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How can you power a planet hungry for electricity
without damaging it?
www.siemens.com
Annual Report 2007
Answers to the world’s toughest questions confronting
Industry, Energy and the Environment, and Healthcare.
How can disease be detected before
it strikes?
How can you manufacture customized
products at affordable prices?

Table of contents

  • Page 1
    Annual Report 2007 Answers to the world's toughest questions confronting Industry, Energy and the Environment, and Healthcare. www.siemens.com

  • Page 2
    How can you manufacture customized products at affordable prices? How can you power a planet hungry for electricity without damaging it? How can disease be detected before it strikes?

  • Page 3
    ...Portfolio Group Presidents The Intelligent Factory Ecofriendly Electricity Patient-centric Solutions Corporate Governance Report* Compliance Report Compensation Report Information for shareholders* Management's discussion and analysis Consolidated Financial Statements Statement of the Managing Board...

  • Page 4
    ... Energy and the Environment, and Healthcare. How can you manufacture customized products at affordable prices? Our answer: The intelligent factory. We combine virtual product planning with leading-edge automation technologies to provide innovative solutions for highly ï¬,exible production processes...

  • Page 5
    Our values - Highest performance with the highest ethics Responsible We're committed to ethical and responsible action. Excellent We deliver top performance and excellent results. Innovative We drive innovation to create lasting value.

  • Page 6
    .... In written and oral reports, the Managing Board regularly provided us with timely and comprehensive information on Company planning and business operations as well as on the strategic development and current state of the Company. Actual deviations from business plans were explained to us in detail...

  • Page 7
    ...seven times. Together with the independent auditors, the President and Chief Executive Officer, and the Chief Financial Officer, the Audit Committee discussed the Annual Financial Statements and management's discussion and analysis (MD&A) of Siemens AG and the Consolidated Financial Statements and...

  • Page 8
    .... The Managing Board reported regularly and comprehensively on Company planning and the strategic development, business operations and current state of the Company. Compliance-related measures and the future structure of business operations at Siemens AG were discussed at several meetings. Decisions...

  • Page 9
    ...' Meeting - the Managing Board reported on the current state of the Company and on the status of the Company's compliance and control systems. In addition, the Supervisory Board was informed for the first time of the Managing Board's intention to sell stakes in the automotive supplier Siemens VDO...

  • Page 10
    ... on the main findings of their audit. At this meeting, the Managing Board explained the Annual and Consolidated Financial Statements as well as the Company's risk management system. It also provided a report on the scope, focal points and costs of the audit. As a result of the definitive findings...

  • Page 11
    ... the members of the Managing Board as well as the employees and employee representatives of all Siemens companies for their work. Together, they made fiscal 2007 another very successful year for Siemens' business. For the Supervisory Board Dr. Gerhard Cromme Chairman Berlin and Munich, November...

  • Page 12
    12 Managing Board of Siemens AG Managing Board of Siemens AG Peter Löscher Joe Kaeser Jürgen Radomski Dr. rer. pol. h. c., Dr. techn. h. c. Heinrich Hiesinger Dr.-Ing. Rudi Lamprecht Hermann Requardt Prof. Dr. phil. nat.

  • Page 13
    Managing Board of Siemens AG 13 Uriel J. Sharef Dr. rer. pol. Klaus Wucherer Prof. Dr.-Ing., Dr.-Ing. E. h. Peter Y. Solmssen Eduardo Montes Erich R. Reinhardt Prof. Dr.-Ing., Dr.-Ing. E. h., Dr. med. h. c. As of October 1, 2007 For further information, see page 320 and back cover foldout.

  • Page 14
    ...in Siemens' recent history, a year of unforeseen challenges, profound changes and major business successes. The beginning of fiscal 2008 marked the 160th anniversary of our Company's founding. No other major company in our industry boasts such a long and distinguished history. All of us - employees...

  • Page 15
    ... for a unique success story. From the very beginning, Werner von Siemens aspired to market his innovations beyond Germany's borders. Envisioning a global enterprise, he opened the company's first representative office in London in 1850. Just three years later, he expanded his business eastward to...

  • Page 16
    ... new Siemens Managing Board will have full responsibility for leading the Company worldwide. The Corporate Executive Committee of the Managing Board will be eliminated. The members of the new Managing Board will have responsibility for operational profit and loss, and the coaching system now in use...

  • Page 17
    ...Industry Sector will comprise the businesses of the Groups Automation and Drives (A&D), Industrial Solutions and Services (I&S), Transportation Systems (TS), Siemens Building Technologies (SBT) and OSRAM. The Energy Sector will comprise the businesses of the Power Generation Group (PG) and the Power...

  • Page 18
    ... and the world's first integrated diagnostics company. We're now the only supplier to the healthcare industry offering a complete range of products, services and solutions for the entire clinical value chain. Regulatory approval by the European Commission in April 2007 was the final step in our...

  • Page 19
    ... our former Communications Group (Com). In addition, a final settlement has been reached with the German tax authorities. These actions mark the end of the investigation at Com by the Munich Public Prosecutor's Office and the German tax authorities insofar as it relates to Siemens AG. Nonetheless...

  • Page 20
    Providing answers through innovation

  • Page 21
    ... successful products and solutions. The growing value of our Company and the long-term successes we're scoring with customers around the world prove that we're finding the right answers to the questions of our time. Worldwide presence Page 22. Our employees Page 24. In dialogue with our investors...

  • Page 22
    ...698 locations around the globe, our 398,200 employees are the key to our success. Approximately 32,500 Siemens researchers worldwide are developing innovations to safeguard and expand our leading market positions. Our most important R&D centers are in Germany, Austria, the U.S., China and India. Our...

  • Page 23
    At a Glance 23 Europe (excluding Germany) Revenue (in billions of euros) Employees R&D employees Major production facilities 22.801 105,400 9,000 59 Worldwide share 32% 27% 28% 22% Germany Revenue (in billions of euros) Employees R&D employees Major production facilities 12.594 126,100 11,700 74...

  • Page 24
    ... 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. Hands-on training Siemens is exporting its work-study system, which...

  • Page 25
    ... of our success, we offer a wide range of training and continuing education programs - from management and language courses to seminars in technical fields - that enhance our employees' qualifications, foster their development and equip them to excel throughout their working lives. Engineers and...

  • Page 26
    ... analysts can discuss current Company-related issues with our management. These discussions and conferences, which are transmitted live on our redesigned and expanded Internet site, are accessible to the general public. Our institutional investors are also kept up-to-date on Company developments...

  • Page 27
    ... for the first time - to precisely control industrial machines without using expensive cable connections. The solution increases factory ï¬,exibility and improves production quality. By guaranteeing data transfer rates in the millisecond range, special IWLAN software allows the effective monitoring...

  • Page 28
    ...to everything from home appliances to power turbines. Maximilian Fleischer is working on electronic gas sensors that detect air and water pollutants at an early stage. Energy-efficient regulation of building systems, early fire detection and the diagnosis of respiratory diseases are just a few of...

  • Page 29
    ... At September 30, 2007, the Industry Sector comprised the businesses of the Groups Automation and Drives, Industrial Solutions and Services, Transportation Systems, Siemens Building Technologies, and OSRAM; the Energy Sector comprised the businesses of the Power Generation Group and the Power...

  • Page 30
    Rigorously pursuing ambitious aims

  • Page 31
    ... that our Company's progress is sustainable, the new program aims to create long-term value for our shareholders. That's why we've set new targets for the year 2010. We're aiming for sales growth, profitability at our individual Groups, a high return on capital employed, an improved cash ï¬,ow and...

  • Page 32
    ... - our strong core businesses like energy and environmental technologies, automation systems, public and industrial infrastructures, and healthcare solutions. By implementing the other three pillars, we established new standards and processes Company-wide and further developed our proven strategies...

  • Page 33
    ...-term value of our Company. nc Operational Excellence ¢ Siemens Management System (powered by top+) with focus on: ¢ Innovation ¢ Customer Focus ¢ Global Competitiveness Fit 4 Be ¢ Attain cash conversion rate of "1-growth rate" ¢ Sustain 2x GDP growth ¢ Achieve new margin 2010 Corporate...

  • Page 34
    ... Q2 2007 New Fit42010 margin ranges Groups Siemens IT Solutions and Services (SIS)(1) 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) Medical Solutions...

  • Page 35
    ... the capital our businesses use, we've adopted the metric return on capital employed (ROCE, see also page 109). ROCE, which is commonly used to compare the performance of one business with that of another, can be calculated directly from the figures provided in a company's financial statements: It...

  • Page 36
    ... and R&D outlays indispensable to maintaining a competitive edge and satisfying customer demands for innovative solutions. Active portfolio management also ensures that a company's businesses are strategically aligned and capable of generating synergies. Our businesses are divided into three Sectors...

  • Page 37
    Fit42010 37 Industry ¢ Automation and Drives (A&D) ¢ Industrial Solutions and Services (I&S) ¢ Siemens Building Technologies (SBT) ¢ Transportation Systems (TS) ¢ OSRAM Energy ¢ Power Generation (PG) ¢ Power Transmission and Distribution (PTD) Healthcare ¢ Medical Solutions (Med) Focus ...

  • Page 38
    ...program special is that leaders develop leaders. This approach not only creates a dynamic, worldwide network of managers but also allows knowledge and experience to be shared and multiplied across the Company - an important success factor for our business. Our SLE courses employ interactive training...

  • Page 39
    ... their outstanding technical know-how, motivation and perseverance, these individuals have made us a technology leader in a wide range of different fields. The groundwork for a high-performance culture at Siemens has now been laid. Our next step is to vigorously promote and develop this culture.

  • Page 40
    ...13 Sector Development Boards. These boards provide our sales units with the know-how and support they need to cooperate with customers in creating future-proof end-to-end solutions. Our recent project for Lisbon's Hospital da Luz is a prime example of how our efforts are paying off. Working with the

  • Page 41
    ... our project management. Over the last few years, we've also increased the quality and considerably reduced the costs of our own internal services by bundling them in a new Global Shared Services unit. In all our businesses - whether in Industry, Energy or Healthcare - software plays a crucial...

  • Page 42
    ... in the Company's financial statements for fiscal 2006. These actions mark the end of the investigation of the former Communications Group by the public prosecutors and tax authorities in Germany insofar as it relates to Siemens AG. The comprehensive independent investigations being conducted by...

  • Page 43
    ..., our Company-wide code of behavior, is the basis of all our actions. The Compliance Program Prevent ¢ Clear guidelines Siemens Business Conduct Guidelines ¢ Training programs ¢ Compliance helpdesk: "Ask us" Detect ¢ Comprehensive control system ¢ Easily accessible reporting channel: "Tell...

  • Page 44
    ... world currently have no access to clean drinking water - especially in regions with poor infrastructure. Addressing this major challenge of our time, the Australian team - working together with the SkyJuice Foundation of Sydney - developed a solution using Siemens technology. The inexpensive water...

  • Page 45
    ...no longer have to spend a whole year training its new engineering employees. Integrating people with disabilities A partnership between mdexx, an Automation and Drives company, and Martinshof, a sheltered workshop in Bremen, Germany, has been ï¬,ourishing for over ten years now. The project began in...

  • Page 46
    Succeeding in tomorrow's markets

  • Page 47
    ... in the others. We're a global leader in three Sectors that hold tremendous promise for the future: ¢ Industry ¢ Energy ¢ Healthcare. Group Presidents Page 48. Industry - The intelligent factory Page 50. Energy - Ecofriendly electricity Page 58. Healthcare - Patient-centric solutions Page 64.

  • Page 48
    48 Group Presidents Group Presidents Helmut Gierse A&D Udo Niehage Dr.-Ing. PTD Erich R. Reinhardt Prof. Dr.-Ing., Dr.-Ing. E. h., Dr. med. h. c. Med Klaus Voges PG Wolfgang Dehen SV

  • Page 49
    Group Presidents 49 Joergen Ole Haslestad I&S Hans M. Schabert TS Martin Goetzeler OSRAM Dominik Asam SFS Christoph Kollatz Dr. rer. pol. SIS Johannes Milde Dr.-Ing. SBT As of October 1, 2007 For further information, see back cover foldout.

  • Page 50

  • Page 51
    ...conditions - a technique that's used, for instance, to develop and optimize the efficiency of turbine blades and wind turbines without the need for expensive real-world testing. Siemens' Totally Integrated Automation (TIA) platform comprises a proven, highly successful range of products and systems...

  • Page 52
    ... system that automatically joins car bodies with powertrains - were completely redesigned. Using software jointly developed by Siemens and UGS, the new machines were simulated on PCs and every step in the process was tested in advance. The results were impressive: BMW engineers completed real-world...

  • Page 53
    ... A&D is a world-leading supplier of automation and drives technology, offering standard products, system- and sector-specific solutions for the manufacturing and process industries, and electrical installation technology. European industry could save some â,¬3 billion a year in energy costs by...

  • Page 54
    ...of developing new solutions - is promoting the rapid deployment of resource-saving process solutions all around the world. To increase market penetration, we've bundled our mining and steel activities in the Metal Technologies Division, which is headquartered in Linz, Austria. We've also transferred...

  • Page 55
    ...transportation. Our systems for recovering and storing energy, our wide array of control and safety technologies and our advanced route electrification solutions are also making train travel smoother and more energy-efficient. Rail transportation is destined to play an ever greater role in meeting...

  • Page 56
    ... premises. Our Group has four divisions. The Building Automation Division offers efficiency-enhancing automation solutions and energy management systems and services that provide defined energy savings. The Security Systems Division specializes in electronic solutions for access control, video...

  • Page 57
    ... using ultraviolet light. Our portfolio includes lamps and optoelectronic semiconductor light sources such as light-emitting diodes (LEDs), LED systems, control electronics and light management systems. With artificial lighting currently consuming some 19 percent of the world's electricity, energy...

  • Page 58

  • Page 59
    ... the world's growing population with reliable supplies of electricity while mitigating climate change - this is the challenge now facing energy utilities worldwide. And Siemens - with technologies ranging from the most advanced gas turbines to offshore wind farm systems and low-loss high-voltage...

  • Page 60
    ...-cast process based on our patented IntegralBlade technology. To meet the ever increasing demand for wind power systems, we're continually expanding our production capacities. Our largest wind turbine, the SWT-3.6-107, which has a rotor diameter of 107 meters and a capacity of 3.6 MWs, is being used...

  • Page 61
    ...will connect the Netherlands and Great Britain. HVDC Plus is what we call our latest innovation in high-voltage direct-current technology. The advantages of the new system, which employs voltagesourced converters, include the compact dimensions of the converter stations used and the system's ability...

  • Page 62
    ..., air pollution control and coal gasification systems, and extensive services round out the Group's portfolio. www.siemens.com/ powergeneration Supplying the world's growing population with reliable, ecofriendly electricity will require a broad mix of energy sources and technologies. We offer...

  • Page 63
    ... services worldwide. Our solutions enable electricity to be transported reliably and economically from the power plant to the consumer. We're opening up a new dimension in HVDC technology with the construction of the world's largest highvoltage direct-current transmission system. When completed...

  • Page 64

  • Page 65
    ... last few years, we've expanded our portfolio through targeted acquisitions. By acquiring Shared Medical Systems (healthcare IT) in 2000, CTI Molecular Imaging in 2005, Diagnostic Products Corporation (DPC) and Bayer Diagnostics in 2006, and Dade Behring in 2007, we've created the world's first and...

  • Page 66
    ... at the pre-symptomatic stage. As laboratories and radiology departments become more closely networked, it's conceivable that blood tests could be used to assess whether individuals may be prone to future heart attacks. CT scans could then be carried out on high-risk patients to obtain a precise...

  • Page 67
    ...conventional CT imaging. We're also meeting the clinical and economic demands for increased ultrasound performance with a completely new generation of ultrasound solutions, such as our Acuson S Class (pictured on page 68, right, the first of the new S Class products, the Acuson S2000) and the world...

  • Page 68
    ... we continue to drive innovation across the healthcare continuum - for the benefit of people all over the world. * CAUTION: Investigational Device. Limited by U.S. Federal law to investigational use. This product is not commercially available in the United States (USA). The information about the...

  • Page 69
    ... last few years, we've expanded our portfolio through targeted acquisitions. By acquiring Shared Medical Systems (healthcare IT) in 2000, CTI Molecular Imaging in 2005, Diagnostic Products Corporation (DPC) and Bayer Diagnostics in 2006, and Dade Behring in 2007, we've created the world's first and...

  • Page 70
    ...develop software for the other Siemens Groups and ensure the operation of IT systems Company-wide. Leveraging our global network of service facilities and centers of competence, we'll continue to provide our customers with outstanding services at competitive prices far into the future. Siemens' new...

  • Page 71
    ... management system. Formed on October 1, 2005 from the Cordless Products Division of Siemens' former Communications Group, SHC is a wholly owned subsidiary of Siemens AG. Headquartered in Munich, we're active in more than 69 countries. Our primary production facility is located in Bocholt, Germany...

  • Page 72
    ... completion in 2010, this innovative facility, in which the partners are investing more than â,¬100 million, will provide world-class healthcare services. We have a three-pronged business strategy: to boost Siemens' sales by providing financial solutions, to expand our role as a competence center...

  • Page 73
    ...resource use, for example, by dismantling unneeded sites. With our ï¬,exible real estate strategies and intelligent facility concepts, we're helping Siemens penetrate new markets. Our activities pave the way for the Company's business success by providing the infrastructure that other Siemens Groups...

  • Page 74
    .... Siemens' washing machines now use just two-thirds of the water consumed by older devices. While pushing resource conservation and energy efficiency, we also aim to maximize user benefit. That's why all our products are designed to strike an ideal balance between performance, features, quality...

  • Page 75
    ... products, services and infrastructure solutions. With global competition growing ever fiercer, companies have no choice but to continually increase the efficiency and reliability of their business processes. Our customers require automated IT services that guarantee a high degree of security and...

  • Page 76
    ... networks on a common platform for Bharti Airtel, India's leading private communications company. We aim to offer end-to-end solutions for public-sector and corporate customers. Working closely with a number of Siemens Groups, we bundle highly reliable and secure communications technologies...

  • Page 77
    ... a software-based solution instead of the proprietary hardware found in conventional telephone networks, which is often difficult to maintain and integrate. Headquartered in Munich, Siemens Enterprise Communications GmbH & Co. KG was established as a wholly owned subsidiary of Siemens AG in...

  • Page 78
    ... Intelligent Passive and Active Safety (IPAS) concept networks driver assistance systems with active and passive vehicle safety systems, facilitating information exchange to boost safety and comfort. Our portfolio also includes vehicle drive, engine control and emissions management technologies...

  • Page 79
    ...the German Corporate Governance Code Compliance Report Internal regulations Business Conduct Guidelines and Code of Ethics Structure and functions of the compliance organization Complaints, comments and questions Training Compensation Report Managing Board remuneration Supervisory Board remuneration...

  • Page 80
    ... 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 two-tier management and oversight structure, consisting of an 11-member Managing Board and a 20-member Supervisory Board...

  • Page 81
    ...the Supervisory Board whether or not it should approve those financial statements. In addition, the Audit Committee oversees the Company's internal control system related to financial reporting and its procedures for assessing, monitoring and managing risk. The Company's Financial Audit department...

  • Page 82
    ... related to Company strategy and strategy implementation, planning, business development, financial position, earnings, compliance and risks. Directors' dealings of members of the Managing and Supervisory Boards Pursuant to § 15a of the German Securities Trading Act (WpHG), members of the Managing...

  • Page 83
    ...XETRA Sale of shares XETRA Date of transaction First and family name Function/Status Member of Managing Board Member of Managing Board Number Share of shares price â,¬87.49 â,¬88.40 Total amount â,¬341,211.00 â,¬265,200.00 Comment Sale of shares in line with 1999 Siemens Stock Option Plan Sale...

  • Page 84
    ... capital stock, over which the vSV has voting control under a power of attorney. Mr. Peter von Siemens is authorized to vote these shares as a representative of the founder's family. Shareholder relations Four times each year, Siemens AG reports to its shareholders regarding its business development...

  • Page 85
    ... 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 each...

  • Page 86
    ...' meeting. In addition, the Supervisory Board of Siemens AG has an Ownership Rights Committee and a Mediation Committee, the latter of which is required by German law. Neither of these two committees is required under the NYSE Standards. Shareholder approval of equity compensation plans; stock...

  • Page 87
    ... members of the Managing Board in the case of pension plans, section 4.2.5 para. 2, 2nd sentence of the Code). This exception no longer applies given the individual disclosure made in the Annual Report 2007. Berlin and Munich, November 28, 2007 Siemens Aktiengesellschaft Managing Board Supervisory...

  • Page 88
    ...Company's management and corporate culture. Internal regulations - Business Conduct Guidelines and Code of Ethics Our Business Conduct Guidelines and our Code of Ethics for Financial Matters form the basis of our Compliance Program. The Business Conduct Guidelines, introduced by the Managing Board...

  • Page 89
    ... controls, the Company implemented a centralization of its payment and cash management systems. All corruption-related internal regulations were summarized into an easy-to-read "Siemens Anticorruption Compliance Guide" and distributed to selected employees. Furthermore, the Company established...

  • Page 90
    ... Committee of the Supervisory Board and provide periodic status reports to them. In addition to the compliance organization, the Company's audit department and an internal task force have been instructed to continue their examination of our compliance and internal control system for gaps and...

  • Page 91
    ...the existing internal procedures for reporting and handling complaints, an external attorney has been engaged to act as an independent ombudsman to provide a new protected communication channel for Siemens employees and third parties. Since September 2007, our customers, suppliers, business partners...

  • Page 92
    ... of Siemens AG and sets out the level and structure of Managing Board remuneration. In addition, this section describes the policies and levels of compensation paid to Supervisory Board members. This section is based on the recommendations and suggestions of the German Corporate Governance Code and...

  • Page 93
    ... of the Supervisory Board. A portion of these contributions is accounted for by funding of pension commitments earned prior to transfer to the BSAV. In addition, special contributions may be granted on the basis of individual decisions. Employment contracts with Managing Board members concluded...

  • Page 94
    ... an enterprise contract within the meaning 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...

  • Page 95
    ... the transfer of Managing Board remuneration to the hardship fund for BenQ Mobile employees in Germany. Effective June 30, 2007, Dr. Kleinfeld resigned from his offices as a full member of the Managing Board and as CEO and President of the Managing Board of Siemens AG. The full term of his service...

  • Page 96
    ... of the Managing Board of Siemens AG. The full term of his service agreement would have expired on September 30, 2007. Effective July 1, 2007, Peter Löscher was elected a full member of the Managing Board and appointed Chief Executive Officer and President of the Managing Board of Siemens AG. Prof...

  • Page 97
    ... Siemens shares without additional payment. Dr. Kleinfeld's stock-based compensation is settled in cash. Effective June 30, 2007, Dr. Kleinfeld resigned from his offices as a full member of the Managing Board and as CEO and President of the Managing Board of Siemens AG. The full term of his service...

  • Page 98
    ... the terms and conditions of the 1999 and 2001 Siemens Stock Option Plans approved by the Annual Shareholders' Meetings on February 18, 1999 and February 22, 2001 (for details on the Siemens Stock Option Plans see Note 33 of the "Notes to Consolidated Financial Statements"). (Amounts in number of...

  • Page 99
    ... of the Managing Board of Siemens AG. The full term of his service agreement would have expired on September 30, 2007. Effective July 1, 2007, Peter Löscher was elected a full member of the Managing Board and appointed Chief Executive Officer and President of the Managing Board of Siemens AG. Prof...

  • Page 100
    ... of the Managing Board of Siemens AG. The full term of his service agreement would have expired on September 30, 2007. Effective July 1, 2007, Peter Löscher was elected a full member of the Managing Board and appointed Chief Executive Officer and President of the Managing Board of Siemens AG. Prof...

  • Page 101
    ... of the Managing Board of Siemens AG. The full term of his service agreement would have expired on September 30, 2007. Effective July 1, 2007, Peter Löscher was elected a full member of the Managing Board and appointed Chief Executive Officer and President of the Managing Board of Siemens AG. Prof...

  • Page 102
    ... BSAV attributable to the members of the Managing Board for fiscal year 2007: Defined Contribution Benefit Plan (BSAV) Information pursuant to Section 4.2.5 para. 2, 2nd sentence of the German Corporate Governance Code Of which, funding of pension commitments earned prior to transfer to the BSAV...

  • Page 103
    ... services in fiscal year 2007. The current remuneration policies for the Supervisory Board were authorized at the Annual Shareholders' Meeting of January 27, 2005. Details are set out in § 17 of the Articles of Association of Siemens AG. As a result, the remuneration of Supervisory Board members...

  • Page 104
    ...Supervisory Board of Siemens AG as a successor to Georg Nassauer with effect from April 1, 2007. Dieter Scheitor was appointed a member of the Supervisory Board by court order as a successor to Wolfgang Müller, who resigned from the Supervisory Board at the close of the Annual Shareholders' Meeting...

  • Page 105
    ... duties, the Chairman of the Supervisory Board is furthermore entitled to an office with secretarial support and use of the Siemens carpool service. Under an existing agreement that was extended after the Annual Shareholders' Meeting 2003 on unchanged terms and conditions and that will expire after...

  • Page 106
    ... Management's discussion and analysis Business overview and Economic Environment Basis of Presentation Fiscal 2007 - Results of Siemens Segment Information Analysis Operations - Automation and Drives - Industrial Solutions and Services - Siemens Building Technologies - Osram - Transportation Systems...

  • Page 107
    ...Financial Statements Consolidated Statements of Income Consolidated Statements of Income and Expense Recognized in Equity Consolidated Balance Sheets Consolidated Statements of Cash Flow Notes to Consolidated Financial Statements Statement of the Managing Board Independent Auditors' Report Five-year...

  • Page 108
    ... negative equity investment income of â,¬429 million related to NSN, which was formed by Nokia Corporation (Nokia) and Siemens in April 2007. All Groups in Operations increased their Group profit and Group profit margin. Automation and Drives (A&D), Power Generation (PG), Medical Solutions (Med...

  • Page 109
    ... from the Consolidated Statements of Income) to other interest income (expense), net. Net capital employed is calculated as total equity plus long-term debt plus short-term debt and current maturities of long-term debt, minus cash and cash equivalents. Because Siemens reports discontinued operations...

  • Page 110
    ...our enterprise networking business which is reported within discontinued operations. Meanwhile, we completed or announced major acquisitions that add a successful in-vitro healthcare diagnostics business to complement our existing portfolio of diagnostics imaging solutions. In our factory automation...

  • Page 111
    ... a strong fi nancial condition. We continually balance our business portfolio to maintain our leadership in established markets while penetrating new markets. In some cases this involves acquiring complementary technology that enables us to offer more complete solutions. We also use acquisitions to...

  • Page 112
    ... operations, see "Notes to Consolidated Financial Statements." Siemens operates in approximately 190 countries, making us one of the most global companies in the world. In fi scal 2007, our business outside Germany accounted for nearly â,¬60 billion in revenues, representing 83% of total...

  • Page 113
    ... in factory and process automation and electronics assembly. In developed nations, trends such as aging populations, healthcare and homeland security concerns and rising energy costs played to Siemens' established strengths in medical diagnostics and building security, as well as to new capabilities...

  • Page 114
    ...in developed countries continued to fuel demand for advanced diagnostic solutions, including medical imaging such as computed tomography (CT) and magnetic resonance imaging (MRI) and the full spectrum of in-vitro diagnostic testing. The need to improve the quality of care and reduce healthcare costs...

  • Page 115
    ...Siemens' expertise in innovative electrical engineering. We call this component of our business Operations. The Groups in Operations design, manufacture, market, sell, and service products and systems, or help customers use and manage those products and systems. A Group is equivalent to a reportable...

  • Page 116
    116 Management's discussion and analysis Due to the increased importance of the Company's strategic investments accounted for under the equity method, in particular the creation of NSN (see "Notes to Consolidated Financial Statements" for further information), Siemens has created a new reportable ...

  • Page 117
    ... of the former segment Siemens Business Services (SBS) that were bundled with other information technology (IT) activities. In fiscal 2007, Siemens signed an agreement to sell its entire Siemens VDO Automotive (SV) activities to Continental AG. The SV business is reported as discontinued operations...

  • Page 118
    118 Management's discussion and analysis In this report we include information concerning new orders for each of the years presented. Under our order recognition policy, we generally recognize a new order when we enter into a contract that we consider "effective and binding" based on our review of...

  • Page 119
    ...'s discussion and analysis 119 Fiscal 2007 - Results of Siemens The following discussion presents selected information for Siemens for the fi scal years ended: New Orders (location of customer) Year ended September 30, (â,¬ in millions) Germany Europe (other than Germany) Americas Asia-Paci...

  • Page 120
    120 Management's discussion and analysis Revenue (location of customer) Year ended September 30, (â,¬ in millions) Germany Europe (other than Germany) Americas Asia-Pacific Africa, Near and Middle East, C.I.S.** Siemens 2007 12,594 22,801 19,321 10,937 6,795 72,448 2006 12,382 20,489 18,371 9,457...

  • Page 121
    ...information with respect to R&D, see "Research and Development" and "Notes to Consolidated Financial Statements." Marketing, selling and general administrative expenses declined as a percent of revenue, to 16.7% from 17.9% a year earlier, due to the substantial increase in our revenue year-over-year...

  • Page 122
    ... Financial Statements." Discontinued operations includes enterprise networks business, which is held for disposal, the carrier-related business, which was transferred into NSN, the Mobile Devices business sold to BenQ Corporation, and SV, which is held for disposal pending the closing of the sale...

  • Page 123
    ... in impairments at the enterprise networking business, a â,¬201 million fi ne imposed on us in Germany, of which â,¬200 million was tax deductible for tax purposes, and â,¬104 million in other costs related to compliance matters. The remainder of the change year-over-year is due to an operating...

  • Page 124
    124 Management's discussion and analysis Segment Information Analysis Operations Automation and Drives (A&D) Year ended September 30, % Change (â,¬ in millions) Group profit Group profit margin New orders Total revenue External revenue Therein: Germany Europe (other than Germany) Americas Asia-...

  • Page 125
    ...revenue and orders. In fi scal 2007, Group profit at I&S climbed to â,¬415 million, a 47% increase yearover-year. Both earnings and margins improved throughout the Group, with the strongest increases coming in the Group's largest businesses: industrial services, oil and gas and metal technologies...

  • Page 126
    126 Management's discussion and analysis Siemens Building Technologies (SBT) Year ended September 30, % Change (â,¬ in millions) Group profit Group profit margin New orders Total revenue External revenue Therein: Germany Europe (other than Germany) Americas Asia-Pacific Africa, Near and Middle ...

  • Page 127
    ... 8% Adjusted* Management's discussion and analysis * Excluding currency translation effects of (4)% on revenue and orders. Osram's Group profit of â,¬492 million in fi scal 2007 was 8% higher than in the prior year. Along with strength in its large general lighting business, Osram benefited...

  • Page 128
    128 Management's discussion and analysis Transportation Systems (TS) Year ended September 30, % Change (â,¬ in millions) Group profit Group profit margin New orders Total revenue External revenue Therein: Germany Europe (other than Germany) Americas Asia-Pacific Africa, Near and Middle East, ...

  • Page 129
    ...the previous cycle of high global demand for gas turbine energy systems at the beginning of the decade, before PG expanded its industrial turbine business and built its wind power business. In fi scal 2007, PG's non-fossil businesses generated 40% of revenues and 41% of new orders. These total bene...

  • Page 130
    ... to â,¬9.896 billion. The Group's high-voltage direct current (HVDC) technology was a strong driver of large orders during the year, including contract wins in China, India and the U.S. Revenue rose 18% year-over-year, to â,¬7.689 billion, with Europe (including Germany), the Americas and Asia-Paci...

  • Page 131
    ... company. The purchase price for this acquisition, which closed in the fi rst quarter of fi scal 2008, was approximately $7 billion (â,¬5 billion). The Diagnostics division brought significant new volume to Med in fi scal 2007. Orders raised 10%, to â,¬10.271 billion and revenue climbed 20% year...

  • Page 132
    ... of (10)% and (11)% on revenue and orders, respectively. Fiscal 2007 was the fi rst year of operation for SIS, which combines the former Siemens Business Services (SBS) Group with the four software development entities Program and System Engineering (PSE), Siemens Information Systems Ltd. (SISL...

  • Page 133
    ... Board has determined that such items are not indicative of the performance of the individual Groups. Management's discussion and analysis Strategic Equity Investments (SEI) SEI includes results at equity from three companies in which Siemens holds a strategic equity stake: Nokia Siemens Networks...

  • Page 134
    ... to assist with internal and external investigations, and â,¬81 million in funding primarily for job placement companies for former Siemens employees affected by the bankruptcy of BenQ Mobile GmbH & Co. OHG (BenQ). Corporate items also included higher expenses related to a major asset retirement...

  • Page 135
    ... Total assets 2007 329 8,912 2006 % Change 306 10,543 8% (15)% Management's discussion and analysis Income before income taxes (IBIT) at SFS rose to â,¬329 million in fi scal 2007 from â,¬306 million in fi scal 2006. The current year benefited from gains on sales of shares in the Equity division...

  • Page 136
    ...accounted for using the equity method, net(1) 2007 - 15 1 5 1 (2) 19 60 10 (161) 24 (28) 2006 - 9 2 1 1 36 15 27 1 225 25 342 Group profit 2007 Operations Groups Automation and Drives (A&D) Industrial Solutions and Services (I&S) Siemens Building Technologies (SBT) Osram Transportation Systems (TS...

  • Page 137
    Management's discussion and analysis 137 Financial income (expense), net(2) 2007 (1) (6) (3) 6 (8) (1) 11 34 (1) - - 31 2006 4 3 (3) 7 (7) 12 (3) 4 1 - 18 36 EBIT (adjusted)(3) 2007 2,091 406 356 481 198 1,150 620 1,229 243 - (217) 6,557 2006 1,571 270 224 448 78 731 303 957 (733) - (360) 3,489 ...

  • Page 138
    ... without taking into consideration the cost of capital employed in the business. In this manner, EVA complements Group profit and income before income taxes. For EVA calculation purposes, data from the consolidated fi nancial statements is used and to a limited extent adjusted. The most important...

  • Page 139
    ... Sept. 30, 2007 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...

  • Page 140
    ... Cost of Capital (WACC): WACC Operations Groups Automation and Drives (A&D) Industrial Solutions and Services (I&S) Siemens Building Technologies (SBT) Osram Transportation Systems (TS) Power Generation (PG) Power Transmission and Distribution (PTD) Medical Solutions (Med) Siemens IT Solutions...

  • Page 141
    ... to shares of stock of Siemens AG held in treasury by the Company at the date of the Annual Shareholders' Meeting shall be carried forward. Management's discussion and analysis Liquidity and capital resources Financial Strategy and Capital Structure Financial Strategy Siemens is committed...

  • Page 142
    ... the Company's shares. For additional information with respect to stock-based compensation and treasury shares, see "Notes to Consolidated Financial Statements." As part of our Fit42010 program, we decided to optimize our capital structure. A key consideration is to maintain ready access to capital...

  • Page 143
    Management's discussion and analysis 143 (â,¬ in millions) Short term debt Plus: Long term debt Less: Cash and cash equivalents Less: Current available for sale financial assets Net debt Less: SFS Debt excl. internally purchased receivables Plus: Funded status pension plan Plus: Funded status ...

  • Page 144
    ... discussion and analysis On November 9, 2007, Moody's Investors Service downgraded Siemens' longterm corporate credit rating from Aa3 to A1 and set our outlook from "negative" to "stable." The rating action followed our announcements regarding the share-buyback program and capital structure target...

  • Page 145
    ...ows relating to Siemens' enterprise networks business, which is held for sale, the carrier-related business, which was transferred into NSN, the Mobile Devices business sold to BenQ Corporation, and SV, which is held for sale pending the closing of its sale to Continental AG. For further information...

  • Page 146
    ... involving suppliers of high-voltage gas-isolated switching systems mentioned earlier, while the prior period included substantially higher cash outï¬,ows related to severance payments at SIS. Within Financing and Real Estate and Corporate Treasury, the change yearover-year in net cash provided...

  • Page 147
    ... coal gasification business of Sustec-Group and Wheelabrator at PG with a combined preliminary purchase price of approximately â,¬0.4 billion. Investing activities on a continuing basis at Corporate Treasury and Financing and Real Estate used net cash of â,¬806 million in fi scal 2007 compared to...

  • Page 148
    ...-term notes, bonds, loans from banks and obligations under fi nance leases as stated on the Consolidated Balance Sheets. We use the net liquidity measure for internal corporate fi nance management, as well as external communication with investors, analysts and rating agencies. September 30, 2007...

  • Page 149
    ... substantial cash inï¬,ows from the sale of SV (preliminary purchase price of approximately â,¬11.4 billion). For further information, see "Strategic Overview," as well as "Notes to Consolidated Financial Statements." Share buyback program - Subsequent to the close of the fi scal year end 2007, we...

  • Page 150
    ...Management's discussion and analysis Contractual Obligations In the ordinary course of business, Siemens' primary contractual obligations regarding cash involve debt service, purchase obligations and operating lease commitments. The following table summarizes contractual obligations for future cash...

  • Page 151
    ... and analysis 151 Both Moody's and Standard & Poor's view SFS as a captive fi nance company. These ratings agencies generally recognize and accept higher levels of debt attributable to captive fi nance subsidiaries in determining long-term and short-term credit ratings. The allocated equity for...

  • Page 152
    ...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." Pension Plan Funding The defi ned benefit obligation (DBO) of Siemens' principal pension plans, which considers...

  • Page 153
    ... 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 analysis

  • Page 154
    ... or fair value less costs to sell, due to the pending sale. The assets and liabilities of the carrier-related operations of the former Com Group classified on September 30, 2006 on the balance sheet as held for disposal have been transferred into NSN during fi scal 2007, in return the value of the...

  • Page 155
    ...long-term assets In fi scal 2007, the net increase in goodwill and other intangible assets primarily related to acquisitions and purchase accounting adjustments with an offsetting effect from the reclassification of SV. For further information see "Notes to Consolidated Financial Statements." The...

  • Page 156
    ...in cash and redeemed two outstanding bonds. Further information about the notes and 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, 2007 2006...

  • Page 157
    ...by Siemens Financial Services (SFS), which performs such reviews in support of the Company's Corporate Executive Committee. At a minimum, a customer's credit rating must be single B from external rating agencies, or an equivalent SFS-determined rating. In cases where the credit quality does not meet...

  • Page 158
    ... tested for impairment, the determination of the assets' recoverable amount involves the use of estimates by management and can have a material impact on the respective values and ultimately the amount of any impairment. For more information, see "Notes to Consolidated Financial Statements." Pension...

  • Page 159
    ..., warranty costs and legal proceedings. A significant portion of the business of certain of the operating Groups is performed pursuant to long-term contracts, often for large projects, in Germany and abroad, awarded on a competitive bidding basis. Siemens records a provision for onerous sales...

  • Page 160
    ... Excellence we execute our Siemens Management System initiative, which focuses on Innovation, Customer focus and Global competitiveness and is based on our top + work processes and methods. Within Innovation we use methods such as benchmarking and lead customer feedback in order to reinforce...

  • Page 161
    ... a working culture that motivates our people to yield high performance results. The focus is on four topics: Leadership Excellence (SLE) programs, Global talent pool (top talents), Expert Careers (key experts) and Performance Management Process (PMP). Our SLE programs serve the deepening of business...

  • Page 162
    ..., among others. These investigations involve allegations of corruption at a number of Siemens' business Groups. The Munich public prosecutor continues to conduct an investigation of certain current and former employees of the Company on suspicion of criminal breaches of fiduciary duty including...

  • Page 163
    ...of Defense related to the awarding of a contract for the delivery of communication equipment in 2001. ¢ The public prosecutor in Milan is investigating allegations as to whether two employees of Siemens S.p.A. made illegal payments to employees of the stateowned gas and power group ENI. Management...

  • Page 164
    ... matter and conducted searches of Company premises and private homes in Erlangen and Berlin in August 2007. Siemens is cooperating with the authorities in France and Germany. As a result of the above described matters and as a part of its policy of cooperation, Siemens contacted the World Bank and...

  • Page 165
    ... compliance procedures and internal controls in response to the allegations of corruption. We are continuing to improve and implement our anti-corruption program and related controls. Among the initiatives the Company has implemented or is in the process of implementing are: ¢ The Supervisory Board...

  • Page 166
    ... legal compliance training for management, group and regional compliance officers and other employees. ¢ The Company established a new Managing Board position for legal and compliance matters, effective October 1, 2007. Peter Y. Solmssen was appointed a member of Siemens' Managing Board as well...

  • Page 167
    ... reported, the Company engaged an independent compliance advisor in order to consult the Managing Board and the Compliance Committee with regard to the future structure of the compliance organization, the execution of compliance reviews, the review of related guidelines and controls including...

  • Page 168
    168 Management's discussion and analysis In February 2007, the French Competition Authority launched an investigation into possible anti-trust violations involving several companies active in the field of suburban trains, including Siemens Transportation Systems S.A.S. in Paris, and the offices ...

  • Page 169
    ...Argentina before the International Center for Settlement of Investment Disputes (ICSID) of the World Bank. The Company claimed that Argentina unlawfully terminated the Company's contract for the development and operation of a system for the production of identity cards, border control, collection of...

  • Page 170
    ...'s consolidated fi nancial statements of issues raised by allegations of violations of anticorruption legislation. As previously reported, within the former Com Group, the Company's other Groups and regional companies a number of Business Consultant Agreements (BCAs) and similar sales-related...

  • Page 171
    ... used to fund payments in connection with BCAs. The Company adjusted comparative amounts for prior periods in the consolidated fi nancial statements for fi scal 2007. For further information, please refer to the "Notes to Consolidated Financial Statements". Management's discussion and analysis...

  • Page 172
    ... damages, the formal or informal exclusion from public procurement contracts or the loss of business licenses or permits. In addition to the amounts mentioned above as well as the fi ne imposed by the Munich district court as mentioned in the "Notes to Consolidated Financial Statements" as well as...

  • Page 173
    ... a 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 reporting. The former is intended...

  • Page 174
    ...to German law, Siemens is required to establish and maintain adequate internal control over fi nancial reporting. Siemens implemented an internal control system. In fi scal 2006 management concluded that the system proved to be not effective with respect to preventing misappropriation of funds and...

  • Page 175
    ... our operating Groups, including Siemens IT Solutions and Services (SIS), Industrial Solutions and Services (I&S), Siemens Building Technologies (SBT), PG, PTD and Transportation Systems (TS) perform a significant portion of their business, especially large projects, under long-term contracts that...

  • Page 176
    ... are reported as discontinued operations. Further impairments may be necessary and we may not be able to achieve the planned purchase price for the disposal group. For additional information with respect to the enterprise networks business, see "Notes to Consolidated Financial Statements." Mergers...

  • Page 177
    ... adverse effect on our business. Compliance risks Code of Conduct Public prosecutors and other government authorities in jurisdictions around the world are investigating allegations of corruption at a number of Siemens' business Groups and regional companies. In addition to ongoing investigations...

  • Page 178
    ... our business, fi nancial results and condition, the price of our shares and our reputation. Additionally, we engage in a substantial amount of business with governments and government-owned enterprises around the world. We also participate in a number of projects funded by government agencies and...

  • Page 179
    ... cultural differences such as employment and business practices, volatility in gross domestic product, economic and governmental instability, the potential for nationalization of private assets, and the imposition of exchange controls. In particular, the Asian markets are important for our long-term...

  • Page 180
    ... in various forms may be provided to customers. In limited cases, the Company may also take an equity interest as part of the project fi nancing. The Company is also exposed to credit risk via its leasing activities, primarily related to medical engineering, data processing equipment and industrial...

  • Page 181
    ... by a designated SFS department, and individual customer limits are based on generally accepted rating methodologies, the input from external rating agencies and Siemens default experiences. Such ratings are processed by internal risk assessment specialists. Ratings and credit limits are carefully...

  • Page 182
    ... Groups. SFS holds a minor trading portfolio which is subject to tight limits. As of September 30, 2007 it has a value-at-risk close to zero. Within the various methodologies to analyze and manage risk, we have implemented a system based on "sensitivity analysis." This tool enables the risk managers...

  • Page 183
    ... to the risk from changes in foreign exchange rates (for further information see "Notes to Consolidated Financial Statements"). The risk is mitigated by closing all types of business transactions (sales and procurement of products and services as well as investment and fi nancing activities) mainly...

  • Page 184
    ...optimized transaction costs. For further information see "Notes to Consolidated Financial Statements." We calculate foreign exchange rate sensitivity by aggregating the net foreign exchange rate exposure of the Operations, Financing and Real Estate Groups and Corporate Treasury. The values and risks...

  • Page 185
    ... investments. We seek to limit this risk through the use of derivative instruments which allow it to hedge fair value changes by swapping fi xed rates of interest into variable rates of interest. For additional information see "Notes to Consolidated Financial Statements." To optimize our position...

  • Page 186
    ... calculation discounts the gross cash ï¬,ows 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 fi xed rate debt obligations...

  • Page 187
    ... and, in the case of individuals, their name, address and date of birth, or in the case of legal entities, their company name, business address and registered offices. All shares confer the same rights and obligations. At the Shareholders' Meeting, each share of stock has one vote and accounts for...

  • Page 188
    188 Management's discussion and analysis In order to bundle and represent their interests, the family members established a family partnership that makes proposals to the vSV on the exercise of the voting rights at the Shareholders' Meeting of Siemens AG, which are taken into account by the vSV ...

  • Page 189
    ... of the Supervisory Board shall have two votes in a new round of voting. According to §8 (1) of the Articles of Association, the Managing Board is comprised of several members, the number of which is determined by the Supervisory Board. Pursuant to §84 of the German Stock Corporation Act and...

  • Page 190
    ... not fall below 80% of the market price of the Siemens stock as quoted by the XETRA trading system (or a comparable successor system) on the Frankfurt Stock Exchange. The calculation shall be based on the mean closing price over the fi ve trading days prior to the date on which the fi nal Managing...

  • Page 191
    ...Managing Board either by purchase over the stock exchange or through a public share purchase offer. If the shares are acquired over the stock exchange, the purchase price paid per share (excluding incidental transaction charges) may neither exceed nor fall below the market price of the Siemens stock...

  • Page 192
    ... compensation for purchase to members of the Managing Board of Siemens AG under the same terms and conditions as those offered to employees of the Company, or to grant and transfer them with a holding period of at least two years. As of September 30, 2007, the Company held 383 shares of stock in...

  • Page 193
    ... a controlling inï¬,uence, or if Siemens AG becomes a dependent enterprise as a result of entering into an enterprise contract within the meaning of §291 of the German Stock Corporation Act, or if Siemens AG is to be merged into another company - any member of the Managing Board has the right to...

  • Page 194
    ... 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 195
    ... Siemens Business Services Group. Return on equity, which is defined as SFS' income before income taxes divided by the allocated equity for SFS. Management's discussion and analysis enhancing the security of buildings, cities and transportation systems; developing alternative sources of energy...

  • Page 196
    ... assets and property, plant and equipment (capital expenditures). In fi scal 2007 we substantially increased free cash ï¬,ow compared to the prior year. In fi scal 2008 and fi scal 2009, we expect to focus management attention on two key determinants of free cash ï¬,ow: net working capital...

  • Page 197
    ... reporting line for the CFOs will be established accordingly on the levels below the sectors. Announcement of the sector CEOs is scheduled for the end of November 2007. Our regional companies around the world will support the new structure by allowing the global sector businesses a clear "right...

  • Page 198
    ...to founder Werner von Siemens. In fi scal 2007, following revelations of employee misconduct in certain of our businesses in prior years, we brought significant management attention to resolving related legal and regulatory matters while strengthening our corporate governance systems. We intend to...

  • Page 199
    Management's discussion and analysis 199 This Annual Report contains forward-looking statements and information - that is, statements related to future, not past, events. These statements may be identified by words such as "expects," "looks forward to," "anticipates," "intends," "plans," "...

  • Page 200
    ...038 Note Revenue Cost of goods sold and services rendered Gross profit Research and development expenses Marketing, selling and general administrative expenses Other operating income Other operating expense Income (loss) from investments accounted for using the equity method, net Financial income...

  • Page 201
    ... translation differences and minority interest of â,¬3 and â,¬- in 2007 and 2006, respectively, relating to actuarial gains and losses on pension plans and similar commitments. The accompanying Notes are an integral part of these Consolidated Financial Statements. Consolidated Financial Statements

  • Page 202
    202 Consolidated Financial Statements Consolidated Balance Sheets As of September 30, 2007 and 2006 (in millions of â,¬) Siemens 9/30/07 Note Assets Current assets Cash and cash equivalents Available-for-sale financial assets Trade and other receivables Other current financial assets Intragroup...

  • Page 203
    Consolidated Financial Statements 203 Eliminations, reclassifications and Corporate Treasury 9/30/07 9/30/06 Operations 9/30/07 9/30/06 Financing and Real Estate 9/30/07 9/30/06 2,740 - - 366 (10,401) (2) 1 - (345) (7,641) - - - - 454 (...

  • Page 204
    ...151) - (1,187) (5,792) (58) (5,274) 10,214 4,940 935 4,005 Investments include equity instruments either classified as non-current available-for-sale financial assets or accounted for using the equity method. The accompanying Notes are an integral part of these Consolidated Financial Statements.

  • Page 205
    Consolidated Financial Statements 205 Eliminations, reclassifications and Corporate Treasury 2007 117 - 36 (293) 11 - 30 - 14 - 2,343 (161) (32) - 224 (119) (39) - 199 2,330 2,330 - - - - (2,367) - - 365 (2,002) (2,002) - - - 766 (4,486) 4,516 (969) - - (6,444) (6,617) (6,...

  • Page 206
    ... to Consolidated Financial Statements Consolidated Changes in Equity For the fiscal years ended September 30, 2007 and 2006 (in millions of â,¬) Common stock Balance at October 1, 2005 Income and expense recognized in equity Dividends Issuance of common stock and share-based payment Purchase of...

  • Page 207
    Notes to Consolidated Financial Statements 207 Other components of equity Availablefor-sale financial assets 450 (354) - - - - - 96 96 30 - - - - - 126 Total equity attributable to shareholders of Siemens AG 23,130 2,768 (1,201) 44 (421) 386 487 25,193 25,193 4,607 (1,292) 1,663 (101) 94 (1,168) ...

  • Page 208
    ... to Consolidated Financial Statements Segment Information (continuing operations) As of and for the fiscal years ended September 30, 2007 and 2006 (in millions of â,¬) New orders (unaudited) 2007 Operations Groups Siemens IT Solutions and Services (SIS)(5) Automation and Drives (A&D) Industrial...

  • Page 209
    Notes to Consolidated Financial Statements 209 Group profit (1) 2007 252 2,090 415 354 1,147 650 191 1,323 492 (161) (193) 6,560 2006 (731) 1,575 282 223 779 315 72 988 456 225 (317) 3,867 Net capital employed (2) 9/30/07 253 7,026 1,198 1,807 1,371 1,865 (58) 8,234 1,994 4,891 181 28,762 9/30/...

  • Page 210
    ... 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 36). Siemens applied...

  • Page 211
    ... information. The Consolidated Financial Statements were authorised for issue by the Managing Board on November 23, 2007. All standards and interpretations issued by the IASB and applied by Siemens in preparing its Consolidated Financial Statements have been adopted for use in the EU until the date...

  • Page 212
    ...policies The presentation of certain prior year information has been reclassified to conform to the current year presentation. As previously reported, within the former Com Group, the Company's other Groups and regional companies, a number of Business Consultant Agreements and similar sales-related...

  • Page 213
    ... misstatements on Total equity as of Oct. 1, 2004 (173) (208) (50) 95 (336) 30 (306) Total (191) (275) Notes to Consolidated Financial Statements Effect of misstatements on Net income (loss) in Fiscal Year 2006 Misstatement(1), related to Com Germany Non-Com Germany International Less: Income tax...

  • Page 214
    ...related to the former Com Group. Basis of consolidation - The Consolidated Financial Statements include the accounts of Siemens AG and its subsidiaries which are directly or indirectly controlled. Control is generally conveyed by ownership of the majority of voting rights. Additionally, the Company...

  • Page 215
    ... policies (generally through direct or indirect ownership of 20% to 50% of the voting rights) are recorded in the Consolidated Financial Statements using the equity method of accounting and are initially recognized at cost. The excess of Siemens' initial investment in associated companies over...

  • Page 216
    ...-euro countries used in the preparation of the Consolidated Financial Statements were as follows: Year-end exchange rate 1 â,¬ quoted into currencies specified below September 30, Currency British pound U.S. Dollar ISO Code GBP USD 2007 0.697 1.418 2006 0.678 1.266 Annual average rate 1 â,¬ quoted...

  • Page 217
    ... or process is technically and commercially feasible, future economic benefits are probable and Siemens intends, and has sufficient resources, to complete development and to use or sell the asset. The costs capitalized include the cost of materials, direct labour and directly attributable general...

  • Page 218
    ... value less costs to sell and its value in use. Siemens generally determines the recoverable amount of a division based on its fair value less costs to sell. These values are generally determined based on discounted cash ï¬,ow calculations. Impairment losses on goodwill are not reversed in future...

  • Page 219
    ... comprise direct material and labor and applicable manufacturing overheads, including depreciation charges. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. Notes to Consolidated Financial Statements

  • Page 220
    ...i.e. purchases or sales under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned, the trade date is applied. Initially, fi nancial instruments are recognized at their fair value. Transaction costs...

  • Page 221
    Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 221 Available-for-sale fi nancial assets - Investments in equity instruments, debt instruments and fund shares are all classified as available-for-sale fi nancial assets. They ...

  • Page 222
    ...employees become unconditionally entitled to the awards. Cash-settled awards are remeasured at fair value on each reporting date until the award is settled. Siemens uses an option pricing model to determine the fair value of its share-based payment plans. See Note 33 for further information on share...

  • Page 223
    ...by Siemens Financial Services (SFS), which performs such reviews in support of the Company's Corporate Executive Committee. At a minimum, a customer's credit rating must be single B from external rating agencies, or an equivalent SFS-determined rating. In cases where the credit quality does not meet...

  • Page 224
    ... future developments. Cash ï¬,ows after the planning period are extrapolated using individual growth rates. Key assumptions on which management has based its determination of fair value less costs to sell and value in use include estimated growth rates, weighted average cost of capital and tax rates...

  • Page 225
    ..., warranty costs and legal proceedings. A significant portion of the business of certain of the operating Groups is performed pursuant to long-term contracts, often for large projects, in Germany and abroad, awarded on a competitive bidding basis. Siemens records a provision for onerous sales...

  • Page 226
    ... under the purchase method and have been included in the Company's Consolidated Financial Statements since the date of acquisition. On July 25, 2007, Siemens signed an agreement with Dade Behring Holdings, Inc. (Dade Behring), USA, to acquire all issued and outstanding shares of common stock of Dade...

  • Page 227
    ...October 2006, the Company sold Siemens Dispolok GmbH, Germany, which was part of the Group Transportation Systems (TS), to Mitsui Group. The transaction resulted in a pre-tax gain, net of related costs of â,¬76, which is included in Other operating income. Notes to Consolidated Financial Statements

  • Page 228
    ...closed the sale of its Product Related Services (PRS) business to Fujitsu Siemens Computers (Holding) BV (for segment information see also Note 36). c) Discontinued operations ca) Siemens VDO Automotive (SV) On July 25, 2007, Siemens signed an agreement with Continental AG, Hanover, Germany, to sell...

  • Page 229
    ... lower of their carrying amount and fair value less costs to sell. As of September 30, 2007, the assets and liabilities classified as held for disposal include the assets and liabilities of the enterprise networks business (and also certain amounts relating to the carrierrelated operations). As of...

  • Page 230
    ... Statements (in millions of â,¬, except where otherwise stated and per share amounts) The carrying amounts of the major classes of assets and liabilities classified as held for disposal and relating to the above transactions were as follows: September 30, 2007 2006 Cash and cash equivalents* Trade...

  • Page 231
    ... 2007, includes losses from the measurement of the enterprise networks business to fair value less costs to sell of â,¬567. In the fi scal year ended September 30, 2006, the Company's former operating Group, Com, sold its remaining interest in Juniper Networks, Inc. representing 22.8 million shares...

  • Page 232
    ...primarily to fund job placement companies for former Siemens employees affected by the bankruptcy of enQ Mobile GmbH & Co. OHG. 7 Income (loss) from investments accounted for using the equity method, net Year ended September 30, 2007 2006 Share of profit, net Gains (losses) on sales, net Impairment...

  • Page 233
    ..., net were as follows: Year ended September 30, 2007 2006 Expected return on plan assets Interest cost Income from pension plans and similar commitments, net 1,457 (1,261) 196 1,373 (1,148) Notes to Consolidated Financial Statements 225 Service cost for pension plans and similar commitments are...

  • Page 234
    ... in Epcos AG (Epcos) and Infi neon Technologies AG (Infi neon) and a pre-tax gain of â,¬84 related to the sale of the Company's interest in SMS Demag AG. In fi scal 2007 and 2006, impairments of â,¬12 and â,¬20, respectively, relate to current available-for-sale fi nancial assets traded in an...

  • Page 235
    Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 235 For fi scal years ended September 30, 2007 and 2006, the Company was subject to German federal corporation income tax at a base rate of 25% plus solidarity surcharge of 5.5% ...

  • Page 236
    ...Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) Deferred income tax assets and liabilities on a gross basis are summarized as follows: As of September 30, 2007 2006 Assets: Financial assets Other intangible assets Property, plant...

  • Page 237
    ... carryforward has decreased due to deconsolidation of previously consolidated companies. The amount of unrecognized tax loss carryforward as of September 30, 2007 includes an amount of â,¬107 which is related to tax loss carryforwards for German trade tax purposes only. The corresponding tax effect...

  • Page 238
    ...Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 10 Available-for-sale financial assets The following tables summarize the current portion of the Company's investment in available-for-sale fi nancial assets: September 30, 2007 Cost Equity...

  • Page 239
    ...receivables September 30, 2007 2006 Trade receivables from the sale of goods and services Receivables from finance leases Receivables from joint ventures and associated and related companies 12,864 1,658 98 14,620 13,620 1,482 46 15,148 Related companies are those in which Siemens has an ownership...

  • Page 240
    ...408 2,661 230 Investments in fi nance leases relate primarily to medical engineering, data processing equipment and industrial and consumer products of third party manufacturers. Actual cash ï¬,ows will vary from contractual maturities due to future sales of fi nance receivables, prepayments and...

  • Page 241
    ... to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 241 12 Other current financial assets September 30, 2007 2006 Derivative financial instruments Loans receivable Receivables from joint ventures and associated and related companies...

  • Page 242
    ... to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 14 Other current assets September 30, 2007 2006 Other tax receivables Prepaid expenses Other 635 345 342 1,322 722 269 283 1,274 15 Goodwill Goodwill has changed as follows: Year ended...

  • Page 243
    ...Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 243 Net book Acquisitions value as Translation and purchase of differences accounting 10/1/06 and other adjustments* Operations Siemens IT Solutions and Services (SIS) Automation and Drives...

  • Page 244
    244 Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) In fi scal 2007, the net increase in goodwill was â,¬2,812. The increase of â,¬5,062 related to acquisitions and purchase accounting adjustments was offset by â,¬(634) ...

  • Page 245
    ... Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 245 16 Other intangible assets Acquisitions through business combinations 34 2,015 2,049 Amortization during fiscal year 2007 429** 450 879 Book value as of 10/1/06 Software and other internally...

  • Page 246
    ... Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 17 Property, plant and equipment Depreciation and impairment during fiscal year 2007 292 709 873 256 - 2,130 Book value as of 10/1/06 Land and buildings Technical machinery and...

  • Page 247
    ... investments accounted for using the equity method, not adjusted for the percentage of ownership held by Siemens is presented below: September 30, 2007 2006 Total assets* Total liabilities* 29,809 20,315 11,596 8,813 Notes to Consolidated Financial Statements * Balance sheet information for BSH and...

  • Page 248
    ... Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 19 Other financial assets September 30, 2007 2006 Receivables from finance leases (see Note 11) Available-for-sale financial assets Loans receivable Trade receivables from sale of goods and services...

  • Page 249
    ...â,¬6.1 billion and â,¬7.6 billion, respectively, of these lines of credit remained unused. Commitment fees for the years ended September 30, 2007 and 2006 totaled approximately â,¬2.7 and â,¬2, respectively. The facilities are for general business purposes. Notes to Consolidated Financial Statements

  • Page 250
    ..., the Company updated its â,¬5.0 billion medium-term note program and issued U.S.$ 1.0 billion under this program comprising U.S.$500 million ï¬,oating rate notes due March 2012, bearing interest of 0.15% above LIBOR and U.S.$500 million 5.625% notes due March 2016. As of September 30, 2007 and 2006...

  • Page 251
    ... 44.5 million shares of Siemens AG at a conversion price of â,¬56.1681 per share, which was subject to change under certain circumstances. Due to the cash settlement option the conversion right component was considered a derivative instrument recognized at fair value, which was reported in Other...

  • Page 252
    ... for further information). The Company had the right, at any time from June 18, 2007, to redeem the notes outstanding at their principal amount together with interest accrued thereon, if Siemens' share price exceeded 130% of the conversion price on any 15 of 30 consecutive trading days before notice...

  • Page 253
    ... of funded plans, the fair value of the plan assets is offset against the benefit obligations. The net amount, after adjusting for the effects of unrecognized past service cost and any asset ceiling, is recognized as pension liability or pension asset. Notes to Consolidated Financial Statements

  • Page 254
    ...the case of funded benefit plans. Past service cost is amortized on a straight-line basis over the average vesting period of the related benefits. In the Consolidated Statements of Income, interest cost and the income from the expected return on plan assets are reported as part of Financial income...

  • Page 255
    ...Pension obligations and funded status, ¢ Components of NPBC, ¢ Amounts recognized in the Consolidated Statements of Income and Expense recognized in Equity, ¢ Assumptions used for the calculation of the DBO and NPBC, ¢ Sensitivity analysis, ¢ Plan assets, ¢ Pension plan funding, and ¢ Pension...

  • Page 256
    ...funded status shows the surplus (deficit) of the DBO relative to the plan assets as of the balance sheet date. The DBO is calculated based on the projected unit credit method and reï¬,ects the net present value as of the balance sheet date of the accumulated pension entitlements of active employees...

  • Page 257
    ... in plan assets for fi scal year 2007 and 2006 and some additional information concerning pension plans: September 30, 2007 Total Domestic Foreign Change in plan assets: Fair value of plan assets at beginning of year Foreign currency exchange rate changes Expected return on plan assets Actuarial...

  • Page 258
    ... Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) Pension benefits: Components of NPBC The components of the NPBC for the fi scal years ended September 30, 2007 and 2006 are as follows: Year ended September 30, 2007 Total Domestic Foreign Service cost...

  • Page 259
    ...rates, compensation increase rates and pension progression rates used in calculating the DBO together with long-term rates of return on plan assets vary according to the economic conditions of the country in which the retirement plans are situated or where plan assets are invested as well as capital...

  • Page 260
    ...the rates available on high-quality, fi xed-income investments of appropriate duration at the balance sheet date. The expected return on plan assets is determined on a uniform basis, considering longterm historical returns, asset allocation, and future estimates of long-term investment returns. For...

  • Page 261
    ... and per share amounts) 261 Pension benefits: Sensitivity analysis A one-percentage-point change of the established assumptions mentioned above, used for the calculation of the NPBC for fi scal 2008, and a change in the fair value of plan assets of â,¬500, as of September 30, 2007, respectively...

  • Page 262
    ...Year ended September 30, 2007 Total Domestic Foreign 730 - 730 320 - 320 410 - 410 Regular funding is generally based on the level of service cost incurred. For the BSAV funding corresponds to the contributions to the beneficiaries' account. Future funding decisions for the Company's pension plans...

  • Page 263
    ... sections with regard to: ¢ Obligations and funded status, ¢ Plan assets, ¢ Components of NPBC for other post-employment benefits, ¢ Amounts recognized in the Consolidated Statements of Income and Expense recognized in Equity, ¢ Assumptions used in the calculation of the DBO and the NPBC for...

  • Page 264
    264 Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) Other post-employment benefits: Obligations and funded status The funded status of plan assets and a reconciliation of the funded status to the amounts recognized in the ...

  • Page 265
    ... to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 265 Other post-employment benefits: Plan assets The following table shows the change in plan assets for fi scal 2007 and 2006: September 30, 2007 Total Domestic Foreign Change in plan...

  • Page 266
    ... 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 post-employment healthcare and life insurance benefits are as follows: Year ended September 30, 2007 2006 Discount rate U.S.: Medical...

  • Page 267
    ...fied as held for disposal (see Note 4 for further information). Except for asset retirement obligations (see discussion below), the majority of the Company's provisions are generally expected to result in cash outï¬,ows during the next 1 to 15 years. Notes to Consolidated Financial Statements

  • Page 268
    ...and per share amounts) Warranties Warranties mainly relate to products sold. See Note 2 for further information concerning our policy for estimating warranty provisions. Additions to provisions already existing at the beginning of the period amounted to â,¬446 in fi scal 2007. Order related losses...

  • Page 269
    ... 30, 2007 2006 Liabilities for employee related costs Deferred income Other 926 187 1,187 2,300 952 156 1,066 2,174 26 Equity Common stock and Additional paid-in capital As of September 30, 2007, the Company's common stock totaled â,¬2,743 divided into 914,203 thousand shares with no par value and...

  • Page 270
    ...the Company's shareholders authorized the Managing Board to increase, with the approval of the Supervisory Board, capital stock by up to â,¬75 through the issuance of up to 25 million shares of no par value registered in the names of the holders against contributions in cash (Authorized Capital 2006...

  • Page 271
    ... are not 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...

  • Page 272
    ... of the Annual Shareholders' Meeting on January 22, 2004. Conditional capital (unissued) Conditional capital to service the 2001 and 1999 Siemens Stock Option Plan amounts to â,¬157, representing 52,317 thousand shares of Siemens AG as of September 30, 2007. Conditional capital to service the 2001...

  • Page 273
    ... 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 with a holding period of at least two years. In fi scal 2007...

  • Page 274
    ... earnings of Siemens AG as reported in its statutory fi nancial statements determined in accordance with the German Commercial Code ( Handelsgesetzbuch). During the fi scal year ended September 30, 2007, Siemens AG management distributed an ordinary dividend of â,¬1,292 (â,¬1.45 per share) of the...

  • Page 275
    ...is Siemens' credit rating which is affected among other factors by the capital structure, the profitability, the ability to generate cash ï¬,ow, geographic and product diversification as well as a competitive market position. Siemens' current corporate credit ratings from Moody's Investors Service...

  • Page 276
    ... Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) On November 9, 2007 Moody's Investors Service downgraded Siemens' longterm corporate credit rating from Aa3 to A1 and set its outlook from "negative" to "stable". The rating action...

  • Page 277
    ... total contract value amounts to a maximum of approximately â,¬6 billion. In connection with the consortium and execution of the contract between BWI and the Federal Republic of Germany in December 2006, Siemens issued several guarantees connected to each Notes to Consolidated Financial Statements

  • Page 278
    ...guarantees carried forward from the prior year. Other guarantees include indemnifications issued in connection with dispositions of business entities. Such indemnifications protect the buyer from tax, legal and other risks related to the purchased business entity. As of September 30, 2007 and 2006...

  • Page 279
    Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 279 29 Legal Proceedings Public prosecutors and other government authorities in jurisdictions around the world are conducting investigations of Siemens AG and its consolidated ...

  • Page 280
    280 Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) bargaining procedure without the admission of guilt or responsibility) by the charged employees and Siemens AG entered into force in November 2006. Prosecutors in Darmstadt ...

  • Page 281
    ... matter and conducted searches of Company premises and private homes in Erlangen and Berlin in August 2007. Siemens is cooperating with the authorities in France and Germany. As a result of the above described matters and as a part of its policy of cooperation, Siemens contacted the World Bank and...

  • Page 282
    ...'s consolidated fi nancial statements of issues raised by allegations of violations of anticorruption legislation. As previously reported, within the former Com Group, the Company's other Groups and regional companies a number of Business Consultant Agreements (BCAs) and similar sales-related...

  • Page 283
    Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 283 In fi scal 2007, the Company substantially completed its analysis of the tax deductibility of payments under the BCAs and other sales-related agreements with third-party ...

  • Page 284
    284 Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) In February 2007, Siemens Medical Solutions USA, Inc. (SMS) announced that it had reached an agreement with the U.S. Attorney's Office for the Northern District of Illinois to ...

  • Page 285
    Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 285 possible anti-trust violations. On October 25, 2007, upon the Company's appeal, a Hungarian competition court reduced administrative fi nes imposed on Siemens AG from â,¬0.3 ...

  • Page 286
    ..., 2007 2006 Financial assets Cash and cash equivalents Available-for-sale financial assets Loans and receivables Financial assets held for trading Derivatives with a hedging relationship 4,005 935 21,428 576 367 27,311 Financial liabilities Financial liabilities measured at amortized cost Financial...

  • Page 287
    ... cost: September 30, 2007 Carrying Fair value amount Financial assets measured at cost or amortized cost Cash and cash equivalents Available-for-sale financial assets* Trade and other receivables Other non-derivative financial assets Financial liabilities measured at cost or amortized cost Trade...

  • Page 288
    ... on forward exchange rates. Currency options are valued on the basis of quoted market prices or on estimates based on option pricing models. Credit default swaps - The fair value of credit default swaps is calculated by comparing discounted expected future cash ï¬,ows using current bank conditions...

  • Page 289
    Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 289 Net gains (losses) of fi nancial instruments are as follows: September 30, 2007 2006 Available-for-sale financial assets Loans and receivables Financial liabilities measured ...

  • Page 290
    ...fied into Cost of goods sold and services rendered during the year ended September 30, 2008, when the hedged forecasted foreign-currency denominated sales and purchases occur. As of September 30, 2007, the maximum length of time over which the Company is hedging its future cash ï¬,ows associated...

  • Page 291
    ... hedges - As of September 30, 2007 and 2006, the Company hedged fi rm 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...

  • Page 292
    ... the years ended September 30, 2007 and 2006, the Company applied cash ï¬,ow hedge accounting for a revolving term deposit. Under the interest rate swap agreements entered into, the Company agrees to pay a variable rate of interest multiplied by a notional principle amount, and to receive in return...

  • Page 293
    ... rates and equity prices. To optimize the allocation of the fi nancial resources across the Groups, as well as to secure an optimal return for its shareholders, Siemens identifies, analyzes and proactively manages the associated fi nancial market risks. The Company seeks to manage and control...

  • Page 294
    ... Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) Equity price risk Siemens' investment portfolio consists of direct and indirect investments in publicly traded companies held for purposes other than trading. These participations...

  • Page 295
    ...off-set of divergent cash ï¬,ows in the same currency, as well as optimized transaction costs. For additional information relating to the effect of this Company-wide portfolio approach on the Consolidated Financial Statements, as well as for a discussion of hedging activities employed to mitigate or...

  • Page 296
    ... to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) The tables below show the net foreign exchange transaction exposure by major currencies as of September 30, 2007 and 2006. In some currencies Siemens has both substantial sales and costs...

  • Page 297
    ...A second calculation discounts the gross cash ï¬,ows using a 100-basis point shift of the yield curve. In all cases, Siemens uses the generally accepted and published yield curves on the relevant balance sheet date. The fair value interest rate risk results primarily from long-term fi xed rate debt...

  • Page 298
    ... share amounts) Liquidity risk Liquidity risk results from the Company's potential inability to meet its fi nancial liabilities, e.g. settlement of its fi nancial debt, paying its suppliers and settling fi nance lease obligations. Beyond effective net working capital and cash management, Siemens...

  • Page 299
    ... in various forms may be provided to customers. In limited cases, the Company may also take an equity interest as part of the project fi nancing. The Company is also exposed to credit risk via its leasing activities, primarily related to medical engineering, data processing equipment and industrial...

  • Page 300
    ... by a designated SFS department, and individual customer limits are based on generally accepted rating methodologies, the input from external rating agencies and Siemens default experiences. Such ratings are processed by internal risk assessment specialists. Ratings and credit limits are carefully...

  • Page 301
    ... the Company's employee share purchase program for the three years ended September 30, 2007 and 2006 amounts to â,¬903 and â,¬313, respectively. Stock Option Plans Description of plans - 1999 Siemens Stock Option Plan As part of a stock option plan for members of the Managing Board, key executives...

  • Page 302
    ... of IFRS 2, Share-Based Payment, based on an appropriate fair value option pricing model. The Supervisory as well as the Managing Board decided not to grant any stock options in fi scal 2007. Since the authority to distribute options under the 2001 Siemens Stock Option Plan expired on December...

  • Page 303
    Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 303 Details on option exercise activity and weighted average exercise prices for the years ended September 30, 2007 and 2006 are as follows: Year ended September 30, 2007 Weighted ...

  • Page 304
    ... not be transferred, sold, pledged or otherwise encumbered. Stock awards may be settled in newly issued shares of common stock of Siemens AG, treasury stock or in cash. The settlement method will be determined by the Managing Board and the Supervisory Board. Each fi scal year, the Company decides...

  • Page 305
    ... share purchase program is measured at fair value. During the years ended September 30, 2007 and 2006 the Company incurred compensation expense (before income taxes) of â,¬27 and â,¬38, respectively, related to the sale of repurchased shares to employees, based on a preferential employee share price...

  • Page 306
    ... Company grants 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 fi scal 2006, 33,153 phantom stock rights were granted and 805 phantom stock...

  • Page 307
    ...719 3,064 1,007 22,790 Expenses relating to pension plans and employee benefits includes service cost for the period. Expected return on plan assets and interest cost are included in Financial income (expense), net. The average number of employees in fi scal year 2007 and 2006 was 386,200 and 368...

  • Page 308
    ...Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 36 Segment information As of September 30, 2007, the Company has twelve reportable segments referred to as Groups reported among the components used in Siemens' fi nancial statement...

  • Page 309
    ... are generally based on market prices. New orders are determined principally as the estimated revenue 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...

  • Page 310
    ... to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) The Managing Board also determined net capital employed as additional information to assess the capital intensity of the Operations Groups. Its defi nition corresponds with the Group pro...

  • Page 311
    Notes to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) 311 The following table reconciles total assets of the Operations component to net capital employed of the Operations Groups as disclosed in Segment Information according to the ...

  • Page 312
    ... to Consolidated Financial Statements (in millions of â,¬, except where otherwise stated and per share amounts) Free cash ï¬,ow (I) Year ended September 30, 2007 Operations Continuing, according to Segment information Impairment* Discontinued operations Total (1) (Consolidated Statements of Cash...

  • Page 313
    ... to cash management activities, corporate fi nance, and certain currency and interest rate derivative instruments. Description of business segments The Operations Groups are comprised of the following businesses: Siemens IT Solutions and Services (SIS) - SIS provides information and communications...

  • Page 314
    ... as information technology systems for clinical and administrative purposes. Med provides technical maintenance, professional and consulting services and works with Siemens Financial Services to provide fi nancing and related services to the customers. Osram - Osram designs, manufactures and sells...

  • Page 315
    ...of the Management Board of Deutsche Bank AG. The Company's transactions with Deutsche Bank AG are conducted on arm's length basis and include securities underwriting, other investment banking services, and credit, money market and foreign exchange business. Notes to Consolidated Financial Statements

  • Page 316
    ...stock ownership by members of the Managing and Supervisory Boards. The Compensation Report is presented within the Corporate Governance Report, included in this Annual Report for fi scal year 2007, beginning on page 92. 40 Principal accountant fees and services Fees related to professional services...

  • Page 317
    ...planning and reporting process. "All other fees" for 2007 are primarily fees for additional assistance relating to the Com carve-out in the regional companies and for 2006 are primarily fees for assistance with a program to assess the management information processes. 41 Corporate governance Siemens...

  • Page 318
    ... Board of Managing Directors, Deutsche Bank AG Date of birth: February 7, 1948 Member since: January 23, 2003 The Supervisory Board of Siemens AG has 20 members. As stipulated by the German Codetermination Act, half of the members represent Company shareholders, and half represent Company employees...

  • Page 319
    Notes to Consolidated Financial Statements, Positions held by Supervisory Board members 319 Supervisory Board committees The Supervisory Board of Siemens AG has established six standing committees. Information on their activities in fiscal 2007 is provided on page 7- 8 of this Report. Committees ...

  • Page 320
    320 Notes to Consolidated Financial Statements, Positions held by Managing Board members Managing Board Klaus Kleinfeld, Dr. rer. pol. President and Chief Executive Officer, Siemens AG (until June 30, 2007) Date of birth: November 6, 1957 First appointed: December 1, 2002 Term originally to have ...

  • Page 321
    ...to Consolidated Financial Statements, Positions held by Managing Board members 321 Managing Board committees Committees Corporate Executive Committee Meetings in fiscal 2007 44 meetings Duties and responsibilities The Corporate Executive Committee comprises the President of the Managing Board, the...

  • Page 322
    ... fi nancial 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, with the intention that its fi nancial reporting is conducted in...

  • Page 323
    ... Berlin and Munich, comprising the balance sheet, the statements of income, income and expense recognized in equity and cash ï¬,ow and the notes to the consolidated fi nancial statements, together with the group management report for the business year from October 1, 2006 to September 30, 2007. The...

  • Page 324
    ... amounts related to SV. Net liquidity includes four positions of the Consolidated Balance Sheets: Cash and cash equivalents, current Available-for-sale financial assets (fiscal 2007 and 2006)/Marketable securities (fiscal 2005, 2004 and 2003), Short-term debt and current maturities of long-term debt...

  • Page 325
    ... stock price(7) 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)(8) Credit rating of long-term debt...

  • Page 326
    ... and cash management, including consulting services involving issues of corporate finance, interest rates and currencies, liquidity management and all other questions related to the financial management of operations. The rate that a company must pay for its capital. Total long-term debt divided...

  • Page 327
    ... net asset. Financing and Real Estate Fully diluted Functional costs Funded status of 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...

  • Page 328
    ... most publicly 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...

  • Page 329
    ... Investor relations Key figures Legal proceedings Letter to our Shareholders Liquidity and capital resources Management's discussion and analysis Managing Board Managing Board committees Medical Solutions (Med) Notes and bonds Notes to Consolidated Financial Statements OSRAM Outlook Patents Pension...

  • Page 330
    ... Annual Shareholders' Meeting Automation and Drives (A&D) Balance sheets Cash conversion rate Cash ï¬,ows Code of Conduct Code of Ethics Common stock Compensation Report Consolidated Balance sheets Consolidated Changes in Equity Consolidated Financial Statements Consolidated Statements of Cash...

  • Page 331
    ..., 180 Ratings Related party transactions Report of the Supervisory Board Research and development Return on capital employed (ROCE) Revenue recognition Risk management Segment information Shareholders' equity Siemens Building Technologies (SBT) Siemens Financial Calendar Siemens Financial Services...

  • Page 332
    ... 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 333
    Corporate Structure Managing Board of Siemens AG(1) Corporate Executive Committee Peter Löscher President and Chief Executive Officer Head of CD Special responsibility: CC Joe Kaeser Head of CF Special responsibilities: SFS, SRE Jürgen Radomski Head of CP Special responsibilities: Med, OSRAM, MCP ...

  • Page 334
    ...CC) Stephan Heimbach Corporate Information Office (CIO) Norbert Kleinjohann Corporate Supply Chain and Procurement (CSP) Bernd Regendantz Global Shared Services (GSS) Denice Kronau Management Consulting Personnel (MCP) Hans-Jürgen Schloß Financing and Real Estate Healthcare Medical Solutions (Med...

  • Page 335
    ...comprising management's discussion and analysis as well as the Consolidated Financial Statements (with notes). These reports are submitted to Deutsche Börse and the U.S. Securities and Exchange Commission (SEC), among other organizations. Siemens also provides the SEC with the Annual Report on Form...

  • Page 336
    ... interest Shareholders of Siemens AG Free cash flow(3)(4) Shareholders' equity (September 30) attributable to: Minority interest Shareholders of Siemens AG 2007(2) 83,916 72,448 3,909 129 4,038 232 3,806 6,755 29,627 631 28,996 September 30, 2007 Continuing operations Employees (September 30, in...