Single entity financial statements and combined … sheet of Drägerwerk AG & Co. KGaA as of December 31, 2016 6 Notes to Drägerwerk AG & Co. KGaA single entity financial statements

Single entity financial statements and combined management reportof Drägerwerk AG & Co. KGaA

as of December 31, 2016

1CONTENTS

Combined management report of Drägerwerk AG & Co. KGaA 3

Single entity financial statements of Drägerwerk AG & Co. KGaA 5Income statement of Drägerwerk AG & Co. KGaA from January 1 to December 31, 2016 5Balance sheet of Drägerwerk AG & Co. KGaA as of December 31, 2016 6

Notes to Drägerwerk AG & Co. KGaA single entity financial statements 8Major direct and indirect shareholdings of Drägerwerk AG & Co. KGaA 40The Company’s Boards 44Management compliance statement 48

Possible rounding differences in this financial report may lead to slight discrepancies.

This single entity financial statements and combined management report has been set up in German and English language. In case of any discrepancy between the German and English version, the German version shall prevail.

2 COMBINED MANAGEMENT REPORT OF DRÄGERWERK AG & CO. KGAA

3NOTESANNUAL FINANCIAL STATEMENTS MANAGEMENT REPORT

Combined management report of Drägerwerk AG & Co. KGaA

The management report of Drägerwerk AG & Co. KGaA and the management report of the Dräger Group have been combined and published in the Group Annual Report since fiscal year 2014 pursuant to Sec. 315 (3) of the Ger-man Commercial Code (Handelsgesetzbuch—HGB). The management report of Drägerwerk AG & Co. KGaA, which is combined in the Group management report, and the single entity financial statements for fiscal year 2016 are submitted and published in an electronic version by the German Federal Gazette.

4 INCOME STATEMENT

5NOTESMANAGEMENT REPORT ANNUAL FINANCIAL STATEMENTS

Single entity financial statements of Drägerwerk AG & Co. KGaA

INCOME STATEMENT OF DRÄGERWERK AG & CO. KGAA FROM JANUARY 1 TO DECEMBER 31, 2016 1

in € thousand Note 2016 2015

Net sales 22 1,006,160 880,570

Reduction in work in progress and finished products –556 –3,941

Other own work capitalized 5,259 3,431

Other operating income 23 72,612 218,569

Cost of materials 24 –537,000 –506,831

Personnel expenses 25 –238,844 –260,713

Depreciation/amortization 26 –28,969 –26,502

Other operating expenses 27 –279,930 –464,687

Income from investments 28 3,441 2,656

Income from a profit and loss transfer agreement 29 107,026 82,094

Income from other securities and loans of financial assets 744 580

Write-downs on financial assets –13 –279

Expenses from a loss transfer due to a profit and loss transfer agreement 29 –45,298 –682

Interest result 30 –11,245 –11,531

Income tax expense/income 31 –15,420 18,907

Earnings after taxes 37,967 –68,358

Other taxes –1,801 –329

Profit before distribution for participation capital 36,166 –68,687

Distribution for participation capital Series D –1,077 –1,077

Net profit/loss 35,089 –69,764

Profit brought forward from prior year 363,211 435,740

Net earnings 42 398,300 365,976

1 The 2016 income statement is drawn up pursuant to the Accounting Directive Implementation Act (BilRUG), while the 2015 income statement was drawn up pursuant to the old version of the German Commercial Code (Handelsgesetzbuch—HGB). This means that comparability may be limited, see Notes 4 and 22.

6 BALANCE SHEET

CONSOLIDATED BALANCE SHEET OF DRÄGERWERK AG & CO. KGAA AS OF DECEMBER 31

in € thousand Note December 31, 2016 December 31, 2015

Assets

Intangible assets 6 20,083 23,829

Property, plant and equipment 7 187,368 166,008

Financial assets 8 604,592 606,810

Noncurrent assets 812,044 796,647

Inventories 9 113,328 132,950

Trade receivables 10 53,320 59,358

Other receivables and other assets 10 501,559 473,117

Bank balances 21,709 20,827

Current assets 689,917 686,252

Prepaid expenses 11 7,254 8,159

Deferred tax assets 12 44,049 57,751

Excess of plan assets over pension liability 13 6,899 4,275

Total assets 1,560,161 1,553,084

7NOTESMANAGEMENT REPORT ANNUAL FINANCIAL STATEMENTS

in € thousand Note December 31, 2016 December 31, 2015

Equity and liabilities

Capital stock 14 45,466 45,466

Capital reserves 15 237,217 237,217

Retained earnings 16 199,191 199,191

Other retained earnings 199,191 199,191

Net earnings 17 398,300 365,976

Participation capital – par value: EUR 14,488 thousand (Series D) 19 28,511 28,511

Equity 908,685 876,361

Provisions for pension obligations and similar obligations 115,713 123,208

Other provisions 103,336 114,418

Provisions 20 219,049 237,626

Participation capital – par value: EUR 6,777 thousand (Series A+K) 15,588 15,588

Liabilities to banks 182,509 221,848

Trade payables 81,735 80,549

All other liabilities 151,907 120,150

Liabilities 21 431,738 438,135

Prepaid expenses 689 963

Total equity and liabilities 1,560,161 1,553,084

8 NOTES TO DRÄGERWERK AG & CO. KGAA SINGLE ENTITY FINANCIAL STATEMENTS 2016

Notes to Drägerwerk AG & Co. KGaA single entity financial statements 2016

GENERAL

Drägerwerk Verwaltungs AG, Lübeck, is the sole general partner of Drägerwerk AG & Co. KGaA. Drägerwerk Verwaltungs AG, Lübeck does not hold any shares. The capital stock of the general partner amounts to EUR 1.0 million.

Drägerwerk AG & Co. KGaA, Lübeck, Germany, is registered at the Register Court of Lübeck under HRB 7903 HL.

The single entity financial statements of Drägerwerk AG & Co. KGaA have been pre-pared in accordance with the provisions of the Commercial Code (Handelsgesetzbuch—HGB). For the income statement, the expense method of presentation has been used.

With the goal of enhancing the transparency of the presentation, certain items of the balance sheet and income statement have been summarized, but are detailed further down in the notes. The financial statements were prepared in Euros. Unless otherwise stated, all figures are disclosed in thousands of euros (EUR thousand); rounding differenc-es may arise as a result.

CORPORATE GOVERNANCE

Drägerwerk AG & Co. KGaA’s declaration of conformity under the terms of Sec. 161 AktG (Aktiengesetz—German Stock Corporation Act) has been issued and made available to the shareholders (see the Annual Report of the Dräger Group or www.draeger.com, Investor Relations/Corporate Governance).

CURRENCY TRANSLATION

Foreign currency assets and liabilities are stated at the historical exchange rate on the day of transaction.

Foreign currency assets and liabilities with a remaining term of up to one year are rec-ognized at the mean spot exchange rate as of the balance sheet date. Exchange gains and losses from this conversion are recognized in income. Only losses resulting from different currency exchange rates are recognized for assets and liabilities with a remaining term of more than one year. Income and expenses from currency translation are recognized in the notes under other operating income and expenses.

CHANGE IN PRESENTATION AND COMPARABILITY WITH THE PRIOR YEAR

Prior-year amounts may not be comparable as a result of the application of the Accounting Directive Implementation Act (BilRUG), which came into force on July 23, 2015 and was mandatory for fiscal year 2016; this is due to the fact that the prior-year amounts were reported pursuant to the old version of the German Commercial Code (Handelsgesetz-buch—HGB).

ACCOUNTING POLICIES

Purchased intangible assets are carried at cost less straight-line amortization over an estimated useful life of no more than four years. Internally developed intangible assets that are part of noncurrent assets are not recognized.

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Property, plant and equipment are carried at cost less straight-line depreciation over the assets’ estimated useful life. Pursuant to Sec. 255 (1) HGB, cost also includes incidental purchase costs and post-acquisition expenses, allowing for acquisition cost deductions. Costs include direct materials and labor costs, special production costs, and materials and production overheads to an appropriate extent as well as the impairment of noncurrent assets insofar as it is caused by production. Research and sales costs are not taken into account, while interest on debt is. Factory and office buildings are depreciated over a max-imum period of 50 years, building fixtures and fittings over 10 years, production plant and machinery over eight years, and other plant, factory, and office equipment up to 15 years, but generally between two and five years. Movable items of property, plant and equipment recognized up to December 31, 2009 are depreciated according to the declining balance method, applying the maximum rates permitted by tax regulations. For assets received after that date, the declining balance method is only applied if it corresponds with the actual impairment of noncurrent assets. Low-value assets with a value up to EUR 150 are recognized immediately as expenses. Low-value assets with a value between EUR 150 and EUR 410 are recognized, fully expensed and written off in the fiscal year of acquisition.

Within financial assets, the shares in Group companies and investments are stated at the lower of cost or, where long-term impairment appears probable, at realizable value.

Non or low-interest bearing loans are disclosed at their present value, while loans car-ried at the customary market interest rate are disclosed at nominal value. Discounting and compounding are shown as write-downs or write-ups respectively in the asset history sheet. Noncurrent assets whose carrying amounts, when determined according to the above-mentioned principles, exceed the lower current values are written down accord-ingly.

Exchange rate gains and losses from foreign currency denominated financial assets are recognized under other operating income or expenses.

In the case of inventories, raw materials, consumables, and supplies as well as mer-chandise and prepayments are recognized at the lower of average cost or reference values. Work in progress as well as services not yet billed are recognized at cost; average costs are comprised of direct costs of materials and labor, material costs and production overheads, as well as the decline in the value of fixed assets. Sufficient impairments are recorded for inventory risks arising from storage time and reduced value. Costs do not include interest on debt.

Prepayments received on account of orders or discounts on services that have already been rendered but not yet invoiced are recognized at nominal value and directly offset against inventories.

Receivables and other assets are stated at nominal value, less any necessary allow-ances for bad debts, etc. Adequate general allowances provide for the normal collection risk. Non or low-interest receivables with a remaining term of more than one year are discounted.

Derivative financial instruments are reported at fair value. Provisions for contingent losses are recognized for those derivatives which have negative fair values where they are not part of a valuation unit. If the market value cannot be reliably determined, the fair value is derived from the market value of similar derivatives or calculated with the help of established measurement methods such as the discounted cash flow method (present value approach) and the Black Scholes model (in the case of options). The applied yield

10 NOTES TO DRÄGERWERK AG & CO. KGAA SINGLE ENTITY FINANCIAL STATEMENTS 2016

curves and exchange rates that are in line with the market are the primary factors for these models.

Bank balances are stated at the nominal value.Deferred taxes are calculated for temporary differences between the values of noncur-

rent and current assets, as well as prepaid expenses, provisions, and liabilities under com-mercial law and tax law, which in all probability will be reversed in the future. Dräger-werk AG & Co. KGaA, in its role as parent company, includes the differences from its own balance sheet items as well as those from the consolidated tax group. Tax loss carryforwards and interest carryforwards are recognized in addition to these temporary dif-ferences. Deferred taxes are determined on the basis of the income tax rate applicable to Dräger werk AG & Co. KGaA’s fiscal unit. The deferred taxes are measured at the amount expected to be paid or recovered in subsequent fiscal years. Deferred tax assets from loss and interest carryforwards are only recognized if it is sufficiently probable that they will be realized within the next five years.

For accounting purposes, series D participation capital is reported as equity due to the terms and conditions upon which the participation certificates are based. Therefore, it is shown on a separate line in addition to the statutory classification format, under equity and Drägerwerk AG & Co. KGaA’s net earnings. The par value of this participation capital is disclosed in the previous column. Although participation capital is treated as accounting equity, the underlying participation rights maintain their obligatory nature under law. Therefore, the premium yielded over and above the par value can be neither transferred to the capital reserve nor allocated otherwise. Hence it follows that this pre-mium continues to be an integral part of the balance sheet item “Participation capital”. The dividends for series D participation certificates reduce the net profit or increase the net loss for the period. The underlying dividend distribution is shown on a separate line of the income statement immediately preceding net profit/loss.

Series A and K participation capital is reclassified as noncurrent debt because the terms and conditions of these participation certificates include a minimum dividend and no loss transfer, among other terms. Civil law considerations require that any profit dis-tributed in favor of participation capital must be offset against net profit. The dividends for series A and K participation certificates are recognized in the interest result.

The actuarial calculations for determining pension obligations are based on biomet-ric probability (2005 G Heubeck mortality table) and use the projected unit credit meth-od. The calculation also takes into account future expected wages/salary and pension increases. The underlying interest rate for compounding and discounting of pension obli-gations is based on the average market rate of the past ten fiscal years for an anticipated remaining term of 15 years determined and published by Deutsche Bundesbank.

The company pension plan for the German Group companies introduced on January 1, 2005, is composed of three levels—the employer-funded basic level, employee-funded top-up level, and employer-funded supplementary level. The pension cost for the employ-er-funded basic level is based on the respective employee’s income. The employee funded top-up level allows employees to increase their pension entitlement through deferred com-pensation. The contribution made at the employer-funded supplementary level depends on the employee contribution through deferred compensation and on Dräger Group’s business performance (EBIT).


The employees’ pension accounts have a minimum guaranteed return of 2.75 percent. The funds resulting from the new pension plan are invested in a restricted fund set up especially for Dräger that is subject to special restraints on disposal. The measurement is carried out at fair value, which is offset against the respective underlying obligations. If the result is a backlog of obligations, this amount is recognized in pension provisions. If the value of the plan assets exceeds the obligations, it is recognized in “Excess of plan assets over pension liability.”

Provisions adequately allow for all identifiable risks in accordance with prudent business judgment and contingent liabilities. The amount recognized reflects the sum required to fulfill the obligations according to prudent business judgment. Future price and cost increases are taken into consideration if there is sufficient evidence to substan-tiate their actual occurrence. Noncurrent provisions are discounted at the market rate relating to their remaining terms published by Bundesbank.

Expenses incurred from the compounding of provisions are recognized separately in “Interest and similar expenses.”

Liabilities are stated at the amount repayable.Contingent liabilities are valued at the best estimate as of the possible liabilities as of

the balance sheet date. For contingent liabilities from guarantees, suretyships, and war-ranty/indemnity contracts, the loan sums actually drawn as of the balance sheet date are disclosed in addition to the guaranteed ceilings.

The other financial obligations based on continuing obligations are measured at their nominal value and disclosed in the notes.

NOTES TO THE BALANCE SHEET12

Notes to the balance sheet

INTANGIBLE ASSETS

INTANGIBLE ASSETS

in € thousand

Purchased franchises, concessions, industrial property and similar rights

and assets, as well as licenses thereto

Prepayments made

As of 2016

CostJanuary 1, 2016 99,353 5,480 104,833

Additions 3,324 2,001 5,325

Disposals 4,046 – 4,046

Reclassifications 4,368 –4,368 0

December 31, 2016 102,999 3,113 106,112

Accumulated depreciation January 1, 2016 81,005 – 81,005

Additions 9,070 – 9,070

Disposals 4,046 – 4,046

Reclassifications 0

December 31, 2016 86,029 0 86,029

Net carrying value December 31, 2016 16,970 3,113 20,083Net carrying value December 31, 2015 18,348 5,480 23,829

The additions to intangible assets in the current fiscal year largely comprise the acqui-sition of software with the amount of EUR 3.3 million (2015: EUR 2.4 million) and prepayments made on software that is still in production of EUR 2.0 million (2015: EUR 4.0 million).

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PROPERTY, PLANT AND EQUIPMENT

PROPERTY, PLANT AND EQUIPMENT

in € thousand

Land, equivalent titles and buildings

(incl. on leased land)

Production plant and machinery

Other plant, factory and office equipment

Prepayments made and assets

under construction

As of 2016

CostJanuary 1, 2016 177,576 5,503 119,469 60,728 363,275

Additions 15,371 327 9,086 17,817 42,601

Disposals 4,025 262 3,557 – 7,843

Reclassifications 35,366 823 9,055 –45,245 0

December 31, 2016 224,288 6,391 134,053 33,300 398,033

Accumulated depreciationJanuary 1, 2016 105,541 4,597 87,128 – 197,267

Additions 7,197 408 13,045 – 20,650

Disposals 3,717 244 3,291 – 7,252

Reclassifications 0

December 31, 2016 109,021 4,761 96,882 0 210,665

Net carrying value December 31, 2016 115,267 1,630 37,171 33,300 187,368Net carrying value December 31, 2015 72,035 906 32,341 60,728 166,008

Investments in property, plant and equipment amounted to EUR 42.6 million in the fiscal year (2015: EUR 76.4 million). Of this amount, EUR 12.5 million (2015: EUR 16.3 mil-lion) related to the construction and redevelopment of buildings, and EUR 8.2 million (2015: EUR 14.3 million) to the replacement of tools and factory equipment. Prepayments and assets under construction of EUR 17.8 million (2015: EUR 45.4 million) are primarily associated with the completion of the “factory of the future”. The land item includes interest on debt of EUR 131 thousand.

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FINANCIAL ASSETS

FINANCIAL ASSETS

in € thousand

Shares in Group

companies

Loans to Group companies

Shareholdings Other loans

As of 2016

CostJanuary 1, 2016 586,074 24,779 145 716 611,714

Additions 1,824 3,110 – 207 5,141

Disposals – 7,407 – 192 7,599

Reclassifications 0

December 31, 2016 587,898 20,482 145 731 609,257

Accumulated depreciationJanuary 1, 2016 2,864 1,993 26 21 4,904

Additions – 13 – – 13

Disposals 232 – – 21 253

Reclassifications 0

December 31, 2016 2,632 2,006 26 0 4,664

Net carrying value December 31, 2016 585,266 18,476 119 731 604,592Net carrying value December 31, 2015 583,210 22,786 119 695 606,810

In fiscal year 2016, Drägerwerk AG & Co. KGaA paid EUR 1.8 million for a capital increase approved in prior years at its Indian subsidiary, Draeger India Private Ltd. The additions to loans to Group companies are mainly the result of long-term tenant loans in two rental companies, MOLVINA KG, Lübeck, and DRENITA KG, Düsseldorf, in connection with real estate leases relating to an office and development building, and a production building.

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INVENTORIES

Inventories are composed as follows:

INVENTORIES

in € thousand 2016 2015

Raw materials, consumables, and supplies 58,751 68,810

Work in progress 8,794 9,772

Finished goods and merchandise 46,888 57,440

Prepayments received –1,105 –3,072

Inventories 113,328 132,950

RECEIVABLES AND OTHER ASSETS

RECEIVABLES AND OTHER ASSETS


Trade receivables 53,320 59,358

All other receivables and other assetsReceivables from Group companies 492,353 455,943

thereof trade receivables (279,623) (218,818)

Other assets 9,206 17,174

thereof due in more than one year (1,278) (1,267)

501,559 473,117

Receivables and other assets 554,879 532,475

Receivables from Group companies mainly comprise cash management.Other assets include claims arising from reinsurance funds, credit balances with sup-

pliers, tax receivables (which stem from income tax and VAT), receivables from employ-ees, as well as miscellaneous non-trade receivables.

PREPAID EXPENSES

These exclusively comprise transitory items.

DEFERRED TAX ASSETS

Drägerwerk AG & Co. KGaA, in its role as parent company, expects future tax relief in total of EUR 44,049 thousand (2015: EUR 57,751 thousand) from temporary differences and from tax loss carryforwards as of December 31, 2016. Deferred taxes are determined on the basis of a 31.5 percent income tax rate (2015: 31.5 percent). Income taxes include corporate income tax and the corresponding solidarity surcharge as well as trade tax. The decrease in deferred tax assets was primarily due to the change in temporary differences from pension provisions and other provisions.

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DEFERRED TAX ASSETS/LIABILITIES

Deferred tax assets Deferred tax liabilities

in € thousand 2016 2015 2016 2015

Noncurrent assets 4,733 5,951 3,589 3,457

Current assets 7,008 8,336 793 2,031

Prepaid expenses 12 69 – –

Provisions 33,791 41,667 – –

Liabilities 86 134 – –

Deferred tax assets relating to tax loss and interest carryforwards 2,801 7,083 – –

Gross amount 48,431 63,240 4,382 5,488

Offset –4,382 –5,488 –4,382 –5,488

Carrying amount 44,049 57,751 0 0

In accordance with Sec. 274 (1) Sentence 2 HGB the Company made use of the option to recognize deferred tax assets for the surplus.

EXCESS OF PLAN ASSETS OVER PENSION LIABILITY

Plan assets were offset against the underlying obligations from the new pension plan in accordance with Sec. 246 (2) Sentence 2 HGB. If the fair value of plan assets exceeds the amount of pension obligations, the difference is recognized in “Excess of plan assets over pension liability”.

The fair value of plan assets stated in the table below was derived from the stock exchange price of the plan assets at the balance sheet date, if these pertained to fund shares.

EXCESS OF PLAN ASSETS OVER PENSION LIABILITY


Fair value of plan assets 60,640 53,137

Pension obligations under the 2005 pension plan –53,741 –48,862

Excess of plan assets over pension liability 6,899 4,275

Cost of plan assets 51,487 46,074

The plan assets are shares in a restricted fund set up exclusively for Dräger (WKN—secu-rities identification number—A0HG1B) and a settlement account. They are managed by AllianzGI-Fonds as a trustee for Drägerwerk AG & Co. KGaA and their access is restricted for other creditors.

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The fund and the settlement account serve to safeguard pension obligations made under the new pension plan and are subject to special restraints on disposal.

CAPITAL STOCK

The subscribed capital of Drägerwerk AG & Co. KGaA amounts to EUR 45,465,600 (2015: EUR 45,465,600).

Capital stock is divided into 10,160,000 no-par bearer shares and 7,600,000 (2015: 7,600,000) no-par preferred shares. The nominal value of both share types is EUR 2.56.

Drägerwerk Verwaltungs AG, the general partner, holds no shares in capital.The capital stock has been fully paid in. As before, the preferred and common shares

are traded on the capital market.Other than voting rights, the preferred shares have the same rights as those attached to

the common shares. As compensation for the lack of voting rights, an advance dividend of EUR 0.13 per preferred share is distributed from net earnings.

If sufficient profits are available, a dividend of EUR 0.13 per common share is then paid. Any profit in excess of this amount, if distributed, is allocated so that preferred shares receive EUR 0.06 more than common shares.

If the profit is not sufficient to distribute the advance dividend for preferred shares in one or more years, the amounts are paid from the profit of subsequent fiscal years before a dividend is paid on common shares.If amounts in arrears are not paid in the next year along with the full preferred dividend for that year, the preferred shareholders have voting rights until the arrears have been paid.

In the event of liquidation, the preferred shareholders receive 25 percent of net liqui-dation proceeds in advance. The remaining liquidation proceeds are distributed evenly among all shares.

The resolution agreed upon by the Company’s annual shareholders’ meeting on May 6, 2011 authorizing the general partner to increase the Company’s capital, with the approval of the Supervisory Board, by up to EUR 21,132,800.00 (approved capital) by issu-ing new bearer common and/or preferred shares (no-par value shares) in return for cash and/or contributions in kind, in either one or several tranches, was canceled by resolu-tion of the annual shareholders’ meeting on April 27, 2016.

Instead, by resolution of the annual shareholders’ meeting on April 27, 2016, the gener-al partner was authorized to increase the capital stock of the Company, with the approval of the Supervisory Board, until April 26, 2021, by issuing new bearer common shares and/or preferred shares (no-par value shares) in return for cash and/or contributions in kind by up to EUR 11,366,400.00 (authorized share capital) in one or several tranches. The authorization includes the entitlement to optionally issue new common shares and/or non-voting preferred shares up to the statutory maximum as stipulated in Sec. 139 (2) AktG, which carry the same status as the previously issued non-voting preferred shares with regard to the distribution of profits and/or Company assets.

In the case of common and preferred shares being issued at the same time while main-taining the ratio of both share types at the time of issuance, the general partner is autho-rized, subject to approval by the Supervisory Board, to exclude the right of the holders of common or preferred shares to subscribe to the other type of shares (“crossed exclusion

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of subscription rights”). Also in this case, the general partner is entitled to exclude further subscription rights under the terms of the regulations stated below.The general partner is further authorized, subject to the approval of the Supervisory Board, to exclude the subscription rights of the shareholders:(i) in order to compensate for any fractional amounts; (ii) if the shares are issued in exchange for contributions in kind, especially in the con-

text of company mergers or the acquisition of companies, business units, or equity interests in companies or of other assets or of claims to the acquisition of other assets, including receivables from the Company or from companies controlled by it within the meaning of Sec. 17 AktG;

(iii) if the shares of the Company are issued in exchange for cash and the issue price per share does not significantly fall below the stock market price of an essentially similarly structured, already listed share of the same class at the time the shares are issued. The exclusion of the subscription right can in this event be conducted, how-ever, only if the number of the shares issued in this way together with the number of other shares that are issued or sold during the term of this authorization subject to an exclusion of the subscription right in direct application or application mutatis mutandis of Sec. 186 (3) sentence 4 AktG, and with the number of shares that may be created as the result of the exercise or fulfillment of option and/or conversion rights or obligations arising from warrant and/or convertible bonds and/or participation rights that are issued during the term of this authorization subject to an exclusion of the subscription right in application mutatis mutandis of Sec. 186 (3) sentence 4 AktG does not exceed 10 percent of the share capital either at the time that this authoriza-tion comes into effect or at the time the new shares are issued;

(iv) if this is necessary in order to grant holders or creditors of warrant and/or convertible bonds with option and/or conversion rights and obligations that are issued by the Company or one of the companies in which it holds a majority interest a right to sub-scribe to new shares in the extent to which they would be entitled after exercising the option or conversion rights or after fulfilling option or conversion obligations.

The proportion of the share capital attributed in total to new shares for which the sub-scription right is excluded on the basis of this authorization may, together with the propor-tion of the share capital that is attributed to treasury shares or to new shares from other authorized capital or that relates to the option or conversion rights or obligations arising from options, warrant and/or convertible bonds and/or participation rights that have been sold or issued during the term of this authorization subject to the exclusion of sub-scription rights, not exceed 20 percent of the share capital. Shares issued under a crossed exclusion of subscription rights are excluded from the limitation to 20 percent of capital stock. The key factor for calculating the 20 percent limit is the existing share capital at the time that this authorization comes into effect or is exercised, on whichever of these dates the share capital is at its lowest.

The general partner is authorized, subject to the approval of the Supervisory Board, to determine the details of the share rights and of the capital increase as well as the terms and conditions of the share issue, in particular the issue price. The Supervisory Board is entitled to adjust the wording of the articles of association in line with the utilization of the authorized capital or after the authorization period expires.


The acquisition of own shares to pass on to participating employees in the form of bonus shares is covered by the resolution of the annual shareholders’ meeting on April 27, 2016, according to which the general partner is authorized to acquire until April 26, 2021 up to 10 percent of the own shares of both types (common and/or preferred shares) of the Company’s capital stock as of the date of resolution or—if this value is lower—as of the date on which the authorization is exercised. Together with all other shares held by the Company or attributable to it according to Sec. 71a et seq. AktG, shares purchased under this provision may at no time equal more than 10 percent of capital stock. The authoriza-tion may not be used for the purpose of trading in treasury shares. The authorization may be exercised in whole or in part, on one or more occasions and for one or more purposes by the Company or by dependent Group companies or enterprises in which the Company has a majority shareholding, or by third parties for its or their account. The purchase may be limited in part or in full to a single class of shares by excluding, in part or in full, the shareholders’ right to sell the other class of share.

The purchase may, at the discretion of the general partner, have been affected by the stock exchange, or by means of a public purchase offer to all holders of the respective type of share or by means of a public invitation to all holders of the respective type of share to submit offers for sale.

If the shares are acquired on the stock market, the purchase price paid by the Compa-ny per share of the same class (excluding incidental acquisition costs) may not be more than 10 percent higher or lower than the price of the shares of the class in question ascer-tained on the relevant trading day by the opening auction in Xetra trading (or on a func-tionally comparable successor system replacing the Xetra system) on the Frankfurt Stock Exchange.If the shares are acquired on the basis of a public purchase offer directed to all sharehold-ers of a class or on the basis of a public solicitation of offers directed to all shareholders of a class,

– the purchase price offered per share of the class in question (excluding incidental acquisition costs) in the event of a public purchase offer directed to all shareholders of a class or

– the threshold values of the purchase price spread defined by the Company (excluding incidental acquisition costs) in the event of a public solicitation of offers directed to all shareholders of a class may

not be more than 10 percent higher or lower than the volume-weighted average of the closing auction prices for shares of the class in question in Xetra trading (or on a func-tionally comparable successor system replacing the Xetra system) on the Frankfurt Stock Exchange during the last five stock exchange trading days before the date that the public purchase offer or the public solicitation of offers is publicly announced.

If significant deviations in the relevant price arise after a public purchase offer direct-ed to all shareholders of a class or a public solicitation of offers directed to all sharehold-ers of a class is published, then the purchase offer or the public solicitation of offers can be adjusted. In this event, the volume-weighted average of the closing auction prices for shares of the class in question in Xetra trading (or on a functionally comparable successor system replacing the Xetra system) on the Frankfurt Stock Exchange during the last five

20 NOTES TO THE BALANCE SHEET

stock exchange trading days before the adjustment is publicly announced will be taken as the basis.

The volume of the purchase offer or of the public solicitation of offers can be limited. If in a public purchase offer or a public solicitation of offers, the volume of the tendered shares exceeds the intended buyback volume, the acquisition can be conducted in pro-portion to the shares subscribed and offered in each case; the right of the shareholders to offer their shares for sale in proportion to their shareholding ratio is excluded in this respect. A preferential acceptance of small lots of up to 100 tendered shares per share-holder as well as commercial rounding in order to avoid mathematical fractions of shares can be stipulated. Any more extensive option to sell of the shareholders is excluded in this respect.

The public purchase offer or the public solicitation of offers can stipulate further terms and conditions.

The general partner is authorized to use treasury shares acquired on the basis of this authorization for any lawful purposes.

The authorization to use treasury shares subject to the exclusion of the subscription right of the shareholders is limited, however, in so far as the sum of the treasury shares used subject to the exclusion of the subscription right of the shareholders together with the number of other shares that are issued from authorized capital during the term of this authorization subject to the exclusion of the subscription right or have to be issued on account of options, warrant and/or convertible bonds or participation rights issued during the term of this authorization subject to the exclusion of the subscription right may not exceed 20 percent in total of the share capital after the authorization is exercised; the key factor is either the share capital at the time that this authorization comes into effect or the share capital present at the time this authorization is exercised, depending on which value is lower.

The purchase of treasury shares by the general partner may be initiated only with the approval of the Supervisory Board.

On the other hand, the authorization granted to the general partner by the annual shareholders’ meeting on May 4, 2012 to acquire own shares by May 3, 2017 was canceled by resolution of the annual shareholders’ meeting on April 27, 2016.

Reports regarding voting rightsSec. 160 (1) No. 8 AktG requires disclosure of the existence of investments that have been notified to the company in accordance with Sec. 21 (1) or (1a) WpHG.

The following table shows the reportable investments disclosed during the Drägerwerk AG & Co. KGaA’s fiscal year. Please note that the disclosures may since have changed.


DISCLOSED REPORTABLE INVESTMENTS

Reporter Date that thresholds

were exceeded or undercut

Reporting threshold Allocation pursuant to WpHG

Investment in %

Investment in voting rights

Norges Bank, Oslo, Norway Feb. 9, 2016 3 % undercut

Sec. 22 in conjunction with

Sec. 25 (1) Sentence 1 2.98 % 302,957

Brandes Investment Partners, L.P., San Diego, USA Feb. 12, 2016 3 % exceeded Sec. 22 3.11 % 316,195

CAPITAL RESERVE

CAPITAL RESERVE

Drägerwerk AG & Co. KGaA’s capital reserve originated from the share premiums from Amount in € thousand

The Company’s establishment (transformation) 2,556

The increases in capital stock of

March 1979 5,726

June 1981 7,016

July 1991 23,569

38,867

Dividend waiver by Stefan Dräger in 2009 582Increase of capital reserve in 2010 by issuing 3,810,000 new common shares 95,277

Replacement of variable option component with equity instrument 26,540

Exercise of four options of 50,000 shares each in 2013 12,190

Exercise of eleven options of 50,000 shares each in 2014 33,487

Exercise of ten options of 50,000 shares each in 2015 30,275

Capital reserve as of December 31, 2016 237,217

The capital reserve is unchanged year on year.

15


RETAINED EARNINGS

Retained earnings remained unchanged in fiscal year 2016. Retained earnings of EUR 199,191 thousand reported as of December 31, 2016 (2015: EUR 199,191 thousand) relate to transfers from prior years.

DEVELOPMENT OF NET EARNINGS

DEVELOPMENT OF NET EARNINGS

Amount in € thousand

Net earnings as of December 31, 2015 365,976

EUR 0.13 cash dividend for 10,160,000 common shares 1,321

EUR 0.19 cash dividend for 7,600,000 preferred shares 1,444

Profits brought forward 2016 from prior year 363,211

Net profit for the year 2016 35,089

Net earnings as of December 31, 2016 398,300

DISCLOSURES ON AMOUNTS RESTRICTED FROM DISTRIBUTION

As of December 31, 2016, the amount restricted from distribution amounted to EUR 73,605 thousand (2015: EUR 64,814 thousand). The calculation of the amount for 2016 is based on Sec. 301 AktG in conjunction with Sec. 268 (8) HGB as well as Sec. 253 (6) HGB.

DISCLOSURES ON AMOUNTS RESTRICTED FROM DISTRIBUTION

Restricted amount

in € thousand Dec. 31, 2016 Deferred taxes Dec. 31, 2016 Dec. 31, 2015

Fair value of plan assets exceeding cost 9,154 –2,884 6,270 4,838

Difference pursuant to Sec. 253 (6) HGB 20,402 –6,427 13,975 –

Balance of deferred taxes 53,360 53,360 59,976

Total amount restricted from distribution 29,556 44,049 73,605 64,814

Equity interests available to cover amounts 598,072 565,749

Freely available equity 524,467 500,935

The measurement of the special fund assets of the new pension plan is carried out in accordance with Sec. 253 (1) Sentence 4 HGB at fair value. This amounted to EUR 60,640 thousand as of December 31, 2016 (2015: EUR 53,136 thousand) and is therefore EUR 9,154 thousand higher than the acquisition costs of EUR 51,487 thousand (2015: EUR 46,074 thousand). The EUR 20,402 thousand calculated pursuant to Sec. 253 (6) HGB is the dif-

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ference arising from the measurement of the pension provision obligation, resulting from the first-time application of the ten-year average interest rate, instead of the seven-year average interest rate as in prior years. The amount in excess of the acquisition costs was offset by freely available retained earnings of EUR 199,191 thousand (2015: EUR 199,191 thousand), free capital reserves of EUR 582 thousand (2015: EUR 582 thousand) as well as net earnings of EUR 398,300 thousand (2015: EUR 365,976 thousand).

PARTICIPATION CAPITAL

PARTICIPATION CAPITAL CONDITIONS

Termination rightof Drägerwerk

AG & Co. KGaA

Termination rightof participation

certificate holders

Lossshare

Minimumyield

Dividend for participation certificates

in €

Series A yes no no 1.30 Dividend on preferred share × 10

Series K yes yes no 1.30 Dividend on preferred share × 10

Series D yes yes yes – Dividend on preferred share × 10

Participation capital from the participation certificates issued and floated up to June 30, 1991 forms part of securities series A and is recognized as debt. Participation capital creat-ed after June 30, 1991 covering securities series K is also stated as debt.

The terms and conditions underlying the series K participation certificates differ from those for the (series A) certificates outstanding up to June 30, 1991 in that their holders may give five years’ notice of termination, however, it is not to take effect prior to Decem-ber 31, 2021; the period of termination thereafter is again five years.

Since the 1997 annual shareholders’ meeting, series D participation certificates have been floated; their terms and conditions have been amended primarily in terms of their minimum yield, loss-sharing concept for participation certificates and adequate cumu-lative, compensatory terms. The cases in which the minimum return is not paid are the same as those in which the preferred dividend is not paid. As with the subsequent pay-ment of preferred dividends, the dividend for participation certificates is paid in arrears. Series D participation certificate holders may exercise their calling right every five years with five years’ notice as of calendar year-end, however, not to take effect prior to Decem-ber 31, 2026. Series D participation certificates are stated in equity.

Since December 1, 1999, the par value of participation certificates has amounted to EUR 25.56. Drägerwerk AG & Co. KGaA does not intend to terminate the participation certificates. If the participation certificate holder exercises the calling right, the amount repayable shall equal the average mean rate of the last three months at the Hamburg Stock Exchange or a maximum of the weighted average issue price of this tranche.

The dividend for participation certificates is 10 times the preferred share dividend, as the par value of the securities was originally identical, but the arithmetic par value of the preferred share has since been reduced to one tenth of the original par value.

For details, please refer to the terms and conditions of series A, K, and D participation certificates.

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PARTICIPATION CAPITAL

Number Par value Premium Participation capital

in € in € in €

Disclosed in debtSeries A 195,245 4,990,462.20 7,642,509.00 12,632,971.20

Series K 69,887 1,786,311.72 1,168,305.27 2,954,616.99

265,132 6,776,773.92 8,810,814.27 15,587,588.19

Disclosed in equitySeries D 566,819 14,487,893.64 14,023,388.96 28,511,282.60

As of December 31, 2016 (Series A, K, and D) 831,951 21,264,667.56 22,834,203.23 44,098,870.79

In fiscal year 2016 as well as in the prior year, no participation certificates were issued or bought back.

PROVISIONS

Provisions for pension obligations and similar obligationsThe pension obligations for fiscal year 2016 were calculated using the generally recog-nized projected unit credit method. In addition, the calculation also takes into account future expected wages/salary and pension increases. The underlying interest rate for com-pounding and discounting of pension obligations is based on the average market rate of the past ten fiscal years for an anticipated remaining term of 15 years determined and published by Deutsche Bundesbank.

As a result of a change in law on March 17, 2016 with regard to the valuation of post-em-ployment benefit obligations, a ten-year average interest rate is to be used in future, replac-ing the seven-year average interest rate. This resulted in interest rates rising from 3.89 per-cent in 2015 to 4.01 percent in 2016. This goes hand in hand with a reduction in additions to pension provisions. According to the method used in the prior year, which was based on the seven-year average period, the interest rate would have amounted to 3.23 percent for fiscal year 2016.

Direct pension provisions are calculated based on the following assumptions:

ACTUARIAL ASSUMPTIONS

in € thousand

Balance sheet date

Dec. 31, 2016

Balance sheet date

Dec. 31, 2015

Discount rate 4.01 %* 3.89 %

Future wage and salary increases 3.00 % 3.00 %

Future pension increases 1.00–1.75 % 1.00–2.00 %

Average employee turnover 3.00 % 3.00 %

* On the basis of the interest rate published by Deutsche Bundesbank on October 31, 2016, forecasted interest rate (from the interest rate published by Deutsche Bundesbank on December 31, 2016: 4.01 percent)

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Other provisions

OTHER PROVISIONS


Tax provisions 13,580 10,600

Sundry provisions 89,756 103,818

Other provisions 103,336 114,418

Sundry provisions provide for, in particular, warranty obligations (EUR 8,615 thousand), supplier invoices not yet received (EUR 11,305 thousand), and services still to be rendered (EUR 1,113 thousand), lawsuit costs/risks (EUR 985 thousand), and contingent liabilities mainly resulting from project-related obligations (EUR 10,847 thousand), as well as various other risks.Provisions for personnel-related risks amount to EUR 38,798 thousand, mainly from the profit share to employees, accrued vacation pay, phased retirement as well as long-ser-vice awards. Phased retirement employment contracts are concluded in line with works agreements.

The risk of properties with long-term lease contracts standing empty, as a result of the medical division’s new building in Lübeck, has been accounted for in other provisions with EUR 5.0 million. These provisions are based on the valid lease contracts.

Provisions in the amount of EUR 3.0 million were set up for expected losses from the settlement of currency forwards (derivative financial instruments) in fiscal year 2016.

Noncurrent provisions have had to be discounted and compounded following the commencement of the Financial Accounting Law Modernization Act (BilMoG) on Janu-ary 1, 2010. The compounding of provisions conducted in this context is reflected in the interest result.


LIABILITIES

LIABILITIES

2016 2015

Total residual term Total residual term

in € thousand

up to 1 year

more than 1 year

thereof in more than 5

years

up to 1 year

more than 1 year

thereof in more than 5

years

Participation capital series A + K 15,588 – 15,588 15,588 15,588 – 15,588 15,588

Liabilities to banks 182,509 25,741 156,768 24,303 221,848 119,241 102,607 32,836

Trade payables 81,735 81,735 – – 80,549 80,549 – –

Liabilities to Group companies 142,385 142,385 – – 107,681 107,681 – –

thereof trade payables (33,867) (33,867) – – (22,022) (22,022) – –Liabilities to companies in which participating interests are held – – – – – – – –

Other liabilities 9,522 8,183 1,338 6 12,470 10,516 1,954 7

thereof for taxes (3,623) – – – (5,603) – – –

thereof for social security (3) – – – – – – –

Liabilities 431,738 258,044 173,694 39,897 438,135 317,986 120,149 48,430

There were no liabilities secured by pledges or similar rights.

Liabilities to banks In March 2016, Drägerwerk AG & Co. KGaA took out a new note loan of EUR 60.0 million, and repaid a note loan of EUR 57.5 million in December 2016.

Total liabilities of EUR 98.5 million (2015: EUR 96.0 million) were recorded from note loans as of December 31, 2016. These have various due dates, the latest being in 2021.

In fiscal year 2013, Drägerwerk AG & Co. KGaA utilized a redeemable KfW loan totaling EUR 15.9 million; the loan is due on June 30, 2023. Dräger repaid EUR 2.0 million of this loan in 2016 (2015: EUR 1.0 million). This loan was valued at EUR 13.0 million on Decem-ber 31, 2016 (2015: EUR 15.0 million).

The first repayment of the redeemable KfW loans that were taken out in fiscal year 2014 was made in 2016. EUR 0.8 million was repaid in fiscal year 2016. These loans were valued at EUR 8.0 million on December 31, 2016 (2015: EUR 8.9 million).

Three additional redeemable KfW loans of a total of EUR 43.1 million were taken out in fiscal year 2015 to finance the construction of new buildings associated with the “fac-tory of the future”; these loans are due in June 2025. The first repayment is due in fiscal year 2017.

Trade payablesThere were no material changes in trade payables in fiscal year 2016.

Liabilities to Group companies Liabilities to Group companies mainly result from cash management of EUR 108,518 thousand (2015: EUR 85,659 thousand).

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Other liabilitiesOther liabilities mainly result from tax liabilities with the amount of EUR 3.6 million (2015: EUR 5.6 million), liabilities from the distribution for participation certificates of EUR 1.6 million (2015: EUR 1.6 million), and liabilities from finance leases of EUR 2.2 million (2015: EUR 3.0 million).

28 NOTES TO THE INCOME STATEMENT

Notes to the income statement

NET SALES

For the breakdown of net sales by business segment and geographical segment, please see the tables below.

NET SALES

in € thousand 2016 2015 1 2015

Breakdown by segment 1,006,160 996,793 880,570Equipment 659,817 656,936 656,936

Services 346,343 339,857 223,634

Breakdown by region (markets) 1,006,160 996,793 880,570Germany 235,945 227,319 142,328

Rest of Europe 251,942 273,340 262,088

Americas 197,105 186,961 172,168

Asia/Pacific 273,061 256,149 252,109

Other (such as Africa, Australia) 48,107 53,024 51,877

1 Prior-year figures according to the new definition of net sales pursuant to BilRUG.

The BilRUG changes the definition of net sales. From 2016 onwards, this item also includes Drägerwerk AG & Co. KGaA’s rental income and shared services for various subsidiaries in the areas of IT, Corporate Communications, Marketing Communications, Strategic Purchasing, as well as HR, Accounting, and Controlling (EUR 115.8 million). EUR 116.7 million was recharged in fiscal year 2015.

Prior year’s figures have been adjusted accordingly. According to the new definition, net sales amounted to EUR 996,793 thousand in fiscal year 2015.

Business with subsidiaries accounts for a large share of Drägerwerk AG & Co. KGaA’s net sales.

OTHER OPERATING INCOME

In fiscal year 2016, other operating income mainly comprises gains from foreign exchange and currency translation as well as income from the reversal of allowances and provisions. As a result of the application of BilRUG, rental income, income from services rendered to Group companies, and other services for which the costs are recharged are reported under net sales.

Income from currency translation recognized in this item comes to EUR 26.2 million (2015: EUR 30.3 million). Income generated from derivative financial instruments in fis-cal year 2016 amounted to EUR 23.8 million (2015: EUR 55.7 million).

Other operating income includes income from other periods of approximately EUR 9.0 million (2015: EUR 7.6 million).

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COST OF MATERIALS

COST OF MATERIALS

in € thousand 2016 2015 1 2015

Cost of raw materials, consumables, and supplies, and purchased goods –431,132 –471,513 –471,513

Cost of services –105,868 –80,967 –35,318

Cost of materials –537,000 –552,480 –506,831

1 Prior-year figures pursuant to BilRUG.

The cost of materials is reported pursuant to the new BilRUG regulations. Prior year’s figures were adjusted accordingly.

PERSONNEL EXPENSES/HEADCOUNT

PERSONNEL EXPENSES/HEADCOUNT


Salaries –205,966 –210,496Social security, pension expenses and related employee benefits –32,878 –50,217

thereof pension expenses (0) (–17,683)

Personnel expenses –238,844 –260,713

Headcount (average) 2,762 2,834Production 723 764

Other 2,039 2,070

Headcount as of the balance sheet date 2,683 2,876Production 710 779

Other 1,973 2,097

“Production” covers manufacturing, service, and exterior fitting.

The significant reduction in personnel expenses was mainly due to the decrease in head-count as a result of the implementation of the efficiency program launched in the prior year, as well as the lower pension expenses in the calculation of pension provisions (see Note 20). Increases in wages and salaries resulting from the raises in accordance with wage agreements in the metal and electrical industries in Germany offset this effect.

Effects from the change in interest rates in the calculation of pension provisions are shown in the personnel expenses. For this reason, the change in the fair value of plan assets is shown in personnel expenses.

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25


Pension plans were offered to the members of the Executive Board of Drägerwerk Verwal-tungs AG by Drägerwerk AG & Co. KGaA, with the related expenses and liabilities being recognized as personnel expenses at Drägerwerk AG & Co. KGaA.

DEPRECIATION/AMORTIZATION

DEPRECIATION/AMORTIZATION


Amortization on intangible assets and depreciation of property, plant and equipment –28,969 –26,503

Depreciation/amortization –28,969 –26,503

The increase in depreciation/amortization was mainly due to buildings as well as factory, and office equipment.

OTHER OPERATING EXPENSES

These primarily include administrative expenses, such as rent and lease expenses, insur-ance premiums, contributions, fees and public levies, travel expenses, additions to provi-sions, services performed on behalf of Group companies, as well as losses from the dispos-al of noncurrent assets. Due to the application of the BilRUG, other operating expenses that are to be recharged are to be reported under the cost of materials from 2016 onwards.

The adjusted prior-year figure includes extraordinary expenses of EUR 64,7 million, which are the result of the loss from the merger with Dräger Medical GmbH.

This item also includes expenses from currency translation of EUR 19.1 million (2015: EUR 24.5 million), as well as expenses from derivative financial instruments of EUR 27.4 million in fiscal year 2016 (2015: EUR 64.9 million).

INCOME FROM OTHER INVESTMENTS

INCOME FROM OTHER INVESTMENTS


Income from investments 3,441 2,656

thereof from Group companies (3,262) (2,554)

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27

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INCOME AND EXPENSES FROM PROFIT AND LOSS TRANSFER AGREEMENTS

The increase in income from profit and loss transfer agreements is mainly due to Dräger Medical International GmbH (EUR +16.9 million), Dräger Medical Deutschland GmbH (EUR +3.0 million), and Dräger Safety AG & Co. KGaA (EUR +2.2 million).

The expenses from profit and loss transfer agreements are primarily attributable to the depreciation of Dräger Holding International GmbH’s shares in GasSecure AS in the amount of EUR 45.2 million and the resulting loss transfer to Drägerwerk AG & Co. KGaA.

INTEREST RESULT

INTEREST RESULT


Other interest and similar income 3,623 4,828

thereof from Group companies (2,951) (3,132)

Interest and similar expenses –9,529 –10,646

thereof to Group companies (–362) (–275)

thereof from compounding of noncurrent provisions (–621) (–1,005)

thereof from distribution for series A and K participation certificates (–504) (–504)

Interest expense from pension provisions –6,494 –6,818

Income from plan assets 1,155 1,105

Net amount –5,339 –5,713

Interest result –11,245 –11,531

Interest expense from pension obligations is offset against the original income from plan assets in accordance with Sec. 246 (2) Sentence 2 HGB. In fiscal year 2016, interest income from plan assets amounted to EUR 1,155 thousand (2015: EUR 1,105 thousand), and inter-est expense from pension obligations amounted to EUR 6,494 thousand (2015: EUR 6,818 thousand), resulting in a net amount of EUR 5,339 thousand in 2016 (2015: EUR 5,713 thousand).

Effects from the change in interest rates in the calculation of pension provisions and the change in the fair value of plan assets are recognized in personnel expenses or other operating expenses.

Interest income from Group companies amounted to EUR 2,951 thousand (2015: EUR 3,132 thousand). The reduction is due in part to the change in interest rates.

The year-on-year decline in interest expenses was also the result of the change in inter-est rates.

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30


INCOME TAXES

INCOME TAXES


Current taxes –1,717 –2,115

Deferred tax expense/income from temporary differences –9,421 24,537

Deferred tax expense from loss and interest carryforwards –4,282 –3,515

Deferred tax expense/income –13,703 21,022

Income tax expense/income –15,420 18,907

Income taxes comprise current corporate income tax, the corresponding solidarity sur-charge and trade tax as well as the change in deferred taxes for the fiscal unit of Dräger-werk AG & Co. KGaA.

In fiscal year 2016, Drägerwerk AG & Co. KGaA, in its role as parent company, recog-nized a deferred tax expense of EUR 13,703 thousand from temporary differences and from tax loss carryforwards (2015: deferred tax income of EUR 21,022 thousand). Deferred taxes are determined on the basis of a 31.5 percent income tax rate (2015: 31.5 percent). The income tax rate includes corporate income tax and the corresponding solidarity sur-charge as well as trade tax.

DERIVATIVE FINANCIAL INSTRUMENTS

To hedge against currency and interest rate risks, derivatives are used, predominantly currency forwards and interest rate swaps. Such contracts are only transacted with com-mercial banks with high credit rating standing and confined to finance transactions. The volume of currency forwards mainly includes exchange rate hedges for operations-related underlying transactions and intercompany loans.

Currency forwards for the operating businessFrom October 2016 onwards, anticipated transactions for the operating business will be included as hedged items in micro-valuation units with the following nominal values:

TYPE OF TRANSACTION

in € thousandNominal amount

up to 1 year Nominal amount

1 to 5 years

Anticipated transactions (expected net sales) 179,944 66,439

Anticipated transactions (expected procurement item) 53,380 11,246

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A currency forward transaction is made to hedge the exchange rate risk of a related underlying business transaction. The currency forward and the underlying business is then combined as a micro-valuation unit. As of the balance sheet date, the valuation units included currency forwards with the following nominal values (carrying amounts):


in € thousand Nominal amount Term in years Fair value Carrying value

Currency forwards (operating) 233,324 up to 1 2,899 –2,028

Currency forwards (operating) 77,685 1 to 5 526 –547

The risks for currency forwards hedged by the micro-valuation units amount to EUR 2,575 thousand; this is the amount of the negative changes in value and cash flows that had been avoided as of the balance sheet date.

The balance sheet items, pending transactions, and planned, highly probable foreign currency transactions included in the valuation units (hedged items) are subject to a risk of a change in value/cash flow risk in terms of fluctuating exchange rates.

A foreign currency derivative will be concluded for each hedged item; these foreign cur-rency derivatives will be subject to the same foreign currency risks as the hedged items, although their performance will run counter to that of the hedged items. As the parame-ters of the hedged item and the hedging instrument that are relevant to the valuation will only differ marginally, it is expected that the inverse changes in value/cash flows will in future be largely offset over the next two years.

The dollar offset method will be used to determine the prospective effectiveness of the hedge.

The dollar offset method involves comparing the absolute monetary amounts of the cumulative changes in the market values of the hedged items with the cumulative chang-es in the market values of the hedging instruments from the date of designation. Dollar offset tests are performed at every reporting date.

Currency forwards for intercompany loansFair values of currency forwards for loans are determined on the basis of a mark-to-market calculation as of the reporting date. Currency forwards are entered into in various curren-cies, such as USD, CNY, CHF.



Currency forwards (loans) 216,721 up to 1 –1,759 –2,719

Currency forwards (loans) 8,527 1 to 5 –95 –293

Provisions for contingent losses were recognized for unrealized losses from currency for-wards (EUR 3,012 thousand).

34 NOTES TO THE INCOME STATEMENT | OTHER DISCLOSURES

Unrealized losses and gains from the calculation breakdown as follows:

UNREALIZED GAINS AND LOSSES FROM THE CALCULATION


Losses from the hedging ofForeign currency loans/cash pooling 3,012 1,562

3,012 1,562

Gains from the hedging ofForeign currency loans/cash pooling 1,157 949

1,157 949

Interest rate hedges An interest rate hedge in the form of a swap was concluded to hedge the interest por-

tion of the lease payment for the new building (hedged item); this hedge suitably offsets the interest portion. As a result, a micro-valuation unit exists.

The prospective test as of December 31, 2016, indicates that the key parameters of the hedged item and the hedge that are relevant to the valuation—term, benchmark interest rate, calculation of interest rates, repayment and nominal amount—tally. Consequently, the valuation unit is classified as highly effective over the entire hedging period.

As of the balance sheet date, the valuation units included currency forwards with the fol-lowing nominal values (carrying amounts):



Interest rate swap 1 13,275 from 5 –3,074 –3,074

1 Liabilities in the form of a variable interest component from the lease payment for construction financing

It is expected that the changes in the value of the hedged item and the hedging instrument will therefore be fully offset over the next seven years. The net hedge presentation method is used to present the offsetting change in value resulting from the valuation unit.

The risks for the interest rate swap hedged by the micro-valuation units amount to EUR 3,074 thousand; this is the amount of the negative changes in value and cash flows that had been avoided as of the balance sheet date.


Other disclosures

CONTINGENT LIABILITIES AND OTHER FINANCIAL OBLIGATIONS

CONTINGENT LIABILITIES


Contingent liabilities under warranty/indemnity contracts 193,927 131,996

Loan amounts actually drawn 30,894 30,560

Warranties of approximately EUR 175,046 thousand (2015: EUR 121,080 thousand) were issued for Group companies. The Company also issued comfort letters for subsidiaries.

The financial situation of the Group companies ensures that they will meet their obli-gations. Consequently there is no risk of these guarantees being called upon.

OTHER FINANCIAL OBLIGATIONS

Consignment warehousing agreementsAs of the balance sheet date, Drägerwerk AG & Co. KGaA states activities related to con-signment warehousing agreements on the balance sheet. These are reported both under inventories as well as trade payables with the amount of EUR 11.3 million (2015: EUR 11.5 million). The consignment stock refers to the goods stored at Drägerwerk AG & Co. KGaA; until such time as the stock is reported as having been withdrawn in the legal sense, this stock remains the property of the supplier. This provides a number of benefits: On the one hand, this offers the highest level of security and, on the other hand, reduces capital com-mitments as suppliers will only invoice the Company once the stock has been withdrawn from the warehouse.

Specific contractual arrangements with these suppliers mean that both the economic benefits and the economic risks lie with Drägerwerk AG & Co. KGaA. This means that the amounts reported on the balance sheet under both inventories and liabilities are the same.

Rental and lease agreements As of the balance sheet date, other financial obligations from long-term rental and lease agreements come to approximately EUR 118.2 million, of which approximately EUR 37.0 million are to Group companies. The annual charge comes to approximately EUR 9.9 mil-lion, of which EUR 4.1 million are to Group companies.

Other financial obligations mainly relate to the real estate lease agreement with MOLVINA Vermietungsgesellschaft mbH & Co. Objekt Finkenstraße KG concerning the new office and development building, and the real estate lease agreement with DRENITA Grundstücksvermietungsgesellschaft mbH & Co. Objekt Fertigung Dräger Medizintech-nik KG concerning the new production and logistics building on Revalstraße, Lübeck.

33

36 OTHER DISCLOSURES OTHER DISCLOSURES | REMUNERATION REPORT

Purchase obligations In line with the usual requirements, Drägerwerk AG & Co. KGaA has also entered into purchase obligations with other service providers in order to guarantee the availability of IT services.

Drägerwerk AG & Co. KGaA has assumed all existing long-term obligations to IT service providers of the medical and safety divisions. This is due to the centralization of IT activ-ities at Drägerwerk AG & Co. KGaA.

Other As a result of outstanding orders, the Group has obligations to purchase intangible assets of EUR 105 thousand (2015: EUR 118 thousand) and to purchase property, plant and equip-ment of EUR 4.3 million as of December 31, 2016 (2015: EUR 15.6 million). The order obligations for property, plant and equipment are mainly due to building conversions and constructions.

As of December 31, 2016, Drägerwerk AG & Co. KGaA is not obligated to make any capi-tal payments on interests held.

At present, no significant opportunities and risks arise from the investments in the special purpose entities

– OPTIO Grundstück-Verwaltungsgesellschaft mbH & Co. KG– Dräger Grundstückverwaltungs GmbH– MOLVINA Vermietungsgesellschaft mbH & Co. Objekt Finkenstraße KG– Fimmus Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Lübeck KG– DRENITA Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Fertigung Dräger

Medizintechnik KG– FUNDUS Grundstücksverwaltungs-GmbH & Co. KG

LEGAL RISKS

Drägerwerk AG & Co. KGaA is involved in certain legal disputes and claims arising in the ordinary course of business. The Executive Board believes that the outcome of such liti-gation and claims will not have any material adverse effect on the Company’s net assets, financial position or results of operations.

Remuneration report

EXECUTIVE BOARD REMUNERATION

Total remuneration for active Executive Board members amounted to EUR 6,217,496 in fiscal year 2016 (2015: EUR 2,728,971). This amount is made up of non-performance relat-ed payments of EUR 2,229,519 (2015: EUR 1,829,430), performance related short-term payments of EUR 3,985,172 (2015: EUR 896,723) as well as share-based remuneration with long-term incentives in the amount of EUR 2,532 (2015: EUR 2,818). The employee share program, offered for the first time in 2013, was once again offered by Dräger in fiscal year 2016. Executive Board members Stefan Dräger, Gert-Hartwig Lescow, Rainer Klug, and Dr. Reiner Piske took part in the employee share program. Using their own

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funds, each of these Executive Board members acquired nine packages of three shares at a purchase price of EUR 65.00 per share previously fixed in the terms and conditions of the program. For every three preferred shares, participants received one preferred share worth EUR 70.34 on the date of entry free of charge from Dräger. The holding period for these preferred shares—including those that participants acquired themselves—runs until December 31, 2018.

If Executive Board remuneration is paid by Drägerwerk Verwaltungs AG, it is entitled to claim reimbursement from Drägerwerk AG & Co. KGaA monthly pursuant to Sec. 11 (1) and (3) of the articles of association of Drägerwerk AG & Co. KGaA. Pursuant to Sec. 11 (4) of the Company’s articles of association, the general partner receives a fee, independent of profit and loss, of 6 percent of the equity disclosed in its financial statements, payable one week after the general partner prepares its financial statements, for the management of the Company, and the assumption of personal liability. For fiscal year 2016, this remu-neration amounts to EUR 90,195 (2015: EUR 86,762) plus potentially incurred VAT.

Obligations to Executive Board members under pension plans are stated in the finan-cial statements 2016 at EUR 3,484,166 (2015: EUR 3,401,416).

In fiscal year 2016, the Company made pension provision contributions of EUR 402,970 for members of the Executive Board (2015: EUR 902,161).

PENSION OBLIGATIONS FOR ACTIVE EXECUTIVE BOARD MEMBERS

Allocation Obligation Allocation Obligation

2016 Dec. 31, 2016 2015 Dec. 31, 2015

Dräger, Stefan 255,920 2,427,123 563,201 2,171,203

Lescow, Gert-Hartwig 84,923 668,841 195,733 583,918

Schrofner, Anton 22,733 337,937 69,906 315,204

Klug, Rainer 17,959 26,299 8,340 8,340

Piske, Dr. Reiner 21,435 23,966 2,531 2,531

Executive Board members in total 402,970 3,484,166 839,711 3,081,196

EUR 3,059,113 was paid to former members of the Executive Board and their surviv-ing dependents (2015: EUR 3,144,050). Pension commitments to former members of the Executive Board and their surviving dependents amounted to EUR 36,753,872 (2015: EUR 38,700,990).

If an Executive Board member dies during his or her active service on the Board, the surviving spouse is entitled to Dräger widow’s pension and any remaining children have claim to Dräger orphan’s pension. The annual Dräger widow’s and widower’s pension amounts to 55 percent of the Dräger pension received by or which would have been received by the deceased executive if said executive would have been unable to work when he or she died (notional invalidity pension). The amount of the Dräger orphan’s pen-sion is 10 percent of the notional invalidity pension or the current Dräger pension of the deceased management member.

38 REMUNERATION REPORT

SUPERVISORY BOARD REMUNERATION

The annual shareholders’ meeting of Drägerwerk AG & Co. KGaA has defined Supervisory Board remuneration in the articles of association since fiscal year 2011. Supervisory Board remuneration for fiscal year 2016 came to EUR 447,715 (2015: EUR 350,000).

In fiscal year 2016, the total remuneration of the six members of the Supervisory Board of the general partner, Drägerwerk Verwaltungs AG, amounted to EUR 135,000 (2015: EUR 135,000) as well as additional flat fees for out-of-pocket expenses totaling EUR 55,000 (2015: EUR 55,000). No remuneration was paid to Supervisory Board mem-bers of Group companies.

Further information on the itemized remuneration of the Executive Board and the Supervisory Board can be found in the combined management report of the Annual Report 2016.

DIRECTORS’ DEALINGS

In fiscal year 2016, the Company was not informed about any business transactions with executive employees pursuant to Sec. 15a WpHG (German Securities Trading Act).

Announcements of transactions with executive employees pursuant to Sec. 15a WpHG (Wertpapierhandelsgesetz—German Securities Trading Act) are published at www.dgap.de in the “Directors’ Dealings” section.

SHARES OWNED BY THE EXECUTIVE AND SUPERVISORY BOARDS

As of December 31, 2016, the members of the Executive Board of Drägerwerk Verwal-tungs AG and their related parties directly held 7,067 preferred shares in Drägerwerk AG & Co. KGaA, equivalent to less than 4 percent of the Company’s total shares, and 114,897 common shares, corresponding to 0.65 percent of the Company’s total shares.

Dr. Heinrich Dräger GmbH held 67.19 percent of common shares of Drägerwerk AG & Co. KGaA with 68.31 percent of voting rights attributable to the Chairman of the Exec-utive Board Stefan Dräger, whereby 67.19 percent are attributable to him in accordance with the terms of Sec. 22 (1) Sentence 1 No. 1 WpHG (Wertpapierhandelsgesetz—German Securities Trading Act).

On December 31, 2016, the members of the Supervisory Board and their related parties directly or indirectly held a total of 779 preferred shares and 292 common shares, equiva-lent to less than 0.01 percent of the Company’s total shares.

RELATED PARTY AND COMPANY TRANSACTIONS

Services were rendered for Stefan Dräger and companies and persons related to him, the Dräger-Stiftung, and the Dräger-Familienstiftung (Dräger Foundation and Dräger Family Foundation) totaling EUR 105 thousand (2015: EUR 119 thousand) in fiscal year 2016. The Company had no receivables in this respect on December 31, 2016 (2015: EUR 8 thou-sand).

Drägerwerk AG & Co. KGaA rendered rental services and other services totaling EUR 109 thousand (2015: EUR 100 thousand) for associate MAPRA Assekuranzkontor GmbH in fiscal year 2016. Receivables in this respect amounted to EUR 3 thousand on December 31, 2016. This did not result in any liabilities as of December 31, 2016.

Claudia Dräger, Stefan Dräger’s wife, has an employment contract with Drägerwerk AG & Co. KGaA, which was concluded at arm’s length terms and conditions.

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The remuneration of the employee representatives on the Supervisory Board for work performed in addition to the Supervisory Board activities was also concluded at arm’s length terms and conditions. Overall, remuneration is of immaterial importance for the Dräger Group.

Drägerwerk Verwaltungs AG is the general partner of Drägerwerk AG & Co. KGaA and holds 0 percent of the capital. Only a few transactions are conducted with the general partner, as it only exercises administrative functions. The general partner is entitled to compensation for all expenses incurred in association with the management of Drägerw-erk AG & Co. KGaA, including the contractually agreed remuneration for its executive bod-ies. These expenses comprise the remuneration of the Executive Board, the remuneration of its Supervisory Board, liability remuneration, as well as other expenses.

Liabilities to Drägerwerk Verwaltungs AG amounted to EUR 5.1 million as of Decem-ber 31, 2016 (2015: EUR 3.0 million).

All transactions with related parties were conducted at arm’s length terms and condi-tions.

AUDITOR’S FEE

The auditor’s fee is not stated. The Company is included in the group financial statements of Drägerwerk AG & Co. KGaA. The fee is detailed under Note 52 of the notes to the Group financial statements.

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40 MAJOR DIRECT AND INDIRECT SHAREHOLDINGS

MAJOR DIRECT AND INDIRECT SHAREHOLDINGS

OF DRÄGERWERK AG & CO. KGAA

SHARES OWNED BY DRÄGERWERK AG & CO. KGAA AS OF DECEMBER 31, 2016

Shareholding in % in € thousand in € thousand

Name and registered office direct indirect Equity Earnings

GermanyDräger Safety AG & Co. KGaA, Lübeck 100 151,872 0 1

Dräger Medical Deutschland GmbH, Lübeck 100 26,047 0 1

Dräger Electronics GmbH, Lübeck 100 –9,003 35

Dräger Medizin System Technik GmbH, Lübeck 100 1,596 0

Dräger Safety Verwaltungs AG, Lübeck 100 1,120 0 1

Dräger TGM GmbH, Lübeck 100 963 49 1, 4

Dräger MSI GmbH, Hagen 100 1,747 0 1

Dräger Medical ANSY GmbH, Lübeck 100 2,826 0 1

Dräger Interservices GmbH, Lübeck 30 70 641 0 1

Dräger Gebäude und Service GmbH, Lübeck 100 406 40 1

Dräger Medical International GmbH, Lübeck 89.45 10.55 231,945 0 1

MAPRA Assekuranzkontor GmbH, Lübeck 49 760 467 2, 3

Fachklinik für Anästhesie und Intensivmedizin Vahrenwald GmbH, Lübeck 100 –7,673 0 1

Dräger Energie GmbH, Lübeck 100 25 0 1

FIMMUS Grundstücks-Vermietungs GmbH, Lübeck 100 30 0 1

Dräger Finance Services GmbH & Co. KG, Bad Homburg v. d. Höhe 95 490 5

OPTIO Grundstücks-Verwaltungsgesellschaft mbH & Co. KG, Lübeck 100 –692 46FIMMUS Grundstücks-Vermietungs Gesellschaft mbH & Co. Objekt Lübeck KG, Lübeck 100 72 4MOLVINA Vermietungsgesellschaft mbH & Co. Objekt Finkenstraße KG, Düsseldorf 100 120 –129DRENITA Grundstücks-Vermietungsgesellschaft mbH & Co. Objekt Fertigung Dräger Medizintechnik KG, Düsseldorf 100 –39 6

Dräger Grundstücksverwaltungs GmbH, Lübeck 100 33 2

Dräger Holding International GmbH, Lübeck 100 59,471 0 1

FUNDUS Grundstücksverwaltungs-GmbH& Co. KG, Lübeck 100 4,393 159

EuropeBelgium Dräger Medical Belgium NV, Wemmel 100 11,840 1,322

Dräger Safety Belgium NV, Wemmel 100 9,750 897

Bulgaria Draeger Medical Bulgaria EOOD, Sofia 100 479 85

Draeger Safety Bulgaria EOOD, Sofia 100 402 143

Denmark Dräger Danmark A/S, Herlev 100 3,133 493

Finland Dräger Suomi Oy, Helsinki 100 1,060 257

France Dräger Médical SAS, Antony 100 21,522 3,585

Draeger Safety France SAS, Strasbourg 100 12,615 926

AEC SAS, Antony 100 1,949 351

Greece Draeger Hellas A.E. for Products of Medical and Safety Technology, Athens 100 1,374 394

UK Draeger Safety UK Ltd., Blyth 100 40,865 10,609

Draeger Medical UK Ltd., Hemel Hempstead 52.627 47.373 7,341 2,274

1 Profit and loss transfer agreement2 Associate as defined under Sec. 311, 312 HGB3 Prior year4 Recognized value corresponds to the amount restricted from distribution

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EuropeIreland Draeger Ireland Ltd., Dublin 100 322 42

Italy Draeger Medical Italia S.p.A., Corsico-Milan 100 12,947 1,959

Draeger Safety Italia S.p.A., Corsico-Milan 100 3,106 628

Croatia Dräger Medical Croatia d.o.o., Zagreb 100 2,733 469

Dräger Safety d.o.o., Zagreb 100 498 148

Netherlands Dräger Nederland B.V., Zoetermeer 100 19,614 6,405

Norway Dräger Norge AS, Oslo 100 4,350 783

GasSecure AS, Oslo 100 –4,804 –3,067

Austria Dräger Austria GmbH, Vienna 100 43,444 7,417

Poland Dräger Polska sp. zo.o., Bydgoszcz 100 2,997 193

Dräger Safety Polska sp. zo.o., Katowice 100 1,833 411

Portugal Dräger Portugal, LDA, Lisbon 0.01 99.99 2,732 346

Romania Dräger Medical Romania SRL, Bucharest 100 2,195 556

Dräger Safety Romania SRL, Bucharest 100 670 116

Russia Draeger OOO, Moscow 100 11,273 7,102

Sweden Dräger Sverige AB, Kista 100 4,448 1,671

ACE Protection AB, Svenljunga 100 3,124 783

Switzerland Dräger Schweiz AG, Liebefeld-Bern 100 6,119 –174

Serbia Draeger Tehnika d.o.o., Belgrade 100 1,259 117

Slovakia Dräger Slovensko s.r.o., Piestany 100 1,841 260

Slovenia Dräger Slovenija d.o.o., Ljubljana-Crnuce 100 944 208

Spain Dräger Medical Hispania SA, Madrid 100 14,403 386

Dräger Safety Hispania SA, Madrid 100 4,811 874

Czech Republic Dräger Medical s.r.o., Prague 100 3,127 869

Dräger Safety s.r.o, Prague 100 1,914 393

Dräger Chomutov s.r.o., Chomutov 100 3,642 496

Turkey Draeger Medikal Ticaret ve Servis Anonim Sirketi, Istanbul 100 3,693 360

Draeger Safety Korunma Teknolojileri Limited Sirketi, Ankara 90 5,385 799

Hungary Dräger Safety Hungaria Kft., Budapest 100 644 28

Dräger Medical Hungary Kft., Budapest 100 868 36

AfricaMorocco Draeger Maroc SARLAU, Casablanca 100 758 19

South Africa Dräger Safety South Africa (Pty.) Ltd., Bryanston 69 0 0

Dräger South Africa (Pty.) Ltd., Johannesburg 69 3,723 1,038

Dräger Safety Zenith (Pty.) Ltd., King William's Town 100 1,041 184

AmericasArgentina Dräger Argentina SA, Buenos Aires 10 90 3,296 1,511

Brazil Dräger do Brasil Ltda., São Paulo 100 –3,587 1,320

Dräger Industria e Comércio Ltda., São Paulo 99.99 0.01 10,425 2,206

Dräger Safety do Brasil Equipamentos de Segurança Ltda., São Paulo 100.00 5,684 2,099

42 MAJOR DIRECT AND INDIRECT SHAREHOLDINGS




AmericasChile Dräger Chile Ltda., Santiago 99.99 0.01 6,809 1,367

Dräger-Simsa S.A., Santiago 51.00 1,899 –89

Canada Draeger Safety Canada Ltd., Mississauga/Ontario 100.00 5,236 729

Draeger Medical Canada Inc., Richmond Hill/Ontario 100.00 –970 668

Colombia Draeger Colombia SA, Bogota D.C. 1.50 98.50 4,347 873

Mexico Draeger Safety S.A. de C.V., Querétaro 100.00 828 318

Dräger Medical Mexico S.A. de C.V., Mexico D.F.D. 0.01 99.99 9,405 –49

Panama Draeger Panama S. de R.L., Panama 0.01 99.99 1,235 308

Draeger Panama Comercial, S. de R.L., Panama 0.01 99.99 391 241

Peru Draeger Peru S.A.C., Piso Miraflores-Lima 0.01 99.99 2,745 743

United States Draeger, Inc., Telford 100 38,630 3,924

Draeger Safety Diagnostics, Inc., Durango 100 8,949 1,041

Draeger Medical Systems, Inc., Telford 100 145,207 –170

Draeger Interservices, Inc., Pittsburgh 100 338 183

Venezuela Draeger Medical Venezuela S.A., Caracas 100 –2 0

Asia/AustraliaP.R. China Shanghai Dräger Medical Instrument Co., Ltd., Shanghai 100 17,329 4,551

Draeger Safety Equipment (China) Co., Ltd., Beijing 100 18,407 435

Dräger Medical Equipment (Shanghai) Co., Ltd., Shanghai 100 31,409 4,861

Draeger Hong Kong Limited, Wanchai 100 1,134 446

Draeger Medical Systems (Shanghai) Co., Ltd., Shanghai 100 10,564 25

India Draeger India Private Limited, Mumbai 100 7,195 2,591

Draeger Safety India Pvt. Ltd., Mumbai 100 597 234

Indonesia PT Draegerindo Jaya, Jakarta 100 1,518 212

PT Draeger Medical Indonesia, Jakarta 5 95 6,796 1,376

Japan Draeger Medical Japan Ltd., Tokyo 100 10,815 983

Draeger Safety Japan Ltd., Tokyo 100 1,431 126

Malaysia Draeger Malaysia Sdn. Bhd., Kuala Lumpur 100 1,243 –26

Saudi Arabia Draeger Arabia Co. Ltd., Riyadh 25.5 25.5 34,148 –1,668

Singapore Draeger Singapore Pte Ltd., Singapore 100 3,159 1,270

South Korea Draeger Korea Co., Ltd., Seoul 100 3,828 140

Taiwan Draeger Safety Taiwan Co., Ltd., Hsinchu City 100 2,060 413

Draeger Medical Taiwan Ltd., Taipei 100 1,359 13

Thailand Draeger Medical (Thailand) Ltd., Bangkok 100 5,986 1,915

Draeger Safety (Thailand) Ltd., Bangkok 100 1,256 89

Vietnam Draeger Medical Vietnam Co., Ltd., Ho Chi Minh City 100 1,302 339

Australia Draeger Safety Pacific Pty. Ltd., Notting Hill 100 11,969 3,970

Draeger Medical Australia Pty. Ltd., Notting Hill 100 7,956 1,459


SUPPLEMENTARY STATEMENT

Subsequent events There were no significant events in the new fiscal year up to the time the management report was prepared.

Proposed distribution of net earnings Net earnings for fiscal year 2016 amount to EUR 398,299,842.99. This includes profits brought forward of EUR 363,211,172.86. Drägerwerk Verwaltungs AG as general partner of Drägerwerk AG & Co. KGaA, together with the Supervisory Board of Dräger werk AG & Co. KGaA, Lübeck, intends to propose to the annual shareholders’ meeting that these net earnings should be distributed as follows:

PROPOSED DISTRIBUTION OF NET EARNINGS

in €

EUR 0.13 cash dividend for 10,160,000 common shares 1,320,800

EUR 0.19 cash dividend for 7,600,000 preferred shares 1,444,000

It is further proposed that the remaining net earnings for fiscal year 2016 of EUR 395,535,043 will be carried forward to new account.

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44 THE COMPANY’S BOARDS

Klaus-Dieter Fett (until February 23, 2016)Works Council Chairman, Germany

Member of the Group Works Council of Dräger, Lübeck

Supervisory Board memberships:

– Dräger Medical Deutschland GmbH, Lübeck (until February 23,

2016)

Daniel Friedrich1st Delegate of the metalworkers’ union IG Metall, Lübeck-Wismar

administrative office, Lübeck


– Dräger Safety AG & Co. KGaA, Lübeck

Prof. Dr. Thorsten GrenzManaging Partner of KIMBRIA Gesellschaft für Beteiligung und

Beratung mbH, Berlin

Professor of Economics and Social Sciences at Christian-Albrechts

University, Kiel


– RNTS Media N. V., Amsterdam (Vice-Chairman), since

June 15, 2016

– Gpredictive GmbH, Hamburg

– Drägerwerk Verwaltungs AG, Lübeck


– Dräger Safety Verwaltungs AG, Lübeck

Stefan Klein (until June 30, 2016)Officer of Drägerwerk AG & Co. KGaA (resigned on June 30, 2016)

Stefan LauerFormer Executive Board member of Deutsche Lufthansa AG, Frankfurt


– Lufthansa Cargo AG, Frankfurt

– People at Work Systems AG, Munich



Uwe LüdersChairman of the Executive Board of L. Possehl & Co. mbH, Lübeck


– Lübecker Hafen-Gesellschaft mbH (LHG), Lübeck, Chairman



43

The Company’s Boards

SUPERVISORY BOARD OF DRÄGERWERK AG & CO. KGAA

Chairman

Prof. Dr. Nikolaus SchweickartLawyer, Bad Homburg

Former Chairman of the Management Board of ALTANA AG,

Bad Homburg

Chairman of the Board of Trustees, Städel Museum, Frankfurt


– Drägerwerk Verwaltungs AG, Lübeck (Chairman)

– Dräger Safety AG & Co. KGaA, Lübeck (Chairman)

– Dräger Safety Verwaltungs AG, Lübeck (Chairman)

Memberships on comparable boards of German

or foreign companies:

– Diehl-Stiftung & Co. KG, Nuremberg (Chairman of the Advisory

Board)

Vice-Chairman

Siegfrid KasangGroup Works Council Chairman of Dräger, Lübeck

Dräger Lübeck Works Council Chairman, Lübeck

Bettina van Almsick (from June 7, 2016)Chairperson of Works Council Dräger Sales and Service Germany,

Essen

Chairperson of Works Council Dräger Sales and Service Germany,

Lübeck

Member of Group Works Council of Dräger, Lübeck


– Dräger Medical Deutschland GmbH, Lübeck (Vice-Chairman)

Nike Benten (from February 1, 2016)Member of Dräger Lübeck Works Council, Lübeck

Member of the Group Works Council of Dräger, Lübeck




Walter Neundorf (from July 1, 2016)Officer of Drägerwerk AG & Co. KGaA, Lübeck

Prof. Dr. Klaus RauscherFormer Chairman of the Management Board of Vattenfall Europe

AG, Berlin


– Vonovia SE, Düsseldorf



– Dräger Safety Verwaltungs AG, Lübeck

Memberships on comparable boards of German or foreign compa-

nies:

– Board of Trustees of Berliner Philharmoniker, Berlin

Thomas RickersOfficer for the Dräger Group, the metalworker’s union IG Metall,

Lübeck-Wismar administrative office, Lübeck



Ulrike Tinnefeld (until January 31, 2016)Group Works Council Vice-Chairperson of Dräger, Lübeck

Member of Dräger Lübeck Works Council, Lübeck


– Dräger Safety AG & Co. KGaA (Vice-Chairperson),

until January 31, 2016

Dr. Reinhard ZinkannManaging Partner of Miele & Cie. KG, Gütersloh


– Falke KGaA, Schmallenberg (Chairman)



Memberships on comparable boards of German

or foreign companies:

– Hipp & Co., Pfaffenhofen (President of the Board of Directors)

– Krombacher Brauerei GmbH & Co. KG, Kreuztal-Krombach (Advi-

sory Board), until June 30, 2016

– Nobilia-Werke J. Stickling GmbH & Co. KG, Verl (Advisory Board)

Members of the Audit Committee:Prof. Dr. Thorsten Grenz (Chairman)

Siegfrid Kasang

Prof. Dr. Klaus Rauscher

Prof. Dr. Nikolaus Schweickart

Daniel Friedrich (from February 1, 2016)

Ulrike Tinnefeld (until January 31, 2016)

Members of the Nomination Committee:Prof. Dr. Nikolaus Schweickart (Chairman)

Uwe Lüders

Dr. Reinhard Zinkann

Members of the Joint Committee:Representatives of Drägerwerk Verwaltungs AG:

Prof. Dr. Thorsten Grenz

Stefan Lauer

Uwe Lüders

Prof. Dr. Klaus Rauscher

Representatives of Drägerwerk AG & Co. KGaA:

Prof. Dr. Nikolaus Schweickart (Chairman)

Dr. Reinhard Zinkann

Siegfrid Kasang

Thomas Rickers

46 THE COMPANY’S BOARDS

MEMBERS OF THE EXECUTIVE BOARD OF DRÄGERWERK

VERWALTUNGS AG ACTING FOR DRÄGERWERK AG & CO. KGAA

Stefan DrägerChairman of the Executive Board

Chairman of the Executive Board of Drägerwerk Verwaltungs AG,

Lübeck (general partner of Drägerwerk AG & Co. KGaA)

Chairman of the Executive Board of Dräger Safety Verwaltungs AG,

Lübeck (general partner of Dräger Safety AG & Co. KGaA)


– Sparkasse zu Lübeck AG, Lübeck

Gert-Hartwig LescowCFO and Executive Board member for IT

Vice-Chairman of the Executive Board

Member of the Executive Board of Drägerwerk Verwaltungs AG,


Member of the Executive Board of Dräger Safety Verwaltungs AG,



– AXA Corporate Solutions S. A., Paris

Rainer KlugExecutive Board member for Production, Logistics, Purchasing

Regional responsibility for the Americas





Dr. Reiner PiskeExecutive Board member for Human Resources

Regional responsibility for Europe






– Dräger Medical Deutschland GmbH, Lübeck, from January 1, 2016

Anton SchrofnerExecutive Board member for Innovation

Regional responsibility for Africa, Asia, and Australia






Lübeck, Germany, February 16, 2017

Drägerwerk AG & Co. KGaAThe general partnerDrägerwerk Verwaltungs AGrepresented by its Executive Board

Stefan Dräger Gert-Hartwig Lescow Anton SchrofnerRainer KlugDr. Reiner Piske

48 MANAGEMENT COMPLIANCE STATEMENT

Management compliance statement

We confirm to the best of our knowledge that, in accordance with the applicable financial reporting framework, the single entity financial statements give a true and fair view of the net assets, financial position, and results of operations of the Company, the combined management report of the annual report presents business performance including busi-ness results and the situation of the Company so as to give a true and fair view, and that the significant opportunities and risks relating to the Company’s development have been described.

Lübeck, Germany, February 16, 2017

Drägerwerk AG & Co. KGaAThe general partnerDrägerwerk Verwaltungs AGrepresented by its Executive Board

Stefan Dräger Gert-Hartwig Lescow Anton SchrofnerRainer KlugDr. Reiner Piske


50 AUDITOR’S REPORT

Auditor’s Report

We have audited the annual financial statements, comprising the balance sheet, the income statement and the notes to the financial statements, together with the account-ing system, and the management report of Drägerwerk AG & Co. KGaA, Lübeck, which is combined in the Group management report, for the fiscal year from January 1 to Decem-ber 31, 2016. Maintaining the books and records and the preparation of the annual finan-cial statements and combined management report in accordance with German commer-cial law are the responsibility of the Executive Board of the Company’s managing general partner. Our responsibility is to express an opinion on the single entity financial state-ments, together with the accounting system, and on the combined management report based on our audit.

We conducted our audit of the annual financial statements in accordance with Sec. 317 of the German Commercial Code (Handelsgesetzbuch—HGB) and German general-ly 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 annu-al financial statements in accordance with (German) principles of proper accounting and in the combined management report are detected with reasonable assurance. Knowledge of the business activities and the economic and legal environment of the Company 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 books and records, the annual financial statements and the combined management report are examined primarily on a test basis within the framework of the audit. The audit includes assessing the accounting principles used and significant estimates made by the Executive Board of the Company’s managing general partner, as well as evaluating the overall presentation of the annual financial statements and combined management report. We believe that our audit provides a rea-sonable basis for our opinion.

Our audit has not led to any reservations. Based on the findings of our audit, we believe that the annual financial statements com-

ply with the legal requirements and give a true and fair view of the net assets, financial position and results of operations of the Company in accordance with (German) princi-ples of proper accounting. The combined management report complies with the legal requirements, as a whole provides a suitable view of the Company’s position, and suitably presents the opportunities and risks relating to future development.

Hamburg, February 20, 2017

PricewaterhouseCoopersAktiengesellschaftWirtschaftsprüfungsgesellschaft

Dr. Peter Bartels Marko Schipper(German Public Auditor) (German Public Auditor)

NOTESANNUAL FINANCIAL STATEMENTS MANAGEMENT REPORT

Drägerwerk AG & Co. KGaAMoislinger Allee 53 – 5523558 Lübeck, Germanywww.draeger.com

Corporate CommunicationsTel. + 49 451 882 - 3998Fax + 49 451 882 - 3944

Investor RelationsTel. + 49 451 882 - 2685Fax + 49 451 882 - 3296 90

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426

Documents

Single entity financial statements and combined … sheet of Drägerwerk AG & Co. KGaA as of December 31, 2016 6 Notes to Drägerwerk AG & Co. KGaA single entity financial statements