Siemens 2005 Annual Report Download - page 129

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The following table shows the break-down by currency of the underlying net foreign exchange
transaction exposure as of September 30, 2005 (in some of the currencies, especially in the U.S.
dollar, Siemens has both substantial sales, as well as costs, which have been netted in the table):
Our group-wide guidelines require each entity to monitor and manage their foreign currency
transaction exposure. Based on a guideline developed by our Corporate Finance department, the
entities are required to hedge operational foreign currency transaction exposure of at least 75%
of the total net currency position. The values presented in the foreign currency exchange risk
disclosure made in this document are the unhedged positions multiplied by an assumed 10%
appreciation of the euro against all currencies. In determining our foreign exchange rate sensi-
tivity, we aggregate the net foreign exchange rate exposure of the Operations and Financing and
Real Estate Groups and Corporate Treasury. At September 30, 2005, a parallel 10% negative alter-
ation of all foreign currencies would have resulted in a decline in euro value of €35 million in
future cash flows whereas such 10% alteration at September 30, 2004 would have resulted in a
decline in euro value of €61 million in future cash flows. Such decline in euro values of future
cash flows might reduce the unhedged portion of revenues but would also decrease the unhedged
portion of cost of materials. Because our foreign currency inflows exceed our outflows, an appre-
ciation of the euro against foreign currencies, particularly the U.S. dollar, would have a negative
financial impact to the extent that future sales are not already hedged. Future changes in the for-
eign 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 curren-
cy is the euro, we translate the income statements of these subsidiaries into euros so that we can
include their financial results in our Consolidated Financial Statements. To address the effects of
foreign exchange translation risk in our risk management, our working assumption is that
investments in our foreign-based operations are permanent and that reinvestment is continual.
Whenever a divestment of a particular asset or entity is made, we incorporate the value of this
transaction risk into our sensitivity analyses. Effects from currency fluctuations on the transla-
tion of net asset amounts into euro are reflected in the Siemens consolidated equity position.
Management’s discussion and analysis
Consolidated Financial Statements Notes to Consolidated Financial Statements
USD GBP Other
Net foreign exchange transaction exposure
as a percentage of the total 78% 12% 10%