Siemens 2005 Annual Report Download - page 196

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Total operating rental expense for the years ended September 30, 2005 and 2004 was €836
and €769, respectively.
As of September 30, 2005 and 2004, the Company has commitments to make capital contri-
butions of €148 and €212, respectively, to other companies.
The Company is jointly and severally liable and has capital contribution obligations as a part-
ner in companies formed under the German Civil Code (BGB), through which it has executed
profit-and-loss transfer agreements with other companies as a partner in commercial partner-
ships and in a European Economic Interest Grouping (EEIG) and as a participant in various con-
sortiums.
Siemens AG and its subsidiaries have been named as defendants in various legal actions and
proceedings arising in connection with their activities as a global diversified group. Some of the
legal actions include claims for substantial compensatory or punitive damages or claims for
indeterminate amounts of damages. In the ordinary course of business, Siemens may also be
involved in investigations and administrative and governmental proceedings. Given the number
of legal actions and other proceedings to which Siemens is subject, some may result in adverse
decisions. Siemens believes it has defenses to the actions and contests them when appropriate.
In view of the inherent difficulty of predicting the outcome of such matters, particularly in cases
in which claimants seek substantial or indeterminate damages, Siemens often cannot predict
what the eventual loss or range of loss related to such matters will be. Although the final resolu-
tion of such matters could have a material effect on Siemens’ consolidated operating results for
any reporting period in which an adverse decision is rendered, Siemens believes that its consoli-
dated financial position should not be materially affected.
25 Derivative instruments and hedging activities
As part of the Company’s risk management program, a variety of derivative financial instruments
are used to reduce risks resulting primarily from fluctuations in foreign-currency exchange rates
and interest 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 State-
ments.
Foreign currency exchange risk management
Siemens’ significant international operations expose the Company to significant foreign-curren-
cy exchange risks in the ordinary course of business. The Company employs various strategies
discussed below involving the use of derivative financial instruments to mitigate or eliminate
certain of those exposures.
Management’s discussion and analysis