Siemens 2007 Annual Report Download - page 152

152 Management’s discussion and analysis
tionstechnik GmbH (BWI) will provide the services required by the terms of the
contract. SIS is a shareholder in the project company. The total contract value
amounts to a maximum of approximately €6 billion. In connection with the con-
sortium and execution of the contract between BWI and the Federal Republic of
Germany in December 2006, Siemens issued several guarantees connected to each
other legally and economically in favor of the Federal Republic of Germany and of
the consortium member IBM. The guarantees ensure that BWI has suffi cient
resources to provide the required services and to fulfi ll its contractual obliga-
tions. These guarantees are listed as a separate item “HERKULES obligations” due
to their compound and multilayer nature. Total future payments potentially
required by Siemens amount to €4.2 billion and will be reduced by approximately
€400 million per year over the 10-year contract period. Yearly payments under
these guarantees are limited to €400 million plus, if applicable, a maximum of
€90 million in unused guarantees carried forward from the prior year. Further-
more, Siemens has provided indemnifi cation in connection with dispositions of
certain business entities, which protects the buyer from certain tax, legal, and
other risks related to the purchased business entity. These other guarantees were
€1.882 billion as of September 30, 2007. In the event that it becomes probable that
Siemens will be required to satisfy these guarantees, provisions are established.
Such provisions are established in addition to the liabilities recognized for the
non-contingent component of the guarantees. Most of the guarantees have fi xed
or scheduled expiration dates, and in practice such guarantees are rarely drawn.
For additional information with respect to our guarantees, see “Notes to Consoli-
dated Financial Statements.”
Pension Plan Funding
The defi ned benefi t obligation (DBO) of Siemens’ principal pension plans, which
considers future compensation increases, amounted to €25.0 billion on September
30, 2007, compared to €26.7 billion on September 30, 2006. The fair value of plan
assets as of September 30, 2007 was €24.0 billion compared to €23.8 billion on
September 30, 2006. Accordingly, the combined funding status of Siemens princi-
pal pension plans on September 30, 2007 showed an underfunding of €1.0 billion
compared to an underfunding of €2.9 billion at the end of the prior fi scal year. The
actual return on plan assets during the last twelve months amounted to €1.295
billion. This represents a 5.6% return, compared to the expected return of 6.5%.
Siemens was able to generate this return mainly due to strong equity markets
(amongst others emerging markets) and good real estate returns, despite of the
negative impact of interest rate increases on fi xed income investments.