 EUR 9.5 4.600 687 738 686 722 Bond 2004–2011 209 USD 5.5 5.090 211 213 183 189 Bond 2004–2018 300 EUR 12.2 4.850 297 329 297 319 Bond 2004–2007 17 EUR 1.8 3.00017171717 Bond 2004–2009 17 EUR 3.8 3.50017171717 Bond 2004–2016 500 EUR 10.9 4.300 498 527 498 508 Bond 2004–2014 366 JPY 8.9 1.700 358 363 356 359 Bond 2004–2011 197 CHF 6.0 2.300 191 192 192 194 Total 10,136 9,895 10,579 9,782 10,486 Adjustments from derivatives –8 –11

Total 10,392 10,115 10,812 9,988 10,714

In December 2005, a new bond was issued by DB Finance B.V., only paid out in January 2006. No bonds were due to mature Amsterdam/Netherlands, for USD 800 million (€ 678.1 mil- in the 2005 financial year. lion) for funding the acquisition of BAX Global Inc., Dela- All other bonds issued in foreign currency were swapped ware/USA. However, this bond is not yet included in the finan- for Euros, so that these original financial instruments have cial debt or list of bonds because the proceeds of the issue were not resulted in any currency risk.

181 As part of short-term liquidity management, 96 Commercial Paper issues with terms of between seven and 184 days were transacted in the 2005 ﬁnancial year. The average amount outstanding was € 432 million. No Commercial Paper was outstanding as of the balance sheet date (previous year: € 330 million). Bank debt is detailed in the following table:

Bank borrowings Residual Effective Carrying Carrying € million maturity interest rate amount Fair value amount Fair value Currency in years in % 2005 2005 2004 2004

Loan 1998–2008 DEM 2.8 4.770 51 53 51 57 Loan 1998–2008 DEM 2.9 4.720 51 53 51 54 Loan 1999–2005 DEM –4.130––5154 Loan 1999–2008 DEM 2.8 4.580 51 53 51 56 Loan 1999–2009 DEM 3.2 4.850 51 53 51 57 Loan 2002–2016 EUR 10.7 FRN 200 200 200 200 Loan 2002–2022 EUR 16.7 FRN 200 200 200 200 Loan 2003–2016 EUR 10.7 FRN 200 200 200 200 Loan 2003–2022 EUR 16.7 FRN 200 200 200 200 Aurelis Loans EUR 7. 3 FRN 1,217 1,217 1,277 1,277 Note loan 1998–2008 DEM 2.3 5.310 51 53 51 57 Note loan 2001–2006 EUR 0.75.30075767580 Note loan 2004–2005 USD – 2.290 – – 92 92 Note loan 2005–2006 USD 0.3 4.550 212 212 – – Other 92 92 134 134 Total 2,651 2,662 2,684 2,718

The “Aurelis” bank loans refer to the bank loans of Aurelis As of December 31, 2005, guaranteed credit facilities with a resulting from the acquisition of the real estate portfolio total volume of € 2,889 million were available to the DB from DB AG. Interest swaps have been taken out for most of Group (previous year: € 2,206 million). Of this figure, € 2,501 these loans; these have converted the variable-interest million was applicable to back-up lines for the € 2.0 billion payments (FRN) into fixed-interest payments. Commercial Paper Program of Deutsche Bahn AG and In the year under review, short-term bank loans were Deutsche Bahn Finance B.V. None of these back-up lines drawn down regularly as part of liquidity management; had been drawn down as of December 31, 2005. Global as of the balance sheet date, this relates to a USD note loan credit facilities for a total of € 388 million are used for of € 212 million with a term of four months. Overall, bank financing the subsidiaries with world-wide operations, borrowings declined by € 33 million compared with the primarily in the Schenker segment. previous year. The liabilities due to EUROFIMA, Basle/Switzerland, Of the figure stated for bank borrowings, € 11 million are detailed in the following: was secured (previous year: € 11 million).

182 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

Liabilities due to EUROFIMA Residual Effective Carrying Carrying € million maturity interest rate amount Fair value amount Fair value Currency in years in % 2005 2005 2004 2004

Loan 1995–2005 CHF ––––77 Loan 1995–2005 CHF ––––2627 Loan 1996–2006 DEM 0.9 6.000 256 263 256 272 Loan 1997–2009 DEM 4.0 5.625 256 279 256 284 Loan 1999–2009 EUR 3.8 5.750 400 437 400 446 Loan 2000–2014 EUR 8.8 5.970 219 261 219 258 Loan 2001–2014 EUR 8.7 5.410 300 345 300 340 Loan 2002–2012 EUR 6.6 FRN 34 34 34 34 Loan 2002–2012 EUR 6.6 FRN 400 400 400 400 Total 1,865 2,019 1,898 2,068

As was the case last year, no new EUROFIMA loans were Deutschland AG, and € 854 million (previous year: € 888 taken out in the year under review. Two loans for a total of million) related to leasing agreements for various rolling € 34 million became due and were repaid. The liabilities stock (multiple units, locomotives, freight cars). These due to EUROFIMA are secured pursuant to EUROFIMA’s agreements have generally been concluded as sale-and-lease- articles of association through the assignment of railroad back transactions for achieving advantageous financing equipment (rolling stock) as collateral. conditions with German lessors. Last year, leases for mobile Of the figure stated for liabilities attributable to finance assets and property with a total volume of € 20 million were leases, € 481million (previous year: € 499 million) related to terminated. The following table provides information con- real estate leasing agreements for various concourse buildings cerning the main finance leases: of DB Station& Service AG and a logistics center of Schenker

€ million Residual Effective Carrying Carrying Nominal maturity interest rate amount Fair value amount Fair value amount Currency in years in % 2005 2005 2004 2004

Finance leases – assets other than real estate ICE 1 multiple units (1994) 119 DEM 2.5 5.75 74 78 80 86 Double deck coaches (1994) 174 DEM 7.0 5.87 128 143 133 150 ICE 2 multiple units (1997) 184 DEM 5.0 4.50 134 140 141 148 Locomotives/ freight cars (1999) 182 NLG 3.0–7.3 5.69–5.83 122 132 128 140 Freight locomotives (2000) 101 DEM 9.5 5.35 87 99 90 101 Freight locomotives (2000) 154 EUR 11.0 5.40 143 162 146 163 Locomotives (2001) 178 EUR 9.5–11.0 4.87 166 181 170 182 854 935 888 970

Finance leases – real estate Logistics center (1986) 24 DEM 10.0 8.50 12 14 13 16 Concourse buildings (1998) 497 DEM 7.3–16.0 4.00–5.95 469 509 486 526 481 523 499 542

Other 214 214 240 222 Total 1,549 1,672 1,627 1,734

183 The above finance leases for locomotives and multiple units The item “Other”also includes the carrying amount of a power cannot be terminated during a fixed basic lease, and have a procurement agreement of DB Energie GmbH worth € 158 maximum remaining term of eleven years. Most of the con- million (previous year: € 165 million). The agreement relates tracts contain a clause enabling the lessee to purchase the to the exploitation of the energy generated by the six hydro- assets for the residual value or the higher market value after electric power stations of the Rhine-Main-Danube chain, the end of the lease, whereby the difference between the and is classified as an embedded financial lease in view of residual value and the market value at the end of the lease is the fact that most of the power is purchased by DB Energie shared between the lessor (25 %) and the lessee (75 %). GmbH and also in view of the underlying duration of the The finance leases for the concourse buildings of DB agreement in accordance with IFRIC 4 (Determining whether Station& Service AG have a maximum remaining term of an Arrangement contains a Lease) in conjunction with IAS 17. 16 years, and cannot be terminated during the fixed lease. At Legal ownership of the allocated and recognized assets is the end of the lease, the lessee is able to buy the assets for a retained by the power station operator for the remaining fixed price. If this option is not exercised, the lease is extended residual term of 45 years, and is not transferred to DB for a second period, at the end of which the lessor has a put Energie GmbH at the end of the agreement option for the real estate with regard to the lessee. In the subsequent years, the following payments have to be made in connection with finance leases:

€ million Residual maturity Less than More than Total more 1 year 1–2 years 2–3 years 3–4 years 4–5 years 5 years than 1 year Total

As of Dec 31, 2005 Minimum lease payments (nominal value) 146 147 198 173 228 1,228 1,974 2,120 – Future finance charges 80 76 71 64 60 220 491 571 Present value of finance lease liabilities 66 71 127 109 168 1,008 1,483 1,549

As of Dec 31, 2004 Minimum lease payments (nominal value) 160 151 145 198 173 1,452 2,119 2,279 – Future finance charges 81 81 76 71 65 278 571 652 Present value of finance lease liabilities 79 70 69 127 108 1,174 1,548 1,627

184 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

29 Other liabilities

€ million Residual maturity Less than More than Total more 1 year 1–2 years 2–3 years 3–4 years 4–5 years 5 years than 1 year Total

As of Dec 31, 2005 Trade liabilities 3,338 28 22 21 23 238 332 3,670 Other liabilities 3,682 70 19 12 19 21 141 3,823 Total 7,020 98 41 33 42 259 473 7,493 thereof due to related parties (370) (51) (0) (0) (0) (0) (51) (421)

As of Dec 31, 2004 Trade liabilities 3,540 31 35 20 23 259 368 3,908 Other liabilities 3,477 66 77 14 11 17 185 3,662 Total 7,017 97 112 34 34 276 553 7,570 thereof due to related parties (443) (50) (48) (0) (0) (0) (98) (541)

185 The other liabilities comprise the following: Fund (Bundeseisenbahnvermögen; BEV) under the Civil Servants Beneﬁts Act (Beamtenversorgungsgesetz; BeamtVG) € million 2005 2004 as a result of their status as civil servants. Only while the assigned civil servants are actively working Personnel-related liabilities Outstanding overtime 239 277 for the DB Group are payments made to the BEV as part of a Unused holiday entitlements 224 219 pro-forma settlement in the same way as for newly recruited Social security 158 161 employees (section 21 [1] DBGrG). These payments also Severance payments 25 8 Christmas bonuses 10 3 include notional contributions to the statutory pension Holiday pay 8 9 insurance scheme as well as notional expenses in accor- Other obligations 293 287 dance with the supplementary beneﬁts wage agreement

Other taxes (Zusatzversorgungs-Tarifvertrag; ZVersTV). The payments Value-added tax 7 35 made to the BEV for retirement pensions and supplementary Payroll and church taxes, beneﬁts of civil servants are deﬁned-contribution retirement solidarity surcharge 63 61 Other taxes 139 111 schemes.

Deferred construction grants 331 348 Pensions for employees Sales discounts 273 206 Interest payable 222 239 The pension obligations with regard to employees relate Liabilities due mainly to employees of German companies. to Railroad Crossings Act 12 10 a) Employees who were employed by the Deutsche Reconveyance obligations 1 0 Other 1,818 1,688 Bundesbahn before the company was privatized (January 1, Total 3,823 3,662 1994) enjoy supplementary benefits in view of their former membership of the public sector. The employees have a claim Of the figure stated for other liabilities, € 17 million were against “Section B” of the Railways Insurance Corporation secured (previous year: € 0 million). (Bahnversicherungsanstalt; BVA). As a public authority, the BVA has not only assumed responsibility for managing and 30 Income tax liabilities paying the statutory pension of employees of Deutsche Bahn The income tax liabilities as of December 31, 2005 comprise (“SectionA”); it is also continuing “Section B” for the trans- in particular obligations with regard to the fiscal authorities ferred employees who still have entitlements. in Germany, Austria, the USA, Norway and Sweden. The BEV bears the costs of these additional benefits, less the contribution made by the employees themselves (sec- 31 Pension obligations tion 14 (2) DBGrG). Accordingly, DB AG does not set aside In the DB Group, a distinction is made between pensions for any provisions for these public sector benefits. employees and pensions for civil servants: b) Employees of the former Deutsche Reichsbahn and the employees who have been recruited since January 1, Pensions for civil servants 1994 receive a company pension from DB AG under the After they retire, civil servants assigned to the companies of ZVersTV. This supplementary company pension is a defined- the DB Group receive pensions from the Federal Railroad benefit scheme.

186 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

c) The direct commitments made to senior executives The development of the plan assets is detailed in the in their employment contracts are also defined-benefit following: schemes. d) In addition, there are also direct insurance policies € million 2005 2004 which are exclusively employee-funded with DEVK Deutsche Fair value of plan assets as of Jan 1 72 70 Eisenbahn Versicherung Lebensversicherungsverein a. G. as Employer contributions 4 3 well as a purely employee-funded pension fund with DEVK Employee contributions 1 1 Pensionsfonds-AG which is governed by the terms of a col- Actual return on plan assets 6 3 Pensions paid –5 – 6 lective bargaining agreement. These external forms of com- Transfers 11 0 pany pension schemes are not relevant for the purpose of Effect of changes in the scope setting aside provisions. of consolidation 26 1 Currency effects 3 0 The figures stated for pension provisions in the balance Fair value of plan assets sheet are detailed in the following: as of Dec 31 118 72

€ million 2005 2004 The plan assets stated for the German companies consist of receivables comprising reinsurance policies pledged to Funded obligations 141 83 Unfunded obligations 1,490 1,285 employees which have been used for funding the direct Total gross obligations as of Dec 31 1,631 1,368 commitments. The plan assets stated for foreign companies comprise assets of the corresponding pension funds. Fair value of plan assets as of Dec 31 –118 –72 Unrecognized actuarial gains – 99 45 Changes in the net pension provision are detailed in Net liability recognized the following: in the balance sheet 1,414 1,341

€ million 2005 2004 The total pension commitment has developed as follows: Net provision as of Jan 1 1,341 1,288 Pension expenses 115 112 € million 2005 2004 Employer contributions – 4 –3 Pensions paid – 43 –39 Gross obligations as of Jan 1 1,368 1,311 Transfers – 9 4 Service cost, excluding Effect of changes in the scope employee contributions 52 52 of consolidation 15 – 21 Employee contributions 2 2 Currency effects –1 0 Interest cost 67 66 Net provision as of Dec 31 1,414 1,341 Pensions paid – 47 – 45 Outstanding past service cost –1 0 Result on transfer/compensation of retirement benefit obligations – 2 0 Effect of changes to pension plans 0 – 4 Transfers 3 4 Effect of changes in the scope of consolidation 45 – 20 Actuarial gains(–)/losses 143 2 Currency effects 1 0 Gross obligations as of Dec 31 1,631 1,368

187 The expenses to be stated in the income statement are The actuarial parameters used for assessing the value of detailed in the following: most of the pension provision are set out in the following:

€ million 2005 2004 % 2005 2004

Amortization of unrealized Discount rate 4.25 5.00 profits/losses –1 0 Expected rate of salary increases 2.50 2.50 Service cost, excluding Expected medical cost trend rate 0.00 0.00 employee contributions 52 52 Expected rate of pension increases Employee contributions 2 1 (dependent on staff group) 2.00 2.00 Interest cost 67 66 Expected average staff turnover 2.58 2.58 Outstanding past service cost –1 0 Expected return on plan assets 3.25–7.0 3.25– 6.50 Expected return on plan assets – 4 –3 Effect of changes to pension plans 0 – 4 Result on transfer of retirement The 2005 G tables of Professor Dr. Klaus Heubeck have been benefit obligations –1 0 used for measuring the pension obligations of the German Asset ceiling 1 0 companies in the Group. Pension costs 115 112

The interest expenses and expected income from the plan assets are recorded under ﬁnancial result. All other items are recognized under personnel expenses.

32 Other provisions

€ million Environmental Construction Staff-related Decommissioning protection and project risks provisions costs Other 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004

As of Jan 1 2,342 2,390 474 860 1,668 1,853 351 336 1,895 1,889 Currency translation differences 2 –2 0 0 2 0 0 0 3 6 Changes in the scope of consolidation 0 0 0 0 –1 –19 0 0 14 –52 Amounts used –54 – 40 –326 –375 – 417 – 470 –3 – 22 – 255 –320 Unused amounts reversed 0 0 –15 –30 –38 –135 –12 –1 –137 –176 Reclassifications 7 –1 –3 0 –16 17 –1 0 –3 20 Additional amounts provided 3 2 18 15 308 401 25 38 497 516 Effect of discounting – 9 –7 –2 4 46 21 19 0 5 12 As of Dec 31 2,291 2,342 146 474 1,552 1,668 379 351 2,019 1,895

188 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

The following table breaks down the other provisions into current and non-current amounts, and also details their estimated residual maturity:

€ million Residual maturity Less than More than Total more 1 year 1–2 years 2–3 years 3–4 years 4–5 years 5 years than 1 year Total

As of Dec 31, 2005 Environmental protection 87 151 159 151 157 1,586 2,204 2,291 Construction and project risks 78 10 6 17 3 32 68 146 Staff-related provisions 511 328 247 176 116 174 1,041 1,552 Decommissioning costs 33 0 0 0 0 346 346 379 Other 1,517 346 30 23 17 86 502 2,019 Total 2,226 835 442 367 293 2,224 4,161 6,387

As of Dec 31, 2004 Environmental protection 64 161 208 215 230 1,464 2,278 2,342 Construction and project risks 381 50 7 4 0 32 93 474 Staff-related provisions 475 361 254 194 116 268 1,193 1,668 Decommissioning costs 33 0 0 0 0 318 318 351 Other 1,350 345 65 23 17 95 545 1,895 Total 2,303 917 534 436 363 2,177 4,427 6,730

Provisions for environmental protection The 3-stage sewerage network program aims to remedy any DB AG has set up the following programs in order to enable contamination of soil and/or groundwater resulting from it to meet its remedial action obligations covered by the pro- leaks.The program also involves a plan to optimize the existing visions for environmental protection: sewerage network to ensure that it is capable of meeting 4-stage soil decontamination program future requirements and to ensure that the need to take 3-stage sewerage network program remedial action can be limited to this future network. The 2-stage landfill shut-down program network which is not utilized will be decommissioned. These measures will ensure that the work on investigating The 2-stage landfill program will guarantee that landfill and carrying out remedial action will be systematic, cost- sites on railroad property are identified and measured in a efficient and consistent with the legal situation. standard manner, and that these landfill sites will be decom- In the 4-stage soil decontamination program, the contam- missioned in accordance with the Landfill Regulation ination in the soil and/or groundwater is localized using the (Deponieverordnung; DepV)/Technical Instructions for Res- following stages: historical investigation, rough examination idential Area Waste (Technische Anleitung Siedlungsabfall; and detailed analysis. The program involves a feasibility TASi) and the German Federal Soil Protection Act (Bundes- study, implementation and approval planning as well as bodenschutzgesetz; BBodSchG). remedial action, and due consideration is given to technical and legal requirements for the remedial action which aims to ensure appropriate utilization.

189 Provisions for construction and project risks Decommissioning provisions The provision set aside to cover construction and project The decommissioning provisions refer mainly to the com- risk also covers potential losses from those parts of construc- pany’s pro-rata decommissioning obligation in relation to a tion costs relating to planned projects which DB Netz AG joint power generation plant. The provision has been calcu- will have to ﬁnance itself and which probably will not be lated using a discount rate of 5.0 %. recoverable (see Note [13]). 33 Deferred income Staff-related provisions € million 2005 2004 € million 2005 2004 Deferred government grants 3,136 3,508 Obligations under employment Deferred revenues 260 230 contracts 884 937 Deferred profits on sale- Costs of early retirement/part-time and-leaseback transactions 131 154 working in the run-up to retirement 466 509 Other 121 92 Service anniversary provisions 99 91 Total 3,648 3,984 Other 103 131 Non-current 3,194 3,513 Total 1,552 1,668 Current 454 471

The staff-related provisions also include obligations which The deferred government grants comprise mainly the interest are connected with the employment contracts taken on at benefit (difference between the nominal value and present the point at which DB AG was founded as of January 1, 1994 value) attributable to the interest-free loans; this has developed and which relate to wage elements attributable to the com- as follows during the period under review: pany’s previous existence as a public sector authority. These obligations comprise charges which can be measured inde- € million 2005 2004 pendently and which do not involve any benefits in return As of Jan 1 3,199 3,335 and for which offers for compensation have already been Additions 37 151 made. The provisions also cover obligations which result Reclassifications –136 – 4 from the status of many employees under labor law and the Amounts released – 277 – 283 As of Dec 31 2,823 3,199 willingness of DB AG not to terminate employment contracts for operational reasons before the end of 2010. In such cases, the DB Group will incur losses in the form of personnel Of the figure stated for the release in the year under review, expenses which will have to be borne until the employment most (€ 190 million) is attributable to compensation for the contract is terminated or the employee is placed with another compounding of the present value of interest-free government company; no reciprocal benefit will be provided in return loans. The remainder is attributable to the release of amortized for these costs. DB AG has set up a separate subsidiary, namely deferrals relating to premature one-off repayments at the pres- DB JobService GmbH (formerly: DBVermittlung GmbH), in ent value in 1999 and in 2004. order to absorb employees who have been made redundant. Deferred revenues constitute that part of compensation The provisions set aside to cover early retirement obli- which is attributable to the period after the balance sheet date. gations and part-time working in the run-up to retirement The deferred profits on sale-and-leaseback transactions cover the obligations arising from collective bargaining agree- relate to concourse buildings of various stations with the ments, and have been calculated on the basis of actuarial related retail premises as well as rolling stock. reports.

190 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

Notes to the Consolidated Statement Cash flow from investing activities of Cash Flows The cash flow from investing activities is calculated as the inflow of funds attributable to the disposal of property, The cash flow statement is set out on page 142. plant and equipment and intangible assets as well as It shows the changes in cash and cash equivalents in the investment grants and the outflow of funds for capital year under review and has been prepared in accordance expenditures in property, plant and equipment and intan- with IAS 7 (Cash Flow Statements). The cash flows are gible assets as well as non-current financial assets. broken down into operating activities, investing activities Inflow of funds attributable to investment grants is and financing activities. The indirect method has been used shown under investing activities, because there is a close for showing cash flow from operating activities. relationship between investment grants which are received Interest income and interest payments, dividend income and the outflows of funds for capital expenditures in prop- as well as tax payments are stated under operating activities. erty, plant and equipment. Cash and cash equivalents include the cash and cash The decline in the outflow of funds for investing activities equivalents stated in the balance sheet with a residual matu- is due to the downturn in capital expenditures in property, rity of less than three months (cash in hand, cash deposited plant and equipment as well as the decline in the inflow of with the Bundesbank, cash at banks and checks as well as funds from the sale of financial assets. securities). When changes take place in the scope of consolidation as a result of the acquisition or sale of companies, the acqui- Cash flow from operating activities sition price which is paid (excl. any liabilities which are The cash flow from operating activities is calculated by transferred) less the acquired or sold financial resources adjusting the net profit for the period before taxes by items are stated as cash flow from investing activities. The other which are not cash-effective and by adding the change in effects of the acquisition or sale on the balance sheet are non-current assets and liabilities. The cash flow from operat- eliminated in the corresponding items of the three cate- ing activities is then established after due consideration is gories. given to interest and tax payments. Other liabilities include an amount of € 36 million attrib- Cash flow from financing activities utable to the advance payment for the disposal of STINNES- The cash flow from financing activities is calculated as the data-SERVICE GmbH which was completed in 2006 (see balance of the proceeds from issued bonds, bank borrowings Note [37]). and loans which have been taken out as well as proceeds The decrease in cash flow from operating activities is from taking out interest-free loans and payments for redeem- due mainly to receivables which have increased considerably ing interest-free loans. compared with the previous year and lower trade accounts The outflow of funds for financing activities is attribut- payable – in conjunction with improved net profit before able to a lower balance of outflows due to the redemption taxes. and repayment of interest-free loans as well as lower inflows from taking out borrowings.

191 Notes to Segment Reporting Passenger Stations: This segment comprises the operation, development and marketing of passenger stations and Segment reporting has been prepared in accordance with retail facilities in stations in Germany. IAS 14 (Segment Reporting). Our organization and reporting Services: The Services segment comprises, among others, structure has been used as the basis for breaking down selected the activities of DB FuhrparkService, DB Services, DB Systems data in the consolidated financial statements over business and DB Telematik. These companies provide their services segments and regions. The operations of the business seg- mainly to the other segments of the DB Group. ments are covered in the primary reporting format in line Holding / Other Operations: This segment comprises with the corporate organization structure of the DB Group. DB AG,with its numerous management, financing and service The main regions covered by the DB Group are detailed in the functions in its capacity as the management holding company segment information based on regions. for the DB Group, as well as DB Energie GmbH, Stinnes AG, With effect from the 2005 financial year, operational man- DB Projektbau GmbH and other investments and remaining agement of the DB Group has been based on newly defined activities. business segments. The primary segment information based Other Activities / Consolidation: The data concerning on segments follows this new corporate structure. Previous the segments are shown after intra-segment relations have year figures have been adjusted. been eliminated. The transactions between the segments The Group’s operations are conducted in the following (inter-segment relations) are eliminated in the column segments: “Other/consolidation”.This column also includes reconciliation amounts relating to figures shown in the consolidated Long-distance Transport: This segment comprises all financial statements. Group operations for passenger transport and other services. Most of these transport services are provided in Germany. Notes to primary segment reporting Regional Transport: This segment comprises the activ- The segment revenues comprise external revenues, other ities for regional passenger transport and other services. external revenues as well as internal segment revenues Most of these transport services are provided in Germany. attributable to the operations of the business segment. Urban Transport: The Urban Transport segment com- Inventory changes and internally produced and capitalized prises the metropolitan transport systems in Berlin and assets are not included in segment revenues; their effect is Hamburg as well as urban bus activities. Most of these to reduce segment expenses. services are provided in Germany. The external segment revenues consist exclusively of Railion: This segment pools the activities for freight revenues generated by the segments with parties outside transport services. The segment operates primarily in Ger- the DB Group. The internal segment revenues comprise many, Denmark, the Netherlands and Italy. revenues with other segments (inter-segment revenues). Schenker: Schenker has established a global presence Market prices are used for establishing the transfer prices as a logistics service provider with activities for freight for internal transactions. The segment expenses include cost transport, forwarding and other services. of materials and personnel expenses, depreciation, impair- Track Infrastructure: This segment is responsible for ments and reversals of impairments as well as other operating installing, maintaining and operating the complete track- expenses attributable to the operations of the segment. related rail infrastructure in Germany.

192 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

Segment result (operating profit before interest) is defined and intangible assets acquired in the financial year by the as the difference between segment revenues and segment companies in the scope of consolidation, before the addi- expenses, and is operating profit before financial result tions to assets attributable to company acquisitions are taken (consisting of earnings from investments accounted for into consideration. using the equity method, net interest income and other Depreciation refers to the property, plant and equip- financial result) and taxes on income. ment attributable to the various segments as well as the Segment assets comprise property, plant and equipment, intangible assets. intangible assets, receivables and other assets (excl. receiv- Impairments/reversals of impairments comprise the ables from financing and taxes on income), inventories, balance of impairments and reversals of impairments in derivative financial instruments related to operations, avail- relation to the items of property, plant and equipment or able-for-sale assets as well as cash and cash equivalents. The intangible assets stated under segment assets, including figures are reconciled with the figures stated in the consoli- any goodwill. dated financial statements by including the receivables from Other non-cash expenditures and income also comprise financing and receivables related to taxes on income in the allocations to or reversals of provisions, impairments and column “Other/consolidation”. reversals of impairments in relation to current assets and Segment liabilities comprise the provisions and operating the income from reversing deferred items if they are stated liabilities (excl. liabilities from financing and taxes on income) in relation to segments. as well as the derivative financial instruments relating to operations and available-for-sale liabilities. The figures are Notes to secondary segment reporting reconciled with the figures stated in the consolidated finan- Items are stated under segment revenues generated with cial statements by including the liabilities from financing third parties on the basis of the registered offices of the and liabilities related to taxes on income in the column Group company providing the service. Only external reve- “Other/consolidation”. nue items are stated. Segment capital expenditures comprise capital expen- Segment assets are allocated on the basis of the location ditures related to intangible assets (incl. acquired goodwill) as of the assets. The break-down of contents is equivalent to well as to property, plant and equipment and, there by with that used in the primary reporting format. the additions of assets attributable to company acquisitions Net capital expenditures are also based on the location and gross capital expenditures, cover all additions to the of the assets and comprise capital expenditures in property, scope of consolidation as of the balance sheet date before plant and equipment as well as intangible assets less the the investment grants which have been received are taken relevant investment grants. into consideration. Additions to assets from company acquisitions are shown as part of segment gross capital expenditures, and comprise exclusively the capital expenditures in property, plant and equipment and intangible assets, including the goodwill acquired as part of company acquisitions. The additions to assets attributable to gross capital expenditures comprise the property, plant and equipment

193 Other Information The outstanding contributions relate to outstanding contributions to EUROFIMA (€ 317 million; previous year: € 320 33 Contingent receivables and liabilities million). The change in relation to the ﬁgure stated for the As of December 31, 2005, contingent receivables were previous year is attributable to exchange rate effects. stated as € 50 million (previous year: € 38 million). These Various companies in the DB Group have leased assets, comprise mainly a claim for repayment of building cost e.g. property, buildings, technical equipment, plant and subsidies which have been provided, the extent and timing machinery as well as operational and business equipment of which however were not adequately certain as of the within the framework of operating lease agreements. If balance sheet date. assets relating to the core business of the DB Group have Contingent liabilities are broken down as follows: been leased, they are generally leased to cover a temporary requirement up to the point at which the ordered material € million 2005 2004 has been made available for delivery and actually supplied. The terms of the future minimum payments arising Contingent liabilities from Guarantees 158 155 from operating lease agreements are set out in the follow- Provision of warranties 2 0 ing table: Other liabilities 210 138 Total 370 293 € million 2005 2004

Less than 1 year 560 443 The guarantees as of December 31, 2005 consisted mainly 1 – 2 years 396 443 of customs guarantees provided for international Schenker 2 – 3 years 339 359 companies. 3 – 4 years 293 304 4 – 5 years 244 203 Other contingent liabilities also comprise risks arising More than 5 years 1,184 1,296 from litigation which had not been stated as provisions Total 3,016 3,048 because the expected probability of occurrence is less than 50 %. 35 Infrastructure and transport contracts 34 Other financial obligations The following notes and information refer to the require- Capital expenditures in relation to which the company has ments of SIC-29 (Disclosure – Service Concession Arrange- entered into contractual obligations as of the balance sheet ments). date, but for which no consideration has yet been received, are broken down as follows: Infrastructure contracts In accordance with Section 6 of the General Railroad Act € million 2005 2004 (Allgemeines Eisenbahngesetz; AEG), the infrastructure companies which belong to the DB Group, and in particular Committed capital expenditures Property, plant and equipment 3,199 4,463 DB Netz AG, DB Station& Service AG and DB Energie GmbH, Intangible assets 2 3 have been granted temporary authorization as railroad Outstanding capital contributions 318 320 infrastructure companies as detailed in Section 2 (3) AEG to Total 3,519 4,786 operate and develop the rail infrastructure network in Ger- many. This comprises in detail the authorization to operate the rail network, the related power network and the station premises related to operations.

194 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

The approvals of the Federal Railroad Authority (Eisenbahn- is applicable particularly for DB Regio AG as well as its sub- Bundesamt; EBA– since January 1, 2006: Federal Network sidiaries which conduct rail passenger operations. Agency [Bundesnetzagentur]) – for DB Netz AG and DB DB Regio AG and its subsidiaries provide transport ser- Station&Service AG have been provided until December vices on the basis of ordered-service contracts. These trans- 31, 2048, and the approvals for DB Energie GmbH have been port contracts for local passenger transport services are signed provided until June 30, 2051. with the organization which orders the transport services The right of the infrastructure companies to operate (e.g. Federal State, local transport company, special-pur- the rail infrastructure is connected to various obligations. In pose entity/association). These contracts determine the way addition to the general operating obligation, these obliga- in which the transport service is provided and continued, tions comprise mainly the duty to maintain the infrastruc- and also governs the relevant compensation paid for the ture network in a condition in which it is capable of reliable transport services. operation and to further improve the network to meet the The Federal Government provides the Federal States needs of the future. In addition, the infrastructure operators with funds for this purpose in accordance with the German also have to observe statutory duties with regard to noise Regionalization Act (Regionalisierungsgesetz; RegG). abatement in the case of any new and expansion projects. The most important rail transport contracts with annual The DB Group voluntarily participates in the “Rail Noise compensation in excess of € 50 million (previous year figures Abatement Program”(“Lärmsanierungsprogramm Schiene”) have been adjusted) are explained in the following: for existing lines. The transport contracts run for periods of between 10 The rail infrastructure companies provide non-discrimi- and 15 years. With the exception of one contract, all of the natory access to the rail infrastructure in accordance with contracts run until at least 2010, and 80 % of the contracts Section 14 AEG and charge so-called “train path utilization run until at least 2012. The transport contract can only be fees”to the railroad transport companies in accordance with terminated by the ordering organization during its life if the principles of the Ordinance Governing Use of Railroad there is a compelling reason. Infrastructure (Eisenbahninfrastrukturbenutzungsverord- In general, a transport contract contains stipulations nung; EIBV). The EBAis responsible for monitoring compli- according to which parts of the transport service can be ance with the principles applicable for imposing the line fees taken out of the contract while the contract is still running in accordance with the EIBV, and is also responsible for ensur- and put out to tender again. This is applicable for on average ing that these principles are applied in a non-discriminatory 30 % to 40 % of the services at the beginning of the contract manner. term. After the transport contracts have expired, it is expected The above-mentioned infrastructure companies gener- that the transport services will be put out to competitive ated overall revenues of € 6,387 million in 2005 (previous tender. year: € 6,051 million); of this figure, € 880 million was gen- The total amount of payments from ordered-service erated with non-Group customers (previous year: € 710 contracts amounted to € 4,537 million in the year under million). review (previous year: € 4,568 million); the transport con- The assets of the railroad infrastructure are the legal tracts mentioned above accounted for € 4,285 million of this and economic property of the company. No particular obli- figure (previous year: € 4,270 million). This is equivalent to gations exist after the expiry of the contract. 94.4 % (previous year: 93.5 %) of the total fees (see Note [1]). The fact that the fees which are received are virtually Transport contracts unchanged is due to the fact that the fees are increased Service licenses and similar approvals which guarantee the annually by between 1.5 % and 2 %, whereas this increase is general public access to important economic and public facil- opposed by revenue reductions stated in the terms of tender ities have been granted to companies in the DB Group. This of virtually all contracts.

195 The company enjoys legal and beneﬁcial ownership of vir- Relationships with the Federal Republic of Germany tually all of the assets necessary for providing the services, and in particular the rolling stock. No special obligations € million Federal Government exist after the end of the contract term. 2005 2004

Services received by DB Group 36 Related-party disclosures Purchase of goods and services 1,819 1,962 Parties related to the DB Group for the purposes of IAS 24 Investment grants 3,103 3,214 Other grants 129 40 (Related-Party Disclosures) are as follows: 5,051 5,216 The Federal Government in its capacity as the owner of all shares in DB AG, Services rendered by DB Group Sale of goods and services 239 206 the companies or enterprises subject to the control of the Lease and rental payments received 9 0 Federal Republic of Germany (referred to in the following as Other services rendered 67 34 “Federal Companies”), Repayment of investment grants 234 227 549 467 affiliated, non-consolidated and associated companies as well as joint ventures of DB Group, as well as Other disclosures the members of the Management Board and the Super- Unsecured receivables 300 281 Unsecured payables 4,050 4,119 visory Board of DB AG and their close relatives. Current total of guarantees received 3,106 3,112 Current total of guarantees granted 5 0 The figures attributable to related companies and persons are stated under the corresponding items of the “Notes Purchases of products and services comprise mainly the to the Balance Sheet” with the designation “thereof ”. Indi- amounts paid to the Federal Government on a pro-forma vidual figures are set out in the Notes [19], [28] and [29]. basis for the assigned civil servants. Details and explanations of transactions between the DB The investment grants have been extended via the Group and the Federal Republic of Germany are included in Transport Infrastructure Financing Company (Verkehrs- the Notes [3], [5], [9], [13], [31], [33] and [35]. infrastrukturfinanzierungsgesellschaft; VIFG) mainly in Significant economic relations which need to be reported accordance with the Federal Rail Infrastructure Exten- separately between the DB Group and related companies and sion Act (Bundesschienenwegeausbaugesetz; BSchwAG), persons are explained in the following: the Future Capital Spending Program (Zukunftsinves- titionsprogramm; ZIP), the Municipal Transport Financing Act (Gemeindeverkehrsfinanzierungsgesetz;GVFG), and the Transport Infrastructure Financing Act (Verkehrsinfra- strukturfinanzierungsgesetz; VIFGG). The grants recognized in the income statement relate mainly to payments provided by the government for covering excessive burdens borne by the DB Group as a result of operating and maintaining equal-height crossings with roads of all construction authorities. Sales of products and services also comprise services for carrying severely disabled persons, persons who are working on alternative military service and Bundeswehr traffic. The Federal Government guarantees relate mainly to the loans received from EUROFIMA and the outstanding contributions of Deutsche Bahn at EUROFIMA.

196 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

The unsecured receivables of € 300 million (previous year: provided completely in the form of investment grants which € 281 million) with regard to the Federal Government primar- do not have to be repaid. ily relate to claims for the transfer of property by the BEV. For the years 2004 to 2008, DB AG has waived its entitle- In addition to the interest-free loans, which are stated ment to reimbursement of the costs for employees and with their present value, the Group also has liabilities due to assigned civil servants which it incurs as a result of the fact the Federal Government of € 410 million (previous year: that employment contracts which were transferred to DB AG € 500 million) stated under other liabilities; of this figure, in accordance with Section 14 (2) of the Deutsche Bahn € 102 million is attributable to past obligations (previous Foundation Act (Deutsche Bahn Gründungsgesetz; DBGrG) year: € 163 million). cannot be terminated (see Section 21 (5) and (6) DBGrG) The following agreements were concluded with the although the personnel requirements of DB AG have dimin- Federal Government in 2005: ished because of technical, operational and organizational On May 9, 2005, the “Definitions for securing the nec- measures. essary investments in the railroad tracks of the Federal Government over the medium term up to 2008 by the pro- Relations with Federal Companies vision of Federal funds instead of own funds of Deutsche With the first-time and retroactive adoption of IAS 24 (rev. Bahn AG” (“Festlegungen zur Sicherstellung der notwen- 2003), it is also necessary to provide information concerning digen Investitionen in die Schienenwege der Eisenbahnen major transactions with the so-called “state-controlled enti- des Bundes im Mittelfristzeitraum bis 2008 durch die Bereit- ties”. The term “state-controlled entities” is issued to describe stellung von Bundesmitteln anstelle von Eigenmitteln der companies which operate with the aim of generating a profit Deutschen Bahn AG”) were signed by the Federal Govern- and which are controlled by the Federal Government as a ment and the rail infrastructure companies (DB Netz AG, result of a majority shareholding or other contractual regula- DB Station& Service AG and DB Energie GmbH, referred tions. The companies which are associated with the Federal to in the following as Eisenbahninfrastrukturunterneh- Government as defined in Section 15 German Stock Corpo- men – EIU).This so-called “€ 750 million package” governs ration Act (Aktiengesetz; AktG) are published annually in Federal financing of packages of measures in the period alphabetical order by the Federal Ministry of Finance. 2005 to 2008.The aim is to speed up implementation of the- Most of the transactions carried out in the year under se measures designed to improve the competitiveness of the review and in the corresponding previous year period relat- rail transport medium by reducing the burden on the EIU ed to operations, and overall were of minor significance for by providing equity funds of up to € 750 million.The funds the DB Group. The receivables and liabilities which have will be used for instance for financing project-related expen- arisen cancelled each other out almost completely as of the ses (decommissioning, decontamination, disposal) or costs of reporting date. fire protection facilities on passenger transport installations. With the “Agreement for updating existing financing Relations with affiliated, non-consolidated agreements” (“Vereinbarung zur Aktualisierung bestehender companies, associates and joint ventures Finanzierungsvereinbarungen”; Anpassungsvereinbarung In the course of the 2005 financial year, the DB Group pur- APV 2005) between the Federal Government and the EIU, chased products and services worth € 165 million, mainly the terms, financing volumes and cost statuses of the for purchasing passenger and freight transport services. existing financing agreements of the requirement schedule Most of this figure, namely € 153 million, was attributable or the existing network were updated on December 23, 2005. to transactions conducted with associates. In the course of the 2005 financial year, 22 new financ- Interest payments of € 92 million were also incurred ing agreements were agreed, with a Federal content totaling in the year under review. This figure relates almost exclu- approx. € 1.3 billion. The financing agreements have different sively to interest payments for the loans extended by terms (ranging from one year up to nine years). Financing is EUROFIMA. Please refer to the details under Note [28].

197 In 2005, the DB Group generated revenues of € 538 million The revenues of € 12,467 thousand generated by the from sales of products and services. The revenues were gener- DB Group (service provider) relate mainly to transport and ated mainly in the Railion segment and relate to revenues freight forwarding services provided by the Railion and generated by transport services which were provided. Schenker segments; of this figure, services worth € 1,755 Guarantees totaling € 7 million have been extended; of thousand were provided to the SMS Group and services this figure € 5 million was attributable to joint ventures. worth € 10,712 thousand were provided to Georgsmarien- An equivalent volume of transactions with related com- hütte Holding GmbH. panies was conducted in the previous year period. The products and services purchased by the DB Group (service recipient) comprise exclusively supplies of Georgs- Relations with the Management Board and marienhütte Holding GmbH. Supervisory Board of Deutsche Bahn AG The following section sets out the transactions between the 37 Events after the balance sheet date DB Group and the members of the Management Board In the period between the balance sheet date and the point and the Supervisory Board, as well as the companies in at which the financial statements were prepared, the scope which members of the Management Board or the Super- of consolidation of the DB Group underwent a major change visory Board own a majority interest. with the acquisition of BAX Global. The following information is provided with regard to this transaction: € thousand 2005 2004 An agreement was signed on November 15, 2005 between The Brink’s Company (referred to in the following as Total compensation of the Management Board 14,693 9,397 “Brink’s”) and DB AG; in accordance with this agreement, thereof fixed (9,494) (6,032)1) the DB Group acquires 100 % of the shares of Brink’s in thereof variable (5,199) (3,365) BAX Global.

thereof short-term (7,118) (6,859) At the point at which the agreement was signed, it was thereof for retirement provision (6,875) (2,538) still subject to the approval of the relevant cartel and US thereof severance pay (700) (0) authorities. The Supervisory Board of DB AG approved the

Compensation of former members transaction in an extraordinary meeting held on Novem- of the Management Board 1,275 1,452 ber 12, 2005. Control was transferred in January 2006. The final purchase price still has to be defined. The purchase price Retirement benefit obligation in respect of former members is based on an agreed enterprise value of USD 1,120 million of the Management Board 21,652 18,9211) for BAX Global, plus the costs which are directly attributable to the acquisition. The purchase costs can only be Total compensation of the Supervisory Board 303 281 broken down over the individually acquired assets, liabilities thereof short-term (303) (281) and contingent liabilities when the financial data are received after the time of the acquisition and after the accounting of Services rendered by DB Group Sales of goods and services 12,467 94 BAX Global has been converted to IFRS. Lease and rental payments received 0 6 BAX Global is a US company which is registered in the Trade receivables as of Dec 31 2 0 State of Delaware and which has its registered offices in

Services received by DB Group Irvine (California). The range of products of the company Purchase of goods and services 37,545 0 comprises services in the ﬁelds of air and sea freight, supply chain management as well as domestic freight. The company 1) Figure adjusted has global operations, and is one of the 20 largest US logistics companies. In 2004, it generated global revenues of

198 Deutsche Bahn Group | 2005 Annual Report Consolidated Financial Statements

USD 2,440 million; of this figure, 46 % were generated in DB Bahnbau GmbH, Berlin the USA, 18 % in Europe and 36 % in Asia. The company has DB Dialog Telefonservice GmbH, Berlin DB Dienstleistungen GmbH, Berlin around 11,500 employees world-wide. DB European Railservice GmbH, Dortmund In addition, during the period in which the financial DB FuhrparkService GmbH, Frankfurt/Main DB Gastronomie GmbH, Frankfurt/Main statements were being prepared, the Group purchased 80 % DB JobService GmbH, Berlin of shares in the StarTrans Group, Hong Kong /China, for a DB ProjektBau GmbH, Berlin consideration of approx. € 59 million. The transaction was DB Rent GmbH, Frankfurt/Main DB Sechste Vermögensverwaltungsgesellschaft mbH, Berlin approved by the Supervisory Board with the resolution of DB Services Immobilien GmbH, Berlin December 7, 2005. It is expected that the purchase will be DB Services Technische Dienste GmbH, Berlin DB ServiceStore Systemführungs GmbH, Berlin completed in Q2 2006. The company operates as an interna- DB Stadtverkehr GmbH, Frankfurt/Main tional air freight carrier, and generated revenues of approx. DB Systems GmbH, Frankfurt/Main DB Telematik GmbH, Eschborn USD 208 million in 2004. DBVertrieb GmbH, Berlin On November 30, 2005, the DB Group signed an agree- DB Zehnte Vermögensverwaltungsgesellschaft mbH, Frankfurt/Main ment for disposing of all shares in STINNES-data-SERVICE DB Zeitarbeit GmbH, Berlin DE-Consult Deutsche Eisenbahn-Consulting GmbH, Berlin GmbH. The transaction was approved by the Supervisory Deutsche Gleis- und Tiefbau GmbH, Berlin Board on December 22, 2005. The sale was completed as of DVA DeutscheVerkehrs-Assekuranz-Vermittlungs-GmbH, Bad Homburg ECO-Trucking GmbH, Coburg January 1, 2006. Subject to the definitive annual financial Emder Verkehrsgesellschaft AG, Emden statements of STINNES-data-SERVICE GmbH, the sale real- Europac GmbH, Coburg ized proceeds of around € 36 million. EVAG Automotive GmbH, Emden EVB Handelshaus Bour GmbH, Landau/Palatinate Frachtcontor Junge &Co. GmbH, Hamburg 38 Exemption of subsidiaries from the disclosure Frank& Schulte GmbH, Essen Friedrich Müller Omnibusunternehmen GmbH, Schwäbisch Hall requirements of the German GAAP (Handelsgesetz- Frisia Handels- und Transport GmbH, Emden buch; HGB) Fritzen Schiffsagentur GmbH, Hamburg The following subsidiaries intend to make use of Section Georg Schulmeyer GmbH, Mörfelden-Walldorf H.Albrecht Speditions Gesellschaft mbH, Frankfurt/Main 264 (3) HGB, which provides an exemption from the dis- Hanekamp Busreisen GmbH, Cloppenburg closure requirements: H.M. Gehrckens GmbH, Hamburg Ibb Ingenieur-, Brücken- und Tiefbau GmbH, Dresden A. Philippi GmbH, Quierschied Intertec Retail Logistics GmbH, Landau/Palatinate AMEROPA-Reisen GmbH, Bad Homburg v.d.H. Inter-Union Technohandel GmbH, Landau/Palatinate Anterist + Schneider Automotive Service GmbH, Saarwellingen Johannes R.Weichelt GmbH, Coburg Anterist & Schneider GmbH, Saarbrücken KVB Sigmaringen GmbH, Sigmaringen Anterist + Schneider Möbel-Logistik GmbH, Saarbrücken Mair Spedition und Logistik GmbH, Gersthofen Anterist + Schneider Versicherungs-Vermittlungsgesellschaft mbH, MOS Mobile Oberbauschweißtechnik GmbH, Berlin Saarbrücken Nieten Fracht Logistik GmbH, Freilassing AT G Autotransportlogistic Gesellschaft mbH, Eschborn NVO Temme Nahverkehr Ostwestfalen GmbH, Halle (Westphalia) ATLANTIC Seetransport-Kontor GmbH, Hamburg Omnibusverkehr Franken GmbH (OVF), Nuremberg Autokraft GmbH, Kiel ORN Omnibusverkehr Rhein-Nahe GmbH, Mainz Bayern Express Omnibus GmbH, Munich Poseidon Schiffahrt GmbH, Hamburg Bayern Express & P. Kühn Berlin GmbH, Berlin Railion GmbH, Mainz BBH BahnBus Hochstift GmbH, Paderborn Railog GmbH, Kelsterbach BRN Busverkehr Rhein-Neckar GmbH, Ludwigshafen RBO Regionalbus Ostbayern GmbH, Regensburg BRN Stadtbus GmbH, Ludwigshafen Regional Bus Stuttgart GmbH RBS, Stuttgart BRS Busverkehr Ruhr-Sieg GmbH, Meschede Regionalverkehr Allgäu GmbH (RVA), Oberstdorf BTS Kombiwaggon Service GmbH, Mainz Regionalverkehr Kurhessen GmbH (RKH), Kassel BTT BahnTank Transport GmbH, Mainz Regionalverkehr Oberbayern GmbH, Munich BVO Busverkehr Ostwestfalen GmbH, Bielefeld RMV Rhein-Mosel Verkehrsgesellschaft mbH, Koblenz BVR Busverkehr Rheinland GmbH, Düsseldorf RSW Regionalbus Saar-Westpfalz GmbH, Saarbrücken DB Akademie GmbH, Potsdam RVE Regionalverkehr Euregio Maas-Rhein GmbH, Aachen

199 RVN Regionalverkehr Niederrhein GmbH, Wesel 39 Major shareholdings RVS Regionalbusverkehr Südwest GmbH, Karlsruhe The major shareholdings are set out on the following pages. SBG SüdbadenBus GmbH, Freiburg SCHENKER AIR TRANSPORT GmbH, Kelsterbach The complete list of all shareholdings of the DB Group Schenker Aktiengesellschaft, Essen is deposited with the commercial register of the local court Schenker Automotive RailNet GmbH, Kelsterbach Berlin-Charlottenburg. SCHENKER BETEILIGUNGS GmbH, Dortmund Schenker Deutschland AG, Frankfurt/Main SCHENKER INTERNATIONAL AKTIENGESELLSCHAFT, Essen 40 Supervisory Board and Management Board SCHENKER INTERNATIONAL DEUTSCHLAND GmbH, Kelsterbach Schenker NIGHT PLUS GmbH, Wülfrath The names and mandates of the members of the Super- Stinnes AG, Berlin visory Board and the Management Board are set out on Stinnes Beteiligungs Verwaltungs GmbH, Essen the following pages. STINNES-data-SERVICE GmbH, Mülheim/Ruhr Stinnes Intertec GmbH, Landau/Palatinate TRANSA Spedition GmbH, Offenbach/Main Berlin, March 7, 2006 Trans-Oel Agency GmbH, Wilhelmshaven UBB Usedomer Bäderbahn GmbH, Heringsdorf Verkehrsgesellschaft mbH Untermain –VU–, Frankfurt/Main WBWestfalen Bus GmbH, Münster (Westphalia) Deutsche Bahn AG Weser-Ems Busverkehr GmbH (WEB), Bremen Zentral-Omnibusbahnhof Berlin GmbH, Berlin The Management Board

200 Major Subsidiaries

Name and domicile Revenues Employees Ownership 2005 as of % € million Dec 31, 2005

Passenger Transport Group division Long-distance Transport business unit Bayern Express & P. Kühn Berlin GmbH, Berlin 100.0 19.6 256 CityNightLine CNL AG, Zürich/Switzerland 100.0 58.3 149 DB European Railservice GmbH, Dortmund 100.0 25.4 531 DB Fernverkehr AG, Frankfurt/Main 100.0 2,924.2 14,477 DBAutoZug GmbH, Dortmund 100.0 200.7 327

Regional Transport business unit DB Regio AG, Frankfurt/Main 100.0 4,971.9 21,103 DB RegioNetz Verkehrs GmbH, Frankfurt/Main 100.0 117.4 545 DB Regio NRW GmbH, Düsseldorf 100.0 1,130.3 4,236 DB ZugBus Regionalverkehr Alb-Bodensee GmbH (RAB), Ulm (Donau) 100.0 266.4 1,170 Regionalbahn Schleswig-Holstein GmbH, Kiel 100.0 226.5 744

Urban Transport business unit Autokraft GmbH, Kiel 100.0 74.0 660 BRN Busverkehr Rhein-Neckar GmbH, Ludwigshafen/Rh. 100.0 50.6 491 BRS Busverkehr Ruhr-Sieg GmbH, Meschede 100.0 31.8 169 BVO Busverkehr Ostwestfalen GmbH, Bielefeld 100.0 36.3 320 BVR Busverkehr Rheinland GmbH, Düsseldorf 100.0 31.4 139 Omnibusverkehr Franken GmbH (OVF), Nuremberg 100.0 85.5 498 ORN Omnibusverkehr Rhein-Nahe GmbH, Mainz 100.0 42.2 327 RBO Regionalbus Ostbayern GmbH, Regensburg 100.0 64.0 296 Regional Bus Stuttgart GmbH RBS, Stuttgart 100.0 69.8 504 Regionalverkehr Kurhessen GmbH (RKH), Kassel 100.0 52.9 736 Regionalverkehr Oberbayern GmbH, Munich 100.0 55.1 575 RMV Rhein-Mosel Verkehrsgesellschaft mbH, Koblenz 74.9 57.2 253 RSW Regionalbus Saar-Westpfalz GmbH, Saarbrücken 100.0 59.1 297 RVS Regionalbusverkehr Südwest GmbH, Karlsruhe 100.0 51.7 350 S-Bahn Berlin GmbH, Berlin 100.0 487.2 3,783 S-Bahn Hamburg GmbH, Hamburg 100.0 183.0 891 SBG SüdbadenBus GmbH, Freiburg i.Br. 100.0 66.3 451 Verkehrsgesellschaft mbH Untermain – VU –, Frankfurt/Main 100.0 43.3 59 Weser-Ems Busverkehr GmbH (WEB), Bremen 100.0 62.0 354

201 Name and domicile Revenues Employees Ownership 2005 as of % € million Dec 31, 2005

Transport and Logistics Group division Railion business unit RAG Bahn und Hafen GmbH, Gladbeck1) 98.0 150.1 938 Railion Danmark A/S, Copenhagen/Denmark 98.0 74.0 477 Railion Deutschland AG, Mainz 98.0 3,288.2 21,888 Railion Intermodal Traction (RIT) GmbH, Mainz 98.0 143.8 53 Railion Nederland N.V., Utrecht/Netherlands 98.0 153.3 1,155

Schenker business unit ATG Autotransportlogistic Gesellschaft mbH, Eschborn/Taunus 100.0 301.0 57 Linjegods AS, Oslo/Norway 100.0 272.5 1,069 SCHENKER&Co.AG,Vienna/Austria 100.0 506.7 1,667 Schenker A/S, Hvidovre/Denmark 100.0 158.1 262 SCHENKER AB, Gothenburg/Sweden 100.0 1,025.3 2,550 Schenker AG, Essen 100.0 2,482.3 9,353 Schenker Australia Pty. Ltd., Alexandria/Australia 100.0 141.2 344 Schenker B.V., Tilburg /Netherlands 100.0 119.4 473 Schenker Cargo Oy, Turku/Finland 99.1 106.9 687 Schenker International (HK) Ltd., Hong Kong/China 100.0 371.9 935 Schenker Italiana S.p.A., Peschiera/Italy 100.0 324.4 796 Schenker LTD., London/Great Britain 100.0 206.5 485 SCHENKER N.V., Antwerp/Belgium 100.0 176.9 545 Schenker of Canada Ltd., Toronto/Canada 100.0 254.8 888 Schenker OY, Helsinki/Finland 100.0 267.3 391 Schenker S.A.,Gennevilliers/France 100.0 441.8 1,075 Schenker Singapore (PTE) Ltd., Int. Forwarders, Singapore/Singapore 100.0 119.9 551 Schenker Sp.zo.o., Warsaw/Poland 98.3 180.4 1,310 SCHENKER JOYAU SAS, Montaigu Cedex/France 99.9 296.3 2,844 Stinnes Corporation, Tarrytown/USA2) 100.0 593.7 11 Schenker-Seino Co. Ltd., Tokyo/Japan 60.0 182.8 235

Stinnes business unit3) BTS Kombiwaggon Service GmbH, Mainz 100.0 47.1 251 BTT BahnTank Transport GmbH, Mainz 100.0 70.1 88 Hangartner AG, Aarau/Switzerland 100.0 166.3 362 Nieten Fracht Logistic GmbH, Freilassing 100.0 105.9 41 NUCLEAR CARGO+ SERVICE GmbH, Hanau 100.0 41.4 115 Stinnes AG, Berlin 100.0 70.7 507 TRANSA Spedition GmbH, Offenbach/Main 100.0 279.7 332

202 Deutsche Bahn Group | 2005 Annual Report Major Subsidiaries

Name and domicile Revenues Employees Ownership 2005 as of % € million Dec 31, 2005

Infrastructure and Services Group division Track Infrastructure business unit DB Bahnbau GmbH, Berlin 100.0 54.1 935 DB Netz AG, Frankfurt/Main 100.0 3,863.5 40,380 DB RegioNetz Infrastruktur GmbH, Frankfurt/Main 100.0 50.4 497 Deutsche Bahn Gleisbau GmbH, Duisburg 100.0 97.9 488 Deutsche Gleis- und Tiefbau GmbH, Berlin 100.0 192.6 1,237 Deutsche Umschlaggesellschaft Schiene-Straße (DUSS) mbH, Bodenheim 87.5 32.1 404 Ibb Ingenieur-, Brücken- und Tiefbau GmbH, Dresden 100.0 56.0 263

Passenger Stations business unit DB Station & Service AG, Berlin 100.0 888.5 5,133

Energy business unit3) DB Energie GmbH, Frankfurt/Main 100.0 1,633.6 1,725

Services business unit DB Rent GmbH, Frankfurt/Main 100.0 64.6 87 DB Services Nord GmbH, Hamburg 100.0 55.7 1,309 DB Services Nordost GmbH, Berlin 100.0 58.6 1,965 DB Services Süd GmbH, Munich 100.0 68.1 1,417 DB Services Südost GmbH, Leipzig 100.0 185.3 3,520 DB Services Südwest GmbH, Frankfurt/Main 100.0 80.5 1,659 DB Services Technische Dienste GmbH, Berlin 100.0 362.8 4,260 DB Services West GmbH, Cologne 100.0 70.4 1,300 DB Systems GmbH, Frankfurt/Main 100.0 539.0 2,103 DB Telematik GmbH, Eschborn 100.0 369.9 2,990 DB FuhrparkService GmbH, Frankfurt/Main 100.0 140.0 184

Other subsidiaries AMEROPA-REISEN GmbH, Bad Homburg v.d.H.4) 100.0 91.2 121 DB Dialog Telefonservice GmbH, Schwerin4) 100.0 42.3 1,045 DB Media & Buch GmbH, Kassel 100.0 18.2 0 DB ProjektBau GmbH, Berlin5) 100.0 529.2 4,260 DE-Consult Deutsche Eisenbahn-Consulting GmbH, Berlin5) 100.0 69.1 528 DVA Deutsche Verkehrs-Assekuranz-Vermittlungs-GmbH, Bad Homburg v.d.H. 65.0 27.6 78

1) Acquisition as of Dec 31, 2005 2) Figures comply with consolidated Group figures of Stinnes Corporation 3) Shown under other activities in the segment report 4) According to the organizational structure consolidated within Passenger Transport Group division 5) According to the organizational structure consolidated within Infrastructure and Services Group division

203 The Boards of Deutsche Bahn AG

Management Board of Deutsche Bahn AG

Hartmut Mehdorn Stefan Garber Dr. Karl-Friedrich Rausch CEO and Chairman Infrastructure and Services, Passenger Transport, of the Management Board, Bad Homburg Weiterstadt Berlin – since April 1, 2005 – a) DB Fernverkehr AG (Chairman)1) a) DB Netz AG (Chairman)1) a) DB Station&Service AG (Chairman)1) DB Regio AG (Chairman)1) DEVK Deutsche Eisenbahn Versicherung DB Energie GmbH (Chairman)1) Railion Deutschland AG1) Lebensversicherungsverein a.G. DB ProjektBau GmbH (Chairman)1) Schenker AG1) DEVK Deutsche Eisenbahn Versicherung DB Services Technische Dienste GmbH1) DB Vertrieb GmbH (Chairman)1) Sach- und HUK-Versicherungsverein a.G. DB Systems GmbH1) S-Bahn Berlin GmbH (Chairman)1) Dresdner Bank AG Arcor Verwaltungs-Aktiengesellschaft DEVK Allgemeine Versicherungs-AG SAP AG IDUNA Lebensversicherung a.G. DEVK Deutsche Eisenbahn Versicherung b) Arcor AG&Co.KG Sach- und HUK-Versicherungsverein a.G. (Partner committee member)1) Dr. Norbert Bensel DB Dienstleistungen GmbH Transport and Logistics (Advisory Board, Chairman)1) Diethelm Sack – since March 17, 2005 –, Signal Iduna Gruppe (Advisory Board) CFO, Personnel Frankfurt/Main – through March 16, 2005 –, a) DB Fernverkehr AG1) Berlin Roland Heinisch DB Regio AG1) a) DB Fernverkehr AG1) Integrated Systems Rail Railion Deutschland AG1) DB Regio AG1) – since April 1, 2005 –, Schenker AG1) Railion Deutschland AG (Chairman)1) Track Infrastructure Stinnes AG1) Schenker AG (Chairman)1) – through March 31, 2005 –, DB Services Immobilien GmbH Stinnes AG (Chairman)1) CEO and Chairman of the Management (Chairman)1) DB Services Immobilien GmbH1) Board of DB Netz AG, DEVK Allgemeine Lebensversicherungs-AG DEVK Deutsche Eisenbahn Versicherung Idstein DEVK Deutsche Eisenbahn Versicherung Lebensversicherungsverein a.G. a) DB ProjektBau GmbH1) Lebensversicherungsverein a.G. DEVK Deutsche Eisenbahn Versicherung Frankfurter Versicherungs-AG Sach- und HUK-Versicherungsverein a.G. gbo AG Partner für Berlin Holding Gesellschaft Dr. Bernd Malmström b) DVA Deutsche Verkehrs-Assekuranz- für Hauptstadt-Marketing mbH Transport and Logistics, Vermittlungs-GmbH (Chairman)1) Sparda-Bank Berlin eG CEO and Chairman of the Management EUROFIMA Europäische Gesellschaft für b) IAS Institut für Arbeits- und Board of Stinnes AG, die Finanzierung von Eisenbahnmaterial, Sozialhygiene Stiftung (Advisory Board) Berlin Basle/Switzerland (Administrative Board)1) – through March 16, 2005 – a) Railion Deutschland AG (Chairman)1) Klaus Daubertshäuser Schenker AG (Chairman)1) Margret Suckale Marketing and Political Relations, K+S Aktiengesellschaft Personnel, Wettenberg b) DB Dienstleistungen GmbH Berlin – until December 31, 2005 – (Advisory Board)1) – since March 17, 2005 – a) DB Netz AG1) POLZUG Intermodal GmbH1) a) Schenker AG1) DE-Consult Deutsche Eisenbahn Stinnes Corporation, Tarrytown/USA DB Gastronomie GmbH (Chairwoman)1) Consulting GmbH1) (Chairman)1) DB JobService GmbH (Chairwoman)1) Sparda-Bank Baden-Württemberg eG DEVK Deutsche Eisenbahn Versicherung b) DB Zeitarbeit GmbH b) DEVK Deutsche Eisenbahn Versicherung a.G. (Advisory Board) (Advisory Board, Chairwoman)1) Lebensversicherungsverein a.G. HHLA Intermodal GmbH & Co. KG DEVK Deutsche Eisenbahn Versicherung (Advisory Board) a.G. (Advisory Board)

Dr. Otto Wiesheu Economic and Political Affairs, Zolling – since January 1, 2006 –

204 Deutsche Bahn Group | 2005 Annual Report

Supervisory Board of Deutsche Bahn AG

Dr. Günther Saßmannshausen Norbert Hansen* Dr.-Ing. Dr. E.h. Jürgen Großmann Honorary Chairman of the Supervisory Board, Deputy Chairman of the Supervisory Board, General Manager of Georgsmarienhütte Hanover Chairman of TRANSNET German Railroad Holding GmbH, Workers’ Union, Hamburg Hamburg – since July 5, 2005 – Dr. Werner Müller a) Arcor Verwaltungs-Aktiengesellschaft a) BATIG Gesellschaft für Beteiligungen mbH Chairman of the Supervisory Board DEVK Deutsche Eisenbahn Versicherung British American Tobacco (Germany) GmbH – since July 5, 2005 – Lebensversicherungsverein a.G. (Chairman) British American Tobacco (Industrie) GmbH Chairman of the Executive Board of RAG AG, DEVK Deutsche Eisenbahn Versicherung Deutsche Post AG Mülheim/Ruhr Sach- und HUK-Versicherungsverein a.G. RAG Coal International AG a) Degussa AG (Chairman)1) (Chairman) SURTECO Aktiengesellschaft (Chairman) Deutsche Steinkohle AG (Chairman)1) DEVK Vermögensvorsorge- und Wilhelm Karmann GmbH RAG Coal International AG (Chairman)1) Beteiligungs-AG b) ARDEX GmbH (Advisory Board) RAG Immobilien AG1) Hanover Acceptances Limited, STEAG AG (Chairman)1) London/Great Britain b) RAG Beteiligungs-GmbH Niels Lund Chrestensen RAG Trading GmbH (Advisory Board, Chairman)1) General Manager of N.L. Chrestensen, g.e.b.b. Gesellschaft für Entwicklung, Erfurter Samen- und Pflanzenzucht GmbH, Beschaffung und Betrieb mbH Erfurt Volker Halsch (Chairman) a) Funkwerk AG State Secretary, Federal Ministry of Finance, Investitionsbank NRW (Advisory Board) b) Landesbank Hessen-Thüringen Berlin Stadler Rail AG (Administrative Board) (Advisory Board Public Companies/ – through March 1, 2006 – Institutions, Communes and Savings a) Deutsche Telekom AG Banks) Dr. Michael Frenzel Thüringer Aufbaubank Chairman of the Supervisory Board, (Administrative Board) Horst Hartkorn* Chairman of the Executive Board of TUI AG, Chairman of the Works Council of S-Bahn Burgdorf Hamburg GmbH, – through July 5, 2005 – Peter Debuschewitz* Hamburg a) Hapag-Lloyd AG (Chairman)1) Management Representative a) S-Bahn Hamburg GmbH Hapag-Lloyd Fluggesellschaft mbH of Deutsche Bahn AG for the State of Berlin, DEVK Deutsche Eisenbahn Versicherung (Chairman)1) Taufkirchen Lebensversicherungsverein a.G. TUI Deutschland GmbH (Chairman)1) b) DEVK Deutsche Eisenbahn Versicherung DEVK Deutsche Eisenbahn Versicherung AWD Holding AG Lebensversicherungsverein a.G. Sach- und HUK-Versicherungsverein a.G. AXA Konzern AG (Advisory Board) Continental AG E.ON Energie AG Jörg Hennerkes VOLKSWAGEN AG Horst Fischer* State Secretary, Federal Ministry of Transport, b) Preussag North America, Inc., Employee of DB Regio AG, Building and Urban Affairs, Greenwich/USA (Chairman)1) Fürth Cologne TUI China Travel Co. Ltd., Beijing/China1) – through July 5, 2005 – – since February 1, 2006 – Norddeutsche Landesbank

205 Jörg Hensel* Helmut Kleindienst* Vitus Miller* Chairman of the Central Works Council Chairman of the Branch Works Council Chairman of the Central Works Council of Railion Deutschland AG, of the Services business unit of DB Group, of Regio/Stadtverkehr, Chairman of the Branch Works Council Chairman of the Works Council Stuttgart of Stinnes AG, of DB Dienstleistungen GmbH, – since July 5, 2005 – Hamm Eppstein/Taunus a) DB Regio AG a) Railion Deutschland AG – since July 5, 2005 – DB Vertrieb GmbH Stinnes AG b) DB Dienstleistungen GmbH b) DB GesundheitsService GmbH (Advisory Board) (Advisory Board)

Klaus-Dieter Hommel* Chairman of the GDBA Transport Workers’ Lothar Krauß* Heike Moll* Union, Deputy Chairman of TRANSNET German Chairwoman of the Central Works Council Frankfurt/Main Railroad Workers’ Union, of DB Station&Service AG, a) Railion Deutschland AG Rodenbach Munich, DEVK Deutsche Eisenbahn Versicherung a) DB Station&Service AG a) DB Station&Service AG Lebensversicherungsverein a.G. DB JobService GmbH b) DEVK Deutsche Eisenbahn Versicherung DEVK Deutsche Eisenbahn Versicherung DB Services Technische Dienste GmbH Sach- und HUK-Versicherungsverein a.G. Sach- und HUK-Versicherungsverein a.G. DBV-Winterthur Holding AG (Advisory Board) DEVK Pensionsfonds-AG Sparda-Bank Baden-Württemberg eG DEVK Rechtsschutz-Versicherungs-AG b) DB Dienstleistungen GmbH (Advisory Board) Ralf Nagel DB Zeitarbeit GmbH (Advisory Board) State Secretary (ret.), Günter Kirchheim* DEVK Deutsche Eisenbahn Versicherung AG Berlin Chairman of the Group Works Council (Advisory Board) – through January 31, 2006 – of Deutsche Bahn AG, a) Fraport AG Chairman of the Central Works Council b) DFS Deutsche Flugsicherung GmbH of DB Netz AG, Dr. Jürgen Krumnow (Advisory Board, Chairman) Essen Former member of the Management Board a) DEVK Deutsche Eisenbahn Versicherung of Deutsche Bank AG, Lebensversicherungsverein a.G. Königstein/Taunus Dr. Axel Nawrath DEVK Deutsche Eisenbahn Versicherung – since July 5, 2005 – State Secretary, Federal Ministry of Finance, Sach- und HUK-Versicherungsverein a.G. a) Hapag-Lloyd AG Königstein DEVK Pensionsfonds-AG Lenze AG – since March 1, 2006 – DEVK Vermögensvorsorge- und TUI AG (Chairman) Beteiligungs-AG (Chairman) b) Peek&Cloppenburg KG (Advisory Board)

Executive Committee Audit Committee Mediation Committee under Article Dr. Werner Müller (Chairman) Dr. Jürgen Krumnow (Chairman) 27 Section 3 Codetermination Act Norbert Hansen Jörg Hennerkes Dr. Werner Müller (Chairman) Jörg Hennerkes Helmut Kleindienst Norbert Hansen Günter Kirchheim Lothar Krauß Jörg Hennerkes Günter Kirchheim

206 Deutsche Bahn Group | 2005 Annual Report The Boards of Deutsche Bahn AG

Dr. Bernd Pfaffenbach Dr.-Ing. E.h. Dipl.-Ing. State Secretary, Federal Ministry Heinrich Weiss of Economics and Labor, Chairman of the Management Board Wachtberg-Pech of SMS GmbH, – since February 3, 2005 – Hilchenbach-Dahlbruch a) Deutsche Postbank AG a) SMS Demag AG (Chairman)1) Lufthansa Cargo AG COMMERZBANK AG HOCHTIEF AG Voith AG Dr.-Ing. Ekkehard D. Schulz b) Concast AG, Zurich/Switzerland Chairman of the Management Board (Administrative Board)1) of ThyssenKrupp AG, Bombardier Inc., Montreal/Canada Krefeld Thyssen-Bornemisza Group, Monaco a) ThyssenKrupp Automotive AG (Chairman)1) ThyssenKrupp Elevator AG (Chairman)1) Margareta Wolf ThyssenKrupp Services AG (Chairman)1) Member of the German Bundestag, AXA Konzern AG Rüsselsheim-Bauschheim Bayer AG COMMERZBANK AG MAN AG (Chairman) Horst Zimmermann* RAG AG Chairman of the General Works Council TUI AG of DB Fernverkehr AG, Nuremberg – through July 5, 2005 – Dr. Ulrich Schumacher a) DB Fernverkehr AG General Partner of Francisco Partners, b) DEVK Allgemeine Lebensversicherungs-AG Starnberg (Advisory Board) – through July 5, 2005 – a) SAFE ID Solutions AG (Chairman) b) Esmertec AG, Zurich/Switzerland (Administrative Board) Siano Mobile Silicon, Netanya/Israel WAVECOM S.A., Issy-les-Moulineaux Cedex/France

* Employee representative on the Supervisory Board

1) Mandate within the Group

a) Membership in other Supervisory Boards required by law

b) Membership in comparable domestic and foreign corporate control committees of business enterprises

Information as of December 31, 2005 or date of resignation.

207 Additional Information

Major Activity Relationships Within the DB Group

The following table shows the major intra-Group activity Station & Service AG. The recipients of intra-Group activities relationships among the segments of the DB Group. The are primarily the railroad companies in the passenger and ﬁgures indicate the infrastructure-related offset for the use freight transport area. of train-paths, local infrastructure (including marshalling Energy activities are consolidated: DB Energie GmbH yards and storage sidings), and passenger stations, as well purchases all energy products from external sources and as energy cost offset. then charges these activities on to the intra-Group con- The offset for infrastructure utilization is billed based sumers, at fair market conditions. Energy cost offset in- on the published pricing systems (Train-Path Pricing cludes both tractive energy (diesel fuel, rail electricity) and System, Facility Pricing System, and Station Pricing electricity for stationary facilities (such as switch-track System). The activities are rendered by DB Netz AG or DB heaters and train preheating units of DB Netz AG).

€ million Long- Track distance Regional Urban Infra- Passenger Holdings / Transport Transport Transport Railion Schenker structure Stations Services Other

Train-path utilization –712 –1,966 –172 – 454 0 3,307 0 –1 – 2 Utilization of local infrastructure –16 – 42 –1 –145 0 207 0 –1 – 2 Station utilization – 85 –391 –7900055500 Energy allocation – 259 –592 –36 –354 0 –107 –56 – 9 1,413

208 Deutsche Bahn Group | 2005 Annual Report

Explanation of Grant Types

Grant types Beginning End value € million value as of Fund Use of Cancel- as of Jan 1, 2005 inflow funds lations Dec 31, 2005

1.1 Third party grants – not reducing acquisition/manufacturing costs 8 23 – – 23 8 1.2 Third party grants – reducing acquisition/manufacturing costs 691 326 – 262 – 46 709 1.3 Grants from GVFG (excluding federal government) 381 247 – 223 – 46 359 2.1 Federal grants – noise abatement 84 54 – 61 –17 60 2.2 Federal grants – VIFG funds (transport infrastructure provider) 286 425 –360 –19 332 2.3 Federal grants – special burdens due to past underinvestment 273 28 – 49 –13 239 2.4 Federal grants – BSchwAG, former special burdens past underinv. 744 666 – 491 – 66 853 2.5 Federal grants – civil defense – – – – – 2.6 Federal grants – GVFG local public passenger transport 133 66 –92 –12 95 2.7 Federal grants – BSchwAG 3,815 1,810 –1,281 – 219 4,125 2.8 Federal grants – UMTS funds 318 114 –333 –50 49 2.9 Federal grants – imposed lines – 1 –1 – – 2.10 Grants – EU funds 258 177 – 41 – 20 374 Total 6,991 3,937 –3,194 –531 7,203

Types of grants are classified by the following parameters: fixed asset whose ownership is transferred to a third party, Grants which serve to finance the purchase of an asset or higher operating costs could materialize as a result of (investment grants), considering third party interests. As another example, an Grants which serve to compensate Deutsche Bahn for agreement with a third party could be reached, stipulating an expense or for diminished income (expense or income that the current payment of a grant entitles the party to grants). lower train-path prices in the future; such a situation would result in lower future revenues for DB. Investment grants are authorized for the purchase or manufacturing of fixed assets. They are primarily distributed by 1. Third party grants the federal government as part of the funds on demand pro- 1.1 Third party grants which do not reduce acquisition/ cedure. However, other entities (state, municipality, third manufacturing costs parties) also provide Deutsche Bahn with such grants. This type of grant is an expense grant, which does not Following the completion of the acquisition and/or manufac- result in a reduction on the asset side of the balance sheet. turing, investment grants received are shown as a reduction These grants are recorded in the period in which they are in acquisition or manufacturing costs. This leads to a lower received and classified as other operating income. Currently, carrying amount attributable to the asset, which results in only grants related to the cancellation of private track con- correspondingly lower depreciation. The grant therefore has nection contracts and the related costs for dismantling and the effect of lowering the burden on operating profit over removal fall under this category. the entire useful life of the asset. Corporate tax law refers to this situation as a profit-neutral treatment of the grants. 1.2 Third party grants which reduce acquisition/ In contrast to investment grants, expense/income grants manufacturing costs are not paid to finance the acquisition cost of a fixed asset. These grants involve third party funds (state, municipality, These grants have a direct impact on the income statement. private companies), which result in a reduction in acquisi- The reasons for distributing an expense/income grant are tion and manufacturing costs, with the exception of state numerous. For example, DB could incur an expense for a funds that fall under the Local, Regional and Municipal

209 Traffic Financing Act (Gemeindeverkehrsfinanzierungs- 2.2 Federal grants – VIFG funds gesetz; GVFG). These grants mostly involve funds for the (transport infrastructure provider) settlement of crossing measures between road and rail, as set These grants involve funds for investments in federal rail- forth in the Railroad Crossings Act (Eisenbahnkreuzungs- ways which are provided by the transport infrastructure gesetz; EKrG). In addition, partial grants are available financing company (Verkehrsinfrastrukturfinanzierungsge- which relate to the removal of private track connections sellschaft; VIFG). These funds are allocated to track infra- and closing the gap in the connecting track, the costs of structure measures and are provided by the newly founded which must be capitalized on the balance sheet. Other third Federal Financing Company, financed with proceeds from party grants, depending on the region, can be structured the truck toll for certain sections of highway. in numerous ways. 2.3 Federal grants – special burdens 1.3 Grants according to the GVFG due to past underinvestment (excluding the federal government) The federal government provides grants for special burdens The so-called GVFG grants refer to contributions of the due to past underinvestment according to Art. 22 Sec. 1, individual states according to the Local, Regional and No. 2 of the Deutsche Bahn Foundation Act (Deutsche Municipal Traffic Financing Act (Gemeindeverkehrs- Bahn Gründungsgesetz; DBGrG) which authorizes capital finanzierungsgesetz; GVFG). With this type of grant, the expenditures into fixed assets and the modernization of state agencies reimburse DB, in addition to funds it receives existing elements of the fixed assets of the former Deutsche from the federal government, for up to 40 % of the ap- Reichsbahn for the assimilation of the rail network and the proved costs for “Investments for improving traffic conditions overall rail infrastructure. The provision of these funds was of the municipalities”, according to Article 1 GVFG. Further- limited to 9 years following the takeover of operations by more, the states grant an additional lump-sum payment for DB AG and therefore ended on December 31, 2002. planning costs of 7 % of the eligible total costs. However, different percentage amounts can be agreed upon bilaterally 2.4 Federal grants – former special burdens with the individual states. due to past underinvestment, BSchwAG The planned financing amounts allocated for the procedure 2. Federal grants and grants described under Point 2.3 were not fully retrievable in the from the European Union specified time period. For this reason, following the dis- 2.1 Federal grants – noise abatement continuation of the former regulation, the federal govern- These grants are based on the coalition agreement between ment, the new German states and Deutsche Bahn agreed to the SPD (Social-democratic Party of Germany) and the Green a new “Joint Statement concerning the continued reduction Party (Bündnis 90/Die Grünen) dated October 20, 1998, of special burdens due to past underinvestment related to which sets forth measures for noise abatement on the exist- the former special assets of the Deutsche Reichsbahn from ing network of the federal government’s railways. In this 2003”.This joint statement provided, among other things, context, the federal government provides yearly funding for for the provision of the remaining funds according to the both active (investment measures, such as noise protection regulations of the Federal Rail Infrastructure Expansion walls) and passive noise reduction measures (expenditures, Act (Bundesschienenwegeausbaugesetz; BSchwAG) as non- such as double-paned windows or rail grinding). repayable investment grants, in order to achieve the complete reduction of the special burdens due to past underinvestment by 2007.

210 Deutsche Bahn Group | 2005 Annual Report Additional Information

2.5 Federal grants – civil defense the Federal Ministry of Transport, Building and Housing The federal government provides funds in the context of and the Federal Ministry of Finance, as well as DB AG, DB’s obligation to secure the rails for purposes of civil regarding the extent of rail infrastructure investments from defense, according to Art. 10a Transport Guarantee Act 2001 through 2003” (trilateral agreement). (Verkehrssicherstellungsgesetz; VSG) on the initiative of the The grants stem from the sale of UMTS mobile licenses Federal Ministry of Transport, Building and Housing. and are primarily dedicated to quality improvement measures for the existing network through the removal of slow- 2.6 Federal grants – GVFG local public travel areas and the short-term, noticeable modernization passenger transport of the command and control technology. These federal grants involve contributions related to Art. 11 Local, Regional and Municipal Traffic Financing Act 2.9 Federal grants – imposed lines (Gemeindeverkehrsfinanzierungsgesetz; GVFG) in an amount These grants are federal contributions for obligations of up to 60 % of the eligible costs. Investment grants accord- DB to maintain certain lines of the rail infrastructure, ing to GVFG are shown as a reduction in the acquisition/ according to Art. 10b VSG and Art. 23 VSG. The EU-Direc- manufacturing costs of the funded assets. Expense grants tive 1191/69 forms the legal basis for this obligation. are recorded as income in the period in which they are provided. The Federal Railroad Authority has expressed its 2.10 Grants – EU funds approval of this procedure. In addition to federal funds The European Union (EU) provides community funds to under the GVFG, these federal grants also include contribu- Deutsche Bahn, taking into account certain obligations to tions related to the so-called Capital Contract from 1994. provide supporting documentation. This contract provides for the federal government’s partici- Among other purposes, these grants are allocated for the pation in additional financial support resulting from the so-called trans-European networks (TEN funds). Measures expansion of the government and parliament area in Berlin. given priority include the expansion/new Nuremberg–Ingol- stadt–Munich line, the Karlsruhe–Basle line and the Berlin 2.7 Federal funds – BschwAG Central Station. Investment grants from the federal government are provided Community grants for trans-European networks have according to Art. 8 Federal Rail Infrastructure Expansion also been provided for the “European Rail Traffic Manage- Act (Bundesschienenwegeausbaugesetz; BSchwAG) for ment System (ERTMS)” and “European Train Control Sys- investments in new or expansion lines or for replacement tem (ETCS)” projects, which are tied to the Ludwigsfelde– investments in the existing federal rail network. The appendix Jüterbog-Halle/Leipzig test line. of Art. 1 BschwAG contains the “Federal Government’s Rail Furthermore, the EU also provides financing grants from Requirements Planning” for the implementation of accepted the European Fund for Regional Development. The require- individual projects, which is in agreement with the Federal ment for such grants is the submission of a community sup- Transportation Infrastructure Plan.The plans are subdivided port concept compiled by the member state and approved according to (1) primary priority, (2) secondary priority by the EU Commission. and (3) inter-state projects. The European Fund for Regional Development’s federal program, “Transport Infrastructure 2000 through 2006”, 2.8 Federal grants – UMTS funds stipulates grants for future planned projects, such as the These federal grants are provided based on the “Joint State- airport connection to Berlin Brandenburg International ment of the Federal Republic of Germany, represented by and the railway city tunnel in Leipzig.

211 Report of the Supervisory Board on the 2005 Financial Year

Dr.Werner Müller Chairman of the Supervisory Board of Deutsche Bahn AG

During the 2005 ﬁnancial year, the Supervisory Board of Deutsche Bahn AG (DB AG) was extensively involved with the company’s business situation, advising and monitoring the Management Board in the discharge of its functions.The Supervisory Board was included in all decisions relating to crucial business policy issues. This was based on consistent and comprehensive up-to-the-minute written and oral reports by the Management Board to the Supervisory Board and its committees. In addition, the Chairman of the Supervisory Board maintained regular contact with the Chairman of the Management Board to share information and exchange ideas.

Meetings of the Supervisory Board The Supervisory Board convened for four regular meetings and one special meeting in the 2005 financial year. During its meetings, the Supervisory Board was briefed in detail by the Management Board on business and financial developments at DB AG and its Group companies, important transactions, as well as corporate strategy and business planning. In its meeting on March 16, 2005, the Supervisory Board approved the divestment and transfer of DB FernverkehrAG’s equity interest in Deutsche Touring Gesellschaft mbh. In addition, the Supervisory Board approved further enhancements of the DB Group’s management and corporate structure, giving the Group a two-tier organizational structure. At the same time, the new Board Divisions “Infrastructure and Services” as well as “Integrated Systems Rail”were established. In its meeting on May 24, 2005, the Supervisory Board mainly discussed the 2004 annual financial statements and the Management Report of DB AG together with the Group management report and the 2004 consolidated financial statements. Further- more, the Supervisory Board approved capital expenditures in planned high-speed traffic on the new Paris–Eastern France–Southwestern Germany (PES) line.

212 Deutsche Bahn Group | 2005 Annual Report

In its meeting on July 5, 2005, the Supervisory Board approved several capital expenditure measures and the reallocation of funds within DB Regio AG’s capital expenditure planning. In the subsequent constituent meeting of the Supervisory Board, its Chairman and Deputy Chairman, the members of its Executive Committee, its Committee in accordance with Sec. 27 (3), German Codetermination Act, and its Audit Committee were elected. In its special meeting on November 12, 2005, the Supervisory Board approved the sale of DB AG’s 100 % interest in Deutsche Eisenbahn-Reklame GmbH as well as the purchase of a 100 % interest in BAX Global Inc., Delaware/USA. In its meeting on December 7, 2005, the Supervisory Board approved the 2006 ﬁnan- cial year budget plan and acknowledged receipt of the medium-term planning for 2006–2010 as well as the long-term strategic goals of DB AG, which were discussed in detail with the Management Board. Furthermore, the Supervisory Board approved the acquisition of StarTrans Group, Hong Kong/China.

Meetings of the Supervisory Board Committees The Supervisory Board’s Executive Committee maintained regular contact with the Management Board to discuss fundamental business policy issues. The Executive Committee held four regular meetings and one special meeting, in which the major topics pending for the respective meetings of the full Supervisory Board were discussed and prepared. The Executive Committee was also regularly informed about the assessment of the company’s risk situation. Moreover, the Executive Committee made decisions referred to it regarding personnel-related issues involving the Management Board.

Audit Committee In the presence of the auditor, the Audit Committee discussed the annual accounts of DB AG and the DB Group and prepared the resolutions to be passed by the Supervisory Board concerning the annual financial statements for the 2004 financial year. In addition, the Audit Committee deliberated over the selection of an auditor for the 2005 financial year and, as set forth in the Supervisory Board’s Rules of Procedure, dealt mainly with accounting and risk management issues. The Audit Committee convened twice in the year under review.

Corporate Governance In its meetings, the Supervisory Board dealt extensively with DB AG’s corporate governance policy. At the same time, the Supervisory Board conducted a survey to assess the efﬁciency of its work.

213 Financial Statements The financial statements and the management report of DB AG together with the consolidated financial statements and the Group management report as of December 31, 2005 prepared by the Management Board were issued an unqualified audit certificate by PwC PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft (PWC), Frankfurt/Main, the auditors selected by the Annual General Meeting. Further- more, as part of the audit of the financial statements, the auditor also reviewed the company’s risk management system, as required in accordance with the German Act on Control and Transparency (KonTraG), and raised no objections. The auditor’s report was the key item on the agenda of the Audit Committee meeting on March 24, 2006 and was discussed in detail during the Supervisory Board’s meeting on the financial statements on March 30, 2006 in the presence of the auditors who had signed the audit report. The auditors presented the primary results of the audit and made themselves available for questions. The Supervisory Board accepted the results of the audit. The Supervisory Board reviewed the financial statements and the management report of DB AG, the consolidated financial statements, and the Group management report for the 2005 financial year, and the proposal for appropriation of retained earnings and raised no objections. The Supervisory Board has approved the annual and consolidated financial statements for the 2005 financial year. The auditors also reviewed the report prepared by the Management Board on relations with affiliated companies and issued it an unqualified audit certificate. The Supervisory Board also reviewed this report and raised no objections to the Management Board’s declaration at the end of this report, nor to the result of the audit by PwC.

Changes in the Composition of the Supervisory Board and the Management Board The term of ofﬁce for the members of the Supervisory Board ended at the last Annual General Meeting on July 5, 2005. At the Annual General Meeting on July 5, 2005, the following shareholder representatives were reelected to the Supervisory Board: Mr. Niels Lund Chrestensen, Dr. Werner Müller, Dr. Ekkehard D. Schulz, Dr.-Ing. E.h. Dipl.-Ing.Heinrich Weiss, and Parliamentary State Secretary Mrs. Margareta Wolf.Dr. Jürgen Großmann and Dr. Jürgen Krumnow took ofﬁce as members of the Supervisory Board, succeeding Dr.Michael Frenzel and Dr. Ulrich Schumacher. The Federal Ministry for Transport, Building and Urban Affairs appointed State Secretaries Mr. Volker Halsch, Mr. Ralf Nagel and Dr.Bernd Pfaffenbach to the Supervisory Board in accordance with Sec.9 (2)of Deutsche Bahn AG’s Articles of Incorporation, effective June 21, 2005. Employee representatives to the Supervisory Board were elected at the delegate’s conference in Berlin on June 7, 2005, Mr. Peter Debuschewitz, Mr. Norbert Hansen,

214 Deutsche Bahn Group | 2005 Annual Report Report of the Supervisory Board

Mr. Horst Hartkorn, Mr. Jörg Hensel, Mr. Klaus-Dieter Hommel, Mr. Günter Kirchheim, Mr. Lothar Krauß, and Mrs. Heike Moll were reelected to the Supervisory Board. Mr. Helmut Kleindienst and Mr.Vitus Miller succeeded Mr. Horst Fischer and Mr. Horst Zimmermann. Mr. Ralf Nagel resigned from the Supervisory Board effective January 31, 2006. Mr. Jörg Hennerkes, State Secretary at the Federal Ministry for Transport, Building and Urban Affairs, was appointed his successor by the Federal Republic of Germany in accordance with Sec. 9 (2) of Deutsche Bahn AG’s Articles of Incorporation, effective February 1, 2006. Mr.Volker Halsch resigned from the Supervisory Board effective March 1, 2006. Dr. Axel Nawrath, State Secretary at the Federal Ministry of Finance, was appointed his successor by the Federal Republic of Germany in accordance with Sec. 9 (2) of Deutsche Bahn AG’s Articles of Incorporation, effective March 1, 2006. The Supervisory Board wishes to thank all former members for their dedication and constructive work. In its constituent meeting on July 5, 2005, the Supervisory Board elected Dr. Werner Müller as its Chairman and confirmed the appointment of Mr. Norbert Hansen as its Deputy Chairman. In addition, the Supervisory Board elected Dr. Werner Müller, Mr. Norbert Hansen and Mr.Günter Kirchheim into its Executive Committee. The Supervisory Board appointed the same members to its Committee in accordance with Sec. 27 (3) of the German Codetermination Act. The Supervisory Board elected Mr. Ralf Nagel, Mr. Helmut Kleindienst, Mr. Lothar Krauß, and Dr. Jürgen Krumnow as members of the Audit Committee and Dr. Jürgen Krumnow as its chairman. Management Board member Dr. Bernd Malmström, responsible for the Group Transport and Logistics division, resigned from the Management Board by mutual agreement as of March 16, 2005. The Supervisory Board wishes to thank Dr. Malmström for his many years of dedicated and constructive work for DB AG. In its meeting on March 16, 2005, the Supervisory Board specifically discussed the redesign of the Group’s organizational and management structure. The Supervisory Board assigned the responsibility for the Transport and Logistics Board Division to Dr. Norbert Bensel. Moreover, it appointed Mrs. Margret Suckale Chief Personnel Officer on DB AG’s Management Board and Mr. Stefan Garber Head of the Infrastructure and Services Board Division.Mr. Roland Heinisch assumed responsibility for the new Integrated Systems Rail Board Division. In addition, in its meeting on March 16, 2005, the Supervisory Board approved the extension of Dr. Karl-Friedrich Rausch’s service contract as member of the Board of Management for Passenger Transport. Furthermore, in its special meeting on November 12, 2005, the Supervisory Board approved the resignation of Mr.Klaus Daubertshäuser from the Management Board

215 as of December 31, 2005. The Supervisory Board wishes to thank Mr.Daubertshäuser for his many years of committed and constructive work for DB AG. Dr. Otto Wiesheu was appointed to succeed Mr.Daubertshäuser as member of the Management Board of DB AG responsible for Economic and Political Affairs as of January 1, 2006. Moreover, in its meeting on December 7, 2005, the Supervisory Board approved the extension of Mr.Diethelm Sack’s DB AG Management Board service contract as CFO responsible for the Finances and Controlling Board Division. The Supervisory Board would like to thank the Management Board, all employees and employee representatives of DB AG and its afﬁliated companies for their dedication during the 2005 ﬁnancial year.

Berlin, March 2006 For the Supervisory Board

Dr.Werner Müller Chairman

216 BahnBeirat (DB Advisory Board)

Prof. Dr. Gerd Aberle Prof. Dr. Dr. Christian Kirchner Prof. Dr. Joachim Schwalbach Chair of Competition Theory, LL.M. Chair of International Management, Competition Policy, Chair of German, European, and International Humboldt-Universität zu Berlin and Transportation Economy, Civil and Commercial Law, and Institutional Justus-Liebig-Universität, Gießen Economics, Humboldt-Universität zu Berlin Prof. Dr. Wulf Schwanhäußer Consultant for rail policy and the Prof. Dr. Dr. h. c. mult. Horst Albach Dr. Dieter Klumpp transportation sector, Professor emeritus, Formerly Chair for Managerial Economics and Vice President, German Rail Industry Rheinisch-Westfälische Technische Head of the Institute for Corporate Theory Federation e.V., Berlin Hochschule Aachen and Policy, Humboldt-Universität zu Berlin Former Director of the WZB, Berlin, and President of the Akademie der Wissenschaften Prof. Dr. Ernst Otto Krasney Prof. Dr. Jürgen Siegmann zu Berlin Vice President (ret.), Federal Social Court Chair of Track and Railway Operations, Technische Universität Berlin

Prof. Dr.Thomas Ehrmann Karl-Ulrich Kuhlo Chair of Enterprise Founding and Founder of the news channel n-tv Horst Stuchly Development, Westfälische Wilhelms- President (ret.), Federal Railroad Authority Universität, Münster Dr. Walther Leisler Kiep Minister (ret.) Prof. Dr. Andreas Troge Prof. Dr. Sylvius Hartwig President, Federal Environmental Agency Specialist for hazardous materials, Bergische Universität, Wuppertal Prof. Dr. Dr. h. c. mult. Heribert Meffert Dr. Jürgen Warnke Chairman of the Executive Board Attorney-at-law, Dr.Volker Hauff of the Bertelsmann Foundation Federal Minister of Transport (ret.) Senior Vice President BearingPoint GmbH, Federal Minister (ret.) Dr. Werner Müller Dr. Jürgen Weber Chairman of the Supervisory Board Chairman of the Supervisory Board Hans Jochen Henke of Deutsche Bahn AG, of Deutsche Lufthansa AG Secretary-General of Wirtschaftsrat Chairman of the Executive Board of RAG AG der CDU e.V., State Secretary (ret.) Ulrich Weiß Prof. Dr. Rüdiger Pohl President, Federal Association of Small and Chair of Monetary Economics, Department Medium-Sized Construction Companies e.V., Prof. Dr. Peter Hommelhoff for Economics, Martin-Luther-Universität, Bonn Rector of the Ruprecht-Karls-Universität, Halle-Wittenberg Heidelberg, Chair of Civil Law/Commercial, Business, and Capital Market Law Dr. Wendelin Wiedeking Prof. Dr. Dr. F. J. Radermacher President and CEO Head of the Research Institute for Applied of Dr. Ing. h. c. Porsche AG Knowledge Processing, Ulm

Prof. Dr. Werner Rothengatter Institute for Economic Policy and Research, Universität Karlsruhe (TH)

217 Glossary

Financial Glossary

Capital employed Equity ratio Investment grants Comprises properties (including intangible Key financial performance indicator based on Third party financial investments in specified assets) plus net working capital. the balance sheet structure: expresses equity investment projects without future repayment as a percentage of total assets. requirements.

Cash flow statement Representation of movements in cash and Fair value Net capital expenditures cash equivalents during a financial year. Price calculated in efficient markets taking Gross capital expenditures less third party into account all factors influencing prices, investment grants e.g. for infrastructure and negotiated between knowledgeable, capital expenditures. Commercial Paper Program willing parties in an arm’s length transaction. Contractual framework or sample documentation for the issuance of short-term bonds. Rating Gearing An assessment of creditworthiness issued Key financial performance indicator that by rating agents for a company; affects a Credit facilities expresses the ratio of net financial debt company’s refinancing options and costs. Credit lines arranged with banks that can to equity as a percentage. be drawn upon as necessary. Redemption coverage Gross capital expenditures Key financial performance indicator that de- Debt Issuance Program Total capital expenditure for property, plant scribes the ratio between the ongoing financ- Contractual framework or sample documenta- and equipment and intangible assets – irre- ing power and the financial obligations of tion for the issuance of bonds. Ensures high spective of the type of financing. the company (adjusted net financial debt). flexibility in issuing activity.

Hedging Return on Capital Employed (ROCE) Derivative financial instruments Hedging transactions conducted within the Key ratio used in value-based management. (derivatives) scope of risk management, particularly to Expresses ratio of adjusted EBIT to capital Finance contracts, the value of which depends minimize interest and currency risks. employed as a percentage. on the performance of the underlying assets (reference amounts include, e.g. interest rates or commodity prices). Important examples IFRS (International Financial Scope of consolidation include options, futures, forwards and swaps. Reporting Standards) Group of subsidiaries that are included in Internationally recognized accounting stan- a group’s consolidated financial statements. dards. Since 2005, the term IFRS has applied EBIT (earnings before interest to the entire accounting concept issued by and taxes) the International Accounting Standards Board. Special burden compensation Adjusted operating income before interest Standards issued prior to this continue to Deutsche Bahn received federal compensation and taxes. be referred to as International Accounting from 1994 to 2002 for the increased cost of Standards (IAS). materials and personnel expenses resulting from the inefficient structures inherited from EBITDA the former Deutsche Reichsbahn. (earnings before interest, taxes, Interest-free loans depreciation and amortization) Repayable, yet interest-free loans extended Adjusted operating income before interest, by the German Federal Government. Result Swap taxes, depreciation and amortization. from the financial participation of the Federal A financial transaction in which two counter- Republic of Germany in capital expenditure parties exchange financing conditions and in for the extension and replacement of track which each party benefits from the other’s Equity method/at-equity accounting infrastructure. cost advantages. Procedure used to account for investments where assets and liabilities are not fully consolidated in the consolidated financial statements. The carrying amount of the investment is adjusted to reflect the development of the pro-rata share of equity.

218 Deutsche Bahn Group | 2005 Annual Report

DB-specific terms

Combined rail/road transport “Net 21” (“Netz 21”) Requirement plan network The integrated transport of containers Our strategic approach for segregating passen- New line construction and expansion con- or entire trucks on the roads and rails. ger and freight traffic within the network, to tained in the Federal Transport Infrastructure increase line capacity. Plan.

Existing network The existing rail network – and thus the One-stop shopping Station pricing system backbone of the infrastructure. Complete offerings of products and services Transparent and non-discriminatory pricing from one source in line with customer require- system for the utilization of passenger stations. ments. The specific station prices depend primarily Freight carriers on the performance and furnishings of the Companies that are used for the transport respective stations. of goods. Operating performance Distance traveled by railroad companies on the DB Netz AG rail network. Unit of measure: TEU (Twenty-Foot Container GSM-Rail (Global System for Mobile train-path kilometers (train-path km). Equivalent Unit) Communication – Rail) Standardized twenty-foot long container A special European standard that is based on unit (1 foot = 30 cm). the GSM standard for mobile cellular technol- Ordering organizations ogy. The platform for the future standardized Generally the German States, which are re- pan-European command and control technol- sponsible for providing local rail passenger Ton kilometers (tkm) ogy in rail transport. transport (Schienenpersonennahverkehr; Unit of measure for transport performance in SPNV) and order the respective services from freight transport: product of freight carried transport companies. (in metric tons) and mean transport distance Hub (km). Principal handling base. Collection point for the handling and the centralization of good Passenger kilometers (pkm) flows in different directions. Unit of measure for transport performance Train-path in passenger transport: product of number Route traveled by a train, defined in the of passengers and mean travel distance. timetable. Intermodal competition Competition with other modes of transport, e.g. between rail and air transport. “Qualify” Train-path pricing system (TPS) Our extensive Group-wide program designed Regulates in a transparent and non-discrimi- to safeguard further improvements in profits. natory manner the prices for the utilization Interoperability (multisystem The focus is on improvements in efficiency, of the rail network by internal and external capability) performance quality and utilization of growth customers. Takes into account the individual The ability of track vehicles to adapt to opportunities. characteristics of the infrastructure utilized. different technical standards (e.g. track widths or power systems) and to operate on different rail networks with as little delay as “RailPlus” Transport contract possible. Extensive new program designed to redevelop A contract between an ordering organization and safeguard the future of rail freight ser- and a railroad company regarding the render- vices. Focuses on the utilization and realization ing of local passenger transport services. Intramodal competition of rationalization and growth potential. Competition within a mode of transport, e.g. within the railway sector. Transport performance Regionalization Act Central key performance indicator used to Regulates the payments of the German Federal measure performance rendered in passenger Length of line operated Government to the German states and thus and freight transport. Unit of measure: The length of the rail network at DB Netz AG – facilitates ordering of local transport services passenger kilometers (pkm) and/or ton kilo- irrespective of the number of parallel tracks. on the roads and rails. meters (tkm). Unit of measure: kilometers (km).

219 DB Internet Presence

In addition to the popular travel portal www.bahn.de and Group” section comprises Group topics such as press, jobs the transport and logistics portal www.dblogistics.de, we have and careers, as well as information on environmental and established the Group portal www.db.de, which is primarily social activities and an overview of the Group divisions focused on target groups such as Deutsche Bahn business and major subsidiaries. partners, journalists, investors, political opinion leaders, The investor relations web presence of Deutsche Bahn and applicants. is also part of the new Group portal and is directly accessible In the Group portal www.db.de with its themes “Traveling at www.db.de/ir-english. We will continue to gradually with DB”, “Transport & Logistics”, “Business with DB”and “DB expand the content of our internet presence and we already Group”, the internet user is comprehensively informed offer extensive information for current and potential about the Group and its services, offerings and engagements. investors as well as anyone interested in Deutsche Bahn’s As such, the section “Business with DB” provides an overview operating development. of the business-to-business services of the Group. The “DB

Imprint

Concept, Editing Typesetting Photography DB AG/Reiche (p. 31, p. 33) Deutsche Bahn AG, medienhaus:frankfurt, Deutsche Bahn DB AG/Müller (p. 34) Investor Relations Frankfurt/Main DB AG/Lautenschläger DB AG/Hierl (p. 35) DB AG/Bienert (p. 36) Production coordination/ Lithography Frank Bachmann (p.17) Thomas Uhlemann/ Consulting Koch Lichtsatz und Scan, DB AG/Lammel (p. 22) Berliner Verlag (p. 39) Mentor Werbeberatung Wiesbaden DB AG/Dreysse (p. 23) Bayerischer Rundfunk (p. 39) H.-J. Dietz, Kelkheim DB AG/Sarbach (p. 26) DB AG/T-Mobile (p. 44) Printing DB AG/OgilvyOne (p. 26) DB AG/Wagner (p. 44) Design concept Color-Druck, Leimen DB AG/Lidl (p. 28) DB AG/Kitzinger (p. 46) Studio Delhi BMW AG (p. 29) DB AG/Warter (p. 53) Konzept und Design, Mainz Photography consulting DB AG/Herter (p. 30) DB AG/Louis (p. 60) Max Lautenschläger, Berlin DB AG/Kunz (p. 31) DB AG/Rittelmann (p.133)

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10-year Summary

€ million 2005 2004 20031) 20021) 20011) 20001) 19991) 19981) 19971) 19961)

Consolidated Statement of Income Revenues 25,055 23,962 28,228 18,685 15,722 15,465 15,630 15,348 15,577 15,452

10-year Summary 10-year Overall performance 26,728 25,890 30,438 20,900 17,535 17,267 17,521 17,104 17,422 17,227 Other operating income 2,366 2,860 3,138 2,830 2,406 3,653 2,511 2,596 2,141 2,169 Cost of materials –12,650 –12,054 –15,776 – 9,546 –7,108 – 6,625 – 6,688 – 6,595 – 6,716 – 6,475 Personnel expenses – 9,211 – 9,556 –10,337 – 8,387 –7,487 – 8,475 – 8,285 – 8,389 – 8,663 – 8,881 Depreciation – 2,801 – 2,722 – 2,694 – 2,434 – 2,162 – 2,052 –1,965 –1,737 –1,620 –1,387 Other operating expenses –3,080 –3,274 – 4,316 –3,358 –3,282 –3,436 – 2,790 – 2,546 – 2,204 – 2,169 Operating profit (EBIT) 1,3521,144–––––––– Investment income – – 51 46 2 – 44 –55 –143 –151 –127 Result from investments accounted for using the equity method 76 49 –––––––– Other financial result 7 –55–––––––– Net interest income – 945 – 984 – 637 – 489 –313 – 251 –158 – 89 – 26 12 Profit before taxes on income 490 154 –133 – 438 – 409 37 91 201 183 369 Net profit for the year 611 180 – 245 – 468 – 406 85 87 170 200 577

Value Management/ Operating Profit Measures Return on capital employed (ROCE) 2) 5.0% 3.8% 1.5% 0.1% 0.4% 1.6% 0.3% 1.1% 1.4% 1.7% EBIT 3) adjusted for unusual items 1,350 1,011 465 37 109 450 71 260 300 319 1) Capital employed 4) 27,013 26,490 30,964 30,428 28,649 27,443 24,911 22,656 20,878 18,600 2) EBITDA 5) before special 3) burden compensation – – – 2,021 1,433 1,264 427 35 – 445 – 910 4) Special burden compensation – – – 443 838 1,228 1,609 1,962 2,365 2,568 EBITDA 5) 4,153 3,866 3,092 2,464 2,271 2,492 2,036 1,997 1,920 1,658 5) Operating income after interest – – –172 – 454 – 204 199 – 87 171 273 327 6) 7) Cash Flow/Capital Expenditures 8) Cash flow before taxes – – 2,600 2,052 1,786 2,113 2,107 1,985 1,833 1,777 Cash flow from operating 9) activities 2,652 2,736 –––––––– Gross capital expenditures 6,379 7,238 9,121 9,994 7,110 6,892 8,372 7,660 7,136 7,771 Net capital expenditures 6) 2,360 3,251 4,013 5,355 3,307 3,250 3,229 3,040 6,223 5,056

Asset and Capital Structure Non-current assets 42,907 43,200–––––––– thereof property, plant and equipment and intangible assets 40,430 40,861 40,093 38,869 35,055 34,071 32,815 31,155 29,866 24,034 thereof deferred tax assets 1,556 1,301–––––––– Current assets 4,194 4,416–––––––– thereof cash and cash equivalents 305 765 265 271 363 394 280 351 447 603 Equity 7,675 7,067 5,076 5,708 8,436 8,788 8,701 8,528 8,422 6,711 Non-current liabilities 27,963 29,440 30,464 27,779 24,421 21,331 21,149 20,592 18,278 16,714 thereof retirement benefit obligations and other provisions 5,575 5,768 –––––––– thereof deferred tax liabilities 46 17–––––––– Current liabilities 11,463 11,109 12,107 12,524 9,090 9,329 7,325 5,803 7,145 5,992 Total assets 47,101 47,616 47,647 46,023 41,962 39,467 37,198 34,961 33,892 29,622 Net financial debt 19,669 19,511–––––––– Property, plant and equipment and intangible assets as % of total assets 85.8% 85.8% 84.1% 84.5% 83.5% 86.3% 88.2% 89.1% 88.1% 81.1% Equity ratio 7) 16.3% 14.8% 10.7% 12.4% 20.1% 22.3% 23.5% 24.5% 25.0% 23.3%

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61) 2005 2004 20031) 20021) 20011) 20001) 19991) 19981) 19971) 19961)

Rail Transport Performance Passengers (million) 1,785.4 1,694.8 1,681.7 1,657.2 1,701.7 1,712.5 1,680.1 1,668.4 1,641.0 1,596.4 2 Long-distance Transport 118.7 115.3 117.3 128.4 136.3 144.8 146.5 148.9 152.2 151.2 7 Regional and 9 Urban Transport 1,666.7 1,579.5 1,564.4 1,528.8 1,565.5 1,567.7 1,533.6 1,519.5 1,488.8 1,445.2 5 Transport performance 1 (million pkm) 72,554 70,260 69,534 69,848 74,459 74,388 72,846 71,853 71,630 71,028 7 Long-distance Transport 33,641 32,330 31,619 33,173 35,342 36,226 34,897 34,562 35,155 35,620 9 Regional and – Urban Transport 38,913 37,930 37,915 36,675 39,117 38,162 37,949 37,291 36,475 35,408 7 Freight carried 8) (million t) 266.5 283.6 282.3 278.3 291.3 301.3 279.3 288.7 295.5 289.3 Transport performance 8) (million tkm) 83,111 83,982 79,864 77,981 80,348 80,634 71,494 73,273 72,614 67,880 – Total transport performance – (million ptkm) 155,665 154,242 149,398 147,829 154,807 155,022 144,340 145,126 144,244 138,908 2 Train kilometers on track 9 infrastructure 7 (million train-path km) 997.7 1,000.7 988.2 967.4 977.3 984.2 976.7 946.5 – –

Employees 9) Average 220,343 229,830 249,251 224,758 219,146 230,615 244,851 259,072 277,471 295,610 At year end 216,389 225,632 242,759 250,690 214,371 222,656 241,638 252,468 268,273 288,768 % 9 1) German GAAP 0 2) Defined as EBIT/Capital employed 3) Operating profit before interest and taxes adjusted for unusual items 0 4) Property, plant and equipment plus operating net working capital. Differences in definition according 8 to German GAAP respectively IFRS with regard to treatment of interest-free loans 8 5) Operating profit before interest, taxes and depreciation (according to German GAAP adjusted for unusual items) 7 6) Gross capital expenditures less investment grants from third parties 7) Until 2003 equity including special items 8) Until 1997 including less-than-carload business; from 2000 on including Railion Nederland; from 2001 on including 7 Railion Danmark 9) Full-time employees, part-time employees are accounted for on a pro-rata basis – 1 6

–

4 – –

3 1 4

–

– 2 2 –

% %

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Contacts

Investor Relations Corporate publications, the Report of Phone: +49 (0) 30 2 97-6 1676 the Competition Officer, and the Environ- Fax: +49 (0) 30 2 97-6 19 61 mental Report can be requested from E-Mail: [email protected] Corporate Communications: Internet: http://www.db.de/ir-english Fax: +49 (0) 30 2 97-6 20 86 Deutsche Bahn AG E-Mail: [email protected] Investor Relations Internet: http://www.db.de/presse Potsdamer Platz 2 D-10785 Berlin Deutsche Bahn’s hotline for general tele- Germany phone requests is available under the telephone number +49 (0) 30 2 97-0. This Annual Report, the Financial Statements of Deutsche Bahn AG, and additional information are available on the Internet.

This Annual Report is published in German and English. In case of any discrepancies, the German version shall prevail.

Financial Calendar

August 21, 2006 Publication of the Interim Report January – June 2006 March 29, 2007 Balance Sheet Press Conference, Publication of 2006 Annual Report

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Deutsche Bahn AG Potsdamer Platz 2 D-10785 Berlin Germany

www.db.de www.bahn.de Deutsche Bahn AGDeutsche Bahn 2005 Annual Report

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