Siemens 2005 Annual Report Download - page 116

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Off-balance sheet arrangements
Guarantees – Guarantees are principally represented by credit guarantees and guarantees of
third-party performance. As of September 30, 2005, the undiscounted amount of maximum
potential future payments for guarantees was €1.793 billion. Credit guarantees cover the financial
obligation of third-parties in cases where Siemens is the vendor and/or contractual partner. In
addition, Siemens provides credit line guarantees with variable utilization to associated and
related companies. The total amount for credit guarantees was €362 million as of September 30,
2005. Performance bonds and guarantees of advanced payments guarantee the fulfillment of
contractual commitments of partners in a consortium where Siemens may be the general or sub-
sidiary partner. In the event of non-performance under the contract by the consortium partner(s),
Siemens will be required to pay up to an agreed-upon maximum amount. Guarantees of third-
party performance amounted to €829 million as of September 30, 2005. Furthermore, the Com-
pany has provided indemnification in connection with dispositions of certain business entities,
which protects the buyer from certain tax, legal, and other risks related to the purchased business
entity. These other guarantees were €602 million as of September 30, 2005. In the event that it
becomes probable that Siemens will be required to satisfy these guarantees, provisions are estab-
lished. Such provisions are established in addition to the liabilities recognized for the non-con-
tingent component of the guarantees. Most of the guarantees have fixed or scheduled expiration
dates, and in practice such guarantees are rarely drawn. For additional information with respect
to our guarantees, see “Notes to Consolidated Financial Statements.”
Variable Interest Entities – The Company holds variable interests in various Variable Interest
Entities (VIEs), which are not significant either individually or in the aggregate. The impact of
consolidating certain of these VIE’s on the Company’s financial statements was not material. For
additional information on VIE’s, see “Notes to Consolidated Financial Statements.”
Pension plan funding
The projected benefit obligation (PBO) of Siemens’ principal pension plans, which considers
future compensation increases, amounted to €25.0 billion on September 30, 2005 compared to
€20.8 billion on September 30, 2004. The fair value of plan assets as of September 30, 2005 was
€21.5 billion compared to €17.7 billion on September 30, 2004. The measurement dates for the
valuation of certain Siemens pension funds, particularly our funds in the U.S. and U.K., do not
coincide with the end of our fiscal year. While the return over the last twelve months amounted to
12.4% or €2.392 billion, the aggregate return on plan assets between the last measurement dates
amounted to 11.9% or €2.289 billion. On September 30, 2005, the combined funding status of
Siemens principal pension plans showed an underfunding of €3.5 billion compared to an under-
funding of approximately €3.1 billion at the end of the prior fiscal year. A reduction in the dis-
count rate assumption at September 30, 2005 increased Siemens’ PBO. This more than offset an
increase in plan assets resulting from supplemental and regular contributions, plus the higher
than expected actual return on plan assets.
Management’s discussion and analysis
Liquidity and capital resources