Notes on the Balance Sheet

(1) Fixed assets

The development of the individual fixed asset items in the financial year under review is shown in an annex to the balance sheet. The principal direct shareholdings are listed in a separate annex to the notes.

In the financial year under review, changes in fixed assets were primarily determined by the merger between TUI’s tourism division (including its own aircraft fleet but excluding the hotel companies operated by TUI Hotels & Resort) and the British travel group First Choice Holidays PLC to form TUI Travel PLC based in Crawley (UK). The shares in TUI Travel PLC have been traded at the London Stock Exchange since beginning of September 2007. At 51.0%, TUI AG holds the majority in TUI Travel PLC. The TUI Travel PLC Group has been included in TUI AG’s consolidated financial statements since the beginning of September 2007.

Property, plant and equipment

Additions of property, plant and equipment totalled € 368.0 million and mainly related to three newly built container ships and the acquisition of containers and container semi-trailers. The disposals mainly related to the intra-Group transfer of aircraft including spare parts and the advance payments made for the acquisition of aircraft in the framework of the merger involving the tourism division to form TUI Travel PLC. Other essential factors were intra-Group sales of four container ships and the disposal of one ship to a non-Group third party.

Investments

Changes in investments were primarily caused by the formation of the TUI Travel PLC Group. In order to realign the corporate structure of TUI’s tourism division, shares in Group companies, participations and investments were initially transferred against payment within the Group at prudently determined fair values and a payment was made to the capital reserve of a German intermediate holding company. Finally, on 3 September 2007, the tourism shareholdings – excluding the hotel companies operated by TUI Hotels & Resorts – were contributed to TUI Travel PLC after consideration of a write-back in exchange for 51.0% of the shares in TUI Travel PLC. In addition, TUI AG received a financial remuneration from TUI Travel PLC to create the agreed level of debt for TUI’s tourism division. In this context, proportional hidden reserves had to be realised through profit and loss as a proportion of the remuneration received in relation to the fair value of the contributed participations; in all other regards, the carrying values were continued.

Disposals effected at carrying amounts in the framework of the merger totalled € 2,710.8 million for Group companies, € 56.3 million for participations and € 21.4 million for investments in Group companies. In addition, total capital repayments of € 89.4 million were effected in a British intermediate holding and in a Swiss company.

Additions of shares in Group companies totalled € 2,016.2 million, including an amount of € 1,585.0 million for TUI Travel PLC shares. Other additions were mainly based on a payment to the capital reserve of a German intermediate holding transferred to TUI Travel PLC (€ 410.0 million) and the ordinary increase in subscribed capital of the hotel and real estate project company Tenuta di Castelfalfi S.p.A. in Italy.

Due to the reduction in the hedging volume following the transfer of employees to TUI Travel PLC subsidiaries, the long-term investments acquired in the framework of statutory obligations to secure employees’ entitlements from credits under part-time block-model schemes for elderly employees and pledged to a trustee were reduced by € 11.8 million to € 4.8 million.

(2) Inventories

Inventories exclusively related to consumables and supplies.

(3) Receivables and other assets

Receivables from Group companies and companies in which shareholdings are held included minor trade accounts receivable at the respective balance sheet date.

The increase in receivables from Group companies was mainly attributable to an interest-bearing loan granted to TUI Travel PLC.

(4) Cash in hand and bank balances

This item included an amount of € 306.5 million (previous year: € 7.6 million) of bank balances.

(5) Prepaid expenses

A discount amounting to the present value of the interest benefit in comparison with a corporate bond with a matching maturity was carried for the conversion option of the newly issued convertible bond. The discount will be written off on a straight line basis with an effect on interest expenses until the earliest expected conversion date.

The decline in other prepaid expenses primarily resulted from the settlement of financing costs accrued in 2006 due to the transfer of aircraft orders.

(6) Subscribed capital

TUI AG’s subscribed capital consisted of no-par value shares, each representing an identical share in the capital stock. The proportionate share in the capital stock attributable to each individual share was approx. € 2.56. Since the conversion carried out in July 2005, the shares have been registered shares, whose holders have been listed in the share register by name.

Due to the issue of 225,720 employee shares, the subscribed capital registered in the commercial registers of the district courts of Berlin-Charlottenburg and Hanover rose by € 0.6 million to a total of € 642.3 million. At the end of the financial year, the subscribed capital thus comprised 251,245,575 shares (previous year: 251,019,855 shares).

The Annual General Meeting of 16 May 2007 authorised TUI AG’s Executive Board to purchase own shares in a volume of up to 10% of the capital stock. The authorisation will expire on 15 November 2008 and replaces the authorisation to purchase own shares granted by the Annual General Meeting of 10 May 2006, which expired on 9 November 2007. The authorisation to purchase own shares has not been used to date.

Conditional capital

The Annual General Meeting of 18 June 2003 resolved to create conditional capital of € 90.0 million. The purpose of the conditional capital was to service conversion options and warrants from the issue of one or several bonds with a total nominal amount of up to € 1.0 billion by 17 June 2008. In October 2003, bonds with conversion options of around € 384.6 million with a term to 1 December and a nominal interest of 4% per annum were issued. The conversion options entitle the holders to convert every convertible bond worth a nominal amount of € 50,000 into 2,520 shares in TUI AG, i.e. up to a total of 19,385,784 shares. To date, the holders of the convertible bonds have not yet exercised any conversion options.

In order to retain the opportunity of issuing further bonds, the Annual General Meeting of 10 May 2006 resolved to create additional conditional capital of € 100.0 million. Accordingly, bonds with conversion options or warrants, profit-sharing rights and income bonds with a nominal volume of up to € 1.0 billion (with or without fixed terms) may be issued by 9 May 2011. On 1 June 2007, TUI AG issued an unsecured unsubordinated convertible bond worth € 694.0 million maturing on 1 September 2012. The conversion price was € 27.68 per no-par value share. The bond was issued in denominations of nominal amounts of € 50,000. The convertible bond may be converted into a maximum of 25,072,254 shares. The bonds carry an interest coupon of 2.75% per annum and were issued at par. The bond is traded at two German stock exchanges, in Luxembourg and Zurich. By 31 December 2007, the holders of the bond had not yet exercised any conversion options.

Authorised capital

The authorised capital of originally € 10.0 million created by the Annual General Meeting of 18 May 2004 for the issuance of employee shares stood at around € 7.3 million at the end of the 2006 financial year. In the 2007 financial year, the authorised capital was partly used to issue 225,720 employee shares (previous year: 287,280 shares). The authorised capital for the issuance of employee shares therefore stood at around € 6.7 million at the end of the 2007 financial year. The Executive Board of TUI AG has been authorised to use this capital in one or several transactions to issue employee shares against cash contribution by 17 May 2009.

In addition to the authorised capital for the issue of employee shares, the Annual General Meeting of 10 May 2006 also resolved to create additional authorised capital for the issue of new shares against cash or non-cash contribution totalling € 310.0 million. The issue of new shares against non-cash contribution has been limited to € 128.0 million. The Executive Board of TUI AG has been authorised to use this capital by 9 May 2011.

Unused authorised capital thus totalled around € 316.7 million, including the remaining authorised capital for the issue of employee shares.

(7) Capital reserves

Capital reserves included transfers from share premiums. They also comprised amounts from conversion options and warrants for the purchase of shares in TUI AG, generated in the framework of bonds issued. In addition, premiums from the potential exercise of conversion options and warrants were transferred to the capital reserves. In the financial year under review, capital reserves rose by € 22.8 million (previous year: around € 2.4 million), including an amount of around € 20.4 million due to premiums on the convertible bond issued on 1 June 2007 and an amount of around € 2.4 million due to the issue of employee shares.

(8) Revenue reserves

As before, revenue reserves consisted solely of other revenue reserves. There were no provisions in the Articles of Association on the formation of reserves.

(9) Profit available

Net profit for the year totalled € 66,487,215.40. Following the transfer of an amount for distribution of € 33,200,000.00 to other revenue reserves and taking account of the retained profit brought forward of € 54,300,000.00, profit available for distribution totalled € 87,587,215.40. A proposal will be submitted to the Annual General Meeting to use the profit available for distribution to pay a dividend of € 0.25 per no-par value share and carry forward on new account a total amount of € 24,775,821.65, i.e. the remaining profit available for distribution after deduction of the dividend amount of € 62,811,393.75.

(10) Special non-taxed item

The special non-taxed item totalled € 41.5 million (previous year: € 42.6 million) and included tax-related depreciation of fixed assets in accordance with section 6b of the German Income Tax Act. Due to the long reversal period, reversal of the special non-taxed item created a minor income tax effect for individual financial years.

(11) Other provisions

The decline in tax provisions was mainly attributable to reclassifications to ‘Other provisions’.

Other provisions mainly related to provisions for anticipated losses from derivative financial instruments. Such provisions were significantly increased year-on-year due to the development of the US dollar exchange rate against the euro and the increase in bunker oil and aircraft fuel prices in relation to the hedge prices. Additional provisions were formed relating to investment portfolio, personnel costs, other risks and, to a lesser extent, maintenance measures for aircraft leased from non-Group third parties and leased out to TUI’s tourism division. Due to the scheduled reduction in the volume of guarantees under warranties for companies of the former Babcock Borsig Group, the provision had to be reduced accordingly.

Around 60% of the provisions had a term up to one year (previous year: around 45%).

(12) Liabilities

Convertible bonds comprised the 2003/2008 convertible bond issued in November 2003 of around € 384.6 million and the 2007/2012 convertible bond issued on 1 June 2007 of around € 694.0 million.

The 2003/2008 convertible bond will mature on 1 December 2008 and carries a nominal interest coupon of 4% per annum. Each convertible bond of a nominal value of € 50,000.00 entitles its holder to convert it into around 2,520 shares at a conversion price of around € 19.84 per share any time by 17 November 2008. The 2007/2012 convertible bond will mature on 1 September 2012. The conversion price is € 27.68 per no-par value share. The bond was issued in denominations of nominal values of € 50,000.00. The bond carries an interest coupon of 2.75% per annum and can be converted into a maximum of 25,072,254 shares.

At the end of the financial year under review, bonds included a total of five further bonds with a nominal volume of € 2,325.0 million.

The bond of € 625.0 million issued in May 2004 and maturing in May 2011 carries a fixed-interest nominal coupon of 6.625% per annum. The bond of € 400.0 million issued in June 2004 carries a floating-rate interest coupon (3-months-EURIBOR + 2.10% per annum) and will mature in August 2009. Both bonds have denominations of € 1,000.00.

In order to finance the acquisition of CP Ships Ltd., three additional bonds with a total volume of € 1,300.0 million were issued in December 2005. The senior floating rate notes with a volume of € 550.0 million carry a floating-rate interest coupon (3-months-EURIBOR + 1.55% per annum) and will mature in December 2010. The senior fixed rate notes with a volume of € 450.0 million carry a fixed nominal interest coupon of 5.125% per annum and will mature in December 2012. These two bonds have denominations of at least € 50,000.00 each. The subordinated hybrid bond with a volume of € 300.0 million does not have a fixed maturity date. Subject to the dividend payment resolution taken by the Annual General Meeting it will carry a fixed interest coupon of 8.625% per annum until January 2013 and will subsequently carry a floating-rate interest coupon (3-months-EURIBOR + 7.30% per annum). The hybrid bond was issued in denominations of € 1,000.00.

Liabilities to banks rose by a total of € 150 million due to the placement of three bonds and two ship financing schemes. The bonds were taken up in October 2007 in the framework of a private placement. They will be redeemed by 10 December 2010. Until then, these financing schemes will be subject to a fixed interest rate agreement with interest rates of between 7.44% and 7.50% per annum.

In February 2007, TUI AG concluded a long-term loan agreement (ship financing) of € 79.1 million. The loan will have to be redeemed on a quarterly basis by February 2019. In addition, a ship financing scheme worth € 79.9 million was taken up in March 2007, to be redeemed in quarterly rates by May 2019. Each of the loans is subject to a fixed interest rate agreement of 5.25% per annum.

Liabilities to banks also included three bonds worth a total of € 183 million, taken up in 2006 in the framework of a private placement. They will be redeemed by 11 December 2009. Until then, these bonds carry fixed interest rates of between 5.265% and 5.3% per annum.

In addition, bonds worth a nominal amount of € 217 million were taken up in 2006; they will mature on 12 April 2010. The bonds carry fixed interest rates of 5.629% and 5.70% per annum for a fixed portion of € 55 million. The remaining loan portion of the bond of € 162 million carries a variable-rate interest coupon based on 3-months-EURIBOR rates plus a margin of 1.85% percentage points per annum.

The considerable decline in liabilities to Group companies resulted from a reduction in investments in TUI AG by companies of TUI’s tourism division due to the formation of TUI Travel PLC as of end of August or beginning of September 2007.

Liabilities to Group companies and to companies in which shareholdings are held contained minor trade accounts payable as at the respective balance sheet date.

Liabilities with a remaining term of more than five years totalled € 496.4 million (previous year: € 888.5 million).

Liabilities in the form of ship mortgages worth € 150.7 million were secured by rights of lien or similar rights.

(13) Deferred income

Deferred income mainly related to deferred income from operating leases for aircraft, including an amount of € 9.7 million to Group companies (previous year: € 12.0 million).

(14) Trust assets and trust liabilities

The trust assets and liabilities to be recognised in the balance sheet in 2006 were related to collateral for aircraft maintenance agreements. Following the transfer of the aircraft fleet to a company of the TUI Travel PLC Group, the corresponding guarantee was taken over by that company.

(15) Contingent liabilities

TUI AG has taken over guarantees and warranties on behalf of subsidiaries and third parties, mainly serving the settlement of ongoing business transactions and the collateralisation of loans. In the financial year under review, the liabilities from warranties relating to the companies of the former Babcock Borsig Group were further reduced in line with plans due to the expiry of the warranties and guarantees.

As in previous years, appropriate provisions were formed concerning the risk of anticipated obligations.

(16) Other financial commitments

The increase in lease, rental and leasing contracts was associated with the conclusion of new aircraft lease agreements with non-Group third parties for aircraft operated by TUI Travel PLC airlines. As a matter of principle, these contracts are planned to be transferred to the TUI Travel PLC Group.

Order commitments under the aircraft purchase agreements concluded with Boeing in 2006 and under ship purchase agreements primarily declined due to the transfer of essential parts of the Boeing order items to the TUI Travel PLC Group as well as aircraft and ship deliveries effected in the meantime. Besides the aircraft order commitments remaining with TUI AG, the order commitments comprised payment obligations for the purchase of a ship in 2008.

Other financial commitments mainly related to commitments to purchase EDP services from TUI InfoTec GmbH, Hanover, which declined over time according to plan. In addition, financial commitments in connection with the provision of capital resources for a joint venture with Royal Caribbean Cruises Ltd., expected to be performed by TUI AG within the next five years, had to be taken into account. The joint venture will operate in the German volume market for premium cruises.

Other financial commitments included an amount of € 625.5 million (previous year: € 783.9 million) of expenses due in the subsequent year; liabilities due within one to five years totalled € 1,235.5 million (previous year: € 2,562.0 million) at the balance sheet date, with liabilities due within more than five years totalling € 149.8 million (previous year: € 605.6 million). Other financial commitments to Group companies totalled € 5.8 million (previous year: € 10.2 million).

(17) Derivative financial instruments

Commodity hedges exclusively related to ship and aircraft fuel.

For the financial instruments entered into, the following carrying amounts were recognised under the balance sheet items listed below:

Provisions for currency hedges rose primarily due to the strong slump of the US dollar exchange rate against the euro. The increase in provisions for commodity hedges (bunker oil and aircraft fuel) mainly resulted from a sharp year-on-year increase in fuel prices.