Siemens 2005 Annual Report Download

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Annual Report 2005
s

Table of contents

  • Page 1
    s Annual Report 2005

  • Page 2
    ... to pension trusts (included in net cash provided by (used in) operating activities) Net proceeds from the sale of Infineon shares (included in net cash provided by (used in) investing activities) Research and development expenses(2) Shareholders' equity (September 30) Employees(2) (September...

  • Page 3
    ... Board Corporate Governance Report Compensation Report Information for shareholders* Management's discussion and analysis Consolidated Financial Statements Statement of the Managing Board Independent auditors' report Supervisory Board Managing Board Siemens financial calendar Corporate Structure...

  • Page 4

  • Page 5
    ...to our customers To be one of the largest, most successful companies in the global electrical market, with leading positions in all our businesses To remain at the forefront of technological progress To create the greatest possible value for our shareholders To attract the world's best and brightest...

  • Page 6

  • Page 7
    ...of the world. In Asia-Pacific, for example, orders were up 23 percent. In the Americas, they were up 19 percent. Portfolio further developed We divested our loss-making mobile phone business to BenQ, which was the best solution in the interest of customers, employees, and you, our shareholders. We...

  • Page 8
    ...track. A new management team is in place. An ambitious cost-cutting program is underway targeting savings of â,¬1.5 billion in the next two years. And there's a greater focus on higher-value services. At our Communications Group, even with the divestiture of mobile phones, there's still a continuing...

  • Page 9
    ... making important contributions to keep costs down and quality up for patients and providers. Our digital hospitals and electronic healthcare systems are on the cutting-edge; and we're the world's biggest provider of e-health solutions, a business where we generate some â,¬1 billion in annual sales...

  • Page 10
    ... year in fuel costs, lost time and additional CO2 emissions due to traffic jams. Each year, Americans spend 3.5 billion hours stuck in traffic. Siemens has the solutions to help in terms of high-performance rail systems, intelligent telematics solutions, fleet management, highway e-payment systems...

  • Page 11
    ... ability to integrate our cross-Group offerings meets our customers' needs for advanced and comprehensive solutions. I am pleased to report that your company continues its proud past and looks forward to a successful future. Dr. Klaus Kleinfeld President and Chief Executive Officer Siemens AG 11

  • Page 12
    ... our Shareholders Managing Board Fit4More Managing Board of Siemens AG* Uriel J. Sharef, Dr. rer. pol. Johannes Feldmayer Rudi Lamprecht Erich R. Reinhardt, Prof. Dr.-Ing., Dr.-Ing. E. h. Claus Weyrich, Prof. Dr. phil., Dr.-Ing. E. h. 12 * As of January 1, 2006 For further information, see...

  • Page 13
    Group Presidents Business Areas Megatrends Report of the Supervisory Board Corporate Governance Report Klaus Kleinfeld, Dr. rer. pol. Edward G. Krubasik, Prof. Dr. rer. nat. Jürgen Radomski, Dr. rer. pol. h. c., Dr. techn. h. c. Thomas Ganswindt, Dr. h. c. Heinz-Joachim Neubürger ...

  • Page 14
    ... urbanization - we're investing in dynamic fields such as healthcare, energy, water, mobility, security and communications. All our businesses have committed themselves to achieving returns comparable to those of the leaders in their industries. We're firmly convinced that Siemens is worth far more...

  • Page 15
    Group Presidents Business Areas Megatrends Report of the Supervisory Board Corporate Governance Report Stock market information in euros Stock price range (XETRA closing prices, Frankfurt) High Low Year-end Number of shares (year-end, in millions) Market capitalization (year-end, in millions of...

  • Page 16
    ..., we have expanded our automotive systems business, primarily in the Americas and Asia-Pacific. â- The acquisition of CTI Molecular Imaging has strengthened our activities in key growth sectors within the Medical area. â- In the Lighting area, our Osram Group has expanded its product spectrum...

  • Page 17
    ...Report Regional growth markets - Focus on the Americas and Asia Sales by region (in billions of euros)* 75 8% 13% Africa, Middle East, C.I.S. Asia-Pacific 25% 4% 6% 15% 30% 33% 32 The Americas Europe (excluding Germany) 45% 1990** 21% 2005*** Germany * Sales by location of customer ** Sales...

  • Page 18
    ...Shareholders Managing Board Fit4More Operational Excellence Fit4More Operational Excellence Siemens has the tools it needs to manage its businesses successfully in today's fiercely competitive global arena. These tools are part of our top+ Siemens Management System, which includes three Company...

  • Page 19
    ...business. Firmly anchored in all of our activities around the world, this proven approach is driving successful top+ programs at every level of the Company. The top+ programs Our Siemens Management System (SMS) ensures that top+ is consistently applied. The three SMS programs - Innovation, Customer...

  • Page 20
    ... and our innovations are designed to meet. The integration of cuttingedge technologies - a process effectively supported by our top+ innovation programs - is enabling us to offer unique solutions with high customer benefit, while setting the pace in all our business areas. As innovation cycles...

  • Page 21
    ... property provides unrestricted access to all key markets and supports the entire innovation process - to the benefit of our Company and our customers. In fiscal 2005, our researchers submitted some 8,800 invention reports, roughly seven percent more than in fiscal 2004. We filed patent applications...

  • Page 22
    ... Shareholders Managing Board Fit4More People Excellence Fit4More People Excellence People are the key to our success. Only outstanding employees can empower us to achieve our ambitious long-range goals. To expand our leading positions in business and technology for the benefit of our customers...

  • Page 23
    ...set out in the Siemens Leadership Framework (SLF) - a comprehensive system for assessing value creation that takes into account not only business success but also factors like personal leadership qualities, customer satisfaction and process excellence. All decisions regarding management compensation...

  • Page 24
    ... and tools establish a Company-wide network of managers around the world. Recognizing top talent Once a year, as part of our Siemens Management Review, we initiate an intensive process aimed at identifying our most talented employees and actively fostering their further development. In fiscal 2005...

  • Page 25
    ...its dual training system, which combines theory and practice, to many of its Regional Companies around the world. Outside Germany, about 4,000 young people are currently enrolled in Siemens apprenticeship programs, which have been adapted to suit country-specific conditions. These programs enable us...

  • Page 26
    ... the financial reporting requirements of German stock corporation law and U.S. capital market regulations, a two-tier management and control structure, and open communication with our shareholders (see also pages 72 - 77 of this Report). â- Business practices: Binding rules and guidelines ensure...

  • Page 27
    ... our market position in the areas of wind power, water treatment and purification, and air pollution controls. Political initiatives like the emissions trading system introduced by the European Union at the beginning of 2005 are providing us with new business opportunities. Our solutions enable...

  • Page 28
    ... to our Shareholders Managing Board Fit4More Corporate Responsibility Generation21 Our Generation21 program - which supports students and future scientists and engineers as well as schools and universities worldwide - aims to stimulate interest in the natural sciences and technology and attract...

  • Page 29
    ... in late August 2005. These activities were coordinated by Siemens Corporation in the U.S. - which matched employee contributions and supplied water treatment systems, medical equipment and power generators to the areas affected. By the end of fiscal 2005, the Company and its employees had raised...

  • Page 30
    ... to our Shareholders Managing Board Fit4More Group Presidents* Helmut Gierse A&D Herbert Lohneiß, Dr. rer. nat. SFS Christoph Kollatz, Dr. rer. pol. SBS Udo Niehage, Dr.-Ing. PTD Thomas Ganswindt, Dr. h. c. Com Hans M. Schabert TS 30 * As of January 1, 2006 For further information, see...

  • Page 31
    Group Presidents Business Areas Megatrends Report of the Supervisory Board Corporate Governance Report Martin Goetzeler Osram Klaus Voges PG Joergen Ole Haslestad I&S Heinrich Hiesinger, Dr.-Ing. SBT Wolfgang Dehen SV Erich R. Reinhardt, Prof. Dr.-Ing., Dr.-Ing. E. h. Med 31

  • Page 32
    ..., services and consulting for the healthcare community. The Lighting business area - comprising our subsidiary Osram - specializes in lighting sources, electronic control gear and light management systems. Our Financing and Real Estate activities are handled by Siemens Financial Services and Siemens...

  • Page 33
    ... Supervisory Board Corporate Governance Report Information and Communications Communications (Com) Com provides a comprehensive range of innovative solutions for voice and data communications - everything from communications devices and network infrastructures to services for enterprise customers...

  • Page 34
    ... insurers, power utilities, telecoms and media companies - pay only for the time, volume and number of transactions they actually carry out. We implement tailored solutions based on proven applications and systems. Our "m-parking" solution - which enables motorists to pay for parking by mobile phone...

  • Page 35
    ... installation technology, systems solutions - for machine tools, for example - and industry solutions, including the automation of complete automobile production lines and chemical plants. We also provide software tools for linking the IT systems used in production and business administration and...

  • Page 36
    ... worldwide, our Intelligent Traffic Systems Division is providing innovative traffic management solutions for megacities, conurbations and highway systems. In the area of water treatment and purification, our acquisition of the American company USFilter Corporation has supplemented our automa...

  • Page 37
    Group Presidents Business Areas Automation and Control Megatrends Report of the Supervisory Board Corporate Governance Report Siemens Building Technologies (SBT) SBT ensures high levels of comfort and security in its customers' buildings while safeguarding investment value and business ...

  • Page 38
    ... for industrial applications. Instrumentation and control systems, fuel cell technology and extensive services round out the Group's portfolio. We are a leader in the global power plant industry. About one-fifth of the world's total installed capacity is generated using Siemens equipment. Our...

  • Page 39
    Group Presidents Business Areas Power Megatrends Report of the Supervisory Board Corporate Governance Report Power Transmission and Distribution (PTD) PTD provides products, systems, services and complete solutions that enable utilities and industry to transport and distribute electricity ...

  • Page 40
    ... Shareholders Managing Board Fit4More Transportation Transportation Systems (TS) TS supplies vehicles, signaling and control technologies, automation systems, electrification and telecommunications for the railway industry. The Group also manufactures, services, maintains and provides operational...

  • Page 41
    ... second car on the road today is equipped with Siemens technology. Our engine control and fuel injection systems minimize fuel consumption and cut emissions. Our advanced driver information and navigation systems make driving easier. Our electronic controls and innovative sensors protect drivers and...

  • Page 42
    ...services and management consulting ranges from imaging systems, therapy equipment, molecular diagnostics and hearing instruments to clinical and administrative IT solutions. As the leading solutions provider in the medical field, we help our customers deliver high-quality, patientcentric healthcare...

  • Page 43
    ... Business Areas Medical Lighting Megatrends Report of the Supervisory Board Corporate Governance Report Lighting Osram Osram's product portfolio comprises everything from lamps and optoelectronic semiconductors such as light-emitting diodes (LEDs) to electronic control gear and light management...

  • Page 44
    ... we know best - information and communications, medical technology, transportation systems, power generation, and plant engineering and construction - we partner with customers to develop innovative financial solutions to meet their specific business and industry needs. www.siemens.com/sfs 44

  • Page 45
    ... and specialist properties. We also offer internal and external customers office and industrial space - supported by a full range of services - in six technology parks. Our activities focus on the profit-oriented management and development of Siemens' real estate assets and the provision of cost...

  • Page 46
    Letter to our Shareholders Managing Board Fit4More Affiliates BSH Bosch und Siemens Hausgeräte GmbH The market leader in Western Europe and one of the world's top domestic appliance manufacturers, BSH is a successful global company with more than 34,000 employees and 30 production facilities in ...

  • Page 47
    Group Presidents Business Areas Affiliates Megatrends Report of the Supervisory Board Corporate Governance Report Fujitsu Siemens Computers (Holding) BV Fujitsu Siemens Computers, a joint venture of Fujitsu Ltd. and Siemens AG, is Europe's leading IT manufacturer, offering enterprise customers ...

  • Page 48
    Letter to our Shareholders Managing Board Fit4More Digital Healthcare Customer benefit "Linked to ensure optimized and seamless intercommunication, Siemens' fully networked systems are improving healthcare and benefiting our patients." Wayne A. Sensor CEO, Alegent Health, Nebraska, USA 48

  • Page 49
    ... Report of the Supervisory Board Corporate Governance Report The future of healthcare is digital. High-precision imaging systems detect diseases such as cancer long before they pose a threat. Portable minilabs identify infections and allergies in record time. Personalized smart cards, electronic...

  • Page 50
    ..., a software program that assists the physician in confirming the presence of lung lesions. Bringing it all together is Soarian®, Siemens' healthcare information technology (IT) solution. Soarian is the only healthcare IT system that incorporates a workflow engine - the same technology used to...

  • Page 51
    ... to healthcare information management: the new-generation Soarian® healthcare IT solution, and the Picture Archiving and Communications System (PACS). Soarian supports patient-centric care by integrating Health portals for patients Access to Lakeside's facilities and medical records is managed by...

  • Page 52
    Letter to our Shareholders Managing Board Fit4More RFID Transparency "Our partnership with Siemens is helping us expand our leading position through innovative logistics solutions based on RFID technology." Monika Oßwald Business Logistics Manager SCA Hygiene Products AG, Munich 52

  • Page 53
    ... Presidents Business Areas Megatrends RFID Report of the Supervisory Board Corporate Governance Report In the future, many items of everyday life - such as clothes, cars and tickets to sporting events - will carry individual electronic ID tags. This innovative labeling technology will cut costs...

  • Page 54
    ...subsidiary offers material flow solutions, and our Automation and Drives Group develops transponders and write/read devices. Siemens Business Services provides process consulting, integrates RFID technology into customers' IT systems and manages and operates installed solutions for RFID projects. We...

  • Page 55
    ... us - a full-range provider of RFID technology and consulting services. SCA is benefiting from our expertise in more ways than one. Not only is a single-source RFID solution that incorporates transponders with invariably high rates of read accuracy being deployed at the company. With this innovative...

  • Page 56
    Letter to our Shareholders Managing Board Fit4More Remote Services Efficiency "Round-the-clock accessibility and increased efficiency - Siemens Remote Services guarantee fast on-site service." Paula Goatley Power Station Manager Eskom Generation, Republic of South Africa 56

  • Page 57
    Group Presidents Business Areas Megatrends Remote Services Report of the Supervisory Board Corporate Governance Report When it comes to competitiveness, a company's ability to access its equipment and systems quickly is a decisive factor. That's why we offer remote services to customers in ...

  • Page 58
    ... contract customers. At our Power Diagnostics Centers - located in Orlando, Florida and Erlangen, Germany - we monitor the operation of some 190 gas turbines around the world. Our Networking is driving remote services The remote maintenance segment - along with other associated support services - is...

  • Page 59
    ... the problem solved. The support offered by Siemens Remote Services is not limited to diagnosing and eliminating malfunctions, however. For instance, we are also a market leader in instrumentation and control system upgrades. specialists are called in only when necessary; and costly business trips...

  • Page 60
    Letter to our Shareholders Managing Board Fit4More Water Availability " Siemens is playing a vital role in Singapore's drive to become a global hydrohub." Kenneth Tan, Director, Services Cluster Singapore Economic Development Board 60

  • Page 61
    ... Presidents Business Areas Megatrends Water Report of the Supervisory Board Corporate Governance Report High population density and rapid economic growth characterize many megacities around the globe. While the demand for clean water is enormous in such teeming metropolitan areas, resources are...

  • Page 62
    ... investment entails making better use of municipal and industrial wastewater to help maintain the flow of clean water. To address these challenges, we acquired USFilter, giving us access to an innovative product portfolio of process technologies and services that includes more than 1,100 patented...

  • Page 63
    ... cubic meters of water per day. Innovative filtration and UV technologies from USFilter were used to treat wastewater at the plant, which went into operation in May 2000. After the plant's performance had been evaluated, the quality of the water it produced was assessed over a two-year period using...

  • Page 64

  • Page 65
    ... as on a number of specific issues. The Managing Board provided us with timely and comprehensive information on a regular basis. We were involved in major Company decisions. In addition to five regular meetings in fiscal 2005, we held two extraordinary telephone conferences and used a written voting...

  • Page 66
    ... in this business at several regular meetings and, in a telephone conference on June 6, 2005, decided to accept a Managing Board proposal to sell our mobile phone unit to Taiwan's BenQ. The Managing Board had sought a solution that would offer advantages for our employees and locations as well...

  • Page 67
    ... to explain their activities in detail. Between November 2004 and November 2005, the following Groups reported to the Supervisory Board: Automation and Drives, Siemens Financial Services, Medical Solutions, Siemens VDO Automotive, Communications, Power Generation, and Transportation Systems. 67

  • Page 68
    ..., and we received a report on its content and progress to date. The Supervisory Board regularly discusses Siemens' regional strategy. In 2005, we concentrated primarily on the Company's activities in the high-growth markets of North America and Asia-Pacific and in our European home market as well as...

  • Page 69
    ...with the Company's strategy and performance and with matters relating to corporate governance. Together with the independent auditors, the President of the Managing Board and the Chief Financial Officer, the Audit Committee discussed the Annual Financial Statements of Siemens AG and the Consolidated...

  • Page 70
    ... the Consolidated Financial Statements and MD&A fulfill the conditions for exemption from compliance with reporting rules under German law, and that the Managing Board has implemented an effective risk management system that meets all relevant legal requirements. The Managing Board provided us with...

  • Page 71
    ... me as President and Chief Executive Officer of Siemens AG at the close of the Annual Shareholders' Meeting on January 27 , 2005. Mr. Kleinfeld had already been appointed Vice President of the Managing Board on August 1, 2004. We wish him and the Managing Board every success for the future. The...

  • Page 72
    ... and advises the Managing Board in its management of Company business. At regular intervals, it discusses business development, planning, strategy and implementation. It also reviews Siemens' quarterly reports and approves the annual, stand-alone financial statements of Siemens AG, as well as...

  • Page 73
    ...the Company's quarterly reports, the annual, stand-alone financial statements of Siemens AG and the Consolidated Financial Statements of Siemens. The Managing Board cooperates closely with the Supervisory Board, informing it regularly, promptly and fully on all issues related to Company strategy and...

  • Page 74
    ... or sales of shares or options of Siemens AG if the total amount of transactions of a board member and any closely associated person is at least â,¬5,000 during any calendar year. The following transactions were executed in fiscal 2005 and reported to Siemens: Number of Securities 12,000 Price in...

  • Page 75
    ... Conduct Guidelines establish rules regarding compliance with applicable laws, conflicts of interest, the use of Company assets and facilities, and insider trading. These rules are binding for all Siemens employees, the Managing Board and the Supervisory Board. The Guidelines also specify procedures...

  • Page 76
    ... Stock Corporation Act requires Siemens AG to have a two-tier board structure consisting of a Managing Board and a Supervisory Board. The two-tier system provides a strict separation of management and supervision. Roles and responsibilities of each of the two boards are clearly defined by law. The...

  • Page 77
    Group Presidents Business Areas Megatrends Report of the Supervisory Board Corporate Governance Report Shareholder approval of equity compensation plans; stock repurchases - The NYSE Standards generally require U.S. domestic companies to obtain shareholder approval of all equity compensation ...

  • Page 78
    .... The Managing Board remuneration is performance-related. In fiscal year 2005 it had four components: (i) a fixed salary, (ii) a variable bonus that the Chairman's Committee may adjust by up to 20 percent of the amount of target attainment, (iii) stock-based compensation, and (iv) a pension benefit...

  • Page 79
    ...of Managing Board remuneration for fiscal year 2005 is stock-based compensation determined by the Chairman's Committee of the Supervisory Board. It consists of stock options issued under the terms of the 2001 Siemens Stock Option Plan as authorized by shareholders at the Annual Shareholders' Meeting...

  • Page 80
    ...Shareholders Managing Board Fit4More At its meeting on November 9, 2005, the Chairman's Committee of the Supervisory Board determined the bonus amounts and the number of stock awards and stock options to be granted, after assessing the attainment of the targets set at the start of the fiscal year...

  • Page 81
    ...stock awards were recorded at the market price of the Siemens stock on the date of commitment less the present value of dividends expected during the holding period, because awards are not eligible to receive dividends. The resulting value amounted to â,¬57 .28 (2004: â,¬55.63). For fiscal year 2005...

  • Page 82
    ...at a price of â,¬74.59 (2004: â,¬72.54) per share under the terms and conditions specified in the 2001 Siemens Stock Option Plan (for details see the Notes to Consolidated Financial Statements, pages 202 ff.). Effective January 27, 2005, Dr. Heinrich v. Pierer was elected to the Supervisory Board of...

  • Page 83
    Group Presidents Business Areas Megatrends Report of the Supervisory Board Corporate Governance Report Compensation Report Pension benefit commitments. With the realignment of the German pension plan of Siemens AG into a Defined Contribution Benefit Plan (BSAV), the system of defined benefits ...

  • Page 84
    ... at the Annual Shareholders' Meeting of January 27 , 2005. Details are set out in § 17 of the Articles of Association of Siemens AG. As a result, the remuneration of Supervisory Board members for fiscal year 2005 includes three components: â- â- â- a fixed compensation component, a short-term...

  • Page 85
    ... Board members was comprised of a fixed component, a variable component depending on the annual dividend, and a long-term component based on the development of the stock market price granted in the form of 1,500 stock appreciation rights (SARs) per year. On the grant date, the SARs had a fair value...

  • Page 86
    ... with Peter von Siemens was renewed after the Annual Shareholders' Meeting 2003 with unchanged terms and conditions under which he, as a member of the founder's family, is entitled to reimbursement of expenses and the provision of a company car and office with secretarial services for representing...

  • Page 87
    ... is taken out for one year and renewed annually. The insurance covers the personal liability of the insured in the case of a financial loss associated with employment functions. In such a case, the Company may, with effect from October 1, 2005, hold members of the Managing Board liable for such loss...

  • Page 88
    ... shareholders Management's discussion and analysis Business overview Basis of presentation Fiscal 2005 - Results of Siemens Segment information analysis Operations - Information and Communications - Automation and Control - Power - Transportation - Medical - Lighting - Other Operations - Corporate...

  • Page 89
    ...Statements of Cash Flow Consolidated Statements of Changes in Shareholders' Equity Notes to Consolidated Financial Statements 136 138 140 142 144 Statement of the Managing Board Independent auditors' report Five-year summary Supervisory Board Managing Board Glossary Index Siemens financial calendar...

  • Page 90
    ...earnings coming from Automation and Drives (A&D), Medical Solutions (Med), Power Generation (PG), Siemens VDO Automotive (SV) and Osram. In contrast, Group profit at Communications (Com) was significantly lower than in the prior year, Siemens Business Services (SBS) posted a substantial loss and the...

  • Page 91
    ..., conservative financial condition. Siemens is one of the most innovative companies in the world, holding more than 53,000 patents worldwide as well as numerous patent exchange and licensing agreements. Based on patent statistics, Siemens is number one in Germany, number two in Europe, and among...

  • Page 92
    .... We call this component of our business Operations. The Groups in Operations design, manufacture, market, sell, and service products and systems, or help customers use and manage those products and systems. A Group is equivalent to a reportable segment as defined by United States Generally...

  • Page 93
    ...(L&A)** Siemens Building Technologies (SBT) Power Generation (PG) Power Transmission and Distribution (PTD) Transportation Systems (TS) Siemens VDO Automotive (SV) Medical Solutions (Med) Osram Siemens Financial Services (SFS) Siemens Real Estate (SRE) Eliminations, reclassifications and Corporate...

  • Page 94
    Management's discussion and analysis Fiscal 2005 - Results of Siemens Fiscal 2005 - Results of Siemens The following discussion presents selected information for Siemens for the fiscal years ended: (â,¬ in millions) New orders New orders in Germany New international orders Sales Sales in Germany ...

  • Page 95
    ...Marketing, selling and general administrative expenses as percentage of sales Other operating income (expense), net Income from investments in other companies, net Income from financial assets and marketable securities, net Interest income (expense) of Operations, net Other interest income, net 2005...

  • Page 96
    ...Fiscal 2005 - Results of Siemens Segment information analysis Income from investments in other companies, net was â,¬584 million compared to â,¬1.031 billion in the prior year, which included the Infineon share sale gain of â,¬590 million. Income from financial assets and marketable securities, net...

  • Page 97
    ... the sale of a portion of Com's shares in Juniper. Com's enterprise business profitability declined compared to the prior-year, in part due to margin pressure associated with demand shifts in the corporate market toward wireless and web-based solutions. The earnings development of Fixed Networks was...

  • Page 98
    ..., sales and orders in fiscal 2005. Group profit rose 12% to â,¬1.210 billion, primarily due to strong profit growth at the Industrial Automation and Motion Control divisions. A&D also significantly expanded its business base, making two of Siemens' larger acquisitions of the fiscal year. The Group...

  • Page 99
    ... the Americas. Effective with the beginning of fiscal 2006, A&D includes Siemens' Electronics Assembly Systems division, which was formerly part of L&A. Industrial Solutions and Services (I&S) Year ended September 30, % Change (â,¬ in millions) Group profit Group profit margin Sales New orders 2005...

  • Page 100
    ... charges related to excess capacity and project cost overruns. Sales rose 4% to â,¬1.472 billion, including growing revenues in the Airport Logistics division. Orders climbed 12%, to â,¬2.015 billion, driven by a major order in the Postal Automation division. Siemens Building Technologies (SBT) Year...

  • Page 101
    ... Financial Statements Notes to Consolidated Financial Statements Power Power Generation (PG) Year ended September 30, % Change (â,¬ in millions) Group profit Group profit margin Sales New orders 2005 951 11.8% 8,061 10,964 2004 961 12.8% 7,527 9,243 7% 19% 3% 14% Actual (1)% Adjusted* Management...

  • Page 102
    ...the Group's rolling stock business, primarily related to the Combino low-floor trams but also for other projects. While sales for the year came in at â,¬4.190 billion, 3% below the prioryear level, orders rose 6%, to â,¬4.599 billion. TS continued to expand its orders outside its traditional markets...

  • Page 103
    ... of (2)% on sales and orders. Osram's Group profit in fiscal 2005 was â,¬465 million, up 4% year-over-year despite rising energy and materials costs. The Group responded with productivity increases and higher revenues from high-end products used in advanced lighting applications. Sales rose to...

  • Page 104
    Management's discussion and analysis Segment information analysis Other Operations Other Operations consist of centrally held equity investments, joint ventures and other operating businesses not related to a Group. With the announced carve-out of the Dematic businesses mentioned above, their ...

  • Page 105
    ... at SFS in fiscal 2005 was â,¬319 million, up from â,¬250 million a year earlier. The increase year-over-year was due primarily to a special dividend related to an investment, a gain from the sale of an investment, and a gain on a 51% stake in the real estate funds management business of Siemens...

  • Page 106
    ...-tax cost of debt and equity of Siemens and applying a risk-based factor which takes into account the specific risk associated with the particular business. The underlying assumptions of our EVA calculations are continuously reviewed. As a result of the shift in the market value debt-to-equity ratio...

  • Page 107
    ... Average Cost of Capital (WACC): WACC new Operations Groups Communications (Com) Siemens Business Services (SBS) Automation and Drives (A&D) Industrial Solutions and Services (I&S) Logistics and Assembly Systems (L&A) Siemens Building Technologies (SBT) Power Generation (PG) Power Transmission...

  • Page 108
    .... Economic Value Added (EVA) calculation For the fiscal years ended September 30, 2005 and 2004(1) Siemens 2005 2004 3,058 148 979 4,185 191 (1,094) 3,282 Sept. 30, 2005 Total assets Other asset related and miscellaneous reconciling items (see table segment information) Financial adjustments Pension...

  • Page 109
    ... Consolidated Financial Statements Dividend Siemens AG, the parent company of businesses discussed in this report, recorded net income under German accounting principles (HGB) of â,¬1.451 billion for fiscal 2005 compared to â,¬2.181 billion in the previous year. At the Annual Shareholders' Meeting...

  • Page 110
    .... To support business growth, capital expenditures in Operations increased year-over-year and SFS had higher cash outflows for investing activities primarily due to a build-up of leasing assets. For Siemens, net cash used in investing activities from continuing operations in fiscal 2005 was â,¬5.706...

  • Page 111
    ... by a conservative capital structure that gives us excellent financial flexibility. Ratings Management's discussion and analysis Our current corporate credit ratings from Moody's Investors Service and Standard & Poor's are noted below: Moody's Investors Service Long-term debt Short-term debt Aa3...

  • Page 112
    ... Company, except in countries where local capital controls require otherwise. At September 30, 2005, Corporate Treasury managed approximately 81% of Siemens' cash and cash equivalents. Corporate Treasury carefully manages investments of cash and cash equivalents subject to strict credit requirements...

  • Page 113
    ... 44.5 million shares of Siemens AG at a conversion price of â,¬56.1681 per share, which is subject to change under certain circumstances. The conversion right is contingently exercisable by the holders upon the occurrence of one of several conditions, including, upon the Company's share price having...

  • Page 114
    ... support. Our Corporate Treasury has primary responsibility for raising funds in the capital markets for the entire Company, including the Financing and Real Estate component, except in countries with conflicting capital market controls. In these countries, the relevant Siemens subsidiary companies...

  • Page 115
    ... credit ratings of the rating agencies and by the expected size and quality of its portfolio of leasing and factoring assets and equity investments and is determined annually. This allocation is designed to cover the risks of the underlying business and is in line with common credit risk management...

  • Page 116
    ... Financial Statements." Pension plan funding The projected benefit obligation (PBO) of Siemens' principal pension plans, which considers future compensation increases, amounted to â,¬25.0 billion on September 30, 2005 compared to â,¬20.8 billion on September 30, 2004. The fair value of plan assets...

  • Page 117
    ... continue to review the need for the implementation of similar plan designs outside Germany in the coming years to better control future benefit obligations and related costs. For more information on Siemens pension plans, see "Notes to Consolidated Financial Statements." Management's discussion and...

  • Page 118
    ...driven by growing business volume as well as acquisitions. Other current assets totaled â,¬5.230 billion at the end of fiscal 2005 and include VA Tech's hydropower activities which will be sold to comply with a European antitrust ruling. Long-term assets at the respective balance sheet dates were as...

  • Page 119
    ... balance sheet dates were as follows: September 30, (â,¬ in millions) Short-term debt and current maturities of long-term debt Accounts payable Accrued liabilities Deferred income taxes Liabilities held for sale Other current liabilities Total current liabilities Long-term debt Pension plans and...

  • Page 120
    ... such reviews in support of the Corporate Executive Committee. At a minimum, a customer's credit rating must be single B from the rating agencies, or an equivalent SFS-determined rating. In cases where the credit quality does not meet such standards, we recognize revenue for long-term contracts...

  • Page 121
    ... long-term historical returns, asset allocation, and future estimates of long-term investment returns. Other key assumptions for our pension and postretirement benefit costs and credits are based in part on current market conditions. Pension and related postretirement benefit costs or credits could...

  • Page 122
    ... of our current funding status and the impact of these critical assumptions, see "Notes to Consolidated Financial Statements." Accruals - Significant estimates are involved in the determination of provisions related to contract losses and warranty costs. A significant portion of the business of...

  • Page 123
    ...of how we plan and execute our business strategies, our risk management policy is set by the Corporate Executive Committee (a committee of the Managing Board that includes both the CEO and CFO). Siemens' organizational and accountability structure requires each of the respective Group managements to...

  • Page 124
    .... To meet our customers' needs in these businesses, we must continuously design new, and update existing, products and services and invest in and develop new technologies. This is especially true for our Groups Com, SBS, Med and SV. For example, Com is continuously involved in developing marketable...

  • Page 125
    ... in relation to our production facilities, which are located all over the world and have a high degree of organizational and technological complexity. From time to time, some of the products we sell have quality issues resulting from the design or manufacture of such products, or from the software...

  • Page 126
    ... other trade barriers and price or exchange controls could impact our sales and profitability and make the repatriation of profits difficult. In addition, the uncertainty of the legal environment in some regions could limit our ability to enforce our rights. We expect that sales to emerging markets...

  • Page 127
    ... for Siemens. Our international operations, financing activities and investments expose us to financial market risks from changes in foreign currency exchange rates, interest rates and equity prices from our marketable securities in the ordinary course of business. Our objective for managing such...

  • Page 128
    ... member of the Managing Board and has the specific responsibility for our financial market risk management. The Managing Board retains ultimate accountability but for practical business purposes delegates responsibilities to central functions and to the business Groups. Siemens uses the "sensitivity...

  • Page 129
    ... exchange rates can impact sales prices and may lead to margin changes, the extent of which is determined by the matching of foreign currency revenues and expenses. Effects of currency translation Many of our subsidiaries are located outside the euro zone. Since our financial reporting currency...

  • Page 130
    ... Financial Reporting Standards (IFRS) Interest rate exposure Our interest rate exposure results mainly from debt obligations and interest bearing investments. We measure interest rate risk using either fair value sensitivity or cash flow sensitivity depending on whether the instrument has a fixed...

  • Page 131
    ...the European Union. Accordingly, the latter particularly applies to companies listed on the New York Stock Exchange (such as Siemens) and which prepare their consolidated financial statements under U.S. GAAP. In Germany, the Bilanzrechtsreformgesetz (BilReG) implemented the option to defer mandatory...

  • Page 132
    .... Pension accounting - Fresh start - In accordance with IFRS 1, First-time Adoption of Inter- national Financial Reporting Standards, Siemens will not retrospectively apply the provisions of IAS 19 Employee Benefits to its defined benefit (DB) pension plans since their respective inception dates...

  • Page 133
    ... in currency exchange rates and interest rates, introduction of competing products or technologies by other companies, lack of acceptance of new products or services by customers targeted by Siemens, changes in business strategy and various other factors. More detailed information about certain...

  • Page 134
    ... of compliance with the policies or procedures may deteriorate. Management's assessment of the effectiveness of Siemens' internal control over financial reporting as of September 30, 2005 excludes, in accordance with applicable guidance provided by the Securities and Exchange Commission, various...

  • Page 135
    Siemens management assessed the effectiveness of the company's internal control over financial reporting, in accordance with the requirements of SOA 404, as of September 30, 2005. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway ...

  • Page 136
    ...analysis Consolidated Statements of Income For the fiscal years ended September 30, 2005 and 2004 (in millions of â,¬, per share amounts in â,¬) Siemens Note Net sales Cost of sales Gross profit on sales Research and development expenses Marketing, selling and general administrative expenses Other...

  • Page 137
    ... Financial Statements Consolidated Statements of Income Notes to Consolidated Financial Statements Eliminations, reclassifications and Corporate Treasury 2005 (1,677) 1,677 - - (1) (87) - 92 - 294 298 (70) - 228 - 228 2004 (1,517) 1,517 - - (1) (76) - 24 - 277 224 (39) - 185 - 185 Operations 2005...

  • Page 138
    ... 30, 2005 and 2004 (in millions of â,¬) Siemens Note Assets Current assets Cash and cash equivalents Marketable securities Accounts receivable, net Intracompany receivables Inventories, net Deferred income taxes Assets held for sale Other current assets Total current assets Long-term investments...

  • Page 139
    ... Consolidated Balance Sheets Notes to Consolidated Financial Statements Eliminations, reclassifications and Corporate Treasury 9/30/05 9/30/04 Operations 9/30/05 9/30/04 Financing and Real Estate 9/30/05 9/30/...,454 24,920 67,927 1,903 13,304 1,935 11,934 139 Consolidated Financial Statements

  • Page 140
    ...stock Repayment of debt Change in short-term debt Dividends paid Dividends paid to minority shareholders Intracompany financing Net cash provided by (used in) financing activities Effect of exchange rates on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash...

  • Page 141
    Consolidated Financial Statements Consolidated Statements of Cash Flow Notes to Consolidated Financial Statements Eliminations, reclassifications and Corporate Treasury 2005 228 - - (5) - - - - - 148 (28) 113 (1) (39) (332) - (47) 37 37 - - - (12) (81) 28 - - 20 (45) (45) - - - (596) 1,065 - - (5,...

  • Page 142
    Management's discussion and analysis Consolidated Statements of Changes in Shareholders' Equity For the fiscal years ended September 30, 2005 and 2004 (in millions of â,¬) Common stock Balance at October 1, 2003 Net income Change in currency translation adjustment Change in unrealized gains and ...

  • Page 143
    ...Shareholders' Equity Notes to Consolidated Financial Statements Cumulative translation adjustment (827) - (249) - (249) - - - - (1,076) - 483 - 483 - - - - (593) Accumulated other comprehensive income (loss) AvailableMinimum for-sale Derivative pension securities instruments... shares at cost ...

  • Page 144
    ...) Power Transmission and Distribution (PTD) Transportation Systems (TS) Siemens VDO Automotive (SV) Medical Solutions (Med) Osram Other Operations(7) Total Operations Groups Reconciliation to financial statements Corporate items, pensions and eliminations Other interest expense Other assets related...

  • Page 145
    ...(1) Net capital employed(2) 9/30/05 1,883 296 3,570 1,563 302 1,453 2,625 1,869 584 3,823 3,685 2,065 1,639 25,357 (3,690) - 59,787 9/30/04 2,134 632 1,951 1,003 501 1,359 1,997 1,162 49 3,542 3,173 2,011 1,708 21,222 (3,116) - 49,821 Net cash from operating and investing activities 2005 655 (258...

  • Page 146
    ... and reported its Consolidated Financial Statements in euros (â,¬). Siemens is a German based multinational corporation with a balanced business portfolio of activities predominantly in the field of electronics and electrical engineering (for further information see Note 30). In order to comply...

  • Page 147
    ...euro countries used in the preparation of the Consolidated Financial Statements were as follows: Year-end exchange rate 1 â,¬ quoted into currencies specified below September 30, Currency Swiss francs British pound U.S. Dollar ISO Code CHF GBP USD 2005 1.556 0.682 1.204 2004 1.554 0.686 1.233 Annual...

  • Page 148
    ... over the lease term. Interest income from capital leases is recognized using the interest method. Sales of goods or services sometimes involve the provision of multiple elements. In these cases, the Company applies the guidance in Emerging Issues Task Force (EITF) 00-21 Revenue Arrangements with...

  • Page 149
    ... value are recorded at cost. Available-for-sale marketable securities and investments which incur a decline in value below cost that is judged to be other than temporary are considered impaired. The Company considers all available evidence such as market conditions and prices, investee-specific...

  • Page 150
    ... future cash flows. Long-lived assets to be disposed of by sale are recorded at the lower of carrying amount or fair value less costs to sell and depreciation is ceased (see below Accounting changes - Standards implemented for information regarding the adoption of Statements of Financial Accounting...

  • Page 151
    ...quoted market price at grant date over the amount an employee must pay to acquire the stock. The following table illustrates the effect on net income and earnings per share if the fair value based method of SFAS 123 had been applied to all awards: Year ended September 30, 2005 Net income As reported...

  • Page 152
    ... D), as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Part D. In accordance with FASB Staff Position (FSP) FAS 106-1, management elected to defer any accounting for the effects of the Act on the...

  • Page 153
    ... reporting date until the award is settled. Equity-classified awards are measured at grant-date fair value whereas related compensation cost is recognized based on the estimated number of instruments for which the requisite service is expected to be rendered. In April 2005, the SEC issued a release...

  • Page 154
    ... ranging from one to seven years. In order to comply with a European antitrust ruling, the VA Tech power generation business which includes the hydropower activities will be sold. Since the hydropower business is subject to a regulatory hold separate agreement and Siemens has no influence over the...

  • Page 155
    ... a power engineering company and designer of specialized electrical products; BBC Technology Holdings Ltd., UK, an IT services business for the media industry primarily serving BBC; and the Huntsville, Alabama, USA business group of an automotive electronics manufacturer. The combined purchase price...

  • Page 156
    ... discontinued operations (MD including SSMC and Deferred Countries) for current and prior periods are reported in the Income Statement in Income (loss) from discontinued operations, net of income taxes. In fiscal 2005 and 2004, the Disposal Group's net sales were â,¬3,374 and â,¬4,979, respectively...

  • Page 157
    ... for fiscal 2005 and 2004 includes the Company's at-equity-share in Infineon Technologies AG's (Infineon) net income (loss) of â,¬ - and â,¬14, respectively. As discussed in Note 9, the Company commenced accounting for its investment in Infineon as a marketable security at fair value during fiscal...

  • Page 158
    ... consisting of interest relating to debt and related hedging activities, as well as interest income on corporate assets. 8 Income taxes Income from continuing operations before income taxes is attributable to the following geographic regions: Year ended September 30, 2005 Germany Foreign 521 3,664...

  • Page 159
    Consolidated Financial Statements Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) For fiscal year ended September 30, 2005 and September 30, 2004, the Company was subject to German federal corporation tax at a base rate of 25% ...

  • Page 160
    ... Other Current deferred tax liabilities Current deferred tax (liability) assets, net Non-current assets: Long-term investments Intangibles Property, plant and equipment Retirement plans Accrued liabilities Liabilities Tax loss and credit carryforward Other Total non-current deferred tax assets...

  • Page 161
    ... over the periods which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences, after giving effect to related valuation allowances. The Company provides for income taxes or foreign withholding...

  • Page 162
    ...the current portion of the Company's investment in available-for-sale securities: September 30, 2005 Unrealized Fair Value Gain Loss 1,695 80 14 1,789 388 1 - 389 1 - - 1 Cost Equity securities Debt securities Fund securities 1,308 79 14 1,401 Cost Equity securities Debt securities Fund securities...

  • Page 163
    ... Infineon's operating and financial policies. As a result, the Company ceased accounting for Infineon under the equity method (see Note 5) and began reporting its interest as an available-for-sale marketable security at fair value. Of the 150 million shares sold, 86,292,363 shares represented all of...

  • Page 164
    ...financing and sales-type leases primarily relates to equipment for information and communication products, data processing and medical engineering equipment. Investments in direct financing leases also include leases of industrial and consumer products of third party manufacturers. Actual cash flows...

  • Page 165
    Consolidated Financial Statements Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 12 Other current assets September 30, 2005 Taxes receivable Loans receivable Other receivables from associated and related companies Other 1,247 ...

  • Page 166
    ... and Services (I&S) Logistics and Assembly Systems (L&A) Siemens Building Technologies (SBT) Power Generation (PG) Power Transmission and Distribution (PTD) Transportation Systems (TS) Siemens VDO Automotive (SV) Medical Solutions (Med) Osram Financing and Real Estate Siemens Financial Services (SFS...

  • Page 167
    ...future cash flows. 15 Other intangible assets, net Amortization during fiscal year 2005 410 306 716 Notes to Consolidated Financial Statements ing competition, particularly in the U.S., led to reductions in estimated future cash flows and 10/1/04 Software Patents, licenses and similar rights Other...

  • Page 168
    ... further information), updated undiscounted cash flow projections based on revised operating plans were used to determine whether the long-lived assets and cash generating units of these businesses were impaired. Discounted cash flows were then used to estimate the fair value of the assets and units...

  • Page 169
    ... of receivables from sales and finance leases (see Note 10) Prepaid pension assets Long-term loans receivable Other 2,899 166 736 1,463 5,264 2004 2,309 442 584 1,631 4,966 18 Accrued liabilities Thereof current portion: September 30, 2005 Employee related costs Product warranties Income and other...

  • Page 170
    ...19 Other current liabilities September 30, 2005 Billings in excess of costs and estimated earnings on uncompleted contracts and related advances Payroll and social security taxes Bonus obligations Sales and other taxes Deferred income Liabilities to associated and related companies Accrued interest...

  • Page 171
    ... Financial Statements Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) The Company also has agreements with financial institutions under which it may issue up to â,¬5.0 billion in medium-term notes. As of September 30, 2005...

  • Page 172
    ... trading days ending on the last trading day of any calendar quarter. This condition was met in the first quarter of fiscal 2004. The Company may, at any time from June 18, 2007 , redeem the notes outstanding at their principal amount together with interest accrued thereon, if Siemens' share price...

  • Page 173
    ...made by the Company. In order to fund Siemens' pension obligations, the Company's major pension plans are funded with assets in segregated pension entities. Furthermore, there are other postretirement benefits, which primarily comprise transition payments to German employees after retirement as well...

  • Page 174
    ...The accrued benefit cost is equal to the PBO when the assumptions used to calculate the PBO such as discount rate, compensation increase rate and pension progression rate are achieved. In the case of funded plans, the market value of the external assets is offset against the benefit obligations. The...

  • Page 175
    ... or market related value of plan assets, they are amortized over the remaining service period of the active employees as a separate component of NPPC. In the Consolidated Statements of Income, NPPC is allocated among functional costs (cost of sales, research and development, marketing, selling and...

  • Page 176
    ... in each country. In fiscal 2004, Siemens AG and the majority of its domestic affiliates implemented a new pension plan covering virtually all active employees in Germany, BSAV (Beitragsorientierte Siemens Altersversorgung). These benefits are funded by the assets of a new trust. In connection...

  • Page 177
    ... of the PBO and fair value of plan assets of the Company's domestic pension benefit plans is September 30, and either September 30 or June 30 for the majority of its foreign plans. For plans with a measurement date of June 30, the actual investment return of the plan assets relate to the period from...

  • Page 178
    ... of year Foreign currency exchange rate changes Service cost Interest cost Settlements and curtailments Plan participants' contributions Amendments and other Actuarial (gains) losses, net Acquisitions Divestments Benefits paid Projected benefit obligation at end of year Germany U.S. U.K. Other...

  • Page 179
    ... Foreign currency exchange rate changes Actual return on plan assets Acquisitions and other Divestments and other Employer contributions (supplemental) Employer contributions (regular) Plan participants' contributions Benefits paid Fair value of plan assets at end of year Germany U.S. U.K. Other 17...

  • Page 180
    ...30, 2005 totaled â,¬2,749. Excluding the AML adjustment, the Company has a net prepaid pension asset of â,¬7 ,884, primarily related to the transfer of Infineon shares to the domestic pension plans in fiscal 2001 and from the supplemental funding of the domestic pension plans in the past years. This...

  • Page 181
    ...363 (341) For the Siemens German Pension Trust, the determination of the expected return on plan assets and the amortization of unrecognized net losses are based on a market-related value of plan assets calculated using the average of historical market values of plan assets over four quarters. This...

  • Page 182
    ...rates, compensation increase rates and pension progression rates used in calculating the PBO together with long-term rates of return on plan assets vary according to the economic conditions of the country in which the retirement plans are situated or where plan assets are invested as well as capital...

  • Page 183
    ... reflect the rates available on high-quality, fixed-income investments of appropriate duration at the measurement date of each plan. The expected return on plan assets is determined on a uniform basis, considering long-term historical returns, asset allocathe table above, such as employee turnover...

  • Page 184
    ... rate Expected return on plan assets Rate of compensation increase Rate of pension progression Market-related value of plan assets (255) (200) 48 265 (68) 328 200 (44) (221) 68 Increases and decreases in the discount rate, rate of compensation increase and rate of pension progression which are used...

  • Page 185
    ...affect asset values in order to initiate appropriate measures at a very early stage. Pension benefits: Pension Plan Funding Notes to Consolidated Financial Statements instrument whose risk is hedged by a derivative is not reported as equity but under cash. Current Contributions made by the Company...

  • Page 186
    ... to the difference between their final compensation and the retirement benefits payable under the corporate pension plan. Certain foreign companies, primarily in the U.S., provide other postretirement benefits in the form of medical, dental and life insurance. The amount of obligations for other...

  • Page 187
    ... to Consolidated Financial Statements 2005 and 2004: September 30, 2005 Total Domestic Foreign Change in accumulated postretirement benefit obligations: Accumulated postretirement benefit obligation at beginning of year Foreign currency exchange rate changes Service cost Interest cost Settlements...

  • Page 188
    ... those utilized for domestic pension benefit plans. The weighted-average assumptions used in calculating the actuarial values for the postretirement healthcare and life insurance benefits, primarily in the U.S., are as follows: Year ended September 30, 2005 Discount rate Medical trend rates (initial...

  • Page 189
    ... in health care expense. A one-percentage-point change in the healthcare trend rates would have resulted in the following increase/(decrease) of the accumulated postretirement benefit obligation and the service and interest cost as of and for the year ended September 30, 2005: September 30, 2005 One...

  • Page 190
    Management's discussion and analysis 22 Other accruals and provisions September 30, 2005 Product warranties Asset retirement obligations Deferred income Other long-term accruals 796 499 324 3,200 4,819 2004 728 478 356 2,454 4,016 The Company is subject to asset retirement obligations related to ...

  • Page 191
    ... year-end (thereof current portion of â,¬43 and â,¬74) 552 12 (62) 28 12 542 2004 592 4 (87) 28 15 552 23 Shareholders' equity Common stock and Additional paid-in capital As of September 30, 2005, the Company's common stock totaled â,¬2,673 divided into 891,085 thousand shares with no par value...

  • Page 192
    ... shares and 145 thousand shares, respectively, from the conditional capital as settlement to former shareholders of Siemens Nixdorf Informationssysteme AG (SNI AG). Authorized, unissued capital In each of the years ended September 30, 2005 and 2004, the Company's authorized but unissued capital...

  • Page 193
    ...above, Conditional Capital 2003 was terminated by resolution of the Annual Shareholders' Meeting on January 22, 2004. Treasury stock Notes to Consolidated Financial Statements rights (convertible bonds) or with warrants entitling the holders to subscribe to new shares of At the January 2005 Annual...

  • Page 194
    ... to shareholders is based upon the earnings of Siemens AG as reported in its statutory financial statements determined in accordance with the German Commercial Code (Handelsgesetzbuch). During the fiscal year ended September 30, 2005, Siemens AG management distributed an ordinary dividend of...

  • Page 195
    ... to pay such financial obligations. In addition, Siemens provides credit guarantees generally as credit-line guarantees with variable utilization to associated and related companies. The maximum amount of these guarantees is subject to the outstanding balance of the credit or, in case where a credit...

  • Page 196
    ... rates, as well as to reduce credit risks. The following is a summary of Siemens' risk management strategies and the effect of these strategies on the Consolidated Financial Statements. Foreign currency exchange risk management Siemens' significant international operations expose the Company...

  • Page 197
    ... exchange contracts that were designated as foreign-currency fair value hedges of future sales related primarily to the Company's project business and, to a lesser extent, purchases. As of September 30, 2005 and 2004, the hedging transactions resulted in the recognition of an Other current asset...

  • Page 198
    ...the time of termination, and usually represents the net present value, at current rates of interest, of the remaining obligations to exchange payments under the terms of the contract. Derivative financial instruments not designated as hedges The Company uses a portfolio-based approach to manage its...

  • Page 199
    ...cash flows using current market interest rates and yield curve over the remaining term of the instrument. Interest rate options are valued on the basis of quoted market prices or on estimates based on option pricing models. 199 Notes to Consolidated Financial Statements Siemens Financial Services...

  • Page 200
    ...these instruments. Financial assets and securities Fair values for marketable securities and publicly traded, long-term equity investments are derived from quoted market prices. It is not practicable to estimate the fair value of the Company's long-term investments which are not publicly traded, as...

  • Page 201
    ... to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) Debt The fair value of debt is estimated by discounting future cash flows using rates currently available for debt of similar terms and remaining maturities. As of September 30, 2005 and...

  • Page 202
    ... by the Managing Board in each case as approved by the Supervisory Board. Compensation in cash shall be equal to the difference between the exercise price and the opening market price of the Company's stock on the day of exercising the stock options. As a result of its design, the new plan has no...

  • Page 203
    ...Fair value information The Company's determination of the fair value of grants is based on a Black-Scholes option pricing model. The fair value of grants made during the years ended September 30, 2005 and 2004, are as follows: Assumptions at grant date 2005 Risk-free interest rate Expected dividend...

  • Page 204
    ... price and a weighted average remaining life of 3 years. Stock awards In the first quarter of fiscal 2005, the Company introduced stock awards and phantom stock as another means for providing stock-based compensation to members of the Managing Board and other eligible employees. Stock awards...

  • Page 205
    ... to the Managing Board. 16,460 awards forfeited in fiscal 2005, resulting in a year-end balance of 1,136,048 awards. Stock awards are accounted under the fair value recognition provisions of SFAS 123. Fair value was determined as the market price of Siemens shares less the present value of dividends...

  • Page 206
    ... employees were engaged in the following activities: Year ended September 30, 2005 Manufacturing and Services Sales and marketing Research and development Administration and general services 243,100 110,300 45,700 40,300 439,400 2004 226,200 104,600 43,500 38,100 412,400 29 Earnings per share Year...

  • Page 207
    ...of accepted purchase orders and order value changes and adjustments, excluding letters of intent. Operations Notes to Consolidated Financial Statements The accounting policies of these components, as well as the Groups included, are generally the The Managing Board is responsible for assessing the...

  • Page 208
    ... over time. In January 2004, the Company sold 150 million shares of Infineon (see Notes 5 and 9). Reconciliation to financial statements Reconciliation to financial statements includes items which are excluded from definition of Group profit as well as costs of corporate headquarters. Corporate...

  • Page 209
    ... expected return on plan assets which was primarily attributable to supplemental contributions at the beginning of fiscal 2005. Pensions in fiscal 2004 declined primarily due to service costs of domestic pension plans directly attributable to the Groups which were reported in Corporate items in...

  • Page 210
    ... and sells a full-range portfolio, from devices for end users to complex network infrastructure for enterprises and carriers as well as related services including convergent technologies, products and services for wireless, fixed and enterprise networks. For information on the Company's discontinued...

  • Page 211
    ... resonance, molecular imaging, ultrasound and radiology devices, and hearing instruments, as well as information technology systems for clinical and administrative purposes. It provides technical maintenance, professional and consulting services. Osram - Osram designs, manufactures and sells a full...

  • Page 212
    ... disposals, asset management, and lease and service management. 31 Geographic information The following table presents data by geographic region as of and for the years ended September 30, 2005 and 2004: Sales by location of customer 2005 Germany Europe (other than Germany) U.S. Americas other than...

  • Page 213
    ... and report concerning internal control over financial reporting, reviews of interim financial statements, as well as audits of statutory financial statements of Siemens AG and its subsidiaries. Also included in Audit Fees are amounts for attestation services in relation to regulatory filings and...

  • Page 214
    ... Board The Managing Board of Siemens AG is responsible for preparing the following consolidated financial statements and management's discussion and analysis. Siemens employs extensive internal controls, company-wide uniform reporting guidelines and additional measures, including employee training...

  • Page 215
    ...30, 2005 and 2004, and the related consolidated statements of income, cash flows and changes in shareholders' equity for each of the years then ended. We also have audited management's assessment, included in the report on internal control over financial reporting in this report, that Siemens AG and...

  • Page 216
    ... of compliance with the policies or procedures may deteriorate. Management's assessment of the effectiveness of Siemens' internal control over financial reporting as of September 30, 2005 excludes, in accordance with applicable guidance provided by the Securities and Exchange Commission, various...

  • Page 217
    ... to the auditing procedures applied in the audits of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole. Munich, Germany November 23, 2005 KPMG Deutsche Treuhand-Gesellschaft...

  • Page 218
    ...,775 19,836 4,730 6.8 2,355 2,445 Assets, liabilities and shareholders' equity (in millions of euros) Current assets Current liabilities Debt Long-term debt Net debt(2) Pension plans and similar commitments Shareholders' equity as a percentage of total assets Total assets 2005 46,803 39,833 12,435...

  • Page 219
    ... (September 30) Siemens stock performance over prior year (in percentage points) Compared to DAX index Compared to Dow Jones STOXX index Number of shares (in millions) Market capitalization at period-end (in millions of euros)(9) Credit rating of long-term debt Standard & Poor's Moody's 2005 1,311...

  • Page 220
    ... positions outside Germany: GUS plc, UK HSBC Holdings plc, UK Hildegard Cornudet Chairwoman of the Central Works Council, Siemens Business Services GmbH & Co. OHG Date of birth: 4/16/1949 Member since: 4/1/2004 Gerhard Cromme, Dr. jur. Chairman of the Supervisory Board, ThyssenKrupp AG Date of birth...

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    ... Financial Statements Supervisory Board Members Committees Supervisory Board committees The Supervisory Board of Siemens AG has established four standing committees. Information on their activities in fiscal 2005 is provided on pages 68-69 of this Annual Report. Committees Meetings in FY 2005...

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    ... Officer, Siemens AG (as of the close of the Annual Shareholders' Meeting on 1/27/2005) Date of birth: 11/6/1957 First appointed: 12/1/2002 Term expires: 9/30/2007 External positions German supervisory board positions: Bayer AG, Leverkusen Comparable positions outside Germany: Alcoa Inc., USA...

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    ... meetings of the Managing Board. Committee Responsible for the Issuance of Employee Stock 0 meetings, 1 decision by notational voting using written circulations 0 meetings, 2 decisions by notational voting using written circulations This Committee oversees the utilization of authorized capital...

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    ...rate of earnings expected on plan assets. American depositary receipts (ADRs) Asset management B Benchmarking Business portfolio Captive finance unit Cash flow Cash management Commercial paper Consolidated financial statements Corporate Treasury C D Cost of capital Debt-to-equity ratio Deferred...

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    ... with then current goals and prevailing market conditions. German GAAP Goodwill Group profit H Hedging J Joint venture M Medium-term note program N Moody's Investors Service Independent rating agency that assesses securities investment and credit risk. Net capital employed Net cash from...

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    ... financial instruments Dividend Earnings per share Employees EVA performance Expected return on plan assets Fair value Financial accounting Financial highlights Financial reporting Fit4More Foreign currency exchange and interest rate risks Funded status of pension plan Glossary Goodwill Guarantees...

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    ...Risk management Sales by region Segment information Shareholders' equity Siemens Building Technologies (SBT) Siemens Business Services (SBS) Siemens financial calendar Siemens Financial Services (SFS) Siemens Real Estate (SRE) Siemens share Siemens VDO Automotive (SV) Statement of the Managing Board...

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    Siemens financial calendar Siemens financial calendar* First-quarter financial report Annual Shareholders' Meeting Olympiahalle, Munich, 10:00 a.m. Ex-dividend date Second-quarter financial report and Semiannual Press Conference Third-quarter financial report Preliminary figures for fiscal year / ...

  • Page 229
    ...one at year-end - as well as an annual analyst conference give journalists and analysts additional opportunities to review developments in our businesses. The financial reports for the first three quarters are also comAddress Siemens AG Wittelsbacherplatz 2 D-80333 Munich Federal Republic of Germany...

  • Page 230
    ...Hannes Apitzsch Peter Drexel Anton S. Huber Power Power Generation (PG) Klaus Voges Ralf Guntermann Norbert König Randy H. Zwirn Transportation Transportation Systems (TS) Hans M. Schabert Alfred Frank Jörn F. Sens Friedrich Smaxwil Siemens Business Services GmbH & Co. OHG (SBS) Christoph Kollatz...

  • Page 231
    ...Med Claus Weyrich Head of CT Corporate Centers Corporate Communications (CC) Janos Gönczöl Corporate Information Office (CIO) Volkhart P. Matthäus Global Procurement and Logistics (GPL) Bernd Regendantz Global Government Affairs (GA) Harald Braun Management Consulting Personnel (MCP) Karl-Heinz...

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    s Global network of innovation Siemens Aktiengesellschaft Order no. A19100-F-V67-X-7600