Deutsche Bahn AR 2004

Annual Report 2004 Deutsche Bahn AGDeutsche Bahn Annual Report 2004

21,5 mm 216 mm We present the economic development according to German GAAP (HGB) in addition to the audited consolidated financial statements according to IFRS. The EBITDA is a reasonable figure to illustrate the economic progress since the start of the German Rail Reform. In 2001 we forecasted the return to positive operating income figures for the financial year 2004. We were able to realize that despite tough market and competition conditions.

Revenues EBITDA Operating income Gross capital in € million in € million after interest expenditures in € million in € million

28,228 23,963 3,092 3,509 –172 253 9,121 7, 232

25,000 4,000 250 10,000

200

20,000 150 8,000 3,000 100 15,000 6,000 50 2,000 0 10,000 4,000 – 50 1,000 5,000 – 100 2,000 – 150

– 200 2003 2004 2003 2004 2003 2004 2003 2004

2003 to 2004: 2003 to 2004: 2003 to 2004: 2003 to 2004: –15.1% +13.5% € + 425 million –20.7%

German German Key figures GAAP GAAP Change in € million 20041) 2003 in %

Revenues 23,963 28,228 – 15.1 Revenues – comparable 23,963 23,029 + 4.1 Income before taxes 372 – 133 – Income after taxes 280 – 245 – Total assets 46,348 47,647 – 2.7 Fixed assets 41,530 41,362 + 0.4 Equity 5,286 5,076 + 4.1 Interest-bearing debt 14,020 12,731 + 10.1 EBITDA 3,509 3,092 + 13.5 EBIT 951 465 + 104.5 Operating income after interest 253 – 172 – Cash ﬂow before taxes 3,011 2,600 + 15.8 Gross capital expenditures 7,232 9,121 – 20.7 Net capital expenditures 2) 3,244 4,013 – 19.2 Employees (as of Dec 31) 225,512 242,759 – 7.1

1) Pro forma ﬁgures Change 2) Gross capital expendi- Performance figures 2004 2003 in % tures less investment grants from third parties Passenger Transport 3) Passenger kilometers Passengers in million 1,694.9 1,681.7 + 0.8 (pkm): product of number 3) Passenger kilometers in million pkm 70,260 69,534 + 1.0 of passengers and Train kilometers in million train-path km 4) 717.7 722.8 – 0.7 mean travel distance 4) Train-path kilometers: Freight Transport 5) driving performance Freight carried in million t 283.6 282.3 + 0.5 in km of trains on rail 6) Ton kilometers in million tkm 83,982 79,864 + 5.2 5) Please note: all ton fig- Mean transport distance in km 296.1 282.9 + 4.7 ures represent metric tons Train kilometers in million train-path km 4) 205.1 204.1 + 0.5 (1,000 kg = 2,200 lbs.) 6) Ton kilometers (tkm): prod- 7) Number of passenger stations 5,697 5,665 + 0.6 uct of freight carried and Train kilometers on track infrastructure in million train-path km 4) 1,000.7 988.2 + 1.3 mean transport distance thereof non-Group companies in million train-path km 4) (88.0) (70.4) + 25.0 7) Thereof in 2004: 5,477 as- Length of line operated in km 34,718 35,593 – 2.5 signed to the Group Pas- senger Stations division

185 mm Successful Rail Reform

Rail passenger transport performance in billion pkm +12.0%

62.7 64.5 70.3 71.0 71.6 71.9 72.8 74.4 74.5 69.8 69.5 70.3

120

100

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Rail freight transport performance in billion tkm +30.1%

64.5 70.6 69.5 67.9 72.6 73.3 71.5 80.6 80.3 78.0 79.9 84.0

120

100

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Productivity in 1,000 ptkm per employee +187%

328 413 468 533 603 656 699 798 840 833 862 941

1, 200

1,000

800

600

400

200

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

EBITDA before special burden compensation in € billion € +5.52 billion –2.01 –1.52 –0.91 –0.45 0.04 0.43 1.26 1.43 2.02 3.09 3.51

–1

–2

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 er

Operating income after interest in € billion € +3.28 billion

0.23 0.25 0.33 0.27 0.17 –0.09 0.20 –0.20 –0.45 –0.17 0.25 –3.03 –2.67 –2.24 –2.09 –1.79 –1.70 –1.03 –1.04 –0.90 –0.17 0.25 after special burden compensation 1 ns 0

–1 d- before special burden compensation d –2 e –3 s- s- 19949961995 1997 1996 1998 1997 1999 1998 19992000 20002001 2001 2002 2002 2003 2003 2004

216 mm 21,5 mm DB AG – management holding company Vertically integrated Group structure 24.0 Portfolio focused on core business € billion Group revenues Excellent ratings: Aa1/AA Economic development according to German GAAP p. 46 Group Management Report according to IFRS p. 66

#1 in European rail passenger transport #1 in European public urban transport 11. 2 #1 in German bus transport € billion revenues in Passenger Transport Passenger Transport p.128

#1 in European rail freight transport #1 in European land transport 11. 6 #3 in sea freight € billion revenues in #5 in air freight Transport and Logistics Transport and Logistics p.136

Attractive stations Largest rail track infrastructure in Europe 290 Functioning competition on the rails non-Group railways take advantage of the open access to our infrastructure Passenger Stations p.142 Track Infrastructure p.148

Services for internal and 31,500 external customers employees in the Services division Services p.156

185 mm Contents

2Chairman’s Letter 6 The Management Board 8 Financial Communication 11 Rating 12 Deutsche Bahn Bond Issues 13 Corporate Governance 17 DB – Mobility, Transport and Logistics 44 Report of the Management Board 46 Economic Development According to German GAAP 66 Group Management Report According to IFRS 116 Employees 122 Environmental Protection 126Group Divisions 128 Passenger Transport 136Transport and Logistics 14 2 Passenger Stations 14 8Track Infrastructure 156 Services 160 Rolling Stock and Stations 166Consolidated Financial Statements 168Pro Forma Consolidated Financial Statements According to German GAAP 208 Consolidated Financial Statements According to IFRS 283 Additional Information 287 Major Subsidiaries 290 The Boards of Deutsche Bahn AG 294 Report of the Supervisory Board 298 Deutsche Bahn Advisory Board 300 Glossary 302 Events in 2004 304 Imprint Five-Year Summary

1 Chairman’s Letter

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

Dear Ladies and Gentlemen,

The Deutsche Bahn Group saw a good performance in the 2004 financial year. In light of the challenging economic environment, this was not a matter of course. Our German home market in particular continued to show weak economic development. In addition, the fierce competition between individual rail companies and other modes of transport has intensified. Cost optimizations and a constantly increasing level of efficiency are therefore entrepreneurial necessities and normal business also for us. The fact that we have clearly achieved our defined goals, mainly the return to positive operating income, is primarily due to the noticeable improvements in our service and quality. These have satisfied our customers in various business units. Additionally we have reinforced our restructuring efforts where necessary. This impacted revenues and earn-

2 Deutsche Bahn Group | Annual Report 2004 Chairman’s Letter

ings with a four percent growth in revenues in the core business to around 24 billion euro and positive operating income after interest of 253 million euro, representing an improvement of 425 million euro compared to the previous year. Even though our original forecasts were given against the background of better economic expectations, we have achieved the income forecasts that we had announced in spring 2001 upon the launch of our “DB Campaign” and the related capital expenditure and modernization programs. The EBITDA adjusted for special burden compensations which were paid through 2002, has become the relevant figure to measure our operating improvements since the start of the German Rail Reform. Since the founding of Deutsche Bahn AG, we have improved EBITDA by more than 500 million euro per year and today achieve an EBITDA 5.5 billion euro higher than that of 1994. In addition to the growth in rail passenger and rail freight transport, this is the best argument in favor of our model of an entrepreneurial-driven, vertically integrated railroad. While the aforementioned figures refer to our previous accounting standards according to German GAAP (HGB), this includes Consolidated Financial Statements for the first time according to International Financial Reporting Standards (IFRS). We have proactively opted for the transition to international accounting standards, as our corporate management approach is closely linked to capital market standards. The IFRS will be established as a mandatory standard for companies oriented towards the capital market in the coming years via corresponding EU regulations. The strong increase in earnings compared to the previous year is also shown under IFRS, and is even more pronounced than under HGB. The key operating figures reveal the mostly positive performance of our business units: due to a considerably enhanced on-time performance, well-accepted price offers and an improvement in service. The Long-Distance Transport business unit thereby managed to achieve a turnaround. Together with the Regional and Urban Transport business units, we were able to increase rail passenger transport performance by more than one percent and thus gain market shares in a once again shrinking overall market. The conclusions of additional long-term transport contracts, which are essential for the planned extensive capital expenditures for a modernized fleet, were important milestones for us. Our Railion business unit again proved its strength in the field of rail freight transport with a 5.2 percent growth in transport performance. However, the slump in specific revenues due to competition had a clearly negative impact on the operating income. As a result, additional measures aimed at enhancing efficiency have been initiated. The developments in passenger and freight transport show that we have prepared the railroad well for today’s competition, even though we have to realize additional rationalization potential in the future. Customer demand also forces us to assure sustainable solutions through the involvement in intermodal mobility and transport services as well as an extensive service portfolio in the logistics field. Our service range for the automotive industry is a good example of this: Customer requirements as well as our corresponding

3 offerings range from satisfactory rail offerings in Germany and Europe, to support in today’s growth regions in Asia, as well as to extensive, on-site logistic support. Schenker enables us to support our customers regarding their international business demands on a European and global scale. This business unit plays a major role in the success of our Group. Schenker continued its success story with another increase in revenues and higher earnings contributions. The air and sea freight segments played a major role in this regard. For the first time, revenues passed the eight billion euro mark. The success as well as the quality of our rail transport services always directly depends on the standards, availabilities and qualities of the infrastructure, whether it be track infrastructure, command and control technology, passenger stations or energy supply. In addition to the improvement in the performance quality, the German Rail Reform also provided clear instructions: to strive for modernization and the granting of market access on a non-discriminatory basis. Due to the comprehensive development of the rails as a mode of transport, non-Group railroad companies also benefit from our efficiency improvements. The modernization of infrastructure particularly remains a key challenge, which will carry on in cooperation with the federal government. In light of the tight federal budget in the short- to mid-term, our infrastructure stood at the center of attention. Important effects according to the new guidelines included reducing the total volume of possible new and expansion projects and setting the right priorities. A joint list of paramount projects, with a common understanding of the absolute priority for capital expenditures in the existing network, was prepared through July 2004. This now also forms the basis of our capital expenditure planning. In this context we explicitly welcome the authorization of additional infrastructure funds for the modernization of our track infrastructure through 2008, thus enabling further projects. We are striving for a sustainable infrastructure partnership with the federal government – with long-term assured financing and a defined network quality. For this purpose, we find ourselves in close dialogue. The key figures of the financial year in which we continued to finance high volumes of capital expenditures for infrastructure with our own funds show that the total volume of capital expenditures amounted to 7.2 billion euro. As a result of our capital expenditure program, we remained one of the largest investors in Germany. The commissioning of the new Cologne/Bonn airport station and above all the new Berlin–Hamburg high- speed link with a reduced riding time of only one and a half hour were among the high- lights of the 2004 financial year. Moreover, numerous station and modernization projects were successfully completed. The liberalization of the German rail infrastructure, which is further developed than in any other European country, has been the subject of comprehensive reports and analyses for years. Due to the once more considerably increased train path usage of the roughly 290 non-Group customers thus far who use our network, we too can confirm the efficient competition.

4 Deutsche Bahn Group | Annual Report 2004 Chairman’s Letter

For the 2005 financial year we aim to continuously improve our quality of service, our competitive position and our profitability. Our ability to take hold of the opportunities for growth is linked to capital expenditures – namely for the opening up of new markets, expansion of our market positions, our staff, good service, modern vehicles and a high- performance infrastructure. Together with environment-friendly mobility offerings in passenger and freight transport, this not only secures the future of our company but also the attractiveness of the business location of Germany. The targeted earnings improvements also provide more options to our owner and the DB Group in the mid-term, such as additional growth capital through a later initial public offering. In order to achieve our ambitious goals, we have made important decisions in the past months in addition to the numerous programs in place: With the extensive program package “Qualify” which was initiated in the fourth quarter 2004, we aim to further improve quality and efficiency. With an advancement of our Group and management structure which we are implementing in the current financial year, we are streamlining processes and consolidating our business units in our three pillars, Passenger Transport, Transport and Logistics, and Infrastructure and Services. The mobility and logistics markets will remain growth markets in the foreseeable future. Our potential enables us to further advance the railroad in Germany, as well as to open up additional perspectives through the integration into international, comprehensive offerings. We, the Management Board and staff of DB Group, will continue our efforts to satisfy our customers with competitive offerings, good service and high quality in the 2005 financial year. Despite continuously difficult market conditions, the trend in the first months of the current year encourages our confidence in achieving our goals. I thank you for your faith in and support for our objectives.

Yours sincerely,

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

5 The Management Board

Hartmut Mehdorn Diethelm Sack Margret Suckale Klaus Daubertshäuser

Chairman and CEO CFO Personnel Marketing and of Deutsche Bahn AG Political Relations

Hartmut Mehdorn, born in Diethelm Sack, born in 1948, Margret Suckale, born in 1956, Klaus Daubertshäuser was 1942, holds a master’s degree earned his master’s degree studied law at the University of born in 1943. Following com- in Engineering and began his in Business and Management Hamburg and acquired a Master pletion of his apprenticeship as career in design development at Economics and then initially of Business Administration at an industrial clerk, he became aircraft manufacturer Focke- worked as business manager Northwestern University/WHU. an aide for the state government Wulf. Mr. Mehdorn has held posi- at Franz Garny AG. He then From 1985 to 1996, Margret of Hesse before he was elected tions at VFW-Fokker, on the served as manager at VDO Adolf Suckale worked in different to the Bundestag, Germany’s Management Board of Airbus Schindling AG from 1976 –1991. executive positions in the Legal lower house of parliament, in Industrie S.A., as director of He was appointed to the Deut- and Personnel divisions at the 1976. Starting in 1980, he served the Management Board of the sche Bundesbahn Management Mobil Oil Group as well as in as transport policy spokesman MBB Transport- und Verkehrs- Board in 1991 and assumed the international projects in Ger- of the SPD party’s Bundestag flugzeuge Group and member position of CFO. He assumed many and Europe. She joined parliament group and chairman of the Management Board the same responsibilities for Deutsche Bahn AG in1997 of the transport working group, at MBB, as CEO of Deutsche Deutsche Reichsbahn in a dual and was responsible for the and became a member of the Airbus GmbH and member posting starting in 1993. He Group’s Legal division, before executive council of the SPD of the Management Board of has been CFO of Deutsche Bahn she assumed responsibility of Bundestag parliament group Deutsche Aerospace AG, AG since its founding. the Central and Legal depart- in 1983. He served as member as CEO of Heidelberger Druck- ments in a dual position. She of the Administrative Board maschinen AG, and as mem- became a member of the Man- of Deutsche Bundesbahn from ber of the Management Board agement Board at Deutsche 1988 –1993, and in the same of RWE AG. He joined the Man- Bahn AG in March 2005. position at Deutsche Reichsbahn agement Board at Deutsche starting in 1991. He has been Bahn AG as Chairman and CEO a member of the Management in 1999. Board at Deutsche Bahn AG since its founding.

6 Deutsche Bahn Group | Annual Report 2004 The Management Board

Roland Heinisch Dr. Karl-Friedrich Rausch Dr. Norbert Bensel Stefan Garber

Integrated Systems Rail Passenger Transport Transport and Logistics Infrastructure and Services

Born in 1942, Roland Heinisch Dr. Karl-Friedrich Rausch, born Dr. Norbert Bensel was born Born in 1955, Stefan Garber earned his master’s degree in in 1951, holds a doctorate in in 1947, and initially worked at began his career as a lawyer at Engineering before he began an Industrial Engineering and began Schering AG after completing his a law ﬁrm in Frankfurt. In 1986 internship at Deutsche Bahn in his career path as a research master’s degree in Chemistry. he transferred to Metallgesell- 1970, and subsequently became associate at TU Darmstadt. He He moved on to insurance com- schaft AG in Frankfurt. He took depot superintendent and sec- worked at Deutsche Lufthansa pany R+V Versicherung in 1987, over the position of Corporate tion leader of a testing facility. AG from 1985–2000 – in his last where his last position was Head Development Vice President at He transferred to Bundesbahn position as Chairman of the of Human Resources. He worked the Metal Mining Corporation in headquarters in 1975. He was divisional Board of Management at Daimler-Benz Aerospace AG 1990. In 1997 he transferred to appointed deputy member of at Lufthansa Passage Airline. starting in 1992 and became Heidelberger Druckmaschinen the Management Board for cor- He has been a member of the a member of the Management AG as the head of the Cen- porate development at Deutsche Management Board at Deutsche Board at Daimler-Benz Inter- tral department. He began at Bundesbahn in 1991. In 1992, he Bahn AG since 2001, for the Services (debis) AG and member Deutsche Bahn AG in April became a full member of the Technology area until 2003, and of the Management Board at 2000 – likewise as the head Management Board at Deutsche since then for the Passenger debis Systemhaus GmbH in of the Central department Bundesbahn and Deutsche Transport division. 1996. He became a member at first – and was appointed Reichsbahn, responsible for the of the Management Board at to the Management Board areas of research and technol- DaimlerChrysler Services AG of DB Netz AG in June 2000. ogy. He has been a member in 2001, and joined the Manage- He became Chief Represen- of the Management Board at ment Board at Deutsche Bahn tative with responsibility for the Deutsche Bahn AG since its AG in 2002, were he was initially Group purchasing in 2002 founding. Mr. Heinisch was in responsible for Personnel, before and Chief Representative for charge of the Technology area he took over responsibility for the Technology and Procure- until the year 2000, when he the Transport and Logistics di- ment area in 2003. He has been assumed responsibility for the vision in 2005. responsible for the new Infra- Track Infrastructure divison. In structure and Services Board the course of the Management division since April 2005. Board’s restructuring in March 2005, he took over responsibility for the Integrated Systems Rail unit.

7 Financial Communication Deutsche Bahn Group | Annual Report 2004 Financial Communication

11 Rating

12 Deutsche Bahn Bond Issues

13 Corporate Governance Financial Communication

Total volume Currency structure 2004 Outstanding bonds accord- of bond issues in % ing to German GAAP (nomi- in € million nal volume) in € million

1,700 1,669 EUR 50.0 8,726 10,396 USD 12.5 2,000 HKD 1.6 11,000

1,800 10,000

1,600 9,000

1,400 8,000

1, 200 7, 000

1,000 6,000

JPY 24.1 2003 2004 CHF 11.8 2003 2004

2003 to 2004: 2003 to 2004: 2003 to 2004: –1.8% –1.8% +19.1%

Outstanding ratings (Aa1/AA) confirmed again

Bond issues of more than € 1.6 billion concentrated on the long end

Issues in five currencies successfully emitted

Further expansion of investor relations activities

10 Deutsche Bahn Group | Annual Report 2004 Rating

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 May 2004. Moody’s and S&P conﬁrmed their ratings, both of which have remained unchanged since their ﬁrst reviews in 2000.

11 Deutsche Bahn Bond Issues

Issues in 2004

Volume Term ISIN Issuer Currency (millions) Coupon Due date in years XS 0193 535 670 Deutsche Bahn USD 250 5.000% June 2011 7 Finance B.V. XS 0194 092 523 Deutsche Bahn JPY 5,000 1.575% June 2014 10 Finance B.V. XS 0195 005 607 Deutsche Bahn HKD 250 5.100% June 2014 10 Finance B.V. XS 0164 831 843 Deutsche Bahn EUR 300 4.750% March 2018 13.7 Finance B.V. (increase) DE 000A 0DE LJ2 Deutsche Bahn EUR 17 2.750% October 3 Finance B.V. 2007 DE 000A 0DE LK0 Deutsche Bahn EUR 17 3.250% July 2009 5 Finance B.V. XS 0205 790 214 Deutsche Bahn EUR 500 4.250% November 12 Finance B.V. 2016 XS 0206 156 647 Deutsche Bahn JPY 50,000 1.650% December 10 Finance B.V. 2014 CH 0020 142 078 Deutsche Bahn CHF 300 2.125% December 7 Finance B.V. 2011

Investors’ high acceptance of high credit quality bonds from corporates allowed for numerous issues of our ﬁnance subsidiary DB Finance B.V., Amsterdam/Netherlands, in different currencies and maturities. For the ﬁrst time we were active in the public euro-yen market with a volume of JPY 50 billion. With both one USD and CHF bond, we targeted private investors, though the main focus of our funding activities remains on institutional investors.

Investor Relations Activities Our IR activities included ﬁnancial presentations and road shows at major Euro- pean and Asian ﬁnancial markets. As in the previous year, we also held numerous one-on-one meetings with analysts and major investors. In addition, we have also increased our web presence at www.db.de/ir-english.

12 Deutsche Bahn Group | Annual Report 2004 Deutsche Bahn Bond Issues and Corporate Governance

Corporate Governance – Transparency and Efficiency of Corporate Management

Corporate governance is an internationally recognized term for responsible corporate management and monitoring. The German Corporate Governance Code published by the “German Corporate Governance Code Government Commission” has become general practice for listed stock corporations in Germany. DB AG has always been in favor of the creation of uniform corporate governance standards. We expect them to augment trust in our corporate management among our business partners, investors, employees, and the general public. The introduction of the German Corporate Governance Code prompted us to review our existing internal rules and procedures with regard to the interaction between Management Board and Supervisory Board, the Annual General Meeting, transparency in general, our ﬁnancial reporting, and our Group accounting and auditing. Our review showed that major areas of the Code are not yet applicable (or applicable only in a very limited scope) to DB AG, a non- listed company. In other areas, such as close cooperation between the corporate bodies, current practices at DB AG are already largely compliant with the Code’s recommendations. Overall, full adoption of the German Corporate Governance Code was not possible, which is why the Management Board and Supervisory Board have opted not to submit a declaration of compliance to date. In light of the numerous stakeholder interests in our company, our broad-based entry into capital markets since the start of the German Rail Reform, and our focus towards getting in shape for an initial public offering, we have elected to follow the recommendations of the Code voluntarily in the form of our own “Corporate Governance Principles”. These Principles have been approved by the Management Board and Supervisory Board and took effect on July 2, 2003. The current version of DB AG’s comprehensive Corporate Governance Principles is available at www.db.de/ir-english. General management principles: A key element and success factor in the German Rail Reform was the transformation from the previous bureaucratic structures of Deutsche Bundesbahn and Deutsche Reichsbahn as state-run enterprises to DB AG, a company subject to German Stock Corporation Law. The unambiguous delegation of entrepreneurial responsibility to the corporate bodies that resulted from this transformation went hand-in-hand with a clear delimitation from the assumption of (transport-related) political responsibilities. Under the current Group structure, DB AG acts as a management holding company for the integrated DB Group.

13 Cooperation between Management Board and Supervisory Board: The Man- agement Board and Supervisory Board cooperate closely to the benefit of the company. The Management Board coordinates the strategic approach with the Supervisory Board and regularly discusses the current state of strategy implementation with the Supervisory Board. For transactions of significant importance, the Articles of Association or the Supervisory Board specify provisions requiring the approval of the Supervisory Board. The Management Board reports regularly, without delay and comprehensively, on all issues regarding planning, business development, risk exposure, and risk management. It points out deviations of the actual business development from previously formulated plans and targets. To ensure effective corporate management, the Management Board and Super- visory Board are committed to discussing issues openly, but under an obligation of confidentiality. All board members ensure that the staff members they employ observe the confidentiality obligation accordingly. The list of board members including their mandates is shown on pages 290–293. Supervisory Board: The Supervisory Board advises and monitors the Manage- ment Board in the conduct of their activities. The Supervisory Board has formed committees: the Executive Committee, the Mediation Committee pursuant to the stipulations of the Codetermination Act, and the Audit Committee. In particular, the Audit Committee handles issues involving accounting and risk management and the issuing of the audit mandate to the auditor. Management Board: The Management Board is responsible for independently managing the company. In doing so, it is obliged to act in the company’s best interests and undertakes to increase the sustainable value of the company. It develops the strategic focus, coordinates it with the Supervisory Board and ensures its implementation. It also arranges for adequate risk management and risk controlling. Management Board members are subject to an extensive non-competition clause. They must disclose all emerging conflicts of interest to the Supervisory Board without delay and also inform their fellow Management Board members. 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 operating business of DB Group. The remuneration of the Management Board is listed by fixed and variable components in the Notes to the Consolidated Financial Statements on page 280. A general age limit of 65 years has been specified for the members of the Management Board.

14 Deutsche Bahn Group | Annual Report 2004 Corporate Governance

Risk management: The qualified control of opportunities and risks poses a major challenge for company management. The early identification and reduction of risks resulting from the company’s business activities are a foremost priority for Management Board and Supervisory Board. Accordingly, the integrated, Group- wide risk management system is focused on the early identification of risks, opportunities, and counteractive measures. The Management Board and Supervisory Board are regularly informed of the outcomes. The risk management system is subject to continual refinement. For more information, refer to the statements in the Risk Report on pages 98–101. Financial reporting and rendering of accounts: Financial communication comprises the publishing of financial statements and consolidated financial statements, as well as a semi-annual report. We report on current developments in near-time through our investor relations activities and corporate communication. Dates of major recurrent publications (including Annual Report and Interim Report) are released with sufficient lead time in a “financial calendar”. We use the Internet to publish information rapidly and comprehensively. Starting with this Annual Report 2004, the Group Consolidated Financial Statements and Interim Reports are prepared according to International Financial Reporting Standards (IFRS). We will also gradually reschedule the publishing of the Group Consolidated Financial Statements in the following years to earlier dates which are fixed in the Code.

The Management Board and Supervisory Board have reviewed DB AG’s Corporate Governance Principles in the year under review, following adjusted legal requirements and developments on the domestic and international level. Adjustments have not been considered necessary. At the same time, efﬁciency and compliance with the Cor- porate Governance Principles were conﬁrmed.

15 16 Mobility, Transport and Logistics

We stand for mobility with our goal of being the best railroad and are furthermore active as a leading provider of integrated logistics services for our customers on all continents. Mobility, Transport and Logistics –

We Organize Mobility, Transport and Logistics Services

We move people. In long-distance transport with our ICE high- speed ﬂeet, with our InterCity and EuroCity trains, our night trains, and our automobile carrier trains. In regional and urban transport, 28,970 amongst others, with our double-deck cars and regional trains as Trains per day well as with our modern S-Bahn trains. We additionally have more than 12,000 buses operating across Germany.

We move freight on rails all over Europe. With some 161,000 freight cars and approximately 2,900 locomotives, we transport around 284 million tons extending, on average, some 275 kilometers for our 5,021 customers throughout Europe every year. In this sense our rail Trains per day transport is particularly environment-friendly. With Schenker we ensure good networking, for example for air and sea freight.

In European land transport we are well-positioned as the leading provider with a close network in all of Europe. We are active in sea and air freight as the leading provider on all central routes. As 2,000 such, our hubs are turntables for freight from all over the world. Scheduled land transports per day

We create mobility. Our more than 5,600 stations are not just entrances to the rail system, they are also junctions to numerous mobility services. On the rail from long-distance to regional and 5,697 urban transport, and numerous bus services, rental cars, taxis, and Stations Call-a-Bike.

We take on the responsibility of and create the basis for future- oriented rail transport in Germany with our vertically integrated structure. Our more than 34,000 km long railroad network is not 34,718 just the longest in Europe, it is also one of the best-developed in Kilometers the world. With the implementation of GSM-R currently underway and our efforts towards interoperability, we set standards across Europe. Rail Activities in Germany are thereby a Central and Integrating Element of our Strategy

Mission Statement

DB Group

Passenger Transport Transport and Logistics

Rail Activities in Germany

Infrastructure and Services

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.

Our Portfolio Deutsche Bahn 2005

Powerful Structure with Deutsche Bahn AG In our Group structure, DB AG holds the function of a Group- Three Strong Pillars leading management holding for the integrated DB Group. The business portfolio is characterized by Group divisions which are in turn divided into business units, as well as by central Group and service functions such as Law, Purchasing, Finance and Treasury. DB has the best corporate rating in Germany (Moody’s Aa1 and Standard&Poor’s AA).

Our Three Pillars

Passenger Transport One core competence central to the DB Group are attractive mobility services. Our services comprise rail transport as well as the increasingly important bus transport. Our claim is not only an intelligent link of rail offers, but also the smooth transfer to other modes of transport. With the Long-Distance Transport as well as Regional and Urban Transport business units, we ensure a comfortable, customer-oriented travel chain. In terms of transport performance and revenues, we are Europe’s leading mobility company.

Transport and Logistics Since the successful 2003 integration of Stinnes/Schenker, we are no longer just a leading provider in European rail freight transport, we are now also leader in the area of transport and logistics as well. Our market presence is made up by the Schenker, Railion and Stinnes (Freight Logistics/Intermodal) business units. Schenker holds a leading position in European land transport as well as a leading position in global sea and air freight, and Railion is Europe’s number one provider of rail freight transport.

Infrastructure and Services A high-quality infrastructure is the main requirement for smooth rail transport. In order to optimize our structure, we are combining our infrastructure and service activities in the current financial year. This includes the passenger stations, network, energy supply, and our extensive services in the areas of service and facility management as well as fleet management, IT management, telematics, and vehicle maintenance. In the future, our construction project activities will also be added to these. We aim to continue the simplification of interfaces – particularly between infrastructure companies and their relationship to infrastructure-related services, 3 as well as to the municipal authorities involved with our infra- Passenger Transport, Transport and Logistics, structure activities. as well as Infrastructure and Services are our three strong pillars. Enhancement of the Group Structure

Competitive success through customer-oriented services In addition, we have created a new unit for the Integrated and an improvement in our earning power as well as ﬁnancial Systems Rail aimed towards overall coordination of integra- power are central goals of our actions. In order to reach this tion topics in the divisions as well as the security of DB’s goal we are carrying out a focused portfolio. In the 2005 ﬁnan- technology system. With this we wish to ensure a consistent cial year, we plan to combine our business units in the areas appearance before everybody who is interested in railway- of Passenger Transport, Transport and Logistics, and Infrastruc- related topics. ture and Services. The Infrastructure and Services area will The functional independence of the infrastructure, which is consist of the previous Group Track Infrastructure, Passenger necessary and regulated by law for the implementation of a Stations and Services divisions in the future. Related busi- non-discriminatory network access, is of course unaffected by nesses can thereby be even more comprehensively managed the Group management instruments. The stock corporations and enhanced. The DB Group will consequentially consist intended for some of the business units by the Law Governing of three strong pillars in the future. the Founding of Deutsche Bahn also remain unchanged.

Group Structure (since 2005)

Supervisory Board

Management Board

Chairman and CEO Finances and Controlling Marketing and Personnel Political Relations

Integrated Systems Rail Passenger Transport Infrastructure and Transport and Logistics Services

Group functions Long-Distance Transport Track Infrastructure Schenker

Regional Transport Passenger Stations Railion

Service functions Urban Transport Energy Stinnes

Services

Passenger Transport At a Glance

Comprehensive, One-Stop Long-Distance Transport Business Unit DB Fernverkehr AG renders national and Europe-wide long- Mobility Services distance transport services. Together with its subsidiaries, the company makes up the Long-Distance Transport business unit. The scheduled daytime services of DB Fernverkehr AG are the core business of the unit. In addition, DB AutoZug GmbH and CityNightLine CNL AG work as independent subsidiaries for car train travel and night train transport.

Regional Transport Business Unit The Regional Transport business unit offers a wide regional transport network connection in metropolitan areas and their surround- ings. The integrated public transport operations of DB Regio and its subsidiaries intertwine on-site service planning and service provisions of rail and bus. Goal: to create an integrated local transport offering that meets the demands for transport services. A streamlined, market-oriented organizational structure has been built up with focus on customer orientation and efﬁciency. With integrated transport concepts and extensive capital expenditures in the renewal of the ﬂeet, the market position as the largest local transport service provider in Germany should be protected.

Urban Transport Business Unit The Urban Transport business unit is the youngest business unit in the Passenger Transport division. It is responsible for our S-Bahn (metro) trains in Berlin and Hamburg as well as our bus transport. We offer our own transport services in public road passenger transport or on behalf of cities and counties. The business unit allows us to take advantage of the opportunities presented by the opening and enhancement of today’s still strongly fragmented market. We see great potential for growth in alliances with municipal transport companies and the connection of rail transport services to city bus systems, S-Bahn (metro) or subway systems. We also see good international market opportunities through Europe- wide liberalization. 28,970 Trains we drive per day in long-distance, regional and urban transport. In addition, we have a ﬂeet of more than 12,000 buses in operation. The liberalization of European passenger transport No.1 in Passenger Rail Transport in Europe 2003 markets has begun, though it has evolved to different in € billion extents throughout Europe. Due to its liberal market DB 9.5 structure, Germany is taking on a genuine leadership role SNCF 9.4 in long-distance rail passenger transport. In contrast, Trenitalia 3.4 an increasing amount of local transport is being tendered National Express 2.5 all over Europe. In this context, the once closed local SBB 1.8 transport markets are continuously evolving into a market with Europe-wide competition. Based on the strength No.1 in Regional and Urban Transport in Europe 2003 in our home market, we are the largest mobility company in € billion in Europe today – leading in long-distance passenger DB 8.2 rail transport as well as in regional and urban transport. SNCF 6.1 Against this background, securing and expanding our Connex 3.3 position as the leading mobility provider in Germany has National Express 3.1 become our number one priority. First Group 2.5

Railroad in Germany and beyond

Copenhagen

Kiel

Rostock Norddeich Mole Hamburg

Bremen Wittenberge Uelzen Amsterdam Stendal

Hanover Magdeburg Potsdam Berlin

Warsaw

Goettingen Bitterfeld

Duisburg Dortmund Halle/S. Brussels Leipzig

Erfurt Breslau Cologne Dresden Fulda Zwickau Bonn Limburg Saalfeld

Frankfurt/Main Krakow Paris Bamberg Prague

Kaiserslautern Mannheim Nuremberg Heidelberg

Karlsruhe Strasbourg Stuttgart Baden- Ingolstadt Baden Passau

Ulm Augsburg Munich Freiburg Vienna Basle

Zurich

Bern

e.g. Rome, Milan

Cross-border connection

Transport and Logistics At a Glance

Global Logistics Schenker Business Unit Schenker is one of the leading international providers of inte- Expertise with grated logistics services. We support industry and trade in global freight exchange: in land transport, global air and sea freight, Rail Know-How and all related logistics services. As a specialist for land transport in Europe, we link the major economic regions in over thirty countries with our close network of scheduled line services. We are both specialized in global solutions in air and sea freight as well as all related logistics services. Our integrated logistics centers at the interfaces of the global ﬂow of goods create effective connections between various modes of transport and enable a broad range of value-added services.

Railion Business Unit Railion is Europe’s largest and most powerful rail carrier: Railion also transports smaller quantities on a multitude of routes in single freight car transport. Single freight car transport is a complex system which enables high ﬂexibility for customers – at the same time it is the largest open production system in the area of European transport. The single freight car system simultaneously represents the backbone of the entire rail freight transport. In block train transport Railion transports large quantities from point to point. Block trains are primarily operating from factory to factory, for example for the automotive industry. Finally, in combined rail/road transport we connect the merits of various modes of transport with rail: Containers coming in from overseas are brought into large European harbors such as Rotterdam or Hamburg and transported into the target regions via rail services. Distribution in urban transport is carried out in most cases by trucks.

Stinnes Business Unit The activities of the former Freight Logistics and Intermodal business units are consolidated in the new Stinnes business unit. Freight Logistics accounts for the distribution and organization of the Europe-wide transport of bulk goods. We offer our customers comprehensive logistics solutions and develop new, innovative concepts together with them. Stinnes Intermodal has accepted the challenges of competition in combined rail/road transport: In close cooperation with high- capacity operators we offer Europe-wide services in combined 1,100 transport. Locations in more than 100 countries worldwide. Railion – The First European Rail Carrier Schenker – Global Range of Services More than half of all Railion transport today is cross-border. With 38,000 employees at more than 1,100 locations in more The European perspective offers us great growth potential: than 100 countries, Schenker holds its ground as a global long distances and large, bundled commodity ﬂows – here player in markets characterized by high growth rates, stiff Railion can play off its advantages particularly well. We competition and increasing consolidation. Schenker leads are focused on Europe with the continuing expansion of the in European land transport as well as in the global air and sea Railion network, our own network accesses abroad, and freight business. Our aim is to maintain and continue to the expansion of our international cooperations. expand this position in the future.

No.1 in Rail Freight Transport in Europe 2003 No.1 in European Overland Transport 2003 in tkm billion based on revenues in %

DB 80 Schenker 2.3

PKP 47 DHL 2.1

SNCF 47 Geodis 1.1

Trenitalia 22 DSV/DFDS 1.0

ÖBB 18 Dachser 1.0

No. 3 in Sea Freight 2003 No. 5 in Air Freight 2003 based on TEU in % based on tons in %

Kühne+Nagel 4.8 DHL 7.3 DHL 3.6 Exel 4.3 Schenker 2.7 Panalpina 3.9 Panalpina 2.6 Kühne+Nagel 3.2 Exel 1.9 Schenker 2.8

Schenker: Strong International Presence

Railion: Strategic Focus on Europe

Railion joint venture Railion partnerships/afﬁliates Schenker

Infrastructure and Services Services Business Unit

Strong Backbone for The Services business unit offers a major contribution to the continued improvement of our service quality and cost structures. Efﬁcient Rail Transport It provides a wide range of services that are consistently focused on market demand. The intra-Group customers dominate this in Germany unit due to its primarily supporting functions.

DBFuhrparkService (Fleet Management) DBFuhrparkService GmbH takes on the ﬂeet management for Deutsche Bahn. It is responsible for long-term rentals, the chauffeur service, fleet management consulting services, pool vehicles, and ﬂeet management.

DB Services As an integrated provider of facility management, the product portfolio of DB Services ranges from infrastructure services such as cleanliness and security services to business and technical facility management.

DB Systems DB Systems GmbH offers complete, one-stop IT services, thus offering an integrated service approach: strategy and process consultation as well as development, implementation, and operation management of IT procedures.

DB Telematik (Telematics) DB Telematik GmbH is responsible for strategy, planning, realization, operation, and service of all telecommunication services of the DB Group and also processes the charges for these activities to the users.

DB Fahrzeuginstandhaltung (Heavy Vehicle Maintenance) DB Fahrzeuginstandhaltung GmbH is a high-performance provider for intra-Group as well as non-Group customers in the area of heavy vehicle maintenance.

290 More than 290 railroad companies not belonging to the DB Group meanwhile use the rail infrastructure in Germany. Track Infrastructure Business Unit The Longest Rail Network in Europe DB Netz AG is the current provider of around 310 railroad in km thousand companies which use more than 34,000 km of comprehen- DB 35.6 sive transport network. As such, the German rail network SNCF/RFF 29.2 is the longest in all of Europe. One of DB Netz AG’s respon- FS 16.0 sibilities is to guarantee non-discriminatory access to its RENFE 12.8 infrastructure. The service of non-Group railroads on the CD 9.5 network has thereby been strongly increasing for years. DB Netz is responsible for operating the efficient rail infra- Functioning Competition in the German Rail Network structure (long-distance/metropolitan network, regional Services of Non-Group Railroads on the DB Network network, marshalling yards, and transshipment terminals). At in million train-path km the same time, the marketing of customer-oriented train- 2004 88.0 path usage offers, drawing up the timetables in close collab- 2003 70.4 oration with the customers, and maintenance and upkeep 2002 50.2 are also responsibilities of the unit. The enhancement of the 2001 39.0 rail infrastructure through capital expenditures in the exist- 2000 26.0 ing network and modern command and control technology, as well as in new and expansion lines are furthermore added to the list. As such, the ﬁnancing of infrastructure by the federal government and the states takes on a central role. Our rail network is available to all railroad companies on a non-discriminatory basis.

Passenger Stations Business Unit Energy Business Unit In addition to their role as entry portals to our trains, our Under the roof of DB Energie, the responsibility for the supply stations are also hubs that link the different modes of trans- of all types of energy for Deutsche Bahn and other com- port, marketplaces, and represent centerpieces of the cities panies is combined, along with the respective technological and regions they serve. The business unit is in charge of the know-how and control instruments. For this purpose operation of passenger stations as trafﬁc stations, as well DB Energie has an extensive, technically complex infrastruc- as developing and marketing the associated station space. ture at its disposal. As an independent energy manager, it DB Station&Service takes on the responsibility of ensuring makes sure that everything runs smoothly. It delivers 16.7 Hz a non-discriminatory entry into its infrastructure. The number of traction power, 50 Hz of light and power current, and of station stops of non-Group railroad companies has there- fuel to all railroad companies in Germany on a non-discrim- by been strongly increasing for years. inatory basis.

DB ProjektBau (Project Construction) DB ProjektBau GmbH, integrated as of the 2005 ﬁnancial year, consolidates all planning, project management and construction supervision activities of all our infrastructure projects.

Report of the Management Board Deutsche Bahn Group | Annual Report 2004 Report of the Management Board

46 Economic Development According to German GAAP

66 Group Management Report According to IFRS

116 Employees

122 Environmental Protection Economic Development According to German GAAP

Revenues Revenue structure Gross capital Operating income in € million in % expenditures after interest in € million in € million Services 1 28,228 23,963 Transport and 9,121 7, 232 –172 253 Logistics 48 30,000 Passenger Stations 1 10,000 700 27,000 9,000 600

24,000 8,000 500

21,000 7, 000 400

18,000 6,000 300

15,000 5,000 200

12,000 4,000 100

9,000 3,000 0

6,000 2,000 – 100

3,000 Passenger Transport 47 1,000 – 200 Other 2 2003 2004 Track Infrastructure 1 2003 2004 2003 2004

2003 to 2004: 2003 to 2004: 2003 to 2004: –15.1% – 20.7% € + 425 million

Transport performance improved; market position in logistics strengthened

Decline in revenues due to sale of non-core assets; on comparable basis growth of 4.1%

Return to positive operating income after interest: € 253 million

Gross capital expenditures below previous year’s figure due to reduced capital expenditures volume in Group Track Infrastructure division

46 Deutsche Bahn Group | Annual Report 2004 Economic Development According to German GAAP

Voluntary Commentary According to HGB Due to Transition to IFRS

Our corporate management focuses primarily on the standards commonly accepted by the capital market. For this reason, we have adopted the international accounting standards IAS/IFRS (International Accounting Standards or International Financial Reporting Standards) for our Group’s accounts. However, due to our ownership structure and our responsibilities derived from the German Rail Reform, we are engaged in a long-term monitoring process. From our perspective, the 2004 ﬁnan- cial year also serves as a signiﬁcant milestone in the reorganization process, which

47 has its corporate and strategic roots as far back as 2001. For this reason, our company controlling in the year under review took place largely based on expected developments under HGB (German GAAP). As a result of the transition to IFRS accounting, we have voluntarily decided to provide additional comments on our Group Management Report, which was audited according to IFRS, by the addition of this unaudited special chapter on the economic development of our company in 2004 on the basis of HGB. Furthermore, we have also voluntarily added unaudited Notes to the Consolidated Financial State- ments according to HGB, which explain our comments in greater detail (pages 168–207 of this annual report). This special chapter and the complementary Notes have both been carefully read by the certiﬁed accountants. However, with the transition to IFRS, a certiﬁcation according to HGB is no longer possible. The following commentary is focused on the company’s economic development in order to prevent redundancy. Additionally, we refer to the comprehensive comments in the Group Management Report audited according to IFRS, with regards to the further development of the company structure, as well as the sections on the “Overall Economic Situation”, “DB’s Relevant Markets and Development of Trans- port Performance”, “Employees”, “Technology”, “Purchasing”, “Supplemental Information”, “Risk Report”, “Events After the Balance Sheet Date”, “Strategy”, and “Outlook”.

Further Advancements in the 2004 Financial Year

The positive trend of our transport performance in rail transport, further growth in our Logistics business unit, a considerable improvement in our performance quality and competitive strength, and especially the attainment of our on-schedule return to a positive operating income after interest have all been important steps on our path to becoming a modern mobility, transport and logistics service provider. Our development over the course of the financial year is simultaneously congruent with the long-term trend since the start of the German Rail Reform and with our strategy, “DB Campaign – restructuring, performance and growth”, which we presented in 2001. These measures were tied to a comprehensive capital expenditures and modernization program. In the context of the “DB Campaign” strategy, we defined 2004 at an early stage as an important indicator of progress towards preparing for the capital markets: Following the temporarily negative earnings in the financial years 2001 through 2003 and strong expansion of our interest-bearing liabilities to finance our accelerated capital expenditures program, all of which contributed to our further business development, 2004 indicates a return to positive earnings.

48 Deutsche Bahn Group | Annual Report 2004 Economic Development According to German GAAP

Reduced Level of Federal Funding for Infrastructure Capital Expenditures Due to a signiﬁcant decrease in federal funding for infrastructure ﬁnancing, 2004 was characterized by a comprehensive program for capital expenditures prioritization. A list of projects (“List 66”) was developed with the federal government as of July 2004 and serves as the basis for our current capital expenditures and project planning. As a result, we have continued our plans to modernize the infrastructure with project expenditures immediately expensed in the Consolidated State- ment of Income, and we have lowered the overall level of capital expenditures.

49 Successful Divestments of Non-Core Businesses Brenntag/Interfer At the time of the Stinnes acquisition, we announced that we would divest operations which we did not consider to be core businesses of the DB Group. With Interfer, we were already able to divest certain peripheral operations in 2003. Effective from January 1, 2004, a comprehensive deal was concluded regarding the divestiture of the Brenntag (chemicals distribution) and Interfer Steel businesses to Bain Capital.

Additional Changes to the Group Portfolio The company Regionalbus Braunschweig GmbH (RBB) was eliminated from the scope of consolidation as of January 1, 2004. Other changes to the Group portfolio, which are immaterial with regards to evaluating the company’s economic development, are detailed in the audited Group Management Report prepared according to IFRS.

50 Deutsche Bahn Group | Annual Report 2004 Economic Development According to German GAAP

Business Performance

Positive Development of our Performance Figures Despite the weak economic environment, we were able to increase our passenger transport performance by 0.5% compared to last year (rail and bus; +1% when adjusted for the effect of deconsolidated Regionalbus Braunschweig GmbH). Our performance in rail passenger transport grew by 1.0% to 70.3 billion passenger kilometers (pkm). Within this, long distance rail passenger transport grew by 2.2% over the previous year to 32.3 billion pkm versus a 4.7% decline in the previous year. Demand for our regional trains and S-Bahn (metro) trains was also positive. The previous year’s level of 37.9 billion pkm was reached, despite lower train kilometers due to the transfer of numerous strongly frequented lines to other railroads. Our Schenker business unit performed well and was able to exceed market growth in some areas. In rail freight transport, Railion Deutschland AG, in our Railion business unit, was able to increase its transport performance considerably by 5% (previous year: +2.1%) to 77.6 billion ton kilometers (tkm). Including our international subsidiaries, Railion Nederland N.V. and Railion Danmark A/S, the increase amounted to 5.2% to 84.0 billion tkm. The development of station stops and train-path usage reﬂected the rise in use by non-Group railroads. For instance, the number of station stops made by non- Group railroads increased by 20.4% to 11.2 million stops; demand for train-path usage increased ever more, growing by 25.0% to 88.0 million train-path kilometers (train-path km). In total, some 290 non-Group railroads utilized DB Group infrastructure in 2004.

Pleasing Revenue Trend in the Core Business The revenue trend in the 2004 ﬁnancial year was materially affected by consolidation effects, which outweighed the strong growth in the core business.

Development according to HGB Group revenues, actual and comparable Change in € million 2004 2003 in % Group revenues, as reported 23,963 28,228 – 15.1 Revenues included from Brenntag/Interfer and RBB –5,199– Group revenues comparable 23,963 23,029 +4.1

51 The signiﬁcant decline of 15.1% to € 24 billion is therefore mostly due to the changes to the scope of consolidation due to the sale of Brenntag/Interfer. Adjusted for the divestiture of Brenntag/Interfer and the spin-off of RBB, revenues in the core business grew by + 4.1%. The segment breakdown clearly shows that this positive trend in the core business was supported by numerous Group divisions.

Development according to HGB Group revenues by division Share Change in € million 2004 in % 2003 in % Group Passenger Transport division 11,155 47 11,157 0.0 Group Transport and Logistics division 11,569 48 10,804 + 7.1 Group Passenger Stations division 268 1 249 + 7.6 Group Track Infrastructure division 318 1 273 + 16.5 Group Services division1) 294 1 208 + 41.3 Other1) 359 2 5,537 – 93.5 Group 23,963 100 28,228 – 15.1

1) Previous year’s ﬁgures adjusted to the change in divisional structure.

Traditionally, the Group Passenger Transport and Group Transport and Logistics divisions have been dominant in the Group context, with roughly similar shares since the integration of Stinnes/Schenker. In comparison, the Group Passenger Stations, Track Infrastructure and Services divisions have generated the majority of their revenues with intra-Group customers. The growth in external revenues reﬂects the continuously increasing usage of our infrastructure by non-Group customers as well as the successful presence of our service providers on the external market. Group Passenger Transport division: Overall, the Group division’s revenues were inline with the previous year’s level. At the business unit level, our Long- Distance Transport unit developed positively as our transport performance and market acceptance improved. Revenues at our Urban Transport unit, on the other hand, were slightly below the previous year; this is due primarily to lower revenues from the new long-term transport contract signed with S-Bahn Berlin GmbH and the State of Berlin, as well as the exclusion of RBB from the scope of consolidation. The Regional Transport unit made a similar contribution as in the previous year, although compared to last year, several high-performance lines were lost in the framework of tenders. In the Regional and Urban Transport units, revenues from ordered service contracts with the German states and the respective ordering organizations for transport services for urban passenger rail transport were at the previous year’s level.

52 Deutsche Bahn Group | Annual Report 2004 Economic Development According to German GAAP

Group Transport and Logistics division: Due to the strong development at the Schenker business unit, this Group division witnessed considerable revenue growth. The Schenker business unit, with its strong competitive position, was able to participate in the positive developments in European land transport, sea and air freight, and logistics. The development of the Railion business unit was considerably weaker than last year; despite the positive trend in transport performance, the business unit had to accept declining revenues. Reasons for this decline were lower revenues at Railion Deutschland AG, due to a strong decline in speciﬁc revenues at important segments (especially steel and mining), as well as an overall increase in intermodal and intramodal competition. The Freight Logistics and Intermodal business units developed positively. Group Passenger Stations division: The pleasing development of the Group Passenger Stations division was driven by the increasing use by non-Group railway companies and further growth in rental business. The completion of additional modernization and rebuilding measures had a positive effect on the rental business, but the continued restraint of the retail sector continued to slow down growth. Group Track Infrastructure division: Revenues increased considerably due to the strong growth in demand by non-Group customers. In this context, the double-digit growth rates of the past several years continued. Group Services division: In this Group division, growth was also in the double-digits, due mainly to the positive development of the DB Energie and DB Fuhrpark business units, as non-Group customers increased the use of services offered.

Considerable Income Improvement in 2004 In addition to the positive revenues trend, we also made progress on the cost side. We were able to implement comprehensive efﬁciency programs, which combined with improved cost management over the course of the ﬁnancial year, were able to overcompensate for considerably higher energy costs. This positive trend was reinforced by the divestiture of Brenntag/Interfer.

53 Development according to HGB Key elements from the Income Statement Change in € million 2004 2003 in % Revenues 23,963 28,228 – 15.1 Overall performance 25,846 30,438 – 15.1 Other operating income 2,895 3,138 – 7.7 Cost of materials – 12,117 – 15,776 + 23.2 Personnel expenses – 9,576 – 10,337 + 7.4 Depreciation – 2,605 – 2,694 + 3.3 Other operating expenses – 3,378 – 4,316 + 21.7 Investment income 5 51 – 90.2 Net interest – 698 – 637 – 9.6 Income before taxes 372 – 133 – Taxes – 92 – 112 – Income after taxes 280 – 245 –

In examining the individual cost elements, the considerable decline in the cost of materials is due largely to the change to the scope of consolidation. Despite this fact, the cost of materials and other operating expenses lines developed positively. In addition to exclusions from the scope of consolidation, rationalization effects continued to beneﬁt the development of personnel expenses. On the other hand, wage and salary increases stemming from the collective labor agreement worked to counter this development. The decline in depreciation is due to the divestiture of Brenntag/Interfer. Through this, the rise in depreciation due to our capital expenditures program was more than compensated for. Depreciation in the year under review includes write-downs on passenger transport vehicles. The deterioration in net interest is primarily due to the growth in interest-bearing liabilities. The total share of net interest remains reasonable. The above-mentioned improvements, alongside a low-level, declining investment income (which includes income from participations in associated companies and expenses related to the transfer of losses and write-downs on participations), led to a considerable improvement in the operating income by € 505 million to € 372 million. We have thus demonstrated a clear return to positive proﬁtability.

54 Deutsche Bahn Group | Annual Report 2004 Economic Development According to German GAAP

Sustainable Improvement in Operating Income after Interest To analyze the result of our operating activities, we adjust our figures as reported in accordance with the German Commercial Code as necessary to eliminate special factors that are not expected to recur. The management data so adjusted does not include special items of an unusual nature that recur rarely or irregularly, and which involve substantial amounts. Other than in the statutory accounts, operating income after interest is defined to exclude investment income to avoid distorting the profitability from operations.

Development according to HGB Reconciliation of operating income after interest from the statutory accounts in € million 2004 2003 Change Income before taxes 372 – 133 + 505 Exclusion of investment income – 5 – 51 + 46 Adjustment for special effects unrelated to operating activities – 114 12 – 126 Operating income after interest 253 – 172 + 425

The above adjustments involved the elimination of positive profit contributions due to the divestiture of Brenntag/Interfer, as well as the establishment of provisions for potential risks (projects/participations); in addition, some minor adjustments involved negative neutral income items from Stinnes. The previous year’s adjustment involved the release of provisions for risks no longer expected, the amount of which was almost offset by the establishment of provisions for potential risks (projects/participations). The previous year also included some minor adjustments for negative neutral income items from Stinnes. Compared to last year, we were able to improve our operating income after interest by € 425 million to € 253 million. In evaluating the improvement over the previous year, it is also important to consider that the divestiture of Brenntag/Interfer resulted in an additional loss of profit contribution in the operating income after interest line of around € 115 million, which had to be compensated for. With our considerably positive operating income after interest, we were able to honor our outlook from 2001. Because our long capital expenditures cycles and proportional capital market financing result in higher depreciation charges and interest expenses long before we benefit accordingly from increased revenue and/or lower costs, we use the key measure of EBITDA to track our gains in operating income over time. Accordingly, the DB Group was able to increase EBITDA in the year under review by € 417 million to €3,509 million. EBIT also showed a corresponding increase of € 486 million to €951 million.

55 Development according to HGB Key ﬁnancial data1) in € million 2004 2003 Change EBITDA 3,509 3,092 + 417 Depreciation – 2,5582) –2,6272) +69 EBIT 951 465 + 486 Net interest – 698 – 637 – 61 Operating income after interest + 253 – 172 + 425

1) Any variances between business management data and reporting in accordance with the German Commercial Code in the consolidated income statement result from adjustments performed to facilitate the comparability of trends in operating business. 2) Value adjusted, as compared to the consolidated statement of income according to the German Commercial Code.

Profit Trend by Group Division An analysis of the Group divisions shows an across-the-board contribution to the improvement in operating income after interest. The considerable improvements in proﬁ- tability in the Group Passenger Transport and Track Infrastructure divisions, as well as to a lesser extent in the Group Passenger Stations and Services divisions, were able to more than compensate for the decline in the Group Transport and Logistics division. As in the previous year, the strength of the balanced customer portfolio since the acquisition of Stinnes/Schenker proved itself beyond the technological synergies.

Development according to HGB Operating income after interest by Group division1) in € million 2004 2003 Change Group Passenger Transport division 263 – 34 + 297 Group Transport and Logistics division 184 288 – 104 Group Passenger Stations division 53 38 + 15 Group Track Infrastructure division – 200 – 307 + 107 Group Services division1) 82 57 + 25 Other1)/Consolidation effects – 129 – 214 + 85 Group + 253 – 172 + 425

1) Previous year’s ﬁgures adjusted for improved comparability.

Group Passenger Transport division: The significant profitability improvement is largely due to considerable loss reductions in the Long-Distance Transport business unit. The business unit was also able to benefit from the continued positive transport performance, further increases in the importance of the valuable ICE product segment, and price adjustments made in the course of the financial year. Considerable energy price increases created the need to significantly optimize production processes and to seek cost savings through internal measures. The Regional and Urban Transport business units were able to improve their earnings. Additional improvements in the cost structure were the main reason for this success despite the overall weak market environment.

56 Deutsche Bahn Group | Annual Report 2004 Economic Development According to German GAAP

Group Transport and Logistics division: The earnings improvement at Schenker continued to be overshadowed by the unsatisfactory development at Railion. Following a considerable earnings increase at Railion in the previous year, the business unit was not able to absorb the massive reduction in margins, higher energy costs and the lack of positive special effects due to further productivity increases. In the face of the foreseeable losses during the financial year, comprehensive countermeasures were initiated; as a result, we expect a return to reasonable earnings contributions in the coming years. Schenker continued its past growth trend in the year under review and again managed to considerably increase its earnings contribution. The positive trend in European land transport, air and sea freight, as well as the now separately managed logistics segment, contributed to this development. The Freight Logistics business unit also increased earnings slightly, whereas the Intermodal business unit experienced an earnings decline due to weaker developments at two subsidiaries. Group Passenger Stations division: The improved earnings contribution reflects the continued positive revenue growth in rental and especially the necessarily tight cost controls. Group Track Infrastructure division: The Group Track Infrastructure division continued the positive trend of the previous year. The comprehensive efficiency improvement programs took hold and further reduced losses. The considerable improvement met our expectations, despite the unchanged negative earnings contribution. Group Services division: The earnings increase compared to last year is largely due to the positive developments at DB Telematik and DB Energie.

57 Value Creation and Value Management

Calculation of Added Value Shows Structural Improvement

Development according to HGB Calculation of added value in € million 2004 2003 Change Generation of added value Overall performance 25,846 30,438 – 4,592 + Other operating income 2,895 3,138 – 243 Overall operating income 28,741 33,576 – 4,835 – Cost of materials – 12,117 – 15,776 + 3,659 – Other operating expenses – 3,378 – 4,316 + 938 –Depreciation (on properties and intangible assets) – 2,605 – 2,694 + 89 Added value 10,641 10,790 – 149

Distribution of added value in € million 2004 2003 Change Employees 9,576 10,337 – 761 Public authorities (taxes) 92 112 – 20 Creditors (interest) 698 637 + 61 Shareholders (incl. minority interests) and non-operating proﬁt (from investments) 275 – 296 + 571 Added value 10,641 10,790 – 149

The structure of the added value has improved considerably. This is evidenced by the distribution side, which has seen the shareholders now again beneﬁting. The important indicator, added value in relation to personnel expenses is therefore moving in the right direction for the long-term protection of the Group’s success.

58 Deutsche Bahn Group | Annual Report 2004 Economic Development According to German GAAP

Return on Capital Employed Further Improved The Return on Capital Employed (ROCE) is our key ﬁgure in the framework of our value management system. Redemption coverage and gearing are the key ﬁnancial ratios we use to control our balance sheet structure. The ROCE is calculated as the ratio of EBIT (operating income before interest and taxes) to Capital Employed.

Development according to HGB Return on Capital Employed in € million 2004 2003 Change EBIT 951 465 + 486 Capital Employed 31,439 30,964 + 475 ROCE 3.0% 1.5%

Capital Employed has been increased in the last few years as a result of our far- reaching capital expenditures program. This effect amounted to € 475 million in the year under review. Based on the signiﬁcant increase in EBIT by € 486 million, we were able to improve ROCE to 3.0% in the year under review. Although this does not cover the weighted average cost of capital, our ROCE is clearly moving in a positive direction. We expect this trend to continue in the coming ﬁnancial years.

Development according to HGB Calculation of Capital Employed from the balance sheet data in € million 2004 2003 Change Properties and intangible assets 40,318 40,093 + 225 Interest-free loans (infrastructure ﬁnancing contributions by the federal government) – 5,665 – 7,512 + 1,847 34,653 32,581 + 2,072

+ Inventories + 701 + 1,399 – 698 + Accounts receivable and other assets + 3,225 + 4,462 – 1,237 – Liabilities other than interest-bearing liabilities or interest-free loans from infrastructure ﬁnancing – 5,851 – 6,759 + 908 +Prepayments and accrued income + 150 + 159 – 9 – Accruals and deferred income – 1,439 – 878 – 561 Net working capital – 3,214 – 1,617 – 1,597 Capital Employed 31,439 30,964 + 475

59 Our key performance measures for the control of debt are redemption coverage and gearing. Redemption coverage is the ratio of operating cash flow to adjusted net financial debt. The operating cash flow is equivalent to operating income after interest plus depreciation. Adjusted net financial debt is the sum of interest-bearing liabilities, interest-free loans, and the net present value of rental and leasing obligations. Gearing is the ratio of net financial debt (interest-bearing liabilities plus net present value of interest-free loans, minus cash and cash equivalents) 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. We had already anticipated that we would fall short of our long-term targets in the year under review due to our intensified modernization policy and accelerated capital expenditures. Gearing amounted to 305% (previous year: 320%), redemption coverage was 14.4% (previous year: 12.6%).

Development according to HGB Gearing in € million 2004 2003 Change Net ﬁnancial debt 16,111 16,222 – 111 Equity 5,286 5,076 + 210 Gearing in % 305 320

Calculation of net ﬁnancial debt in € million 2004 2003 Change Interest-bearing liabilities 14,020 12,731 + 1,289 – Cash and cash equivalents – 742 – 265 – 477 + NPV of interest-free loans1) 2,833 3,756 – 923 Net financial debt 16,111 16,222 – 111

1) In this calculation, the net present value equals 50% of the nominal value in order to make the presentation more transparent.

60 Deutsche Bahn Group | Annual Report 2004 Economic Development According to German GAAP

Balance Sheet Trends

Development according to HGB Trends of balance sheet total/structure in € million 2004 2003 Balance sheet total 46,348 47,647 Change year-on-year in % – 2.7

Development according to HGB Structure of the assets side in % 2004 2003 Fixed assets 89.6 86.8 Current assets 10.1 12.9 Prepayments and accrued income 0.3 0.3 Balance sheet total 100.0 100.0

Development according to HGB Structure of shareholders’ equity and liabilities side in % 2004 2003 Shareholders’ equity 11.4 10.7 Provisions 30.4 30.8 Liabilities 55.1 56.7 Thereof interest-free federal loans associated with infrastructure financing (12.2) (15.8) Thereof interest-bearing liabilities (30.2) (26.7) Accruals and deferred income 3.1 1.8 Balance sheet total 100.0 100.0

The balance sheet total was inﬂuenced by operating developments and changes to the scope of consolidation. The decline in the balance sheet total by €1,299 million (–2.7%) to € 46,348 million was primarily a result of the disposal of Brenntag/Interfer. Due to the business structure of discontinued activities on the assets side, this mainly led to a strong decline in current assets from € 6,126 million to € 4,668 million.

61 Due to our capital expenditures program which exceeded depreciation, the capital commitment of fixed assets has been increased, both in absolute terms and as a percentage of the balance sheet total. Accordingly, fixed assets increased by €168 million (+ 0.4%) to € 41,530 million. The included financial assets of €1,212 million (previous year: €1,269 million) also comprise our participation in Aurelis Real Estate GmbH&Co. KG and the shareholder loan extended to it. Due to the lower level of current assets, the share of fixed assets in the balance sheet total increased to 89.6%. The cash and cash equivalents position included in current assets amounted to €742 million as of December 31, which was considerably above the previous year’s level (€ 265 million). On the equity and liabilities side, equity improved by 4.1% to € 5,286 million due to the positive result. In connection with the lower balance sheet total, the equity ratio also improved to 11.4% (previous year: 10.7%). Provisions of €14,087 million (previous year: €14,691 million) continued to be a major item on the liabilities side. The analysis of the capital structure needs to take into account the fact that at €5,665 million (previous year: € 7,512 million), a significant proportion of our liabilities consisted of interest-free federal government loans provided for capital expenditures on infrastructure. The drop compared to the previous year is above all explained by the premature redemption of long-term interest-free loans in the nominal amount of €1.7 billion at the present value (€1.0 billion). Due to the financing via capital markets, this transaction only affects the liabilities side. In addition to interest-bearing liabilities which increased according to the financed present value, accruals and deferred income also increased in the amount of the difference of the nominal and present value. Interest-bearing liabilities increased by €1,289 million to €14,020 million. Adjusted for the aforementioned higher cash and cash equivalents and the effects from the redemption of interest-free loans, a slight decline would have resulted.

62 Deutsche Bahn Group | Annual Report 2004 Economic Development According to German GAAP

Capital Expenditures and Financing

Reduced But Still High Capital Expenditures in the Year under Review The intensive capital expenditures program we approved in 2001, aimed at acceler- ating the modernization of Deutsche Bahn, continued at its high, but – particularly due to the above explained changed situation at capital expenditures in infrastructure – lower level compared to the previous year. Its major objectives of improving the quality of our infrastructure and rejuvenating our rolling stock remained unchanged.

Development according to HGB Capital expenditures Share Change in € million 2004 in % 2003 in % Gross capital expenditures by Group division Group Passenger Transport division 1,026 14 1,304 – 21.3 Group Transport and Logistics division 549 8 537 + 2.2 Group Passenger Stations division 621 9 630 – 1.4 Group Track Infrastructure division 4,662 64 6,254 – 25.5 Group Services division 354 5 2932) + 20.8 Other/Consolidation effects 20 <1 1032) – 80.6 Group 7,232 100 9,121 – 20.7 Net capital expenditures1) 3,244 45 4,013 – 19.2 Financial investments 67 418 – 84.0

1) Net capital expenditures = Gross capital expenditures less non-repayable investment grants of third parties 2) Previous year’s ﬁgures adjusted for improved comparability

Once again, the major focus of capital expenditures in the Group Track Infrastructure division was on capital expenditures in the existing network; other important projects included the new Nuremberg–Ingolstadt–Munich line, our construction projects in Berlin, as well as expenditures related to the installation of the GSM-R network. Capital expenditures in the Group Passenger Transport and Group Transport und Logistics divisions primarily involved the purchase of new rolling stock as part of our extensive, multi-year modernization programs. In the Group Passenger Stations division, capital expenditures involved station modernization measures and selected new building projects.

63 In accordance with the relevant legal regulations, our capital expenditures in infrastructure are generally financed by means of interest-free federal government loans, investment grants directly netted with properties, and – to a lesser extent – through funds obtained under the Local, Regional, and Municipal Traffic Financing Act (Gemeindeverkehrsfinanzierungsgesetz) and the Railroad Crossings Act (Eisenbahn- kreuzungsgesetz), as well as internal funds at a considerable amount.

Solid Financing of the Capital Expenditures Program

Development according to HGB Short form of statement of cash flows in € million 2004 2003 Change Cash flow before taxes 3,011 2,600 + 411 Cash flow from business activities 3,138 980 + 2,158 Cash flow from investing activities – 4,442 – 4,177 – 265 Cash flow from financing activities 1,781 3,191 – 1,410 Net increase (decrease) in cash 477 – 6 + 483 Cash and cash equivalents, end of year 742 265 + 477

The amount of capital requirements resulting from our capital expenditures program – after deduction of the inflow of funds (net) from investment grants, interest-free federal loans, and the sale of assets – could almost entirely be financed by internal funds. The improved ratios are attributable to higher cash flows before taxes due to better results as well as the lower level of capital expenditures. While the operating business required only moderate additional funding, the premature, capital market- financed redemption of interest-free federal loans caused an extended utilization of financial markets in the year under review. In the year under review we profited from a great demand of investors for corporate bonds with excellent creditworthiness. Through our finance subsidiary Deutsche Bahn Finance B.V., Amsterdam/Netherlands, we issued a total of eight bonds denominated in the following currencies: EUR, USD, JPY, HKD, and CHF. In addition we again increased the volume of a bond which was issued in the previous year. Total bond issues amounted to €1.67 billion. The weighted time to maturity of the bonds issued in the year under review amounted to 10.5 years. Overall the amount of cash and cash equivalents increased by €477 million against December 31, 2003. We did not conclude any major leasing transactions in the financial year 2004.

64 Deutsche Bahn Group | Annual Report 2004 Economic Development According to German GAAP

Development since Start of the German Rail Reform

The progresses made in the year under review continued the economic successes since start of the German Rail Reform. This is highlighted by the operating income figures. It must be considered that the DB Group received special burden compensations from the federal government in the financial years 1994 through 2002 under the agreement of December 23, 1994, for the purpose of eliminating the technical and organizational shortcomings of the former Deutsche Reichsbahn. The initial grants amounted to approximately € 3.3 billion in 1994, and were reduced annually in accordance with a defined schedule, with final payments in the year 2002.

Development according to HGB Operating income ﬁgures in € million 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 EBITDA before special burden compensations 3,509 3,092 2,021 1,433 1,264 427 35 – 445 – 910 – 1,520 – 2,014 EBITDA = earnings before interest, taxes, depreciation and amortization 3,509 3,092 2,464 2,271 2,492 2,036 1,997 1,920 1,658 1,401 1,248 EBIT = earnings before interest (and taxes) 951 465 37 109 450 71 260 300 319 253 264 Operating income after interest (and taxes) 253 – 172 – 454 – 204 199 – 87 171 273 327 247 232

As our income development is signiﬁcantly inﬂuenced by declining special burden compensations, we focus on EBITDA before special burden compensations, in order to highlight the operating improvements. Since the start of the German Rail Reform in 1994, EBITDA before special burden compensations was improved by a total amount of € 5,523 million, i.e. € 550 million p.a. on average. In addition to the positive transport performance trend in rail passenger transport (+12.0% against 1993, the last year before the German Rail Reform) and rail freight transport (+30.1% incl. the new Railion Nederland and Railion Danmark, resp. +21.7% Railion Deutschland alone), as well as the considerable productivity enhancements of +187 %, the EBITDA before special burden compensations shows the success and constant progress of our entrepreneurial approach.

65 Group Management Report According to IFRS

Revenues Revenue structure Gross capital Operating profit in € million in % expenditures before interest (EBIT) in € million in € million Services 1 24,477 23,962 Transport and 9,010 7, 238 –44 1,144 Logistics 48 25,000 Passenger Stations 1 10,000 1, 200 22,500 9,000 1,050

20,000 8,000 900

17,500 7, 000 750

15,000 6,000 600

12,500 5,000 450

10,000 4,000 300

7, 500 3,000 150

5,000 2,000 0

2,500 Passenger Transport 47 1,000 – 150 Other 2 2003 2004 Track Infrastructure 1 2003 2004 2003 2004

2003 to 2004: 2003 to 2004: 2003 to 2004: –2.1% –19.7% € +1,188 million

Transport performance increased signiﬁcantly, position in the logistics area further enhanced

Consolidation-related slight decrease in revenues, growth in core business +4.0%

Significant increase in operating profit

Gross capital expenditures declined due to reduced level of infrastructure capital expenditures

66 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

Successful Financial Year in 2004

At Deutsche Bahn, we are taking important steps to become a modern mobility, transport and logistics service provider. We are enhancing our market success by expanding passenger and freight transport and logistics, by considerably improving the quality of our service and our competitive strength, and most importantly by attaining our scheduled goal of returning to a positive operating proﬁt. We maintain a strong position in our domestic market in Germany as well as in Europe, and we already have a global presence in the areas of transport and logistics. With this

67 foundation, we intend to draw new domestic and international customers to our company and to continue improving our economic situation. Our development over the course of the financial year 2004 is simultaneously congruent with the long-term trend since the start of the German Rail Reform and with our strategy, “DB Campaign – restructuring, performance, and growth”, which we presented in 2001. These measures were tied to a comprehensive capital expenditures and modernization offensive. In the context of the “DB Campaign” strategy, we defined 2004 at an early stage as an important indicator of progress towards preparing for the capital markets: Following the temporarily negative results in the financial years 2001 through 2003 and strong expansion of our interest- bearing debt to finance our accelerated capital expenditures program, all of which contributed to our further business development, 2004 indicates a return to positive results and the transition to normal business development. Even though the development of the market and competitive situation was considerably worse than originally expected in 2001, we remained on track. The market and competitive environment again proved challenging in the year under review. The economic impulses in Germany, which are important to the majority of our strategic business units, remained weak. The competition in nearly all relevant markets continued to intensify, putting the achievable margins under considerable pressure. In our competitive environment, the importance of large, internationally engaged companies has grown. At the same time, we also see the potential for a continuation of market consolidation and the tendency for competitors to limit their activities, as in the case of the urban transport market and logistics areas. In the year under review, the purchasing side was burdened by significantly higher energy prices. The approach to our strategy, the structure of our Group portfolio and the package of operating measures has remained steadfast; thus in the financial year 2004, we have adhered to the principles established in previous years and continued to push ahead with the programs and measures set forth in the “DB Campaign”. With the successful integration of Stinnes and the divestiture of Brenntag (chemicals distribution) and Interfer (materials) which were part of the original acquisition, we have consolidated our core business within the expanded structure. In addition to ongoing programs effecting structural improvements, we have continued to push for further cost management in the second half of the year in order to reach our financial goals. The experience gained from our “Fokus” restructuring program since 2001 has also assisted us in this respect; the “Fokus” program was successfully completed in autumn of the year under review. Given our unchanged,

68 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

ambitious market and proﬁtability goals, we began the “Qualify” program at the end of 2004. From this new program, we expect continued improvements across all business units with regard to product quality, market presence, competitive positioning, and of course, proﬁtability.

Transition to IFRS Accounting Our corporate management focuses primarily on the standards commonly accepted by the capital markets. For this reason, we have adopted the international accounting standards IAS/IFRS (International Accounting Standards or International Financial Reporting Standards) for our company’s accounts. At the same time, we are proactively addressing the establishment of common standards within the EU. The Consol- idated Financial Statements for the 2004 financial year have been drawn up in accordance with IFRS under application of § 292a of the German Commercial Code (Handelsgesetzbuch; HGB). These financial statements and the Group management report release us from the obligation to draw up consolidated financial statements and a Group management report in accordance with the German Commercial Code (§§ 290 ff HGB) under the prerequisite of § 292a of the German Commercial Code. Although the Notes to the Consolidated Financial Statements will provide extensive details, considerable differences arise in the scope of consolidation according to IFRS and HGB. These differences involve two key points: The operations acquired in the course of the Stinnes AG acquisition in 2002, and the businesses divested in early 2004, including Brenntag (chemicals distribution) and Interfer steel group, were fully consolidated in the previous year under HGB. According to IFRS, considerable portions of these activities (“share deal” portion; subsidiaries run as single legal entities outside Germany) were included at fair value as a result of our intention to divest the operations. Other parts of the business (“carve-out”) were fully consolidated. Effective from April 1, 2003, we divested a large real estate portfolio to Aurelis Real Estate GmbH&Co. KG. As a result of the contract provisions, which included options as well as obligations for DB AG, there were no disposals recorded in the consolidated fixed assets relating to this transaction and therefore this had no effect on earnings. The final disposal of these assets and the corresponding realization of profits will occur gradually over time, as Aurelis divests the real estate. The corresponding accounting treatment according to HGB is explained in detail in the Notes to the Consolidated Financial Statements in the 2003 Annual Report. Under IFRS, Aurelis is fully consolidated.

69 Reduced Level of Federal Funding for Infrastructure Capital Expenditures Due to a significant decrease in federal funding for infrastructure financing, 2004 was characterized by a comprehensive program for capital expenditures prioritization. Article 87e of the German Basic Law establishes, among other things, the federal government’s obligation to provide infrastructure and to make funds available for capital expenditures to this end. For the years 2001 to 2003, based on the “Trilateral Agreement” concluded in early 2001 with the Federal Ministry of Transport, Building and Housing and the Federal Ministry of Finance, there was a multi-year agreement concerning federal funding for infrastructure financing (approximately € 13 billion for the aforementioned time period). Based on this agreement, we have systematically expanded our planned capacity over the past few years. In March of 2004, the federal government announced that it would considerably reduce its projected grants for 2004 and the subsequent period through 2008, due to the difficult budgetary situation. This move highlighted the necessity to revise and streamline our plans for capital expenditures in infrastructure. In joint consideration of the federal government’s transportation policy goals and the transportation and economic valuations of Deutsche Bahn, we agreed on the fundamental priority of capital expenditures in the existing railway network, and subsequently in new projects and in the expansion of existing projects, with signed financing agreements. The expected medium-term grants from the federal government for infrastructure financing will not fall below the approximately € 2.5 billion per year required to maintain the existing infrastructure. This is in recognition of the fact that a well- functioning infrastructure relies on high quality and availability. However, the leeway with regards to new lines and the expansion of existing lines has been reduced significantly. Due to the new federal budget, it was necessary to re-prioritize required upcoming projects in accordance with the federal government’s rail requirements plan. A list of projects (“List 66”) was developed with the federal government as of July 2004 and serves as the basis for our current capital expenditures and project planning. As a result, we have continued our plans to modernize the infrastructure with project expenditures immediately expensed in the Group Statement of Income, and a reduced level of capital expenditures. The contributions from own funds to infrastructure capital expenditures remained on a high level. Overall, we strive to maintain a long-term, sustainable and up-to-date rail infrastructure partnership with the federal government. This involves simplifying processes and finding an accord between our business interests as owner and operator of a rail infrastructure which does not discriminate and is available to all, and the fundamental legal obligations of the federal government for the rail network. In order to do so, we have obligated ourselves to secure a high-quality rail infrastructure for the existing rail network.

70 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

Market-Oriented Structures: Strengthened Role of the Business Units In July 2003, we decided to optimize our organizational structure for the Group Passenger Transport division with a view to further improving our internal processes, and with the primary objective of achieving a clear, strengthened market presence in the urban transport area growth segment; we also decided to establish the Group Services division. In this context, DB AG transferred shares in its wholly owned subsidiaries DB Fernverkehr AG and DB Regio AG to DB Personenverkehr GmbH. In accordance with our management approach, the respective domination contracts and profit transfer agreements were signed or amended accordingly. DB Fernver- kehr AG, along with its subsidiaries, comprises the Long-Distance Transport business unit. Local transport structures were aligned with the structures of our customer base and our ordering parties and allocated to the Regional Transport and Urban Transport business units. In this context, the new DB Stadtverkehr GmbH assumed a management function for S-Bahn Berlin GmbH, S-Bahn Hamburg GmbH as well as the subsidiaries in the bus transport segment. The corresponding structures were implemented as of January 1, 2004. The Group Services division came into existence as part of the reorganization of the previous Services area. In this respect, the heavy maintenance business, previously the responsibility of DB AG, became an independent legal entity under the name DB Fahrzeuginstandhaltung GmbH and was integrated into the Group Services division as of the 2004 financial year. Additional business units in the year under review include DB Energie, DB Fuhrpark, DB Services, DB Systems, and DB Telematik. DB ProjektBau GmbH, on the other hand, as a directly controlled business unit, was not included in the Group Services division in the year under review. With the approval of the Supervisory Board in March of the current financial year, we have decided on a comprehensive reorganization of the company and management structures, which will be implemented in the course of 2005. This process involves streamlining the management structures and levels, as well as establishing a more direct reporting line to the business units. In the Group Passenger Transport and Transport and Logistics divisions, the business unit structure will remain largely unchanged. In the future, however, the level between the holding company’s Management Board and the business units, which was partially formed by sub- holdings under business law, will be eliminated. The management structures in the area of the former Group Passenger Stations division, Group Track Infrastructure division, and Group Services division will be reorganized. These divisions will be incorporated as business units into a new Group Infrastructure and Services division. In future, DB ProjektBau will also be allocated to this division. The main goal here is to further improve the operating process interfaces amongst the infrastructure businesses. Furthermore, we hope to improve the decision-making processes, both with the federal government, which is responsible for the common welfare and infrastructure, and with the governmental agencies which deal with infrastructure- related questions.

71 The planned reorganization corresponds both to the organizational regulations of the Law Governing the Founding of Deutsche Bahn (Deutsche Bahn Gründungsgesetz; DBGrG) and the legal regulations pertaining to other railroads and European law; the reorganization is also in compliance with the General Railways Act (Allgemeines Eisenbahngesetz; AEG) and the required independence of the DB Netz AG infrastructure provider as set forth in the EU Directive 2001/14 regarding the functions of train-path allocation and pricing. A new Board division, “Integrated System Rail” has been established to assume a role as process driver regarding the necessary Group-wide coordination and reorganization of the Integrated Rail Operations. In the following comments regarding the 2004 ﬁnancial year, the segment information corresponds to the previous company structure.

Successful Divestments of Non-Core Businesses Brenntag / Interfer At the time of the Stinnes acquisition, we announced that we would divest operations which we did not consider to be core businesses of the DB Group. With Interfer, we were already able to divest certain peripheral operations in 2003. Effective from January 1, 2004, a comprehensive deal was concluded regarding the divestiture of the Brenntag (Group Chemicals Distribution) and Interfer Steel businesses to Bain Capital.

Additional Changes to the Group Portfolio In view of a planned transfer into the joint venture “intalliance”, our subsidiary Regional- bus Braunschweig GmbH (RBB) was eliminated from the scope of consolidation effective as of January 1, 2004. Through additional changes, we have improved our competitive position and undertaken structural adjustments, which had a subordi- nate inﬂuence in comparison to the previous year. Many of these changes involve the business units Regional and Urban Transport. ZugBus Schleswig-Holstein GmbH was merged into DB Regio AG, effective from January 1, 2004. DB Regionalbahn Rheinland GmbH, DB Regionalbahn Rhein-Ruhr GmbH and DB Regionalbahn Westfalen GmbH were likewise integrated into DB Regio NRW GmbH as of January 1, 2004. As of the same date, DB Regio AG holds an additional 30% of the capital stock of Burgenlandbahn GmbH, which was acquired from the bankrupt Karsdorfer Eisenbahngesellschaft mbH, increasing its share to 100%. Regionalverkehr Dresden GmbH was acquired by DB Regio AG, which now holds a 51% stake, as of January 1, 2004. Effective from the same date, a 100% stake in Georg Schulmeyer GmbH was acquired by the Verkehrsgesellschaft mbH Untermain –VU. DB ZugBus Regional- verkehr Alb-Bodensee GmbH founded Kreisverkehrsbetrieb Sigmaringen GmbH as of March 30, 2004. With a purchase and transfer agreement from April 1, 2004, this company then acquired the dependent district transport company from the county of Sigmarigen in the form of an asset deal. Sumava Bus s.r.o. was founded in September as a subsidiary of RBO Regionalbus Ostbayern GmbH and will be

72 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

employed in cross-border trafﬁc to the Czech Republic. As of April 1, 2004, the shares of MITROPA AG held by DB Fernverkehr AG were sold to the British Compass Group. Within the Schenker business unit, numerous mergers have taken place to simplify the company structure of Anterist+Schneider GmbH. Furthermore, the operations of ATG Autotransportlogistic Gesellschaft mbH and Railog GmbH, attributed to the Freight Logistics business unit in the previous year, are now included in the Schenker business unit. The position of the Railion business unit has been strengthened by an acquisition. In June 2004, Railion Deutschland AG acquired a 95% stake in Strade Ferrate del Mediterraneo s.r.l. (SFM), Messina/Italy. Conversely, Railion Deutschland AG divested its 10% stake in ABX Logistics GmbH, Duisburg/Germany. In June 2004, Stinnes AG acquired Nieten Fracht Logistik GmbH&Co. KG in order to strengthen its position in the Freight Logistics business unit. Furthermore, numerous participations previously held by Railion Deutschland AG (including participations in handling terminals, among others), were transferred to companies in the Intermodal business unit. Through the realignment of maintenance and renewal functions in the Group Track Infrastructure division, a reorganization took place as of January 1, 2004, affecting DB Netz AG and DB Bahnbau GmbH. Related activities will now be combined in a services organization within DB Netz AG. Since January 1, 2004, DB Bahnbau GmbH also disposes of its own building and mounting capability; the former DB Bahnbau segment, which belonged to DB Netz AG, has outsourced its capacities in the areas of design engineering, control and safety technology, telecommunications, electronic energy units, overhead wire equipment, and the reuse of track superstructure materials. The activities of DB Bahnbau GmbH will continue to be included in the Others segment. Following the acquisition of DB Verkehrsbau Logistik GmbH’s operating business by DB Netz AG in 2003, its integration under business law into DB Netz AG occurred in 2004, with retroactive accounting treatment from January 1, 2004. Any important aspects arising from consolidation-related effects or the changes in the segment breakdown are explained in this Group Management Report. For comparative purposes, the previous year’s ﬁgures have been adjusted in some cases.

73 Overall Economic Situation

Regardless of the strong international positioning of our Schenker business unit, we are still highly dependent on the development of the German economy. The German economy again exhibited a restrained development in 2004, but its economic recovery solidified. Global economic development: The strong upswing in the global economy lost pace in the course of 2004, due to the strong rise in oil prices and a weakening of economic and political impulses. Overall, however, global growth of around 4% was better than in the previous year (+2.5%). The driver of the global economy remained the USA, with gross domestic product (GDP) growth of 4.4%. The Asian economies continued to show relatively high levels of overall economic momentum. In China, the second source of global economic growth, GDP increased by nearly 9.5%. Japan had a GDP growth of nearly 3%, which more than doubled compared to the previous year. Europe: In the euro zone, GDP growth of nearly 2% marked a considerable improvement compared to last year but was still much weaker than other regions of the world and the remainder of Europe. The economic recovery benefited from robust global demand, which compensated for the effects of rising oil prices. In comparison, domestic demand only showed a mild increase in the face of a relatively neutral fiscal policy and continued expansive monetary policy. Due to the above-average growth in Great Britain, EU-15 GDP growth of around 2.5% was slightly higher than in the euro zone. Developments in the Central and Eastern European countries were considerably more positive. Germany: According to initial estimates from the Federal Statistical Office (Statistisches Bundesamt), real GDP in Germany increased by 1.7% (previous year: –0.1%). Economic development was propped up by the growth in the export surplus, whereas weakness of the domestic economy continued. Despite a strong appreciation of the euro, exports grew strongly by 8.2%. The decisive factor in this growth was the global economic upturn and the subsequent increase in demand for capital goods. On the other hand, investor and consumer uncertainty ham- pered both domestic investment activity and private consumption. Triggered by exports and production, investment in equipment and machinery increased over the course of the year (+1.2%), whereas construction investment remained below the level of the previous year (–2.5%). Overall, investment expenditures recorded a modest decline. Weak labor market and personal income development led to a slight decline in consumer spending compared to the previous year (–0.3%). Similarly, real retail sales also declined in the financial year (–1.7%).

74 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

DB’s Relevant Markets and Development of Transport Performance

Whereas the modest improvement in the overall domestic economy only helped to attenuate the decline in the German passenger transport market, the relevant markets for the Group Transport and Logistics division, in particular in the upper range of the value-added logistics services sector, experienced growth. In light of the macro- economic data and increasing competitive pressure, we continued to show a positive development in both our Group Passenger Transport and Transport and Logistics divisions. In our Group Passenger Transport division, we were able to defy the declining market trend, improve our transport performance compared to the previous year, and gain market share. The performance of our Group Transport and Logistics division was once again positive. Increasing demand from non-Group infrastructure customers shows the high degree of competition on the rails.

Increased Market Share in Declining Passenger Transport Sector According to current market data, transport performance in the German passenger transport market (sector breakdown: motorized private traffic, rail, public road passenger transport, domestic air traffic) declined by around 1% in 2004 (previous year: –2.1%). This represents the fifth consecutive year of declines in the passenger transport sector. A key factor, as in the previous years, was the decline in motorized private traffic by around 1.5% according to preliminary figures (previous year: –2.6%). In addition to the weak economy overall, steady increases in fuel prices played a major role in this development.

Growth rates in the German passenger transport sector 2004 in %

DB (rail) +1.0%

Public road +0.6% passenger transport

Private road trafﬁc –1.5%

Air trafﬁc (domestic) +1.3%

–2.0 –1.5 –1 –0.5 0 0.51.0 1.5

Other railways: approximately + 23.0% Overall transport demand: approximately –1.0% weighted average Figures competitors: estimates by DB

75 Despite the weak economic environment, we were able to increase our passenger transport performance by 0.5% compared to last year (rail and bus; +1% when adjusted for the effect of deconsolidating RBB). In comparison to motorized individual traffic, we were thus able to gain market share. Our transport performance in rail passenger transport grew by 1.0% to 70.3 billion passenger kilometers (pkm). Thus, long-distance rail passenger transport grew by 2.2% to 32.3 billion pkm (previous year: – 4.7%). In the financial year under review, the slowdown effects due to a weak employment market recovery and lower personal incomes could be more than compensated for by the effects of improved punctuality, additional demand from special offerings in the summer and autumn of 2004, and increased travel on the newly built Cologne–Rhine/Main high-speed line. Demand for our regional trains and S-Bahn (metro) trains was also positive. The previous year’s level of 37.9 billion pkm was reached, despite lower train kilometers due to the transfer of numerous strongly frequented lines to other railroads. Once again, the continuing difficult economic situation on the labor market had a dampening effect. All-inclusive tickets, such as those which allow unlimited travel within a particular German state, have proven to be successful. Non-Group rail companies, mainly non-state-operated (NSO) railroads operating primarily in local German rail passenger transport, were able to increase their transport performance according to our estimates by 20–25% (previous year: +15.8%). This growth is primarily attributable to the acquisition of former DB business at the time of the change in the train schedule in December 2003. Demand in public road passenger transport increased by around 0.6%, somewhat greater than the previous year’s increase of 0.2%. On a comparative basis, the bus companies of the DB Group grew by a similar amount. As in the previous year, the growth in public passenger road transport was driven solely by the improved performance in regular line operations, whereas unscheduled services witnessed a decrease. Transport performance in domestic air traffic slowed down considerably in the financial year with growth of just 1.3% (previous year: 4.9%). International air traffic developed far better than domestic air traffic, where there were few increases in travel offerings. Especially the low-cost carriers were not able to repeat their strong gains from the previous year, as price increases in the second half of the year reduced demand. Competition in the passenger transport segment continued to intensify in 2004. This applies to both intermodal competition and competition on the rails. In local rail passenger transport in particular, our competitors include municipal or state- operated railroads as well as mid-sized railroad companies, with international railroad companies becoming increasingly active in this segment. Non-Group railroads in the passenger transport segment now have a market share of 3% (in terms of transport performance) or, respectively, nearly 11% (in terms of train kilometers in regional transport).

76 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

International Transport and Logistics Market Segment Growth Continues The relevant markets for our Group Transport and Logistics division continued to grow in the year under review. In light of the differing economic developments, international market growth was in many cases higher than that achieved in the German and pan-European freight transport markets. European land transport volumes, especially on the European continent, were impacted by the restrained economic development. This was true for both the Northern European countries and Continental Europe. Due to increasing market consolidation and intensified competition, growing pressure on margins was experienced in both Northern and Central Europe. On the other hand, Southwestern Europe and Eastern Europe experienced positive growth rates. High growth rates were particularly evident in Eastern Europe, due especially to the increasing transfer of production by international corporations to countries with better wage conditions. As a result of the high volume growth, margins came under very little pressure. Volumes in the global air freight sector continued at a high level in 2004. Once again, volumes benefited from the strong economic growth in Asia, but mismatched flow of goods remained. Asian export volumes were again significantly higher than imports. Base rates were impacted by higher energy prices, which resulted in freight rate surcharges. Growth in the sea freight sector developed positively in 2004, with the Asian region driving growth in the entire sector. Continued transfers of production and purchasing decisions in favor of Asian, and especially Chinese, producers were a key factor in the continuation of stable growth for the eastward-bound transpacific routes, relations from Asia to Europe and back, as well as routes within the Asian region. Exports of container shipments originating in Asia now comprise around 51% of the global sea freight market. Shipments originating in North America met the low growth forecasts. Higher capacity utilization, especially for shipments originating in Asia, resulted in increasing shipping rates. All market participants expect a continuation of this growth trend. This is evident in the start-up of numerous shipping lines along the main routes.

German Rail Freight Transport also Shows a Significant Performance Increase Based on preliminary data, the overall transport performance in the German freight transport market (rail: Railion Deutschland AG and other railroads, road: German trucks, excluding local haulage, plus foreign trucks, and inland waterway transportation) witnessed strong growth stemming from a considerably positive economic environment. Growth of 6% in 2004 was more than three times the growth in the previous year (1.7%). Railion Deutschland was able to improve its transport performance, despite the negative baseline effect, which resulted from a shift away from inland waterway transportation following the low water levels due to drought in 2003, and despite

77 the continuation of strong intermodal and intramodal competition. Strong increases in raw steel production helped enable the company to increase its transport performance by 5% (previous year: +2.1%) to 77.6 billion ton kilometers (tkm). In addition to the positive performance in the iron/steel and iron ore segments, forestry, petroleum and chemical products also witnessed considerable growth. The strong growth of the previous year in the combined rail/road transport sector could not be repeated, although the trend remained positive. Only agricultural products experienced a decline, due to the lack of grain exports which supported this area in the previous year.

Growth rates in the German freight transport sector 2004 in %

DB (rail)1) +5.0%

Road +5.0% transport

Waterway +9.5% transportation

0 12345 6 78910

Other railways: approximately + 50.0% Overall transport demand: approximately + 6.0% weighted average Figures competitors: estimates by DB Road = sum of regional and long-distance area, including foreign trucks 1) Only Railion Deutschland AG

As in the previous year, the share of international transports continued to increase. This segment’s share of Railion Deutschland AG’s overall transport performance has now reached nearly 60%. In our Railion business unit (including our international subsidiaries Railion Nederland N.V. and Railion Danmark A/S), we were again able to surpass the previous year’s growth rate (2.4%) by boosting our transport performance by 5.2% to a total of 84.0 billion tkm. Other railroads, either as partners of Railion Deutschland or, ever more frequently, as its competitors, again managed to record a signiﬁcant increase in transport performance. These companies grew by around 50%, nearly reaching the growth rate of the previous year (52.6%). Their market share in the rail freight transport sector also continued to grow and now amounts to over 10% in terms of transport performance. Overall, rail freight transport in Germany in 2004 grew by 8.2% following the previous year’s good growth rate (4.7%); once again this sector acted as the driver of the transport market. The market share of rail freight transport, as a share of the overall transport sector, reached 16.8% and thus continued its upward trend.

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In road freight transport (German trucks, excluding local haulage, and foreign trucks), transport performance increased by 5% (previous year: +3.1%). With high monthly growth rates in cross-border traffic, this growth was driven above all by strong international commerce and the eastward expansion of the EU. Foreign trucks have particularly benefited from this development. Growth was curbed by the ongoing sluggish business in the construction sector, although the pace of the decline has slowed. Classified by the type of goods transported, the greatest increase was experienced in the segments of vehicles/machinery/finished and semi-finished goods, as well as special freight (especially containers). Following the weak development in the first half of the year, transport performance in inland waterway transport grew considerably in the second half of 2004. The main reason for this growth was the positive baseline effect from the low water levels and the subsequent drastic reductions in payloads in the previous year. The largest increases occurred in the areas of coal, stone, soil, chemicals, and finished and semi- finished goods. Agricultural and petroleum products both experienced declines. The transport performance increase of around 9.5% was not enough to fully compensate for the losses in the previous year (–9.4%).

Infrastructure Divisions Report Increasing Demand From Non-Group Customers Since non-discriminatory access to the German rail infrastructure was granted in 1994, more and more non-Group railroads are entering or expanding in this market. This is reﬂected by the development of station stops and train-path usage. For instance, the number of station stops made by non-Group railroads increased by 20.4 % to 11.2 million stops; demand for train-path usage increased ever more, growing 25.0% to 88.0 million train-path kilometers (train-path km). In total, some 290 non-Group railroads utilized DB Group infrastructure in 2004.

79 Business Performance

In the ﬁnancial year 2004, revenues have been signiﬁcantly impacted by consolidation effects which superimpose a clear growth in the core business.

Development according to IFRS Change Group revenues in € million 2004 2003 in % Group revenues, actual 23,962 24,477 – 2.1 Brenntag/Interfer and RBB revenues, consolidated – 1,441 – Group revenues, comparable 23,962 23,036 + 4.0

The decline of 2.1% to € 24.0 billion is fundamentally attributable to the change in the scope of consolidation from the sale of Brenntag/Interfer. When adjusted for the sale of Brenntag/Interfer as well as the spin-off of RBB, we achieved an increase of + 4.0% in the core business. With this the segment reporting makes clear that the positive trend of the core business has been widely supported.

Development according to IFRS External Group revenues Share Change by Group divisions in € million 2004 in % 2003 in % Group Passenger Transport division 11,155 47 11,157 0.0 Group Transport and Logistics division 11,569 48 10,804 + 7.1 Group Passenger Stations division 268 1 249 + 7.6 Group Track Infrastructure division 318 1 273 + 16.5 Group Services division 294 1 208 + 41.3 Other operating entities 358 2 1,786 – 80.0 Group 23,962 100 24,477 – 2.1

Since the integration of Stinnes/Schenker, the Group Passenger Transport division and the Group Transport and Logistics division traditionally dominate in the structure with almost the same shares in total revenues. On the other hand, the Group Passenger Stations division, the Group Track Infrastructure division, and the Group Services division clearly generate the predominant share of their revenues with intra-Group customers. The substantial increase shows the continuously increasing usage of our infrastructure through non-Group customers as well as the successful appearance of our service providers on the external market.

80 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

Group Passenger Transport division: In total, the Group division reached the values of the previous year. The revenue structure showed that the Long-Distance Transport business unit expanded in parallel to the increase in transport performance and improved market acceptance of the service, whereas revenues in the Urban Transport business unit lay slightly below the previous year’s value. This is due to lower revenues of S-Bahn Berlin GmbH’s newly concluded, long-term transport contract with the state of Berlin, as well as the exclusion of RBB from the scope of consolidation. The Regional Transport business unit stabilized its revenue contribution at the previous year’s level, even though multiple high-performance lines were lost in the previous year in the scope of tender offers. The payments collected in the Regional and Urban Transport business units from order contracts with the federal states and, respectively, the ordering organizations for transport services in local rail passenger transport, lay slightly above the level of the previous year. Group Transport and Logistics division: The Group division reached substantial revenue growth in light of the strong trend in the Schenker business unit. The Schenker unit was able to participate in the positive development in European land transport, sea and air freight, as well as logistics with its strong competitive position. The Railion business unit’s trend was fundamentally weaker than in the previous year. Despite a positive transport performance development, a decline in revenues had to be accepted. The declining revenues of Railion Deutschland AG were due to an unfavorable trend with a clear drop in speciﬁc revenues in important segments (particularly steel and mining products) as well as to an overall aggravated intermodal and intramodal competition. The Freight Logistics and Intermodal business units emerged in a positive light. Group Passenger Stations division: The pleasant trend in the Group Passenger Stations division has been supported by rising utilization by non-Group railroads as well as further increases in the rental business. As such, the positive effects of additional concluded modernization and renovation measures arose in rental business, though the ongoing weakness in the business cycle of the retail sector continued to hamper growth. Group Track Infrastructure division: Revenues were substantially increased based on the distinct rise in demand from non-Group customers, thus causing the multi-year trend of double-digit growth rates to continue. Group Services division: With likewise double-digit growth rates, an increase in the Group division has been provided mainly by the positive trend of the DB Energie and DB Fuhrpark business units, whose services are increasingly accessed by non-Group customers.

81 Significant Rise in Earnings in Year under Review

Development according to IFRS Key ﬁgures of income statement Change in € million 2004 2003 in % Revenues 23,962 24,477 – 2.1 Overall performance 25,890 26,720 – 3.1 Other operating income 2,860 2,728 + 4.8 Cost of materials – 12,054 – 12,961 + 7.0 Personnel expenses – 9,556 – 9,866 + 3.1 Depreciation – 2,722 – 2,961 + 8.1 Other operating expenses – 3,274 – 3,704 + 11.6 Operating profit (EBIT)1,144–44– Financial income – 990 – 751 – 31.8 thereof net interest ( – 984) ( – 850) – 15.8

Profit before taxes 154 – 795 –

Income taxes 26 211 – 87.7

Net profit 180 – 584 –

In addition to the positive revenue trend illustrated, we also achieved considerable additional progress in terms of reducing expenses in the year under review via ongoing programs for improving our cost structures. This furthermore applied to the measures for cost management additionally implemented in the second half of the year under review. These effects have been superimposed through the sale of the Brenntag/Interfer operations, which implied a reduction of goods for sale and also a considerable decline in the number of employees. The activities of Brenntag/Interfer were profitable in the financial year 2003. Upon analysis of individual cost positions, the significant decline in cost of materials was primarily attributable to the changes in the scope of consolidation. Inde- pendent of this, the operating trend of reductions in cost of materials as well as in other costs in the year under review was pleasing. In addition to the impacts from the changed scope of consolidation, the continued streamlining efforts positively affected the trend in personnel expenses as well. The wage and salary increases due to wage agreements had an adverse effect. The declining depreciation charges are attributable to the disposal of Brenntag/Interfer. This more than compensated for the rise in depreciation as a result of our capital expenditures programs. Value adjustments of vehicles from passenger transport are included in the depreciation charges of the year under review. The deterioration of the net interest result is attributable to a higher indebtedness in capital markets as well as higher interest refunding to the Federal Railway Authority.

82 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

Despite the decline in investment income (this primarily comprises investment results from associated companies and expenses from the transfer of losses and write- downs of investments), the aforementioned improvements led to a strong improvement of the profit before taxes by € 949 million to €154 million. At the same time, this constitutes the return of the profit before taxes to considerably positive numbers. At a positive tax position as in the previous year, however at a considerably lower value than in the previous year, net profit after taxes improved from € – 584 million to €180 million.

Operating Profit by Business Segment In the following, we illustrate the substantial influential factors specific to the segments for the trend in operating profit (EBIT). It thereby becomes clear that the improvements are widely supported. In addition to the technical integration effects of our vertically integrated Group, the strength of the well-balanced Group portfolio since the integration of Stinnes/Schenker is apparent, as in the previous year.

Development according to IFRS Operating proﬁt before interest (EBIT = Earnings before interest and tax) in € million 2004 2003 Change Group Passenger Transport division 377 40 + 337 Group Transport and Logistics division 282 254 + 28 Group Passenger Stations division 107 98 + 9 Group Track Infrastructure division 22 – 283 + 305 Group Services division 64 144 – 80 Other/Consolidation effects 292 – 297 + 589 Group 1,144 – 44 + 1,188

Group Passenger Transport division: The clear earnings improvement is mainly attributable to the significant reduction in losses in the Long-Distance Transport business unit. The business unit hereby also profited from an improvement due to the once again positive trend in transport performance, the ongoing increasing significance of high-value ICE transports, and the price adjustments implemented in the year under review. Most notably, significant optimizations of the production processes and cost reductions from internal measures were necessary – also in view of clear increases in energy costs. The Regional and Urban Transport business units improved their profitability. In light of the generally weak market environment, additional improvements in cost structures were a deciding factor here as well.

83 Group Transport and Logistics division: The positive profit trend of the Schenker business unit has been clouded by the unsatisfactory trend in the Railion business unit. After the Railion unit had substantially improved its earnings in the previous year, a significant margin decline, higher energy costs and the discon- tinuation of positive special effects in the previous year’s earnings could not be absorbed by the further productivity advances in the year under review. Given the emerging loss over the course of year, extensive counter-measures have been initiated in the year under review, from which we expect a successive return to an acceptable profitability in the next few years. The Schenker business unit has continued its multi-year growth trend in the year under review and significantly increased its operating profit before interest. Positive trends in European land transport, in air and sea freight, and in the Logistics business unit, which is henceforth controlled separately, contributed to this. The Freight Logistics business unit also slightly increased its profitability, while the Intermodal business unit showed a decline due to the weaker trend with two subsidiaries. Group Passenger Stations division: An improved profitability reflects the continuously positive trend in the rental business, and above all the continued cost management. Group Track Infrastructure division: The Group Track Infrastructure division is continuing its trend from the previous year: A clear improvement in operating profit before interest was reached due to the comprehensive efficiency increase programs. Group Services division: DB Telematik and DB Energie in particular showed operating improvements, whereas further declining intra-Group revenues in the DB Systems segment and the DB Services group led to diminished earnings contributions. The drop in operating profit before interest has to be seen in view of special effects from the ongoing restructuring program.

84 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

Value Creation

Development according to IFRS Calculation of added value in € million 2004 2003 Change Generation of added value Overall performance 25,890 26,720 – 830 + Other operating income 2,860 2,728 + 132 Overall operating income 28,750 29,448 – 698 – Cost of materials – 12,054 – 12,961 + 907 – Other operating expenses – 3,274 – 3,704 + 430 – Depreciation1) – 2,722 – 2,961 + 239 Added value 10,700 9,822 + 878

1) On properties and intangible assets

Development according to IFRS Distribution of added value in € million 2004 2003 Change Employees 9,556 9,866 – 310 Public authorities (taxes) – 26 – 211 + 185 Creditors (interest) 984 850 + 134 Shareholders (incl. minority interests) and non-operating income/loss (ﬁnancial result excluding net interest) 186 – 683 + 869 Added value 10,700 9,822 + 878

The structure of value creation has improved considerably. This becomes apparent on distribution side, in which the position of the shareholders again proﬁts. With this, the important indicator “added value vs. personnel expenses” is moving in the right direction, which is necessary for the long-term success of the Group.

85 Balance Sheet Trends

Development according to IFRS Trends of balance sheet total/structure in € million 2004 2003 Balance sheet total 47,616 48,526 Change year-on-year in % – 1.9

Development according to IFRS Structure of the assets side in % 2004 2003 Properties, plant and equipment 84.0 81.7 Other long-term assets 6.7 6.7 Non-current assets 90.7 88.4 Inventories 1.7 2.2 Current receivables 6.0 8.0 Cash and cash equivalents 1.6 0.6 Other current assets < 0.1 0.8 Current assets 9.3 11.6 Balance sheet total 100.0 100.0

Development according to IFRS Structure of the equity and liabilities side in % 2004 2003 Equity 14.8 14.9 Long-term liabilities 61.9 60.8 Short-term liabilities 23.3 24.3 Balance sheet total 100.0 100.0 Reported (non-current and current) Financial debt Interest-free federal loans 7.6 9.8 Financial debt excluding interest-free federal loans 35.0 31.6 Provisions 17.0 17.8

The trend in the balance sheet total is characterized by the operating trend as well as changes to the scope of consolidation. The deconsolidation effects resulted in a decline in the balance sheet total.

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Properties increased slightly by € 360 million to € 40,005 million through our capital expenditures program in the year under review. This led to an increase in non-current assets by € 320 million or 0.7% to € 43,200 million with mostly offsetting movements in the remaining positions of non-current assets. The deferred tax assets were slightly above the previous year’s level with €1,301 million included therein. The changes of short-term assets were above all due to the deconsolidation of Brenntag/Interfer, which were still partially consolidated in the previous year, in addition to an improved management of the working capital. This particularly shows in the trend in inventories as well as receivables. The cash and cash equivalents lay clearly above the previous year’s value (€ 271 million) on the balance sheet date with € 765 million. Structurally, a slight push in the direction of long-term assets occurred. On the equity and liabilities side, the significant changes in the year under review affected the equity position, the provisions and the closely related interest-free loans as well as interest-bearing liabilities. The equity was reduced by 2.2% to € 7,067 million in the course of the disposals of Brenntag/Interfer; the equity ratio however remained roughly at the previous year’s level. In the debt structure – including the interest-free federal loans accounted for here by infrastructure financing – long-term debt domi- nates with a share of 61.9% in the balance sheet total (previous year: 60.8%). The share of current-term debt is substantially lower with 23.3% (previous year: 24.3%) in light of our focus on a maturity-matching financing. Provisions make up a large part of the passive side with € 8,071 million, which was reduced by 6.3% compared to the previous year’s value. The interest-free loans, whose present value was assessed under IFRS, were reduced by € 1,117 million to € 3,619 million through scheduled repayments as well as significant extraordinary repayments ahead of schedule. As a result of the financing of aforementioned extraordinary repayments of interest-free loans, and therefore the capital market use made, the interest-bearing liabilities (including the present values from finance leasing) increased to €16,657 million (previous year: €15,343 million).

87 Capital Expenditures

Reduced But Continuously High Capital Expenditures Level in Year under Review In the year under review, we continued the capital expenditures campaign agreed upon in 2001 for advanced modernization of Deutsche Bahn. This was carried out on a high level, though it had lowered from the previous year as a result of the altered situation described above regarding capital expenditures on infrastructure. Increases in the efﬁciency of our infrastructure as well as the rejuvenation of our vehicle ﬂeet remained the focal points.

According to IFRS Gross capital expenditures Share Change in € million 2004 in % 2003 in % Gross capital expenditures by Group division Group Passenger Transport division 894 12 1,304 – 31.4 Group Transport and Logistics division 546 8 537 + 1.7 Group Passenger Stations division 635 9 630 + 0.8 Group Track Infrastructure division 4,639 64 6,254 – 25.8 Group Services division 426 6 245 + 73.9 Other/Consolidation effects 98 1 40 + 145.0 Group 7,238 100 9,010 – 19.7 Net capital expenditures1) 3,251 45 4,230 – 23.1

1) Net capital expenditures = Gross capital expenditures less non-repayable investment grants from third parties

Once again, the major focus of capital expenditures in the Group Track Infrastructure division was on capital expenditures in the existing network; other important projects included the new Nuremberg–Ingolstadt–Munich line, our construction projects in Berlin and expenditures related to the installation of the GSM-R network. Capital expenditures in the Group Passenger Transport division and the Group Transport and Logistics division primarily involved the purchase of new rolling stock as part of our extensive, multi-year modernization programs. In the Group Passenger Stations division, capital expenditures involved station modernization measures and selected new building projects. 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 a considerable range of internal funds.

88 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

Financial Situation

Central Treasury Consolidates Resources DB AG’s treasury is the central treasury for the DB Group. This structure ensures that all Group companies can borrow and invest funds at the best possible conditions. We conduct intra-Group financing transactions before we seek funding from outside sources. When external funds are borrowed, DB AG takes out short-term loans in its own name, whereas long-term funds are generally obtained through the Group’s finance company, DB Finance B.V., Amsterdam/Netherlands. These funds are then passed on to the Group companies in the form of time deposits or loans. This concept enables us to pool risks and resources for the entire Group, as well as to consolidate our expertise, capture synergy effects and minimize refinancing costs.

Rating Agencies Reconfirm Outstanding Creditworthiness In May 2004, the rating agencies Moody’s and Standard&Poor’s conducted their annual rating reviews. Both agencies subsequently reconﬁrmed their ratings of Deutsche Bahn’s credit standing. With “AA”, S&P’s rating remains unchanged since the ﬁrst review in 2000, as does Moody’s “Aa1”. Both ratings show a “stable” outlook.

Capital Expenditures Program Well-Financed We managed to cover the capital requirements resulting from our capital expenditures program in the year under review – after deduction of the inflow of funds (net) from investment grants, interest-free loans, and the sale of assets – largely from internal funds. The improved relations are attributed to the increased cash flow from business activities with the positive earnings trend as well as the declining volumes of capital expenditures. While only a slight additional financing demand emerged from the operating business, the premature, capital market-financed repayment of interest-free federal loans furthermore led to an enhanced usage of financial markets in the year under review.

Development according to IFRS Consolidated statement of cash flows in € million 2004 2003 Change Cash flow from operating activities 2,736 1,291 + 1,445 Cash flow from investing activities – 2,906 – 4,133 + 1,227 Cash flow from financing activities 661 2,848 – 2,187 Net increase in cash 4941) 6+488 Cash and cash equivalents, end of year 765 271 + 494

1) Incl. € 3 million from consolidation effects

89 As in previous years, we made use of the international financial markets. With our Debt Issuance Programme of more than €10 billion and our excellent creditworthiness, a flexible and tightly focused issuance with excellent conditions was possible at any time on the global capital markets in 2004 as well. The issued funds of this program were again structured in line with the demands of our relevant investors. In return, this led to attractive financing costs as a result of the specific demand. Our broad investor base with focal points in Europe and Asia therefore also resulted in positive effects in the year under review. We profited from a great interest on the part of investors in corporate bonds with high creditworthiness in the year under review. Through our financing subsidiary Deutsche Bahn Finance B.V., Amsterdam/Netherlands, we issued a total of 8 bonds in the following currencies: EUR, USD, JPY, HKD and CHF. In addition, we again added funds to a bond which had been issued in the previous year. The total volume of issues reached a nominal value of more than €1.6 billion. For the first time ever we entered the public Euroyen market with JPY 50 billion, which ultimately offered us a wide investor base as a result of our annual road shows in Japan. With one USD and CHF bond each, we specifically addressed private investors. The predominant part of issues, however, continued to be directed towards institutional investors. The weighted average maturity of bonds in the year under review was 10.5 years. In the field of short-term maturities, the DB Group had guaranteed credit facilities of approximately € 2.2 billion and a multi-currency multi-issuer commercial paper program of € 2 billion available at year-end. These were similar to those of the previous year. No major leasing transactions were completed in the 2004 financial year.

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Employees

Development according to IFRS Employee count by Group division Share Change as of Dec 31 2004 in % 2003 in % Group Passenger Transport division 64,254 29 68,180 – 5.8 Group Transport and Logistics division 62,117 28 60,973 + 1.9 Group Passenger Stations division 4,983 2 5,074 – 1.8 Group Track Infrastructure division 43,637 19 44,080 – 1.0 Group Services division 31,559 14 33,463 – 5.7 Other 19,082 8 23,308 – 18.1 Group 225,632 100 235,078 – 4.0

Of the drop in the number of employees by 9,446, 2,124 were due to the sale of Brenntag/Interfer, 1,543 to the disposal of MITROPA, and 282 to the sale of RBB. The reduction was also the result of our continuing process optimization efforts and their resulting increases in productivity.

91 Technology

Our customers expect high-quality products and services from us. To achieve this, we must include quality and reliability as decisive criteria for our internal processes and the condition of our technological means of production. As a result of our focus on premium mobility and logistics services, these quality expectations apply to us, our suppliers and our partners in service execution – such as in cross-border transports. In light of the sharp competition we face, our primary goal must be high- level reliability of our means of production, as this reliability is a basic prerequisite for cost-effective operations suitable for our customers. We must also maintain the high safety standards we have established, continue to optimize the integrated rail system and integrate it more comprehensively into mobility and logistics services. Further- more, a central challenge is to continue improving our cost position. With this as a focus, we have merged our technology and purchasing units into product segments in the year under review, and we have combined our technological know-how in the engineering pool of DB Systemtechnik. Through more comprehensive responsibility for the means of production, we are able to ensure a high level of quality and can expect further improvements in our efficiency and cost position. In the interest of improving the competitiveness capability of the rail transport mode, a continuous and intensive exchange between railways and manufacturers is necessary in areas ranging from system development and service, to maintenance and repair. Further improvements in the rail system with fully developed, reliable and cost-efficient technology are the foundation for bringing more traffic to the rails across Europe. Furthermore, forecasted traffic growth in the coming years makes the optimal utilization of all modes of transport, with their respective system strengths, a necessity. The resulting demands for greater availability, efficiency and pricing value will also increase. We regard it as our duty to force pan-European, competitive product development in passenger and freight transport through modularization and standardization of components, while also taking customer preferences into consideration. We expect the industry to deliver reliably functioning rail technology and to promote technological innovations.

Quality Management and High-Level Safety as the Foundation for a Sustained Competitive Advantage With the track-guided wheel and command and control technology, the intrinsic nature of the integrated rail system gives it a signiﬁcant safety advantage over other modes of transport. We combine this advantage with our high safety requirements, which are reﬂected in the safety standards of our production systems and means of pro-

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duction, as well as in our corporate culture. We make every effort to continue improvements in these high safety standards through ongoing improvements in our systems and processes. We also continue to invest a great deal in comprehensive training measures. We have enhanced our quality management in the year under review. Clearly deﬁned process responsibilities, streamlined structures and further improvements in our quality key data system form the foundation for extensive quality control and thus ensure that our customers receive the services promised. In our “Driving and Building” process, for instance, quality monitoring tracks the most important quality drivers. Our “quality gates” guarantee the successful implementation of important processes, such as vehicle procurement, and enable subsequent adjustments when required. We were able to achieve qualitative improvements in service in the year under review, in the form of considerably improved punctuality. Furthermore, the technological availability of the vehicle ﬂeet was increased. We were able to achieve this through the consistent monitoring of our operations, as well as through the measures derived from this monitoring, which were used to eliminate technical defects and improve interdisciplinary work processes. The current year is directed at safeguarding and expanding these levels of quality.

Further Incremental Implementation of Technology Strategy We have systematically augmented our technology strategy, which we are implementing incrementally. Our main tools are modularization and standardization, which are increasingly characterizing our capital expenditures strategies for technological means of production. Our aim is to boost cost effectiveness over the entire useful life of the technology and to increase the efficiency of operational workflows and maintenance measures. In view of our rolling stock, we concluded the refitting of vehicles to the new digital GSM-R (Global Standard for Mobile Communications-Rail) train communications in the year under review in a timely manner. As the largest refitting project to date, involving around 100 different series and more than 8,500 multiple units and locomotives, this project was carried out in our facilities under our direction. The first six multiple units of the second generation of ICE tilting technology vehicles (ICE T2) went into operation in the year under review. For the first time, the new trains can be coupled with the vehicles of the first model series without difficulty, and individual cars within the model series are likewise interchangeable. As a result, these units offer high operational flexibility. In addition, the ICE T2 is the first inter- operable high-speed train according to the European Directive 96/48/EG.

93 With the accomplishment of ICE 3 certification abroad, we created the precondition for international operation. As of the timetable change on December 12, 2004, the ICE 3 also operates in Belgium on the high-speed Brussels–Cologne route. With this, a perennial procedure has been successfully completed. We are also hoping for prompt completion of the certification process for the ICE 3, currently underway in France. The modernization of the ICE 1 trains, which have been in operation since 1991, was prepared in the year under review. Through the assembly of innovative and cost-efficient components, the ICE 1 should be technically in shape and aligned to the interior of the ICE 3 for an additional 15 years. The redesign is carried out at our facilities in Nuremberg. Inter-disciplinary project teams have identified and realized systematic cost savings potentials in the purchase of spare parts and components. Our track infrastructure strategy is also aimed at capturing additional cost savings through ongoing standardization and quality improvements. We have developed differentiated strategies for our command and control technology which define sensible route-path standards dependent on the specific operating requirements. A new interlocking technology has been put into operation in the year under review. With the gradual introduction of this interlocking technology for routes with simple operating requirements as well, a significant savings potential can be expected in the mid-term. We have thereby not only established technical alternatives, but also expanded the range of potential suppliers.

European Standardization of Command and Control Technologies Our strategic considerations are based on the current and foreseeable legal framework. EU demands for an increase in interoperability among national rail systems are an especially important factor. In the interest of optimizing cross-border rail traffic, we also strive to achieve increasing technical interoperability with our European neighbors through the optimized disposition planning of multi-system locomotives. With the enforcement of the Railway Interoperability Act on May 20, 1999, infrastructure operators of the Trans European Network (TEN) and operators of vehicles on this network in Germany are committed to implementing the Technical Speci- fications Interoperability (TSI) on the high-speed network of the DB Group as well. Further conditions are included in the TSI for the conventional network, which were adopted on November 23, 2004. The TSI require new vehicles Europe-wide to be equipped with the European Train Control System (ETCS), the internationally standardized command and control system. For existing vehicles in Germany and abroad, achieving interoperability requires the creation and provision of national Specific Transmission Modules (STM) for free third party network access.

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Our pilot project on the Berlin–Leipzig route plays a major role in the overall certi- ﬁcation process and the introduction of ETCS. After extensive preparatory work in the year under review – in addition to preparation of the route for the reﬁtting of 5 locomotives of the 101 series – the reliability test will begin in spring 2005 on the 100 km-long southern section between Leipzig and Jüterbog.

Consulting Activities and Business on the Third Party Market Our specific technical expertise, certified and attested by the regulatory agency, is increasingly in demand by the industry and foreign railroads. We therefore make use of our expertise in national and international markets. Activities in the year under review included one project in the area of track superstructure and rigid track for Mitsubishi Heavy Industry – Shinkansen Trackwork Construction Office, Japan, and one project of constructing a track superstructure for the high-speed line between Taipei and Kaoshung, Taiwan.

Systems Know-How for the Magnetic Levitation Technology as well Since the spring 2004 inauguration of the first commercial route in China and the start of official passenger transport, the project planned in Germany to connect the Munich airport to the central station has also been progressing. The company Bayerische Magnetbahnvorbereitungsgesellschaft mbH has compiled the materials for the magnetic levitation project plan’s official approval, the request for which has been submitted in the meantime. We are preparing to implement an operational program of the Transrapid test facility in the Emsland close to real operations parallel to the planning in Bavaria. Since 2003, the Lathen-based facility has been enhanced for automatic operation according to timetable, under the responsibility of the manufacturing industry.

95 Purchasing

Confident Collaboration with Our Suppliers With a total purchase volume of more than € 9.2 billion, excluding the domestic and international contracts of the Schenker business unit, we were again among the biggest investors in Germany in the year under review. With this, we have both directly and indirectly secured more than 600,000 industrial jobs. The focus was again placed on industrial products as well as construction and engineering services, with a considerably lower order volume in the latter field. Services received from third parties were also slightly decreased. In return, high energy prices led to an expansion in the field of utilities and fuel. Major purchasing items primarily occurred in the area of numerous infrastructure and station projects such as the construction of the Berlin Central Station or in the context of the GSM-R network set-up. One major purchasing item in the area of rolling stock referred to the imminent and extensive redesign of the ICE 1 vehicle sets. Due to systematic care and a standardization of our business relationships with more than 40,000 suppliers, we are enhancing the quality of the collaboration. We have further advanced our purchasing strategy in the year under review. With the pilot project “Uniform Ordering and Addendum Calculation” in the purchasing of construction equipment, we have facilitated the handling and review of addenda. This has a positive influence on our business with the suppliers and enhances the transparency. In order to stabilize the sustainable quality of the constructions created, the pre- qualification of suppliers has been further advanced. As has already been practiced in the field of electro-technical equipment, parties interested in construction orders can now prove their qualifications and are able to qualify for orders in general. This accelerates the commissioning of orders and ensures high quality in regard to execution. We are in intense dialogue with associations of the construction industry in order to improve collaboration, enhance transparency and accelerate processes. Information about our electronic marketplace, the standardized “New Building Contract” and the introduction of a “Supplier Assessment” were the points of focus in the year under review. In September 2004 we entered into the eCl@ss Association, which collaborates with the institute of standardization (Institut für Normung). eCl@ss meets the requirement of an international classification standard. Targets include the standardization of all product and service descriptions without language barriers for all sales and purchasing activities in the suppliers management, an opening of the markets to stimulate competition, bundling effects, and assortment and process cost reduction. Collaboration began with the spare parts business for rolling stock.

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Supplemental Information

Customer Charter for Long-Distance Passenger Transport Implemented Consumer protection in the field of long-distance transport has been strongly reinforced with the commencement of the Customer Charter on October 1, 2004. For the first time, customers receive a standardized and legally binding promise of compensation if their long-distance transport ends with a delay of more than one hour and DB is responsible for the delay. The Customer Charter is a substitute for the former fair dealing regulations and is documented in the transport conditions. As opposed to previous regulations, the compensation claim now encompasses the total journey in the field of long-distance transportation. This applies to delays which lead to a missed connection at the station where customers change trains. In addition to compensation for delays, the Customer Charter comprises additional service promises in regard to customer orientation and friendliness towards customers. The program was designed by DB together with the Federal Ministry of Transport, Building and Housing and the Federal Ministry of Consumer Protection, Nutrition and Agriculture.

2005 Timetable off to a Successful Start The Europe-wide coordinated timetable change went into effect at the end of the ﬁnancial year. The transition to the “2005 Timetable” on December 12, 2004, went off without a hitch. Further improvements in offerings went into effect with the timetable change.

97 Risk Report

Our business activities pose risks as well as opportunities. Our risk management activities aim to proactively minimize these risks. Our risk management system processes all the relevant risk-related information. The DB Group operates an integrated risk management system in line with the requirements of the German Act on Corporate Control and Transparency (KonTraG). This system, which is continually being enhanced and reﬁned, allows us to quickly introduce offsetting measures.

Active Risk Management in the DB Group The risks inherent to the DB Group include: Market risks such as overall economic development and the partially cyclical demand for services. The major factors influencing passenger transport – consumer spending and the number of gainfully employed persons – showed a downturn in the year under review, but are forecasted to stabilize in the current financial year. In addition, the market has been building up momentum due to competitive pressure and aggressive pricing strategies in air traffic; overall growth was negative in the year under review and is expected to be only slightly positive in the current financial year. In regional transport we are exposed to fierce competition for long-term orderer contracts. The most important factor in rail freight transport is the transportation demand for consumer products, steel and mining products, petroleum products, chemical products, and building materials, some of which are subject to cyclical and structural fluctuations. The domestic and international market risks in the Group Trans- port and Logistics division have increased with the growing levels of globalization and intensifying intermodal competition. The dynamic consolidation process in the logistics sector, increasing liberalization in the European transport markets, and highway toll charges in Austria and Germany are also presenting new challenges. We are addressing these issues with extensive measures aimed at improving efficiency and reducing costs, in addition to optimizing our service offerings. Due to the special nature of its business, the Schenker business unit faces risks from the granting of customs guarantees and – particularly after the terrorist attacks of September 11, 2001 – the submission of non-objection certificates to airlines, which could have serious consequences in individual cases. Schenker has continually revised and improved its rules for granting customer guarantees over the past few years. Schenker purchased insurance to cover the risks related to air transport and monitors strict compliance with country-specific regulations on security measures for the transport of air and sea freight.

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We respond to risks resulting from changes in customer demand, including the ordering organizations, and from shifts in traffic patterns with intensified market monitoring and adjustments of our service portfolio. To deal with market risks due to changes in legal framework conditions at both the European and the domestic level, we proactively represent our position in the ongoing consultations and discussions. Operating risks: In its rail transport operations, the DB Group runs a networked production system of high technological complexity. We deal with the risk of interruptions in service through systematic maintenance, the deployment of qualified staff, and ongoing quality insurance and improvements in our processes. Moreover, the quality of our service offerings depends on the reliability of the means of production we use. Sustained quality improvements stemming from our modernization programs are visible. In response to several cases in which newly commissioned vehicles did not meet our expectations, we have established quality round-table meetings with manufacturers for in-depth and constructive discussions in order to achieve sustained quality improvements. Project risks: The modernization of the overall rail system involves significant capital expenditures, as well as a number of highly complex projects. Changes in the legal framework, delays in implementation or modifications that become necessary over the course of the project life cycles – which can extend over several years – result in project risks that can often affect multiple areas due to our networked production structures. Our risk management activities are especially focussed on major projects such as the Berlin hub (including the Berlin Central Station), the new Nuremberg–Ingol- stadt–Munich line and the extensive deployment of GSM-R. An incremental commissioning concept has been developed for the Berlin hub/Central Station. Extensive monitoring has been implemented for the new Nuremberg–Ingol- stadt–Munich line as well as for the introduction of GSM-R. In general, every new project must pass a full plan approval before implementation can begin. The progressions of major projects are subject to an extensive project controlling. As a general rule, identified risks were compensated for by introducing offsetting measures in our operating business and setting up adequate reserves. Financial risks: We use financial instruments and derivatives to hedge our exposure to the risks of interest rate changes, currency fluctuations, and energy prices. These instruments are described in the Notes. General uncertainties and risks: Our political, legal and social environment is subject to constant change. A stable framework is needed to effectively plan our future corporate activities. We strive to positively influence these framework conditions and eliminate existing hindrances with open dialogue.

99 In addition to continuous efforts to protect and improve operating quality in the context of project and market-related risks, the focus of our risks and therefore our main focus can be found in the effects resulting from stiff competition and in the infrastructure area due to the high project volumes. Extensive analyses are conducted on a regular basis for this reason. In the year under review we particularly re- evaluated market risks. A trend spanning several years showed that competition has been constantly increasing. When combined with the weak economic perspectives in the domestic market, positive impact on revenues can only be expected to a limited degree in the future. In addition to the intensification of our efficiency and rationalization programs and the initiation of the “Qualify”program, we have also reassessed and partly cut the revenue perspectives of individual business units in the current mid-term planning. We consistently anchor risk management in our standard processes. In addition, we have taken out insurance policies to secure unavoidable risks in order to limit financial exposure to potential damages and liability risks for the DB Group.

Effective Risk Management System The principles of our risk management policy are formulated by Group management and implemented at DB AG and its subsidiaries. Our system for the early recognition of risks entails quarterly reporting to the DB AG Management Board and Supervisory Board. The risks included in the risk report are categorized and classified by the probability of occurrence; in addition to the possible consequences, we also analyze potential offsetting measures and their costs. Any suddenly detected risks and unfavorable developments must be reported immediately. Group controlling is responsible for coordinating all risk management activities for the DB Group. In addition, planned acquisitions are subject to intensified monitoring. The central Group Treasury department is responsible for limiting and monitoring credit risks, market price risks, and liquidity risks associated with corporate refinancing, which is strictly limited to our operations. Consolidating these transactions (money market, securities, foreign exchange, and derivatives) with DB AG enables us to manage and limit the associated risks. The Group Treasury is organized based on the Minimum Require- ments for Trading (MAH), formulated for financial institutions, the derived criteria for which meet all the requirements of the German Act on Corporate Control and Transparency (KonTraG).

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Risk Portfolio Free of Existence-Threatening Risks The risk management system of DB Group provides an overview of the sum total of risks exceeding deﬁned materiality thresholds in a risk portfolio, in addition to a detailed individual listing. Based on our current assessment of risks, offsetting and hedging measures, and provisions, no risks capable of threatening the Group’s continued existence are discernible either now or in the foreseeable future.

101 Management Board Report on Relations with Associated Companies

The Federal Republic of Germany is the sole shareholder of DB AG. Pursuant to Sec. §312 of the German Stock Corporation Act (AktG), the Management Board of DB AG has compiled a report on its relations with associated companies. The report concludes with the following (translated) statement:

“We hereby declare that, according to the circumstances known to us at the time when legal transactions were carried out, our company received adequate consideration in each and every legal transaction. In the year under review, no measures were taken or omitted on the initiative or in the interest of the federal government or of any company associated with it.”

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Events After the Balance Sheet Date

Adopting the “EC Infrastructure Package” into German Legislation The General Railways Act (Allgemeines Eisenbahngesetz; AEG) and the Ordinance on the Use of Rail Infrastructure (Eisenbahninfrastruktur-Benutzungsverordnung; EIBV) are in the process of being amended with regards to the adoption of the “EC Infrastruc- ture Package” into German law. At the same time, the recommendations of the “Future Rail” task force made in September 2001 are also being implemented into German legislation. The AEG, which has already been amended and passed into law, provides for certain essential changes. For one, regulatory oversight has been concentrated and assigned to the Regulatory Agency for Telecommunication and Post (Regulierungsbehörde für Telekommunikation und Post; RegTP). At the same time, regulatory authority is being expanded to include service facilities and the services provided, the terms of use, and the base compensation policies and level of amounts. Finally, the committee on anti-trust affairs (Monopolkommission) will provide a regular assessment of the market situation. A subsequent adaptation of the EIBV is expected in the near future. Overall, a broad consensus has been formed regarding the regulation of the DB Group as a vertically integrated railway business on the basis of these proposed changes.

Further Development of the Station Pricing System Beginning January 1, 2005, DB Station&Service AG introduced a new station pricing system. The system contains a price catalog with – in each federal state – six category prices oriented towards the importance of the stations for rail traffic. The system also accounts for the federal state-specific infrastructure requirements and infrastructure funding modalities. In this respect, the specific regionalization agendas of the federal states are thoroughly taken into account. Each station is assigned to a particular category based on a uniform set of nationwide standards. The importance of the stations for rail traffic, including the number of train stops, the number of travelers and the station’s importance as a hub, plays a decisive role in this respect. With the new station pricing system, the number of station prices has been reduced to just 96 state-specific prices (16 German states times six categories), each with two factors of train lengths. Compared to the previous station pricing system, the new system boasts a simplified accounting mode and appropriately takes into account the higher demands on the train station infrastructure from longer trains.

Successful Completion of the Future-Securing Program for Efficiency and Employment In light of the challenging market environment, competitive employment conditions in order to secure and strengthen the competitive ability and efﬁciency of the DB Group are a necessity. For this reason, we are continuously working on enhancing our wage structures in order to create both attractive working conditions and employment perspectives for our employees.

103 In the first quarter of this year, we were able to conclude important collective labor agreements, enabling us to reduce our employment costs by around 5.5%. Within this framework, the majority of our Group companies will increase their annual reference working time from 1,984 (38) to 2,088 (40) hours and employee vacation days have been reduced by one day. At the same time, the Employment Guarantee Collective Agreement (Beschäftigungssicherungs-Tarifvertrag), which expired at the end of 2004, was prolonged until December 31, 2010, and its scope was extended. In order to guarantee jobs within the Group, a temporary collective reduction in work time was agreed to start on July 1, 2005. Furthermore, our local partners can implement individual annual working times to secure employment. We have also introduced an employee participation plan based on company performance, which was retroactively applied based on the economic development of the 2004 financial year. We also reached an agreement to make an additional monthly payment of €50 between July 1, 2005 and June 30, 2007, and to increase our wage scale by 1.9% as of June 30, 2007. An additional step was made in increasing the flexibility of our work time regulations, especially regarding the formulation of our transport personnel’s work schedules, with the signing of a new work time wage agreement. Flextime and long- term compensation time accounts will be introduced and will span the employee’s entire term of employment. With these two work time accounts, employees can systematically save additional hours worked and use the balance in the short-term for time off (work time account) or in the long-term for additional qualification, early retirement or towards their retirement plan (long-term compensation time account). Employees also have the possibility to convert compensation into time credits on their long-term compensation time account.

Strengthening of the Railion Business Unit through the Acquisition of RAG AG’s Rail Logistics Activities We have signed a contract with RAG AG to acquire its subsidiary, RAG Bahn und Hafen GmbH (RBH), based in Gladbeck/Germany. Subject to the approval of anti-trust authorities, the contract will take effect retroactively on January 1, 2005. RBH employs around 950 workers and possesses over 110 locomotives and 2,300 freight cars. The company turns over, transports and temporarily stores volumes of around 48 million tons of bulk goods per year. The acquisition of RBH will enable us to expand our position in European bulk goods logistics and deepen our relationship with one important customer.

Divestiture of the DB Fernverkehr AG Stake in Deutsche Touring GmbH DB Fernverkehr AG divested its stake (82.8%) in Deutsche Touring GmbH (DTG). The sale goes into effect retroactively on January 1, 2005. The buyer is Ibero Eurosur S.L., a Spanish-Portuguese consortium of long-distance bus line companies. The divestiture has allowed DB Fernverkehr AG to focus more on its core business.

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Strategy

A Focused Group Portfolio Since the start of the German Rail Reform in 1994, we have implemented far-reaching changes in our integrated rail system and realigned the Group’s strategic focus. It has been and continues to be our objective to offer top-quality, competitive products to our customers. Since the German Rail Reform began, we have significantly increased our productivity, settled the backlog in capital expenditures to a large extent and witnessed a sustainable participation in the market growth of passenger and freight transport. As part of the German Rail Reform, we have also taken on the task of turning DB Group into a capital market-oriented company. Building on the foundation of ongoing increases in productivity and competitive positioning, this task requires us to further strengthen our profitability and allocate financial resources in a targeted, value-oriented manner. To direct this development, we have established a comprehensive value management system and set a mid-term profitability target for ourselves in keeping with capital market standards. In the context of our business portfolio, we are a vertically integrated company. We consider a focus on closely linked business units to be critical to our success. The core business will continue to be defined by the rail activities in the German domestic market. Our core focus lies in maintaining our strong market position in passenger and freight transport and improving the competitiveness of the overall rail system amongst the other modes of transport. Our vertical integration, which includes infrastructure, is a necessary prerequisite to further develop the entire rail system in a comprehensive and responsible manner. Accordingly, we are able to guarantee that the market pressure constantly affecting the transport areas can also be passed on to the infrastructure and services businesses. Therefrom and from the results of our modernization programs, all infrastructure users are able to benefit equally and on a non-discriminatory basis. In order to maintain a sustainable, high-quality infrastructure and continue developing our rail network, we strive to maintain a long-term and up-to-date rail infrastructure partnership with the federal government. This involves finding an accord between our business interests as owner and operator of the rail infrastructure and the fundamental legal obligations of the federal government for the rail network. We have also carried out a purposeful expansion of our core business over the past few years, especially in the area of transport and logistics, in order to adapt to the changing demands of our customers and markets. With the addition of Schenker to our Group Transport and Logistics division, we have secured additional growth opportunities in the areas of European land transport, international air and sea transport, as well as logistics. In return, rail freight transport will benefit from

105 Schenker’s highly capable European distribution network. Better access to customers and the broad portfolio of services are therefore essential factors in securing the future of rail freight transport. Our Group Passenger Transport division and Group Transport and Logistics division already hold a leading position in the European transportation market, and these divisions have established a solid position for successful future growth.

Improving our Performance Quality, Competitive Positioning and Profitability To promote the process of change in this final phase of the German Rail Reform, we initiated our strategic program “DB Campaign” in 2001. In addition to the large number of measures designed to improve performance and new business development efforts, the program included numerous projects to ensure the consistent continuation of the restructuring process. Our “Fokus” restructuring program was successfully completed in September 2004. The subsequent program, “Qualify” places special emphasis on improving our operating performance and quality, in addition to significantly improving profitability. In the financial years 2001 through 2003, we knowingly accepted a temporary drag on profits as a consequence of our accelerated restructuring and modernization programs aimed at our infrastructure in particular. Now that we have returned to profitability in the year under review, we must face the challenge of improving the profitability of the DB Group in the coming years to a level acceptable in the capital markets. We must also continue to strengthen the Group’s cash flow and balance sheet structure.

On Track to Becoming a Leading Provider of International Mobility and Logistics Services Our strategic development is progressing according to a strict market and competition- oriented philosophy. However, our market environment is characterized by a high degree of change and intense competition. These conditions result in considerable challenges, but also in considerable chances for the future development of the DB Group. The increasing globalization of the economy and in modern society, as well as on-going restructuring processes in production structures and trans-national flows of goods and products, result in increasing demand for international mobility and logistics services. This trend has been reinforced in the year under review by the most recent steps in EU enlargement. The importance of our domestic market as a transit country in the middle of today’s Europe has continued to increase. This position places considerable demands on all modes of transport. Our core business, rail transport, has become particularly indispensable for coping with the increasing flow of traffic in an economical and environment-friendly manner.

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For the rails as a mode of transport and ourselves as a major player, enormous opportunities are arising from the pending deregulation at the European level: The national rail markets will be open to rail freight transport by 2007 and to passenger transport by 2010. In this respect, opportunities on the rails abroad will be available to us to the same extent as they have been to international transport companies in Germany, that are already taking advantage of the open market access here. We are also witnessing changes in the demands of our customers, as the need for international logistics solutions from one source and involving multiple modes of transport continues to grow exponentially. In the passenger transport segment, the challenges of mobility are being combined with the necessity to intelligently connect various modes of transport and allow for integrated solutions. In light of this trend, expanding DB’s position as a leading mobility and logistics service provider remains a top priority. We will therefore continue to enhance performance in our core businesses, offer integrated solutions which combine the inherent strengths of various modes of transport, and establish customer-friendly interfaces with upstream and downstream added-value services. The future expansion of our businesses will only occur in areas deemed appropriate by market potential or those where our competence and resources can be appropriately utilized. With a core-business-focused expansion of our service offerings, we are also able to ensure that the German rail system will continue to participate in mobility market growth in the future. Considerable proﬁt improvements can also be achieved through additional internal process optimization and cost savings. These measures are indispensable for improving our competitive positioning and securing our position in existing markets. Furthermore, we see growth opportunities across all market segments resulting from continued international expansion and entry into related markets. In preparation of the market opening of the European passenger rail transport segment by 2010, we are focusing on expanding our international presence and our position in the urban transport area, as well as offering attractive mobility chain solutions. Continued strengthening of the Railion business unit’s international positioning in the rail freight transport area will also improve our competitive stance versus other modes of transport. Regarding the Schenker business unit, the focus lies in expanding its know- how across the entire logistics chain and extending its network in consolidating markets. We expect to expand our business with non-Group customers in the areas of infrastructure and services.

107 Transport and Logistics: Efficient, Global Networks and Logistics Competence The international freight transport and logistics markets remain clear growth markets in the mid-term. The road, sea, and air freight transport markets have been liberalized to a large extent and are geared towards international business. Advancements in European rail freight transport are beginning to look attractive. Independent of questions concerning legal market access, international rail transports must overcome obstructions such as historically different track gauges, power supplies, and command and control technologies, in addition to statutory provisions. The major task for our Railion business unit is to further increase its competitive position in rail freight transport in the face of significant intermodal competition. Our customers demand additional advancements in productivity, high reliability in production regarding the service, and consistent quality extending beyond national borders. Complementary strategic options involving the expansion of the Railion network include the addition of other railways, participations, partnerships, or direct market entries on our own. We are also meeting the challenges posed by technical issues, as with cross-border passenger rail transport, by investing in multi-system, internationally approved vehicles. Our clients expect comprehensive logistics solutions, and we are able to deliver these offering one-stop shopping for logistics, forwarding, and transport services. Our focus is on offering top-quality solutions customized to the special requirements of individual industries. In doing so, we see tremendous opportunities extending beyond our historical customer base. With the Schenker business unit, we are already in possession of a global shipping and logistics service company which is actively participating in global market growth. This participation is due to Schenker’s foundation of high-quality networks on the road, for sea and air freight, as well as its strong logistics competence in important industries (e.g. automotive, high-tech). We are aiming for further expansion of our globally linked transport networks and a focused improvement in our logistics competence in order to maintain and continue to expand our market-leading positions. All current forecasts for combined rail/road transport by our Intermodal business unit also point to steady growth. Efficient network design for combined rail/road transport, reduced production costs, and continued quality improvements will make us even more attractive to customers in this market, in which we already have a strong position. We also maintain a strong position in the European transport business for bulk products and are currently working on expanding our industry-specific services and strengthening our position in European cross-border transport.

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Our Goal in Passenger Transport: Integrated Mobility within Germany and Positioning in the European Market Forecasts for the European passenger transport markets point to continued growth. Deregulation of these markets is underway, but the pace of progress varies widely across Europe. In long-distance passenger transport, Germany is a clear forerunner in Europe in terms of providing free market access to the German rail infrastructure. In contrast, the number of tender offers for local rail passenger transport has been increasing throughout Europe. In light of this trend, our number one priority continues to be defending our position in our home market of Germany. This involves expanding our individual business units Long-Distance, Regional and Urban Transport by creating closer links and establishing mobility services for intermodal transport. DB’s electronic travel information platform, covering train connections throughout Europe and almost all connections in public regional and urban transport within Germany, provides comprehensive mobility information on the web at “www.bahn.de”. Through the extended coverage of the BahnCard, for instance to include CityTicket functionality, and our DB Carsharing and Call-a-Bike services, we offer attractive mobility services that go beyond conventional rail and bus transport. Furthermore, we will continue to expand cross-border traffic and look for opportunities to make inroads into foreign markets. Our goal in the Long-Distance Transport business unit is to ensure competitive services for fast links between German metropolitan areas and to neighbouring countries. To reach this goal, we will leverage the inherent advantages typical of rail transport: fast, relaxed traveling and comfortable city-to-city connections with a lot of time to spend doing something useful. Improving our information and service quality, along with our on-time performance, will be top priorities. In addition, we will continue to enhance and extend our service and pricing concepts, along with our tools to increase customer loyalty. In international traffic, we will continue to intensify our cooperation with railroads in neighboring countries. An important task for our Regional and Urban Transport business units will be to offer affordable services, ensuring seamless mobility in cities and beyond. We are in a unique position to leverage integration of the various transport systems. We will also continue to focus on measures to further improve our productivity, quality and efficiency. At present, the German urban transport market is still highly fragmented and served primarily by municipal transport operators. However, this market is beginning to open up. With acceptable access conditions and a proper focus on profitability in urban transport, including efficiency improvements and the exploitation of synergies, this market holds significant potential for the DB Group. Taking advantage of growth opportunities in neighboring European urban transport markets may also prove to be attractive.

109 Building on a Reliable, Affordable Infrastructure and Cost-Efficient Services Our infrastructure business and internal service providers have a major impact on the long-term competitiveness of the integrated rail system. Cost reductions and performance improvements are the most important means for enhancing our cost- effectiveness and the competitiveness of rail transport in general. All our services and related pricing systems for the use of the infrastructure are designed to be non-discriminatory. The Group Passenger Stations division continues to pursue its course of station modernization as required and in keeping with the intended usage in close cooperation with the federal government and municipal authorities. The division is also moving forward with the implementation of our programs for safety, cleanliness and service. In this context we are implementing differentiated development concepts for various types of stations. Increasing rental income from commercial floor space at high-traffic locations provides additional potential. 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. Increasing capacities through cost-efficient modernization and eliminating bottlenecks in the existing network continue to be the primary challenges for our Group Track Infrastructure division. Our “Net 21” (Netz 21) strategy aims towards segregating faster-moving from slower traffic and harmonizing speeds. The “Net 21” strategy will be implemented in three medium and long-term capital expenditures programs. The largest of these programs aims at releasing the dormant potential of our existing network. The second program involves investing in modern command and control technology, which will increase network flexibility and availability. Lastly, our third capital expenditures package is aimed at supplementing the infrastructure through new and expansion 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 funds provided for infrastructure by the federal government. Our service activities also make a considerable contribution to the value chain for our customers and the rail system. A positive reception by non-Group customers is an indication of future growth opportunities.

110 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

Outlook and Expectations for the Financial Year 2005

Economic Outlook: Falling Growth Trend According to the views of economic research institutes at the time this report was prepared, economic conditions are expected to slightly moderate in the 2005 financial year. Forecasts for global economic indicators continue to be more upbeat than for the German economy. The following forward-looking statements are based on the assumption that the overall global political climate remains stable. Global Economy: The growth trend of the global economy is expected to slacken in the current financial year. In the U.S., a continuation of rising interest rates and a mildly restrictive fiscal policy should result in weaker growth than in 2004 for both private consumption and capital expenditures. Japan’s real GDP will expand, albeit at a considerably slower rate; this is due to lower expected capital expenditures in the public sector resulting from forced consolidations and to the strong yen and weak foreign demand, which have slowed export growth. The gradual weakening of the East Asian economies has also contributed to this trend. China, which was driving the growth in this region, attempted to avoid economic overheating by raising interest rates in order to halt the expansion of credit. A central risk factor continues to be the development of energy prices. Should oil prices remain at their currently high levels, a considerable burden on the global economy would result. Europe: In the Euro zone, a sweeping economic recovery remains elusive. Low interest rates and improved profit situations at many companies should have a stabilizing effect on the investment upswing, but weaker foreign demand is serving as a counter-balance and is being further slowed by the weakness of the US dollar. On the other hand, the weakness of the US dollar helps partly to compensate for the pressure on consumer spending. However, ongoing consumer uncertainty has slowed the expansion of consumer spending due to pending reforms in several member countries, the concrete consequences of reforms already implemented, and the continuation of consolidation pressure on national budget deficits. GDP growth rates in Central and Eastern Europe will continue to considerably exceed average EU levels, but the necessary consolidation of these countries’ budget deficits has contributed to a slowdown in growth. Germany: The majority of recent forecasts point to only minor growth in 2005. The growth trend in exports should be weaker than in the 2004 financial year due to the slowdown of the global economy and will continue to suffer due to the strength of the euro. We expect a modest strengthening in the recovery in capital expenditures as a result of increasing capacity utilization, more favorable profitability expectations, stagnating labor costs, and only moderately rising interest rates. Due to slightly improved growth in private households’ income and increasing transparency of reforms which has somewhat diminished consumer uncertainty, consumer spending should grow slightly in 2005 for the first time in three years.

111 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 considerable momentum in 2005. In the political arena, particularly at the European level, discussions on transport market liberalization will remain on the agenda, with a focus on the differing pace of progress in providing unrestricted access to the individual national rail transport markets. In Germany, the implementation of European regulations has become manifest in the form of the General Railways Act (AEG). Germany boasts a leading role in this context. Any progress made towards pan-European harmonization along the lines of the open rail infrastructure access already accomplished in Germany will be welcome. Another transport issue is the creation of equal competitive conditions for the different modes of transport. We continue not to expect any signiﬁcant contemporary changes in this area in 2005. We will continue to advocate the interests of the rail transport sector in policy debates on key transport issues.

Further Challenging Market Prospects for the Group Divisions In essence, forecasts for the performance of our individual Group divisions are as follows: Group Passenger Transport division: Despite a lower GDP increase in 2005, the positive impulse for the German passenger transport market is strengthening. Both real income and private consumption will slightly rise after the declines in 2004. Against this background, the transport market will also see a slight recovery again in the current year. However, with an expected rise in transport performance of around 1%, growth still remains modest. The slight recovery in individual transport, which among other things profits from sinking fuel prices, supports the increase. The growth rate in Germany’s domestic air traffic sector will be reinforced, whereas a mere continuation of the slight growth in demand is assumed for public road passenger transport. This also accounts for positive impulses from the area of non-scheduled services. On the one hand, the situation in rail transport in Germany will benefit from a slight recovery in the job market and a continuing rise in real income; on the other hand, the positive impulse from rising fuel prices is discontinued. Overall, only a slight rise in transport services can be assumed from this.

112 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

Group Transport and Logistics division: The international transport and logistics markets will continue to develop positively in the current ﬁnancial year as well. Particularly Asia and America will again be the regions with the most growth. It is thereby forecasted that providers of high-value services in particular will achieve increases. Furthermore, in light of the fragmented structure, further market consolidation is expected, whereas the cyclical impulse for the German freight transport market will level off compared to the year under review. Foreign trade will not reach the high growth rate it saw in 2004, and a slight pick-up in domestic demand will not be enough to completely compensate for this leveling off. As a result, the rise in production in the manufacturing industry and with crude steel will only continue cautiously. In this macro-economic environment, the transport market development is also losing its dynamics – though it remains considerably positive with an assumed growth of 3%. This development is primarily carried by road freight transport. Competition and price pressure from foreign trucks continue to increase and have an impact on the other modes of transport. No noticeable shift to other modes of transport is expected from the road toll for heavy trucks, which was implemented at the beginning of 2005. Inland waterway transport will most likely return to a moderate rate of growth after a considerable loss in view of the low tide in 2003 and the successful race to catch up in 2004. After two very successful years, rail freight transport is only expected to grow moderately, in particular due to the low rise in crude steel production. The intermodal competitive pressure continues to increase, likewise holding true for the intramodal rivalry between the individual providers of rail freight transport. In this respect, a continuation of the strong growth in the year under review is expected for the development of other railways in Germany. Group Passenger Stations division: The outlook in the rental business remains negative in the current year due to the repeatedly weak forecasts for the retail sector. As a result of rising demand from non-Group railroads, a slight increase in the number of station stops is expected. Group Track Infrastructure division: Train-path usage from non-Group customers is forecast to grow once again in the 2005 ﬁnancial year.

113 DB Group Business Performance Forecast The targets of our strategic program “DB Campaign – Restructuring, Performance, Growth”, which were resolved in 2001, also apply to the 2005 financial year. The restructuring topic continues as an ambitious cost management, as is normal for the sector. Our business operations will increasingly focus on continuing to improve the quality of our services and utilizing growth opportunities. We primarily rely on organic growth, however we do not rule out M&A-transactions. Overall we expect to continue participating in the growth of our relevant markets in the year under review. The primary economic goal refers to the sustainable enhancement of our profitability and efficiency. At the same time, we hope to achieve a financial balance between cash flow financing and our capital expenditures program, and the targeted cut of accumulated indebtedness in the mid-term. Given the aforementioned forecasts and expectations concerning market, competition and framework conditions, we heavily rely on the effectiveness of internal measures in the year under review. Revenues: Our core business will continue to grow in the current financial year based on recent estimates. With this we expect revenues to increase slightly in the current financial year. Results: Due to the positive trend in revenues and the strict cost management, we expect ongoing sustainable earnings improvements in the current financial year. We are aiming for a significant reduction in losses in the Long-Distance Transport and Track Infrastructure business units. With this, operating profit in the Group Passenger Transport division as well as in the Group Infrastructure and Services division should see overall positive development, particularly as the other business units of these Group divisions should also develop well. We expect declining earnings in the Group Transport and Logistics division, as restructuring costs in the Railion business unit should overcompensate for the forecast improvements in the Schenker business unit. Employees: As of December 31, 2005, the number of employees at DB Group will presumably be fewer when compared on a comparable basis. This is based on our ongoing optimization programs which are expected to more than offset the creation of new jobs through our growth program.

114 Deutsche Bahn Group | Annual Report 2004 Group Management Report According to IFRS

Capital expenditures and financing: In light of the continued reduction in the amount of federal infrastructure funding, capital expenditures in the Group Track Infrastructure division will initially stabilize and decline in the mid-term. Due to the relative importance of these investments, this trend will also be reflected in the total volume of capital expenditures. We expect virtually all capital expenditures programs to be completely financed by cash flows, considering the infrastructure financing through third parties. We therefore do not assume a fundamental change in the debt position from the operating business. Procurement: For the current year we do not expect any procurement bottlenecks. On a similar note, we do not anticipate any major price fluctuations or sustained price increases or decreases in our relevant procurement markets. However, important structural changes are either underway or pending in several core supply and service sectors. This applies to suppliers of rolling stock, command and control technology, and construction work in particular. Structural changes in some industrial sectors may lead to less favorable supply conditions in the medium term, particularly pricing levels. Our estimates of energy cost trends are based on the assumption that market conditions will remain stable. However, if the crude oil supply tightens, a rise in energy costs must be expected. This would not only raise DB Group’s energy consumption spending, it would also be a sustained drag on the economy and, consequently, on revenues projections. Environmental protection: We will continue our efforts dedicated to protecting the environment in the financial year 2005. Our focus will continue to lie on reducing greenhouse gas emissions – by lowering our energy consumption –, water protection, and reducing noise emission/improving noise abatement.

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

Forward-looking Statements This Management Report contains forward-looking statements on 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 divisions 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.

115 Employees

Employees Divisional breakdown as of Dec 31 according to IFRS as of Dec 31

235,078 225,632 Passenger Transport 64,254 Transport and 250,000 Logistics 62,117 225,000 Other 19,082

200,000

175,000

150,000

125,000

100,000

75,000

50,000 Track Infra- 25,000 structure 43,637 Services 31,559 2003 2004 Passenger Stations 4,983

2003 to 2004: 2003 to 2004: –4.0% –4.0%

Closure of important contracts: benefits for job protection and reduction of personnel expenses

Enhanced instruments for job protection and employment policy

JobService redirected and strengthened in the year under review

DB Group again one of the largest German occupational trainers

116 Deutsche Bahn Group | Annual Report 2004 Employees

Motivated and Qualified Employees as the Basis of Corporate Success

As a service provider in a competitive environment in the mobility, transport and logistics markets, we have to continually convince our customers of our offers and the quality of our products and services. The expertise and particularly the daily motivation and commitment of our employees are fundamental success factors for DB Group as a service company. In addition to speciﬁc qualiﬁcations, we rely on our

117 service orientation as well as a high motivation and willingness to change. Accord- ingly, we consider competition-focused and forward-looking human resources (HR) strategy and policies to be central building blocks for the future of our Group.

Job Protection and Active Employment Policy We are aiming to secure employment within the Group and to provide employment perspectives to our workforce. With the conclusion of the job protection agreement, we have consequently further developed the tools of active employment policy for the requirements of today and the future. The established processes and instruments have been streamlined with the new job protection wage agreement, the new Group works council agreement on the intra-Group employment pool and the reposition- ing of the JobService, as well as expanded through innovative elements. As such, the new job protection agreement includes a limited reduction in annual working time from 2,088 to 2,036 hours with proportionate wage adjustment in the period from July 1, 2005 through initially June 30, 2007. In addition, individual employment pacts with an annual working time from 2,036 to 1,824 hours with wage adjustment are earmarked for the protection of jobs. When the possibilities to protect jobs in terms of making working hours more flexible have been exhausted, instruments of active employment policies in the intra-Group employment pool will start taking effect. The primary goal remains placing employees affected by job cuts with 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 JobService. During this integration phase, employees are prepared for new regular employment, which includes the creation of development plans as well as preparation through limited integration activities, internships, employment projects, and qualifying measures. The employees generally remain integrated in the operating process. Overall, three service providers are active in the intra-Group employment pool: JobService: JobService aims for optimized personnel management within the DB Group, i.e. the management of transfers between units accepting and delivering personnel as well as external companies. We have strengthened these efforts in the year under review in three integral fields. External hiring for a vacant position is therefore only possible in the absence of any eligible internal applicants. Further- more, we have and will continue to identify insourcing potential in the securing of employment. For example, with construction site safety services we aim to create 1,200 new jobs in the medium term for railway safety workers, surveillance safety workers, vegetation conservation workers, and train conductors. In addition, we have begun setting up selected networks at the locations of Leipzig, Frankfurt/Main and Cologne with companies outside the DB Group, work placement officers and temporary employment agencies. Within these networks we accept qualified employees from network partners for positions which require no internal know-how

118 Deutsche Bahn Group | Annual Report 2004 Employees

pertaining to DB. At the same time, those employed at DB have the chance to switch over to network partners and find their occupational future there. In the cooperation with workforce networks, we see significant opportunities for the securing of employment. DB Vermittlung GmbH (qualification and outplacement): In the year under review DB Vermittlung GmbH served approximately 3,200 DB termination-protected employees and civil servants, whose positions have been eliminated and who were not immediately offered new positions, despite the activities of JobService and DB Zeitarbeit. There are currently approximately 1,900 employees at DB Vermittlung. Qualifications are currently being focused on the industry-technical professions with direction towards the external market, for example with the training of welders (WIG Aluminum) and CNC lathe operators in the field of the automotive supplying industry in Saxony. Employment projects are predominantly geared towards creating services for rail travelers. An example of this is the ReisendenService (travelers’ service) at railway stations, which currently has around 250 employees. DB Zeitarbeit (personnel leasing): In the year under review, DB Zeitarbeit showed positive development in its business field with temporary placement services of employees to internal and external clients. With the JobStarterService, it furthermore established a new platform for young people to begin their careers after a period of vocational training with DB. At the moment around 1,250 employees work for DB Zeitarbeit, of which 630 are JobStarters. Since 2002, around 54 % of employees have switched jobs to customers of DB Zeitarbeit. Close contacts have meanwhile been established with many external companies in the mobility and logistics market, and through a systematic extension of the JobStarterService we are now aiming to expand the offer of temporary employment services beyond just the transport sector.

Systematic Recognition and Promotion of Potential The future of DB as a company is determined to a large extent by the quality of leadership. In order to come closer to achieving our goal of being the best railroad for our customers, we need to produce the best management – people with visions, creating noticeable results for our customers and employees. Effective leadership tools support management in fulﬁlling these duties. In the year under review, the framework and understanding of management in the DB Group have been anchored down in a leadership approach which was developed in an integrative process with the involvement of management and employees. It combines the aspects which in our view are relevant to good management, such as entrepreneurial boldness, customer orientation and honest feedback. Our leadership development takes places against the background of a common management understanding. In order to achieve this, a comprehensive qualiﬁcation

119 program with standardized learning tools for all aspects of management has been implemented. All training and qualification activities for the top management are bundled at the DB Academy, which was founded in the previous year and has further expanded its portfolio of the management and communication program in the year under review. In addition to the direct qualifications, management simultaneously develops a common leadership understanding as well as Group-wide networks spanning over multiple divisions. After the management planning process (MPP) as a managing process of leadership development had initially been established for the top management in the previous year, we expanded the process to the majority of management in the year under review. In the current year, the level of operational management should be included. The assessment of potential as well as the determination of individual and divisional development measures and considerations for successor planning are central elements. With this, we make sure that management successors will be identified and promoted on all levels. Through the consistent use of all internal potential, the share of external occupations of management positions could clearly be reduced in the year under review. The operational management crucially forms the quality of our products and services by way of a direct influence on the work of our employees. This management group is therefore increasingly in the focus of management development and qualification. In the current year, the implementation of further developed processes into the targeted range and promotion of the operational management therefore plays an especially important role. With the DB competence management we are pursuing the realization of a model for life-long learning. This instrument enables us to integrate future demands into the target competence profile of each activity group early on. The goal is a premature, systematic analysis of qualification demands, in order to derive the necessary qualification and development measures. In addition to the classic seminars, on-the-job qualification programs are increasingly implemented.

Extensive Programs for Securing the Next Generation of Management Our vocational training activities continue to be a critical element in securing the future of the company – for this reason we remain among the largest occupational trainers in Germany. We train over 25 different occupations in more than 40 locations. More than 2,600 young people began their professional lives at Deutsche Bahn in the year under review. As in the previous year, we also fulﬁll our social responsibility in that we train far above demand considering the difﬁcult situation of the German apprenticeship training market. In the framework of the joint job training initiative of the German economy, we facilitate the start into professional life for the so-called conditionally trainable young professionals. We have initiated the company-wide internship program “Chance plus – practical occupational preparation with future” in nine locations for this purpose. In the framework of this project we are allocating

120 Deutsche Bahn Group | Annual Report 2004 Employees

120 internship positions. 60 additional internships are being realized together with external cooperation partners. The goal of the internship program is to get the participating young people in shape for an apprenticeship and to make the practical training within DB, at cooperation partners or other companies possible. We offer numerous entry and development possibilities for the academic succession from vocational academies, technical colleges and universities. More than 250 university graduates joined DB in the year under review, whether as trainees or direct employees. In addition to TRAIN, DB’s trainee program, the entry program TRAIN Te c particularly for engineers was developed in 2004. In the scope of Group-wide, practical modules, TRAIN Te c provides DB-speciﬁc, social and entrepreneurial skills in the framework of project engagements and parallel trainings. As of the year 2004, DB was one of the ﬁrst companies in Germany to offer its own entry position for graduates with a Bachelor’s degree. Together with the Endowment Association of the German Economy (Stifterverband der Deutschen Wirtschaft), the Center of Academic Development (Centrum für Hochschulentwicklung; CHE), the Confederation of German Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberver- bände; BDA) and more than 30 leading companies, DB initiated the memorandum “Bachelor welcome” for converting degrees from German universities into Bachelor’s and Master’s degrees.

Active Social Policy and Equal Opportunities An active operational social policy is a tradition at DB. As the largest and most tra- ditional social establishment, the Rail Social Institution (Bahn-Sozialwerk; BSW) celebrated 100 years of existence in the year under review and is a good example of the historically mature self-image of railroad employees for social values, social commitment and self-help. A family-friendly personnel policy is an important basic principle for establishing equal opportunities. Different initiatives therefore carry the goal of increasing the compatibility of career and family. As such, we were awarded the “Total E-Quality Predicate” in 2004 for the third time for our equal opportunity personnel policy. The predicate is awarded by an independent jury composed of, among others, representatives of employers’ associations and unions, and is supported by the European Commission as well as the German government. In addition to the ﬂexible working time models, tele-home work and support for families (children, the elderly and handicapped family members), also our concepts of re-entry following parental leave have been convincing.

We report in detail on signiﬁcant programs as well as our offers for jobs and careers in personnel and social reports as well as continuously on the Internet at “www.db.de”.

121 Environmental Protection

Primary energy consump- Specific carbon-dioxide Speciﬁc carbon-dioxide Soot particulate emissions tion rail passenger emissions passenger emissions freight trans- from diesel vehicles transport (in Terajoule) transport in kg/100 pkm port in kg/100 tkm in t

96,638 89,254 8.8 7.7 3.1 2.9 388 362

120,000 12 4 400

90,000 9 3 300

60,000 6 2 200

30,000 3 1 100

2003 2004 2003 2004 2003 2004 2003 2004

2003 to 2004: 2003 to 2004: 2003 to 2004: 2003 to 2004: –7.6% –5.8% –7.6% –6.7%

Primary energy consumption continued to decline in the year under review

Establishment of targeted sustainability management shows our long-term commitment

Environmental Program 2004 – 2008 defines long-term environmental goals in areas such as climate protection and noise reduction

Emission of soot particulates from diesel vehicles in rail operations continued to drop significantly

122 Deutsche Bahn Group | Annual Report 2004 Environmental Protection

Orientation Towards Responsible, Sustainable Business Operations

In light of growing demand for mobility and transportation, one of our primary objectives is to minimize burdens on the environment and the atmosphere stemming from the transportation sector. We feel obligated to adhere to the principles of sustainable, responsible business operations, and we continued to show this commitment in the current ﬁnancial year by establishing targeted sustainability management procedures.

123 In an ecological comparison of modes of transport, the rails offer considerable advantages. Our customer surveys, as well as current political discussions, have signaled an even greater awareness regarding environmental issues. In addition to technical safety, performance quality and service orientation, environmental friendliness is proving to be an important factor in choosing a means of transportation. The rails also play a central role in transport policy regulations and infrastructure considerations through the creation of future-oriented mobility and logistics structures in Germany and Europe. A crucial starting point for us is the optimization of resource consumption. In this area, we have witnessed a continued, signiﬁcant reduction over the last decade and a half. In the year under review, we were able to decrease our primary energy consumption in rail operations by 8%. Compared to 1990, our primary consumption has declined by 22.1%. Our target to save 25% by 2005 has thus almost been achieved. However, we realize that the rail transport sector cannot optimize every aspect of transport performance. For this reason, we are working in the area of transport and logistics to intelligently combine the modes of transport through comprehensive transport and logistics supply chains. In the area of passenger transport, aside from improving our rail services, we are also striving to optimize transfers and improve the harmonization of interfaces between the modes of transport.

Deﬁning Strategic Environmental Goals Through our Environmental Program 2004–2008 we have deﬁned concrete, long-term environmental goals and formulated the steps for their implementation in areas such as climate protection and noise reduction. In the area of waste disposal, we are tar- geting a 10% decline in total waste accumulation and a simultaneous increase in the recycling quota of 10%. With this program, we are strengthening the environmental advantages of the railroad compared to other means of transport.

Environmental Protection Program Documents our Objectives

In the year under review, we were able to decrease CO2 emissions in rail transport by 4.4% in relation to the transport performance since the start of our environmental protection program in 2002. Since 1990, we have reduced this amount by over a quarter. With our “Environmental Protection Program 2020”, we have addressed the

far-reaching aim of reducing speciﬁc CO2 emissions by at least an additional 15% by 2020 compared to 2002. Given an improvement in the competitive distortions of the energy and environmental policy framework compared to other modes of transport, a reduction of up to 25% could be attainable.

Savings through the “SaveEnergy” Program The reduction in energy consumption related to transport performance was achieved in passenger transport through various measures. The “assured energy-saving through driving” process analyzes energy consumption rates and provides our locomotive engineers with their effective consumption rates. In the introductory phase in 2004,

124 Deutsche Bahn Group | Annual Report 2004 Environmental Protection

our locomotive engineers tested energy consumption displays and energy-saving driving recommendations displayed on the control panel. Starting in 2005, regional and long-distance transport vehicles will be equipped with these technical systems. The “SaveEnergy” program will be adopted into our regular operations starting this year. With this project, we have already achieved energy savings of 7% in long- distance transport compared to 2002. Due to its success in passenger transport, we have also started the program in rail freight transport. Our initial efforts have also resulted in considerable savings of up to 15%. A more efficient organization of our rail freight transport has enabled us to lower our specific CO2 emissions so considerably compared to last year that the absolute level of CO2 emissions also decreased, despite a significant increase in our transport performance.

Further Reduction in Soot Particulate Emissions In the year under review, we have again considerably reduced the emission of soot particulates from diesel engines in rail transport. Total emissions declined by 6.7% over the previous year. Since 1990, we have been able to reduce the emissions impact by 80 %, by employing low emission vehicles, by utilizing more electricity-powered rail cars and locomotives, and by equipping our locomotive ﬂeet with modern engine technology. Since the program began in 1998, we have converted a total of 740 locomotives, 177 of these in the year under review. In order to further reduce the environmental impact of diesel soot particulates, we will in future only order diesel locomotives with modern standards, and we will aim to convert our existing locomotives when the industry is able to offer technical and economically feasible solutions.

Continuation of Noise Reduction Measures Our stated goal is to cut the noise caused by rail trafﬁc in half by 2020. To achieve this aim, we are implementing various noise prevention measures. In the context of the legal framework for noise abatement, we have invested in noise prevention measures on all new and expansion lines. This includes passive noise protection measures such as the installation of noise protection windows and noise reduction insulation in the roofs of 2,200 residential units, as well as the erection of 38 km of noise protection walls. With regards to existing lines, we continued to abide by the voluntary “Rail Noise Abatement Program” approved by the federal government. As a part of this program, 30 km of noise protection walls were built and passive noise abatement measures were implemented in around 7,800 residential units in the year under review. In the area of freight transport, the focus was on expanding the use of composite brake shoes (“C shoes”), which reduce the perceptible acoustic emissions by half. At the end of 2004, a total of 2,500 freight cars were equipped with these brake shoes.

We report on major programs and progress in our Environmental Reports as well as on the Internet at “www.db.de/environment”.

125 Group Divisions Deutsche Bahn Group | Annual Report 2004 Group Divisions

128 Passenger Transport

136 Transport and Logistics

14 2 Passenger Stations

14 8 Track Infrastructure

156 Services Passenger Transport

IFRS IFRS Change in € million 2004 2003 in % Rail passenger transport performance in million pkm 70,260 69,534 + 1.0 External revenues 11,155 11,157 0.0 Operating proﬁt before interest 377 40 – Gross capital expenditures 894 1,304 – 31.4 Employees as of Dec 31 64,254 68,180 – 5.8

Transport performance Transport performance External revenues Operating proﬁt in million pkm in million pkm in € million before interest in € million

69,534 70,260 Long-Distance Transport 11,157 11,155 40 377 32,330 100,000 15,000 500

90,000 13,500 450

80,000 12,000 400

70,000 10,500 350

60,000 9,000 300

50,000 7, 500 250

40,000 6,000 200

30,000 4,500 150

20,000 3,000 100

10,000 1,500 50 Urban Transport 4,668 2003 2004 Regional Transport 33,262 2003 2004 2003 2004

2003 to 2004: 2003 to 2004: 2003 to 2004: 2003 to 2004: +1.0% +1.0% 0.0% € +337 million

Transport performance in the year under review showed another modest rise

Stagnation of external revenues due to special effect from S-Bahn Berlin

Increased operating profit before interest due to turnaround in the Long-Distance Transport business unit and successful implementation of comprehensive efficiency programs

Successful signing of long-term transport contracts in the Regional and Urban Transport business units

128 Deutsche Bahn Group | Annual Report 2004 Passenger Transport

Passenger Transport Holds Its Own Despite Difficult Market Environment

The Group Passenger Transport division, with its business units Long-Distance Transport, Regional Transport, and Urban Transport, focused strictly on meeting the demands of the market in the year under review. At the same time, the passenger transport market in Germany was characterized by stagnation, given the ongoing weak economic environment. The intensity of competition once again increased in all business units: Long-Distance Transport business unit was faced with another

129 round of price cuts by the low-cost air carriers, and the Regional and Urban Trans- port business units experienced growing competition for new contract bids. In the face of such a market environment, a consistent continuation of the restructuring was a decisive success factor. Based on our transport performance, the Group Passenger Transport division performed comparatively well in a stagnating market. Rail transport performance of 70,260 million passenger kilometers (pkm) was a modest improvement of 1.0% over the previous year. The stagnation of our external revenues in light of our transport performance is primarily the result of special effects from the disposal of Regionalbus Braunschweig GmbH (RBB) as well as lower income from a newly signed long-term transport contract for S-Bahn (metro) Berlin. In addition to numerous measures and programs aimed at improving the quality of our services in the year under review, we again placed a particular emphasis on comprehensive cost reduction programs designed to improve our competitiveness. Gross capital expenditures, mainly driven by the timing of the arrival of new vehicles, were reduced by € 410 million compared to the previous year to € 894 million. Once again, our capital expenditures were focused on modernizing our vehicle ﬂeet and expanding our works facilities infrastructure. Overall, operating proﬁt before interest increased considerably by € 337 million to €377 million (previous year: € 40 million). The number of employees decreased slightly compared to the previous year, resulting from productivity gains, in addition to the disposal of RBB and the divestiture of MITROPA AG in the year under review.

Improvement in On-Time Performance Accelerated A major issue in the year under review was the ongoing improvement in our on-time performance. Through a series of measures resulting from intensive cooperation with our infrastructure divisions, we were able to noticeably improve our on-time performance in all business units. Given a continuation of the progress already achieved and further advances in our on-time performance, we expect a sustainable improvement in customer satisfaction. Throughout the course of the year, our average on-time performance for the business units was: 85.0% in the Long-Distance Transport business unit, 91.3% for the regional trains and 95.0% for the S-Bahn (metro) trains in the Regional Transport business unit as well as 99.0% for the S-Bahn (metro) trains in the Urban Transport business unit.

Improved Information for Travelers Thanks to the implementation of our Traveler Information System (RIS), we were able to promptly inform increasingly more travelers regarding delays and service disruptions. Information from the RIS is now available at around 1,300 passenger and trafﬁc stations. All 1,700 head conductors in the Long-Distance Transport

130 Deutsche Bahn Group | Annual Report 2004 Passenger Transport

business unit, as well as 5,000 customer care staff in Local Transport are equipped with RIS communicator devices (a pocket computer with cellular technology).

Focus on Advancement of Sales Management With our “Distribution Channel Concept” project, we are aiming to simplify and improve customer access while at the same time creating sustainable reductions in our distribution costs. Existing structures, processes and distribution channels will be optimized through a series of measures. In doing so, active distribution channel management and the use of modern technology will support our goal of achieving a competitive sales performance on the market. One essential starting point in this connection is the expansion of cost-efﬁcient ticketing machines and sales through the Internet. Furthermore, starting on January 1, 2005, a new commission model for sales by travel agencies and the new, regional distribution structure should contrib- ute to sustainable cost reductions for sales activities.

Long-Distance Transport Business Unit Achieves a Turnaround The Long-Distance Transport business unit, and DB Fernverkehr AG in particular, was able to significantly improve profitability and reduce its losses in 2004, as it succeeded in compensating for a large share of its declining revenues in the previous year and further improved its cost structures. Despite the continued weak overall economic environment and ongoing competitive pressure from low-cost air carriers, the business unit was able to increase its market share. Overall, transport performance grew by 2.2% to 32.3 billion pkm. DB Fernverkehr AG in particular was able to considerably improve its performance on the previous year, reaching 30.0 billion pkm (+3.6%). At the same time, the ICE product segment developed particularly well. Whereas 2003 was characterized by considerable declines in specific revenues, the consolidation of the Long-Distance Transport business unit was supported by a price development in conformity with market trends. The regular prices were adjusted based on the respective distances. In doing so, this accounted for the different competitive position in comparison to other modes of transport, and it served to combat the considerable burdens on the cost side, especially due to rising energy prices. At the same time, new attractive price offerings were introduced for domestic travel (e.g. “Summer Special”, “November Summer” offers) and for international travel (e.g.“Europe Special”). Through these offers, new customer ratios of up to 40% were achieved, and the price perception of existing customers improved considerably. External revenues in the Long-Distance Transport business unit modestly exceeded those of the previous year. The positive performance at DB Fernverkehr AG is particularly noteworthy. Increased BahnCard sales, additional profits in the business travel segment due to company rebate programs, the implementation of the customer charter, and a series of service improvements (including a high-quality restau- rant car offer) all contributed to the turnaround in the year under review. Along- side improvements in transport performance, the revenue contribution from the ICE

131 product segment continued to increase. The ICE product segment now accounts for 66 % of DB Fernverkehr’s external revenues. The EC/IC and IR/D train product segments achieved a share of revenues of around 30% in the year under review. Revenue reductions resulted from the sale of MITROPA AG to the British Compass Group. The Long-Distance Transport business unit was able to significantly reduce its operating losses over the previous year due to the positive growth in revenues in combination with successful cost optimization. Gross capital expenditures in the Long-Distance Transport business unit were considerably lower than in the previous year. Once again, rejuvenation of the vehicle fleet of DB Fernverkehr AG was the major focus of our capital expenditures. In this context, the procurement of our ICE high-speed fleet was completed and additional locomotive-hauled passenger trains were modernized. Furthermore, we also used our capital expenditures to improve the infrastructure of our maintenance facilities. With the implementation of the new timetable for 2004 on December 14, 2003, we optimized our network and adapted our services to adjust to demand. In this context, additional cities were included in the ICE network, and we introduced hourly ICE service between Frankfurt/Main and Dresden, as well as direct connections to North Rhine-Westphalia along the new Cologne–Rhine/Main line. In 2004, the high-speed Cologne–Rhine/Main line in particular, which opened in mid-2002, experienced above-average passenger use. The growing demand on this line has been addressed since December 2004 with an increase in the number of available seats during busy travel times. Since the implementation of the new timetable for 2005 on December 12, 2004, we have introduced additional service improvements. Two excellent examples of this include the start-up of the newly built high-speed Hamburg–Berlin line, which reduced the ICE travel time by 30 minutes, and the integration of the Cologne-Bonn airport station into the Long-Distance Transport network. We have also made improvements in international transport, including more direct ICE connections to the Swiss Alps, as well as better connections to Brussels. The ICE International makes the trip from Frankfurt/Main to Brussels in just 3.5 hours.

Customer Charter for Long-Distance Transport Introduced Starting from October 1, 2004, we introduced a customer charter for Long-Distance Transport. The main feature of the charter is a uniform and legally binding compensation for delays. Under the charter’s terms, our customers will, for the ﬁrst time, receive compensation when their long-distance trip ends more than 60 minutes past the scheduled arrival time, as long as DB is responsible for the delay. These rules are not only valid for delays in a single train; they also include the entire travel chain in long-distance transport, including potential cancellations. In addition to the services provided in the case of travel delays, the customer charter also contains additional service requirements related to customer satisfaction and friendliness. The program was jointly decided upon together with the Federal Ministry of Transport and the Federal Ministry of Consumer Protection.

132 Deutsche Bahn Group | Annual Report 2004 Passenger Transport

Regional Transport Business Unit Continues its Positive Development Despite the restrained economic conditions, the unfortunate situation on the labor market with its corresponding effect on passenger transport, and the loss of tender bids for highly frequented lines, the business unit was able to maintain a stable transport performance of 33.3 billion pkm (–0.1%) in the year under review. External revenues were also at the previous year’s level. Revenues received from ordered service contracts were slightly above the level of the previous year, due mostly to the developments at DB Regio AG. An improvement in on-time performance here resulted in lower penalties for delays. Furthermore, we experienced growth due to the expansion of our services at DB ZugBus Regionalverkehr Alb Bodensee GmbH and as the result of higher grants for safety and protection at S-Bahn München GmbH. Farebox revenues, on the other hand, did not quite reach the previous year’s level. However, revenues from trafﬁc associations increased. Mainly as a result of the improved cost structure, the earnings contribution from the business unit exceeded that of the previous year.

Service Made Even More Customer-Friendly Marketing measures in the year under review focused on the implementation of the offers introduced at the end of 2003, including the introduction of the “State-Wide Single-Traveler Ticket” in Lower Saxony and Bavaria, and the expansion of its validity to weekends in Bavaria. Due to rising energy prices and other costs, fares were raised by 3.6% on average by December 14, 2004. Our fare adjustment therefore stayed within the limits of rate increases of the trafﬁc associations.

Modernization Program Continued in the Year under Review The gross capital expenditures of our Regional Transport business unit declined compared to the previous year, though they still remained at a high level. The emphasis of our capital expenditures in the framework of concluded transport contracts lay on the replacement and modernization of our existing vehicles. These comprised particularly the purchase of electric multiple units of the BR 423 series for the S-Bahn (metro) in Frankfurt/Main, Munich and Stuttgart, the BR 425 series for the region Baden-Wuerttemberg and S-Bahn (metro) RhineNeckar, double-deck cars in the Northeast, Southeast, Baden-Wuerttemberg, North Rhine-Westphalia and Lower Saxony regions, as well as BR146 series locomotives in Baden-Wuerttemberg and Hesse.

Intensifying Competition in Local Transport Still Increasing The volume of tender offers for transport contracts increased again, totaling 19.7 million train-path km (previous year: 18.3 million train-path km). The ongoing liberalization of the transport market and intensiﬁcation of competitive pressure in local transport still continue. As of yet, 53.3% of the tender offer volumes from the year 2004 have not been determined. In regard to the tender offers in the year

133 under review for which DB Regio has bid, we have won around 50% of the train- path km volumes (9.1 million train-path km). Overall we have won nearly 50% of all transport volumes tendered since 1996 (103.9 million train-path km).

Successful Conclusion of Transport Contracts With the goal of establishing a stable business platform, particularly in the ﬁeld of capital expenditures, we have held negotiations on the conclusion of long-term contracts with all responsible ordering organizations in the local rail passenger transport market since the end of 2001. In the meantime, long-term transport contracts have been concluded with the states of Schleswig-Holstein, Hamburg, Mecklenburg- Western Pomerania, Lower Saxony, Brandenburg, Berlin, Saxony-Anhalt, Rhineland- Palatinate, Saarland, Thuringia, Baden-Wuerttemberg, Hesse (RMV) and Bavaria, as well as further special purpose associations in the states of North Rhine-Westphalia and Saxony. The contracted and thereby assured order volume for the contract duration agreed upon (between 10 and 15 years) as of year-end 2004 – excluding the respective farebox revenues – includes a total volume of approximately € 32 billion.

Urban Transport Business Unit This business unit comprises S-Bahn (metro) systems in Berlin and Hamburg, as well as our subsidiaries in the bus transport segment. The year under review represents the first full financial year with the new structure in which we have strengthened our position in the still very fragmented local transport market. The overall economic performance in the year under review was pleasing. As such, the transport performance of the S-Bahn segment of 4.7 billion pkm was slightly above the previous year’s level (+0.8%). Compared to the previous year, external revenues saw a slight revenue decline in the year under review. A shortfall of external revenues in the S-Bahn segment was primarily due to lower payments of ordering organizations in the context of the new S-Bahn Berlin GmbH transport contract, as well as lower farebox revenues corresponding to the new revenue distribution contract with Trans- port Association Berlin/Brandenburg. The decline in external revenues of the bus segment is primarily attributable to the exclusion of Regional Bus Braunschweig GmbH from the scope of consolidation. The operating profit before interest of the segment was further increased by the implementation of additional measures to improve efficiency. Gross capital expenditures declined compared to the previous year. The focal points of capital expenditures remained the purchase of S-Bahn vehicles, the purchase of new buses and capital expenditures for the works facilities infrastructure.

Conclusion of S-Bahn Berlin Transport Contract The transport contract between the S-Bahn Berlin GmbH and the states of Berlin and Brandenburg was signed in August 2004. The contract retroactively goes into effect on January 1, 2003. The transport volume encompasses around 32 million

134 Deutsche Bahn Group | Annual Report 2004 Passenger Transport

train-path km annually and has a term of 15 years. The states of Berlin and Branden- burg are authorized to cancel orders in the deﬁned magnitude of approx. 9.8 million train-path km as of December 2013.

Increasing Competitive Intensity in Urban Transport Competition in urban transport intensiﬁed in the year 2004. The lost tender offers in Hesse underscore the growing competitive and pricing pressure. Several parts of the urban transport activities in Frankfurt will be tendered in the next few months. From a strategic perspective, a market entry is of interest to the Urban Transport business unit, however our participation in the tender offers will only occur under economically justiﬁable conditions.

Our focus in 2005: Continuation of the Restructuring Program, Regaining Customers, and Capturing Growth Opportunities After the declines in previous years, the overall transport demand will only grow at a moderate rate with gradually improving general economic conditions. The business units of the Group Passenger Transport division will variably profit from this trend. Due to continuing intensification of intermodal and intramodal competition, the improvement of our own competitive position in regard to performance and costs will determine further growth potentials in the future. Given the adjustments made to our pricing system and the improvement in operating quality, we expect a continued upward trend in long-distance operations. The ongoing increase of utilization rates and a higher share of first class passengers should offer growth potentials. In order to achieve further growth, we will develop differentiated service and pricing concepts tailored specifically to the demands of different customer groups. The new offerings of Berlin– Hamburg and Frankfurt/Main– Brussels should also have a positive impact. Our Regional Transport business unit will continue its efforts to win additional transport contracts. Ongoing improvements in our service performance and cost saving programs are critical factors that will enable us to offer bids of attractive quality and price to the Federal states, as well as enhance passenger potential. In 2005 we expect further invitations for tender. Our goal in the Urban Transport business unit is to protect the existing business and further strengthen the market position through internal growth, or in the case of economically reasonable chances, through external growth in the framework of the foreseeable market consolidation. This also includes new perspectives for opportunities in connection with European liberalization. Overall we expect a slight revenue increase in the Group Passenger Transport division in the 2005 financial year and a further improvement in operating profit before interest.

135 Transport and Logistics

IFRS IFRS Change in € million 2004 2003 in % Rail freight transport performance in million tkm 83,982 79,864 + 5.2 External revenues 11,569 10,804 + 7.1 Operating proﬁt before interest 282 254 + 11.0 Gross capital expenditures 546 537 + 1.7 Employees as of Dec 31 62,117 60,973 + 1.9

Ton kilometers Tons per train External revenues Operating profit in million tkm in € million before interest in € million

79,864 83,982 391.4 409.5 10,804 11,569 254 282

100,000 500 15,000 500

90,000 450 13,500 450

80,000 400 12,000 400

70,000 350 10,500 350

60,000 300 9,000 300

50,000 250 7, 500 250

40,000 200 6,000 200

30,000 150 4,500 150

20,000 100 3,000 100

10,000 50 1,500 50

2003 2004 2003 2004 2003 2004 2003 2004

2003 to 2004: 2003 to 2004: 2003 to 2004: 2003 to 2004: +5.2% +4.6% +7.1% +11.0%

Operating profit before interest again at a high level

Schenker business unit continues growth in revenues and operating profit before interest

Railion business unit shows clear rise in transport performance, though lower operating profit before interest due to a decline in specific revenues

Extensive capital expenditures in the modernization of the vehicle fleet and the expansion of networks

136 Deutsche Bahn Group | Annual Report 2004 Transport and Logistics

Challenging Market Environment in the Financial Year 2004

The Group Transport and Logistics division encountered a challenging market environment in the 2004 ﬁnancial year with its business units Schenker, Railion, Freight Logistics, and Intermodal. In the largest business units, Schenker and Railion, this led to converse developments in operating proﬁt before interest.

137 Driven by positive economic impulses in the Far East, Eastern Europe and America, the integrated logistics provider Schenker was able to further expand its market position in all segments, whereas the development of rail freight transport suffered from the weak German economy and an increase in competition. External revenues of the Group Transport and Logistics division were increased by a total of 7.1% to €11.6 billion in the past year. This was mostly due to the good development of the Schenker business unit. The earnings trend varied noticeably between the individual business units. While the Schenker business unit was able to reach a clear improvement in operating profit before interest, the Railion unit was forced to accept a noticeable drop in operating profit before interest. Overall, the Group division’s operating profit before interest improved slightly by € 28 million to € 282 million. In the year under review, the Group Transport and Logistics division slightly increased its gross capital expenditures to € 546 million. Similar to the network- optimizing capital expenditures in forwarding and logistics facilities, the modernization program in the vehicle segment of rail freight transport has likewise been strictly advanced in order to continue improving the quality of our services.

Schenker Business Unit Continues on its Growth Path The Schenker business unit strengthened its customer- and market-oriented approach at the beginning of 2004 with the establishment of the new Logistics segment. This brings all competencies in regard of “value added services” together, whereby existing expertise from European land transport as well as air and sea transport are carried over in the Logistics segment. With this, Schenker is well positioned to have stronger participation in the trend of outsourcing complete logistical services in the future. Business development in the past year has been supported by positive global growth. Together with the global approach as well as Schenker’s high market acceptance, the pleasing economy plays a role in why the business unit was able to raise external revenues. The trend in operating profit before interest was again positive. Negative exchange rate effects could be compensated for both in terms of external revenues and operating profit. These emerged, as they had in the previous year, above all due to the performance of the US dollar and other currencies dependent on the US dollar. Gross capital expenditures lay just above the previous year’s level. In addition to the maintenance and expansion of infrastructure for the general cargo network in Germany and Western Europe, capital expenditure focal points also included integrated logistics terminals in the growing markets of Asia and Eastern Europe. A particular highlight of the year for Schenker was its work as the “official supplier of customs clearance and forwarding for the IOC” at the 2004 Olympic Games in Athens. This successful and smooth cooperation will also continue at the 2006 Olympic Games in Turin as well as in Beijing in 2008.

138 Deutsche Bahn Group | Annual Report 2004 Transport and Logistics

European Land Transport Segment: The European Land Transport segment profited from the fact that in other countries outside of Germany, positive economic impulses act as a support for business. Particularly business in Eastern Europe emerged pleasingly, last but not least as a result of the EU eastward enlargement. The expansive presence via subsidiaries in all Eastern European countries and their integration in the Europe-wide land transport network proved to be a competitive advantage for the European Land Transport segment. However, Schenker’s profitable customs transactions at the former Eastern European borders have ceased to exist with the EU’s eastward enlargement in May 2004. Through targeted marketing activities however, the segment has succeeded in participating in the growing flow of goods between Western and Eastern Europe and the resulting revenues compensated for the discontinued customs transactions. Further- more, a distinct volume growth in transport to and from France was achieved through the successful integration of the French Joyau Group, acquired in 2003. This enabled the segment to maintain its leading position overall in the European land transport market. Air and Sea Transport Segment: The Air and Sea Transport segment also belonged to the growth engines in the 2004 financial year. This growth was achieved with predominantly advantageous market conditions. From this, the prospering Asian economy led to increasing order volumes for exports from Asia to North America and Europe as well as within the Asian region. The activities in Europe and particularly in air transport – especially the German subsidiary – were furthermore able to achieve good growth rates. The segment increased its operating profit before interest by way of higher external revenues in comparison to the previous year. Above all, this is attributed to the business growth in air transport, whereas the high freight rate level along with the weak US dollar proved to burden profits of the sea transport activities. Logistics Segment: The new Logistics segment, established at the beginning of the year under review, suffered from difficult market conditions which were mainly due to the low demand of major accounts in the automotive industry. In addition, start-up costs of numerous new projects had a burdening effect on profits. However, the development of additional efficient and sector-specific product solutions such as the “SCHENKERsupply net solutions” or the “SCHENKERlogistics-sourcing” allows for improvements in operating profit before interest to be expected in the near future.

Lower Profitability of the Railion Business Unit The Railion business unit pursues a European approach beyond our home market of Germany through the local companies Railion Deutschland AG, Railion Neder- land N.V. and Railion Danmark A/S as well as various subsidiaries. Traditionally, the development of the business unit is to a great extent dependent on Railion Deutsch- land AG, the largest subsidiary by far. In the transport performance trend, the German subsidiary provided the strongest contribution (+5.0% or +3,670 million

139 tkm to 77,620 million tkm) to the overall increase achieved in transport performance within the business unit (+5.2% to 83,982 million tkm); the remaining subsidiaries also increased their transport performance. The increase in Railion Deutschland AG’s performance was above all due to a rise in the average transport distance. However, Railion Deutschland AG was challenged by an overall restrained economy in the past year, though excluded from this was the German raw steel production which in 2004 lay above the level of previous years due to high worldwide demand in the steel sector. Competition intensified in the block train transport segment and particularly in important product segments, specifically the steel and mining transport, and the further intensified competition in truck transport after the EU eastward enlargement. The result was remarkable pressure exerted on the specific revenues. Despite ongoing rationalization measures, this led to distinct margin erosion and, with that, a decline in operating profit before interest associated with higher cost burdens for train path usage and energy consumption. Railion Nederland N.V. raised its transport performance by 306 million tkm to 4,332 million tkm in the past year. External revenues were also above the previous year’s level, whereas the operating profit before interest declined particularly as a result of increasing costs for the maintenance of freight cars and locomotives, as well as higher costs of diesel fuel. In order to generate profitable growth again in the future, we have initiated additional efficiency measures. The transport performance of Railion Danmark A/S grew in the past year by 142 million tkm to 2,030 million tkm, whereas external revenues decreased. The latter was mostly due to a change in the settlement technique for transports in transit traffic. Thanks to the successful integration of initial measures of the restructuring project which began in 2003, Railion Danmark A/S was able to improve its operating profit before interest. Assessed by the key indicator “ratio of transport performance to train kilometers”, productivity was improved by an additional 4.6% to 409.5 tons per train after the already distinct increase in the previous year. Productivity was enhanced by the further optimized integration of production between the Railion companies and the positive effects from the Railion Intermodal Traction GmbH subsidiary, which took over a part of the production services for the combined rail/road transport. The productivity advancements were also supported through further streamlining of the conventional single freight car transport and the implementation of the product campaign. Overall, gross capital expenditures of the Railion business unit were almost at the same level as in the previous year. The procurement of internationally applicable multi-system locomotives as well as capital expenditures in freight cars were again a focal point in improving tailor-made offerings. Effective as of June 8, 2004, Railion Deutschland AG has purchased a 95% stake in the private Italian railroad company Strade Ferrate del Mediterraneo S.r.l., Messina/Italy, in order to take part in the strong growth within the Italian market. Strade Ferrate del Mediterraneo recorded its first transport with the timetable change in December 2004.

140 Deutsche Bahn Group | Annual Report 2004 Transport and Logistics

Positive Trend in the Freight Logistics Business Unit (Holdings) The subsidiaries of the Freight Logistics business unit, active in the area of complete rail-related logistics offers, were able to distance themselves from the sluggish European economy and showed an increase in external revenues in the past year. The positive revenue trend was also reﬂected in an improved operating proﬁt before interest. The pleasing performance of Transa Spedition GmbH should be particularly emphasized, as the company was able to surpass the average performance of the forwarding market through the successful implementation of sales and marketing measures.

Revenue Growth in the Intermodal Business Unit (Holdings) The globally increasing containerization of transported freight in the combined road/rail transport is still the growth engine. Carried by this growth, the subsidiaries of the Intermodal business unit clearly expanded their external revenues in the year 2004. Positive effects are also seen in the year under review by the collaboration with Kombiverkehr GmbH&Co KG, newly organized in 2003, and Transfracht Internationale Gesellschaft für kombinierten Güterverkehr mbH.

Outlook for the Financial Year 2005: The Difficult Trend Continues At the moment it can be assumed that the trend in 2005 for the Group Transport and Logistics division will continue on a divergent path similar to that of the previous year. Driven by the upswing in growing economies in Asia, the USA and Eastern Europe and the resulting positive economic trend, the demand for global transport and logistics services will continue to increase. The Schenker business unit is well positioned to take part in this trend. A possible continuance of the weakening US dollar could however have a negative effect on operating profit before interest. Despite the strategy of largely passing on the higher costs, burdens on profitability from the introduction of the German truck toll are expected in European land transport. The Railion business unit is faced with two challenges. On the one hand, it must stabilize and lift specific revenues in a difficult market environment, while on the other hand it must successfully implement the planned restructuring measures in the production segment. Only then can it succeed in developing the rail freight transport into a long-lasting profitable business. Overall, we see a difficult business trend with numerous challenges for the Group Transport and Logistics division in the 2005 financial year. We expect a slight increase in external revenues. Operating profit before interest will probably be burdened by the implementation of necessary restructuring measures.

141 Passenger Stations

IFRS IFRS Change in € million 2004 2003 in % Station stops in million 140.6 136.5 + 3.0 thereof non-Group in million (11.2) (9.3) + 20.4 External revenues 268 249 + 7.6 Operating proﬁt before interest 107 98 + 9.2 Gross capital expenditures 635 630 + 0.8 Employees as of Dec 31 4,983 5,074 – 1.8

Station stops Station stops – External revenues Operating proﬁt in million non-Group railroads in € million before interest in million in € million

136.5 140.6 9.3 11.2 249 268 98 107

150 10 250 100

120 8 200 80

90 6 150 60

60 4 100 40

30 2 50 20

2003 2004 2003 2004 2003 2004 2003 2004

2003 to 2004: 2003 to 2004: 2003 to 2004: 2003 to 2004: +3.0% + 20.4% +7.6% +9.2%

Positive revenue trend in the year under review

Modernization programs continued, Cologne/Bonn airport station put into operation

Services for customers further enhanced

Further improvements in operating profit before interest

142 Deutsche Bahn Group | Annual Report 2004 Passenger Stations

Customer Satisfaction via Attractive Stations and Good Service

Every train ride begins and ends at a passenger station. Our more than 5,400 stations with approximately 2,400 concourse buildings determine the image of Deutsche Bahn for more than four billion travelers and station visitors every year. Our activities include the Trafﬁc Station and Rental business units. As a percentage of total revenues, intra-Group customers thereby dominate in both areas. The Trafﬁc Station unit comprises all services which are directly aimed at the needs of travelers and at the same time linked closely to railroad companies which are using

143 our stations. In addition, there is a comprehensive offering of goods and services at our stations as well as services for travelers, station visitors and residents. The respective commercial space activities make up the Rental business unit. Since the beginning of the German Rail Reform, we have continuously reshaped the stations through modernization measures aimed at the needs of travelers and station visitors. At the forefront are, on the one hand, extensive service expertise, high safety standards, good customer information and a functional guidance, and on the other hand, increased profitability, particularly at the more frequently visited stations. The central significance of the stations as an epicenter, meeting point and communication point for our customers is underscored by the “Train Station of the Year”prize, which was awarded to the Hanover main station as well as the Lübben (Spreewald) station in the year under review. The prize for exemplary travel service from the customer’s point of view is awarded to one large and one small station every year by the association “Allianz pro Schiene” (“Alliance pro Rail”). Neutral representatives of the passenger associations “Verkehrsclub Deutschland” (“Traffic- club Germany”) and “Pro Bahn” (“Pro Rail”) make up the jury.

Operating Profit Before Interest Increased The Group Passenger Stations division once again significantly increased its external revenues in the year under review. The Traffic Station business unit as well as the Rental business unit contributed to this. Overall, external revenues generated from non-Group railroad companies, tenants and leaseholders showed a 7.6% increase to €268 million. Behind this is a significant rise in station stops realized by non- Group railroad companies of 20.4% to 11.2 million in the Traffic Station unit. We carried on with the optimization of rental concepts and follow-up tenancies as well as the strict cost management and concentration on our core business in the year under review. Combined with the positive revenue trend, the division’s profit rose slightly to €107 million (previous year: € 98 million). Due to the continuation of steps toward streamlining and productivity, the number of employees was 1.8% under the previous year’s level, with 4,983 at year-end.

Station Development Program Continued Successfully A station is not just the entrance to the rail system. Often situated in the historical city center, it is also a door to the respective cities and municipalities and largely imprints its image and identity as a centerpiece. From this comes a common interest in ensuring the pleasant appearance of the stations. Our goal is to communicate with our partners in the federal government, states and municipalities regarding future-oriented station development including financing possibilities, and to develop continuing solutions together. We have already achieved many successes in cooperation with the public authorities, also in the scope of financing. After the commencement of our station development program in 2003, we have together continued with the modernization and expansion of the stations. In the meantime, we have released updates of the state-specific brochures entitled “Einladung zum Dialog” (“Invitation

144 Deutsche Bahn Group | Annual Report 2004 Passenger Stations

to Dialogue”), which were ﬁrst prepared at the start of the concept in 2003. The brochures document the construction status and equipment standard of all stations. In the future we will continue holding station conferences which were established in 2004, for dialogue with the public authorities regarding a common station development. Our goal continues to be the comprehensive enhancement of preferably all stations. The aim is thereby to use the limited funds of Deutsche Bahn as well as of the public authorities as effectively as possible. Gross capital expenditures were again at a high level with € 635 million in the year under review (previous year: € 630 million). Projects with signiﬁcant capital expenditure volumes in the year under review included the Berlin hub with the north-south connection, particularly for the Berlin central station, the RhineNeckar S-Bahn (metro) including supplemental routes, the renovation of the Frankfurt/Main central station’s hall roof, the Cologne S-Bahn (metro), stations along the S12 line Hennef–Au (Sieg)–Betzdorf, the Cologne/Bonn airport connection, the Erfurt hub, the Rhine/Main S-Bahn (metro) with the Rodgau route, the Berlin Gesundbrunnen station, the stations along the line Rottweil–Villingen–Tuttlingen, and the North Rhine-Westphalia modernization program. In addition, a number of smaller projects were also realized.

Numerous Large Construction Projects Completed In 2004 we turned stations in many regions into attractive travel stations and service centers. In this sense, a smooth link between the rails and other means of transport is important to us. With the new Cologne/Bonn airport station, we have connected the ninth airport in Germany directly to the rail network. Given its exemplary conception, this makes the transfer between plane, rail, and car possible within the shortest possible distances. Numerous other projects were successfully completed in the year under review. As such, the concourse buildings at the Kiel, Wiesbaden, and Regensburg main stations have been completely modernized. The Siegburg/ Bonn station on the new Cologne–Frankfurt line received a new concourse building in cooperation with the city of Siegburg. New trafﬁc stations have been initiated in Wittenberge, Eberswalde and Bergen on the island of Rügen. We successfully carried out the immediate action program for the beautiﬁcation of small and mid- sized stations, which began in 2002. In the year under review, approximately 660 stations were modernized via a new signposting system, new platform furnishings or a fresh coat of paint. Meanwhile, some 2,000 stations have become more attractive for our passengers and visitors through the program. At the moment, the Erfurt main and Basel Badischer Bahnhof stations among others are being reconstructed, and the hall roofs of the central stations in Dresden and Frankfurt/Main are being completely renewed. In Berlin, construction programs at the central station and the stations Papestrasse, Gesundbrunnen and Potsdamer Platz are progressing with great efforts – with the goal of starting operations in time for the Soccer World Cup in May 2006.

145 Enhancement of the Traffic Stations Service, safety, and cleanliness are decisive factors in making our stations more enjoy- able from the customer’s point of view. We continued to improve all three factors in the year under review with our “3-S”concept, with a special emphasis on service. Employees in station management have thus been actively involved in the task of developing an improved service concept. The best recommendations regarding service conduct, communicating our products and technical service knowledge have been combined into one new service program, which we are implementing at our stations since the beginning of 2005. In total, around 3,150 service employees currently look after travelers and station visitors at our 3-S Centers, Service Points and on the platforms. The 59 3-S Centers play a key role in coordinating the activities of service staff as well as cleaning and security personnel.

Further Efforts to Improve Punctuality We have started a project in the year under review which offers a substantial contribution to improving the punctuality of Deutsche Bahn. Employees at the large stations work directly on the platform to ensure the on-time departures of trains. Until now, only the train conductors were responsible for the dispatching of trains. Additional staff on the platforms will help connections to be made easier, and important customer information directly on the platforms will be optimized. This program thereby offers a considerable contribution in improving customer service on the platform. This service was decided upon at the beginning of December 2003 for the Berlin east station and the central stations in Frankfurt/Main, Cologne, and Mannheim and was already underway in the same month. As a result of the achieved beneﬁts, pilot operations had been expanded to the central stations in Bremen and Dortmund by the end of February 2004, and Hamburg Dammtor was included in July 2004. In the meantime, the program has started operations in a total of 14 particularly important stations for overall punctuality.

Successful “Smoke-Free Station” Project Receives Positive Response The continuance of the “Smoke-free Station” initiative has been an enormous success. The original plans to enhance approximately 150 stations through the initiative have clearly been exceeded in the meantime by the implementation of 1,000 smoke- free stations. We will continue with this initiative and ﬁnally include all stations. Our passengers and station visitors have reacted very positively to the smoke-free stations. Furthermore, the effects we had hoped for were realized: Cleanliness in the stations was improved and cleaning costs were reduced. In addition, non-smokers are better protected. The measures have received frequent appreciation by passengers, station visitors, and the Federal Authority for Health Education.

146 Deutsche Bahn Group | Annual Report 2004 Passenger Stations

Adjustment of Infrastructure to Demand and Economic Feasibility Last but not least, in order to further improve the appearance of the stations, their designs should continue to be customized to the individual local requirements. This includes optimizing the length of platforms and the use of existing constructional conditions such as bridges and rail-level crossways that can serve as an entrance to the stations. With the new conception of stations in the course of these measures, trafﬁc routes will also be optimized within the concourse buildings and to the platforms. After a comprehensive analysis, we have reached the decision to reduce the number of concourse buildings to the necessary operational quantity. Those buildings which are important for transport and railroad operations are regarded as essential. We have identiﬁed a core portfolio of just over 600 essential concourse buildings. Unnecessary concourse buildings will for example be handed over to their respective cities and local authorities or used for other purposes.

Improved Service at Small and Mid-sized Stations The DB ServiceStores (convenience stores) enable us to continuously show expansive presence as well as to offer our customers at small and mid-sized stations a new service quality. Here travelers and customers can also ﬁnd a contact partner for service offerings outside of normal working hours. The stores’ core product is the sale of train tickets, though baked goods, snacks, drinks, and magazines can be obtained as well. In addition to consultation and sales, franchisees should also consider themselves responsible for service, safety, and cleanliness at the station. In the year under review, we have opened 42 new DB ServiceStores and including these we are represented at 100 locations. The system should expand to approximately 175 locations by the end of 2005.

Outlook for the Financial Year 2005: Success via Attractive Stations and Good Service We will continue to advance the modernization and expansion of the stations together with the public authorities in the current financial year. In the past few years, many stations have again become inviting centerpieces for Deutsche Bahn and the cities. We aim to open the modernized concourse buildings and platform constructions at the main stations in Koblenz and Schwerin as well as celebrate the recon- struction of the Jena Paradies station in 2005. The concourse buildings in Kempten and Saalfeld (Saale), as well as in Trier and Oldenburg (Oldb) will be completed. Moreover, we plan to further improve the service offerings at the ServicePoint for increased customer satisfaction in the 2005 financial year. By implementing the aforementioned measures, we expect to reach an operating profit before interest for the Group division close to the level of the year under review.

147 Track Infrastructure

IFRS IFRS Change in € million 2004 2003 in % Operating performance – rail in million train-path km 1,000.7 988.2 + 1.3 thereof non-Group in million train-path km (88.0) (70.4) + 25.0 External revenues 318 273 + 16.5 Operating proﬁt before interest 22 – 283 – Gross capital expenditures 4,639 6,254 – 25.8 Employees as of Dec 31 43,637 44,080 – 1.0

Train-path kilometers Train-path kilometers – External revenues Operating profit in million train-path km non-Group customers in € million before interest in million train-path km in € million

988.2 1,000.7 70.4 88.0 273 318 – 283 22

1,000 100 500 50

900 90 450 0

800 80 400 – 50

700 70 350 –100

600 60 300 –150

500 50 250 – 200

400 40 200 – 250

300 30 150 – 300

200 20 100 – 350

100 10 50 – 400

2003 2004 2003 2004 2003 2004 2003 2004

2003 to 2004: 2003 to 2004: 2003 to 2004: 2003 to 2004: +1.3% + 25.0% +16.5% € + 305 million

Continued significant growth in demand by non-Group customers

External revenues raised by 16.5% to € 318 million

Capital expenditures of € 4.6 billion remaining at a high level

Hamburg–Berlin expansion line is put into operation in December 2004

148 Deutsche Bahn Group | Annual Report 2004 Track Infrastructure

Track Infrastructure – The Foundation of Quality in Rail Operations

As part of the Group Track Infrastructure division, DB Netz AG is responsible for all elements related to the track infrastructure of rail operations. The company’s most important responsibility is to provide a high-quality rail network in line with the needs of rail transport companies, in order to form a solid foundation for safe, reliable rail operations. A further challenge is the strategic alignment and development of the rail infrastructure through capital expenditures in the existing network

149 as well as new construction and expansion lines. Our rail network is available to all accredited railroads on a non-discriminatory basis, as speciﬁed in the EU Directive 91/440. Given this open access, the number of customers transporting passengers and freight on DB Netz’s track infrastructure is continuously increasing. In 2004, this number amounted to over 310, of which 290 are non-DB Group companies. Demand from non-Group rail transport companies increased again in the year under review, rising 25.0% to 88.0 million train-path kilometers (train-path km). Together with a modest decrease in intra-Group demand, this resulted in an overall increase by 1.3% to 1,000.7 million train-path km.

Results Once Again Significantly Exceed Prior Year At € 318 million, external revenues were 16.5% higher than in the previous year, in line with increased demand for services by non-Group railroads. Overall, train path revenues developed positively due to the inclusion of GSM-R costs in the pricing system, a price adjustment of +1% in the train-path pricing system (TPS), as well as the growth in demand. Operating proﬁt before interest improved by € 305 million to € 22 million. This emphasizes the above-average restructuring progress and efﬁciency improvements achieved by the Group Track Infrastructure division in 2004. Similarly, the decline in the number of employees is also based primarily on productivity increases.

“2005 Timetable”– A Reflection of Quality and Fair Competition on Germany’s Rail Network The open access and high level of competition in German rail transport, representing a nearly unique situation within Europe, were also reﬂected in the train-path usage applications for the “2005 Timetable” (starting December 12, 2004). Non-Group customer applications increased by an additional 14% compared to last year to reach 8,707. In total, some 46,300 registrations for train-path usage were submitted within the deadline to DB Netz AG. As a result, a complex timetable was created to meet the needs and wishes of the rail transport companies. Around 9,500 cases of overlapping in view of times and/or paths could be resolved together with the carriers during the creation process. An additional 70 cases, roughly two-thirds less than last year, were resolved according to priority. As in the previous year, a highest- price bidding procedure, where a train path is allocated to the highest bidder, was not necessary.

Lower Capital Expenditures Due to Federal Funds Reduction Capital expenditures in 2004 were considerably impacted by lower federal funding. As a result – despite the still high level of funding from our own cash ﬂows – gross capital expenditures were reduced by 25% in 2004. As in the previous year, capital expenditures were focused on making qualitative improvements to the existing

150 Deutsche Bahn Group | Annual Report 2004 Track Infrastructure

track infrastructure: around 60% of overall capital expenditures were invested in the existing network. Some 40% of capital expenditures were directed at new and expansion projects in accordance with the federal government’s rail requirements planning (Bedarfsplan Schiene). As in the prior year, the largest project by far was the Nuremberg–Ingolstadt–Munich line, with expenditures of € 543 million. The second largest project was the expansion of the Hamburg–Berlin line, which successfully started operations in December 2004. As in previous years, including measures directly expensed in the income statement, we maintained a focus on investing in the modernization of our command and control technology, marshalling yards and transshipment terminals, and in new and expansion projects as permitted given the reduction in federal funds.

Additional Section of the Karlsruhe – Basel Line Completed With the end of construction between Rastatt South and Bühl by the end of ﬁnan- cial year 2004, we have completed a new, roughly 20 km long four-track section on the Karlsruhe–Basel line. Capital expenditures for this project amounted to around €260 million. In addition to the construction of two new tracks for high-speed trafﬁc, the existing line in the Rhine valley (Rheintalbahn) was adapted to meet the future local transport requirements in the Karlsruhe metropolitan area. The Rastatt South–Bühl section of track now connects seamlessly with the new construction line between Bühl and Offenburg, which already went into operation in June 2001.

Cologne/Bonn Airport – Ninth German Airport with a Rail Connection As of June 2004, the Cologne/Bonn airport is the ninth airport in Germany to be connected to DB Netz AG’s rail network. As is the case with the airports of Frank- furt/Main, Düsseldorf, Berlin-Schönefeld and Leipzig/Halle, Cologne/Bonn can be reached with both local and long-distance trains. The approximately 15 km long loop to the airport connects in Gremberghoven and in Porz-Wahn with the high-speed Cologne–Rhine/Main line as well as the Cologne –Troisdorf line. Prominent structures tied to the airport connection include the new, four-track train station under Terminal 2, the approximately 4.2 km long airport tunnel in the area around the Wahner Heide nature reserve, and the 1 km Röttgen Castle tunnel. Overall, the federal government, the state of North Rhine-Westphalia and the Flughafen Köln/ Bonn GmbH invested around € 520 million in the project.

Efficient Transport Axis Developed for S-Bahn (Metro) Transport Local transport services have been improved considerably as of the end of the ﬁnancial year, due to new and updated S-Bahn (metro) lines in the Halle/Leipzig and Dresden metropolitan areas. Following capital expenditures of over € 239 million, the Halle (Saale)–Leipzig S-Bahn (metro) line has been available since the implementation of the new timetable in December 2004. An additional qualitative improvement to the

151 rail infrastructure was also made between Dresden and Pirna: the S-Bahn Lines 1 and 2 now travel on their own tracks, independent of long-distance passenger and freight transport. Overall capital expenditures of over € 250 million were dedicated to new tracks, modern command and control technology, and in expanding and building new stations. The repair of ﬂood damage in upper Elbe valley also added around € 40 million in costs. In the Munich area, a new age of S-Bahn (metro) travel began on December 12, 2004, with the introduction of the 10-minute train interval. This change was made possible by a new electronic signaling system on the heavily-used main line between the Munich Eastern Station and Pasing. It is now possible for up to 30 trains per hour to travel on this line, in both directions.

Modernization of Command and Control Technology Through Electronic Interlockings Electronic interlockings (ESTW) allow for efﬁcient, cost-effective operations management. In the year under review, we remained on course with our capital expenditures program for electronic interlockings, despite the tense budgetary position of the federal government. We implemented 38 measures for ESTW across Germany, with total expenditures of around €1.3 billion. One of the largest projects, which involved replacing 23 old interlockings, was the ESTW project in Leipzig. The ﬁrst part of the ESTW has been in operation since the end of 2003. In September of the year under review, the local operation center of the Central Station West began operations, accompanied by a large-scale switchover effort over the course of one weekend, which involved completely closing off the station. In November, an additional local operations center was added in Leipzig- Wahren, which enables reliable control of over 700 trains per day. Control over the new interlocking technology, which involved capital expenditures exceeding €120 million, takes place from the central operations center in Leipzig.

Further Progress on Rollout of GSM-R The Global System for Mobile Communications-Rail (GSM-R) currently being implemented is one of the largest digital cellular networks for rail operations in the world. This innovative technology, in its ﬁrst phase, will begin to replace the tradi- tional functions of rail operating broadcasting, starting with ground-train radio links. As the single pan-European standard for mobile voice and data radio applications, GSM-R is driving the technological integration of the European rail transport network. Our capital expenditures for our GSM-R network set a positive example in Europe and allow for a wide range of applications for operations control, diagnostics, and service systems. The installation of the GSM-R network progressed according to plan in 2004. Following its application on individual stretches of track, such as the high-speed Cologne –Rhine/Main line, the Ulm –Tübingen–Sigmaringen line, or the Rodgau

152 Deutsche Bahn Group | Annual Report 2004 Track Infrastructure

S-Bahn (metro), which all operate exclusively on digital ground-train radio, since December 2004/January 2005 we utilize this technology already on a total of around 1,000 km of track. Our goal is to gradually adapt around 24,000 km of track to operate on our digital ground-train radio technology.

Qualitative Improvement in Regional Network Infrastructure Continues Three years ago, DB Group began its program for promoting mid-sized structures for regional networks. Since that time, a lot has changed in DB Netz AG’s 43 so-called regional networks across Germany. In addition to qualitative improvements to rail lines, more electronic interlockings were put into operation and train crossings were modernized thanks to additional rationalization measures. Our goal is the sustainable strengthening of the competitive position of regional rail transport. We have placed a particular emphasis on the creation of a sound economic proﬁtability and the modernization of the track infrastructure. In the year under review, our capital expenditures amounted to over € 600 million. Examples of our initiatives to improve quality in the countryside are the regional networks of Palatinate and Rhine/Hesse Weinstraße (wine route). In the year under review, we carried out a comprehensive capital expenditures program for these networks. In addition to tracks and signals, we completely restored structures such as bridges and tunnels, and we modernized train crossings. In addition, the program also called for the modernization of command and control technology. In this context, the regional control center in Neustadt (Weinstraße), an electronic interlocking facility tailor-made to the requirements of the regional network, went into operation in July 2004. Total capital expenditures for both regional networks totaled around € 47 million. Comprehensive changes were also made in the regional network of Westerwald in the year under review. Around 117 km of track for the Lahntalbahn was restored between Koblenz and Gießen for around € 40 million. In order to achieve this, four partial sections of track were completely closed starting in the summer of 2004. Through this approach, we were able to reduce the time required for construction in half, which greatly alleviated the burden on commuters and residents.

Transshipping Stations Continue to Gain in Importance as Interfaces between Rails and Roads Combined rail/road transport continued to grow in importance in the year under review. In order to support this, new opportunities arose for relieving the roads of masses of heavy trucks and shifting freight transport to the rails. In order to support this, we undertook extensive capital expenditures in our 26 transshipping stations in 2004. Expansion work on the Frankfurt East transshipping station was completed, with capital expenditures amounting to some € 25 million. The new facility began operations in September 2004. The Frankfurt/Main East Terminal is now equipped with two gantry-cranes, four transshipping tracks, storage space and the corresponding

153 heavy truck facilities with a handling capacity of around 120,000 loading units per year. The modular construction method employed will also allow for trouble-free future expansions. At the end of October, we started construction on the new transshipping terminal in Ulm-Dornstadt. Over the course of the next 18 months, the construction of the modern, efficient facility on 11 hectares will take place in numerous stages. Some €31million will be spent in the first building phase. With a capacity of 250 loading units per day, the efficiency will almost double compared to the current facility in Neu-Ulm. Should the need arise, the transshipping station can be expanded in stages to reach a capacity of 600 loading units per day.

Marshalling Yards – Hubs for the Flow of Goods in Europe Prior to leaving for their destination, individual freight cars or groups of cars have to be put together to form freight trains. This process takes place in special marshalling yards. Germany has 50 such facilities, and eleven of these are large marshalling yards with pan-regional marshalling responsibilities. In order to meet the challenges of the increasing flow of goods on the rails, we are utilizing capital expenditures of around € 230 million in a country-wide modernization program. In the course of this program, the Cologne-Gremberg marshalling yard, for example, which is one of the largest marshalling facilities in Germany, has been equipped with modern technology since July 2004. Through the installation of modern, completely automatic brake, mule, and control installations, we are able to significantly improve the marshalling yard’s efficiency as well as the quality of its processes. We began with the installation of 31 new retarders, 24 mules and 31 incline equalization brakes in the North-South System. The modernization of the South-North System is planned starting in spring 2006. In November 2004, construction work was completed on the eastern section of the Seelze marshalling yard, otherwise known as the East-West System. The newly installed retarders and mules for all 18 sorting tracks in the eastern section of the marshalling yard can now be controlled by computer. Through the installation of modern marshalling technology, the efficiency of the East-West System improved from 140 cars to some 195 cars per hour. Following the start of East-West System operations, we have begun modernizing the West-East System. By mid-2006, the existing marshalling technology, which has been in use since 1970, will be replaced by new retarder and control systems for the 34 sorting tracks. After the completion of construction, an estimated € 65 million in total capital expenditures will have been dedicated to the modernization and replacement of the Seelze marshalling yard. At the end of 2004, the modernized Mannheim marshalling yard started its operations. In the marshalling system West-East, we equipped all 41 sorting tracks with retarders and incline equalization brakes, mules, and remote-controlled brake test installations. The automated marshalling technology is now controlled from a

154 Deutsche Bahn Group | Annual Report 2004 Track Infrastructure

new, central computer. Marshalling locomotives are also included in the control process, and their speed as they approach the hump is automatically regulated. Capital expenditures here amounted to some € 40 million. At the Hagen-Vorhalle marshalling yard, we have increased efﬁciency from 175 to 200 cars per hour. The automation of the existing marshalling system with 40 sorting tracks will take place through the installation of modern retarders and mules, the optimal interplay of which will be regulated and monitored by a new computer. Furthermore, we will also make changes to the tracks, switches, and overhead lines. Construction on the overhead lines and track superstructure began in August 2004. Capital expenditures for this project amounted to some € 43 million.

Outlook: Restructuring and Modernization Processes will Continue in the Current Financial Year Our goal is to maintain, operate, and enhance a high-value rail network focused on the needs of our customers. In the 2005 financial year, we will continue to focus on the timely continuation of our restructuring and modernization processes. The foundation of our focus is still our “Net 21” (Netz 21) strategy, which is aimed at increasing the capacity and performance of our track infrastructure. In the medium- term, “Net 21” targets the segregation of faster-moving from slower services, thereby improving overall traffic flow on the rails. Our foremost target remains the ongoing modernization of our existing infrastructure. Our comprehensive capital expenditures program is therefore aimed at releasing the dormant potential of our current network. Furthermore, we will continue to modernize and increase our efficiency in modern command and control technology. Our level of capital expenditures will remain high in the current financial year. Due to the productivity and cost reduction measures we have introduced, we expect a further improvement in profitability in the current financial year.

155 Services

IFRS IFRS Change in € million 2004 2003 in % External revenues 294 208 + 41.3 Operating proﬁt before interest 64 144 – 55.6 Gross capital expenditures 426 245 + 73.9 Employees as of Dec 31 31,559 33,463 – 5.7

External revenues Operating proﬁt in € million before interest in € million

208 294 144 64

300 150

270 135

240 120

210 105

180 90

150 75

120 60

90 45

60 30

30 15

2003 2004 2003 2004

2003 to 2004: 2003 to 2004: +41.3% – 55.6%

Project “KISS”leads to positive effects for DB Group

Service quality again improved

Growing importance of external customers with 41.3% increase in external revenues

156 Deutsche Bahn Group | Annual Report 2004 Services

Services: Improved Service Quality and Cost Structure

With the continued reorganization of the Services area within our Group structure through the establishment of our new Group Services division in early July 2003, we fulfilled the expectations of further improvements to our service quality and cost structure in the year under review. The efficient organization of services is a key contribution to our objective of becoming a leading provider of mobility and logistics services. The service portfolio covers a wide range of services, including station security, cleanliness and services, telecommunications and telematics, fleet management, real estate management, energy management, IT management, and vehicle maintenance, all of which are

157 tailored specifically to market demands. The business units in the year under review included DB Energie (energy), DB Fuhrpark (fleet management), DB Services, DB Systems (IT), DB Telematik (telematics), and the Heavy Vehicle Maintenance unit, which was spun-off as of January 2004 to form DB Fahrzeuginstandhaltung GmbH. DB Energy: DB Energie GmbH, where all energy management functions are consolidated, is a prime example of the capabilities of our business units. The DB Energy unit is a single-source provider of energy management solutions along the entire energy supply chain for both intra-Group and non-Group customers. It combines every process involved, from energy purchasing to energy distribution logistics – through its own infrastructure – along with expert consulting services by qualified energy specialists. In addition to rail operators, its customers include the commercial customers doing business at passenger stations, as well as industrial companies and public authorities. DB Fleet Management: The DB Fuhrpark group is responsible for the DB Group’s fleet of some 20,000 motor vehicles and also operates Germany’s third- largest car rental service. The activities also encompass our “Call-a-Bike” program, custom-tailored fleet management consulting services, lease financing for both short- term and long-term transactions, and a first-class chauffeur service. DB Services: The following companies are allocated to the DB Services unit: DB Services Immobilien (real estate), DB Services Technische Dienste (engineering), and our regional DB Services companies. Their operations cover a wide range of real estate and transport-related services. As a complete facility management provider, the service offering ranges from commercial infrastructure services such as cleanliness and security services to the technical facility management. In the year under review, the two segments Communication Technology and Printing & Information Logis- tics were spun-off by DB Services Technische Dienste GmbH to establish the new DB Kommunikationstechnik (Communication Technology) business unit. DB Kom- munikationstechnik is a specialist for IT and network services, control technology, passenger information systems, and automatic ticketing services, as well as printing and information logistics. Key responsibilities of the DB Services unit are ensuring security, cleanliness, and services at passenger stations and on trains. In day-to-day transport operations, DB Services is also responsible for staging the required rolling stock, providing individual logistics services, ensuring safety and cleanliness of the track infrastructure, and providing shunting services. Apart from rendering services to intra-Group customers, the DB Services unit has also proven successful in marketing its activities to non-Group customers. DB Systems: With its consulting and VA R functions, DB Systems is an efficient, full-service IT company. Its activities include the development and operation of leading-edge information technology systems with end-to-end solutions for the entire supply and mobility chains, making it a one-stop IT provider. DB Telematics: The DB Telematik unit develops high-quality telecommunications solutions for both Group and non-Group companies in the transport and logistics sectors. Its core business includes the management and marketing of transmission

158 Deutsche Bahn Group | Annual Report 2004 Services

lines, the planning, installation and operation of telecommunications systems, and operation and marketing of fixed-network and cellular radio services. DB Telematics also provides a wide range of telecommunication-related services. In the mobile communication area the unit plans, installs and operates the DB Group’s GSM-R network, the platform to unify the previous stand-alone systems and improve European interoperability at the same time. DB Vehicle Maintenance: DB Fahrzeuginstandhaltung GmbH ensures that DB’s rolling stock continues to operate smoothly and reliably. Our maintenance facilities have certified quality management and EH&S systems in place, and have been awarded all necessary permits for handling the specific rail vehicles. Efficient workflows ensure short vehicle turnaround times for maintenance processes. As a result, these facilities are a major factor in supporting their customers’ economic effectiveness.

Comprehensive Optimization of Value Chains Intra-Group customers play a dominant role as a result of the primary supporting function of the Group division. Together with intra-Group customers, improvement potentials in major Group process chains were identified in the framework of the project “KISS” in the 2004 financial year, as well as cost reduction potentials of the Group. With the implementation of the respective measures, the revenues achieved with internal customers significantly declined. External revenues of € 294 million (previous year: € 208 million) were primarily generated by DB Energie GmbH, the DB Fuhrpark group, the DB Services regional group, and DB Telematik GmbH. The increase compared to the previous year is primarily due to DB Energie GmbH and the DB Fuhrpark group. DB Energie GmbH was able to expand its non-Group business, among other things, through the optimization of its electricity portfolio (which is bound by long-term contracts), the sale of excess energy on the market, and in the field of energy services, among others. The DB Fleet Management group was able to achieve revenue increases in the area of long-term rental to external customers. Furthermore, DB Fahrzeuginstandhaltung was successful in the external business via vehicle rebuilding projects for foreign railways acquired in the framework of international tenders. While DB Energie and DB Telematik could improve their operating profit before interest, business development of DB Systems and DB Services in combination with effects from rationalization and restructuring programs led to a reduced operating profit before interest on Group division level.

Outlook: Continued Improvements in Competitiveness in 2005 In the current financial year we will continue to comprehensively promote measures aimed at increasing the overall competitive position. This will again occur in close cooperation with the customers. At the same time, it is essential that we assert ourselves in the external market with a high level of service quality at reasonable costs. An improvement in the operating profit before interest contributions is to be expected with the efficiency-increasing measures currently underway.

159 Rolling Stock and Stations

160 Deutsche Bahn Group | Annual Report 2004 Rolling Stock and Stations

161 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 Manufacturer Consortium leaders: Siemens, 50% of the wheelsets, thus enabling high acceler- Bombardier Transportation ation. The 13 trains of the multi-current version have Commissioning from 2000 no problems adapting to the power systems in other Output 8,000 kW countries and can therefore be employed in cross- Max. speed 330 km/h border services to the Netherlands, Belgium and (in future) France. Seats 441 (BR 403)/431 (BR 406) Stock as of Dec 31, 2004 50 (37/13)

ICE 2 (EMU) The ICE 2 is an eight-segment high-speed multiple unit consisting of 6 intermediate cars, a power car, Manufacturer Consortium leaders: and a driving trailer (half-set). Within minutes, two Siemens, Adtranz half-sets can be coupled together or split up by Commissioning 1996 means of an automatic coupler. Seat demand can Output 4,800 kW be adapted to passenger volumes thanks to the Max. speed 280 km/h possibility of forming the multiple units into short- length trainsets. Air-sprung bogies provide for Seats 368 extremely smooth running. Stock as of Dec 31, 2004 44

ICE 1 (EMU) The ICE 1– progenitor of the ICE family – ﬁrst ran in service on June 2, 1991. The ICE 1 set standards not Manufacturer Consortium: ABB, AEG, only in respect of the technical components – such Siemens, Thyssen-Henschel, as drive, braking, control and diagnostics technol- Krupp, Kraus Maffei ogy – but also for a particularly high level of travel Commissioning 1991 comfort. This high-speed train consists of two power Output 9,600 kW cars and up to 14 intermediate cars. Some of the Max. speed 280 km/h ICE 1 power trains also run on SBB (to Zurich and Interlaken, for example) and ÖBB (to Vienna and Seats 649 (with 12 intermediate cars) Innsbruck, for example) routes. Stock as of Dec 31, 2004 59

ICE T (EMU) The ICE T is a five- or seven-segment electric multiple unit (EMU). The hydraulic tilting technology enables Manufacturer Consortium leaders: Bombar- an up to 30% higher curving speed and – depending dier, DUEWAG, FIAT, Siemens on the profile of the line – a reduction in journey Commissioning from 1999 times of between 10 and 20%. The “under-floor” Output 3,000 kW (BR 415)/ configuration of the drive technology results in more 4,000 kW (BR 411) usable space for the passengers who – through Max. speed 230 km/h glass partitions at the ends of the train – can enjoy an unobstructed view into the cockpit and onto Seats 250/357 the line. Some of the BR 415 series trains also run Stock as of Dec 31, 2004 43 (11/ 32) on SBB lines (to Zurich and Chur, for example).

BR 101 (electric locomotive) The BR 101 series is a four-axled general-purpose locomotive for fast IC trafﬁc. Thanks to its push-pull Manufacturer Adtranz capability, it is suitable for employment in passenger Commissioning 1997 – 1999 transport services with driving trailers. To increase Output 6,400 kW its utilization, it is also used for freight transport Max. speed 220 km/h during the night. Stock as of Dec 31, 2004 145

IC Saloon Passenger Car The Apmz 117/127 saloon passenger cars are cars (Apmz 117/127) from the Apmz 122 series that have been recon- Manufacturer Waggon Union Berlin figured as pressure-sealed, air-conditioned 1st-class Commissioning 1975/76 saloon cars for EC/IC trafﬁc. The cars possess a Max. speed 200 km/h single saloon with a total of 51 seats, 39 in rowed Seats 51 seating and 12 face-to-face. A digital cellular card telephone (D network) is located at one end of the car. Stock as of Dec 31, 2004 34

EMU = electric multiple unit DMU = diesel multiple unit 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 BR185.1/185.2 Manufacturer Bombardier Transportation series developed for Railion. Through the installation of Commissioning 2001 – 2008 newly developed bogies, speeds of up to 160 km/h are Output 4,200 kW (146.0); made possible. The locomotive is equipped with push- 5,600 kW (146.1/146.2) pull train control, selective side-door opening control Max. speed 160 km/h and a passenger information system for use in local transport. As of yet the 53 locomotives have been de- Stock as of Dec 31, 2004 31 (146.0); 22 (146.1) ployed in Rhineland-Palatinate, North Rhine-Westphalia, Lower Saxony, Hesse and Baden-Wuerttemberg.

BR 425 (EMU) The BR 425 series belongs to the Electric Multiple Units family (EMU) in addition to the 424 and 426 series. Manufacturer Bombardier Transportation/ These fast, four-segment EMUs are equipped with Siemens wheelchair lifts and are designed for low platforms as Commissioning 2000 – 2004 well. The ﬁrst EMUs of the 425 series started operating Output 2,350 kW in 2001 for regional transport in the Ruhr region as well Max. speed 140 km/h as Trier, Magdeburg and the surrounding regions. Addi- (160 km/h FSCB-controlled) tional EMUs are scheduled to be deployed in the Rhine- Main area, Bavaria and Baden-Wuerttemberg, where Seats/standing room 206/228 the somewhat modiﬁed BR 425.2 series model will be Stock as of Dec 31, 2004 235 used for the RhineNeckar S-Bahn (metro) system.

BR 612 (DMU) The two-segment, air-conditioned DMU of the BR 612 series is an innovative enhancement of the BR 611 Manufacturer Bombardier Transportation series in terms of equipment and design. By relocating Commissioning 2000 – 2003 the entrances and exits towards the middle of the Output 2x560 kW train, getting on and off the train has been made more Max. speed 160 km/h convenient. The DMUs are currently being used in Thuringia’s low mountain range as well as Rhineland- Seats 146 Palatinate, Saxony, Saxony-Anhalt, Bavaria, North Stock as of Dec 31, 2004 189 Rhine-Westphalia, Saarland and Lower Saxony.

Double-deck driving trailer The DBpbzf 763.5 and 763.6 series double-deck (DBpbzf 763.5 and 763.6) driving trailers operate as Regional Express trains in Manufacturer Bombardier Transportation the northeast, Hesse and North Rhine-Westphalia. (DWA) They are air-conditioned and wheelchair-accessible Commissioning 1997– 2000 in addition to featuring a modern passenger infor- Max. speed 160 km/h mation system. The lower deck offers multipurpose Seats 101 (763.5); 95 (763.6) rooms with space for wheelchairs, bicycles and strollers as well as a wheelchair-accessible bath- Stock as of Dec 31, 2004 27 (763.5); 23 (763.6) room.

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: A total of 500 “quarter-sets” (two-car units) were Bombardier (DWA), Adtranz procured for € 1.1 billion through 2004. Air-sprung Commissioning 1996 – 2004 bogies, good noise insulation and a transparent Output 600 kW (quarter-set) interior all offer more comfort. Modern three-phase Max. speed 100 km/h current technology, lightweight construction and recovery of braking energy keep power consumption Seats/standing room 94/200 (quarter-set) and maintenance costs low. Stock as of Dec 31, 2004 500 quarter-sets

MAN NÜ 313 CNG The low-ﬂoor overland busses operate on environment-friendly natural gas (CNG) engines with low Manufacturer Neoman Bus GmbH noise and emission levels. The consistent low-ﬂoor Commissioning since 1999 design enables stair-free access to all entrances as Output 228 kW well as a stair-free center aisle. Powerful heating and Seats/standing room 43/41 ventilation systems ensure pleasant temperatures (depending on configuration) while ergonomic bucket seats offer high seating comfort. Stock as of Dec 31, 2004 approx. 250 Transport and Logistics

BR 145 (electric locomotive) The BR 145 series belongs to the new generation of three-phase current locomotives in freight transport. Manufacturer Adtranz It is ﬂexible, all-purpose and has furthermore proven Commissioning 1998 – 2000 its effectiveness in local passenger transport. Thanks Output 4,200 kW to its performance, it not only replaces the BR 140 Max. speed 140 km/h series, but it also makes a partial advancement into the service areas of the heavy six-axial electric loco- Starting tractive effort 300 kN motives. Stock as of Dec 31, 2004 80

BR 185 (electric locomotive) The BR 185 series is an enhancement of the BR 145 series. The procurement plan for 400 vehicles of the Manufacturer Adtranz BR 185 series is currently underway, resulting from Commissioning 2000 – 2008 exercising an option with the industry. The machine’s Output 5,600 kW design and configuration allow it to be used do- Max. speed 140 km/h mestically in Germany as well as internationally via country-speciﬁc train safety and train communica- Starting tractive effort 300 kN tions systems. Multisystem capability Dual-frequency (AC:15 kV/ 16.7 Hz, 25 kV/50 Hz) Stock as of Dec 31, 2004 200

BR 189 (electric locomotive) Under a purchasing option of the BR 152 series, a procurement plan for 100 units of the BR 189 series is Manufacturer Siemens underway. With the BR 189 series we operate a vehi- Commissioning 2003 – 2005 cle strategically geared towards the entire European Output 6,400 kW (AC networks), transport market. Country-specific certifications are 6,000 kW (3 kV-DC), a basic requirement for cross-border transport in 4,200 kW (1.5 kV-DC) addition to the respective railway communications Max. speed 140 km/h and railroad safety equipment. The requirements will be met in the coming years, taking into account the Starting tractive effort 300 kN financial framework. Multisystem capability Quad-system (AC:15 kV/ 16.7 Hz, 25 kV/50 Hz; DC: 3 kV, 1.5 kV) Stock as of Dec 31, 2004 68

Hcceerrs 330 (tube) The enclosed auto transport car is a new development in secured motor vehicle transport. The auto- Length above buffer 54 m mobiles are optimally protected against weather Ark length lower/upper 52.68 m/52.50 m exposure, theft and vandalism with robust side panels Weight limit 48 tons and closing overhead doors. The four single cars Lower clearance height 1.70 m connected to one car unit are equipped with an electrically powered hydraulic system which operates Upper clearance height 1.96 m/2.36 m roof, door and overdrive hatch gears. (Roof lowered/raised) Stock as of Dec 31, 2004 78

Habbiins 344 This spacious multipurpose vehicle with double panel 3 sides can be loaded and unloaded laterally with in- Volume 170 m dustrial trucks. The design is especially suited for the Ark width 2.82 m transport of paper rolls, cellulose, lumber and pallet- Ark height 2.80 m to lower edge ized goods. The cars are designed and prepared for of roof belt the installation of 6 – 8 moveable and interlocking Area 63.8 m2 partitions. They are also equipped with metal liners for the securing of horizontally loaded paper rolls. Stock as of Dec 31, 2004 230

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

Celle Deutsche Bahn and the state of Lower Saxony modernized the Celle station in keeping with historical Year of construction 1922 preservation standards for around € 1 million. Old ﬁx- Year of modernization 2004 tures in the concourse were removed and the station’s Passengers and visitors building was refurbished both inside and out. A new per day 5,700 sign-posting system helps travelers find their way Space for rent 610m2 more easily within the station. With a new travel center, a new station bookstore as well as a travel conve- Train stops per day 112 nience store, the Celle train station now offers com- Number of tracks 6 prehensive services to travelers.

Hanover main station In 2004, Hanover main station celebrated its 125 year anniversary. In preparation for the Expo 2000, the Year of construction 1879 station was transformed for € 100 million into an attrac- Year of modernization 2000 tive services center. The historical facade was pre- Passengers and visitors served. The main station offers numerous services per day 250,000 ranging from shops to travel consultation. The Hanover Space for rent 16,000m2 main station received the award “Station of the year 2004” from “Allianz pro Schiene”, for its outstanding Train stops per day 830 services and its convenient transport connections to Number of tracks 12 the city’s public transit system.

Kiel main station Deutsche Bahn, the city and the state have invested a total of € 40 million to rebuild the concourse build- Year of construction 1899 ing and to redesign the area in front of the station. Year of modernization 2004 Kiel’s main station has thus been transformed into a Passengers and visitors real jewel, with its several travel services and attrac- per day 24,000 tive shopping offerings. Due to its varied yet harmo- Space for rent 5,000m2 nious landscape design, Kiel’s main station was awarded the “Greenest train station of the year 2004” Train stops per day 252 award. The new three-nave main hall is still under Number of tracks 6 construction.

Airport station Cologne/Bonn The airport Cologne/Bonn was the ninth German airport to be directly linked to the railway system. The Year of construction 2004 transfer distance between plane, train and car is Passengers and visitors shorter here than anywhere else. The unique curved- per day 8,350 glass roof by the architectural ﬁrm, Murphy/Jahn, has Space for rent – set new standards with its visually appealing design: Train stops per day 174 The steel and glass roof spans 156 meters in length and 39 meters in width. The project’s capital expen- Number of tracks 4 ditures totaled € 520 million.

Regensburg main station The commercial spaces and infrastructure of the Regensburg main station were renovated for around Year of construction 1891 € 7 million. The trafﬁc hub of Upper Palatinate now Year of modernization 2004 offers an attractive mix of services ranging from an Passengers and visitors Internet café to a supermarket and car rental agency. per day 30,000 A travel center and a ServicePoint provide travel ser- Space for rent 4,000m2 vices. In addition, the train station is now completely handicapped-accessible: Lifts and a guidance sys- Train stops per day 150 tem make the trains easily usable for blind and other Number of tracks 9 physically impaired travelers.

Wiesbaden main station After extensive renovation in the amount of more than € 26 million, Wiesbaden now has an historically ac- Year of construction 1904 curate train station. This project took great care to Year of modernization 2004 preserve the historic foundation of the “dead-end” Passengers and visitors station and accurately restored the sandstone balcony per day 25,000 at the western entrance. The travel center and Ser- Space for rent 6,800m2 vicePoint offer travel services. Additionally, the shopping and service offerings in the station have become Train stops per day 252 more extensive with a food court, a drugstore and Number of tracks 10 a car rental agency. Consolidated Financial Statements Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements

168 Pro Forma Consolidated Financial Statements According to German GAAP (HGB) 170 Pro Forma Consolidated Balance Sheet 172 Pro Forma Consolidated Statement of Income 173 Pro Forma Consolidated Statement of Cash Flows 174 Notes to the Pro Forma Consolidated Financial Statements

208 Consolidated Financial Statements According to IFRS 210 Report of the Management Board 211 Auditor’s Report 212 Consolidated Balance Sheet 214 Consolidated Statement of Income 215 Consolidated Statement of Cash Flows 216 Notes to the Consolidated Financial Statements

283 Additional Information 283 Major Activity Relationships Within the DB Group 284 Explanation of Grant Types Pro Forma Consolidated Financial Statements According to German GAAP

Income before taxes Total assets Balance sheet structure Cash ﬂow before taxes in € million in € million Assets side in € million in %

–133 372 47,647 46,348 Fixed assets 86.8 2,600 3,011

700 50,000 3,000

600 45,000 2,700

500 40,000 2,400

400 35,000 2,100

300 30,000 1,800

200 25,000 1,500

100 20,000 1, 200

0 15,000 900

– 100 10,000 600

– 200 5,000 Current assets 12.9 300 Prepayments and 2003 2004 2003 2004 accrued income 0.3 2003 2004

2003 to 2004: 2003 to 2004: 2003 to 2004: 2003 to 2004: € + 505 million –2.7% –2.7% +15.8%

Income before taxes increased significantly

Consolidation-related slight decrease in total assets

Cash flow before taxes further improved

168 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

The consolidated financial statements of Deutsche Bahn AG (DB AG) as of December 31, 2004 were drawn up according to the International Financial Reporting Standards (IFRS) for the first time. In order to enable better comparability with the figures from the previous year, the voluntarily prepared consolidated financial statements on the following pages have been drawn up in accordance with the provisions of the German Commercial Code (Handelsgesetzbuch; HGB) and the German Stock Corporation Act (Aktiengesetz; AktG) as well as the Ordinance relating to the structure of annual financial statements of corporations engaged in the transport sector. In order to improve the clarity of the presentation, legally required items have been consolidated in the Balance Sheet and in the Income Statement. The Notes contain the required details and explanatory remarks. The voluntarily prepared Group consolidated financial statements were not subject to review by the Group auditor. Therefore no auditor’s report is enclosed. 169 Pro Forma Consolidated Balance Sheet on December 31, 2004

Assets

in € million Note 2004 2003

A. Fixed assets Intangible assets (5) 487 531 Properties (5) 39,831 39,562 Financial assets (5) 1,212 1,269 41,530 41,362

B. Current assets Inventories (6) 701 1,399 Accounts receivable and other assets (7) 3,225 4,462 Securities (8) 0 0 Cash and cash equivalents 742 265 4,668 6,126

C. Prepayments and accrued income (9) 150 159 46,348 47,647

170 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

Equity and Liabilities

in € million Note 2004 2003

A. Equity Subscribed capital (10) 2,150 2,150 Capital reserves (11) 4,871 4,264 Retained earnings (12) 0 0 Balance sheet loss (13) – 1,778 – 1,393 Minority interests (14) 43 55 5,286 5,076

B. Special items for investment grants (15) 00 C. Provisions (16) 14,087 14,691 D. Liabilities (17) 25,536 27,002 E. Accruals and deferred income (18) 1,439 878 46,348 47,647

171 Pro Forma Consolidated Statement of Income January1 through December 31, 2004

in € million Note 2004 2003

Revenues (22) 23,963 28,228 Inventory changes – 84 – 93 Other internally produced and capitalized assets 1,967 2,303 Overall performance 25,846 30,438

Other operating income (23) 2,895 3,138 Cost of materials (24) – 12,117 – 15,776 Personnel expenses (25) – 9,576 – 10,337 Depreciation – 2,605 – 2,694 Other operating expenses (26) – 3,378 – 4,316 1,065 453

Investment income (27) 5 51 Net interest (28) – 698 – 637 Income before taxes 372 – 133

Income taxes (29) – 92 – 112 Income after taxes 280 – 245

Minority interests in proﬁts 15 25 Minority interests in losses 0 0

172 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

Pro Forma Consolidated Statement of Cash Flows January1 through December 31, 2004

in € million 2004 2003

Income before taxes 372 – 133 Depreciation of properties1) 2,605 2,694 Changes to pension provisions 34 39 Cash flow before taxes 3,011 2,600

Depreciation/write-back on financial assets 35 – 23 Changes to other provisions – 446 – 1,119 Changes in special items 0 0 Gains/losses from disposal of properties1) 17 – 116 Gains/losses from disposal of financial assets and (partial) divestiture of consolidated companies – 254 – 14 Changes to current assets (excl. cash and cash equivalents) 1,394 130 Changes to other liabilities (excl. financial debt) – 527 – 366 Income taxes – 92 – 112 Cash flow from business activities 3,138 980

Proceeds from disposal of properties1) 20 596 Payments for purchase of properties1) –7,762 – 9,147 Proceeds from investment grants 3,987 4,780 Proceeds from additions to interest-free loans from the federal government 255 339 Repayments of interest-free loans to the federal government – 1,408 – 350 Proceeds from disposal of ﬁnancial assets and (partial) divestiture of consolidated companies 223 23 Payments for purchase of ﬁnancial assets and (partial) acquisition of consolidated companies – 67 – 418 Proceeds from sale of shares in consolidated companies 310 0 Payments for the purchase of shares in consolidated companies 0 0 Investing activities – 4,442 – 4,177

Proceeds from capital increase 0 0 Income payments to minority shareholders – 7 – 22 Proceeds from shareholders to cover losses/ dividends paid to shareholders 0 0 Proceeds from long-term Group ﬁnancing 0 1,467 Proceeds/payments from short-term Group ﬁnancing 88 66 Proceeds from sale-and-lease-back 0 0 Proceeds from issuing bonds and new loans and commercial paper 1,994 2,278 Repayments of bonds and loans – 294 – 598 Financing activities 1,781 3,191

Net increase (decrease) in cash 477 – 6 Cash and cash equivalents, beginning of year 265 271 Changes in cash and cash equivalents due to changes in the scope of consolidation 0 0 Cash and cash equivalents, end of year 742 265

1) Including intangible assets

173 Pro Forma Consolidated Changes in Shareholders’ Equity

Parent company Equity Retained earned by Capital stock earnings the Group Accumulated other net income Adjustment item for Other No-par value exchange rate non-operating in € million bearer shares differences transactions

Balance at Dec 31, 2002 2,150 3,921 278 – 30 – 712 Dividends paid Changes to companies consolidated 00000

Net income – 270 Other net income –63 – 2531) Total net income 0 0 – 270 – 63 – 253

Additions to capital reserves 343 – 343

Balance at Dec 31, 2003 2,150 4,264 8 – 93 – 1,308 Dividends paid Changes to companies consolidated 00000

Net income 265 Other net income –9 – 341) Total net income 0 0 265 – 9 – 34

Additions to capital reserves 607 – 607

Balance at Dec 31, 2004 2,150 4,871 273 – 102 – 1,949

1) Mainly from offsetting differences arising from capital consolidation

174 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

Minority shareholders

Minority Equity capital interests Accumulated other net income Equity capital Total equity Adjustment item for Other exchange rate non-operating differences transactions

5,607 95 6 0 101 5,708 0– 22 – 22 – 22

0– 46 – 46 – 46 0– 68 0 0 – 68 – 68

– 270 25 25 – 245 – 316 – 3 – 3 – 319 – 586 25 – 3 0 22 – 564

0 0

5,021 52 3 0 55 5,076 0– 7 – 7 – 7

0– 20 – 20 – 20 0– 27 0 0 – 27 – 27

265 15 15 280 – 43 0–43 222 15 0 0 15 237

0 0

5,243 40 3 0 43 5,286

175 Pro Forma Consolidated Fixed Assets Schedule

Acquisition and manufacturing costs Balance Exchange Changes to Balance at Jan 1, rate companies at Dec 31, in € million 2004 differences consolidated Additions Transfers Disposals 2004

Intangible assets 1. Licences, patents, trademarks, and similar rights 952 0 – 30 2 36 – 1 959 2. Advance payments 4 0 0 3 0 0 7 956 0 – 30 5 36 – 1 966

Properties 1. Land, leasehold rights, and buildings including buildings on land owned by others a) Land and leasehold rights 5,176 0 – 61 110 – 26 – 167 5,032 b) Commercial, ofﬁce, and other buildings 4,253 2 – 314 190 8 – 108 4,031 c) Permanent way formation and structures 9,908 0 0 126 264 – 18 10,280 19,337 2 – 375 426 246 – 293 19,343

2. Track infrastructure, signaling and control equipment 11,495 0 0 267 691 – 119 12,334 3. Rolling stock for passenger and freight transport 14,919 1 – 7 936 697 – 329 16,217 4. Technical equipment and machinery other than No. 2 or 3 1,423 – 1 – 315 80 24 – 58 1,153 5. Other equipment, operating and ofﬁce equipment 3,273 0 – 365 293 107 – 184 3,124 6. Advance payments and construction in progress 5,463 0 – 36 1,237 – 1,801 274 5,137 55,910 2 – 1,098 3,239 – 36 – 709 57,308

Financial assets 1. Investments in afﬁliated companies 45 0 – 32 4 0 0 17 2. Loans to afﬁliated companies 8 0 0 0 0 0 8 3. Investments in associated companies 427 0 0 0 0 – 4 423 4. Investments in related companies 466 0 0 0 0 0 466 5. Loans to associated and related companies 504 0 10 0 0 0 514 6. Long-term securities 9 0 0 0 0 – 2 7 7. Other loans 31 0 0 0 0 0 31 1,490 0 – 22 4 0 – 6 1,466

Total fixed assets 58,356 2 – 1,150 3,248 0 – 716 59,740

176 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

Accumulated Depreciation Book value Balance Exchange Changes to Balance Balance Balance at Jan 1, rate companies Write- at Dec 31, at Dec 31, at Dec 31, 2004 differences consolidated Depreciation backs Transfers Disposals 2004 2004 2003

– 425 0 23 – 77 0 0 0 – 479 480 527 0000 000074 – 425 0 23 – 77 0 0 0 – 479 487 531

– 134 0 – 1 – 6 0 4 3 – 134 4,898 5,042

– 1,231 0 159 – 169 0 – 4 39 – 1,206 2,825 3,022

– 1,808 0 0 – 172 0 – 2 7 – 1,975 8,305 8,100 – 3,173 0 158 – 347 0 – 2 49 – 3,315 16,028 16,164

– 4,991 0 0 – 714 0 5 88 – 5,612 6,722 6,504

– 5,338 0 11 – 1,026 0 0 285 – 6,068 10,149 9,581

– 874 0 220 – 80 0 6 46 – 682 471 549

– 1,972 0 247 – 361 0 – 9 295 – 1,800 1,324 1,301

0000 00005,1375,463 –16,348 0 636 – 2,528 0 0 763 – 17,477 39,831 39,562

– 7020 000– 51238 – 1000 000– 177 11100– 2 27 0 0 136 559 538 – 316 0 0 – 60 0 0 0 – 376 90 150

0000 0000514504 0000 000079 – 8000 000– 82323 – 221 0 2 – 62 27 0 0 – 254 1,212 1,269

– 16,994 0 661 – 2,667 27 0 763 – 18,210 41,530 41,362

177 Pro Forma Notes for the Financial Year 2004

The Brenntag and Interfer business units were sold on January 1, 2004. In the consolidated financial statements as well as in the Cash Flow Statement of the financial year 2003, the Brenntag/Interfer operations were included for the entire financial year. In the following presentation of our business performance, the respective effects have been explained wherever material.

1 Scope of Consolidation Apart from DB AG as the parent company, the pro forma consolidated financial statements extend to include 173 domestic and 179 international subsidiaries in which DB AG has direct or indirect holdings amounting to more than 50% of the voting capital. 71 associated companies are included with their pro-rata share of equity capital. 35 associated companies have not been included in the consolidated financial statements in accordance with Section 311 (2) HGB. 90 companies of minor significance have not been included in the consolidated financial statements in accordance with Section 296 (2) HGB. The fully consolidated and associated companies underwent the following changes compared with the consolidated financial statements of the previous year:

178 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

Companies Included in the Consolidated Financial Statements

2004

Additions Shares acquired 4 Formation 3 Inclusion for the ﬁrst time 7 Other additions 1 15

Disposals Sales 155 Mergers 8 Other disposals 8 171

Balance – 156

Associated Companies

2004

Additions Formation 2 Other additions 1 3

Disposals Sales 2 Other disposals 3 5

Balance – 2

The differences arising from ﬁrst-time consolidation were offset in capital reserves and retained earnings. Any changes in the composition of the Group that had a major impact are dealt with in the chapter “Economic Development According to German GAAP”. The list of shareholdings in accordance with Section 313 (2) or Section 285 No.11 HGB has been ﬁled with the Commercial Register of the Local Court of Berlin-Charlottenburg under No. HRB 50000.

179 2 Consolidation Methods The financial statements of the companies included in the consolidated financial statements have been prepared as of December 31. All material financial statements included have been reviewed and certified without qualification by independent auditors. Capital has been consolidated using the book value method on the basis of the reference date of the Group’s opening balance sheet (January 1, 1994) or of the time of acquisition at a later date, respectively. Differences in assets and liabilities arising from capital consolidation on the basis of the Group’s opening balance sheet have been offset against one another. The remaining difference in liabilities has been reported as retained earnings unless provisions had to be set up for expenditure after the reference date of the Group opening balance sheet. Because a switch to international accounting standards under IFRS took effect in this financial year, German Accounting Standard (Deutscher Rechnungslegungs- standard; DRS) numbers 4 (Acquisition Accounting in Consolidated Financial State- ments) and 8 (Accounting for Investments in Joint Ventures in Consolidated Financial Statements), as approved by the German Accounting Standards Committee (Deutsches Rechnungslegungs Standards Committee e.V; DRSC), Berlin, had already been partially applied in the previous year in order to provide for accounting continuity. As in previous years, in cases where capital is consolidated as of the time of acquisition, the acquisition costs of participations are offset against the pro-rata shares of equity capital they account for at the respective point in time. Differences arising in the process are apportioned as capital reserves or retained earnings without this affecting the operating result, as these differences are essentially in the nature of goodwill. This apportionment is retained on the disposal of companies. The same principles apply to the accounting of equity in net earnings of associated companies. Through the fully disclosed offset of goodwill (asset-side differences) against Group reserves in accordance with Sec. 309 HGB, there is no capitalization or amortization of goodwill. Treating goodwill as described in DRS 4 and DRS 8 would result in higher equity, which would be reduced by non-cash amortization over the total period to the equity amount reported under the method currently applied. In order to guarantee the comparability with the previous year, the implementation of DRS 10 (Deferred Taxes in the Consolidated Financial Statements) has been foregone in these voluntarily rendered consolidated financial statements. Although two associated companies work with a different financial year, no interim financial statements as of December 31 have been prepared for these companies. Where no financial statements as of December 31, 2004 or for a financial year ending in the course of financial year 2004 were available, the financial statements of the previous year were used as a basis. Revenues, income, and expenses as well as receivables, liabilities, and provisions between and among the companies included in consolidation have been eliminated, as have the effects arising from the transfer or creation of assets within the Group.

180 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

3 Currency Translation Financial statements of foreign subsidiaries are translated according to the reference date method as follows: Balance sheet items, income for the year, and depreciation are translated into euros at the mean rates of exchange on the balance sheet date, while the other items of the income statement are translated at the average exchange rates for the respective financial year. Differences arising from this translation have been reported as “Other operating income” or “Other operating expenses”. In the individual financial statements, receivables and liabilities stated in foreign currency are translated at the buying or selling rate on the creation date. Adjust- ments are made if the exchange rates effective at the balance sheet date lead to lower receivables or higher liabilities. Currency translations are of relatively minor significance in respect of individual balance sheet items or income statement items of the DB Group. Direct translation effects of the movements in exchange rates are largely negligible. Accordingly, no separate presentation of currency ratios and currency effects has been provided below, with the exception of the fixed assets schedule and changes in equity.

4 Accounting and Valuation Methods There have been no major changes in the accounting and valuation methods compared to the previous year. Differences in accounting or valuation methods occurring in some isolated cases were analyzed in the process of ﬁrst-time consolidation, but were not found to have any major effects. Therefore, these differences in accounting or valuation methods were not adjusted. Intangible assets acquired for valuable consideration are carried at acquisition costs and written down on a straight-line basis. Acquired software that constitutes a low-value asset in each individual case is fully written off during the ﬁrst year. Properties (property, plant and equipment) are carried at acquisition or manufacturing costs less scheduled depreciation, where applicable. Write-downs for asset impairment are recognized if recovery of the carrying amounts is no longer to be expected. Manufacturing costs include direct costs, prorated material and production overheads, and scheduled depreciation. Neither interest on borrowed funds nor administrative overhead is included in manufacturing costs.

181 Scheduled depreciation using the straight-line method is based on the normal useful lives. Depreciation is determined in accordance with the tax depreciation tables and is conducted “pro rata temporis”. The useful lives of the main groups are shown in the table below:

Years

Software, other licences 3 – 5 Permanent way structures, tunnels, bridges 75 Track infrastructure 20 – 25 Buildings and other constructions 10 – 50 Land improvements 8 – 20 Signaling equipment 20 Telecommunications equipment 5 – 20 Rolling stock 15 – 30 Ships 20 – 25 Other technical equipment, machinery, and vehicles 3 – 25 Factory and ofﬁce equipment 2 – 20

Properties of minor value (at DB AG and the companies spun off effective January 1, 1999, these are ﬁxed assets up to an individual value of € 2,000; other than that, properties up to an individual value of € 410) are fully depreciated in the year of acquisition and carried as disposals. Financial assets are carried at acquisition costs and are subject to write-downs for asset impairment, where appropriate. Holdings in associated companies are accounted for using the equity method. Inventories are valued at acquisition or manufacturing costs; raw materials and manufacturing supplies are valued on the basis of average acquisition costs. Risks in inventories resulting from a decline in economic usefulness, long storage periods, price changes in the procurement markets, or any other decline in value are taken into account by adjusting such values accordingly.

182 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

Accounts receivable and other assets are stated at nominal or face value unless a lower carrying amount is required in individual cases. Discernible risks have been taken into account by individual or lump-sum valuation adjustments. In the year under review the lump-sum valuation adjustment factor has been adjusted from 5% to 1%. Securities held as current assets are valued at the lower of acquisition costs or market price. Pension provisions are carried as liabilities at their going-concern value in accordance with Section 6a of the German Income Tax Act (EStG). As in previous years, the calculations are based on the 1998 mortality tables of Prof. Dr. Klaus Heubeck. The amounts of pension provisions are calculated according to actuarial principles and at a fixed 6% p.a. interest rate for discounting purposes. On the basis of actuarial expert opinions, the pension provisions of the Stinnes Group are calculated using the projected unit credit method (interest rate: 5.75%) and cover all pension and similar obligations. All other provisions are stated at the amount required, based on sound business judgment. Provisions take all discernible risks into account. Furthermore, reserves for contingencies have been set up in accordance with Section 249 (2) HGB. The remaining provisions are determined at full cost. For temporary differences between earnings determined on the basis of commercial law and earnings as determined for income tax purposes for the companies included in the consolidated financial statements, provisions are set up for deferred taxes if most of these differences are deficits for a specific company. Deferred tax assets are not recorded. Deferred tax assets arising from the consolidation are offset against the deferred income tax items in the individual financial statements of the respective companies. Liabilities are carried at the expected settlement amount.

183 Notes to the Consolidated Balance Sheet

5 Fixed Assets Movements in fixed assets are shown on pages 176–177. The investment grants received in the financial year 2004 were offset against additions to assets. This includes investment grants from the German government in accordance with Article 2 Section 22 (1) No. 2 of the German Railroad Restruc- turing Act (Eisenbahnneuordnungsgesetz), along with the corresponding subsequent agreement, concerning infrastructure measures relating to the former Deutsche Reichsbahn in the amount of € 818 million (previous year: € 697 million). The positive amount shown under “Advance payments and construction in progress” resulted mainly from the fact that investment grants were recorded as income in 2004, while they were recognized under acquisition and manufacturing costs in previous years. Write-downs for impairment of property, plant and equipment – primarily due to values of rolling stock – amounted to € 87 million (previous year: € 232 million) in financial year 2004. Write-ups of financial assets in the amount of € 27 million (previous year: €30 million) relate exclusively to an adjustment of investment income from associated companies using the equity method. The write-downs of € 62 million in the past financial year are due primarily to holdings in associated companies.

6 Inventories

in € million 2004 2003

Raw materials and manufacturing supplies 495 551 Unﬁnished products, work in progress 133 333 Finished products and goods 38 493 Advance payments to suppliers 35 22 Total 701 1,399 of which attributable to Brenntag/Interfer (458)

Valuation adjustments in the amount of € 304 million (previous year: € 324 million) were made to take into account the strict lower of cost or market value principle as well as marketability discounts.

184 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

7 Accounts Receivable and Other Assets

of which with aresidual maturity more in € million 2004 than one year 2003

Trade receivables 2,340 39 3,032 Receivables due from afﬁliated companies 37 0 33 Receivables due from companies in which a participating interest is held 146 129 220 Other assets 702 309 1,177 Total 3,225 447 4,462

Value adjustments for accounts receivable and other assets amounted to € 381 million (previous year: € 558 million). In the previous year a share of € 704 million from “Trade receivables” was contributed by Brenntag/Interfer. The main elements of “Other assets” are tax receivables and a claim against the Federal Railroad Fund (Bundeseisenbahnvermögen; BEV) under the “Trilateral Agreement” for the transfer of real estate. “Other assets” were affected by an amend- ment to Sec.13 Sales Tax Regulations (UStG), resulting in a signiﬁcant decrease in pre-tax reimbursement claims as shown in the previous year.

8 Securities The securities consisted of fungible securities.

9 Prepayments and Accrued Income Prepayments and accrued income amounting to € 150 million (previous year: €159 million) include a discount of € 79 million (previous year: € 79 million); €71million (previous year: € 80 million) mainly involve deferred charges for ﬁnancing, insurance premiums, and rents and leases.

10 Subscribed Capital Subscribed capital amounts to € 2,150 million. Equity capital is subdivided into 430,000,000 no-par value bearer shares. The shares are held entirely by the Federal Republic of Germany.

11 Capital Reserves Capital reserves were increased by € 607 million from retained earnings. Accordingly, an amount of € 4,871 million was reported as of December 31, 2004 (previous year: € 4,264 million). Capital reserves of subsidiaries included in the consolidated ﬁnancial statements are to be netted against the book value of the respective shareholding in the consolidated ﬁnancial statements or to be transferred to “Minority interests”.

185 12 Retained Earnings / Other Retained Earnings The subsidiaries’ equity ratios remaining after netting against the book value of the respective shareholding or reclassiﬁcation to “Minority interests” are shown under “Other retained earnings”.

in € million 2004 2003

Retained earnings carried forward to January 1 0 0 Balance sheet proﬁt carried forward to January 1 – 1,393 – 464 Other changes – 34 – 253 Changes resulting from foreign currency translation – 9 – 63 Consolidated income after taxes 280 – 245 Earnings attributable to minority interests – 15 – 25

Retained earnings and balance sheet proﬁt as of December 31 – 1,171 – 1,050 Posted as balance sheet loss 1,778 1,393 Increase in capital reserves – 607 – 343 Retained earnings as of December 31 0 0

13 Balance Sheet Loss The balance sheet loss recorded in the consolidated ﬁnancial statements is equivalent to the net loss for the year as shown in the annual ﬁnancial statements of DB AG.

14 Minority Interests

in € million 2004 2003

Adjustment items on the equity and liabilities side 43 55

Adjustment items are always calculated using the book value method without hidden reserves being written back.

15 Special Items for Investment Grants Special items for investment grants are written back in accordance with the method of depreciation applied to the respective ﬁxed asset subsidized.

186 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

16 Provisions

in € million 2004 2003

Provisions for pensions and similar liabilities 949 953 Tax provisions 547 538 Provisions for deferred taxes 20 1 Other provisions 12,571 13,199 Total 14,087 14,691

In ﬁnancial year 2004, contributions to provisions for pensions and similar liabilities amounted to € 34 million (previous year: € 85 million). Other provisions consisted of the following:

in € million 2004 2003

Personnel-related commitments 1,505 1,557 Restructuring charges 999 1,158 Inherited environmental liabilities 2,496 2,590 Reconveyance obligations 280 287 Accounts payable 751 871 Infrastructure project risks (including planning risks) 1,241 1,232 Real estate risks 905 773 Properties (Aurelis project) 1,094 1,118 Deferred maintenance work 257 304 Other risks 3,043 3,309 Total 12,571 13,199

Personnel-related commitments mainly concern leave entitlements, accumulated flex-time, anniversary bonuses, profit-sharing bonuses, and early retirement benefits. Severance pay and similar expenses are reported under provisions for restructuring charges. Provisions for inherited environmental liabilities relate, among other things, to the remediation of residual pollution caused before July 1,1990 in the regions served by the former Deutsche Reichsbahn. A provision of € 2.9 billion was set aside for this purpose in the opening balance sheet of Deutsche Reichsbahn and taken over unchanged to DB AG’s opening balance sheet. Provisions for reconveyance obligations were set up for potential restitution claims on property in the area of the former Deutsche Reichsbahn.

187 All remaining contingent liabilities are allocated to other risks. These primarily include provisions for: Recultivation and renaturation (decommissioning of railroad tracks and related facilities), Risks from pending business and guaranties, Possible reclamation of grants, Statutory requirements for retention of business documents for major Group companies.

17 Liabilities

in € million 2004 2003

Interest-free loans 5,665 7,512 Bonds 10,396 8,726 Liabilities due to banks 1,395 2,106 Advance payments received for orders 526 609 Trade accounts payable 2,212 2,768 Bills of exchange payable 48 19 Liabilities due to afﬁliated companies 0 10 Liabilities due to companies in which a participating interest is held 2,164 2,077 Other liabilities 3,130 3,175 of which tax liabilities (112) (153) of which social security liabilities (161) (175) Total 25,536 27,002 of which subject to interest (14,020) (12,731)

188 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

The interest-free loans arise almost exclusively from German government funding for the extension and replacement of track infrastructure. These loans are based on the government’s responsibility for meeting the transport needs of the general public as incorporated in Germany’s constitution (Article 87e [4] GG) and put in concrete terms in the law governing the extension of the German rail network (Bundesschienenwegeausbaugesetz; BschwAG). Such loans bear no interest. Amortiza- tion is set forth in the respective individual and collective ﬁnancing agreements. In general, the loans are repaid by equal annual installments, the amounts of which are calculated on the basis of the corresponding annual write-downs. Overall, € 350 million of interest-free loans have a residual maturity of up to one year, and € 3,766 million have a remaining term of more than 5 years. In addition to bonds and liabilities due to banks, interest-bearing liabilities also include the interest-bearing elements of liabilities due to companies in which a participating interest is held as well as other interest-bearing liabilities. Liabilities due to companies in which a participating interest is held include long- term, interest-bearing loans from EUROFIMA European Company for the Financing of Railway Rolling Stock (Basle/Switzerland) amounting to €1,899 million (previous year: €1,899 million). With € 34 million, EUROFIMA loans have a remaining term of up to one year and a remaining term of more than 5 years with € 953 million. Other liabilities include an issue of the Multi-Currency Commercial Paper Program in the amount of € 330 million provided on the balance sheet date and an obligation to surrender possession of real estate in the amount of €1,024 million (previous year: €1,056 million) sold to Aurelis. In general, liabilities are not secured. Exceptions are: Liabilities due to EUROFIMA, which have to be secured pursuant to EUROFIMA’s memorandum of association by assignment of railroad equipment (rolling stock). Liabilities due to banks in the amount of € 7 million (previous year: €7 million) were secured by real-estate liens.

For a listing of ﬁnancial debt and the corresponding comments, please see Note 21.

189 18 Accruals and Deferred Income Accruals and deferred income of €1,439 million (previous year: € 878 million) result primarily from the purchase of redemption commitments in the years 1999 and 2004 for the years 2007 through 2041 relating to interest-free loans (see Note 17).

19 Contingent Liabilities

in € million 2004 2003

Liabilities from the drawing and endorsement of bills 0 1 Liabilities from guaranties 1,492 1,590 Liabilities from the provision of collateral for third party liabilities 0 52 Total 1,492 1,643

Contingent liabilities from the provision of collateral for third party liabilities of the previous year concerned liabilities of the Federal Railroad Fund (BEV) to EUROFIMA European Company for the Financing of Railway Rolling Stock, Basle/Switzerland. Loans extended by EUROFIMA to the Federal Railroad Fund (or its legal predecessors, Deutsche Bundesbahn and Deutsche Reichsbahn) were secured by assignment of rolling stock used in passenger and freight transport. While the loans remained with the Federal Railroad Fund, the assigned rolling stock was ﬁrst transferred to Deutsche Bahn AG and then, as part of the spin-off under phase II of the German rail reform process, they were transferred to various companies within the Deutsche Bahn Group – primarily to DB Reise&Touristik AG (today: DB Fernverkehr AG), DB Regio AG, and DB Cargo AG (today: Railion Deutschland AG). €1,337 million of the liabilities from guaranties is due to guaranties to Aurelis Real Estate GmbH&Co. KG.

190 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

20 Other Financial Commitments

in € million 2004 2003

Purchase order commitments for capital expenditures 4,461 6,226 Outstanding contributions 320 325 Commitments under rental, leasing, and other debt obligations with external parties 4,115 4,235 Total 8,896 10,786

The outstanding contributions concern EUROFIMA European Company for the Financing of Railway Rolling Stock, Basle/Switzerland.

21 Financial Instruments DB AG, as the central treasury for the DB Group, is responsible for all financing and hedging activities. In terms of functions and organizational structure, lending and trading workflows in the front office on the one hand and processing and control in the back office on the other hand are kept clearly separate. The Treasury department operates in the financial markets in compliance with the Minimum Requirements for the Trading Activities of Credit Institutions established by the Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungs- aufsicht; BaFin) and it is subject to periodic internal audits.

A. Financial Instruments The main basic ﬁnancial instruments and total ﬁnancial debt as of December 31, 2004 are listed in the table on the following page.

191 Nominal values and book values are equivalent:

Residual Nominal Book value maturity interest rate 2004 Currency in years in % in € million Unlisted bonds: DB AG, total JPY, USD 6.7– 7.5 67 DB Finance B.V., total HKD, JPY, CHF 7. 5 – 9. 5 190 Total 257 DB Finance B.V. bonds: Bond 1997 – 2007 DEM 2.8 5.750 511 Bond 1998 – 2008 DEM 3.4 5.000 767 Bond 1999 – 2009 EUR 4.5 4.875 1,350 Bond 2000 – 2010 EUR 5.5 6.000 1,000 Bond 2001– 2006 DEM 2.0 4.500 31 Bond 2001– 2006 CHF 1.7 3.375 265 Bond 2001– 2008 DKK 3.8 5.250 54 Bond 2001– 2008 SEK 3.8 5.500 42 Bond 2001– 2008 NOK 3.8 7.000 50 Bond 2001– 2013 EUR 8.9 5.125 750 Bond 2002– 2007 CHF 2.4 3.250 512 Bond 2002– 2007 USD 2.6 4.500 604 Bond 2002– 2008 CHF 4.0 3.000 170 Bond 2002– 2012 EUR 9.6 5.375 500 Bond 2002– 2008 USD 3.0 FRN 76 Bond 2002– 2006 USD 1.8 FRN 51 Bond 2002– 2006 EUR 1.8 FRN 100 Bond 2003– 2018 EUR 13.2 4.7501,000 Bond 2003– 2015 EUR 10.5 4.250 700 Bond 2004– 2011 USD 6.5 5.000 209 Bond 2004– 2018 EUR 13.2 4.750 300 Bond 2004– 2007 EUR2.8 2.750 17 Bond 2004– 2009 EUR 4.8 3.250 17 Bond 2004– 2016 EUR 11.9 4.250 500 Bond 2004– 2014 JPY 9.9 1.650 366 Bond 2004– 2011 CHF 7.0 2.125 197 Total 10,139 EUROFIMA loans: Loan 1995 – 2005 CHF 0.7 4.750 7 Loan 1995 – 2005 CHF 0.7 4.750 27 Loan 1996 – 2006 DEM 1.9 6.000 256 Loan 1997 – 2009 DEM 5.0 5.625 256 Loan 1999 – 2009 EUR 4.8 5.750 400 Loan 2000 – 2014 EUR 9.8 5.970 219 Loan 2001 – 2014 EUR 9.7 5.410 300 Loan 2002– 2012 EUR 7.6 FRN 34 Loan 2002– 2012 EUR 7.6 FRN 400 Total 1,899 Liabilities due to banks: Note loan 1998 – 2008 DEM 3.3 5.310 51 Loan 2002 – 2016 EUR 11.7 FRN 200 Loan 2002 – 2022 EUR 17.7 FRN 200 Loan 2003 – 2016 EUR 11.7 FRN 200 Loan 2003 – 2022 EUR 17.7 FRN 200 Other EUR 544 Total 1,395 Commercial Paper: 330 Total financial debt 14,020

192 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

The ﬁnancial debt possesses the following remaining terms:

thereof with thereof with thereof with residual residual residual maturity of maturity of maturity of in € million 2004 up to 1 year 1 to 5 years over 5 years 2003

Bonds 10,396 0 4,617 5,779 8,726 Liabilities due to banks 1,395 544 51 800 2,106 Liabilities due to EUROFIMA 1,899 34 912 953 1,899 Commercial Paper 330 330 0 0 0 Total 14,020 908 5,580 7,532 12,731

The bonds issued in foreign currencies have been swapped to euros, which means no currency risk will arise from these transactions for the DB Group. In addition to the liabilities shown on the balance sheet, banks had opened guaranteed credit facilities to DB AG totaling € 2.21 billion as of December 31, 2004 (previous year: € 2.15 billion), to cover short-term liquidity requirements. Deutsche Bahn AG had drawn on none of these credit lines as of December 31, 2004.

B. Financial Derivatives We use ﬁnancial derivatives to hedge against interest rate, currency, and energy exposures. Each individual deal corresponds to an on-balance sheet item or an anticipated exposure (e.g. bonds, commercial paper, and planned energy requirements). Speculative transactions are not permitted. The use, settlement, and control of derivative transactions are governed by Group guidelines. Market valuations and risk assessments are conducted on an ongoing basis as part of the DB Group’s risk management system. Interest rate swaps and interest rate/currency swaps were conducted to cover possible interest rate risks. Resulting interest differentials were apportioned on an accrual basis. Future interest differentials were not carried on the balance sheet because they actually are pending transactions. Because DB reﬁnancing also employs currencies from outside the euro area, we conducted interest rate/currency swaps to convert these items to euro-denominated liabilities, to eliminate exchange rate risks.1) Because these transactions were performed to hedge against interest risks, they were allocated to the column “Interest rate risks”. Energy risks emerge mainly with the purchase of diesel fuel and electricity. In the framework of the securing of prices for diesel fuel, different hedging transactions used in 2003 are still existing. New transactions were only concluded in 2004 for the demand for foreign currencies in connection with the purchase of diesel fuel. Physical transactions with hedging purpose have been used for hedging price risks from electric supply for the years 2005 and 2006.

1) An exception are local working capital funds borrowed by the Schenker business unit.

193 The total notional value of hedging transactions listed below represents the sum of all purchase and sales contracts being hedged. The tonnage is specified for diesel transactions and with electricity, the electric labor is measured in gigawatt hours. From the level of this notional volume, conclusions can be drawn as to the extent to which financial derivatives were used, but this level does not reflect the risk inherent in the use of such derivatives. The fair market value of a derivative financial instrument is equivalent to its cost of liquidation or the amount at which the instrument could be exchanged. The fair values listed below were computed as per the balance sheet date using common financial models; offsetting changes in the values of the items being hedged were not taken into account. In turn, the related financial derivatives were not taken into account for stating the underlying transactions in the balance sheet (no hedge accounting). Because valuation units (derivative/underlying) were formed, the fair values of derivatives as well as changes in the fair values of the underlying transactions are shown in the following tables. The credit risk is the danger of loss due to nonperformance by counterparties (risk of default). It represents the replacement cost (at fair value) of transactions with a positive fair value giving DB AG a claim against its counterparties. The risk of default of counterparties is actively controlled by our high demands on the financial standing of counterparties both when entering into a contract and for its entire term, as well as by the setting of risk limits. The following information on the credit risk contains the cumulative result of all individual risks.

Notional and Fair Market Values of Interest Rate Derivatives

in € million 2004 2003

Total notional value 7,669 6,698

Fair market value of derivatives – 375 – 262 Change in the fair market value of underlying transactions 79 26 Fair market value of valuation units – 296 – 236

On December 31, 2004, the portfolio of interest rate derivatives consisted almost exclusively of swaps (both interest rate and interest rate/currency swaps) with a residual maturity of more than one year. The change in fair market value of the derivatives and their underlying transactions resulted primarily from the appreciation of the euro over other currencies as well as a change in the yield curve.

194 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

Notional and Fair Market Values of Currency Derivatives

in € million 2004 2003

Total notional value 566 491

Fair market value of derivatives – 9 0 Change in the fair market value of underlying transactions 9 1 Fair market value of valuation units 0 1

As of December 31, 2004, existing contracts to offset foreign exchange risks consisted primarily of currency futures contracts with a residual maturity of less than one year.

Notional and Fair Market Values of Diesel Derivatives

2004 2003

Total notional volume (diesel fuel in t) 180,000 540,000 Fair market value of derivatives 1) (in € million) 12 – 3

1) In addition to the positive market value of € 12 million of diesel hedges for 2005, hedging transactions from December 2004 which are not yet settled and which had a market value of € 3 million were recognized as of December 31, 2004.

As of December 31, 2004, the portfolio of diesel derivatives consisted primarily of contracts with a residual maturity of up to one year.

Notional and Fair Market Values of Electricity Hedging Transactions

2004 2003

Total notional volume (Electrical supply in GWh) 3,456 381 Fair market value of hedging transactions (in€ million) – 9 0

On December 31, 2004, the portfolio of electricity hedging transactions predominantly consisted of transactions with a term of up to two years.

195 Credit Risk Involved in Interest Rate, Currency and Diesel Derivatives

in € million 2004 2003

Credit risk – interest rate, currency, and diesel derivatives 140 113

The increase in credit risk in comparison to the previous year is due to an expansion of volume as well as the performance of our derivative portfolio. The single biggest risk – the risk of default by a speciﬁc counterparty – amounts to € 42 million and relates to a counterparty having a Moody’s rating of Aa3. As regards credit risks arising from contracts with a remaining term of more than one year, all counterparties have a Moody’s rating of no less than A2.

196 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

Notes to the Consolidated Income Statement

To ensure comparability of DB Group’s results of operations, the data relating to Brenntag/Interfer in the Notes to the consolidated income statement are reported separately (deconsolidated in the 2004 ﬁnancial year, included for the previous year with values for the entire ﬁnancial year).

22 Revenues The breakdown of revenues totaling € 23,963 million (previous year: € 28,228 million) by Group divisions is shown in the Segment Information (Notes 32 and 33). €5.2 billion of the revenues of the previous year are accounted for by Brenntag/Interfer.

23 Other Operating Income

in € million 2004 2003

Services to external parties and sale of materials 774 818 Rents and leases 187 180 Other operating income 939 817 Gains on sales of properties and (partial) divestiture of consolidated companies 442 282 Income from the release of provisions 402 941 Gains on the reversal/recovery of write-downs/write-offs of receivables 150 63 Other income unrelated to accounting period 1 37 Total 2,895 3,138 of which attributable to Brenntag/Interfer (70)

Gains of € 210 million from the sale of the Brenntag/Interfer Group are included in the gains on sales of properties and (partial) divestiture of consolidated companies.

24 Cost of Materials

in € million 2004 2003

Cost of raw materials, supplies, and merchandise 1,573 5,860 of which attributable to Brenntag/Interfer (3,915) Cost of services purchased 8,072 7,494 Maintenance expenses 2,472 2,422 Total 12,117 15,776 of which attributable to Brenntag/Interfer (3,915)

The cost of services and merchandise purchased for self-constructed assets is recognized under cost of materials. Such cost is capitalized by inclusion in other internally produced and capitalized assets under properties.

197 25 Personnel Expenses

in € million 2004 2003

Wages and salaries for employees 6,286 6,849 for civil servants assigned Payments to the Federal Railroad Fund IAW Article 2 Section 21 (1) (2) German Railroad Restructuring Act 1,454 1,513 Ancillary remuneration paid directly 91 77 7,831 8,439

Compulsory social security contributions, pensions and similar benefits, and support payments for employees 1,422 1,533 for civil servants assigned Payments to the Federal Railroad Fund IAW Article 2 Section 21 (1) (2) German Railroad Restructuring Act 323 365 1,745 1,898 of which for pensions and similar beneﬁts (880) (903) Total 9,576 10,337 of which attributable to Brenntag/Interfer (461)

Grandfathering allowances paid have been offset against provisions for restructuring charges. An adjustment in the previous year’s amounts has been conducted for expenses for assigned civil servants in the year under review.

198 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

26 Other Operating Expenses

in € million 2004 2003

Rents and leases 1,065 961 Fees and dues 153 135 Ofﬁces, administration, IT services 419 488 Insurance premiums 183 215 Legal and consulting expenses 135 143 Miscellaneous operating expenses 1,046 1,970 Losses on the disposal of ﬁxed assets 212 151 Expenses relating to set-up of allowances for and write-off of accounts receivable 165 250 Other expenses unrelated to accounting period 0 3 Total 3,378 4,316 of which attributable to Brenntag/Interfer (587)

An amount of € 50 million (previous year: € 87 million) of miscellaneous operating expenses is attributable to “Other taxes”.

27 Investment Income

in € million 2004 2003

Income from participating interests 7 7 of which from afﬁliated companies (0) (2) Income from associated companies 61 51 Transfer of losses – 1 – 1 Write-down of investments – 62 – 6 Total 551 of which attributable to Brenntag/Interfer ( – 41)

199 28 Net Interest

in € million 2004 2003

Other interest and similar income 79 112 of which from afﬁliated companies (0) (0) Interest and similar expenses – 777 – 749 of which to afﬁliated companies (0) (0) Total – 698 – 637 of which attributable to Brenntag/Interfer ( – 41)

29 Income Taxes Income taxes levied in Germany are corporate income tax, plus solidarity surcharge, and trade income tax. These taxes are reported together with comparable foreign income-linked taxes.

30 Earnings per Share The calculation of earnings per share is based on net income, which is equivalent to proﬁt after taxes less minority interests in proﬁts, plus minority interests in losses.

2004 2003

Net income in € million 265 – 270 Number of shares outstanding 430,000,000 430,000,000 Earnings per share in € 0.62 – 0.63

200 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

Notes to the Consolidated Cash Flow Statement

The Cash Flow Statement is set out in accordance with DRS 2, Cash Flow Statement, developed by the German Accounting Standards Board (Deutscher Standardisie- rungsrat) of the DRSC. The Cash Flow Statement shows a breakdown of cash flows by business activities, investing activities, and financing activities. Cash flow before taxes is reported under the cash flow from business activities. Where a change in the scope of consolidation occurred due to the acquisition or sale of a company, the purchase price less the liquid assets acquired or sold is carried as cash flow from investing activities. All other effects of the acquisition or sale of companies are eliminated under the respective items of the three cash flow categories.

31 Cash and Cash Equivalents This item comprises cash and cash equivalents (cash on hand, Deutsche Bundesbank balance, cash in banks, and checks) as shown on the balance sheet.

201 Segment Information

32 Delimitation of Segments Our delimitation of segments is based on the types of services rendered by the various Group divisions. Accordingly, the core business is divided mainly into five Group divisions in the year under review: Group Passenger Transport division: This Group division consists of the three business units Long-Distance Transport, Regional Transport, and Urban Transport. The Long-Distance Transport business unit offers long-distance passenger transport services in daytime transport through DB Fernverkehr AG, while its subsidiaries are involved in supporting services. The Regional Transport and Urban Transport business units include comprehensive regional and urban transport services (generally within a distance of up to 50 km or travel times up to one hour). With DB Regio AG as the leading company, the Regional Transport business unit is focused on regional rail passenger transport. DB Stadtverkehr GmbH leads the assigned subsidiaries S-Bahn Berlin GmbH, S-Bahn Hamburg GmbH and our subsidiaries active in bus-based transport services in the Urban Transport business unit. The transport performance contributed by the Group Passenger Transport division makes us a leading transport company in the passenger transport and mobility market in Europe. Group Transport and Logistics division: Our market presence consists of the business units Schenker, Freight Logistics, Intermodal, and Railion. The Schenker business unit holds a leading position in both European land transport and the global sea and air freight business. The Freight Logistics and Intermodal units are focused on European markets, and also benefit from their strong positioning in bulk product transport and in combined rail/road transport. In the segment information, the figures for Freight Logistics and Intermodal consist of the services rendered by the affiliates active in these areas. Measured by transport performance, the Railion business unit is the leading rail freight transport provider in Europe.

202 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

Group Passenger Stations division: The Group Passenger Stations division is in charge of the operation of passenger stations as traffic stations, as well as developing and marketing the associated railway station space. Most of the services involved are provided by DB Station&Service AG. Group Track Infrastructure division: The Group Track Infrastructure division is responsible for operating the rail infrastructure (long-distance/conurbation network, regional network, marshalling yards, and transshipment terminals). The business activities are executed primarily by DB Netz AG, which is a wholly owned subsidiary of DB AG. Group Services division: The Group Services division includes the business units DB Energie (energy supply), DB Fahrzeuginstandhaltung (heavy maintenance), DBFuhrparkService (fleet management), DB Services, DB Systems, and DB Tele- matik (telematics). The figures for the year under review (and the previous year) contain DB Fahrzeuginstandhaltung, which was spun off in 2004. The DB ProjektBau (project construction) business unit, directly managed as of 2004, is henceforth included in “Other activities”.

The previous year’s figures were restated for better comparability. We do not report segment information by geographical region. With the exception of the activities in our Schenker business unit, the share of international business in total revenues of our core business is so small that it may be safely neglected. Among the activities that we do not count among our core business, we achieved significant international revenues in the financial year 2003 in our Brenntag and Stinnes-Interfer units, which we purchased within the framework of the Stinnes acquisition but then sold in the first quarter of 2004. A segment reporting per region is displayed in the audited Notes according to IFRS.

203 33 Financial Data by Segment

External Intra-Group Divisional Revenues Revenues Revenues Depreciation1) in € million 2004 2003 2004 2003 2004 2003 2004 2003

Passenger Transport Long-Distance Transport 2,924 2,880 185 218 3,109 3,098 306 333 Regional Transport 6,437 6,428 214 236 6,651 6,664 381 400 Urban Transport 1,688 1,737 34 40 1,722 1,777 152 149 Other 106 112 41 48 147 160 24 5 Total 11,155 11,157 474 542 11,629 11,699 863 887

Transport and Logistics Railion 2,907 2,987 714 603 3,621 3,590 204 202 Schenker 8,024 7,275 41 15 8,065 7,290 141 137 Freight Logistics 583 475 30 20 613 495 8 7 Intermodal 55 42 18 14 73 56 2 1 Other operating entities3) 0250300550 2 Total 11,569 10,804 803 682 12,372 11,486 355 349

Passenger Stations 268 249 603 603 871 852 106 102 Track Infrastructure 318 273 3,615 3,501 3,933 3,774 963 892 Services 294 208 3,227 3,472 3,521 3,680 269 282 Other operating entities/consolidation effects 359 5,537 941 1,370 1,300 6,907 2 115 DB Group 23,963 28,228 9,663 10,170 33,626 38,398 2,558 2,627

1) Management measure, deviates from depreciation respectively net interest reported in consolidated income statement with regard to non-operational special charges 2) Including employees and civil servants, excluding apprentices 3) Primarily Stinnes headquarters

Notes to the Financial Data by Segment: The item “Other operating entities/consolidation effects” includes consolidation effects as well as operations of other entities not allocable to one of the five Group divisions shown, including operations of the Group holding company DB AG. External revenues reflect sales to external customers from outside the Group. Intra-Group revenues relate to revenues with Group companies. Due to the business- specific vertical integration of the DB Group, intra-Group revenues are generated for the most part by the Group Track Infrastructure and Passenger Stations divisions with the Group Passenger Transport and Transport and Logistics divisions. Internal transfer prices of intra-Group revenues are invoiced at the same conditions that apply to external customers. Divisional revenues represent the sum of external and intra-Group revenues and thus show the business performance of the segments. Depreciation and gross capital expenditures relate to properties and intangible assets. Gross capital expenditures show the commercial value of total capital expenditures before netting for investment grants. Depreciation is based on capital expenditures net of investment grants as reflected in the balance sheet.

204 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

Operating Income Operating Capital Balance Sheet Gross Capital Employees2) Net Interest1) after Interest Cash Flow Employed Total Expenditures as of Dec 31 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003

– 37 – 32 – 260 – 456 46 – 123 3,409 3,535 4,042 4,540 256 338 16,006 24,058 – 84 – 75 424 364 805 764 3,695 3,520 6,193 6,432 646 731 28,944 29,878 – 36 – 37 75 63 227 212 1,263 1,362 1,733 1,783 118 233 12,624 12,725 2024 – 5 48 0 – 59 14 4,816 4,335 6 2 6,680 1,519 – 155 – 144 263 – 34 1,126 853 8,308 8,431 16,784 17,090 1,026 1,304 64,254 68,180

– 41 – 32 – 15 169 189 371 1,804 1,517 3,136 3,255 378 381 24,900 25,651 – 13 – 20 193 158 333 295 1,562 1,701 3,445 3,121 154 126 35,190 33,279 – 2 – 1 15 11 23 18 74 70 175 150 16 27 1,077 997 00–42–2368262613329327 0– 4 – 5 – 52 – 4 – 50 – 60 584 2,248 3,040 0 0 621 719 – 56 – 57 184 288 539 637 3,386 3,880 9,030 9,592 549 537 62,117 60,973

– 44 – 37 53 38 159 140 2,305 2,224 2,875 2,843 621 630 4,983 5,074 – 246 – 159 – 200 – 307 763 584 13,882 12,575 21,966 21,874 4,662 6,254 43,637 44,080 – 11 – 21 82 57 351 340 1,597 1,744 3,507 2,933 354 293 31,559 33,463 – 186 – 219 – 129 – 214 – 127 – 99 1,961 2,110 – 7,814 – 6,685 20 103 18,962 30,989 – 698 – 637 253 – 172 2,811 2,455 31,439 30,964 46,348 47,647 7,232 9,121 225,512 242,759

Net interest is the difference between interest income and interest paid. Operating income after interest is an adjusted operating result after net interest but before taxes that is used as an internal control tool for operating activities. Operating cash flow is defined as the operating income after interest, plus depreciation of properties (including intangible assets). In the above table, operating cash flow replaces the previously reported gross cash flow. Capital employed includes properties and intangible assets less interest-free loans plus net working capital. Net debt corresponds to the interest-bearing liabilities at Group level as described under Note 17. At segment level, the net debtor position of the segments with the central DB AG Treasury is reported in addition to interest-bearing (external) liabilities. Receivables and liabilities from intra-Group financing transactions are balanced in the reported figures. To provide for better comparability within the DB Group and over time, the number of employees has been restated in terms of full-time employees. Part-time employees working less than a regular, full-time employee year are accounted for on a pro-rata basis.

205 Supplemental Information

34 Employees

2004 2004 2003 2003 Annual As of Annual As of average Dec 31 average Dec 31

Wage and salary earners 183,348 180,542 200,124 194,933 Civil servants assigned 46,363 44,970 49,127 47,826 Subtotal 229,711 225,512 249,251 242,759

Apprentices 7,057 8,145 7,156 8,154 Total 236,768 233,657 256,407 250,913

In general, civil servants previously working for the former Deutsche Bundesbahn and Deutsche Reichsbahn have been assigned to work for DB AG as of its regis- tration date by virtue of Article 2 Section 12 German Railroad Restructuring Act (“civil servants assigned”). With the inception of phase II of the German Rail Reform, they now work for the various companies of the DB Group; their ofﬁcial employer is the Federal Railroad Fund (BEV).

35 Total Emoluments of the Management Board and the Supervisory Board, Including Former Members

in € thousand 2004 2003

Total Management Board emoluments 6,884 6,243 of which ﬁxed component (3,519) (3,455) of which variable component (3,365) (2,788) Emoluments of former Management Board members 1,452 2,319 Pensions provisions for former Management Board members 13,348 13,130 Total Supervisory Board emoluments 281 330 Emoluments of former Supervisory Board members 0 0 Loans granted to Management Board members 0 0 Loans granted to Supervisory Board members 0 0

The previous year’s ﬁgures have been adjusted to the expanded compulsory notiﬁcations according to IFRS. For the names and functions of the members of the Supervisory Board and the Management Board, please see the pages 290 – 293.

206 Deutsche Bahn Group | Annual Report 2004 Pro Forma Consolidated Financial Statements According to German GAAP

36 Events After the Balance Sheet Date Events after the balance sheet date are stated in the Group Management Report.

Berlin, April 5, 2005

Deutsche Bahn AG The Management Board

207 Consolidated Financial Statements According to IFRS

Profit before taxes Balance sheet structure Balance sheet structure Cash ﬂow from on income Assets side Equity and liabilities side operating activities in € million in % in % in € million

–795 154 Non-current assets 90.7 Equity 14.8 1, 291 2,736 Non-current 300 liabilities 61.9 3,000 150 2,700

0 2,400

– 150 2,100

– 300 1,800

– 450 1,500

– 600 1, 200

– 750 900

– 900 600

– 1,050 300

2003 2004 Current assets 9.3 Current liabilities 23.3 2003 2004

2003 to 2004: 2003 to 2004: 2003 to 2004: 2003 to 2004: € + 949 million –1.9% –1.9% € +1,445 million

Profit before taxes increased significantly

Consolidation-related slight decrease in total assets

Cash flow from operating activities further improved

208 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

209 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, 2004 have for the first time been prepared in accordance with International Financial Reporting Standards (IFRS). The previous year’s figures have also been established using the same principles. Pursuant to section 292 a of the German Commercial Code (Handelsgesetz- buch; HGB), these consolidated financial statements which have been prepared in accordance with IFRS exempt the company from the need to prepare consolidated financial statements under HGB. Due consideration has been given to the regulations of the German accounting standards DRS 1 and DRS 1 a. 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. 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 Trans- parency Act (KonTraG), our risk management system ensures that the Management 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, PwC Deutsche Revision 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 294 to 297 of this Annual Report).

The Management Board

210 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Auditor’s Report

We have audited the consolidated financial statements of Deutsche Bahn Aktiengesellschaft, consisting of the income statement, the balance sheet and the statements of changes in equity and cash flows as well as the notes to the financial statements for the business year from January 1 to December 31, 2004. The preparation and the content of the consolidated financial statements according to the International Financial Reporting Standards of the IASB (IFRS) are the responsibility of the Company’s Board of Managing Directors. Our responsibility is to express an opinion, based on our audit, whether the consolidated financial statements are in accordance with IFRS. We conducted our audit of the consolidated financial statements in accordance with German auditing regulations and 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 to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements. Know- ledge of the business activities and the economic and legal environment of the Group and evaluations of possible misstatements are taken into account in the determination of audit procedures. The evidence supporting the amounts and disclosures in the consolidated financial statements are examined on a test basis within the framework of the audit. The audit includes assessing the accounting 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, the consolidated financial statements give a true and fair view of the net assets, financial position, results of operations and cash flows of the Group for the business year 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, 2004, has not led to any reservations. In our opinion, on the whole the group management report, together with the other information of the consolidated financial statements, provides a suitable understanding of the Group’s position and suitably presents the risks of future development. In addition, we confirm that the consolidated financial statements and the group management report for the business year from January 1 to December 31, 2004 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, May 2, 2005

PwC Deutsche Revision Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

(Kämpfer) (Eggemann) Wirtschaftsprüfer Wirtschaftsprüfer

211 Consolidated Balance Sheet on December 31, 2004

Assets

in € million Note 2004 2003

Non-current assets Property, plant and equipment (13) 40,005 39,645 Intangible assets (14) 856 896 Investments accounted for using the equity method (15) 418 400 Available-for-sale ﬁnancial assets (17) 140 240 Other receivables and other assets (19) 343 396 Derivative ﬁnancial instruments (21) 137 123 Deferred tax assets (16) 1,3011,180 43,200 42,880

Current assets Inventories (18) 797 1,058 Available-for-sale ﬁnancial assets (17) 0 401 Trade receivables (19) 2,388 2,604 Other receivables and other assets (19) 397 1,248 Current tax receivables (20) 56 61 Derivative ﬁnancial instruments (21) 13 3 Cash and cash equivalents (22) 765 271 4,416 5,646

Total 47,616 48,526

212 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Equity and Liabilities

in € million Note 2004 2003

Equity Subscribed capital (23) 2,150 2,150 Reserves (24) 5,227 5,517 Retained earnings (25) – 493 – 630 Equity attributable to shareholders of Deutsche Bahn AG 6,884 7,037 Minority interests (26) 183 192 7,067 7,229

Non-current liabilities Financial debt (27) 19,045 18,455 Other liabilities (28) 553 1,111 Derivative ﬁnancial instruments (21) 544 388 Retirement beneﬁt obligations (30) 1,341 1,288 Other provisions (31) 4,427 4,668 Deferred income (32) 3,5133,543 Deferred tax liabilities (16) 17 67 29,440 29,520

Current liabilities Financial debt (27) 1,231 1,624 Trade liabilities (28) 3,540 3,606 Other liabilities (28) 3,477 3,186 Current tax liabilities (29) 68 64 Derivative ﬁnancial instruments (21) 19 8 Other provisions (31) 2,303 2,660 Deferred income (32) 471 629 11,109 11,777

Total 47,616 48,526

213 Consolidated Statement of Income January1 through December 31, 2004

in € million Note 2004 2003

Revenues (1) 23,962 24,477 Inventory changes and internally produced and capitalized assets (2) 1,928 2,243 Overall performance 25,890 26,720

Other operating income (3) 2,860 2,728 Cost of materials (4) – 12,054 – 12,961 Personnel expenses (5) – 9,556 – 9,866 Depreciation (6) – 2,722 – 2,961 Other operating expenses (7) – 3,274 – 3,704 Operating profit (EBIT) 1,144 – 44

Result from investments accounted for using the equity method (8) 49 45 Net interest income (9) – 984 – 850 Other ﬁnancial result (10) – 55 54 Financial result – 990 – 751

Profit before taxes on income 154 – 795

thereof result on disposal of discontinuing operations (229) (0)

Taxes on income (11) 26 211

Net profit for the year 180 – 584

Net result attributable to: shareholders of Deutsche Bahn AG 155 – 627 minority interests 25 43

Earnings per share (€ per share) (12) undiluted 0.36 – 1.46 diluted 0.36 – 1.46

214 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Consolidated Statement of Cash Flows January1 through December 31, 2004

in € million Note 2004 2003

Profit before taxes on income 154 – 795 Depreciation on property, plant and equipment and intangible assets 2,722 2,961 Write-ups/write-downs on non-current financial assets 63 4 Result on disposal of property, plant and equipment and intangible assets – 29 – 118 Result on disposal of financial assets –38–27 Result on sale of consolidated companies – 242 0 Interest and dividend income – 324 – 382 Interest expense 1,325 1,239 Foreign currency result –88–211 Result from application of the equity method –49–45 Other non-cash expenses and income – 259 – 338 Changes in inventories, receivables and other assets 453 – 148 Changes in liabilities and deferred income –37–159 Cash generated from operating activities 3,651 1,981 Interest received 62 97 Interest paid – 880 – 745 Taxes on income paid –97–42 Cash flow from operating activities 2,736 1,291 thereof from discontinuing operations (0) (23)

Proceeds from the disposal of property, plant and equipment and intangible assets 241 622 Payments for purchases of property, plant and equipment and intangible assets – 7,755 – 9,307 Proceeds from investment grants 3,987 4,780 Proceeds from the sale of ﬁnancial assets 618 38 Payments for purchases of ﬁnancial assets –14–10 Proceeds from the sale of shares in consolidated companies 26 1 Purchases of shares in consolidated companies –20–257 Proceeds from the disposal of investments accounted for using the equity method 12 3 Payments for additions to investments accounted for using the equity method – 1 – 3 Cash flow from investing activities –2,906 – 4,133 thereof from discontinuing operations (0) (– 21)

Proceeds from capital increases 0130 Distribution of proﬁts to minority interests –28–10 Repayment of capital amounts under ﬁnance leases –85–143 Proceeds from issue of bonds 1,618 1,667 Repayments in respect of bonds 0–42 Proceeds from interest-free government loans 250 339 Repayment of interest-free government loans –1,408 – 350 Proceeds from borrowings and commercial paper 658 1,913 Repayment of borrowings and commercial paper – 344 – 656 Cash flow from financing activities 661 2,848 thereof from discontinuing operations (0) (2)

Net change in cash and cash equivalents 491 6

thereof from discontinuing operations (0) (4)

Cash and cash equivalents at the beginning of the period (22) 271 265 Changes in cash and cash equivalents due to changes in the scope of consolidation 3 0 Cash and cash equivalents at the end of the period (22) 765 271

215 Consolidated Statement of Changes in Equity January1 through December 31, 2004

Subscribed capital Reserves

Capital Currency Fair value reserve Fair value reserve for in € million reserves translation for securities cash ﬂow hedges

As of Jan 1, 2003 2,150 5,310 0 234 11 + Capital introduced 00000 – Dividend payments 00000 +/– Currency translation differences 0 0 – 47 0 0 +/– Other changes 0 0 0 27 – 18 +/– Net proﬁt for the year 00000 As of Dec 31, 2003 2,150 5,310 – 47 261 – 7

As of Jan 1, 2004 2,150 5,310 – 47 261 – 7 + Capital introduced 00000 – Dividend payments 00000 +/– Currency translation differences 0 0 – 9 0 0 +/– Other changes 0 0 0 – 262 – 19 +/– Net proﬁt for the year 00000 As of Dec 31, 2004 2,150 5,310 – 56 – 1 – 26

216 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Equity attributable to Retained shareholders of Minority earnings Deutsche Bahn AG interests Total equity

Other movements Total

05,555 – 3 7,702 92 7,794 0 000130130 0 000– 10– 10

0– 47 0 – 47 – 7 – 54 0 909– 56 – 47 00– 627 – 627 43 – 584 05,517– 630 7,037 192 7,229

05,517– 630 7,037 192 7, 229 0 0000 0 0 000– 28 – 28

0– 9 0 – 9 0 – 9 0– 281 – 18 – 299 – 6 – 305 00155155 25 180 05,227 – 493 6,884 183 7,067

217 Segment Information by Division

Passenger Transport Transport and Logistics Passenger Stations in € million 2004 2003 2004 2003 2004 2003

Segment revenues External revenues 11,155 11,157 11,569 10,804 268 249 Other external segment revenues 519 559 417 265 141 142 Internal segment revenues 254 252 198 231 636 640 Total segment revenues 11,928 11,968 12,184 11,300 1,045 1,031

Operating profit before interest (EBIT) 377 40 282 254 107 98 Net interest income Result from investments accounted for using the equity method 0 0 12 – 1 0 0 Other financial result Profit before taxes on income Taxes on income Net profit for the year

Segment assets1) 10,412 10,717 5,822 5,492 3,279 3,217 Investments accounted for using the equity method1) 334848 0 0 Total assets1) 10,415 10,720 5,8705,540 3,279 3,217

Segment liabilities1) 3,083 3,510 3,250 3,413 399 402 Gross capital expenditures 894 1,304 546 537 635 630 Investment grants received – 124 – 130 – 1 0 – 409 – 360 Net capital expenditures 770 1,174 545 537 226 270 Scheduled depreciation 2) 918 902 359 366 115 109 Impairment losses recognized/reversed 2) 65 132 8 17 – 30 6 Other non-cash expenditures 2) 43 40 27 30 30 17 Other non-cash income 2) 60 226 40 21 2 18 Employees 3) 66,094 69,973 62,034 61,595 5,051 5,151

1) Segment assets, investments in associates and segment liabilities are stated as of Dec 31, 2004; 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. 3) The number of employees represents the average number of employees for the ﬁnancial year 2004 (part-time workforce converted into equivalent full-time workforce and excluding trainees).

Segment Information by Region

Germany Rest of Europe North America in € million 2004 2003 2004 2003 2004 2003

Segment revenues, external 20,834 21,668 4,469 4,061 696 780 Segment assets 43,869 44,184 1,899 1,797 203 238 Net capital expenditures 3,136 4,170 140 227 10 13

218 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Holding/ Other/ Track Infrastructure Services Other activities Consolidation DB Group 2004 2003 2004 2003 2004 2003 2004 2003 2004 2003

318 273 294 208 358 1,786 0 0 23,962 24,477 688 716 309 215 786 831 0 0 2,860 2,728 3,778 3,656 3,494 3,523 1,371 2,166 – 9,731 – 10,468 0 0 4,784 4,645 4,097 3,946 2,515 4,783 – 9,731 – 10,468 26,822 27,205

22 – 283 64 144 328 – 235 – 36 – 62 1,144 – 44 – 984 – 850

00113645004945 – 55 54 154 – 795 26 211 180 – 584

20,756 20,955 2,426 2,229 4,573 5,986 – 70 – 470 47,198 48,126 001036634900418400 20,756 20,955 2,427 2,229 4,939 6,335 – 70 – 470 47,616 48,526

2,874 3,722 1,440 1,138 6,319 7,169 23,184 21,943 40,549 41,297 4,639 6,254 426 245 145 114 – 47 – 74 7,238 9,010 – 3,423 – 4,290 – 26 0– 4000– 3,987– 4,780 1, 216 1,964 400 245 141 114 – 47 – 74 3,251 4,230 930 871 280 256 55 102 – 8 – 38 2,649 2,568 4598 026188– 8 – 9 73 393 943– 6 6 – 14 70 0 0 89 206 41 8 66 110 138 148 1 12 348 543 44,832 45,955 32,438 31,795 19,381 26,855 0 0 229,830 241,324

Asia/Pacific Rest of world Reconciliation DB Group 2004 2003 2004 2003 2004 2003 2004 2003

686 577 137 119 0 0 26,822 27,205 235 176 46 28 946 1,703 47,198 48,126 8331– 46– 1843,2514,230

219 Accounting Principles and Methods Adoption of IFRS 1 The accounting principles of HGB and IFRS have been General information reconciled in accordance with the regulations of IFRS 1 Deutsche Bahn AG (“DB AG”), Berlin, and its subsidiaries (First-time Adoption of International Financial Reporting (together the “DB Group”) provide services in the fields of Standards). passenger transport, freight transport and logistics, and The period ended December 31, 2003 was the last time operate a comprehensive rail infrastructure which is also that the consolidated financial statements of DB AG were available to non-Group users on a non-discriminatory basis. prepared in accordance with the regulations of German Whereas passenger transport activities are mainly restricted Commercial Law (“HGB consolidated financial statements”). to the company’s domestic market in Germany, its trans- The statement of reconciliations and explanations of the port and logistics activities are carried out globally. consequences of the transition to IFRS on consolidated DB AG is a stock company, and all of its shares are held equity and consolidated result are set out in the section by the Federal Republic of Germany. The company is regis- “Reconciliation of equity according to IFRS 1” in the Notes tered under the number HRB 50000 in the commercial to the consolidated financial statements contained herein. register of the local court of Berlin-Charlottenburg. The IFRS 1 contains certain exemptions as well as prohibi- DB Group has issued securities in accordance with section 2 tions regarding the retrospective application of IFRS. (1) sentence 1of the Securities Trade Act (Wertpapierhandels- The DB Group has exercised the following exemptions: gesetz; WpHG); these are traded on organized markets in Business combinations: Business combinations which accordance with section 2 (5) WpHG. had been stated under HGB before January 1, 2003 will not The consolidated financial statements have been pre- be reassessed or adjusted at the point of transition to IFRS. pared by the Management Board, and will be presented to Employee benefits: As of January 1, 2003, the existing the Supervisory Board for the Supervisory Board meeting pension obligations including all actuarial gains and losses on May 24, 2005. were stated as provisions in the balance sheet. Currency translation differences: As of January 1, 2003, Principles for preparing the financial statements the cumulative currency translation difference resulting The consolidated financial statements for the period ended from translating financial statements which have been pre- December 31, 2004 have for the first time been prepared in pared in a foreign currency was set to zero. accordance with International Financial Reporting Stan- Categorization of financial assets and liabilities: dards (IFRS) and the related interpretations by the Inter- Financial assets have been classified as “available-for-sale” national Financial Reporting Interpretations Committee as of January 1, 2003. No assets and liabilities have been (IFRIC). classified under “Measurement of financial assets and liabil- With these consolidated financial statements prepared ities at fair value affecting profit”. under IFRS, DB AG has taken advantage of the options speci- Adoption of IFRIC 1 (Changes in Existing Decommis- fied in section 292a HGB for preparing the consolidated sioning, Restoration and Similar Liabilities): Initial appli- financial statements in accordance with internationally cation as of January 1, 2003 and changes to the figure stated recognized principles. for provisions for decommissioning, restoration and similar The financial year of DB AG and its consolidated subsi- liabilities are consistent with IFRIC 1 in conjunction with diaries is the same as the calendar year. The consolidated IAS16 and IAS 37. The company took advantage of the financial statements have been prepared in Euro. Unless exemption under IFRIC 1 as of January 1, 2003; the figure otherwise specified, all figures are stated in millions of to be capitalized was accordingly established retrospectively Euro (€ million). to the point at which the liability was originally incurred,

220 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

starting with the extent of the liability as of January 1, 2003 In addition, all interpretations which had been adopted by and discounting it with historical interest rates and taking the IFRIC by December 31, 2004 have been recognized in account of straight-line depreciation up to January 1, 2003. these consolidated financial statements if they are relevant for the DB Group. There have been exceptions to the retrospective application The following revised standards which, at the point at of IFRS. In particular, due consideration has been given to which this report was prepared, had been adopted in their the fact that certain items in the consolidated financial new version although they are not yet mandatory, were not statements under IFRS require the use of estimates. Appro- used at the point at which the report was prepared: priate organizational measures have been taken for this purpose. Estimates which were not essential under the pre- IAS16 (rev. 2003): Property, Plant and Equipment vious principles of proper accounting were made on the IAS 24 (rev. 2003): Related Party Disclosures basis of the conditions which existed at the point of transi- IAS 27 (rev. 2003): Consolidated and Separate Financial tion. Estimates which were also mandatory at that time Statements under the previous principles of proper accounting were IAS 28 (rev. 2003): Investments in Associates used for the IFRS consolidated opening balance sheet. The IAS 31 (rev. 2003): Interests in Joint Ventures estimates made under the previous principles of proper IFRS 5: Non-current Assets Held for Sale accounting were adjusted if necessary to comply with the and Discontinued Operations accounting policies of IFRS. The estimates are based on the conditions applicable at the point of transition to IFRS. Adoption of the above-mentioned standards in future is not expected to have a major impact on the consolidated Early adoption of IAS/IFRS standards financial statements. The following standards which, at the point at which the report was prepared, had been promulgated although they were not mandatory, have been adopted early:

IAS1(rev. 2003): Presentation of Financial Statements IAS 2 (rev. 2003): Inventories IAS 8 (rev. 2003): Accounting Policies, Changes in Accounting Estimates and Errors IAS10 (rev. 2003): Events after the Balance Sheet Date IAS17 (rev. 2003): Leases IAS 21 (rev. 2003): The Effects of Changes in Foreign Exchange Rates IAS 32 (rev. 2003): Financial Instruments: Disclosure and Presentation IAS 33 (rev. 2003): Earnings per Share IAS 39 (rev. 2003): Financial Instruments: Recognition and Measurement IFRS 3 (March 2004): Business Combinations IAS 36 (March 2004): Impairment of Assets IAS 38 (March 2004): Intangible Assets

221 Structure of the balance sheet Leases are classified as “operating lease” and “finance and income statement lease” according to the criteria specified in IAS 17. “Embed- Assets and liabilities are recognized either as current or ded” leases in service agreements are also stated as a “finance non-current items in the balance sheet. Assets and liabili- lease” if the criteria in IAS 17 are satisfied in conjunction ties are classified as current if they are realized or are due with a precisely specified asset. within a period of 12 months after the end of the reporting Deferred tax assets have to be stated for temporary period. The structure of the balance sheet takes account of differences which are allowable in future and also for tax the requirements set out in the ordinance regarding the loss carry-forwards if it is likely that they will be realized in structure of the financial statements of transportation com- future. panies. The income statement has been prepared using the Non-current liabilities and provisions are stated with structure specified in the cost-summary method (Gesamt- their present value. kostenverfahren). Pension provisions are calculated using the projected- unit credit method, with due consideration being given to Major differences between IFRS accounting and future salary and pension growth. German law as detailed in section 292 a HGB Provisions are only set aside to cover obligations to third The aim of accounting policies under IFRS is to ensure that parties if the probability of occurrence is greater than 50%. information relevant for decision-making processes is This means that provisions set aside to cover maintenance made available to the providers of equity and debt capital. which has not been carried out can no longer be recognized. Accordingly, IFRS makes a strict distinction between Where the uncertainty of an obligation is only minor accounting for tax purposes and for commercial purposes, (“accruals”), the obligation is not stated as a provision; there are different definitions of the time at which revenues instead, it is stated under liabilities. are recognized in certain cases, accounting options are Government grants provided in the form of interest-free limited, and much more stringent demands are specified loans are stated under liabilities. with regard to the information and explanations included The scope of consolidation has been defined using the in the Notes to the financial statements. control concept as well as the risk-and-opportunity ap- These consolidated financial statements contain the proach of SIC-12 (Consolidation– Special Purpose Entities). following accounting principles which differ significantly from the HGB principles: Development costs for intangible assets produced in- Principles Underlying the Consolidated house are capitalized under fixed assets if they satisfy the Financial Statements criteria for statement (IAS 38). Goodwill resulting from the acquisition of shares in Consolidation and scope of consolidation subsidiaries is not written down with depreciation; instead, such goodwill is subject to an annual impairment test a) Consolidation methods (IFRS 3). All subsidiaries acquired after December 31, 2002 have Foreign currency receivables and liabilities are translated been consolidated using the revaluation method in line using the rate applicable on the balance sheet date. Contrary with IFRS 3. to HGB, currency gains are realized (IAS 21). Internal liabilities, expenses and income as well as interim All financial instruments, including derivatives, are recog- results are eliminated completely between fully consolidated nized and, after being included in one of the categories speci- companies; interim results arising from transactions with fied in IAS 39, are stated at amortized cost or market value. associates or joint ventures are eliminated on a pro-rata basis.

222 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Unrealized losses are not eliminated if they result from DB Group. Brenntag and Interfer comprised independent the impairment of an asset. The affiliated companies have subsidiaries (“share deal”) as well as entities which were adopted the accounting principles of the parent company not run as subsidiaries and which instead were run in in order to ensure consistent accounting. companies with responsibility for several business units (“carve-out”). These legally dependent units (“carve-out”) b) Subsidiaries were fully consolidated in 2003. The subsidiaries which the DB AG and all companies (subsidiaries) whose financial company intended to sell on at the point at which they and business policy can be determined by DB AG have been were acquired and for which this intention still existed as fully consolidated in the consolidated financial statements of December 31, 2003 (“share deal”) were not fully consoli- of DB AG. dated; instead, they were stated with their fair value. This Companies are incorporated in the consolidated financial is applicable for the 130 Brenntag companies and 19 Interfer statements at the point at which DB AG acquires control companies acquired in September 2002 as part of the over the companies. In the case of most subsidiaries, “con- acquisition of Stinnes AG. For further details, please refer trol” is exercised in the form of DB AG directly or indirectly to the section “Discontinuing operations”. holding a majority of voting rights. In the case of Aurelis Operations connected with the production of installa- Real Estate GmbH&Co. KG (“Aurelis”), Frankfurt am Main/ tions for rail infrastructure are conducted in certain cases Germany, “control” is exercised by the arrangement whereby in the form of civil-law associations (Gesellschaften bürger- the company’s business policy has to a large extent focused lichen Rechts; GbR) or consortia. These consortia are on the needs of the Group since the start of operations, and wound up when the particular project has been completed. the majority of risks and opportunities resulting from the They conduct their operations mainly over a period of be- company’s operations are borne by the Group. tween one and five years. Because the consortia are perceiv- The full scope of consolidation of DB AG comprises the ed to be mainly jointly run operations, these activities are companies set out in the following list: not included in the scope of consolidation. A further 90 (previous year: 88) subsidiaries, which overall are of minor significance for the Group’s net assets, Ger- many Foreign Total Total financial position and results of operations, have also not Number 2004 2004 2004 2003 been consolidated. They are recognized in the consolidated

Fully consolidated ﬁnancial statements with acquisition costs of € 11 million subsidiaries (previous year: € 53 million). As of Jan 1 188 196 384 393 Additions 4 4 8 33 Disposals 19 18 37 48 Ger- Addition due to change in many Foreign Total Total type of incorporation 5 2 7 10 Number 2004 2004 2004 2003 Disposal due to change in type of incorporation 3584Subsidiaries 41 49 90 237 As of Dec 31 175 179 354 384 thereof Brenntag/Interfer (0) (0) (0) (153)

With the acquisition of Stinnes AG in 2002, the company also acquired the activities of Brenntag (chemical distribution) and Interfer (materials); these were not considered to form part of core activities from the point of view of the

223 Aurelis was included in the consolidated financial state- in € million Book value ments for the first time as of April 1, 2003, because it has been classified as a special-purpose entity under SIC-12. Property, plant and equipment 140 External shareholders own a 51% interest in Aurelis. Intangible assets 2 Investments accounted for using the equity method 0 Because the initial incorporation of Aurelis in the scope of Available-for-sale financial assets 423 consolidation also involves a reconciliation issue under Inventories 148 IFRS 1, please refer to the explanations set out in the section Receivables and other assets 296 Derivative financial instruments 0 “Reconciliation of equity according to IFRS 1”. Cash and cash equivalents 9 The other additions to the full scope of consolidation Deferred tax assets 2 have had only a minor impact on the consolidated financial Assets 1,020 statements. Financial debt 231 Overall, the company spent a total of € 20 million Other liabilities 146 (previous year: € 257 million) in 2004 for acquiring other Derivative financial instruments 0 companies and shares in subsidiaries which are already Retirement benefit obligations 23 Other provisions 43 consolidated. Deferred income 1 All purchase price allocations for acquisitions in the Deferred tax liabilities 22 period under review were consistent with IFRS 3. Liabilities 466 The Brenntag/Interfer operations were sold as of January 1, 2004. This transaction involved those parts of The revenues and results of the divested companies which the Brenntag/Interfer operations which have been included were included in the consolidated financial statements up in the full scope of consolidation of DB AG up to Decem- to the point of deconsolidation are set out in the following: ber 31, 2003 (“carve-out”) as well as the investments stated as available-for-sale financial assets after January 1, 2003. in € million 2004 2003 The figures stated for the disposal of the Brenntag/ Interfer operations as of January 1, 2004 correspond to Revenues 26 1,560 the figures stated as of December 31, 2003 in the section Net profit for the year – 7 – 13 “Discontinuing operations”. The other companies which are now no longer included The revenues and results stated for 2003 refer mainly to the in the full scope of consolidation have not had any major fully consolidated parts of the Brenntag/Interfer opera- impact on the company’s net assets, financial position and tions (“carve-out”). The figure stated for revenues in 2004 results of operations. comprises the revenues of the Mitropa Group in Q1 2004. The following table sets out the cumulative impact of the deconsolidation measures on the assets and liabilities of c) Joint ventures and associates the DB Group in 2004: Joint ventures are accounted for using the equity method. They are defined as companies which are managed jointly, either directly or indirectly, by DB AG together with another party. Investments where the DB Group is able to exercise control over the financial and business policy (associates) are accounted for using the equity method in the consolidated financial statements.

224 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

For the associates, control is normally deﬁned as a situa- The most important joint venture for the DB Group is tion whereby DB AG directly or indirectly owns 20% to Scandlines AG, Rostock/Germany. The pro-rata amounts 50 % of the voting rights in the associates and where the for assets, liabilities, expenses and income attributable to the related assumption of association is not refuted. 50.0 % holding in Scandlines are detailed in the following:

Ger- in € million 2004 2003 many Foreign Total Total Number 2004 2004 2004 2003 Scandlines AG1), Rostock /Germany Non-current assets 151 142 Joint ventures Current assets 123 96 accounted for using the equity method Total assets 274 238 As of Jan 1 6065Non-current liabilities 1 1 Additions 0001Current liabilities 52 43 Disposals 0000Total liabilities 53 44 Included following change Income 277 248 in accounting method applied 0001Expenses 247 218 Excluded following change in accounting method applied 00011) On the basis of draft ﬁnancial statements As of Dec 31 6066

Associates accounted for Selected financials are set out in the following for major using the equity method As of Jan 1 53 12 65 69 associates; these figures have been taken from the consoli- Additions 2021dated financial statements or the annual financial state- Disposals 2022ments of the relevant companies for the period ended Included following change in accounting method applied 1010December 31, 2004. Excluded following change in accounting method applied 3033 As of Dec 31 51 12 63 65 Equity holding Lia- Reve- in € million in % Assets1) bilities1) nues1)

Those joint ventures and associates which overall are of Associates minor significance for presenting the Group’s net assets, EUROFIMA AG 2), Basle/Switzerland 23.7 18,928 16,953 893 financial position and results of operations have not been Linjegods AS, accounted for using the equity method. They are recognized Oslo/Norway 33.3 100 45 257 in the consolidated financial statements on a cumulative Bw FuhrparkService GmbH, Troisdorf 24.9 96 91 124 basis with acquisition costs of € 35 million (previous year: Metrans a.s., €32 million), and are detailed in the following: Prague/Czech Republic 34.1 36 13 90 Polzug 33.3 6 3 23

1) Assets and liabilities translated from local currency at closing rate, Ger- revenues at average rate many Foreign Total Total 2) Relates exclusively to ﬁnancing transactions Number 2004 2004 2004 2003

Joint ventures 3366 Associates 15 14 29 36 thereof Brenntag/Interfer (0) (0) (0) (10)

225 Currency translation Recognition of income and expenditures Revenues generated in the DB Group are attributable to a) Functional currency and reporting currency passenger transport services, transport and logistics services, The concept of functional currency is used for currency the provision of the rail infrastructure, the sale of goods translation purposes. The functional currency of all sub- and other services, particularly those related to the rail- sidiaries included in the consolidated financial statements ways, less value-added tax, rebates and any discounts. of DB AG is the corresponding local currency. Revenues attributable to the provision of services are The consolidated financial statements have been prepared recognized as soon as the service has been provided, the in Euro (€) (reporting currency). extent of the revenues is reliably measurable and the Group will probably derive the economic benefit. b) Transactions and balances All expenses and income items are normally not netted If a company which is included in the scope of consolida- when they are stated, unless the IFRS standards specifically tion does not conduct transactions in its functional currency state that netting is permitted or mandatory. (foreign currency transactions), the transactions are trans- Expenses are taken to the income statement at the point lated into the functional currency of the corresponding unit at which the service is utilized or at the point at which the using the exchange rate applicable at the point at which the expenses are incurred. transaction was carried out. Any exchange rate profits and losses attributable to the settlement of such transactions Accounting policies and the measurement of monetary assets and liabilities in the financial statements using the exchange rate applicable on Property, plant and equipment the balance sheet date are shown in the income statement. Property, plant and equipment are stated at cost less cumulative depreciation, impairments and write-ups. Acqui- c) Subsidiaries sition costs include the purchase price as well as incidental For the purpose of incorporation in the consolidated finan- expenses less acquisition price reductions. If there are any cial statements of DB AG, subsidiaries whose functional shut-down or restoration obligations, they are stated on currency is a currency other than the Euro translate their the assets side of the balance sheet under the costs of prop- financial statements which have been prepared in their erty, plant and equipment, and are simultaneously stated local currency into the reporting currency (Euro) as follows: on the liabilities side of the balance sheet as a provision. Assets and liabilities are translated using the exchange rate Manufacturing costs comprise direct costs as well as reason- applicable on the balance sheet date, and income and able amounts of overheads. expenditure items are translated using the average exchange Interest on debt capital is not included; instead, it is rate. Any differences arising from currency translation are recognized directly as an expense. Value-added tax incurred shown separately under equity. in connection with the acquisition or manufacturing of Any goodwill and adjustments to the fair value of assets property, plant and equipment is capitalized only if the and liabilities as a result of acquisitions of foreign sub- criteria for deduction of input tax are not satisfied. sidiaries are treated in the same way as assets and liabilities Subsequent acquisition costs are capitalized if the of the foreign companies, and are translated using the expenses increase the economic benefit of the property, exchange rate applicable on the balance sheet date. plant and equipment. On the other hand, repair or maintenance is recognized as an expense.

226 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Depreciation is taken to the income statement, using the costs are capitalized if the DB Group derives a future eco- straight-line method, over the expected service life of the nomic beneﬁt and if the other criteria for capitalizing the assets. The following service lives have been used for the costs are satisﬁed. The manufacturing costs comprise all main groups of property, plant and equipment: directly allocable costs as well as those costs which are incurred in order to prepare the assets for their designated use.

Years The manufacturing costs comprise mainly costs for material and services, wage and salary costs as well as relevant Permanent way structures, tunnels, bridges 75 overheads. Track infrastructure 20 – 25 Interest on debt capital is not capitalized. Any value- Buildings and other constructions 10 – 50 Land improvements 8 – 20 added tax incurred in connection with the purchase or pro- Signaling equipment 20 duction of intangible assets is capitalized only if the criteria Telecommunications equipment 5 – 20 for deducting input tax are not satisfied. Rolling stock 15 – 30 Other technical equipment, Intangible assets are subsequently valued at cost less machinery and vehicles 3 – 25 depreciation and impairments plus write-ups. The straight- Factory and office equipment 2 – 20 line method is used for depreciation. The following probable service lives are used for calcu- Government investment grants are deducted directly from lating depreciation on intangible assets: the acquisition costs or manufacturing costs of the assets for which the grants have been extended. Years The figures stated for property in the balance sheet as of January 1, 2003 have been based on the fair values of the Franchises, Contract rights, etc. term property established as of January 1, 1994 when the assets Term of right and liabilities were contributed to the assets of DB AG, Trademarks of use with due consideration being given to the non-scheduled Purchased software 3 – 5 Software produced in-house 3 valuation measures which were carried out after that time up to December 31, 2002. Goodwill, including goodwill resulting from capital consoli- Finance lease assets dation, is defined as the positive difference between the Leased assets whose underlying leasing agreements are costs of purchasing the shares and the fair values of the classified as a finance lease under IAS 17 are capitalized individually acquired assets, liabilities and contingent obli- with the lower of the present value of minimum lease pay- gations. Goodwill is not depreciated; instead, it is subject ments or fair value at the beginning of the contract period, to an annual impairment test. and are depreciated, using the straight-line method, over the economic service life of the asset or, if shorter, the life Asset impairment of the leasing arrangement. Impairment tests are performed for individual assets or, if a value in use cannot be established for an individual asset, Intangible assets and goodwill at the level of cash generating units (CGUs). Intangible assets acquired for a monetary consideration are For this purpose, a method for the impairment test has stated at acquisition costs. Intangible assets which are pro- been implemented on the basis of IAS 36; this method is duced in-house are stated with their manufacturing costs based on the following definitions and assumptions: and consist exclusively of software. The development phase

227 a) Structure of cash generating units the capital market for providing debt capital and equity to In the DB Group, every CGU consists of at least one legally the DB Group. A WACC before taxes is used in order to independent company. The criteria for defining the CGUs ensure consistency with the method for determining cash are based on the structure of the operations. Accordingly, flows. A mark-up is included in the capitalization rate in the CGUs correspond mainly to the business units of the order to take account of risks. DB Group, and thus also correspond to the structure which is used as the basis of internal management reporting. c) Calculation assumptions After medium-term planning has been passed by in the b) Method Supervisory Board of DB AG, a regular check is performed The impairment test is based on a comparison of the attain- to assess whether there is any need for impairments at the able value and book value of a CGU. CGUs. In addition to this annual check, a further check is The book value of a CGU is calculated by adding together performed if current events or changes in assumptions the book values of the assets and by deducting the liabilities indicate that there may have been a major deterioration in which belong or which can be allocated to the CGU. Assets the value in use. and liabilities which are jointly used by several CGUs are The impairment test is conducted on the basis of a risk- taken into consideration on a pro-rata basis for determining adjusted cost of capital of 8.9% (previous year: 8.9%). The the carrying amount of a CGU. fact that a uniform cost of capital is applied throughout the In the impairment test, the higher of net realizable value Group reflects the consideration that all risks and resources and value in use is compared with the carrying amount of are to a large extent shared within the DB Group. the CGU. The value in use is defined as the present value of The useful lives for the individual CGUs used for the the future free cash flows expected for the CGU. The present purpose of the impairment test are based on the useful life value is calculated on the basis of cash flows before interest of the asset or a group of homogeneous assets which is and before taxes. The cash flow predictions are based on most significant for the particular CGU and which thus assumptions which represent the best estimates of manage- defines the nature of the CGU. ment with regard to economic conditions. These cash flow For the cash flow forecast after the five-year planning forecasts are based on the medium-term planning which is period, the impairment test assumes growth rates for extra- submitted to the Supervisory Board of DB AG and which polating the cash flows beyond the corresponding useful comprises a five-year planning period. In the case of CGUs life. These growth rates are consistent with realistic estimates with a useful life in excess of the medium-term planning for the specific market development; in general, a growth period, the service life is estimated on the basis of individual rate of 1% p.a. is assumed (previous year: 1% p.a.). Internal economic criteria, and the sustainable cash flows for this transfer prices based on reasonable assumptions of the period are determined on the basis of the final year of the companies involved are reflected in the cash flow forecasts. planning period. The published infrastructure prices are applicable for services The value in use of a CGU recognizes future cash flows between the Transport and Infrastructure business units; for a CGU only in its present condition. Inflows or outflows due consideration has also been given to price increases in of funds resulting from major structural changes, disinvest- the period covered by the forecast. ments or expansion investments in future are disregarded. Any resultant changes to the original planning relate mainly to the major new lines and extensions which are planned in the infrastructure. A weighted average cost of capital (WACC) is used for discounting purposes; this reflects the return required by

228 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Investments accounted for using the equity method c) Cash and cash equivalents Investments in associates are accounted for using the equity Cash and cash equivalents comprise cash and checks, method in accordance with IAS 28 (Accounting for Invest- deposits at banks due on sight, as well as cash equivalents. ments in Associates). Starting with the Group’s acquisition Cash at banks comprises overnight money as well as term costs at the point of acquisition, the value which is stated is deposits due within three months. adjusted to reﬂect the change in equity at the associate Cash and cash equivalents are stated with their nominal attributable to the DB Group. value.

Financial assets Inventories All costs which are directly related to the process of procuring a) Available-for-sale financial assets inventories are stated as acquisition costs for inventories. Available-for-sale financial assets are normally stated with Manufacturing costs include not only direct costs but also their fair value. If the fair value is not reliably measurable, appropriate overheads. the available-for-sale financial assets are stated at cost less As of the balance sheet date, inventories are stated with any impairment. the lower of cost or net realizable value. Shares in unconsolidated subsidiaries and other investments are also classified as available-for-sale assets and, Deferred taxes because they are of minor significance, are stated at amor- Deferred taxes are established in accordance with IAS 12 tized acquisition costs. (Income Taxes). Available-for-sale current and non-current securities are The domestic Group tax rate used as the basis for calculat- stated with their market value as of the balance sheet date, ing deferred taxes is unchanged at 40.0%, and comprises if such a market value is available. Any changes in fair the corporation tax rate plus solidarity surcharge as well as value are recognized in the fair value reserve of securities, an average trade tax rate. Foreign subsidiaries use the with no impact on profits. relevant local tax rates for calculating deferred taxes. These rates vary between 12.5 and 47.8%. b) Receivables and other financial assets Receivables and other financial assets are initially stated at acquisition costs, whereby the acquisition costs are deemed to correspond to the fair value of the rendered service. Non-current interest-free or low-interest receivables (with terms of more than one year) are discounted to the present value of future cash flows. Cumulative interest is applied to discounted receivables in subsequent periods using the initially fixed effective interest rate. Where there are substantial objective indications of an impairment, receivables are written down by an appropriate amount.

229 Deferred tax assets are stated for allowable temporary Liabilities attributable to leasing contracts which have differences, if it is probable that after the deduction of to be classified as a finance lease according to IAS 17 are deferred tax liabilities, adequate taxable income will be stated with the present value of minimum leasing payments available. The medium-term planning of the Group, with at the beginning of the agreement, and are subsequently due consideration being given to additional estimates, is stated as amortized acquisition costs under financial debt. used as the basis for calculating such deferred tax assets. The lease installments are split into an interest component Deferred tax assets in relation to loss carry-forwards which and a repayment component. The interest component of could probably only be realized on the basis of realizable the leasing installment is taken to the income statement. income after the period covered by medium-term planning are not stated, as they are not considered to be reliably Employee benefits measurable. Deferred taxes are calculated on the basis of the tax rates a) Pension obligations and similar obligations which can be expected for the period in which the deferred There are defined benefit as well as defined contribution tax will be realized on the basis of existing laws or laws retirement schemes in the Group. which to a large extent have already been adopted. The provision for defined benefit retirement schemes stated in the balance sheet corresponds to the present value of the Debt and liabilities defined benefit obligation (DBO) less any plan assets exist- Current liabilities are normally in their nominal amount. ing on the balance sheet date, adjusted by any cumulative Debt and other non-current liabilities are initially stated actuarial profits and losses which have not been taken to the in a figure equivalent to the fair value of the assets which income statement and outstanding past service costs which have been received, where appropriate after the deduction have not been recognized. The defined benefit obligation of transaction costs. They are subsequently stated at (DBO) is calculated annually by independent actuarial amortized acquisition costs using the effective-interest experts using the projected-unit credit method. Actuarial method. The differences between the original amount profits or losses are disregarded if they do not exceed ten paid to the company less transaction costs and the repay- percent of the overall obligation (10-percent range rule). ment amount are taken to the income statement over the Any amount in excess of this range is spread over the life of the agreement. expected average remaining term of employment of the Interest-free government loans which are related to capital plan beneficiaries. expenditures in infrastructure are recognized with the Outstanding past service costs are immediately taken to present value of the repayment amounts, and cumulative the income statement, unless the changes in the pension interest is added to increase the loan to the nominal repay- scheme (retirement pension scheme) depend on the ment amount over the term of the loan. The difference employee remaining in the company for a defined period between the nominal amount of the loan and the present (the period after which the rights become vested). In this value is stated as an interest benefit under deferred items. case, the outstanding past costs are taken to the income The interest income derived from releasing these deferred statement using straight-line depreciation for the period items compensate for the interest expense incurred for until the point at which the rights become vested. applying cumulative interest to the loans. The expense attributable to cumulative interest for the pension obligations and the expected income from the plan assets are stated under financial result.

230 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

In the case of defined contribution retirement schemes, the on the basis of real interest rates adjusted for risk and the Group pays contributions to public sector or private retire- period until the obligations are fulfilled. The difference ment pension schemes, either voluntarily or as a result of a between the nominal value of the expected cash flows and statutory or contractual obligation. The Group does not the present value of the environmental protection provisions have any further payment obligations beyond that of paying is stated under deferred items. Cumulative interest attribut- the contributions. The contributions are recorded under able to other provisions is stated under financial result. personnel expenses when they become due. Advance payments of contributions are stated as assets to the extent Deferred items that the Group is entitled to repayment or a reduction of future payments. a) Deferred government grants The DB Group receives various government grants which b) Benefits upon termination of employment are provided in relation to specific assets or linked to a (severance payments) specific performance. The grants are stated in the balance Severance payments are due if an employee is released before sheet as soon as it is certain that the grants will indeed be his normal retirement age or if an employee voluntarily ter- provided and that the necessary criteria for the grants to be minates his employment contract in return for a severance received have been satisfied. The grants provided in relation payment. Severance payments are recognized if there is a to specific assets, and in particular investment grants, are demonstrable obligation either to terminate the employ- deducted directly from the assets for which the grant is ment contracts of current employees in accordance with a provided. The interest benefits (the difference between the detailed formal plan which is irreversible, or to pay sever- nominal value and present value) of interest-free loans ance payments if employees voluntarily terminate their which are extended are stated as deferred items on the basis employment contract by means of an employment termina- of the contractual grant conditions. tion agreement. Severance payment obligations relating to agreements b) Deferred profits from sale-and-leaseback agreements which exist on the balance sheet date are stated as other If profits are realized with sale-and-leaseback agreements, liabilities and, if they have not yet been defined in individual they are deferred and written back to the income statement contracts and if they are part of a restructuring obligation over the life of the corresponding agreements. under IAS 37, under other provisions. Management of financial and energy risks Other provisions The DB Group is exposed to financial risks as a result of Other provisions are set aside if a company has a de jure or changes in interest rates and exchange rates. In addition, it de facto obligation resulting from a past event where the is also exposed to energy price risks as a result of fluctua- probability of the provision being utilized (resulting in an tions in the prices of diesel fuel and electricity. It is part of outflow of resources) is at least 50% and where it is possible our corporate policy to actively manage and thus to limit for a reliable estimate of the extent of the provision to be the risks by way of using derivative financial instruments. made. If it is likely that a provision will be refunded, e.g. as DB AG is responsible with its central Group Treasury for a result of an insurance policy, the refund is stated as a all financing and hedging transactions of the DB Group. separate asset only if the refund is as good as certain. The Financial and energy risks are identified, evaluated and income from refunds is not netted with expenses. hedged in collaboration with the subsidiaries. Non-current provisions are discounted using market interest rates. Environmental protection provisions for the rehabilitation of existing ecological problems are discounted

231 The Management Board of DB AG has defined risk manage- In the Group Transport and Logistics division, our opera- ment principles. The use of derivative financial instruments tions are international and we are accordingly exposed to for managing interest rate, exchange rate and energy price operational exchange rate risks. The subsidiaries take out risks is governed in a Group financing directive. The credit internal currency futures with Group Treasury in order to default risk is also centrally managed. A clear functional minimize these risks. In turn, Group Treasury hedges its organizational distinction is made between scheduling and open foreign currency position by means of an opposite trading on the one hand (front office) and settlement and currency futures position on the financial markets. monitoring on the other (back office). Group Treasury oper- The DB Group comprises numerous investments in ates on the global financial markets in accordance with the foreign subsidiaries whose net assets are exposed to a Minimum Requirements for Trading Activities of Credit translation risk. This risk is not hedged. Institutions (Mindestanforderungen an das Betreiben von Handelsgeschäften; MAH) established by the Federal c) Energy price risks Financial Supervisory Authority (Bundesanstalt für The DB Group is one of the largest consumers of electricity Finanzdienstleistungsaufsicht; BaFin), and is subject to in Germany. It also requires considerable volumes of diesel regular internal and external audits. fuel. The high energy procurement volume and the volatility Derivative financial instruments are used exclusively for of electricity and mineral oil markets result in substantial hedging interest, currency and energy price risks. All indi- risks to earnings. vidual transactions correspond with on-balance-sheet or Hedging strategies for managing and minimizing these anticipated underlying transactions (e.g. bonds, commercial risks are employed as part of active energy price risk paper, purchases of diesel fuel and electricity). Speculation management. Financial and energy derivatives are used for is not permitted. An ongoing market and risk evaluation this purpose. Physical electricity swaps are used as hedging process takes place as part of risk management. instruments for price risks for electricity purchases. Diesel price risks are limited by various means, including zero- a) Interest rate risks cost collars (hybrid forms of diesel price and currency risks The finance required to cover the period during which capital and individual hedges for currency risks). is tied up in assets is obtained by issuing long-term fixed- rate bonds. If, contrary to this principle, floating-rate d) Counterparty default risk of interest, currency securities are issued or floating-rate loans are taken out, and diesel derivatives the interest rate risk is hedged mainly by using interest rate Counterparty default risk is defined as the potential loss of swaps. assets due to the default of counterparties (“worst-case scenario”). This risk represents the costs of replacing the b) Foreign currency risks derivative financial instruments (at market values) for which Foreign currency bonds are issued as part of the Group’s the DB Group holds claims against contract partners. financing strategy; they are swapped for Euro liabilities Counterparty default risk is actively monitored and managed with the aid of interest rate/currency swaps in order to avoid by means of strict requirements with regard to the credit- interest rate and exchange rate risks. worthiness of the counterparty at the point at which the transaction is concluded and also during the entire period of the transactions; it is also limited by risk limits.

232 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

e) Liquidity risk c) Derivative financial instruments which do not satisfy Liquidity management involves the maintenance of ade- the requirements for the recognition and measurement quate cash and cash equivalents, continuous tapping of the of hedges pursuant to IAS 39 commercial-paper market in order to guarantee sufficient If hedges which are used for hedging interest, currency or market liquidity and depth as well as the constant availability price risks do not satisfy the restrictive requirements set out of funds via guaranteed credit facilities provided by banks. in IAS 39 for being stated as a hedge, any changes in fair value are immediately taken to the income statement. Recognition of derivative financial instruments At the point at which the contract is signed, derivative d) Establishment of fair value financial instruments are stated in the balance sheet either The fair value of financial instruments which are traded on as a financial asset or as a financial liability. They are ini- an active market is defined as the market price as of the tially stated at cost, and are subsequently stated at fair balance sheet date. Common measurement methods are value. The way in which changes in fair value are treated used and assumptions which are reasonable as a result of depends on the type of underlying transaction which is market conditions on the balance sheet dates are made for hedged. At the point at which the contract is signed, deriva- determining the fair value of financial instruments which tive financial instruments are classified either as a hedge (a) are not traded on an active market. Option pricing or for hedging the fair value of certain assets or liabilities stated present-value models are used for establishing the value of in the balance sheet (fair-value hedge) or (b) for hedging other derivative financial instruments. an expected transaction or contractual obligation (cash flow hedge). Critical assessments and appraisals The consolidated financial statements are based on assess- a) Fair-value hedges ments and assumptions which relate to the future. All The purpose of fair-value hedges is to provide protection assessments and appraisals inferred on this basis are continu- against changes in the value of items in the balance sheet. ously reassessed and are based on historical experience and In such cases, the hedge as well as the hedged risk portion further factors, including expectations with regard to future of the underlying transaction are stated at fair value. events which appear to be reasonable under the given Changes in value are taken to the income statement. circumstances. The assessments will of course not always The DB Group does not have any fair-value hedges in its correspond to the subsequent actual circumstances. portfolio. The assessments and assumptions which involve a significant risk in the form of the need for a major adjustment in b) Cash flow hedges the carrying amounts of assets and liabilities in the course Cash flow hedges are used to provide protection against of the next financial year are discussed in the following. fluctuations in the cash flows of financial assets or liabilities. When used for hedging future cash flows, the hedges are also stated at fair value. However, changes in value are initially stated under equity without any impact on profits and are only taken to the income statement at the point at which the corresponding losses or profits attributable to the underlying transaction have an impact on profits or at the point at which the contracts expire.

233 a) Impairment of cash generating units (CGUs) b) Deferred taxes An annual test is performed in order to establish any Deferred tax assets relating to differences on the balance impairment for a cash generating unit (CGU). The funda- sheet and the loss carry-forwards are based on the five-year mental principles and assumptions of the impairment test medium-term planning approved by the supervisory board applied in accordance with IAS 36 in the DB Group are of DB AG. If the sum of net profits expected in the medium- detailed in this section under the heading “Impairment of term planning period were to decline by 10%, and if the tax assets”. The following explanations refer to individual parameters were otherwise to remain unchanged, deferred assumptions which have an impact on the value of the CGUs: tax assets would have to be impaired by €193 million. EBITDA margin: If the actual EBITDA margin (EBITDA – Earnings before interest, taxes, depreciation and amortiza- c) Provisions for environmental protection tion) at the end of the planning period is 10% lower than Provisions for environmental protection relate primarily to the current assumption, and if this also has an impact on the obligation of DB AG to remedy residual contamination the cash flows forecast after this period, the carrying in the regions served by the Deutsche Bundesbahn and amounts of fixed assets would have to be reduced by the former Deutsche Reichsbahn which occurred before approx. €100 million. January 1, 1994. The residual contamination consists mainly Average growth rate of cash flows: If the growth rate of of soil and groundwater contamination due to the former use cash flows assumed after the planning period is 10% lower of the properties. DB AG is obliged to remedy the problems than the current assumption – in other words 0.9% p.a. in- as result of the German Federal Soil Protection Act stead of the current assumption of 1.0% p.a. – there would (Bundesbodenschutzgesetz; BBodSchG), the Federal Water be no need for any impairment adjustment to fixed assets. Act (Wasserhaushaltsgesetz; WHG), the Land Fill Regula- Weighted average cost of capital: If the capitalization tion (Deponieverordnung; DepV) as well as other supple- rate before taxes used for calculating the value in use is 10% mentary laws and regulations. higher than the current assumption – i.e. 9.8% instead of the The value of the provision is stated at its present value current assumption of 8.9% –, the book value of fixed using a discounting method, to the extent that remedial assets would have to be reduced by approx. € 80 million. action is probable, the costs of remedial action are reliably Useful lives and residual value: If the residual value of measurable and if no future benefit is expected from such the cash generating units were to be 10% lower at the end action. of their useful lives, there would be no change to the book Any estimate of future costs of remedial action is subject value of fixed assets. to various factors of uncertainty. In addition to technical developments in the remedial action field and the intensity of innovation, changes to the legal background can also have a substantial impact on the costs of remedial action. The expected costs based on current price levels related to current physical remedial action obligations which are known or are identifiable have been used for calculating the amount of the provision to be stated in the balance sheet. The provisions for environmental protection have been stated on the basis of expected cash-effective outflows and a risk-adjusted real interest rate of between 0.1% and 1.6%.

234 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

If major statutory regulations or official covenants mean are detailed in the three reconciliation columns “Formal that remedial action has to be carried out at times which reclassifications”, “Changes in the scope of consolidation” differ appreciably from the estimated time corridor, this and “Other reconciling items”. The “formal reclassifica- might result in a changed horizon for the expected out- tions” are attributable to different IFRS structure regula- flows, and also may result in a change in the amount of tions, the “changes in the scope of consolidation” are attribut- provisions stated in the balance sheet. Price increases could able to the different method of defining the scope of also result in higher provisions. consolidation under IFRS, and the “other reconciling items” reflect the effects of the accounting policies applicable under IFRS. Reconciliation of Equity In the three above-mentioned reconciliation columns, According to IFRS 1 positive figures represent additions to the corresponding balance sheet items in the balance sheet reconciliation; in The following explanations refer to reconciliation of equity, the reconciliation of consolidated earnings, they represent net assets, financial position and results of operations and higher income or lower expenses. the cash flow statement of HGB under IFRS: The main reconciliation issues are explained following The consolidated balance sheet as of January 1, 2003, the reconciliation tables. which had been prepared under HGB, has been used as the starting point of the reconciliation process; this balance sheet was initially translated into the corresponding IFRS balance sheet structure (column “HGB Jan 1, 2003”). The figures set out in the column “HGB Jan 1, 2003” or respectively “HGB Dec 31, 2003” can to a large extent be reconciled with the figures in the HGB consolidated financial statements published for the periods ended December 31, 2002 and December 31, 2003 by summarizing the balance sheet items which in certain cases are detailed separately in the detailed IFRS structure, i.e. non-current receivables and other assets, deferred charges and prepaid expenses as well as current trade receivables, other receivables and assets as well as taxes on income. Assets which under HGB were stated as financial assets are now stated under the non-current IFRS balance sheet items “Investments in companies accounted for using the equity method”, “Available-for-sale financial assets”, “Receivables and other assets” and in the current item “Receivables and other assets”. The items for reconciling the HGB and the IFRS consolidated balance sheet as of January 1, 2003 and December 31, 2003 and the HGB and IFRS income statement for 2003

235 Reconciliation of Consolidated Equity as of January 1, 2003

HGB Reclassiﬁca- Change in Other IFRS Jan 1, tions between scope of reconciling Jan 1, in € million 2003 line items consolidation items 2003

Assets

Non-current assets Property, plant and equipment 38,329 – 378 – 447 1,434 38,938 Intangible assets 540 – 6 – 16 172 690 Investments accounted for using the equity method 347 9 – 4 12 364 Available-for-sale ﬁnancial assets 520 – 285 14 – 3 246 Other receivables, other assets, deferred charges and prepaid expenses 457 – 124 21 8 362 Derivative ﬁnancial instruments 0 0 0 187 187 Deferred tax assets 0 66 – 62 878 882 40,193 – 718 – 494 2,688 41,669

Current assets Inventories 1,515 – 33 – 375 10 1,117 Available-for-sale ﬁnancial assets 0 0 370 1 371 Trade receivables 3,026 – 3 – 603 59 2,479 Other receivables, other assets, deferred charges and prepaid expenses 940 – 108 461 – 31 1,262 Current tax receivables 78 0 0 0 78 Derivative ﬁnancial instruments 0 – 8 0 17 9 Cash and cash equivalents 271 0 – 6 0 265 5,830 – 152 – 153 56 5,581

Total 46,023 – 870 – 647 2,744 47,250

Equity and liabilities

Equity Equity attributable to shareholders of Deutsche Bahn AG Subscribed capital 2,150 0 0 0 2,150 Reserves 3,921 1,408 234 – 8 5,555 Retained earnings – 464 – 1,408 0 1,869 – 3 Minority interests 101 0 – 27 18 92 5,708 0 207 1,879 7,794

Non-current liabilities Financial debt 16,982 – 52 0 – 1,240 15,690 Other liabilities1) 851 456 0 – 2 1,305 Derivative ﬁnancial instruments 0 3 0 207 210 Retirement beneﬁt obligations 914 – 45 – 18 381 1,232 Other provisions 6,394 – 507 0 – 1,015 4,872 Deferred income 793 – 16 0 3,052 3,829 Deferred tax liabilities 0 66 0 2 68 25,934 – 95 – 18 1,385 27,206

Current liabilities Financial debt 1,958 60 – 103 54 1,969 Trade liabilities 2,960 867 – 327 – 70 3,430 Other liabilities 1,741 1,389 – 42 – 46 3,042 Current tax liabilities 68 0 – 27 2 43 Derivative ﬁnancial instruments 0 0066 Other provisions 7,526 – 3,350 – 335 – 541 3,300 Deferred income 128 259 – 2 75 460 14,381 – 775 – 836 – 520 12,250

Total 46,023 – 870 – 647 2,744 47,250

1) Including special reserve with equity element (HGB € 12 million; IFRS € 0 million)

236 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Reconciliation of Consolidated Equity as of December 31, 2003

HGB Reclassiﬁca- Change in Other IFRS Dec 31, tions between scope of reconciling Dec 31, in € million 2003 line items consolidation items 2003

Assets

Non-current assets Property, plant and equipment 39,562 – 798 – 443 1,324 39,645 Intangible assets 531 – 3 – 5 373 896 Investments accounted for using the equity method 511 0 – 130 19 400 Available-for-sale ﬁnancial assets 215 – 13 38 0 240 Other receivables, other assets, deferred charges and prepaid expenses 1,162 – 98 – 668 0 396 Derivative ﬁnancial instruments 0 3 0 120 123 Deferred tax assets 0 0 – 30 1,210 1,180 41,981 – 909 – 1,238 3,046 42,880

Current assets Inventories 1,399 – 47 – 314 20 1,058 Available-for-sale ﬁnancial assets 0 3 398 0 401 Trade receivables 3,082 – 12 – 547 81 2,604 Other receivables, other assets, deferred charges and prepaid expenses 858 – 73 450 13 1,248 Current tax receivables 62 – 1 0 0 61 Derivative ﬁnancial instruments 0 3003 Cash and cash equivalents 265 6 0 0 271 5,666 – 121 – 13 114 5,646

Total 47,647 – 1,030 – 1,251 3,160 48,526

Equity and liabilities

Equity Equity attributable to shareholders of Deutsche Bahn AG Subscribed capital 2,150 0 0 0 2,150 Reserves 4,264 981 288 – 16 5,517 Retained earnings – 1,393 – 981 – 56 1,800 – 630 Minority interests 55 0 127 10 192 5,076 0 359 1,794 7,229

Non-current liabilities Financial debt 18,667 – 80 1,277 – 1,409 18,455 Other liabilities 1,672 467 – 1,056 28 1,111 Derivative ﬁnancial instruments 0 2 5 381 388 Retirement beneﬁt obligations 953 – 59 – 20 414 1,288 Other provisions 7,123 – 624 – 1,118 – 713 4,668 Deferred income 543 75 0 2,925 3,543 Deferred tax liabilities 0 44 22 1 67 28,958 – 175 – 890 1,627 29,520

Current liabilities Financial debt 1,574 234 – 225 41 1,624 Trade liabilities 3,124 852 – 300 – 70 3,606 Other liabilities 1,882 1,401 – 86 – 11 3,186 Current tax liabilities 83 0 – 19 0 64 Derivative ﬁnancial instruments 0 7 12 – 11 8 Other provisions 6,615 – 3,584 – 101 – 270 2,660 Deferred income 335 235 – 1 60 629 13,613 – 855 – 720 – 261 11,777

Total 47,647 – 1,030 – 1,251 3,160 48,526

237 Reconciliation of Consolidated Statement of Income for 2003

Reclassiﬁca- Change in Other HGB tions between scope of reconciling IFRS in € million 2003 line items consolidation items 2003

Revenues 28,228 0 – 3,750 – 1 24,477 Inventory changes and internally produced and capitalized assets 2,210 1 0 32 2,243 Overall performance 30,438 1 – 3,750 31 26,720

Other operating income 3,138 – 191 127 – 346 2,728 Cost of materials – 15,776 111 2,737 – 33 – 12,961 Personnel expenses – 10,337 115 327 29 – 9,866 Depreciation and impairment losses – 2,694 – 140 54 – 181 – 2,961 Other operating expenses – 4,316 92 372 148 – 3,704 Operating profit (EBIT) 453 – 12 – 133 – 352 – 44

Result from investments accounted for using the equity method 27 0 0 18 45 Net interest income – 637 0 2 – 215 – 850 Other ﬁnancial result 24 12 46 – 28 54 Financial result – 586 12 48 – 225 – 751

Profit before taxes on income – 133 0 – 85 – 577 – 795

Taxes on income – 112 0 41 282 211

Net profit for the year – 245 0 – 44 – 295 – 584

Net proﬁt attributable to: shareholders of Deutsche Bahn AG – 270 0 – 46 – 311 – 627 minority interests 25 0 2 16 43

Formal reclassifications The impairments which have been made under HGB have Under HGB, current provisions state amounts (e.g. for out- been transferred to the IFRS consolidated ﬁnancial statements standing invoices and for outstanding vacation entitlement) to the extent that such impairments related to individual for which the uncertainty is only minor (accruals). These assets and to the extent that the reasons for such impairments obligations have now been stated under trade liabilities or still existed. Under HGB, provisions were set aside in indi- other liabilities. Contrary to the situation under HGB, vidual cases to cover infrastructure-related project and effects of transactions in which beneﬁcial ownership under planning risks as well as valuation risks for investments. If IFRS is not deemed to have been transferred are not stated individual items of property, plant and equipment or under non-current other provisions; instead, they are stated investments are allocated to these project and planning or under other non-current liabilities. investment risks, a direct impairment is now deducted from the carrying amounts of the affected assets.

238 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Revenue accruals recognized in provisions under HGB are The “change in the scope of consolidation” as of December now stated under deferred items. 31, 2003 contains not only the figures attributable to the Under HGB, goodwill which arose from company Brenntag/Interfer operations but also the figures which acquisitions before December 31, 2002 was netted directly are attributable to the initial incorporation of Aurelis against earned surplus. If this resulted in a negative earned Real Estate GmbH&Co.KG, Frankfurt am Main/Germany. surplus, the negative amount was compensated for by The following explanations are relevant in this respect: amounts taken from the capital reserve. Under IFRS, a An extensive property portfolio consisting of approx. distinction is made between the amounts of capital provided 1,850 individual properties was sold to Aurelis in the course by the shareholders (“paid-in capital”) and the capital of fiscal 2003. Ownership of the properties under civil law generated by the company (“generated capital”). For this has been effectively transferred as a result of the contractual reason, the increase in earned surplus which took place agreements which have been signed. Beneficial ownership under HGB will be reversed against the capital reserve. has not been transferred to the purchaser under HGB or This means that the capital reserve of the DB Group is under IFRS.From the point of view of the DB Group, income now equivalent to that of DB AG. from this transaction is only recognized once the transferred properties have been sold by Aurelis to external third parties. Changes in the scope of consolidation As a result of the majority voting rights held by the share- Contrary to the situation in the consolidated financial holder outside the Group, Aurelis has been accounted for statements prepared under HGB, the subsidiaries of the using the equity method in the consolidated financial state- Brenntag/Interfer operations which were available-for-sale ments of DB AG prepared in accordance with HGB for the as of January 1, 2003 and December 31, 2003 were not period ended December 31, 2003. In accordance with IAS 27 included in the scope of consolidation in view of the pro- in conjunction with SIC-12, Aurelis has been fully consoli- hibition of full consolidation specified in IAS 27.13a(2000). dated in the consolidated financial statements of DB AG The figures stated as of January 1, 2003 are entirely attrib- since April 1, 2003 (reference date of initial consolidation). utable to this effect. Because the legally independent units The figures stated for the reconciliation of the consoli- of the Brenntag/Interfer operations have not been included dated statement of income for 2003 are almost exclusively in the scope of consolidation, they have been stated as attributable to the Brenntag/Interfer operations. The income available-for-sale financial assets at fair value (January 1, statement of Aurelis has been included for the period from 2003: € 370 million). The difference between the consoli- April 1 to December 31, 2003. Of the annual result of dated book value (HGB) of the available-for-sale subsidiaries €–44 million, Aurelis accounts for € +18 million. of the Brenntag/Interfer operations and their fair value is stated in the fair value reserve of securities (January 1, Other reconciling items 2003: € 234 million; December 31, 2003: € 262 million). The other reconciling items in the reconciliation of con- Please refer to the explanations concerning the change in solidated equity as of January 1, 2003 comprise mainly the the scope of consolidation as well as the section “Discon- following IFRS accounting factors which differ from the tinuing operations”. corresponding factors under HGB:

239 Reconcilation of Consolidated Equity: Other Reconciling Items as of January 1, 2003

Internally Derivative Finance generated ﬁnancial Deferred in € million leases software instruments taxes

Assets

Non-current assets Property, plant and equipment 1,412 Intangible assets 57 Investments accounted for using the equity method Available-for-sale ﬁnancial assets Other receivables and other assets 7 Derivative ﬁnancial instruments 187 Deferred tax assets 878 1,419 57187878

Current assets Inventories Available-for-sale ﬁnancial assets Trade receivables Other receivables and other assets Current tax receivables Derivative ﬁnancial instruments 17 Cash and cash equivalents 00170

Total 1,419 57 204 878

Equity and liabilities

Equity Equity attributable to shareholders of Deutsche Bahn AG Subscribed capital Reserves – 1 – 7 Retained earnings – 160 57 12 882 Minority interests – 160 57 11 875

Non-current liabilities Financial debt 1,661 Other liabilities Derivative ﬁnancial instruments 207 Retirement beneﬁt obligations Other provisions Deferred income Deferred tax liabilities 2 1,661 0 207 2

Current liabilities Financial debt 47 Trade liabilities Other liabilities – 20 1 Current tax liabilities Derivative ﬁnancial instruments 6 Other provisions – 204 Deferred income 75 – 82 0 – 14 1

Total 1,419 57 204 878

240 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Discount on Retirement Other discounts Total “Other interest-free beneﬁt Provisions and accruals reconciling items” loans obligations not recognized of interest Other Jan 1, 2003

22 1,434 115 172 12 12 – 3 – 3 1 8 0 187 0 878 0 0001472,688

10 10 1 1 59 59 – 31 – 31 0 0 0 17 0 0 0 00039 56

0 0001862,744

0 0 0 – 8 – 381 766 570 123 1,869 18 18 0– 381 766 570 141 1,879

– 2,852 – 1 – 48 – 1,240 – 67 65 –2 0 207 381 0 381 – 325 – 700 10 –1,015 2,852 2 198 0 3,052 0 2 0 381 – 323 – 570 27 1,385

7 54 – 70 0 – 70 – 14 – 13 – 46 2 2 0 6 – 359 22 – 541 0 75 00– 443 0 18 – 520

0 0001862,744

241 In the column “Other reconciling items”, reconciliation of consolidated earnings for 2003 contains the following individual items:

Other discounts Retirement Provisions Total “Other Finance Deferred and accruals beneﬁt not reconciling in € million leases taxes of interest obligations recognized Other items” 2003

Revenues 0 0 0 0 0 – 1 –1 Inventory changes and internally produced and capitalized assets 0 0 0 0 0 32 32 Overall performance 0 0 0 0 0 31 31

Other operating income 8 0 – 5 – 3 – 357 11 – 346 Cost of materials 0 0 8 0 – 120 79 –33 Personnel expenses 0 0 0 20 8 1 29 Depreciation – 97 0 0 0 – 23 – 61 –181 Other operating expenses 156 0 2 1 1 – 12 148 Operating profit (EBIT)670518– 491 49 – 352

Result from investments accounted for using the equity method 0 0 0 0 0 18 18 Net interest income – 74 0 – 65 – 59 0 – 17 –215 Other ﬁnancial result 0 0 0 0 0 – 28 –28 Financial result – 74 0 – 65 – 59 0 – 27 – 225

Profit before taxes on income – 7 0 – 60 – 41 – 491 22 – 577

Taxes on income 0 290 0 0 0 – 8 282

Net profit for the year – 7 290 – 60 – 41 – 491 14 – 295

Finance leases stated as other operating expenses under HGB; other operat- Contrary to the situation under HGB, a lease under IFRS is ing income increased by € 8 million. classified on the basis of the criteria specified in IAS 17.A review of the lease contracts has established that some Software produced in-house agreements, which under HGB resulted in the leases being Under HGB, research and development costs are normally allocated to the lessor, have to be classified as finance leases taken to the income statement in the period in which they under IAS 17. Please refer to the comments concerning are incurred. Under IFRS, development costs which satisfy finance leases under Note 27. the special statement criteria of IAS 38 have to be capitalized Because the lease contracts have been classified as finance as intangible assets and depreciated over the expected leases, the income statement prepared under IFRS for the service life. This is applicable particularly for the costs year 2003 states additional depreciation in relation to the of software produced in-house. capitalized leases (€ 97 million) and additional interest ex- The initial capitalization of software produced in-house penses (€ 74 million) instead of the figure of € 156 million has increased generated equity by € 57 million.

242 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Derivative financial instruments the individual financial statements. No deferred taxes were There are major differences between the regulations of IAS 39 stated in relation to loss carry-forwards. Deferred tax pro- and the accounting policies of HGB. This results in the visions amounted to € 1 million in the consolidated financial need for extensive adjustments. statements for the period ended December 31, 2002 which One of the requirements of IAS 39 for hedge accounting is were prepared under HGB. that the relationship between the underlying trade and the Under IAS 12, deferred taxes are not established on the hedge as well as the strategy which is employed are adequately basis of timing differences; instead they are established on documented right from the very beginning. In addition, the the basis of temporary differences in book values in the hedge must be very effective and must continue to be effective consolidated balance sheet and the tax balance sheet. subsequently. Under IFRS, deferred tax assets are stated if it is probable Please refer to the relevant comments in the section that sufficient taxable income will be available in future. “Fundamental principles and methods” for detailed expla- Deferred tax liabilities are stated for temporary differences nations of the accounting policies applied for financial which will be taxable in future. It is mandatory for deferred instruments. taxes to be stated in relation to loss carry-forwards if it is The initial statement of derivative financial instruments probable that taxable income will in future be available for under IAS 39 has resulted in an asset of € 204 million stated offsetting loss carry-forwards. for the market values of these financial instruments. This is In accordance with IAS 12, deferred tax assets of € 878 mil- opposed by a figure of € 213 million stated under liabilities. lion and deferred tax liabilities of € 2 million were stated as Please refer to Note 21 for further explanations of the of January 1, 2003. Equity increased by € 875 million. The figures stated in the balance sheet as of December 31, 2003. deferred tax liabilities in relation to the changes in market Reconciliation issues which are attributable to the other value of cash flow hedges reflected in the fair value reserve accounting policies which differ from the policies under for cash flow hedges amounted to € 7 million. HGB are stated under “Other”. These issues include factors Please refer to the explanations in Notes 11 and 16 for from foreign currency translation which change equity deferred taxes. under IAS 21 (impact on equity as of January 1, 2003: €+21 million) and the impairment of receivables (impact Discounting of interest-free loans on equity as of January1, 2003: € + 67 million). The interest-free government loans under HGB are stated in the amount due for repayment. Under IFRS, liabilities Deferred taxes are initially stated with their fair value. The present value In the consolidated financial statements prepared under applicable on the relevant reference date is used as the basis HGB, the DB Group had set aside provisions for deferred for measuring the value of such loans when they are initially taxes relating to temporary differences between the profits stated and also in subsequent periods, and the effective- established according to commercial law and those estab- interest method is used. The interest benefit provided by the lished according to tax law for the companies included in lender is deemed to be a government grant in accordance the consolidated financial statements, if most of the differ- with IAS 20 (Accounting for Government Grants and Disclo- ences were attributable to liabilities at the particular com- sure of Government Assistance); it is stated on the liabilities pany. Deferred tax assets were not stated. Tax accruals arising side of the balance sheet. This reconciliation issue has not from consolidation were netted with the liabilities stated in resulted in any effects on equity.

243 Pension obligations Unlike the situation under HGB, provisions for decommissio- Under HGB, the provisions for pensions are established on ning obligations (€ –214 million), provisions for environ- the basis of actuarial calculations using the present-value mental protection (€ –148 million) as well as personnel-related method (Teilwertmethode). An interest rate of 6% p.a. as provisions (€ –126 million) have been stated at much lower detailed in section 6a Income Tax Law (Einkommensteuer- present values under IFRS. The fact that interest-free or gesetz; EStG) is used for this purpose. Under IFRS, pension low-interest liabilities are stated at present value under obligations are stated and measured in accordance with IFRS instead of the repayment amount under HGB has IAS 19 (Employee Benefits). The pension obligation is meant that equity has increased by € 67 million. accordingly established using the “projected-unit credit Additional expenses attributable to cumulative interest method”, with due consideration being given to future of € 65 million for non-current provisions and liabilities are growth in compensation and pensions and also using an included in the reconciliation of consolidated earnings for interest rate of similar-term high-grade bonds. 2003. As of January 1, 2003, the pension obligations stated in the balance sheet increased by € 381 million as a result of Non-recognition of provisions the calculation method which differs from that used under Under HGB, provisions are set aside to cover uncertain HGB and also as a result of different actuarial parameters obligations and potential losses of pending transactions. (see Note 30). Equity has declined by this amount. In the Provisions are also set aside to cover the cost of maintenance reconciliation of the income statement, the changes in the which has not been carried out. pension obligations stated in the balance sheet with an IAS 37 prohibits the statement of so-called provisions for impact on profits are recognized under personnel expenses expenses. Provisions for expenses stated in the balance and financial result. sheet under HGB of € 684 million, including a figure of €592 million attributable to failure to carry out maintenance, Other discounted and accrued non-current have been written back, with the effect of boosting equity. provisions and liabilities In the reconciliation of consolidated earnings for 2003, Under HGB, provisions are set aside in the amount which the fact that provisions for expenses have been written is necessary in the opinion of a prudent businessman. Pro- back as of January 1, 2003, with the effect of boosting equity, visions for environmental protection with regard to remedial has meant that other operating income has declined by action for existing site contamination have been set aside in €357 million under IFRS compared with HGB. In addition, an amount likely to be used for fulfilling the relevant obli- the non-recognition of maintenance provisions in particular gations. has resulted in increased cost of materials of € 120 million Contrary to the practice applicable under HGB, non- under IFRS. current provisions under IFRS normally have to be discounted. Due consideration can be given to risks relating to measurement of the estimated cash outflows or the discount rate.

244 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Reconciliation of cash flow statement Notes to the Consolidated Statement of Income

HGB Reconciling IFRS in € million 2003 items 2003 The figures in the income statement are not comparable due to the disposal of the Brenntag/Interfer operations Profit before taxes on income – 133 – 662 – 795 Cash flow from which were still included in the scope of consolidation in operating activities 980 311 1,291 2003 (“carve-out”). For this reason, the figures relating to Cash flow from investing activities – 4,177 44 – 4,133 these discontinuing activities are stated for the year 2003 Cash flow from in the following. financing activities 3,191 – 343 2,848 Net change in cash and cash equivalents – 6 12 6 1 Revenues Cash and cash equivalents Adjusted by the Brenntag/Interfer operations, which in at the beginning of the period 271 – 6 265 Cash and cash equivalents the previous year accounted for €1,402 million, revenues at the end of the period 265 6 271 have increased to € 23,962 million (+3.4%). The figure comprises an amount of € 4,568 million for payments The higher cash flow from operating activities and a simul- under ordered-service contracts (previous year: € 4,519 taneous decline in cash flow from financing activities are million). due mainly to the fact that, under the lease arrangements Revenues by segment and region are detailed in segment classified as finance leases under IFRS, the outflows are reporting. included in the outflows of financing activities. Under HGB, the cash-effective lease expenses were stated in out- 2 Inventory changes and internally produced flows of operating activities. Further changes have resulted and capitalized assets from the fact that Aurelis has been included in the scope of consolidation under IFRS. in € million 2004 2003

Inventory changes – 84 – 97 Internally produced and capitalized assets 2,012 2,340 Total 1,928 2,243

Internally produced and capitalized assets are incurred mainly in connection with construction and project activities for railroad infrastructure, the modernization of vehicles and overhauling of corresponding vehicle spare parts.

245 3 Other operating income 5 Personnel expenses and employees

in € million 2004 2003 in € million 2004 2003

Services for third parties Wages and salaries and sales of materials 776 783 Employees 6,035 6,278 Income from the release Civil servants assigned 1,545 1,590 of provisions 342 536 7, 580 7,868 Leasing and rental income 266 264 Income from the disposal Social security costs of property, plant and equipment and intangible assets 242 310 Employees 1,288 1,352 Income from the disposal Civil servants assigned 323 365 of discontinuing operations 229 0 Cost of adjusting staffing levels 272 171 Income from claims Retirement benefit expenses 93 110 for damages and compensation 214 153 1,976 1,998 Income from government grants 98 93 Total 9,556 9,866 Income from the disposal thereof from discontinuing of non-current financial instruments 37 27 operations (125) Other income 656 562 Total 2,860 2,728 thereof from discontinuing The figure stated for personnel adjustments comprises operations (229) (24) mainly expenses arising from agreements relating to severance payments, part-time working in the run-up to retirement and Income from the disposal of discontinuing operations early retirement as well as restructuring measures. relates exclusively to the Brenntag/Interfer operations Retirement benefit expenses relate to active persons which were sold as of January 1, 2004. Please refer to the as well as persons who are no longer employed in the comments concerning this transaction in the section “Dis- DB Group, and their surviving dependents. These expenses continuing operations”. are attributable mainly to allocations to the pension provision, the employer’s contribution to the company pension 4 Cost of materials scheme as well as the retirement benefits of employees which are paid by the DB Group. The interest expense attributable to accrued interest for the pension obligations and the in € million 2004 2003 expected income from plan assets are stated under financial Cost of raw materials, result. Please refer to Note 30 for detailed comments con- consumables and supplies 1,535 2,953 Cost of purchased services 7,985 7,338 cerning the development of pension obligations. Maintenance expenses 2,534 2,670 The employment of civil servants in the DB Group is Total 12,054 12,961 based on a mandatory statute of article 2 section 12 of thereof from discontinuing operations (1,167) the German Railroad Restructuring Act (Eisenbahnneu- ordnungsgesetz; ENeuOG). For the work provided by the assigned civil servants, DB AG refunds to the Federal Rail- The increases compared with the previous year were attribut- road Fund (Bundeseisenbahnvermögen; BEV) those costs able mainly to energy costs and significantly higher cost of which would be incurred if a non-civil-servant were to be purchased services at the Schenker business unit due to an employed instead of the assigned civil servant (pro forma improvement in underlying business. statement).

246 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

The lower personnel expenses are due mainly to a downturn in the number of persons employed. The following table shows the development in the number of persons employed in the DB Group (ﬁgures translated to full-time equivalents):

2004 2004 2003 2003 Average Average for the year At year end for the year At year end

Employees 183,467 180,662 192,197 187,252 Civil servants 46,363 44,970 49,127 47,826 Subtotal 229,830 225,632 241,324 235,078 Trainees 7, 057 8,145 6,997 7,991 Total 236,887 233,777 248,321 243,069 thereof discontinuing operations (2,205) (2,124)

In the event of any changes in the scope of consolidation, the employees are stated on a pro-rata basis up to the point 7 Other operating expenses of deconsolidation or after the date of initial consolidation.

in € million 2004 2003 6 Depreciation Impairments in 2004 declined compared with the previous Rental and leasing expenses 814 819 year, and consist almost exclusively of impairments relating Other purchased services 310 353 Loss from disposal of property, plant to individual items of property, plant and equipment. For and equipment and intangible assets 213 191 further explanations, please refer to the comments con- Insurance expenses 185 189 Travel and entertaining expenses 167 174 cerning the development of property, plant and equipment Legal, consultancy and audit fees 156 215 and intangible assets under Notes 13 and 14. Contributions and fees 154 145 Maintenance expenses 103 125 Impairments in receivables and other assets 97 185 Cost of printing and ofﬁce supplies 88 94 Sales promotion and advertising expenses 84 125 Damages payable 83 77 Other taxes 57 61 Other 763 951 Total 3,274 3,704 thereof from discontinuing operations (117)

The decline in other operating expenses is due not only to the divestiture of Brenntag/Interfer operations and lower adjustments and provisioning, but also to the overall restrictive cost management within the DB Group.

247 Expenses for maintenance relate to non-production mainte- The increase in other interest expenses is due mainly to nance and repair costs. the fact that capital market debt in 2004 was on average higher throughout the year than was the case in 2003 8 Result from shareholdings accounted (effect: € 45 million), and it is also due to the higher for using the equity method amount of interest repaid to the Federal Railroad Authority The following amounts have been included in the income (Eisenbahnbundesamt; EBA)(effect: € 34 million). statement from investments in companies over which control can be exercised: 10 Other financial result

in € million 2004 2003 in € million 2004 2003

Joint ventures Result from equity investments 4 64 Scandlines AG1) 30 30 Result from currency exchange gains 88 211 Other 1 0 Result from currency-based 31 30 derivative contracts – 84 – 217 Result from other derivative financial instruments – 1 1 Associated companies Result from disposal EUROFIMA AG 77 of financial instruments 1 0 Other 11 8 Impairments on shareholdings – 63 – 4 18 15 Other financial result 0 – 1 Total 49 45 Total – 55 54 thereof from discontinuing 1) On the basis of draft financial statements operations (50)

9 Net interest income Of the figure of € 64 million stated for result from equity investments in 2003, € 46 million was attributable to the result of the Brenntag/Interfer operations which were not in € million 2004 2003 included in the scope of consolidation (“share deal”), and Interest income €4 million was attributable to the Brenntag/Interfer opera- Other interest and similar income 93 74 tions included in the scope of consolidation under IFRS in Interest income from the release 2003 (“carve-out”). of deferred income 248 316 Currency exchange gains are attributable to foreign cur- 341 390 rency liabilities being translated using the exchange rate Interest expenses applicable on the reference date (IAS 21) with an impact on Other interest and similar expenses – 811 – 724 profits; in the period under review, this item was much Interest accrued on non-current provisions and liabilities – 364 – 368 lower than was the case in the previous year because of the Interest element less pronounced currency fluctuations. Result from currency- of finance lease payments – 84 – 86 based derivative contracts comprises the reclassification of Interest cost of retirement benefit obligations – 66 – 62 the currency-related change in the market value of cash – 1,325 – 1,240 flow hedges, which is recognized in equity without any Total – 984 – 850 impact on profits, and the development in the market value Thereof from discontinuing operations (– 12) of derivatives which are not classified as effective hedges under IAS 39. Currency exchange gains have to be imagined as being netted with the result from currency-based derivative contracts.

248 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

11 Taxes on income The reconciliation amount under IAS 12.33 relates exclusively to additional tax impairments resulting from the fact that tax-free grants in the IFRS ﬁnancial statements in € million 2004 2003 were deducted directly from the acquisition costs of the Effective tax expenses – 114 – 89 assets. It is not permitted for any deferred taxes to be set Income due to lapsing of tax obligations 7 9 aside in relation to these temporary differences. Effective income tax expenses – 107 – 80 In the year under review, effects from the initial capitalization of a loss carry-forward at a foreign subsidiary Deferred tax income 133 291 Taxes on income – total 26 211 (€ 71 million) as well as other items (€ 36 million) are the thereof from discontinuing main items included under “Other effects”. operations (– 2)

12 Earnings per share Effective tax payables have been incurred mainly at foreign Under IAS 33, undiluted earnings per share are calculated by subsidiaries. dividing the result for the year of the DB Group attribut- The considerable change in taxes on income is attributable able to the shareholders of DB AG by the weighted average to deferred taxes. In the year under review, deferred tax number of shares in circulation during the financial year. income has resulted from additional future possibilities of Undiluted earnings per share correspond to diluted earn- utilizing temporary differences and loss carry-forwards, ings per share. particularly in Germany and at one foreign subsidiary. The following table reconciles the tax situation with in € million 2004 2003 the actual taxes on income, starting with the result of the DB Group before taxes on income and the theoretical Net profit for the year 180 – 584 Less: Net profit attributable to taxes on income attributable to such result based on a minority interests 25 43 Group tax rate of 40.0%: Net profit attributable to shareholders of Deutsche Bahn AG 155 – 627

in € million 2004 2003 Number of issued shares 430,000,000 430,000,000

Result before taxes on income 154 – 795 Earnings per share (€/share), Tax rate for the Group in % 40 40 undiluted 0.36 – 1.46 € Expected tax expense (–) /credit (+) – 61 318 Earnings per share ( /share), diluted 0.36 – 1.46 Effect due to temporary differences and loss carry-forwards arising in thereof from discontinuing the ﬁnancial year for which no deferred operations (0.53) (0.08) tax assets have been recognized – 204 – 407 Tax effects related to IAS 12.33 153 162 Income not subject to tax 67 22 Expenses not deductible for tax purposes – 44 – 30 Differences in tax rates of foreign subsidiaries 13 17 Effect of changes in tax legislation – 5 – 1 Impairment losses on goodwill not deductible for tax purposes 0 – 4 Other effects 107 134 Taxes on income as reported 26 211 Effective tax rate in % – 16.9 26.5

249 Notes to the Consolidated Balance Sheet

13 Property, plant and equipment

Track infra- Rolling Other Advance Commercial, structure, stock for Technical equipment, payments ofﬁce Permanent signaling passenger equipment operating and assets and other way and control and freight and and office under con- in € million Land buildings structures equipment transport machinery equipment struction Total

Acquisition and manufacturing costs As of Jan 1, 2004 5,104 4,630 9,908 11,475 16,159 1,143 3,043 5,413 56,875 Changes in scope of consolidation – 5 – 37 0 0 – 7 – 71 – 110 – 8 – 238 Additions 128 279 438 1,036 1,023 101 337 3,854 7,196 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 00000 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 Jan 1, 2004 – 270 – 1,136 – 1,808 – 5,141 – 5,840 – 675 – 1,801 – 559 – 17,230 Changes in 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 00000 Disposals 3 39 7 88 285 46 295 0 763 Currency translation differences 0 0 0 0 00000 As of Dec 31, 2004 – 289 – 1,260 – 1,977 – 5,725 – 6,678 – 647 – 1,800 – 883 – 19,259 Book value Dec 31, 2004 4,801 3,447 8,323 6,589 10,694 470 1,233 4,448 40,005 Book value Dec 31, 2003 4,834 3,494 8,100 6,334 10,319 468 1,242 4,854 39,645

Impairments of € 358 million under assets under construction Property, plant and equipment include leased assets relate to project risks at DB Netz AG; they have been covered which are stated separately in the following table. These by a netting on the assets side of the balance sheet against leased items are assets which, because of the wording of a provision set aside in previous years. This was without the underlying contracts, are finance leases for which the any impact on profits. DB Group is deemed to be the beneficial owner but not The negative disposals of € 460 million under costs of the legal owner. assets under construction are attributable to the repayment of investment grants which have been received in previous years and stated under assets (netting against assets).

250 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Track infra- Rolling Other Commercial, structure, stock for Technical equipment, ofﬁce Permanent signaling passenger equipment operating and other way and control and freight and and office in € million Land buildings structures equipment transport machinery equipment Total

Assets leased from third parties under finance leases Acquisition and manufacturing costs 5 718 19 0 1,159 0 57 1,958 Accumulated depreciation – 1 – 80 – 1 0 – 515 0 – 24 – 621 Book value Dec 31, 2004 4 638 18 0 644 0 33 1,337

Acquisition and manufacturing costs 5 672 19 0 1,228 0 54 1,978 Accumulated depreciation 0 – 43 – 1 0 – 494 0 – 21 – 559 Book value Dec 31, 2003 5 629 18 0 734 0 33 1,419

The figure stated for commercial, office and other buildings As of December 31, 2004, the leased assets stated as operat- under leased assets in property, plant and equipment relates ing leases under property, plant and equipment had a resid- mainly to concourse buildings of DB Station&Service AG. ual book value of € 2,660 million (previous year: € 2,640 The figure stated under passenger and freight transport million). These are mainly property-related assets. It is vehicles relates mainly to the rolling stock used by the expected that these assets will produce rental and leasing transport companies of the DB Group (locomotives, mul- income in future years as follows: tiple units, freight cars).

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

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

Dec 31, 2003 Minimum lease payments 137 94 98 85 77 433 787

Financial debt was secured by property, plant and equipment with book values of € 313 million (previous year: € 336 million). The ﬁgures relate mainly to rolling stock used as security for EUROFIMA loans.

251 14 Intangible assets as of December 31, 2004

Capitalized Capitalized development development costs – costs – Products Products Purchased Payments currently under intangible made on in € million in use development assets Goodwill account Total

Acquisition and manufacturing costs As of Jan 1, 2004 110 22 965 221 0 1,318 Changes in 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 Currency translation differences 000000 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 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 Book value Dec 31, 2004 45 15 557 236 3 856 Book value Dec 31, 2003 46 22 617 211 0 896

252 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

14 Intangible Assets as of December 31, 2003

Acquisition and manufacturing costs As of Jan 1, 2003 92 12 915 0 0 1,019 Changes in scope of consolidation 001001 Additions 18 22 76 226 1 343 Transfers 0 – 12 10 0 – 1 – 3 Disposals 0 0 – 36 – 5 0 – 41 Currency translation differences 0 0 – 1 0 0 – 1 As of Dec 31, 2003 110 22 965 221 0 1,318

Depreciation As of Jan 1, 2003 – 35 0 – 294 0 0 – 329 Changes in scope of consolidation 0 0 – 1 0 0 – 1 Scheduled depreciation – 29 0 – 89 0 0 – 118 Impairments 0 0 0 – 14 0 – 14 Transfers 001001 Disposals 0 0 34 4 0 38 Currency translation differences 001001 As of Dec 31, 2003 – 64 0 – 348 – 10 0 – 422 Book value Dec 31, 2003 46 22 617 211 0 896 Book value Jan 1, 2003 57 12 621 0 0 690

The goodwill acquired in the course of 2003 is attribut- The shares in EUROFIMA AG, Basle/Switzerland are dis- able mainly to additional shares acquired in the already posable only to a limited extent. fully consolidated Railion GmbH, Mainz. Goodwill is attributable almost exclusively to the Group Transport 16 Deferred taxes and Logistics division.

in € million 2004 2003 15 Investments accounted for using the equity method Deferred tax assets in respect of temporary differences 1,210 1,164 Deferred tax assets in respect of tax loss carry-forwards 91 16 in € million 2004 2003 Total 1,301 1,180

As of Jan 1 400 364 Additions as a result of acquisition 1 3 Disposals through sale – 8 – 2 Group share of proﬁt 49 45 Other equity movements – 11 8 Dividends received – 15 – 8 Currency translation differences 2 – 10 As of Dec 31 418 400

253 No deferred tax assets have been set aside in relation to Deferred Deferred Deferred Deferred the following loss carry-forwards and temporary differences: tax tax tax tax assets liabilities assets liabilities in € million 2004 2004 2003 2003

in € million 2004 2003 Non-current assets Property, plant Tax loss carry-forwards for which no and equipment 3 122 4 283 deferred tax asset has been recognized 17,608 16,864 Intangible assets 23 7 16 0 Temporary differences for which no Derivative financial deferred tax asset has been recognized 4,428 4,795 instruments 0 55 0 48 Temporary differences for which Other financial IAS 12 paragraph 33 prohibits instruments 0 13 1 7 recognition of a deferred tax asset 6,626 7,009 Total 28,662 28,668 Current assets Inventories 0 5 2 5 The loss carry-forwards are attributable primarily to the fact Trade receivables 13 2 7 31 Current tax receivables 6 0 0 0 that the government grants extended to Deutsche Bahn AG Derivative financial in previous years have been treated as contributions to instruments 0 5 0 2 Other financial equity under section 21 (5) and section 22 (1) Deutsche Bahn instruments 6 1 20 2 Foundation Act (Deutsche Bahn Gründungsgesetz; DBGrG) for the purposes of tax law. Non-current liabilities Financial debt 619 2 656 2 The domestic loss carry-forwards do not have an expiry Other liabilities 228 0 224 1 date under current laws. Derivative financial The temporary differences which cannot be stated under instruments 217 0 153 0 Retirement benefit IAS 12.33 relate exclusively to additional tax costs for tax- obligations 170 3 152 2 free investment grants which have been received previously. Other provisions 1,264 5 1,339 7 The following deferred tax assets and deferred tax lia- Deferred income 69 0 99 0 bilities are attributable to statement and valuation differences Current liabilities in the individual balance sheet items and also to tax loss Financial debt 23 3 25 0 carry-forwards: Trade liabilities 46 0 38 1 Other liabilities 9 1 24 2 Derivative financial instruments 5 0 2 0 Other provisions 483 1 651 22 Deferred income 9 0 17 0 Liabilities in respect of assets held for sale 0 4 0 0 Tax loss carry-forwards 91 0 16 0

Subtotal 3,284 229 3,446 415

Valuation allowance – 1,771 0 – 1,918 0 Offsetting1) –212– 212 – 348 – 348

Amount stated in the balance sheet 1,301 17 1,180 67

1) To the extent permitted by IAS12 (Income Taxes)

254 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Tax receivables and liabilities are netted if they relate to subsidiaries of € 466 million (previous year: € 353 million), the same tax authorities, if they have identical maturities because corresponding proﬁt distributions are not expected and if they relate to the same taxable entity. to take place in the near future. If deferred taxes were to The deferred taxes stated in the balance sheet comprise be stated in relation to these timing differences, the cor- deferred tax assets attributable to items with no impact on responding withholding tax rate would be applicable for the income statement (€ 20 million; previous year: € 4 million) the calculation, where appropriate with due consideration and deferred tax liabilities (€ 0 million; previous year: € 22 being given to German tax of 5% on distributed dividends. million). No deferred tax liabilities have been created in relation to temporary differences in connection with shares in

17 Available-for-sale financial assets

Investments Other in subsidiaries shareholdings Securities Total in € million 2004 2003 2004 2003 2004 2003 2004 2003

As of Jan 1 452 427 180 183 9 7 641 617 Changes in scope of consolidation – 41 – 7 0 – 1 0 0 – 41 – 8 Additions 1 5 1620317 10 Disposals through sale – 399 0 – 10 – 4 – 2 0 – 411 – 4 Changes in market value 0 28 0000028 Reclassiﬁcations 0 0 – 1 – 1 0 0 – 1 – 1 Impairments due to long-term decrease in value 0 – 2 – 62 0 0 0 – 62 – 2 Other – 2 1 – 1 1 0 – 1 – 3 1 As of Dec 31 11 452 122 180 7 9 140 641 Non-current amount 11 53 122 180 7 7 140 240 Current amount 0 399 00020401

The subsidiaries of the Brenntag/Interfer operations which 18 Inventories are not included in the scope of consolidation (“share deal”) were stated under shares in affiliated companies as in € million 2004 2003 of January 1, 2003 with their fair value of € 370 million. The change in the market value of these shares as of Raw materials, consumables and supplies 750 804 December 31, 2003 (€ 28 million) has been recognized Unfinished products, work in progress 268 341 directly in equity in the fair value reserve of securities. The Finished products and goods 40 186 shares in affiliated companies of € 398 million were disposed Advance payments 29 24 Value adjustments – 290 – 297 of when the Brenntag/Interfer operations were sold as Total 797 1,058 of January 1, 2004. Please refer to the comments in the section “Discontinuing operations”. Inventories stated at net realizable value are at € 645 million (previous year: € 540 million).

255 19 Receivables and other assets

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

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)

As of Dec 31, 2003 Gross value 2,977 554 92 1,068 4,691 Value adjustments – 333 – 8 0 – 102 – 443 Net value 2,644 546 92 966 4,248 thereof due from related parties (181) (471) (0) (271) (514)

The maturity structure of receivables is detailed in the following:

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

As of Dec 31, 2004 Trade receivables 2,388 154251339 Receivables from ﬁnancing 58 20011215 Advance payments 36 130111227 Other assets 303 2 255 0 0 5 262 Total 2,785 32 259 3 7 42 343

As of Dec 31, 2003 Trade receivables 2,604 16 1041940 Receivables from ﬁnancing 498 36 0001248 Advance payments 69 62011423 Other assets 681 3427116285 Total 3,852 61 16 275 3 41 396

The decline in trade receivables is due mainly to the settle- Receivables attributable to ﬁnancing and advance payment of receivables attributable to property sales at ments made on account of orders have declined mainly DB AG and also to lower rolling stock rents at Railion as a result of the sale of Brenntag / Interfer operations Deutschland. The large number of customers in the as of January 1, 2004. various divisions means that there is no concentration of credit risks in the non-public sector under accounts receivable.

256 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

In 2004, other assets have been affected by the change in Virtually all floating-rate financial debt has been swapped section 13b UStG, whereby in particular DB Netz AG is into fixed-rate debt, and all foreign currency issues have required to withhold and pay the turnover tax on behalf been swapped into Euro in order to minimize the interest of suppliers arising from invoices for construction work rate and exchange rate risk. These interest rate and currency- obtained from DB Netz AG. This has considerably reduced related transactions are thus marked to market on the the claims for refunds of input tax which were still stated reference date. last year. As a result of the decline in the level of interest rates in The fair values of receivables and other assets are to a the Euro zone, the figure stated for interest rate derivatives large extent equivalent to the book values. on the liabilities side of the balance sheet has increased. The liabilities arising from the item “Interest rate/currency 20 Receivables attributable to taxes on income swaps” have increased as a result of the higher volume of The receivables attributable to taxes on income comprise foreign currency bonds in issue and the general appreciation mainly allowable withholding taxes, e.g. allowable German of the Euro against other currencies. capital gains tax. The increase in diesel prices has resulted in positive market values for the existing diesel price hedges, and has ac- 21 Derivative financial instruments cordingly resulted in an increase in assets for energy price The following table breaks down the figures in the balance derivatives. On the other hand, the electricity price hedges sheet depending on the type of underlying hedge: which had been taken out had to be stated as liabilities. Exchange rate hedges of € 565 million existed as of December 31, 2004 (previous year: € 491 million). Of this Lia- Lia- Assets bilities Assets bilities figure, € 306 million was attributable to business opera- in € million 2004 2004 2003 2003 tions which were hedged with the aid of currency futures.

Interest rate-based Financing operations accounted for € 259 million. This contracts item comprises currency swaps for Group loans extended Interest rate swaps 118 157 103 116 to foreign subsidiaries. 118 157 103 116 The following tables set out the separate market values Currency-based for cash ﬂow hedges and for the derivative ﬁnancial contracts Currency swaps 1 10 3 3 instruments which do not satisfy the requirements of IAS 39. Currency forward/ No fair-value hedges were taken out. future contracts 1233 Interest rate/currency swaps 18 384 17 270 20 396 23 276

Other contracts Energy price derivatives 12 10 0 4 12 1004 Total 150 563 126 396

Less: Non-current portion Interest rate-based contracts 118 157 103 115 Currency-based contracts 19 387 20 273 Non-current portion 137 544 123 388 Current portion 13 19 3 8

257 The market value of the cash ﬂow hedges are stated as Lia- Lia- follows under assets and liabilities: Assets bilities Assets bilities in € million 2004 2004 2003 2003

Lia- Lia- Interest rate-based Assets bilities Assets bilities contracts in € million 2004 2004 2003 2003 Interest rate swaps 118 130 103 111 118 130 103 111 Interest rate-based contracts Currency-based Interest rate swaps 0 27 0 5 contracts 0270 5 Currency forward/ future contracts 1233 Currency-based 1233 contracts Currency swaps 1 10 3 3 Other contracts 0000 Interest rate/currency swaps 18 384 17 271 0000 19 394 20 274 Total 119 132 106 114

Other contracts Less: Non-current portion Energy price derivatives 12 10 0 4 Interest rate-based 12 1004 contracts 118 130 103 111 Total 31 431 20 283 Non-current portion 118 130 103 111 Current portion 1233 Less: Non-current portion Interest rate-based contracts 0 27 0 5 The nominal values of the hedges detailed above represent Currency-based the volume of the hedged underlying contracts, and are contracts 19 387 20 273 Non-current portion 19 414 20 278 set out in the following: Current portion 12 17 0 5

in € million 2004 2003 The Group’s refinancing arrangements have used interest Interest rate-based contracts rate derivatives in order to hedge interest rate risks for Interest rate swaps 5,927 5,987 various financing arrangements using forward contracts. 5,927 5,987 Opposite hedges are taken out when the corresponding underlying contracts are signed. In addition, fixed-rate Foreign exchange-based contracts Currency swaps 259 491 financing arrangements are temporarily swapped for a Currency forward/future contracts 261 0 floating-rate arrangement in order to avoid so-called cost- Other currency-based derivative contracts 45 0 of-carry effects. The derivatives used in this respect do not Interest rate/currency swaps 3,019 2,184 3,584 2,675 satisfy the requirements applicable for stating hedges in accordance with IAS 39, and have to be stated as “non- hedge contracts”. The market values of these contracts are Volumes in designated units 2004 2003 stated as follows under assets and liabilities:

Other contracts Diesel derivatives in 1,000 tons 180 540 Electricity forward contracts in GWh 3,456 381

258 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

The issue of a total of five foreign currency bonds has 2004 2003 increased the volume of interest rate/currency hedges compared with last year. Currency swaps and currency Effective interest rate on short-term bank deposits in % 2.10 2.31 forwards/futures have been stated as one figure for the Average term of previous financial year. Overall, the volume compared short-term bank deposits in months 0.1 0.3 with the previous year has increased only slightly by € 29 million. Some diesel price hedges which were in place as The interest rates for current bank deposits were in a range of December 31, 2003 expired in the course of 2004, and between 1.78 and 2.80% (previous year: 1.15 to 3.65 %). were not replaced to the same extent in view of the high level of prices. The level of electricity price hedges was 23 Subscribed capital raised appreciably in the year under review in order The share capital of Deutsche Bahn AG is € 2,150 million, to minimize cost fluctuations arising from electricity and consists of 430,000,000 no-par value bearer shares. purchases. All shares are held by the Federal Republic of Germany. The maximum risk of counterparty default which existed in relation to derivative financial instruments as of the 24 Reserves balance sheet date is detailed in the following: a) Capital reserve The capital reserve comprises reserves which have not been in € million 2004 2003 a component of earnings since January 1,1994. Credit risk from interest rate, currency and diesel-based derivative contracts 140 113 b) Reserve from valuation with no impact on profits Reserve for currency translation differences: The cur- The fact that the risks of counterparty default have increased rency translation differences resulting from the functional- compared with last year is due to the higher overall volume currency method (IAS 21)are stated separately as part of as well as the performance of the derivative portfolio, and consolidated equity. in particular is due to interest and exchange rate changes. As long as the subsidiary is included in the scope of The maximum single risk – the failure risk related to single consolidation, the translation differences are retained in contract partners – is € 42 million, and exists with regard consolidated equity. The corresponding translation differences to a contract partner with a Moody’s rating of Aa3. With are written back to the income statement if subsidiaries are regard to transactions with terms of more than one year, all deconsolidated. contract partners who are exposed to a risk of counterparty Reserve for mark-to-market valuation of securities: default have a Moody’s rating of at least A2. This reserve comprises the market value changes of financial instruments which have been classified as “available-for- 22 Cash and cash equivalents sale financial assets”which do not have any impact on profits. The reserve has to be written back to the income statement or eliminated if a financial instrument is sold or if there is a in € million 2004 2003 permanent decline in the market value of the financial Cash at banks and in hand 744 261 instrument. Cash equivalents 21 10 Total 765 271

259 As of December 31, 2003, the difference between the This item is also used for stating the impact of the initial amortized acquisition costs and the market value of the adoption of IFRS on equity, if such impact is not covered by available-for-sale shares in the Brenntag and Interfer opera- reserves due to valuation with no impact on profits. tions was stated as € 262 million. The shares were sold and the reserve was correspondingly written back to the 26 Minority interests income statement in the first quarter of 2004. Minority interests comprise the pro-rata interest of third Reserve from the mark-to-market valuation of cash parties in the net assets of consolidated subsidiaries. flow hedges: This item comprises changes in the market value of cash flow hedges which are due to interest rate 27 Financial debt and currency factors and which relate to effective hedges. This item comprises all interest-bearing liabilities including the interest-free loans stated at present value. The maturity 25 Generated equity structure of financial debt is as follows: The generated equity comprises all net profits generated since January 1, 1994 less any goodwill netted under HGB by December 31, 2002.

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

As of Dec 31, 2004 Government loans 350 334 265 209 510 1,951 3,269 Bonds 0 426 1,450 1,126 1,351 5,635 9,988 Commercial Paper 330 00000 0 Bank borrowings 317 139 65 267 113 1,783 2,367 EUROFIMA loans 33 256 0 0 656 953 1,865 Finance lease liabilities 79 70 69 127 108 1,174 1,548 Other ﬁnance liabilities 122 30005 8 Total 1,231 1,228 1,849 1,729 2,738 11,501 19,045 thereof due to related companies (497) (590) (265) (209) (1,166) (2,904) (5,134)

As of Dec 31, 2003 Government loans 775 569 305 289 273 2,525 3,961 Bonds 0 0 427 1,461 1,126 5,380 8,394 Commercial Paper 0 00000 0 Bank borrowings 690 139 135 135 229 1,931 2,569 EUROFIMA loans 0 33 256 0 0 1,609 1,898 Finance lease liabilities 80 77 71 71 126 1,271 1,616 Other ﬁnance liabilities 79 13100317 Total 1,624 831 1,195 1,956 1,754 12,719 18,455 thereof due to related companies (847) (602) (561) (289) (273) (4,134) (5,859)

260 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

The following table summarizes book values and market The loans are repaid in accordance with individual and values: collective ﬁnancing agreements. In general, the loans are repaid by equal annual installments, and the size of the installments depends on the corresponding annual deprecia- Book Market Book Market value value value value tion of the ﬁnanced assets. Repayments in the year 2004 in € million 2004 2004 2003 2003 included the amount of €1,050 million paid to the Federal

Government loans 3,619 4,046 4,736 5,036 Government for repurchasing interest-free loans which had Bonds 9,988 10,714 8,394 8,842 previously been extended to the infrastructure companies Commercial Paper 330 330 0 0 of DB AG, representing liabilities with a nominal value Bank borrowings 2,684 2,718 3,259 3,288 EUROFIMA loans 1,898 2,068 1,898 2,032 of € 1,680 million which are due between 2007 and 2032. Finance lease liabilities 1,627 1,734 1,696 1,766 The repayments also include scheduled repayments of Other borrowings 130 130 96 96 €358 million. Total 20,276 21,740 20,079 21,060

The differences between the book values and the market values of debt are due to the lower market interest rates for debt with an equivalent risk proﬁle and the reducing remaining terms. There are no substantial differences between the book values and the market values of the issued Com- mercial Paper and other borrowings as a result of short terms and a corresponding interest rate which is close to the market interest rate. The government loans comprise almost exclusively loans extended by the Federal Republic of Germany for capital expenditures comprising expansion and replacement of track infrastructure. These loans are based on the government’s responsibility for meeting the transport needs of the general public as incorporated in Germany’s Basic Law (Grundgesetz; GG article 87e 4) and speciﬁed in the Law Governing the Extension of the German Rail Network (Bundesschienenwegeausbaugesetz; BSchwAG). No interest is payable on such loans.

in € million 2004 2003

As of Jan 1 4,736 4,877 Addition 99 126 Repayment – 1,408 – 350 Reclassiﬁcations 4 0 Transfers – 60 – 204 Cumulative interest 248 287 As of Dec 31 3,619 4,736

261 The bonds which have been issued comprise the following transactions:

Volume Residual Effective Book value Market value Book value Market value of issue Issue maturity interest rate 2004 2004 2003 2003 in € million currency in years in % in € million in € million in € million in € million

Unlisted bonds: Total DB AG 67 JPY, USD 6.7– 7.5 50525354 Total DB Finance B.V. 189 HKD, JPY, CHF 7. 5 – 9. 5 167 176 112 111 Subtotal 256 217 228 165 165

Listed bonds of DB Finance B.V.: Bond 1997–2007 511 DEM 2.8 5.85 510 548 509 550 Bond 1998– 2008 767 DEM 3.4 5.15 763 813 763 804 Bond 1999– 2009 1,350 EUR 4.5 5.60 1,334 1,444 1,331 1,418 Bond 2000 – 2010 1,000 EUR 5.5 6.15 993 1,132 992 1,101 Bond 2001– 2006 31 DEM 2.0 4.80 31323032 Bond 2001– 2006 263 CHF 1.7 3.30 259 268 257 270 Bond 2001– 2008 53 DKK 3.8 5.25 53585456 Bond 2001– 2008 42 SEK 3.8 5.50 44484446 Bond 2001– 2008 50 NOK 3.8 7.00 48554753 Bond 2001– 2013 750 EUR 8.9 5.25 732 824 728 784 Bond 2002– 2007 512 CHF 2.4 3.35 485 505 480 505 Bond 2002– 2007 604 USD 2.6 4.70 439 451 472 499 Bond 2002– 2008 170 CHF 4.0 3.20 161 169 159 166 Bond 2002– 2012 500 EUR 7.6 5. 50 497 559 496 534 Bond 2002– 2008 76 USD 3.0 FRN 55 55 59 59 Bond 2002– 2006 51 USD 1.8 FRN 37 37 40 40 Bond 2002– 2006 100 EUR 1.8 FRN 100 100 100 100 Bond 2003– 2018 1,000 EUR 13.2 5.00 984 1,063 983 990 Bond 2003– 2015 700 EUR 10.5 4.60 686 722 685 670 Bond 2004 – 2011 209 USD 6.5 5.09 183 189–– Bond 2004 – 2018 300 EUR 13.2 4.85 297 319 – – Bond 2004 – 2007 17 EUR 2.8 3.00 17 17 – – Bond 2004 – 2009 17 EUR 4.8 3.50 17 17 – – Bond 2004 – 2016 500 EUR 11.9 4.30 498 508 – – Bond 2004 – 2014 366 JPY 9.9 1.70 356 359 – – Bond 2004 – 2011 197 CHF 7.0 2.30 192 194–– Subtotal 10,136 9,771 10,486 8,229 8,677 Total amount 10,392 9,988 10,714 8,394 8,842

262 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

In ﬁnancial year 2004, eight new bonds were issued by As part of the Group’s current liquidity management system, DB Finance B.V., Amsterdam/Netherlands, in EUR, USD, Commercial Paper with a volume of € 331 million and JPY, HKD and CHF with a total nominal value of € 1,369 remaining terms of between 18 and 53 days had also been million; seven of these bonds are listed. In addition, an issued as of December 31, 2004. The book value of the existing bond was raised by € 300 million. No bonds reached Commercial Paper as of December 31, 2004 was € 330 mil- maturity in the same period. lion (previous year: € 0 million), and its market value was All bonds issued in a foreign currency were swapped €330 million (previous year: € 0 million). into Euro, which means that no currency risk has arisen Bank borrowings are detailed in the following table: from these original ﬁnancial instruments.

Residual Effective Book value Market value Book value Market value maturity interest rate 2004 2004 2003 2003 Currency in years in % in € million in € million in € million in € million

Note loan 1998– 2008 DEM 3.3 5.31 51575156 Loan 2002– 2016 EUR 11.7 FRN 200 200 200 200 Loan 2002– 2022 EUR 17.7 FRN 200 200 200 200 Loan 2003– 2016 EUR 11.7 FRN 200 200 200 200 Loan 2003– 2022 EUR 17.7 FRN 200 200 200 200 Aurelis loans EUR 8.3 FRN 1, 277 1, 277 1,337 1,337 Note loan 2004 – 2005 USD 0.1 2.299292– – Loan 1998– 2008 DEM 3.8 4.77 51 57 51 56 Loan 1999– 2005 DEM 1.0 4.13 51545154 Note loan 2001– 2006 EUR 1.7 5.30 75807580 Loan 1999– 2008 DEM 3.8 4.58 51565155 Loan 1999– 2009 DEM 4.2 4.85 51575156 Loan 1998– 2008 DEM 3.9 4.72 51 54 51 53 Other 134 134 741 741 Total 2,684 2,718 3,259 3,288

The Group took out a short-term USD promissory note loan Bank borrowings had been secured up to an amount of amounting to € 92 million in the year under review. Overall, €11million (previous year: € 7 million). bank borrowings declined appreciably by € 575 million as In addition to the bank borrowings stated in the balance of December 31, 2004 compared with the previous year’s sheet, banks provided DB AG with guaranteed credit facilities period as a result of considerably lower utilization of the amounting to a total of € 2,206 million as of December 31, overdraft facility. 2004 (previous year: € 2,150 million). DB AG had not drawn The “Aurelis loans” comprise the bank borrowings of on any of these facilities as of December 31, 2004. Aurelis which result from the acquisition of the property The liabilities due to European Company for the Financing portfolio of DB AG and which have to be stated due of Railroad Rolling Stock (Europäische Gesellschaft für die to Aurelis being included in the scope of consolidation. Finanzierung von Eisenbahnmaterial; EUROFIMA), Basle/ Interest rate swaps which convert the ﬂoating-rate interest Switzerland, are detailed in the following table: payments (FRN) into a ﬁxed-rate interest payment have been taken out for most of these loans.

263 Residual Effective Book value Market value Book value Market value maturity interest rate 2004 2004 2003 2003 Currency in years in % in € million in € million in € million in € million

EUROFIMA Loan 1995– 2005 CHF 14.75 7777 EUROFIMA Loan 1995– 2005 CHF 14.75 26 27 26 27 EUROFIMA Loan 1996– 2006 DEM 26.00 256 272 256 276 EUROFIMA Loan 1997–2009 DEM 55.63 256 284 256 279 EUROFIMA Loan 1999– 2009 EUR 55.75 400 446 400 438 EUROFIMA Loan 2000 – 2014 EUR 10 5.97 219 258 219 247 EUROFIMA Loan 2001– 2014 EUR 10 5.41 300 340 300 324 EUROFIMA Loan 2002– 2012 EUR 8 FRN 34 34 34 34 EUROFIMA Loan 2002– 2012 EUR 8 FRN 400 400 400 400 Total 1,898 2,068 1,898 2,032

As was the case last year, no new EUROFIMA loans were Station&Service AG, and € 888 million (previous year: taken out in the year under review. The liabilities due to €931 million) related to lease agreements for various items EUROFIMA are secured pursuant to EUROFIMA’s articles of rolling stock (multiple units, locomotives, coaches). of association through the assignment of railroad equipment These agreements have generally been drawn up as sale- (rolling stock) as collateral. and-leaseback transactions in order to achieve advantageous Of the figure stated for finance lease liabilities, € 486 financing conditions with German lessors. The following million (previous year: € 475 million) related to property table sets out details of the main finance lease agreements: lease agreements for various concourse buildings of DB

Nominal Residual Effective Book value Market value Book value Market value amount maturity interest rate 2004 2004 2003 2003 in € million Currency in years in % in € million in € million in € million in € million

Finance leases – assets other than real estate ICE 1 multiple units (1994) 119 DEM 3.5 5.75 80868591 Double-deck coaches (1994) 174 DEM 8.0 5.87 133 150 138 151 ICE 2 multiple units (1997) 184 DEM 6.0 4.50 141 148 148 151 Locomotives/ freight cars (1999) 182 NLG 4.0 – 8.3 5.69–5.83 128 140 145 156 Freight locomotives (2000) 101 DEM 10.5 5.35 90 101 93 100 Freight locomotives (2000) 154 EUR 12.0 5.40 146163149158 Locomotives (2001) 178 EUR 10.5 –12.0 4.87 170 182 173 176

Finance leases – real estate Concourse buildings 497 DEM 8.3–17.0 4.00 – 5.95 486 526 475 538

Other 253 238 289 245 Total 1,627 1,734 1,696 1,766

264 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

The above finance lease agreements for locomotives and term. At the end of the lease term, the lessee has the right to multiple units cannot be terminated during a fixed term purchase the assets for a fixed price. If this option is not and run for a maximum period of twelve years. After the exercised, the lease arrangement is extended for a second lease has expired, most of the agreements include a right period, at the end of which the lessor has the right to deliver whereby the lessee is able to purchase the equipment for the property to the lessee. the higher of residual value or market value, whereby the The item “Other” contains a book value of € 165 million difference between any market value which is higher than (previous year: €172 million) in connection with an electricity the residual value at the end of the term of the lease is split purchase contract of DB Energie GmbH, which is stated as an between the lessor (25%) and the lessee (75%). embedded financial lease as a result of its specific terms. The finance lease agreements for the concourse buildings The following payments have to be made in subsequent of DB Station&Service AG have a maximum remaining years in connection with finance leases: term of 17 years and cannot be terminated during the fixed

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

As of Dec 31, 2004 Minimum lease payments (nominal value) 160 151 145 1981731,452 2,119 Less: Future interest charges 81 81 76 71 65 278 571 Present value of ﬁnance lease liabilities 79 70 69 127 108 1,174 1,548

As of Dec 31, 2003 Minimum lease payments (nominal value) 167 166155 152 201 1,648 2,322 Less: Future interest charges 87 89 84 81 75 377 706 Present value of ﬁnance lease liabilities 80 77 71 71 126 1,271 1,616

265 28 Other liabilities

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

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

As of Dec 31, 2003 Trade liabilities 3,606 17 12 11 12 302 354 Other liabilities 3,186 587 77 52 17 24 757 Total 6,792 604 89 63 29 326 1,111 thereof due to related parties (669) (50) (48) (47) (0) (0) (145)

Other liabilities are broken down as follows:

in € million 2004 2003

Personnel-related liabilities Outstanding overtime claims 277 269 Unused holiday entitlements 219 251 Social security liabilities 161 178 Holiday pay 9 10 Severance payments 8 28 Christmas bonuses 3 4 Other obligations 287 281

Other taxes Value-added tax 35 59 Payroll and church taxes, solidarity surcharge 61 77 Other 111 111 Deferred construction grants 348 405 Interest payables 239 228 Sales discounts 206 135 Liabilities due to the Federal Railroad Fund (Bundeseisenbahnvermögen; BEV)155365 Liabilities under Railroad Crossings Act (Eisenbahnkreuzungsgesetz) 10 13 Other 1,533 1,529 Total 3,662 3,943

266 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

The downturn in liabilities due to the Federal Railroad of Deutsche Bahn (“Section A”); it also is responsible for Fund (Bundeseisenbahnvermögen; BEV) is attributable to “Section B” for the transferred employees who still have the repayments made in accordance with the agreement entitlements. concerning the discharge of services resulting from the The Federal Railroad Fund (Bundeseisenbahnvermögen; framework agreement dated August 5, 1996. BEV) bears the costs of these additional benefits, less the contribution made by the employees themselves (section 14 29 Income tax liabilities (2) DBGrG). Accordingly, DB AG does not set aside any The income tax liabilities as of December 31, 2004 com- provisions for these public sector benefits. prise in particular obligations with regard to the fiscal b) Employees of the former Deutsche Reichsbahn and authorities in Germany, Austria, the USA and Scandinavia. the employees who have been recruited since January 1, 1994 receive a company pension from DB AG under the 30 Pension obligations ZVersTV. This supplementary company pension is a defined- In the DB Group, a distinction is made between pensions benefit scheme. for employees and pensions for civil servants. c) The direct commitments made to senior executives in their employment contracts are also defined-benefit schemes. Pensions for civil servants d) In addition, there are also direct insurance policies After they retire, civil servants assigned to the companies of which are exclusively employee-funded with DEVK Deutsche the DB Group receive pensions from the BEV under the Eisenbahn Versicherung, Lebensversicherungsverein a.G., Civil Servant Benefits Act (Beamtenversorgungsgesetz) as a as well as a purely employee-funded pension fund with result of their status as civil servants. DEVK Pensionsfonds AG which is governed by the terms of Only while the assigned civil servants are actively work- a collective bargaining agreement. These external forms of ing for the DB Group are payments made to the BEV as company pension schemes are not relevant for the purpose part of a pro forma settlement in the same way as for newly of setting aside provisions. recruited employees (section (1) DBGrG). These payments The figures stated for pension provisions in the balance also include notional contributions to the statutory pension sheet are detailed in the following: insurance scheme as well as notional expenses in accordance with the Supplementary Benefits Wage Agreement in € million 2004 2003 (ZVersTV). The payments made to the BEV for retirement pensions and supplementary benefits of civil servants are Funded obligations 83 87 defined-contribution retirement schemes. Unfunded obligations 1,285 1,224 Total gross obligations as of Dec 31 1,368 1,311

Pensions for employees Fair value of plan assets as of Dec 31 – 72 – 70 The pension obligations with regard to employees relate Unrecognized actuarial gains 45 47 Net liability recognized mainly to employees of German companies. in the balance sheet 1,341 1,288 a) Employees who were employed by the Deutsche Bundesbahn before the company was privatized (January 1, 1994) enjoy supplementary beneﬁts in view of their former membership of the public sector. The employees have a claim against the “Section B” of the Railways Insurance Corporation (Bahnversicherungsanstalt; BVA). As a public authority, the BVA has not only assumed responsibility for managing and paying the statutory pension of employees

267 The total pension commitment has developed as follows: in € million 2004 2003

Net provision as of Jan 1 1,288 1,232 in € million 2004 2003 Pension expenses 112 108 Employer contributions – 3 – 2 Gross obligations as of Jan 1 1,311 1,297 Pensions paid – 39 – 40 Service cost, excluding Transfers 4 – 7 employee contributions 52 48 Effect of changes in scope Employee contributions 2 3 of consolidation – 21 0 Interest cost 66 62 Currency effects 0 – 3 Pensions paid – 45 – 44 Net provision as of Dec 31 1,341 1,288 Effect of changes to pension plans – 4 0 Transfers 4 – 7 Effect of changes in scope of consolidation – 20 0 The expenses to be stated in the income statement are Actuarial gains (–)/losses 2 – 47 detailed in the following: Currency effects 0 – 1 Gross obligations as of Dec 31 1,368 1,311 in € million 2004 2003

The development of the plan assets is detailed in the Service cost, excluding employee contributions 52 48 following: Employee contributions 1 1 Interest cost 66 62 Expected return on plan assets – 3 – 3 in € million 2004 2003 Effect of changes to pension plans – 4 0 Pension expenses 112 108 Fair value of plan assets as of Jan 1 70 66 Employer contributions 3 2 Employee contributions 1 2 Actual return on plan assets 3 4 The interest cost and expected income from the plan assets Pensions paid – 6 – 4 are recorded under ﬁnancial result. All other items are Effect of changes in scope recognized under personnel expenses. of consolidation 1 0 Fair value of plan assets as of Dec 31 72 70 The actuarial parameters used for assessing the value of most of the pension provision are set out in the following:

The plan assets stated for the German companies consist of in % 2004 2003 receivables comprising reinsurance policies pledged to employees which have been used for funding the direct Discount rate 5.00 5.00 commitments. The plan assets stated for foreign companies Expected rate of salary increases 2.50 2.50 Expected medical cost trend rate 0.00 0.00 comprise assets of the corresponding pension funds. Expected rate of pension increases Changes in the net pension provision are detailed in the (dependent on staff group) 2.00 2.00 following: Expected average staff turnover 2.58 2.58 Expected return on plan assets 3.25 – 6.50 3.25 – 6.50

The 1998 tables of Professor Dr. Klaus Heubeck have been used for measuring the pension obligations of the German companies in the Group.

268 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

31 Other provisions

Construction Decom- Environmental and project Staff-related missioning in € million protection risks provisions costs Other

As of Jan 1, 2004 2,390 860 1,853 336 1,889 Currency translation differences – 2 0006 Changes in scope of consolidation 0 0 – 19 0 – 52 Amounts used – 40 – 375 – 470 – 22 – 320 Unused amounts reversed 0 – 30 – 135 – 1 – 176 Reclassiﬁcations – 1 0 17 0 20 Additional amounts provided 2 15 401 38 516 Effect of discounting – 7 4 21 0 12 As of Dec 31, 2004 2,342 474 1,668 351 1,895

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

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

As of Dec 31, 2004 Environmental protection 64 161 208 215 230 1,464 2,278 Construction and project risks 381 50 7 4 0 32 93 Staff-related provisions 475 361 254 194 116 268 1,193 Decommissioning costs 33 0000318318 Other 1,350 345 65 23 17 95 545 Total 2,303 917 534 436 363 2,177 4,427

As of Dec 31, 2003 Environmental protection 114 204 315 324 367 1,067 2,277 Construction and project risks 704 104 6 14 23 9 156 Staff-related provisions 511 260 172 120 92 697 1,341 Decommissioning costs 45 0000291291 Other 1,286 332 47 36 78 110 603 Total 2,660 900 540 494 560 2,174 4,668

269 Provisions for environmental protection Provisions for construction and project risks DB AG has set up the following programs in order to enable The provision set aside to cover construction and project it to meet its remedial action obligations covered by the risks also covers potential losses from those parts of provisions for environmental protection: construction costs relating to planned projects which 4-stage soil decontamination program DB Netz AG will have to finance itself and which probably 3-stage sewerage network program will not be recoverable. 2-stage landfill shut-down program Staff-related provisions are broken down as follows: These measures will ensure that the work on investigating and carrying out remedial action will be systematic, cost- in € million 2004 2003 efficient and consistent with the legal situation. In the 4-stage soil decontamination program, the con- Obligations under employment contracts 937 1,114 Costs of early retirement/part-time tamination in the soil and/or ground water is localized working in the run-up to retirement 509 496 using the following stages: historical investigation, rough Service anniversary provisions 91 93 examination and detailed analysis. The program involves a Other 131 149 Total 1,668 1,852 feasibility study, implementation and approval planning as well as remedial action, and due consideration is given to technical and legal requirements for the remedial action The staff-related provisions also include obligations which which aims to ensure appropriate utilization. are connected with the employment contracts taken on at The 3-stage sewerage network program aims to remedy the point at which DB AG was founded as of January 1,1994 any contamination of soil and/or ground water resulting and which relate to wage elements attributable to the from leaks. The program also involves a plan to optimize the company’s previous existence as a public-sector authority. existing sewerage network to ensure that it is capable of These obligations comprise charges which can be measured meeting future requirements and to ensure that the need to independently and which do not involve any benefits in take remedial action can be limited to this future network. return and for which offers of compensation have already The network which is not utilized will be decommissioned. been made. The provisions also cover obligations which The 2-stage landfill program will guarantee that landfill result from the status of many employees under labor law sites on railroad property are identified and measured in a and the willingness of DB AG not to terminate employment standard manner, and that these landfill sites will be contracts for operational reasons before the end of 2010. decommissioned in accordance with the Landfill Regulation In such cases, the DB Group will incur losses in the form of (Deponieverordnung; DepV)/ Technical Instructions for personnel expenses which will have to be borne until the Residential Area Waste (Technische Anleitung Siedlungs- employment contract is terminated or the employee is abfall; Tasi) and the German Federal Soil Protection Act placed with another company; no reciprocal benefit will (Bundesbodenschutzgesetz; BBodSchG). be provided in return for these costs. DB AG has set up a separate subsidiary, namely DB Vermittlung GmbH, in order to absorb employees who have been made redundant. The provisions set aside to cover early retirement obligations and part-time working in the run-up to retirement cover the obligations arising from collective bargaining agreements, and have been calculated on the basis of actuarial reports.

270 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Decommissioning provisions Discontinuing Operations The decommissioning provisions refer mainly to the company’s pro-rata decommissioning obligation in relation As of December 31, 2003, the consolidated financial state- to a joint power generation plant. The provision has been ments of state assets, liabilities, expenses and income as calculated using a discount rate of 5.5%. well as cash flows which in accordance with IAS 35 (1999: Discontinuing Operations) relate to the Brenntag/Interfer 32 Deferred income operations and are thus attributable to discontinuing operations. The following explanations are provided in this respect. The Brenntag/Interfer operations were acquired as part of in € million 2004 2003 the Stinnes Group by the DB Group as of October 1, 2002. Deferred government grants 3,508 3,660 The goodwill attributable to the acquisition of the Brenn- Deferred revenues 230 220 tag/Interfer operations at this point of initial consolidation Deferred profits on sale-and-leaseback transactions 154 172 was netted directly against reserves in accordance with the Other 92 120 regulations of section 309 (1) HGB. Under IFRS 1, this Total 3,984 4,172 business combination was also not reassessed or readjusted thereof non-current (3,513) (3,543) thereof current (471) (629) under the regulations of IFRS at the point of transition. When Stinnes AG was acquired by DB AG as of October 1, 2002, DB AG announced that the chemical and steel logistics The deferred government grants comprise mainly the interest operations (Brenntag and Interfer) were available for sale. benefit (difference between the nominal value and present Brenntag was a global distributor of industrial and value) attributable to the interest-free loans; this has devel- specialty chemicals. Interfer operations comprised mainly oped as follows during the period under review: customized processing and distribution of steel and non- ferrous metal products. At the point at which it was taken over by DB AG on in € million 2004 2003 October 1, 2002, Stinnes AG ran its Brenntag and Interfer As of Jan 1 3,335 3,443 operations in legally independent companies (primarily Additions 151 214 international operations) and also in legally dependent Reclassifications – 4 0 Amounts released – 283 – 322 management units within various companies. As of Dec 31 3,199 3,335

Deferred revenues constitute that part of compensation which is attributable to the period after the balance sheet date. The deferred proﬁts on sale-and-leaseback transactions relate to concourse buildings of various stations with the related retail premises as well as rolling stock.

271 The legally independent subsidiaries of Brenntag and Interfer The effects of discontinuing operations on the financial were not permitted to be consolidated under IAS 27, and position of the DB Group are stated in the cash flow state- were stated as of January 1 and December 31, 2003 at fair ment for the year 2003. For comments concerning the value under available-for-sale financial assets (“share deal”). acquisition price, please refer to the Notes to the cash flow Stinnes AG spun off the legally dependent management statement. units into legally independent companies as of January 1, The income from the disposal of discontinuing operations 2003 (Brenntag) and as of April 1, 2003 (Interfer) (“carve- in 2004 (€ 229 million) is stated under other operating out”). income. In 2003, in addition to the items of the income The scope of consolidation of DB AG under IFRS as of statement which are set out in the following table and January 1, 2003 and December 31, 2003 included not only which are attributable exclusively to the “carve-out”, a figure the dependent management units but also the assets which of € 46 million attributable to result of shareholdings is stated were allocated to the Brenntag/Interfer operations and under other financial result; this figure is attributable to the which were also sold as of January 1, 2004. “share deal” operations of the Brenntag/Interfer operations In primary segment reporting for the period ended which were no longer included in the IFRS scope of consoli- December 31, 2003, the Brenntag/Interfer operations were dation in 2003. stated in the segment Holding/ Other operations; in second- Earnings per share attributable to discontinuing opera- ary segment reporting, they were stated under the segments tions are stated under Note 12. Germany and North America. As part of the scheduled process of streamlining its in € million 2003 portfolio, Stinnes AG sold its Brenntag/Interfer operations to a financial investor with effect from January 1, 2004 on Revenues 1,402 the basis of the Supervisory Board approval dated Decem- Overall performance 1,402 ber 10, 2003. Other operating income 24 Cost of materials – 1,167 Personnel expenses – 125 Depreciation and impairment losses – 17 Other operating expenses – 117 Operating profit (EBIT)0

Net interest result – 12 Other ﬁnancial result 4 Financial result – 8

Proﬁt before taxes on income – 8

Taxes on income – 2

Net profit for the year – 10

272 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Assets Equity and liabilities

in € million Dec 31, 2003 in € million Dec 31, 2003

Non-current assets Equity attributable to shareholders Property, plant and equipment 116 of Deutsche Bahn AG Intangible assets 2 Subscribed capital 15 Available-for-sale financial assets 25 Reserves 261 Receivables and other assets 25 Retained earnings 258 Deferred tax assets 2 534 170 Non-current liabilities Current assets Other liabilities 1 Inventories 144 Retirement benefit obligations 18 Available-for-sale financial assets 398 Other provisions 6 Trade receivables 129 Deferred tax liabilities 22 Receivables and other assets 107 47 Cash and cash equivalents 7 785 Current liabilities Financial debt 229 Total 955 Trade liabilities 76 Other liabilities 40 Other provisions 29 374

Total 955

273 Notes to the Consolidated Statement The decline in the outflow of funds for investing activities of Cash Flows is due to the downturn in capital spending on property, plant and equipment and the inflow of funds generated by The cash flow statement is set out on page 215. the sale of the Brenntag/Interfer operations. It shows the changes in cash and cash equivalents in the When changes take place in the scope of consolidation year under review and has been prepared in accordance as a result of the acquisition or sale of companies, the with IAS 7 (Cash Flow Statements). The cash flows are bro- acquisition price which is paid (excl. any liabilities which ken down into operating activities, investing activities and are transferred) less the acquired or sold financial resources financing activities. The indirect method has been used for are stated as cash flow from investing activities. The other showing cash flow from operating activities. effects of the acquisition or sale on the balance sheet are Interest income and interest payments, dividend income as eliminated in the corresponding items of the three categories. well as tax payments are stated under operating activities. The proceeds from the sale of financial assets and sub- Cash and cash equivalents include the cash and cash sidiaries relate to the sale of the Brenntag/Interfer Group equivalents stated in the balance sheet with a residual as of January 1, 2004. Gross proceeds of € 575 million were maturity of less than three months (cash in hand, cash generated by the sale of Brenntag/Interfer operations. After deposited with the Bundesbank, cash at banks and checks deducting transaction costs and tax risks acquired from the as well as securities). vendor, the net proceeds are stated as € 497 million. The disposal of cash and cash equivalents (€ 7 million) is included a) Cash flow from operating activities in this figure. The cash flow from operating activities is calculated by adjusting the net profit for the period before taxes by items c) Cash flow from financing activities which are not cash-effective and by adding the change in The cash flow from financing activities is calculated as the non-current assets and liabilities. The cash flow from oper- balance of the proceeds from issued bonds, bank borrowings ating activities is then established after due consideration is and loans which have been taken out as well as proceeds given to interest and tax payments. from taking out interest-free loans and payments for redeem- The result attributable to the disposal of financial assets ing interest-free loans. and subsidiaries relates mainly to the effects of the sale of The fact that cash flow from financing activities is lower discontinued operations, i.e. the Brenntag/Interfer opera- than the corresponding previous year figure is due to a tions. lower need for finance resulting from a downturn in capital The increase in cash flow from operating activities is expenditures. due mainly to the improvement in earnings before taxes. b) Cash flow from investing activities The cash flow from investing activities is calculated as the inflow of funds attributable to the disposal of property, plant and equipment and intangible assets as well as capital spending grants and the outflow of funds for capital spending in property, plant and equipment and intangible assets as well as non-current financial assets.

274 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Notes to Segment Reporting Passenger Stations This Group division comprises the operation, development Segment reporting has been prepared in accordance with and marketing of passenger stations and retail facilities in IAS 14 (Segment Reporting). Our organization and reporting stations in Germany. structure has been used as the basis for breaking down selected data in the consolidated financial statements over Services business units and regions. The operations of the Group The Group Services division comprises, among others, the divisions are covered in the primary reporting format in following business units: DB Energie; DBFuhrparkService line with the corporate and organization structure of the (fleet management), DB Services, DB Systems and DB Tele- DB Group. The main regions covered by the DB Group are matik (telematics). The business units provide their services detailed in secondary reporting. mainly to the other divisions of the Group. The Group’s operations are conducted in the following Group divisions: Holding/Other operations This division comprises DB AG with its numerous manage- Passenger Transport ment, financing and service functions in its capacity as the This Group division comprises all Group operations for management holding company for the DB Group, as well as passenger transport and other services. The business units the other investment and remaining operations. The Brenntag/ in this division comprise long-distance, regional and urban Interfer operations are also included in this division. transport. Most transport services are provided in Germany. Other/Consolidation The data concerning the divisions are shown after intra- Transport and Logistics segment factors have been eliminated. The transactions The Group Transport and Logistics division comprises all between the various divisions (inter-segment relations) are operations for freight transport, forwarding and other eliminated in the column entitled “Other/Consolidation”. services. This Group division operates on the market with This column also contains the reconciling items with its business units Schenker, Freight Logistics, Intermodal regard to the figures stated in the consolidated financial and Railion. Schenker has established a global presence as statements. a provider of logistics services. The other business units focus on the European markets.

Track Infrastructure The Group Track Infrastructure division is responsible for installing, maintaining and operating the complete track- related railroad infrastructure in Germany.

275 Notes to primary segment reporting Segment gross capital expenditures comprise capital expen- The segment revenues comprise the external revenues, the ditures related to intangible assets (incl.acquired goodwill) other external revenues as well as internal segment revenues as well as to property, plant and equipment, and cover the attributable to the operations of the division. Inventory additions to the scope of consolidation as of the balance changes and internally produced and capitalized assets are sheet date before the investment grants which have been not included in segment revenues; their effect is to reduce received are taken into consideration. segment expenses. Depreciation refers to the property, plant and equipment The external segment revenues consist exclusively of attributable to the various divisions as well as the intan- revenues generated by the divisions with parties outside the gible assets. Group. The internal segment revenues comprise revenues Impairments/reversals of impairments comprise the with other divisions (inter-segment revenues). Market prices balance of impairments and reversals of impairments in are used for establishing the transfer prices for internal relation to the items of property, plant and equipment or transactions. The segment expenses include cost of mate- intangible assets stated under segment assets, including any rials and personnel expenses, depreciation, impairments goodwill. and reversals of impairments as well as other operating Other non-cash expenditures and income also comprise expenses attributable to the operations of the division. allocations to or reversals of provisions, impairments and Segment result (operating profit before interest) is defined reversals of impairments in relation to current assets and as the difference between segment revenues and segment the income from reversing deferred items if they are stated expenses, and is operating profit before financial result in relation to segments. (consisting of earnings from investments accounted for using the equity method, net interest income and other Notes to secondary segment reporting financial result) and taxes on income. Items are stated under segment income generated with third Segment assets comprise the property, plant and equip- parties on the basis of the registered offices of the Group ment, intangible assets, receivables and other assets (excl. company providing the service. Only external income items receivables from financing and taxes on income), inventories, are stated. derivative financial instruments related to operations as Segment assets are allocated on the basis of the location well as cash and cash equivalents. The figures are reconciled of the assets. The breakdown of contents is equivalent to with the figures stated in the consolidated financial state- that used in the primary reporting format. ments by including the receivables from financing and Net capital expenditures are also based on the location receivables related to taxes on income in the column of the assets and comprise capital spending on property, “Other/Consolidation”. plant and equipment as well as intangible assets. Segment liabilities comprise the provisions and operating liabilities (excl. liabilities from financing and taxes on income) as well as the derivative financial instruments relating to operations. The figures are reconciled with the figures stated in the consolidated financial statements by including the liabilities from financing and liabilities related to taxes on income in the column “Other/Consolidation”.

276 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

Other Information The outstanding contributions and obligations for purchasing shares related to outstanding contributions to 33 Contingent receivables and liabilities EUROFIMA (€ 320 million; previous year: € 325 million). As of December 31, 2004, contingent receivables were stated Various companies in the DB Group have leased assets, as € 38 million (previous year: € 39 million). e.g. property, building, technical equipment, plant and Contingent liabilities are broken down as follows: machinery as well as operational and business equipment within the framework of “operating lease agreements”. If assets relating to the core business of the DB Group have in € million 2004 2003 been leased, they are generally leased to cover a temporary Guarantees 155 124 requirement up to the point at which the ordered material Negotiation and endorsement of bills of exchange 0 1 has been made available for delivery and actually supplied. Provision of collateral The terms of the future minimum payments arising from for third party liabilities 0 52 operating lease agreements are set out in the following Other 138 171 Total 293 348 table:

in € million 2004 2003 The guarantees as of December 31, 2004 consisted mainly of guarantees provided for government grants and future Less than 1 year 443 564 cash ﬂows as well as warranties. 1 – 2 years 443 469 2 – 3 years 359 399 The ﬁgure stated last year for contingent liabilities attrib- 3 – 4 years 304 342 utable to the provision of security for external liabilities 4 – 5 years 203 313 also comprises liabilities of the Federal Railroad Fund More than 5 years 1,296 1,304 Total 3,048 3,391 (Bundeseisenbahnvermögen) with regard to EUROFIMA Europäische Gesellschaft für die Finanzierung von Eisen- bahnmaterial, Basle/Switzerland. 35 Infrastructure and transport contracts Other contingent liabilities also comprise risks arising The following notes and information refer to the require- from litigation which had not been stated as provisions ments of SIC-29 (Disclosure – Service Concession Arrange- because the expected probability of occurrence is less ments). than 50%. Infrastructure contracts 34 Other financial obligations In accordance with section 6 of the General Railroad Act Capital expenditures in relation to which the company has (Allgemeines Eisenbahngesetz; AEG), the infrastructure entered into contractual obligations as of the balance sheet companies which belong to the DB Group, and in particular date, but for which no consideration has yet been received DB Netz AG, DB Station&Service AG and DB Energie are broken down as follows: GmbH, have been granted temporary authorization as railroad infrastructure companies as detailed in section 2 (3) AEG, to operate and develop the rail infrastructure in € million 2004 2003 network in Germany. This comprises in detail the authoriza- Committed capital expenditures: tion to operate the rail network, the related power network Property, plant and equipment 4,463 6,223 and the station premises related to operations. Intangible assets 3 1 Outstanding capital contributions and share purchase obligations 320 325 Total 4,786 6,549

277 The right of the infrastructure companies to operate the services (e.g. federal state, local transport company, special- rail infrastructure is connected to various obligations. In purpose entity/association). These contracts determine the addition to the general operating obligation, these obliga- way in which the transport service is provided and contin- tions comprise mainly the duty to maintain the infrastruc- ued, and also governs the relevant compensation paid for ture network in a condition in which it is capable of reliable the transport services. operation and to further improve the network to meet the The federal government provides the federal states with needs of the future. In addition, the infrastructure operators funds for this purpose in accordance with the German also have to observe statutory duties with regard to noise Regional Restructuring Act (Regionalisierungsgesetz). abatement in the case of any new and expansion projects. The most important rail transport contracts are explained The DB Group voluntarily participates in the “Rail noise in the following: abatement program” for existing lines. The transport contracts run for periods of between 10 The railroad infrastructure companies provide non- and 15 years. All of the contracts run until at least 2010, discriminatory access to the rail infrastructure in accordance and 80% of the contracts run until at least 2012. The trans- with section 14 AEG and charge so-called “train-path utili- port contract can only be terminated by the ordering orga- zation fees” to the railroad transportation companies in nization during its life if there is an important reason. accordance with the principles of the Ordinance Governing In general, a transport contract contains stipulations Use of Railroad Infrastructure (Eisenbahninfrastruktur- according to which parts of the transport service can be Benutzungsverordnung; EIBV). The Federal Railroad taken out of the contract while the contract is still running Authority (Eisenbahn-Bundesamt; EBA) is responsible for and put out to tender again. This is applicable for on average monitoring compliance with the principles applicable for 30% to 40% of the services at the beginning of the contract imposing the line fees in accordance with the EIBV, and is term. After the transport contracts have expired, it is also responsible for ensuring that these principles are applied expected that the transport services will be put out to com- in a non-discriminatory manner. petitive tender. The approvals of the EBA for DB Netz AG and DB Sta- The total amount of payments from ordered-service tion&Service AG are limited until the end of December 31, contracts amounted to € 4,568 million in the year under 2048; the corresponding approvals for DB Energie GmbH review (previous year: € 4,519 million); the transport are limited until the end of June 30, 2051. contracts mentioned above accounted for € 3,669 million The above-mentioned infrastructure companies generated of this figure (previous year: € 3,656 million). This is equiv- overall revenues of € 6,051 million in 2004 (previous year: alent to 80.3% (previous year: 80.9 %) of the total fees (see €5,974 million); of this figure, € 710 million was generated Note 1). The fact that the fees which are received are virtu- with external customers (previous year: € 585 million). ally unchanged is due to the fact that the fees are increased annually by between 1.5% and 2%, whereas this increase Transport contracts/Ordered-service contracts is opposed by revenue reductions stated in the terms of Service licenses and similar approvals which guarantee tender of virtually all contracts. the general public access to important economic and public The Group enjoys legal and beneficial ownership of vir- facilities have been granted to companies in the tually all of the assets necessary for providing the services, DB Group. This is applicable particularly for DB Regio AG and in particular the rolling-stock. No special obligations as well as several of its subsidiaries. exist after the end of the contract term. DB Regio AG and its subsidiaries provide transport services on the basis of ordered-service contracts. These transport contracts for local passenger transport services are signed with the organization which orders the transport

278 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

36 Related party disclosures gramm; ZIP), the Transport Infrastructure Act (Verkehrs- Within the framework of its operations, the DB Group has infrastrukturgesetz; VIFG) and the Municipal Transport relations with numerous affiliated non-consolidated com- Financing Act (Gemeindeverkehrsfinanzierungsgesetz; panies and associates. GVFG). The figures attributable to related companies and persons The federal government guarantees relate mainly to are stated under the corresponding items of the “Notes to the loans received from EUROFIMA and the outstanding the balance sheet” with the designation “thereof”. Individual contributions of Deutsche Bahn AG at EUROFIMA. figures are set out in the Notes 19, 27 and 28. In 2003, the The unsecured receivables of € 255 million (previous “thereof” figures also included the amounts for receivables year: € 270 million) with regard to the federal government and liabilities attributable to transactions with Brenntag/ relate to claims for the transfer of property by the Federal Interfer operations stated under available-for-sale financial Railroad Fund (BEV). In addition to the interest-free loans, instruments (“share deal”). which are stated with their present value, the Group also Significant economic relations which need to be reported has liabilities due to the federal government arising from separately between the DB Group and related companies past obligations in the amount of € 163 million (previous and persons are explained in the following: year: € 375 million). The following agreements were concluded with the

Relationships with federal government in 2004: the Federal Republic of Germany The federal government will provide additional funds in € million 2004 2003 of € 750 million for capital expenditures on the rail network

Services received by DB Group in the medium-term forecast period from 2004 to 2008. Purchase of goods and services 1,962 2,062 The amount of € 660 million repaid in relation to the Investment grants 3,214 4,026 federal funds provided for bridging finance for major Other grants 40 64 5,216 6,152 projects has been deferred by the federal government. The amount will start to be repaid from 2009 onwards. Services rendered by DB Group Capital expenditures on the existing network of DB AG Sale of goods and services 206 210 Other services rendered 34 32 will be financed with investment grants. 240 242 For the years 2004 to 2008, DB AG has waived its entitle- Other disclosures ment to reimbursement of the costs for employees and Unsecured receivables 281 370 Unsecured payables 4,119 5,487 assigned civil servants which it incurs as a result of the fact Current total of guarantees received 3,112 3,112 that employment contracts which were transferred to DB AG in accordance with section 14 (2) of the Deutsche Bahn Foundation Act (Deutsche Bahn Gründungsgesetz; Details of transactions between the DB Group and the DBGrG) cannot be terminated (see section 21 (5) and (6) Federal Republic of Germany are included in the Notes 1, 3, DBGrG) although the personnel requirement of DB AG has 5, 13, 27, 31, 32 and 35. diminished because of technical, operational and organiza- Purchases of products and services comprise mainly the tional measures. amounts paid to the federal government on a pro forma Within the framework of the financing adjustment agree- basis for the assigned civil servants. ment for 2004, on top of federal funds for capital expen- The investment grants have been extended in accor- ditures on the existing network federal funds of around dance with the Federal Rail Infrastructure Extension Act €3.2 billion have been earmarked for the period between (Bundesschienenwegeausbaugesetz; BSchwAG), the Future 2004 and 2009 for capital spending on new and expansion Capital Spending Program (Zukunftsinvestitionspro- projects included in an agreed project list (“List 66”).

279 Relations with EUROFIMA AG, Basle/Switzerland, and Scandlines AG, Rostock Details of economic transactions are set out in the following table:

EUROFIMA Scandlines EUROFIMA Scandlines in € million 2004 2004 2003 2003

Services received by DB Group Purchases of goods and services 0 18 0 13

Services rendered by DB Group Sales of goods and services 01107

Other disclosures Unsecured receivables 0100 Secured payables 1,915 0 1,915 0 Unsecured payables 01010 61

Of the figure of € 1,915 million, € 1,898 million is stated Relations with the Management Board and under financial debt and accrued interest of € 17 million is Supervisory Board of Deutsche Bahn AG stated under other liabilities. With regard to the secured liabilities attributable to in € thousand 2004 2003 EUROFIMA loans, please refer to the explanations in Note 27. The EUROFIMA loans were secured by assets with Total compensation of the Management Board 6,884 6,243 residual carrying amounts of € 283 million (previous year: thereof fixed (3,519) (3,455) €320 million). Liabilities due to the Scandlines Group thereof variable (3,365) (2,788) included cash pool liabilities of € 100 million (previous Compensation of former members year: € 60 million). of the Management Board 1,452 2,319

Retirement beneﬁt obligation in respect of former members of the Management Board 13,348 13,130

Total compensation of the Supervisory Board 281 330

Services rendered by DB Group Sales of goods and services 94 92 Lease and rental payments received 6 6 Total 22,065 22,120

280 Deutsche Bahn Group | Annual Report 2004 Consolidated Financial Statements According to IFRS

37 Events after the balance sheet date DB Sechste Vermögensverwaltungsgesellschaft mbH, Berlin DB Services Immobilien GmbH, Berlin In the first quarter, DB AG signed an agreement for acquiring DB Services Nord GmbH, Hamburg the transport and logistics operations of RAG via its sub- DB Services Nordost GmbH, Berlin DB Services Süd GmbH, Munich sidiary Railion Deutschland AG. The subject of the contract DB Services Südost GmbH, Leipzig is a 100% stake in “RAG Bahn und Hafen GmbH”, Glad- DB Services Südwest GmbH, Frankfurt/Main DB Services Technische Dienste GmbH, Berlin RBH DAP beck ( ) as well as a 55% stake in “ Barging B.V.”, DB Services West GmbH, Cologne Rotterdam/Netherlands. The acquisition which was ef- DB ServiceStore Systemführungs GmbH, Berlin fective as of January 1, 2005 still has to be approved by the DB Stadtverkehr GmbH, Frankfurt/Main DB Systems GmbH, Frankfurt/Main Federal Cartel Office (Bundeskartellamt). For fiscal 2005, DB Telematik GmbH, Eschborn the companies which have been acquired are expected to DB Vermittlung GmbH, Berlin DB Zeitarbeit GmbH, Berlin generate revenues of around € 200 million. DB ZugBus Regionalverkehr Alb-Bodensee GmbH (RAB), Ulm (Donau) Deutsche Bahn Gleisbau GmbH, Duisburg DE-Consult Deutsche Eisenbahn-Consulting GmbH, Berlin 38 Exemption of subsidiaries from the disclosure Deutsche Eisenbahn-Reklame GmbH, Kassel requirements of the German Commercial Code Deutsche Gleis- und Tiefbau GmbH, Berlin Deutsche Touring Gesellschaft mbH, Frankfurt/Main (Handelsgesetzbuch; HGB) DVA Deutsche Verkehrs-Assekuranz-Vermittlungs-GmbH, Bad Homburg The following subsidiaries intend to make use of section Friedrich Müller Omnibusunternehmen GmbH, Schwäbisch Hall Georg Schulmeyer GmbH, Mörfelden-Walldorf 264 (3) HGB, which provides an exemption from the dis- HarzBahn GmbH, Magdeburg closure requirements: Hanekamp Busreisen GmbH, Cloppenburg Ibb Ingenieur-, Brücken- und Tiefbau GmbH, Dresden A. Philippi GmbH, Quierschied KVB Sigmaringen GmbH, Sigmaringen AMEROPA-Reisen GmbH, Bad Homburg v. d. H. Metropolitan Express-Train GmbH, Bad Homburg v. d. H. Autokraft GmbH, Kiel Mitteldeutsche Eisenbahn GmbH, Schkopau Bayern Express Omnibus GmbH, Munich MOS Mobile Oberbauschweißtechnik GmbH, Berlin Bayern Express&P. Kühn Berlin GmbH, Berlin NVO Temme Nahverkehr Ostwestfalen GmbH, Halle (Westphalia) BBH BahnBus Hochstift GmbH, Paderborn Omnibusverkehr Franken GmbH (OVF), Nuremberg BRN Busverkehr Rhein-Neckar GmbH, Ludwigshafen ORN Omnibusverkehr Rhein-Nahe GmbH, Mainz BRN Stadtbus GmbH, Ludwigshafen Railion GmbH, Mainz BRS Busverkehr Ruhr-Sieg GmbH, Meschede Railion Intermodal Traction (RIT) GmbH, Mainz BTS Kombiwaggon Service GmbH, Mainz RBO Regionalbus Ostbayern GmbH, Regensburg BTT BahnTank Transport GmbH, Mainz Regionalbahn Schleswig-Holstein GmbH, Kiel Burgenlandbahn GmbH, Zeitz Regional Bus Stuttgart GmbH RBS, Stuttgart BVO Busverkehr Ostwestfalen GmbH, Bielefeld Regionalverkehr Allgäu GmbH (RVA), Oberstdorf BVR Busverkehr Rheinland GmbH, Düsseldorf Regionalverkehr Kurhessen GmbH (RKH), Kassel DB Akademie GmbH, Berlin Regionalverkehr Oberbayern GmbH, Munich DBAutoZug GmbH, Dortmund RMV Rhein-Mosel Verkehrsgesellschaft mbH, Koblenz DB Bahnbau GmbH, Berlin RSW Regionalbus Saar-Westpfalz GmbH, Saarbrücken DB Dialog Telefonservice GmbH, Berlin RVE Regionalverkehr Euregio Maas-Rhein GmbH, Aachen DB Dienstleistungen GmbH, Berlin RVN Regionalverkehr Niederrhein GmbH, Wesel DB Energie GmbH, Frankfurt/Main RVS Regionalbusverkehr Südwest GmbH, Karlsruhe DB European Railservice GmbH, Dortmund S-Bahn Berlin GmbH, Berlin DB Fahrzeuginstandhaltung GmbH, Berlin S-Bahn Hamburg GmbH, Hamburg DBFuhrparkService GmbH, Frankfurt/Main S-Bahn München GmbH, Munich DB Gastronomie GmbH, Frankfurt/Main SBG SüdbadenBus GmbH, Freiburg DB Heidekrautbahn GmbH, Potsdam Schenker AG, Essen DB Neunte Vermögensverwaltungsgesellschaft mbH, Berlin Stinnes AG, Berlin DB Personenverkehr GmbH, Berlin TRANSA Spedition GmbH, Offenbach /Main DB ProjektBau GmbH, Berlin UBB Usedomer Bäderbahn GmbH, Heringsdorf DB Regio NRW GmbH, Düsseldorf Verkehrsgesellschaft mbH Untermain –VU–, Frankfurt/Main DB RegioNetz Infrastruktur GmbH, Frankfurt/Main WB Westfalen Bus GmbH, Münster (Westphalia) DB RegioNetz Verkehrs GmbH, Frankfurt/Main Weser-Ems Busverkehr GmbH (WEB), Bremen DB Rent GmbH, Frankfurt/Main Zehlendorfer Eisenbahn- und Hafen GmbH, Berlin DB Schwarzwaldbahn GmbH, Freiburg Zentral-Omnibusbahnhof Berlin GmbH, Berlin

281 39 Major shareholdings The major shareholdings are set out on the pages 287 – 289. The complete list of all shareholdings of the DB Group is deposited with the commercial register of the local court Berlin-Charlottenburg.

40 Supervisory Board and Management Board The names and mandates of the members of the Supervisory Board and the Management Board are set out on the pages 290 – 293.

Berlin, April 28, 2005

Deutsche Bahn AG The Management Board

282 Additional Information

Major Activity Relationships Within the DB Group

The following table shows the major intra-Group activity DB Station&Service AG. The recipients of intra-Group relationships among the segments of the DB Group. The activities are primarily the railroad companies in the pas- ﬁgures indicate the infrastructure-related offset for the use senger and 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) System, Facility Pricing System, and Station Pricing Sys- and electricity for stationary facilities (such as switch-track tem). The activities are rendered by DB Netz AG or heaters and train preheating units of DB Netz AG).

Transport Passenger Transport and Passenger Track Infra- Long- Logistics Stations structure Other Distance Regional Urban in € million Transport Transport Transport Other

Train-path utilization – 714 – 2,001 – 174 0 – 517 0 3,411 – 5 Utilization of local infrastructure – 16 – 43 – 1 0 – 150 0 212 – 2 Station utilization – 87 – 394 – 76 0 0 555 2 0 Energy allocation – 258 – 585 – 35 – 4 – 336 – 48 – 104 1,370

283 Explanation of Grant Types

Beginning End value Grant type value as of Fund Use of Cancel- as of in € million Jan 1, 2004 inﬂow funds lations Dec 31, 2004

1.1 Third party grants 7 22 – – 21 8 1.2 Third party grants – reducing acquisition/manufacturing costs 826 306 – 365 – 76 691 1.3Grants from GVFG (excluding federal government) 686 351 – 568 – 88 381 2.1 Federal grants – noise abatement 43 56 – – 15 84 2.2 Federal grants – VIFG funds (transport infrastructure provider) – 497 – 207 – 4 286 2.3 Federal grants – special burdens due to past underinvestment 627 44 – 323 – 75 273 2.4 Federal grants – BSchwAG, former special burdens past underinv. 544 739 – 494 – 45 744 2.5 Federal grants – civil defense ––––– 2.6 Federal grants – GVFG local public passenger transport 135 135 – 124 – 13 133 2.7 Federal grants – BSchwAG 4,335 816 – 1,107 – 229 3,815 2.8 Federal grants – UMTS funds 228 947 – 849 – 8 318 2.9 Federal grants – imposed lines 4 – – 2 – 2 – 2.10 Grants – EU funds 196 161 – 67 – 32 258 Total 7,631 4,074 – 4,106 – 608 6,991

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 an agreement with a third party could be reached, stipulating 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 Investment grants are authorized for the purchase or manu- would result in lower future revenues for DB. facturing of fixed assets. They are primarily distributed by the federal government as part of the funds on demand pro- 1. Third party grants cedure. However, other entities (state, municipality, third parties) also provide Deutsche Bahn with such grants. 1.1 Third party grants which do not diminish acquisition/ Following the completion of the acquisition and/or manufac- manufacturing costs turing, investment grants received are shown as a reduction This type of grant is an expense grant, which does not in acquisition or manufacturing costs. This leads to a lower result in a reduction on the asset side of the balance sheet. book value attributable to the asset, which results in cor- These grants are recorded in the period in which they are respondingly lower depreciation. The grant therefore has received and classified as other operating income. Currently, the effect of lowering the burden on operating profit over only grants related to the cancellation of private track con- the entire useful life of the asset. Corporate tax law refers nection contracts and the related costs for dismantling and to this situation as a profit-neutral treatment of the grants. removal fall under this category. In contrast to investment grants, expense/income grants are not paid to finance the acquisition cost of a fixed asset. 1. 2 Third party grants which reduce acquisition/ These grants have a direct impact on the income statement. manufacturing costs The reasons for distributing an expense/income grant are These grants involve third party funds (state, municipality, numerous. For example, DB could incur an expense for a private companies), which result in a reduction in acquisi-

284 Deutsche Bahn Group | Annual Report 2004 Additional Information

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

285 2.5 Federal grants – civil defense and the Federal Ministry of Finance, as well as DB AG, The federal government provides funds in the context of regarding the extent of rail infrastructure investments from DB’s obligation to secure the rails for purposes of civil 2001 through 2003” (trilateral agreement). defense, according to Art. 10a Transport Guarantee Act The grants stem from the sale of UMTS mobile licenses (Verkehrssicherstellungsgesetz; VSG) on the initiative of the and are primarily dedicated to quality improvement mea- Federal Ministry of Transport, Building and Housing. sures for the existing network through the removal of slow- travel areas and the short-term, noticeable modernization 2.6 Federal grants – GVFG local public of the command and control technology. passenger transport These federal grants involve contributions related to Art.11 2.9 Federal grants – imposed lines Local, Regional and Municipal Traffic Financing Act These grants are federal contributions for obligations of (Gemeindeverkehrsfinanzierungsgesetz; GVFG) in an amount DB to maintain certain lines of the rail infrastructure, up to 60% of the eligible costs. Investment grants accord- according to Art.10b VSG and Art. 23 VSG. The EU-Direc- ing to GVFG are shown as a reduction in the acquisition/ tive 1191/69 forms the legal basis for this obligation. manufacturing costs of the funded assets. Expense grants are recorded as income in the period in which they are pro- 2.10 Grants – EU funds vided. The Federal Railroad Authority has expressed its The European Union (EU) provides community funds to approval of this procedure. In addition to federal funds Deutsche Bahn, taking into account certain obligations to under the GVFG, these federal grants also include contribu- provide supporting documentation. tions related to the so-called Capital Contract from 1994. Among other purposes, these grants are allocated for the This contract provides for the federal government’s partici- so-called trans-European networks (TEN funds). Measures pation in additional financial support resulting from the given priority include sections of the new Cologne–Rhine/ expansion of the government and parliament area in Berlin. Main line and the expansion/new Nuremberg–Ingolstadt– Munich line, as well as the electrification and expansion of 2.7 Federal funds – BschwAG the Berlin Central Station–Friedrichstraße line. 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. the Federal Ministry of Transport, Building and Housing

286 Major Subsidiaries Deutsche Bahn Group

Revenues1) Employees Ownership 2004 as of Name and domicile in % in € million Dec 31, 2004

Passenger Transport Business unit Long-Distance Transport AMEROPA-REISEN GmbH, Bad Homburg v.d.H. 100.0 92.4 128 Bayern Express &P.Kühn Berlin GmbH, Berlin 100.0 20.6 267 CityNightLine CNL AG, Zurich/Switzerland 100.0 54.5 127 DBAutoZug GmbH, Dortmund 100.0 194.9 289 DB Dialog Telefonservice GmbH, Schwerin 100.0 54.0 1,255 DB European Railservice GmbH, Dortmund 100.0 29.5 583 DB Fernverkehr AG, Frankfurt/Main 100.0 2,688.5 15,804

Business unit Regional Transport DB Regio AG, Frankfurt/Main 100.0 4,844.9 22,048 DB RegioNetz Verkehrs GmbH, Frankfurt/Main 100.0 112.5 510 DB Regio NRW GmbH, Düsseldorf 100.0 1,106.4 4,571 DB ZugBus Regionalverkehr Alb-Bodensee GmbH (RAB), Ulm (Donau) 100.0 257.2 1,194 Regionalbahn Schleswig-Holstein GmbH, Kiel 100.0 226.4 841 S-Bahn München GmbH, Munich 100.0 285.9 1,077

Business unit Urban Transport Autokraft GmbH, Kiel 100.0 72.6 687 BRN Busverkehr Rhein-Neckar GmbH, Ludwigshafen/Rh. 100.0 45.2 500 BRS Busverkehr Ruhr-Sieg GmbH, Meschede 100.0 27.4 178 BVO Busverkehr Ostwestfalen GmbH, Bielefeld 100.0 49.0 332 BVR Busverkehr Rheinland GmbH, Düsseldorf 100.0 30.9 176 Omnibusverkehr Franken GmbH (OVF), Nuremberg 100.0 87.1 508 ORN Omnibusverkehr Rhein-Nahe GmbH, Mainz 100.0 40.8 335 RBO Regionalbus Ostbayern GmbH, Regensburg 100.0 61.2 309 Regional Bus Stuttgart GmbH RBS, Stuttgart 100.0 68.2 516 Regionalverkehr Kurhessen GmbH (RKH), Kassel 100.0 58.3 551 Regionalverkehr Oberbayern GmbH, Munich 100.0 57.6 603 RMV Rhein-Mosel Verkehrsgesellschaft mbH, Koblenz 74.9 58.2 253 RSW Regionalbus Saar-Westpfalz GmbH, Saarbrücken 100.0 56.5 312 RVS Regionalbusverkehr Südwest GmbH, Karlsruhe 100.0 51.3 359 S-Bahn Berlin GmbH, Berlin 100.0 441.7 3,952 S-Bahn Hamburg GmbH, Hamburg 100.0 183.8 982 SBG SüdbadenBus GmbH, Freiburg i.Br. 100.0 66.5 454 Verkehrsgesellschaft mbH Untermain –VU–, Frankfurt/Main 100.0 48.1 360 WB Westfalen Bus GmbH, Münster 100.0 26.5 152 Weser-Ems Busverkehr GmbH (WEB), Bremen 100.0 58.8 383

287 Revenues1) Employees Ownership 2004 as of Name and domicile in % in € million Dec 31, 2004

Transport and Logistics Stinnes AG, Berlin 100.0 71.3 621

Business unit Schenker ATG Autotransportlogistic Gesellschaft mbH, Eschborn/Taunus 100.0 290.9 58 SCHENKER&Co. AG, Vienna/Austria 100.0 471.4 1,659 Schenker A/S, Hvidovre/Denmark 100.0 145.0 255 SCHENKER AB, Gothenburg/Sweden 100.0 925.0 2,648 Schenker AG, Essen 100.0 2,247.8 9,786 Schenker Australia Pty. Ltd., Alexandria/Australia 100.0 117.2 329 Schenker International (HK) Ltd., Hong Kong 100.0 356.9 1,063 Schenker Italiana S.p.A., Peschiera/Italy 100.0 294.9 780 Schenker LTD., London/Great Britain 100.0 181.5 511 SCHENKER N.V., Antwerp/Belgium 100.0 181.4 556 Schenker of Canada Ltd., Toronto/Canada 100.0 225.2 778 Schenker OY, Helsinki/Finland 100.0 250.6 410 Schenker S.A., Gennevilliers/France 100.0 380.1 1,011 Schenker-Seino Co. Ltd., Tokyo/Japan 60.0 186.7 218 Spedpol Sp.zo.o., Warsaw/Poland 99.1 152.1 1,306 TRANSPORTS JOYAU SAS, Montaigu Cedex/France 99.9 262.6 2,656

Business unit Railion Railion Danmark A/S, Copenhagen/Denmark 98.0 79.0 527 Railion Deutschland AG, Mainz 98.0 3,269.4 23,209 Railion Intermodal Traction (RIT) GmbH, Mainz 98.0 104.4 52 Railion Nederland N.V., Utrecht/Netherlands 98.0 147.2 1,301

Business unit Freight Logistics 2) BTT BahnTank Transport GmbH, Mainz 100.0 89.6 91 NUCLEAR CARGO+SERVICE GmbH, Hanau 100.0 41.4 126 TRANSA Spedition GmbH, Offenbach/Main 100.0 268.4 302

Business unit Intermodal 2) BTS Kombiwaggon Service GmbH, Mainz 100.0 44.9 241

288 Deutsche Bahn Group | Annual Report 2004 Major Subsidiaries

Revenues1) Employees Ownership 2004 as of Name and domicile in % in € million Dec 31, 2004

Passenger Stations 3) DB Station & Service AG, Berlin 100.0 869.6 5,365

Track Infrastructure 3) DB Netz AG, Frankfurt/Main 100.0 3,856.1 44,733 DB RegioNetz Infrastruktur GmbH, Frankfurt/Main 100.0 44.1 501 Deutsche Umschlaggesellschaft Schiene-Straße (DUSS) mbH, Bodenheim 87.5 32.3 441

Services 3) DB Energie GmbH, Frankfurt/Main 4) 100.0 1,518.8 1,893 DBFuhrparkService GmbH, Frankfurt/Main 100.0 134.7 183 DB Rent GmbH, Frankfurt/Main 100.0 55.4 112 DB Services Nord GmbH, Hamburg 100.0 57.7 1,524 DB Services Nordost GmbH, Berlin 100.0 55.6 1,938 DB Services Süd GmbH, Munich 100.0 65.6 1,469 DB Services Südost GmbH, Leipzig 100.0 146.0 3,530 DB Services Südwest GmbH, Frankfurt/Main 100.0 79.2 1,841 DB Services Technische Dienste GmbH, Berlin 100.0 386.8 4,421 DB Services West GmbH, Cologne 100.0 74.4 1,454 DB Systems GmbH, Frankfurt/Main 100.0 595.7 2,387 DB Telematik GmbH, Frankfurt/Main 100.0 440.3 3,482

Other subsidiaries DB ProjektBau GmbH, Berlin 100.0 574.2 5,288 DE-Consult, Deutsche Eisenbahn-Consulting GmbH, Berlin 100.0 80.5 563 Deutsche Bahn Gleisbau GmbH, Duisburg 100.0 111.1 488 Deutsche Gleis- und Tiefbau GmbH, Berlin 100.0 152.4 1,352 DVA Deutsche Verkehrs-Assekuranz-Vermittlungs-GmbH, Bad Homburg v.d.H. 65.0 29.2 77 Ibb Ingenieur-, Brücken- und Tiefbau GmbH, Dresden 100.0 72.2 283 Stinnes Corporation, Tarrytown/USA 100.0 832.5 1,879

1) According to IFRS 2) From 2005 consolidated within the business unit Stinnes 3) From 2005 consolidated within the Group division Infrastructure and Services as a business unit 4) From 2005 independent business unit within the Group division Infrastructure and Services

289 Management Board of Deutsche Bahn AG

Hartmut Mehdorn Dr. Norbert Bensel Stefan Garber CEO and Chairman Transport and Logistics Infrastructure and Services, of the Management Board, – since March 17, 2005 –, Bad Homburg Berlin Personnel – since April 1, 2005 – a) DB Station&Service AG (Chairman)1) – through March 16, 2005 –, a) DB Regio AG1) DB Netz AG (Chairman)1) Berlin DB Netz AG1) Stinnes AG (Chairman)1) a) DB Station&Service AG1) DB ProjektBau GmbH1) DB Personenverkehr GmbH (Chairman)1) DB Netz AG1) DB Services Technische Dienste GmbH1) S-Bahn München GmbH (Chairman)1) Stinnes AG1) DB Systems GmbH1) DEVK Deutsche Eisenbahn Versicherung Railion Deutschland AG1) DB Telematik GmbH1) Lebensversicherungsverein a. G. Schenker AG1) Arcor Verwaltungs-Aktiengesellschaft DEVK Deutsche Eisenbahn DB Gastronomie GmbH (Chairman)1) IDUNA Lebensversicherung a. G. Versicherung Sach- und DB Personenverkehr GmbH1) b) Arcor AG&Co. KG HUK-Versicherungsverein a. G. DB Services Immobilien GmbH1) (Partner committee member)1) Dresdner Bank AG DB Vermittlung GmbH (Chairman)1) Signal Iduna Gruppe (Advisory Board) SAP AG DEVK Deutsche Eisenbahn Versicherung b) Bayerische Magnetbahnvorbereitungs- Lebensversicherungsverein a. G. gesellschaft mbH (Chairman)1) DEVK Deutsche Eisenbahn Roland Heinisch DB Dienstleistungen GmbH Versicherung Sach- und Integrated Systems Rail (Advisory Board, Chairman)1) HUK-Versicherungsverein a. G. – since April 1, 2005 –, Railog GmbH (Advisory Board)1) Partner für Berlin – Gesellschaft für Track Infrastructure Hauptstadt-Marketing GmbH – through March 31, 2005 –, b) DB Dienstleistungen GmbH CEO and Chairman of the Management (Advisory Board)1) Board of DB Netz AG, DB Zeitarbeit GmbH (Chairman)1) Idstein DEVK Deutsche Eisenbahn a) DB Station&Service AG1) Versicherung a. G. (Advisory Board) DB ProjektBau GmbH1) IAS Institut für Arbeits- und Sozial- hygiene Stiftung (Advisory Board)

Klaus Daubertshäuser Marketing and Political Relations, Wettenberg a) DB Netz AG1) Stinnes AG1) DB Personenverkehr GmbH1) DB ProjektBau GmbH (Chairman)1) DE-Consult Deutsche Eisenbahn Consulting GmbH1) S-Bahn Berlin GmbH (Chairman)1) Sparda-Bank Baden-Württemberg eG b) DB Dienstleistungen GmbH (Advisory Board)1) DEVK Deutsche Eisenbahn Versicherung Lebensversicherungsverein a. G. (Advisory Board)

290 Deutsche Bahn Group | Annual Report 2004 The Boards of Deutsche Bahn AG

Dr. Bernd Malmström Diethelm Sack Transport and Logistics, CFO, CEO and Chairman of the Management Frankfurt/Main Board of Stinnes AG, a) DB Station&Service AG1) Berlin DB Netz AG1) – through March 16, 2005 – Stinnes AG1) a) Railion Deutschland AG (Chairman)1) DB Personenverkehr GmbH1) Schenker AG (Chairman)1) DB Services Immobilien GmbH K+S Aktiengesellschaft (Chairman)1) b) DB Dienstleistungen GmbH DEVK Allgemeine Lebens- (Advisory Board)1) versicherungs-AG POLZUG GmbH1) DEVK Deutsche Eisenbahn Versicherung Stinnes Corporation, Tarrytown/USA Lebensversicherungsverein a. G. (Chairman)1) Frankfurter Versicherungs-AG DEVK Deutsche Eisenbahn gbo AG Versicherung a. G. (Advisory Board) b) DB Dienstleistungen GmbH HHLA Intermodal GmbH&Co. KG (Advisory Board)1) DVA Deutsche Verkehrs-Assekuranz- Vermittlungs-GmbH (Chairman)1) Dr. Karl-Friedrich Rausch EUROFIMA Europäische Gesellschaft Passenger Transport, für die Finanzierung von Eisenbahn- CEO and Chairman of the Management material, Basel/Switzerland Board of DB Personenverkehr GmbH, (Administrative Board)1) Weiterstadt a) DB Fernverkehr AG1) DB Regio AG1) Margret Suckale DEVK Allgemeine Versicherungs-AG Personnel, DEVK Deutsche Eisenbahn Berlin Versicherung Sach- und – since March 17, 2005 – HUK-Versicherungsverein a. G. b) Bayerische Magnetbahnvorbereitungs- gesellschaft mbH1) DB Dienstleistungen GmbH (Advisory Board)1)

1) Mandate within the Group

a) Membership in other Supervisory Boards required by law

b) Membership in comparable Supervisory Boards of domestic and foreign corporate control committees

Information as of December 31, 2004, or date of resignation.

291 Supervisory Board of Deutsche Bahn AG

Dr. Günther Saßmannshausen Niels Lund Chrestensen Jörg Hensel* Honorary Chairman General Manager of N.L. Chrestensen, Chairman of the Central Works Council of the Supervisory Board, Erfurter Samen- und Pﬂanzenzucht GmbH, of Railion Deutschland AG, Hanover Erfurt Hamm a) Einhorn Verwaltungsgesellschaft mbH a) Funkwerk AG a) Stinnes AG (Chairman) b) Landesbank Hessen-Thüringen (Advisory Railion Deutschland AG Heraeus Holding GmbH Board Public Companies/Institutions, b) Deilmann Montan GmbH Communes and Savings Banks) (Advisory Board) Thüringer Aufbaubank Klaus Dieter Hommel* (Administrative Board) Chairman of the GDBA Transport Workers’ Union, Dr. Michael Frenzel Frankfurt am Main Chairman of the Supervisory Board, Peter Debuschewitz* a) Railion Deutschland AG Chairman of the Executive Board of TUI AG, Management Representative of DB Systems GmbH Burgdorf Deutsche Bahn AG for the State of Berlin, DEVK Deutsche Eisenbahn Versicherung a) Hapag-Lloyd AG (Chairman)1) Taufkirchen Lebensversicherungsverein a. G. Hapag Lloyd Fluggesellschaft mbH b) DEVK Deutsche Eisenbahn Versicherung DEVK Deutsche Eisenbahn Versicherung (Chairman)1) Lebensversicherungsverein a. G. Sach- und HUK-Versicherungsverein a. G. TUI Beteiligungs AG (Chairman)1) (Advisory Board) DEVK Pensionsfonds-AG TUI Deutschland GmbH (Chairman)1) DEVK Rechtsschutz-Versicherungs-AG AXA Konzern AG Continental AG Horst Fischer* E.ON Energie AG Member of the Works Council of Günter Kirchheim* ING Bank Deutschland AG DB Regio AG, Bavarian Region, Chairman of the Group Works Council VOLKSWAGEN AG Franconian Regional Transport, of Deutsche Bahn AG, b) Preussag North America, Inc., Fürth Chairman of the Central Works Council Greenwich/USA (Chairman)1) of DB Netz AG, TUI China Travel Co. Ltd., Peking/China1) Essen Norddeutsche Landesbank Volker Halsch a) DB Netz AG State Secretary, Federal Ministry of Finance, DEVK Deutsche Eisenbahn Versicherung Berlin Lebensversicherungsverein a. G. * Norbert Hansen a) Deutsche Telekom AG DEVK Deutsche Eisenbahn Versicherung Deputy Chairman of the Supervisory Board, Sach- und HUK-Versicherungsverein a. G. Chairman of TRANSNET German Railroad DEVK Pensionsfonds-AG Workers’ Union, Horst Hartkorn* DEVK Vermögensvorsorge- und Hamburg Chairman of the Works Council of S-Bahn Beteiligungs-AG a) DB Netz AG Hamburg GmbH, Stinnes AG Hamburg * DB Personenverkehr GmbH a) S-Bahn Hamburg GmbH Lothar Krauß DEVK Deutsche Eisenbahn Versicherung DEVK Deutsche Eisenbahn Versicherung Deputy Chairman of TRANSNET German Lebensversicherungsverein a. G. Lebensversicherungsverein a. G. Railroad Workers’ Union, (Chairman) DEVK Deutsche Eisenbahn Versicherung Rodenbach DEVK Deutsche Eisenbahn Versicherung Sach- und HUK-Versicherungsverein a. G. a) DB Station&Service AG Sach- und HUK-Versicherungsverein a. G. DB Services Technische Dienste GmbH (Chairman) DB Vermittlung GmbH DEVK Vermögensvorsorge- und DBV-Winterthur Holding AG Beteiligungs-AG Sparda-Bank Baden-Württemberg eG b) DB Dienstleistungen GmbH b) DB Dienstleistungen GmbH (Advisory Board) (Advisory Board)

Executive Committee Audit Committee Mediation Committee Dr. Michael Frenzel (Chairman) Dr. Heinrich Weiss (Chairman) under Article 27 Section 3 Ralf Nagel Ralf Nagel Codetermination Act Norbert Hansen Jörg Hensel Dr. Michael Frenzel (Chairman) Günter Kirchheim Lothar Krauß Ralf Nagel Norbert Hansen Günter Kirchheim 292 Deutsche Bahn Group | Annual Report 2004 The Boards of Deutsche Bahn AG

Heike Moll* Dr. rer. nat. h.c. Friedel Neuber Dr. Alfred Tacke Chairwoman of the Central Works Council Former Chairman and CEO State Secretary, Federal Ministry of DB Station&Service AG, of Westdeutsche Landesbank, of Economics and Labor, Munich Duisburg-Rheinhausen Celle a) DB Station&Service AG – through October 23, 2004 – – through December 31, 2004 – b) DEVK Deutsche Eisenbahn Versicherung a) Hapag-Lloyd AG a) Deutsche Postbank AG Sach- und HUK-Versicherungsverein a. G. RAG AG (Advisory Board) RWE AG (Chairman) ThyssenKrupp AG Dr.-Ing. E.h. Dipl.-Ing. TUI AG (Chairman) Heinrich Weiss Dr.Werner Müller b) Landwirtschaftliche Rentenbank Chairman of the Management Board Chairman of the Executive Board (Administrative Board) of SMS GmbH, of RAG AG, Hilchenbach-Dahlbruch Mülheim/Ruhr a) SMS Demag AG (Chairman)1) – since December 8, 2004 – Dr. Bernd Pfaffenbach COMMERZBANK AG a) Degussa AG (Chairman)1) State Secretary, Federal Ministry HOCHTIEF AG Deutsche Steinkohle AG (Chairman)1) of Economics and Labor, Voith AG RAG Coal International AG (Chairman)1) Wachtberg-Pech b) Concast AG, Zurich/Switzerland RAG Immobilien AG1) – since February 8, 2005 – (Chairman)1) STEAG AG (Chairman)1) a) Deutsche Postbank AG Thyssen-Bornemisza Group, Monaco Viterra AG b) RAG Beteiligungs-GmbH (Advisory Board, Chairman)1) Prof. Dr. Ekkehard D. Schulz Margareta Wolf g.e.b.b. Gesellschaft für Entwicklung, Chairman of the Management Board Parliamentary State Secretary, Beschaffung und Betrieb mbH of ThyssenKrupp AG, Federal Ministry for the Environment, (Chairman) Krefeld Nature Conservation and Nuclear Safety, Investitionsbank NRW (Advisory Board) a) ThyssenKrupp Automotive AG Rüsselsheim-Bauschheim Stadler Rail AG (Administrative Board) (Chairman)1) ThyssenKrupp Services AG (Chairman)1) ThyssenKrupp Steel AG (Chairman)1) Horst Zimmermann* Ralf Nagel AXA Konzern AG Chairman of the General Works Council State Secretary, Federal Ministry COMMERZBANK AG of DB Fernverkehr AG, of Transport, Building and Housing, MAN AG Nuremberg Berlin RAG AG a) DB Fernverkehr AG a) Fraport AG TUI AG DB Personenverkehr GmbH b) DFS Deutsche Flugsicherung GmbH b) ThyssenKrupp Budd Company, Troy, DEVK Deutsche Eisenbahn Versicherung (Advisory Board, Chairman) Michigan /USA1) Sach- und HUK-Versicherungsverein a. G.

Dr. Ulrich Schumacher General Partner of Francisco Partners, Starnberg 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 Supervisory Boards of domestic and foreign corporate control committees

Information as of December 31, 2004, or date of resignation.

293 Report of the Supervisory Board for the 2004 Financial Year

Dr. Michael Frenzel Chairman of the Supervisory Board of Deutsche Bahn AG

The Supervisory Board of Deutsche Bahn AG (DB AG) intensively addressed the situation of the company in the past ﬁnancial year. We advised the Management Board and supervised management. We were involved in decisions of signiﬁcant importance. We were regularly, promptly and comprehensively informed by the Management Board. This was based on the detailed written and oral reports from 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 2004 financial year. During its meetings, the Supervisory Board was briefed in detail by the Management Board on the business and financial development of DB AG and its Group companies, important transactions and the strategy and planning of the company. In its meeting on March 12, 2004, the Supervisory Board approved the divestment of 100% of shares in the MITROPA Mitteleuropäische Schlafwagen- und Speisewagen Aktiengesellschaft, the sale of registered stock with restricted transferability of Deutsche Lufthansa AG and the refitting of 490 vehicles in the ICE fleet. The Man- agement Board furthermore informed the Supervisory Board on the project situation regarding the preparation of an initial public offering of DB AG. In its meeting on May 12, 2004, the Supervisory Board specifically discussed the Management Report and Financial Statements 2003 as well as the Group Manage- ment Report and Consolidated Financial Statements of DB AG for 2003. In its meeting on July 7, 2004, the Supervisory Board specifically addressed M&A intentions as well as the topic of DB AG’s capital market capabilities.

294 Deutsche Bahn Group | Annual Report 2004 Report of the Supervisory Board

In its special meeting on October 7, 2004, the Supervisory Board focused on discussions of the current economic situation of DB AG. In its meeting on December 21, 2004, the Supervisory Board approved the 2005 ﬁnancial year budget plan and acknowledged receipt of the medium-term planning for 2005– 2009 as well as the long-term strategic goals of DB AG. These were debated at length with the Management Board.

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

Audit Committee The Audit Committee debated the financial statements of DB AG and the Group in the presence of the auditors and prepared resolutions concerning the annual financial statements for the 2003 financial year to be passed by the Supervisory Board. Furthermore, the first Europe-wide tender for auditor services as well as issues relating to the auditor’s independence and awarding the audit contract were matters of extensive discussion. As set forth in the Rules of Procedure of the Supervisory Board, the Audit Committee 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 with the corporate governance policies of DB AG and conducted a survey to assess the efﬁciency of its work. It agreed to change the frequency of the meetings as of the 2006 ﬁnancial year.

Financial Statements The Financial Statements and the Management Report of DB AG as well as the Consolidated Financial Statements and Group Management Report as of December 31, 2004 prepared by the Management Board were audited, and were issued an unqualified audit certificate by PwC Deutsche Revision Aktiengesellschaft Wirtschafts- prüfungsgesellschaft, Frankfurt/Main, the auditors selected by the Annual General Meeting. Furthermore, as part of his audit of the financial statements, the auditor also reviewed the company’s risk management system, as required pursuant to the Ger- man Act on Control and Transparency (KonTraG), and raised no objections.

295 The auditor’s report was the key item on the agenda of the Audit Committee meeting on May 23, 2005 and was discussed at length during the meeting on the financial statements on May 24, 2005 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, the Management Report of DB AG, the Consolidated Financial Statements, the Group Management Report for the 2004 financial year, and the proposal for appropriation of retained earnings and raised no objections. The annual financial statements of DB AG for the 2004 financial year have been approved. They have thus been adopted. The auditors also reviewed the report prepared by the Management Board on relations with associated 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 Dr. Friedel Neuber passed away on October 23, 2004 at the age of 69. He had belonged to the Supervisory Board of DB AG since its founding in 1994. With his outstanding personality and entrepreneurial dedication he had a lasting effect on the development of DB AG. He will not be forgotten. Dr.Werner Müller, Chairman of the Management Board of RAG Aktiengesell- schaft, was called to the Supervisory Board of DB AG as his successor, effective as of December 8, 2004. State Secretary Dr. Alfred Tacke resigned from his Supervisory Board mandate on December 31, 2004. Effective as of February 8, 2005, Dr. Bernd Pfaffenbach, State Secretary of the German Federal Ministry of Economics and Labor, was dele- gated to the Supervisory Board as his successor. The Supervisory Board would like to express its thanks to State Secretary Dr. Tacke for his dedicated and constructive support. Dr. Bernd Malmström, the member of the Management Board responsible for the Group Transport and Logistics division, amicably retired from the Management Board on March 16, 2005. The Supervisory Board thanks Dr. Malmström for his long-lasting commitment to his work.

296 Deutsche Bahn Group | Annual Report 2004 Report of the Supervisory Board

In its meeting on March 16, 2005, the Supervisory Board addressed in detail the continuing development of the company and management structure of the DB Group. In this framework it assigned Dr. Norbert Bensel responsibility for the Transport and Logistics department. Mrs. Margret Suckale was appointed Management Board member of DB AG for the Personnel Board division. Mr. Stefan Garber was appointed Management Board member of DB AG for the Infrastructure and Services department. Mr. Roland Heinisch took over the new Board division Integrated Systems Rail. Furthermore, the Supervisory Board approved an extension of Dr. Rausch’s contract as member of the Management Board of DB AG for the Passenger Transport Management Board division in its meeting on March 16, 2005. The Supervisory Board would like to thank the Management Board and all employees as well as the workforce representatives of DB AG and its afﬁliated companies for the dedication they have given in the 2004 ﬁnancial year.

Berlin, May 2005 For the Supervisory Board

Dr. Michael Frenzel Chairman

297 Deutsche Bahn Advisory Board

Prof. Dr. Gerd Aberle Prof. Dr. Dr. Christian Kirchner Prof. Dr. Werner Rothengatter Chair of Competition Theory, LL.M. Institute for Economic Policy and Research, Competition Policy, Chair of German, European, and International Universität Karlsruhe (TH) and Transportation Economy, Civil and Commercial Law, and Institutional Justus-Liebig-Universität, Gießen Economics, Humboldt-Universität zu Berlin Prof. Dr. Joachim Schwalbach Chair of International Management, Prof. Dr. Dr. h.c. mult. Dr. Dieter Klumpp Humboldt-Universität zu Berlin Horst Albach Vice President, German Rail Industry Formerly Chair for Managerial Economics Federation e.V., Berlin and Head of the Institute for Corporate Prof. Dr. Wulf Schwanhäußer Theory and Policy, Humboldt-Universität Professor emeritus, Rheinisch-Westfälische zu Berlin Prof. Dr. Otto Ernst Krasney Technische Hochschule Aachen, consultant Former Director of the WZB, Berlin, and Vice President (ret.), Federal Social for rail policy and the transportation sector President of the Akademie der Wissen- Court schaften zu Berlin Prof. Dr. Jürgen Siegmann Karl-Ulrich Kuhlo Specialist for rail tracks and operations, Prof. Dr.Thomas Ehrmann Founder of the news channel n-tv Technische Universität Berlin Chair of Enterprise Founding and Development, Westfälische Wilhelms- Universität, Münster Dr.Walther Leisler Kiep Horst Stuchly Minister (ret.) President (ret.), Federal Railroad Authority Dr. Michael Frenzel Chairman of the Executive Board of TUI AG Prof. Dr. Dr. h.c. mult. Prof. Dr. Andreas Troge Heribert Meffert President, Federal Environmental Agency Chairman of the Executive Board Prof. Dr. Sylvius Hartwig of the Bertelsmann Foundation Specialist for hazardous materials, Dr. Jürgen Warnke Bergische Universität, Wuppertal Attorney-at-law, Prof. Dr. Rüdiger Pohl Federal Minister of Transport (ret.) President of the Economic Research Dr. Volker Hauff Institute, Halle Senior Vice President BearingPoint GmbH, Dr. Jürgen Weber Federal Minister (ret.) Chairman of the Supervisory Board Prof. Dr. Dr. Franz Josef of Deutsche Lufthansa AG Radermacher Hans Jochen Henke Head of the Research Institute for Applied Attorney-at-law, Ulrich Weiß Knowledge Processing, Ulm Ernst &Young President, Federal Association of Small and Wirtschaftsprüfungsgesellschaft, Medium-Sized Construction Companies e.V., State Secretary (ret.) Bonn

Prof. Dr. Peter Hommelhoff Dr. Wendelin Wiedeking Rector of the Ruprecht-Karls-Universität, President and CEO Heidelberg, Chair of Civil Law/Commercial, of Dr. Ing. h.c. F. Porsche AG Business, and Capital Market Law

298 Deutsche Bahn Group | Annual Report 2004 Deutsche Bahn Advisory Board

299 Glossary of Financial Terms

Capital employed Gross capital expenditures Rating Properties (including intangible assets) Total capital expenditures for tangible and A judgement of creditworthiness that rating less interest-free loans – plus operating net intangible assets – irrespective of the type agents issue for a company; affects a working capital. of ﬁnancing. company’s reﬁnancing options and costs.

Cash flow Hedging Return on Capital Employed Free cash flow generated during the finan- Financial transactions conducted within (ROCE) cial year. Cash flow reflects a company’s the scope of risk management, particularly Our key measure for value-based man- internal financing resources generated by its to minimize interest and currency risks. agement. Expressed as a percentage ratio operative business. Used at the DB Group of EBIT to capital employed. level as cash flow before taxes: corresponds to operating income before taxes plus depre- Interest-free federal government loans ciation of properties (including intangible Repayable yet interest-free loans from the Special burden compensation assets) and changes in provisions for pen- German federal government. Result from Deutsche Bahn received federal compensa- sions. the financial participation of the Federal Re- tion from 1994 to 2002 for the increased cost public of Germany in capital expenditures of materials and personnel expenses that for the extension and replacement of track were due to the inefficient structures inherited Credit facilities infrastructure. See also Investment grants. from the former Deutsche Reichsbahn. Credit lines arranged with banks that can be drawn upon as necessary. Intra-Group revenues Squeeze-out Revenues earned from Group companies. A procedure that, under defined circum- Divisional revenues stances, enables majority shareholders to The sum of external and intra-Group force minority shareholders to relinquish revenues generated by a Group division. Investment grants their holdings e.g. in exchange for money Third party payments earmarked for specific compensation (Sec. 327a ff. German Stock investment projects. Corporation Act/AktG). EBIT (earnings before interest and taxes) Adjusted operating income before interest Net capital expenditures Swap and taxes. Gross capital expenditures less third party A financial transaction in which two counter- investment grants, e.g. for infrastructure parties exchange financing conditions, in measures. which each party benefits from the other’s EBITDA cost advantages. (earnings before interest, taxes, depreciation, and amortization) Operating cash flow Adjusted operating income before interest, Cash flow generated by the operative Value creation (value added) taxes, and depreciation. After additional business, defined as the sum of operating Difference between the value of products adjustment for special burden compensation, income after interest and depreciation and services sold and the value of inputs the best indicator of operative improvements of properties (including intangible assets). purchased and employed required to create since the start of German Rail Reform. such products and services. Calculated as an absolute amount or amount per em- Operating income after interest ployee. External revenues An adjusted operating result after net Revenues from non-Group customers. interest but before taxes that is used as an internal control tool for operating activities.

300 Glossary of DB-Specific Terms

bahn.comfort Immediate action program Ton kilometers Our service program for frequent travelers in Our short-term project aimed primarily at Unit of measure for transport performance long-distance passenger transport. making small and medium-sized passenger in freight transport: product of freight stations more attractive at manageable carried (in metric tons) and mean transport costs. distance. Cleanliness program Our project aimed at improving the outward appearance of passenger stations. Intermodal competition Traction Competition with other modes of transport. Train propulsion (by rail cars).

Combined rail/road transport The integrated transport of containers Interoperability – multisystem Train kilometers or entire trucks on the roads and rails. capability Distance traveled by railroad companies on The ability of vehicles to operate on the the DB Netz AG rail network. Unit of measure: different European rail networks. train-path kilometers (train-path km). DB Campaign Our key strategic measures are consolidated in our “DB Campaign” strategy. It pursues Intramodal competition Train-path three overreaching goals: restructuring, per- Competition with other railroad companies. Route traveled by a train, deﬁned in the formance, and growth. timetable.

Length of line operated Existing network The length of the rail network at Train-Path Pricing System (TPPS) The existing rail network – and thus the DB Netz AG – irrespective of the number A clear system that regulates the use of backbone of the infrastructure. of parallel tracks. the rail network by internal and external customers. Non-discriminatory, like the Station Pricing System. Takes into account “Fokus” “Net 21” (“Netz 21”) the individual characteristics of the utilized Our Group-wide restructuring program for Our strategic approach for segregating infrastructure. increasing efficiency within the DB Group passenger and freight traffic within the and laying the foundation for planned network, to increase line capacity. earnings growth. Transport association A regional collaboration of several Ordering organizations enterprises to render transport services German Regional Restructuring Act Generally the German states, which based on a coordinated timetable and Regulates payments from the federal are responsible for providing local rail fare system. government to the states; enables the passenger transport (LRPT) and order states to order local transport services. the respective services from transport companies. Transport contract A contract between an ordering organiza- GSM-Rail (Global System for Mobile tion and a railroad company regarding the Communication-Rail) Passenger kilometers (pkm) rendering of local passenger transport A special European standard that is Unit of measure for transport performance services. based on the GSM standard for mobile in passenger transport: product of number cellular technology. The platform for of passengers and mean travel distance. the future, standardized pan-European Transport performance command and control technology in Umbrella term for performance rendered rail transport. Requirement plan network in passenger (passenger kilometers) and/or New line construction and expansions freight transport (ton kilometers). contained in the Federal Transportation Infrastructure Plan.

Station Pricing System Our pricing system for the utilization of passenger stations; its conditions apply equally to Group and non-Group customers. The speciﬁc station prices depend primarily on the performance and furnishings of the respective stations.

301 Events in 2004

1 2 3 4 5 6

1 Success story: 1 Climate protection 1 The federal govern- 1 Schenker accompa- 1 “Rail Liberalization 1 Grand opening of 10 years of Deutsche program approved with ment establishes its nies works of art from Index 2004” confirms the airport train station Bahn AG ambitious improvement budgetary plan for Berlin to Taiwan Germany’s leading role Cologne/Bonn – aims by 2020 investments in track Re-opening of the 2 Schenker is active as 2 Schenker transports 2 Schenker is an infrastructure main station in Kiel a trade fair logistics 2 German and Turkish silver spoons belonging official partner for the specialist and transport railroads sign agree- 2 Deutsche Bahn to the King of Prussia “Graphics Industry 2 RegionalExpress carrier at the Detroit ment for close coopera- publishes its third World Fair” Line 1 celebrates its 3 Berlin’s main S-Bahn Motor Show and “boat tion Competition Report 10th birthday (metro) line is re-opened 3 Deutsche Bahn 2004” 3 Community of Euro- after 14 months of supports World 3 Traveling with the 3 Vehicle Maintenance pean Railroads and modernization work No-Smoking Day Lovetrain from Cologne unit restructured European Trade Union to Berlin 4 Asia-Europe Express Association sign connects Cologne to agreement regarding Istanbul in 100 hours international employment of staff

January February March April May June

1 Deutsche Bahn AG 1 The federal government 1 The LIB Index 2004 1 The opening of the commemorates its 10-year provides some € 3.5 billion confirms Germany’s posi- Cologne/Bonn airport train anniversary in Berlin at in 2004 for investment in tive results with regards to station marks the ninth a ceremony with German track infrastructure. This market liberalization and station in Germany to be chancellor Gerhard is a significant reduction competition on the rails. connected to the long- Schröder. compared to the previous distance rail network. The 2 Nearly 4,000 tractor- forecast and will continue vaulted glass roof sets 2 The trade fair specialist, trailer shipments with parts 1 New “Climate Protec- through 2008. Against this 1 We transported wood new optical standards: the Schenker, punctually de- of show stands, printing tion 2020” program aims backdrop, we revise our tablet paintings and other steel and glass structure livers cars and entire show machines and advertising for a reduction in specific capital expenditures plan works of art to Taipei covers the entire span of stands for several car manu- materials help exhibitors transport performance until July. in specially made, climate- the building. Following facturers “across the pond” prepare for the drupa Print related CO emissions by controlled storage con- several years of construc- to the Detroit Motor Show. 2 2 Competition on the Media Fair, the largest an additional 15%. tainers with an impact- tion, the main hall and For “boat 2004”, Schenker German rail network is specialist event in the gra- resistant covering, in order area in front of the Kiel transports, among others, 2 Hartmut Mehdorn and functioning well: 2003 was phics industry. to protect them from main train station are the “Oyster 82”, a luxury his counterpart, Süleyman once again characterized destructive temperature 3 As of World No-Smok- also re-opened with an sailboat weighing 65 tons, Karaman, sign an agree- by strong performance and humidity changes. ing Day 2004, DB has accompanying celebration. and attends to 400 other ment for strategic coopera- growth amongst non- 225 non-smoking train exhibitors. tion, with the main focus Group rail companies. 2 In another spectacular stations. In the meantime, on offering support to Companies are increasing- project, we transported this amount has been Turkey as it renews its ly taking advantage of historical treasures of the increased to over 1,000. rail system. the opportunities in the Foundation for Prussian German rail market. Cultural Heritage, includ- 4 Railion puts a trend- 3 European Social Part- ing silverware, works of setting, continuous, inter- ners for Rail Transport art and furniture, to their operable test freight train sign an agreement in Brus- new home in so-called on the tracks, in coop- 2 The most successful sels on pan-European “Climasafes”. eration with the Turkish, RegionalExpress Line in 3 DB’s heavy vehicle work and break times for Bulgarian, Romanian, Berlin and Brandenburg maintenance is made a traveling personnel, and 3 On the restored S-Bahn Austrian and Hungarian has been transporting separate legal entity in agree on a European driv- (metro) train-path, one of State Railways. passengers with its red order to strengthen the er’s license for locomotive the most important metro double-decker cars for market position of DB engineers with the goal of track sections in Berlin, 10 years. Fahrzeuginstandhaltung speeding up cross-border the trains are rolling again. in the area of traffic transport. The tracks have been 3 In cooperation with systems. equipped, among other Viva, the Lovetrain brings things, with modern signal music fans to Berlin for technology. the huge LoveWeekend celebration.

302 Deutsche Bahn Group | Annual Report 2004 Events

7 8 9 10 11 12

1 Our “Summer 1 Schenker is the offi- 1 Successful start of 1 High level of cus- 1 “November Sum- 1 Just about an hour Special” prices result cial logistics services operations for the new tomer satisfaction in the mer”: DB once again and a half: Hamburg – in a flood of customers provider at the Summer electronic interlockings first year of Surf&Rail extends a test drive Berlin in record time Olympic Games at the Leipzig main invitation 2 Schenker demon- 2 DB expands 2 City-Ticket station strates its competence 2 “Call-a-Bike” starts customer rights 2 The Friedewald expanded to 66 cities at large sporting events in Cologne, following 2 New, innovative hub celebrates its 3 Schenker develops 3 DB becomes a at the Soccer European Munich, Frankfurt and freight cars designed 10th birthday a concept for Audi national sponsor for Championship 2004 Berlin for transporting paper for inter-factory and 3 2nd Schenker the Soccer World Cup rolls 3 Successful signing 3 Opening celebration supplier transports Automotive Day in Germany in 2006 of a transport contract of the Wittenberge train 3 Schenker attends to 4 Dedication of the 4 Schenker awarded with VRR station the marathon runners combined facility in with DIN ISO certificate in Berlin Maschen for museum logistics

July August September October November December

1 We offer 30,000 tickets 1 In the area around the 1 We celebrate the 1 The opening of the per day at especially rea- Leipzig main train station, birthday of our online expansion line allows the sonable prices to our cus- one of the most powerful Surf&Rail service with ICE between Berlin and tomers between July 1 electronic interlockings a birthday week and Hamburg to reach the and August 31. The high (ESTW) in Europe goes additional offers. highest average speed be- acceptance from new into operation. Connecting tween two major German 2 Starting October1, our customers is particularly the ESTW requires the cities. The travel time is customers benefit from positive. 1 More than 350 cus- temporary closure of all 1 Following the tremen- reduced by 36 minutes. new regulations including tomers, including 50 tracks. dous success of our 2 At the Soccer European a legal right to compen- national Olympic commit- “Summer Special” prices, Championship in Greece 2 The Habbiins 344 sation for delays. With this tees, trust Schenker as we also have attractive in 2004, Schenker, one of marks the start of a new step, we expand on our their partner during the offers in November at the partners of the German car designed especially prior goodwill compensa- Summer Olympic Games bargain prices. Soccer Federation, sees for the safe transport of tion policies. in Athens. In total, over to it that everything the paper rolls. The cleverly 2 We celebrate the 10th 2,000 tons of air freight, 3 Schenker presents a German team and staff devised V-notch device birthday of one of our most 1,000 tractor-trailer unique logistics solution need is on location. allows sensitive paper rolls important European hubs. 2 The BahnCard’s City- shipments and over 100 for transports between to be transported with The Friedewald hub lies Ticket function is extended 3 In Düsseldorf, we sign freight trains make their the Audi factory in Györ/ greater safety. directly in the geograph- to 66 cities with the intro- a long-term transport way to Athens. Hungary and the German ical center of Germany. duction of the new time- contract with a duration factories, utilizing con- 2 The “cathedral city”, table. of 15 years with the ventional wagonload 3 Some 130 participants Cologne, becomes the Rhine-Ruhr transport transport and combined educate themselves about 3 As the official mobility fourth “Call-a-Bike” city association (VRR). transport. the current trends and and logistics services pro- in Germany. In the first strategies in automobile vider of the Soccer World month alone, over 1,200 logistics at the second Cup in Germany in 2006, customers register for the Automotive Day. we will utilize our entire bike rental system. 3 In organizing the sup- competency spectrum to 4 Following one and a 3 For 150 years, the ply logistics for the Berlin assist in this one-of-a-kind half years of construction Wittenberge train station Marathon, we provide over event. in Maschen, the pre- had 2 sides, a Berlin side 100 snow-white swap- existing repair shop for 4 With SCHENKERart, and a Magdeburg side. trailers and local transport freight car maintenance we are one of the few Following the completion trucks to form the longest is expanded, adding a new service providers in the of the restructuring, all rolling clothes closet in facility for locomotive delicate area of museum facilities are now contained the world for the athletes. maintenance and repair. logistics to hold a quality on the Berlin side. assurance (QS) certificate.

303 Our Internet Presence

In June 2004 we enhanced the web presence of Deutsche Bahn with a services of the Group. The “DB Group” section comprises Group Group portal. In addition to the popular travel portal www.bahn.de topics such as press, jobs and careers, as well as information on and the transport and logistics portal www.stinnes.de, we have es- environmental and social activities and an overview of the Group tablished the Group portal www.db.de, which is primarily focused divisions and major subsidiaries. on target groups such as Deutsche Bahn business partners, jour- The investor relations web presence of Deutsche Bahn is also nalists, investors, political opinion leaders and applicants. part of the new Group portal and is directly accessible at In the Group portal www.db.de with its themes “Traveling with DB”, www.db.de/ir-english. We will continue to gradually expand the “Transport&Logistics”, “Business with DB” and “DB Group”, the content of our internet presence and we already offer extensive Internet user is comprehensively informed about the Group and its information for current and potential investors as well as anyone services, offerings and engagements. As such, the section “Busi- interested in Deutsche Bahn’s operating development. ness with DB” provides an overview of the business-to-business

Imprint

Concept, Editing Typesetting Photography Deutsche Bahn AG, Investor Relations medienhaus:frankfurt, Deutsche Bahn Frankfurt/Main DB AG/Lautenschläger Production coordination/Consulting Mentor Werbeberatung Lithography DB AG/Schmid (p.20, p.157) H.-J. Dietz, Kelkheim Koch Lichtsatz und Scan, DB AG/Hartmann (p.165) Wiesbaden DB AG/Koch (p.165) Design concept DB AG/Kranert (p.302) Studio Delhi Printing DB AG/Bechtloff (p.303) Konzept und Design, Color-Druck, Leimen DB AG/Brettmann (p.303) Mainz Photography consulting DB AG/Reiche (p.303) Max Lautenschläger, Berlin

304 Further Information

Investor Relations Corporate publications, the Report of Phone: +49(0)30 297-61676 the Competition Ofﬁcer, and the Environ- Fax: +49(0)30 297-619 61 mental Report can be requested from E-Mail: [email protected] Corporate Communications: Internet: http://www.db.de/ir-english Fax: +49(0)30 297-62086 E-Mail: [email protected] Deutsche Bahn AG Internet: http://www.db.de/presse Investor Relations Potsdamer Platz 2 Deutsche Bahn’s hotline for general D-10785 Berlin telephone requests is available under Germany the telephone number +49(0)30297-0. 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.

195 mm Five-Year Summary

Deutsche Bahn Group Five-Year Summary

German German German German German GAAP GAAP GAAP GAAP GAAP in € million 20041) 2003 2002 2001 2000

Balance sheet Properties 2) 40,318 40,093 38,869 35,055 34,071 Financial assets 1,212 1,269 906 735 600 Fixed assets 41,530 41,362 39,775 35,790 34,671 Inventories 701 1,399 1,515 992 973 Accounts receivable and other assets3) 3,225 4,462 4,347 4,238 3,023 Cash and cash equivalents 742 265 271 363 394 Current assets 4,668 6,126 6,133 5,593 4,390 Prepayments and accrued income 150 159 115 579 406 Total assets 46,348 47,647 46,023 41,962 39,467

Equity 5,286 5,076 5,708 8,436 8,788 Special items 0 0 12 16 19 Provisions 14,087 14,691 14,834 14,302 14,167 Interest-free loans 5,665 7,512 7,726 7,324 6,714 Interest-bearing debt 14,020 12,731 11,051 6,993 5,463 Other liabilities 5,851 6,759 5,771 3,968 3,337 Liabilities 25,536 27,002 24,548 18,285 15,514 Accruals and deferred income 1,439 878 921 923 979 Total liabilities and shareholders’ equity 46,348 47,647 46,023 41,962 39,467

Statement of income Revenues 23,963 28,228 18,685 15,722 15,465 Overall performance 25,846 30,438 20,900 17,535 17,267 Other operating income 2,895 3,138 2,830 2,406 3,653 Cost of materials – 12,117 – 15,776 – 9,546 – 7,108 – 6,625 Personnel expenses – 9,576 – 10,337 – 8,387 – 7,487 – 8,475 Depreciation – 2,605 – 2,694 – 2,434 – 2,162 – 2,052 Other operating expenses – 3,378 – 4,316 – 3,358 – 3,282 – 3,436 Investment income 5 51 46 2 – 44 Net interest – 698 – 637 – 489 – 313 – 251 Income before taxes 372 – 133 – 438 – 409 37 Income after taxes 280 – 245 – 468 – 406 85

Other financial figures EBITDA4) before special burden compensation 3,509 3,092 2,021 1,433 1,264 EBITDA4) 3,509 3,092 2,464 2,271 2,492 EBIT5) 951 465 37 109 450 Operating income after interest 253 – 172 – 454 – 204 199 Cash ﬂow before taxes 3,011 2,600 2,052 1,786 2,113 Capital employed 6) 31,439 30,964 30,428 28,649 27,443 Gross capital expenditures 7,232 9,121 9,994 7,110 6,892 Net capital expenditures7) 3,244 4,013 5,355 3,307 3,250

21,5 mm 216 mm German German German German German GAAP GAAP GAAP GAAP GAAP 20041) 2003 2002 2001 2000

Key figures Fixed assets as % of total assets 89.6 86.8 86.5 85.3 87.8 Equity incl. special items in % of total assets 11.4 10.7 12.4 20.1 22.3 Return on capital employed (ROCE)(in%)8) 3.0 1.5 0.1 0.4 1.6 Cash ﬂow return on revenues (in %) 9) 12.6 9.2 11.011.413.7

Rail transport performance Passengers (in million) 1,694.9 1,681.7 1,657.2 1,701.7 1,712.5 Long-Distance Transport (115.3) (117.3) (128.4) (136.3) (144.8) Regional and Urban Transport (1,579.6) (1,564.4) (1,528.8) (1,565.5) (1,567.7) Passenger kilometers (in million pkm) 70,260 69,534 69,848 74,459 74,388 Long-Distance Transport (32,330) (31,619) (33,173) (35,342) (36,226) Regional and Urban Transport (37,930) (37,915) (36,675) (39,117) (38,162) Freight carried 10) (in million t) 283.6 282.3 278.3 291.3 301.3 Ton kilometers10) (in million tkm) 83,982 79,864 77,981 80,348 80,634 Total transport performance (in million ptkm) 154,242 149,398 147,829 154,807 155,022 Train kilometers (in million train-path km) 1,000.7 988.2 967.4 977.3 984.2

Employees Average 229,711 249,251 224,758 219,146 230,615 At year end 225,512 242,759 250,690 214,371 222,656

1) Figures according to German GAAP are pro forma figures 2) Including intangible assets 3) Including securities 4) Adjusted operating income before interest, taxes and depreciation 5) Adjusted operating income before interest and taxes 6) (Properties and intangible fixed assets) less Interest-free loans plus Net working capital 7) Gross capital expenditures less investment grants from third parties 8) Return on capital employed, defined as EBIT/Capital employed 9) Cash flow/Revenues 10 ) From 2001 on including Railion Danmark A/S

195 mm Deutsche Bahn AG Potsdamer Platz 2 D-10785 Berlin Germany www.db.de www.bahn.de Deutsche Bahn AGDeutsche Bahn Annual Report 2004

216 mm 21,5 mm