SIEMENS 6-K
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FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For May 7, 2003

Commission File Number: 1-15174

Siemens Aktiengesellschaft
(Translation of registrant’s name into English)

Wittelsbacherplatz 2
D-80333 Munich
Federal Republic of Germany
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

     
Form 20-F x   Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

     
Yes o   No x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

     
Yes o   No x

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

     
Yes o   No x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-

This report is incorporated by reference into the prospectuses contained in
Registration Statements Nos. 333-13428 and 333-14294 on Form S-8
filed by the registrant under the Securities Act of 1933.




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Interim Report — Second Quarter and First Half of Fiscal 2003

INTRODUCTION

     The form and content of our Interim Report has been updated to reflect the new reporting requirements of the Frankfurt Stock Exchange while continuing to adhere to the applicable disclosure requirements of the U.S. Securities and Exchange Commission (SEC) and US GAAP for interim reporting purposes. We prepare the Interim Report as an update of our Annual Report, with a focus on the current reporting period. As such, the Interim Report should be read in conjunction with the Annual Report, which includes detailed analysis of our operations and activities.


TABLE OF CONTENTS

ECONOMIC ENVIRONMENT & MARKET TRENDS
RESULTS OF SIEMENS WORLDWIDE
SEGMENT INFORMATION ANALYSIS
LIQUIDITY, CAPITAL RESOURCES AND CAPITAL REQUIREMENTS
EVA PERFORMANCE
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
CONSOLIDATED BALANCE SHEETS (unaudited)
CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited)
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
SEGMENT INFORMATION (unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTERLY SUMMARY
SUPERVISORY BOARD AND MANAGING BOARD CHANGES
TERMINOLOGY UPDATE
SIGNATURES


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ECONOMIC ENVIRONMENT & MARKET TRENDS

     The macroeconomic environment during the second quarter of fiscal 2003 remained difficult on a global basis. During the current quarter an anticipated, volume-driven reduction in earnings at Power Generation (PG), due to the end of the gas turbine energy boom in the U.S., was offset by rising profits and higher margins despite falling sales at a majority of Siemens’ operating Groups, led by Siemens VDO Automotive (SV), Automation and Drives (A&D), Power Transmission and Distribution (PTD), and Osram. Medical Solutions (Med) also maintained earnings and margins at a high level. Despite falling demand that continues to challenge the entire telecommunications and networking industry, Siemens’ three Information and Communications Groups held their aggregate bottom line stable year-over-year.

     At the same time, a twenty four percent decline in the value of the U.S. dollar against the euro compared to a year ago produced correspondingly large swings in reported sales and orders for business activities Siemens conducts in the U.S. This effect contributed strongly to declining sales and order volumes in the second quarter.


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RESULTS OF SIEMENS WORLDWIDE

Results of Siemens worldwide — Second quarter of fiscal 2003 compared to second quarter of fiscal 2002

         Sales decreased 14% to 18.230 billion compared to 21.258 billion and orders decreased 15% to 19.084 billion compared to 22.431 billion the same quarter a year earlier. Excluding the effects of currency translation, acquisitions and dispositions, sales decreased 5% and orders were 7% lower year over year. The most significant currency to which the Company is exposed is the U.S. dollar. In addition to the currency-related effects, the development in sales was influenced primarily by an expected volume decrease at PG due to the end of the gas turbine energy boom in the U.S. and worldwide falling demand in the telecommunications and networking industry affecting particularly Information and Communication Networks, (ICN) and Information and Communication Mobile (ICM).
 
         Gross profit as a percentage of sales in the second quarter of fiscal 2003 was 28.3%, slightly above the prior year level. Gross profit margin from Operations remained steady at 27.8%, as lower margins due to charges taken for capacity adjustment at PG were offset by increases at ICN, A&D, PTD, Transportations Systems (TS), SV, Med and Osram.
 
         Research and development expense decreased from 1.426 billion to 1.278 billion compared to the prior year quarter, generally in line with the decrease in sales. R&D spending within Operations represented 7.1% of sales, up from 6.8% in the second quarter of last year. Marketing, selling and general administrative expenses were 3.232 billion compared to 3.666 billion in the second quarter a year ago. This figure represents 17.7% of sales, compared to 17.2% in the second quarter of the prior year.
 
         Other operating income (expense), net was a positive 69 million compared to a positive 549 million in the second quarter of fiscal 2002, which included gains of 604 million resulting from sales of shares in Infineon Technologies AG. The current year quarter includes net gains of 46 million from customer cancellations at PG. Income (loss) from investments in other companies, net was a positive 24 million compared to a positive 97 million in the second quarter of the prior year. The current year includes higher income from an investment in a power generation project in Indonesia at Siemens Financial Services (SFS). Income from equity investments in Bosch Siemens Hausgeräte GmbH, Framatome and Fujitsu Siemens Computers were higher than in the previous period but were more than offset by Siemens’ equity share of Infineon’s net loss, which was 127 million, compared to 43 million in the prior year. Income from financial assets and marketable securities, net was 10 million compared to 75 million in the last year. Interest income of Operations, net was 8 million compared to 67 million a year earlier, due to lower interest income from advance payments. Other interest income (expense), net was a positive 35 million compared to a negative 18 million last year reflecting lower average interest rates on debt.
 
         The effective tax rate on income in the second quarter of fiscal 2003 was approximately 27%, compared to 21% in the second quarter a year ago, which was positively impacted by the tax-free sale of Infineon shares.
 
         Net income in the second quarter was 568 million, compared to 1.281 billion in the prior year, which included a tax-free gain of 604 million from the sale of shares in Infineon. Earnings per share in the current quarter were 0.64, compared to 1.44 in the prior-year period.
 
         Net cash from operating and investing activities in the second quarter rebounded strongly from the first quarter, to 1.398 billion, benefiting from effective asset management and planned reductions in capital expenditures. Net cash from operating and investing activities in the first quarter of fiscal 2003 was a negative 1.137 billion, including a supplemental cash contribution of 442 million to Siemens’ pension trusts in Germany and the U.K. Net cash from operating and investing activities in the second quarter a year ago was 1.433 billion, including a negative 327 million related to transactions involving Infineon and Atecs Mannesmann.


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Results of Siemens worldwide — First six months of fiscal 2003 compared to first six months of fiscal 2002

         Orders for the first six months were 39.229 billion, down 18% from 47.821 billion a year earlier, and sales fell 12% to 37.075 billion from 42.244 billion. Excluding currency and the net effect of acquisitions and dispositions, the declines in orders and sales were 11% and 4%, respectively.
 
         Gross profit as a percentage of sales in the first half of fiscal 2003 was 28.2%, above the prior year level of 27.5%. The current half-year includes higher allowances on inventory, particularly at PG, related in part to customer cancellations. The prior year was negatively impacted by the consolidation of two months of Infineon’s relatively low gross profit margin. Infineon was deconsolidated beginning December 2001.
 
         Other operating income (expense), net was a positive 284 million compared to a positive 940 million in the first half of fiscal 2002, which included gains of 936 million resulting from sales of shares in Infineon. The current half-year period includes net gains of 258 million from customer cancellations at PG. Income (loss) from investments in other companies, net was a positive 28 million compared to a positive 75 million in the first half of the prior year. The current year includes higher income from investments noted above partly offset by Siemens’ equity share of Infineon’s net loss, which was 144 million, compared to 103 million in the prior year. The prior year’s six-month period included a 66 million gain on sale of an investment.
 
         The effective tax rate on income in the first half of fiscal 2003 was approximately 32%, compared to 20% in the same period a year ago, which was positively impacted by the tax-free sale of Infineon shares.
 
         Net income for the first six months of fiscal 2003 was 1.089 billion. First-half net income of 1.819 billion a year earlier included a non-taxable gain of 936 million related to the sale of shares in Infineon. Earnings per share in the first half were 1.22, compared to 2.05 in the prior year.
 
         On October 1, 2002, Siemens adopted Statement of Accounting Financial Standards (SFAS) 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and associated asset retirement costs. As a result of the adoption of SFAS 143, income of 59 million (36 million net of income taxes, or 0.04 per share) was recorded as a cumulative effect of a change in accounting principle. See Note 8 to the consolidated financial statements for further information.

         For the first six months of this year, net cash from operating and investing activities was 261 million, after supplemental pension trust contributions of 442 million in the first quarter. Net cash from operating and investing activities for the first six months a year earlier was 1.740 billion, including 945 million of net proceeds from transactions involving Infineon and Atecs Mannesmann.


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SEGMENT INFORMATION ANALYSIS

Operations

Information and Communications

Information and Communication Networks (ICN)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
ICN Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
    7 %     (147 )     (158 )     (6 )%     (298 )     (282 )
Group profit margin
            (8.8 )%     (5.9 )%             (8.6 )%     (5.4 )%
Total sales
    (37 )%     1,679       2,657       (33 )%     3,483       5,197  
New orders
    (22 )%     1,689       2,174       (24 )%     3,629       4,801  
Net cash from operating and investing activities
            19       227               52       40  
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    694       1,100  
Employees (in thousands)
    36       39  

     ICN narrowed its second-quarter Group loss from 158 million a year ago to 147 million in the current period. The Group continued to adjust its cost structure to address industry-wide declines in business volume, taking charges for severance and capacity adjustments totaling 44 million. While the Enterprise Networks division contributed 49 million to Group profit on sales of 887 million, substantially lower business volume as well as pricing pressures contributed to a 180 million quarterly loss on 797 million in sales at the Carrier Networks and Services division. For the Group as a whole, sales dropped 37% to 1.679 billion from 2.657 billion in the prior-year period. In addition to ongoing adverse market conditions, ICN’s year-over-year decline in second-quarter sales also reflects currency translation effects of negative 6 percentage points and the divestment of various businesses between the two periods under review. Correspondingly, orders were down 22% to 1.689 billion from 2.174 billion in the same quarter a year ago, including negative currency effects of 7 percentage points. ICN anticipates ongoing charges in the second half of fiscal 2003, particularly related to its Profit And Cash Turnaround (PACT) program, which is aimed at cutting cost, consolidating the group’s worldwide manufacturing infrastructure and optimizing its business portfolio.

     ICN in the first half of fiscal 2003 kept its losses in line with the prior year and improved its gross profit margin despite a sharp decline in sales related to market forces, negative currency effects, and the divestments of Unisphere Networks and Networks Systems between the two periods under review. Enterprise Networks was profitable in the first half, while Carrier Networks and Services recorded losses, reflecting widespread reduced demand and associated price pressure in the telecom carrier industry. For ICN as a whole, the first half periods of fiscal 2003 and fiscal 2002 both included charges for severance and asset write-downs of 93 million and 136 million, respectively.

     Net capital employed at March 31, 2003 decreased to 694 million from 1.100 billion at the end of the prior fiscal year, particularly due to reductions in investments in property, plant and equipment. Reduced capital expenditures also contributed to the improvement in net cash from operating and investing activities to 52 million from 40 million in the first half of the prior year. Cash flow is expected to absorb impacts in future periods from ongoing severance programs. EVA improved compared to the first half a year ago, but remained negative.


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Information and Communication Mobile (ICM)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
ICM Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
    25 %     55       44       41 %     114       81  
Group profit margin
            2.4 %     1.6 %             2.2 %     1.4 %
Total sales
    (15 )%     2,329       2,731       (11 )%     5,185       5,858  
New orders
    (31 )%     2,300       3,325       (28 )%     4,809       6,643  
Net cash from operating and investing activities
            279       425               167       29  
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    1,908       1,973  
Employees (in thousands)
    28       29  

     ICM improved its Group profit to 55 million in the second quarter from 44 million in the prior-year period. Second-quarter sales were 2.329 billion, down 15% from 2.731 billion, and orders were 2.300 billion, down 31% from 3.325 billion. Currency effects contributed five percentage points to the decline in sales. The Mobile Phones division contributed 2 million to Group profit, generating 983 million in sales on a volume of 8.0 million handsets in a seasonally slow quarter. These results reflect ongoing margin pressures in the mobile phone market compared to a year ago, partly offset by a better-performing product mix. For comparison the division sold 8.3 million units and earned 13 million on sales of 1.052 billion in the same quarter a year earlier. Market conditions were particularly challenging at the Mobile Networks division, where earnings of 44 million on sales of 1.067 billion included a net positive effect of 66 million related primarily to a reduction in customer financing exposure. For comparison, the division’s earnings a year earlier were 33 million. The Cordless Products and Wireless Modules divisions again contributed to Group profit. Anticipating further volume erosion in the second half of the year, particularly at Mobile Networks, ICM is intensifying its “Top-on-Air” productivity program.

     Group profit of ICM in the first half of fiscal 2003 was 114 million compared to 81 million for the same period last year. The Mobile Phone division increased earnings from 32 million last year to 54 million on a better product mix and on a stable development of sales despite increased price pressures. Earnings at the Mobile Network division in the first half of fiscal 2003 were 20 million, including the above mentioned net positive effect, whereas earnings in the prior year was 41 million, including 63 million charges for severance. Mobile Networks faced ongoing price erosion and restrictive capital expenditures of operators in a weakening market resulting in a 20% decline in sales compared to the first half of last year. The Cordless Product division increased its contribution to Group profit in the first half of the current fiscal year.

     Net capital employed at March 31, 2003 was 1.908 billion, compared to 1.973 billion at the end of the prior fiscal year. Net cash from operating and investing activities improved to 167 million compared to 29 million for the first half of last year, as liabilities increased in the current six month period, compared to a significant decrease in the prior year, partly offset by lower decreases in inventories and accounts receivable in the current period. Cash flow will be impacted in future periods due to payments related to headcount reduction activities and due to the development of customer financing exposure in the Mobile Networks division. EVA improved, but remained negative.


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Siemens Business Services (SBS)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
SBS Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
    (34 )%     25       38       (47 )%     37       70  
Group profit margin
            1.9 %     2.6 %             1.4 %     2.4 %
Total sales
    (8 )%     1,338       1,461       (11 )%     2,605       2,928  
New orders
    (12 )%     1,291       1,459       (20 )%     2,685       3,359  
Net cash from operating and investing activities
            (67 )     (15 )             (168 )     (103 )
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    462       264  
Employees (in thousands)
    35       34  

     SBS posted Group profit of 25 million, down from 38 million in the second quarter a year earlier. Sales declined 8%, to 1.338 billion, and orders fell 12%, to 1.291 billion, as the market for information technology (IT) services grappled with increasing overcapacity, particularly in the Group’s important German and European Union markets.

     SBS had sharply lower Group profit in the first half of fiscal 2003 due to softening demand particularly in its German market, reflected in orders falling faster than sales during the six month period. Net capital employed increased from 264 million at the end of the prior fiscal year to 462 million at March 31, 2003 due in particular to lower accounts payable. Net cash from operating and investing activities was a negative 168 million compared to a negative 103 million for the first half of last year. EVA turned negative.

Automation and Control

Automation and Drives (A&D)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
A&D Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
    33 %     184       138       17 %     363       311  
Group profit margin
            9.0 %     6.5 %             9.0 %     7.6 %
Total sales
    (5 )%     2,034       2,133       (2 )%     4,016       4,091  
New orders
    (1 )%     2,155       2,168       (3 )%     4,389       4,533  
Net cash from operating and investing activities
            275       272               438       259  
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    2,079       2,197  
Employees (in thousands)
    51       51  

     A&D was again a top earnings performer among Siemens Groups. A&D’s Group profit of 184 million and margin of 9% were up substantially from the same quarter a year ago, and maintained the pace of more recent quarters. Both periods included minor severance charges in the U.S. The Industrial Automation Systems and Motion Control Systems divisions delivered the strongest contributions to Group profit. Second-quarter sales were 2.034 billion, down 5% year-over-year, and orders were 2.155 billion, nearly level with the prior year. Currency effects cut seven percentage points from both sales and order growth.


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     A&D in the first half increased Group profit 17% and improved its earnings margin. Excluding currency translation effects of six percentage points for sales and five percentage points for orders, A&D kept sales and orders in the half year at a high level despite reduced capital expenditures in the manufacturing sector of its large U.S. market.

     Net capital employed at March 31, 2003 was 2.079 billion, compared to 2.197 billion at the end of the prior fiscal year. Net cash from operating and investing activities improved sharply to 438 million compared to 259 million for the first half of last year, due to improved working capital management. Improved earnings led to a significant increase in EVA compared to the first half of fiscal 2002.

Industrial Solutions and Services (I&S)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
I&S Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
            4       (39 )     22 %     (29 )     (37 )
Group profit margin
            0.4 %     (3.6 )%             (1.5 )%     (1.8 )%
Total sales
    (7 )%     990       1,069       (9 )%     1,919       2,109  
New orders
    %     1,018       1,017       (4 )%     2,085       2,182  
Net cash from operating and investing activities
            (10 )     (71 )             (53 )     (171 )
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    271       315  
Employees (in thousands)
    27       29  

     While I&S was in the black in the second quarter, due to a net positive effect of 9 million related to revised estimates of project performance, the Group continues to reduce capacity as the market for industrial solutions continues to weaken. Second-quarter sales declined 7%, to 990 million, including five percentage points due to currency effects, and orders were level at 1.018 billion.

     In the first half of fiscal 2003, I&S narrowed its loss compared to the first-half a year ago, and slightly improved its earnings margin. Group profit in the first six months of the current year includes 35 million in charges primarily for severance payments. A year ago, Group profit included 30 million in severance charges taken in the second quarter.

     Net capital employed at March 31, 2003 reduced to 271 million, compared to 315 million at the end of the prior fiscal year, primarily due to improved management of accounts payable and inventory. Benefiting from these effects, net cash from operating and investing activities improved to a negative 53 million compared to a negative 171 million for the first half of last year. Cash flow will be negatively impacted in future periods due to continuing severance programs. I&S’s negative EVA improved compared to the first half a year ago.


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Siemens Dematic (SD)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
SD Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
    %     12       12       4 %     24       23  
Group profit margin
            1.8 %     1.6 %             1.9 %     1.5 %
Total sales
    (12 )%     658       747       (17 )%     1,280       1,551  
New orders
    (10 )%     614       684       (15 )%     1,226       1,447  
Net cash from operating and investing activities
            (149 )     (40 )             (238 )     (103 )
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    1,199       975  
Employees (in thousands)
    11       12  

     SD held its Group profit level with the second quarter a year earlier, at 12 million, despite price erosion in the U.S. and European markets and the ongoing slump in the telecommunications equipment market, which affects SD’s Electronics Assembly Systems division. Second-quarter sales of 658 million were down 12% year-over-year, and orders were down 10%, to 614 million. Currency effects cut 12 percentage points from sales growth and 14 percentage points from order growth.

     SD in the first half of fiscal 2003 kept Group profit level year-over-year despite lower volumes than in the first six months a year ago, in part due to negative currency effects and weak global market demand. Net capital employed at March 31, 2003 was 1.199 billion, compared to 975 million at the end of the prior fiscal year. Net cash from operating and investing activities was a negative 238 million compared to a negative 103 million for the first half of last year primarily due to an increase in inventories relating to unbilled contracts. EVA decreased and remained negative.

Siemens Building Technologies (SBT)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
SBT Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
    (95 )%     2       40       (47 )%     45       85  
Group profit margin
            0.2 %     2.8 %             1.8 %     3.1 %
Total sales
    (13 )%     1,228       1,406       (10 )%     2,434       2,718  
New orders
    (16 )%     1,238       1,473       (13 )%     2,492       2,870  
Net cash from operating and investing activities
            212       112               176       28  
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    1,620       1,778  
Employees (in thousands)
    33       36  

     Group profit at SBT was 2 million after 16 million in charges for severance and associated write-downs. For comparison, Group profit in the second quarter a year earlier was 40 million. Slower economic growth in the U.S. and Europe combined with an 8% currency effect pushed sales down 13% year-over-year, to 1.228 billion, and orders down 16%, to 1.238 billion. SBT anticipates further charges to reduce capacity and divest under-performing units in the second half of fiscal 2003.


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     SBT in the first half saw a decline in profitability both within the current six-month period and compared to the same period a year earlier, reflecting stalled economic growth and correspondingly weak demand, particularly in the European construction market. In addition to the volume-driven decline in earnings, the current six month period included charges for severance and associated write-downs of 29 million. Sales and orders in the first half was negatively impacted by currency effects.

     Net capital employed at March 31, 2003 was 1.620 billion, compared to 1.778 billion at the end of the prior fiscal year. Net cash from operating and investing activities was 176 million compared to 28 million for the first half of last year, primarily due to a decrease in receivables. Cash flow will be negatively impacted in future periods due to payments related to planned headcount reduction activities. The negative EVA of SBT deteriorated.

Power

Power Generation (PG)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
PG Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
    (42 )%     262       450       (11 )%     671       752  
Group profit margin
            15.5 %     17.2 %             19.3 %     15.8 %
Total sales
    (35 )%     1,691       2,614       (27 )%     3,476       4,748  
New orders
    (35 )%     2,213       3,405       (40 )%     4,483       7,498  
Net cash from operating and investing activities
            117       484               71       883  
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    430       (144 )
Employees (in thousands)
    25       26  

     PG led all Siemens operating segments with Group profit of 262 million and a margin well above 15%. This result includes charges of 23 million for planned consolidation of manufacturing capacity. Furthermore, while the current period includes net gains of 46 million from customer cancellations, the prior-year period benefited from a 75 million gain related to revised estimates of project performance. PG’s sales and orders, as expected, reflect the effects of radically reduced demand in the U.S. and a loss of ten percentage points due to currency translation against sales between the two periods under review. As a result, sales of 1.691 billion and orders of 2.213 billion were both 35% lower than in the prior-year period. On a consecutive-quarter basis, business volumes declined more modestly. Success in winning new service contracts enabled PG to keep its backlog at 14.3 billion plus reservations of 4.1 billion — nearly the same composition as at the end of the first quarter.

     During the first six months, PG bolstered its backlog of service contracts and expanded its turbine business in countries other than the U.S., in particular winning large orders in Spain, Morocco and Germany. While first-half sales decreased, in part due to negative currency effects, and Group profit fell year-over-year, PG’s first-half earnings margin rose three and a half percentage points year-over-year, including net gains of 258 million related to cancellation of orders, partly offset by 87 million in allowances on inventories recorded in the first quarter.

     Net capital employed at March 31, 2003 increased to 430 million, compared to a negative 144 million at the end of the prior fiscal year, primarily due to lower advance payments. This trend also drove the decline in net cash from operating and investing activities, which fell to 71 million from 883 million in the first half of last year. EVA declined but remained strong.


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Power Transmission and Distribution (PTD)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
PTD Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
    67 %     50       30       80 %     90       50  
Group profit margin
            5.9 %     3.0 %             5.5 %     2.5 %
Total sales
    (16 )%     846       1,005       (18 )%     1,648       2,007  
New orders
    (20 )%     811       1,020       (28 )%     1,920       2,669  
Net cash from operating and investing activities
            60       89               118       71  
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    894       928  
Employees (in thousands)
    16       17  

     PTD increased its quarterly Group profit to 50 million, well above the 30 million level in the second quarter a year ago. The prior period included losses at the Group’s Metering division, which PTD divested between the two periods under review. PTD’s margin improved three points year-over-year and nearly a full point compared to the previous quarter. Sales decreased 16%, to 846 million, and orders declined 20%, to 811 million. The effects of the divestment of Metering strongly influenced sales and orders by a negative 12% and 14%, respectively, whereas currency translation effects were a negative 9% and 8%, respectively.

     In the first half, PTD delivered sharply higher Group profit on a smaller business volume after the divestment of its metering business in September 2002. Productivity improvements contributed to the increase in Group profit. The prior year period included 22 million in charges for severance. PTD’s decrease in orders and sales compared to the same period a year earlier was primarily driven by the divestment of Metering and currency effects.

     Net capital employed at March 31, 2003 was 894 million, compared to 928 million at the end of the prior fiscal year. Net cash from operating and investing activities improved to 118 million from 71 million for the first half of last year. EVA moved into positive territory, due to increased profitability on lower Net capital employed.


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Transportation

Transportation Systems (TS)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
TS Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
    3 %     64       62       18 %     132       112  
Group profit margin
            5.8 %     5.8 %             6.1 %     5.5 %
Total sales
    4 %     1,101       1,060       8 %     2,181       2,021  
New orders
    33 %     1,424       1,070       (14 )%     2,524       2,923  
Net cash from operating and investing activities
            (245 )     73               (406 )     149  
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    (177 )     (741 )
Employees (in thousands)
    18       17  

     TS held Group profit and margin steady at 64 million and 5.8%, respectively, led by strong earnings at the Rail Automation division. Sales for TS overall rose 4%, to 1.101 billion, as the Group converted previous orders, particularly for railcars in the United Kingdom, into current sales. TS continued to win new business in Europe and Asia, including contracts for Spain’s first driverless metropolitan transit system in Barcelona, and 35 double-deck trains for the Swiss national railway system. The resulting 33% increase in second-quarter orders year-over-year, to 1.424 billion, drove the Group’s order backlog up to 11.6 billion.

     In the first half of fiscal 2003, TS increased its Group profit by 18% and also improved its earnings margin compared to the same period a year earlier. While sales rose year-over-year, orders were lower in comparison with the prior-year period, which included several large new contracts in the U.K.

     Net capital employed at March 31, 2003 was a negative 177 million, compared to a negative 741 million at the end of the prior fiscal year, primarily due to lower customer prepayments and higher inventories. This effect was also evident in net cash from operating and investing activities of a negative 406 million compared to a positive 149 million for the first half of last year. The effect of higher net capital employed more than offset the increase in earnings improvement, resulting in a decreased EVA compared to the high level in the first half a year ago.


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Siemens VDO Automotive (SV)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
SV Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
            119       18               192       12  
Group profit margin
            5.4 %     0.8 %             4.4 %     0.3 %
Total sales
    (1 )%     2,185       2,207       2 %     4,318       4,234  
New orders
    (1 )%     2,185       2,211       2 %     4,318       4,234  
Net cash from operating and investing activities
            81       20               (3 )     (23 )
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    3,912       3,746  
Employees (in thousands)
    44       43  

     SV continued its improvement in quarterly profitability since completing the integration of its merger with VDO. Group profit of 119 million was a new high for SV, far above the 18 million level posted in the second quarter a year ago. Diesel injection systems continued to fuel earnings growth at SV, helped by a significant earnings improvement in onboard information and entertainment (“infotainment”) systems. Both sales and orders were 2.185 billion, down 1% year-over year, including negative currency translation effects of 7%.

     SV grew its business volume in the first six months compared to last year despite negative currency effects and intervening divestments, and sharply improved its earnings margins. The Group’s multi-year investment in innovative technologies, such as for Powertrain and onboard IT, is paying off.

     Net capital employed at March 31, 2003 was 3.912 billion, compared to 3.746 billion at the end of the prior fiscal year. The increase in working capital more than offset the improvement in Group profit, resulting in net cash from operating and investing activities of negative 3 million compared to a negative 23 million at the end of the first half of the prior year. EVA improved significantly, but remained negative.

Medical

Medical Solutions (Med)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
Medical Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
    (3 )%     255       262       5 %     500       474  
Group profit margin
            13.9 %     14.0 %             13.7 %     13.0 %
Total sales
    (2 )%     1,830       1,870       1 %     3,661       3,640  
New orders
    (14 )%     1,845       2,141       (7 )%     3,803       4,111  
Net cash from operating and investing activities
            214       170               194       337  
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    3,400       3,414  
Employees (in thousands)
    32       31  


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     Med maintained a margin of nearly 14%, with a somewhat lower Group profit of 255 million compared to 262 million a year earlier. Sales slid 2%, to 1.830 billion, and orders fell 14%, to 1.845 billion, including currency effects of 14% and 12%, respectively.

     Med in the first half of fiscal 2003 increased Group profit in a slower-growing market. First-half sales were level with the prior period and orders declined at Med indicating slower growth year-over-year. Both sales and orders were strongly influenced by negative currency effects.

     Net capital employed at March 31, 2003 was essentially unchanged at 3.400 billion compared to 3.414 billion at the end of the prior fiscal year. Net cash from operating and investing activities declined from 337 million in the first half a year ago to 194 million in the current period, due to increased working capital, particularly accounts receivable. EVA increased significantly compared to the first half last year.

Lighting

Osram

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
Osram Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Group profit
    12 %     101       90       23 %     207       168  
Group profit margin
            9.5 %     7.9 %             9.5 %     7.5 %
Total sales
    (7 )%     1,063       1,138       (2 )%     2,186       2,237  
New orders
    (7 )%     1,063       1,139       (2 )%     2,186       2,238  
Net cash from operating and investing activities
            169       155               314       144  
                 
    March 31,   Sept. 30,
    2003   2002
   
 
Net capital employed
    2,188       2,436  
Employees (in thousands)
    35       35  

     Osram’s Group profit of 101 million and margin of 9.5% in a difficult market represented solid increases compared to 90 million and 7.9% in the second quarter a year earlier. The Group continued the success of recent quarters by combining stringent cost-cutting and investment in higher-margin new products, including offerings that contributed to rapid volume growth and earnings improvement at the Opto Semiconductors division. Sales and order development in the Group’s important U.S. market, however, remained difficult. Second-quarter sales and orders were 1.063 billion, down 7% year-over-year, including negative currency effects of 12%, particularly related to the U.S. dollar.

     In the first half of fiscal 2003, Osram increased Group profit 23% and boosted its earnings margin two percentage points year-over-year, driven by earnings improvements from the Automotive Lighting and Opto Semiconductors divisions. Currency effects reduced business volume in the first half by 10%.

     Net capital employed at March 31, 2003 declined substantially to 2.188 billion, compared to 2.436 billion at the end of the prior fiscal year, due to lower capital expenditures and improved working capital management. Due to the same factors and on improved profitability, net cash from operating and investing activities improved to 314 million in the current period from 144 million for the first half of last year. Higher profit on lower net capital employed improved Osram’s positive EVA.


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Other operations

     Other operations consist of items previously included in “Corporate, eliminations.” The new category aggregates results for certain centrally held equity investments such as Bosch Siemens Hausgeräte GmbH (BSH) and other operating activities not associated with a Group. In the second quarter of fiscal 2003, Other operations generated Group profit of 87 million, compared to 99 million in the same period a year ago.

     Other operations in the first half recorded 122 million in Group profit compared to 132 million the same period a year earlier.

Corporate items, pensions and eliminations

     Corporate items, pensions, and eliminations consist primarily of corporate personnel costs, corporate projects, certain non-allocated pension costs, and the net equity result of Infineon. For the second quarter of fiscal 2003, this line item was a negative 386 million compared to a negative 167 million in the same period a year ago, which included a 66 million gain from the sale of an investment. Corporate costs in the second quarter were 147 million, compared to 163 million last year. Siemens’ equity share of Infineon’s net loss was 127 million in the current quarter, compared to 43 million a year earlier, and non-allocated pension expense was also higher in the current period, at 187 million, compared to 55 million a year earlier.

     The change in corporate items, pensions and eliminations in the first half of fiscal 2003 compared to the same period a year earlier resulted primarily from higher non-allocated pension costs and higher equity losses at Infineon, in which Siemens has an equity interest. Before its deconsolidation in December 2001, the negative consolidated results from Infineon in October and November 2001 are included in the Eliminations, reclassifications and Corporate Treasury component.

Financing and Real Estate

Siemens Financial Services (SFS)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
SFS Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Income before income taxes
    41 %     58       41       71 %     142       83  
Total sales
            139       155               275       276  
Net cash from operating and investing activities
            150       41               (7 )     340  
                   
      March 31,   Sept. 30,
      2003   2002
     
 
Total assets
    8,420       8,681  
Allocated Equity
    1,080       930  
Total debt
    6,686       6,730  
 
Therein intracompany financing
    6,462       6,469  
 
Therein debt from external sources
    224       261  
Employees (in thousands)
    1       1  

     SFS increased earnings before income taxes to 58 million, up from 41 million in the second quarter year earlier, on higher income at the Equity division from an equity investment.


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     SFS in the first half of fiscal 2003 delivered sharply higher earnings before income taxes compared to the same period a year earlier, on the strength of income from an investment in Indonesia by the Equity division and lower provisions and write-downs at the Equipment and Sales Financing Division.

     Total assets at March 31, 2003 were 8.420 billion, compared to 8.681 billion at the end of the prior fiscal year, primarily due to significant currency effects and as a result of lower leasing business volumes. Net cash from operating and investing activities was a negative 7 million compared to a positive 340 million for the first half of last year, primarily due to the cessation of sales of receivables through the SieFunds asset securitization vehicle. EVA increased on stronger earnings.

Siemens Real Estate (SRE)

                                                 
            Second quarter ended           Six months ended
            March 31,           March 31,
           
         
SRE Performance Data   Change   2003   2002   Change   2003   2002

 
 
 
 
 
 
            ( in millions)           ( in millions)
Income before income taxes
    (30 )%     55       79       (34 )%     110       167  
Total sales
    (3 )%     395       408       (2 )%     791       805  
Net cash from operating and investing activities
            84       114               134       138  
                   
      March 31,   Sept. 30,
      2003   2002
     
 
Total assets
    3,710       4,090  
Allocated Equity
    920       920  
Total debt
    1,575       1,751  
 
Therein intracompany financing
    1,250       1,402  
 
Therein debt from external sources
    325       349  
Employees (in thousands)
    2       2  

     Second-quarter results for SRE declined year-over-year, to 55 million from 79 million, due to lower disposal gains and increasing vacancy rates brought on by economic uncertainty in Europe and the U.S.

     Income before income taxes for SRE for the first half of fiscal 2003 decreased 34% compared to the prior year, primarily due to lower disposal gains and increasing vacancy rates. As a result of decreasing demand for services, particularly in Germany, sales were down 2% to 791 million compared to the first half of fiscal 2002.

     Total assets at March 31, 2003 were 3.710 billion, compared to 4.090 billion at the end of the prior fiscal year, primarily due to a reduction of real estate holdings. Net cash from operating and investing activities was 134 million, on the level of the first half of last year. EVA decreased, but remained positive.


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LIQUIDITY, CAPITAL RESOURCES AND CAPITAL REQUIREMENTS

Cash Flow — First six months of fiscal 2003 compared to first six months of fiscal 2002

     Net cash provided by the operating activities of the Operations component for the first six months of fiscal 2003 was 469 million compared to 2.334 billion in the first six months of fiscal 2002. Cash flow from operating activities in the current period included 442 million in supplemental cash contributions to Siemens’ pension trusts in Germany and the U.K. Before these cash contributions, cash provided by operating activities of Operations in the first six months of fiscal 2003 was 911 million. Changes in net working capital (current assets less current liabilities) used cash of 1.749 billion in the first six months of fiscal 2003 compared to cash provided of 52 million in the same period in the prior year. The largest effect within working capital during the six month period ended March 31, 2003 resulted from a decrease within other current liabilities in particular at PG due to lower advance payments from the cancellation of orders in the U.S. Inventories increased in the first half-year of 2003, particularly at SD and TS.

     Net cash used in investing activities within Operations was 850 million for the first six months of fiscal 2003 compared to 178 million in the same period of the prior year. While the current six month period reflects significant reductions in capital expenditures for property, plant and equipment, particularly at ICN and Osram, the prior year includes net proceeds of 945 million from transactions related to Atecs-Mannesmann and Infineon. These include a cash payment of 3.657 billion to Vodafone AG to complete the Atecs transaction initiated in fiscal 2001 countered by 3.080 billion received in proceeds from the disposition of Atecs businesses held for sale. Sales of Infineon shares in each of the first two quarters of fiscal 2002 generated proceeds totaling 1.522 billion for the first six months of last year.

     Net cash provided by operating activities within the Financing and Real Estate component for the first six months of fiscal 2003 was 195 million compared to 381 million in the first six months a year ago due primarily to a decrease in other current liabilities.

     Net cash used in investing activities in Financing and Real Estate was 142 million in the first six months of fiscal 2003 compared to net cash provided of 23 million in the same period of the prior year. This development reflects the effect from sales of accounts receivable by SFS, net of collections, including asset securitization using SieFunds of negative 259 million in the first six months of fiscal 2003. During the first half of fiscal 2002, collections on previously sold accounts receivable outpaced new sales by 190 million. Siemens has discontinued the use of the SieFunds asset securitization vehicle for the sale of accounts receivable for the time being.

     Net cash provided by operating activities of Siemens worldwide was 1.272 billion for the first six months of fiscal 2003 compared to 2.253 billion for the same period in the prior year. The current six month period includes 442 million in supplemental cash contributions to Siemens’ pension trusts in Germany and the U.K. Changes in net working capital used cash of 1.559 billion in the first six months of fiscal 2003 compared to cash used of 774 million in the same period in the prior year. Reflecting the phase-out of sales of accounts receivable, the decrease in outstanding balance of receivables sold was 537 million in the current period, compared to a decrease of 190 million in the first six months of last year. In addition to the factors noted above for the Operations and Financing and Real Estate component, the overall decrease in other current liabilities was primarily related to lower customer prepayments.

     Net cash used in investing activities of Siemens worldwide was 1.011 billion compared to net cash used of 513 million in the first six months of last year. The current period reflects lower cash outlays for capital expenditures as noted above, while the prior year is influenced by the above-mentioned portfolio activities related to Atecs and Infineon.

     Net cash from operating and investing activities for the first six months of the fiscal 2003 was 261 million compared to 1.740 billion in the first six months of fiscal 2002. (See also the discussion of net cash from operating and investing activities in the Segment Information Analysis above.)

     Net cash used in financing activities for Siemens worldwide was 2.077 billion. Within that total was 727 million in repayment of debt, including the buyback of 500 million of a bond exchangeable into shares of Infineon. The net change in short-term debt was a reduction of 594 million. During the current six-month period, 888 million in dividends were paid to shareholders.

     For Siemens worldwide, total net cash provided by operating activities of 1.272 billion, less cash used in investing and financing activities of 3.088 billion, less the effects of currency translation on cash, resulted in a 2.026 billion decrease in cash and cash equivalents, to 9.170 billion.


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Capital Developments

     At the Annual Shareholders’ Meeting on January 23, 2003, our shareholders gave authorization to repurchase up to 10% of our outstanding shares at any time until July 22, 2004. Such stock may be (i) retired with the approval of the Supervisory Board, (ii) used to satisfy the Company’s obligations under the 1999 Siemens Stock Option Plan and the 2001 Siemens Stock Option Plan and (iii) offered for sale to employees within the employee share program. In addition, the Company is authorized by the German Stock Corporation Act (Aktiengesetz) to repurchase its shares to offer them for sale to its employees within the share programs. For further information with respect to the repurchase of shares for sale to employees see Notes to the Consolidated Financial Statements.

     In addition, at the Annual Shareholders’ Meeting on January 23, 2003, our shareholders authorized the creation of new capital and authorized our Managing Board to issue convertible bonds and/or bonds with warrants. For further information, see Notes to the Consolidated Financial Statements.

Pension Plans

     Pension benefits provided by Siemens are currently organized primarily through defined benefit pension plans, which cover virtually all of our domestic employees and many of our foreign employees. In order to fund Siemens’ obligations under the defined benefit plans, our major pension plans are funded with assets in segregated pension entities. These assets are managed by specialized asset managers. In general, the asset allocation is based on pension asset and liability studies and is regularly reviewed. Siemens has implemented custodian structures for these pension assets, which allow for a regular and consistent tracking and reporting on a worldwide basis. Current investment strategy is biased towards high quality government and selected corporate bonds. Future investment decisions will be determined in consideration of market developments and are therefore subject to change.


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     Information about the funded status and the asset allocation of the Company’s principal pension benefit plans is presented in the following table (in billion):

                                                   
      March 31, 2003   September 30, 2002
     
 
      Total   Domestic   Foreign   Total   Domestic   Foreign
     
 
 
 
 
 
Projected benefit obligation (PBO) at end of period(1)
    19.4       13.5       5.9       19.5       13.3       6.2  
Fair value of plan assets
    14.5       10.3       4.2       14.5       9.6       4.9  
Under-funding at end of period
    4.9       3.2       1.7       5.0       3.7       1.3  
 
   
     
     
     
     
     
 
Asset allocation of total pension assets:
                                               
 
Equity
    8 %           27 %     33 %     20 %     60 %
 
     therein Infineon shares
                      3 %     5 %      
 
Fixed income
    77 %     85 %     56 %     46 %     58 %     22 %
 
Real estate
    10 %     10 %     10 %     8 %     7 %     9 %
 
Cash
    5 %     5 %     7 %     13 %     15 %     9 %


(1)   As of March 31, 2003 estimated

     In the table above, asset values as of September 30, 2002 are determined based on specific measurement dates. The measurement date for the Siemens German Pension Trust (domestic trust) is September 30. The measurement date for our principal foreign pension plans, primarily those in the U.S and the U.K. is June 30. As of March 31, 2003, asset values for both the Siemens German Pension Trust and the foreign pension plans are based on market values at March 31, 2003.

     Funding— In October 2002, supplemental contributions were made to the Siemens German Pension Trust totaling 635 million, comprising 377 million in real estate and 258 million in cash. A supplemental cash contribution of 184 million was also made in October 2002 to the U.K. pension plan. Regular funding during the six month period ended March 31, 2003 amounted to 20 million. Future funding decisions for the group’s pensions plans will be made based upon due consideration of developments affecting plan assets and pension liabilities as well as minimum funding requirements and local tax deductibility. Benefits paid during the six month period ended March 31, 2003 amounted to approximately 450 million.

     Investment Return— Investment returns for the Siemens German Pension Trust from October 1 to March 31, 2003 amounted to 305 million, or a positive 5.1% determined on an annualized basis. From October 1 to March 31, 2003, the principal foreign pension plans had a positive investment return of 141 million or 5.7% on an annualized basis. As a result of a plan measurement date of June 30, the fair value of the plan assets of certain foreign plans, primarily in the U.S. and the U.K., as of March 31, 2003 also reflects the change in net asset values for the period July 1 to September 30, 2002, which amounted to a negative 551 million.

     Asset Allocation— The table above details the allocation of assets in our principal pension benefit plans. During the six month period ended March 31, 2003, the remaining investment of the Siemens German Pension Trust in Infineon Technologies AG shares was sold.


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     The significant pension plan assumptions for the periods ending March 31, 2003 and September 30, 2002 and 2001 were as follows:

                                                                           
      Period ended,
     
      March 31, 2003   September 30, 2002   September, 30, 2001
     
 
 
      Total   Domestic   Foreign   Total   Domestic   Foreign   Total   Domestic   Foreign
     
 
 
 
 
 
 
 
 
Discount rate
    6.0 %     5.75 %     6.4 %     6.0 %     5.75 %     6.4 %     6.2 %     6.0 %     6.7 %
 
Siemens German Pension Trust
    5.75 %                     5.75 %                     6.0 %                
 
U.S.
    7.25 %                     7.25 %                     7.5 %                
 
U.K.
    5.7 %                     5.7 %                     6.2 %                
Expected return on plan assets
    6.7 %     6.75 %     6.7 %     8.0 %     8.25 %     7.9 %     8.8 %     9.3 %     7.8 %
 
Siemens German Pension Trust
    6.75 %                     8.25 %                     9.5 %                
 
U.S.
    6.95 %                     9.0 %                     8.75 %                
 
U.K.
    6.85 %                     7.2 %                     7.4 %                
Rate of compensation increase
    3.1 %     2.75 %     3.9 %     3.1 %     2.75 %     3.9 %     3.3 %     3.0 %     4.1 %
 
Siemens German Pension Trust
    2.75 %                     2.75 %                     3.0 %                
 
U.S.
    4.25 %                     4.25 %                     4.5 %                
 
U.K.
    4.1 %                     4.1 %                     4.1 %                
Rate of pension progression
    1.4 %     1.25 %     2.3 %     1.4 %     1.25 %     2.3 %     1.6 %     1.5 %     2.3 %
 
Siemens German Pension Trust
    1.25 %                     1.25 %                     1.5 %                
 
U.K.
    2.5 %                     2.5 %                     2.5 %                

     The interest and service cost components of net periodic pension cost for each fiscal year were determined based upon the PBO as of the measurement date which for the Siemens German Pension Trust is September 30, while for most foreign plans, it is June 30. The calculation of the expected return on plan assets component of net periodic pension cost was based on the rate provided for each respective year. For the Siemens German Pension Trust, the determination of the expected return on plan assets and the amortization of unrecognized losses components of net periodic pension costs are based on a market-related value of plan assets calculated using the average of historical market values of plan assets over the immediately preceding four quarters. For all other plans, the market-related value of plan assets is equal to the fair value of plan assets as of the measurement date.

     Net periodic pension cost—Total net periodic pension cost including service cost for the fiscal year ended September 30, 2003 will be approximately 1.0 billion. For the six month period ended March 31, 2003, net periodic pension cost was 485 million compared to 203 million in the first half of the prior fiscal year. In fiscal 2002, total net periodic pension cost including service cost was 447 million. The increase in net periodic pension cost compared to fiscal 2002 results from two important factors. First, the Company adjusted the expected rate of return on plan assets for the most significant pension plans as a result of a revised asset allocation and in expectation of lower market returns. This change results in a negative impact for the entire fiscal year 2003 of 220 million. Secondly, net periodic pension cost will increase in fiscal 2003 as a result of higher amortization of unrealized losses. These unrealized losses arose from negative developments in the international capital markets during the fiscal years 2002 and 2001, together with the effect of the reduction of the plan discount rate assumption.

     The service cost and amortization of prior service cost components of net periodic pension cost for all of fiscal 2003 is expected to be approximately 500 million, the same amount as in fiscal 2002. The service cost component for the Siemens German Pension Trust (212 million in fiscal 2003) is currently reported in the Segment Information table centrally under Corporate items, pensions and eliminations, whereas the service cost and amortization of prior service cost components for the foreign pension plans (288 million in fiscal 2003) are allocated to the operating Groups. All other components of net periodic pension cost are reported centrally under Corporate items, pensions and eliminations for both the Siemens German Pension Trust and the foreign pension plans. Non-allocated pension related expense within Corporate items, pensions and eliminations will increase from 250 million in fiscal 2002 to approximately 780 million for the fiscal year ended September 30, 2003. In the statement of income, net periodic pension cost is allocated among the functional costs (cost of sales, research and development, marketing, selling and general administrative expense), according to the function of the employee groups accruing benefits.


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EVA PERFORMANCE

     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 Operating 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 Operating 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, and is therefore defined as value-creating. A negative EVA means that a business is earning less than its cost of capital and is therefore defined as value-destroying. Other organizations that use EVA may define and calculate EVA differently.

     Siemens’ worldwide EVA for the first half of fiscal 2003 was positive but lower compared to the same period a year ago, due primarily to gains of 936 million on sales of shares in Infineon during the first six months a year earlier. Excluding these gains, EVA increased compared to the prior-year period.

SUBSEQUENT EVENTS

     Subsequent to the close of the second quarter on March 31, 2003 the following events took place that may have an effect on Siemens’ financial or operating position:

     On April 28, 2003, Siemens announced the signing of contracts towards the acquisition of the industrial turbine business of Alstom S.A., Paris, in two transactions. In the first transaction, Siemens will acquire Alstom’s small gas turbine business. In the second transaction, Alstom’s medium-sized gas and steam turbine businesses will be acquired. The combined total purchase price is 1.1 billion. On April 30, the European Commission formally approved the acquisition of Alstom’s small gas turbine business. The completion of the medium-sized gas and steam turbine businesses remains subject to approval by the relevant antitrust authorities.

     On April 30, 2003, Med and Draegerwerk AG received approval from the European Commission for a proposed joint venture in the market for acute hospital care, subject to certain conditions. Siemens will contribute its Patient Care Systems business unit, a part of the Electromedical Systems division and Draeger will contribute its entire Medical division to the joint venture. The joint venture will be headquartered in Luebeck, Germany and will be named Draeger Medical AG & Co. KGaA. The joint venture will be held at 65 percent by Draeger and at 35 percent by Siemens. Its worldwide workforce will total around 5,700.

     This Interim Report contains forward-looking statements based on beliefs of Siemens’ management. We use the words “anticipate”, “believe”, “estimate”, “expect”, “intend” , “should” “plan” and “project” to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results to be materially different, including, among others, changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products, lack of acceptance of new products or services and changes in business strategy. Actual results may vary materially from those projected here. Please refer to the discussion of Siemens’ risk factors in our Form 20-F. Siemens does not intend or assume any obligation to update these forward-looking statements. It is our policy to disclose material information on an open, nonselective basis.


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SIEMENS AG

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the three months ended March 31, 2003 and 2002
(in millions of , per share amounts in )

                                                                   
                      Eliminations,                                
                      reclassifications and                   Financing and Real
      Siemens worldwide   Corporate Treasury   Operations   Estate
     
 
 
 
      2003   2002   2003   2002   2003   2002   2003   2002
     
 
 
 
 
 
 
 
Net sales
    18,230       21,258       (415 )     (370 )     18,113       21,067       532       561  
Cost of sales
    (13,062 )     (15,267 )     415       371       (13,079 )     (15,198 )     (398 )     (440 )
 
   
     
     
     
     
     
     
     
 
Gross profit on sales
    5,168       5,991             1       5,034       5,869       134       121  
Research and development expenses
    (1,278 )     (1,426 )                 (1,278 )     (1,426 )            
Marketing, selling and general administrative expenses
    (3,232 )     (3,666 )     1       (1 )     (3,157 )     (3,610 )     (76 )     (55 )
Other operating income (expense), net
    69       549       (21 )     582       69       (74 )     21       41  
Income from investments in other companies, net
    24       97             1       3       96       21        
Income (expense) from financial assets and marketable securities, net
    10       75       11       89       8       (3 )     (9 )     (11 )
Interest income of Operations, net
    8       67                   8       67              
Other interest income (expense), net
    35       (18 )     37       (16 )     (24 )     (26 )     22       24  
Gains on sales and dispositions of significant business interests
                      (604 )           604              
 
   
     
     
     
     
     
     
     
 
 
Income before income taxes
    804       1,669       28       52       663       1,497       113       120  
Income taxes
    (216 )     (353 )     (5 )     (82 )     (182 )     (255 )     (29 )     (16 )
Minority interest
    (20 )     (35 )                 (20 )     (35 )            
 
   
     
     
     
     
     
     
     
 
 
Income (loss) before cumulative effect of change in accounting principle
    568       1,281       23       (30 )     461       1,207       84       104  
Cumulative effect of change in accounting principle, net of income taxes
                                               
 
   
     
     
     
     
     
     
     
 
 
Net income (loss)
    568       1,281       23       (30 )     461       1,207       84       104  
 
   
     
     
     
     
     
     
     
 
Basic earnings per share
                                                               
 
Income before cumulative effect of change in accounting principle
    0.64       1.44                                                  
 
Cumulative effect of change in accounting principle, net of income taxes
                                                           
 
   
     
                                                 
 
Net income
    0.64       1.44                                                  
 
   
     
                                                 
Diluted earnings per share
                                                               
 
Income before cumulative effect of change in accounting principle
    0.64       1.44                                                  
 
Cumulative effect of change in accounting principle, net of income taxes
                                                           
 
   
     
                                                 
Net income
    0.64       1.44                                                  
 
   
     
                                                 

The accompanying notes are an integral part of these consolidated financial statements.


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SIEMENS AG

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the six months ended March 31, 2003 and 2002
(in millions of , per share amounts in )

                                                                   
                      Eliminations,                                
                      reclassifications and                   Financing and Real
      Siemens worldwide   Corporate Treasury(2)   Operations   Estate
     
 
 
 
      2003   2002   2003   2002   2003   2002   2003   2002
     
 
 
 
 
 
 
 
Net sales
    37,075       42,244       (786 )     (303 )     36,801       41,470       1,060       1,077  
Cost of sales
    (26,625 )     (30,611 )     787       227       (26,614 )     (30,022 )     (798 )     (816 )
 
   
     
     
     
     
     
     
     
 
Gross profit on sales
    10,450       11,633       1       (76 )     10,187       11,448       262       261  
Research and development expenses
    (2,573 )     (2,973 )           (168 )     (2,573 )     (2,805 )            
Marketing, selling and general administrative expenses
    (6,740 )     (7,567 )           (88 )     (6,593 )     (7,352 )     (147 )     (127 )
Other operating income (expense), net
    284       940       (37 )     886       266       (27 )     55       81  
Income (loss) from investments in other companies, net
    28       75             (16 )     (15 )     88       43       3  
Income (expense) from financial assets and marketable securities, net
    37       46       42       50       (2 )     5       (3 )     (9 )
Interest income of Operations, net
    21       49                   21       49              
Other interest income (expense), net
    111       24       95       75       (26 )     (92 )     42       41  
Gains on sales and dispositions of significant business interests
                      (936 )           936              
 
   
     
     
     
     
     
     
     
 
 
Income (loss) before income taxes
    1,618       2,227       101       (273 )     1,265       2,250       252       250  
Income taxes(1)
    (518 )     (450 )     (32 )     56       (405 )     (455 )     (81 )     (51 )
Minority interest
    (47 )     42             2       (47 )     40              
 
   
     
     
     
     
     
     
     
 
 
Income (loss) before cumulative effect of change in accounting principle
    1,053       1,819       69       (215 )     813       1,835       171       199  
Cumulative effect of change in accounting principle, net of income taxes
    36                         39             (3 )      
 
   
     
     
     
     
     
     
     
 
 
Net income (loss)
    1,089       1,819       69       (215 )     852       1,835       168       199  
 
   
     
     
     
     
     
     
     
 
Basic earnings per share
                                                               
 
Income before cumulative effect of change in accounting principle
    1.18       2.05                                                  
 
Cumulative effect of change in accounting principle, net of income taxes
    0.04                                                        
 
   
     
                                                 
 
Net income
    1.22       2.05                                                  
 
   
     
                                                 
Diluted earnings per share
                                                               
 
Income before cumulative effect of change in accounting principle
    1.18       2.05                                                  
 
Cumulative effect of change in accounting principle, net of income taxes
    0.04                                                        
 
   
     
                                                 
 
Net income
    1.22       2.05                                                  
 
   
     
                                                 

(1)   The income taxes of Eliminations, reclassifications and Corporate Treasury, Operations, and Financing and Real Estate are based on the consolidated effective corporate tax rate applied to income before income taxes.
(2)   As of December 5, 2001, Siemens deconsolidated Infineon. The results of operations from Infineon for the first two months of the fiscal year 2002 period are included in Eliminations, reclassifications and Corporate Treasury. As of December 5, 2001, the share in earnings (loss) from Infineon is included in “Income (loss) from investments in other companies, net” in Operations.

The accompanying notes are an integral part of these consolidated financial statements.


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SIEMENS AG

CONSOLIDATED BALANCE SHEETS (unaudited)
As of March 31, 2003 and September 30, 2002
(in millions of )

                                                                     
                        Eliminations,                                
                        reclassifications and                   Financing and Real
        Siemens worldwide   Corporate Treasury   Operations   Estate
       
 
 
 
        3/31/03   9/30/02   3/31/03   9/30/02   3/31/03   9/30/02   3/31/03   9/30/02
       
 
 
 
 
 
 
 
ASSETS
                                                               
Current assets
                                                               
 
Cash and cash equivalents
    9,170       11,196       8,343       10,269       792       873       35       54  
 
Marketable securities
    500       399       19       25       462       356       19       18  
 
Accounts receivable, net
    14,260       15,230       (7 )     (7 )     10,931       12,058       3,336       3,179  
 
Intracompany receivables
                (9,837 )     (13,284 )     9,751       13,209       86       75  
 
Inventories, net
    10,938       10,672       (12 )     (5 )     10,878       10,592       72       85  
 
Deferred income taxes
    1,142       1,212       111       64       1,026       1,143       5       5  
 
Other current assets
    5,633       5,353       1,135       1,028       3,565       3,306       933       1,019  
 
   
     
     
     
     
     
     
     
 
   
Total current assets
    41,643       44,062       (248 )     (1,910 )     37,405       41,537       4,486       4,435  
 
   
     
     
     
     
     
     
     
 
Long-term investments
    4,985       5,092             2       4,664       4,797       321       293  
Goodwill
    6,251       6,459                   6,169       6,369       82       90  
Other intangible assets, net
    2,206       2,384                   2,183       2,362       23       22  
Property, plant and equipment, net
    10,962       11,742       1       2       7,229       7,628       3,732       4,112  
Deferred income taxes
    3,489       3,686       829       764       2,509       2,771       151       151  
Other assets
    4,342       4,514       84       103       1,479       1,304       2,779       3,107  
Other intracompany receivables
                (1,003 )     (931 )     1,003       931              
 
   
     
     
     
     
     
     
     
 
   
Total assets
    73,878       77,939       (337 )     (1,970 )     62,641       67,699       11,574       12,210  
 
   
     
     
     
     
     
     
     
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
                                                               
Current liabilities
                                                               
 
Short-term debt and current maturities of long-term debt
    1,471       2,103       692       1,143       664       785       115       175  
 
Accounts payable
    7,827       8,649       (8 )     6       7,633       8,453       202       190  
 
Intracompany liabilities
                (7,669 )     (7,776 )     2,167       1,799       5,502       5,977  
 
Accrued liabilities
    9,612       9,608       15       18       9,348       9,445       249       145  
 
Deferred income taxes
    628       661       (242 )     (206 )     642       647       228       220  
 
Other current liabilities
    11,780       13,691       310       375       11,141       12,853       329       463  
 
   
     
     
     
     
     
     
     
 
   
Total current liabilities
    31,318       34,712       (6,902 )     (6,440 )     31,595       33,982       6,625       7,170  
 
   
     
     
     
     
     
     
     
 
Long-term debt
    10,073       10,243       8,818       6,833       821       2,974       434       436  
Pension plans and similar commitments
    5,028       5,326                   5,000       5,299       28       27  
Deferred income taxes
    190       195       (11 )     (50 )     92       119       109       126  
Other accruals and provisions
    3,366       3,401       27       28       3,041       3,068       298       305  
Other intracompany liabilities
                (2,269 )     (2,341 )     189       45       2,080       2,296  
 
   
     
     
     
     
     
     
     
 
 
    49,975       53,877       (337 )     (1,970 )     40,738       45,487       9,574       10,360  
 
   
     
     
     
     
     
     
     
 
Minority interests
    480       541                   480       541              
Shareholders’ equity
                                                               
 
Common stock, no par value
                                                               
   
Authorized: 1,129,254,149 and 1,145,917,335 shares, respectively
                                                               
   
Issued: 890,377,481 and 890,374,001 shares, respectively
    2,671       2,671                                                  
 
Additional paid-in capital
    5,053       5,053                                                  
 
Retained earnings
    21,672       21,471                                                  
 
Accumulated other comprehensive income (loss)
    (5,973 )     (5,670 )                                                
 
Treasury stock, at cost. 3,216 and 49,864 shares, respectively
          (4 )                                                
 
   
     
     
     
     
     
     
     
 
   
Total shareholders’ equity
    23,423       23,521                   21,423       21,671       2,000       1,850  
 
   
     
     
     
     
     
     
     
 
   
Total liabilities and shareholders’ equity
    73,878       77,939       (337 )     (1,970 )     62,641       67,699       11,574       12,210  
 
   
     
     
     
     
     
     
     
 

The accompanying notes are an integral part of these consolidated financial statements.


Table of Contents

SIEMENS AG

CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited)
For the six months ended March 31, 2003 and 2002
(in millions of )

                                                                       
                        Eliminations,                                
                        reclassifications and                   Financing and Real
        Siemens worldwide   Corporate Treasury   Operations   Estate
       
 
 
 
        2003   2002   2003   2002   2003   2002   2003   2002
       
 
 
 
 
 
 
 
Cash flows from operating activities
                                                               
 
Net income (loss)
    1,089       1,819       69       (215 )     852       1,835       168       199  
 
Adjustments to reconcile net income to cash provided
                                                               
   
Minority interest
    47       (42 )           (2 )     47       (40 )            
   
Amortization, depreciation and impairments
    1,550       1,841             209       1,344       1,410       206       222  
   
Deferred taxes
    64       (215 )     3       (190 )     55       (1 )     6       (24 )
   
Gains on sales and disposals of businesses and property, plant and equipment, net
    (61 )     (999 )           (936 )     (40 )     (8 )     (21 )     (55 )
   
Losses (gains) on sales of investments, net
    3       (77 )           7       3       (84 )            
   
Gains on sales and dispositions of significant business interests
                      936             (936 )            
   
Losses (gains) on sales and impairments of marketable securities, net
    21       (4 )     9       (2 )     11       (6 )     1       4  
   
(Income) loss from equity investees, net of dividends received
    (53 )     14             16       (19 )     (4 )     (34 )     2  
   
Change in current assets and liabilities
     
(Increase) decrease in inventories, net
    (721 )     (37 )           86       (731 )     (146 )     10       23  
     
(Increase) decrease in accounts receivable, net
    1,027       874       60       289       968       559       (1 )     26  
     
Increase (decrease) in outstanding balance of receivables sold
    (537 )     (190 )     (259 )     (190 )     (278 )                  
     
(Increase) decrease in other current assets
    316       333       152       (241 )     187       593       (23 )     (19 )
     
Increase (decrease) in accounts payable
    (581 )     (1,127 )     (9 )     (256 )     (585 )     (835 )     13       (36 )
     
Increase (decrease) in accrued liabilities
    148       (143 )           48       159       (172 )     (11 )     (19 )
     
Increase (decrease) in other current liabilities
    (1,211 )     (484 )     388       (598 )     (1,469 )     53       (130 )     61  
   
Supplemental contributions to pension trusts
    (442 )                       (442 )                  
   
Change in other assets and liabilities
    613       690       195       577       407       116       11       (3 )
 
   
     
     
     
     
     
     
     
 
     
Net cash provided by (used in) operating activities
    1,272       2,253       608       (462 )     469       2,334       195       381  
Cash flows from investing activities
                                                               
 
Additions to intangible assets and property, plant and equipment
    (1,210 )     (1,806 )           (149 )     (1,067 )     (1,383 )     (143 )     (274 )
 
Acquisitions, net of cash acquired
    (32 )     (3,695 )                 (32 )     (3,695 )            
 
Purchases of investments
    (92 )     (163 )           (65 )     (87 )     (95 )     (5 )     (3 )
 
Purchases of marketable securities
    (15 )     (21 )     (11 )     (12 )     (2 )     (8 )     (2 )     (1 )
 
Increase in receivables from financing activities
    (121 )     (12 )     (283 )     (338 )                 162       326  
 
Increase (decrease) in outstanding balance of receivables sold by SFS
                259       190                   (259 )     (190 )
 
Proceeds from sales of long-term investments, intangibles and property, plant and equipment
    366       524                   262       363       104       161  
 
Proceeds from sales and dispositions of businesses
    59       4,602                   59       4,602              
 
Proceeds from sales of marketable securities
    34       58       16       16       17       38       1       4  
 
   
     
     
     
     
     
     
     
 
   
Net cash (used in) provided by investing activities
    (1,011 )     (513 )     (19 )     (358 )     (850 )     (178 )     (142 )     23  
Cash flows from financing activities
                                                               
 
Proceeds from issuance of capital stock
          155                         155              
 
Purchase of common stock of Company
          (148 )                       (148 )            
 
Proceeds from issuance of treasury shares
    4       81                   4       81              
 
Proceeds from issuance of debt
    202       256       202       256                          
 
Repayment of debt
    (727 )           (727 )                              
 
Change in short-term debt
    (594 )     645       (334 )     413       (201 )     267       (59 )     (35 )
 
Change in restricted cash
          (2 )           (2 )                        
 
Dividends paid
    (888 )     (888 )                 (888 )     (888 )            
 
Dividends paid to minority shareholders
    (74 )     (80 )                 (74 )     (80 )            
 
Intracompany financing
                (1,496 )     1,731       1,508       (1,369 )     (12 )     (362 )
 
   
     
     
     
     
     
     
     
 
   
Net cash (used in) provided by financing activities
    (2,077 )     19       (2,355 )     2,398       349       (1,982 )     (71 )     (397 )
Effect of deconsolidation of Infineon on cash and cash equivalents
          (383 )           (383 )                        
Effect of exchange rates on cash and cash equivalents
    (210 )     67       (160 )     41       (49 )     25       (1 )     1  
Net (decrease) increase in cash and cash equivalents
    (2,026 )     1,443       (1,926 )     1,236       (81 )     199       (19 )     8  
Cash and cash equivalents at beginning of period
    11,196       7,802       10,269       6,860       873       907       54       35  
 
   
     
     
     
     
     
     
     
 
Cash and cash equivalents at end of period
    9,170       9,245       8,343       8,096       792       1,106       35       43  
 
   
     
     
     
     
     
     
     
 

The accompanying notes are an integral part of these consolidated financial statements.


Table of Contents

SIEMENS AG

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
For the six months ended March 31, 2003 and year ended September 30, 2002
(in millions of )

                                                                           
                              Accumulated Other Comprehensive Income (Loss)                
                             
               
              Additional           Cumulative   Available-           Minimum   Treasury        
      Capital   Paid-in   Retained   Translation   for-sale   Derivative   Pension   Shares        
      Stock   Capital   Earnings   Adjustment   Securities   Instruments   Liability   at Cost   Total
     
 
 
 
 
 
 
 
 
Balance at October 1, 2001
    2,665       4,901       19,762       401       54       23       (3,994 )           23,812  
 
   
     
     
     
     
     
     
     
     
 
Net income
                2,597                                     2,597  
Change in currency translation adjustment
                      (533 )                             (533 )
Change in unrealized gains and losses
                            (239 )     36       (1,418 )           (1,621 )
 
   
     
     
     
     
     
     
     
     
 
 
Total comprehensive income
                2,597       (533 )     (239 )     36       (1,418 )           443  
Dividends paid
                (888 )                                   (888 )
Issuance of capital stock
    6       152                                           158  
Purchase of capital stock
                                              (167 )     (167 )
Re-issuance of treasury stock
                                              163       163  
 
   
     
     
     
     
     
     
     
     
 
Balance at September 30, 2002
    2,671       5,053       21,471       (132 )     (185 )     59       (5,412 )     (4 )     23,521  
 
   
     
     
     
     
     
     
     
     
 
Net income
                1,089                                     1,089  
Change in currency translation adjustment
                      (479 )                             (479 )
Change in unrealized gains and losses
                            94       82                   176  
 
 
   
     
     
     
     
     
     
     
     
 
 
Total comprehensive income
                1,089       (479 )     94       82                   786  
Dividends paid
                (888 )                                   (888 )
Purchase of capital stock
                                              (126 )     (126 )
Re-issuance of treasury stock
                                              130       130  
 
 
   
     
     
     
     
     
     
     
     
 
Balance at March 31, 2003
    2,671       5,053       21,672       (611 )     (91 )     141       (5,412 )           23,423  
 
   
     
     
     
     
     
     
     
     
 

The accompanying notes are an integral part of these consolidated financial statements.


Table of Contents

SIEMENS AG

SEGMENT INFORMATION (unaudited)
As of and for the three months ended March 31, 2003 and 2002 and as of September 30, 2002
(in millions of )

                                                                                     
                                        Intersegment                                
        New orders   External sales   sales   Total sales   Group profit(1)
       
 
 
 
 
        2003   2002   2003   2002   2003   2002   2003   2002   2003   2002
       
 
 
 
 
 
 
 
 
 
Operations Groups
                                                                               
 
Information and Communication Networks (ICN)
    1,689       2,174       1,587       2,504       92       153       1,679       2,657       (147 )     (158 )
 
Information and Communication Mobile (ICM)
    2,300       3,325       2,287       2,693       42       38       2,329       2,731       55       44  
 
Siemens Business Services (SBS)
    1,291       1,459       1,015       1,091       323       370       1,338       1,461       25       38  
 
Automation and Drives (A&D)
    2,155       2,168       1,735       1,823       299       310       2,034       2,133       184       138  
 
Industrial Solutions and Services (I&S)
    1,018       1,017       685       781       305       288       990       1,069       4       (39 )
 
Siemens Dematic (SD)
    614       684       617       734       41       13       658       747       12       12  
 
Siemens Building Technologies (SBT)
    1,238       1,473       1,158       1,320       70       86       1,228       1,406       2       40  
 
Power Generation (PG)
    2,213       3,405       1,691       2,601             13       1,691       2,614       262       450  
 
Power Transmission and Distribution (PTD)
    811       1,020       790       938       56       67       846       1,005       50       30  
 
Transportation Systems (TS)
    1,424       1,070       1,095       1,056       6       4       1,101       1,060       64       62  
 
Siemens VDO Automotive (SV)
    2,185       2,211       2,183       2,204       2       3       2,185       2,207       119       18  
 
Medical Solutions (Med)
    1,845       2,141       1,817       1,864       13       6       1,830       1,870       255       262  
 
Osram
    1,063       1,139       1,056       1,134       7       4       1,063       1,138       101       90  
 
Other operations(5)
    383       494       294       284       129       225       423       509       87       99  
 
   
     
     
     
     
     
     
     
     
     
 
   
Total Operations Groups
    20,229       23,780       18,010       21,027       1,385       1,580       19,395       22,607       1,073       1,086  
Reconciliation to financial statements
                                                                               
 
Corporate items, pensions and eliminations
    (1,679 )     (1,912 )     56       42       (1,338 )     (1,582 )     (1,282 )     (1,540 )     (386 )     (167 )
 
Other interest expense
                                                    (24 )     (26 )
 
Gains on sales and dispositions of significant business interests
                                                          604  
 
Other assets related reconciling items
                                                           
 
   
     
     
     
     
     
     
     
     
     
 
   
Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)
    18,550       21,868       18,066       21,069       47       (2 )     18,113       21,067       663       1,497  
 
   
     
     
     
     
     
     
     
     
     
 
 
                        Income before
                        income taxes
                       
Financing and Real Estate Groups
                                                                               
 
Siemens Financial Services (SFS)
    139       154       105       120       34       35       139       155       58       41  
 
Siemens Real Estate (SRE)
    395       408       59       69       336       339       395       408       55       79  
 
Eliminations
                            (2 )     (2 )     (2 )     (2 )            
 
   
     
     
     
     
     
     
     
     
     
 
   
Total Financing and Real Estate
    534       562       164       189       368       372       532       561       113       120  
 
   
     
     
     
     
     
     
     
     
     
 
Eliminations, reclassifications and Corporate Treasury
          1                   (415 )     (370 )     (415 )     (370 )     28       52  
 
   
     
     
     
     
     
     
     
     
     
 
Siemens worldwide
    19,084       22,431       18,230       21,258                   18,230       21,258       804       1,669  
 
   
     
     
     
     
     
     
     
     
     
 

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                                                     
            Net cash from       Amortization,
        Net capital   operating and   Capital   depreciation and
        employed(2)   investing activities   spending(3)   impairments(4)
       
 
 
 
        3/31/03   9/30/02   2003   2002   2003   2002   2003   2002
       
 
 
 
 
 
 
 
Operations Groups
                                                               
 
Information and Communication Networks (ICN)
    694       1,100       19       227       53       99       125       98  
 
Information and Communication Mobile (ICM)
    1,908       1,973       279       425       73       86       66       92  
 
Siemens Business Services (SBS)
    462       264       (67 )     (15 )     27       56       64       68  
 
Automation and Drives (A&D)
    2,079       2,197       275       272       65       59       51       56  
 
Industrial Solutions and Services (I&S)
    271       315       (10 )     (71 )     9       19       12       15  
 
Siemens Dematic (SD)
    1,199       975       (149 )     (40 )     14       23       13       17  
 
Siemens Building Technologies (SBT)
    1,620       1,778       212       112       24       30       39       39  
 
Power Generation (PG)
    430       (144 )     117       484       29       30       34       38  
 
Power Transmission and Distribution (PTD)
    894       928       60       89       17       29       16       18  
 
Transportation Systems (TS)
    (177 )     (741 )     (245 )     73       22       23       14       13  
 
Siemens VDO Automotive (SV)
    3,912       3,746       81       20       75       119       106       94  
 
Medical Solutions (Med)
    3,400       3,414       214       170       66       80       48       47  
 
Osram
    2,188       2,436       169       155       51       71       64       73  
 
Other operations(5)
    892       535       1       11       15       13       14       14  
 
   
     
     
     
     
     
     
     
 
   
Total Operations Groups
    19,772       18,776       956       1,912       540       737       666       682  
Reconciliation to financial statements
                                                               
 
Corporate items, pensions and eliminations
    (2,614 )     (3,021 )     (100 )(6)     (130 )(6)     17       3,670       (6 )     45  
 
Other interest expense
                                               
 
Gains on sales and dispositions of significant business interests
                                               
 
Other assets related reconciling items
    45,483       51,944                                      
 
   
     
     
     
     
     
     
     
 
   
Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)
    62,641       67,699       856       1,782       557       4,407       660       727  
 
   
     
     
     
     
     
     
     
 
 
        Total assets            
       
           
Financing and Real Estate Groups
                                                               
 
Siemens Financial Services (SFS)
    8,420       8,681       150       41       39       81       54       62  
 
Siemens Real Estate (SRE)
    3,710       4,090       84       114       39       82       50       49  
 
Eliminations
    (556 )     (561 )     (24 )(6)     (32 )(6)                        
 
   
     
     
     
     
     
     
     
 
   
Total Financing and Real Estate
    11,574       12,210       210       123       78       163       104       111  
 
   
     
     
     
     
     
     
     
 
Eliminations, reclassifications and Corporate Treasury
    (337 )     (1,970 )     332 (6)     (472 )(6)                        
 
   
     
     
     
     
     
     
     
 
Siemens worldwide
    73,878       77,939       1,398       1,433       635       4,570       764       838  
 
   
     
     
     
     
     
     
     
 


(1)   Group profit of the Operations Groups is earnings before financing interest, certain pension costs, income taxes and certain one-time items, which in management’s view do not relate to the business performance of the Groups.
(2)   Net capital employed of the Operations Groups represents total assets less tax assets, certain accruals and non-interest bearing liabilities other than tax liabilities.
(3)   Intangible assets, property, plant and equipment, acquisitions, and investments.
(4)   Includes amortization and impairments of intangible assets, depreciation of property, plant and equipment, and write-downs of investments.
(5)   Other operations primarily refer to certain centrally-held equity investments and other operating activities not associated with a Group.
(6)   Includes (for “Eliminations” within Financing and Real Estate consists of) cash paid for income taxes according to the allocation of income taxes to Operations, Financing and Real Estate, and Eliminations, reclassifications and Corporate Treasury in the Consolidated Statements of Income.


Table of Contents

SIEMENS AG

SEGMENT INFORMATION (unaudited)
As of and for the six months ended March 31, 2003 and 2002 and as of September 30, 2002
(in millions of )

                                                                                     
                                        Intersegment                                
        New orders   External sales   sales   Total sales   Group profit(1)
       
 
 
 
 
        2003   2002   2003   2002   2003   2002   2003   2002   2003   2002
       
 
 
 
 
 
 
 
 
 
Operations Groups
                                                                               
 
Information and Communication Networks (ICN)
    3,629       4,801       3,301       4,941       182       256       3,483       5,197       (298 )     (282 )
 
Information and Communication Mobile (ICM)
    4,809       6,643       5,115       5,786       70       72       5,185       5,858       114       81  
 
Siemens Business Services (SBS)
    2,685       3,359       1,989       2,163       616       765       2,605       2,928       37       70  
 
Automation and Drives (A&D)
    4,389       4,533       3,418       3,515       598       576       4,016       4,091       363       311  
 
Industrial Solutions and Services (I&S)
    2,085       2,182       1,414       1,594       505       515       1,919       2,109       (29 )     (37 )
 
Siemens Dematic (SD)
    1,226       1,447       1,206       1,527       74       24       1,280       1,551       24       23  
 
Siemens Building Technologies (SBT)
    2,492       2,870       2,313       2,563       121       155       2,434       2,718       45       85  
 
Power Generation (PG)
    4,483       7,498       3,458       4,730       18       18       3,476       4,748       671       752  
 
Power Transmission and Distribution (PTD)
    1,920       2,669       1,547       1,872       101       135       1,648       2,007       90       50  
 
Transportation Systems (TS)
    2,524       2,923       2,171       2,014       10       7       2,181       2,021       132       112  
 
Siemens VDO Automotive (SV)
    4,318       4,234       4,313       4,231       5       3       4,318       4,234       192       12  
 
Medical Solutions (Med)
    3,803       4,111       3,632       3,629       29       11       3,661       3,640       500       474  
 
Osram
    2,186       2,238       2,174       2,188       12       49       2,186       2,237       207       168  
 
Other operations(5)
    922       924       596       606       316       367       912       973       122       132  
 
   
     
     
     
     
     
     
     
     
     
 
   
Total Operations Groups
    41,471       50,432       36,647       41,359       2,657       2,953       39,304       44,312       2,170       1,951  
Reconciliation to financial statements
                                                                               
 
Corporate items, pensions and eliminations
    (3,309 )     (4,188 )     89       64       (2,592 )     (2,906 )     (2,503 )     (2,842 )     (879 )     (545 )
 
Other interest expense
                                                    (26 )     (92 )
 
Gains on sales and dispositions of significant business interests
                                                          936  
 
Other assets related reconciling items
                                                           
 
   
     
     
     
     
     
     
     
     
     
 
   
Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)
    38,162       46,244       36,736       41,423       65       47       36,801       41,470       1,265       2,250  
 
   
     
     
     
     
     
     
     
     
     
 
 
                        Income before
                        income taxes
                       
Financing and Real Estate Groups
                                                                               
 
Siemens Financial Services (SFS)
    275       276       214       214       61       62       275       276       142       83  
 
Siemens Real Estate (SRE)
    791       805       124       117       667       688       791       805       110       167  
 
Eliminations
                            (6 )     (4 )     (6 )     (4 )            
 
   
     
     
     
     
     
     
     
     
     
 
   
Total Financing and Real Estate
    1,066       1,081       338       331       722       746       1,060       1,077       252       250  
 
   
     
     
     
     
     
     
     
     
     
 
Eliminations, reclassifications and Corporate Treasury
    1       496       1       490       (787 )     (793 )     (786 )     (303 )     101       (273 )
 
   
     
     
     
     
     
     
     
     
     
 
Siemens worldwide
    39,229       47,821       37,075       42,244                   37,075       42,244       1,618       2,227  
 
   
     
     
     
     
     
     
     
     
     
 

[Additional columns below]

[Continued from above table, first column(s) repeated]

                                                                     
                        Net cash from                   Amortization,
        Net capital   operating and   Capital   depreciation and
        employed(2)   investing activities   spending(3)   impairments(4)
       
 
 
 
        3/31/03   9/30/02   2003   2002   2003   2002   2003   2002
       
 
 
 
 
 
 
 
Operations Groups
                                                               
 
Information and Communication Networks (ICN)
    694       1,100       52       40       88       233       236       232  
 
Information and Communication Mobile (ICM)
    1,908       1,973       167       29       146       155       138       174  
 
Siemens Business Services (SBS)
    462       264       (168 )     (103 )     64       95       125       140  
 
Automation and Drives (A&D)
    2,079       2,197       438       259       104       106       106       112  
 
Industrial Solutions and Services (I&S)
    271       315       (53 )     (171 )     21       35       24       26  
 
Siemens Dematic (SD)
    1,199       975       (238 )     (103 )     23       39       28       32  
 
Siemens Building Technologies (SBT)
    1,620       1,778       176       28       47       68       74       75  
 
Power Generation (PG)
    430       (144 )     71       883       85       91       66       74  
 
Power Transmission and Distribution (PTD)
    894       928       118       71       29       50       32       36  
 
Transportation Systems (TS)
    (177 )     (741 )     (406 )     149       50       68       29       24  
 
Siemens VDO Automotive (SV)
    3,912       3,746       (3 )     (23 )     255       214       195       179  
 
Medical Solutions (Med)
    3,400       3,414       194       337       140       174       98       94  
 
Osram
    2,188       2,436       314       144       118       157       133       143  
 
Other operations(5)
    892       535       (56 )     (108 )     23       22       28       26  
 
   
     
     
     
     
     
     
     
 
   
Total Operations Groups
    19,772       18,776       606       1,432       1,193       1,507       1,312       1,367  
Reconciliation to financial statements
                                                               
 
Corporate items, pensions and eliminations
    (2,614 )     (3,021 )     (987 )(6)     724 (6)     (7 )     3,666       32       43  
 
Other interest expense
                                               
 
Gains on sales and dispositions of significant business interests
                                               
 
Other assets related reconciling items
    45,483       51,944                                      
 
   
     
     
     
     
     
     
     
 
   
Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)
    62,641       67,699       (381 )     2,156       1,186       5,173       1,344       1,410  
 
   
     
     
     
     
     
     
     
 
 
        Total assets            
       
           
Financing and Real Estate Groups
                                                               
 
Siemens Financial Services (SFS)
    8,420       8,681       (7 )     340       81       151       108       122  
 
Siemens Real Estate (SRE)
    3,710       4,090       134       138       67       126       98       100  
 
Eliminations
    (556 )     (561 )     (74 )(6)     (74 )(6)                        
 
   
     
     
     
     
     
     
     
 
   
Total Financing and Real Estate
    11,574       12,210       53       404       148       277       206       222  
 
   
     
     
     
     
     
     
     
 
Eliminations, reclassifications and Corporate Treasury
    (337 )     (1,970 )     589 (6)     (820 )(6)           214             209  
 
   
     
     
     
     
     
     
     
 
Siemens worldwide
    73,878       77,939       261       1,740       1,334       5,664       1,550       1,841  
 
   
     
     
     
     
     
     
     
 


(1)   Group profit of the Operations Groups is earnings before financing interest, certain pension costs, income taxes and certain one-time items, which in management’s view do not relate to the business performance of the Groups.
(2)   Net capital employed of the Operations Groups represents total assets less tax assets, certain accruals and non-interest bearing liabilities other than tax liabilities.
(3)   Intangible assets, property, plant and equipment, acquisitions, and investments.
(4)   Includes amortization and impairments of intangible assets, depreciation of property, plant and equipment, and write-downs of investments.
(5)   Other operations primarily refer to certain centrally-held equity investments and other operating activities not associated with a Group.
(6)   Includes (for “Eliminations” within Financing and Real Estate consists of) cash paid for income taxes according to the allocation of income taxes to Operations, Financing and Real Estate, and Eliminations, reclassifications and Corporate Treasury in the Consolidated Statements of Income.


Table of Contents

SIEMENS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of , except where otherwise stated and per share amounts)

1.   Basis of presentation

     The accompanying consolidated financial statements present the operations of Siemens AG and its subsidiaries (the Company or Siemens). The consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP). Siemens has prepared and reported its consolidated financial statements in euros (“”).

     Interim financial statements—The accompanying consolidated balance sheet as of March 31, 2003, the consolidated statements of income and cash flow for the six months ended March 31, 2003 and 2002 and the consolidated statement of changes in shareholders’ equity for the six months ended March 31, 2003 are unaudited. The interim financial statements are based on the accounting principles and practices applied in the preparation of the financial statements for the last fiscal year except as indicated below. In the opinion of management, these unaudited consolidated financial statements include all adjustments of a normal and recurring nature and necessary for a fair presentation of results for the interim periods. These interim financial statements should be read in connection with the Company’s financial statements and notes included in Siemens’ 2002 Annual Report.

     Financial statement presentation—The presentation of the Company’s worldwide financial data (“Siemens worldwide”) is enhanced by a component model presentation that shows the worldwide financial position, results of operations and cash flows for the operating business (“Operations”) separately from that for the financing and real estate activities (“Financing and Real Estate”), the Corporate Treasury and certain elimination and reclassification effects (“Eliminations, reclassifications and Corporate Treasury”). These components contain the Company’s reportable segments (also referred to as “Groups”). The financial data presented for these components are not intended to present the financial position, results of operations and cash flows as if they were separate entities under U.S. GAAP. See also Note 13.

     Basis of consolidation—The consolidated financial statements include the accounts of Siemens AG and all subsidiaries which are directly or indirectly controlled. Results of associated companies—companies in which Siemens, directly or indirectly, has 20% to 50% of the voting rights and the ability to exercise significant influence over operating and financial policies—are recorded in the consolidated financial statements using the equity method of accounting.

     Use of estimates—The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Reclassification—The presentation of certain prior year information has been reclassified to conform to the current period presentation.

     Accounting changes—On October 1, 2002, Siemens adopted Statement of Financial Accounting Standards (SFAS) 143, Accounting for Asset Retirement Obligations, which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or normal use of the asset. SFAS 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. Such estimates are generally determined based upon estimated future cash flows discounted using a credit-adjusted risk-free interest rate. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, the Company will recognize a gain or loss on settlement. As a result of adopting SFAS 143, income of 59 (36 net of income taxes) has been recorded as a cumulative effect of a change in accounting principle, primarily in connection with the Company’s remediation and environmental accrual related to the decommissioning of the facilities for the production of uranium and mixed-oxide fuel elements in Hanau, Germany (“Hanau facilities”) as well as the facilities in Karlstein, Germany (“Karlstein facilities”). See Note 8 for further information.


Table of Contents

SIEMENS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of , except where otherwise stated and per share amounts)

     On October 1, 2002, the Company adopted SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supersedes SFAS 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, and the accounting and reporting provisions of Accounting Principles Board Opinion No. 30, Reporting the Results of OperationsReporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions, for the disposal of a segment of a business. This statement establishes a single accounting model based on SFAS 121 for long-lived assets to be disposed of by sale, including discontinued operations. Major changes include additional criteria for long-lived assets to qualify as “held for sale” and the requirement that long-lived assets to be disposed of other than by sale be classified as held and used until the disposal transaction occurs. SFAS 144 retains the current requirement to separately report discontinued operations but expands that reporting to include a component of an entity (rather than only a segment of a business) that either has been disposed of or is classified as held for sale. SFAS 144 requires long-lived assets to be disposed of by sale to be recorded at the lower of carrying amount or fair value less costs to sell and to cease depreciation. Siemens applied the provisions of SFAS 144 prospectively and the adoption of SFAS 144 did not have a material impact on the Company’s financial statements.

     In July 2002, the FASB issued SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities, which nullifies Emerging Issues Task Force (EITF) Issue 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS 146 requires that a liability for costs associated with exit or disposal activities first be recognized when the liability is irrevocably incurred rather than at the date of management’s commitment to an exit or disposal plan. Examples of costs covered by the standard include certain employee severance costs, contract termination costs and costs to consolidate or close facilities or relocate employees. In addition, SFAS 146 stipulates that the liability be measured at fair value and adjusted for changes in estimated cash flows. The provisions of the new standard are effective prospectively for exit or disposal activities initiated after December 31, 2002. Siemens applied the provisions of SFAS 146 prospectively and the adoption of SFAS 146 did not have a material impact on the Company’s financial statements.

     In November 2002, the FASB issued FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others (FIN 45), which addresses the disclosure to be made by a guarantor in its interim and annual financial statements about its obligation under guarantees. FIN 45 also requires the guarantor to recognize a liability for the non-contingent component of the guarantee, that is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The Company has adopted the disclosure requirements of FIN 45 (see Note 10 for information about guarantees and for information related to product warranties, see below and Note 7) and has applied the recognition and measurement provisions for all guarantees entered into or modified after December 31, 2002.

     Accruals for product warranties are recorded in cost of sales at the time the related sale is recognized, and are established on an individual basis except for consumer products, which are accrued for on an aggregate basis. The estimates reflect historic trends of warranty costs as well as information regarding product failure experienced during construction, installation or testing of products. In the case of new products, expert opinions and industry data are also taken into consideration in estimating product warranty accruals.

     Recent accounting pronouncements—In December 2002, the FASB issued SFAS 148, Accounting for Stock-Based Compensation — Transition and Disclosure, which amends SFAS 123, Accounting for Stock-Based Compensation. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition this statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition provisions are effective for financial statements for fiscal years ending after December 15, 2002. The enhanced disclosure requirements are effective for periods beginning after December 15, 2002. Siemens has early adopted the disclosure provisions of SFAS 148 (see below).


Table of Contents

SIEMENS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of , except where otherwise stated and per share amounts)

     Pursuant to SFAS 123, Siemens has elected to apply Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations in accounting for its stock-based compensation plans (see Note 11). The following table illustrates recorded compensation expense and the effect on net income and earnings per share if the Company had adopted the fair value based accounting method prescribed by SFAS 123:

                                     
        Three months ended   Six months ended
        March 31,   March 31,
       
 
        2003   2002   2003   2002
       
 
 
 
Net income
                               
 
As reported
    568       1,281       1,089       1,819  
  Plus: Stock-based employee compensation expense included in reported net income, net of taxes           2             20  
  Less: Stock-based employee compensation expense determined under fair value based accounting method, net of taxes     (30 )     (30 )     (63 )     (40 )
 
   
     
     
     
 
 
Pro forma
    538       1,253       1,026       1,799  
 
   
     
     
     
 
Basic earnings per share
                               
 
As reported
    0.64       1.44       1.22       2.05  
 
Pro forma
    0.60       1.41       1.15       2.02  
Diluted earnings per share
                               
 
As reported
    0.64       1.44       1.22       2.05  
 
Pro forma
    0.60       1.41       1.15       2.02  

     In November 2002, the Emerging Issues Task Force (EITF) reached a final consensus on EITF Issue No. 00-21, Revenue Arrangements with Multiple Deliverables. This Issue addresses certain aspects of the accounting by a vendor for arrangements under which it will perform multiple revenue-generating activities, specifically how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting. The Issue also addresses how arrangement consideration should be measured and allocated to the separate units of accounting in the arrangement. The guidance in this Issue is effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003, with a possible alternative means of adoption by applying the new rules to existing contracts and recording the effect of adoption as a cumulative effect of a change in accounting principle. The Company is currently evaluating the impact the adoption of EITF Issue No. 00-21 will have on its financial statements.

     In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities (FIN 46), which interprets Accounting Research Bulletin (ARB) No. 51, Consolidated Financial Statements. FIN 46 clarifies the application of ARB No. 51 with respect to the consolidation of certain entities (variable interest entities — “VIE’s”) to which the usual condition for consolidation described in ARB No. 51 does not apply because the controlling financial interest in VIE’s may be achieved through arrangements that do not involve voting interests. In addition, FIN 46 requires the primary beneficiary of VIE’s and the holder of a significant variable interest in VIE’s to disclose certain information relating to their involvement with the VIE’s. The provisions of FIN 46 apply immediately to VIE’s created after January 31, 2003, and to VIE’s in which an enterprise obtains an interest after that date. FIN 46 applies in the first fiscal year or interim period beginning after June 15, 2003, to VIE’s in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company is currently evaluating potential entities with respect to their treatment under FIN 46. While it is reasonably possible that some of these structures will have to be consolidated, the Company does not expect a material impact on its financial statements. In addition, the Company has not identified any significant variable interests that will require disclosure.

     In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. This statement clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative, clarifies when a derivative contains a financing component and amends certain other definitions and existing pronouncements. The statement is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated for after June 30, 2003, and should be applied prospectively. The Company is currently evaluating the impact the adoption will have on its financial statements.


Table of Contents

SIEMENS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in millions of , except where otherwise stated and per share amounts)

2.   Other operating income (expense), net

                 
    Six months ended
    March 31,
   
    2003   2002
   
 
Gains (losses) on sales and disposals of businesses, net
    21       936  
Gains (losses) on sales of property, plant and equipment, net
    40       63  
Other
    223       (59 )
 
   
     
 
 
    284       940  
 
   
     
 

     Gains (losses) on sales and disposals of businesses, net for the six months ended March 31, 2002 relates to the sale of 63.1 million shares of Infineon in open market transactions. Other for the first six months of fiscal 2003 includes net gains of 258 related to cancellation of orders at PG.

3.   Interest income, net