Siemens 2014 Annual Report Download - page 292

108 A. To our Shareholders 131 B. Corporate Governance 171 C. Combined Management Report
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Moody’s made no rating changes in fiscal . Moody’s long-
term credit rating for Siemens is “Aa” and the rating outlook is
“negative.” Within Moody’s long-term credit rating scale, the
classification “Aa” is the second highest category. The numeri-
cal modifier “” indicates a ranking in the lower end of that
category. The rating outlook is an opinion regarding the likely
direction of an issuer’s long-term credit rating over the
medium- term. Rating outlooks of Moody’s fall into the follow-
ing six categories: “positive,” “negative,” “stable,” “developing,”
“ratings under review” or “no outlook.”
Moody’s short-term credit rating is “P-.” The classification “P-”
is the highest available rating in the prime rating system of
Moody’s, which assesses issuers’ ability to honor senior finan-
cial obligations and contracts. It applies to senior unsecured
obligations with an original maturity of less than one year.
S & P made also no rating changes in fiscal . S & P’s long-
term credit rating for Siemens is “A+” and the rating outlook is
“stable.” Within S & P’s long-term credit rating scale, “A” is the
third highest long-term rating category. The modifier “+” indi-
cates that our long-term debt ranks in the upper end of the “A”
category. Rating outlooks of S & P fall into the following four
categories: “positive,” “negative,” “stable” or “developing.” S & P’s
short-term rating is “A-+,” which is the highest rating within
S & P’s short-term rating scale.
NOTE  Commitments and contingencies
GUARANTEES AND OTHER COMMITMENTS
The following table presents the undiscounted amount of
maximum potential future payments for each major group of
guarantees:
September ,
(in millions of €)  
Guarantees
Credit guarantees 774 622
Guarantees of third-party performance 2,061 1,593
HERKULES obligations 1,490 1,890
Other 2,362 1,864
6,687 5,970
Item Credit guarantees cover the financial obligations of third
parties in cases where Siemens is the vendor and (or) contrac-
tual partner. These guarantees generally provide that in the
event of default or non-payment by the primary debtor,
Siemens will be required to settle such financial obligations.
In addition, Siemens provides credit guarantees generally as
guarantees for credit-lines with variable utilization for obliga-
tions of joint ventures and associates accounted for using the
equity method. The maximum amount of these guarantees is
equal to the outstanding balance of the credit or, in case where
a credit line is subject to variable utilization, the nominal
amount of the credit line. These guarantees have terms up to
 years and twelve years, respectively, in fiscal  and .
Except for statutory recourse provisions against the primary
debtor, credit guarantees are generally not subject to additional
contractual recourse provisions. The Company accrued €  mil-
lion and €  million relating to credit guarantees as of Septem-
ber ,  and , respectively.
Furthermore, Siemens issues guarantees of third-party perfor-
mance, which include performance bonds and guarantees of
advanced payments in cases where Siemens is the general or
subsidiary partner in a consortium. In the event of non-fulfill-
ment of contractual obligations by the consortium partner(s),
Siemens will be required to pay up to an agreed-upon maxi-
mum amount. These agreements span the term of the con-
tract, typically ranging from three months to ten years in fiscal
 and . Generally, consortium agreements provide for
fallback guarantees as a recourse provision among the consor-
tium partners. As of September ,  and , the Company
accrued €  million and €  million, respectively, relating to
performance guarantees.
In fiscal , The Federal Republic of Germany commissioned a
consortium consisting of Siemens and IBM Deutschland GmbH
(IBM) to modernize and operate the non-military information
and communications technology of the German Federal Armed
Forces (Bundeswehr). This project is called HERKULES. A project
company, BWI Informationstechnik GmbH (BWI), provides the
services required by the terms of the contract. Siemens is a
shareholder in the project company. The total contract value
amounts to a maximum of approximately €  billion. In connec-
tion with this project, Siemens issued several guarantees con-
nected to each other legally and economically in favor of the
Federal Republic of Germany and of the consortium member
IBM in December . The guarantees ensure that BWI has
sufficient resources to provide the required services and to fulfill
its contractual obligations. These guarantees are listed as a sepa-
rate item HERKULES obligations in the table above due to their
compound and multilayer nature. Total future payments poten-
tially required by Siemens amount to € . billion and € . bil-
lion as of September ,  and , respectively and will be
reduced by approximately €  million per year over the re-
maining three-year contract period as of September , .
Yearly payments under these guarantees are limited to €  mil-
lion plus, if applicable, a maximum of €  million in unused
guarantees carried forward from the prior year.