Annual Report 2012 Annual Report

The business year 2012 DFS Deutsche Flugsicherung GmbH, Langen

Report of the Supervisory Board

In the 2012 business year, the Supervisory Board performed its functions as prescribed by law and the Articles of Association. It regularly advised and monitored the Board of Managing Directors and was comprehensively involved in decisions of fundamental importance to the company.

In its work, the Supervisory Board was supported by three committees: an audit, a personnel and a project committee. These committees met to intensively discuss decision papers and to prepare resolutions for the Board’s plenary meetings.

In the 2012 business year, the composition of the Supervisory Board underwent several changes. On the Shareholder side, Hans-Dieter Poth retired from the Supervisory Board with effect from 27 April 2012. He was succeeded by Ralf Raddatz on 28 April 2012. Professor Klaus-Dieter Scheurle resigned with effect from 18 September 2012. He was succeeded by Michael Odenwald on 27 Sep- tember 2012. On 25 October 2012, Dr Martina Hinricher succeeded Rainer Münz, who had resigned from his position with effect from 30 September 2012.

At its 80th meeting on 9 October 2012, the Supervisory Board elected the State Secretary Michael Odenwald as its Chairperson.

In addition to comprehensive quarterly reports, the Board of Managing Directors reported to the Supervisory Board on the situation and development of the company in accordance with Article 90 of the German Stock Corporation Law (AktG) at four ordinary and three extraordinary meetings. More over, the Board of Managing Directors provided the Supervisory Board with ad hoc information about important issues.

In addition to the regular deliberations on the quarterly reports on the situation of the company, the Supervisory Board dealt with the following topics: ■ the 2011 annual financial statements, management report and audit report on the 2011 annual financial statements and ■ the economic plan for the years 2013 to 2017 with the associated investment and financial plan.

At three extraordinary meetings, the Supervisory Board discussed the restructuring of the distribution of responsibilities among the DFS Managing Directors on the basis of the Shareholder resolutions and decided on the changes in the Board of Managing Directors.

Furthermore, the Supervisory Board addressed the following key issues: ■ replacement investments in the air traffic management systems in the control centres handling lower airspace within the scope of the P2 programme, ■ new planning of the system project iCAS upper airspace, ■ renewal of the intercom systems, ■ securing the liquidity of DFS, ■ compliance management system, ■ and the cost-cutting programme HEADING 2012.

4 The employment contracts of the Managing Directors Dieter Kaden, Ralph Riedle and Jens Bergmann expired on 31 Decem- ber 2012. The Supervisory Board praised their contribution to the success of the company.

The Supervisory Board paved the way for the future and in 2012 decided on the successors to the Managing Directors. As of 1 September, the separate directorate Human Resources Michael Odenwald was established and Dr Michael Hann was appointed Managing Director Human Resources and Labour Director. With effect from 1 January 2013, the Supervisory Board appointed Prof Klaus-Dieter Scheurle as the new CEO and Chairman of the Board of Managing Directors and also assigned him the responsibility for Finance. Robert Schickling, formerly Director of the Business Unit Control Centre at DFS, took over the responsibility for operations and engineering with effect from 1 January 2013. The Supervisory Board is convinced that with this new management DFS is well prepared for the upcoming challenges posed by the difficult situation of the air transport industry and the increasing number of regulatory requirements.

The Supervisory Board discussed the 2012 financial statements and the management report with the assistance of the audit report prepared by the auditors RBS RoeverBroennerSusat GmbH & Co. KG in accordance with Article 53 of the German Budgetary Principles Act (HGrG). The comprehensive risk management system established in the company was included in the audit. The auditors participated in the discussions and answered questions, giving an account of the key results of their report. The Supervisory Board found no exceptions to be taken against the audit report and findings submitted by RBS RoeverBroennerSusat GmbH & Co. KG Wirtschaftsprüfungsgesellschaft.

The Supervisory Board would like to thank the former Board of Managing Directors, all members of staff and the staff councils for their work in the 2012 business year and for their dedication to the company.

The Supervisory Board

Michael Odenwald Chairman

5 DFS Deutsche Flugsicherung GmbH, Langen

Members of the Supervisory Board

Chairman Michael Odenwald Holger Müller State Secretary DFS Deutsche Flugsicherung GmbH Federal Ministry of Transport, Building Employee representative and Urban Development Ralf Raddatz Deputy Chairman Colonel (G.S.) Michael Schäfer Federal Ministry of Defence DFS Deutsche Flugsicherung GmbH Employee representative Petra Reinecke DFS Deutsche Flugsicherung GmbH Otto Fischer Employee representative DFS Deutsche Flugsicherung GmbH Employee representative Peter Schaaf DFS Deutsche Flugsicherung GmbH Dr Martina Hinricher Employee representative Ministerialdirigentin Federal Ministry of Transport, Building Martin Walber and Urban Development Regierungsdirektor Federal Ministry of Defence Dr Norbert Kloppenburg Member of the Executive Board Dirk Wendland KfW Bankengruppe DFS Deutsche Flugsicherung GmbH Employee representative Dr Angelika Kreppein Regierungsdirektorin Correct at December 2012 Federal Ministry of Finance

6 Members of the Advisory Council

Chairman Jan Mücke Dirk Fischer Paul Riemens Parliamentary State Secretary Member of Parliament Chief Executive Officer Federal Ministry of Transport, Building German Bundestag LVNL – Air Traffic Control and Urban Development the Netherlands Member of Parliament Dr Christoph Franz German Bundestag Chairman of the Executive Board Dr Stefan Schulte Deutsche Lufthansa AG Chairman of the Executive Board Christine Alig Fraport AG Chairperson Prof Dr Elmar Giemulla BARIG Board of Airline Representatives President Ulrich Schulte-Strathaus in Germany e.V. Aircraft Owners and Pilots Association Managing Director AOPA Germany Aviation Strategy & Concepts SPRL Uwe Beckmeyer Member of Parliament Winfried Hermann Wolfgang Stertenbrink German Bundestag Minister Chairman of the Supervisory Boards Ministry of Transport and Infrastructure ALTE LEIPZIGER - HALLESCHE Group Markus Beumer Baden-Württemberg Member of the Board of Managing Directors Hans Joachim Suchan Commerzbank AG Karl Müllner Administrative Director Lieutenant General Zweites Deutsches Fernsehen, 3sat Christoph Blume Chief of Staff, Air Force and ARTE President Federal Ministry of Defence ADV – German Airports Association e.V. Ralf Teckentrup Ralf Nagel President of the Executive Board Charles-Louis d´Arenberg Managing Director of the Executive Board Condor Flugdienst GmbH Chairman of the Board German Shipowners’ Association (VDR) Belgocontrol Daniel Weder Eduard Oswald Chief Executive Officer Patrick Döring Former Federal Minister skyguide swiss air navigation services ltd Member of Parliament Vice-President of the German Bundestag German Bundestag Permanent guest Michael Odenwald Wolfgang Faden Dr Karl-Friedrich Rausch Chairman of DFS Supervisory Board Chief Executive Officer Germany & Central Member of the Board of Management Ministry of Transport, Building and Urban Europe for Transport and Logistics Development Allianz Global Corporate & Specialty AG DB Mobility Logistics AG Correct at December 2012

7 DFS Deutsche Flugsicherung GmbH, Langen

Group management report

1. Business and framework conditions...... 9 2. Corporate strategy...... 14 3. Corporate management and segments...... 14 4. Economic environment...... 16 5. Results of operations...... 19 6. Assets and financial position...... 26 7. Personnel...... 32 8. Research and development activities...... 34 9. Supplementary report...... 35 10. Compliance...... 36 11. Risk report...... 36 12. Outlook...... 44

Group financial statements

Annex 1: Group statement of comprehensive income...... 52 Annex 2: Group balance sheet...... 53 Annex 3: Group statement of changes in equity...... 54 Annex 4: Group cash flow statement...... 55 Annex 5: Notes (group)...... 56 General basis...... 56 Accounting policies...... 58 Notes to the statement of comprehensive income...... 75 Notes to the balance sheet...... 83 Additional disclosures...... 103 Acronyms and abbreviations...... 130

8 Group management report 2012

Group management report for the business year ended 31 December 2012

1. Business and framework conditions 1.1 Business activities

Overview of the business activities of DFS

Main business Commercial services (Control Centre, Tower and AIM) (AS)

Air navigation services under Article ■ Projects 27c German Aviation Act (LuftVG) ■ Consulting ■ Air traffic services ■ Publications ■ Air traffic flow management ■ Apron management ■ Management of airspace utilisation services ■ Aeronautical information services ■ Training

Financed by air navigation charges Commercial business

The main business of air navigation services provided by DFS Deutsche Flugsicherung GmbH is defined by the tasks set out in Article 27c of the German Aviation Act (LuftVG). Under this act, DFS is entrusted with providing air traffic services, air traffic flow management as well as with managing airspace utilisation (sovereign task). For this purpose, it develops and operates air traffic service systems as well as communications, navigation and surveillance systems. DFS operates control centres in Langen, Bremen, Karlsruhe and Munich as well as 16 control towers at international airports in Germany. In addition, DFS is represented at the EUROCONTROL Control Centre in Maastricht, the Netherlands. Through these activities, DFS ensures that approximately three million flights under instrument flight rules (IFR) reach their destinations safely and on time each year.

As payment for its main business, DFS levies air navigation charges. These charges are set by means of a charging ordinance from the Federal Ministry of Transport, Building and Urban Develop- ment.

DFS also provides commercial services for third parties on the free market (i.e. not financed by air navigation charges). These commercial services comprise project work for national and international air navigation service providers, consulting services, aeronautical publications, apron management services as well as the training services offered by the DFS Academy.

9 Group management report 2012

The main business and the commercial business are grouped into four business units:

DFS Business Units

Aeronautical Aeronautical Control Centre Tower Information Solutions Management

Air traffic control Air traffic control Aeronautical Simulations, training for the terminal and at international information service and consulting airports and provision services as well en-route areas of aeronautical as marketing information and of aeronautical data information products

The business units are complemented by corporate service centres and corporate development centres. The corporate service centres are in charge of central services, thus acting as service providers to the business units. They focus on management processes and on preparing decisions to be taken by management.

1.2 Structure of the Group

DFS Deutsche Flugsicherung GmbH Wholly owned by the Federal Republic of Germany

100% 100% 100% 100% 55% Unterstützungs- The Tower DFS Energy GmbH DFS European FCS Flight

Calibration Services kasse GmbH Compan y Satellite Services Provider GmbH Beteiligungsges. mbH (DFS U-Kasse) (TTC) (DFS Energy) (DFS ESSP) (FCS)

36% 24.9% GroupEAD BILSODA Europe S.L. GmbH & Co KG

(GEAD) (BILSODA)

50% 16.667%

Tower Air Trafﬁc European Satellite

Services S.L. Services Provider

Société par Actions

(TATS) (ESSP SAS)

10 Additional activities provided in the DFS Group

DFS Unterstützung- Payment of grants in exceptional emergencies to active and former employ- skasse GmbH (Benev- ees of DFS and their dependants. olent fund/U-Kasse) The Tower Company Development, provision and conduct of air navigation services (at regional GmbH (TTC) airports) as well as the provision of other services, especially apron management services as well as the coordination of ground handling and meteorological observations. DFS Energy GmbH Generation, provision and sale of energy for DFS and a fixed group of external (DFS Energy) customers.

DFS European Satellite Management, holding, administration and financing of investments in other Services Provider subsidiaries that develop and provide services on the air transport market, GmbH the further development of the air transport market as well as supporting (DFS ESSP) and promoting DFS in its tasks. FCS Flight Calibration Operation of an air transport company for the transport of third parties and Services GmbH their material for the flight inspection of navigation aids as well as services, (FCS) developments and support of all kinds for the conduct of flight inspections. Group EAD Europe Operation of a database of aeronautical information for the provision of aero- S.L. nautical data and associated services.

BILSODA GmbH & Co. Construction, rental, operation and administration of a parking structure KG (BILSODA) for DFS.

The contents of this group management report relate to DFS only, as the subsidiaries neither individually nor collectively exceed quantitative thresholds or display qualitative characteristics that materially impact the net assets, financial position and results of operation of DFS.

1.3 Legal and organisational framework conditions In 1993, DFS was entrusted with the tasks of the Federal Administration of Air Navigation Services (BFS). The headquarters of DFS is located near Frankfurt, in Langen, Am DFS-Campus 10. The company is registered under HRB 34977 on the Commercial Register at the local district court in Offenbach.

The object of the company is the development, provision and execution of the air navigation services assigned to it by the Federal Ministry of Transport, Building and Urban Development. The company can provide air navigation services in Europe as well as carry out related sideline activities in Germany and abroad. The sole shareholder is the Federal Republic of Germany.

The management organisation is based on the distribution of responsibilities among the DFS Man- aging Directors.

11 Group management report 2012

Until 31 August 2012, the Board of Managing Directors was made up of a Chairman and two other Managing Directors.

Distribution of responsibilities among the DFS Managing Directors until 31 August 2012

Chairman and CEO Managing Director Operations Managing Director Finance and Human Resources – Labour Director – ■ Corporate development (strategy, ■ Area and approach control services ■ Finance (incl. taxes and charges) organisation, international affairs) (incl. product management ATS ■ General administration (controlling) ■ Institutional and legal affairs, systems) ■ Procurement insurance, risk management ■ Aerodrome control services ■ Human resources management ■ Safety and security management (incl. product management ATS ■ Human resources strategy and systems systems) development ■ Auditing, quality management ■ Flight information service, alerting ■ Collective bargaining ■ Corporate communications, public service ■ DFS Academy relations, environment ■ Provision of aeronautical informa- ■ Communication, navigation and tion and data, aeronautical infor- surveillance services (incl. system mation service (incl. ATS systems) management ATS systems for ■ Research and development area, approach and aerodrome ■ Military affairs control services), logistics ■ Technical and infrastructural facility management ■ Systems House (business and administrative information technology) ■ Consulting services

DFS reorganised the distribution of responsibilities among the Managing Directors in two steps. This was done to increase efficiency through the optimised allocation of responsibilities and reporting lines.

The company set up the independent Directorate Human Resources and transferred this unit out of the Directorate Finance and Human Resources.

From 1 September until 31 December 2012, the business was represented by four Managing Directors (including the Chairman).

12 Distribution of responsibilities among the DFS Managing Directors from 1 September to 31 December 2012

Chairman of the Managing Director Managing Director Managing Director Board of Managing Operations Finance Human Resources Directors – Labour Director – ■ Corporate development ■ Area and approach ■ Finance (incl. taxes and ■ Personnel services, (strategy, organisation, control services (incl. charges) personnel administration international affairs) product management ■ General administration (incl. staff planning) ■ Institutional and legal ATS systems) (controlling) ■ Initial and continuation affairs, insurance, risk ■ Aerodrome control ■ Procurement training, Academy management service (incl. product ■ Payroll accounting ■ Safety and security management ATS ■ Payroll & associated management systems systems) services (pension ■ Auditing, quality manage- ■ Flight information ser- provision) ment vice, alerting service ■ Collective bargaining ■ Corporate communica- ■ Provision of aeronautical (strategies and policies) tions, public relations, information and data ■ Social and health environment including aeronautical management ■ Communication, naviga- information service (incl. ■ Industrial safety/acci- tion and surveillance ATS systems) dent prevention services (incl. system ■ Research and develop- management ATS sys- ment tems for area, approach ■ Military affairs and aerodrome control services), logistics ■ Technical and infrastructural facility management ■ Systems House (business and administrative information technology) ■ Consulting services

As of 1 January 2013, Finance was assigned to the Directorate under the CEO.

From 2013, the business was again run by three Managing Directors (including the Chairman) with a new distribution of responsibilities.

Distribution of responsibilities among the DFS Managing Directors from 1 January 2013

Chairman and CEO Managing Director Operations Managing Director Human Resources – Labour Director – ■ Strategy, organisation, interna- ■ Air traffic services ■ Human resources strategy tional affairs ■ Airspace management ■ Collective bargaining (strategies ■ Institutional and legal affairs, ■ Air traffic flow management and policies) insurance, risk management, ■ Aeronautical information service ■ Staff planning, human resources compliance ■ Communication, navigation and management ■ Safety and security management surveillance services ■ Human resources development, systems ■ Product/system management for initial and continuation training, ■ Auditing, quality management technical systems, logistics Academy ■ Corporate communications, public ■ Research and development ■ Payroll accounting relations, environment ■ Military affairs ■ Compensation and incentive ■ Finance incl. taxes and charges ■ Technical and infrastructural systems ■ General administration facility management ■ Occupational pensions ■ Procurement ■ Development of ATM systems ■ Social and health management ■ Consulting services and system and business and administrative ■ Industrial safety, accident prevention deliveries information technology ■ Labour law, collective bargaining

13 Group management report 2012

The Board of Managing Directors is supported by a fifteen-strong Management Committee. The Management Committee is made up of members of the executive management level.

The Supervisory Board of DFS comprises 12 members, six appointed by the Shareholder and six elected by the employees.

2. Corporate strategy DFS is committed to delivering an outstanding level of performance at a first-class safety level. The services the company provides are tailored to the differing needs of our customers and are provided in a sustainable, environmentally friendly manner. As a certified provider of air navigation services for complex airspaces and airports, DFS contributes to enhancing the performance of the air transport system. DFS offers challenging work for aviation enthusiasts and innovative people from around the world seeking the opportunity to shape the future of air transport. (DFS Vision)

Strategic planning at DFS is aligned with the DFS vision and its long-term focus. Group and business segment strategies are adjusted annually and implemented in a consistent manner in a rolling strategic planning process if an intensive and comprehensive environmental analysis and an inves- tigation of market chances show that the framework conditions have changed. Strategic planning gives us stability and orientation against the background of the changes that the company will face in the coming years. These changes include the creation of functional airspace blocks, economic regulation and the harmonisation of air traffic management systems in terms of interoperability. All of these elements mean that air navigation services are increasingly taking on a European dimen- sion.

DFS focuses on two group goals; a market goal and financial goal by ■ actively strengthening its position as an air navigation service provider within the expected consolidation in Europe through the Single European Sky project (see 12.1.1) and by shaping this change process, thus extending its market position; ■ boosting its profitability and creating the required financial room to manoeuvre in order to grow internationally.

3. Corporate management and segments Corporate management at DFS is based on the strategy, the requirements of the business financed by air navigation charges and the commercial business as well as the organisational structure of DFS. This forms the structural foundation for segmental reporting.

DFS divides its business activities between the “Segment financed by air navigation charges” and “All other segments”.

14 Segment financed by air navigation charges: All other segments

En-route services Terminal services Commercial business

■ Until the end of 2011: ■ Until the end of 2014: Full cost recovery Full cost recovery Investments

■ From 2012 onwards: ■ From 2015 onwards: Financial transactions Economic regulation Economic regulation not impacting air navigation charges Germany Germany World

3.1 Segment financed by air navigation charges The segment financed by air navigation charges is the focus of the main business in Germany (see 1.1). It is divided into the material units en-route services and terminal services, which fall under the responsibility of the business units Control Centre and Tower and their technical support units.

3.1.1 Regulated sub-area: En-route services Within the scope of the passing of the Single European Sky (SES) II package, EU Regulation 691/2010 and EU Regulation 1191/2010 introduced a performance scheme for air navigation services and network functions from 1 January 2012. EU Regulation 691/2010 lays down a performance scheme for air navigation services and network functions (formerly EC Regulation 2096/2005) and EU Regulation 1191/2010 lays down a common charging scheme for air navigation services (formerly EC Regulation 1794/2006). The core elements of these Regulations are European and national requirements covering safety, environment, capacity and cost-efficiency. For the first reference period, target values have been laid down in the performance plan (capacity and environment) for the Functional Airspace Block Europe Central (FABEC) and for the German contribution to the performance plan (cost-efficiency performance area). The charges to be levied are laid down for one reference period by the respective national supervisory authority based on the EU regulations. The first period covers 2012 to 2014. In Germany, the Federal Supervisory Author- ity for Air Navigation Services (BAF) is the national supervisory authority. Planning and control is carried out using cost targets and non-monetary indicators.

3.1.2 Non-regulated sub-area: Terminal services Terminal services will continue to be subject to the existing system of full cost recovery until the end of 2014. The calculation of charges results in operational over- and under-recoveries for the business year that are carried forward as liabilities or receivables into future periods (business year + 2) and offset when calculating charges for airspace users. Over-recoveries reduce the future basis for billing, while under-recoveries increase it. Planning and control is carried out using cost targets and non-monetary indicators.

15 Group management report 2012

3.2 All other segments This segment covers the activities that are not individually reportable as they are below the quantitative thresholds. These activities primarily involve commercial services, investments and financial transactions that do not impact air navigation charges. Commercial services are offered globally. In contrast to the business financed by air navigation charges, the activities under all other segments are not subject to economic regulation or full cost recovery. Commercial services make up the major component of all other segments. Planning and control is conducted by means of contribution margins and the return on sales with the goal of strengthening the equity position of DFS.

Intersegment transactions are conducted at arm’s length conditions and prices (see Note 30).

3.3 Planning and control The DFS Board of Managing Directors continuously monitors the results of the group produced by the individual operating segments and group companies. The external and internal requirements form the basis for the targets for the organisational units (business units, corporate service centres and corporate development centres).

For planning and control, a system of financial indicators has been developed. The relevant financial indicators are not always based on IFRS. The financial target system defines indicators for cost targets, liquidity, leverage and equity, which are monitored by comparing planned and actual figures (monthly and annually).

Planning and control also uses non-monetary indicators, such as from the traffic forecast. In addition, safety and air traffic control capacity are continually measured: safety by infringements of separation, and ATC capacity with the help of punctuality indicators, for example. These allow these areas to be managed.

The reporting system informs the Board of Managing Directors and business unit management each month and, if necessary, ad hoc at both the business unit and product level in the form of (indicator) reports.

Furthermore, minimum requirements have been defined which have to be considered before decisions are made by the Board of Managing Directors – as necessary, after consultation with the Management Committee – and before initiating measures that could impact the indicators.

4. Economic environment 4.1 Overall economic situation At 2.3 percent, the 2012 global economy showed the third-lowest growth rate of the last ten years. The main reason for this restrained growth is the continuing economic crisis in the industrial countries which is slowing global growth.

16 In 2012, the price-adjusted gross domestic product (GDP) grew by 0.7 percent compared with the previous year according to the provisional calculations of the Federal Statistical Office. In the previous two years, the GDP grew more strongly by 4.2 percent in 2010 and 3.0 percent in 2011.

According to the current results from the Federal Statistical Office (Destatis), net lending amounted to approximately €4.2 billion in 2012. As a share of gross domestic product, this amounted to +0.2 percent for the State. For the first time in five years, the State was in a net lending position.

According to Destatis, the German economy proved itself to be resilient in a difficult economic environment and robust in the face of the European recession. However, the German economy suffered a setback at the end of 2012: in the fourth quarter of 2012, GDP declined by 0.6 percent compared with the previous quarter after adjusting for price, seasonal and calendar effects. At 41.6 million, the number of gainfully employed persons reached a new high in 2012 for the sixth year in succession.

In addition, overall economic risks and the pressure to consolidate public finances in almost all industrial countries means that the economy is expected to grow only slightly in 2013.

4.2 Development of air traffic The global and national environment continues to remain challenging for airlines. Traffic is being negatively impacted by political unrest in North Africa and the Middle East as well as the continued stagnation of the European economy. Against the background of sustained high kerosene prices, the bank and sovereign debt crises are causing economic uncertainty.

The inclusion of aircraft emissions in the emissions trading, as decided by the European Commis- sion, means a further change in the framework conditions. Since 2012, the airlines have been included in a European Union trading system that requires the purchase of certificates for the airlines’ emissions of carbon dioxide. Roughly 30 countries have rejected the EU system as an “extra- territorial application” of national law as the calculation includes those parts of the flight to Europe not conducted in European airspace. The European Commission is pushing for a global solution to avert threatened economic restrictions.

In Germany, the air transport tax has been in force since the beginning of 2011. This law (Luftverkehrssteuergesetz – LuftVStG) governs the levying of a tax that passengers are liable to pay when departing from a German airport. Proceeds from this tax for the Federal Government amounted to €961 million in 2011. Despite a slight reduction in the rate of this tax, proceeds are expected to come in at the same level for 2012. Overall, this passenger-based air transport tax increases the costs for the entire air transport industry. An expert appraisal from the German Fed- eral Ministry of Finance stated that around two million more passengers per year would have flown to/from Germany if this tax had not been in force. According to the expert appraisal, the costs of flights rose by 2.3 percent because of the tax.

17 Group management report 2012

In Germany, citizens are reacting in an increasingly sensitive manner to noise disturbance caused by air traffic. The night curfews at Frankfurt Airport, the referendum against the third runway at Munich Airport and the renewed postponement of the opening of the new airport in Berlin are dampening national economic impulses.

The airlines are reacting with strict cuts in expenditures and have initiated comprehensive multi- year cost-cutting programmes, including reductions in aircraft fleets and the cancellation of routes.

As a consequence of competitive pressures, the trend to consolidation and concentration and global airline alliances is continuing. Lufthansa German Airlines AG is negotiating with Turkish Air- lines on a partnership and is currently reorganising its short- and medium-haul network in Europe. While Lufthansa intends to concentrate on its long-haul business from its home bases in Frankfurt and Munich in the future, its subsidiary Germanwings will operate all direct flights outside of these two hubs. This will strengthen Germanwings in the low-cost segment. Oneworld alliance was the first large alliance to welcome one of the Arab airlines, Qatar Airways, into its ranks. Qatar Airways, as a new member, should strengthen the cooperation among airlines, such as British Airways, Ibe- ria and Air Berlin. The SkyTeam alliance, to which the French-Dutch Air France-KLM airline alliance belongs, has connected its route network with Germany’s second-largest airline Air Berlin and their major shareholder Etihad Airways.

In Germany, these developments led to a reduction of 2.2 percent in the number of civil IFR flights in 2012 compared with the previous year. The volume of civil traffic declined by 2.0 percent over the previous year, while military air traffic saw 10.3 percent fewer flights.

IFR flights in Germany 2012 2011 Total 2,993,866 3,060,225 Compared with previous year (%) -2.2 +3.0

With a share of only 11.7 percent (2003: 16.8 percent), the number of domestic flights declined, while the share of overflights, at 36.1 percent, and entries and exits, at 52.2 percent, increased.

18 Distribution of IFR flights (%)

2012 11.7 52.2 36.1 Domestic flights

Flights arriving in 2011 12.3 51.8 35.9 or departing from Germany

Overflights 0% 20% 40% 60% 80% 100%

5. Results of operations 5.1 Service units and unit rates 5.1.1 En-route services For en-route services, a service unit is computed as the square root of the weight factor multiplied by the distance factor. The economic value of each flight conducted is taken into account so that the value of the air traffic control service performed is considered by the legislator when establish- ing the relevant air navigation charges.

Definition of service units: En-route:

max. take-off weight in tonnes distance in km x 50 100

The amount to be paid by the airspace user is given by multiplying the service unit by the unit rate.

Development of service units – en-route 2012 2011 Total 12,442,470 12,657,524 Compared with previous year (%) -1.7 +3.7

The national unit rate for en-route charges comprises air-traffic-related cost elements of DFS, the German Meteorological Service (DWD), EUROCONTROL, the Maastricht Control Centre, the national supervisory authority (Federal Supervisory Authority for Air Navigation Services – BAF) and the Air Navigation Services Division of the Federal Ministry of Transport, Building and Urban Development. The development of service units in 2012 remained below the forecast fixed in the performance plan, as the overall economy has suffered significantly since it was drawn up.

En-route unit rate (€) 2013 2012 2011 2010 2009 2008 Total 76.50 74.19 71.84 68.86 67.02 64.77 DFS share 63.22 60.41 58.24 54.39 53.30 51.29 Compared with previous year +3.1 +3.3 +4.3 +2.7 +3.6 -3.6 (total, in %)

19 Group management report 2012

In 2012, the national unit rate for en-route services rose by around 3.3 percent due to the increased number of operational staff undergoing initial training, rising costs for remuneration from collective agreements and occupational pensions. The rise from 2013 results primarily from the under-recovery from 2011, which was attributed to the slowdown in traffic. The DFS share of the en-route unit rate amounts to approximately 81 percent.

5.1.2 Terminal services For terminal services, a service unit is the quotient obtained by dividing by fifty the maximum take- off weight, expressed as a figure taken to two decimal places, to the power of 0.7.

Definition of service units: Terminal services: 0.7 max. take-off weight in tonnes 50

The amount to be paid by the airspace user is given by multiplying the service unit by the unit rate for terminal services.

Development of service units – terminal services 2012 2011 Total 1,310,562 1,327,797 Compared with previous year (%) -1.3 +4.4

The unit rate for terminal services comprises air-traffic-related cost elements of DFS, the German Meteorological Service (DWD), the national supervisory authority (Federal Supervisory Authority for Air Navigation Services (BAF), and the Air Navigation Services Division of the Federal Ministry of Trans- port, Building and Urban Development, in keeping with the EU regulations concerning the provision of air navigation services. In 2012, the development of service units remained below the forecast.

Terminal unit rate (€) 2013 2012 2011 2010 2009 2008 Total 181.99 171.29 163.05 162.54 167.78 162.34 DFS share 175.84 165.70 155.76 154.33 160.80 154.24 Compared with previous year +6.2 +5.1 +0.3 -3.1 +3.4 +1.4 (total, in %)

The 2012 unit rate for terminal services rose by 5.1 percent compared with the previous year. The material components influencing this were the increased numbers of operational staff undergoing initial training, the higher costs for salaries resulting from collective agreements concluded and from occupational pensions. The DFS share of the unit rate for terminal services amounts to approximately 97 percent.

There are two main factors responsible for the rise starting in 2013. Firstly, traffic in 2011 was below expectations. Secondly, material costs, such as energy costs, rose and the costs for staff

20 and occupational pensions rose more strongly than assumed in the planning process. DFS will not be able to fully offset the under-recovery from 2011 in 2013. Instead, the under-recovery will be evenly distributed over the years 2013, 2014 and 2015 in accordance with the directive issued by the Federal Supervisory Authority for Air Navigation Services (BAF). (More information can be found in the Outlook under 12.2.2.2).

5.2 Revenues In the business year 2012, DFS generated revenues of €1,101.3 million. Revenues rose compared with the previous year despite the decline in flight movements, but remained below the forecast.

Revenues (€m) 2012 2011 2010 2009 2008 Total 1,101.3 1,070.3 977.7 977.8 914.6 Compared with previous year (%) +2.9 +9.5 +/-0.0 +6.9 +1.2

Revenue breakdown (%) (includes result contribution from netting over-/under-recovery)

Government reimbursements for Government Other air navigation exempted flights services reimbursements 0.59% for military flights 0.67% 5.18% Other revenues 1.85% Netting over-/ under-recovery 3.54%

Terminal services En-route services 19.76% 68.41%

Revenues from air navigation services increased from €1,050.2 million to €1,080.9 million after netting the 2010 over-recovery (€12.8 million) and taking into account the 2012 under-recovery (€26.2 million, including the carry-over from the en-route area).

Revenues from en-route charges (€m) 2012 2011 2010 2009 2008 Total 753.4 739.1 665.3 629.9 649.9 Compared with previous year (%) +1.9 +11.1 +5.6 -3.1 -0.7

21 Group management report 2012

Revenues from terminal charges (€m) 2012 2011 2010 2009 2008 Gross 218.3 207.4 196.8 188.9 194.0 Reimbursements paid 1 (0.7) (0.6) (0.5) (7.7) (9.5) Net 217.6 206.8 196.3 181.2 184.5 Compared with previous year (net, in %) +5.2 +5.3 +8.3 -1.8 +3.7

1 Since 2010, the air-traffic-related cost elements of the German Meteorological Service (DWD) have no longer been considered in the revenues of DFS. The air-traffic-related cost elements of the Federal Supervisory Authority for Air Navigation Services (BAF) remain.

The rise in revenues from en-route and terminal charges in 2012 is primarily a result of the increase in the unit rate, which implements the higher cost-base. This was in part offset by the development of the service units, which remained below the forecast.

Revenues from government reimbursements (€m) 2012 2011 2010 2009 2008 Military operational air traffic 57.1 57.7 55.4 60.8 57.7 Exempted flights 6.5 6.5 6.5 6.5 5.5 Total 63.6 64.2 61.9 67.3 63.2 Compared with previous year (%) -0.9 +3.7 -8.0 +6.5 +2.4

Reimbursements for military flights contain services from the Maastricht unit. The exempted flights relate to en-route flights under visual flight rules.

Revenues from other air navigation services (€m) 2012 2011 2010 2009 2008 Aeronautical publications 3.3 3.6 2.8 2.9 2.9 Flight inspection services 3.0 3.1 2.9 2.5 2.3 Other air navigation services 1.1 0.9 0.4 0.3 0.2 Total 7.4 7.6 6.2 5.7 5.4 Compared with previous year (%) -2.6 +22.6 +8.8 +5.6 -8.5

Other revenues (€m) 2012 2011 2010 2009 2008 Total 20.4 20.1 18.2 17.2 22.4 Compared with previous year (%) +2.0 +10.4 +5.8 -23.2 +15.5

DFS generated other revenues primarily from consulting and staff services, apron management services and training services.

22 Within other air navigation services and other revenues, commercial services made up roughly 85.6 percent, generating revenues of €23.8 million (previous year: €22.7 million), exceeding the planning forecast.

5.3 Other operating income

Other operating income (€m) 2012 2011 2010 2009 2008 Total 77.8 38.4* 29.7 33.1 54.4 Compared with previous year (%) +102.6 +29.3 -10.3 -39.2 +59.5

* Due to a reclassification, the disclosures are not directly comparable with the previous years.

The rise in other operating income is primarily due to a special item from the QTE transaction. Due to the end of the principal contracts and the transfer of the remaining shell structure (see 11.3.2.4), the deferral of the net present value benefit generated at the start of the transaction has been completely reversed in the income statement.

Material components: ■ QTE transaction (€52.2 million) ■ Project-specific funding by the European Commission (€7.2 million) ■ Derecognition of liabilities (€5.3 million) ■ Reimbursement of costs of the business year and of previous years (€4.8 million) ■ Benefits-in-kind (€3.0 million) ■ Asset disposals (€1.8 million) ■ Reversal of provisions (€0.8 million)

5.4 Principal cost categories

Employee expenses (€m) 2012 2011 2010 2009 2008 Total 789.1 701.9 625.8 608.1 590.0 Thereof wages and salaries 586.1 550.3 527.6 485.7 462.2 Thereof social security costs and expenses 177.2 130.2 78.7 96.0 102.4 for pensions and assistance

Thereof cost of personnel belonging to the 25.9 21.3 19.5 26.4 25.4 Federal Aviation Office (LBA) Share of total costs (%) 75.5 72.5 71.4 70.4 69.7 Compared with previous year (%) +12.4 +12.2 +2.9 +3.1 +6.4

The change compared with the previous year is primarily attributed to the change in the discount rate for occupational pensions, the impact of the collective agreements concluded for remuneration, grading and allowances in 2011 as well as the growth in the number of air traffic control trainees undergoing initial training. The change largely reflects the plan.

23 Group management report 2012

Interest of €107.2 million accruing from provisions for pensions and early retirement is charged to the financial result. The return on plan assets (€67.0 million) is credited to the financial result.

Other operating expenses (€m) 2012 2011 2010 2009 2008 Total 144.0 155.0* 144.9 133.8 142.8 Share of total costs (%) 13.8 16.0 16.5 15.5 16.9 Compared with previous year (%) -7.1 +7.0 +8.3 -6.3 +5.3

* Due to a reclassification, the disclosures are not directly comparable with the previous years.

Material components: ■ Spare parts and maintenance (€37.4 million) ■ Occupancy costs (€22.3 million) ■ Legal and consultancy costs (€13.3 million) ■ Costs of external personnel (€12.4 million) ■ Rental and leasing (€12.3 million) ■ Other employee expenses (€9.6 million) ■ Telecommunication costs (€8.6 million) ■ Travel costs (€7.6 million) ■ Vehicle costs (€3.3 million)

Depreciation and amortisation (€m) 2012 2011 2010 2009 2008 Total 105.0 102.5 100.8 116.3 109.5 Share of total costs (%) 10.0 10.5 11.5 13.5 12.9 Compared with previous year (%) +2.4 +1.7 -13.3 +6.2 -10.6

In 2012, no impairment losses were recognised.

5.5 Earnings In 2012, DFS realised net income of €73.1 million (previous year: €79.6 million). The operational under-recovery, including the carry-over from the en-route area, amounted to €26.2 million (previous year: under-recovery of €39.7 million).

Net income (€m) 2012 2011 2010 2009 2008 Total 73.1 79.6 104.8 99.4 49.6 Compared with previous year (%) -17.4 -25.2 +5.4 +100.4 +18.7

There are two material special items (see 5.5.1 and 5.5.2) due to the particular regulatory influ ences that impact the company.

24 5.5.1 Conversion of the cost-base for calculating charges from German Commercial Code (HGB) to IFRS In accordance with European regulations for air navigation service providers, DFS switched the cost-base for calculating charges from HGB to the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as at 31 January 2006. The resulting differences were recognised directly in equity. DFS has the right to spread the ex-post financing requirements resulting from the conversion to the new accounting standards over a period of 15 years (catch-up effects) by including them in the cost-base (Article 6 of EU Regulation 1794/2006). These catch-up effects were included in revenues for the first time in 2007.

5.5.2 Introduction of imputed model for the calculation of occupational pensions DFS has developed, under the supervision of its regulatory authority, a model for the calculation of occupational pensions that conforms with European regulations on the performance plan and on the determination of charges. It has been in use since 1 January 2012. The charge takes the length of service and interest cost into account in a mutatis mutandis application of IAS 19. The discount rate used to determine the obligation is orientated in a prospective manner and in the medium term to the interest rate that can be earned on the plan assets. The difference between the obligation and plan assets (plan deficit/plan surplus) are allocated in a rolling fashion over the average remaining time to work (15 years) of the staff and also taken into account in the following reference periods as a component of the charges. Additional conservative assumptions support the correct matching of the cost of occupational pensions and avoid random fluctuations in the cost-base for charges and therefore arbitrary charges for airspace users.

In a directive dated 12 December 2012, the Federal Supervisory Authority for Air Navigation Services (BAF) laid down that the actual financing expense for occupational pensions should not be subject to the cost-efficiency targets of the performance plan, but is instead to be considered “determined costs” in the performance plan and is therefore part of the cost-base. The model is adjusted accordingly within the scope of performance planning when drawing up the following performance plan. The difference that is determined in the planning phase for the following reference period is distributed over 15 years (rolling view).

In the first reference period from 2012 to 2014, the company has used a uniform interest rate of 4.65 percent based on prudent commercial considerations. This uniform rate is being used for the assets underlying the occupational pension scheme as well as for the discounting of the corresponding obligations.

5.5.3 Assessment of results The result in 2012 contains the costs reimbursed by airspace users from previous years of €45.8 million from the conversion of the basis for calculating charges from the German Com- mercial Code (HGB) to IFRS as of 1 January 2007 (catch-up effects). It also contains an amount of €23.4 million from the change in the parameters for determining charges for expenses from occupational pensions within the scope of the introduction of regulated charges as of 1 January 2012.

25 Group management report 2012

There is a one-off positive earnings contribution before taxes of €46.7 million stemming from interest and currency effects from the process-related costs involved with the winding up of the QTE transaction (see 11.3.2.4)

Adjusted earnings before taxes (€m) Net income 73.1 + Taxes on income and revenues 13.7 EBT 86.8 ./. Catch-up effects from IFRS conversion 45.8 ./. Catch-up effects from occupational pensions 23.4 ./. Result contribution from QTE 46.7 Adjusted EBT -29.1

Adjusted for the above factors, the adjusted earnings before taxes amounted to minus €29.1 million.

For the en-route area, the EU charging scheme 1191/2010 split the chances and risks resulting from the differences between planned and actual traffic volume between the airspace users and DFS (see 12.2.1.2). If defined thresholds are exceeded, DFS is authorised and obliged to return or demand any over- or under-recoveries (carry-over). The carry-over for 2012 will be carried forward and taken into account in the determination of charges for the second reference period (for prob- lems in its application see 12.2.1.2).

Terminal services will continue to be subject to full cost recovery until the end of 2014. The principles governing air navigation charges laid down by ICAO and EUROCONTROL continue to stipulate that – after making allowance for a reasonable return on capital employed – over- or under-recoveries must be passed on in subsequent years. Accordingly, the operational under-recovery from the business year 2012 for terminal services will be taken into account when determining charges for the year 2014.

Overall, the positive earnings have been impacted by the material special items. In particular, because of the higher cost-base and the disproportionate development in revenues, DFS could not achieve positive earnings on an adjusted basis.

6. Assets and financial position 6.1 Capital expenditure DFS invests in the preservation and further development of the necessary infrastructure if the measures are based on legal obligations or support the development of earnings in an economi- cally sound manner. Regulations and standards from ICAO, EUROCONTROL and EU are adhered to. The safety of air traffic governs decisions on capital expenditure. Against this background, capital expenditure of €107.4 million was made in the business year 2012. An investment received

26 €1.6 million to raise other capital contributions. As at 31 December 2012, €11 million of an inter- group long-term loan approval of €50 million from DFS was drawn down.

The following projects are currently underway and represent the highest share of capital expenditure:

■ Extension to the Munich Control Centre: Building work was required because of the increase in space required for the installation of the P2/ATCAS air traffic management system. This is the successor system to P1/ATCAS (P1 air traffic control automation system) in the control centres for lower airspace. The building work covers a control room with roughly 100 controller working positions, office and functional rooms for operations. In addition, two equipment rooms and two centres each for the provision of air-conditioning, cooling and electricity were fitted out.

■ Rehosting ATCAS hardware and software: To ensure the product life cycle, ATCAS is being rehosted. The software is being ported on Linux using Intel-compatible hardware.

■ P1/ATCAS software extensions: Adaptations are required to the software due, in particular, to legislation from the SES implementing rules from the European Union. This involves, for example, the optimisation of the data exchange functionality with partner organisations.

■ Development of the paperless strip system (PSS) Langen: PSS is an extension within the area of flight data processing and display in the air traffic service (ATS) system P1/ATCAS used in Bremen, Munich and Langen. PSS replaces paper flight progress strips with electronic flight progress strips and exchanges data with the flight data processing system (FDPS) of P1/ATCAS.

■ Construction of the Langen technical centre: DFS constructed a new technical centre for the set-up of ATC test and reference installations as well as the housing of the administrative computer centre.

■ iCAS software (Interoperability Through European Collaboration Centre Automation System): The future control centre ATS system iCAS will in particular meet the interoperability requirements of the SES regulations.

■ Voice switching system ISIS-XM (Improved Speech Integrated System) in Langen: DFS is har- monising its voice switching systems and is replacing the system in Langen within the scope of the LASER project. In the future, ISIS-XM is to be installed in all DFS control centres to achieve a homogeneous system landscape. Using a uniform user interface and concept will increase training efficiency and create the necessary conditions to enable the transfer of services (e.g. consoli- dating control centres at night) and new concepts to ensure ATC operations in contingencies.

■ Extension of VAFORIT software – (Very Advanced FDP (Flight Data Processing) Operational Requirements Implementation): The new air traffic management system for upper airspace,

27 Group management report 2012

which was put into operation in December 2010, is being extended. VAFORIT is fully stripless and replaced the old system KARLDAP (Karlsruhe Automatic Data Processing and Display System).

■ P2 Langen Control Centre: The goal of the project is the installation and commissioning of P2 in the new control room of the Langen Control Centre. Frankfurt and Düsseldorf have separate ATS, communication (COM) and air traffic flow management (ATFM) systems. These are to be integrated into one ATS, COM and ATFM system respectively. At the same time, the engineer on duty (EoD) Langen is to start work. After P2 starts up, the old P1/ATCAS systems will be uninstalled from the old control room and equipment rooms. A new cooling plant will be commissioned in the Langen Control Centre for the new P2 components to be installed.

■ Radio Site Upgrade and Modernisation (RASUM) 8.33: DFS is equipping 95 radio stations for the 8.33 kHz channel spacing requirements in lower airspace, including the necessary structural and infrastructural measures. The project caters for future traffic growth and implements the Conclu- sion taken by the ICAO European Air Navigation Planning Group (EANPG) 48 dated November 2006 and EU Regulation 1079/2012.

In the 2012 business year, assets under construction worth a total of €31.1 million were completed. The main projects included:

■ Data link software for VAFORIT: The specific adjustments to the VAFORIT system set the stage for the technical infrastructure to introduce data link in control centres. The project implements the requirements from EU Regulation 29/2009 concerning data link services and EU Regulation 30/2009 concerning the exchange of flight data supporting data link services.

■ Mode Select (Mode-S) for Willy Brandt Airport Berlin (BER): Currently, only the Berlin-Tegel Airport has a radar facility with Mode S capability. To meet operational requirements and an EU implementing regulation, two sensors with Mode S capability will be needed. To provide BER Airport with a Mode-S service, an additional Mode-S radar sensor is necessary.

■ Advanced Surface Movement Radar (A-SMR) Berlin South: To ensure a reliable display of the ground situation independent of the weather in the future, DFS and FBS (the airport operator of Berlin-Schönefeld Airport) concluded contracts in 2009 covering the joint erection and use of an operational Advanced Surface Movement Guidance and Control System (A-SMGCS). Because of the current and future building work as part of the construction of the BER hub airport, the present system of the airport operator FBS is no longer capable of providing suitable ground situation display for operational requirements. In parallel with the project, the SMR tower was adapted and a new multilateration (MLAT) sensor was incorporated to improve the coverage of the north- south taxiway in line with the additional requirements.

With these projects, DFS secures its position as a reliable partner for aviation.

28 6.2 Balance sheet structure In 2012, the balance sheet total increased by 9.2 percent to €1,207.5 million (previous year: €1,106.1 million).

The termination of the QTE transaction (see 11.3.2.4) had multiple impacts. The accrual recognised at the beginning of the transactions under other liabilities was reversed in full through the income statement in 2012 (see 5.3, 5.5). The remaining shell structure was recognised by means of an increase in other assets (a receivable to Norddeutsche Landesbank Nord/LB) and an almost congruent increase in financial liabilities (a liability to Kreditanstalt für Wiederaufbau KfW).

On the asset side, the rise is primarily due to the rise in non-current assets by around 10.0 percent (QTE and under-recovery 2012) as well as the rise in current assets by around 6.5 percent by a higher level of liquid assets as at 31 December 2012. The rise in deferred tax assets is in connection with the termination of the QTE transaction.

As regards liabilities and equity, this rise was primarily due to the change in equity. DFS was able to considerably improve the negative equity situation by 96.7 percent through the net income earned.

Non-current debt was constant overall, although its structure changed. Pension provisions decreased by 2.8 percent after netting against the associated plan assets. The increase in financial liabilities corresponds primarily to the decline of other liabilities (QTE). The change in deferred tax liabilities is in connection with the termination of the QTE transaction.

Short-term borrowings rose because of the rise in trade liabilities to predominantly domestic ven- dors as well as the rise in other provisions by around 14.7 percent.

Net financial indebtedness amounted to €182.6 million at 31 December 2012, the leverage ratio at the balance sheet date thus amounted to 15.1 percent. Interest expenses, driven primarily by pension obligations, were higher than interest income by €50.0 million.

29 Group management report 2012

Balance sheet indicators 2012 2011 2010 Net financial indebtedness (€m) 182.6 145.3 89.5* (Financial liabilities – liquid funds)

Leverage ratio (%) 15.1 13.1 8.4* (Net financial indebtedness/balance sheet total)

Asset intensity (%) 76.4 75.8 74.7 (Non-current assets/balance sheet total)

* Due to a reclassification carried out in 2011, the disclosures are not directly comparable with the previous years.

Balance sheet indicators when fully considering conversion to IFRS and the under-recovery 2012 2011 2010 Net financial indebtedness (€m) 182.6 145.3 89.5* (Financial liabilities – liquid funds)

Leverage ratio (%) 10.0 8.7 5.3* (Net financial indebtedness/balance sheet total)

Asset intensity (%) 50.3 49.9 47.2 (Non-current assets/balance sheet total)

* Due to a reclassification carried out in 2011, the disclosures are not directly comparable with the previous years.

In Note 24, a detailed reconciliation can be found of the equity as at 31 December 2012 to the equity taking consideration of catch-up effects from the conversion to IFRS and procedure approved or the treatment of occupational pensions by the BAF (see 5.5.2).

6.3 Cash flow statement Cash and cash equivalents at year-end are made up as follows:

Cash and cash equivalents (€’000) Cash inflow (+) / cash outflow (-) 2012 2011 Change (%) Operating activities 137,988 121,425 -37.1 Investing activities -117,077 -119,469 +2.0 Financing activities -40 -2,445 +2,617.6 Changes impacting cash flow 20,871 -489 +4,368.3 Cash and cash equivalent at the beginning of the year 84,663 85,152 -0.6 Cash and cash equivalent at the end of the year 105,534 84,663 +24.7

No payout was made to the Shareholder in the 2012 business year. Detailed information can be found in the separate cash flow statement and in Note 31.

30 6.4 Statement on the economic situation of DFS The results and financial position have been influenced primarily by the legal framework conditions, economic regulation, stagnating air traffic, the continuing low interest level as well as measures from the Board of Managing Directors to reduce costs. They show a negative trend when special items are factored out.

In the business year 2012, revenues rose by 2.9 percent compared with the previous year. Overall, DFS generated net income of €73.1 million. This figure remained positive, but was lower than the previous year’s value and below that what was expected one year previously. The initial areas have already been selected to reduce costs and boost corporate flexibility. The targets apply company- wide, although the specific implementation measures will be developed by each organisational unit.

6.5 Financial management Financial management at DFS secures and supports the statutory obligation within the group. At the same time, the competitiveness of the commercial business is promoted. DFS optimises its performance through an adequate equity and debt structure, the economical use of equity capital, an optimised use of debt and the control of cash flows in accordance with the plan (see Note 24 Equity).

The company finances itself primarily by drawing on the cash inflows from operating activities and on funds from a money and capital market programme. Furthermore, there are special items impacting assets that have a temporary favourable effect on liquidity (see 5.5).

Group Treasury plans and controls the level of cash and cash equivalents and the procurement of funds and incorporates subsidiaries in the flow of funds by means of a cash pool. Funds are collected and centrally controlled where legally allowed and when commercially sensible. The financing requirements of subsidiaries are satisfied by inter-group settlement accounts and loans. The company pays attention to a balanced financial structure and holds liquid reserves to effectively meet unexpected changes in traffic volumes (see 11.3.1).

Business dealings with a selected group of principal bankers are conducted using uniform standards and existing two-way cash flows are continuously improved.

DFS finances its non-current liabilities congruently with debenture loans and bonds traded on the exchange in Luxembourg. Short-term liquidity is covered by means of a multi-currency commercial paper programme. This programme is supported by a syndicated line of credit of €160 million as a back-up facility.

31 Group management report 2012

With its money and capital market programme, DFS attracts both national and international investors. These investors base their investment decisions and price fixing on the credit rating of each debtor. To support their decision-making process, DFS has its creditworthiness rated by means of standardised credit ratings from credit rating agencies according to internationally uniform and consistent procedures.

Standard & Poor’s, the rating agency, confirmed the best possible rating for DFS for 2012, both for the short- and long-term area (AAA/A-1+). The rating agency Moody’s downgraded the rating of DFS to Aa3/P-1 against the background of the economic regulation in force since 1 January 2012. In a press release dated 25 July 2012, the stable outlook was changed to negative following a new assessment of the rating for the Federal Republic of Germany.

At year-end 2012, DFS had an issuing volume of bonds with a nominal value of €47.2 million with remaining terms of up to six years as well as debenture loans of €175 million with remaining terms of up to eight years. The average nominal interest rate of the bonds and debenture loans amounted to 3.182 percent at the balance sheet date. Existing bonds primarily have fixed interest rates or have been swapped from variable to fixed rates.

7. Personnel DFS employs non-exempt staff (covered by collective agreements), exempt employees (not covered by collective agreements), personnel of the Federal Aviation Office (LBA) working for DFS and soldiers released from regular service. Non-exempt employees are subject to the provisions of the company-specific collective bargaining agreements.

Exempt status for employees is characterised by the ability to negotiate contracts freely on an individual basis. These employees have target agreements. The degree of fulfilment of these agreements determines the variable salary components.

The personnel of the Federal Aviation Office (LBA) working for DFS comprise the third employee group at DFS. These established and non-established civil servants, who remain in an employment relationship with the Federal Government, still fall under the collective agreement for the public service (Tarifvertrag für den öffentlichen Dienst – TVöD). The collective agreements at DFS do not apply to them. DFS bears the relevant expenses.

As a rule, air traffic controllers (from the age of 55) and flight data specialists (from 59) receive transitional payments in the period before their formal retirement. This right to receive transitional payments accounts for a significant component of the pension commitment.

Information on the compensation structure of the Board of Managing Directors can be found in Note 41 Organs of the company.

32 Motivated and qualified employees are an absolute must for the long-term success of DFS. This is why human resources management at DFS stresses a holistic approach, ranging from selection through training and development to retention, which is supported by HR policies aligned with different phases of life. This orientation improves the attractiveness of the employer and contributes to the economic performance of DFS.

Since 2011, DFS has been involved in a childcare centre in Langen, where DFS has its Headquar- ters. Places are available for employees’ children there. Such places are also available at the other DFS branches.

Over the course of their whole career, staff can avail of flexible working-time models, health programmes, seminars and further training opportunities.

As at 31 December 2012, DFS had a total of 6,100 employees.

Employees (as at 31 December) 2012 2011 2010 2009 2008 Permanent employees (total) 6,100 6,064 5,938 5,596 5,342 Salaried staff 5,560 5,239 5,074 4,745 4,530 Soldiers released from regular service 246 259 263 268 267 Wage-earners 28 31 31 32 32 Technical/commercial students & apprentices 51 51 45 45 39 Air traffic control trainees 193 189 213 175 112 Personnel belonging to the Federal Aviation Office (LBA) 268 295 312 331 362 of which established civil servants (204) (227) (240) (255) (280) of which non-established employees (64) (68) (72) (76) (82) Compared with previous year (%) +0.6 +2.1 +6.1 +4.8 +4.2 Share of female employees (%) 26.3 26.0 27.0 26.0 26.0 Share of foreign employees (%) 4.2 4.3 4.3 3.9 3.1

The increase in the workforce is primarily the result of the demand for air traffic controllers. A further factor is the increased recruitment of technicians and engineers to meet the higher demands placed on operational systems as well as systems under development.

Employees by area of duties (%)

2012 48 8 44 Air traffic control

Operational engineering

2011 47 8 45 Supporting functions

0% 20% 40% 60% 80% 100%

33 Group management report 2012

There were 609 part-time employees – 429 women and 180 men. The share of part-time employees declined by one percentage point over the previous year.

Foreign employees come mainly from the USA and the United Kingdom, followed by Austria and Spain. Overall, 48 nations are represented. The age structure of staff is well balanced. The average age is 41 years. For men it is 42, while the average female employee is 39 years old.

The turnover rate – which only considers employees who leave DFS voluntarily – was 1.6 percent in 2012.

The subsidiary The Tower Company GmbH had a staff of 39 at the end of December. This number includes 26 qualified or trainee air traffic controllers.

DFS is well aware of its responsibility to society and has been offering job-starters attractive trainee and college places for years.

People starting training at DFS 2012 2011 Total 244 240 Air traffic controller 189 178 Flight data specialist 4 11 Dual course of studies/apprenticeship 51 51 Compared with previous year (%) +1.7 -7.0

In addition to training air traffic controllers, the spectrum of training offered at DFS encompasses apprenticeships and college places for dual courses of studies graduating with a bachelor’s degree in professions currently in short supply: engineering degrees (electronics and telecommunications), IT, air navigation technology, service technology and aviation management. This is the reaction of DFS to the growing demand for qualified staff. As these staff are trained internally, they will, in all likelihood, take on duties in the company on completion of their training or degree.

The dual course of studies to qualify as an air navigation services engineer was introduced successfully in cooperation with the Bremen University of Applied Sciences in 2012. The new dual course of studies to qualify as a service engineer will probably start in the winter semester 2013. DFS will continue to offer interesting and promising trainee and college places in the future.

8. Research and development activities German airspace demands a particularly well-performing air navigation services organisation as its airspace is considered to be extremely busy and complex, even in international comparison. Tech- nological and operational innovations are the precondition for dealing with constantly growing air

34 traffic. DFS therefore collaborates in national and international research projects and promotes and markets innovative developments.

A total of approximately 2.7 percent of the costs and 195 staff posts are allocated to research and in-house developments. These costs were partially offset by grant funding of approximately €7.2 million awarded by the German aeronautical research programme and the European research framework programmes, including the Single European Sky Air Traffic Management Research (SESAR) programme. The activities funded on a national basis focus on optimising busy airports and their vicinity. SESAR is the leading project in the international area. It is organised within the scope of the SESAR Joint Undertaking (SJU), which DFS joined as an active member in June 2009, along with other leading organisations. This puts DFS in a position to help shape the future of European air navigation services on the basis of its experience and benefit optimally from the joint developments. The grant aid received amounts to up to 50 percent.

9. Supplementary report On 1 January 2013, Prof Klaus-Dieter Scheurle and Robert Schickling took up their posts as Manag- ing Directors at DFS, joining Dr Michael Hann, who took up his position on 1 September 2012. This also saw the new distribution of responsibilities among the Managing Directors come into force.

The contracts of the Managing Directors Dieter Kaden, Ralph Riedle and Jens Bergmann expired at the end of 2012 (see Note 41.1).

On 30 January 2013, DFS and the air navigation services union (GdF) reached a moderate agreement in the second round of negotiation as regards the collective agreements terminated in 2012. These were the agreement covering remuneration (VTV), the agreement covering remuneration for apprentices (VTV-A) and the agreement covering allowances (ZTV). The new agreements run from 1 November 2012 until 31 December 2013 and primarily involve a one-time payment and an across-the-board rise in salary of two percent.

In connection with the termination of the QTE transaction, KfW Bank was given collateral in the form of the assignment of a claim against Nord/LB Bank. After mutual discussions in the first quarter of 2013, KfW forewent the collateral in return for a one-time payment to be made.

As part of its financial strategy, DFS placed an additional debenture loan worth €110 million with a minimum denomination of €0.5 million and a term of ten years after the balance sheet date. The payout is made at the nominal value with a coupon of 2.308 percent.

35 Group management report 2012

On 7 March 2013, DFS received the approval of the Shareholder for its subsidiary DFS ESSP GmbH to acquire 100 percent of the shares in R. Eisenschmidt GmbH, a distributor of aeronautical information publications which has its headquarters in Egelsbach, Hesse, Germany.

10. Compliance DFS

Supervisory Board Audit Committee

Board of Managing Directors

Compliance Internal control Risk Compliance officer system management Compliance committee (ICS) Data Prevention of Other protection corruption measures

Internal audit

Certified (external) auditor

The State-owned DFS is entrusted with sovereign tasks of public service. It is subject to the Public Corporate Governance Code of the Federal Government. Under this code, the Board of Managing Directors has to ensure adherence to and compliance with legal provisions and corporate guidelines. On the basis of this, DFS introduced a compliance management system in 2011.

Together with the risk management system and the internal control system for accounting and financial reporting, these elements form the three pillars of the corporate structure for risk management. This system was again validated in 2012 and a compliance officer was appointed as of 20 December 2012.

The compliance management system is constantly upgraded and expanded. Organisationally, the issue is assigned to the Institutional and Legal Affairs department. There is a direct reporting channel from the compliance officer to the Board of Managing Directors and the Supervisory Board.

11. Risk report DFS uses a comprehensive set of instruments to identify, analyse, monitor, and control the risks associated with its business. The ongoing further development of the risk management system, which takes account of the changes taking place in the company and the aviation industry, guarantees the early identification of risks, including the initiation of countermeasures.

36 11.1 The risk management process The risk management process at DFS lays down standards for the ongoing company-wide recognition and assessment of business risks. It begins with the applications for approval of business plans and projects. Possible effects encompass the following topics: operations: e.g. fulfilling the statutory mandate, infrastructure; finance: e.g. costs, financial markets, customers/suppliers; management: e.g. strategy, personnel, organisation as well as external environment: e.g. politics and legislation, disasters and terrorist attacks.

The analysis is conducted for both the services financed by air navigation charges and the commercial services. Possible risks for DFS from subsidiaries are included. Business risks at subsidiaries are reported in direct contact between their boards and their supervisory organs.

Risks are assessed based on an evaluation of the probability of occurrence and the possible level of damage of the hazard under consideration as reported by the organisational unit concerned. The goal is a quantified assessment; in well-founded cases a qualified assessment is permissible. Criteria for a qualified assessment are laid down centrally in an assessment matrix. Based on this, the reported risks are categorised as “red”/threat to going-concern status, “yellow”/material and “green”/internal to the organisational unit.

The resulting risk-reporting to the Board of Managing Directors takes place on a quarterly basis. The risk-reporting of the Board of Managing Directors to the Supervisory Board of DFS takes place every six months. The reporting includes an overview of changes from the prior period and all reports that were no longer judged as risks in the period under review.

A binding version of the risk management process is described in a process description and in an operational instruction concerning risk management. The integrity of the risk management system is tested in the course of the audit of the annual financial statements by the external auditors and on a regular basis by the Internal Audit department.

11.2 The organisation The Board of Managing Directors has tasked the independent Risk and Contract Management department with the central implementation of the risk management system in the company. The main duties include the methodological further development of the system, including laying down the documentation requirements, as well as the central risk-reporting to the Board of Managing Directors.

Risks are managed by the responsible organisational units. The heads of these units are obliged to make quarterly updates and any necessary ad-hoc updates as part of their management responsibilities. As part of this process, measures to mitigate and manage risks are assessed and supplemented. In general, the forecast period is one year. The heads of the organisational units are responsible for ensuring that the statements on the risk situation in their areas are correct.

37 Group management report 2012

In 2004, a risk management committee (RMC) was set up to support the central department and to provide of company-wide view of the risk situations reported by each organisational unit. The members belong to the executive management level, are closely involved in the business decision- making processes, know company-wide interrelationships, and are hence in a position to contribute to forming a comprehensive overview.

11.3 Material risk areas In the following sections, the material risks for DFS are described. The sequence does not imply anything about the probability of occurrence or the potential level of damage.

The issues described could also represent opportunities for DFS if they developed favourably for the company.

11.3.1 Corporate strategy risks Corporate strategy risks arise primarily from misjudgements of environmental conditions and future market developments. They can lead to an inadequate alignment of corporate activities, with negative consequences for the earnings position.

The threat of global political changes, terrorist attacks and the conflict potential in the Middle East still pose unforeseeable risks for the development of air transport. In particular, unrest in the Mid- dle East could adversely impact the growth of the airline sector. Other looming conflicts or natural disasters (e.g. volcanic eruptions) or cross-border health risks (pandemics) which could hinder traffic growth are currently not discernible. The development of air traffic (see 3.3, 4.2) is being monitored critically.

The regulatory environment has changed for air navigation services companies, including the replacement of the system of full cost recovery, which was in place for years, with economic regulation. DFS is now exposed to regulatory risks that are primarily reflected in risks as regards costs and traffic volume.

The performance plan for the first reference period for the en-route charging area set a mandatory unit rate. Only in limited cases specified in the EU Regulation (see 12.2.1.2) may deviations from the assumptions of the performance plan be considered in the following reference periods. If DFS has to itself bear the traffic volume and cost deviations, this could lead to annual losses that are not offset by the allowed return that can be earned on the operating assets. This will result in the equity declining.

DFS considers known risks in its traffic forecasts. As the forecasts represent a significant element in the calculation of air navigation charges, the market risks known at the time of planning are included in the unit rate. Indicators have been developed to manage these risks (see 3.3).

38 11.3.2 Financial risks 11.3.2.1 Principles of financial risk management As part of its business activities, DFS is exposed to numerous financial risks.

The management of these risks is an integral component of the planning and implementation system. The Board of Managing Directors lays down the associated corporate policy. The objective of the corporate policy is to mitigate and/or minimise existing risks. Financial management implements these targets and uses a system to plan and control financial risks that is tailored to the specific business of DFS. Particularly since the beginning of the global financial market crisis, DFS has been continuously following and analysing the developments on the financial markets in a critical dialogue with its principal bankers and the rating agencies to reassess any existing strategies and develop new strategies as necessary.

As part of its overall risk management system, DFS performs Value-at-Risk (VaR) analyses to manage market price risks (interest, currencies).

The risk position is assessed weekly by the Treasury department based on market price risks and is reported to the Board of Managing Directors at regular intervals. The VaR indicates the absolute loss for a company of a defined risk position which will not be exceeded with a previously defined probability over a given period of time. The calculation of the VaR at DFS is based on a holding period of 10 days and a probability of 95 percent. On 31 December 2012, the cumulative loss at a confidence level of 95 percent amounted to under €1,675 thousand (previous year: €3,074 thousand).

The VaR is determined with the help of statistical time series on the relevant financial market data (interest rates, exchange rates). Historical simulations are computed by extrapolating sce- narios from the past to the future using simulated changes in market values for financial instruments.

This market risk analysis includes all money market transactions of DFS, the issued bonds, debenture loans, interest derivatives, securities, currency hedges as well as all associated risk positions (foreign currency purchases and foreign currency receivables/liabilities).

Quantitative information on VaR values for risks from currency and interest rate changes is sum- marised in Note 34.

39 Group management report 2012

The planning and control of risks in the reporting system is supported by clearly laid down framework conditions. Speculative transactions with derivative instruments where there is no underlying transaction are forbidden.

As regards financial investing, transactions are only entered into with counterparties who either have a long-term rating of at least AA-/ Aa3, short-term A-1/P-1, a correspondingly high creditworthiness or other form of collateral.

11.3.2.2 Liquidity risk Daily liquidity is monitored by the Treasury department and is managed with the help of liquidity planning during the year and over the medium term (see 6.5).

11.3.2.3 Default risk The operating business in the en-route area and the commercial business as well as financial instruments expose DFS to default risk. In the operating business, receivables are monitored constantly. Default risks are taken into account using specific allowances for doubtful accounts. DFS demands security deposits from customers with relevant sales volumes when defined warning thresholds are exceeded. The maximum default risk is reflected in the carrying amounts of the financial assets recognised on the balance sheet.

Warranty obligations from the commercial business are managed as part of a contract-related quality management.

11.3.2.4 Risk arising from the downgrading of the rating of DFS The business and performance of DFS are monitored by external rating agencies and the Deutsche Bundesbank (eligibility of DFS). Negative analyses and the downgrading of the ratings could make the take-up of external financing more difficult and negatively influence the conditions for such financing and lead to higher interest rates.

DFS concluded a US lease-in/lease-out transaction (five tranches) with two US investors (QTE transaction) for a portion of its air navigation systems under non-current assets in 2002 and 2003.

This transaction was substantially terminated in the second quarter of 2012. The remaining Ger- man shell structure with a remaining term up to and including 2021 is restricted to a receivable to Nord/LB Bank (the borrower) and a liability to KfW Bank (the lender). The associated cash flows match as regards amount, term and currency. Over its term, DFS bears the default risk to Nord/LB Bank to the amount of €61 million as of the balance sheet date. KfW Bank is authorised to extraordinarily terminate the loan if the rating of DFS falls under AA- (Standard & Poor’s) or Aa3 (Moody’s). In such a case, DFS has to name a third party within a defined period that will acquire the receivable of KfW against DFS (€63 million on the balance sheet date).

40 This could result in higher financing costs, which would negatively impact the net assets, financial position and results of operation.

Especially due to the unchanged highest rating from Standard & Poor’s, the stable outlook from Moody’s and current talks with the company’s bankers, DFS believes that the previously described consequences have a low likelihood of occurrence.

11.3.2.5 Interest rate risk DFS is exposed to interest rate risk from both financing activities and financial investments.

In 2012, DFS made use of financial derivatives to hedge interest rate risk and to minimise expenses. The effectiveness of the hedges is guaranteed by the matching of maturities and volumes between the hedge and the underlying transaction.

11.3.2.6 Currency risk DFS is exposed to transaction risks as part of cross-border procurement transactions. The majority of foreign currency purchases/liabilities result from suppliers invoicing in US dollars. The total volume amounted to approximately US$8.5 million in the reporting period (previous year: US$8.5 million). Other currencies are only of minor importance.

These risks are limited by means of hedging using financial derivatives.

Currency risks from financial transactions (foreign bonds, commercial paper) are hedged immediately on conclusion of the transaction.

11.3.3 Performance-related and IT risks The top priority for DFS is to ensure air safety, which is why DFS has installed a safety management system that corresponds to the provisions of EU Regulation 1035/2011.

A variety of measures are taken at all levels of planning, implementing and operating DFS infrastructure to minimise the probability of downtime of the operational infrastructure of DFS such as would endanger air safety and impact the business performance of DFS.

The risk management system of DFS incorporates the ATM-related systems and applications as well as the administrative systems and applications.

41 Group management report 2012

Measures to avoid downtime that would have safety-related or economic repercussions include the redundancy and spatial separation of critical systems, the storage of comprehensive data on separate data carriers as well as the SAP backup computer centre.

11.3.4 Personnel risks The commitment and dedication of its staff are crucial for DFS to maintain safety in German airspace and to ensure the future development of the company.

A risk that cannot be underestimated stems especially from demographic change and increasing competition among companies for highly qualified staff and executives. That is why DFS continues to use a comprehensive portfolio of personnel marketing tools. A main area of focus is in particular the target groups of trainee air traffic controllers and graduates of courses in short supply, such as IT, electrical engineering, telecommunications and computer science.

HR marketing activities that were started in 2011 pursue the goal of improving the presence of DFS on the labour market, increasing the awareness of DFS, improving its employer image as well as ensuring the fast, sustainable and cost-effective recruitment of qualified and motivated new staff in sufficient numbers. In addition to intensive work with colleges and upper secondary schools, including excursions and guest lectures, DFS is also increasing its presence on social networks.

11.3.5 Insured risks DFS has taken out insurance to cover common insurable risks, including those of subsidiaries where DFS has a direct majority shareholding. The insurance specifically includes compensation for the loss or damage of material assets and the resulting interruption of operations, minus the usu- ally agreed deductible.

It should be kept in mind when assessing the insured risks that DFS mainly performs sovereign functions on behalf of the Federal Republic of Germany in keeping with Article 87d of the German Basic Law (in conjunction with Articles 31b and 31d of the German Aviation Act – LuftVG). As a consequence, the Federal Republic of Germany is liable for claims brought by third parties for damages in line with the principles of State liability. In the case of damage culpably caused by DFS, aviation liability insurance covers a limit of €767 million per instance of damage, thus releasing the Federal Republic of Germany from its liability to this amount. For non-sovereign tasks, statutory liability, and in some cases such as apron management services, contractual liability, is covered up to the named amount.

In addition, claims for damages from third parties from employer’s liability risks are covered by insurance.

42 11.3.6 Internal control and risk management system in accounting and financial reporting (Article 315 paragraph 2 No 5 of the HGB) The internal control and risk management system implemented at DFS as regards (group) accounting and financial reporting is designed to present, in an orderly and efficient manner, all transactions impacting the finances or accounts and the associated flow of money, goods and services. The assessment of transactions and their recognition are conducted by adhering to international and national accounting and disclosure standards as well as by adhering to the applicable Euro- pean and national statutory provisions covering air navigation charges, tax and corporate law and German principles of proper accounting.

DFS has set up the necessary organisational structures and processes in the responsible departments. Their tasks are described in functional diagrams and ISO-certified documents. Process and competence-based job descriptions are available for each member of staff in these departments.

All recordable transactions are recognised using a standardised enterprise resource planning (ERP) software product – SAP R/3. The software carries out programmed plausibility checks. Access rights and the separation of functions in the system are administered outside of the Finance department.

The statutory regulations and the regulations laid out in the Articles of Association are supplemented in all departments by detailed internal instructions. These include the mandatory provisions laid down in internal accounting handbooks, guidelines and orders that reflect IAS/IFRS, the German Commercial Code (HGB), legislation governing charges and tax law. These provisions are constantly updated and revised as necessary. Special issues due to complex, one-off and non-routine transactions are also governed by decisions on their accounting treatment.

Our internal accounting standards are based on special European regulations tailored to the business model used at DFS. Cost-efficiency is reviewed and there is a separation between the tasks financed by air navigation charges and the commercial business. In the area financed by air navigation charges, a differentiation is made between the regulated sub-area of en-route and the not (yet) regulated sub-area of terminal services.

Possible risks which have been identified as posing a threat to the accounting and financial reporting are countered by means of the monthly reporting of the results of the internal and external accounting systems to the Board of Managing Directors. Variances to planned figures are analysed. This reporting is supplemented by constant and standardised information to the Supervisory Board. Early warning signals are defined for variances, with whose support the risks from the ongoing business are counteracted systematically.

43 Group management report 2012

The preparation of the annual and group financial statements is an organised process coordi- nated by a central department. To ensure the completeness and correctness of the processed information, a detailed procedural plan as well as standardised information and request methods and checklists tailored to DFS are used. To ensure an optimal exchange of information, all those involved in the process participate in regular coordination rounds. The staff members involved in the accounting and financial reporting receive regular training. There is a clear separation of duties among those involved in preparing the annual and group financial statements. This separation of functions and segregation of duties are strictly applied. Complex actuarial expertises and valuations are drawn up by specialised external providers.

Any advances in knowledge gained are used to continuously improve the efficiency, transparency and reliability of the process. The external auditors participate in the consultations of the Supervi- sory Board and report on the results of their audit.

The Internal Audit department carries out analytical audits at irregular intervals. Processes that are relevant to the financial statements are also investigated.

The interlocking instruments described above provide DFS with an internal control and risk management system for accounting and financial reporting which ensures a true and fair view of the net assets, financial position and results of operation of the group. Conscious or unconscious errone- ous actions are thus avoided to the greatest possible extent and discovered with a high degree of probability. Complete certainty cannot be guaranteed despite the highest possible level of care.

11.3.7 Overall risk The estimate of the assessment of the overall risk is the result of a consolidated view of the named risks. The risks of DFS have been expanded by the introduction of regulated charges in the en- route area in the previous year. The Board of Managing Directors of DFS currently does not discern any risks that would individually, or as a group with other risks, pose a threat to the going-concern status of DFS.

12. Outlook 12.1 Future company developments and strategy DFS is pressing ahead with the work that it started in recent years to prepare for the changing framework conditions in Europe. The Board of Managing Directors expects the following material influencing factors to centrally impact the future development of DFS:

44 12.1.1 Single European Sky (SES) and regulatory requirements The initiative of the European Commission on forming and administering a single cross-border Euro- pean sky (SES) represents a significant influencing factor. Future air traffic management under SES will be based on traffic flows rather than national borders, thus further enhancing airspace capacity and service quality.

A pillar of the SES initiative is the formation of functional airspace blocks, in which air navigation services are to be provided under joint responsibility. This requirement is being pushed ahead by numerous States in Europe. Together with the Benelux States, France, Switzerland and the EUROCONTROL Control Centre in Maastricht, Germany is actively participating in implementing this project within the context of FABEC. The Federal Republic of Germany ratified the FABEC Treaty on 13 July 2012. The date when the Treaty comes into force will be announced separately when all the States involved have completed the ratification process and submitted the ratification documents. Belgium has not yet ratified the Treaty. The impact of the SES initiative remains to be seen.

Since 2012, a performance scheme for air navigation services and network functions in the area of en-route control services has been in operation based on EU Regulation 691/2010 and EU Regulation 1191/2010. EU Regulation 691/2010 lays down a performance scheme for air navigation services and network functions (formerly EC Regulation 2096/2005) and EU Regulation 1191/2010 lays down a common charging scheme for air navigation services (formerly EC Regula- tion 1794/2006).

The goal is to enhance the performance of air navigation services and network functions in the Single European Sky. The performance scheme has mandatory performance goals for predefined periods (reference periods) at the European level for the areas of safety, environment, capacity and cost-efficiency.

The FABEC performance plan lays down joint targets for capacity and the environment for the first reference period (2012–2014) as well as the German contribution to the performance plan for mandatory cost-efficiency targets in particular.

Not until the start of the second reference period from 2015 will there be binding targets for safety at a European and FABEC/national level.

The European performance scheme is supported at the FABEC level by the planned effective use of civil-military airspaces.

The current outlook for the second reference period (2015 – 2019) shows that, in addition to en-route control services, terminal services will also be subject to performance regulation. The current draft regulations are now being discussed at the European level. If no substantial changes

45 Group management report 2012

are made to the current draft regulations, it can be assumed that air navigation service providers will have to bear a significant part of the traffic risk for both en-route and terminal services in the second reference period. The associated risk to revenues can only be estimated with great uncertainty given the band of fluctuations in the traffic forecasts, not least because of the long forecast periods (five to seven years).

12.1.2 Single European Sky ATM Research (SESAR) DFS supports the European requirements for the modernisation of the air traffic management network through its participation in the SESAR project by jointly developing with its partners, under the auspices of SJU, technologies and procedures that are fit for purpose.

12.1.3 Development of the economy Most economic institutes have revised their 2013 economic forecasts for Germany downward and they expect growth in GDP of between 0.3 percent and 0.9 percent. They base this forecast on the sovereign debt crisis, which has led to large-scale austerity programmes in many countries, and to a deep scepticism in business and among consumers regarding future developments. The sentiment indicators for the economy have stabilised on a low level. In its annual report 2013, the German Federal Government expects that the German economy will remain on its growth course despite all the economic turbulence. Nevertheless, it expects an increase in real gross domestic product of only 0.4 percent in 2013 and a rise of 1.6 percent in 2014. In the medium term, the Federal Government expects a rise of 1.4 percent per year until 2017.

The International Air Transport Association (IATA), which represents around 230 airlines worldwide, anticipates a sharp rise in passenger numbers in the coming years from 2.8 billion in 2011 to 3.6 billion until 2016, resulting in annual growth of 5.3 percent. The rise in passenger numbers is expected in the Asia Pacific region, while growth in Europe will be slow. Nevertheless, Europe will remain the largest market for the airlines. IATA expects freight traffic to grow by three percent per year until 2016.

EUROCONTROL expects a traffic decline of 1.7 percent for 2013 in German airspace in its base scenario of the current STATFOR 7-year prognosis (EUROCONTROL 7-year IFR Flight Movements and Service Units Forecast: 2013 – 2019, Eurocontrol Doc 493, Status: March 2013). Over the whole medium-term period of the outlook until 2019, the organisation expects growth of around 15 percent compared with the year 2012.

12.1.4 Strategic orientation of DFS From the viewpoint of strategic planning, the greatest challenges for DFS come from the alignment of the company with the framework conditions under economic regulation and from the probable upcoming consolidation of the air navigation services industry in Europe.

46 DFS anticipates that there will be an increasing diversification in framework conditions and aims to create the conditions for a strategic realignment. The new Board of Managing Directors will imple- ment the new strategy in 2013.

The core of the new strategy is the creation of strategic business units within which DFS products and services will be offered. This new concept will allow the impact of trends and challenges on the individual business units to be analysed in a differentiated manner. Furthermore, the strategic focus will be expanded from DFS to the DFS Group and the transparency of the performance contribution of each organisational unit increased.

The Board of Managing Directors is strengthening the strategic orientation of DFS with a five-point programme by ■ realigning and further developing human resources management to raise the awareness of the importance of employees for the success of the company, ■ supporting and fostering the regulatory environment in a proactive manner, ■ increasing productivity, ■ successively removing capacity bottlenecks and ■ expanding the commercial business.

12.2 Development of net assets, financial position and results of operation Based on the business development described and considering the chances and risk potential, the following could impact the development of the net assets, financial position and results of operation.

12.2.1 Legal framework conditions and their impact 12.2.1.1 A conflict of norms between those determining air navigation charges and those governing the determination of performance DFS is now exposed to a material conflict of norms between the standards used to determine charges and the standards used to draw up the commercial and tax accounts. This conflict is eating into the substance of DFS. On the one hand, there are European regulations requiring the application of IFRS for the recognition and measurement of issues that impact charges and, on the other hand, commercial and tax regulations that require measurements to be made that significantly deviate from those required by those same European regulations. This conflict requires DFS to report differences in the calculation of charges in both the commercial and tax accounts to ensure that the presentation of the net assets, financial position and results of operation reflects the actual situation. There need to be legal regulations so that there is convergence between accounting requirements for the financial statements and the regulatory requirements for the calculation of charges, thus avoiding the damaging results in the commercial and tax accounts which would otherwise result from this conflict of norms. Such draft legislation has been brought in by the Federal Ministry of Finance as part of the Tax Act 2013 (JStG 2013), although it only deals with the

47 Group management report 2012

relevant assessment basis for taxation. The draft omnibus act for the Tax Act (JStG) contains draft legislation on the inclusion of results of the charges calculation for the entrusted air navigation service provider (Article 31b, paragraph 3 and Article 2a – new – German Aviation Act (LuftVG)). The German Bundesrat (upper house of the German parliament) has rejected the draft and mediation procedure failed at the beginning of 2013. On 6 February 2013, the Federal Cabinet agreed the non-disputed part of the Tax Act 2013 (JStG 2013) in the form of a new omnibus act, which also includes the amendments to the German Aviation Act (LuftVG). The parliamentary groups of the coalition parties plan to bring in this draft before the Bundestag shortly. Therefore, DFS assumes that the amendment to the law will be passed before the summer recess of parliament.

12.2.1.2 Departure from the principle of full cost recovery For DFS, the shift from full cost recovery to a performance-oriented charging structure for en-route services brings with it significant changes in the cost and revenue positions. Within certain limits, DFS is now exposed to opportunities and risks resulting from air traffic development.

Risk transfer from traffic volume deviations Deviation in traffic volume (v) DFS share User share v ≤ 2% 100% --- 2% < v ≤ 10% 30% 70% v > 10% --- 100%

Savings or additional expenses are no longer passed on to the following periods, but directly impact the earnings of DFS. Currently, there are still issues concerning interpretation and application which could influence the future development of the company’s economic situation. From the point of view of DFS, there are a small number of measurement, accounting and charging issues which have not been unequivocally resolved since the date of the transition (31 December 2011/ 1 January 2012). The regulatory authority and DFS are working in a critical dialogue to draw up a binding catalogue of qualifying uncontrollable costs. Such costs will have to be borne in full by airspace users.

The current debate on the revision of the charges and performance regulation of the European Commission covers a redesign of the regulations on uncontrollable costs, which also covers the approval process. The current status of the drafts sees a final approval of each of these cost items by the Commission. The timing of this approval (annually/at the end of the reference period) is currently being negotiated. The new regulation is to already apply to the uncontrollable costs in the first reference period. Considering the unclear legal situation, DFS does not yet consider those costs that DFS itself believes, in its own legal opinion, should be borne by airspace users in the calculation of charges. On the other hand, provisions for obligations are being recognised for the uncontrollable costs that have to be reimbursed.

48 12.2.2 Regulation 12.2.2.1 Special treatment of occupational pensions for the purpose of calculating charges The changes to IAS 19 (Employee Benefits) will in particular mean that changes in the interest rates used for occupational pensions will no longer be smoothed, as the corridor approach is being abol- ished from 2013 on. The immediate impact will be higher equity volatility, which will be dampened somewhat by the introduction of the imputed model for regulated charges (see 5.5.2).

12.2.2.2 Determination of charges for terminal services In a directive dated 12 December 2012, the Federal Supervisory Authority for Air Navigation Ser- vices (BAF) laid down that the under-recovery concerning charges from 2011 had to be distributed over the years 2013 – 2015. It also reduced the planned rise in staff costs from 3 percent to 1 percent and raised the traffic forecast, which now lies above EUROCONTROL’s short-term forecast (as at 12/2012) and the DFS forecast for 2013. These measures provide relief for airspace users for the short term. Deviating from current practice, the under-recovery concerning charges from 2011 is now spread over a longer period of time instead of including it in full in 2013. This impacts the cost-base for determining charges and the liquidity situation.

Measures and impact by business year (€m) 2013 2014 2015 Under-recovery en-route -7.4 +3.7 +3.7 Staff costs due to salary rises under collective agreements -1.9 --- +1.9 Adjustment of traffic forecast -2.8 --- +2.8

12.2.3 Revenues and costs 12.2.3.1 Revenues DFS is currently observing a significant variance between the actual air traffic volume and the traffic forecast for the first reference period. The revenues of DFS will suffer a considerable negative impact from this in the first reference period.

Growth in connection with the new airport in Berlin, known as the Willy Brandt Airport, can only be expected quite a while after its opening as a result of the activities announced by Lufthansa. Initially it will merely consolidate the traffic flows from the Berlin-Schönefeld and Berlin-Tegel airports. The two latter airports are to be closed. The exact opening date of the Willy Brandt Airport is currently not known.

12.2.3.2 Costs The required increase in staff numbers in air traffic control will exert a central influence on expenses in the next few years. The growth in staff numbers in this core element of the business is to pre- vent ATC-related capacity bottlenecks in national and international air traffic. In addition, DFS has to increase its investment in the training of air traffic controllers to improve the delay situation. In the

49 Group management report 2012

future, this measure will counteract personnel shortages in some sectors and planned retirements as well as cater for the demand for an increased number of air traffic controllers, provided that the forecast traffic growth justifies the increase in staff numbers.

In 2011, DFS and the air navigation services union (GdF) concluded collective agreements covering remuneration and grading. The discussions with the local staff councils on the practical implementation of this agreement have not yet been completed.

The collective agreement covering grading runs until the end of October 2016. Three other collective agreements, which could be terminated in 2012, were actually terminated. These are the agreement covering remuneration (VTV), the agreement covering remuneration for apprentices (VTV-A) and the agreement covering allowances (ZTV). (See the supplementary report for the agreement reached after the balance sheet date.)

12.2.4 Capital expenditure In the future, replacement investments and capital expenditure for air navigation systems to expand capacity and upgrade infrastructure at the international airports in Munich and Berlin will lead to generally higher expenses for depreciation and amortisation. Additional capital expenditure will be written down by matched depreciation and amortisation expenses.

The evaluation process begun in the previous business year on the possible purchase of a significant stake in the UK air navigation service provider NATS will continue to be pursued for strategic reasons.

12.2.5 Financial position Two counteracting effects on the capital markets continue to significantly influence the financial position. In the first instance, low interest rates on the capital markets are favouring the take-up of debt and ensuring low interest expenses. However, the low returns that can currently be earned on the market mean that the pension plan assets cannot yield substantial income. The growth in plan assets is slowing. In addition, under IAS 19.78 the discount rate with which the obligation is to be measured and discounted is determined by reference to market yields on high quality corporate bonds. This rate is lower than the company-specific discount rate used previously and leads to significantly higher expenses for the vested benefits of staff, which has a considerable impact on staff costs.

The regulatory authority has laid down that the actual financing expense for occupational pensions should not be subject to the cost-efficiency targets of the performance plan, allowing a reliable servicing of this obligation.

The expected operating losses will be financed by a rise in debt, which will be paid down through sufficient future profits stemming from the adequate return laid down by the regulatory authority.

50 12.2.6 Earnings forecast The Board of Managing Directors expects stagnation in air traffic volumes in Europe overall.

In its current traffic forecast for 2013 (as at March 2013), it anticipates a decline of approximately 1.8 percent in the number of service units in the en-route area when compared with the performance plan. As the performance plan lays down a constant unit rate, the trend will be for DFS to have lower revenues in the en-route area.

The Board of Managing Directors has initiated countermeasures to tackle the decline in revenues, including cost-cutting programmes and a focus on limiting the planned rise in staff numbers, optimising capital expenditure and reducing project and general costs.

Nevertheless, the measures will only be able to partly offset the expected reduction in revenues compared with the plan and the rise in costs. The Board of Managing Directors anticipates operational losses in 2013 and 2014, which will be offset by catch-up effects.

Langen, 12 March 2013

The Board of Managing Directors Prof Klaus-Dieter Scheurle Robert Schickling Dr Michael Hann

51 DFS Deutsche Flugsicherung GmbH, Langen

Group statement of comprehensive income for the period 1 January 2012 to 31 December 2012

Note 2012 2011 €’000 €’000 Revenues (5) 1,101,317 1,070,253 Changes in inventory and other own work capitalised (6) 2,588 1,845 Other operating income (7) 77,779 38,442 Total operating revenues and income 1,181,684 1,110,540

Cost of materials and services (8) -6,705 -7,470 Employee expenses (9) -789,138 -701,875 Depreciation and amortisation (10) -105,026 -102,478 Other operating expenses (11) -143,968 -154,961

Earnings before interest and taxes (EBIT) 136,847 143,756

Financial income (12) 75,299 59,780 Financial expenses (12) -125,308 -115,084 Financial result (12) -50,009 -55,304

Profit (loss) before income taxes 86,838 88,452

Income taxes (13) -13,756 -8,818

Net income (24) 73,082 79,634 Of which attributable to the Shareholder of the parent company 73,082 79,634

Other result Items that can subsequently be reclassified in profit or loss: Change in the fair value of available-for-sale financial assets (24) -101 -159 Tax effects (24) -55 -84

Total other result (24) -156 -243 Of which attributable to the Shareholder of the parent company -156 -243

Total result 72,926 79,391 Of which attributable to the Shareholder of the parent company 72,926 79,391

52 Group balance sheet as at 31 December 2012

Note 31 Dec 2012 31 Dec 2011 €’000 €’000 Assets

Intangible assets (14) 234,074 236,434 Property, plant and equipment (15) 511,486 508,873 Investment property (16) 873 903 Financial assets (17) 40,526 35,032 Trade receivables (19) 7 0 Other receivables and assets (18) 135,229 50,642 Deferred tax assets (13) 0 6,291 Non-current assets 922,195 838,175

Inventories (21) 5,068 5,026 Trade receivables (19) 142,060 147,268 Future receivables from construction contracts (20) 1,415 3,998 Other receivables and assets (18) 20,061 24,746 Current income tax assets 4,150 2,188 Securities (22) 7,018 0 Liquid funds (23) 105,534 84,663 Current assets 285,306 267,889

Balance sheet total 1,207,501 1,106,064

Note 31 Dec 2012 31 Dec 2011 €’000 €’000 Equity and liabilities

Subscribed capital (24) 153,388 153,388 Capital reserve (24) 74,296 74,296 Retained earnings (24) -229,166 -302,248 Other reserves (24) -968 -812 Equity -2,450 -75,376

Provisions for pensions and similar obligations (25) 532,415 547,916 Other provisions (26) 127,864 127,933 Financial liabilities (27) 284,544 229,940 Trade payables (28) 798 1,123 Other liabilities (29) 4,672 50,533 Income tax liabilities 30,869 30,869 Deferred tax liability (13) 7,349 0 Non-current debt 988,511 988,314

Other provisions (26) 31,055 38,189 Financial liabilities (27) 3,627 0 Trade payables (28) 51,754 41,471 Other liabilities (29) 134,904 112,779 Income tax liabilities 100 687 Current debt 221,440 193,126

Balance sheet total 1,207,501 1,106,064

53 DFS Deutsche Flugsicherung GmbH, Langen

Group statement of changes in equity for the period 1 January 2012 to 31 December 2012

Of which attributable to the Shareholder Subscribed Capital Retained Other Total of the parent capital reserve earnings reserves company €’000 €’000 €’000 €’000 €’000 €’000 Note (24) (24) (24) (24) As at 1 Jan 2011 153,388 74,296 -381,882 -569 -154,767 -154,767 Payment of dividend to Shareholder 0 0 0 0 0 0 Total result Net income 0 0 79,634 0 79,634 79,634 Other result Change in the fair value of available-for-sale financial assets 0 0 0 -159 -159 -159 Tax effects 0 0 0 -84 -84 -84 As at 31 Dec 2011 153,388 74,296 -302,248 -812 -75,376 -75,376

Payment of dividend to Shareholder 0 0 0 0 0 0 Total result Net income 0 0 73,082 0 73,082 73,082 Other result Change in the fair value of available-for-sale financial assets 0 0 0 -101 -101 -101 Tax effects 0 0 0 -55 -55 -55 As at 31 Dec 2012 153,388 74,296 -229,166 -968 -2,450 -2,450

54 Group cash flow statement for the period 1 January 2012 to 31 December 2012

Note 2012 2011 (31) €’000 €’000 Net income 73,082 79,634 Depreciation and amortisation expense 105,026 102,478 Income taxes 171 8,818 Income from investments -339 -167 Gains (-) / losses (+) from the measurement of bonds -3,534 2,328 Gains (-) from the measurement of securities -7 -6 Gains (-) from asset disposals -1,775 -84 Losses (+) from asset disposals 996 3,522 Non-cash changes from the QTE transaction 2,651 0 Increase (-) in other receivables and assets -16,495 -30,606 Reduction (+) in deferred tax assets 6,235 713 Increase (-) / decrease (+) in inventories -42 27 Decrease (+) / increase (-) in trade receivables 5,201 -16,656 Increase (-) / decrease (+) in current tax assets -1,962 14,425 Decrease (-) in provisions for pensions and similar obligations -15,501 -25,166 Decrease (-) in other provisions -7,203 -9,466 Decrease (-) in other liabilities -22,834 -17,813 Increase (+) in trade payables 9,957 6,607 Decrease (-) in income tax liabilities -586 -1,814 Increase (+) in deferred tax liabilities 7,349 0 Taxes paid (-) / received (+) -2,741 4,484 Dividend received 339 167 Cash inflow from operating activities 137,988 121,425 Payments (-) for investments in intangible assets and property, plant and equipment -107,441 -120,387 Payments (-) for investments in financial assets -12,606 -386 Proceeds (+) from disposal of intangible assets and property, plant and equipment 2,970 1,304 Cash outflow for investing activities -117,077 -119,469 Proceeds (+) for finance leases 169 0 Interest result 6,271 3,905 Interest received 1,159 1,989 Interest paid -7,639 -8,339 Cash outflow for financing activities -40 -2,445 Net change in cash and cash equivalents 20,871 -489 Cash and cash equivalent at the beginning of the year 84,663 85,152 Cash and cash equivalent at the end of the year 105,534 84,663

55 Notes 2012

Notes to the group financial statements 2012

1. General basis DFS Deutsche Flugsicherung GmbH (DFS) is a company under private law and has its Headquarters in 63225 Langen, Am DFS-Campus 10, Germany. The company is registered on the Commercial Register (HRB 34977) at Offenbach am Main district court, Germany, as a limited liability company (GmbH). DFS is wholly owned by the Federal Republic of Germany, represented by the Federal Min- istry of Transport, Building and Urban Development (BMVBS).

The main business of DFS is defined by the tasks set out in Article 27c of the German Aviation Act (LuftVG). Under this act, DFS is entrusted with providing air navigation services (a sovereign task). The group management report contains information on the business activities of DFS and the object of the company (see 1.1 Business activities and 1.3 Legal and organisational framework conditions in the group management report).

2. Application of accounting standards The following regulations oblige DFS to draw up its group financial statements as of 31 Decem- ber 2012 in line with the International Financial Reporting Standards (IFRS):

EC Regulation 1606/2002 of the European Parliament and of the Council dated 19 July 2002 on the application of international accounting standards EC Regulation 550/2004 of the European Parliament and of the Council dated 10 March 2004 on the provision of air navigation services in the Single European Sky (the Service Provision Regulation) EC Regulation 1794/2006 of the Commission dated 6 December 2006 on laying down a common charging scheme for air navigation services EU Regulation 1191/2010 dated 16 December 2010 amending EC Regulation 1794/2006 of the Commission on the development of a common charging scheme for air navigation services

DFS applies the standards of the International Accounting Standards Board (IASB) and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) as recognised and endorsed by the European Union (EU).

The Accounting Law Reform Act (Bilanzrechtsreformgesetz – BilReG) dated 4 December 2004 enacted EU Regulation 1606/2002 in German commercial law (Article 315a German Commercial Code – HGB) and was adhered to in drawing up these financial statements.

56 These group financial statements of DFS were prepared in accordance with the standards endorsed for use in the EU.

The business year at DFS group corresponds to the calendar year (1 January to 31 December).

The Board of Managing Directors drew up the group financial statements and approved them for submission to the Audit Committee of the Supervisory Board on 12 March 2013. The Audit Commit- tee has the duty to check the group financial statements and state their view of them. The Supervi- sory Board discusses the group financial statements and the submission of the Audit Committee and issues a recommendation to the Shareholder to approve the group financial statements. The Share- holder may amend the group financial statements released by the Board of Managing Directors. The approved group financial statements are available via the electronic German Federal Gazette in accordance with Article 325 paragraph 2a no. 1 of the HGB and from the website at www.dfs.de.

3. Scope of consolidation

Acronym Company Registered seat Shareholding in % DFS DFS Deutsche Flugsicherung GmbH Langen, Germany Parent company Affiliated companies ESSP DFS European Satellite Services Provider Beteiligungsgesellschaft mbH Langen, Germany 100.00 U-Kasse (Benevolent fund) DFS Unterstützungskasse GmbH Langen, Germany 100.00 TTC The Tower Company GmbH Langen, Germany 100.00 Energy DFS Energy GmbH Langen, Germany 100.00 FCS FCS Flight Calibration Services GmbH Braunschweig, Germany 55.00 Investments GroupEAD GroupEAD Europe S.L. Madrid, Spain 36.00 BILSODA BILSODA GmbH & Co. KG Pullach, Germany 24.90 Investments through affiliated companies Investment through DFS European Satellite Services Provider Beteiligungsgesellschaft mbH: ESSP SAS European Satellite Services Provider Société par Action Simplifiée Toulouse, France 16.67 Investment through The Tower Company GmbH: TATS Tower Air Traffic Services S.L. Madrid, Spain 50.00

DFS recognises its stakes in affiliated companies and investments at cost (see Note 17 Finan- cial assets and Note 40.1 Related parties – entities). Even when taken as a whole, the stakes do not impact the net assets, financial position and results of operation of the group and are therefore not included in the scope of consolidation.

57 Notes 2012

4. Accounting policies DFS and its subsidiaries carry out their accounting and measurement using uniform standards. It applies the historical cost principle, unless IFRS prescribes a different measurement principle.

4.1 International financial reporting standards and interpretations 4.1.1 Mandatory standards and interpretations DFS uses the following revised standards that are mandatory for business years beginning on or after 1 January 2012. The endorsement by the European Union is made with the publication of the standard in the Official Journal of the European Union.

Standard Title Publication EU Effective IASB endorsement date IFRS 7 Financial instruments: Disclosures 7 Oct 2010 22 Nov 2011 1 Jul 2011 (Transfer of financial assets)

The amendments to IFRS 7 expand the disclosures required for financial instruments. A company that transfers financial assets to another company has to publish information on the financial assets that have been derecognised in their entirety when the company has a continuing involve- ment in these assets. It also requires supplementary disclosures for transferred assets that have not been derecognised in their entirety. The standard is mandatory for all business years beginning on or after 1 July 2011 and earlier application is permitted. Neither the amendments to IFRS nor the transitional provisions impact the group financial statements.

4.1.2 Voluntary standards and interpretations The IASB has published the following revised or new standards and interpretations. The standards have already been incorporated into European law as part of the endorsement procedure. They become mandatory from the point in time given and earlier application is permitted.

DFS is currently examining the impact of the new and amended standards on the group’s net assets, financial position and results of operation. The standards will be applied when they become mandatory and earlier application will not be availed of.

58 Standard Title Publication EU Effective IASB Endorsement date IFRS 7 Financial instruments: Disclosures 16 Dec 2011 13 Dec 2012 1 Jan 2013 (Offsetting of financial assets and liabilities) IAS 32 Financial instruments: Presentation 16 Dec 2011 13 Dec 2012 1 Jan 2014 (Offsetting of financial assets and liabilities) IFRS 1 First time adoption of IFRS 20 Dec 2010 11 Dec 2012 1 Jan 2013 (Severe hyperinflation and removal of fixed dates for first-time adopters) IFRS 10 Group financial statements 12 May 2011 11 Dec 2012 1 Jan 2014 IFRS 11 Joint arrangements 12 May 2011 11 Dec 2012 1 Jan 2014 IFRS 12 Disclosure of interests in other entities 12 May 2011 11 Dec 2012 1 Jan 2014 IFRS 13 Fair value measurement 12 May 2011 11 Dec 2012 1 Jan 2013 IAS 27 Separate financial statements 12 May 2011 11 Dec 2012 1 Jan 2014 IAS 28 Investments in associates and joint ventures 12 May 2011 11 Dec 2012 1 Jan 2014 IAS 12 Deferred taxes (Recovery of underlying assets) 20 Dec 2010 11 Dec 2012 1 Jan 2013 IFRIC 20 Stripping costs in the production phase of a surface mine 19 Oct 2011 11 Dec 2012 1 Jan 2013 IAS 1 Presentation of financial statements 16 Jun 2011 5 Jun 2012 1 Jul 2012 (Presentation of components of other comprehensive income) IAS 19 Employee benefits 16 Jun 2011 5 Jun 2012 1 Jan 2013

The new standard IFRS 10 lays down a new control model for the consolidation of companies in the group financial statements. The standard also offers guidelines on what to do in cases of doubt. IFRS 11 lays down the accounting principles for a joint arrangement and is based on the rights and obligations involved. IFRS 12 standardises the disclosures for all types of interests in other entities. IAS 27 and IAS 28 were amended as a consequence of the new IFRS and govern the accounting of separate financial statements and investments in associates and joint undertakings. DFS does not expect the new and revised standards to impact the scope of consolidation as the investments in affiliated companies are immaterial even when viewed as a whole.

59 Notes 2012

The revised IAS 19 discontinues the corridor method for actuarial gains and losses. They are now called “Revaluations” and recognised directly in equity under “Other result” at the point in time at which they are incurred. In the case of plan changes and plan curtailments, the non-vested, past service costs are recognised directly in profit or loss at the point in time at which they are incurred. The expected income from plan assets and the interest expense for plan obligations are discounted uniformly and reported as the net interest component. IAS 19 also requires comprehensive disclosures on the obligations under occupational pension plans.

4.1.3 Published, though not yet mandatory, standards and interpretations The IASB has issued the following standards which are not yet mandatory. Before these can be applied, they need to be recognised and endorsed by the EU. They become mandatory from the point of time given.

DFS is currently examining the possible impact on the group financial statements. DFS does not avail of the right of earlier application for new or revised standards.

Standard Title Publication Expected Relevant IASB effective data for DFS IFRS 9 Financial instruments 12 Nov 2009 1 Jan 2015 Yes IFRS 1 First time adoption of IFRS 13 Mar 2012 1 Jan 2013 No (Government loans) Catalogue Improvements to international financial 17 May 2012 1 Jan 2013 Yes reporting standards (2009 – 2011) IFRS 10–12 Transitional provisions to IFRS 10, 11 and 12 28 Jun 2012 1 Jan 2014 Yes IFRS 10 Group financial statements (Investment entities) 31 Oct 2012 1 Jan 2014 Yes IFRS 12 Disclosure of interests in other entities 31 Oct 2012 1 Jan 2014 Yes (Investment entities) IAS 27 Separate financial statements (Investment entities) 31 Oct 2012 1 Jan 2014 Yes

4.2 Changes to accounting policies using estimates, assumptions and judgements DFS makes forecasts of future developments for accounting and measurement purposes. These forecasts might not correspond to actual later events. The comprehensive set of assumptions, estimates and judgements made may have a considerable influence on the representation of the net assets, financial position and results of operation of DFS. They are based on experience and expectations about the occurrence of future events which appear commercially reasonable in the given circumstances. DFS continuously proves its estimates and prognoses. Any deviations from the actual circumstances are recognised and assigned to the period involved.

60 4.2.1 International financial reporting standards and interpretations Revisions to accounting policies resulting from new and revised standards and interpretations are applied retroactively, unless otherwise regulated. The prior-year statement of comprehensive income and the opening balance sheet for the prior-year period are adjusted as if the new accounting policies had always applied.

4.2.2 Intrinsic value of financial assets Impairment tests are carried out on financial assets to determine the present value of expected future cash flows if there are objective indications of impairment (see Note 4.5.2 Impairments). DFS evaluates, in addition to other factors, the timing and extent of variances from cost, interest and exchange rates, the financial situation, the short-term business prospects as well as the general economic situation. When there are doubtful trade receivables, DFS evaluates the creditworthiness of customers and determines the allowance for doubtful accounts required based on probable default risks from information on insolvencies (see Note 4.6.7 Trade receivables).

4.2.3 Long-term service contracts DFS realises revenues from long-term service contracts using the percentage-of-completion method (see Note 4.5.1 Income and expense recognition). To determine the percentage of completion and thus the performance progress, estimates are required of the material influencing factors such as costs incurred, contract income and contract risks. The responsible expert departments constantly review all the estimates and make any necessary adjustments.

4.2.4 Pensions and similar obligations The measurement of pensions and similar obligations is based on assumptions set out at the beginning of the business year (see Note 25.2 Actuarial assumptions). The discount rate is based on the market yields for high quality corporate bonds. The interest rate for the expected income from plan assets can be derived from current market conditions. The rates for the salary trend and the projected increase in benefits are based on historic experience. Any change to these assumptions has an impact on the carrying amount of the pension obligations and on the expenses and income recognised in the statement of comprehensive income. Variances between the judgements and the actual circumstances are considered by DFS using the corridor method (see Note 4.6.13 Pensions and other obligations).

Owing to the amendments to IAS 19 (see Note 4.1.2 Voluntary standards and interpretations) and the associated discontinuation of the corridor method, DFS projects that it will have to recognise actuarial losses of €1,295 million directly in equity as of 1 January 2013 (see Note 25.6 Provisions for pensions).

61 Notes 2012

The discount rate used for measurement purposes has been reduced by 1.60 percentage points from 4.50 percent to 2.90 percent from 1 January 2013.

The new collective agreement on health and long-term care insurance dated 17 January 2012 obliges DFS to make a supplementary payment for the statutory health insurance of the benefi- ciaries. This resulted in past service costs under pension obligations.

4.2.5 Other provisions The measurement of other provisions requires judgements on estimated costs, expected cash flows and their maturities (see Note 4.6.14 Other provisions). The provisions relate to contracts, collective agreements, legal provisions or other obligations. They are recognised based on financial and actuarial calculations and historic experience using sound commercial judgement. The premises underlying other provisions are reviewed annually and adjusted to current circumstances as necessary.

The discount rates for non-current provisions were adjusted to the development of interest rates in the business year (see Note 26 Other provisions).

4.3 Changes to comparative information in previous periods

Line item in the balance sheet and number in the Notes Before After €’000 €’000 Note 9 Employee expenses Social security costs and expenses for 130,249 pensions and assistance Expenses for IFRS pensions 71,740 Social security costs and expenses for assistance 58,509 Note 11 Other operating expenses Rental, leasing and occupancy costs 35,424 Occupancy costs 22,370 Rent and leasing costs 13,054 Note 24 Reconciliation to adjusted equity Occupational pensions from a charges-related perspective 0 80,136 Charges-related inclusion of Energy 0 -256 Note 30 Notes to segment reporting Segment reporting and their reconciliation were adjusted following the introduction of the regulated procedure for collecting charges on 1 January 2012. Note 32 Financial instruments Fair value of shares in affiliated companies 27,172 28,892

62 4.4 Currency translation The group financial statements and the separate financial statements are drawn up in the reporting currency euro. As a rule, all amounts are given in thousands of euro (units of currency). The common method of rounding is used.

Non-monetary items (such as intangible assets, property, plant and equipment, inventories) in foreign currencies are carried at historical cost. Monetary items (e.g. liquid funds, receivables, liabilities) in foreign currencies are translated by DFS at the rate prevailing on the reporting date and the currency effects are recognised in the income statement.

Currency ISO code Standard EMU Standard EMU conversion conversion conversion conversion Mean exchange Asked price Mean exchange Asked price rate rate 1 EUR = 31 Dec 2012 31 Dec 2012 31 Dec 2011 31 Dec 2011 U.S. dollar USD 1.31940 1.32240 1.29390 1.29690 British pound GBP 0.81610 0.81810 0.83530 0.83730 Swiss franc CHF 1.20720 1.20920 1.21560 1.21760 Japanese yen JPY 113.61000 113.85000 100.20000 100.44000

4.5 Items in the statement of comprehensive income 4.5.1 Income and expense recognition Revenues and other operating income are recognised if:

■ the provision of the service or the sale of goods involves the transfer of the material risks and rewards to the customer;

■ it is probable that future economic benefits will be generated from the transaction;

■ there is no right of disposition nor effective control; and

■ the level of revenues and the costs to sell incurred and expected can be quantified reliably.

Operating expenses are recognised in the income statement when the service is used or at the time the expenses are incurred.

DFS accounts for revenues and expenses from long-term service contracts using the percentage- of-completion method. Revenues are recognised based on the stage of completion. The stage of completion results from the relationship between the contract costs incurred up to the reporting date and planned contract costs to this date. If the execution of the service contract requires a significant period of time, contract costs may also include direct borrowing costs. Variations in con-

63 Notes 2012

tract work, claims and incentive payments are included to the extent that they have been agreed with the customer. The contract costs are expensed using the matching principle. If the total contract cost exceeds the total contract revenue, the expected loss is expensed immediately. If the results of a service contract cannot be estimated reliably, the probable revenues are recorded at the value of the costs incurred. Revenues from long-term service contracts accounted for using the percentage-of-completion method are reported by DFS under “Future receivables from construction contracts” in the balance sheet after deducting any payments received.

Interest income and expenses are recorded in accordance with the matching principle.

4.5.2 Impairments Non-financial assets are reviewed at the balance sheet date to determine if there are indications of impairment. This involves comparing the carrying amount with the recoverable amount of the asset.

The carrying amount is the amount at which an asset is recognised after deducting any accumulated amortisation/depreciation and accumulated impairment losses thereon. The recoverable amount is the higher of the net realisable value and the value in use. The net realisable value is equal to fair value less costs to sell. Value in use is the present value of the future cash flows expected to be derived from the continuing use of an asset and its disposal at the end of its useful life. DFS calculates the present value using an interest rate before tax that reflects market conditions, calculated using the estimated zero-coupon curves of the German Bundesbank (using the Svensson method). No risk premium in accordance with IAS 36.55 (b) was used, as the assets are not exposed to any special risks.

If the recoverable amount of an asset is less than the carrying amount, an impairment is made to the recoverable amount. If a recoverable amount cannot be determined for the individual asset, then it is determined for the smallest cash generating unit to which the relevant asset can be allocated. Impairment losses are immediately recognised in the income statement.

If at a later date the reasons for impairments made in previous years no longer apply, either in full or in part, the impairment loss is reversed accordingly. The reversal is limited to the carrying amount which would have applied if the impairments from the past were excluded and is recognised in the income statement. It is not permissible to reverse impairments of goodwill.

64 4.6 Items in the balance sheet 4.6.1 Intangible assets Assets acquired for valuable consideration are capitalised at cost when it is probable that the asset will generate future economic benefits for the company and the costs can be measured reliably.

Intangible assets that arose from own development activities are capitalised at cost. This presup- poses that future economic benefits will be generated from the products. Production costs comprise all direct costs and an appropriate share of development-related overhead. Borrowing costs are capitalised as part of production costs in accordance with the requirements of IAS 23.

Prepayments are measured at cost. The prepayments are allocated to the respective intangible assets at the time of commissioning and written off over their useful life.

Intangible assets have a limited useful life. They are written off on a straight-line basis from the beginning of use.

Intangible assets Useful life Concessions, industrial and similar property rights and assets as well as licences in such rights and assets 3-8 years Internally generated intangible assets 8 years Prepayments Only after commissioning

Research expenses and government grants are recognised in profit or loss.

4.6.2 Property, plant and equipment Tangible assets acquired for valuable consideration are capitalised at cost when it is probable that the asset will generate future economic benefits for the company and the costs can be measured reliably.

Costs include the purchase price as well as all directly attributable costs required to bring the asset to the site and get it into the working condition as intended by management.

DFS divides property, plant and equipment (in particular buildings) into the material economic components and reports them separately. Costs for the replacement of components and general overhaul are capitalised separately.

65 Notes 2012

Production costs for internally generated property, plant and equipment comprise direct production costs (prime costs), as well as an appropriate share of manufacturing overhead as well as the borrowing costs that are directly attributable up to the point in time of completion in accordance with IAS 23.

Government grants are deducted from the carrying amount of the corresponding asset.

All assets (except for land) have a limited useful life and are written off on a straight-line basis from the beginning of use:

Property, plant and equipment Useful life Building – Structure 25–40 years Building – Façade 25–30 years Building – Interior finishing 25 years Building – Heating, ventilation, water 15–25 years Building – Electronics 15–25 years Outdoor installations 5-19 years Technical equipment 3–20 years Operating and office equipment 5–20 years

Costs for repairs and ongoing maintenance of property, plant and equipment that do not lead to an extension or material improvement are recognised under other operating expenses in the income statement.

When property, plant and equipment are sold, decommissioned or scrapped, any gains or losses from the difference between the net disposal proceeds and the amortised cost are recognised in other operating income or expenses.

4.6.3 Leases DFS concludes rental and lease contracts with limited or unlimited terms to maintain flexibility as regards liquidity. The company examines the contracts to establish whether they are finance leases that have to be capitalised or operating leases to be expensed.

A lease is considered a finance lease when the lessor transfers all the material risks and rewards from ownership of an asset to the lessee (IAS 17.10). If these conditions are not met, DFS clas- sifies the lease as an operating lease.

For finance leases, DFS capitalises the lower of the present value of the minimum lease payments or the fair value of the leased asset. The payment obligations resulting from future lease

66 instalments are recognised as a financial liability at the corresponding value of the leased asset. The minimum lease payments are split between a principal component and an interest component, with the interest being calculated using the effective interest rate method. DFS depreciates the leased asset over the shorter of the estimated useful life or the term of the lease.

The lease payments under operating leases are expensed over the term of the lease arrangement on a straight-line basis.

4.6.4 Investment property Some property is not used operationally at DFS, but is exclusively held either for rental income or capital gains. Such property is classified as investment property, measured at amortised cost and written off on a straight-line basis.

4.6.5 Financial instruments – Financial assets Financial instruments relate to all contractual claims and obligations that directly or indirectly lead to an exchange of cash. Such an instrument is a contract which results in a financial asset for one party and either a financial liability or an equity instrument for the other party.

Financial assets are classified as “At fair value through profit or loss”, “Held-to-maturity”, “Loans and receivables” or “Available-for-sale” (see Note 32 Financial instruments).

■ The category “At fair value through profit and loss” comprises financial assets that are held for trading. Financial assets are assigned to this category if they were acquired with the intention to sell in the short term. Derivatives also belong to this category unless they qualify as hedging instruments. DFS exclusively employs effective derivatives to hedge existing and future interest rate and currency risks under a hedging policy defined by the Board of Manag- ing Directors and monitored by the Treasury department (see 6.5 Financial management and 11.3.2 Financial risks contained in the group management report). While interest rate swaps are used to manage interest risk, cross-currency swaps hedge both interest rate risk and currency risk from financing in foreign currencies. Initial recognition as of the time of settlement and subsequent measurement occur at fair value. The fair value of derivatives with positive and negative fair values is determined on the basis of published market prices. The market value of a financial instrument is the amount which can be obtained in an arm’s length transaction between knowledgeable willing parties under prevailing market conditions. In determining the fair value of a derivative financial instrument, compensating effects from the primary transaction (e.g. pending business or anticipated transactions) are excluded. The fair values of foreign exchange contracts are determined on the basis of the latest ECB reference rates taking account of the forward premiums and discounts for the remaining term to trade date and/or measurement date. The fair values of interest rate hedges (e.g. interest rate swaps, cross-cur-

67 Notes 2012

rency swaps) are calculated on the basis of discounted future expected cash flows. The market interest rate appropriate for the remaining term of the financial instrument or the implicit interest rate which can be derived is applied. If there is no quoted market price, a different suitable measurement method is used. These methods include all factors that an independent, informed marketplace participant would take into consideration when pricing and represent the common, recognised economic models used for the pricing of financial instruments. Financial instruments are deemed current if their realisation is expected within 12 months. Otherwise, they are disclosed as non-current. Derivative financial instruments with positive fair values are reported as receivables; those with negative fair values are reported as liabilities. All derivative financial instruments were accounted for without the creation of designated hedging relationships. The changes in the fair value between the reporting dates are recognised in profit or loss in the financial result.

■ The category “Held-to-maturity” contains non-derivative financial assets with fixed and determinable payments, and a fixed term (for more disclosures on the new receivable from the QTE transaction see Note 18 Non-current and current receivables and assets). The company must have the intention and ability to hold the financial instruments until maturity. Initial recognition occurs at fair value as of the time of settlement (plus direct transaction costs). Receivables denominated in a foreign currency are translated at the reporting date and recognised in the income statement. Subsequently, financial instruments are carried at amortised cost using the effective interest method. If there are doubts about the collectibility of receivables, they are written down to the lower recoverable amount based on the estimated probability of default. If the amount of the write-down declines in the following periods, the required reversals are made through the income statement. Interest income is reported in the financial result.

■ The category “Loans and receivables” consists of financial assets with fixed or determinable terms of payment which are not traded on an active market. The assets are broken down into non-current and current remaining terms. Initial recognition occurs at fair value as of the time of settlement (plus direct transaction costs). Receivables denominated in a foreign currency are measured at the reporting date and recognised in the income statement. Subsequent measurement is at amortised cost using the effective interest rate method for interest bearing and non-interest bearing loans and receivables. If there are doubts about the collectibility of receivables, they are written down to the lower recoverable amount based on the estimated probability of default and the impairment loss is recognised. If the amount of the write-down declines in the following periods, the required reversals are made through the income statement. Interest income is reported in the financial result.

■ The category “Available-for-sale” includes all additional financial assets which cannot be allocated to any other category (such as financial assets, securities). Initial recognition occurs at fair

68 value as of the time of settlement (plus direct transaction costs). Subsequent measurement of this category occurs at fair value to the extent this can be reliably determined at the balance sheet date. For securities, the fair value is determined from the price on an active market. Unrealised gains and losses from changes in fair value between the reporting dates are recognised directly in equity in other reserves. Upon the sale of financial assets or a permanent impairment of the market value below the carrying amount, other reserves are reversed and the cumulative gains and losses are recognised in profit or loss.

Financial assets are derecognised when the contractual rights to payments from the financial assets no longer exist or all risks and rewards have been transferred.

The fair value for financial instruments is the amount which DFS would receive or pay if the financial instruments were exchanged or settled at the balance sheet date. For financial instruments in the category “Available-for-sale”, the fair value corresponds to the market price on active markets. If no such markets are available, the fair value is determined using recognised valuation models or the external valuations of third parties on the basis of the market conditions prevailing at the balance sheet date (for example, interest and exchange rates). The fair value of the category “Loans and receivables” corresponds to the carrying amount.

4.6.6 Investments accounted for using the equity method Investments accounted for using the equity method are capitalised at cost on the acquisition date and, in subsequent periods, adjusted to account for the associated changes in equity. If there are indications for an impairment of investments, the lower recoverable amount is used as required by the regulations of IAS 36 (see Note 4.5.2 Impairments).

69 Notes 2012

4.6.7 Trade receivables Trade receivables are carried at amortised cost. The carrying amounts of trade receivables equal their fair value.

DFS determines the allowance for doubtful accounts required based on probable default risks from information on insolvencies. DFS also demands security deposits from customers with relevant sales volumes when defined warning thresholds are exceeded. The allowances for doubtful accounts are recognised in a separate allowance account in the income statement. The write- downs are reversed directly through the income statement should the reasons for the impairment no longer apply in subsequent periods. If a receivable that had already been written down is classified as uncollectible, it is written off completely.

Trade receivables in foreign currencies amount to €1,161 thousand (previous year: €609 thousand). Due to the low value (<€50 thousand), there was no revaluation.

4.6.8 Other receivables and assets Receivables and other assets are carried at amortised cost. The carrying amounts of other receivables and assets equal their fair value.

After the probable default, allowances for doubtful accounts are measured based on an analysis of their age and maturity and information on insolvencies and recognised as an expense on a separate allowance account.

Other receivables and assets in foreign currencies are measured at the reporting date and recognised in the income statement.

4.6.9 Deferred taxes IAS 12 governs the treatment of deferred taxes using the liability method. Deferred tax assets and liabilities are recognised for all temporary differences between the tax base of assets and liabilities and their carrying amounts in the group balance sheet according to IFRS as well as for consolidation adjustments recognised in profit or loss. The differences are limited to those items whose changes influence taxable earnings.

As a rule, items covered by full cost recovery (cf. Article (§) 32 paragraph 4 sentence 1 item 6 of the German Aviation Act – LuftVG) are excluded. This also takes into account the ability to retroactively charge over a period of 15 years for the valuation differences from the conversion of the cost-base for service charges from HGB to IFRS on first adoption. Since 2012, it has also taken into account the differences between the obligation and assets from occupational pensions. This was authorised by the national regulatory authority.

70 Deferred tax assets are also recognised for future claims to tax reductions resulting from tax loss carryforwards. Deferred tax assets for deductible temporary differences and for tax loss carryforwards are only recognised to the extent that there are future taxable profits which either the temporary differences or unused taxable losses can offset.

The computation of deferred taxes is based on the existing or applicable income tax rates in each country on the date of valuation. The income tax rate of 29.83 percent (previous year: 29.83 percent) is made up of a corporate income tax of 15.00 percent, a solidarity surcharge of 5.50 percent and a weighted-average German municipal trade tax multiplier rate of 400.00 percent on a tax rate (Steuermessbetrag) of 5.00 percent. The result of changes in tax rates on deferred tax assets and liabilities is reflected in the income tax expense for the period in which the law was changed.

Deferred tax assets and liabilities are netted if permitted under law and the receivables and payables are against the same tax authority.

Deferred tax assets and liabilities are not discounted.

4.6.10 Liquid funds Liquid funds include cash, cash accounts and short-term money market investments and certificates of deposit at credit institutions. Cash and cash equivalents are carried at amortised cost.

Liquid funds in foreign currencies are converted at the closing rate.

Overdrafts taken up are reported by DFS in the balance sheet as liabilities to credit institutions under current finance liabilities.

4.6.11 Inventories Inventories are carried at cost based on the weighted average method or at production cost.

Production costs comprise direct production costs (especially direct materials and direct labour) as well as an appropriate share of the necessary material and manufacturing overhead. Adminis- trative expenses and costs of employee assistance programmes are included to the extent they can be allocated to production. Financing costs are not recognised as part of production costs.

71 Notes 2012

Subsequent measurement occurs at the lower of deemed cost and net realisable value. Inventory risks resulting from the duration of storage or impaired usability led to write-downs upon determination of the net realisable value. If the reasons for a write-down no longer apply, the write-down is reversed. Lower values at the reporting date due to lower prices on sales and purchase markets were taken into account.

4.6.12 Other reserves This item relates to changes recognised directly in equity, provided they are not based on capital transactions with the Shareholder. This includes, in particular, the changes in fair value of the available-for-sale financial assets and their associated tax effects.

4.6.13 Provisions for pensions and similar obligations Defined benefit plans are measured in accordance with IAS 19 using the projected unit credit method on the basis of actuarial reports at the balance sheet date. This requires, in particular, assumptions to be made about future salary and pension developments as well as average life expectancy. The premises on salary and pension developments are based on historical trends and take into account country-specific interest and inflation levels. Biometric data serve as the basis for the estimates of average life expectancy.

The interest rate used to discount future benefits is the market yield on high-quality corporate or government bonds.

Differences between the assumptions made and what has actually occurred are reflected in actuarial gains and losses. The amortisation of actuarial gains and losses are made using the corridor approach. This method only recognises actuarial gains and losses as income or expense when they exceed 10.00 percent of the higher amount of 1) the obligation from the defined benefit plan or 2) the fair value of the plan assets. The amount that exceeds the corridor is amortised proportionally through the statement of comprehensive income over the average remaining working life of the active employees.

The service cost, which reflects the additional claims of active employees gained in the business year, is reported under employee expenses. The interest expense and expected income from plan assets are reported under financial result.

The development of plan assets is made up of the contributions, payments and income from a conventional reinsurance contract with a conservative investment policy in accordance with section 54a of the German Insurance Supervision Act (VAG). An opportunity-oriented fund investment in an investment company under section 54b of the VAG permits a higher equity rate for the insurer for the main DFS contract to gain a long-term increase in returns compared with the

72 return provided by the consortium. The fund investment is restricted to a maximum of half of the actuarial reserve. The expectations placed on the fund investment are formulated by the strategy commission. It considers the latest expectations for the capital markets and risk issues. Pension obligations for which there are plan assets are netted against the fair value of these plan assets.

Payments for defined contribution plans are expensed when due and reported as part of employee expenses.

4.6.14 Other provisions Other provisions are recognised for past events that result in present obligations to third parties. These provisions must be capable of being estimated reliably and lead to an outflow of resources in the future with a probability of at least 50.00 percent. A provision is recognised with the settlement amount, which represents the highest probability of occurrence based on best estimates and under consideration of all discernible risks.

DFS expects the majority of the other provisions to fall due in the next one to thirty years. Indi- vidual provisions may involve longer time periods. Therefore uncertainties remain as to the timing and concrete amount of the expenses. Nevertheless, DFS expects to utilise the full amount of the provisions (100%) and expects that the outflow of economic benefits will equal the amount set aside in the provisions.

Provisions for obligations which in all probability will not lead to a reduction in assets in the subsequent year are discounted at prevailing market rates and carried at the present value of the expected outflow of resources, provided the interest effect is material. The discount rates are based on the yields on debt securities outstanding issued by residents, public debt securities and listed Federal securities corresponding to their remaining term as published by the German Bun- desbank. In addition to these yields, a company-internal risk premium of 0.25 percent is added.

If a change in an estimate results in a reduction of the obligation, then the provision is reversed proportionally and the income reported under other operating income.

73 Notes 2012

4.6.15 Financial instruments – Financial liabilities Financial liabilities generally give rise to a claim for repayment in cash or in the form of another financial asset. The classification is subdivided into the categories “At fair value through profit or loss” and “Amortised cost” (see Note 32 Financial instruments).

Financial liabilities with maturities longer than one year correspond to the fair value of the amount discounted at the risk-free rate.

Liabilities denominated in a foreign currency are converted using the rate at the reporting date.

■ Financial liabilities of the category “At fair value through profit and loss” (derivative financial instruments) are held exclusively for trading purposes (see 6.5 Financial management and 11.3.2 Financial risks in the group management report. The initial and subsequent recognition is at fair value. The fair value is based on quoted prices at the balance sheet date. The changes in fair value between the reporting dates and interest expenses are recognised in profit or loss in the financial result.

■ The category “Amortised cost” contains all other financial liabilities which cannot be allocated to another category. The initial recognition is at fair value, including transaction costs directly connected with the issuance of the liability. Subsequent measurement of liabilities is at amortised cost using the effective interest rate method for liabilities with high or low interest rates. Bonds and debenture loans are carried at amortised cost using the effective interest method. The fair value of bonds is calculated from the present value of future expected cash flows using a discount rate based on prevailing market interest rates. Owing to the short-term maturity of trade payables and other liabilities, the carrying amount equals the fair value. Amounts derecognised and allowance for doubtful accounts are disclosed in profit and loss and interest expenses in the financial result. Trade payables in foreign currencies amount to €613 thousand (previous year: €995 thousand). Due to the low value (<€1 thousand), there was no revaluation.

74 Notes to the statement of comprehensive income

5. Revenues

2012 2011 €’000 €’000 Revenues from air navigation services 1,080,935 1,050,186 Other revenues 20,382 20,067 Revenues 1,101,317 1,070,253

Revenues from air navigation services 2012 2011 €’000 €’000 En-route charges 753,373 739,112 Terminal charges 218,257 207,365 Payments to German MET Service and MoT from terminal charges -694 -568 Offsetting over-recovery/under-recovery from previous year 12,810 -7,250 Under-recovery of charges for current year 26,225 39,672 Revenues from en-route and terminal charges 1,009,971 978,331 Reimbursements by the State for military flights and facilities 57,064 57,707 Reimbursements by the State for exempted flights 6,500 6,500 Aeronautical publications 3,349 3,644 Flight inspection services 2,990 3,069 Other air navigation services 1,061 935 Revenues from air navigation services 1,080,935 1,050,186

6. Changes in inventory and other own work capitalised

2012 2011 €’000 €’000 Changes in inventory of finished goods and work in progress 129 -18 Other own work capitalised 2,459 1,863 (primarily internally generated IT systems) Changes in inventory and other own work capitalised 2,588 1,845

75 Notes 2012

7. Other operating income

2012 2011 €’000 €’000 Income from QTE transaction 52,248 13,727 – of which income from the reversal of QTE provision 495 8,406 R&D project funding by the EU Commission and German federal and regional ministries recognised in the income statement 7,192 5,935 Cost reimbursements 4,827 3,954 Revenues from energy sales 48 2,442 Income from the reversal of provisions 801 1,615 Income from the derecognition of liabilities 5,254 4,718 Rental income 648 623 Income from asset disposals 1,775 84 Miscellaneous 4,986 5,344 Other operating income 77,779 38,442

8. Cost of materials and services

2012 2011 €’000 €’000 Cost of raw materials, consumables and supplies, and of purchased goods 935 2,756 Cost of purchased services (flight inspection and consulting services) 5,770 4,714 Cost of materials and services 6,705 7,470

9. Employee expenses

2012 2011 €’000 €’000 Wages and salaries* 586,068 550,349 Expenses for IFRS pensions** 110,229 71,740 Social security costs and expenses for assistance 66,957 58,509 Cost of personnel belonging to the Federal Aviation Office (LBA) 25,884 21,277 Employee expenses 789,138 701,875 * See Note 41.1 for the remuneration of the Board of Managing Directors ** For the expenses and income for occupational pensions contained in the statement of comprehensive income see Note 25.7 Expenses and income

Besides the usual outlays for wages, salaries and social security expenses for DFS personnel, this item also includes the costs charged by the Federal Aviation Office (LBA) personnel belonging to the LBA.

76 Average annual number of employees 2012 2011

Salaried staff 5,280 5,143 Soldiers released from regular service 246 259 Wage-earners 29 31 Technical and commercial students and apprentices 266 261 DFS personnel 5,821 5,694 Employees covered by the collective agreement for the public service (TVöD) 67 73 Established civil servants 216 235 Personnel belonging to the Federal Aviation Office (LBA) 283 308 Total number of staff employed 6,104 6,002

10. Depreciation and amortisation

2012 2011 €’000 €’000 Intangible assets 33,650 30,737 Property, plant and equipment 71,346 71,711 Investment property 30 30 Depreciation and amortisation 105,026 102,478

The impairment tests carried out in the business year resulted in no impairment charges being recognised for intangible assets; property, plant and equipment; investment property and financial assets.

77 Notes 2012

11. Other operating expenses

2012 2011 €’000 €’000 Spare parts and maintenance 37,369 44,061 Occupancy costs 22,264 22,370 Rent and leasing costs 12,291 13,054 Costs of external personnel 12,430 15,008 Other employee expenses 9,640 12,623 Legal and consultancy costs 13,324 9,330 Travel costs 7,572 8,168 Telecommunication costs 8,618 7,642 Costs from previous years 658 4,663 Vehicle costs 3,330 3,085 Asset disposals 419 2,660 Insurance policies 2,184 2,417 Apportionment EUROCONTROL 1,753 1,911 Magazines, journals, stationery 1,280 1,343 Advertising costs 1,112 1,138 Entertainment 930 1,109 Costs of monetary transactions 817 668 Write-downs and write-offs of receivables 2,185 444 QTE costs 2,695 54 Remaining 3,097 3,213 Other operating expenses 143,968 154,961

Additional disclosures on other operating expenses 2012 2011 €’000 €’000 Minimum lease payments from operating leases 12,291 13,054 Impairment losses on financial assets in the category “Loans and receivables” 2,797 3,158

78 12. Financial result

2012 2011 €’000 €’000 Income from fund assets to finance pension obligations 67,029 53,070 Income from foreign currency translation 3,561 1,812 Interest income 3,037 1,934 Income from profit and loss transfer agreements 1,333 853 Income from investments 339 167 Result from the fair value adjustment of derivatives 0 1,944 Financial income 75,299 59,780 Expenses from discounting provisions -110,960 -104,550 Other interest expenses -9,287 -5,839 Result from the fair value adjustment of derivatives -4,289 0 Expenses from the assumption of losses -751 -558 Expenses from foreign currency translation -21 -4,133 Expenses from securities 0 -4 Financial expenses -125,308 -115,084 Financial result -50,009 -55,304

Additional disclosures on the financial result 2012 2011 €’000 €’000 The interest result from financial instruments determined using the effective interest method not classified in the category “At fair value through profit or loss” -3,352 -7,761 Interest income from impaired financial assets 284 306 Impairment losses from the category “Available-for-sale” -101 -163 Impairment losses from the category “Available-for-sale” recognised directly in equity -101 -159

79 Notes 2012

13. Income taxes

2012 2011 €’000 €’000 Current income taxes 171 8,105 Deferred income taxes 13,585 713 Income tax expense 13,756 8,818

Current income taxes relate to corporation taxes, including the solidarity surcharge, and German municipal trade taxes. The computation of income taxes is based on applicable tax regulations. In the business year, there was no corporation tax expense and municipal trade tax expense.

Valuation differences from issues concerning air navigation charges resulted in a tax loss of €17,306 thousand.

Breakdown of the effective income taxes 2012 2011 €’000 €’000 Corporation tax 0 3,716 Solidarity surcharge 0 204 Municipal trade tax 0 4,119 Foreign taxes 171 66 Effective income taxes 171 8,105 Reclassification from periods not under review to current provisions for taxes 0 2,486

In addition to the tax liabilities from the current business year, possible estimated additional tax demands are also included to the extent that they might result from timing differences, the planned conversion to regulated charges or from the current tax audit.

80 DFS owes tax as the dominant enterprise for the subordinated companies TTC and Energy. There- fore, the deferred taxes of the subordinated companies are reflected in the dominant enterprise. The spin-off of the energy plant, which is assigned to those areas relevant for air navigation charges, into Energy led to a continuation of the tax measurement for this legal entity. Therefore, in determining taxes the special situation as regards air navigation charges at DFS is also taken into consideration at Energy. This does not lead to taxable temporary differences in value between the IFRS and the tax accounts. At TTC, there are deferred tax assets of €87 thousand (previous year: €77 thousand) for measurement differences concerning provisions for transitional payments between the IFRS and the tax accounts. The business activities of TTC are assigned to the commercial business.

There were no issues which resulted in deferred tax assets not being recognised.

Reconciliation from the expected to the current 2012 2011 income tax expense €’000 €’000 Net income before income taxes 86,837 88,452 Expected income tax expense (in %) 29.83 29.83 Expected income tax expense 25,904 26,385 Tax expense/income not relating to the period under review 0 -2,485 Reduction in EBT under the commercial code due to the under-recovery -1,970 0 Variances in municipal trade tax 390 0 Revenues exempt from tax -96 -47 Foreign establishments -459 -332 Foreign taxes 171 66 Variance of allowance n + 2: - Deferred tax assets 21,065 65,246 - Deferred tax liabilities 2,050 1,976 Entry of balancing items BilMoG (German Accounting Law Modernisation Act) in the tax accounts -33,938 -80,108 Tax loss carryforward (corporation tax) 0 -1,439 Tax loss carryforward (municipal trade tax) 0 -992 Miscellaneous 639 548 Current income tax expense 13,756 8,818 Effective tax rate (in %) 15.84 9.97

81 Notes 2012

Deferred taxes by balance sheet item Deferred tax assets Deferred tax liabilities 2012 2011 2012 2011 €’000 €’000 €’000 €’000 Intangible assets 0 0 12,934 13,918 Property, plant and equipment 8,656 8,977 9,731 11,275 Available-for-sale securities 0 0 4,877 3,309 Receivables and other assets 91,594 98,863 638 353 Provisions for pensions and similar obligations 187,157 157,208 0 0 Other provisions 21,332 22,626 1,464 2,335 Liabilities 6,412 18,668 743 228 315,151 306,342 30,387 31,418 Impact n + 2: Intangible assets 0 0 -7,981 -8,426 Property, plant and equipment -8,656 -8,977 -6,526 -7,991 Available-for-sale securities 0 0 -77 -79 Receivables and other assets -91,594 -98,863 -638 -353 Provisions for pensions and similar obligations -187,157 -157,208 0 0 Other provisions -21,332 -22,626 -1,464 -1,887 Liabilities 0 0 -229 -228 -308,739 -287,674 -16,915 -18,964 Other allowances -376 0 0 0 Netting -6,036 -12,454 -6,036 -12,454 TTC 77 -87 0 Deferred income taxes 0 6,291 7,349 0

82 Notes to the balance sheet

14. Intangible assets

Concessions, Internally Prepayments Total industrial and generated similar property intangible rights and assets assets as well as licences in such rights and assets €’000 €’000 €’000 €’000 Cost As at 1 Jan 2011 481,883 46,763 38,266 566,912 Additions 19,329 1,204 17,016 37,549 Disposals -4,787 0 0 -4,787 Transfers 29,837 0 -29,372 465 As at 31 Dec 2011 526,262 47,967 25,910 600,139 Cumulative amortisation As at 1 Jan 2011 320,874 13,948 0 334,822 Additions 26,731 4,006 0 30,737 Disposals -1,853 0 0 -1,853 Transfers -1 0 0 -1 As at 31 Dec 2011 345,751 17,954 0 363,705 Carrying amounts at 31 Dec 2011 180,511 30,013 25,910 236,434 Cost As at 1 Jan 2012 526,262 47,967 25,910 600,139 Additions 11,416 2,275 17,250 30,941 Disposals -6,726 0 0 -6,726 Transfers 14,046 0 -13,120 926 As at 31 Dec 2012 544,998 50,242 30,040 625,280 Cumulative amortisation As at 1 Jan 2012 345,751 17,954 0 363,705 Additions 29,680 3,971 0 33,651 Disposals -6,600 0 0 -6,600 Transfers 450 0 0 450 As at 31 Dec 2012 369,281 21,925 0 391,206 Carrying amounts at 31 Dec 2012 175,717 28,317 30,040 234,074

83 Notes 2012

Individually material intangible assets Carrying Remaining Share of total amount useful life carrying amount 31 Dec 2012 31 Dec 2012 €’000 in years in % VAFORIT software 89,064 6 38.1 P1/ATCAS software including release 23,999 12 10.3 iCAS software 23,326 6 10.0 P1/ATCAS 2007 9,334 12 4.0 PSS software 8,848 6 3.8 154,571 66.0 Total carrying amount 234,074 100.0

Impairment tests for intangible assets showed no indications of a need to impair as required by IAS 36.

Capitalisation of borrowing costs for intangible assets 31 Dec 2012 31 Dec 2011 Borrowing costs in €'000 710 1,558 Capitalisation rate in % 3.21 5.41

Intangible assets for which there is a contractual obligation to accept but which do not yet come under the economic power of disposition of DFS are shown in Note 35.2 Other financial commitments.

DFS has not assigned any intangible assets nor pledged them as collateral. DFS freely controls these assets.

84 15. Property, plant and equipment

Land, equivalent Technical Other equipment, Assets under Total rights and equipment and operating and construction buildings machinery office equipment including buildings on third-party land €’000 €’000 €’000 €’000 €’000 Cost As at 1 Jan 2011 632,415 1,061,585 89,753 16,850 1,800,603 Additions 8,327 38,356 5,890 30,265 82,838 Disposals -33,597 -30,363 -1,745 0 -65,705 Transfers 965 8,901 325 -10,656 -465 As at 31 Dec 2011 608,110 1,078,479 94,223 36,459 1,817,271 Cumulative depreciation As at 1 Jan 2011 336,690 890,863 73,031 0 1,300,584 Additions 23,312 44,167 4,232 0 71,711 Disposals -33,449 -28,735 -1,714 0 -63,898 Transfers 0 1 0 0 1 As at 31 Dec 2011 326,553 906,296 75,549 0 1,308,398 Carrying amounts at 31 Dec 2011 281,557 172,183 18,674 36,459 508,873

Cost As at 1 Jan 2012 608,110 1,078,479 94,223 36,459 1,817,271 Additions 2,336 33,640 5,676 34,849 76,501 Disposals -1,698 -37,503 -2,426 0 -41,627 Transfers 4,141 11,860 1,128 -18,055 -926 As at 31 Dec 2012 612,889 1,086,476 98,601 53,253 1,851,219 Cumulative depreciation As at 1 Jan 2012 326,553 906,296 75,549 0 1,308,398 Additions 21,286 46,159 3,900 0 71,345 Disposals -977 -36,192 -2,391 0 -39,560 Transfers 0 -452 2 0 -450 As at 31 Dec 2012 346,862 915,811 77,060 0 1,339,733 Carrying amounts at 31 Dec 2012 266,027 170,665 21,541 53,253 511,486

Capitalisation of borrowing costs for property, plant and equipment 31 Dec 2012 31 Dec 2011 Borrowing costs in €'000 1,358 860 Capitalisation rate in % 3.21 5.41

85 Notes 2012

Research and development costs 31 Dec 2012 31 Dec 2011 €’000 €’000 Expenses for research and development 30,097 29,779 - of which research costs recognised in the income statement 27,882 28,617 - of which capitalised additions under assets under construction 2,215 1,162 Development costs in assets under construction as at 31 December 2,677 761 Scheduled depreciation of development costs based on the degree of completion notified 3,971 4,006 R&D project funding by the EU Commission and German federal and regional ministries deducted from cost 0 0

At the reporting date, there were no indications that property, plant and equipment may need to be impaired as required by IAS 36.

DFS concludes rental and lease contracts for land and buildings, technical facilities and machines as well as vehicles. The material rewards and risks are borne by the respective contracting party. There are no additional risks from these contracts for DFS. DFS does not make use of purchase price options, rather the items are transferred when the lease matures. Vehicles are leased for one year without an option to extend.

The former QTE transaction was terminated except for the remaining shell structure (for additional disclosures see Note 18 Non-current and current other receivables and assets).

Maturity of operating leases up to 1 year 1-5 years more than Total 5 years €’000 €’000 €’000 €’000 2012 8,144 4,991 368 13,503 2011 7,428 4,981 1,212 13,621

Property, plant and equipment for which there is a contractual obligation to accept but which do not yet come under the economic power of disposition of DFS are shown in Note 35.2 Other financial commitments.

DFS has not assigned any property, plant and equipment nor pledged them as collateral. DFS freely controls these assets.

Compensation of €10 thousand (previous year: €12 thousand) for third parties for property, plant and equipment that was impaired, irrecoverably lost or decommissioned was recognised in the income statement.

86 16. Investment property

2012 2011 €’000 €’000 Cost As at 1 Jan 1,210 1,210 Additions 0 0 As at 31 Dec 1,210 1,210 Cumulative depreciation As at 1 Jan 307 277 Additions 30 30 As at 31 Dec 337 307 Carrying amount at 31 Dec 873 903

DFS rents a building, including the land, in Braunschweig, Germany, to FCS, which uses this land for its own operational purposes.

Additional disclosures on investment property 31 Dec 2012 31 Dec 2011 €’000 €’000 Rental income 111 121 Depreciation and amortisation 30 30 Repairs 0 0

The property is depreciated over the useful life of 40 years using the straight-line method. Impair- ment tests showed no indications of a need to impair as required by IAS 36. The current appraisal dated 3 December 2012 shows the recoverability of the carrying amounts.

Appraisal on the value of the property 31 Dec 2012 31 Dec 2011 Date of appraisal 3 December 2012 22 October 2008 Date of appraisal 1 December 2012 1 October 2008 Procedures DCF method DCF method Market value €980 thousand €1,030 thousand Fair value €980 thousand €1,013 thousand Property yield (Liegenschaftszinssatz) of the city of Braunschweig 7.60% 6.30% Initial discount rate 8.25% 7.75%

DFS is not contractually obliged to conduct repairs, maintenance or improvements. However, DFS is authorised to make material changes to the premises and the rental object as well as necessary repairs and maintenance without the approval of FCS. There are no other contractual obligations or restraints on disposition.

87 Notes 2012

17. Financial assets

Shares in Loans to Investments Long-term Total affiliated affiliated securities companies companies €’000 €’000 €’000 €’000 €’000 Cost As at 1 Jan 2011 27,172 0 362 7,265 34,799 Additions 0 0 386 0 386 Disposals 0 0 0 0 0 Changes in fair value 0 0 0 -153 -153 As at 31 Dec 2011 27,172 0 748 7,112 35,032 Cumulative impairment 0 0 0 0 0 Carrying amounts at 31 Dec 2011 27,172 0 748 7,112 35,032 Cost As at 1 Jan 2012 27,172 0 748 7,112 35,032 Additions 0 11,000 1,606 0 12,606 Disposals 0 0 0 -7,112 -7,112 Changes in fair value 0 0 0 0 0 As at 31 Dec 2012 27,172 11,000 2,354 0 40,526 Cumulative impairment 0 0 0 0 0 Carrying amounts at 31 Dec 2012 27,172 11,000 2,354 0 40,526

Shares in affiliated companies* ESSP U-Kasse TTC Energy FCS (Benevolent fund) €’000 €’000 €’000 €’000 €’000 Shareholding 100.00% 100.00% 100.00% 100.00% 55.00% Other Shareholder SKYNAV S.A., Belgium, 25.00%; AUSTRO CONTROL, Austria, 20.00% Share capital 26 26 25 5,000 0 Equity reserves 198 132 Retained earnings 264 Contributions in kind 21,501 Carrying amount at 31 Dec 2012 21,527 26 223 5,396 under €1 thousand Business year 1 Jan–31 Dec 1 Jan–31 Dec 1 Jan–31 Dec 1 Jan–31 Dec 1 Jan–31 Dec Accounting standards HGB HGB IFRS and HGB IFRS and HGB HGB * For additional disclosures see Note 3 Scope of consolidation and Note 40.1 Related parties

88 Control and a profit-and-loss transfer agreements with affiliated companies TTC On 21 February 2006, a profit-and-loss transfer agreement was signed with effect from 1 January 2006 and with a term until 31 December 2010. Since January 2011, this contract has been extended for one year at a time, provided one of the parties does not terminate the contract six months before its expiry. TCC transferred a profit of €1,333 thousand under HGB (previous year: €853 thousand) to DFS. Energy On 15 December 2009, the control and profit-and-loss transfer agreement was agreed with effect from 1 January 2012 and a term until 31 December 2014. After this time, this contract extends for one year at a time, provided one of the parties does not terminate the contract six months before its expiry. The loss of Energy of €751 thousand under HGB (previous year: loss of €558 thousand) was taken over by DFS.

The loans to affiliated companies relate to a loan to Energy of €50,000 thousand agreed in 2011. The loan has a term until 31 December 2031. It has been taken up since 1 January 2012 and can be dis- bursed until 1 January 2014 as necessary. As of 31 December 2012, €11,000 thousand had been taken up. Interest has been paid on the loan at the end of each quarter in arrears since the beginning of the disbursements with an effective interest rate of 3.45 percent.

Investments GroupEAD BILSODA €’000 €’000 Shareholding 36.00% 24.90% Other shareholders FREQUENTIS AG, Austria, 28.00%; AD Grundstücksgesellschaft mbH & Co. KG, Entidad Pública Empresarial Aeropuertos Germany, 75.10% Españoles y Navegación Aérea, BILSODA Beteiligungs GmbH, Spain, 36.00% General partner, Germany, 0.00% Liability contribution 360 2 Other contribution 1,992 Carrying amount at 31 Dec 2012 360 1,994 Income from investments 339 0 (Previous year) (167) (0) Total assets* 3,012 7,404 Total debts* 937 5,862 Equity* 2,075 1,542 Net income* 821 -15 Revenues* 6,146 0 * Values as at 31 December 2011 Business year 1 Jan–31 Dec 1 Jan–31 Dec Accounting standards Spanish Commercial Code HGB

The long-term securities were due on 31 January 2013 and disclosed under current assets (see Note 22 Securities).

There were no indications of a need to impair as required by IAS 36.

89 Notes 2012

18. Non-current and current other receivables and assets

31 Dec 2012 31 Dec 2012 31 Dec 2011 31 Dec 2011 Total Remaining term Total Remaining term more than 1 year more than 1 year €’000 €’000 €’000 €’000 Under-recovery 72,481 72,481 39,672 39,672 QTE transaction 58,945 55,694 0 0 Derivative financial instruments 6,908 6,908 10,812 10,812 Interest receivables 3,444 0 1,600 0 Receivables from investments 33 0 18 0 Receivables from Shareholder 0 0 7,107 0 Remaining financial assets 1,194 146 1,273 158 Other financial receivables and assets 143,005 135,229 60,482 50,642 Remaining non-financial assets 8,292 0 11,047 0 Prepayments 3,993 0 3,859 0 Other receivables and assets 155,290 135,229 75,388 50,642

There were no overdue or impaired receivables.

No receivables served as securities for loans or as collateral for liabilities.

Since 2012, a regulated procedure for determining charges has been in force. Across Europe, the respective national supervisory authority lays down binding unit rates for the en-route cost unit according to EU regulations. Consequently, traffic volume and cost changes impact profit and loss (see 12.2.1.2 Departure from the principle of full cost recovery in the group management report and Note 39.2 En-route). If the values fall short, DFS is authorised and obliged to demand any under-recovery and if the values exceed the relevant thresholds DFS is authorised and obliged to return any over-recovery (carry-over).

For terminal services, DFS continues to treat as a receivable the under-recoveries (and over- recoveries as a provision) that are carried forward until the next reference period to be netted with the users due to the regulations on traffic volume and cost risk distribution.

The QTE transaction with foreign investors was practically terminated in the business year. DFS agreed with the remaining contracting parties to keep up the domestic cash flows. The restructuring of the contractual relationships allowed financial drawbacks to be avoided. The remaining purely inner-German shell structure comprises a claim against NORD/LB and a liability against

90 KfW Kreditanstalt für Wiederaufbau (see Note 27 Financial liabilities). The new loan contracts concluded have fixed interest and principal payments and a term until 2 January 2022 (see 11.3.2.4 Risk arising from the downgrading of the rating of DFS). DFS receives the claims from the ongoing rent from NORD/LB without having to provide a consideration. DFS bears the default risk of NORD/LB during the term. The rating agencies Moody’s and Fitch Ratings awarded an Aa1 or AAA rating for the long-term guaranteed liabilities of NORD/LB. For the liability, temporally limited collateral was pledged to KfW in the form of the assignment of the receivables against NORD/LB. DFS and KfW have reached a mutually satisfactory agreement that this collateral would be redeemed through a one-time payment in the first quarter of 2013. The termination of the QTE transaction led to a significant improvement in the risk position for the creditors of DFS.

19. Trade receivables

Due dates of trade receivables up to 1 year 1-5 years more than Total 5 years €’000 €’000 €’000 €’000 2012 142,060 7 0 142,067 2011 147,268 0 0 147,268

Due date and allowances 2012 2011 €’000 €’000 Carrying amount 142,067 147,268 Of which not impaired and - not yet overdue 135,811 139,871 - up to 30 days overdue 4,014 5,318 - 31 to 60 days overdue 958 436 - 61 to 180 days overdue 542 1,001 - more than 180 days overdue 742 642 Of which impaired 0 0

Trade receivables are written down to the amount that could be recovered as soon as information on the insolvency of customers is available. There are no indications that the debtors behind due receivables will not be able to fulfil their obligations.

91 Notes 2012

Development of allowances 2012 2011 €’000 €’000 As at 1 Jan 4,439 6,672 Additions 2,210 439 Utilisation 0 0 Reversal -573 -2,672 As at 31 December 6,076 4,439

Expenses and income recognised in the statement 2012 2011 of comprehensive income €’000 €’000 Derecognition and the write-off of receivables -586 -2,719 Income from the payment of receivables previously written off 38 42 Additions to specific allowances -2,210 -439 Income from the reversal of specific allowances 573 2,672

DFS did not pledge any receivables as securities for loans.

20. Future receivables from construction contracts

Due dates of future receivables from construction contracts up to 1 year 1-5 years more than Total 5 years €’000 €’000 €’000 €’000 2012 7,029 0 0 7,029 Prepayments -5,614 0 0 -5,614 31 Dec 2012 1,415 0 0 1,415 2011 719 4,046 0 4,765 Prepayments 0 -767 0 -767 31 Dec 2011 719 3,279 0 3,998

Additional disclosures on construction contracts 2012 2011 €’000 €’000 Contract revenue recognised in the business year 2,983 3,068 Costs incurred in the business year 1,794 1,583 Profit earned for ongoing projects 1,189 1,485 Amounts withheld 0 34

92 21. Inventories

31 Dec 2012 31 Dec 2011 €’000 €’000 Raw materials, consumables and supplies 4,580 4,667 - Impairment 23 33 Finished goods and goods for resale 488 359 - Impairment 202 217 Inventories 5,068 5,026

22. Securities

31 Dec 2012 31 Dec 2011 €’000 €’000 Securities 7,018 0

23. Liquid funds

31 Dec 2012 31 Dec 2011 €’000 €’000 Cash in hand and cheques 42 29 Cash at bank 105,492 84,634 Liquid funds 105,534 84,663

24. Equity

31 Dec 2012 31 Dec 2011 €’000 €’000 Subscribed capital 153,388 153,388 Capital reserve 74,296 74,296 Retained earnings -229,166 -302,248 Other reserves -968 -812 Equity -2,450 -75,376

The share capital of DFS amounts to DM300,000 thousand (three hundred million Deutschmark).

93 Notes 2012

The capital contribution of DM100 thousand and DM299,900 thousand are held by the sole Share- holder, the Federal Republic of Germany, represented by the Federal Ministry of Transport, Building and Urban Development (BMVBS). The shares held by the Federal Republic of Germany may not be sold or encumbered. Additional shareholders shall not be admitted.

The capital reserve consists of other payments of the Shareholder (Article 272 paragraph 2 no. 4 HGB) and serves to strengthen the share capital.

Other reserves are used for changes recognised directly in equity that are not based on capital transactions with the Shareholder.

Items that can subsequently be reclassified in profit or loss 31 Dec 2012 31 Dec 2011 €’000 €’000 As at 1 Jan -812 -569 Change in the fair value of available-for-sale financial assets -101 -159 Tax effects -55 -84 Other reserves -968 -812

The Federal Republic of Germany, represented by the Federal Ministry of Transport, Building and Urban Development (BMVBS), approved the group financial statements, the group management report and the financial statements under HGB in resolution no. 124 dated 24 April 2012 and decided on the transfer of the net income 2011 under HGB into retained earnings:

31 Dec 2012 31 Dec 2011 €’000 €’000 Retained profit 35,510 7,751 Gross dividend to the Shareholder 0 0 Transferred to retained earnings 35,510 7,751

As regards commercial considerations, capital is managed from a charges-related perspective (for further disclosures see 6.5 Financial management in the group management report). The charging perspective takes the following elements into account when contrasted with the accounting principles under IAS/IFRS:

■ Consideration of the catch-up effects from the conversion to IAS/IFRS not included in the financial statements

The financial statements were converted from HGB to IFRS in 2007 (see Note 2 Application of accounting standards). This led to measurement changes, in particular as regards occupational

94 pensions, which were recognised directly in retained earnings. This resulted in a negative equity situation. DFS is authorised to include these negative consequences in the cost-base for determining and levying charges. These off-balance sheet catch-up effects may be charged to airspace users over a 15-year period. This will have a positive influence on the equity and liquidity of DFS over the remaining period of nine years.

■ Inclusion of the model to finance occupational pensions approved by the regulatory authority

Since this business year, DFS has been authorised to distribute the difference between the obligation and assets (plan deficit/plan surplus) over the average remaining time to work of the staff (15 years) in a rolling fashion and include such differences in the following reference periods as a component of the charges, which impact liquidity (see 5.5.2 Introduction of imputed model for the calculation of occupational pensions in the group management report).

■ Integration of Energy

The assets and liabilities of Energy were included in the cost-base for determining charges in decid- ing on the operating assets.

Capital management 31 Dec 2012 31 Dec 2011 €’000 €’000 Reconciliation to adjusted equity Equity recognised on the balance sheet -2,450 -75,376 Catch-up effects not yet accounted for 552,298 604,164 Deferred taxes on this amount -27,292 -30,733 Occupational pensions from a charges-related perspective 86,551 80,136 Change in equity relevant for charges (shortfall) 14,294 0 Charges-related inclusion of Energy -253 -256 Adjusted equity 623,148 577,935 Indicators Equity ratio 33.99% 32.85% Return on equity 11.73% 13.78% Net income 73,082 79,634 EBIT 136,847 143,756 Borrowings 1,209,951 1,181,440 Debt ratio 66.01% 67.15% Return on total assets 3.99% 4.53% Leverage ratio 9.96% 8.26%

95 Notes 2012

This perspective includes the future flow of charges approved by the supervisory authorities and delivers a clear picture of the capital structure, debts and cash flows. Assets and liabilities that are subject in full or in part to economic regulation are transferred to a regulatory asset base, i.e. an accounting of the net assets, financial position and results of operation from the perspective of economic regulation.

Net financial indebtedness 31 Dec 2012 31 Dec 2011 €’000 €’000 Liquid funds 105,534 84,663 Non-current financial liabilities 284,544 229,940 (Of which QTE transaction) 58,002 0 Current financial liabilities (QTE transaction) 3,627 0 Net financial indebtedness 182,637 145,277

25. Provisions for pensions and similar obligations Provisions for pensions are recognised exclusively for defined benefit plans for active and former employees.

25.1 Pension plans There are various forms of pension provision available to the employees of DFS, which are largely governed by collective agreements.

Under the collective agreement covering pensions, employees who began employment by 31 December 2004 receive old-age, disability and surviving dependant’s pensions. These are defined benefits linked to the respective final salary of the employee. However, employees who entered service from 1 January 2005 receive benefits under the collective agreement covering pensions which are linked to average career earnings. Under this system, each year a pension component is calculated based on the respective income and the old-age pension is determined based on the sum of the annual pension components.

Air traffic controllers and flight data specialists receive transitional retirement benefits based on the final salary to cover the period from the end of their operational activity until the earliest possible receipt of the statutory pension.

Both plans are financed by congruent reinsurance policies that are recognised as plan assets under IAS 19.7. The reinsurance contract involves both an actuarial reserve held in the general cover fund of the insurer and a separate fund-based investment created for part of the assets under section 54b of the German Insurance Supervision Act (VAG). This, however, is limited to a maximum of half of the actuarial reserve.

96 DFS pays an increased employer contribution for health insurance for the employees who were previously employed as established civil servants with the former Federal Administration of Air Navi- gation Services (BFS) / the Federal Aviation Office (LBA). This compensates over the entire active period of employment and in retirement for the fact that these staff are no longer covered by the German Civil Service welfare provisions for healthcare.

25.2 Actuarial assumptions

In percent 2013 2012 2011 2010 2009 Discount rate 2.90 4.50 4.90 5.50 6.30 Expected return on plan assets 2.90 4.65 4.00 4.00 5.00

Projected increase in salaries 3.50 3.50 3.50 3.50 3.50 Projected increase in benefits 1.25–2.00 1.25–2.00 1.25–2.00 1.25–2.00 2.00

25.3 Expected pension and contribution payments

2013 2014 to 2017 From 2018 Up to 1 year 2 to 5 years More than 5 years €’000 €’000 €’000 Estimated pension payments 80,270 387,209 1,555,713 Expected employer contributions to plan assets 95,700 795,641 1,723,182

25.4 Scope of obligations

2012 2011 €’000 €’000 Defined benefit obligation as at 1 Jan 2,418,066 2,035,945 Current service cost 84,292 68,749 Interest expense 107,159 97,966 Retirements benefits paid -69,820 -66,402 Past service cost 6,399 0 Actuarial losses (+) 873,764 281,808 Present value of defined benefit obligations at 31 Dec 3,419,860 2,418,066

97 Notes 2012

25.5 Plan assets

2012 2011 €’000 €’000 Fair value of plan assets at 1 Jan 1,429,722 1,317,101 Projected return on plan assets 67,029 53,070 Employer contributions 144,858 122,165 Retirement benefits paid -51,389 -47,199 Actuarial gains (+) / losses (-) 2,403 -15,415 Fair value of plan assets at 31 Dec 1,592,623 1,429,722 For information: Actual return on plan assets 69,432 31,991

25.6 Pension provisions

2012 2011 €’000 €’000 Present value of defined benefit obligations at 31 Dec 3,419,860 2,418,066 Fair value of plan assets 1,592,623 1,429,722 Net obligation 1,827,237 988,344 Present value of non-funded obligations 0 0 Adjustment for unrecognised actuarial losses (-) -1,294,822 -440,428 Balance sheet amounts 532,415 547,916

25.7 Expenses and income

Expenses and income recognised in the statement 2012 2011 of comprehensive income €’000 €’000 Contributions to the German mutual insurance association 2,768 1,512 Payments to defined contribution plans 34,912 34,154 - of which contributions to pension insurance 32,642 31,651 Current service cost 84,292 68,749 Interest expense 107,159 97,966 Amortisation of actuarial losses (+) 16,967 2,557 Expected return on plan assets -67,029 -53,070 Past service cost 6,399 0 Reversal of the provision for past service cost -6,065 -6,120 Expenses and income 179,403 145,748

98 25.8 Five-year development of the financing status

2012 2011 2010 2009 2008 €’000 €’000 €’000 €’000 €’000 Present value of defined benefit obligations at 31 Dec 3,419,860 2,418,066 2,035,945 1,683,147 1,484,342 Fair value of plan assets 1,592,623 1,429,722 1,317,101 1,166,489 1,004,421 Net obligation (-) / surplus (+) -1,827,237 -988,344 -718,844 -516,658 -479,921 Experience adjustment of plan obligations 6,112 -89,357 -27,855 -19,411 32,303 Experience adjustment of plan assets 2,403 -15,414 18,735 35,030 -21,738

26. Other provisions

As of Utilisation Reversal Discounting Additions As at Remaining 1 Jan 2012 31 Dec 2012 term more than 1 year €’000 €’000 €’000 €’000 €’000 €’000 €’000 Over-recovery of charges 73,464 -18,875 0 0 6,583 61,172 55,106 Personnel 41,093 -5,773 0 972 3,325 39,617 33,764 Re-conversion 16,227 -6 -464 931 16,688 13,187 Leasehold 15,336 -550 0 1,376 0 16,162 15,601 Preserving records 10,019 -889 0 488 1,024 10,642 9,729 Restructuring 2,248 0 0 7 22 2,277 477 QTE transaction 968 0 -495 27 0 500 0 Miscellaneous 6,767 -23 -337 0 5,454 11,861 0 Other provisions 166,122 -26,116 -1,296 3,801 16,408 158,919 127,864

The provision for over-recovery of charges relates to the over-recovery for the past service cost still to be allocated over nine years.

Personnel provisions are recognised for early retirement, part-time work for older employees and anniversary payments. These provisions are recognised based on the expert reports of actuaries. In addition, DFS grants recuperation cures to air traffic controllers.

The leasehold interest to be paid relates to land in Berlin-Schönefeld which is not used operationally.

99 Notes 2012

The provision for the QTE transaction relates to the costs for the foregoing of collateral by KfW (for additional disclosures on the QTE transaction see Note 18 Non-current and current other receivables and assets).

The provision for restructuring relates to personnel (severance payments) and infrastructural measures (re-conversion obligations) in connection with operational units to be closed where no future economic benefits are expected.

Due dates of future non-discounted settlement values 2013 2014 2015 2016 2017 From 2018 on €’000 €’000 €’000 €’000 €’000 €’000 Over-recovery of charges 6,065 6,066 12,648 6,065 6,065 24,262 Personnel 5,854 4,201 1,718 1,718 1,718 24,523 Leasehold 561 572 584 595 607 18,839 QTE transaction 500 0 0 0 0 0 Restructuring 1,800 0 482 0 0 0 Preserving records 913 933 957 980 1,004 6,580 Re-conversion 3,501 0 0 0 0 15,948 Miscellaneous 12,415 0 0 0 0 0 31,609 11,772 16,389 9,358 9,394 90,152

Discount rates distributed over the respective remaining terms in years 1 to 2 2 to 3 3 to 4 4 to 5 5 to 6 6 to 7 2012 0.28 0.32 0.40 0.56 0.79 0.96 2011 0.60 0.70 0.95 1.10 1.43 1.63 7 to 8 8 to 9 9 to 10 11 to 15 15 to 30 2012 1.12 1.36 1.52 1.48 2.25 2011 1.74 1.88 2.12 1.95 2.68

Due to the change in the discount rates, provisions and the interest expense rose by €2,042 thousand respectively (previous year: €4,159 thousand) in comparison with the application of the previous year’s rates.

100 27. Financial liabilities

31 Dec 2012 31 Dec 2012 31 Dec 2011 31 Dec 2011 Total Remaining Total Remaining term more term more than 1 year than 1 year €’000 €’000 €’000 €’000 Bonds 51,406 51,406 54,940 54,940 Debenture loans 175,000 175,000 175,000 175,000 QTE transaction 61,595 58,002 0 0 Finance lease liabilities 170 136 0 0 Financial liabilities 288,171 284,544 229,940 229,940

Bonds and debenture loans Term Currency Nominal Nominal Effective 31 Dec 2012 31 Dec 2011 value interest interest €’000 €’000 2003–2018 EUR 25,000 4.84% 4.84% 25,000 25,000 2004–2016 JPY 22,200 1.82% 1.82% 26,406 29,940 Bonds 51,406 54,940 2010–2017 EUR 87,500 2.564% 87,500 87,500 2010–2020 EUR 87,500 3.007% 87,500 87,500 Debenture loans 175,000 175,000

The QTE transaction with foreign investors was practically terminated in the business year. DFS agreed with the remaining contracting parties to keep up the domestic cash flows (for additional disclosures on the QTE transaction see Note 18 Non-current and current other receivables and assets).

Future minimum lease payments from finance lease liabilities 31 Dec 2012 31 Dec 2012 31 Dec 2012 31 Dec 2012 31 Dec 2011 up to 1 year 2 to 5 years more than Total Total 5 years €’000 €’000 €’000 €’000 €’000 Future minimum lease payments 44 152 0 196 0 Interest component -10 -16 0 -26 0 Finance lease liabilities (present value) 34 136 0 170 0

101 Notes 2012

28. Trade payables

31 Dec 2012 31 Dec 2012 31 Dec 2011 31 Dec 2011 Total Remaining term Total Remaining term more than 1 year more than 1 year €’000 €’000 €’000 €’000 Germany 47,948 0 35,968 0 Abroad 2,957 0 4,816 0 Creditors with debit balances 250 0 266 0 Amounts withheld 1,394 798 1,543 1,123 Maastricht unit 3 0 1 0 Trade payables 52,552 798 42,594 1,123

29. Other liabilities

31 Dec 2012 31 Dec 2012 31 Dec 2011 31 Dec 2011 Total Remaining term Total Remaining term more than 1 year more than 1 year €’000 €’000 €’000 €’000 Staff costs 37,701 0 18,182 0 Amounts owed to affiliated companies 24,086 0 10,881 0 Outstanding invoices 12,808 0 8,756 0 Interest payable 5,690 0 4,119 0 Derivative financial instruments 4,672 4,672 4,287 4,287 Amounts owed to Shareholder 3,325 0 0 0 Reimbursements to German Meteorological Service (en-route) 1,660 0 2,174 0 Remaining financial liabilities 787 0 395 0 Other financial liabilities 90,729 4,672 48,794 4,287 Staff costs 21,553 0 31,775 1,017 Amounts owed to the tax authorities 15,057 0 17,184 0 QTE transaction 0 0 50,550 45,229 Remaining non-financial liabilities 12,237 0 15,009 0 Other non-financial liabilities 48,847 0 114,518 46,246 Other liabilities 139,576 4,672 163,312 50,533

Owing to the complete termination of the core component of the QTE transactions, the accrued liability was reversed through the income statement (for additional disclosures on the QTE transaction see Note 18 Non-current and current other receivables and assets).

102 Additional disclosures

30. Notes to segment reporting Segment reporting is based on the internal management and reporting systems. Commercial management and the reporting system have been oriented to the cost units and contribution margins stemming from the economic regulation that was introduced in 2012. This enhances the transparency and the planning and control of the individual business units.

Resource allocation decisions and the assessment of the performance of the operating segment are taken by the Board of Managing Directors as the chief operating decision-maker within the scope of segment reporting. The operating result (operating EBIT) is an important performance indicator for DFS. Resource allocation decisions and the performance of the individual segments are made by means of EBIT. Further data are not collected and communicated to the chief operating decision-makers.

The main business of DFS (see 1.1 Business activities in the group management report) is air navigation services and the directly associated support activities. DFS defines these activities as the “Segment financed by air navigation charges”. Since 2012, this segment has been divided into the units: en-route and terminal services.

Commercial services comprise consultancy services offered globally, the sale of ATM systems as well as analysis, simulation and project management activities.

The other products (both commercial and financed by air navigation charges) relate to services which either cannot be assigned to a particular segment or which would require considerable expense to do so. This includes in particular services for operational air traffic (OAT), visual flight rules (VFR) and Maastricht Upper Area Control (MUAC).

The determination of segment data is based on the following premises:

■ The assets and liabilities of Energy were included as part of the operating assets in the cost-base for determining charges. Consequently, in the reconciliation to DFS results, the expenses and income of Energy were disclosed separately.

■ The financial result and income taxes were not assigned to the individual segments as the departments Treasury and Taxes are active on the corporate level.

■ The number of staff corresponds to the number of employees.

103 Notes 2012

Information on the business segments Business All other Reconciliation Total by cost type financed by segments air navigation charges 2012 €’000 €’000 €’000 €’000 External revenues 1,051,316 23,821 1,075,137 Intersegment revenues 21,962 -21,962 0 Other operating income 26,363 26,363 Changes in inventory 129 129 Own work capitalised 2,459 2,459 Total operating revenues and income 1,102,229 23,821 -21,962 1,104,088 Staff costs 790,641 790,641 Material costs 127,608 127,608 Depreciation and amortisation 105,547 105,547 Project costs 20,610 20,610 Intersegment costs 21,962 -21,962 0 Total costs 1,044,406 21,962 -21,962 1,044,406 Internal results for the period 57,823 1,859 0 59,682 Under-recovery 6,963 6,963 Carry-over: en-route 19,263 19,263 Balancing items: cost accounting 6,065 6,065 Earnings before taxes from a charges-related perspective 90,114 1,859 0 91,973 2011 €’000 €’000 €’000 €’000 External revenues 1,007,176 23,455 1,030,631 Intersegment revenues 20,585 -20,585 0 Other operating income 26,915 26,915 Changes in inventory -17 -17 Own work capitalised 1,863 1,863 Total operating revenues and income 1,056,522 23,455 -20,585 1,059,392 Staff costs 708,062 708,062 Material costs 146,332 146,332 Depreciation and amortisation 103,700 103,700 Project costs 18,202 18,202 Intersegment costs 20,585 -20,585 0 Total costs 976,296 20,585 -20,585 976,296 Internal results for the period 80,226 2,870 0 83,096 Under-recovery 39,672 39,672 Balancing items: cost accounting 6,120 6,120 Earnings before taxes from a charges-related perspective 126,018 2,870 0 128,888

104 Information on business segments EBIT EBIT 2012 2011 €’000 €’000 Terminal services 21,166 19,361 En-route services 62,558 98,802 Commercial products 1,859 2,870 Remaining commercial products and products financed 6,390 7,855 by air navigation charges Earnings before taxes from a charges-related perspective 91,973 128,888 Reconciliation to DFS result before interest taxes under IFRS Occupational pensions from a charges-related perspective governing charges 82,111 71,740 Occupational pensions under IAS/IFRS -110,229 -71,740 Change in equity relevant for charges (shortfall) 23,384 0 Energy result before interest taxes under IFRS 709 700 QTE transaction 52,248 13,602 Differing delimitation between the accounting perspective and a charges-related perspective -3,349 566 DFS result before interest taxes under IFRS 136,847 143,756

Information on important 2012 2012 2011 2011 external customers €’000 in % €’000 in % DFS total revenues* 1,041,926 100.00 1,019,665 100.00 Lufthansa 222,229 21.34 211,611 20.76 Air Berlin 75,021 7.20 76,488 7.50 Federal Ministry of Defence 63,090 6.06 64,086 6.29 Ryanair 41,303 3.96 35,931 3.52 KLM 30,204 2.90 29,165 2.86 British Airways 28,860 2.77 27,081 2.66

* Comprising terminal and en-route revenues as well as revenues from military operational air traffic

31. Additional disclosures on the cash flow statement The cash flow statement shows the change in liquid funds between two balance sheet dates and shows the movements in cash and cash equivalents. Cash inflows and outflows are divided into operating, investing and financing activities and only show cash flows from continuing operations. There are no discontinued operations.

105 Notes 2012

Bank overdrafts are deducted from liquid funds when drawing up the cash flow statement.

31 Dec 2012 31 Dec 2011 €’000 €’000 Cash in hand and cheques 42 29 Cash at bank 105,492 84,634 Current overdraft 0 0 Cash and cash equivalents 105,534 84,663

Cash inflow from operating activities was calculated using the indirect method by adjusting net income for changes in inventory, receivables, other assets and borrowings as well as depreciation and amortisation and other non-cash income and expenses. The cash flows from income taxes relate to all of the above areas of activity. However, owing to the time that would be involved in assigning the cash flows from income taxes to the individual activities, for the purpose of the cash flow statement they were allocated to operating activities.

In addition to the cash flow statement using the indirect method in Annex 4, DFS has adopted the recommendation of IAS 7.19 and also shows the cash flows from operating activities according to the direct method. The direct method provides information that makes it easier to estimate future cash flows. This sort of information is not available under the indirect method. The direct cash flow statement is oriented towards the structure of the actual cash flows. The cash flows from revenues are shown alongside the cash outflows. In particular, the difference between staff costs and the employee expenses reported in the statement of comprehensive income can be seen, namely the payment of reinsurance premiums and actual pension payments after the reimbursement from the pension plan reinsurance. These cash outflows are matched with revenues from air navigation charges that show the actual liquidity inflows, which do not correspond exactly to revenues reported in the group statement of comprehensive income. Investment grants, revenues from the commercial business and reimbursements which are relevant to the calculation of air navigation charges (SESAR) are recorded under other proceeds. The value accruals item shows the cash flows whose clear allocation to items previously used in the cash flow statement would have involved considerable expense.

106 Cash flows from operating activities 2012 2011 using the direct method €’000 €’000 Terminal charges received 225,828 208,894 En-route charges received 753,289 730,987 Reimbursement OAT/Maastricht/VFR flights 74,710 85,797 Reimbursements paid -7,845 -9,712 Staff costs -813,829 -782,120 Non-staff and project costs -152,792 -149,324 Other payments 42,323 30,200 Netting of tax refunds (+) / overpayment (-) (income taxes, VAT, withholding taxes) 14,936 6,522 Value accruals 1,368 181 Cash inflow from operating activities 137,988 121,425

Cash outflows for investing and financing activities are presented using the direct method.

107 Notes 2012

32. Financial instruments

Financial assets by category Carrying At fair value Held-to- Loans and Available- Fair value amount through profit maturity receivables for-sale or loss 31 Dec 2012 €’000 €’000 €’000 €’000 €’000 €’000 Shares in affiliated companies 27,172 27,172 29,240 Loans to affiliated companies 11,000 11,000 11,000 Investments 2,354 2,354 2,354 Securities 7,018 7,018 7,018 Trade receivables 142,067 142,067 142,067 Future receivables from construction contracts 1,415 1,415 1,415 Under-recovery 72,481 72,481 72,481 QTE transaction 58,945 58,945 58,945 Derivative financial instruments 6,908 6,908 6,908 Interest receivables 3,444 3,444 3,444 Receivables from investments 33 33 33 Remaining financial assets 1,194 1,194 1,194 Liquid funds 105,534 105,534 105,534 439,565 6,908 58,945 337,168 36,544 441,633 31 Dec 2011 €'000 €'000 €'000 €'000 €'000 Shares in affiliated companies 27,172 27,172 28,892 Investments 748 748 748 Securities 7,112 7,112 7,112 Trade receivables 147,268 147,268 147,268 Future receivables from construction contracts 3,998 3,998 3,998 Under-recovery 39,672 39,672 39,672 Derivative financial instruments 10,812 10,812 10,812 Receivables from Shareholder 7,107 7,107 7,107 Interest receivables 1,600 1,600 1,600 Receivables from investments 18 18 18 Receivables from affiliated companies* 0 0 0 Remaining financial assets 1,273 1,273 1,273 Liquid funds 84,663 84,663 84,663 331,443 10,812 0 285,599 35,032 333,163 * Receivables under €1 thousand

108 Financial liabilities by category Carrying At fair value Amortised Fair value amount through cost profit or loss 31 Dec 2012 €’000 €’000 €’000 €’000 Bonds 51,406 51,406 58,016 Debenture loans 175,000 175,000 194,162 QTE transaction 61,595 61,595 61,595 Finance leases 170 170 170 Trade payables 52,552 52,552 52,552 Staff costs 37,701 37,701 37,701 Amounts owed to affiliated companies 24,086 24,086 24,086 Outstanding invoices 12,808 12,808 12,808 Interest payable 5,690 5,690 5,690 Derivative financial instruments 4,672 4,672 4,672 Amounts owed to Shareholder 3,325 3,325 3,325 Reimbursements to German Meteorological Service (en-route) 1,660 1,660 1,660 Remaining financial liabilities 787 787 787 431,452 4,672 426,780 457,224 31 Dec 2011 €'000 €'000 €'000 €'000 Bonds 54,940 54,940 61,094 Debenture loans 175,000 175,000 183,876 Trade payables 42,594 42,594 42,594 Staff costs 18,182 18,182 18,182 Amounts owed to affiliated companies 10,881 10,881 10,881 Outstanding invoices 8,756 8,756 8,756 Derivative financial instruments 4,287 4,287 4,287 Interest payable 4,119 4,119 4,119 Reimbursements to German Meteorological Service (en-route) 2,174 2,174 2,174 Remaining financial liabilities 395 395 395 321,328 4,287 317,041 336,358

109 Notes 2012

The fair value of financial assets and liabilities can be determined reliably and demonstrated by means of financial calculations or proven by means of balance of account confirmations. For the shares in affiliated companies, there is only the grey market, however. DFS assumes that these shares in affiliated companies can be sold for a least their carrying amounts and sets the fair value at the same level. The fair value of the shares in FCS cannot be determined reliably as the carrying amount corresponds merely to the nominal remaining amount. DFS determines the fair value from the share in the accounting equity of FCS.

Assets and liabilities at fair value Change Cumulative Status Status in value change 2012 in value 31 Dec 2012 31 Dec 2011 €’000 €’000 €’000 €’000 Interest rate swap 647659 -819 90 90 909 Interest rate swap 918388L -3,085 6,818 6,818 9,903 Assets -3,904 6,908 6,908 10,812 €'000 €'000 €'000 €'000 Interest rate swap 653604L 218 -29 -29 -247 Interest rate swap 918135L -974 -4,272 -4,272 -3,298 Interest rate swap LEES2089U0 371 -371 -371 -742 Liabilities -385 -4,672 -4,672 -4,287

Hierarchical classification of financial instruments “At fair value through profit or loss” Category 1 Category 2 Category 3 31 Dec 2012 €’000 €’000 €’000 Financial assets Derivative financial instruments 6,908 Financial liabilities Derivative financial instruments 4,672 31 Dec 2011 €'000 €'000 €'000 Financial assets Derivative financial instruments 10,812 Financial liabilities Derivative financial instruments 4,287

110 Levels of the hierarchy and their application as regards financial assets and liabilities Category 1 Financial instruments traded in active markets whose quoted prices can be used unchanged for measurement. Category 2 Measurement is carried out using measurement processes whose input factors can be derived directly or indirectly from observed market data. Category 3 Measurement is carried out using measurement processes whose input factors cannot exclusively be derived from observed market data.

Net results of financial instruments by measurement category Assets Liabilities At fair value Held-to- Loans and Available- Amortised through profit maturity receivables for-sale cost or loss 31 Dec 2012 €’000 €’000 €’000 €’000 €’000 Result component 921 Currency effect 3,539 Changes in market value -4,289 Impairment losses -2,797 Interest result -830 1,734 912 392 -10,459 Other operating expenses -622 -190 Net result -5,119 1,734 -2,507 1,313 -7,110 Recognised directly in the other result 0 0 0 101 0 31 Dec 2011 €'000 €'000 €'000 €'000 Result component 462 Currency effect -2,322 Changes in market value 1,944 Impairment losses -3,158 -4 Interest result -789 1,566 368 -7,468 Other operating expenses -464 -197 Net result 1,155 0 -2,056 826 -9,987 Recognised directly in the other result 0 0 0 159 0

The net results by measurement category were determined for financial instruments that were recognised and measured on the balance sheet date. In the business year, financial receivables and liabilities were recognised from the changes to the QTE transaction. The relevant interest income and expenses were considered in the categories “Held to maturity” and “Amortised cost”. The net result of financial assets is made up of profit transfers of affiliated companies, changes in market

111 Notes 2012

value of derivatives, write-downs and write-offs of receivables, interest income and expenses as well as incidental costs of monetary transactions. The net result of financial liabilities encompasses expenses from foreign currency translation, interest income and expenses as well as incidental costs of monetary transactions. All other expenses and income were disclosed under the financial result except for the impairment losses and the incidental costs of monetary transactions.

33. Derivative financial instruments DFS is exposed to market risks in the form of interest and currency fluctuations (see 11.3.2 Finan- cial risks in the group management report and in Note 34 Financial risks). DFS uses derivative financial instruments to manage these risks.

In addition, DFS is exposed to default risk. To minimise this risk, DFS concludes derivative transactions exclusively with its principal bankers, who have good credit ratings.

Speculative transactions with derivative instruments where there is no underlying transaction are forbidden.

Derivative financial instruments Remaining Nominal volume Fair value Nominal volume Fair value term 31 Dec 2012 31 Dec 2012 31 Dec 2011 31 Dec 2011 €’000 €’000 €’000 €’000 Positive fair value Receiver interest rate swaps > 5 years 25,000 90 25,000 910 Receiver cross-currency swaps 1 to 5 years 22,200 6,818 22,200 9,903 CER/EUA swap* up to 1 year 0 0 0 0 Negative fair value Payer interest rate swaps up to 1 year 32,000 -400 0 0 Payer interest rate swaps 1 to 5 years 22,200 -4,272 54,200 -4,287 Derivatives 101,400 2,236 101,400 6,526 * The final winding-up of the swap will be made with payment of the settlement and the physical exchange of the certificates in January 2013.

The clean price of the financial instruments is reported as the fair value. The change in fair value is primarily due to the development of interest rates. As of 31 December 2012, the fixed interest rates vary between 1.8200 percent and 5.1675 percent. The variable interest rates vary between 0.196 and 0.698 EURIBOR (previous year: 1.590 and 1.828 EURIBOR).

112 34. Financial risks Financial risks arise in the form of liquidity risks, default risks and market price risks. DFS provides disclosures in the group management report under 11.3.2 Financial management on the required qualitative information under IFRS 7 about the type and means by which risks from financial instruments arise as well as the procedures for the management and control of these risks.

34.1 Liquidity risks Liquidity risk describes the risk that DFS may not be in the position to settle its financial liabilities as contractually required through the delivery of cash or other financial assets.

Aged-list of the undiscounted principal and interest payments of financial liabilities Total Due in Due in Due in Due in less than 4–12 months 1–5 years more than 4 months 5 years 31 Dec 2012 €’000 €’000 €’000 €’000 €’000 Non-derivative financial liabilities Bonds 47,200 0 0 22,200 25,000 Debenture loans 175,000 0 0 87,500 87,500 Interest 41,142 1,210 5,279 25,550 9,103 Finance lease liabilities 170 11 23 136 0 QTE transaction 61,595 3,593 0 19,959 38,043 Trade payables 52,552 51,587 167 798 0 Other liabilities 86,057 79,368 6,689 0 0 Derivative financial liabilities Derivatives 3,151 178 743 2,230 0 466,867 135,947 12,901 158,373 159,646 31 Dec 2011 €'000 €'000 €'000 €'000 €'000 Non-derivative financial liabilities Bonds 47,200 0 0 22,200 25,000 Debenture loans 175,000 0 0 0 175,000 Interest 54,120 1,210 5,278 25,955 21,677 Trade payables 42,594 41,373 98 1,034 89 Other liabilities 44,507 37,838 6,669 0 0 Derivative financial liabilities Derivatives 2,890 167 329 2,562 -168 366,311 80,588 12,374 51,751 221,598

113 Notes 2012

34.2 Default risks DFS is exposed to default risks from financial receivables that result from the possible default on the obligations of a party to a contract. The maximum value equals the positive fair value or market value of the financial instrument.

Default risk by category 31 Dec 2012 31 Dec 2011 €’000 €’000 At fair value through profit or loss 6,908 10,812 Held-to-maturity 58,945 0 Loans and receivables 337,168 285,599 Available-for-sale 36,544 35,032 Maximum default risk 439,565 331,443

With the exception of trade receivables, there were no financial assets that were overdue or impaired. Trade receivables are written down to the amount that could be recovered as soon as information on the insolvency of customers is available. DFS demands security deposits from customers with relevant sales volumes when defined warning thresholds are exceeded. In addition, there are no indications that the debtors whose receivables were overdue will not be able to fulfil their obligations.

As regards financial investing, DFS only enters into transactions with counterparties who either have a long-term rating of at least AA- (Standard & Poor’s) or Aa3 (Moody’s), short-term A-1 (Stand- ard & Poor’s) or P-1 (Moody’s), a correspondingly high creditworthiness or other form of collateral.

Business dealings with a selected group of principal bankers are conducted using uniform standards and existing reciprocal cash flows are continuously improved.

34.3 Market risks Market risk is defined as the risk that the fair value or future cash flows of a primary or derivative financial instrument fluctuates due to fluctuations in market prices (interest rate risk and currency risk). Interest rate risk arises primarily when refinancing with variable rates. Currency risks result from exchange rate fluctuations for transactions in foreign currencies.

114 Interest rate risk for financial 31 Dec 2012 31 Dec 2011 assets and liabilities Nominal value Nominal value €’000 €’000 Financial assets Fixed rate securities 7,000 7,000 Financial liabilities Fixed rate bonds 47,200 47,200 Fixed rate debenture loans 175,000 175,000 229,200 229,200

Net risk by currency 31 Dec 2012 31 Dec 2011 Nominal value Rate Nominal value Rate JPY ‘000 JPY ‘000 Primary transactions -3,000,000 113.61 -3,000,000 100.20 Derivative financial instruments 3,000,000 113.61 3,000,000 100.20 Planned hedges 0 0 Net risk 0 0 USD '000 USD '000 Primary transactions 4,173 1.31940 5,585 1.29390 Derivative financial instruments 0 0 Planned hedges 0 0 Net risk 4,173 1.31940 5,585 1.29390

The value-at-risk analysis conducted determines the currency and interest risk, which is based on a sensitivity model used for internal planning and control. The value-at-risk shows the decline which will not be exceeded with a probability of 95.00 percent when the holding period is 10 days.

115 Notes 2012

Value-at-risk 31 Dec 2012 31 Dec 2012 31 Dec 2011 31 Dec 2011 Foreign Interest Foreign Interest exchange risk rate risk exchange risk rate risk By currency €’000 €’000 €’000 €’000 USD 143 269 EUR 1,624 2,913 By line item €'000 €'000 €'000 €'000 Money market 0 0 0 6 Capital market 1,078 1,739 1,515 3,087 Hedge 955 68 1,084 118 Overall risk At year-end High Low Average €'000 €'000 €'000 €'000 2012 1,675 3,043 1,675 2,291 2011 3,074 4,636 1,857 3,379

Foreign exchange risks that impact the balance sheet arise due to monetary items that are not in the functional currency. Primary monetary financial instruments are held mainly in the functional currency or converted into the functional currency by means of derivatives. Changes in exchange rates therefore have no material impact on the result or equity.

Interest rate risk results mainly from the sensitivity of financial instruments. Liquidity is ensured by means of money market and capital market programmes with long maturities that have fixed and variable interest rates. The use of derivative financial instruments, such as interest rate swaps and cross currency swaps, secures fixed interest rates and thus limits interest rate risk. The changes in interest rates therefore have no material impact on the result or equity.

35. Contingent liabilities and other financial commitments 35.1 Contingent liabilities

Due date of contingent liabilities 2012 2012 2012 2012 2011 up to 1 year 1-5 years more than Total Total 5 years €’000 €’000 €’000 €’000 €’000 Sureties 1,270 0 0 1,270 1,253

No provisions were recognised for the commitments shown because the risk of use was deemed to have a low probability. There exist no uncertainties as regards the amount or maturity of the contingent liabilities.

116 Sureties relate to guarantees for advance payments, warranties, contract fulfilment and tender guarantees for simulation, radar data and air traffic control systems. At the end of the business year, there were no obligations for the issuance or endorsement of guarantees covering bills of exchange and cheques.

35.2 Other financial commitments

Due dates of other financial 2012 2012 2012 2012 2011 obligations up to 1 year 1-5 years more than Total Total 5 years €’000 €’000 €’000 €’000 €’000 Loans commitments 0 0 50,000 50,000 51,500 - of which taken up 0 0 11,000 11,000 0 Intercompany credit lines to affiliated companies 14,900 0 0 14,900 14,900 - of which taken up 0 0 0 0 0 Capital expenditure commitments for the acquisition of - intangible assets 18,195 15,628 0 33,823 50,488 - property, plant and equipment 67,481 24,659 969 93,109 59,566 - other 51,142 16,455 27 67,624 72,286 151,718 56,742 50,996 259,456 248,740

In order to cover their liquidity needs, affiliated companies were granted an inter-company credit line as part of daily cash pooling. By doing so, the group optimises its conditions for cash investments and loans and exploits the advantages of a central, systematic financial planning.

Capital expenditure commitments relate to the contractual obligations for the purchase of intangible assets as well as property, plant and equipment.

The new Board of the benevolent fund (U-Kasse) was released from its liability by the Board of Man- aging Directors of DFS.

117 Notes 2012

36. Contingent assets

There are two separate abstract acknowledgements of debt (abstrakte Schuldanerkenntnisse – a standard German law acknowledgement of a borrower’s indebtedness) between DFS and FCS: Effective from 26 April 2006 29 September 2008 and 6 October 2008, respectively Collateral Registration of a charge Registration of a charge Legal basis Article 1 LuftfzgG (Law on Rights Regarding Aircraft Article 1 LuftfzgG (Law on Rights Regarding Aircraft – Gesetze über Rechte an Flugzeugen) – Gesetze über Rechte an Flugzeugen) Beneficiary DFS DFS Object Hawker Beechcraft Super King Air 350 Hawker Beechcraft Super King Air 350 Serial number FL-473 D-CFMD FL-626 D-CFME Local court Braunschweig [Brunswick] Braunschweig [Brunswick] Registration 22 August 2006 16 September 2009 Basis Loan agreement dated March 2006 Loan agreement dated September 2008 and October 2008, respectively Parties to the contract ESSP and FCS ESSP and FCS Loan 1 Aircraft FL-473 D-CFMD Aircraft FL-626 D-CFME Term until 31 December 2022 (€5,500 thousand) Term until 31 December 2025 (€4,300 thousand) Loan 2 Flight inspection system (type Aerodata AeroFIS) Flight inspection system (type Aerodata AeroFIS) Term until 31 December 2016 (€3,000 thousand) Term until 30 September 2019 (€1,700 thousand) Miscellaneous The loan is collateralised over its entire maturity by an The loan is collateralised over its entire maturity by an abstract acknowledgement of debt in favour of DFS abstract acknowledgement of debt in favour of DFS by means of a liability of €8,500 thousand. by means of a liability of €6,000 thousand. €7,100 thousand of the volume of the loan had been €5,200 thousand of the volume of the loan had been taken up. taken up.

37. Post-balance sheet events On 1 January 2013, Prof Klaus-Dieter Scheurle and Robert Schickling took up their posts as Man- aging Directors at DFS. This also saw the new distribution of responsibilities among the Managing Directors come into force (see 1.3 Legal and organisational framework conditions in the group management report).

The negotiations with the air navigation services union (GdF) on the collective agreement covering remuneration were successfully concluded in January 2013 (see 9 Supplementary report in the group management report).

118 38. Auditors’ fees

Total fees of the auditor under 2012 2011 Article 314 paragraph 1 no. 9 of the HGB €’000 €’000 Audit of the annual financial statements* 164 154 Other assurance services 0 34 Tax advice 17 0 Other services 59 0 Total 240 188

* The audit was expanded to cover the audit of the adherence to the restrictions when it comes to purchasing for sovereign tasks from the Kaufhaus des Bundes, an online procurement site for governmental entities.

39. Service concession arrangements Under Article 27c German Aviation Act (LuftVG), DFS is obliged to perform its sovereign tasks (see 1.1 Business activities in the group management report). The details of these tasks are regulated by an indefinite framework agreement with the Federal Republic of Germany, represented by the Federal Ministry of Transport, Building and Urban Development.

The law and the framework agreement authorise DFS as the current entrusted air navigation service provider to require the airports under Article 27d German Aviation Act (LuftVG) to:

■ establish and maintain the necessary facilities and take the necessary structural measures in these facilities; make the necessary facilities available and allow cables to be laid, connected and maintained on the premises,

■ enable the air navigation services personnel to use the infrastructure at aerodromes,

■ ensure that the buildings and rooms made available by the aerodrome operator are provided with power, thermal energy, water, heating and air-conditioning; perform other utility services and ensure that waste disposal services are rendered.

In return, DFS reimburses the airports for these costs. If another air navigation service provider is entrusted with these duties, the legal and contractual rights and obligations transfer to this air traffic service provider.

Charges levied are the main source of revenue at DFS and they should cover the costs incurred (for changes to the unit rate see 5.1 Service units and unit rates in the group management report).

119 Notes 2012

39.1 Terminal services For terminal services, the Federal Ministry of Transport, Building and Urban Development (BMVBS) lays down a unit rate each year on the basis of the German Ordinance on Terminal Charges of the Air Navigation Services (FSAAKV) and taking into consideration the EU Regulations on a common charging scheme for air navigation services.

To this end, DFS sends the national supervisory authority, the Federal Supervisory Authority for Air Navigation Services (BAF), a preliminary cost estimate for the coming year. The cost estimate is based on the costs of the last business year and the estimates of the cost development in the current and following business year. The unit rate is calculated from the quotients between the planned costs and the planned traffic volume. If the assumptions fail to materialise, the resulting over-recovery or under-recovery is carried over into the costs of the next years.

39.2 En-route services Since 2012, the performance scheme for air navigation services has aimed to improve the overall efficiency across the performance areas safety, environment, capacity and cost-efficiency in the en-route area. The European Commission has laid down the performance targets and alert thresholds for the whole European Union for one reference period. Each reference period comprises five years. To gather experience in the introductory phase, the first reference period was limited to three years (2012–2014).

The national supervisory authority, the Federal Supervisory Authority for Air Navigation Services (BAF), draws up a performance plan on the national or functional airspace block level that is aligned with the performance targets of the European Union. Upon proposal of the national supervisory authorities, Member States adopt their performance plans and communicate them to the Commis- sion. The Commission evaluates the performance plans and suggests or takes corrective measures.

For the first reference period from 2012 to 2014, the Federal Supervisory Authority for Air Naviga- tion Services has laid down the unit rates for en-route services for DFS. Previously, the business risk DFS was exposed to under the system of full-cost recovery was limited. However, the business risk has risen significantly since the start of this economic regulation.

The cost risks that arise within a reference period impact the profits of DFS. However, the traffic risk is spread between DFS and the airspace users. Variances from the forecasts within the first 2.00 percent (up or down) are borne by DFS. For variances of more than 2.00 percent to 10.00 percent, 70.00 percent of any additional revenues are given back to the airspace users. In the case of a negative variance, 70.00 percent is retroactively charged two years later. For variances in the traffic forecast of more than 10.00 percent, additional revenues are returned to airspace users and any shortfall can be charged in full (see 12.2.1.2 Departure from the principle of full cost recovery).

120 The variances are determined by the Federal Supervisory Authority for Air Navigation Services and reported to the European Commission and EUROCONTROL. EUROCONTROL checks the differences and submits the adjustments to the representatives of the Member States in the Enlarged Commit- tee for Route Charges. This Committee prepares the adjusted unit rates for en-route services after consultation with the airspace users. These are submitted to the enlarged Commission for final approval.

The Federal Ministry of Transport, Building and Urban Development (BMVBS) publishes the unit rate for en-route services in the Federal Law Gazette on the basis of the German Ordinance on Terminal Charges of the Air Navigation Services (FSAAKV) and taking into consideration the EU Regulations on a common charging scheme for air navigation services.

40. Related party disclosures 40.1 Related parties – entities In the normal course of business, services are rendered to related entities (see also Note 3 Scope of consolidation and Note 17 Financial assets). Group companies also render services to DFS. These extensive delivery and service relationships are conducted at arm’s length and are, as a rule, no different from the business relationships with other companies.

DFS maintains business relations with the sole controlling Shareholder, the Federal Republic of Ger- many (represented by the Federal Ministry of Transport, Building and Urban Development), and with other companies controlled by the Federal Republic of Germany as part of the entrusted sovereign functions for air navigation services. These transactions are conducted at arm’s length and are, as a rule, no different from the delivery and service relationships with other companies. DFS avails of the exemption in IAS 24.25 and does not disclose information on outstanding balances and transactions with government-related entities.

Since June 2009, DFS has been an active member of the SESAR Joint Undertaking (SJU), along with other leading organisations. The most prominent project is the Single European Sky Air Traffic Management Research (SESAR). This puts DFS in a position to help shape the future of European air navigation services on the basis of its experience and benefit optimally from the joint developments. Funds have been made available from the European research framework programmes for this project.

121 Notes 2012

List of shares Registered seat Shareholding Equity Net income in % €’000 €’000 Affiliated companies DFS European Satellite Services Provider Beteiligungsgesellschaft mbH Langen, Germany 100.00 26,045 1,396 DFS Unterstützungskasse GmbH Langen, Germany 100.00 26 1 The Tower Company GmbH Langen, Germany 100.00 223 0 DFS Energy GmbH Langen, Germany 100.00 5,396 0 FCS Flight Calibration Services GmbH* Braunschweig, Germany 55.00 3,760 633 Investments GroupEAD Europe S.L.* Madrid, Spain 36.00 2,075 821 BILSODA GmbH & Co. KG* Pullach, Germany 24.90 1,542 -15 Investments through affiliated companies Investment of DFS European Satellite Services Provider Beteiligungsgesellschaft mbH: European Satellite Services Provider Sociéte par Action Simplifiée* Toulouse, France 16.67 4,256 1,481 Investment of The Tower Company GmbH: Tower Air Traffic Services S.L.* Madrid, Spain 50.00 1,000 0 * Equity and net income as at 31 December 2011

Outstanding balances Shareholder Affiliated Investments companies 2012 €’000 €’000 €’000 Financial assets 38,172 2,354 Other assets 2,853 1,577 42 Other liabilities 6,278 25,663 10 2011 €'000 €'000 €'000 Financial assets 27,172 748 Other assets 10,900 1,029 35 Other liabilities 3,794 11,909 17

122 Income (+) and expenses (-) Shareholder Affiliated Investments companies 2012 €’000 €’000 €’000 Revenues 70,511 664 79 Other operating income 85 1,609 98 Purchased services -3,352 Employee expenses -25,884 -17 Other operating expenses -8,481 -248 Interest income 44 0 Interest expense -6 0 Profit transfers 0 1,333 339 Loss adjustment -751 2011 €'000 €'000 €'000 Revenues 71,248 810 76 Other operating income 290 1,464 93 Purchased services -3,277 Employee expenses -21,277 0 Other operating expenses -9,180 -45 Interest income 0 0 Interest expense -70 0 Profit transfers 0 853 167 Loss adjustment -558

40.2 Related parties – persons In accordance with IAS 24, DFS also reports on business relationships between the company and related parties (persons), or members of that person’s family. Related parties (persons) were identified as the Board of Managing Directors, Level 1 executives, the Supervisory Board and their family members (for remuneration see Note 41 Organs of the company). There were no material or, in their form or character, atypical reportable transactions between DFS and people in key positions of management and their close family.

123 Notes 2012

41. Organs of the company 41.1 Board of Managing Directors

Dieter Kaden, Bad Dürrheim, Chairman and CEO (until 31 December 2012)

Prof Klaus-Dieter Scheurle, Frankfurt, Chairman and CEO (from 1 January 2013)

Ralph Riedle, Langen, Managing Director Operations (until 31 December 2012)

Robert Schickling, Bad Homburg vor der Höhe, Managing Director Operations (from 1 January 2013)

Jens Bergmann, Bad Homburg vor der Höhe, Managing Director Finance (until 31 December 2012)

Dr Michael Hann, Bad Dürkheim, Managing Director Human Resources (from 1 September 2012)

For more information on the reallocation of responsibilities among the Board of Managing Direc- tors, see 1.3 Legal and organisational framework conditions in the group management report.

Payments due in the short term for members of the Board of Managing Directors Fixed components Performance Total (including components emoluments benefits in kind) 2012* €’000 €’000 €’000 Dieter Kaden (Chairman) 330 126 456 Ralph Riedle 257 107 364 Jens Bergmann 268 104 372 Dr Michael Hann 91 0 91 946 337 1,283 2011 €'000 €'000 €'000 Dieter Kaden (Chairman) 322 112 434 Ralph Riedle 247 90 337 Jens Bergmann 258 90 348 827 292 1,119 * Includes the managing directors who departed the company as of 31 December 2012

124 The company granted no advance payments or loans to members of the Board of Managing Direc- tors or to former Managing Directors. In addition, DFS paid no remuneration for consultancy or service contracts.

Termination Benefits Pension Pension Expenses for benefits payments pension benefits earned in the current year** 2012* €’000 €’000 €’000 Dieter Kaden (Chairman) 3,671 0 277 Ralph Riedle 2,493 0 95 Jens Bergmann 2,787 0 98 Dr Michael Hann 97 0 0 Former Managing Directors 5,263 293 189 14,311 293 659 2011 €'000 €'000 €'000 Dieter Kaden (Chairman) 2,872 0 257 Ralph Riedle 2,122 0 92 Jens Bergmann 924 0 80 Former Managing Directors 4,345 298 192 10,263 298 621 * Includes the managing directors who departed the company as of 31 December 2012 ** Service cost and interest cost

There were no other long-term benefits due or share-based compensation.

125 DFS Deutsche Flugsicherung GmbH, Langen

41.2 Supervisory Board

Shareholder representatives Prof Klaus-Dieter Scheurle Rainer Münz Chairman until 18 September 2012 Ministerialdirigent State Secretary (retired) Federal Ministry of Transport, Member until 18 September 2012 Building and Urban Development Member until 30 September 2012 Michael Odenwald Chairman from 9 October 2012 Hans-Dieter Poth State Secretary Brigadier General Federal Ministry of Transport, Director of Bundeswehr Flight Safety Building and Urban Development Luftwaffenamt (German Air Force Office) Member from 27 September 2012 Member until 27 April 2012

Dr Martina Hinricher Ralf Raddatz Ministerialdirektorin Colonel General Staff Federal Ministry of Transport, Federal Ministry of Defence Building and Urban Development Member from 28 April 2012 Member from 25 October 2012 Martin Walber Dr Norbert Kloppenburg Regierungsdirektor Member of the Board of Managing Directors Federal Ministry of Defence KfW Bankengruppe

Dr Angelika Kreppein Regierungsdirektorin Federal Ministry of Finance

Staff representatives Michael Schäfer Petra Reinecke Deputy Chairman Air traffic controller Watch supervisor in flight data handling Peter Schaaf Otto Fischer Air traffic controller Director Corporate Development Chairman Central Staff Council

Holger Müller Dirk Wendland Air traffic controller Systems engineer

126 In the business year, there were four scheduled and three extraordinary Supervisory Board meetings.

Remuneration of the Supervisory Board 2012 2011 €’000 €’000 Otto Fischer 1.0 0.5 Dr Martina Hinricher 0.1 0.0 Dr Norbert Kloppenburg 1.0 0.7 Dr Angelika Kreppein 1.2 1.0 Dr Reinhard Kuhn 0.0 0.2 Holger Müller 0.6 0.5 Rainer Münz 0.8 1.0 Michael Odenwald 0.3 0.0 Hans-Dieter Poth 0.1 0.4 Ralf Raddatz 0.4 0.0 Petra Reinecke 1.3 0.9 Peter Schaaf 0.9 0.6 Michael Schäfer 1.4 0.9 Prof Klaus-Dieter Scheurle 0.7 0.6 Martin Walber 1.1 0.4 Dirk Wendland 0.9 1.0 11.8 8.7

The Articles of Association determine the level of remuneration of the Supervisory Board. The emoluments of the Supervisory Board are comprised of fixed and variable components. The fee for meeting attendance is €80 and the daily allowance amounts to €26 per meeting.

The members of the Supervisory Board received no advances, loans or remuneration from consultancy or service contracts.

42. Disclosures on the public corporate governance code DFS is subject to the Public Corporate Governance Code of the Federation. The Board of Managing Directors and the Supervisory Board jointly issue a compliance statement each year and publish the corporate governance report on the internet page of the company.

127 Notes 2012

Responsibility statement

The Board of Managing Directors of DFS Deutsche Flugsicherung GmbH issues the following statement, pursuant to Article 37y No 1 of the Securities Trading Act (WpHG) in conjunction with Articles 297 paragraph 2 sentence 4, 315 paragraph 1 sentence 6 and 315a paragraph 1 of the German Commercial Code (HGB).

To the best of our knowledge, and in accordance with the applicable reporting principles, the group financial statements give a true and fair view of the net assets, financial position and results of operation of the group, and the group management report includes a fair review of the development and performance of the business and the position of the group, together with a description of the principal opportunities and risks associated with the expected development of the group.

Langen, 12 March 2013

Prof Klaus-Dieter Scheurle Robert Schickling Dr Michael Hann Chairman and CEO Managing Director Managing Director Operations Human Resources

128 Auditor’s report

We have audited the group financial statements of DFS Deutsche Flugsicherung GmbH (DFS) – consisting of the balance sheet, statement of comprehensive income, statement of changes in equity, cash flow statement and notes to the group financial statements – together with the group management report for the business year from 1 January to 31 December 2012. The preparation of the group financial statements and the group management report in accordance with the IFRS to be applied within the EU and provisions to be additionally applied according to Art. 315a para. 1 of the German Commercial Code (HGB) are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the group financial statements and on the group management report based on our audit.

We conducted our audit of the group financial statements in accordance with § 317 HGB and Ger- man generally accepted standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer [Institute of Public Auditors in Germany] (IDW). Those standards require that we plan and perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of operations in the group financial statements in accordance with the applicable financial reporting framework and in the group management report are detec- ted with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible misstatements are taken into account in the determination of audit procedures. The effectiveness of the accounting-related internal control system and the evidence supporting the disclosures in the group financial statements and the group management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the annual financial statements of those entities included in the consolidation, the determination of the entities to be included in consolidation, the accounting and consolidation principles used and significant estimates made by the Company’s Board of Management, as well as evaluating the overall presentation of the group financial statements and the group management report. We believe that our audit provides a reasonable basis for our opinion.

Our audit has not led to any reservations.

In our opinion, based on the findings of our audit, the group financial statements comply with IFRS as adopted by the EU, the additional requirements of German commercial law pursuant to section 315a paragraph 1 HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accordance with these requirements. The group management report is consistent with the group financial statements and as a whole provides a suitable view of the Group’s position and suitably presents the opportunities and risks of future development.

Cologne, 12 March 2013 RBS RoeverBroennerSusat GmbH & Co. KG Wirtschaftsprüfungsgesellschaft Steuerberatungsgesellschaft

Graf von Kanitz Schorse Auditor Auditor

129 Notes 2012

Acronyms and abbreviations

AIM Aeronautical Information Management AS Aeronautical Solutions ATC Air Traffic Control A-SMGCS Advanced Surface Movement Guidance and Control System A-SMR Advanced Surface Movement Radar ATCAS Air Traffic Control Automation System ATM Air Traffic Management ATS Air Traffic Services AUSTRO CONTROL Austro Control Österreichische Gesellschaft für Zivilluftfahrt mbH, Vienna/ Austria BAF Federal Supervisory Authority for Air Navigation Services – Bundesaufsichtsamt für Flugsicherung BilMoG German Accounting Law Modernisation Act – Bilanzrechtsmodernisierungsgesetz BILSODA BILSODA GmbH & Co. KG BMVBS Federal Ministry of Transport, Building and Urban Development – Bundesministerium für Verkehr, Bau und Stadtentwicklung DCF Discounted Cash Flow DFS DFS Deutsche Flugsicherung GmbH DWD German Meteorological Service – Deutscher Wetterdienst EANPG European Air Navigation Planning Group EBIT Earnings Before Interest and Taxes EBT Earnings Before Taxes EoD Engineer on Duty ERP Enterprise Resource Planning ESSP European Satellite Services Provider EURIBOR Euro Interbank Offered Rate EUROCONTROL European Organisation for the Safety of Air Navigation e.V. Registered Association – Eingetragener Verein FABEC Functional Airspace Block Europe Central FCS Flight Calibration Services GmbH FDP Fligh Data Processing FDPS Fligh Data Processing System GBP Pound Sterling GdF Air Navigation Services Union – Gewerkschaft der Flugsicherung GmbH Limited Liability Company – Gesellschaft mit beschränkter Haftung GroupEAD GroupEAD Europe S.L., Madrid HGB German Commercial Code – Handelsgesetzbuch HRB Commercial Register B – Handelsregister Abteilung B IAS International Accounting Standards IASB International Accounting Standards Board IATA International Air Transport Association ICAO International Civil Aviation Organisation iCAS iTEC Center Automation System IFR Instrument Flight Rules IFRIC International Financial Reporting Interpretations Committee IFRS International Financial Reporting Standards ISIS-XM Improved Speech Integrated System ISO International Organisation for Standardisation KARLDAP Karlsruhe Automatic Data Processing and Display System KfW Reconstruction Loan Corporation – Kreditanstalt für Wiederaufbau KG Partnership – Kommanditgesellschaft

130 LASER Langen Replacement of the Voice Switching System – Langen Sprachvermittlung Erneuerung LBA Federal Aviation Office – Luftfahrt-Bundesamt LuftfzgG Law on Rights Regarding Aircraft – Gesetz über Rechte an Flugzeugen LuftVG German Aviation Act – Luftverkehrsgesetz MLAT Multilateration MUAC Maastricht Upper Area Control Mode-S Mode Select NATS National Air Traffic Services (UK) Nord/LB Norddeutsche Landesbank OAT Operational Air Traffic P1/P2 Project 1 / Project 2 PSS Paperless Strip System QTE Qualified Technological Equipment RASUM Radio Site Upgrade and Modernisation S.A. Société Anonyme SAS Société par Action Simplifiée SES Single European Sky SESAR Single European Sky ATM Research SJU SESAR Joint Undertaking S.L. Sociedad Limitada SMR Surface Movement Radar TATS Tower Air Traffic Services S.L. TTC The Tower Company GmbH VAFORIT Very Advanced Flight Data Processing Operational Requirements Implementation VAG German Insurance Supervision Act – Versicherungsaufsichtsgesetz VaR Value at Risk VFR Visual Flight Rules

131 Source: BMVBS Picture credits ISSN 1865-6420 Internet E-mail Facsimile +49(0)6103707-4196 Telephone +49(0)6103707-4111 Germany Langen 63225 Am DFS-Cam Corporate Communications GmbH sicherung Flug Deutsche DFS Imprint

www.dfs.de [email protected] pus 10

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