Siemens 2007 Annual Report Download - page 151

Management’s discussion and analysis 151
Management’s discussion and analysis
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 attrib-
utable to captive fi nance subsidiaries in determining long-term and short-term
credit ratings.
The allocated equity for SFS is determined and infl uenced by the respective
credit ratings of the rating agencies and by the expected size and quality of its
portfolio of leasing and factoring assets and equity investments and is deter-
mined annually. This allocation is designed to cover the risks of the underlying
business and is in line with common credit risk management banking standards.
The actual risk profi le of the SFS portfolio is monitored and controlled monthly
and is evaluated against the allocated equity.
Purchase obligations – At September 30, 2007, Siemens had €12.884 billion in
purchase obligations. Purchase obligations include agreements to purchase goods
or services that are enforceable and legally binding and which specify all of the
following items: (i) fi xed or minimum quantities, (ii) fi xed, minimum or variable
price provisions and (iii) approximate timing of the transaction.
Operating leases – At September 30, 2007, Siemens had a total of €2.450 bil-
lion in total future payment obligations under non-cancelable operating leases.
For additional information, see “Notes to Consolidated Financial Statements.”
Siemens is subject to asset retirement obligations related to certain items of
property, plant and equipment. Such asset retirement obligations are primarily
attributable to environmental clean-up costs which amounted to €597 million as
of September 30, 2007 and to costs primarily associated with the removal of lease-
hold improvements at the end of the lease term amounting to €38 million as of
September 30, 2007. For additional information with respect to asset retirement
obligations, see “Notes to Consolidated Financial Statements.”
Off-Balance Sheet Arrangements
Guarantees – Guarantees are principally represented by credit guarantees and
guarantees of third-party performance. As of September 30, 2007, the undis-
counted amount of maximum potential future payments for guarantees was
€8.463 billion. Credit guarantees cover the fi nancial obligation of third-parties in
cases where Siemens is the vendor and/or contractual partner. In addition,
Siemens provides credit line guarantees with variable utilization to associated
and related companies. The total amount for credit guarantees was €386 million
as of September 30, 2007. Performance bonds and guarantees of advanced pay-
ments guarantee the fulfi llment of contractual commitments of partners in a con-
sortium where Siemens may be the general or subsidiary partner. In the event of
non-performance under the contract by the consortium partner(s), Siemens will
be required to pay up to an agreed-upon maximum amount. Guarantees of third-
party performance amounted to €1.995 billion as of September 30, 2007. The Fed-
eral Republic of Germany has commissioned a consortium consisting of SIS and
IBM Deutschland GmbH (IBM) to modernize and operate the non-military infor-
mation and communications technology of the German Federal Armed Forces
(Bundeswehr). This project is called HERKULES. A project company, BWI Informa-