Siemens 2008 Annual Report Download - page 185

Management’s discussion and analysis 89
Off-Balance sheet arrangements
Guarantees – Guarantees are principally represented by credit guarantees and guarantees of third-party perfor-
mance. As of September 30, 2008, the undiscounted amount of maximum potential future payments for guaran-
tees was €9.531 billion. Credit guarantees cover the 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 utili-
zation to associated and related companies. The total amount for credit guarantees was €480 million as of Sep-
tember 30, 2008. Performance bonds and guarantees of advanced payments guarantee the fulllment of con-
tractual commitments of partners in a consortium 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 €1.726 billion as
of September 30, 2008.
The Federal Republic of Germany has commissioned a consortium consisting of Siemens IT Solutions and Ser-
vices and IBM Deutschland GmbH (IBM) to modernize and operate the non-military information and communi-
cations technology of the German Federal Armed Forces (Bundeswehr). This project is called HERKULES. A proj-
ect company, BWI Informationstechnik GmbH (BWI) will provide the services required by the terms of the
contract. Siemens IT Solutions and Services is a shareholder in the project company. The total contract value
amounts to a maximum of approximately €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 guaran-
tees 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 sufcient resources to provide the required ser-
vices and to fulll its contractual obligations. These guarantees are listed as a separate item “HERKULES obliga-
tions” due to their compound and multilayer nature. Total future payments potentially required by Siemens
amount to €3.890 billion as of September 30, 2008 and will be reduced by approximately €400 million per year
over the remaining 9-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.
Furthermore, Siemens has provided indemnication in connection with dispositions of certain business enti-
ties, which protects the buyer from certain tax, legal, and other risks related to the purchased business entity.
These other guarantees were €3.435 billion as of September 30, 2008. 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 guar-
antees have xed or 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 dened benet obligation (DBO) of Siemens’ principal pension plans, which considers future compensation
increases, amounted to €22.7 billion on September 30, 2008, compared to €25.0 billion on September 30, 2007.
The fair value of plan assets as of September 30, 2008 was €20.2 billion compared to €24.0 billion on September
30, 2007. Accordingly, the combined funding status of Siemens’ principal pension plans on September 30, 2008
showed an underfunding of €2.5 billion compared to an underfunding of €1.0 billion at the end of the prior s-
cal year. The actual return on plan assets during the last twelve months amounted to €(2.177) billion, mainly
driven by negative equity markets. This represents a (9.7)% return, compared to the expected return of 6.5%.