FINANCIAL STATEMENTS AND CORPORATE Book GOVERNANCE 2006 2 The complete EADS Annual Report Suite 2006 consists of: ANNUAL REVIEW 2006 Book Management & Responsibility TAKE The Full Picture: Transformation EADS Annual Review 2006 A The Business Year 2006 LOOK Inside EADS 1 Useful Information FINANCIAL FINANCIAL STATEMENTS AND CORPORATE GOVERNANCE 2006 Book STATEMENTS AND Registration Document Part 1: CORPORATE Risk Factors Book GOVERNANCE Net Assets Financial Position Results 2 2006 2 Corporate Governance BUSINESS, BUSINESS, LEGAL AND CORPORATE RESPONSIBILITY 2006 Book LEGAL AND Registration Document Part 2: CORPORATE (available on request) Book RESPONSIBILITY Information on EADS Activities 2006 3 Corporate Social Responsibility General Description of the Company and its Share Capital 3 Entity Responsible for the Registration Document The online version of the Annual Report Suite 2006 is available at www.reports.eads.com Back to Contents financial statements anD coRPoRate goveRnance eaDs RegistRation Document – PaRt 1 financial Policy Back to Contents Dear shareholders, 2006 was a difficult and disappointing year for all of us. The company was delivering commercial success, making strides on its expansion path, and our divisions were performing well. But a shockwave of events at Airbus hit us unexpectedly, most visibly with the A380 pro- gram, and forced us to re-examine operations: we realised that, be- sides long-term issues of competitive pressure on prices and the per- sistent weakening of the US dollar, many factors of past accomplishments need to be either changed or reinforced. financial Policy Back to Contents The transformation of EADS requires substantial efforts across In the face of these needs, management needs to push forward the group. Airbus in particular, requires an overhaul of the for a leaner, less complex and less capital intensive model for original industrial set-up, a behavioural evolution and more EADS. Proactive portfolio management, implying divestments modesty. Given the nature of our business, we are locked into of non-core or non-strategic assets as well as selective certain elements until 2010, such as our backlog or the hedge acquisitions, will ensure the flexibility and necessary adaptive portfolio. Reorganisation programs, mostly Power8, are the skills. only levers that EADS can, and must employ to emerge stronger. Furthermore, EADS needs to be better equipped to surmount a potential erosion of the business environment, whether a There are many factors that support us in accomplishing this deterioration of the currency environment or a reversal of the indispensable task. Orders still hover at historic heights. The cycle, and to maintain a prudent balance sheet structure and an demand is robust – particularly visible in the Single Aisle acceptable credit rating. Debt instruments in the most optimal segment. A continuation of this upcycle is expected as US form then available will be our preferred course for realising airlines need to rejuvenate their fleets. financial and strategic flexibility. Meanwhile, our other businesses display increasingly better Finally, we retain the option of a capital increase. As we have a performance, because past restructuring efforts, such as those strong cash position, and are sensitive to concerns of dilution of the space business, are bearing fruits. Opportunities for of our shareholders, there is no urgency, so this is only defence sales in the US are more tangible than ever, after the envisaged as a contingent measure. Succesful implementation winning of the Light Utility Helicopter contract. Our hedge of initial steps of Power8, success of the A350XWB in its book is valuable, though not a cure to the threat of an market, deliveries of A380, and continued momentum of the unrelenting weak euro-dollar exchange rate, and our customer helicopter, defence and space businesses are an absolute financing exposure has been reduced yet further. prerequisite to such a move, unlikely before 2008. In organisational terms the integration of the EADS Group EADS’ longer term guidance, to 2010, does not satisfy significantly progressed with the acquisition of the 20% BAE management, but it reflects our acknowledgment of substantial Systems stake in Airbus in October 2006. Shortly afterwards, challenges that still need to be overcome. As the business Louis Gallois and myself respectively became CEO and CFO regains its equilibrium, and achievements inspire new of Airbus. This dissolves an important structural impediment ambition, management will seek to raise its sight to higher and furthers transparency in the Group. This assimilation targets of growth. should translate in a better allocation and flow of resources, infrastructure and capabilities between Airbus and the other EADS Business Units and Divisions. Yours truly, Impacts of the A380 industrialization delays will still be visible in 2010, as margin contributions and cash flows from full production are now pushed back by two years. But following the ramp-up, working capital will return to a normal level and free up financial resources that can then be allocated elsewhere. The development of the A350XWB programme, launched in 2006, is one such area of future investment, and ultimately, a new short range aircraft may also lead to a rush of R&D Hans Peter Ring spending through the first half of the next decade. Chief Operating Officer for Finance Back to Contents EADs RegistRation Document PaRt 1 FINANCIAl STATEMENTS AND CORPORATE GOVERNANCE European Aeronautic Defence and Space Company EADS N.V. (the “Company” or “EADS”) is a Dutch company, which is listed in France, Germany and Spain. Given this fact, the applicable regulations with respect to public information and protection of investors, as well as the commitments made by the Company to securities and market authorities, are described in this registration document (the “Registration Document”). This Registration Document was prepared in accordance with Annexe 1 of the EC Regulation 809/2004, filed in English with, and approved by, theAutoriteit Financiële Markten (the “AFM”) on 25th April 2007 in its capacity as competent authority under the Wet op het financieel toezicht (as amended) pursuant to the Directive 2003/71/EC. The Registration Document is composed of two parts which must be read together: (i) this document entitled Financial Statements and Corporate Governance – (Registration Document Part 1) and (ii) the document entitled Business, Legal and Corporate Responsibility – (Registration Document Part 2). This Registration Document may be used in support of a financial transaction as a document forming part of a prospectus in accordance with Directive 2003/71/EC only if it is supplemented by a securities note and a summary approved by the AFM. EADS Financial Statements and Corporate Governance Back to Contents FINANCIAL STATEMENTS anD CORPoRATE GOVERNANCE RISKs FACTORs NET ASSETS - FINANCIAL POSITION - 1 RESULTs 2 corpoRate GOVERNANCE 3 FINANCIAL calenDaR eaDs EADS FINANCIAl STATEMENTS AND CORPORATE GOVERNANCE 1 GENERAL TABLE OF CONTENTs/REGISTRATION DOCUMENT - PaRts 1 anD 2 Back to Contents financial statements anD coRPoRate goveRnance REGISTRATION DOCUMENT - PART 1 Consolidated Share of Profit from Associates RisK factoRs 7 Accounted for under the Equity Method and Other Income (Expense) from Investments 35 1. Financial Market Risks 8 Consolidated Interest Result 35 Consolidated Other Financial Result 36 Consolidated Income Taxes 36 2. Business-Related Risks 10 Consolidated Minority Interests 36 Consolidated Net Income (Profit for the Period 3. Legal Risks 14 Attributable to Equity Holders of the Parent) 36 Earnings per Share (EPS) 37 1.1.6 Changes in consolidated total equity 4. Industrial and Environmental Risks 15 (including minority interests) 37 IAS 39 Related Impact on AOCI 38 Currency Translation Adjustment Impact on AOCI 39 1.1.7 Liquidity and capital Resources 39 net assets - financial 1.1.7.1 Cash Flows 39 1 Position - Results 17 1.1.7.2 Consolidated Cash and Cash Equivalents 41 1.1.7.3 Consolidated Financial Liabilities 42 1.1.7.4 Sales Financing 42 1.1 Management’s Discussion and Analysis 1.1.8 Hedging activities 46 of Financial Condition and Results 1.1.8.1 Foreign Exchange Rates 46 of Operations 18 1.1.8.2 Interest Rates 48 1.1.1 Certain information 18 Exchange Rate Information 18 1.2 Financial Statements 49 Ratings 18 1.2.1 EADs n.v. consolidated financial statements (IFRs) 50 1.1.2 Overview 19 Basis of Presentation 56 1.1.2.1 Significant Programme and Restructuring Notes to the Consolidated Statements Developments in 2006 19 of Income (IFRS) 67 1.1.2.2 Outlook 20 Notes to the Consolidated Balance Sheets (IFRS) 76 1.1.3 Critical accounting considerations, Policies Notes to the Consolidated Statements of Cash-Flows (IFRS) 95 and Estimates 21 Other Notes to the Consolidated Financial 1.1.3.1 Scope of and Changes in Consolidation Perimeter 21 Statements (IFRS) 97 1.1.3.2 Employee Benefits — IAS 19 22 1.1.3.3 U.K. Pension Commitments 22 Appendix: Information on principal 1.1.3.4 Fair Value Adjustments 23 investments - Consolidation Scope 113 1.1.3.5 Impairment of Assets 23 auditors‘ Report on the consolidated financial 1.1.3.6 Research and Development Expenses 24 statements (IFRs) 119 1.1.3.7 Accounting for Hedged Foreign Exchange Report on the Consolidated Financial Statements 119 Transactions in the Financial Statements 24 Report on other legal and regulatory requirements 120 1.1.3.8 Foreign Currency Translation 25 1.1.3.9 Accounting for