e20vf
As filed with the Securities and Exchange Commission on
November 28, 2007
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
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o
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REGISTRATION STATEMENT PURSUANT
TO SECTION 12(b) OR (g)
OF THE SECURITIES EXCHANGE ACT OF 1934
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OR
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þ
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ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
September 30, 2007.
OR
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TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from
to
OR
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SHELL COMPANY REPORT PURSUANT
TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this
shell company
report
Commission file number:
1-15174
Siemens
Aktiengesellschaft
(Exact name of Registrant as
specified in its charter)
Federal Republic of
Germany
(Jurisdiction of incorporation
or organization)
Wittelsbacherplatz 2
D-80333 Munich
Federal Republic of
Germany
(Address of principal executive
offices)
Securities registered or to be
registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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American Depositary Shares, each representing one
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Common Share, no par value
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New York Stock Exchange
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Common Shares, no par value*
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New York Stock Exchange
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*
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Listed, not for trading or
quotation purposes, but only in connection with the registration
of American Depositary Shares pursuant to the requirements of
the Securities and Exchange Commission.
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Securities registered
or to be registered pursuant to Section 12(g) of the Act: None
Securities for which
there is a reporting obligation pursuant to Section 15(d) of the
Act: None
The number of
outstanding shares of each of the issuers classes of
capital or common stock as of September 30, 2007: 914,203,038
common shares, no par value.
Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Yes þ No o
If this report is an
annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934.
Yes o No þ
Indicate by check mark
whether the Registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90
days.
Yes þ No o Not
applicable o
Indicate by check mark
whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
Large accelerated
filer þ Accelerated
filer o Non-accelerated o
Indicate by check mark
which financial statement item the registrant has elected to
follow.
Item 17 þ
Item 18 o
If this is an annual
report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
TABLE OF
CONTENTS
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Page
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Identity of Directors, Senior Management and Advisers
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1
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Offer Statistics and Expected Timetable
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1
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Key Information
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1
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Information on the Company
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11
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Unresolved Staff Comments
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43
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Operating and Financial Review and Prospects
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44
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Directors, Senior Management and Employees
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91
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Major Shareholders and Related Party Transactions
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111
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Financial Information
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111
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The Offer and Listing
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112
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Additional Information
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115
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Quantitative and Qualitative Disclosure About Market Risk
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130
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Description of Securities Other than Equity Securities
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133
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Defaults, Dividend Arrearages and Delinquencies
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134
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Material Modifications to the Rights of Security Holders and Use
of Proceeds
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134
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Controls and Procedures
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134
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Audit Committee Financial Expert
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141
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Code of Ethics
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141
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Principal Accountant Fees and Services
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141
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Exemptions from the Listing Standards for Audit Committees
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144
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Purchases of Equity Securities by the Issuer and Affiliated
Purchasers
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144
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Financial Statements
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F-1
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Exhibits
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III-1
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Exhibit 1.1 |
Exhibit 4.1 |
Exhibit 8.1 |
Exhibit 12.1 |
Exhibit 12.2 |
Exhibit 13.1 |
Exhibit 13.2 |
Exhibit 14.1 |
FORWARD
LOOKING STATEMENTS
This
Form 20-F
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,
believes, seeks, estimates,
will, project or words of similar
meaning. Such statements are based on our current expectations
and certain assumptions, and are, therefore, subject to certain
risks and uncertainties. A variety of factors, many of which are
beyond Siemens control, affect our operations,
performance, business strategy and results and could cause the
actual results, performance or achievements of Siemens to be
materially different from any future results, performance or
achievements that may be expressed or implied by such
forward-looking statements. For us, particular uncertainties
arise, among others, from: the factors listed above under
Item 3: Key InformationRisk Factors;
changes in general economic and business conditions (including
margin developments in major business areas); the challenges of
integrating major acquisitions and implementing joint ventures
and other significant portfolio measures; changes in currency
exchange rates and interest rates; introduction of competing
products or technologies by other companies; lack of acceptance
of new products or services by customers targeted by Siemens;
changes in business strategy; the outcome of pending
investigations and legal proceedings, especially the corruption
investigations we are currently subject to in Germany, the
United States and elsewhere; the potential impact of such
investigations and proceedings on our ongoing business including
our relationships with governments and other customers; the
potential impact of such matters on our financial statements; as
well as various other factors. More detailed information about
certain of these factors is contained throughout this report and
in our other filings with the SEC, which are available on the
Siemens website, www.siemens.com, and on the SECs website,
www.sec.gov. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in the
relevant forward-looking statement as expected, anticipated,
intended, planned, believed, sought, estimated or projected.
Siemens does not intend or assume any obligation to update or
revise these forward-looking statements in light of developments
which differ from those anticipated.
In this
Form 20-F,
references to we, us, our,
Company, Siemens or Siemens
AG are to Siemens Aktiengesellschaft and, unless the
context otherwise requires, to its consolidated subsidiaries. In
Item 4: Information on the Company Description
of Business, we use the terms we and
us to refer to a specific Siemens Group. Throughout
this annual report, whenever a reference is made to our
Companys website, such reference does not incorporate
information from the website by reference into this annual
report.
i
[THIS PAGE INTENTIONALLY LEFT BLANK]
ii
PART I
ITEM 1: IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2: OFFER
STATISTICS AND EXPECTED TIMETABLE
Not applicable.
Selected
Consolidated Financial and Statistical Data
Effective with the first quarter of fiscal 2007, we prepare our
primary financial reporting according to International Financial
Reporting Standards (IFRS) and its interpretations issued by the
International Accounting Standards Board (IASB), as adopted by
the European Union (EU). The Consolidated Financial Statements
of Siemens also comply with IFRS as published by the IASB.
Therefore, there are no differences and a reconciliation between
IFRS as adopted by the EU and IFRS as published by the IASB is
not needed. Until fiscal year end 2006, our primary financial
reporting was prepared in accordance with United States
Generally Accepted Accounting Principles (U.S. GAAP). In
addition, we published our first IFRS Consolidated Financial
Statements as supplemental information in December 2006.
The IFRS selected financial data set forth below as of and for
each of the years in the three-year period ended
September 30, 2007 should be read in conjunction with, and
are qualified in their entirety by reference to, the
Consolidated Financial Statements and the Notes thereto
presented elsewhere in this document.
We have also presented the selected financial data below as of
and for each of the years in the five-year period ended
September 30, 2007 in accordance with U.S. GAAP. For fiscal
years 2005 to 2007, the selected financial data has been derived
from a reconciliation of our IFRS Consolidated Financial
Statements to U.S. GAAP. For fiscal 2003 and 2004, we present
our Consolidated Financial Statements prepared in accordance
with U.S. GAAP. For information with respect to the major
differences between IFRS and U.S. GAAP see Notes to
Consolidated Financial Statements.
1
Income
Statement Data
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Year ended September 30,
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2007(1)
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2006(1)(3)
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2005(1)(3)
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2004
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2003
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( in millions, except per share data)
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Amounts in accordance with IFRS:
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Revenue
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72,448
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66,487
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55,781
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N/A
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N/A
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Income from continuing operations before income taxes
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5,101
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3,418
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3,594
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N/A
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N/A
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Income from continuing operations
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3,909
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2,642
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2,813
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N/A
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N/A
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Income (loss) from discontinued operations, net of income taxes
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129
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703
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(237
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N/A
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N/A
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Net income
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4,038
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3,345
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2,576
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N/A
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N/A
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Basic earnings per share
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Income from continuing operations
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4.13
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2.78
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2.96
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N/A
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N/A
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Income (loss) from discontinued operations
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0.11
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0.74
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(0.25
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N/A
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N/A
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Net income
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4.24
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3.52
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2.71
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N/A
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N/A
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Diluted earnings per share
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Income from continuing operations
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3.99
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2.77
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2.85
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N/A
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N/A
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Income (loss) from discontinued operations
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0.11
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0.74
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(0.23
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N/A
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N/A
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Net income
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4.10
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3.51
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2.62
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N/A
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N/A
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Year ended September 30,
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2007(2)
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2006(2)(3)
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2005(2)(3)
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2004
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2003
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( in millions, except per share data)
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Amounts in accordance with U.S. GAAP:
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Net sales
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78,890
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77,559
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66,089
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61,480
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61,624
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Income from continuing operations before income taxes
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3,250
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3,728
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3,549
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3,807
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2,902
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Income from continuing operations
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2,064
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2,650
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2,543
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3,006
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2,058
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Income (loss) from discontinued operations, net of income taxes
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353
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393
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(379
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399
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387
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Net income
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2,417
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3,043
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2,164
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3,405
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2,445
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Basic earnings per share
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Income from continuing operations
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2.30
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2.97
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2.85
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3.37
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2.31
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Income (loss) from discontinued operations
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0.39
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0.45
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(0.42
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)
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0.45
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0.44
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Net income
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2.69
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3.42
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2.43
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3.82
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2.75
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Diluted earnings per share
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Income from continuing operations
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2.29
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2.85
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2.74
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3.23
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2.28
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Income (loss) from discontinued operations
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0.39
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0.42
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(0.41
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0.43
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0.43
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Net income
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2.68
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3.27
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2.33
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3.66
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2.71
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2
Balance
Sheet Data
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At September 30,
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2007
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2006
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2005
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2004
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2003
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( in millions)
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Amounts in accordance with IFRS:
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Total assets
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91,555
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87,528
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(3)
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81,579
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(3)
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N/A
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N/A
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Long-term debt
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9,860
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13,122
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8,040
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N/A
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N/A
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Total equity
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29,627
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25,895
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(3)
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23,791
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(3)
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N/A
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N/A
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Common stock
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2,743
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2,673
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2,673
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N/A
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N/A
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Amounts in accordance with U.S. GAAP:
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Total assets
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93,470
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90,770
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(3)
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85,884
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(3)
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79,239
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(3)
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77,378
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(3)
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Long-term debt
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9,853
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13,399
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8,436
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9,785
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11,433
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Shareholders equity
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30,379
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28,926
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(3)
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26,632
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(3)
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26,454
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(3)
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23,404
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(3)
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Common stock
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2,743
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2,673
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2,673
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2,673
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2,673
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(1) |
Under IFRS, the historical results of the former operating
segment Communications (Com) are reported as discontinued
operations in the Companys Consolidated Statements of
Income for all periods presented and the assets and liabilities
were classified on the balance sheet as held for disposal. These
Com activities include (i) the previous Mobile Devices
(MD) business, which has meanwhile been sold, (ii) the
carrier-related operations, which were contributed to Nokia
Siemens Networks in April 2007, and (iii) the enterprise
networks business, for which the Company is actively pursuing
its plan to dispose of. Not included in discontinued operations
are certain Com business activities which are now part of Other
Operations and Automation & Drives (A&D). The
financial information for fiscal 2007, 2006 and 2005 presents
comparable amounts.
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On July 25, 2007, Siemens signed an agreement with
Continental AG, Hanover, Germany, to sell its entire Siemens VDO
Automotive (SV) activities. The historical results of SV are
reported as discontinued operations in the Consolidated
Statements of Income for all periods presented. The assets and
liabilities of SV are presented as held for disposal on the
balance sheet as of September 30, 2007.
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(2)
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Under U.S. GAAP, the historical results of the previous MD
business and the SV activities mentioned above are reported as
discontinued operations in the Companys Consolidated
Statements of Income for all periods presented and the assets
and liabilities were classified on the balance sheet as held for
disposal on September 30, 2005 for MD and
September 30, 2007 for SV.
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(3)
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In connection with the investigation launched by Munich
prosecutors in 2006, Siemens identified a large volume of
payments made in connection with a number of Business Consultant
Agreements and similar sales-related arrangements with
third-party intermediaries as well as other payments within the
former Com Group, the Companys other Groups and regional
companies, for which the Company has not been able either to
establish a valid business purpose or to clearly identify the
recipient. The payments identified were recorded as deductible
business expenses in prior periods in determining income tax
provisions. During fiscal 2007, the Company determined that
certain of these payments were non-deductible under tax
regulations of Germany and other jurisdictions. Further, the
Company identified certain commission liability accounts at the
Medical Solutions (Med) Group which were created in fiscal years
prior to 2005 and subsequently released in a manner that did not
comply with applicable accounting principles. These matters were
accounted for in fiscal 2007, by adjusting the comparative
amounts for fiscal years 2005 and 2006. The adjustments had the
effect of reducing Income from continuing operations before
income taxes by 24 million and
25 million in fiscal 2006 and 2005, respectively, and
of reducing Income from continuing operations, net of income
taxes by 58 million and 71 million in
fiscal 2006 and 2005 respectively. The effect on Net
income was an increase of 10 million in fiscal
2006 and a decrease of 84 million in fiscal 2005. The
total adjustments relating to years prior to fiscal 2005 had the
effect of decreasing Shareholders equity as of
October 1, 2004 by 306 million (thereof
90 million refers to fiscal 2004 and
59 million refers to fiscal 2003). For further
information see Notes 2 and 29 of the Notes to
Consolidated Financial Statements. Total assets and
Shareholders equity at September 30, 2004 and
2003 have been adjusted; however, income statement data for the
years ended September 30, 2004 and 2003 have not been
adjusted as the impact on net income and earnings per share in
each of these years was also not material.
|
The number of shares outstanding at September 30, 2007,
2006, 2005, 2004 and 2003 was 914,203,038, 891,086,826,
891,076,457, 891,075,461 and 890,865,117, respectively.
3
Dividends
The following table sets forth in euros and in dollars the
dividend paid per share for the years ended September 30,
2003, 2004, 2005, 2006 and the proposed dividend per share for
the year ended September 30, 2007. Owners of our shares who
are United States residents should be aware that they will be
subject to German withholding tax on dividends received. See
Item 10: Additional InformationTaxation.
|
|
|
|
|
|
|
|
|
|
|
Dividend paid
|
|
|
|
per share
|
|
Year ended September 30,
|
|
Euro
|
|
|
Dollar
|
|
|
2003
|
|
|
1.10
|
|
|
|
1.40
|
|
2004
|
|
|
1.25
|
|
|
|
1.63
|
|
2005
|
|
|
1.35
|
|
|
|
1.65
|
|
2006
|
|
|
1.45
|
|
|
|
1.88
|
|
2007
|
|
|
1.60
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*
|
|
|
|
|
|
|
* |
Proposed by the Managing Board and the Supervisory Board; to be
approved by the shareholders at the shareholders annual
meeting on January 24, 2008.
|
Exchange
Rate Information
We publish our Consolidated Financial Statements in euros. As
used in this document, euro or
means the single unified currency that was introduced in the
Federal Republic of Germany on January 1, 1999. U.S.
dollar, U.S.$, USD or
$ means the lawful currency of the United States of
America. The currency translations made in the case of dividends
we have paid have been made at the noon buying rate at the date
of the Annual Shareholders Meeting at which the dividends
were approved. As used in this document, the term noon
buying rate refers to the rate of exchange for euro,
expressed in U.S. dollar per euro, as announced by the Federal
Reserve Bank of New York for customs purposes as the rate in The
City of New York for cable transfers in foreign currencies.
In order that you may ascertain how the trends in our financial
results might have appeared had they been expressed in U.S.
dollars, the table below shows the average noon buying rates in
The City of New York for cable transfers in foreign currencies
as certified for customs purposes by the Federal Reserve Bank of
New York for U.S. dollar per euro for our fiscal years. The
average is computed using the noon buying rate on the last
business day of each month during the period indicated.
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|
|
Fiscal year ended September 30,
|
|
Average
|
|
|
2003
|
|
|
1.0919
|
|
2004
|
|
|
1.2199
|
|
2005
|
|
|
1.2727
|
|
2006
|
|
|
1.2361
|
|
2007
|
|
|
1.3420
|
|
The following table shows the noon buying rates for euro in U.S.
dollars for the last six months.
|
|
|
|
|
|
|
|
|
2007
|
|
High
|
|
|
Low
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|
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May
|
|
|
1.3616
|
|
|
|
1.3419
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|
June
|
|
|
1.3526
|
|
|
|
1.3295
|
|
July
|
|
|
1.3831
|
|
|
|
1.3592
|
|
August
|
|
|
1.3808
|
|
|
|
1.3402
|
|
September
|
|
|
1.4219
|
|
|
|
1.3606
|
|
October
|
|
|
1.4468
|
|
|
|
1.4092
|
|
November
|
|
|
1.4829
|
|
|
|
1.4435
|
|
On November 23, 2007, the noon buying rate was U.S.$1.4825
per 1.00.
4
Our shares are traded on the Frankfurt Stock Exchange in euro.
Fluctuations in the exchange rate between the euro and the U.S.
dollar will affect the U.S. dollar equivalent of the euro price
of the shares on the Frankfurt Stock Exchange and, as a result,
are likely to affect the market price of the American Depositary
Shares (ADS) on the New York Stock Exchange. We will declare any
cash dividends in euro and exchange rate fluctuations will
affect the U.S. dollar amounts received by holders of ADSs on
conversion of cash dividends on the shares represented by the
ADSs.
Risk
Factors
Our business, financial condition or results of operations could
suffer material adverse effects due to any of the following
risks. We have described below all the risks that we consider
material, but those risks are not the only ones we face.
Additional risks not known to us or that we currently consider
immaterial may also impair our business operations.
Strategic
Market
Dynamics
Our business is affected by the uncertainties of economic
and political conditions: Our business
environment is influenced by conditions in the domestic and
global economies. Numerous factors, such as global political
conflicts, including situations in the Middle East and other
regions, continue to impact macroeconomic parameters and the
international capital markets. The uncertainty of economic and
political conditions can impact the demand for our products and
services and can also make our budgeting and forecasting more
difficult.
Our Groups are affected by market conditions. For example
Medical Solutions (Med) is dependent on the healthcare markets,
particularly in the U.S. Some of our Groups are affected
considerably by the markets in Asia as well as Middle East, such
as Power Generation (PG) and Power Transmission &
Distribution (PTD). In addition, the financial condition of our
customers may negatively impact our Groups.
Our financial results and cash flows may be adversely
affected by continued strategic reorientations and cost-cutting
initiatives: We are in the process of
strategic reorientations and constantly perform cost-cutting
initiatives, including headcount reduction, capacity adjustments
through consolidation of business activities and manufacturing
facilities, as well as streamlining product portfolios. These
measures impact our earnings results and any future contribution
of these measures to our profitability will be influenced by the
actual savings achieved and by our ability to sustain these
ongoing efforts.
We operate in highly competitive markets, which are
subject to price pressures and rapid
changes: The worldwide markets for our
products are highly competitive in terms of pricing, product and
service quality, development and introduction time, customer
service and financing terms. We face strong competitors, some of
which are larger and may have greater resources in a given
business area. Siemens faces downward price pressure and is
exposed to market downturns or slower growth. Some industries in
which we operate are undergoing consolidation, which may result
in stronger competitors and a change in our relative market
position. In some of our markets, new products must be developed
and introduced rapidly in order to capture available
opportunities and this can lead to quality problems. Our
operating results depend to a significant extent on our
abilities to adapt to changes in markets and to reduce the costs
of producing high-quality new and existing products. Any
inability to do so could have a material adverse effect on our
financial condition or results of operations.
Our businesses must keep pace with technological changes
and develop new products and services to remain
competitive: The markets in which our
businesses operate experience rapid and significant changes due
to the introduction of innovative technologies. To meet our
customers needs in these businesses, we must continuously
design new, and update existing, products and services and
invest in and develop new technologies. This is especially true
for our Group Med. Introducing new offerings and technologies
requires a significant commitment to research and development,
which may not always result in success. Our sales and profits
may suffer if we invest in technologies that do not function as
expected or are not accepted in the marketplace as anticipated,
if our products or systems are not brought to market in a timely
manner, or as they become obsolete.
5
Our financial results and cash flows may be adversely
affected by cost overruns or additional payment obligations
particularly with respect to our long-term
contracts: A majority of 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 are awarded on a
competitive bidding basis. The profit margins realized on such
fixed-priced contracts may vary from original estimates as a
result of changes in costs and productivity over their term. We
sometimes bear the risk of quality problems, cost overruns or
contractual penalties caused by unexpected technological
problems, unforeseen developments at the project sites,
performance problems with our subcontractors or other logistical
difficulties. Certain of our multi-year contracts also contain
demanding installation and maintenance requirements, in addition
to other performance criteria relating to timing, unit cost
requirements and compliance with government regulations, which,
if not satisfied, could subject us to substantial contractual
penalties, damages, non-payment and contract termination. There
can be no assurance that all of our fixed-priced contracts can
be completed profitably. For additional information, see
Item 5: Operating and Financial Review and
ProspectsCritical Accounting Estimates.
Planning
& Resources
We may be adversely affected by our equity interests and
strategic alliances: Our strategy includes
strengthening our business interests through joint ventures and
associate companies, as well as strategic alliances. Certain of
our strategic investments accounted for using the equity method
are included in our Strategic Equity Investments (SEI), which
consist of Nokia Siemens Networks (NSN), BSH Bosch und Siemens
Hausgeräte GmbH (BSH) and Fujitsu Siemens Computers
(Holding) BV (FSC). Any factors negatively influencing the
profitability of our equity investments could have a negative
impact on our own results, and may also negatively affect our
cash flow and our ability to recover the full amount of our
investments. In addition, such portfolio transactions are
inherently risky because of the difficulties of integrating
people, operations, technologies and products that may arise.
Strategic alliances may also pose risks for us because we
compete in some business areas with companies with which we have
strategic alliances.
Acquisitions
and Dispositions
Our financial results and cash flows may be adversely
affected by portfolio measures: Our strategy
includes divesting our interests in some business areas and
strengthening others through portfolio measures, including
mergers and acquisitions.
With respect to dispositions, we may not be able to divest some
of our activities as planned and our divesting activities could
have a negative impact on our results of operations, our cash
flow at closing, as well as in the future, and on our
reputation. For example, we plan to dispose of our enterprise
networks business. The assets and liabilities of the enterprise
networks business were classified on the balance sheet as held
for disposal and measured at the lower of their carrying amount
and fair value less costs to sell and the historical results 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 and acquisitions are inherently risky because of the
difficulties of integrating people, operations, technologies and
products that may arise. There can be no assurance that any of
the businesses we acquire can be successfully integrated or that
they will perform well once integrated. In addition, we may
incur significant acquisition, administrative and other costs in
connection with these transactions, including costs related to
integration of acquired businesses. Furthermore, portfolio
activities may result in additional financing needs and
adversely affect our financial leverage and our
debt-to-equity
ratio. Acquisitions may also lead to substantial increases in
long-lived assets, including goodwill. Write-downs of these
assets due to unforeseen business developments may materially
and adversely affect our earnings. Particularly Med, Automation
and Drives (A&D), PG and I&S have significant amounts
of goodwill.
6
Operations
Supply
Chain Management
We are dependent upon the ability of third parties to
deliver parts, components and services on
time: We rely on third parties to supply us
with parts, components and services. Using third parties to
manufacture, assemble and test our products reduces our control
over manufacturing yields, quality assurance, product delivery
schedules and costs. The third parties that supply us with parts
and components also have other customers and may not have
sufficient capacity to meet all of their customers needs,
including ours, during periods of excess demand. Component
supply delays can affect the performance of certain of our
operating Groups. Although we work closely with our suppliers to
avoid supply-related problems, there can be no assurance that we
will not encounter supply problems in the future or that we will
be able to replace a supplier that is not able to meet our
demand. This risk is particularly evident in businesses with a
very limited number of suppliers. Shortages and delays could
materially harm our business. Unanticipated increases in the
price of components due to market shortages or other reasons
could also adversely affect the performance of certain of our
business Groups.
We may be adversely affected by rising raw material
prices: Our operating Groups are exposed to
fluctuations in energy and raw material prices. In the recent
past, oil, steel and copper prices in particular have increased
on a worldwide basis. If we are not able to compensate for or
pass on our increased costs to customers, such price increases
could have a material adverse impact on our financial results.
Product
Lifecycle Management
We face operational risks in our value chain
processes: Our value chain comprises all
steps, from research and development, to production, marketing
and sales up to services. Operational failures in our value
chain processes could result in quality problems or potential
product, labor safety, regulatory or environmental risks. Such
risks are particularly present in relation to our production
facilities, which are located all over the world and have a high
degree of organizational and technological complexity. From time
to time, some of the products we sell have quality issues
resulting from the design or manufacture of such products, or
from the software integrated into them. Such operational
failures or quality issues could have a material adverse effect
on our financial condition or results of operations.
Human
Resources
We are dependent upon hiring and retaining highly
qualified management and technical
personnel: Competition for highly qualified
management and technical personnel remains intense in the
industries and regions in which our business Groups operate. In
many of our business areas, we further intend to extend our
service businesses significantly, for which we will need highly
skilled employees. Our future success depends in part on our
continued ability to hire, assimilate and retain engineers and
other qualified personnel. There can be no assurance that we
will continue to be successful in attracting and retaining
highly qualified employees and key personnel in the future and
any inability to do so could have a material adverse effect on
our business.
Financial
Market
We are exposed to currency risks and interest rate
risks: We are particularly exposed to
fluctuations in the exchange rate between the U.S. dollar and
the euro, because a high percentage of our business volume is
conducted in the U.S. and as exports from Europe. As a result, a
strong euro in relation to the U.S. dollar can have a material
impact on our revenues and results. Certain currency
risksas well as interest rate risksare hedged on a
company-wide basis using derivative financial instruments.
Depending on the development of foreign currency exchange rates,
our hedging activities can have significant effects on our cash
flow, particularly for our treasury activities (Corporate
Treasury). Our Groups engage in currency hedging activities
which sometimes do not qualify for hedge accounting. In
addition, our Corporate Treasury has interest rate hedging
activities which also do not qualify for hedge accounting, and
are subject to changes in interest rates. Accordingly, exchange
rate and interest
7
rate fluctuations may influence our financial results and lead
to earnings volatility. A strengthening of the euro particularly
against the U.S. dollar may also change our competitive
position, as many of our competitors may benefit from having a
substantial portion of their costs based in weaker currencies,
enabling them to offer their products at lower prices. For more
details regarding currency risks, interest rate risks, hedging
activities and other market risks, please see Item 11:
Quantitative and Qualitative Disclosure About Market
Risk.
Liquidity
and Credit
Our Corporate Treasury financing is affected by the
uncertainties of economic conditions and the development of
capital markets: Our Corporate Treasury is
responsible for the financing of the Company and our Groups. A
negative development in the capital markets increases our cost
of capital and limits our financing flexibility. For example,
the recent development in the subprime mortgage market in the
U.S. has had a global impact on the capital markets. Such
developments could limit our possibilities of debt financial
instruments financing.
Our financing activities subject us to various risks
including credit and interest rate risk: We
provide to our customers various forms of direct and indirect
financing in connection with large projects such as those
undertaken by PG and TS. We finance a large number of smaller
customer orders, for example the leasing of medical equipment,
in part, through Siemens Financial Services (SFS). SFS also
incurs credit risk by financing third-party equipment. We also
sometimes take a security interest in the projects we finance.
We may lose money if any of our customers are not able to pay
us, if the value of the property that we have taken a security
interest in declines, if interest rates or foreign exchange
rates fluctuate, or if the projects in which we invest are
unsuccessful, and such losses could have a material adverse
effect on our financial condition or results of operations.
Downgrades of our ratings may increase our cost of capital
and could negatively affect our
businesses: Our financial condition, results
of operations and cash flows are influenced significantly by the
actual and expected performance of the operating Groups, as well
as the Companys portfolio measures. An actual or expected
negative development of our results of operations or cash flows
or an increase in our net debt position may result in the
deterioration of our credit rating. Downgrades by rating
agencies may increase our cost of capital and could negatively
affect our businesses.
Capital
Structure
The funded status of our off-balance sheet pension benefit
plans and its financial statement impact is dependent on several
factors: The funded status of our pension
plans may be affected by an increase or decrease of the Defined
Benefit Obligation (DBO), as well as by an increase or decrease
in the valuation of plan assets. Pensions are accounted in
accordance with actuarial valuations, which rely on statistical
and other factors in order to anticipate future events. These
factors include key pension plan valuation assumptions like the
discount rate, expected rate of return on plan assets, rate of
future compensation increases and pension progression.
Assumptions may differ from actual developments due to changing
market and economic conditions, thereby resulting in an increase
or decrease of the DBO. Significant changes in investment
performance or a change in the portfolio mix of invested assets
can result in corresponding increases and decreases in the
valuation of plan assets, particularly equity securities, or in
a change of the expected rate of return on plan assets. Also,
changes in pension plan assumptions can affect net periodic
pension cost. For example, a change in discount rates or in the
expected return on plan assets assumption may result in changes
in the net benefit pension cost in the following financial year.
For additional information, see Item 5: Operating and
Financial Review and ProspectsCritical Accounting
Estimates and Notes to Consolidated Financial
Statements.
Compliance
Code of
Conduct
Public prosecutors and other government authorities in
jurisdictions around the world, including the U.S. Securities
and Exchange Commission (SEC) and the U.S. Department of Justice
(DOJ), are conducting investigations of Siemens and certain of
its current and former employees regarding allegations of public
8
corruption and other illegal acts. The results of these
and any future investigations may have a material adverse effect
on the development of future business opportunities, our
financial results and condition, the price of our shares and
ADSs and our reputation: 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, there could be additional
investigations launched in the future by governmental
authorities in these or other jurisdictions and existing
investigations may be expanded. These governmental authorities
may take action against us or some of our employees. These
actions could include criminal and civil fines, in addition to
those already imposed on the Company, as well as penalties,
sanctions, injunctions against future conduct, profit
disgorgement, disqualifications from engaging in certain types
of business, the loss of business licenses or permits or other
restrictions. In addition to monetary and other penalties, a
monitor could be appointed to review future business practices
with the goal of ensuring compliance with applicable laws and we
may otherwise be required to further modify our business
practices and compliance programs. Tax authorities may also
impose certain remedies, including potential tax penalties.
Depending on the development of these investigations, we may be
required to accrue additional material amounts for such
penalties, damages, profit disgorgement or other possible
actions that may be taken by various governmental authorities.
Any of the foregoing could have a material adverse effect on our
business, financial 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 non-governmental organizations such as the World
Bank. If we or our subsidiaries are found to have engaged in
illegal acts or not to have taken effective steps to address the
allegations or findings of corruption in our business, this may
impair our ability to participate in business with governments
or non-governmental organizations and may result in formal
exclusions from such business, which may have a material adverse
effect on our business. As described more fully in Item 4:
Information on the CompanyLegal Proceedings,
we or our subsidiaries have in the past been excluded from
government contracting as a result of findings of corruption or
other misconduct. Debarment from participating in contracting
with governments or non-governmental organizations in one
jurisdiction may also lead to debarment in other jurisdictions
or by other non-governmental organizations. Even if we are not
formally excluded from participating in government business,
government agencies or non-governmental organizations may
informally exclude us from tendering for or participating in
certain contracts. From time to time, we have received requests
for information from government customers and non-governmental
organizations regarding the investigations described above and
our response to those investigations. We expect such requests to
continue.
In addition, our involvement in existing and potential
corruption proceedings could also damage our reputation
generally and have an adverse impact on our ability to compete
for business from both public and private sector customers. The
investigations could also impair our relationship with business
partners on whom we depend and our ability to obtain new
business partners and could also adversely affect our ability to
pursue strategic projects and transactions which could be
important to our business, such as alliances, joint ventures or
other combinations. Current or future investigations could
result in the cancellation of certain of our existing contracts,
and the commencement of significant third-party litigation,
including by our competitors.
The governmental investigations as well as the investigation
conducted by Debevoise & Plimpton LLP, the independent
law firm mandated by the Company, are at this time incomplete
and we cannot predict when they will be completed or what their
outcome will be, including the potential effect that their
results or the reactions of third parties thereto, may have on
our business. Future developments in these investigations,
responding to the requests of governmental authorities and
cooperating with these investigations, especially if we are not
able to resolve the investigations in a timely manner, could
divert managements attention and resources from other
issues facing our business. Management is in the process of
implementing a remediation plan to address corruption and
compliance risk in our business. If this remediation plan is
unsuccessful, or if we cannot implement it in a timely manner,
there could be an increased risk that one or more of the risks
described above could materialize.
We have concluded that our internal control over financial
reporting was not effective as of September 30, 2007. As a
result, our ability to report our results of operations
accurately and in a timely manner, including our ability to make
required filings with government authorities, may be adversely
affected. In addition, the trading
9
price of our shares and ADSs may be adversely affected by
a related negative market reaction: We have
identified a material weakness in our internal control over
financial reporting. Our management, including the CEO and CFO,
has concluded that our disclosure controls and procedures were
not effective as of September 30, 2007 to achieve their
intended objectives. Following the guidelines stipulated by the
Public Company Accounting Oversight Board, we have identified
the following material weakness in our internal control over
financial reporting: The Companys internal control in the
area of anti-corruption was not sufficiently robust to prevent
certain members of management from circumventing or overriding
elements of the Companys financial control environment and
misusing funds contrary to Company policies. As of
September 30, 2007, the investigations of this failure, and
the implementation of the Companys remediation plan to
address it, were not far enough advanced to provide a sufficient
level of assurance that such circumvention or override of
controls and misuse of funds by management would be prevented.
For more information, see Item 15: Controls and
Procedures. As of the date of this annual report on
Form 20-F,
the process of designing, implementing and validating remedial
measures related to the material weakness is ongoing. Although
we have identified a material weakness, we have not yet
identified all of the areas in which the relevant controls were
deficient, and as a result have not been in a position to
remediate them. If our efforts to remediate this material
weakness are not successful, we may be unable to report our
results of operations accurately and in a timely manner and make
our required filings with government authorities, including the
U.S. Securities and Exchange Commission. Furthermore, our
business and operating results and the price of our shares and
ADSs may be adversely affected by related negative market
reactions. We cannot be certain that in the future additional
material weaknesses will not exist or otherwise be discovered.
Legal
Our business could suffer as a result of current or future
litigation: We are subject to numerous risks
relating to legal proceedings to which we are currently a party
or that could develop in the future. In the ordinary course of
our business, we become party to lawsuits, including suits
involving allegations of improper delivery of goods or services,
product liability, product defects, quality problems and
intellectual property infringement. For additional information
with respect to legal proceedings, see Item 4:
Information on the CompanyLegal Proceedings.
There can be no assurance that the results of these or other
legal proceedings will not materially harm our business,
reputation or brand. We record a provision for litigation risks
when (i) a present obligation as a result of a past event
exists; (ii) it is probable that an outflow of resources
embodying economic benefits will be required to settle the
obligation; and (iii) a reliable estimate can be made of
the amount of the obligation. We maintain liability insurance
for certain legal risks at levels our management believes are
appropriate and consistent with industry practice. We may incur
losses relating to litigation beyond the limits, or outside the
coverage, of such insurance and such losses may have a material
adverse effect on the results of our operations or financial
condition and our provisions for litigation related losses may
not be sufficient to cover our ultimate loss or expenditure.
Regulatory
We are subject to risks associated with our international
operations: Changes in regulatory
requirements, tariffs and other trade barriers and price or
exchange controls could impact our sales and profitability and
make the repatriation of profits difficult. In addition, the
uncertainty of the legal environment in some regions could limit
our ability to enforce our rights. We expect that sales to
emerging markets will continue to be an increasing portion of
total sales, as our business naturally evolves and as developing
nations and regions around the world increase their demand for
our offerings. Emerging market operations present several risks,
including civil disturbances, health concern, 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 growth
strategy and our sizeable operations in China are influenced by
a legal system that is still developing and is subject to
change. Our growth strategy could be limited by governments
supporting local industries. The demand for many of the products
of our business Groups, particularly those that derive their
revenue from large projects, can be affected by expectations of
future demand, prices and gross domestic product in the markets
in which those Groups operate. If any of these risks or similar
risks associated with our international operations were to
materialize, it could have a material adverse effect on our
results of operations and financial condition.
10
We are subject to environmental and other government
regulations: Some of the industries in which
we operate in are highly regulated. Current and future
environmental and other government regulations, or changes
thereto, may result in significant increases in our operating or
product costs. We could also face liability for damage or
remediation for environmental contamination at the facilities we
design or operate. See Item 4: Information on the
CompanyEnvironmental Matters for a discussion of
significant environmental matters. We accrue for environmental
risks when (i) a present obligation as a result of a past
event exists; (ii) it is probable that an outflow of
resources embodying economic benefits will be required to settle
the obligation; and (iii) a reliable estimate can be made
of the amount of the obligation. With regard to certain
environmental risks, we maintain liability insurance at levels
that our management believes are appropriate and consistent with
industry practice. We may incur environmental losses beyond the
limits, or outside the coverage, of such insurance and such
losses may have a material adverse effect on the results of our
operations or financial condition and our provisions for
environmental remediation may not be sufficient to cover the
ultimate losses or expenditures.
Changes in tax regulations could result in lower earnings
and cash flows: We operate in approximately
190 countries and therefore are subject to different tax
regulations. Changes in tax regulation could result in higher
tax expenses and payments. Furthermore, changes in tax
regulation could impact our tax liabilities as well as deferred
tax assets.
ITEM 4: INFORMATION
ON THE COMPANY
Overview
Siemens traces its origins to 1847. Beginning with advances in
telegraph technology, the Company quickly expanded its product
line and geographic scope, and was already a multi-national
business by the end of the
19th century.
The Company formed a partnership under the name
Siemens & Halske in 1847, reorganized as a limited
partnership in 1889 and as a stock corporation in 1897. The
Company moved its headquarters from Berlin to Munich in 1949,
and assumed its current name as Siemens Aktiengesellschaft, a
stock corporation under the Federal laws of Germany, in 1966.
The address of our principal executive offices is
Wittelsbacherplatz 2,
D-80333
Munich, Germany; telephone number +49 (89) 636 00.
During fiscal 2007, Siemens employed an average of 386,200
people and operates in approximately 190 countries
worldwide. In fiscal 2007, we had revenue of
72.448 billion. Our balanced business portfolio is
based on leadership in electronics and electrical engineering.
We have combined this expertise with a commitment to original
research and development (R&D) to build strong global
market positions in the sectors energy, industry and healthcare.
While the energy sector comprises our Groups Power Generation
(PG) and Power Transmission and Distribution (PTD), the industry
sector encompasses our Groups Automation and Drives (A&D),
Industrial Solutions and Services (I&S), Siemens Building
Technologies (SBT), Osram and Transportation Systems (TS).
Healthcare consists of our Group Medical (Med), providing
medical solutions including diagnostics. Besides these
activities, Siemens IT Solutions and Services (SIS) provides
information and communication services to customers and to other
Siemens Groups. Also, in fiscal 2007, the Company had a Real
Estate business comprising the activities of Siemens Financial
Services (SFS) and Siemens Real Estate (SRE). As a result of our
strategic reorientation, SIS and SFS will be cross-functional
activities and SRE will become an internal Company unit. Our
businesses operate under a range of regional and economic
conditions. In internationally-oriented long-cycle industries,
for example, customers have multi-year planning and
implementation horizons that tend to be independent of
short-term economic trends. Our activities in these areas
include PG, PTD, Med and TS. In fields with more
industry-specific cycles, customers tend to have shorter
horizons for their spending decisions and greater sensitivity to
current economic conditions. Our activities in these areas
include A&D and Osram. Some Groups, especially Med are also
influenced by technological change and the rate of acceptance of
new technologies by end users.
As a globally operating organization, we also conduct business
with customers in Iran, Sudan, Syria, Cuba and North Korea. The
U.S. Department of State designates these countries as state
sponsors of terrorism and subjects them to export controls. Our
activities with customers in these states are insignificant
relative to our size (less than 1% of our sales in fiscal 2007)
and do not, in our view, represent either individually or in
aggregate a material investment risk. In light of current
humanitarian conditions in Sudan, Siemens ceased its business
activities in that
11
country as of June 30, 2007. However, we may participate in
humanitarian efforts of internationally recognized organizations
in Sudan. We actively employ systems and procedures for
compliance with applicable export control programs, including
those in the United States, the European Union and Germany.
In the second quarter of fiscal 2007, we successfully concluded
our Fit4More program, which we initiated in fiscal
2005. Its goal was to increase profitability and growth. The
main areas of the program were: Performance and Portfolio,
Operational Excellence, People Excellence and Corporate
Responsibility. The overall objective of the program was to
increase profitability, as measured by specific margin targets
for our business Groups. Beginning with the second quarter of
fiscal 2007, we started a new program called Fit for
2010 which is based on the pillars of the Fit4More program.
In the remainder of this section, we detail the Fit for 2010
strategy, highlight portfolio optimization activities in recent
years and describe the various segments of our business in more
detail.
Fit
for 2010 program
The overall objectives of Fit for 2010, defined as
Performance targets, are to achieve profitable growth and
to increase the value of the company. Drivers of
Performance are Portfolio, People Excellence,
Corporate Responsibility and Operational Excellence.
Performancesets medium-term goals for
Siemens to further enhance our competitiveness and our company
value by defining return, growth, cash and capital structure
targets for the company and margin ranges for our business
Groups.
Portfolioinvolves reaching or holding
leading positions in all our businesses. Predominantly in the
three sectors energy, industry and healthcare we intend to round
out our portfolio with new products and technologies by organic
growth as well as acquisitions.
People Excellencemeans achieving and
maintaining a high-performance culture. We are committed to
systematically developing top talent, especially emerging
leaders and technical, subject matter experts. People Excellence
entails fostering outstanding knowledge and unique skills in
every individual and developing the capability to work in
high-performance teams across organizational boundaries.
Corporate Responsibilitycomprises our
commitment to the society. This includes Corporate
Governance, Compliance, Climate Protection, Corporate
Citizenship and Portfolio. Corporate
Governance is as the basis of all our decision-making and
monitoring processes. With our Compliance system, we are
seeking to set the standard for high integrity and transparency.
With binding rules and guidelines we intend to ensure that our
employees and managers always conduct themselves in a legal and
ethical manner in relation to each other and to our business
partners. Climate Protection is an obligation to society
but also a business opportunity with significant growth rates.
Siemens is developing technological innovations that help save
energy and limit greenhouse gas emissions. Furthermore we have
launched an energy efficiency program for our production
facilities worldwide. Within Corporate Citizenship the
global rollout of both Siemens-wide citizenship programs,
Siemens Generation21 in the field of education and Siemens
Caring Hands for social assistance services, will be continued
and intensified. A further goal is to implement projects that
foster social and business benefits by more strongly integrating
Siemens specific expertisefor example by providing
support for infrastructure deficiencies.
Operational Excellenceis executing our
Siemens Management System initiative which focuses on
Innovation, Customer Focus and Global Competitiveness.
Innovation has been a hallmark of Siemens since its inception,
and our commitment to innovation remains strong, with increasing
R&D expenses in fiscal 2007 compared to fiscal 2006.
Customer Focus means meeting a customers needs rather than
simply selling a product or service. We market our products,
solutions and services not only through our business Groups but
also by taking advantage of cross-selling opportunities. Global
Competitiveness relates to our ability to compete and market our
products on a worldwide basis. As mentioned above, Siemens is
present in approximately 190 countries and benefits from its
multicultural mix of managers and employees in these countries.
It is our primary goal to secure competitive strength by
utilizing and improving all parts of our worldwide value chain
including procurement, production and hardware, development of
software, shared services and back-office functions.
12
Portfolio
Activities
Since fiscal 2005, we have completed the following significant
transactions to optimize our business portfolio for sustainable
profitability and growth:
Acquisitions
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A&Ds acquisition of
U.S.-based
UGS Corp. (UGS), one of the leading providers of product
lifecycle management (PLM) software and services for
manufacturers, in May 2007;
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Meds acquisition of the diagnostics division of Bayer
Aktiengesellschaft (Bayer) in January 2007, enabling Siemens to
expand its position in the molecular diagnostics market;
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Meds acquisition of the immunodiagnostics provider
Diagnostics Products Corporation (DPC), USA, in the fourth
quarter of fiscal 2006;
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Acquisition of a number of entities in fiscal 2006, which were
not significant individually: the coal gasification business of
the Swiss Sustec-Group, Wheelabrator Air Pollution Control,
Inc., USA, a supplier of air pollution control and reduction
products and solutions for the coal-fired power and industrial
market, both at PG; Electrium, UK, vendor of electrical
installation systems at A&D; and Bewator, Sweden, a
supplier of products and systems for access control solutions at
SBT;
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Acquisition completed in July 2005 of the Austrian engineering
group VA Technologie AG (VA Tech), primarily integrated into
I&S and PTD; in May 2006, in order to comply with a
European antitrust ruling, the Company sold the majority of the
VA Tech power generation business, including the hydropower
activities, to Andritz AG, Austria;
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A&Ds acquisition in July 2005 of Flender Holding
GmbH, Germany (Flender), a supplier of gear systems;
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Meds acquisition of CTI Molecular Imaging, Inc., U.S.
(CTI) in May 2005 to strengthen Siemens commitment to
molecular imaging development; and
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Acquisition of two entities at Power Generation (PG) and
A&D in fiscal 2005, which were not significant
individually: Bonus Energy A/S (Bonus), Denmark, a supplier of
wind energy systems, and Robicon Corporation (Robicon), U.S., a
manufacturer of medium-voltage converters for AC motors.
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On July 25, 2007, Siemens also signed an agreement with
Dade Behring Holdings, Inc. (Dade Behring), USA, to acquire all
issued and outstanding shares of common stock of Dade Behring by
submitting a cash tender offer of U.S.$77 per share. The
transaction closed at the beginning of November 2007 (see also
Subsequent events).
Dispositions
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In April 2007, Siemens contributed its carrier-related
operations and Nokia Corporation (Nokia), Finland contributed
its Networks Business Group into Nokia Siemens Networks BV, the
Netherlands (NSN), in exchange for shares in NSN. Siemens and
Nokia each own an economic share of approximately 50% of NSN.
The transaction resulted in a preliminary pre-tax non-cash gain
of 1.627 billion which is included in discontinued
operations. Siemens has the ability to exercise significant
influence over operating and financial policies of NSN and
beginning April 2007 reports its equity interest in NSN in
Investments accounted for using the equity method and its
share of income (loss) in NSN in Income (loss) from
investments accounted for using the equity method, net. For
periods prior to April 2007 the carrier-related operations are
reported in discontinued operations;
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In August 2006, Siemens sold the majority of its Dematic
business, which consisted of the Distribution and Industry
Logistics (DI) and Material Handling Products (MHP) divisions,
formerly of the Logistics and Assembly Systems Group (L&A)
to Trition Managers II Limited, Jersey; and
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At the beginning of April 2006, the former operating segment
Siemens Business Services (SBS) closed the sale of its Product
Related Services (PRS) business to Fujitsu Siemens Computers
(Holding) BV.
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13
Discontinued
Operations
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On July 25, 2007, we signed an agreement with Continental
AG, Hanover, Germany, to sell our entire SV activities. These
business activities are reported in discontinued operations for
both the current and prior periods;
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The business activities of the enterprise networks business,
which were part of Com, are reported in discontinued operations
for both the current and prior periods; and
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In September 2005, we sold our Mobile Device business, which
lacked the necessary scale to compete effectively in a
consolidating market. These business activities are reported in
discontinued operations for both the current and prior periods.
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For a detailed discussion of our acquisitions, dispositions and
discontinued operations, see Notes to Consolidated
Financial Statements.
Economic
Value Added (EVA)
A core element of our strategy has been an emphasis on EVA as a
measurement of the success of each of our business Groups and of
our Company as a whole. Economic value added provides a measure
of the return of a business Group over its cost of capital. We
believe that our management incentive compensation, which is
based on economic value added targets, plays a key role in
keeping us focused on our profitability goals.
14
Description
of Business
In fiscal 2007, our segments* were comprised of our operating
Groups, our Financing and Real Estate business, as well as our
Strategic Equity Investments and were as follows:
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* |
In fiscal 2006, Siemens announced portfolio changes that
resulted in dissolving Communications (Com) as a Group and
reportable segment.
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A new segment called Strategic Equity Investments (SEI) was
created as of October 1, 2006 and includes certain
strategic investments accounted for under the equity method.
Beginning in the third quarter of fiscal 2007, NSN is also
reported in SEI.
SIS was created effective April 2007 and consists primarily of
the activities 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.
Beginning in the fourth quarter of fiscal 2007, SV ceased to
represent a reportable segment.
15
Industry
Automation
and Drives (A&D)
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Year ended
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September 30, 2007
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Total revenue
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15.389 billion
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External revenue
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13.695 billion
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External revenue as percentage of Siemens revenue
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18.90%
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Group profit
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2.090 billion
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A&D offers products, solutions and services primarily
targeted at three main end-customer segments:
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Factory automation serves customers in the factory
automation industry. Typical customers for these durable goods
are the automotive and machinery industries.
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Process automation serves mainly customers in the process
automation industry, e.g. the chemical, pharmaceutical, food and
beverage industries.
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Electrical Equipment for buildings serves customers in
the industrial and private building engineering industry
(construction markets).
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In May 2007, we acquired UGS Corp., a U.S. company based in
Texas, for an estimated purchase price, including the assumption
of debt, of 2.7 billion (including
75 million cash acquired). UGS is a leading provider
of Product Lifecycle Management software and services, a
software concept including construction, simulation and plant
management for factory automation solutions like automotive
plants, aeroplane plants, machinery production etc.
The products, solutions and services that we offer to our
customers can be grouped in five technological segments:
Low voltage control and installation technology products include
low voltage switchboards, circuit protection and distribution
products and command and signaling devices. These products are
used in the control cabinets of switchgear and control gear
manufacturers and automation providers, who in turn serve
producers of mechanical and electrical machinery and companies
in the construction industry. We also offer electrical
installation products such as circuit protection systems, small
distribution board systems, wiring devices, switches and sockets
for the distribution of electricity in residential and
industrial buildings. Our modern bus-systems for communication
and monitoring link products and systems together and further
link these to building automation systems. The bus-systems are
used principally in residential buildings and large commercial
facilities such as plants and office buildings.
Manufacturing automation products include programmable logic
controllers, human machine interfaces for integrated automated
systems using a single system platform, industrial
communications systems and industrial software. Our main
customers for these products are the durable goods and capital
equipment industries, especially mechanical engineering
companies. In addition, we integrate these products into
industry- or customer-specific hardware and software solutions
and, for the automotive industry, we plan, engineer and sell
complete manufacturing automation solutions. The acquisition of
UGS Corp. in May 2007 strengthens our position in the
manufacturing automation market.
Motion control and drive system products include motors, drives,
gears and computerized numerical controls for machine tools, as
well as automation and drive equipment for all types of
production machines and material handling equipment. We also
sell motors and drives, from low to high voltage, and gears for
various applications in different industries and in
infrastructure facilities. Applications include rolling mills
and ships, engines for all kinds of rail vehicles and
ventilation and water and wastewater transportation systems.
Process automation products and services include process
instrumentation and analytics and wireless modules for companies
in the raw materials and other materials processing and capital
equipment industries. We plan, engineer and sell complete
solutions that integrate these products for specific
applications in the chemical,
16
pharmaceutical, food and beverage, and non-metallic minerals
industries. We use our computerized process control system as
the basis for our batch and process solutions.
Electronic assembly systems products are mainly surface mount
technology (SMT) placement systems that automate the mounting of
components onto printed circuit boards.
We sell our products primarily through our sales force in
Germany and through dedicated personnel in Siemens
worldwide network of regional sales units. We also sell a
significant proportion of our products to original equipment
manufacturers (OEM), system and software houses and third-party
distributors for resale to end users. The majority of our sales
to third parties goes to industrial customers in the mechanical
and electrical machines industries. A significant portion is
also made to distributors, system and software houses and
engineering companies.
The following chart shows the geographic distribution of
A&Ds external revenue in fiscal 2007:
Consolidation in our industry is occurring on multiple levels.
Suppliers of automation solutions to manufacturing companies
have supplemented their activities with drives technology.
Suppliers of manufacturing and process control systems are
cooperating or combining through acquisitions or cooperative
ventures with suppliers of field technology and outsource
facility operation and monitoring activities to establish
comprehensive automation suppliers.
Intense competition and rapid technical progress within our
industry place significant pressure on prices. Average product
lifetimes in our businesses tend to be short, typically from one
to five years after introduction, and are even shorter where
software and electronics play an important role. Product
lifetimes tend to be longer in motors, gears and
electromechanical devices.
Each of our principal competitors ABB, Schneider Electric and
Emerson has a broad business portfolio similar to ours. We also
compete with specialized companies such as Rockwell, Eaton,
Honeywell and Fanuc, as well as with local companies,
particularly in the Chinese and Indian markets. Our U.S.
competitors traditionally have had strong positions in software
technologies, while Asian competitors have generally focused on
large-scale production and cost cutting. Nevertheless, most of
our major competitors have established global bases for their
businesses. In addition, competition in the field has become
increasingly focused on technological improvements to
electronics and software. As a result of the acquisition of UGS,
we compete in the Product Lifecycle Management software business
with Dassault Systemes and in the emerging market of Enterprise
Ressource Planning (ERP) software with companies such as SAP and
Oracle.
Industrial
Solutions and Services (I&S)
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Year ended
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September 30, 2007
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Total revenue
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8.894 billion
|
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External revenue
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|
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7.824 billion
|
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External revenue as percentage of Siemens revenue
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10.80%
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Group profit
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415 million
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17
I&S develops solutions and services for industrial and
infrastructure facilities from planning and installation through
to operation and the whole equipment lifecycle. Our systems and
processes are applied for iron and steel production, treatment
of potable water and wastewater, as well as for traffic systems,
airport logistics and postal automation. We are also involved in
the pulp and paper sector, oil and gas, shipbuilding and mining.
During fiscal 2007, we provided our solutions and services
through the following seven divisions:
Industrial Services is responsible for our industrial
technical services activities, providing a wide range of
technical services covering each stage of the lifecycle of
industrial plants, infrastructure facilities and utilities. We
serve customers in a variety of industries. Under the trade name
Siemens Industrial Services, we provide engineering and general
contracting services for plant construction and modernization
and deliver on-call and logistics services, maintenance
services, including predictive maintenance, as well as auxiliary
process management services globally on a local basis.
Water Technologies provides water and wastewater
treatment products (filters, membranes and resin), integrated
solutions (membrane systems, filtration solutions, chemical
feed, ion exchange systems, disinfections systems and biological
treatment) and outsourcing solutions (contract operations,
build-own-operate solutions and customer asset
management) and services (carbon and resin regeneration, mobile
water treatment and maintenance).
Intelligent Traffic Systems offers automated systems for
urban and inter-urban traffic control and management. These
systems include information technology for traffic detection,
information and guidance and parking space management, in
addition to solutions for electronic tolls and tunnel traffic
guidance and access control. Our airfield technologies business
provides systems and solutions for the accurate monitoring,
navigation and control of aircraft ground movement, as well as a
variety of lighting systems for the visual guidance of airfield
traffic.
Metals Technologies provides process technology solutions
and services for the mining and metals industries. The four sub
divisions (Iron and Steelmaking, Rolling and Processing, Mining
and Metal and Mining Services) offer plants and equipment
(products), electrics and automation (systems) and services
(life cycle management).
Airport Logistics offers systems to track and control
cargo in and around airport terminals, as well as a full range
of baggage handling functions, from the check-in counter and
screening, to baggage reclaim, including services and parts for
such systems. We also provide security solutions for the
aviation industry, integrating baggage screening and explosives
detection technologies.
Postal Automation provides equipment for sorting of both
standard and large letters (so-called flats), as well as
parcels; reading and coding systems; postal information
technology; mail security solutions; and postal services such as
product-related after-sales services and general contracting.
As of October 1, 2007, the Airport Logistics and Postal
Automation divisions will be merged to form a new division
called Infrastructure Logistics.
Oil, Gas & Marine uses industry-specific
expertise to design, engineer and deliver solutions tailored to
the needs of customers in the oil & gas and marine
industries.
Our Metals Technologies, Airport Logistics and Postal Automation
divisions derive their sales revenues primarily from projects
awarded on the basis of internationally solicited tenders. These
projects tend to be performed under long-term, high-value
contracts with a relatively limited number of customers. Our
Water Technologies division focuses on industrial and municipal
customers. Intelligent Traffic Systems works predominantly with
state and municipal customers. Siemens businesses collectively
continue to be I&S largest customer.
The large size of the projects performed by our divisions
occasionally exposes us to risks related to our technical
performance, to a customer or to a country. For additional
information with respect to our long-term contracts, see
Item 3: Key InformationRisk Factors.
We market our services to our customers primarily through our
dedicated sales force, supplemented by Siemens worldwide
network of regional sales units.
18
The following chart shows the geographic distribution of
I&S external revenue in fiscal 2007:
Our competitors vary by business area and region. They range
from large, diversified multinationals to small, highly
specialized local companies. I&S main competitors
internationally include ABB, General Electric, Honeywell,
Invensys and Alstom. Our Industrial Services division also
competes with a large variety of small locally based suppliers
of contracting, maintenance and support services.
Siemens
Building Technologies (SBT)
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Year ended
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September 30, 2007
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Total revenue
|
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5.062 billion
|
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External revenue
|
|
|
4.952 billion
|
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External revenue as percentage of Siemens revenue
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6.84%
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Group profit
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354 million
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SBT provides products, systems, solutions and services for
monitoring and regulating the temperature, fire safety,
ventilation, electricity, lighting and security of commercial
and industrial property, tunnels, ships and aircraft.
During fiscal 2007, SBT consisted of the following four
divisions:
Security Systems offers electronic security solutions and
services for buildings and critical environments (e.g. ports and
stadiums), including intruder detection and alarm systems,
closed-circuit television video-surveillance, personal
identification and building access control systems, as well as
managed services such as centralized monitoring and control of
each of these individual systems. The division further enhanced
its product portfolio and solutions business through the
acquisition of a leading Indian system provider during fiscal
2007.
Fire Safety and Security Products manufactures and sells
system components for the global fire safety and security
industry and offers systems, solutions and services to the
non-residential markets for fire detection and protection,
including computerized gas leakage and fire alarms and non-water
based fire extinguishing systems, as well as comprehensive
computer-based danger management systems which centrally monitor
and control each of these individual systems. Our products serve
to protect against fire, burglary, unauthorized access and loss
of assets.
Building Automation offers systems, solutions and
services to the non-residential markets for automating and
regulating heating, ventilation and air conditioning (HVAC),
electricity and lighting, including computerized building
automation systems that integrate and manage all of these
functions for an entire building. The division offers
maintenance and training services for its systems and also
provides energy solutions and services, aiming to improve a
buildings energy costs, reliability and performance while
minimizing impact on the environment. For example, we refurbish
buildings to improve their energy efficiency and provide our
customers with a guaranteed level of energy cost savings. We
also arrange for financing of the refurbishments.
HVAC Products manufactures and sells controls, sensors,
detectors, valves and actuators used in systems that regulate
heating, ventilation and air conditioning, electricity and
lighting in buildings and factories.
19
Our customers consist of a large, widely-dispersed group of
locally-based building owners, operators and tenants, building
construction general contractors, mechanical and electrical
contractors, HVAC systems OEMs, wholesalers, specialized system
builders and installers.
SBT has a decentralized business organization that combines a
small central headquarters, design and manufacturing at sites in
six countries in Europe, North America and Asia and our own
branch network. For some markets, we also distribute our
products and systems through a network of independent field
offices and distributors. Our services businesses and sales
network have significant local presences.
The large size of the projects performed by our divisions
occasionally exposes us to risks related to our technical
performance, to a customer or to a country. For additional
information with respect to our long-term contracts, see
Item 3: Key InformationRisk Factors.
We sell our products and systems throughout the world.
The following chart shows the geographic distribution of
SBTs external revenue in fiscal 2007:
The main global competitors of our solutions businesses (e.g.
security systems, fire safety & security solutions and
building automation) are large system integrators such as Tyco,
Honeywell, Johnson Controls, UTC and Bosch, as well as Schneider
Electric in some markets. The fire safety products market
consolidated considerably in recent years, creating heightened
competition between major players. In addition, competitors
continuously shift their production to low-cost countries. Due
to the resulting comparative lower production costs, we continue
to experience increased price pressure in the products market,
as well as in fire safety solutions. The main competitors of our
products business (e.g. HVAC products and fire
safety & security products) are large multi-national
suppliers such as GE, Johnson Controls, Honeywell, Bosch and
Schneider Electric. In the HVAC market, we also see
consolidation (including significant acquisitions by Honeywell,
Schneider Electric, Danfoss and Daikin) and increased price
competition for the same reasons as in the fire safety solutions
market. We also face competition from niche competitors offering
web-based solutions and from new entrants, such as utility
companies and consulting firms, exploiting an increased demand
for energy cost management. Consolidation also is continuing in
the building automation market and vertical integration of
mechanical equipment and controls is an important industry trend.
Osram
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Year ended
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September 30, 2007
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Total revenue
|
|
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4.690 billion
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External revenue
|
|
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4.677 billion
|
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External revenue as percentage of Siemens revenue
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6.46%
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Group profit
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492 million
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20
Our Lighting Group, Osram, offers a full spectrum of lighting
products for a variety of applications. Osram designs,
manufactures or sells the following types of lighting products
and related materials, components and equipment through the
following divisions:
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General Lighting: incandescent, halogen,
compact fluorescent, fluorescent and high-intensity discharge
lamps for household and commercial applications, and public
buildings, spaces and streets;
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Automotive Lighting: halogen, incandescent and
xenon discharge lamps for use in motor vehicle headlights, brake
lights, turn signals and instrument panels, and, through an
equal joint venture with Valeo, completed head- and tail-light
assemblies for distribution in North America;
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Display/Optic: special purpose halogen and
high-intensity discharge lamps for lighting airport runways,
film studios, lighting for microchip manufacturing, video and
overhead projectors and medical and other applications requiring
very intense lighting;
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Opto-Semiconductors/LED systems: light
emitting diodes (LED), organic light emitting diodes (OLED),
high power laser diodes and other semiconductor devices and LED
systems that generate visible light and ultraviolet and infrared
radiation for use in interior and exterior automotive lighting
and other applications, electronic equipment displays, traffic
and signal lighting, signs and decorative lighting and infrared
transmitters and sensors for industrial and consumer electronics;
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Ballasts and Luminaires: electronic ballasts
for optimized operation of compact fluorescent, fluorescent,
high-intensity discharge, low-voltage halogen lamps and LED
systems, as well as consumer fixtures and, increasingly,
lighting control systems; and
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Precision Materials and Components: glass for
bulbs, phosphor powders for fluorescent lamps, computer monitors
and television screens, tungsten and other metals for filaments
in incandescent lamps and heavy duty tools and electronic
components and materials for lamps and applications in the
automotive industry, as well as equipment used in the production
of lighting products.
|
As of October 1, 2007, the activities of the
division Ballasts and Luminaires will be transferred into
two divisions, Luminaires, and Electronics and Controls. Also,
as of October 1, 2007, the division Precision
Materials and Components will be renamed Global Tungsten Powder.
We market our products worldwide and have manufacturing
locations throughout North and South America, Western and
Eastern Europe and Asia, allowing us to stay close to our major
customer regions and keep shipping charges low. We produce most
of our own key precision materials and components to ensure that
we have access to basic components in the necessary amounts,
prices and levels of quality. We also sell precision materials
and components of our production to third parties.
In the coming years, we expect the importance of electronics to
continue to increase across all areas of the lighting industry,
and we expect that Osrams revenue accounted for by
electronic ballasts, electronically-driven lighting systems and
opto-semiconductors will continue to increase.
Our customers include primarily wholesalers, retailers and
manufacturers of lighting fixtures, lamp components and
automotive systems. We distribute our products through
Osrams own network of subsidiaries, sales offices and
local independent agents in approximately 150 countries. The
importance of the Internet as a sales channel is also steadily
increasing. Osram has successfully implemented
business-to-business
extranet services in several countries and we continue to
process over one third of our revenue electronically.
In recent years, the world market for lighting products has
grown at moderate rates, with relatively higher growth in
Asia-Pacific and Eastern Europe. In North America, we market
most of our lighting products under the brand name Sylvania.
21
The following chart shows the geographic distribution of
Osrams external revenue in fiscal 2007:
As a result of acquisitions and consolidations over the last
decades, Osram, Philips and General Electric are today the key
players in the worldwide lighting market. Osram holds a number
one or number two position worldwide in most of its product
markets, such as lamps, electronic ballasts, automotive lamps
and opto-semiconductors, competing principally with Philips and
General Electric, as well as Nichia in the field of
opto-semiconductors. Through joint ventures with Mitsubishi and
Toshiba, we are the largest foreign manufacturer of lighting
products in Japan, where Matsushita and Toshiba also hold strong
market positions.
Price competition is intense in some areas of both the
traditional and innovative lighting product markets, due to
competition among Philips, Osram, General Electric, and the
Japanese LED manufacturer Nichia, as well as rising competition
from new entrants, including a growing number of Chinese
manufacturers.
We continue to work on reducing the use of hazardous materials
(e.g. mercury or lead) or to substitute for these in our
products and processes. Sustainable products play a major role
in our innovation strategy. Examples are our energy-saving lamps
and lighting systems and our market introduction of mercury-free
xenon lamps for motor vehicle headlamps.
Transportation
Systems (TS)
|
|
|
|
|
|
|
Year ended
|
|
|
September 30, 2007
|
|
Total revenue
|
|
|
4.452 billion
|
|
External revenue
|
|
|
4.418 billion
|
|
External revenue as percentage of Siemens revenue
|
|
|
6.10%
|
|
Group profit
|
|
|
191 million
|
|
We are a leader in the global rail industry, offering a full
range of products and services for railway transportation. We
offer our customers innovative solutions and systems in such
areas as modular vehicle concepts for mass transit and mainline
systems; technology for driverless metros and
computer-controlled electronic switches; optical sensor systems;
and global positioning system (GPS)-based service and diagnostic
concepts, among others. We combine rolling stock with automation
and power product offerings in our turnkey systems business, and
combined service and maintenance activities in our integrated
services unit. Rolling stock refers to all major components of
rail vehicles, including locomotives, railway cars, subway cars
and streetcars.
We develop, manufacture and sell a full range of rolling stock
in three product-focused divisions:
|
|
|
|
|
Mass TransitOur products include subway and
suburban rapid transit trains, subway cars, as well as their
subsystems and components and streetcars, light rail vehicles
and their components.
|
|
|
|
LocomotiveOur products include electric and
diesel-electrical locomotives for passenger or freight rail. In
addition to our manufacturing operations, we also refurbish and
maintain locomotives and locomotive pools.
|
|
|
|
TrainsOur products comprise rail vehicles with
traction equipment integrated into the running gear and
distributed over the entire train, including high speed trains,
tilting trains, regional and rapid transit units and passenger
coaches, as well as subsystems and components.
|
22
In our automation and power business, we conduct our operations
in two divisions:
|
|
|
|
|
Rail AutomationFor passenger and freight railway
operations, we develop, manufacture and sell central control
systems, signaling systems and equipment, interlockings and
automated train control systems that regulate a trains
speed through automatic application of its brakes when it
exceeds speed limits or fails to respond to a signal. We sell
entire systems and networks, as well as individual products for
integration into existing signaling systems. For mass transit,
we develop, manufacture and sell operation control centers for
the operation of signals and switches in rail yards and between
destinations, and signaling and vehicle control systems
(including automated, driverless systems).
|
|
|
|
ElectrificationFor high speed, main line and mass
transit, we supply products and systems for contact line and
rail power supply.
|
In our Turnkey Systems division, we aim to optimize the design
and construction of entire railway systems. We cooperate closely
with the other TS businesses, integrating their products and
services to offer turnkey projects from a single source. We also
assist our customers with arranging financing in cooperation
with SFS.
Our primary customers are transport authorities and national and
private rail companies worldwide. Deutsche Bahn was again our
largest customer in fiscal 2007, although the Chinese Ministry
of Railways was nearly equally important as a percentage of our
total revenue. We distribute our products through our own sales
force in Germany and through dedicated personnel in the local
Siemens companies worldwide.
Germany and other European countries have traditionally been our
most important regional markets. We believe the most important
regional growth markets are in the Asia-Pacific region. Demand
in the German market for railway transportation products has
continued to decline in recent years, as a result of reduced
government funding of, and low investment in, the German rail
transportation systems, and we expect that trend to continue for
the foreseeable future.
The following chart shows the geographic distribution of
TS external revenue in fiscal 2007:
Despite the trend toward privatizing state-owned railways and
liberalization of the railways markets, national authorities
continue to have influence in areas such as security and
deregulation, or as general watchdog authorities over transport
or railway facilities. In many countries, governments impose
local content requirements, the fulfillment of which is often a
basic precondition for market entry. The number of rail
operators continues to increase, and both new and traditional
operators are focusing not only on quality but also on price and
low life-cycle costs that drive their own profitability. Price
pressure is further influenced by budget constraints faced by
many state operators, requiring innovative financing solutions.
Our customers show a growing trend towards the outsourcing of
servicing and maintenance of systems and equipment.
The large size of our projects occasionally exposes us to risks
associated with technical performance, a customer or a country.
In the past, we have experienced losses in connection with such
risks. For additional information with respect to our long-term
contracts, Item 3: Key InformationRisk
Factors.
We compete in our industry, on a global scale, with a relatively
small number of large companies and with numerous small to
midsized competitors who are either active on a regional level
or specialize within narrow product spectrums. Our principal
competitors are Alstom and Bombardier.
23
Energy
Power
Generation (PG)
|
|
|
|
|
Year ended
|
|
|
September 30, 2007
|
|
Total revenue
|
|
12.194 billion
|
External revenue
|
|
12.159 billion
|
External revenue as percentage of Siemens revenue
|
|
16.78%
|
Group profit
|
|
1.147 billion
|
PG provides customers worldwide with a full range of equipment
necessary for the efficient conversion of energy into
electricity and heat. We also customize gas and steam turbines
in the smaller output range, which can be used as drives for
compressors or large pumps, to meet specific project needs. We
offer a broad range of power plant technology, with activities
that include: development and manufacture of key components,
equipment, and systems; planning, engineering and construction
of new power plants; and comprehensive servicing, retrofitting
and modernizing of existing facilities.
PG consists of four businesses, each with a clear market focus
on specific customer groups and technologies: Fossil Power
Generation; Oil & Gas and Industrial Applications;
Instrumentation and Controls; and Wind Power.
A power plants function is the efficient conversion of
primary energy, such as coal or natural gas, into electricity.
In a fossil fuel plant, the power generation process begins with
working media such as water, steam or compressed air, which are
initially transferred to high pressure states by heating in
boilers or combustion sections of gas turbines. Thereafter,
steam and gas turbines convert this energy into mechanical
energy, which in turn is converted into electricity by
generators. In so-called combined cycle plants, a combination of
gas and steam turbines is used to reach highly efficient
conversion rates of nearly 60%. At the end of the process,
electricity is fed into transmission grids from the plant site.
Fossil Power Generation includes power plants and systems
engineering, as well as components and equipment engineering and
manufacturing, such as fossil fuel-fired power plants and
co-generation heat and power plants. Our fossil fuel power
generation business concentrates on turbo generators, gas and
steam turbines in the larger power range, with an emphasis on
combined-cycle gas and steam power plants. We also perform power
plant service, such as maintenance, rehabilitation and
operations.
Oil & Gas and Industrial Applications includes
steam and gas turbines in the small and medium power ranges, as
well as turbo generators, turbo compressors and compressor
solutions for the oil and gas industry. Our activities encompass
design, engineering, supply and service.
Instrumentation and Controls designs, installs and
commissions instrumentation and control systems and related
equipment for use in power generation, including information
technology solutions providing management applications from the
plant to the enterprise level. We also provide a wide variety of
related services.
Wind Power includes wind turbines from 1.3 MW to
3.6 MW for on- and offshore sites, as well as wind turbine
service.
Additional areas of PGs activity include the development
and production of systems based on emerging technologies such as
fuel cells and fuel gasification. We also have minority stakes
in joint ventures in the areas of nuclear and hydropower
generation, which we account for under the equity method.
Although we aim to expand primarily through internal growth, we
will continue to make acquisitions and form alliances where
appropriate to increase market penetration, share costs or
technologies and adapt to market changes. In the first quarter
of 2007, we completed the acquisition of Kühnle
Kopp & Kausch, a German manufacturer of small steam
turbines and turbocompressors.
PGs principal customers are large power utilities and
independent power producers, as well as construction engineering
firms and developers. Because certain areas of our business,
such as power plant construction, involve working on medium- or
longer-term projects for customers who may not require our
services again in the short term,
24
our most significant customers may vary significantly from year
to year. In fiscal 2007, Shuaibah Water and Electricity Company
in Saudi Arabia, Eskom in South Africa, Taweelah Asia Power
Company in the United Arab Emirates, Lilama Corp. in Vietnam and
Torrent Power Ltd. in India were among our largest customers. We
also generate an increasing portion of revenue from industrial
customers, who represent an important market for smaller
turbines and compressor solutions.
Our business activities vary widely in size from component
delivery and comparatively small projects to turnkey contracts
for new power plant construction with contract values of more
than half a billion euros each. The large size of some of our
projects occasionally exposes us to risks related to technical
performance, a customer or a country. For additional information
with respect to our long-term contracts, see Item 3:
Key InformationRisk Factors.
The following chart shows the geographic distribution of
PGs external revenue in fiscal 2007:
Our sales efforts are conducted primarily by our own dedicated
sales organizations, supported by Siemens worldwide
network of regional sales units.
Todays worldwide market for new power plants is near the
high level experienced in the early 2000s. The development in
2007 was driven primarily by strong economic development in
China, which again was the strongest single market for worldwide
power equipment orders in fiscal 2007. In the next several
years, we estimate that the demand for power generation products
in China might slow down, although this might be compensated by
rising demand in other regional markets including Middle East,
Russia, India and rest of Asia. Additionally, the strong
economic growth and the increasing need to replace older, mainly
coal fired units in industrialized countries have contributed to
increased demand. This relatively high level of demand causes
tight external supply markets, which are expected to relax
within the next several years. The sustained and significant
increase in oil and gas prices in recent years, ongoing
ecological discussions and uncertainty relating to fuel markets
create uncertainty surrounding the expected distribution of
demand between gas, steam and nuclear power plants.
Our industry is one in which a relatively small number of
companies, some with very strong positions in their domestic
markets, play a key role. Our principal competitors vary by
business. In Fossil Power Generation, our main competitors are
General Electric, Alstom Power, Mitsubishi Heavy Industries, as
well as Hitachi and Toshiba. Within Oil & Gas and
Industrial Applications, we face competition from General
Electric, Solar, MAN Turbo and Dresser Rand. In Instrumentation
and Controls, where the market is more fragmented, ABB is our
main competitor. Our main competitors in Wind Power, where the
industry continues to consolidate, are Vestas, Gamesa, Enercon
and General Electric.
Power
Transmission and Distribution (PTD)
|
|
|
|
|
|
|
Year ended
|
|
|
September 30, 2007
|
|
Total revenue
|
|
|
7.689 billion
|
|
External revenue
|
|
|
7.126 billion
|
|
External revenue as percentage of Siemens revenue
|
|
|
9.84%
|
|
Group profit
|
|
|
650 million
|
|
25
PTD supplies energy utilities and large industrial power users
with equipment, systems and services used to process and
transmit electrical power from the source, typically a power
plant, to various points along the power transmission network
and to distribute power via a distribution network to the
end-user.
At the first step of the power transmission and distribution
process, power generated by a power plant is transformed to a
high voltage that can be transported efficiently over long
distances along overhead lines or underground cables. This step
occurs at or near the site of the power plant, and requires
transformation, control, transmission, switching and protection
systems. At the second stage of the process, the power passes
through one or more substations, which use distribution
switchgear to control the amounts delivered and circuit breakers
and surge arresters to protect against hazards in transmitting
the power. At this stage, transformers step-down the voltage to
a medium level at which it can be safely distributed in
populated areas. In the final stage of the process, distribution
transformers step-down the voltage again to a level usable by
end-users and metering systems measure and record the locations
and amounts of power transmitted.
We provide our customers with: turn-key transmission systems and
distribution substations; discrete products and equipment for
integration by our customers into larger systems; information
technology systems and consulting services relating to the
design and construction of power transmission and distribution
networks. We offer the following solutions, products and
services, presented roughly in the order in which they are used
in a power transmission and distribution network. Our internal
divisions are organized around the following products:
|
|
|
|
|
power systems control equipment and information
technology systems, including computerized power management
systems used to operate power transmission networks, determine
customer needs and regulate the flow of power from power plants
to the distribution network (offered through our Energy
Automation division);
|
|
|
|
transformers including both the power transformers used
at the beginning of the transmission process to
step-up the
voltage of the power generated by power plants to a voltage that
can be carried efficiently on the power network, and the
distribution transformers and their components used at the end
of the distribution process to step-down power from high voltage
to lower voltage levels for the end-user;
|
|
|
|
high voltage products and
ready-to-use
systems, in both alternating and direct current, used in the
physical transmission of power from power plants to the
distribution network before the voltage is stepped-down for
distribution in populated areas, including
ready-to-operate
indoor and outdoor high voltage substations and the switchgear
and protection systems required to control the flow of power and
prevent damage to the power transmission network;
|
|
|
|
protection and substation control systems including
equipment and systems used at power distribution network
substations, such as relays and computerized protection and
control equipment (offered through our Energy Automation
division); and
|
|
|
|
medium voltage equipment including circuit breakers and
distribution switchgear systems and components that regulate the
flow of power on the distribution network before it is
stepped-down to a low voltage level for the end-user.
|
In addition to our equipment and systems, we offer a growing
range of services and integrated solutions for various stages in
the power transmission and distribution process. These include:
technical support and maintenance services and, to an increasing
extent, outsourcing projects and operations; consulting relating
to the planning, design and optimization of power transmission
and distribution networks; information technology services and
solutions to support customer management and energy trading;
training programs; and metering services for electricity, gas
and heat. We also provide analytical and consulting services, as
well as equipment and systems, in the power quality field that
are designed to improve the availability and reliability of
power transmitted by analyzing and reducing the causes of power
fluctuations and failures. Power quality systems and services
have become increasingly important with the growing use of
sensitive computerized, electronic and other equipment requiring
continuous power with very little fluctuation in voltage or
frequency. Our PTD Services division aims specifically at
responding to our customers increasing demands for these
services.
26
Our power transmission and distribution customers are primarily
power utilities and independent power distributors. Due to
ongoing deregulation in the power industry, our customer base
continues to diversify from one formerly composed almost
exclusively of power utilities responsible for all stages in
power transmission and distribution to one that includes an
increasing number of independent system operators and power
distributors supplying services at different points of the power
transmission and distribution network. We have further increased
our sales to industrial customers, providing them with equipment
and systems for power networks associated with manufacturing
facilities. We distribute our systems and components through our
sales force in Germany and through dedicated personnel in the
regional Siemens sales units worldwide.
We generate our revenue from project business, as well as from
sales of systems, components and services. In fiscal 2007, we
received an order of approximately 0.7 billion from
the Qatar General Electricity & Water Corporation.
Aside from this order, a relatively small portion of our project
business involves construction of large power networks and other
projects with values of more than 50 million.
Although the order volume from larger projects increased
compared to the previous fiscal year, in fiscal 2007, still most
of our business was generated from smaller projects and sales of
systems and components to a variety of smaller customers.
The following chart shows the geographic distribution of
PTDs external revenue in fiscal 2007:
Our revenue are evenly distributed throughout the world with
large portions in Europe, Asia and the Americas. While regions
in the developing world represent growth markets for power
transmission and distribution products and systems, our
activities there can also expose us to risks associated with
economic, financial and political disruptions that could result
in lower demand or affect our customers abilities to pay.
Competition in our markets comes primarily from a small group of
large, multinational companies offering a wide variety of
products, systems and services, although a few notable
specialists maintain strong positions in certain niches.
Globally, our most significant competitors include ABB, the
Areva Group and to some extent Schneider, as well as General
Electric. In some of our markets, increasing international
competition is emerging from low-cost countries such as China
and India. We are party to several joint ventures in China, our
largest single market.
The large size of some of our projects occasionally exposes us
to risks related to our technical performance, to a customer or
to a country. For additional information with respect to our
long-term contracts, see Item 3: Key
InformationRisk Factors.
Healthcare
Medical
Solutions (Med)
|
|
|
|
|
Year ended
|
|
|
September 30, 2007
|
|
Total revenue
|
|
9.851 billion
|
External revenue
|
|
9.798 billion
|
External revenue as percentage of Siemens revenue
|
|
13.52%
|
Group profit
|
|
1.323 billion
|
27
Med develops, manufactures and markets diagnostic and
therapeutic systems, devices and consumables, as well as
information technology systems for clinical and administrative
purposes. We provide technical maintenance, professional and
consulting services. We also work with Siemens Financial
Services to provide financing and related services to our
customers. We are one of the leading companies in our field.
Our offerings include:
|
|
|
|
|
medical imaging systems, representing a full range of
systems including x-ray, computed tomography, magnetic
resonance, molecular imaging and ultrasound, as well as related
computer-based workstations enabling the health care
professional to retrieve and process relevant information. Our
imaging systems are used to generate morphological and
functional images of the human body. This information is used
both for diagnostic purposes and in preparation for potential
treatment, including interventional and minimally-invasive
procedures;
|
|
|
|
information technology systems, which are used to
digitally store, retrieve and transmit medical images and other
clinical and administrative information, facilitating efficient
workflows in health care environments;
|
|
|
|
oncology care systems, including linear accelerators,
which are used for cancer treatment;
|
|
|
|
hearing aids and related products and supplies;
|
|
|
|
in-vitro diagnostics, representing a full range of
systems for immunodiagnostics, clinical chemistry, hematology,
point-of-care
testing, molecular diagnostics (i.e. testing for nucleic acids)
and clinical laboratory automation solutions. In-vitro
diagnostics is based on the analysis of bodily fluids such as
blood or urine, and supplies vital information for the detection
and management of disease, and also for an individual
patients risk assessment. We entered the in-vitro
diagnostics business through the acquisitions of Diagnostic
Products Corporation (DPC) for approximately
U.S.$1.9 billion (1.4 billion), which closed in
fiscal 2006, and the Diagnostics division of Bayer AG for
4.5 billion, which closed in the first quarter of
fiscal 2007. For additional information on these acquisitions,
see Notes to Consolidated Financial Statements; and
|
|
|
|
electromedical systems, which are primarily used in
critical care situations and during surgery for the purpose of
patient transport, monitoring vital functions via body sensors,
supporting breathing and administering anesthetic agents. Our
product portfolio also includes respiratory machines designed
for systems for intensive neonatal care and home care. We
provide such electromedical systems primarily through our joint
venture Dräger Medical of Lübeck, Germany, in which we
hold a 25% share as of September 30, 2007. In January 2007,
we sold a 10%-share of the joint venture to
Drägerwerke AG for a sales price of
110 million and announced our plans to acquire a 2.5%
share of Drägerwerke AG.
|
In July 2007, Siemens signed an agreement with Dade Behring,
Inc. (Dade Behring), USA, to acquire all issued and outstanding
shares of common stock of Dade Behring by submitting a cash
tender offer of U.S.$77 per share. Dade Behring is a leading
manufacturer and distributor of diagnostic products and services
to clinical laboratories, supplying fully integrated testing
systems for clinical chemistry and immunodiagnostics. Dade
Behring also has a leading market position in hemostasis and in
automated microbiology solutions. The aggregate consideration,
including the assumption of debt, amounts to approximately
U.S.$7 billion (approximately 5 billion). The
transaction closed at the beginning of November 2007. For
additional information, see Notes to Consolidated
Financial Statements. With our recent acquisitions, we
formed the worlds first integrated diagnostics company,
with a leading market position in in-vitro diagnostics, medical
imaging (in-vivo diagnostics) and healthcare IT.
Our customers include health care providers such as hospital
groups and individual hospitals, group and individual medical
practices, reference and physician office laboratories and
outpatient clinics. We typically sell the majority of our
product spectrum through direct sales persons who are located in
the individual countries where our products are sold and
supported by product specialists. In addition, in some countries
we sell primarily low-end products (such as low-end ultrasound
and low-end x-ray) through dealers. A small portion of our
revenue involve delivery of certain of our products and
components to competitors on an OEM basis. Our products are
serviced primarily through our own dedicated personnel.
28
We have a strong worldwide presence. The following chart shows
the geographic distribution of Meds external revenue in
fiscal 2007:
We have research and development and OEM cooperation agreements
with various companies, including with Bruker, in the field of
magnetic resonance imaging; Toshiba, in the field of ultrasound
and magnetic resonance imaging; and Matsushita, for low- and
mid-range ultrasound systems. We also have joint ventures with
Philips and Thales, to manufacture flat panel detectors for
medical imaging; and with Mochida Pharmaceutical Co. Ltd., in
the field of ultrasound in Japan.
Our principal competitors in medical imaging are General
Electric, Philips, Toshiba, Hitachi and Hologic. Other
competitors include McKesson and Cerner, for information
technology systems; Phonak, GN Resound (a subsidiary of Great
Nordic), William Demant and Starkey, for hearing aids; Elekta
and Varian Medical, for oncology care systems; and Roche, Abbott
and Beckman Coulter, for in-vitro diagnostics. The trend toward
consolidation in our industry continues. In May 2007, Hologic
announced a merger agreement with Cytyc Corporation, a
diagnostics and medical device company focusing on womens
health; in June 2007 Roche launched a tender offer for Ventana
Medical Systems, an in-vitro diagnostics company with a focus on
anatomic pathology. Competition among the leading companies in
our field is strong, including with respect to price.
Siemens
IT Solutions and Services (SIS)
|
|
|
|
|
|
|
Year ended
|
|
|
September 30, 2007
|
|
Total revenue
|
|
|
5.360 billion
|
|
External revenue
|
|
|
3.988 billion
|
|
External revenue as percentage of Siemens revenue
|
|
|
5.50%
|
|
Group profit
|
|
|
252 million
|
|
SIS was formed in fiscal 2007 through the previously announced
pooling of the former Siemens Business Services (SBS) Group and
the four software development entities Program and System
Engineering (PSE), Siemens Information Systems Ltd. (SISL),
Development Innovation and Projects (DIP) and the Business
Innovation Center (BIC). SIS has been a segment in our external
reporting structure since April 1, 2007. In terms of
relative importance within SIS, the activities of the former
Group SBS accounted for approximately 90% of the external
revenue of SIS in fiscal 2007.
SIS designs, builds and operates both discrete and large scale
information and communications systems. SIS offers comprehensive
information technology and communications solutions from a
single source. While mostly performing operations related
services, SIS creates solutions for customers by drawing on our
management consulting resources to redesign customer processes;
on our professional services to integrate, upgrade, build and
install information technology systems; and on our operational
capabilities to run these systems on an ongoing basis.
SIS offers its solutions and services to external customers in
the following sectors:
|
|
|
|
|
The manufacturing industry, including automotive, discrete
manufacturing, process industry and chemical/pharmaceutical;
|
29
|
|
|
|
|
Telecommunications and media (including broadcasting);
|
|
|
|
The public sector, including defense & intelligence,
public security, employment services and public administration;
|
|
|
|
Service industries, including financial services and software;
|
|
|
|
Healthcare;
|
|
|
|
Transportation/Airports; and
|
|
|
|
Utilities
|
On a combined basis, other Siemens Groups are the largest
customer of SIS with a share of 26% in total SIS revenue in
fiscal 2007.
The types of services offered by SIS include:
|
|
|
|
|
project-oriented consulting, design and implementation services,
such as selecting, adapting and introducing new solutions to
support business processes, as well as integration of systems
and enterprise applications.
|
|
|
|
outsourcing services (full-scale IT operations spanning hosting,
call center, network and desktop services) as well as operation
of selected business processes (e.g. financial services
back-office operations).
|
|
|
|
software development such as design and implementation of
software solutions for Siemens Groups.
|
SIS solutions and services are designed to support the
following core processes of our customers:
|
|
|
|
|
customer relationship management, to assist businesses in
aligning their organizations to better serve the needs and
requirements of their customers;
|
|
|
|
business information management, to improve our customers
business processes, including services and solutions for
business information, document and product data management;
|
|
|
|
supply chain management, to facilitate the efficient interplay
of all of a business operational processes with those of
its suppliers;
|
|
|
|
enterprise resource management, to optimize a customers
internal management and production processes; and
|
|
|
|
e-commerce
systems and solutions in a range of industries, to allow
customers to offer a variety of Internet-based services through
design and implementation of software for communications and
transactions applications.
|
Most of SIS consulting and design services involve
information technology and communications systems that we also
build and operate. At the same time, SIS also designs and builds
systems and provides services using the software of several
companies with which it has established relationships, such as
SAP, Microsoft, Oracle and Computer Associates.
The largest customers of SIS in fiscal 2007 included Nokia
Siemens Networks (NSN), the BBC, Deutsche Bank, National
Savings & Investment and RAG AG.
We have our own sales and delivery force. We operate worldwide
in more than 40 countries.
30
The following chart shows the geographic distribution of
SIS external revenue in fiscal 2007:
Our most significant competitors vary by region and type of
service. A few are global, full-service IT providers such as
IBMs Global Services division, EDS, Accenture, CSC and HP
Services. One of our competitors that focuses more narrowly on
specific regions or customers is
T-Systems, a
unit of Deutsche Telekom, in Germany. As a service business, SIS
requires strong local presences and the ability to build close
customer relationships and provide customized solutions while
achieving economies of scale and successfully managing risks in
large projects.
The IT services market has recovered but continues to be highly
competitive; in fiscal 2007 ongoing commoditization of the IT
services industry and the entry of new players such as Indian
companies into the European market kept price pressure and the
need for cost reduction at a high level, and we expect these
trends to continue. According to Gartner, Inc., the
IT service market is further consolidating.
We enter into large scale, and sometimes long-term projects. The
large size of some of these projects, as well as the long-term
frame contracts with our largest customers occasionally expose
us to technical performance, customer- or country-related risks.
Risks associated with long-term outsourcing contracts remain a
management priority at SIS. For additional information with
respect to our long-term contracts, see Item 3: Key
InformationRisk Factors.
Strategic
Equity Investments (SEI)
SEI was created as of October 1, 2006 and includes the
following three strategic equity investments accounted for under
the equity method:
|
|
|
|
|
Nokia Siemens Networks BV (NSN): NSN began operations in
the third quarter of fiscal 2007 and includes the
carrier-related operations of Siemens and the Networks Business
Group of Nokia. NSN is a leading supplier in the
telecommunications infrastructure industry.
|
|
|
|
BSH Bosch und Siemens Hausgeräte GmbH (BSH): is a
leading manufacturer of household appliances, offering an
extensive range of innovative products tailored to customer
needs and global megatrends alike. BSH was founded as a joint
venture in 1967 between Robert Bosch GmbH and Siemens. Prior to
fiscal 2007, BSH was included in Other Operations.
|
|
|
|
Fujitsu Siemens Computers (Holding) BV (FSC): is one of
the Europes leading IT manufacturer, offering a broad
array of innovative products, services and infrastructure
solutions. FSC was established as a joint venture holding
company by Fujitsu Limited and Siemens in 1999. In fiscal 2006,
the FSC acquired the Product Related Services (PRS), the service
and maintenance business of the former Siemens Business Services
(SBS). Prior to fiscal 2007, FSC was included in Other
Operations.
|
For additional information on NSN, BSH and FSC, see Item 5:
Operating and Financial Review and ProspectsFiscal
2007 Compared to Fiscal 2006Segment Information
AnalysisStrategic equity Investments, Item 7:
Major Shareholders and Related Party
TransactionsRelated Party Transactions, as well as
Notes to Consolidated Financial Statements.
31
Financing
and Real Estate
Siemens
Financial Services (SFS)
|
|
|
|
|
|
|
Year ended
|
|
|
September 30, 2007
|
|
Total assets
|
|
|
8.912 billion
|
|
Total assets as percentage of Siemens assets
|
|
|
9.73%
|
|
Income before income taxes
|
|
|
329 million
|
|
SFS provides a variety of financial services and products both
to third parties and, on arms-length terms, to other
Siemens business Groups and their customers. SFS is organized in
eight business divisions, which can be classified as either
capital businesses (consisting of the Equipment Finance
Europe/APAC division, the Equipment Finance U.S. division, the
Working Capital Finance division and the Equity division) or fee
businesses (consisting of the Project & Export
Finance, Investment Management, Insurance and
Treasury & Financing Services divisions). The capital
businesses offer vendor programs to external manufacturers and
support Siemens sales with leasing and lending programs. The
capital businesses also provide receivable financing to Siemens
groups and external parties and makes equity investments in
infrastructure projects where Siemens is a principal supplier.
The fee businesses support and advise Siemens concerning
financial risk management and investment management and provide
an important contribution to Siemens by arranging financing for
Siemens projects. Most of our fee business is generated
internally (i.e. with other Siemens Groups as the customer), and
most of our capital business is generated externally. Within the
equipment finance business, which is our largest capital
business, we use internal vendors (the Siemens group), but also
external vendors and other indirect origination channels as
intermediators to generate leasing and lending business.
Total assets declined from 10.543 billion to
8.912 billion at September 30, 2007 compared to
the end of fiscal 2006, due to a significant reduction in
accounts receivable related to the carve-outs of SV and carrier
activities that were transferred into Nokia Siemens Networks.
Lease receivables and equipment leased under operating leases
(together accounting for approximately 63% of our assets) were
our principal assets at September 30, 2007. The main
sources of our earnings are interest income, dividends and fee
income, with the latter stemming primarily from our internal
advisory businesses. SFS acts according to banking industry
standards in the international financial markets in its
transactions with both Siemens and third parties.
Equipment Finance Europe/APAC and Equipment Finance
U.S. Our principal product in these divisions is
equipment lease financing, where we typically purchase equipment
supplied by various Siemens Groups or third-party manufacturers
and lease it to the customer for a specified term, generally
with an option for the customer to purchase the equipment or
renew the lease at the end of the term. Finance leases account
for the largest portion of our leasing business (approximately
80% of the total book value of our leased assets at
September 30, 2007). We also offer our clients services
complementary to our leasing business, including services
relating to the management of their leased equipment base and
product upgrade services.
These divisions finance both Siemens and third-party equipment.
The associated Siemens products are delivered primarily by Med,
SIS and SBT. The Equipment Finance Europe/APAC division
increased its external business with flow and
small ticket leasing products, which involve leases
of relatively small amounts and with a high level of automation
and standardized procedures for such third-party products as
computers and office equipment.
Working capital finance. Through this
division, we purchase, without recourse, receivables from third
parties and from other Siemens Groups. The selling companies
remain responsible for collection and documentation. Our
portfolio consists primarily of trade receivables. Centralizing
a portion of the Siemens Groups receivables risk allows
Siemens to more effectively manage its overall receivables
exposure. Furthermore, this division offers asset-based lending
solutions.
Equity. This division structures financing for
infrastructure projects for which Siemens provides capital goods
and participates in those projects as an equity investor. At
September 30, 2007, the equity investment in these projects
amounted to approximately 3% of the total assets of SFS and 0.3%
of the total assets of Siemens. In recent
32
years, the Equity division has expanded its strategic focus from
power to healthcare and airports. Effective October 1,
2007, Siemens Venture Capital will be integrated into the Equity
division.
Project and Export Financing. This division
advises other Siemens Groups on project and sales financing
transactions. We have a global network of established contacts
with multi-lateral financial institutions, such as the World
Bank and the Asian Development Bank, as well as with national
development and export banks and export credit agencies, such as
Hermes in Germany and Export-Import Bank in the United States.
By offering our services to other Siemens Groups, we ensure that
they benefit from our in-house know-how and market presence. We
also provide advice, management and documentation services in
connection with guarantees issued by Siemens, related
principally to certain long-term contracts of the Operating
Groups.
Treasury and Financing Services. This division
provides services to Siemens Corporate Treasury, including
cash management and payment (including inter-company payments)
and capital-market financing. In addition, we pool and manage
interest rate and currency risk exposure of the Operating Groups
and, in the name and for the account of Siemens Corporate
Treasury, enter into derivative financial instruments with
third-party financial institutions to offset pooled exposures.
Derivative activities in the name of Siemens Corporate
Treasury are described under Item 11: Quantitative
and Qualitative Disclosure About Market Risk. We also
offer consulting services with respect to treasury activities to
third-party customers.
Investment Management. This division manages
pension assets for Siemens and other institutional clients and
mutual funds for employees in Germany and Austria.
Effective October 1, 2007, the Treasury and Financing
Services division and the Investment Management division will be
merged to form a new division called Treasury &
Investment Management.
Insurance. This division acts as a broker and
provides Siemens Groups with liability, property, marine and
project insurance brokerage coverage via third-party insurers.
We provide these services not only to Siemens business
Groups, but also to external customers. We also act as an
insurance agent in offering private insurance policies to
Siemens employees. With these employee-related activities,
Insurance also acts as agent for fund and mortgage based
products.
SFS main sources of risk are our external customers
credit risk and the risk associated with SFS equity
portfolio. Interest rate and currency exposures are typically
matched. The funding for SFS is provided by Siemens
Corporate Treasury.
Our competition mainly includes captive finance companies,
independent commercial finance companies and leasing/receivables
financing operations related to banks as well as asset
management companies. Particularly in the equipment finance
business, competition consists of many local players and differs
from country to country. However, there are a few international
competitors such as General Electric Commercial Finance, CIT
Group, Societe Generale Equipment Finance and De Lage Landen.
Lately, competition from these international players has
significantly increased, especially in the area of small ticket
business.
Siemens
Real Estate (SRE)
|
|
|
|
|
|
|
Year ended
|
|
|
September 30, 2007
|
|
Total revenue
|
|
|
1.686 billion
|
|
External revenue as percentage of Siemens revenue
|
|
|
0.66%
|
|
Income before income taxes
|
|
|
228 million
|
|
SRE offers the operating Groups of Siemens a range of services
encompassing real estate development, real estate disposal and
asset management, as well as lease and services management. The
overall goal of our activities is to manage Siemens real
estate needs in a professional and cost effective way.
Asset Management is responsible for the active management
of SREs real estate portfolio. It provides property
management and leasing services to Siemens Groups and, to a
limited extent, to third-party lessees. These services include
the provision of owned and leased space, billing and collecting
lease payments and related charges such as
33
utilities and providing other general services of a landlord.
Furthermore, it arranges facilities services to Siemens Groups
and external tenants on an arms-length contract basis. The
services arranged include heating and cooling where applicable,
cleaning, maintenance, security, catering and a variety of other
services. Generally these facility management services are
subcontracted with third-party suppliers, thereby leveraging the
purchasing power of the entire Siemens group.
Development & Construction is responsible for
developing building rights, feasibility studies, masterplans and
corporate architecture, and for coordinating construction of
marketable office buildings, as well as providing consultancy
for factories.
Purchase & Sales is responsible for the sale of
land, buildings and other real estate property rights, as well
as for the purchase of real estate.
In addition to the foregoing, SRE performs the Siemens
wide governance role for all real estate related matters by
providing support in real estate decision-making, portfolio
analysis, economic analysis, development of financing
alternatives, market research, risk analysis and valuation and
similar services, including preparing recommendations for
divestitures.
The book value of Siemens worldwide land and buildings, at
September 30, 2007, amounted to approximately
4.465 billion, of which approximately half was
managed by SRE. The following table sets forth the key balance
sheet and statistical data for SRE:
SRE
Balance Sheet and Statistical Data
|
|
|
|
|
|
|
|
|
|
|
At September 30,
|
|
|
2007
|
|
2006
|
|
|
( and square meters in millions)
|
|
Total assets (in euros)
|
|
|
3,091
|
|
|
|
3,221
|
|
Real estate assets under management (in euros)
|
|
|
2,478
|
|
|
|
2,733
|
|
Total site area (in square meters)
|
|
|
16.9
|
|
|
|
19.5
|
|
Total building area (in square meters)
|
|
|
9.3
|
|
|
|
9.9
|
|
Over the past few years, operational adjustments by some
Siemens Groups resulted in the consolidation of Siemens
locations and the divestment by SRE of surplus property. We will
continue to divest surplus property over the next years.
Siemens
VDO Automotive (SV)
In July 2007, Siemens signed an agreement with Continental AG,
Hanover, Germany to sell the entire SV activities for a purchase
price of approximately 11.4 billion. The closing of
the transaction is subject to receipt of regulatory approvals
and other customary closing conditions and is expected in the
current calendar year. The assets and liabilities of SV are
presented as held for disposal on the Consolidated Balance
Sheets until the sale is completed, and the historical results
of SV will be reported as discontinued operations in the
Consolidated Statements of Income for all periods presented. For
additional information with respect to the sale of SV, see
Notes to Consolidated Financial Statements.
SV designs, manufactures and sells integrated electrical,
electronic and electromechanical systems and modules and
individual components used in automotive applications. Our
product range includes components and systems used in automobile
powertrains, body electronic systems, safety and chassis
systems, electric motor drives, information and cockpit systems,
and driver information, communication and multimedia systems.
In fiscal 2007, we offered our systems and products in the
following four divisions:
|
|
|
|
|
Powertrain, including components, modules and systems for
engine and fuel management for gasoline and diesel engines,
control units and components for hybrid electric vehicles and
other alternative drives (e.g. gas and ethanol), transmission
control units, sensors, actuators and fuel supply systems;
|
34
|
|
|
|
|
Chassis & Safety, including active and passive
safety electronics systems, electronics for steering and braking
(e.g. electrical steering and electronic wedge brake), electric
motor drives for windows and sunroofs, for heating, ventilation
and engine cooling systems and for electronic braking systems;
|
|
|
|
Interior Electronics & Infotainment, including
complete cockpit systems and instrument clusters, human machine
interface and
head-up
displays, car audio, navigation, telematics and high-end
multimedia systems, as well as interior controls, e.g. for
keyless entry, climate and seat systems; and
|
|
|
|
Commercial Vehicles, including cockpit instruments and
other solutions for the drivers workplace, sensors and
control units for engine management, tachographs and on-board
units for tolling and other telematic products.
|
Most of our customers are large automobile manufacturers,
including four of the worlds five largest automobile
manufacturers. We also sell components to suppliers of complete
automotive systems and modules. Our car manufacturer customers
frequently contract a supplier to provide a system or set of
components for the production run of a particular car model or
engine line. In fiscal 2007, our ten largest customers together
accounted for more than 80% of our total sales.
As in past years, base materials and components accounted for
about half of the total cost of our products in fiscal 2007. We
rely on a few suppliers to provide us with most of our
semiconductors, other electronic components and some other base
materials and components. These suppliers include Infineon,
Philips and ST Microelectronics and Freescale for
semiconductors; and Tyco for wire housings and connectors.
For the last several years, automobile manufacturers and their
suppliers have been going through a period of significant change
and consolidation, and we expect this trend to continue.
Manufacturers, in an effort to achieve cost efficiencies and
ease of production, are using more pre-assembled systems and
modules instead of individual components. Systems and modules
integrate all of the components needed for major automotive
subsystems, such as the cockpit or vehicle safety systems. The
trend toward greater use of modules and systems has increased
pressure on suppliers of individual components and smaller
companies to combine or form alliances, resulting especially in
growing convergence of electronics and mechanical component
suppliers and making the industry more capital intensive.
In fiscal 2007, the worldwide mass market was again
characterized by low growth rates. Automobile production levels
either remained constant or declined in the Americas and Western
Europe. In the Asia-Pacific region, growth continued at a lesser
rate, influenced particularly by Chinese demand. The truck
market is still growing. Globalization and the opening of
markets to competition continue to put downward pressure on
prices. Customers that incorporate our products into their own
equipment make ever-greater demands on both our performance and
the quality of our products. In the current market environment,
many automobile manufacturers extract price and other
concessions from their suppliers, including SV.
We are a first-tier supplier to automobile manufacturers in
North America, South America and Asia. Our most significant
competitors are generalists with a broad product range, systems
integration capabilities and global presence. These include
Bosch, Toyotas Denso and the independent, former in-house
suppliers Visteon and Delphi, each of which is significantly
larger than we are. Moreover, in Europe and Asia, Denso, Visteon
and Delphi continue to be aggressive competitors and attempt to
gain market share outside their home countries. We face
increased competition from consumer electronics and IT firms
that are increasingly active in the area of automotive
electronics and from certain Japanese firms. Competition from
low-cost suppliers from Asia and Eastern Europe is increasing in
commodity products, such as electrical motors.
35
Employees
and Labor Relations
The following tables show the division of our employees by
business Group and geographic region as of September 30 for each
of the years shown:
Employees
by Business
Group(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in thousands)
|
|
|
Siemens IT Solutions and Services
|
|
|
40
|
|
|
|
34
|
|
|
|
39
|
|
Automation and Drives
|
|
|
85
|
|
|
|
71
|
|
|
|
64
|
|
Industrial Solutions and Services
|
|
|
37
|
|
|
|
36
|
|
|
|
36
|
|
Siemens Building Technologies
|
|
|
29
|
|
|
|
29
|
|
|
|
28
|
|
Power Generation
|
|
|
40
|
|
|
|
36
|
|
|
|
34
|
|
Power Transmission and Distribution
|
|
|
31
|
|
|
|
28
|
|
|
|
26
|
|
Transportation Systems
|
|
|
19
|
|
|
|
19
|
|
|
|
18
|
|
Medical Solutions
|
|
|
43
|
|
|
|
36
|
|
|
|
33
|
|
Osram
|
|
|
41
|
|
|
|
40
|
|
|
|
38
|
|
Siemens Financial Services
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Siemens Real Estate
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Other(2)
|
|
|
29
|
|
|
|
38
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
398
|
|
|
|
371
|
|
|
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Continuing Operations.
|
|
(2)
|
Includes employees in corporate functions and services and
business units not allocated to any business Group.
|
Employees
by Geographic Region*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(in thousands)
|
|
|
Germany
|
|
|
126
|
|
|
|
123
|
|
|
|
125
|
|
Europe (other than Germany)
|
|
|
105
|
|
|
|
101
|
|
|
|
99
|
|
Americas
|
|
|
92
|
|
|
|
83
|
|
|
|
81
|
|
Asia-Pacific
|
|
|
65
|
|
|
|
55
|
|
|
|
45
|
|
Africa, Near and Middle East, CIS
|
|
|
10
|
|
|
|
9
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
398
|
|
|
|
371
|
|
|
|
359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A significant percentage of our manufacturing employees,
especially in Germany, are covered by collective bargaining
agreements determining working hours and other conditions of
employment, and are represented by works councils. Works
councils have numerous rights to notification and of
codetermination in personnel, social and economic matters. Under
the German Works Constitution Act
(Betriebsverfassungsgesetz), works councils are required
to be notified in advance of any proposed employee termination,
they must confirm hiring and relocations and similar matters,
and they have a right to codetermine social matters such as work
schedules and rules of conduct. Management considers its
relations with the works councils to be good.
During the last three years, we have not experienced any major
labor disputes resulting in work stoppages.
36
Environmental
Matters
In each of the jurisdictions in which we operate, Siemens is
subject to national and local environmental and health and
safety laws and regulations that affect our operations,
facilities, products, and, in particular, our former nuclear
power generation business. These laws and regulations impose
limitations on the discharge of pollutants into the air, soil
and water, establish standards for the treatment, storage and
disposal of solid and hazardous waste. Whenever necessary,
remediation and clean up measures are implemented and budgeted
accordingly. Because of our commitments to protecting the
environment and conservation and because we recognize that
leadership in environmental protection is an important
competitive factor in the marketplace, we have incurred
significant costs to comply with these laws and regulations and
we expect to continue to incur significant compliance costs in
the future.
In 1994, we closed a site in Hanau, Germany, that we had used
for the production of uranium and mixed-oxide fuel elements. A
smaller related site in Karlstein, where we operated a nuclear
research and service center, was closed in 1989. We are in the
process of cleaning up both facilities in accordance with the
German Atomic Energy Act. We have developed a plan to
decommission the facilities that involves the following steps:
clean-out, decontamination and disassembly of equipment and
installations, decontamination of the facilities and buildings,
sorting of radioactive materials and intermediate and final
storage of radioactive waste. This process will be supported by
ongoing engineering studies and radioactive sampling under the
supervision of German federal and state authorities. The German
Atomic Energy Act requires that radioactive waste be transported
to a government-developed storage facility, which, in our case,
we do not expect to be available until 2030. We expect that the
process of decontamination, disassembly and sorting of
radioactive waste will continue until 2011. We will be
responsible for storing the material until the
government-developed storage facility is available. With respect
to the Hanau facility, the process of setting up intermediate
storage for radioactive waste has neared completion; on
September 21, 2006 we received official notification from
the competent authorities that the Hanau facility has been
released from the scope of application of the German Atomic
Energy Act and that its further use is unrestricted under that
Act. However, the State of Hesse still requires us to monitor
the ground water until uranium levels consistently meet targets
set by the State. The ultimate costs of this project will
depend, in part, on where the government-developed storage
facility is located and when it becomes available. We have an
accrual of 597 million at September 30, 2007,
with respect to this matter. This accrual is based on a number
of significant estimates and assumptions as to the ultimate
costs of this project. We evaluated this amount to be adequate
to cover the present value of the costs associated with this
project, based on current estimates. For additional information,
see Notes to Consolidated Financial Statements.
Two Directives of the European Parliament and of the Council on
Waste Electrical and Electronic Equipment (2002/96/ECWEEE)
and on the Restriction of the Use of Certain Hazardous
Substances in Electrical and Electronic Equipment
(2002/95/ECRoHS) have an impact on some of our products.
The WEEE-Directive regulates the collection, financing of the
collection, reuse and recycling of waste from many electrical
and electronic products, and the RoHS-Directive bans the use in
electrical and electronic equipment of certain hazardous
substances. We are complying with the required collection
schemes and financing of the collection of waste electrical and
electronic equipment from end users in accordance with the
WEEE-Directive and with the substance bans of the
RoHS-Directive. Both directives are currently under review by
the EU-Commission, which may lead to changes in the scope of the
WEEE-Directive and exemptions currently granted by the
RoHS-Directive that are not yet known in detail. Restrictions on
the use of certain substances comparable to those of the
RoHS-Directive are under discussion in several other states,
such as the U.S., Australia, Argentina, China and South Korea.
The Regulation (EC) No 1907/2006 of the European Parliament and
of the Council of December 18, 2006 concerning the
Registration, Evaluation, Authorisation and Restriction of
Chemicals (REACH), which entered into force in part on
June 1, 2007, has a certain impact on our business. We do
not expect the existing and the upcoming product related
regulations (REACH, WEEE, RoHS and similar) to have a material
adverse affect on our results of operations or financial
condition.
A significant number of our production sites are affected by the
EU-Directive (2004/35/CE) addressing the prevention and
remediation of environmental damage. In addition to the
previously applicable remediation measures, the directive
requires remediation for damage to protected species and natural
habitats. However, the
37
directive applies for damages caused by emissions made after
2007. We have obtained insurance coverage which is available in
the market for the increased risks.
It is our policy to comply with environmental requirements and
to provide workplaces for employees that are safe,
environmentally sound, and that do not adversely affect the
health or environment of their communities. We have obtained all
material environmental permits required for our operations and
all material environmental authorizations required for our
products. In fiscal 2007, as in previous years, we conducted an
audit of our environmental compliance, and on that basis we
believe that we are in substantial compliance with all
environmental and health and safety laws and regulations. In
principle, however, there is a risk that we may incur
expenditures significantly in excess of our expectations to
cover environmental liabilities, to maintain compliance with
current or future environmental and health and safety laws and
regulations and/or to undertake any necessary remediation.
Property
Siemens and its consolidated subsidiaries have, as of
September 30, 2007, approximately 253 production and
manufacturing facilities (more than 50% production space ratio)
throughout the world. Approximately 97 of these are located in
Europe, with approximately 44 in Germany, and approximately 117
are located in the Americas, with approximately 92 in the United
States. We also have 38 facilities in Asia. Siemens also owns or
leases other properties including office buildings, warehouses,
research and development facilities and sales offices in
approximately 190 countries.
Siemens principal executive offices are located in Munich,
Germany.
None of our properties in Germany is subject to mortgages or
other security interests granted to secure indebtedness to
financial institutions. We have granted security interests in
other jurisdictions.
We believe that our current facilities are in good condition and
adequate to meet the requirements of our present and foreseeable
future operations.
Intellectual
Property
Siemens as a whole has several thousand patents and licenses,
and research and development is a priority on a Siemens-wide and
business Group basis. For a discussion of the main focus of our
current research and development efforts of each business Group,
see Item 5: Operating and Financial Review and
ProspectsBusiness OverviewResearch and
Development. Siemens also has many thousand trademark
registrations worldwide. However, neither the Company, nor any
of our business Groups, are dependent on any single patent,
license or trademark or any group of related patents, licenses
or trademarks.
Legal
Proceedings
Public prosecutors and other government authorities in
jurisdictions around the world are conducting investigations of
Siemens and certain of our current and former employees
regarding allegations of public corruption, including criminal
breaches of fiduciary duty including embezzlement, as well as
bribery, money laundering and tax evasion, 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 embezzlement, as well as bribery and tax evasion. To
date, the Munich prosecutor has conducted searches of Company
premises and private homes and several arrest warrants have been
issued for current and former employees, including former
members of senior management, who are or were associated with
the former Com Group and the Company. In addition, the Munich
prosecutor has recently sought and received information from two
German subsidiaries of the Company in connection with an
investigation of allegations of criminal breach of fiduciary
duty against a former employee and unnamed others.
38
On October 4, 2007, pursuant to the application of the
Munich prosecutor, the Munich district court imposed a fine of
201 million on Siemens. According to the courts
decision, a former manager of the former Com Group committed
bribery of foreign public officials in Russia, Nigeria and Libya
in 77 cases during the period from 2001 to 2004 for the purpose
of obtaining contracts on behalf of the Company, whereby he
acted in concert with others. In determining the fine, the court
based its decision on unlawfully obtained economic advantages in
the amount of at least 200 million which the court
determined the Company had derived from illegal acts of the
former employee, to which an additional fine in the amount of
1 million was added.
The decision of the Munich district court and the settlement
(tatsächliche Verständigung) entered into the
same day with the German tax authorities, which is described in
Item 5: Operating and Financial Review and
Prospects Financial Impact of Compliance Matters,
conclude the German investigations into illegal conduct and tax
violations only as they relate to Siemens AG and only as to the
former Com Group.
As previously reported, there are ongoing investigations in
Switzerland, Italy, and Greece. These investigations relate to
allegations that certain current and former employees of the
former Com Group opened slush fund accounts abroad and operated
a system to misappropriate funds from the Company and,
specifically, that these individuals siphoned off money from Com
via off-shore companies and their own accounts in Switzerland
and Liechtenstein. The Company has learned that Liechtenstein
prosecutors have transferred their investigation to Swiss and
Munich prosecutors.
As previously reported, Milan and Darmstadt prosecutors have
been investigating allegations that former Siemens employees
provided improper benefits to former employees of Enel in
connection with Enel contracts. In Italy, legal proceedings
against two former employees ended when the
patteggiamento (plea 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 brought charges against two other
former employees not covered by the
patteggiamento. In May 2007, the Regional
Court of Darmstadt sentenced one former employee to two years in
prison, suspended on probation, on counts of commercial bribery
and embezzlement. Another former employee was sentenced to nine
months in prison, suspended on probation, on counts of aiding
and abetting commercial bribery. In connection with these
sentences, Siemens AG was ordered to disgorge
38 million of profits. The prosecutors and both
defendants have appealed the decision of the Regional Court of
Darmstadt. Siemens AG has also appealed the decision with
respect to the disgorgement.
As previously reported, in 2004 the public prosecutor in
Wuppertal initiated an investigation against Siemens employees
regarding allegations that they participated in bribery related
to the awarding of an EU contract for the refurbishment of a
power plant in Serbia in 2002. In August 2007, the public
prosecutor conducted searches of the premises of the PG Group in
Erlangen, Offenbach and Karlsruhe in relation to this
investigation. The investigation is ongoing.
In addition, there is a significant number of ongoing
investigations into allegations of public corruption involving
the Company, certain of our current and former employees or
projects in which the Company is involved in a number of
jurisdictions around the world, including China, Hungary,
Indonesia, Israel, Italy, Nigeria, Norway and Russia, among
others. Specific examples include the following:
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There are currently numerous public corruption-related
governmental investigations in China, involving several
divisions of Siemens Ltd. China, primarily Med, but also
A&D and SIS. The investigations have been initiated by
prosecutors in several regions and provinces, including
Guangdong, Jilin, Xian, Wuxi, Shanghai, Ting Hu, Shandong,
Hunan, and Guiyang.
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Siemens Zrt. Hungary and certain of its employees are being
investigated by Hungarian authorities in connection with
allegations concerning suspicious payments in connection with
consulting agreements with a variety of shell corporations and
bribery relating to the awarding of a contract for the delivery
of communication equipment to the Hungarian Armed Forces.
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The public prosecutor in Kalimantan Province, Indonesia, has
charged the head of the Med division of Siemens PT Indonesia in
connection with allegations that he participated in bribery,
fraud, and overcharging related to the awarding of a contract
for the delivery of medical equipment to a hospital in 2003.
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Authorities in Nigeria have conducted a search of Siemens
premises in connection with an investigation into alleged
illegal payments.
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The Norwegian government is investigating allegations of bribery
and overcharging of the Norwegian Department of Defense related
to the awarding of a contract for the delivery of communication
equipment in 2001.
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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 state-owned gas and power group ENI.
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As previously reported, the U.S. Department of Justice (DOJ) is
conducting an investigation of possible criminal violations of
U.S. law by Siemens in connection with the matters described
above and other allegations of corruption. During the second
quarter of fiscal 2007, Siemens was advised that the U.S.
Securities and Exchange Commissions (SEC) enforcement
division had converted its informal inquiry into these matters
into a formal investigation. The Company is cooperating with
these investigations.
The SEC and the DOJ are also investigating possible violations
of U.S. law by Siemens in connection with the
Oil-for-Food
Program. The Company is cooperating with the SEC and DOJ. A
French investigating magistrate commenced a preliminary
investigation regarding the participation of French companies,
including Siemens France S.A.S., in the
Oil-for-Food
Program. German prosecutors also began an investigation in this
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
offered to assist the World Bank in any matter that might be of
interest to the World Bank. Since that time, Siemens has been in
contact with the World Bank Department of Institutional
Integrity and intends to continue its policy of cooperation.
In February 2007, the Company announced that public prosecutors
in Nuremberg are conducting an investigation of certain current
and former employees of the Company on suspicion of criminal
breach of fiduciary duties against Siemens, tax evasion and a
violation of the German Works Council Constitution Act
(Betriebsverfassungsgesetz). The investigation relates to
an agreement entered into by Siemens with an entity controlled
by the former head of the independent employee association AUB
(Arbeitsgemeinschaft Unabhängiger
Betriebsangehöriger). The prosecutors are investigating
payments made during the period 2001 to 2006 for which Siemens
may not have received commensurate services in return. The
former head of AUB was arrested in February 2007. Since
February, searches have been conducted at several Siemens AG
premises and private homes and an arrest warrant was issued for
a member of the Managing Board, in connection with this
investigation, who was taken into custody. This executives
term has expired and he therefore is no longer a member of the
Managing Board. In addition to this former member of the
Managing Board, other current and former members of the
Companys senior management have been named as suspects in
this matter. In April 2007, the former member of the Managing
Board posted bail in the amount of 5 million and was
released from custody. In this connection, a bank issued a bond
(Bankbürgschaft) in the amount of
5 million, 4.5 million of which was
guaranteed by the Company pursuant to provisions of German law.
The former member of the Managing Board has provided the Company
a personal undertaking to cooperate with and fully support the
independent investigation conducted by Debevoise &
Plimpton LLP (Debevoise), as described below, and to repay all
costs incurred and payments made by the Company in connection
with the bank guarantee in the event he is found to have
violated his obligations to the Company in connection with the
facts under investigation by the Nuremberg prosecutors. The
investigation into the allegations involving the Companys
relationship with the former head of AUB and the AUB has also
been included within the scope of the investigation being
conducted by Debevoise. In April 2007, the labor union IG Metall
lodged a criminal complaint against unknown individuals on
suspicion that the Company breached the provisions of
Section 119 of the Works Council Constitution Act by
providing undue preferential support to AUB in connection with
elections of the members of the Companys works councils.
In February 2007, an alleged holder of American Depositary
Shares of the Company filed a derivative lawsuit with the
Supreme Court of the State of New York against certain current
and former members of the Companys
40
Managing and Supervisory Boards as well as against the Company
as a nominal defendant, seeking various forms of relief relating
to the allegations of corruption and related violations at
Siemens. The suit is currently stayed.
The Company has engaged Debevoise, an independent external law
firm, to conduct an independent and comprehensive investigation
to determine whether anti-corruption regulations have been
violated and to conduct an independent and comprehensive
assessment of the compliance and control systems of Siemens.
Debevoise reports directly and exclusively to the Compliance
Committee of the Supervisory Board (see Item 10:
Additional InformationManagement and Control
StructureThe Supervisory Board) and is being
assisted by forensic accountants from the international
accounting firm Deloitte & Touche. Debevoises
investigation of allegations of corruption at the former Com
Group, the Companys other Groups and at regional Siemens
subsidiaries is ongoing. Information on the financial impact of
compliance matters is provided under Item 5:
Operating and Financial Review and
ProspectsFinancial Impact of Compliance Matters.
We have taken a number of significant steps to improve our
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.
Please refer to Item 15: Control and Procedures
for a description of the initiatives we have implemented or are
in the process of implementing.
In addition to the proceedings described above, we are also
involved in a number of anti-trust and other legal proceedings:
A Mexican governmental control authority barred Siemens Mexico
from bidding on public contracts for a period of three years and
nine months beginning November 30, 2005. This proceeding
arose from allegations that Siemens Mexico did not disclose
alleged minor tax discrepancies when it was signing a public
contract in 2002. Upon appeal by Siemens Mexico, the execution
of the debarment was stayed on December 13, 2005 and
subsequently reduced to a period of four months. Upon further
appeal, the execution of the reduced debarment was stayed by the
competent Mexican court in April 2006. A final decision on the
appeal has not yet been announced.
In February 2007, Siemens Medical Solutions USA, Inc. (SMS)
announced that it had reached an agreement with the U.S.
Attorneys Office for the Northern District of Illinois to
settle allegations made in an indictment filed in January 2006.
The agreement resolves all allegations made against SMS in the
indictment. Under the agreement, SMS has pled guilty to a single
federal criminal charge of obstruction of justice in connection
with civil litigation that followed a bid to provide radiology
equipment to Cook County Hospital in 2001. In addition, SMS has
agreed to pay a fine of $1 million and restitution of
approximately $1.5 million.
In December 2006, the Japanese Fair Trade Commission (FTC)
searched the offices of more than ten producers and dealers of
healthcare equipment, including Siemens Asahi Medical
Technologies Ltd., in connection with an investigation into
possible anti-trust violations. Siemens Asahi Medical
Technologies is cooperating with the FTC in the ongoing
investigation.
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 were searched. The Company is cooperating with the
French Competition Authority.
In February 2007, the Norwegian Competition Authority launched
an investigation into possible anti-trust violations involving
Norwegian companies active in the field of fire security,
including Siemens Building Technologies AS. The Company is
cooperating in the ongoing investigation with the Norwegian
Competition Authority. The Norwegian Competition Authority has
not yet announced a schedule for the completion of the
investigation.
In February 2007, the European Commission launched an
investigation into possible anti-trust violations involving
European producers of power transformers, including Siemens AG
and VA Tech, which Siemens acquired in July 2005. The German
Anti-trust Authority (Bundeskartellamt) has become
involved in the proceeding and is responsible for investigating
those allegations which relate to the German market. Power
transformers are electrical equipment used as major components
in electric transmission systems in order to adapt voltages. The
Company is
41
cooperating in the ongoing investigation with the European
Commission and the German Anti-trust Authority. The European
Commission and the German Anti-trust Authority have not yet
announced a schedule for the completion of their investigation.
In April 2007, Siemens AG and VA Tech filed actions before the
European Court of First Instance in Luxemburg against the
decisions of the European Commission dated January 24,
2007, to fine Siemens and VA Tech for alleged anti-trust
violations in the European Market of high-voltage gas-insulated
switchgear between 1988 and 2004. Gas-insulated switchgear is
electrical equipment used as a major component for turnkey power
substations. The fine imposed on Siemens amounted to
396.6 million. The fine imposed on VA Tech, which
Siemens AG acquired in July 2005, amounted to
22.1 million. VA Tech was declared jointly liable
with Schneider Electric for a separate fine of
4.5 million. The European Court of First Instance has
not yet issued a decision. Furthermore, authorities in Brazil,
New Zealand, the Czech Republic, Slovakia and South Africa are
conducting investigations into the same possible anti-trust
violations. On October 25, 2007, upon the Companys
appeal, a Hungarian competition court reduced administrative
fines imposed on Siemens AG from 320,000 to 120,000
and from 640,000 to 110,000 regarding VA Tech. We
have appealed this decision.
In April 2007, the Polish Competition Authority launched an
investigation against Siemens Sp. z o.o. Poland regarding
possible anti-trust violations in the market for the maintenance
of diagnostic medical equipment. The Company is cooperating in
the ongoing investigation with the Polish Competition Authority.
In June 2007, the Turkish Anti-trust Agency confirmed its
earlier decision to impose a fine of approximately
6 million on Siemens AS Turkey based on alleged
anti-trust violations in the traffic lights market. Siemens
Turkey has appealed this decision and this appeal is still
pending. It is possible that as a result of this decision,
Siemens could be debarred from participating in public sector
tender offers in Turkey for a one- to two-year period.
The Company requested arbitration against the Republic of
Argentina before the International Center for Settlement of
Investment Disputes (ICSID) of the World Bank. The Company
claimed that Argentina unlawfully terminated the Companys
contract for the development and operation of a system for the
production of identity cards, border control, collection of data
and voters registers and thereby violated the Bilateral
Investment Protection Treaty between Argentina and Germany
(BIT). The Company sought damages for expropriation and
violation of the BIT of approximately $500 million.
Argentina disputed jurisdiction of the ICSID arbitration
tribunal and argued in favor of jurisdiction of the Argentine
administrative courts. The arbitration tribunal rendered a
decision on August 4, 2004, finding that it had
jurisdiction over Siemens claims and that Siemens was
entitled to present its claims. A hearing on the merits of the
case took place before the ICSID arbitration tribunal in
Washington in October 2005. A unanimous decision on the merits
was rendered on February 6, 2007, awarding Siemens
compensation in the amount of $217.8 million on account of
the value of its investment and consequential damages, plus
compound interest thereon at a rate of 2.66% since May 18,
2001. The tribunal also ruled that Argentina is obligated to
indemnify Siemens against any claims of subcontractors in
relation to the project (amounting to approximately
$44 million) and, furthermore, that Argentina would be
obligated to pay Siemens the full amount of the contract
performance bond ($20 million) in the event this bond was
not returned within the time period set by the tribunal (which
period subsequently elapsed without delivery). On June 4,
2007, Argentina filed with the ICSID an application for the
annulment and stay of enforcement of the award, alleging serious
procedural irregularities. An ad hoc committee has been
appointed to consider Argentinas application. Siemens
currently expects that the ad hoc committee will not render a
decision before 2009.
Siemens AG and its subsidiaries have been named as defendants in
various other legal actions and proceedings arising in
connection with their activities as a global diversified group.
Some of these pending proceedings have been previously
disclosed. Some of the legal actions include claims for
substantial compensatory or punitive damages or claims for
indeterminate amounts of damages. Siemens is from time to time
also involved in regulatory investigations beyond those
described above. Siemens is cooperating with the relevant
authorities in several jurisdictions and, where appropriate,
conducts internal investigations regarding potential wrongdoing
with the assistance of in-house and external counsel. Given the
number of legal actions and other proceedings to which Siemens
is subject, some may result in adverse decisions. Siemens
contests actions and proceedings when it considers it
appropriate. In view of the inherent difficulty of predicting
the outcome of such matters, particularly in cases in which
claimants seek substantial or indeterminate damages, Siemens
often cannot predict what the eventual
42
loss or range of loss related to such matters will be. Although
the final resolution of these matters could have a material
effect on Siemens consolidated operating results for any
reporting period in which an adverse decision is rendered,
Siemens believes that its consolidated financial position should
not be materially affected by the matters discussed in this
paragraph.
ITEM 4A: UNRESOLVED
STAFF COMMENTS
Not applicable.
43
ITEM 5: OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
Introduction
This
Form 20-F
contains forward-looking statements and informationthat
is, statements related to future, not past, events. These
statements may be identified by words such as
expects, looks forward to,
anticipates, intends, plans,
believes, seeks, estimates,
will, project or words of similar
meaning. Such statements are based on our current expectations
and certain assumptions, and are, therefore, subject to certain
risks and uncertainties. A variety of factors, many of which are
beyond Siemens control, affect our operations,
performance, business strategy and results and could cause the
actual results, performance or achievements of Siemens to be
materially different from any future results, performance or
achievements that may be expressed or implied by such
forward-looking statements. For us, particular uncertainties
arise, among others, from: the factors listed above under
Item 3: Key InformationRisk Factors;
changes in general economic and business conditions (including
margin developments in major business areas); the challenges of
integrating major acquisitions and implementing joint ventures
and other significant portfolio measures; changes in currency
exchange rates and interest rates; introduction of competing
products or technologies by other companies; lack of acceptance
of new products or services by customers targeted by Siemens;
changes in business strategy; the outcome of pending
investigations and legal proceedings, especially the corruption
investigation we are currently subject to in Germany, the United
States and elsewhere; the potential impact of such
investigations and proceedings on our ongoing business including
our relationships with governments and other customers; the
potential impact of such matters on our financial statements; as
well as various other factors. More detailed information about
certain of these factors is contained throughout this report and
in our other filings with the SEC, which are available on the
Siemens website, www.siemens.com, and on the SECs website,
www.sec.gov. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described in the
relevant forward-looking statement as expected, anticipated,
intended, planned, believed, sought, estimated or projected.
Siemens does not intend or assume any obligation to update or
revise these forward-looking statements in light of developments
which differ from those anticipated.
44
TABLE OF
CONTENTS
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The following discussion of our financial condition and results
of operations should be read in conjunction with our
Consolidated Financial Statements and the related Notes prepared
in accordance with IFRS as described in Notes to
Consolidated Financial Statements as of, and for the years
ended, September 30, 2007, 2006 and 2005. In addition to
its primary financial reporting for fiscal 2006 under U.S. GAAP,
in December 2006 the Company also published its first IFRS
Consolidated Financial Statements (IFRS Consolidated Financial
Statements as of September 30, 2006). These IFRS
Consolidated Financial Statements were presented as supplemental
information and serve as a basis for Siemens primary IFRS
reporting beginning with the first quarter of fiscal 2007. IFRS
differs in certain significant respects from U.S. GAAP. For a
discussion of the major differences between IFRS and U.S. GAAP,
a reconciliation of net income and shareholders equity to
U.S. GAAP and information concerning the use of exceptions
permitted or required by IFRS 1, see Notes to
Consolidated Financial Statements.
In this report, we present a number of financial measures that
are or may be non-GAAP financial measures as defined
in the rules of the SEC. The following discussion explains these
non-GAAP financial measures and the reasons why we believe that
they provide useful information to investors. Measures bearing
the same or similar names disclosed by other companies may be
calculated differently and therefore may not be directly
comparable to the measures discussed below. None of the measures
discussed below should be viewed in isolation as alternatives to
measures of our financial condition, results of operations or
cash flows as presented in accordance with IFRS in our
Consolidated Financial Statements.
Currency translation effects and portfolio
effectsThe comparability of our Consolidated Financial
Statements between different periods is affected by currency
translation effects resulting from our international operations.
In fiscal 2007, 2006 and 2005, foreign currency translation
effects impacted our results arising from the comparison of the
euro, in which our Consolidated Financial Statements are
denominated, to other currencies, most notably the U.S. dollar
and to a lesser extent the British pound. All of our business
Groups are subject to foreign currency translation effects;
however, some are particularly affected since they generate a
significant portion of their operations through subsidiaries
whose results are subject to foreign currency translation
effects, particularly in the U.S. In this report, we present, on
a worldwide basis and for our business Groups, the percentage
change in orders and revenue as adjusted for currency
translation effects and portfolio effects (i.e. the effects of
acquisitions and dispositions). We believe that meaningful
analysis of trends in orders and revenue from one year to the
next requires an understanding of these factors and accordingly
our management considers these factors in its management of our
business. For this reason, we believe that investors may find it
useful to have portfolio effects and currency translation
effects quantified and to consider the percentage change in
orders and revenue as adjusted
45
for these effects. Percentage changes in orders and revenue as
adjusted for currency translation effects and portfolio effects
should not be viewed in isolation as an alternative to the
corresponding unadjusted percentage changes in orders and
revenue. For significant quantitative effects of currency
translation and portfolio effects on revenue of the Company and
for our business Groups, see Fiscal 2007 Compared to
Fiscal 2006 and Fiscal 2006 Compared to Fiscal
2005. For additional information on foreign currency
translation, see Item 11: Quantitative and
Qualitative Disclosure About Market RiskForeign Currency
Exchange Rate Risk and Notes to Consolidated
Financial Statements. In addition, the effect of
acquisitions and dispositions on our consolidated revenues and
expenses also affects the comparability of our Consolidated
Financial Statements between different periods.
Free Cash FlowIn this report, we present free
cash flow, which we define as net cash provided by (used
in) operating activities less additions to intangible assets and
property, plant and equipment. We believe this measure is
helpful to investors to compare cash generation among the Groups.
46
Business
overview and Economic Environment
Fiscal
2007 Highlights
Fiscal 2007 was an eventful year that closed with one of
Siemens best operating quarters in history. Net income
rose 21% and earnings per share for the year rose 20% compared
to fiscal 2006, we exceeded our targets for revenue and order
growth, and profitability increased strongly throughout
Operations. We also completed the repurchase of the remaining
outstanding amount of a 2.5 billion convertible bond
issue which reduced dilution for Siemens shareholders by nearly
35 million shares. We expect the positive development of
Siemens to continue in the coming two fiscal years with revenue
growing by at least twice the rate of global gross domestic
product (GDP) and Group profit from Operations to grow at least
twice as fast as our revenue.
Higher net income and EPS. Siemens net
income in fiscal 2007 was 4.038 billion, a 21%
increase over 3.345 billion a year earlier. Earnings
per share (EPS) was 4.24, up from 3.52 in fiscal
2006. Net income in the current year was reduced by substantial
corporate costs associated with legal and regulatory matters,
which are discussed below. In addition, tax expense associated
with the carve-out of Siemens VDO Automotive (SV) reduced net
income by approximately 1.1 billion. This expense was
booked at SV when it was determined to be held for disposal and
therefore part of discontinued operations. Furthermore
discontinued operations included a preliminary non-cash pre-tax
gain of 1.6 billion generated by the transfer of the
former Communications Groups carrier-related businesses
into Nokia Siemens Networks B.V. (NSN). Discontinued operations
overall contributed 129 million to net income in
fiscal 2007 compared to 703 million a year earlier.
More detail on discontinued operations is provided below.
Increased profitability. Income from
continuing operations was 3.909 billion for the year,
48% higher than a year earlier. Basic and diluted EPS on a
continuing basis rose to 4.13 and 3.99,
respectively, compared to 2.78 and 2.77 a year
earlier. These increases were due to Group profit from
Operations, which climbed 70%
year-over-year
to 6.560 billion, even with negative equity
investment income of 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) and
Power Transmission and Distribution (PTD) had the highest levels
of Group profit. Siemens IT Solutions and Services (SIS)
benefited strongly from severance programs in fiscal 2006
totaling 576 million, and recorded Group profit of
252 million for the current year compared to a loss
of 731 million in the prior year.
Rapid growth in Group profit more than offset a significant
increase in Corporate items, pensions and eliminations
year-over-year,
which rose from a negative 527 million in fiscal 2006 to a
negative 1.672 billion in the current year. The
change is due primarily to the legal and regulatory matters
discussed below.
Earnings at Financing and Real Estate rose to
557 million for fiscal 2007, from
421 million a year earlier. Corporate Treasury
activities contributed earnings of 153 million
compared to a loss of 18 million in the same period a
year earlier, which includes a 143 million net
negative effect related to
mark-to-market
valuation of a cash settlement option associated with the
2.5 billion convertible bond issued in 2003. This
option was irrevocably waived in the third quarter of fiscal
2006, effectively eliminating subsequent earnings effects.
Strong global growth. Our revenue increased 9%
year-over-year,
to 72.448 billion, with higher revenue in every
region of the world. Both revenue and orders include new
business from acquisitions, particularly at Med and A&D,
which largely offset negative effects from currency translation
involving the U.S. dollar. On an organic basis (that is
excluding the net effect of currency translation and portfolio
transactions), revenue grew 10%. All our operating Groups
increased revenue organically
year-over-year,
highlighted by double-digit rises at A&D, PG and PTD.
Orders grew even faster, rising 12% to
83.916 billion, with double-digit increases at PG,
PTD, A&D, Industrial Services and Solutions (I&S) and
Med. On an organic basis, orders rose 13%
year-over-year.
Higher cash flows. Net cash provided by
operating activities was 7.328 billion in fiscal
2007, compared to 5.659 billion a year earlier. We
generated 6.755 billion in free cash flow (defined as
net cash provided by (used in) operating activities less
additions to intangible assets and property, plant and
equipment) from continuing operations in fiscal 2007, well above
1.820 billion in free cash flow a year earlier.
47
Completion of Fit4More. Many of our financial
and operating highlights during fiscal 2007 stem directly from
our multi-year Fit4More program, which we brought to a
successful close in the second quarter. In addition to setting
the growth and profitability targets mentioned above, Fit4More
also focused our business portfolio on strategic global markets
such as industrial infrastructure, energy, and healthcare. In
fiscal 2007, we exited the automotive market via the carve-out
of SV, with a sale to Continental expected to close in the first
quarter of fiscal 2008. We also transferred our former
telecommunications infrastructure businesses into NSN, and are
in the process of divesting 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 business, we added important product
life-cycle management (PLM) software capabilities. We also
reoriented our IT consulting and outsourcing business, combining
it with other strategic IT units within Siemens, and moving it
into the SIS Group.
At the completion of Fit4More we announced Fit for
2010, a new program that is founded on the same
performance pillars as Fit4More, including goals for
profitability and growth.
Progress with legal and regulatory matters. We
made substantial progress during the year in addressing issues
related to investigations of past misconduct by Siemens
employees. We take these matters very seriously and engaged them
vigorously as a top priority throughout the year. We gave
significant management attention and retained highly regarded
outside experts to help us cooperate fully with outside
investigations, conduct our own internal investigations, and act
upon the results of these investigations. We also issued
detailed, comprehensive public disclosures on these topics at
various points during the year. Taking continuing and
discontinued operations together, expenses for outside advisors
engaged by Siemens in connection with the investigations as well
as remediation activities totaled 347 million in
fiscal 2007, and we expect further expenses in fiscal 2008.
We paid a number of penalties related to the completion of
outside investigations during the year. These include European
Commission antitrust penalties related to gas-insulated
switchgear and a fine paid to German authorities related to past
actions at Com. Meanwhile we conducted our own internal
investigations throughout Siemens, particularly to identify
questionable payments made to outside parties under Business
Consulting Agreements (BCAs). We identified a substantial sum of
these payments, determined how much of the total of these
payments had been incorrectly booked as tax-deductible business
expenses, and adjusted the comparative amounts for fiscal 2005
and 2006 in the Consolidated Financial Statements included in
this report. Including the expenses associated with internal and
external investigations and the penalties mentioned above, the
total expense within Corporate items associated with legal and
regulatory matters during fiscal 2007 was
843 million. For more information with respect to
these legal and regulatory matters, see Legal
Proceedings.
Dividend. The Siemens Managing Board and
Supervisory Board have proposed a dividend of 1.60 per
share. The dividend in the prior year was 1.45.
Strategic
Overview
Our competitive strategy is to innovate through research and
development (R&D), improve our business portfolio to bring
that innovation to market on a global basis, and back these
efforts with a strong financial 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 gain scale in both established and new regional
markets. In fiscal 2007, we pursued both strategies, and also
exited or reduced our participation in markets that did not
belong to our focus areas. Major transactions included the
following:
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In January 2007, we acquired the Diagnostics division of Bayer
AG, headquartered in the U.S. We integrated this business into
our own Diagnostics division at Med, following the fiscal 2006
acquisition of Diagnostic Products Corporation (DPC) in the
U.S., a leading provider of in vitro immunodiagnostics
solutions. We expect the Bayer transaction to significantly
strengthen our position in in-vitro diagnostics, a high-growth
segment of the healthcare market.
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48
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In April 2007, we transferred our mobile and fixed-line carrier
networks businesses into NSN. Our enterprise networks business
is held for disposal.
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|
In May 2007, we acquired
U.S.-based
UGS Corp., one of the leading providers of product lifecycle
management (PLM) software and services for manufacturers. We
expect this transaction to complement and extend our existing
software capabilities in the factory automation industry, which
increasingly integrates information technology (IT) into
manufacturing facilities and processes.
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In July 2007, we announced an agreement to acquire
U.S.-based
Dade Behring Holdings, Inc. (Dade Behring), a leading clinical
laboratory diagnostics company. The transaction closed in the
first quarter of fiscal 2008. We intend to integrate this
acquisition into the Diagnostics division at Med, making Siemens
the worlds first fully integrated diagnostics provider
with solutions for in-vitro diagnostics, in-vivo imaging, and
data- and image-management software.
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In July 2007, we signed an agreement with Continental AG,
Hanover, Germany, to sell our entire SV activities. These
business activities are reported in discontinued operations for
both the current and prior periods.
|
We further improved our business portfolio in fiscal 2007
through smaller acquisitions and divestments. For a detailed
discussion of our acquisitions, dispositions and discontinued
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 fiscal 2007, our
business outside Germany accounted for nearly
60 billion in revenues, representing 83% of total
revenue. In particular, we expanded our business in Europe and
Asia-Pacific at more than twice the rate of GDP growth in these
regions. Revenue rose even faster in the smaller Africa, Near
and Middle East, Commonwealth of Independent States region,
which grew to account for nearly 10% of our revenues in fiscal
2007.
We support our competitive strategy with all our corporate
resources, including our Financing and Real Estate Groups and
our Corporate Treasury which provide important capabilities for
financing and managing our assets. We also manage the capital
structure in our balance sheet to ensure cost-effective access
to the capital we need for building our business and sustaining
profitable growth that creates value for shareholders.
Worldwide
Economic Environment
According to estimates of Global Insight, Inc., gross domestic
product (GDP) in 2007 is expected to grow 3.6% on a global
basis. The decline compared to GDP growth of 3.9% in 2006 is due
to rising oil prices and higher interest rates among other
factors.
Europe is expected to experience a decline to 2.9% GDP growth in
2007 compared to 3.2% in 2006. Within Europe, 2.7% GDP expansion
is anticipated for the Western Europe nations, down from 3.0% in
2006, as the cooler global economy and a stronger euro combine
to weigh on export growth. In Germany, the appreciation of the
euro and higher taxes are expected to slow GDP growth to 2.6%
for the year, down from 2.9% a year earlier. As in 2006, the
economies of Central and Eastern Europe are expected to grow
faster than Europe overall, with aggregate GDP growth of 6.1%.
This represents a slight slowing from 6.3% in 2006.
In the Americas, GDP growth is expected to fall to 2.5% in 2007
from 3.2% in 2006, primarily because of a decline in U.S.
economic growth from 2.9% in 2006 to 2.0% in 2007. Among the
factors that are slowing growth of the U.S. economy are
downturns in real estate and housing construction, which are
eroding consumer spending as well as employment in construction
and related industries and uncertainty in financial markets
following large write-downs by major banks relating to exposures
to sub-prime
mortgage. While strong global demand for raw materials is
expected to support GDP growth of 4.8% in Latin America, that
level would still represent a decline from 5.0% in 2006.
In contrast, GDP growth is expected to rise to 5.7% in
Asia-Pacific, from 5.5% in 2006, with China and India continuing
as the primary growth engines. China is expected to expand GDP
by 11.5% in 2007, benefiting from booming infrastructure
investment, strong export industries, and significantly
increased participation in Chinese
49
equity markets by domestic households with globally high rates
of income savings. India is expected to post GDP growth rate of
8.8% in 2007, down from 9.4% in 2006, as the country develops
its manufacturing and construction industries and broadens its
service sector to complement its established strength in IT
outsourcing.
GDP growth for the region comprising Africa, the Near and Middle
East and the Commonwealth of Independent States (C.I.S.) is
anticipated to reach 6.6% in 2007, above last years growth
rate of 6.3%, as the countries of the region continue to benefit
from strong global demand for oil and raw materials.
Market
Development
The market for electronics and electrical engineering solutions
and infrastructure remained strong in 2007, with particular
interest in advanced technologies that could provide cleaner and
more efficient energy, increase manufacturing production
efficiency, improve diagnostic and preventive healthcare and
enhance transportation.
Siemens portfolio focus positioned it well to meet
customer demands in all these areas. Strong demand for
infrastructure investments, e.g. by the worlds emerging
and developing economies and oil-producing nations expanded the
opportunities for Siemens Groups in power generation,
power transmission and distribution, and transportation. Rapid
industrialization continued in Asia-Pacific, driven by
Chinas and Indias economic expansion. This in turn
fueled demand for Siemens offerings 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 in alternative
energy.
Market
Trends
Within the broad macroeconomic trends discussed above, there are
numerous technological, geographic and customer demand trends
that affect our business. Important trends that we are
monitoring closely for risks and opportunities are discussed in
the paragraphs that follow.
Demand continued to rise for factory and process automation as
well as infrastructure engineering solutions, particularly in
Asia-Pacific countries that are expanding manufacturing capacity
to meet the demands of their outsourcing customers in other
regions. In the U.S. and Europe, demand for automation and
control solutions was strong in sectors focused on exports. In
the building market, customers continued to seek technology
enabling more secure, energy-efficient structures. In all
regions, there is a growing trend toward reduced use of raw
materials and more energy-efficient production processes.
Demand in the global rail industry also increased, with energy
efficient solutions gaining importance. Asia-Pacifics
growing economies and concentration of population in cities
continued to increase demand for urban transit solutions.
Asia-Pacific led growth in the general lighting market as well,
and OEMs continued to shift manufacturing to these lower-cost,
faster-growing markets. Demand also grew for advanced solutions,
such as light emitting diodes (LEDs) and precision components,
and for energy-efficient, environmentally friendly products.
In the energy sector, Chinas rapid modernization continued
to drive global demand for fossil power generation and
transmission systems, followed by rising power infrastructure
needs in the Middle East and the CIS countries. In the U.S. and
Europe, concerns about rising energy costs and security of
supply continued to stimulate investment in alternative power
generation, particularly large offshore wind farms.
In healthcare, aging populations and increased emphasis on
preventative care 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 leads to a growing importance of integrated
diagnostic solutions and the overall improvement of clinical
workflow, facilitated by integrated healthcare IT systems. In
the U.S. the Deficit Reduction Act (DRA) took effect in January
2007, curtailing government reimbursement for medical imaging
procedures in the non-hospital (out-patient) setting, imposing
pressure on the U.S. medical imaging market.
50
Research
and Development
In fiscal 2007, Siemens increased its research and development
(R&D) expenses to 3.399 billion, compared to
3.091 billion in the prior year. The average number
of employees engaged in R&D in fiscal 2007 was
30.9 thousand, up from 26.4 thousand in fiscal 2006.
A&D focused its R&D activities on manufacturing
automation. Osram focused its R&D activities on fostering
sustainable products, increased brightness and lower production
costs of LEDs. PGs R&D activities emphasized rotating
machinery such as gas and steam turbines, generators,
compressors, wind turbines, instrumentation and control systems
for renewable, nuclear and fossil power generation and improved
power plant solutions, especially power plants with carbon
capture and other diversification of the power generation
portfolio, e.g. coal gasification, fuel cells and energy storage
technologies. Med invested in R&D particularly to improve
technology and clinical applications for medical imaging
systems, such as such as magnetic resonance imaging, computed
tomography, x-ray angiography, ultrasound and information
technology.
To help shareholders understand and follow our progress, we
present our financial results in aggregate and also break out
the major components. The sum of results for the components
equals the result for Siemens as a whole.
The majority of our business is devoted to providing products
and services to customers based on 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 segment as defined by IFRS.
We measure the performance of the Groups in Operations using
Group profit, defined as earnings before financing interest,
certain pension costs and income taxes. Group profit therefore
excludes various categories of items which are not allocated to
the Groups since the Managing Board does not regard such items
as indicative of the Groups performance. The effect of
certain litigation and compliance issues is also not included in
Group profit when the Company concludes that such items are not
indicative of the Groups performance since the results of
operations of the Groups may be distorted by the amount and the
irregular nature of such events. This may also be the case for
items that refer to more than one Group or have a corporate or
central character. For additional information with respect to
Group profit, see Notes to Consolidated Financial
Statements. The Managing Board also determined Net capital
employed as additional information to assess the capital
intensity of the Operations Groups. Its definition corresponds
with the Group profit measure. In addition, Free cash flow is
used to compare cash generation among the Groups. For additional
information see Notes to Consolidated Financial
Statements.
In fiscal 2006, Siemens announced portfolio changes that
resulted in dissolving Com as a Group and reportable segment. As
discussed in Notes to Consolidated Financial
Statements, the primary business components of the former
operating segment Com were either already disposed of (carrier
networks and MD) or still held for disposal (enterprise
networks) as of September 30, 2007. Beginning
October 1, 2006, A&D assumed responsibility for
Coms Wireless Modules business. Except for Wireless
Modules and other businesses including the former
division Siemens Home and Office Communication Devices that
was reclassified from Com to Other Operations in the third
quarter of fiscal 2006, the historical results of the former
operating segment Com are presented as discontinued operations.
Current and prior-year segment disclosures exclude the
applicable information included in the Companys financial
statement presentation.
Due to the increased importance of the Companys 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 segment Strategic Equity Investments (SEI)
beginning in fiscal 2007. SEI represents an operating segment,
having its own management that reports the results of the
segment to the Managing Board. In addition to the investments in
Fujitsu Siemens Computers (Holding) BV (FSC) and BSH Bosch und
Siemens Hausgeräte GmbH (BSH), the Siemens investment in
NSN is also reported in SEI beginning in the third quarter of
fiscal 2007. The investments in FSC and BSH were included within
Other Operations until September 30, 2006. Prior-year
information was reclassified for comparability purposes for
these two investments.
51
A new Group called Siemens IT Solutions and Services (SIS) was
created effective April 1, 2007. SIS consists primarily of
the activities of the former segment Siemens Business Services
that were bundled with other information technology activities.
Prior-year information was reclassified for comparability
purposes.
In fiscal 2007, Siemens also signed an agreement to sell its
entire SV activities to Continental AG. The historical results
of the SV business are reported as discontinued operations.
Beginning in the fourth quarter of fiscal 2007, SV ceased to
represent a reportable segment. Current and prior-year segment
disclosures therefore exclude the applicable information
included in the Companys financial statement presentation.
Another component of our Company is made up of two Groups
involved in non-manufacturing activities such as financing,
leasing, investing and real estate. We call this component of
our business Financing and Real Estate. We evaluate the
profitability of our Financing and Real Estate Groups using
income before income taxes.
In breaking out the Operations and Financing and Real Estate
components and in order to show more clearly our external
performance, we exclude the business they conduct with each
other and with our Corporate Treasury, which provides cash
management services for our Groups and corporate finance
activities. These internal transactions are therefore included
into a component called Eliminations, reclassifications and
Corporate Treasury. This component is the difference between the
results for Operations and Financing and Real Estate and the
results of Siemens. For additional information, see Notes
to Consolidated Financial Statements.
52
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 a number of different criteria. As a general rule, if
a contract is considered effective and binding, we recognize the
total contract value as promptly as practicable, where total
contract value is defined as the agreed price for the goods to
be delivered and services to be rendered, or the agreed fee, in
each case for the irrevocable term of the contract. For service,
maintenance and outsourcing contracts with a contractual term of
greater than 12 months, if management determines that there
is a high degree of uncertainty concerning whether the customer
will adhere to the full contract term, the agreed fees for the
next 12 months are recognized as new orders on a revolving
basis. In the event an order is cancelled or modified in amount
during the ongoing fiscal year, we adjust our new order total
for the current period accordingly, rather than retroactively
adjust previously published new order totals. However, if an
order from the previous year is cancelled, it is generally not
adjusted from current period new orders, but instead from
existing orders on hand. There is no standard system among
companies in our areas of activity for the compilation of new
order information, with the result that our new order totals may
not be comparable with new order totals published by other
companies. Our new order totals are not audited by our external
auditors, but we do subject them to internal documentation and
review requirements. We may change our policies for recognizing
new orders in the future without previous notice.
53
Fiscal
2007 Compared to Fiscal 2006
Consolidated
Operations Of Siemens
Results
of Siemens
The following discussion presents selected information for
Siemens for the fiscal years ended:
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|
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|
|
|
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New Orders (location of customer)
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|
Year ended
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% Change
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|
|
|
|
|
September 30,
|
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|
vs. previous year
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|
therein
|
|
|
|
2007
|
|
|
2006
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
Currency
|
|
|
Portfolio
|
|
|
|
( in millions)
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|
|
|
|
|
|
|
|
|
|
|
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|
|
Germany
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|
13,562
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12,782
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6%
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|
5%
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|
|
|
0%
|
|
|
|
1%
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Europe (other than Germany)
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26,648
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|
22,351
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19%
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|
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|
18%
|
|
|
|
0%
|
|
|
|
1%
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Americas
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|
22,831
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|
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|
20,202
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|
13%
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|
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|
18%
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|
(9)%
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|
|
|
4%
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|
Asia-Pacific
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|
13,291
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|
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|
11,250
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|
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18%
|
|
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|
19%
|
|
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|
(3)%
|
|
|
|
2%
|
|
Africa, Near and Middle East, C.I.S.**
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|
|
7,584
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|
|
|
8,359
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|
|
|
(9)%
|
|
|
|
(7)%
|
|
|
|
(3)%
|
|
|
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siemens
|
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|
83,916
|
|
|
|
74,944
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|
|
|
12%
|
|
|
|
13%
|
|
|
|
(3)%
|
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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*
|
Excluding currency translation and portfolio effects.
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**
|
Commonwealth of Independent States.
|
Siemens booked 83.916 billion in new orders in fiscal
2007. This 12% rise compared to fiscal 2006 resulted in a
book-to-bill
ratio of 1.16 for the year. Europe outside Germany and the
Americas were the two largest regions by volume, followed by
Germany and Asia Pacific. Europe outside Germany showed the
fastest growth of any region, with a 19% increase to
26.648 billion for the year led by strong demand at
PG, Med, PTD and A&D and numerous large new contracts.
Orders in Germany were 13.562 billion, up 6%
including strong contributions from A&D, PG and TS.
In the Americas region, orders rose 13% in fiscal 2007, to
22.831 billion, despite considerable weakening of the
U.S. dollar against the euro. Continuing demand for energy
solutions at PG, and for industrial automation solutions at
A&D and I&S, more than compensated for currency and
market conditions that led to reductions in orders in the U.S.
at TS, Med, Osram and SBT. As a result, the U.S. share of orders
in the region fell to 73% compared to 78% in fiscal 2006. On an
organic basis, excluding the net effect of portfolio
transactions and unusually strong negative currency translation
effects, orders were up 18% and 11% in the Americas and the U.S.
respectively.
Orders in Asia-Pacific came in at 13.291 billion, 18%
higher than in the prior year, with PG, A&D, PTD, Med and
I&S all winning at least 20% more new business in the
region. Orders in China and India were 4.871 billion
and 2.015 billion, and grew at 12% and 15%
respectively, and accounted for 52% of new Asia-Pacific orders.
A year earlier, their combined share was 54%. New orders in the
Africa, Near and Middle East, C.I.S. region came in 9% lower
year-over-year,
at 7.584 billion, primarily because the prior year
included a large order at TS for both trains and maintenance in
Russia. For the region as a whole, PTD, A&D and Osram saw
double-digit order growth for the current period.
54
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|
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|
Revenue (location of customer)
|
|
|
|
Year ended
|
|
|
% Change
|
|
|
|
|
|
|
September 30,
|
|
|
vs. previous year
|
|
|
therein
|
|
|
|
2007
|
|
|
2006
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
Currency
|
|
|
Portfolio
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
|
|
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|
|
Germany
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|
12,594
|
|
|
|
12,382
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|
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|
2%
|
|
|
|
2%
|
|
|
|
0%
|
|
|
|
0%
|
|
Europe (other than Germany)
|
|
|
22,801
|
|
|
|
20,489
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|
|
|
11%
|
|
|
|
10%
|
|
|
|
0%
|
|
|
|
1%
|
|
Americas
|
|
|
19,321
|
|
|
|
18,371
|
|
|
|
5%
|
|
|
|
9%
|
|
|
|
(8)%
|
|
|
|
4%
|
|
Asia-Pacific
|
|
|
10,937
|
|
|
|
9,457
|
|
|
|
16%
|
|
|
|
18%
|
|
|
|
(3)%
|
|
|
|
1%
|
|
Africa, Near and Middle East, C.I.S.**
|
|
|
6,795
|
|
|
|
5,788
|
|
|
|
17%
|
|
|
|
19%
|
|
|
|
(3)%
|
|
|
|
1%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siemens
|
|
|
72,448
|
|
|
|
66,487
|
|
|
|
9%
|
|
|
|
10%
|
|
|
|
(3)%
|
|
|
|
2%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Excluding currency translation and portfolio effects.
|
|
**
|
Commonwealth of Independent States.
|
Revenue for fiscal 2007 totaled 72.448 billion, a 9%
increase compared to fiscal 2006. Revenue in Europe outside
Germany rose 11%
year-over-year,
to 22.801 billion, with A&D, PG and Med leading
the increase. Revenue growth was more restrained in the
Americas, affected by the considerable weakening of the U.S.
dollar against the euro during the year, coming in 5% higher
than in fiscal 2006 at 19.321 billion. Energy,
automation and medical solutions were the highlights for the
Americas overall as well as for the U.S., which accounted for
77% of the regions revenue for the year. On an organic
basis, revenue for the Americas and the U.S. climbed 9% and 7%
year-over-year,
respectively.
Revenue grew more rapidly in Asia-Pacific, reaching
10.937 billion on a 16% rise. Revenue in China was up
13% to 4.146 billion, as A&D, PG and TS
converted major orders from prior periods into current business.
While the majority of Groups booked more sales in China than in
India, revenue for India jumped 62%
year-over-year
from 1.034 billion to 1.676 billion and
every operating Group posted double-digit increases. Together
China and India accounted for 53% of Asia-Pacific revenue, up
from 50% in fiscal 2006. The Africa, Near and Middle East,
C.I.S. region saw 17% growth compared to the prior year,
benefiting from large infrastructure orders in prior years. Most
Groups posted double-digit increases in the region, with
Siemens energy businesses accounting for 63% of the total
volume of 6.795 billion.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
( in millions)
|
|
|
|
|
|
Gross profit on revenue
|
|
|
20,876
|
|
|
|
17,379
|
|
|
|
20%
|
|
as percentage of revenue
|
|
|
28.8
|
%
|
|
|
26.1
|
%
|
|
|
|
|
Gross profit for fiscal 2007 increased 20%
year-over-year,
as all Groups in Operations increased gross profit. Gross profit
margin increased to 28.8% from 26.1% a year earlier. This
increase is due to improved gross profit margins over all
groups, especially at SIS, benefiting from an improved cost
structure following severance charges in the prior year.
55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
( in millions)
|
|
|
|
|
|
Research and development expenses
|
|
|
(3,399
|
)
|
|
|
(3,091
|
)
|
|
|
10
|
%
|
as percentage of revenue
|
|
|
4.7
|
%
|
|
|
4.6
|
%
|
|
|
|
|
Marketing, selling and general administrative expenses
|
|
|
(12,103
|
)
|
|
|
(11,897
|
)
|
|
|
2
|
%
|
as percentage of revenue
|
|
|
16.7
|
%
|
|
|
17.9
|
%
|
|
|
|
|
Other operating income
|
|
|
680
|
|
|
|
629
|
|
|
|
8
|
%
|
Other operating expense
|
|
|
(1,053
|
)
|
|
|
(260
|
)
|
|
|
305
|
%
|
Income from investments accounted for using the equity method,
net
|
|
|
108
|
|
|
|
404
|
|
|
|
(73
|
)%
|
Financial income (expense), net
|
|
|
(8
|
)
|
|
|
254
|
|
|
|
|
|
Research and development expenses increased to
3.399 billion, led by higher outlays at Med and
A&D. Despite the increase in our revenue
year-over-year,
R&D expenses as a percent of revenue increased slightly to
4.7% from 4.6% in fiscal 2006. For additional information with
respect to R&D, see Business Overview and
Economic EnvironmentResearch 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.
Other operating income was 680 million in fiscal
2007, compared to 629 million a year earlier. Gains
on sales of property, plant and equipment and intangibles
increased from 208 million in fiscal 2006 to
289 million in fiscal 2007. In fiscal 2007, gains on
disposals of businesses were 196 million, benefiting
from a sale of a locomotive leasing business at TS, compared to
55 million in the prior year. Fiscal 2006 included a
gain of 70 million related to the settlement of an
arbitration proceeding.
Other operating expense increased significantly from
260 million in fiscal 2006 to
1.053 billion in fiscal 2007. The change
year-over-year
is due to expenses related to major legal and regulatory matters
in the current period. This included 440 million
stemming from sanctions on major suppliers of gas-isolated
switchgear, and 152 million in expenses for external
advisors and consultants related to legal and compliance issues,
as well as 81 million in funding primarily for job
placement companies for former Siemens employees affected by the
bankruptcy of BenQ Mobile GmbH & Co. OHG (BenQ). Other
operating expense in fiscal 2007 also included
60 million for goodwill impairment.
Income from investments accounted for using the equity method,
net decreased to 108 million from
404 million a year earlier, due to the loss of
429 million in fiscal 2007 from NSN. Financial income
(expense), net decreased from a positive contribution of
254 million in fiscal 2006 to a negative
8 million in fiscal 2007, primarily due to higher
interest for financial liabilities, which were raised primarily
at the end of the prior fiscal year. Fiscal 2006 benefited from
a pre-tax gain of 84 million related to the sale of
the Companys interest in SMS Demag AG.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
( in millions)
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
5,101
|
|
|
|
3,418
|
|
|
|
49
|
%
|
Income taxes
|
|
|
(1,192
|
)
|
|
|
(776
|
)
|
|
|
54
|
%
|
as percentage of income from continuing operations before
income taxes
|
|
|
23%
|
|
|
|
23%
|
|
|
|
|
|
Income from continuing operations
|
|
|
3,909
|
|
|
|
2,642
|
|
|
|
48
|
%
|
Income from discontinued operations, net of income taxes
|
|
|
129
|
|
|
|
703
|
|
|
|
(82
|
)%
|
Net income
|
|
|
4,038
|
|
|
|
3,345
|
|
|
|
21
|
%
|
Net income attributable to minority interest
|
|
|
232
|
|
|
|
210
|
|
|
|
|
|
Net income attributable to shareholders of Siemens AG
|
|
|
3,806
|
|
|
|
3,135
|
|
|
|
21
|
%
|
Income from continuing operations before income taxes increased
by 49% to 5.101 billion in fiscal 2007, from
3.418 billion a year earlier, driven by a combination
of increased revenue and margins, partly offset with
56
negative equity investment income of 429 million
related to NSN and expenses related to major legal and
regulatory matters totaled in the current period. Fiscal 2006
included severance charges at SIS of 576 million. In
the last quarter of fiscal 2007, all groups reached their group
profit margin targets.
Income from continuing operations in fiscal 2007 was
3.909 billion, up 48% from 2.642 billion
in fiscal 2006, due to an increased income from continuing
operations before income taxes. The effective tax rate was 23%
in fiscal 2007 and 2006. Income tax expenses include adjustments
related to the previously reported compliance investigation. As
a result of that investigation, payments were identified that
had been recorded as deductible business expenses in prior
periods when determining income tax provisions. The
Companys investigation has determined that certain of
these payments were non-deductible under the tax laws of Germany
and other jurisdictions. For further information, please refer
to Notes to the Consolidated 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 of those operations to Continental AG. SV is
included within discontinued operations on a retroactive basis
to provide a meaningful comparison with prior periods. For
fiscal 2007, income from discontinued operations contributed
129 million to net income, compared to
703 million a year earlier. Contribution to net
income from SV activities was a negative 550 million
compared to a positive 410 million in fiscal 2006.
This decrease was due to an approximate 1.1 billion
tax expense as well as interest expense and closing costs
related to the carve-out. Full-year results at Com-related
activities contributed positively in both the current and prior
year, with 765 million and 357 million,
respectively. The current-year result was higher primarily due
to the 1.6 billion NSN non-cash gain. This gain was
partly offset by 567 million in impairments at the
enterprise networking business, a 201 million fine
imposed on us in Germany, of which 200 million was
tax deductible for tax purposes, and 104 million in
other costs related to compliance matters. The remainder of the
change
year-over-year
is due to an operating loss in the current year compared to
operating profit at Com a year earlier. While the profitable
carrier activities were included for all of fiscal 2006, they
were transferred out of discontinued operations and into NSN
midway through fiscal 2007. Effects related to BenQ reduced net
income by 86 million and 64 million,
respectively, in fiscal 2007 and fiscal 2006. For additional
information with respect to discontinued operations, see
Notes to Consolidated Financial Statements.
Net income for Siemens in fiscal 2007 was
4.038 billion, a 21% increase compared to
3.345 billion in the same period a year earlier. Net
income attributable to Shareholders of Siemens AG was
3.806 billion, up 21% from 3.135 billion
in fiscal 2006.
57
Segment
Information Analysis
Operations
Automation
and Drives (A&D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
2,090
|
|
|
|
1,575
|
|
|
|
33%
|
|
|
|
|
|
Group profit margin
|
|
|
13.6
|
%
|
|
|
12.1
|
%
|
|
|
|
|
|
|
|
|
New orders
|
|
|
16,794
|
|
|
|
14,312
|
|
|
|
17%
|
|
|
|
16%
|
|
Total revenue
|
|
|
15,389
|
|
|
|
13,041
|
|
|
|
18%
|
|
|
|
16%
|
|
External revenue
|
|
|
13,695
|
|
|
|
11,564
|
|
|
|
18%
|
|
|
|
|
|
Therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
3,991
|
|
|
|
3,396
|
|
|
|
18%
|
|
|
|
|
|
Europe (other than Germany)
|
|
|
4,191
|
|
|
|
3,485
|
|
|
|
20%
|
|
|
|
|
|
Americas
|
|
|
2,643
|
|
|
|
2,324
|
|
|
|
14%
|
|
|
|
|
|
Asia-Pacific
|
|
|
2,419
|
|
|
|
2,017
|
|
|
|
20%
|
|
|
|
|
|
Africa, Near and Middle East, C.I.S.
|
|
|
451
|
|
|
|
342
|
|
|
|
32%
|
|
|
|
|
|
|
|
* |
Excluding currency translation effects of (2)% on revenue and
orders, and portfolio effects of 4% and 3% on revenue and
orders, respectively.
|
A&D increased its Group profit 33% compared to fiscal 2006,
to 2.090 billion. A&Ds largest divisions
led the increase, including significant earnings growth in the
Industrial Automation Systems, Mechanical Drives, Motion Control
Systems and Large Drives divisions. The Group gained operating
leverage on rising volume, particularly evident in lower selling
costs as a percent of revenue. As a result, A&Ds
Group profit margin rose compared to fiscal 2006, even though
the increase was held back by 143 million in purchase
price accounting (PPA) effects associated with the Groups
acquisitions of UGS Corp. (in May 2007) and Flender Holding
GmbH (in fiscal 2005) as well as 23 million in
integration costs. A&D saw a corresponding increase in
amortization for intangible assets
year-over-year.
Orders at A&D rose 17%
year-over-year,
to 16.794 billion, and revenue rose 18%, to
15.389 billion. Both orders and revenue included
double-digit increases in Germany and all major regions of the
world. A&D continued to generate the largest share of its
business in Europe (including Germany), which accounted for 60%
of revenue from external customers in both fiscal years. Revenue
and orders benefited from the acquisition of UGS, a leading
provider of product lifecycle management (PLM) software which
A&D acquired to complement and extend its existing software
capabilities. The PLM business got off to a good start within
A&D, launching its technology integration and winning new
customers for the Group.
58
Industrial
Solutions and Services (I&S)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
415
|
|
|
|
282
|
|
|
|
47
|
%
|
|
|
|
|
Group profit margin
|
|
|
4.7
|
%
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
New orders
|
|
|
10,161
|
|
|
|
9,025
|
|
|
|
13
|
%
|
|
|
15%
|
|
Total revenue
|
|
|
8,894
|
|
|
|
8,819
|
|
|
|
1
|
%
|
|
|
3%
|
|
External revenue
|
|
|
7,824
|
|
|
|
7,837
|
|
|
|
(0
|
)%
|
|
|
|
|
Therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
1,011
|
|
|
|
1,011
|
|
|
|
0
|
%
|
|
|
|
|
Europe (other than Germany)
|
|
|
2,178
|
|
|
|
2,141
|
|
|
|
2
|
%
|
|
|
|
|
Americas
|
|
|
2,359
|
|
|
|
2,549
|
|
|
|
(7
|
)%
|
|
|
|
|
Asia-Pacific
|
|
|
1,364
|
|
|
|
1,187
|
|
|
|
15
|
%
|
|
|
|
|
Africa, Near and Middle East, C.I.S.
|
|
|
912
|
|
|
|
949
|
|
|
|
(4
|
)%
|
|
|
|
|
|
|
* |
Excluding currency translation effects of (3)% on revenue and
orders, and portfolio effects of 1% on revenue and orders.
|
In fiscal 2007, Group profit at I&S climbed to
415 million, a 47% increase
year-over-year.
Both earnings and margins improved throughout the Group, with
the strongest increases coming in the Groups largest
businesses: industrial services, oil and gas and metal
technologies. Amortization during fiscal 2007 declined compared
to fiscal 2006, primarily on lower PPA effects from acquisitions
in prior years including VA Technologies AG (VA Tech).
Orders at I&S for fiscal 2007 rose to
10.161 billion, 13% higher than in fiscal 2006. This
growth was fueled by strong demand in Asia-Pacific and the
Americas, including large orders from Brazil and the U.S. While
revenue of 8.894 billion also included healthy growth
in Asia-Pacific, this was offset somewhat by the effects of
industry-wide resource constraints as well as lower revenue in
the postal automation and airport logistics businesses compared
to fiscal 2006.
Siemens
Building Technologies (SBT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
354
|
|
|
|
223
|
|
|
|
59
|
%
|
|
|
|
|
Group profit margin
|
|
|
7.0
|
%
|
|
|
4.6
|
%
|
|
|
|
|
|
|
|
|
New orders
|
|
|
5,350
|
|
|
|
5,235
|
|
|
|
2
|
%
|
|
|
5%
|
|
Total revenue
|
|
|
5,062
|
|
|
|
4,796
|
|
|
|
6
|
%
|
|
|
8%
|
|
External revenue
|
|
|
4,952
|
|
|
|
4,695
|
|
|
|
5
|
%
|
|
|
|
|
Therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
972
|
|
|
|
935
|
|
|
|
4
|
%
|
|
|
|
|
Europe (other than Germany)
|
|
|
1,885
|
|
|
|
1,768
|
|
|
|
7
|
%
|
|
|
|
|
Americas
|
|
|
1,715
|
|
|
|
1,641
|
|
|
|
5
|
%
|
|
|
|
|
Asia-Pacific
|
|
|
251
|
|
|
|
250
|
|
|
|
0
|
%
|
|
|
|
|
Africa, Near and Middle East, C.I.S.
|
|
|
129
|
|
|
|
101
|
|
|
|
28
|
%
|
|
|
|
|
|
|
* |
Excluding currency translation effects of (3)% and (4)% on
revenue and orders, respectively, and portfolio effects of 1% on
revenue and orders.
|
SBT increased Group profit in fiscal 2007 by 59%, to
354 million, demonstrating increased emphasis on its
higher-margin businesses in products and services and improved
execution including more selective order intake in its solutions
business. The Groups fire safety and heating, ventilation
and air conditioning businesses made the
59
largest contributions to Group profit. Earnings margins rose on
a Groupwide basis as well, strengthening Group profit margin for
SBT overall by well over two percentage points.
Orders of 5.350 billion grew modestly, rising 2%
compared to fiscal 2006, in part due to adverse currency
translation effects and slowing construction growth in the U.S.,
but also as a result of selective order intake. Revenue rose 6%
year-over-year,
to 5.062 billion, with SBTs largest markets in
Europe, the Americas and Germany all contributing solid
increases in external revenue compared to fiscal 2006. SBT
closed among others the acquisition of an Indian system provider
in fiscal 2007 and the acquisition of Bewator in Sweden in
fiscal 2006, each bringing the Group new capabilities in
building and infrastructure security.
Osram
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
492
|
|
|
|
456
|
|
|
|
8
|
%
|
|
|
|
|
Group profit margin
|
|
|
10.5
|
%
|
|
|
10.0
|
%
|
|
|
|
|
|
|
|
|
New orders
|
|
|
4,690
|
|
|
|
4,563
|
|
|
|
3
|
%
|
|
|
7
|
%
|
Total revenue
|
|
|
4,690
|
|
|
|
4,563
|
|
|
|
3
|
%
|
|
|
7
|
%
|
External revenue
|
|
|
4,677
|
|
|
|
4,547
|
|
|
|
3
|
%
|
|
|
|
|
Therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
539
|
|
|
|
535
|
|
|
|
1
|
%
|
|
|
|
|
Europe (other than Germany)
|
|
|
1,216
|
|
|
|
1,126
|
|
|
|
8
|
%
|
|
|
|
|
Americas
|
|
|
1,947
|
|
|
|
1,982
|
|
|
|
(2
|
)%
|
|
|
|
|
Asia-Pacific
|
|
|
780
|
|
|
|
736
|
|
|
|
6
|
%
|
|
|
|
|
Africa, Near and Middle East, C.I.S.
|
|
|
195
|
|
|
|
168
|
|
|
|
16
|
%
|
|
|
|
|
|
|
* |
Excluding currency translation effects of (4)% on revenue and
orders.
|
Osrams Group profit of 492 million in fiscal
2007 was 8% higher than in the prior year. Along with strength
in its large general lighting business, Osram benefited from
higher earnings in its optical semiconductors business.
Broad-based demand throughout the Group took revenue and orders
up to 4.690 billion for the fiscal year. Excluding
adverse currency translation effects, primarily in Osrams
large U.S. market, revenue and orders rose 7% compared to the
prior year on rising demand in Europe and Asia-Pacific.
The trend towards energy-efficient lighting solutions had a
positive impact on the performance for the 2007 fiscal year.
Osram was successful in innovative compact fluorescent lamps,
high-intensity discharge lamps and LEDs. Energy-efficient
products already account for 60 percent of revenue, and
Osram intends to increase this to 80 percent over the next
ten years. Osrams main focus for research and development
is to make further advances in optical semiconductors (LED and
OLED) and energy efficiency, for example with energy-saving
lamps and with high-intensity discharge lamps.
60
Transportation
Systems (TS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
191
|
|
|
|
72
|
|
|
|
165
|
%
|
|
|
|
|
Group profit margin
|
|
|
4.3
|
%
|
|
|
1.6
|
%
|
|
|
|
|
|
|
|
|
New orders
|
|
|
4,780
|
|
|
|
6,173
|
|
|
|
(23
|
)%
|
|
|
(20
|
)%
|
Total revenue
|
|
|
4,452
|
|
|
|
4,493
|
|
|
|
(1
|
)%
|
|
|
2
|
%
|
External revenue
|
|
|
4,418
|
|
|
|
4,429
|
|
|
|
(0
|
)%
|
|
|
|
|
Therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
717
|
|
|
|
890
|
|
|
|
(19
|
)%
|
|
|
|
|
Europe (other than Germany)
|
|
|
2,353
|
|
|
|
2,150
|
|
|
|
9
|
%
|
|
|
|
|
Americas
|
|
|
390
|
|
|
|
583
|
|
|
|
(33
|
)%
|
|
|
|
|
Asia-Pacific
|
|
|
826
|
|
|
|
707
|
|
|
|
17
|
%
|
|
|
|
|
Africa, Near and Middle East, C.I.S.
|
|
|
132
|
|
|
|
99
|
|
|
|
33
|
%
|
|
|
|
|
|
|
* |
Excluding currency translation effects of (1)% on revenue and
orders, and portfolio effects of (2)% on revenue and orders.
|
TS recorded Group profit of 191 million for fiscal
2007, including a net gain of 76 million on the sale
of its locomotive leasing business. Earnings and margins rose on
a Groupwide basis except for the mass transit business, which
took charges related to its Combino railcar and posted a larger
loss than in the prior year.
Orders of 4.780 billion reflect a significantly lower
level of large orders for the Group as a whole in the second and
third quarters compared to the same periods of the prior year.
Revenue of 4.452 billion came close to the prior-year
level despite a decline in revenue in the mass transit business.
The Groups large European market contributed solid growth
while business in Asia-Pacific continued to expand more rapidly
from a smaller base.
Power
Generation (PG)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
1,147
|
|
|
|
779
|
|
|
|
47%
|
|
|
|
|
|
Group profit margin
|
|
|
9.4
|
%
|
|
|
7.7
|
%
|
|
|
|
|
|
|
|
|
New orders
|
|
|
17,988
|
|
|
|
12,532
|
|
|
|
44%
|
|
|
|
43%
|
|
Total revenue
|
|
|
12,194
|
|
|
|
10,086
|
|
|
|
21%
|
|
|
|
20%
|
|
External revenue
|
|
|
12,159
|
|
|
|
10,068
|
|
|
|
21%
|
|
|
|
|
|
Therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
1,182
|
|
|
|
1,153
|
|
|
|
3%
|
|
|
|
|
|
Europe (other than Germany)
|
|
|
2,920
|
|
|
|
2,267
|
|
|
|
29%
|
|
|
|
|
|
Americas
|
|
|
3,405
|
|
|
|
2,706
|
|
|
|
26%
|
|
|
|
|
|
Asia-Pacific
|
|
|
2,024
|
|
|
|
1,571
|
|
|
|
29%
|
|
|
|
|
|
Africa, Near and Middle East, C.I.S.
|
|
|
2,628
|
|
|
|
2,371
|
|
|
|
11%
|
|
|
|
|
|
|
|
* |
Excluding currency translation effects of (3)% on revenue and
orders, and portfolio effects of 4% on revenue and orders.
|
Group profit at PG climbed 47%
year-over-year,
to 1.147 billion in fiscal 2007. All businesses in
PGs portfolio generated strong growth in earnings and
profitability. Highlights include a significant rise in earnings
in the fossil services business and a sharply higher 9.5% margin
in the wind power business, where earnings more than tripled.
While PG faced higher materials costs compared to fiscal 2006,
strong demand enabled the Group to offset the increase with
higher prices. Both fiscal years included charges at major
projects for PGs fossil power generation business. While
PG reduced these charges in fiscal 2007, the improvement was
partially offset by negative equity
61
investment income and lower cancellation gains compared to
fiscal 2006. In particular, equity investment income in fiscal
2007 was a negative 2 million due to a negative
45 million result related to PGs equity stake
in Areva NP, a nuclear power company. In fiscal 2006, equity
investment income was a positive 36 million despite a
negative 27 million result related to Areva NP. The
net effect of project charges, equity investment income and
other non-operating effects, including the settlement of an
arbitration proceeding and the sale of a business in fiscal 2007
and the effects of the bankruptcy of a consortium partner in
fiscal 2006 reduced PGs Group profit margin by more than
half a percentage point in the current fiscal year and by
approximately two percentage points in the prior year. PG
expects continued volatility in equity investment earnings in
coming quarters.
Demand for PGs power generation solutions was balanced
both regionally and among PGs divisions. This balance is
particularly notable in comparison to 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 fiscal 2007, PGs
non-fossil businesses generated 40% of revenues and 41% of new
orders. These total benefited from the acquisition of AG
Kühnle Kopp & Kausch in the first quarter of
fiscal 2007. Fiscal 2007 orders for PG overall climbed to
17.988 billion, up 44%
year-over-year,
and are expected to increase the earnings quality of PGs
order backlog as they replace older, lower-margin orders that
are being fulfilled in coming quarters. Revenue for the year
rose to 12.194 billion, 21% higher than in the prior
year. On a regional basis, Asia-Pacific, Europe (outside
Germany) and the Americas all contributed rapid revenue growth
for the year. PG closed one acquisition in fiscal 2007 and two
acquisitions in fiscal 2006, each bringing the Group new
capabilities for clean power generation.
Power
Transmission and Distribution (PTD)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
650
|
|
|
|
315
|
|
|
|
106%
|
|
|
|
|
|
Group profit margin
|
|
|
8.5
|
%
|
|
|
4.8
|
%
|
|
|
|
|
|
|
|
|
New orders
|
|
|
9,896
|
|
|
|
8,028
|
|
|
|
23%
|
|
|
|
27%
|
|
Total revenue
|
|
|
7,689
|
|
|
|
6,509
|
|
|
|
18%
|
|
|
|
21%
|
|
External revenue
|
|
|
7,126
|
|
|
|
6,032
|
|
|
|
18%
|
|
|
|
|
|
Therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
660
|
|
|
|
558
|
|
|
|
18%
|
|
|
|
|
|
Europe (other than Germany)
|
|
|
1,842
|
|
|
|
1,684
|
|
|
|
9%
|
|
|
|
|
|
Americas
|
|
|
1,373
|
|
|
|
1,233
|
|
|
|
11%
|
|
|
|
|
|
Asia-Pacific
|
|
|
1,601
|
|
|
|
1,457
|
|
|
|
10%
|
|
|
|
|
|
Africa, Near and Middle East, C.I.S.
|
|
|
1,650
|
|
|
|
1,100
|
|
|
|
50%
|
|
|
|
|
|
|
|
* |
Excluding currency translation effects of (3)% and (4)% on
revenue and orders, respectively.
|
PTDs Group profit in fiscal 2007 was
650 million, more than double the level in the prior
year. Group profit margin for the year benefited from
25 million in hedging effects not qualifying for
hedge accounting. The prior-year results included charges
related to restructuring programs. Higher revenue in fiscal 2007
led to higher capacity utilization and other operating
efficiencies, which in turn enabled all divisions within PTD to
increase their earnings and margins compared to fiscal 2006.
In a strong global market for secure, high-efficiency power
transmission and distribution, PTDs orders increased 23%,
to 9.896 billion. The Groups 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 7.689 billion, with Europe (including Germany),
the Americas and Asia-Pacific all posting double-digit increases
in revenue to external customers and external revenue in Africa,
Near and Middle East, C.I.S. rose 50%
year-over-year.
62
Medical
Solutions (Med)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006*
|
|
|
Actual
|
|
|
Adjusted**
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
1,323
|
|
|
|
988
|
|
|
|
34%
|
|
|
|
|
|
Group profit margin
|
|
|
13.4
|
%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
New orders
|
|
|
10,271
|
|
|
|
9,334
|
|
|
|
10%
|
|
|
|
(2
|
)%
|
Total revenue
|
|
|
9,851
|
|
|
|
8,227
|
|
|
|
20%
|
|
|
|
6
|
%
|
External revenue
|
|
|
9,798
|
|
|
|
8,164
|
|
|
|
20%
|
|
|
|
|
|
Therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
875
|
|
|
|
682
|
|
|
|
28%
|
|
|
|
|
|
Europe (other than Germany)
|
|
|
2,462
|
|
|
|
1,843
|
|
|
|
34%
|
|
|
|
|
|
Americas
|
|
|
4,578
|
|
|
|
4,044
|
|
|
|
13%
|
|
|
|
|
|
Asia-Pacific
|
|
|
1,468
|
|
|
|
1,222
|
|
|
|
20%
|
|
|
|
|
|
Africa, Near and Middle East, C.I.S.
|
|
|
415
|
|
|
|
373
|
|
|
|
11%
|
|
|
|
|
|
|
|
*
|
Group profit has been adjusted. For further information see
Notes to Consolidated Financial Statements.
|
|
**
|
Excluding currency translation effects of (5)% on revenue and
orders, and portfolio effects of 19% and 17% on revenue and
orders, respectively.
|
Group profit at Med climbed to 1.323 billion, 34%
higher than in fiscal 2006, and Group profit margin rose to
13.4%. These results demonstrate the competitive strength and
international success of Meds diagnostics imaging
businesses, which increased their earnings and profitability
compared to the prior year despite continuing market pressure in
the U.S., including effects from the U.S. Deficit Reduction Act
(DRA). Meds equity investment income in fiscal 2007 rose
to 60 million from 27 million a year
earlier, benefiting from a 23 million gain on the
sale of a portion of its stake in a joint venture, Draeger
Medical AG & Co. KG. These factors enabled Med to more
than offset the loss of 1.8 percentage points from Group
profit margin due to PPA effects of 91 million and
integration costs of 84 million stemming from two
major acquisitions. Diagnostic Products Corp. was acquired late
in fiscal 2006 for approximately 1.4 billion, and a
division of Bayer AG was acquired in the second quarter of
fiscal 2007 for approximately 4.5 billion. Med saw a
corresponding increase in amortization of intangible assets
compared to fiscal 2006.
During fiscal 2007, Med integrated the two acquisitions
mentioned above into its new Diagnostics division. This business
provides a wide range of in-vitro solutions, which
produce diagnostic information using samples taken from a
patients body and tested in a clinical laboratory. The
Diagnostics division thus strongly complements Meds
imaging businesses, which provide diagnostic information from
images of organs and tissues within the body
(in-vivo). With these two acquisitions Med created
the first integrated diagnostic company. During fiscal 2007 Med
announced a third acquisition for the Diagnostics division: Dade
Behring, Inc., a leading clinical laboratory diagnostics
company. The purchase price for this acquisition, which closed
in the first quarter of fiscal 2008, was approximately
$7 billion (5 billion).
The Diagnostics division brought significant new volume to Med
in fiscal 2007. Orders raised 10%, to 10.271 billion
and revenue climbed 20%
year-over-year,
to 9.851 billion, on double-digit growth in Germany
and all major regions of the world.
63
Siemens
IT Solutions and Services (SIS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2007
|
|
|
2006
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
252
|
|
|
|
(731
|
)
|
|
|
|
|
|
|
|
|
Group profit margin
|
|
|
4.7
|
%
|
|
|
(12.8
|
)%
|
|
|
|
|
|
|
|
|
New orders
|
|
|
5,156
|
|
|
|
5,574
|
|
|
|
(7
|
)%
|
|
|
5%
|
|
Total revenue
|
|
|
5,360
|
|
|
|
5,693
|
|
|
|
(6
|
)%
|
|
|
5%
|
|
External revenue
|
|
|
3,988
|
|
|
|
4,466
|
|
|
|
(11
|
)%
|
|
|
|
|
Therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
1,498
|
|
|
|
1,788
|
|
|
|
(16
|
)%
|
|
|
|
|
Europe (other than Germany)
|
|
|
1,854
|
|
|
|
2,014
|
|
|
|
(8
|
)%
|
|
|
|
|
Americas
|
|
|
472
|
|
|
|
505
|
|
|
|
(7
|
)%
|
|
|
|
|
Asia-Pacific
|
|
|
98
|
|
|
|
75
|
|
|
|
31
|
%
|
|
|
|
|
Africa, Near and Middle East, C.I.S.
|
|
|
66
|
|
|
|
84
|
|
|
|
(21
|
)%
|
|
|
|
|
|
|
* |
Excluding currency translation effects of (1)% on revenue and
orders, and portfolio effects of (10)% and (11)% on revenue and
orders, respectively.
|
Fiscal 2007 was the first 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),
Development Innovation and Projects (DIP) and the Business
Innovation Center (BIC). Results for SIS are presented on a
retroactive basis, to provide a meaningful comparison with prior
periods.
Group profit of 252 million resulted largely from a
significantly improved cost structure at SIS, following
severance programs in prior-years, which in fiscal 2006 resulted
in severance charges of 576 million. The severance
charges were a major factor in the Groups loss of
731 million in fiscal 2006. Furthermore Group profit
in fiscal 2007 benefited from more selective order intake.
Equity investment income of 10 million in fiscal 2007
includes equity income related to BWI Informationstechnik GmbH,
which has been set up in connection with the
HERKULES project to modernize and manage the
non-military information and communications technology of the
German Federal Armed Forces. For additional information with
respect to HERKULES, see Notes to Consolidated Financial
Statements.
Revenue and orders of 5.360 billion and
5.156 billion, respectively, came in lower than the
prior-year totals due to the divestment of the Groups
Product Related Services (PRS) business halfway through fiscal
2006. For additional information with respect to the PRS
divestment, see Notes to Consolidated Financial
Statements. On an organic basis, revenue and orders were
up 5%
year-over-year.
The percentage of the business volume conducted within Siemens
rose to 26% from 22% in fiscal 2006. Externally, SIS conducted a
large majority of its business in Europe (including Germany) in
both years.
Strategic
Equity Investments (SEI)
SEI includes results at equity from three companies in which
Siemens holds a strategic equity stake: Nokia Siemens Networks
B.V. (NSN), BSH Bosch und Siemens Hausgeräte GmbH (BSH),
and Fujitsu Siemens Computers (Holding) B.V. (FSC). In fiscal
2006, before NSN became part of SEI, equity investment income
related to BSH and FSC was 225 million. In fiscal
2007, equity investment income related to BSH and FHC increased
to 268 million. In contrast, NSN took
991 million in charges including
646 million for severance. As a result, Siemens
equity investment income related to NSN was a negative
429 million, and fiscal 2007 equity investment income
for SEI overall was a negative 161 million.
Other
Operations
Other Operations consist of centrally held operating businesses
not related to a Group, including Siemens Home and Office
Communication Devices (SHC) and, in fiscal 2006, the
distribution and industry logistics
64
(Dematic) businesses carved out of the former Logistics and
Assembly Systems Group. Other Operations improved to a negative
193 million in fiscal 2007 compared to a negative
317 million in fiscal 2006, when the Dematic business
lost 159 million and SHC also posted a negative
result. In fiscal 2007, SHC turned its business around and
contributed 13 million in profit for the year.
Centrally carried regional costs not allocated to the Groups
totaled 96 million in the current period, up from
59 million in the prior year. In addition, fiscal
2007 included an impairment of 52 million at a
regional payphone company in Europe. Revenue for Other
Operations for fiscal 2007 was 2.884 billion, down
from 3.944 billion a year earlier primarily due to
the Dematic divestment. Within these totals, revenue at SHC
remained stable near 790 million.
Reconciliation
to Financial Statements
Reconciliation to financial statements includes various
categories of items, which are not allocated to the Groups
because the Managing Board has determined that such items are
not indicative of the performance of the individual Groups.
Corporate
items, pensions and eliminations
Corporate items, pensions and eliminations was a negative
1.672 billion in fiscal 2007 compared to a negative
527 million a year earlier. The major factor in this
change was Corporate items, which increased to a negative
1.728 billion from a negative 553 million
in fiscal 2006 due largely to 843 million in costs
related to legal and regulatory matters. Within this figure,
significant effects included 440 million stemming
from sanctions on major suppliers of gas-isolated switchgear,
152 million in expenses for outside experts engaged
to assist with internal and external investigations, and
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 obligation. Finally, Corporate items in fiscal
2007 also includes 106 million related to
Siemens regional sales organization in Germany, primarily
including an impairment. A year earlier, Corporate items
benefited from a 95 million gain on the sale of an
investment, as well as 70 million in positive effects
from settlement of an arbitration proceeding.
Other
interest expense
Other interest expense of Operations for fiscal 2007 was
497 million compared to interest expense of
325 million a year earlier. The change was mainly due
to increased intra-company financing of Operations by Corporate
Treasury
year-over-year.
Financing
and Real Estate
Siemens
Financial Services (SFS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
( in millions)
|
|
|
|
|
|
Income before income taxes
|
|
|
329
|
|
|
|
306
|
|
|
|
8
|
%
|
Total assets
|
|
|
8,912
|
|
|
|
10,543
|
|
|
|
(15
|
)%
|
Income before income taxes (IBIT) at SFS rose to
329 million in fiscal 2007 from
306 million in fiscal 2006. The current year
benefited from gains on sales of shares in the Equity division
and special dividends resulting from divestment gains by a
company in which SFS holds an equity position. IBIT in the prior
period included the special dividend mentioned above. Total
assets declined compared to the end of fiscal 2006, due to a
significant reduction in accounts receivable related to the
carve-out of SV and the transfer of carrier activities into NSN.
With respect to the capital structure of SFS, see
Capital Resources and RequirementsContractual
Obligations.
65
Siemens
Real Estate (SRE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
September 30,
|
|
|
|
|
2007
|
|
2006
|
|
% Change
|
|
|
( in millions)
|
|
|
|
Income before income taxes
|
|
|
228
|
|
|
|
115
|
|
|
|
98
|
%
|
Revenue
|
|
|
1,686
|
|
|
|
1,705
|
|
|
|
(1
|
)%
|
Total assets
|
|
|
3,091
|
|
|
|
3,221
|
|
|
|
(4
|
)%
|
Income before income taxes at SRE was 228 million in
fiscal 2007, compared to 115 million in the prior
year. A year earlier, SREs results included significantly
higher vacancy charges and a lower level net gains from real
estate disposals.
With respect to the capital structure of SRE, see
Capital Resources and RequirementsContractual
Obligations.
Eliminations,
reclassifications and Corporate Treasury
Income before income taxes from eliminations, reclassifications
and Corporate Treasury was 153 million in fiscal 2007
compared to a negative 18 million in fiscal 2006. The
difference is due mainly to negative net effects in the prior
year from a
mark-to-market
valuation of a cash settlement option associated with
2.5 billion of convertible bonds issued in 2003.
Economic
Value Added
Siemens ties a portion of its executive incentive compensation
to achieving economic value added (EVA) targets. EVA measures
the profitability of a business (using Group profit for the
operations Groups and income before income taxes for the
Financing and Real Estate businesses as a base) against the
additional cost of capital used to run a business (using Net
capital employed for the operations Groups and risk-adjusted
equity for the Financing and Real Estate businesses as a base).
A positive EVA means that a business has earned more than its
cost of capital, whereas a negative EVA means that a business
has earned less than its cost of capital. Depending on the EVA
development
year-over-year,
a business is defined as value-creating or value-destroying.
Other companies that use EVA may define and calculate EVA
differently.
Fiscal
2006 Compared to Fiscal 2005
Consolidated
Operations Of Siemens
Results
of Siemens
The following discussion presents selected information for
Siemens for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Orders (location of customer)
|
|
|
Year ended
|
|
% Change
|
|
|
|
|
September 30,
|
|
vs. previous year
|
|
therein
|
|
|
2006
|
|
2005
|
|
Actual
|
|
Adjusted*
|
|
Currency
|
|
Portfolio
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
12,782
|
|
|
|
12,544
|
|
|
|
2%
|
|
|
|
(2)%
|
|
|
|
0%
|
|
|
|
4%
|
|
Europe (other than Germany)
|
|
|
22,351
|
|
|
|
19,475
|
|
|
|
15%
|
|
|
|
5%
|
|
|
|
0%
|
|
|
|
10%
|
|
Americas
|
|
|
20,202
|
|
|
|
16,854
|
|
|
|
20%
|
|
|
|
7%
|
|
|
|
5%
|
|
|
|
8%
|
|
Asia-Pacific
|
|
|
11,250
|
|
|
|
8,853
|
|
|
|
27%
|
|
|
|
13%
|
|
|
|
3%
|
|
|
|
11%
|
|
Africa, Near and Middle East, C.I.S.
|
|
|
8,359
|
|
|
|
5,587
|
|
|
|
50%
|
|
|
|
38%
|
|
|
|
1%
|
|
|
|
11%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siemens
|
|
|
74,944
|
|
|
|
63,313
|
|
|
|
18%
|
|
|
|
7%
|
|
|
|
2%
|
|
|
|
9%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (location of customer)
|
|
|
Year ended
|
|
% Change
|
|
|
|
|
September 30,
|
|
vs. previous year
|
|
therein
|
|
|
2006
|
|
2005
|
|
Actual
|
|
Adjusted*
|
|
Currency
|
|
Portfolio
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
12,382
|
|
|
|
11,788
|
|
|
|
5%
|
|
|
|
2%
|
|
|
|
0%
|
|
|
|
3%
|
|
Europe (other than Germany)
|
|
|
20,489
|
|
|
|
18,064
|
|
|
|
13%
|
|
|
|
3%
|
|
|
|
0%
|
|
|
|
10%
|
|
Americas
|
|
|
18,371
|
|
|
|
14,857
|
|
|
|
24%
|
|
|
|
14%
|
|
|
|
4%
|
|
|
|
6%
|
|
Asia-Pacific
|
|
|
9,457
|
|
|
|
7,175
|
|
|
|
32%
|
|
|
|
20%
|
|
|
|
2%
|
|
|
|
10%
|
|
Africa, Near and Middle East, C.I.S.
|
|
|
5,788
|
|
|
|
3,897
|
|
|
|
49%
|
|
|
|
32%
|
|
|
|
0%
|
|
|
|
17%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Siemens
|
|
|
66,487
|
|
|
|
55,781
|
|
|
|
19%
|
|
|
|
10%
|
|
|
|
1%
|
|
|
|
8%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
Excluding currency translation and portfolio effects.
|
Orders in fiscal 2006 were 74.944 billion, a 18%
increase from 63.313 billion in the prior year. A
majority of the Groups in Operations posted double-digit growth
in orders compared to fiscal 2005. Revenues of
66.487 billion were up 19% from
55.781 billion a year earlier, led by substantial
increases at I&S, A&D, PTD and PG. Excluding currency
translation and the net effect of acquisitions and dispositions
(organic growth), orders climbed 7% and revenue rose 10%
year-over-year.
Growth was driven by international markets, where major orders
were both numerous and well-distributed. International orders
were up 22%
year-over-year,
to 62.162 billion; international revenue rose 23%, to
54.105 billion. In Germany, orders were up 2% and
revenues increased 5%
year-over-year,
to 12.782 billion and 12.382 billion,
respectively, primarily due to acquisitions between the periods
under review.
On a regional basis, international growth was fastest in Middle
East/Africa/C.I.S., including a 50% rise in orders, to
8.359 billion, and a 49% increase in revenue, to
5.788 billion. Growth was nearly as rapid in
Asia-Pacific, where orders climbed 27%, to
11.250 billion, and revenue rose 32%, to
9.457 billion. Within Asia-Pacific, orders in China
increased 25%, to 4.357 billion, and revenue was up
44%, at 3.667 billion. Orders in India rose 72%, to
1.757 billion, and revenue climbed 52%, to
1.034 billion. In the Americas, orders and revenue
grew 20% and 24%, respectively, benefiting from strong portfolio
and currency translation effects. Within this trend, the U.S.
posted orders of 15.819 billion and revenue of
14.609 billion, for increases of 20% and 21%,
respectively. In Europe outside Germany, orders and revenue
increased by 15% and 13%, to 22.351 billion and
20.489 billion, respectively, benefiting strongly
from portfolio effects.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
( in millions)
|
|
|
|
|
|
Gross profit on revenue
|
|
|
17,379
|
|
|
|
15,683
|
|
|
|
11
|
%
|
as percentage of revenue
|
|
|
26.1
|
%
|
|
|
28.1
|
%
|
|
|
|
|
Gross profit for fiscal 2006 increased 11%
year-over-year,
as a majority of the Groups in Operations increased both
revenues and profit compared to fiscal 2005. In contrast, gross
profit margin declined to 26.1% from 28.1% a year earlier. Major
factors were a sharp decline at PG, which took substantial
charges in its fossil power generation business, and lower gross
profit margins at SIS, which took higher severance charges
compared to a year earlier.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
( in millions)
|
|
|
|
|
|
Research and development expenses
|
|
|
(3,091
|
)
|
|
|
(2,750
|
)
|
|
|
12
|
%
|
as percentage of revenue
|
|
|
4.6
|
%
|
|
|
4.9
|
%
|
|
|
|
|
Marketing, selling and general administrative expenses
|
|
|
(11,897
|
)
|
|
|
(10,316
|
)
|
|
|
15
|
%
|
as percentage of revenue
|
|
|
17.9
|
%
|
|
|
18.5
|
%
|
|
|
|
|
Other operating income
|
|
|
629
|
|
|
|
550
|
|
|
|
14
|
%
|
Other operating expense
|
|
|
(260
|
)
|
|
|
(422
|
)
|
|
|
(38
|
)%
|
Income from investments accounted for using the equity method,
net
|
|
|
404
|
|
|
|
516
|
|
|
|
(22
|
)%
|
Financial income (expense), net
|
|
|
254
|
|
|
|
333
|
|
|
|
(24
|
)%
|
67
Research and development expenses increased to
3.091 billion from 2.750 billion in the
prior year. Due to the significant increase in our revenue
year-over-year,
R&D expenses as a percent of revenue declined to 4.6% from
4.9% in fiscal 2005. Marketing, selling and administrative
expenses also declined as a percent of revenue, to 17.9% from
18.5% a year earlier, even as expenses rose to
11.897 billion from 10.316 billion.
Other operating income was 629 million in fiscal
2006, compared to 550 million a year earlier. Gains
on sales of property, plant and equipment and intangibles in
fiscal 2006 were higher
year-over-year.
This increase was partially offset due to lower gains on
disposals of businesses. Other operating income include in
fiscal 2006 a gain of 70 million related to the
settlement of an arbitration proceeding.
Other operating expense decreased from 422 million in
fiscal 2005 to 260 million in fiscal 2006, due to a
goodwill impairment of 262 million at SIS in fiscal
2005.
Income from investments accounted for using the equity method,
net decreased to 404 million from
516 million a year earlier, due to a lower share of
profit in fiscal 2006.
Financial income, net was 254 million compared to
333 million a year earlier. Higher gains on sales,
net from
available-for-sale
financial assets and a higher expected return on plan assets
from pension plans and similar commitments could not compensate
higher interest expenses and the decrease in other financial
income, net.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
( in millions)
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
3,418
|
|
|
|
3,594
|
|
|
|
(5
|
)%
|
Income taxes
|
|
|
(776
|
)
|
|
|
(781
|
)
|
|
|
(1
|
)%
|
as percentage of income from continuing operations before
income taxes
|
|
|
23
|
%
|
|
|
22
|
%
|
|
|
|
|
Income from continuing operations
|
|
|
2,642
|
|
|
|
2,813
|
|
|
|
(6
|
)%
|
Income (loss) from discontinued operations, net of income taxes
|
|
|
703
|
|
|
|
(237
|
)
|
|
|
|
|
Net income
|
|
|
3,345
|
|
|
|
2,576
|
|
|
|
30
|
%
|
Net income attributable to Minority interest
|
|
|
210
|
|
|
|
160
|
|
|
|
31
|
%
|
Net income attributable to Shareholders of Siemens AG
|
|
|
3,135
|
|
|
|
2,416
|
|
|
|
30
|
%
|
Income from continuing operations before income taxes was
3.418 billion in fiscal 2006, compared to
3.594 billion a year earlier, as severance charges at
SIS increased to 576 million compared to
228 million in the prior year.
Income from continuing operations in fiscal 2006 was
2.642 billion, down 6% from 2.813 billion
in fiscal 2005, due to a decreased income from continuing
operations before income taxes. The effective tax-rate increased
to 23% in fiscal 2006 compared to 22% in the prior year. Income
tax expenses include adjustments related to the previously
reported compliance investigation. Accordingly, payments were
identified that were recorded as deductible business expenses in
prior periods in determining income tax provisions. The
Companys investigation determined that certain of these
payments were non-deductible under tax regulations of Germany
and other jurisdictions.
Income (loss) from discontinued operations, net of income taxes
was a positive with 703 million in fiscal 2006
compared to a loss of 237 million a year earlier. In
fiscal 2006 and fiscal 2005 discontinued operations included
particularly the historical results of the former operating
Group SV as well as of the enterprise networks business and
carrier related operations. In addition fiscal 2005 included in
discontinued operations the historical results of the mobile
devices operations of the former operating Group Com, which had
a negative effect of 542 million in fiscal 2005. For
additional information with respect to discontinued operations,
see Notes to Consolidated Financial Statements. Net
income was 3.345 billion, up 30% from
2.576 billion in fiscal 2005. Net income attributable
to Minority interest increased from 160 million in
fiscal 2005 to 210 million in fiscal 2006. Net income
attributable to Shareholders of Siemens AG was
3.135 billion, up 30% from 2.416 billion
in fiscal 2005.
68
Segment
Information Analysis
Operations
Automation
and Drives (A&D)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2006
|
|
|
2005
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
1,575
|
|
|
|
1,287
|
|
|
|
22
|
%
|
|
|
|
|
Group profit margin
|
|
|
12.1
|
%
|
|
|
12.2
|
%
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
13,041
|
|
|
|
10,538
|
|
|
|
24
|
%
|
|
|
10
|
%
|
New orders
|
|
|
14,312
|
|
|
|
10,840
|
|
|
|
32
|
%
|
|
|
14
|
%
|
|
|
* |
Excluding currency translation effects of 1% and 2% on revenue
and orders, respectively, and portfolio effects of 13% and 16%
on revenue and orders, respectively.
|
A&D delivered Group profit of 1.575 billion, up
22% compared to the prior year even as the Group made
significant investments to build up distribution in major growth
markets. Acquisitions made late in fiscal 2005 and early fiscal
2006 contributed to earnings growth for the year. Revenue for
fiscal 2006 overall rose 24%, to 13.041 billion, and
orders climbed 32%, to 14.312 billion, as the Group
added acquired volume to organic growth on a Group-wide basis.
Demand was well distributed regionally, including topline growth
in Asia-Pacific well above 50%
year-over-year.
Industrial
Solutions and Services (I&S)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2006
|
|
|
2005
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
282
|
|
|
|
170
|
|
|
|
66
|
%
|
|
|
|
|
Group profit margin
|
|
|
3.2
|
%
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
8,819
|
|
|
|
6,307
|
|
|
|
40
|
%
|
|
|
14
|
%
|
New orders
|
|
|
9,025
|
|
|
|
7,189
|
|
|
|
26
|
%
|
|
|
(2
|
)%
|
|
|
* |
Excluding currency translation effects of 2% on revenue and
orders, and portfolio effects of 24% and 26% on revenue and
orders, respectively.
|
Group profit at I&S rose to 282 million, up 66%
compared to the prior year, due primarily to the metallurgy
business included in the VA Tech acquisition in the fourth
quarter of fiscal 2005. Profitability improved in part due to
sales channel synergy associated with the acquisition. Revenue
for the fiscal year rose 40%, to 8.819 billion,
including double-digit organic growth, and orders were up 26%,
at 9.025 billion. For comparison, the prior year
included a particularly large order in the fourth quarter.
Siemens
Building Technologies (SBT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2006
|
|
|
2005
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
223
|
|
|
|
185
|
|
|
|
21
|
%
|
|
|
|
|
Group profit margin
|
|
|
4.6
|
%
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
4,796
|
|
|
|
4,415
|
|
|
|
9
|
%
|
|
|
7
|
%
|
New orders
|
|
|
5,235
|
|
|
|
4,518
|
|
|
|
16
|
%
|
|
|
13
|
%
|
|
|
* |
Excluding currency translation effects of 1% and 2% on revenue
and orders, respectively, and portfolio effects of 1% on revenue
and orders.
|
In fiscal 2006, SBT continued to improve its profitability,
posting a 21% increase in Group profit to
223 million. The Groups fire safety and
security business contributed strongly to the increase in Group
profit.
69
Revenue for the year rose 9% compared to the prior year, to
4.796 billion, and orders climbed 16% to
5.235 billion. All the Groups divisions
contributed to business growth, including greater penetration of
their installed base and success in services.
Osram
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2006
|
|
|
2005
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
456
|
|
|
|
456
|
|
|
|
0
|
%
|
|
|
|
|
Group profit margin
|
|
|
10.0
|
%
|
|
|
10.6
|
%
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
4,563
|
|
|
|
4,300
|
|
|
|
6
|
%
|
|
|
4
|
%
|
New orders
|
|
|
4,563
|
|
|
|
4,300
|
|
|
|
6
|
%
|
|
|
4
|
%
|
|
|
* |
Excluding currency translation effects of 2% on revenue and
orders.
|
In fiscal 2006, Osram stepped up its commitment to its
fastest-growing regional markets, including the build-out of a
new regional office and expanded revenue efforts in
Asia-Pacific. The Group also increased up-front investments in
innovative products. Group profit was stable
year-over-year
while revenue and orders rose 6%, to 4.563 billion,
on regionally balanced growth.
Transportation
Systems (TS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2006
|
|
|
2005
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
72
|
|
|
|
43
|
|
|
|
67
|
%
|
|
|
|
|
Group profit margin
|
|
|
1.6
|
%
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
4,493
|
|
|
|
4,186
|
|
|
|
7
|
%
|
|
|
5
|
%
|
New orders
|
|
|
6,173
|
|
|
|
4,599
|
|
|
|
34
|
%
|
|
|
32
|
%
|
|
|
* |
Excluding currency translation effects of 1% on orders, and
portfolio effects of 2% and 1% on revenue and orders,
respectively.
|
TS posted a solid increase in earnings in fiscal 2006, on
improved project execution. Group profit of
72 million was up 67%
year-over-year.
Group profit in both years included charges related to major
projects that are now moving toward or into the latter stages of
completion. Broad-based growth increased revenue for TS overall
by 7%, to 4.493 billion. The Groups order
backlog continued to rise on a 34% increase in orders, to
6.173 billion, including especially high order volume in
the first quarter. Highlights for the full year include large
contracts for trains in China, Russia (including a substantial
maintenance contract), Spain and Austria.
Power
Generation (PG)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2006
|
|
|
2005
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
779
|
|
|
|
969
|
|
|
|
(20
|
)%
|
|
|
|
|
Group profit margin
|
|
|
7.7
|
%
|
|
|
12.0
|
%
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
10,086
|
|
|
|
8,061
|
|
|
|
25
|
%
|
|
|
19
|
%
|
New orders
|
|
|
12,532
|
|
|
|
10,964
|
|
|
|
14
|
%
|
|
|
5
|
%
|
|
|
* |
Excluding currency translation effects of 1% on revenue and
orders, and portfolio effects of 5% and 8% on revenue and
orders, respectively.
|
A combination of focused acquisitions and robust organic growth,
particularly in the fossil power generation business, generated
a 25% increase in revenue
year-over-year,
to 10.086 billion. Orders of
12.532 billion were up
70
14% compared to fiscal 2005, including a very large fossil power
generation contract in the Middle East. The wind power business
significantly increased its earnings and profit margin, and won
two large contracts in the U.S. that nearly tripled orders
year-over-year.
Revenue and orders for the year also include the acquisition of
Wheelabrator, a provider of emissions reduction technology for
the energy industry. PGs fossil power generation business
saw a significant decline in earnings in fiscal 2006, due in
part to the bankruptcy of a consortium partner and charges
related to major projects. In addition, equity earnings from
PGs stake in a European joint venture declined by
95 million and turned negative. These factors limited
Group profit for PG overall to 779 million compared
to 969 million a year earlier.
Power
Transmission and Distribution (PTD)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2006
|
|
|
2005
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
315
|
|
|
|
218
|
|
|
|
44
|
%
|
|
|
|
|
Group profit margin
|
|
|
4.8
|
%
|
|
|
5.1
|
%
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
6,509
|
|
|
|
4,250
|
|
|
|
53
|
%
|
|
|
27
|
%
|
New orders
|
|
|
8,028
|
|
|
|
5,283
|
|
|
|
52
|
%
|
|
|
29
|
%
|
|
|
* |
Excluding currency translation effects of 3% and 4% on revenue
and orders, respectively, and portfolio effects of 23% and 19%
on revenue and orders, respectively.
|
In fiscal 2006, PTD recorded rapid growth in Group profit,
revenue and orders in a strong global market for secure,
high-efficiency power transmission and distribution. Group
profit rose 44%, to 315 million for the year, as PTD
leveraged improved operating performance into a much larger
revenue base resulting from its portion of the VA Tech
acquisition. For comparison, the prior year included charges
related to a project in the CIS and charges for capacity
adjustments at a transformer facility in Germany. Revenue rose
53%, to 6.509 billion, and orders increased 52%, to
8.028 billion, on a balance of Group-wide organic
growth and acquired volume.
Medical
Solutions (Med)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2006*
|
|
|
2005*
|
|
|
Actual
|
|
|
Adjusted**
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
988
|
|
|
|
894
|
|
|
|
11
|
%
|
|
|
|
|
Group profit margin
|
|
|
12.0
|
%
|
|
|
11.7
|
%
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
8,227
|
|
|
|
7,626
|
|
|
|
8
|
%
|
|
|
5
|
%
|
New orders
|
|
|
9,334
|
|
|
|
8,641
|
|
|
|
8
|
%
|
|
|
6
|
%
|
|
|
*
|
Group profit has been adjusted. For further information see
Notes to Consolidated Financial Statements.
|
|
**
|
Excluding currency translation effects of 2% and 1% on revenue
and orders, respectively, and portfolio effects of 1% on revenue
and orders.
|
Med was again a top earnings performer, with
988 million in Group profit in fiscal 2006.
Broad-based earnings increases in the Groups diagnostics
imaging businesses more than offset increases in R&D
investments compared to the prior year. CTI Molecular Imaging,
Inc. (CTI), acquired in the third quarter of fiscal 2005, also
contributed to earnings growth for the year. Revenue and orders
both rose 8% compared to a year earlier, to
8.227 billion and 9.334 billion,
respectively.
71
Siemens
IT Solutions and Services (SIS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
% Change
|
|
|
|
2006
|
|
|
2005
|
|
|
Actual
|
|
|
Adjusted*
|
|
|
|
( in millions)
|
|
|
|
|
|
|
|
|
Group profit
|
|
|
(731
|
)
|
|
|
(676
|
)
|
|
|
8
|
%
|
|
|
|
|
Group profit margin
|
|
|
(12.8
|
)%
|
|
|
(11.6
|
)%
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
5,693
|
|
|
|
5,849
|
|
|
|
(3
|
)%
|
|
|
2
|
%
|
New orders
|
|
|
5,574
|
|
|
|
7,017
|
|
|
|
(21
|
)%
|
|
|
(14
|
)%
|
|
|
* |
Excluding currency translation effects of 1% on revenue and
orders, and portfolio effects of (6)% and (8)% on revenue and
orders, respectively.
|
SIS widened its loss
year-over-year
to 731 million, including 576 million in
severance charges. For comparison, the prior year included a
goodwill impairment of 262 million in the Operation
Related Services (ORS) business and 228 million in
severance charges, only partly offset by a 26 million
gain on the sale of an investment. As part of its strategic
reorientation, SIS divested its PRS business midway through the
fiscal year. For further information on the sale of PRS see
Notes to Consolidated Financial Statements. Fiscal
2006 revenue of 5.693 billion were consequently lower
than the level a year earlier. Orders of
5.574 billion were also lower than the prior-year
level, due to the PRS divestment, as well as more selective
order intake and a reduction in major orders
year-over-year.
Strategic
Equity Investments (SEI)
In fiscal 2006 and 2005, SEI includes results at equity from two
companies in which Siemens holds a strategic equity stake: BSH
and FSC. SEI overall recorded equity investment income of
225 million for fiscal 2006 compared to
171 million in the prior-year period.
Other
Operations
Other Operations consist of centrally held operating businesses
not related to a Group, such as joint ventures and equity
investments. In fiscal 2006, Other Operations included SHC,
which was carved out of Com, and Dematic, which was carved out
of the former Logistics and Assembly Systems (L&A) Group.
Other Operations also included a portion of the VA Tech
acquisition. In aggregate, revenue from Other Operations was
3.944 billion compared to 3.484 billion in
the prior year, with VA Tech accounting for much of the
increase. A significant portion of our Dematic business was
divested at a loss of 32 million in the fourth
quarter. Group profit from Other Operations was a negative
317 million compared to a negative
148 million a year earlier. SHC posted a loss
compared to positive earnings in fiscal 2005 and Dematic
recorded losses in both periods including the loss on the sale
in fiscal 2006.
Reconciliation
to Financial Statements
Reconciliation to financial statements includes various
categories of items, which are not allocated to the Groups
because the Managing Board has determined that such items are
not indicative of Group performance.
Corporate
items, pensions and eliminations
Corporate items, pensions and eliminations totaled a negative
527 million in fiscal 2006 compared to a negative
618 million in fiscal 2005. Corporate items were a
negative 553 million in fiscal 2006 compared to a
negative 647 million a year earlier. Within Corporate
items, a significant investment in information technology
increased central costs in fiscal 2006 compared to the prior
year. Corporate items benefited in fiscal 2006 from a gain of
95 million on the sale of an investment and
70 million in positive effects from settlement of an
arbitration proceeding. Revenue of marketable securities
produced gains including 33 million on the sale of
Infineon shares
72
and 15 million on the sale of shares in Epcos AG
(Epcos), partly offset by a 20 million impairment on
shares in BenQ Corporation. In contrast, fiscal 2005 included
higher expenses related to a major asset retirement obligation.
Other
interest expense
Other interest expense of Operations for fiscal 2006 was
325 million compared to interest expense of
175 million a year earlier. The change was mainly due
to increased intra-company financing of Operations by Corporate
Treasury
year-over-year.
Financing
and Real Estate
Siemens
Financial Services (SFS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
( in millions)
|
|
|
|
|
|
Income before income taxes
|
|
|
306
|
|
|
|
319
|
|
|
|
(4
|
)%
|
Total assets
|
|
|
10,543
|
|
|
|
10,162
|
|
|
|
4
|
%
|
Income before income taxes at SFS was 306 million in
fiscal 2006 compared to 319 million a year earlier.
While both periods included a special dividend related to an
investment, the prior year also benefited from gains on the sale
of an investment and the sale of a 51% stake in the real estate
funds management business of Siemens Kapitalanlagegesellschaft
mbH (SKAG). Total assets at the end of fiscal 2006 were 4%
higher than at the end of the prior year due to expansion of the
leasing business.
Siemens
Real Estate (SRE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
% Change
|
|
|
|
( in millions)
|
|
|
|
|
|
Income before income taxes
|
|
|
115
|
|
|
|
131
|
|
|
|
(12
|
)%
|
Revenue
|
|
|
1,705
|
|
|
|
1,621
|
|
|
|
5
|
%
|
Total assets
|
|
|
3,221
|
|
|
|
3,490
|
|
|
|
(8
|
)%
|
Income before income taxes at SRE was 115 million in
fiscal 2006, compared to 131 million a year earlier.
While gains on sale of real estate increased
year-over-year,
SREs results for the year were influenced by higher costs
for development projects and vacancy, as well as lower rental
income in Germany. Total assets declined 8% primarily due to
real estate disposals.
Eliminations,
reclassifications and Corporate Treasury
In fiscal 2006, income before taxes from eliminations,
reclassifications and Corporate Treasury was a negative
18 million compared to a positive
368 million a year earlier. The main factors for the
difference were the
mark-to-market
valuation of the cash settlement option associated with the
2.5 billion convertible bond issued by Siemens in
2003 and negative effects from derivative activities not
qualifying for hedge accounting at Corporate Treasury, only
partly offset by increased interest income from intra-company
financing.
Liquidity
and Capital Resources
Financial
Strategy and Capital Structure
Financial
Strategy
Siemens is committed to a strong financial profile, which gives
us the financial flexibility to achieve our growth and portfolio
optimization goals.
73
Our principal source of Company financing are cash inflows from
operating activities. Our Corporate Treasury generally manages
cash and cash equivalents for the entire Company and has primary
responsibility for raising funds in the capital markets for the
entire Company, including the Financing and Real Estate
component, except in countries with conflicting capital market
controls. In these countries, the relevant Siemens subsidiary
companies obtain financing primarily from local banks. At
September 30, 2007 Siemens held 4.005 billion in
cash and cash equivalents in various currencies of which
approximately 68% were managed by Corporate Treasury. Corporate
Treasury carefully manages investments of cash and cash
equivalents subject to strict credit requirements and
counterparty limits. In addition, Corporate Treasury lends funds
via intragroup financing to the Operations and Financing and
Real Estate components. This intragroup financing, together with
intragroup liabilities between the components, is shown under
intragroup liabilities in the balance sheets. Under this
approach, at September 30, 2007, 2.886 billion
of such intragroup financing was directly attributable to the
Financing and Real Estate component and the remainder to the
Operations component. At September 30, 2007, the Financing
and Real Estate component additionally held
180 million in short-term and 411 million
in long-term debt from external sources.
In addition to the sources of liquidity described below, we
monitor funding options available in the capital markets, as
well as trends in the availability and cost of such funding,
with a view to maintaining financial flexibility and limiting
repayment risk.
Capital
Structure
As of September 30, 2007 and 2006, our capital structure
was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
% Change
|
|
|
|
( in millions)
|
|
|
|
|
|
Total equity
|
|
|
28,996
|
|
|
|
25,193
|
|
|
|
15
|
%
|
As a % of total capital
|
|
|
65
|
%
|
|
|
62
|
%
|
|
|
|
|
Short-term debt
|
|
|
5,637
|
|
|
|
2,175
|
|
|
|
|
|
Long-term debt
|
|
|
9,860
|
|
|
|
13,122
|
|
|
|
|
|
Total debt
|
|
|
15,497
|
|
|
|
15,297
|
|
|
|
1
|
%
|
As a % of total capital
|
|
|
35
|
%
|
|
|
38
|
%
|
|
|
|
|
Total capital (total debt and total equity)
|
|
|
44,493
|
|
|
|
40,490
|
|
|
|
10
|
%
|
In fiscal 2007, total equity increased by 15% compared to fiscal
2006 primarily due to an increase in retained earnings. Total
debt increased during the last fiscal year by 1%. This resulted
in an increase in equity as a percentage of total capital to 65%
compared to 62% in fiscal 2006. Debt as a percentage of total
capital decreased to 35% from 38% in the prior year.
Siemens is not subject to any statutory capital requirements.
Commitments exist to sell or otherwise issue common shares in
connection with established share-based payment plans. In fiscal
2007, commitments for share-based payment were fulfilled through
capital increases. Beginning in fiscal 2008, we plan to fulfill
commitments for share-based compensation through repurchases of
the Companys shares. For additional information with
respect to stock-based compensation and treasury shares, see
Notes to Consolidated Financial Statements.
Ratings
A key factor in maintaining a strong financial profile is
Siemens credit rating, which is affected among other
factors by the capital structure, the ability to generate cash
flow, geographic and product diversification, as well as our
competitive market position. Our current corporate credit
ratings from Moodys Investors Service and
Standard & Poors are noted below:
|
|
|
|
|
|
|
|
|
|
|
Moodys
|
|
|
Standard &
|
|
|
|
Investors Service
|
|
|
Poors
|
|
|
Long-term debt
|
|
|
A1
|
|
|
|
AA−
|
|
Short-term debt
|
|
|
P-1
|
|
|
|
A-1+
|
|
74
On November 9, 2007, Moodys Investors Service
downgraded Siemens long-term 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
mentioned above. The rating classification of A1 is the third
highest rating within the agencys debt ratings category.
The numerical modifier 1 indicates that our long-term debt ranks
in the higher end of the A category. The Moodys rating
outlook is an opinion regarding the likely direction of an
issuers rating over the medium-term. Rating outlooks fall
into the following six categories: positive, negative, stable,
developing, ratings under review and no outlook.
Moodys Investors Services rating for our short-term
corporate credit and commercial paper is
P-1, the
highest available rating in the prime rating system, which
assesses issuers ability to honor senior financial
obligations and contracts. It applies to senior unsecured
obligations with an original maturity of less than one year.
In addition, Moodys Investors Service published a credit
opinion. The most recent credit opinion for Siemens as of
November 13, 2007 classified the liquidity profile of the
Company as very healthy.
Standard & Poors rates our long-term corporate
credit AA. On June 15, 2007 Standard &
Poors resolved the CreditWatch negative, dated
April 26, 2007 and kept a negative outlook.
Within Standard & Poors long-term issue and
issuer credit ratings, an obligation rated AA has the second
highest rating category assigned. The modifier
indicates that our long-term debt ranks in
the lower end of the AA category. The Standard &
Poors rating outlook is an opinion regarding the likely
direction of an issuers rating over the medium-term.
Rating outlooks fall into the following four categories:
Positive, Negative, Stable and Developing. Outlooks have a time
frame of typically two years. Ratings appear on CreditWatch when
an event or deviation from an expected trend has occurred or is
expected, and additional information is necessary to take a
rating action. A rating review will normally be completed within
approximately 90 days, unless the outcome of a specific
event is pending.
Our short-term debt and commercial paper is rated
A-1+ within
Standard & Poors short-term issue credit
ratings, giving Siemens the highest-ranking short-term rating.
Siemens has no other agreements with nationally recognized
statistical rating organizations to provide long-term and
short-term credit ratings.
Please be advised that security ratings are not a recommendation
to buy, sell or hold securities. Credit ratings may be subject
to revision or withdrawal by the rating agencies at any time.
You should evaluate each rating independently of any other
rating.
Cash
FlowFiscal 2007 Compared to Fiscal 2006
The following discussion presents an analysis of Siemens
cash flows for fiscal 2007 and 2006. The first table presents
cash flows for continuing and discontinued operations. The
latter category includes cash flows 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 on discontinued operations, see
Notes to Consolidated Financial Statements. The
second table focuses on cash flows from continuing operations
for the components of Siemens.
Since the third quarter of fiscal 2007, Siemens reports free
cash flow, defined as net cash provided by (used in) operating
activities less cash used for additions to intangible assets and
property, plant and equipment. We believe this measure is
helpful to our investors as an indicator of our ability to
generate cash from operations and to pay for discretionary and
non-discretionary expenditures not included in the measure, such
as dividends, debt repayment or strategic investments. We also
use free cash flow to compare cash generation among the segments
(for further information, refer to Consolidated Financial
StatementsSegment Information).
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing and
|
|
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
discontinued
|
|
|
|
|
|
operations
|
|
|
operations
|
|
|
operations
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
( in millions)
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
A
|
|
|
9,822
|
|
|
|
5,003
|
|
|
|
(2,494
|
)
|
|
|
656
|
|
|
|
7,328
|
|
|
|
5,659
|
|
Investing activities
|
|
|
|
|
(10,068
|
)
|
|
|
(4,315
|
)
|
|
|
(1,289
|
)
|
|
|
(381
|
)
|
|
|
(11,357
|
)
|
|
|
(4,696
|
)
|
Herein: Additions to intangible assets and property, plant and
equipment
|
|
B
|
|
|
(3,067
|
)
|
|
|
(3,183
|
)
|
|
|
(684
|
)
|
|
|
(869
|
)
|
|
|
(3,751
|
)
|
|
|
(4,052
|
)
|
Free cash flow*
|
|
A+B
|
|
|
6,755
|
|
|
|
1,820
|
|
|
|
(3,178
|
)
|
|
|
(213
|
)
|
|
|
3,577
|
|
|
|
1,607
|
|
|
|
* |
The closest comparable financial measure under IFRS is Net
cash provided by (used in) operating activities. Net
cash provided by (used in) operating activities from
continuing operations as well as from continuing and
discontinued operations is reported within the
Consolidated Statements of Cash Flow for Siemens as
a whole as well as for the components of Siemens (see table
below). Refer to Notes to the Consolidated Financial
Statements for information on the reconciliation of cash
flow used for Additions to intangible assets and property,
plant and equipment as reported in this table and the
table below into the line item Additions to intangible
assets and property, plant and equipment as reported
within the Consolidated Statements of Cash Flow.
Other companies that use Free cash flow may define and calculate
Free cash flow differently.
|
Operating activities provided net cash of
7.328 billion in fiscal 2007, compared to
5.659 billion in fiscal 2006. These results include
both continuing operations and discontinued operations. Within
the total, continuing operations provided net cash of
9.822 billion, up from 5.003 billion a
year earlier. Discontinued operations used net cash of
2.494 billion in the current period, including a
build-up of
net working capital, particularly receivables as well as
640 million tax payments related to the carve-out of
SV. A year earlier, discontinued operations provided net cash of
656 million.
Investing activities used net cash of
11.357 billion in fiscal 2007, a substantial increase
from 4.696 billion in the prior-year period. Within
these results, continuing operations were the primary factor in
the change
year-over-year,
using net cash of 10.068 billion compared to net cash
used of 4.315 billion in the same period a year
earlier. Discontinued operations used net cash of
1.289 billion compared to net cash used of
381 million in the prior-year period, which benefited
from 465 million in proceeds from the sale of our
shares in Juniper Networks, Inc (Juniper).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFS, SRE and
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Operations
|
|
|
Treasury*
|
|
|
Siemens
|
|
|
|
|
|
Year ended September 30,
|
|
Continuing operations
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
( in millions)
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
A
|
|
|
6,407
|
|
|
|
3,405
|
|
|
|
3,415
|
|
|
|
1,598
|
|
|
|
9,822
|
|
|
|
5,003
|
|
Investing activities
|
|
|
|
|
(9,262
|
)
|
|
|
(2,995
|
)
|
|
|
(806
|
)
|
|
|
(1,320
|
)
|
|
|
(10,068
|
)
|
|
|
(4,315
|
)
|
Herein: Additions to intangible assets and property, plant and
equipment
|
|
B
|
|
|
(2,313
|
)
|
|
|
(2,415
|
)
|
|
|
(754
|
)
|
|
|
(768
|
)
|
|
|
(3,067
|
)
|
|
|
(3,183
|
)
|
Free cash flow
|
|
A+B
|
|
|
4,094
|
|
|
|
990
|
|
|
|
2,661
|
|
|
|
830
|
|
|
|
6,755
|
|
|
|
1,820
|
|
|
|
* |
Also includes eliminations and reclassifications.
|
Operating activities provided net cash within continuing
Operations of 6.407 billion in fiscal 2007,
substantially up from 3.405 billion the year before.
This increase was driven by a significant higher income from
continuing operations
year-over-year
as well as by a substantial improvement in net working capital
compared to the prior-year period. Accordingly, cash outflows
relating to net inventories improved especially at I&S and
SBT and current liabilities increased primarily due to advanced
payments at PG. The current period also includes payments of
431 million relating to the antitrust investigation
involving suppliers of high-voltage gas-isolated switching
systems mentioned earlier, while the prior period included
substantially higher cash outflows related to
76
severance payments at SIS. Within Financing and Real Estate and
Corporate Treasury, the change
year-over-year
in net cash provided by operating activities from continuing
operations was due primarily to accounts receivable related to
the carve-outs of SV and the carrier activities transferred into
NSN. For Siemens overall, net cash provided by operating
activities on a continuing basis amounted to
9.822 billion in fiscal 2007 compared to
5.003 billion in fiscal 2006.
Investing activities in continuing operations used
9.262 billion within Operations in fiscal 2007.
Thereof, net cash outflows for acquisitions amounted to
7.334 billion, including approximately
4.2 billion spent for the Bayer acquisition at Med
and approximately 2.7 billion spent for the
acquisition of UGS Corp. at A&D. During the prior period,
investing activities in continuing operations used net cash of
2.995 billion, benefiting from
1.127 billion in net proceeds from the sale of our
shares in Infineon Technologies AG (Infineon). Net cash outflows
for acquisitions amounted to 2.049 billion in fiscal
2006, including the acquisition of DPC at Med with approximately
1.3 billion net of 94 million cash
acquired, as well as Electrium at A&D, Bewator at SBT, and
the coal gasification business of Sustec-Group and Wheelabrator
at PG with a combined preliminary purchase price of
approximately 0.4 billion. Investing activities on a
continuing basis at Corporate Treasury and Financing and Real
Estate used net cash of 806 million in fiscal 2007
compared to 1.320 billion in the prior period. The
change
year-over-year
is mainly related to
available-for-sale
financial assets. For Siemens overall, net cash used in
investing activities in continuing operations increased to
10.068 billion in fiscal 2007 from
4.315 billion in fiscal 2006.
Free cash flow from continuing operations for Siemens was
6.755 billion for fiscal 2007, a significant increase
from 1.820 billion in the same period a year earlier.
The change
year-over-year
is due to the increase in net cash provided by operating
activities mentioned above, combined with lower capital
expenditures (CAPEX), defined as spending for additions to
intangible assets and property, plant and equipment.
Accordingly, cash flow used for CAPEX decreased to
3.067 billion, down from 3.183 billion a
year before, especially due to reduced spendings at TS, SIS and
PG.
Financing activities from continuing and discontinued
operations in fiscal 2007 used net cash of
1.187 billion compared to net cash provided of
1.206 billion in fiscal 2006.
In the current period, changes in short-term debt provided net
cash of 4.386 billion, mainly due to the issuance of
commercial paper and medium term notes. These cash inflows were
compensated by cash outflows for the repayment of long-term debt
amounting to 4.595 billion in the current period,
including approximately 3.2 billion in cash used for
the redemption of the outstanding notes of the convertible bond
mentioned earlier as well as by cash used for the redemption of
a CHF250 million bond and a 991 million bond.
Dividends paid to shareholders increased in the current period
to 1.292 billion.
Financing activities in fiscal 2006 were characterized by
substantial raising of long-term debt, totaling
6.701 billion. This included the issuance of two
tranches of U.S. dollar-denominated bonds totaling
U.S.$1.0 billion (0.8 billion). Further we
issued four tranches of U.S. dollar-denominated bonds totaling
U.S.$5.0 billion (3.9 billion), as well as a
hybrid bond in two tranches, one denominated in euros (nominal
900 million) and one denominated in British pounds
(nominal £750 million, or 1.1 billion).
Repayment of long-term debt used 1.710 billion in
cash in fiscal 2006, including a 1.6 billion payment
for a bond, which was due on July 4, 2006. The repayment of
commercial paper programs was the major effect for cash outflows
of 1.762 billion related to changes in short term
debt. Dividends paid to shareholders amounted to
1.201 billion in fiscal 2006.
Cash
FlowFiscal 2006 Compared to Fiscal 2005
The following discussion presents an analysis of Siemens
cash flows for fiscal 2006 and 2005. The first table presents
cash flow for continuing and discontinued operations. In order
to ensure comparability with the cash flow discussion for fiscal
2007, the latter category includes cash flows 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 as
well as SV, which is held for sale pending the closing of its
sale to Continental AG. For further information on discontinued
operations, see Notes to Consolidated Financial
Statements. The second table focuses on cash flow from
continuing operations for the components of Siemens.
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing and
|
|
|
|
|
|
Continuing
|
|
|
Discontinued
|
|
|
discontinued
|
|
|
|
|
|
operations
|
|
|
operations
|
|
|
operations
|
|
|
|
|
|
Year ended September 30,
|
|
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
( in millions)
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
A
|
|
|
5,003
|
|
|
|
3,198
|
|
|
|
656
|
|
|
|
444
|
|
|
|
5,659
|
|
|
|
3,642
|
|
Investing activities
|
|
|
|
|
(4,315
|
)
|
|
|
(5,052
|
)
|
|
|
(381
|
)
|
|
|
(852
|
)
|
|
|
(4,696
|
)
|
|
|
(5,904
|
)
|
Herein: Additions to intangible assets
and property, plant and equipment
|
|
B
|
|
|
(3,183
|
)
|
|
|
(2,670
|
)
|
|
|
(869
|
)
|
|
|
(954
|
)
|
|
|
(4,052
|
)
|
|
|
(3,624
|
)
|
Free cash flow
|
|
A+B
|
|
|
1,820
|
|
|
|
528
|
|
|
|
(213
|
)
|
|
|
(510
|
)
|
|
|
1,607
|
|
|
|
18
|
|
Operating activities provided net cash of
5.659 billion in fiscal 2006, compared to
3.642 billion in fiscal 2005. These results include
both continuing operations and discontinued operations. Within
the total, continuing operations provided net cash of
5.003 billion, up from 3.198 billion a
year earlier. Discontinued operations provided net cash of
656 million in fiscal 2006, compared to
444 million a year earlier.
Investing activities used net cash of
4.696 billion in fiscal 2006, down from
5.904 billion in the prior-year period. Within these
results, continuing operations were the primary factor in the
change
year-over-year,
using net cash of 4.315 billion compared to net cash
used of 5.052 billion in the same period a year
earlier. In fiscal 2006, discontinued operations used net cash
of 381 million, benefiting from
465 million in proceeds from the sale of our shares
in Juniper Networks, Inc., compared to net cash used of
852 million in the prior-year period. In accordance
with the contracts relating to the sale of the mobile devices
business, cash outflows for operating and investing activities
in fiscal 2006 included payments for product platform transition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SFS, SRE and
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
Operations
|
|
|
Treasury*
|
|
|
Siemens
|
|
|
|
|
|
Year ended September 30,
|
|
Continuing operations
|
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
|
|
|
|
( in millions)
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
A
|
|
|
3,405
|
|
|
|
2,322
|
|
|
|
1,598
|
|
|
|
876
|
|
|
|
5,003
|
|
|
|
3,198
|
|
Investing activities
|
|
|
|
|
(2,995
|
)
|
|
|
(4,133
|
)
|
|
|
(1,320
|
)
|
|
|
(919
|
)
|
|
|
(4,315
|
)
|
|
|
(5,052
|
)
|
Herein: Additions to intangible assets
and property, plant and equipment
|
|
B
|
|
|
(2,415
|
)
|
|
|
(1,997
|
)
|
|
|
(768
|
)
|
|
|
(673
|
)
|
|
|
(3,183
|
)
|
|
|
(2,670
|
)
|
Free cash flow
|
|
A+B
|
|
|
990
|
|
|
|
325
|
|
|
|
830
|
|
|
|
203
|
|
|
|
1,820
|
|
|
|
528
|
|
|
|
* |
Also includes eliminations and reclassifications.
|
Operating activities provided net cash within continuing
Operations of 3.405 billion in fiscal 2006, up from
2.322 billion the year before. Net cash outflows
associated with an increase in Net working capital amounted
approximately 1.3 billion in fiscal 2006 compared to
approximately 0.6 billion in fiscal 2005, reflecting
business growth
year-over-year.
Furthermore, fiscal 2005 included 1.496 billion in
cash outflows for supplemental pension contributions. Within
Corporate Treasury and Financing and Real Estate operating
activities provided on a continuing basis net cash of
1.598 billion, up from 876 million the
year before, primarily due to higher proceeds from foreign
currency exchange derivatives. For Siemens overall, operating
activities provided on a continuing basis net cash of
5.003 billion in fiscal 2006 compared to
3.198 billion in fiscal 2005.
Investing activities in operations used net cash of
2.995 billion on a continuing basis in fiscal 2006,
benefiting from 1.127 billion in net proceeds from
the sale of our shares in Infineon Technologies AG. Net cash
outflows for acquisitions amounted to 2.049 billion
in fiscal 2006, including the acquisition of DPC at Med with
approximately 1.3 billion net of
94 million cash acquired, as well as Electrium at
A&D, Bewator at SBT, and the coal gasification business of
Sustec-Group and Wheelabrator at PG with a combined preliminary
purchase price of approximately 0.4 billion. During
the prior period, investing activities in continuing operations
used net cash of
78
4.133 billion. Thereof, net cash used for
acquisitions amounted to 2.272 billion, including VA
Tech, allocated primarily to PTD and I&S, for a total of
514 million, net of 535 million cash
acquired; CTI at Med for 734 million, net of
60 million cash acquired; Flender and Robicon at
A&D, and Bonus at PG, in total for approximately
1.2 billion in fiscal 2005. Net cash used by
investing activities on a continuing basis at Corporate Treasury
and Financing and Real Estate increased to
1.320 billion in fiscal 2006 compared to
919 million in the prior period, mainly due to higher
net investments in
available-for-sale
financial assets. For Siemens overall, net cash used in
investing activities in continuing operations declined to
4.315 billion in fiscal 2006 from
5.052 billion in fiscal 2005.
Free cash flow from continuing operations for Siemens was
1.820 billion for fiscal 2006, up from
528 million in the same period a year earlier. The
change
year-over-year
is due to the increase in net cash provided by operating
activities mentioned above and was partly compensated by
increased cash outflows for intangible assets and property,
plant and equipment.
Financing activities from continuing and discontinued
operations in fiscal 2006 provided net cash of
1.206 billion compared to net cash used of
1.844 billion in fiscal 2005. The primary factor in
this change was 6.701 billion in proceeds from new
long-term debt in fiscal 2006. Accordingly, in fiscal 2006, we
issued two tranches of U.S. dollar-denominated bonds totaling
U.S.$1.0 billion (0.8 billion at this time).
Further we issued four tranches of U.S. dollar-denominated bonds
totaling U.S.$5.0 billion (3.9 billion at this
time), as well as a hybrid bond in two tranches, one denominated
in euros (900 million) and one denominated in British
pounds (£750 million, or 1.1 billion at
this time). Repayment of debt used 1.710 billion in
cash in fiscal 2006, including a 1.6 billion payment
for a bond, which was due on July 4, 2006. A year earlier,
repayment of long-term debt used 848 million. At the
end of fiscal 2006, Siemens had no amount outstanding under its
commercial paper program, which was the major effect for net
cash outflows for short-term debt of 1.762 billion. A
year earlier, issuance of commercial paper contributed to the
cash inflows from short-term debt of 711 million.
Dividends paid to shareholders of Siemens AG rose
year-over-year,
to 1.201 billion in fiscal 2006 from
1.112 billion in fiscal 2005.
Capital
Resources and Requirements
Our capital resources are comprised of cash and cash
equivalents, current
available-for-sale
financial assets, total equity and cash flow from operating
activities. Our capital requirements include scheduled debt
service, regular capital spending and ongoing cash requirements
from operating activities.
Net liquidity results from total liquidity, comprised of cash
and cash equivalents and
available-for-sale
financial assets, less total debt, comprised of short-term debt
and current maturities of long-term debt and long-term debt.
Total debt relates to our commercial papers, medium-term notes,
bonds, loans from banks and obligations under finance leases as
stated on the Consolidated Balance Sheets. We use the net
liquidity measure for internal corporate finance management, as
well as external communication with investors, analysts and
rating agencies.
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September 30,
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2007
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2006
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( in millions)
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Cash and cash equivalents
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4,005
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10,214
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Current
available-for-sale
financial assets
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193
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596
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Total liquidity
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4,198
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10,810
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Short-term debt and current maturities of long-term debt
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5,637
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2,175
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Long-term debt
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9,860
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13,122
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