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Annual Report 2006
www.siemens.com

Table of contents

  • Page 1
    Annual Report 2006 www.siemens.com

  • Page 2
    ... activities Net cash used in investing activities Shareholders' equity (September 30) Employees(2) (September 30, in thousands) (1) (2) 2006(1) 96,259 87,325 3,087 (54) 3,033 739 5,174 (4,435) 29,306 475 2005(1) 83,791 75,445 3,058 (810) 2,248 (1,489) 4,217 (5,706) 27,022 461 Fiscal year from...

  • Page 3
    ... Group Presidents Business Areas Shanghai and Siemens Report of the Supervisory 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...

  • Page 4
    ... and control center expedites emergency response Siemens has equipped the new world-class police headquarters in the Emirate of Dubai with communications technology, IT infrastructure, software and security systems. In the event of an accident or emergency, control room staff can access images from...

  • Page 5
    "In fiscal 2006, we took major steps to further optimize profit and growth." Dr. Klaus Kleinfeld President and Chief Executive Officer, Siemens AG

  • Page 6

  • Page 7
    ... Excellence, People Excellence and Corporate Responsibility (see also pages 16 - 31 of this Report). We're satisfied with the results we achieved in fiscal 2006. In every quarter, we exceeded our main target: sustainable profitable growth at twice the global GDP rate. Year-on-year, new orders...

  • Page 8
    ... technology, medical solutions, automation systems and public and industrial infrastructures. On the other hand, we introduced numerous measures to get Siemens Business Services (SBS) back on track. These measures included a strategic reorganization, which was completed at the end of fiscal 2006...

  • Page 9
    ... in the world market. Size is a critical factor for manufacturers and providers of telecommunications solutions and services. This new joint venture will give us the critical mass and financial clout we need in order to compete successfully. We're convinced that Nokia Siemens Networks has excellent...

  • Page 10
    ... target margins every quarter, while Industrial Solutions and Services (I&S), Siemens Building Technologies (SBT), Transportation Systems (TS) and Siemens Business Services (SBS) are closing in on their profitability goals. We're confident that all our Groups will reach their target margins by the...

  • Page 11
    ...and IT systems, its building infrastructure and all related services. Employee know-how and teamwork are key competitive advantages. Our technological and entrepreneurial success is based on the superb collaboration of our excellent employees worldwide. Given the breakneck speed at which markets are...

  • Page 12
    ...our Company. That's why we want to be an attractive employer for top scientists and engineers worldwide. To achieve this goal, we've introduced a special career track for technology experts - separate from that for our managerial employees - with four main stages, from senior-level to chief engineer...

  • Page 13
    ... of May 2006, we provided aid primarily in the form of medical equipment. Our network of university partnerships now encompasses more than 600 institutions of higher education in 70 countries. Partners include prestigious institutions like Massachusetts Institute of Technology, the University...

  • Page 14
    14 Managing Board Jürgen Radomski, Dr. rer. pol. h. c., Dr. techn. h. c. Joe Kaeser Rudi Lamprecht Eduardo Montes Hermann Requardt, Prof. Dr. phil. nat. Managing Board of Siemens AG

  • Page 15
    Managing Board 15 Klaus Kleinfeld, Dr. rer. pol. Johannes Feldmayer, Prof. Klaus Wucherer, Prof. Dr.-Ing., Dr.-Ing. E. h. Erich R. Reinhardt, Prof. Dr.-Ing., Dr.-Ing. E. h. Uriel J. Sharef, Dr. rer. pol. As of October 1, 2006 For further information, see page 234 and back cover foldout.

  • Page 16
    ... of our I&C business area and our L&A Group. Targeted acquisitions and divestments in fiscal 2006 have brought us much closer to reaching our target margins and achieving a growth rate double that of the global economy. To reach these goals and remain successful over the long term, we're rigorously...

  • Page 17
    ... Groups Build portfolio for 2x world GDP growth Operational Excellence Execute Siemens Management System (powered by top+) with focus on: • Innovation • Customer Focus • Global Competitiveness People Excellence Achieve high-performance culture Establish Leadership Excellence Program Increase...

  • Page 18
    ... and profitability are the basis of our portfolio's long-term strategic orientation. We're focusing on promising fields in which we can capture and systematically strengthen leading positions. Our goal is to grow at least twice as fast as the global economy in order to be as profitable as our top...

  • Page 19
    ... in its market. The sale of our mobile handset activities, the sale of the product-related services business of Siemens Business Services to Fujitsu Siemens Computers, and the restructuring of our Logistics and Assembly Systems Group were also key steps in the strategic development of our portfolio...

  • Page 20
    ... driving consolidation in the power transmission and distribution sector. By continuing to strengthen our position in key future markets, we boosted our sales 16 percent in fiscal 2006. On track for long-term profitability Our goal is to achieve high profitability as well as growth. All our Groups...

  • Page 21
    ..., investors and analysts ranked Siemens' capital market communications No. 1 again in fiscal 2006. For further information, please visit the following Web sites: www.siemens.com/investorrelations www.siemens.com/governance The Siemens share As of September 30, 2006, the capital stock of Siemens AG...

  • Page 22
    22 Fit4More Operational Excellence Siemens is a leading player in a wide array of businesses, industries and countries around the world. Uniform processes and procedures that set a high standard for operational excellence throughout the entire Company are one of the pillars of our success. As part...

  • Page 23
    ... long-term success and enabling us to compete in ever tougher markets. At Siemens, innovation is about more than just developing new technologies. It's about transforming ideas into market successes. New service and business models ensure that customers will continue to view us as a strong partner...

  • Page 24
    24 Fit4More People Excellence Outstanding employees are the key to our success. Only highly motivated individuals can enable us to meet and exceed the expectations of our customers and investors. Our corporate culture - based on clear goals and geared toward high performance - empowers our people ...

  • Page 25
    ... culture is our system of performance-oriented compensation for senior managers. All decisions regarding managerial compensation are based on a transparent and uniform evaluation procedure that takes into account not only business success but also factors like personal leadership qualities, customer...

  • Page 26
    ...developed are now market leaders. Intensive and open communication within the team at every stage of the project was the key to our success. For me, a high-performance culture is one in which efficient processes yield world-class results." Dr. Robert Krieg, Head of Molecular Imaging, Siemens Medical...

  • Page 27
    ...for new types of jobs in business administration, information technology, metalworking and electrical engineering. In addition, we sponsor special programs for high school graduates and work-study programs for university students. Siemens is exporting its dual workstudy system, which combines theory...

  • Page 28
    ... Corporate Responsibility Good corporate citizenship is the basis of our reputation and our long-term success. Our social responsibilities are the focus of a lively, ongoing dialogue with all our stakeholders. Industry organizations and analysts give us top marks in sustainability management...

  • Page 29
    ..., Business Consultant Guidelines, and a large number of other Company-wide regulations. Our Compliance Program is being continuously developed and improved to meet new legal requirements and eliminate any shortcomings that investigations may reveal. For example, at the end of September 2006, we...

  • Page 30
    .../sustainability Corporate citizenship www.siemens.com/citizenship Eco-excellence - Exemplary solutions • Buildings: A smart combination of building technologies and facility management can yield average energy savings - particularly in climate control systems - of 20 percent per customer project...

  • Page 31
    .... Our school contests, prizes, awards and scholarships motivate talented students to be true high achievers. We support teachers by developing and distributing innovative, award-winning educational materials. A wide range of Siemens school partnerships provide the basis for long-term cooperation...

  • Page 32
    ... â,¬5.7 billion, including R&D investments related to specific customer requirements.* Nearly 50,000 Siemens employees in 40 countries - more than 10 percent of our worldwide workforce - are employed in research and development. Over half of our 150 R&D locations are outside Germany, mainly in other...

  • Page 33
    .... In the medical field, Siemens engineers have been honored with the prestigious German Business Innovation Prize for developing the revolutionary total imaging matrix (TIM) technology used in magnetic resonance systems. www.siemens.com/innovation Intellectual property worldwide A large number of...

  • Page 34
    ... manufacturing locations Worldwide presence - The key to our competitiveness With 474,900 employees in nearly 190 countries, Siemens does business all around the world. We have a truly global sales network and operate some 290 manufacturing facilities worldwide. Research and development is also...

  • Page 35
    ... Germany) Sales Percentage worldwide 27.11 billion 31% 27 % 28% 23% Employees 127,400 13,875 R&D employees 67 Major manufacturing locations Germany Sales Percentage worldwide 16.25 billion 19 % 34% 43% 30% Employees 161,100 21,204 R&D employees 86 Major manufacturing locations Asia-Pacific Sales...

  • Page 36
    ... in February 2006, a high-speed baggage sorting system - currently the largest in Europe - went into operation. Delivered by Siemens, the system handles roughly 16,500 pieces of luggage per hour. We also provided the electronic building security system, the main control center, building and runway...

  • Page 37
    ... solutions tailored to the diverse needs of our customers throughout the region. Austria All 8.2 million Austrian residents now have electronic healthcare cards, making the Alpine republic a global leader in the field of e-health services. Developed by Siemens, the e-card system networks healthcare...

  • Page 38
    ...one of the world's most advanced shipyards, has commissioned Siemens' Industrial Solutions and Services Group to equip the four vessels with dieselelectric propulsion systems, power generation systems and automation control and monitoring systems for all on-board functions. The total order volume is...

  • Page 39
    ... use in over 200 buildings. Energy costs are being slashed by â,¬4.5 million annually, with guaranteed budget savings of â,¬1.1 million. At the same time, CO2 emissions have been cut some 25 percent. At the end of May 2006, SBT was honored in Berlin with the award for Best European Energy Service...

  • Page 40
    ...Central America's major air hub. We've won a contract to provide all the technical equipment for the airport's new Terminal 2. The order includes a baggage handling system, electrical supply and distribution systems, an automated people mover, transport information solutions and all security systems...

  • Page 41
    ... Highlights 41 The Americas Siemens can look back on a long and successful history in North and South America. In fiscal 2006, we generated more than a quarter of our total sales on these two continents. The U.S. comprised our largest single market worldwide. In Latin America, we continued to...

  • Page 42
    ...Pacific. China is now our third-largest market, after Germany and the United States. Our technology is substantially improving infrastructures and the quality of urban life for people in countries throughout the region. China China's Ministry of Railways ordered 60 high-speed trains from Siemens in...

  • Page 43
    ..., the order is worth â,¬97 million. We'd previously signed a contract with QR to upgrade 60 electric locomotives used in coal transport. The upgrade will increase the locomotives' power rating and tractive effort by 67 percent and extend their service life by 20 years. The first upgraded locomotive...

  • Page 44
    ... S.A. and Vinci Construction. The order has a total value of â,¬380 million. In addition to the control, signaling, telecommunications and power supply systems, we'll provide ticketing solutions, track systems and control center equipment. Saudi Arabia We're partnering with Doosan Heavy Industries...

  • Page 45
    ... will form part of a new gas compression module designed to extend the oil field's production life. Russia Siemens has received a supply and maintenance order worth â,¬630 million from Russian Railways. Under the contract, Siemens will deliver eight high-speed Velaro RUS trains and service them...

  • Page 46
    46 Group Presidents Udo Niehage, Dr.-Ing. PTD Helmut Gierse A&D Herbert Lohneiß, Dr. rer. nat. SFS Klaus Voges PG Heinrich Hiesinger, Dr.-Ing. SBT Erich R. Reinhardt, Prof. Dr.-Ing., Dr.-Ing. E. h. Med Group Presidents

  • Page 47
    Group Presidents 47 Martin Goetzeler OSRAM Eduardo Montes Com Hans M. Schabert TS Christoph Kollatz, Dr. rer. pol. SBS Wolfgang Dehen SV Joergen Ole Haslestad I&S As of October 1, 2006 For further information, see back cover foldout.

  • Page 48
    ... world. Due to their rapid economic growth, countries like Brazil, Russia, India and China are key future markets. Our global presence enables us to serve customers optimally on a local basis. As a good corporate citizen, we're a respected member of society in all the countries where we do business...

  • Page 49
    ... IT-integrated power distribution solutions based on carefully coordinated operations control components. TIP is helping customers cut energy consumption, use resources more efficiently and respond more flexibly to the needs of their markets. www.siemens.com/automation A&D supplies standard products...

  • Page 50
    ... access to clean drinking water, and 2.4 billion are without basic sanitation. Our solutions are enabling municipalities and industrial customers to make better use of water resources and provide affordable water supplies. We're the world's largest supplier of water treatment products and systems...

  • Page 51
    ... for as long as they remain in use. Highlights in fiscal 2006 • As the world's third-largest supplier of safety and security solutions, we equipped stadiums with complete building management and security systems for the Soccer World Cup 2006. • We received an order from India's Bengaluru...

  • Page 52
    ... this growing market. www.siemens.com/powergeneration Highlights in fiscal 2006 • We developed the world's largest and most powerful gas turbine, which generates enough power to supply a city of one million people. • Our acquisition of the Sustec Group's technology and engineering activities...

  • Page 53
    ...South America - regions in which we've long been the market leader - we're ideally positioned to benefit from new capital spending on power infrastructures. www.siemens.com/energy PTD is a world leader in power transmission and distribution. As a systems integrator and supplier of products, services...

  • Page 54
    ... force in rail technology. www.siemens.com/transportation Highlights in fiscal 2006 • We landed a contract to build and manufacture eight high-speed trains for Russia. • We also received a number of major orders from China to supply 60 high-speed trains, 180 double locomotives, 72 cars for the...

  • Page 55
    ... Our pro.pilot solution, which combines a wide range of systems to create a complete driver assistance network, is making accident-free driving a real possibility. With our automobile information and communication systems, which link vehicles to the outside world, we're turning our vision of a fully...

  • Page 56
    ...and cutting costs. Our goal is to achieve high-efficiency, patient-oriented healthcare based on proven outcomes. Medical Solutions (Med) Med will soon be the first healthcare supplier to provide a full range of diagnostics procedures featuring all key in-vitro and in-vivo technologies. Networked on...

  • Page 57
    ...India, for example, where 100 million people are already using mobile phones, the number of mobile subscribers is increasing by four million a month. And in Germany, Deutsche Telekom's new high-speed network - based on the latest VDSL2 technology from Siemens - is already providing millions of users...

  • Page 58
    ..., Germany Siemens Business Services (SBS) SBS offers private- and public-sector customers a full range of multi-vendor IT solutions and services - ranging from consulting and systems integration to IT infrastructure management. The demand for mobility, flexibility and security is growing. Companies...

  • Page 59
    ... diodes (LEDs) to electronic control gear and light management systems. Highlights in fiscal 2006 • We provided world-class lighting solutions, including the stunning exterior shell of the Allianz Arena in Munich and the Ring of Fire special-effects lighting at Berlin's Olympic Stadium. • Our...

  • Page 60
    ...business world. We also make equity investments in infrastructure projects in which Siemens is involved. As a global center of competence for financing and risk management, we're Siemens' preferred provider of financial solutions in areas like treasury services and pension asset management. Our cash...

  • Page 61
    ... million square meters of building space at more than 3,000 locations around the world. As a real estate specialist, we plan, build, finance and develop Siemens facilities and advise and support customers in all matters relating to real estate. Highlights in fiscal 2006 • We're managing a project...

  • Page 62
    ...-to-use household appliances, we're one of the world's leading manufacturers of white goods and the No. 1 supplier in Germany and Western Europe. Environmental performance, resource conservation and energy efficiency are key concerns at BSH Bosch und Siemens Hausgeräte GmbH. In the last ten years...

  • Page 63
    ... state-of-the art information technology and an extensive product portfolio for enterprise customers, small to midsize businesses and home users. True to our motto "Understanding you better - serving you best," we put our customers first, delivering individually tailored, high-quality IT products...

  • Page 64
    64 Shanghai and Siemens

  • Page 65
    ... and, by simultaneously cutting healthcare costs, to ensure that healthcare systems remain affordable in the future. Our comprehensive portfolio and innovation leadership make us the prime technology partner for urban centers - for example, in China, where we're supporting the breathtaking rise of...

  • Page 66
    ... site of the 492meter World Financial Center, which is now under construction. Within the next few years, new suburban cities like Luchao Harbor City, Jia Ding, the Medical Zone and the world's largest deep-water container terminal will further transform the city's appearance. In developing Shanghai...

  • Page 67
    ...Siemens employees, Shanghai is our largest location outside Germany. I'd like to underscore that the close partnership between Siemens and Shanghai has a long tradition. In 1879, the company supplied the first power generator - a device to light the Shanghai harbor. The first Siemens office in China...

  • Page 68
    ...with state-of-the-art building and security systems. The technologies installed include building automation, fire protection, power supply and flight information systems as well as baggage handling and runway lighting solutions. The Transrapid rail system, built by Siemens and ThyssenKrupp, provides...

  • Page 69
    ... complete building automation solutions. We've also delivered production automation solutions and building systems for plants like Volkswagen's Shanghai facility. Water and wastewater Shanghai operates one of China's largest wastewater treatment plants. Sophisticated control technology from Siemens...

  • Page 70
    Shanghai and Siemens Power distribution Transformer substation controls Fortune Plaza complex Advanced building automation, lighting Zhongshan Hospital at Shanghai Medical University Linear accelerator and oncology systems

  • Page 71
    Mobile communications Development partner for TD-SCDMA, the Chinese 3G standard Citigroup Tower General contractor for building automation, fire protection, security and IT systems Huadong Hospital Leading healthcare center - nearly all high-tech equipment from Siemens (CT and MR scanners, ...

  • Page 72
    ... B.M. Tower Entire power supply and extra-low-voltage package Baosteel Advanced metallurgy technologies, power generation and distribution, SCADA process visualization software, crane drives and other products and services Siemens Center Shanghai Headquarters for 13,000 employees in Shanghai

  • Page 73
    ...Water Control systems for one of the largest wastewater treatment plants in China (1.7 million metric tons of wastewater processed every day) Transrapid Magnetic levitation train (430 km/hr) from airport to Pudong District (Long Yang Road) Pudong International Airport Building automation, security...

  • Page 74
    ... of the Supervisory Board Corporate Governance Report Management and Control Structure The Supervisory Board The Managing Board Directors' dealings of Managing Board and Supervisory Board Shareholder relations Business Conduct Guidelines and Code of Ethics Corporate Governance Guidelines Significant...

  • Page 75
    "The Supervisory Board supports current measures to ensure the Company's continued strategic development." Prof. Dr. Heinrich v. Pierer Chairman of the Supervisory Board, Siemens AG

  • Page 76

  • Page 77
    ...meetings during the year. Between meetings, the Managing Board informed us in writing about important developments. As Chairman of the Supervisory Board, I was kept up-to-date on major issues and upcoming management decisions. Company strategy and portfolio policies In fiscal 2006, we considered in...

  • Page 78
    ...make our Medical Solutions Group (Med) the world's first integrated diagnostics company, supplying imaging and laboratory diagnostics as well as clinical IT solutions across the entire value chain from a single source. The Supervisory Board received a report on the strategic reorientation of Siemens...

  • Page 79
    ... financial situation. The large number of acquisitions, the strong growth of business volume, the related high level of capital expenditures on property, plant and equipment, and the associated increase in non-fixed assets as well as problem areas like the mobile phone business and Siemens Business...

  • Page 80
    ... the German Corporate Governance Code (as amended on June 12, 2006) regarding the annual statement of the allocation to accrued pension liabilities or pension funds for pension commitments to Managing Board members. Further information on corporate governance at the Company and a detailed report on...

  • Page 81
    ... Financial Officer, the Audit Committee discussed the Annual Financial Statements of Siemens AG and the Consolidated Financial Statements of Siemens worldwide, the appropriation of net income and the Annual Report on Form 20-F for the U.S. Securities and Exchange Commission (SEC). During the year...

  • Page 82
    ... (KPMG), Berlin and Frankfurt/Main, audited the Annual Financial Statements of Siemens AG and the related management's discussion and analysis (MD&A) as well as the consolidated MD&A for the year ended September 30, 2006 in accordance with the requirements of the German Commercial Code (HGB...

  • Page 83
    .... Claus Weyrich, who had been a member of the Managing Board and head of Corporate Technology since October 1996, left the Company at the end of their terms of office on September 30, 2006. We thanked the departing members of the Managing Board for their many years of extraordinary commitment to the...

  • Page 84
    ... procedures for handling accounting complaints and a Code of Ethics for Financial Matters. Management and Control Structure The Supervisory Board As a German stock corporation, Siemens is subject to German corporate law and has a twotier management and oversight structure, consisting of a 10-member...

  • Page 85
    ...determining the Company's strategic orientation, planning and finalizing the Company's budget, allocating resources, and monitoring the executive management of each Group. The Managing Board also prepares the Company's quarterly reports, the annual, stand-alone financial statements of Siemens AG and...

  • Page 86
    82 Corporate Governance Report Directors' dealings of Managing Board and Supervisory Board Pursuant to § 15a of the German Securities Trading Act (WpHG), members of the Managing and Supervisory Boards are required to disclose purchases or sales of shares of Siemens AG or financial instruments ...

  • Page 87
    ... conferences with analysts upon the publication of our quarterly results. Business Conduct Guidelines and Code of Ethics The Managing Board has established Business Conduct Guidelines that contain rules regarding compliance with applicable laws, conflicts of interest, the use of Company assets...

  • Page 88
    ... NYSE issuers are as follows: Two-tier board The German 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...

  • Page 89
    ... disclosure of the annual allocation to accrued pension liabilities or pension funds for members of the Managing Board in the case of pension plans, Section 4.2.5 para. 2, 2nd sentence of the Code). Since making its last Declaration of Conformity dated November 9, 2005, Siemens AG has fully complied...

  • Page 90
    ...Board remuneration reported in this section as the values were reduced by the amount of increase related to the target compensation for one year and the proposed amount of increase of the stock-based compensation for fiscal year 2006, in connection with the hardship fund to provide financial support...

  • Page 91
    ... the form of a commitment to issue or transfer shares of Siemens AG (stock awards), while the other half was paid in cash. Beginning with the fiscal year 2006, the LT bonus is paid entirely in cash. The same principles for determining the bonus apply to Managing Board members who are not members of...

  • Page 92
    ...of § 291 of the German Stock Corporation Act (AktG), or if Siemens AG is to be merged into an existing corporation or other entity - any member of the Managing Board has the right to terminate the contract of employment if such change of control results in a substantial change in position (e.g. due...

  • Page 93
    ... the variable cash bonus and the stock-based compensation in connection with the transfer of Managing Board remuneration to the hardship fund for BenQ Mobile employees in Germany. The fair value of stock-based compensation relates to stock options and stock awards granted in November 2006 and 2005...

  • Page 94
    ... a full member of the Managing Board of Siemens AG, effective October 1, 2006. Both, the number of units and the values of the stock-based compensation components, are shown in the following table. The stock awards were recorded at the market price of the Siemens stock on the date of commitment...

  • Page 95
    ... the stock-based compensation in connection with the transfer of Managing Board remuneration to the hardship fund for BenQ Mobile employees in Germany. The fair value of stock-based compensation relates to stock options and stock awards granted in November 2006 and 2005 for fiscal years 2006 and...

  • Page 96
    ... of the German pension plan of Siemens AG into a Defined Contribution Benefit Plan (BSAV), the system of defined benefits for members of the Managing Board was also replaced with effect from October 1, 2004 by a pension benefit system based on contributions by the Company. Pension benefits earned...

  • Page 97
    ... In accordance with these remuneration policies, each Supervisory Board member receives fixed compensation of â,¬50,000 per year and short-term variable compensation of â,¬150 per year for each â,¬0.01 of earnings per share as disclosed in the Consolidated Financial Statements in excess of a minimum...

  • Page 98
    ... 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 99
    ... Company provides a group insurance policy for board and committee members and employees of the Siemens organization which 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...

  • Page 100
    ... of Siemens Segment information analysis Operations - Information and Communications - Automation and Control - Power - Transportation - Medical - Lighting - Other Operations - Reconciliation to Financial Statements Financing and Real Estate Eliminations, reclassifications and Corporate Treasury...

  • Page 101
    ... Consolidated Statements of Cash Flow Consolidated Statements of Changes in Shareholders' Equity Notes to Consolidated Financial Statements Statement of the Managing Board Independent Auditors' Statement Five-year summary International Financing Reporting Standards (IFRS) Glossary Index Siemens...

  • Page 102
    ... from the sale of Siemens' remaining shares in Infineon Technologies AG (Infineon), while fiscal 2005 included â,¬1.496 billion in cash used for supplemental contributions to Siemens pension plans. Siemens Managing and Supervisory Boards have proposed a dividend of â,¬1.45 per share. The dividend in...

  • Page 103
    ...Notes to Consolidated Financial Statements." Siemens is one of the most global companies in the world. In fiscal 2006, international business accounted for more than â,¬70 billion in revenues, representing more than 80% of total sales. In particular, we expanded our business in the Americas and Asia...

  • Page 104
    ... and Europe, demand for automation and control solutions was strong in sectors focused on exports. In the building market, customers continued to seek technology enabling more secure, energy-efficient structures. In all regions, there is a growing trend toward reduced use of raw materials and more...

  • Page 105
    ... rising energy costs and security of supply continued to stimulate investment in alternative power generation. In the Transportation business area, Asia-Pacific's growing economies and concentration of population in cities continued to increase demand for urban transit solutions. In contrast, rail...

  • Page 106
    ... using Group profit, which is earnings before centrally managed items including income taxes, financing costs, and certain pension costs. For additional information with respect to Group profit, see "Notes to Consolidated Financial Statements." As a result of changes in the Company's management...

  • Page 107
    ...SBS) Automation and Drives (A&D) Industrial Solutions and Services (I&S) 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...

  • Page 108
    104 Management's discussion and analysis Fiscal 2006 - 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 International sales 2006 96,...

  • Page 109
    ... For additional information with respect to R&D, see "Business Overview and Economic Environment - Research and Development" and "Notes to Consolidated Financial Statements." Marketing, selling and administrative expenses also declined as a percent of sales, to 17 .7% from 18.1% a year earlier, even...

  • Page 110
    ... 2006 compared to 23% in the prior year. The tax rate in fiscal 2006 benefited from a release of tax liabilities for prior periods and from domestic tax free income, while it was negatively impacted by income tax charges related to the investigation launched in November 2006. For further information...

  • Page 111
    ... sales and orders. In fiscal 2006, following an intensive analysis by the Managing Board on Com's strategic reorientation, Siemens announced significant changes that will result in dissolving Com as a Group and reportable segment. Effective with the third quarter, Com's two largest businesses, one...

  • Page 112
    108 Management's discussion and analysis Siemens Business Services (SBS) Year ended September 30, % Change (â,¬ in millions) Group profit Group profit margin Sales New orders 2006 (549) (10.6)% 5,157 5,014 2005 (690) (12.8)% 5,373 6,531 (4)% (23)% 2% (16)% Actual 20% Adjusted* * Excluding ...

  • Page 113
    ... and analysis 109 Automation and Control Automation and Drives (A&D) Year ended September 30, % Change (â,¬ in millions) Group profit Group profit margin Sales New orders 2006 1,572 12.2% 12,848 14,108 2005 1,253 12.1% 10,366 10,674 24% 32% 9% 13% Actual 25% Adjusted* Management's discussion and...

  • Page 114
    110 Management's discussion and analysis Industrial Solutions and Services (I&S) Year ended September 30, % Change (â,¬ in millions) Group profit Group profit margin Sales New orders 2006 289 3.3% 8,819 9,025 2005 167 2.6% 6,307 7,189 40% 26% 14% (2)% Actual 73% Adjusted* * Excluding currency ...

  • Page 115
    ...'s discussion and analysis 111 Power Power Generation (PG) Year ended September 30, % Change (â,¬ in millions) Group profit Group profit margin Sales New orders 2006 782 7.8% 10,086 12,532 2005 951 11.8% 8,061 10,964 25% 14% 19% 5% Actual (18)% Adjusted* Management's discussion and analysis...

  • Page 116
    112 Management's discussion and analysis Transportation Transportation Systems (TS) Year ended September 30, % Change (â,¬ in millions) Group profit Group profit margin Sales New orders 2006 80 1.8% 4,502 6,173 2005 45 1.1% 4,190 4,599 7% 34% 5% 32% Actual 78% Adjusted* * Excluding currency ...

  • Page 117
    ...'s discussion and analysis 113 Medical Medical Solutions (Med) Year ended September 30, % Change (â,¬ in millions) Group profit Group profit margin Sales New orders 2006 1,061 12.9% 8,227 9,334 2005 976 12.8% 7,626 8,641 8% 8% 5% 6% Actual 9% Adjusted* Management's discussion and analysis...

  • Page 118
    ...537 million a year earlier. Within Corporate items, a significant investment in information technology was the major factor in higher central costs in fiscal 2006 compared to the prior year. Corporate items benefited in fiscal 2006 from a gain of â,¬95 million on the sale of an investment and â,¬70...

  • Page 119
    ... included a special dividend related to an investment, the prior year also benefited from gains on the sale of an investment and the sale of a 51% stake in the real estate funds management business of Siemens Kapitalanlagegesellschaft mbH (SKAG). Total assets at the end of fiscal 2006 were 4% higher...

  • Page 120
    ... capital for each Group is determined by taking the weighted average of the after-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. In the case of Financing and Real Estate, we use the financial...

  • Page 121
    .... 30, 2006 Total assets Other asset related and miscellaneous reconciling items (see table segment information) Financial adjustments Pension adjustment and average calculation(2) Liabilities(3) Average net operating assets for Operations (continuing operations)/allocated equity for Financing and...

  • Page 122
    ... Average Cost of Capital (WACC): WACC Operations Groups Siemens Business Services (SBS) Automation and Drives (A&D) Industrial Solutions and Services (I&S) Siemens Building Technologies (SBT) Power Generation (PG) Power Transmission and Distribution (PTD) Transportation Systems (TS) Siemens VDO...

  • Page 123
    ... AG, the parent company of businesses discussed in this report, recorded net income under German accounting principles (HGB) of â,¬1.426 billion for fiscal 2006 compared to â,¬1.451 billion in the previous year. At the Annual Shareholders' Meeting scheduled for January 25, 2007 , the Managing Board...

  • Page 124
    ...in total for approximately â,¬1.2 billion in fiscal 2005. Investing activities at Corporate Treasury and Financing and Real Estate in fiscal 2006 used net cash of â,¬1.320 billion compared to net cash used of â,¬919 million a year earlier, mainly due to higher net investment in marketable securities...

  • Page 125
    ... below: Moody's Investors Service Long-term debt Short-term debt Aa3 P-1 Standard &Poor's AA- A-1+ Following Siemens' announcement of the planned acquisition of the Diagnostics division of Bayer AG, on June 30, 2006, both credit rating agencies changed their rating outlook for Siemens from "stable...

  • Page 126
    ... members of the Managing Board of Siemens AG for purchase as stock-based compensation under the same terms and conditions as those offered to employees of the Company. Additionally, the Supervisory Board may grant and transfer such shares to members of the Managing Board as stock-based compensation...

  • Page 127
    ... due to strong investment activity at SFS the capital expenditures rate for Siemens was 152% in fiscal 2006. In addition, we expect significant cash outflows in connection with portfolio realignments for fiscal 2007 , e.g. for the purchase price of approximately â,¬4.2 billion relating to the...

  • Page 128
    ...239 521 5,612 (â,¬ in millions) Debt Purchase obligations Operating leases Total contractual cash obligations Total 15,574 12,652 2,589 30,815 After 5 years 6,739 50 495 7,284 Debt - At September 30, 2006, Siemens had â,¬15.574 billion of short- and long-term debt, of which â,¬2.175 billion will...

  • Page 129
    ...capital leases Total debt Total 13,434 1,001 822 317 15,574 Our notes and bonds contain no specific financial covenants such as rating triggers or interest coverage, leverage or capitalization ratios that could trigger a requirement for early payment or additional collateral support. Our Corporate...

  • Page 130
    ... 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 131
    ...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 132
    ... cash inflows associated with financing activities. Marketable securities were lower primarily due to sales of our remaining shares in Infineon, Juniper and Epcos in fiscal 2006. The decrease in Accounts receivable, net year-over-year is driven by reclassifying the carrier and enterprise businesses...

  • Page 133
    ... information see "Notes to Consolidated Financial Statements." The table below shows current and long-term liabilities at the respective balance sheet dates. Given the reclassification of Com's carrier and enterprise businesses as held for disposal in fiscal 2006, in particular Accounts payable...

  • Page 134
    ...bonds is also provided under "Capital Resources and Capital Requirements" as well as in the "Notes to Consolidated Financial Statements." Shareholders' equity and total assets were as follows: September 30, (â,¬ in millions) Total shareholders' equity Equity ratio Total assets 2006 29,306 32% 90,973...

  • Page 135
    ... Com's internal audit and accounting and controlling departments. Another former employee was apprehended in Austria and extradited to Germany. In addition to the interrogations of those arrested, statements were taken from a number of witnesses including Company officials. The Prosecutors announced...

  • Page 136
    ... order to consult the Managing Board and the Audit Committee with regard to the future structure of the compliance organization, the execution of compliance reviews, the review of related guidelines and controls including potential improvement measures, and the respective communication and training...

  • Page 137
    ... Groups continually reviews all estimates involved in such construction contracts and adjusts them as necessary. We also use the percentage-of-completion method for projects financed directly or indirectly by Siemens. In order to qualify for such accounting, the credit quality of the customer...

  • Page 138
    ...Consolidated Financial Statements." Pension and postretirement benefit accounting - Our pension benefit costs and credits are determined in accordance with actuarial valuations, which rely on key assumptions including discount rates and expected return on plan assets. We determine the market-related...

  • Page 139
    ... Management System initiative, which focuses on innovation, customer focus and global competitiveness With People Excellence we create a working culture that motivates our people to yield high performance results. Our Siemens Leadership Excellence (SLE) program serves the deepening of business...

  • Page 140
    ... Siemens has implemented a coordinated set of risk management and control systems which support us in the early recognition of developments endangering the future existence of the company. The most important of these systems include our enterprise-wide processes for strategic planning and management...

  • Page 141
    ... worldwide markets for our products are highly competitive in terms of pricing, product and service quality, development and introduction time, customer service and financing terms. We face strong competitors, some of which are larger and may have greater resources in a given business area. Siemens...

  • Page 142
    ... on a worldwide basis. If we are not able to compensate for or pass on our increased costs to customers, such price increases could have a material adverse impact on our financial results. Supplier risks We rely on third parties to supply us with parts, components and services. Using third parties...

  • Page 143
    ... of exchange controls. In particular, the Asian markets are important for our long-term growth strategy and our sizeable operations in China are influenced by a legal system that is still developing and is subject to change. The demand for many of the products of our business Groups, particularly...

  • Page 144
    ... by PG and TS. We finance a large number of smaller customer orders, for example, the leasing of medical equipment, in part, through Siemens Financial Services (SFS). SFS also incurs credit risk by financing third-party equipment. We also sometimes take a security interest in the projects we...

  • Page 145
    ... from strategic partnerships, spin-offs, IPOs of strategic venture capital investments or compensation from M&A transactions. We monitor the equity investments based on their current market value and they are affected by the fluctuations in the volatile stock markets worldwide. The market value of...

  • Page 146
    ... risk management system that has an established track record for years. Each Siemens unit is responsible for recording, assessing, monitoring, reporting and hedging its foreign currency transaction exposure. The Group-wide binding guideline developed by the Corporate Finance department, provides...

  • Page 147
    ... rates. A second calculation discounts the gross cash flows using a 100-basis point shift of the yield curve. In all cases, we use the generally accepted and published yield curves on the relevant balance sheet date. The fair value interest rate risk results primarily from long-term fixed rate debt...

  • Page 148
    ... where we can best build on Siemens' technological strengths, embedded customer base and global supply chain. Within the business areas of industrial and public infrastructure and automation, energy and environment, and healthcare our operating Groups are well positioned to expand market share and...

  • Page 149
    ... segment called Strategic Equity Investments (SEI). SEI includes centrally managed at equity investments and will consist of BSH Bosch und Siemens Hausgeräte GmbH, Fujitsu Siemens Computers (Holding) BV and NSN. We also expect to divest Com's enterprise networks and services business during fiscal...

  • Page 150
    ... a smaller increase in net working capital compared to fiscal 2006, and a reversal in the recent upward trend of our capital expenditure ratio. Furthermore we expect substantial cash outflows for severance programs at Com and SBS in the coming year. A number of factors could intervene or affect the...

  • Page 151
    ...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; the outcome of investigations and legal proceedings as well as various other factors. More detailed information...

  • Page 152
    ... Financial Statements Consolidated Statements of Income For the fiscal years ended September 30, 2006 and 2005 (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...

  • Page 153
    Consolidated Financial Statements 149 Eliminations, reclassifications and Corporate Treasury 2006 (1,858) 1,858 - - (3) (78) - (50) - 420 289 (71) - 218 - 218 2005 (1,677) 1,677 - - (1) (87) - 92 - 294 298 (70) - 228 - 228 Operations 2006 86,843 (63,703) 23,140 (5,024) (15,123) 116 538 400 (39) (...

  • Page 154
    ...and shareholders' equity Current liabilities Short-term debt and current maturities of long-term debt Accounts payable Intracompany liabilities Accrued liabilities Deferred income taxes Liabilities held for disposal Other current liabilities Total current liabilities Long-term debt Pension plans and...

  • Page 155
    Consolidated Financial Statements 151 Eliminations, reclassifications and Corporate Treasury 9/30/06 9/30/05 Operations 9/30/06 9/30/05 Financing and Real Estate 9/30/06 9/30/05 9,072 417 - (15,736) (2) (45) (21) 286 (6,029) - - - - 1,197 246 (1,283) (5,869) 6,603 - (6) (15,489) (4) (178) - ...

  • Page 156
    ...operations Net cash provided by (used in) investing activities - continuing operations Cash flows from financing activities Purchase of common stock Proceeds from re-issuance of treasury stock Proceeds from issuance of debt Repayment of debt Change in short-term debt Dividends paid Dividends paid to...

  • Page 157
    Consolidated Financial Statements 153 Eliminations, reclassifications and Corporate Treasury 2006 218 - - (23) - - - - (2) 120 (80) ... (4,787) (219) 173 - (231) (270) (1,112) (108) 4,738 2,971 33 563 908 1,471 Financing and Real Estate 2006 314 - 442 (40) (95) (13) - (27) 10 48 - 8 64 22 (21) - (...

  • Page 158
    ... Total comprehensive income Dividends paid Issuance of common stock and stock-based compensation Purchase of common stock Re-issuance of treasury stock Balance at September 30, 2006 The accompanying notes are an integral part of these consolidated financial statements. Additional paid-in capital...

  • Page 159
    ...- - - (5,837) Total AOCI (6,386) - 483 (1,402) (919) - - - - (7,305) - (330) 773 443 - - - - (6,862) Treasury shares at cost 219) 218 (1 421) 422 - Total 26,760 2,248 483 (1,402) 1,329 (1,112) 60 (219) 204 27,022 3,033 (330) 773 3,476 (1,201) 44 (421) 386 29,306 Consolidated Financial Statements

  • Page 160
    ...Groups Communications (Com)(5) Siemens Business Services (SBS) Automation and Drives (A&D)(6) Industrial Solutions and Services (I&S)(6) Siemens Building Technologies (SBT) Power Generation (PG) Power Transmission and Distribution (PTD) Transportation Systems (TS) Siemens VDO Automotive (SV) Medical...

  • Page 161
    ...Consolidated Financial Statements 157 Group profit 2006 283 (549) 1,572 289 234 782 390 80 669 1,061 481 (36) 5,256 (1,248) (355) - (1) Net capital employed... 3,653 3,424 83,547 81,366 623 (1,222) 5,618 5,736 2,565 2,892 Total assets 10,522 3,234 (461) 13,295 10,148 3,496 (340) 13,304 (...

  • Page 162
    ... 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 163
    ... increased from â,¬53,502 to â,¬54,146 for the year ended September 30, 2005. For the year ended September 30, 2006, the corresponding costs related to the adaptation of existing technologies to meet specific commercial customer needs amounted to â,¬661. Notes to Consolidated Financial Statements

  • Page 164
    ... the Consolidated Financial Statements using the equity method of accounting. A list of Siemens' subsidiaries and associated companies is being filed with the Commercial Registers of the Berlin-Charlottenburg and Munich District Courts. Business Combinations - All business combinations are accounted...

  • Page 165
    ... customization of software, the entire arrangement is accounted for under the percentage-of-completion method. Operating lease income for equipment rentals is recognized on a straight-line basis over the lease term. Interest income from sales-type and direct financing leases is recognized using the...

  • Page 166
    ... maturity from the date of acquisition to be cash equivalents. Marketable securities and investments - The Company's marketable securities are accounted for at fair value if readily determinable. Securities are classified as either availablefor-sale or trading securities. Management determines the...

  • Page 167
    ... and office buildings Other buildings Technical machinery & equipment Furniture & office equipment Equipment leased to others 20 to 50 years 5 to 10 years 5 to 10 years generally 5 years generally 3 to 5 years Impairment of long-lived assets - The Company reviews long-lived assets held and used for...

  • Page 168
    ..., Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. SFAS 123R requires companies to recognize stock-based compensation expense, with certain limited exceptions, based on fair value. Siemens uses a Black...

  • Page 169
    ... on the Company's Consolidated Financial Statements. Accounting changes - Recent accounting pronouncements to be implemented - In June 2005, the FASB ratified EITF Issue 05-5, Accounting for Early Retirement or Postemployment Programs with Specific Features (such as Terms Specified in Altersteilzeit...

  • Page 170
    ... and prior service cost and benefits not recognized in equity, before related taxes, totaled â,¬916. See Note 21 for further information. 3 Acquisitions, dispositions and discontinued operations a) Acquisitions During the years ended September 30, 2006 and 2005, the Company completed a number of...

  • Page 171
    ..., a supplier of products and systems for access control solutions at Siemens Building Technologies (SBT). The combined preliminary purchase price of these acquisitions amounts to â,¬393. ab) Acquisitions in fiscal 2005 In May 2005, the Company acquired CTI Molecular Imaging, Inc. (CTI), USA. The...

  • Page 172
    ..., a supplier of wind energy systems and substantially all of the assets of Robicon Corporation, USA, a manufacturer of medium voltage drives and power controls. The combined purchase price of the two acquisitions amounts to â,¬476. The Company made certain other acquisitions during the years ended...

  • Page 173
    Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 169 In the context of the overall reorganization of its Com segment, the Company plans to dispose of the enterprise networks business, which is part of Com, in fiscal 2007 . The ...

  • Page 174
    ... net Year ended September 30, 2006 Impairment of goodwill Gains on sales of real estate, net Gains on sales and disposals of businesses, net Other, net - 136 (59) 128 205 2005 (262) 177 49 27 (9) Impairment of goodwill of â,¬262, in fiscal 2005, relates to Siemens Business Services' (SBS) reporting...

  • Page 175
    ...â,¬84 related to the sale of the Company's interest in SMS Demag AG. 6 Income from financial assets and marketable securities, net Year ended September 30, 2006 Gains on sales of available-for-sale securities, net Other financial gains (losses), net 402 (65) 337 2005 243 54 297 Notes to Consolidated...

  • Page 176
    ... Foreign (78) 4,449 4,371 2005 521 3,664 4,185 Income tax expense (benefit) consists of the following: Year ended September 30, 2006 Current: German corporation and trade taxes Foreign income taxes 328 1,090 1,418 Deferred: Germany Foreign (579) 239 (340) Income tax expense, net 1,078 (11) (119...

  • Page 177
    Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 173 For the fiscal years ended September 30, 2006 and 2005, the Company was subject to German federal corporation tax at a base rate of 25% plus solidarity surcharge of 5.5% on ...

  • Page 178
    ... 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, before valuation allowances Valuation allowances Non-current...

  • Page 179
    ... and per share amounts) 175 Year ended September 30, 2006 Provision for income taxes Discontinued operations Shareholders' equity for other comprehensive income 1,078 (38) 405 1,445 2005 979 (498) (763) (282) Notes to Consolidated Financial Statements As of September 30, 2006, the Company had...

  • Page 180
    ...Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 9 Marketable securities As of September 30, 2006 and 2005, the Company's portfolio of marketable securities is composed of securities classified as available-for-sale. The following...

  • Page 181
    ... for disposal Valuation allowance as of fiscal year-end 1,199 167 (263) 40 (22) (165) 956 2005 1,127 201 (185) 34 22 - 1,199 Notes to Consolidated Financial Statements Receivables from sales-type and direct finance leases are due as follows: September 30, 2006 2007 2008 2009 2010 2011 Thereafter...

  • Page 182
    ... to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) Investments in sales-type and direct finance leases relate primarily to medical engineering and data processing equipment. Investments in direct financing leases also include leases of...

  • Page 183
    ... Solutions and Services (I&S) Siemens Building Technologies (SBT) Power Generation (PG) Power Transmission and Distribution (PTD) Transportation Systems (TS) Siemens VDO Automotive (SV) Medical Solutions (Med) Osram Other Operations Financing and Real Estate Siemens Financial Services (SFS) Siemens...

  • Page 184
    ... of projects at SBS's reporting unit Operation-Related Services (ORS) in connection with changing markets and competition in outsourcing business and structural challenges to attaining originally targeted profitability, the Company revised its related business plan and concluded that goodwill of...

  • Page 185
    ... sales and finance leases (see Note 10) Prepaid pension assets Long-term loans receivable Other 2,969 534 452 1,411 5,366 2005 2,899 166 736 1,463 5,264 Notes to Consolidated Financial Statements In fiscal 2005, as a result of a corporate-level strategic plan concerning the DI and MHP businesses...

  • Page 186
    ...10,176 Employee related costs primarily include accruals for vacation pay, bonuses, accrued overtime and service anniversary awards, as well as provisions for severance payments. The current and non-current accruals for product warranties changed as follows: Year ended September 30, 2006 Accrual as...

  • Page 187
    ...lines of credit remained unused. Commitment fees for the years ended September 30, 2006 and 2005 totaled approximately â,¬2 and â,¬3, respectively. The facilities are for general business purposes. Notes to Consolidated Financial Statements As of September 30, 2006, weighted-average interest rates...

  • Page 188
    184 Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) Notes and bonds The Company has agreements with financial institutions under which it may issue up to â,¬5.0 billion in medium-term notes. In March 2006, the Company updated its...

  • Page 189
    ... market value of the property. Therefore, these transactions have been accounted for as financing obligations. These real estate properties are carried on the Company's Consolidated Balance Sheets and no sale and profit has been recognized. Notes to Consolidated Financial Statements In fiscal 2006...

  • Page 190
    ... Company's major pension plans are funded with assets in segregated pension entities. Furthermore, the Company provides other postretirement benefits, which primarily consist of transition payments to German employees after retirement as well as postretirement health care and life insurance benefits...

  • Page 191
    ... 4,917 Notes to Consolidated Financial Statements 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...

  • Page 192
    ... 2006 aggregated to â,¬1,149 compared to â,¬1,009 in the previous fiscal year. Consolidated Statements of Cash Flow The Company makes payments directly to the participants in the case of unfunded benefit plans and the payments are included in net cash used in operating activities. For funded pension...

  • Page 193
    ... 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 194
    ... currency exchange rate changes Service cost Interest cost Settlements and curtailment 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 24,977 Total 20,794...

  • Page 195
    ...the principal pension benefit plans as of September 30, 2006 totaled â,¬2,039. Excluding the AML adjustment, a net prepaid pension asset of â,¬7 ,239 exists for the Company's principal pension benefit plans, primarily related to the transfer of Infineon shares to the domestic pension plans in fiscal...

  • Page 196
    ... Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) Pension benefits: Components of NPPC The components of the NPPC for the fiscal years ended September 30, 2006 and 2005 were as follows: Year ended September 30, 2006 Total Domestic Foreign Service cost...

  • Page 197
    ...and service cost of the following year. Therefore, the assumptions used for the calculation of the NPPC for fiscal 2007 are already determined. The total expected return for fiscal 2007 will be based on expected rates of return multiplied by the market-related value of plan assets at the fiscal 2006...

  • Page 198
    ...disability, etc., remained primarily unchanged in 2006. Pension benefits: Sensitivity analysis A one-percentage-point change of the established assumptions mentioned above, used for the calculation of the NPPC for fiscal 2007 , and a change of the market-related value of plan assets of â,¬500, as of...

  • Page 199
    ...reported as equity but under cash. Current asset allocation is biased towards high quality government and selected corporate bonds. Siemens constantly reviews the asset allocation in light of the duration of its pension liabilities and analysis trends and events that may affect asset values in order...

  • Page 200
    ... 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 201
    ... benefits for the years ended September 30, 2006 and 2005: September 30, 2006 Total Domestic Foreign Change in benefit obligations: Accumulated postretirement benefit obligation at beginning of year Foreign currency exchange rate changes Service cost Interest cost Settlements and curtailments Plan...

  • Page 202
    ... benefit cost Discount rates and other key assumptions used for transition payments in Germany are the same as 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...

  • Page 203
    ... provisions Notes to Consolidated Financial Statements September 30, 2006 Product warranties Asset retirement obligations Deferred income Other long-term accruals 741 509 326 2,482 4,058 2005 796 499 324 3,409 5,028 The Company is subject to asset retirement obligations related to certain tangible...

  • Page 204
    ... waste has neared completion; on September 21, 2006 the Company received official notification from the competent authorities that the Hanau facility has been released from the scope of application of the German Atomic Energy Act and that its further use is unrestricted. The ultimate costs of the...

  • Page 205
    ... listed companies themselves and do not have their own employee stock schemes. The Managing Board is authorized to determine, with the approval of the Supervisory Board, the further content of the rights embodied in the shares and the terms and conditions of the share issue. Authorized Capital 2006...

  • Page 206
    ... Conditional capital to service the 2001 and 1999 Siemens Stock Option Plan amounts to â,¬191, representing 63,797 thousand shares of Siemens AG, in each of the years ended September 30, 2006 and 2005, respectively. Conditional capital provided to service the issuance of bonds with conversion rights...

  • Page 207
    ... members of the Managing Board of Siemens AG for purchase as stock-based compensation under the same terms and conditions as those offered to employees of the Company. Additionally, the Supervisory Board may grant and transfer such shares to members of the Managing Board as stock-based compensation...

  • Page 208
    ... employee share purchase program. See Note 27 for additional information on stock-based compensation. As of September 30, 2006, 415 shares of stock remained in treasury with a carrying amount of â,¬29 thousand (notional value â,¬1 thousand). In fiscal 2005, the Company repurchased a total...

  • Page 209
    ... 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, 2006, Siemens AG management distributed an ordinary dividend of â,¬1,201 (â,¬1.35 per share) of the...

  • Page 210
    ...the Consolidated Financial Statements. Foreign currency exchange risk management Siemens' significant international operations expose the Company to significant foreigncurrency exchange risks in the ordinary course of business. The Company employs various strategies discussed below involving the use...

  • Page 211
    ... commitments using forward 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, 2006 and 2005, the hedging transactions resulted in the recognition of...

  • Page 212
    ... changes in the adjusted carrying amount of the related portion of fixed rate debt being hedged, are recognized as adjustments to the line item Income (expense) from financial assets and marketable securities, net in the Consolidated Statements of Income. Net cash receipts and payments relating...

  • Page 213
    ...' equity. Net cash receipts and payments relating to such interest rate swap agreements are recorded as interest income. Credit risk management Siemens Financial Services uses credit default swaps to protect from credit risks stemming from its receivables purchase business. The credit default...

  • Page 214
    210 Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) Credit default swaps - The fair value of credit default swaps is calculated by comparing discounted expected future cash flows using current bank conditions with discounted ...

  • Page 215
    ...The total income tax benefit recognized in the income statement for stock-based compensation was â,¬35 and â,¬38 in fiscal 2006 and 2005, respectively. I. Equity settled awards Cash received from stock option exercises and from the Company's employee share purchase plan for the years ended September...

  • Page 216
    ... either newly issued shares of common stock of Siemens AG from the Conditional Capital reserved for this purpose, treasury stock or cash. The alternatives offered to optionees are determined by the Managing Board in each case as approved by the Supervisory Board. Compensation in cash shall be equal...

  • Page 217
    ... to â,¬68 and â,¬14, respectively. The total grant-date fair value of options vested during the years ended September 30, 2006 and 2005 was â,¬76 and â,¬84, respectively. As of September 30, 2006, unrecognized compensation cost related to fair value measured stock options amounted to â,¬6, which is...

  • Page 218
    ... following the date of publication of the business results for the previous fiscal year. The Supervisory Board decides annually after the end of each fiscal year how many stock awards to grant to the Managing Board and the Managing Board decides annually how many stock awards to grant to members of...

  • Page 219
    ... information on corresponding Siemens share repurchases, see Note 23. Notes to Consolidated Financial Statements Stock awards are accounted under the fair value recognition provisions of SFAS 123R. Fair value was determined as the market price of Siemens shares less the present value of dividends...

  • Page 220
    ... phantom stock to employees under the same conditions as the Siemens stock awards, except that grantees receive the share prices' equivalent value in cash only at the end of the four year vesting period. In fiscal 2005, 28,628 phantom stock rights were granted and 391 phantom stock rights forfeited...

  • Page 221
    ... Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 217 28 Personnel costs Year ended September 30, 2006 Wages and salaries Statutory social welfare contributions and expenses for optional support payments Expenses relating to pension plans...

  • Page 222
    ... on market prices. New orders are determined principally as the estimated sales value of accepted purchase orders and order value changes and adjustments, excluding letters of intent. Operations The Managing Board is responsible for assessing the performance of the Operations Groups. The Company...

  • Page 223
    ... centrally. As a consequence, Group profit includes only amounts related to the service cost of pension plans, while all other pension related costs (including charges for the German pension insurance association and plan administration costs) are included in the line item Corporate items, pensions...

  • Page 224
    ... in Segment Information to Siemens Consolidated Statements of Cash Flow: Net cash from operating and investing activities Year ended September 30, 2006 Total Operations - continuing Total Operations - discontinued Total Operations Total Financing and Real Estate - continuing Total Financing and Real...

  • Page 225
    ... and related services including convergent technologies, products and services for wireless, fixed and enterprise networks. For information on the Company's discontinued MD operation see Note 3. Siemens Business Services (SBS) - SBS provides information and communications services to customers...

  • Page 226
    ... the power transmission network and to distribute power via a distribution network to the end-user. Transportation Systems (TS) - TS provides products and services for the rail industry, including signaling and control systems, railway electrification systems, complete heavy rail systems including...

  • Page 227
    ... to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 223 31 Geographic information The following table presents data by geographic region as of and for the years ended September 30, 2006 and 2005: Sales by location of customer 2006 Germany...

  • Page 228
    ..., training regarding accounting-related topics and other agreed-upon procedures that are reasonably related to the performance of the audit or review of the Company's financial statements. Tax Fees are fees for tax advice, tax compliance, expatriate employee tax services and transfer pricing studies...

  • Page 229
    ... of law is still ongoing. The additional deferred and current income tax charges described above totaled â,¬168 over a period of approximately seven years. Of the total charge, â,¬73 was reflected in the Company's fiscal 2006 Consolidated Statements of Income and related to fiscal 2006, 2005...

  • Page 230
    ... order to consult the Managing Board and the Audit Committee with regard to the future structure of the compliance organization, the execution of compliance reviews, the review of related guidelines and controls including potential improvement measures, and the respective communication and training...

  • Page 231
    ... reported in shareholders' equity, net of applicable deferred tax, as a component of accumulated other comprehensive income until such securities are sold. Changes in fair value of trading securities are recorded in income at the time those changes occur. Notes to Consolidated Financial Statements

  • Page 232
    ... applied based on current market rates and the accounting for compensation increases and pension trends, this method allows to better approximate the fair value of the pension obligation than the German tax driven methodology. At the end of March 2000, the Company formed a pension trust to which it...

  • Page 233
    .... Equity awards vested prior to October 1, 2005 continue to be accounted for under recognition and measurement provisions of APB Opinion No. 25 and related interpretations. Under German GAAP, up to and including fiscal 2003, compensation cost in the amount of the option value was accrued at the date...

  • Page 234
    ... statement line item Marketing, selling and general administrative expenses is composed of: Year ended September 30, 2006 Marketing and selling expenses General administrative expenses 11,314 4,156 15,470 2005 10,390 3,294 13,684 Roll-forward of long-term investments Accumulated Equity adjustments...

  • Page 235
    ... used for determining the compensation of the Managing Board of Siemens AG and sets out the level and structure of Managing Board remuneration. In addition, the report describes the policies and levels of compensation paid to Supervisory Board members and gives details of stock ownership by members...

  • Page 236
    ... Chartered Accountant (FCA) Date of birth: March 17, 1945 Member since: January 23, 2003 External positions Comparable positions outside Germany: GUS plc, UK Hogg Robinson Group plc, UK HSBC Holdings plc, UK Hildegard Cornudet* Chairwoman of the Central Works Council, Siemens Business Services GmbH...

  • Page 237
    ... the Company's approach to corporate governance issues. The Audit Committee's duties include preparing Supervisory Board reviews of the annual financial statements of Siemens AG and of the consolidated financial statements of Siemens worldwide. The Committee also reviews the quarterly reports and...

  • Page 238
    ... German supervisory board positions: Bayerische Börse AG, Munich Company positions Comparable positions outside Germany: Siemens Corp., USA Siemens Ltd., China (as of October 1, 2006) Siemens Ltd., India (as of October 1, 2006) Edward G. Krubasik, Prof. Dr. rer. nat. (until September 30, 2006) Date...

  • Page 239
    ... Financial Statements Managing Board committees 235 Managing Board committees Committees Corporate Executive Committee Meetings in fiscal 2006 46 meetings Duties and responsibilities The Corporate Executive Committee comprises the President of the Managing Board, the heads of Corporate Finance...

  • Page 240
    ... 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 and continuing education...

  • Page 241
    ... group management report for the business year from October 1, 2005 to September 30, 2006 satisfy the conditions required for the Company's exemption from its duty to prepare consolidated financial statements in accordance with German law together with the group management report. Munich, Germany...

  • Page 242
    ... information on discontinued operations). Accordingly, amounts for 2002 are not directly comparable with the Company's fiscal data for 2006, 2005, 2004 and 2003. (2) Net debt includes four positions of the Consolidated Balance Sheets: Cash and cash equivalents, Marketable securities, Short-term debt...

  • Page 243
    ... stock price(8) High Low Year-end (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...

  • Page 244
    ... Code (HGB) and the reporting requirements of the U.S. Securities and Exchange Commission (SEC) on Form 20-F. In addition, Siemens has prepared its first IFRS Consolidated Financial Statements as of and for the two years ended September 30, 2006, which represents the first IFRS reporting date...

  • Page 245
    ... of development costs Investments accounted for using the equity method Sale and leaseback transactions Financial instruments Pensions and other post-employment benefits Termination benefits Provisions Other Deferred taxes Total adjustments Equity under IFRS i b c d e f g h a (unaudited) Year ended...

  • Page 246
    ... be based on financial information provided by the associated companies and joint ventures that is in compliance with IFRS. Due to resulting IFRS adjustments relating to investments accounted for using the equity method, equity decreased by â,¬141, â,¬164 and â,¬182 as of September 30, 2006 and 2005...

  • Page 247
    ... as of September 30, 2004 be carried forward to the IFRS opening balance and deferred over the remaining life of the related instrument. The termination of hedge accounting resulted in a decrease in equity as of September 30, 2006 of â,¬7 and an increase in equity as of September 30, 2005 of â,¬89...

  • Page 248
    ... in the tables above resulted primarily from such benefits. g. Termination benefits A significant portion of the adjustments resulting from termination benefits relates to the partial retirement program available to Siemens' employees in Germany. The majority of participants opted for a partial...

  • Page 249
    ... businesses are not presented as discontinued operations under U.S. GAAP due to Siemens' anticipated continuing involvement in the carrier-related business and the enterprise networks business and therefore have been presented as continuing activities in Siemens' Consolidated Financial Statements...

  • Page 250
    ... C Captive finance unit Cash flow Cash management Commercial paper Consolidated financial statements Corporate Treasury Cost of capital D Debt-to-equity ratio Deferred taxes Derivative Discontinued operations E Equity method EVA Expected long-term rate of return on pension plan assets

  • Page 251
    ... costs Funded status ofa pension plan G GASC German GAAP Goodwill Group profit H Hedging Hybrid bond I IFRS J M Joint venture Medium-term note program Moody's Investors Service N Net capital employed Net cash from operating and investing activities Net periodic pension cost

  • Page 252
    ... owned corporations in connection with the buying and selling of stocks and bonds. Independent rating agency that provides evaluation of securities investment and credit risk. Form of employee incentive and compensation. The employee is given an option to purchase a company's shares if certain...

  • Page 253
    ...Common stock Communications (Com) Compensation Report Comprehensive income Contingencies Corporate Governance Report Debt Declaration of Conformity with the German Corporate Governance Code Derivative financial instruments Dividend Earnings per share Employees EVA performance Expected return on plan...

  • Page 254
    ... Inventories Investor Relations Key data Leases Letter to our Shareholders Liquidity and capital resources Long-term investments Management's discussion and analysis Managing Board Managing Board Committees Marketable securities and investments Medical Solutions (Med) Net periodic pension cost (NPPC...

  • Page 255
    ...of the Managing Board Statements of Cash Flow Statements of Changes in Shareholders' Equity Statements of Income Stock market information Stock-based compensation Subsequent events Summary of significant accounting policies Supervisory Board Supervisory Board committees Taxes Training Transportation...

  • Page 256
    252 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 / Press conference Annual...

  • Page 257
    Corporate Structure Managing Board of Siemens AG(1) Corporate Executive Committee Klaus Kleinfeld, President and Chief Executive Officer Head of CD Special responsibilities: CC, GA Joe Kaeser Head of CF Special responsibility: SFS Jürgen Radomski Head of CP Special responsibilities: Med, OSRAM, MCP...

  • Page 258
    ...us Corporate Supply Chain and Procurement (CSP) Bernd Regendantz Global Government Affairs (GA) Harald Braun Global Shared Services (GSS) Denice Kronau Management Consulting Personnel (MCP) Hans-Jürgen Schloß Financing and Real Estate Information and Communications Siemens Business Services GmbH...

  • Page 259
    ...consolidated financial statements in the form of press releases. Conference calls with journalists and analysts supplement these reports. Two major press conferences - one at mid-year and one at year-end - as well as an annual analyst conference give journalists and analysts additional opportunities...

  • Page 260
    www.siemens.com Siemens Aktiengesellschaft Order no. A19100-F-V70-X-7600