Siemens 2006 Annual Report Download - page 192

Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated and per share amounts)
188
Consolidated Statements of Income
The recognized expense related to pension plans and similar commitments in the Consolidated
Statements of Income is referred to as net periodic pension cost (NPPC) and consists of
several separately calculated and presented components. NPPC is comprised of the service
cost, which is the actuarial net present value of the part of the PBO for the service rendered in
the respective fiscal year; the interest cost for the expense derived from the addition of
accrued interest on the PBO at the end of the preceding fiscal year on the basis of the identified
discount rate; and the expected return on plan assets in the case of funded benefit plans.
Actuarial gains and losses, resulting for example from an adjustment of the discount rate,
and asset gains and losses, resulting from a deviation of actual and expected return on plan
assets, are not recognized in the Consolidated Statements of Income as they occur. If these
unrecognized gains and losses exceed 10% of the higher of PBO 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 general administrative expense),
according to the function of the employee groups accruing benefits.
In the Consolidated Statements of Income, NPPC expenses before income taxes for the
Company’s principal pension and other postretirement benefits in fiscal 2006 aggregated to
€1,149 compared to €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 plans, the participants are paid by the external pension fund and accordingly these
payments are cash neutral to the Company. In this case, the Company’s regular funding and
supplemental cash contributions result in net cash used in operating activities.
In the Consolidated Statements of Cash Flow, the Company’s principal pension and other
postretirement benefits resulted in net cash used in operating activities of €797 compared
to €2,082 in the previous fiscal year. The separately reported supplemental cash contributions
to pension trusts in fiscal 2006 and 2005 of €– and €1,496, respectively, were included in these
amounts.
Principal pension benefits
The principal pension benefit plans cover approximately 535,000 participants, including
252,000 active employees, 91,000 former employees with vested benefits and 192,000 retirees
and surviving dependents. Individual benefits are generally based on eligible compensation
levels and/or ranking within the Company hierarchy and years of service. Retirement benefits
under these plans vary depending on legal, fiscal and economic requirements in each country.
The majority of Siemens’ active employees in Germany participate in a recently introduced
pension scheme, the BSAV (Beitragsorientierte Siemens Altersversorgung). The BSAV is a fully
funded defined benefit pension plan whose benefits are predominantly based on contribu-
tions made by the company and returns earned on such contributions, subject to a minimum
return guaranteed by the Company. The BSAV is funded via the BSAV Trust. In connection with
the implementation of the BSAV, benefits provided under defined benefit pension plans fund-
ed via the Siemens German Pension Trust were modified to substantially eliminate the effects
of compensation increases.