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Siemens in the first quarter 2007 (October 1, 2006 to December 31, 2006)


WEBWIRE

Munich, Jan 25, 2007

Effective with the first quarter of fiscal 2007, Siemens prepares its primary financial reporting according to International Financial Reporting Standards (IFRS) on a retroactive basis.

• Group profit from Operations rose 51%, to €1.631 billion.
• Strong operating profit growth was not evident in net income of €788 million, which included a €423 million negative impact from Siemens’ share of European Commission sanctions on major suppliers of certain power transmission and distribution products.
• Income from continuing operations also included the sanction effect, but still rose 18%, to €714 million.
• Revenue increased 6% compared to the prior-year period, to €19.068 billion, and orders rose 4%, to €24.582 billion. On a comparable basis, excluding currency translation effects and the net effect of acquisitions and dispositions, revenue and orders increased 10% and 8%, respectively.
• On a continuing basis, net cash used in operating and investing activities was €1.160 billion compared to net cash used of €724 million in the first quarter a year earlier.

“In terms of the underlying performance of our business, the first quarter got the fiscal year off to a strong start,” said Siemens CEO Klaus Kleinfeld. “Order growth was particularly satisfying, considering that the prior-year basis of comparison was already quite high. We also brought more of our revenue growth to the bottom line, with a substantial increase in Group profit from Operations. While it is disappointing to see our net income growth reversed by an impact from events in the past, we are moving on with our operations tremendously improved year-over-year. This shows that Fit4More is delivering a more profitable and growth-oriented portfolio for Siemens, and we are continuing in that direction by closing the deals we announced last year and initiating new ones. We look forward to maintaining this momentum.”

In the first quarter of fiscal 2007, ending December 31, 2006, Siemens reported net income of €788 million, a decrease of 16% compared to €939 million in the prior-year period. Basic earnings per share were €0.83 and diluted earnings per share were €0.80. In the first quarter a year earlier, both basic and diluted earnings per share were €0.99. Discontinued operations, primarily the businesses formerly reported as the Communications (Com) segment, contributed €74 million to net income in the first quarter. In the same period a year earlier, earnings of discontinued operations of €332 million included a €356 million gain on the sale of Juniper shares only partially offset by €142 million in severance charges. Excluding discontinued operations, income from continuing operations was €714 million in the first quarter, an increase of 18% compared to €607 million in the same period a year earlier. On a continuing basis, basic earnings per share were €0.75 and diluted earnings per share were €0.73. In the first quarter of the prior year, both basic and diluted earnings per share were €0.64.

The primary driver of growth in net income and income from continuing operations was Group profit from Operations, which rose 51% year-over-year, to €1.631 billion. All Groups within Operations reported positive results, and the majority increased both Group profit and profit margin compared to the first quarter a year ago. Automation and Drives (A&D) led all Groups with €450 million in Group profit, followed by Medical Solutions (Med), Power Generation (PG) and Siemens VDO Automotive (SV). Siemens Business Services (SBS) posted a profit compared to a substantial loss in the first quarter a year earlier.

Net income in the first quarter included a penalty of €423 million arising from a previously disclosed European Commission antitrust investigation, involving providers of certain gas-isolated switchgear in the power transmission and distribution industry between 1988 and 2004. The penalty, which is not tax-deductible, was taken within Corporate items. Net income was positively influenced by Corporate Treasury earnings, which under IFRS swung from a negative €312 million in the first quarter a year ago to a positive €46 million in the current quarter. The prior-year period included a €315 million negative effect related to a cash settlement option on a convertible bond. Earnings from Financing and Real Estate activities were €152 million compared to €182 million in the first quarter a year earlier.

First-quarter revenue increased 6% year-over-year, to €19.068 billion. Orders of €24.582 billion were 4% higher compared to the strong first quarter a year earlier. Excluding currency translation and portfolio effects, first-quarter revenue rose 10% and orders climbed 8% year-over-year. Revenue growth was balanced regionally, while order growth was concentrated in the Americas, the Middle East, and Europe including Germany. Double-digit contributions to revenue growth came from PG, PTD, A&D and Siemens Building Technologies (SBT), while order growth was driven by double-digit increases at PTD, PG and Industrial Solutions and Services (I&S).

For Siemens on a continuing basis, net cash used in operating and investing activities was €1.160 billion compared to €724 million in the first quarter a year earlier. The difference is due primarily to the first payment for the acquisition of the diagnostics division of Bayer AG.

Operations in the first quarter fiscal 2007

Information and Communications

Siemens Business Services (SBS)

SBS posted Group profit of €24 million in the first quarter of fiscal 2007. For comparison, the Group’s loss in the first quarter a year earlier included €207 million in severance charges. First-quarter revenue of €1.180 billion and orders of €1.217 billion were lower than a year earlier due to the Group’s divestment of its Product Related Services (PRS) division between the periods under review. On an adjusted basis, revenue and orders were up 6% and 8%, respectively.

Automation and Control

Automation and Drives (A&D)

A&D increased first-quarter Group profit 25%, to a new high of €450 million, on 14% revenue growth. A&D continued to benefit from strong operating leverage, resulting in a broad-based increase in earnings and profitability year-over-year. A&D also posted broad-based growth in first-quarter revenue and orders, which reached €3.390 billion and €4.019 billion, respectively. Demand growth in Europe was highlighted by particularly strong order intake in Germany.

Industrial Solutions and Services (I&S)

First-quarter Group profit at I&S jumped 41% year-over-year, to €90 million, including higher earnings and profit margins at the Group’s two largest divisions, Metal Technologies and Industrial Services. Broad-based customer demand increased first-quarter revenue 5% year-over-year, to €2.073 billion. I&S also won a number of large new contracts during the period, taking orders up to €3.057 billion, 13% above the high level recorded in the first quarter a year earlier.

Siemens Building Technologies (SBT)

Group profit at SBT increased to €72 million, 29% above the first quarter a year earlier, as all divisions posted higher earnings and profit margins. Revenue increased on a Group-wide basis as well, rising 10% year-over-year to €1.213 billion. Orders were up 1%, at €1.386 billion.

Power

Power Generation (PG)

Strong demand continued across PG’s entire range of power generation solutions, as first-quarter revenue rose 31% year-over-year, to €2.726 billion, and orders climbed 24%, to a new quarterly high of €5.017 billion. New fossil power generation contracts were well distributed geographically, including major orders in Africa, the Americas, Asia-Pacific, Europe and the Middle East. The Group’s industrial and wind power businesses both posted sharply higher earnings and profit margins compared to the same quarter a year earlier. Group profit of €169 million for PG overall came in below the prior-year level, however, as the fossil power generation business took €92 million in charges related to cost overruns and delays on a major project in Finland. In addition, equity earnings from joint ventures were lower than in the first quarter a year earlier and are expected to remain volatile in coming quarters.

Power Transmission and Distribution (PTD)

PTD delivered €130 million in Group profit in the first quarter, 59% higher than in the same period a year earlier. Profitability also rose substantially, as a majority of the Group’s divisions posted higher earnings and profit margins. The penalty mentioned earlier is taken centrally in Corporate items. First-quarter revenue for the Group climbed 19% year-over-year, to €1.728 billion. Orders of €3.146 billion, fueled by an exceptionally large contract in the Middle East, were up 27% compared to a strong first quarter a year ago.

Transportation

Transportation Systems (TS)

TS recorded Group profit of €47 million in the first quarter. A net gain of €76 million on the sale of the Group’s locomotive leasing business was largely offset by charges related to major projects. First-quarter revenue of €1.073 billion came in above the prior-year level. Orders exceeded revenue but came in well below the level of the prior-year quarter, which included an exceptionally large order in China.

Siemens VDO Automotive (SV)

Group profit was €146 million at SV in the first quarter compared to €156 million in the same period a year earlier. Both periods include positive effects from portfolio activities. First-quarter revenue of €2.418 billion was nearly level year-over-year.

Medical

Medical Solutions (Med)

Med contributed Group profit of €304 million in the first quarter, 25% higher than in the same period a year earlier. The Group’s profit margin benefited from currency-related effects. Revenue rose 6% to €2.102 billion and orders increased 3% to €2.211 billion, including for the first time a full quarter of new volume from Med’s Diagnostics division, formed following acquisition of Diagnostic Products Corp. After the close of the current quarter, Med completed its acquisition of Bayer’s diagnostics business and merged it into the Diagnostics division. The Group expects integration costs relating to the acquisition and merger in the second quarter.

Lighting

Osram

First-quarter Group profit at Osram rose to €123 million. Revenue increased to €1.174 billion, a 7% increase excluding currency translation effects. Growth included substantial contributions from innovative products and particular strength in Asia-Pacific and Europe.

Strategic Equity Investments (SEI)
Beginning in fiscal 2007, Siemens reports centrally held equity investments in a new segment, Strategic Equity Investments (SEI). During the first quarter, SEI consisted of Fujitsu Siemens Computers (Holding) BV (FSC) and Bosch und Siemens Hausgeräte GmbH (BSH). These investments were formerly included within Other Operations. A new company announced by Siemens and Nokia Corporation in fiscal 2006, to be called Nokia Siemens Networks (NSN), will be included in SEI following the expected close of the NSN transaction in the second quarter of fiscal 2007. In the first quarter, SEI contributed earnings of €52 million compared to €46 million in the same period a year earlier. The increase was attributable to BSH.

Other Operations
Other Operations consist of centrally held operating businesses not related to a Group, including Siemens Home and Office Communication Devices (SHC). Group profit from Other Operations was €24 million in the first quarter. A year earlier, a negative €13 million in Group profit from Other Operations was due primarily to losses at Siemens’ Dematic businesses, which were divested between the periods under review.

Corporate items, pensions and eliminations
Corporate items, pensions and eliminations totaled a negative €663 million in the first quarter, compared to a negative €91 million a year earlier. The change was due mostly to an increase within Corporate items, which included the €423 million penalty mentioned earlier along with effects related to commodity hedging activities not qualifying for hedge accounting and €54 million primarily to fund job placement companies for former Siemens employees affected by the bankruptcy of BenQ Mobile GmbH & Co. OHG. Pension expense increased year-over-year, from a positive €23 million to a negative €30 million, primarily due to an obligation resulting from a change in German law.

Financing and Real Estate

Siemens Financial Services (SFS)

Income before income taxes at SFS was €83 million in the first quarter, including a gain on the sale of shares by the Equity division. Assets of €10.457 billion were nearly level compared to the end of fiscal 2006.

Siemens Real Estate (SRE)

Income before income taxes at SRE was €69 million, including a high level of real estate sales. The same factor was even more significant in the first quarter a year earlier, when income before income taxes reached €104 million. Assets remained nearly unchanged compared to the level at the end of fiscal 2006.

Eliminations, reclassifications and Corporate Treasury
Income before taxes from eliminations, reclassifications and Corporate Treasury was €46 million compared to a negative €312 million a year earlier. The difference resulted primarily from a negative €315 million effect under IFRS in the prior-year quarter, related to mark-to-market valuation of the cash settlement option associated with a €2.5 billion convertible bond issued by Siemens in 2003. This option was irrevocably waived in the third quarter of fiscal 2006, effectively eliminating subsequent earnings effects. In the current quarter, higher interest income from cash and cash equivalents and from intra-company financing was more than offset by higher interest expense associated with the issuance of bonds between the periods under review.

Income statement highlights in the first quarter 2007
Siemens reported first-quarter net income of €788 million compared to €939 million a year earlier. Income from continuing operations was €714 million compared to €607 million in the first quarter a year earlier. Gross profit increased 6% year-over-year, in line with 6% growth in revenue compared to the prior-year period. Gross profit margin remained stable at 25.2%. Research and development expenses were 4.1% of revenue, down from 4.4% in the first quarter a year earlier. Marketing, selling and general administrative expenses also declined as a percent of revenue, to 14.9% from 16.7% in the prior-year period, primarily due to an improved cost position at SBS. Other operating expense of €499 million included the €423 million penalty mentioned earlier. In the prior-year quarter, other operating expense was €34 million. Financial income was a negative €5 million compared to a negative €262 million in the first quarter a year earlier, which included the convertible bond effect at Corporate Treasury mentioned above.

Discontinued operations consist primarily of the telecommunications carrier and enterprise network activities of the former Communications Group. These businesses are included in discontinued operations on a retroactive basis, to provide a meaningful basis of comparison with prior periods. Income from discontinued operations, net of income taxes, was €74 million in the first quarter, down from €332 million in the same period a year earlier. The prior-year period included a pretax gain of €356 million on sales of shares in Juniper Networks, Inc. (Juniper), more than offsetting €142 million in pretax severance charges. In the telecommunications carrier business, earnings rose on stable revenue. The enterprise business narrowed its loss on lower revenue year-over-year.

Revenue and order trends for the first quarter 2007
Revenue in the first quarter was €19.068 billion, a 6% increase from €17.976 billion in the prior-year period. Orders were €24.582 billion, 4% higher than €23.667 billion in the first quarter a year earlier. On an organic basis, excluding currency translation effects and the net effect of acquisitions and dispositions, revenue climbed 10% and orders rose 8%.

First-quarter revenue in Germany rose 2%, to €3.900 billion, while orders increased 6% year-over-year, to €4.871 billion. International activities accounted for the remaining 80% of revenue and orders in the first quarter. The fastest growth on a regional basis came in the Middle East/Africa/CIS, where revenue rose 16%, to €1.585 billion, and orders climbed 11%, to €2.429 billion. Asia-Pacific revenue grew 15%, to €2.697 billion, while orders of €3.092 billion came in below the prior-year period which included unusually high order volume, particularly in China and India. In the Americas, revenue of €4.948 billion and orders of €6.384 billion were 4% and 15% higher, respectively, than in the first quarter a year ago. Adjusting for currency translation and portfolio effects, revenue and orders in the region were up 13% and 25%. In Europe outside Germany, revenue rose 4%, to €5.938 billion, and orders were up 8%, at €7.806 billion.

Liquidity for the first quarter 2007
Net cash used in operating and investing activities was €2.210 billion in the first quarter compared to €899 million in the same period a year earlier. Discontinued operations was the main factor in the difference year-over-year. In the first quarter a year ago, net cash used in discontinued operations was €175 million, which benefited from €465 million in proceeds from the sale of Juniper shares. In the current period, discontinued operations used net cash of €1.050 billion, including a higher build-up of net working capital. On a continuing basis, Siemens in the first quarter used €1.160 billion in net cash from operating and investing activities compared to €724 million used in the same period a year earlier.

Within Operations, net cash used in operating and investing activities was €1.402 billion in the first quarter compared to €820 million in net cash used in the same period a year earlier. The increase in net cash used by operating activities within Operations included significantly higher tax payments. Net working capital increased by a lower amount during the quarter compared to the prior year. Cash used in investing activities within Operations was higher compared to the first quarter a year earlier, primarily due to a €0.4 billion first payment for Bayer’s diagnostics business at Med and cash used to acquire AG Kühnle, Kopp & Kausch at PG. Capital expenditures decreased year-over-year.

Funding status of pension plans
The estimated underfunding of Siemens’ principal pension plans as of December 31, 2006, amounted to approximately €2.0 billion compared to an underfunding of approximately €2.9 billion at the end of fiscal 2006. The improvement in funding status is primarily due to regular contributions and the actual return on plan assets. Pension service and interest cost were offset by the effect of a slight increase in the discount rate assumption at December 31, 2006, which reduced Siemens’ estimated defined benefit obligation. The actual return on plan assets during the last three months amounted to €630 million. This represents a 11.2% return on an annualized basis, well above the expected annual return of 6.5%.

Subsequent events
After the close of the first quarter, Siemens completed its acquisition of the diagnostics division of Bayer AG for an estimated purchase price of €4.4 billion payable in cash. The acquisition expands Med’s position in the growing in vitro diagnostics market.

On January 24, Siemens announced an agreement to acquire U.S.-based UGS Corp., one of the leading providers of product lifecycle management (PLM) software and services for manufacturers, from its current owners Bain Capital Partners, Silver Lake Technology Management and Warburg Pincus. The aggregate consideration, including the assumption of debt, amounts to approximately U.S.$3.5 billion (approximately €2.7 billion). Upon approval of the transaction by relevant regulatory authorities, the activities of UGS will become part of A&D.

On January 24, Siemens announced that it plans an initial public offering of a minority of shares in Siemens VDO Automotive (SV).

Note: Starting today at 10 a.m. CET, we will provide a live video webcast on the internet of Chairman of the Supervisory Board Dr. Heinrich v. Pierer’s, Member of the Supervisory Board and Chairman of the Audit Committee Dr. Gerhard Cromme’s and CEO Dr. Klaus Kleinfeld’s speeches to the Annual Shareholders’ Meeting at the Olympic Hall in Munich, Germany. You can access the webcast at www.siemens.com/agm. A video of the speeches will be available after the live webcast. Starting at 8:30 a.m. CET, Siemens CEO Dr. Klaus Kleinfeld and CFO Joe Kaeser will hold a conference call with analysts and investors. You can follow the conference call live on the internet by going to www.siemens.com/analystcall.

IFRS Conversion
Beginning with the first quarter of fiscal 2007, Siemens prepares its primary financial reporting according to International Financial Reporting Standards (IFRS). For the years prior to fiscal 2007, Siemens prepared its primary financial reporting according to United States Generally Accepted Accounting Principles (U.S. GAAP). As part of its transition to IFRS, Siemens has published IFRS Consolidated Financial Statements for fiscal 2006 and fiscal 2005 as supplemental information to its U.S. GAAP figures. This document is available at www.siemens.com/investors, where you can also find a presentation explaining major differences between IFRS and U.S. GAAP in Siemens financial results.

This document contains forward-looking statements and information – that is, statements related to future, not past, events. These statements may be identified by words as “expects”, ”looks forward to”, “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will” or words of similar meaning. Such statements are based on our current expectations and certain assumptions, and are, therefore, subject to certain risks and uncertainties. A variety of factors, many of which are beyond Siemens’ control, affect its operations, performance, business strategy and results and could cause the actual results, performance or achievements of Siemens worldwide to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. For us, particular uncertainties arise, among others, from: changes in general economic and business conditions (including margin developments in major business areas); the challenges of integrating major acquisitions and implementing joint ventures and other significant portfolio measures; changes in currency exchange rates and interest rates; introduction of competing products or technologies by other companies; lack of acceptance of new products or services by customers targeted by Siemens worldwide; changes in business strategy; the outcome of investigations and legal proceedings as well as various other factors. More detailed information about certain of these factors is contained in Siemens’ filings with the SEC, which are available on the Siemens website, www.siemens.com and on the SEC’s website, www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the relevant forward-looking statement as expected, anticipated, intended, planned, believed sought, estimated or projected. Siemens does not intend or assume any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated.

Reference number: AXX200701.45 e

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