Edgar Filing: SIEMENS AKTIENGESELLSCHAFT

SIEMENS INTERM REPORT

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 August 6, 2004

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.


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

INTRODUCTION

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


Key Figures			1
Management’s Discussion and Analysis			2
Consolidated Financial Statements			23
Notes			23
Quarterly Summary			38
Supervisory and Managing Board Changes			39
Financial Calendar			40
Signatures

Key figures

3rd quarter⁽¹⁾

first nine months⁽²⁾

2004

2003

2004

2003

Net income

815

632

2,751

1,721

(in millions of euros)

Earnings per share⁽³⁾

0.91

0.71

3.09

1.93

(in euros)

Net cash from operating and investing activities

279

266

2,653

527

(in millions of euros)

therein:

Net cash provided by operating activities

1,107

2,038

2,685

3,310

Net cash used in investing activities

(828

)

(1,772

)

(32

)

(2,783

)

Supplemental contributions to pension trusts

—

(1,255

)

(442

)

(included in net cash provided by operating activities)

Net proceeds from the sale of Infineon shares

—

1,794

—

(included in net cash used in investing activities)

New orders

(in millions of euros)

19,077

17,215

59,283

56,444

Sales

(in millions of euros)

18,216

17,380

54,339

54,455


	June 30, 2004		September 30, 2003
Employees (in thousands)		418		417
Germany		165		170
International		253		247

(1)		April 1 – June 30, 2004 and 2003, respectively
(2)		October 1, 2003 and 2002 – June 30, 2004 and 2003, respectively
(3)		Earnings per share – basic

MANAGEMENT’S DISCUSSION AND ANALYSIS

OVERVIEW OF FINANCIAL RESULTS FOR THE THIRD QUARTER OF FISCAL 2004

	•		Net income was €815 million, up 29% from €632 million in the third fiscal quarter a year ago.

	•		Orders rose 11% to €19.077 billion and sales were up 5% to €18.216 billion from the third-quarter levels of fiscal 2003.

	•		Net cash from operating and investing activities for the third quarter was €279 million, up from €266 million in the third quarter a year earlier.

For the third quarter ended June 30, 2004, Siemens reported net income of €815 million compared to €632 million in the same period a year earlier. Basic and diluted earnings per share rose to €0.91 and €0.88, respectively, compared to €0.71 per share in the prior-year period. Net income rose on the strength of Operations Groups.

In Operations, a majority of Siemens’ Groups achieved double-digit earnings growth and higher profit margins compared to the same quarter of fiscal 2003. Top earnings performers included Automation and Drives (A&D), Power Generation (PG), Medical Solutions (Med), Siemens VDO Automotive (SV), and Osram. Challenges remain at Transportation Systems (TS) and Siemens Business Services (SBS), which reported losses.

Third-quarter orders climbed 11% to €19.077 billion from €17.215 billion a year earlier, and third-quarter sales rose 5% to €18.216 billion from €17.380 billion in the prior year. Business volume was particularly strong in the closing month of the quarter. International business drove order growth, rising 16% year-over-year. Significantly reduced capital expenditures for rail transportation projects contributed to an 8% decline in orders in Germany year-over-year.

Operations generated €379 million in net cash in the third quarter, despite a build-up in net working capital associated with volume growth. In the prior-year period, Operations used net cash of €569 million due to major investments. The two other components of Siemens worldwide, which include Financing and Real Estate and Corporate Treasury activities, used net cash of €100 million in the current period, particularly reflecting renewed asset growth in the financing business. In contrast, these activities provided net cash of €835 million in the prior-year period. In aggregate, net cash from operating and investing activities for Siemens worldwide was €279 million in the third quarter, up year-over-year from €266 million.

RESULTS OF SIEMENS WORLDWIDE

Results of Siemens worldwide — Third quarter of fiscal 2004 compared to third quarter of fiscal 2003

Orders in the third quarter of fiscal 2004 improved 11%, to €19.077 billion, up significantly from €17.215 billion a year earlier. Sales increased 5% year-over-year to €18.216 billion, up from €17.380 billion in the prior-year period.

Gross profit as a percentage of sales in the third quarter of fiscal 2004 increased to 29.6% from 29.4% in the prior year. Most of Siemens’ Groups increased their gross profit margins, led by significant improvements at A&D and SV. Gross profit margins were lower at TS and Med.

Research and development (R&D) expenses were €1.264 billion compared to €1.248 billion in the prior-year quarter. R&D spending as a percentage of sales was 6.9% of sales, compared to 7.2% in the prior-year quarter, and represented a smaller percentage of sales due to revenue growth year-over-year. Marketing, selling and general administrative expenses of €3.287 billion, or 18.0% of sales, rose more slowly than revenues in the third quarter, compared to €3.190 billion, or 18.4% in the same period a year earlier.

Other operating income (expense), net was €13 million, compared to €124 million in the prior-year period, which included higher cancellation gains at PG and a gain arising from Med’s contribution of assets to a joint venture. Income (loss) from investments in other companies, net improved to €70 million compared to €16 million in the third quarter a year earlier. The prior-year period included a negative €43 million representing Siemens’ equity share of Infineon’s net loss, while the current period does not include an equity share of Infineon’s net results.

The effective tax rate on income in the third quarter of fiscal 2004 was 16%, compared to 22% in the third quarter a year ago. The current period tax rate benefited from a number of tax effects outside of Germany which collectively reduced Siemens’ effective tax rate compared to the prior-year quarter.

Net income in the third quarter increased sharply to €815 million, up from €632 million last year. Basic and diluted earnings per share were €0.91 and €0.88, respectively, for the third quarter of fiscal 2004. Basic and diluted earnings per share were €0.71 in the same quarter of fiscal 2003.

Results of Siemens worldwide — First nine months of fiscal 2004 compared to first nine months of fiscal 2003

Orders for the first nine months of fiscal 2004 increased to €59.283 billion, up 5% from €56.444 billion, while sales were €54.339 billion, nearly level with €54.455 billion from a year earlier. Excluding currency translation effects and the net effect of acquisitions and dispositions, orders and sales were 7% and 4% higher, respectively. Sales in Germany for the first nine months of fiscal 2004 were €12.500 billion, up 2% compared to the same period a year earlier, while orders in Germany decreased 3% year-over-year, to €12.244 billion. International sales decreased 1% year-over-year, to €41.839 billion, and international orders increased 7%, to €47.039 billion. Excluding currency translation effects and the net effect of acquisitions and dispositions, international sales for the first nine months rose 3% and international orders climbed 10%.

Within international results, sales in the U.S. of €9.768 billion for the first nine months were 15% lower compared to the same period a year earlier. Orders of €10.381 billion for the first nine months were 4% lower year-over-year. Excluding currency translation effects, sales were 4% lower and orders were up 9% in the U.S. year-over-year. Sales in the Asia-Pacific region for the first nine months increased 8% year-over-year, to €6.615 billion, and orders decreased 3%, to €7.271 billion. Excluding currency translation effects, sales in the Asia-Pacific region rose 13% and orders rose 2%. Sales in China were €2.131 billion, 11% above the prior-year level, while orders reached €2.265 billion, up 12%. Excluding currency translation effects, sales in China rose 19% and orders climbed 21%.

Gross profit as a percentage of sales in the first nine months of fiscal 2004 increased to 29.3% from 28.6% in the prior-year period. The improvement in the current nine months resulted from higher margins at a majority of Siemens’ Groups. Among the Groups, in particular Information and Communication Mobile (ICM), A&D and PG recorded significantly higher gross profit while gross profit was lower at Med and TS. The prior-year period was negatively impacted by charges taken at Logistics and Assembly Systems (L&A - formerly called Siemens Dematic) for contract loss provisions as well as allowances on inventory, related in part to project cancellations at PG.

Other operating income (expense), net was a negative €311 million compared to a positive €408 million in the first nine months of fiscal 2003, which included significantly higher net cancellation gains at PG. The current period primarily includes the €433 million goodwill impairment related to the airport logistics and distribution and industry logistics activities acquired from Atecs Mannesmann (Atecs) and gains from portfolio activities, particularly related to the sale of Med’s Life Support Systems (LSS) business. Income (loss) from investments in other companies, net increased to €952 million, up from €44 million in the first nine months of the prior year. The current year included the pre-tax gain of €590 million from the sale of Infineon shares and higher equity earnings, particularly at BSH Bosch und Siemens Hausgeräte GmbH. In fiscal 2004, Siemens’ equity share of Infineon’s net result was a positive €14 million compared to a negative €187 million in the prior-year period. In the second quarter of fiscal 2004, the Company reduced its ownership in Infineon to 18.9% and, accordingly, ceased accounting for its equity interest in Infineon under the equity method. For further information, see Note 3 to Consolidated Financial Statements.

The effective tax rate in the first nine months of fiscal 2004 was 12%, positively impacted by a €246 million reversal in deferred tax liabilities arising as a consequence of the Infineon share sale, the sale of LSS by Med, and a number of positive tax effects outside of Germany. For comparison, the effective tax rate was 29% in the prior year period.

Net income for the first nine months of fiscal 2004 increased 60% year-over-year, to €2.751 billion, up from €1.721 billion a year earlier. The current period improvement was primarily influenced by the factors noted above. Basic and diluted earnings per share for the first nine months were €3.09 and €2.96, respectively, well above basic and diluted earnings per share of €1.93 in the same period a year earlier.

As a result of the adoption of Statement of Financial Accounting Standards (SFAS) 143, Accounting for Asset Retirement Obligations, on October 1, 2002, the income in the first nine months of fiscal 2003 included €59 million (€36 million net of income taxes, or €0.04 per share) which was recorded as a cumulative effect of a change in accounting principle.

DISPOSITION

In the nine months ended June 30, 2004, Med realized €118 million in gains from portfolio transactions. Included in this amount was a pre-tax gain of €105 million in connection with Med’s sale of its LSS business to Getinge AB, Sweden. Net proceeds from the sale totaled €176 million. As stipulated by the contribution agreement for the joint venture Dräger Medical AG & Co. KGaA (Dräger), Siemens contributed to Dräger these net proceeds less expected taxes on the sale.

SEGMENT INFORMATION ANALYSIS

Operations

Information and Communications

Information and Communication Networks (ICN)


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		51			(125	)								139			(423	)
Group profit margin		3.0	%		(7.4	)%								2.8	%		(8.2	)%
Sales		1,678			1,687			(1	)%		0	%		4,996			5,170			(3	)%		0	%
New orders		1,608			1,756			(8	)%		(7	)%		5,230			5,385			(3	)%		0	%

Excluding currency translation effects.

In the third quarter of fiscal 2004, ICN posted Group profit of €51 million compared to a loss a year earlier, when the Group took €72 million in charges primarily related to Efficient Networks, Inc. Third-quarter earnings at the Carrier Networks and Services business were €15 million compared to a loss of €128 million in the prior-year period, which included the charges mentioned above. Sales were €816 million, up from €801 million a year earlier. The Enterprise Networks division contributed €49 million in third-quarter earnings on sales of €859 million, compared to €62 million and €893 million in the prior-year quarter. For ICN overall, third-quarter sales were nearly level with the prior-year total, while orders were down 8%.

For the first nine months of fiscal 2004, ICN posted Group profit of €139 million compared to a loss of €423 million in the same period of fiscal 2003, which included significant charges for severance and asset write-downs. The positive development year-over-year is most evident at the Carrier Networks and Services business. Sales declined modestly to €4.996 billion for the first nine months compared to €5.170 billion in the same period a year earlier. Similarly, orders were slightly below the prior-year level at €5.230 billion compared to €5.385 billion.

Information and Communication Mobile (ICM)


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		64			17			276	%					296			131			126	%
Group profit margin		2.6	%		0.8	%								3.7	%		1.8	%
Sales		2,446			2,160			13	%		15	%		8,064			7,345			10	%		12	%
New orders		2,851			2,313			23	%		25	%		8,586			7,122			21	%		23	%

Excluding currency translation effects.

ICM improved third-quarter Group profit year-over-year to €64 million in a market that remained intensely competitive. Earnings at the Mobile Networks division were €133 million on sales of €1.180 billion, compared to earnings of €36 million on sales of €968 million in the third quarter a year earlier. The Mobile Phones division generated €996 million in sales on a volume of 10.4 million handsets, up from €922 million and 8.1 million units in the same period a year earlier. Average selling price declined year-over-year, contributing to a loss of €88 million in the third quarter. For comparison, the division posted a loss of €42 million in the prior-year quarter, which included a positive effect related to warranty performance. For ICM as a whole, sales rose 13%, to €2.446 billion. Order growth of 23% included a major infrastructure order in Italy and market interest in the Mobile Phones’ new 65 series.

For the first nine months of the fiscal year, ICM’s Group profit was €296 million, up from €131 million in the same period of fiscal 2003. The Mobile Networks division was the driver of the increase, with earnings of €235 million compared to €55 million in the first nine months a year earlier, which included positive net effects, particularly relating to a reduction in customer financing exposure. Nine-month sales for the division rose 8%, to €3.505 billion. The Mobile Phones division generated €3.725 billion in sales on a volume of 38.4 million handsets in the first nine months, up from €3.214 billion and 27.1 million units in the same period a year earlier. Average selling price declined due to competitive pressures. As a result, the division posted a nine-month loss of €11 million in the current year compared to a nine-month profit of €12 million a year earlier, which included the warranty-related positive effect mentioned above. For ICM overall, sales for the current period rose 10% year-over-year, to €8.064 billion, while orders climbed 21% year-over-year, to €8.586 billion.

Siemens Business Services (SBS)


				Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		(2	)		17									68			54			26	%
Group profit margin		(0.2	)%		1.3	%								2.0	%		1.4	%
Sales		1,140			1,283			(11	)%		(11	)%		3,471			3,888			(11	)%		(10	)%
New orders		1,218			1,297			(6	)%		(6	)%		3,951			3,982			(1	)%		0	%

Excluding currency translation effects.

SBS posted a loss for the third quarter, reflecting pricing pressure in a weak market for IT solutions as well as delays in implementing capacity adjustments. Third-quarter sales declined to €1.140 billion and orders were also down year-over-year, at €1.218 billion.

Group profit at SBS was up for the first nine months, at €68 million based on strong first quarter earnings, compared to €54 million for the same period a year earlier. While nine-month sales of €3.471 billion were lower than in the prior-year period, orders of €3.951 billion were nearly level with the prior-year period.

Automation and Control

Automation and Drives (A&D)


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		308			203			52	%					764			566			35	%
Group profit margin		13.9	%		9.8	%								12.0	%		9.3	%
Sales		2,208			2,074			6	%		7	%		6,360			6,090			4	%		7	%
New orders		2,290			2,078			10	%		11	%		6,670			6,467			3	%		6	%

*		Excluding currency translation effects of (2)% and portfolio effects of 1% on sales and orders.
**		Excluding currency translation effects of (4)% and portfolio effects of 1% on sales and orders.

A&D was Siemens’ top earnings performer in the third quarter. Group profit rose 52% to a record high of €308 million, driven by continuing productivity increases across all divisions in an improved macroeconomic environment. The Industrial Automation Systems division contributed particularly strong profitability, helping to push A&D’s earnings margin close to 14%. Third-quarter sales rose 6% year-over-year, to €2.208 billion. Orders climbed 10% to €2.290 billion, reflecting rapid growth in Asia-Pacific, particularly in China, and improving demand in Europe.

A&D boosted nine-month Group profit 35% year-over-year, to €764 million influenced by continuing productivity increases across all divisions in an improved macroeconomic environment. Sales for the first nine months rose 4% to €6.360 billion and orders for the period of €6.670 billion were up 3% compared to the prior-year period. Excluding currency translation and portfolio effects, sales and orders for the first nine months rose 7% and 6%, respectively, compared to a year earlier.

Industrial Solutions and Services (I&S)


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		19			5			280	%					60			(24	)
Group profit margin		1.9	%		0.5	%								2.0	%		(0.8	)%
Sales		1,001			959			4	%		5	%		2,981			2,878			4	%		6	%
New orders		952			911			5	%		6	%		3,166			2,996			6	%		9	%

Excluding currency translation effects.

Third-quarter Group profit at I&S was €19 million, benefiting from a positive effect related to capacity reduction programs. Sales of €1.001 billion and orders of €952 million for the quarter increased from the prior-year quarter 4% and 5%, respectively.

I&S recorded Group profit for the first nine months of €60 million. This result compares to a loss of €24 million for the same period a year earlier, which included significant charges, primarily for severance payments. Nine-month sales for I&S rose 4% year-over-year, to €2.981 billion, and orders for the same period increased 6% year-over-year, to €3.166 billion. Excluding currency translation effects, sales and orders for the first nine months rose 6% and 9%, respectively, compared to a year earlier.

Logistics and Assembly Systems (L&A)


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		14			(64	)								(53	)		(40	)		(33	)%
Group profit margin		2.5	%		(10.0	)%								(3.3	)%		(2.1	)%
Sales		568			640			(11	)%		(9	)%		1,613			1,920			(16	)%		(12	)%
New orders		513			571			(10	)%		(6	)%		2,135			1,797			19	%		26	%

*		Excluding currency translation effects of (2)% and (5)% on sales and orders, respectively, and portfolio effects of 1% on orders.
**		Excluding currency translation effects of (5)% and (8)% on sales and orders, respectively, and portfolio effects of 1% on sales and orders.

L&A returned to profitability compared to the third quarter a year earlier, when the Group took charges for capacity reduction and project risks. The Electronics Assembly Systems division was the primary contributor to L&A’s improvement in Group profit, while losses at the Airport Logistics and Distribution & Industry Logistics divisions continued to slow earnings progress for the Group as a whole. Lower sales of €568 million reflect completion of projects between the periods under review, while lower orders of €513 million reflect more selective order intake.

L&A posted a loss of €53 million for the first nine months, compared to a loss of €40 million in the same period a year earlier. Both periods included charges, primarily related to major projects. While nine-month sales were lower year-over-year, at €1.613 billion compared to €1.920 billion, nine-month orders climbed 19% year-over-year, to €2.135 billion, on the strength of major orders in the Middle East and the U.S. in the first half of fiscal 2004. Following an extensive internal review of the outlook for the L&A airport logistics activities and distribution and industry logistics activities, during the second quarter, management concluded that goodwill related to L&A was impaired. Because the businesses were acquired at the corporate level as part of the Siemens’ Atecs transaction, the resulting goodwill impairment was taken centrally. For additional information, see Corporate items, pension and eliminations.

Siemens Building Technologies (SBT)


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		14			18			(22	)%					69			63			10	%
Group profit margin		1.4	%		1.6	%								2.3	%		1.8	%
Sales		997			1,156			(14	)%		(5	)%		3,033			3,590			(16	)%		(5	)%
New orders		1,070			1,137			(6	)%		3	%		3,205			3,629			(12	)%		(1	)%

*		Excluding currency translation effects of (2)% and portfolio effects of (7)% on sales and orders.
**		Excluding currency translation effects of (4)% and portfolio effects of (7)% on sales and orders.

Lower sales in its existing businesses, particularly in its building automation business, led to lower earnings at SBT compared to the third quarter a year earlier, when the Group took significant charges for capacity reduction. Divestment of SBT’s facility management business between the periods under review further reduced sales for the Group overall, to €997 million. Orders of €1.070 billion, however, were up 3% year-over-year on a comparable basis.

SBT’s Group profit for the first nine months was up slightly at €69 million on lower sales. In the prior year, Group profit of €63 million included significant charges for severance and associated asset write-downs. Sales and orders for the nine-month period were €3.033 billion and €3.205 billion, respectively. Excluding currency translation effects and divestment of businesses between the two periods under review, sales for the first nine months were 5% below the prior-year level and orders were nearly even year-over-year.

Power

Power Generation (PG)


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		236			279			(15	)%					755			950			(21	)%
Group profit margin		12.2	%		18.2	%								13.6	%		19.0	%
Sales		1,933			1,530			26	%		14	%		5,548			5,006			11	%		2	%
New orders		2,029			1,596			27	%		10	%		7,119			6,079			17	%		3	%

*		Excluding currency translation effects of (2)% and (1)% on sales and orders, respectively, and portfolio effects of 14% and 18% on sales and orders, respectively.
**		Excluding currency translation effects of (5)% and (4)% on sales and orders, respectively, and portfolio effects of 14% and 18% on sales and orders, respectively.

In the third quarter of fiscal 2004, PG achieved double-digit growth in both sales and orders, to €1.933 billion and €2.029 billion, respectively. Sales rose on expansion of the Group’s service business and consolidation of the Alstom industrial turbine business between the periods under review. Order growth included large new contracts in Australia and the Middle East. Third-quarter Group profit was €236 million compared to €279 million a year earlier, which included €65 million in cancellation gains.

PG’s Group profit for the first nine months of fiscal 2004 was €755 million. The higher level a year earlier was due primarily to substantial project cancellation gains. Nine-month sales at PG rose 11% year-over-year, to €5.548 billion. Orders climbed 17% year-over-year, to €7.119 billion. PG’s growth in sales and orders for the first nine months includes its acquisition of Alstom’s industrial turbine business between the periods under review.

Power Transmission and Distribution (PTD)


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		62			52			19	%					176			142			24	%
Group profit margin		7.5	%		6.0	%								7.2	%		5.6	%
Sales		822			869			(5	)%		(4	)%		2,435			2,517			(3	)%		1	%
New orders		848			868			(2	)%		1	%		2,775			2,788			0	%		5	%

Excluding currency translation effects.

PTD increased Group profit 19% despite lower sales compared to the prior-year quarter, as nearly all divisions within the Group improved their earnings margins year-over-year. The High Voltage division was again the Group’s leading earnings contributor. While third-quarter sales of €822 million came in below the prior-year level, orders were up on a comparable basis as PTD won new contracts in Latin America, Africa, and the Middle East.

For the first nine months, PTD increased Group profit 24% year-over-year, to €176 million. The High Voltage division was the primary driver of this earnings increase. Sales and orders for the nine-month period were €2.435 billion and €2.775 billion, respectively. Excluding currency translation effects, sales for the first nine months were up 1% and orders rose 5% year-over-year.

Transportation

Transportation Systems (TS)


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		(48	)		74									(305	)		206
Group profit margin		(4.7	)%		6.7	%								(9.9	)%		6.3	%
Sales		1,019			1,100			(7	)%		(7	)%		3,085			3,281			(6	)%		(5	)%
New orders		942			732			29	%		30	%		3,083			3,256			(5	)%		(3	)%

Excluding currency translation effects.

Third-quarter orders of €942 million at TS were up 29% due to comparison with a prior-year quarter marked by unusually low order intake. Slowing demand for rail transportation systems, particularly in Germany, reduced third-quarter sales 7% year-over-year, to €1.019 billion. The loss of €48 million at TS in the third quarter reflects charges in its rolling stock business. The smaller part of the charges related to the Group’s Combino railcar business.

For the first nine months, TS posted a loss of €305 million compared to Group profit of €206 million in the prior year period. The change year-over-year is primarily due to substantial charges in the Group’s rolling stock business. Declining sales due to slowing demand for rail transportation systems also put pressure on earnings. Sales and orders for the first nine months were €3.085 billion and €3.083 billion, respectively, compared to €3.281 billion and €3.256 billion, respectively, in the same period a year earlier.

Siemens VDO Automotive (SV)


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		174			111			57	%					402			303			33	%
Group profit margin		7.0	%		5.3	%								6.0	%		4.7	%
Sales		2,502			2,090			20	%		15	%		6,703			6,408			5	%		10	%
New orders		2,517			2,090			20	%		14	%		6,716			6,408			5	%		11	%

*		Excluding currency translation effects of (2)% on sales and orders and portfolio effects of 7% and 8% on sales and orders, respectively.
**		Excluding currency translation effects of (3)% on sales and orders and portfolio effects of (2)% and (3)% on sales and orders, respectively.

SV maintained its positive momentum, boosting Group profit 57% compared to the third quarter of fiscal 2003 and earning its cost of capital for the first time since its fiscal 2001 merger. Profits rose year-over-year throughout the Group, driven by a particularly strong increase at the Interior & Infotainment division. The 20% increases in third-quarter sales and orders, to €2.502 billion and €2.517 billion, respectively, include SV’s acquisition of a U.S. automotive electronics business from DaimlerChrysler between the periods under review. On a comparable basis, SV still delivered double-digit sales and order growth.

SV increased its nine-month Group profit 33% year-over-year, to €402 million. Productivity improvement programs strengthened the Group’s earnings margins, particularly at the Interior and Infotainment division. Sales and orders for the first nine months were €6.703 billion and €6.716 billion, respectively. On a comparable basis, sales and orders for the first nine months were up 10% and 11%, respectively, compared to the prior year.

Medical

Medical Solutions (Med)


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		219			332			(34	)%					774			832			(7	)%
Group profit margin		13.1	%		19.3	%								15.4	%		15.5	%
Sales		1,670			1,721			(3	)%		5	%		5,026			5,382			(7	)%		5	%
New orders		1,999			1,702			17	%		26	%		5,626			5,505			2	%		14	%

*		Excluding currency translation effects of (3)% and (4)% on sales and orders, respectively, and portfolio effects of (5)% on sales and orders.
**		Excluding currency translation effects of (7)% and portfolio effects of (5)% on sales and orders.

Med was again a leading earnings contributor, recording Group profit of €219 million in the third quarter of fiscal 2004. For comparison, the prior-year period included a €74 million gain related to Med’s contribution of a portion of its electromedical systems business to a joint venture. Orders surged 26% year-over-year on a comparable basis, to nearly €2 billion, reflecting broad strength in Med’s diagnostics imaging and medical information systems businesses. Third-quarter sales of €1.670 billion were up 5% year-over-year on a comparable basis.

For the first nine months, Med posted Group profit of €774 million compared to €832 million in the prior year. The current year period included gains associated with portfolio activities related to Med’s electromedical systems business of €118 million compared to €74 million in the prior-year period. Sales and orders for the first nine months were €5.026 billion and €5.626 billion, respectively. Excluding currency translation effects and portfolio activities, sales rose 5% and orders climbed 14% compared to the first nine months a year earlier.

Lighting

Osram


	Third quarter ended June 30,												Nine months ended June 30,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		111			98			13	%					336			305			10	%
Group profit margin		10.8	%		10.1	%								10.5	%		9.7	%
Sales		1,029			968			6	%		10	%		3,190			3,154			1	%		8	%
New orders		1,029			968			6	%		10	%		3,190			3,154			1	%		8	%

Excluding currency translation effects.

Osram’s Group profit rose on the strength of higher sales and orders in its large North America and Asia-Pacific markets. Third-quarter sales and orders of €1.029 billion were up 10% year-over-year excluding currency translation effects, with all divisions reporting revenue growth year-over-year.

Osram’s Group profit for the first nine months was €336 million, up 10% from the same period a year earlier on the strength of Group-wide earnings increases. Sales and orders were €3.190 billion for the first nine months. Excluding currency translation effects, this represented an 8% increase compared to the prior year period.

Other operations

Other operations consist of centrally held equity investments and other operating businesses not related to a Group. These activities contributed €17 million in Group profit in the third quarter, up from €6 million in the same period a year earlier.

For the first nine months, other operations contributed €195 million in Group profit, up from €128 million in the same period a year earlier. Equity earnings at BSH Bosch und Siemens Hausgeräte GmbH and positive results from investments in other associated companies were the primary drivers of the increase.

Corporate items, pensions and eliminations

Corporate items, pensions and eliminations were a negative €323 million in the third quarter, compared to a negative €377 million in the same period a year earlier. In the prior-year period, Corporate items included a negative €43 million representing Siemens’ equity share of the net loss for the quarter at Infineon Technologies AG.

Corporate items, pensions and eliminations for the first nine months improved to a negative €788 million from a negative €1.256 billion in the same period a year earlier. In fiscal 2004, Siemens’ equity share of Infineon’s net result was a positive €14 million compared to a negative €187 million in the prior-year period. In the second quarter of fiscal 2004, the Company reduced its ownership in Infineon to 18.9% and, accordingly, ceased accounting for its equity interest in Infineon under the equity method. For further information, see Note 3 to Consolidated Financial Statements. In addition, the current period includes a pre-tax gain of €590 million on the sale of Infineon shares, partly offset by the €433 million goodwill impairment related to the airport logistics and distribution and industry logistics activities of L&A. Because these businesses were acquired at the corporate level as part of Siemens’ Atecs transaction, this goodwill impairment was taken centrally. For further information, see Note 8 to Consolidated Financial Statements. Centrally carried pension expense for the first nine months was below the level of the prior-year period. For further information, see Note 11 and Note 16 to Consolidated Financial Statements.

Financing and Real Estate

Siemens Financial Services (SFS)


	Third quarter ended June 30,										Nine months ended June 30,
					% Change										% Change
(€ in millions)	2004		2003		Actual			Comparable*			2004		2003		Actual			Comparable*
Income before income taxes		67		71		(6	)%					190		213		(11	)%
Sales		130		135		(4	)%		(3	)%		407		410		(1	)%		3	%

Excluding currency translation effects.

Income before income taxes at SFS was €67 million compared to €71 million in the third quarter a year earlier, due to lower earnings in the Group’s Equipment and Sales Financing division.

For the first nine months, income before income taxes declined year-over-year due to lower earnings in the Group’s Equipment and Sales Financing division.

Siemens Real Estate (SRE)


	Third quarter ended June 30,										Nine months ended June 30,
					% Change										% Change
(€ in millions)	2004		2003		Actual			Comparable*			2004		2003		Actual			Comparable*
Income before income taxes		10		77		(87	)%					109		187		(42	)%
Sales		390		391		0	%		0	%		1,174		1,182		(1	)%		0	%

Excluding currency translation effects.

Income before income taxes at SRE was €10 million compared to €77 million in the third quarter a year earlier. The decrease in earnings was due largely to termination of a major development project in Frankfurt and continued weakness in the commercial real estate market.

Income before income taxes at SRE for the first nine months declined compared to the same period a year earlier, due to the factors mentioned above.

Eliminations, reclassifications and Corporate Treasury

Income before income taxes from Eliminations, reclassifications and Corporate Treasury in the third quarter was €46 million, up from €43 million in the same period a year ago.

For the first nine months, Income before income taxes from Eliminations, reclassifications and Corporate Treasury was €172 million, up from €144 million in the same period a year ago due primarily to higher interest income.

LIQUIDITY AND CAPITAL RESOURCES

Cash flow — First nine months of fiscal 2004 compared to first nine months of fiscal 2003

The following discussion adheres to our component model of reporting and includes an analysis of cash flow and related balance sheet effects in our Operations component, our two other components which include Financing and Real Estate and Corporate Treasury activities, as well as Siemens worldwide.

Operations generated net cash provided by operating and investing activities of €1.605 billion in the first nine months, compared to €950 million of net cash used in operating and investing activities in the prior-year period. The current period included the net effect of €1.794 billion from the sale of Infineon shares as well as €1.255 billion of supplemental contributions to Siemens’ pension plans. The prior nine-month period included supplemental pension contributions of €442 million. Changes in net working capital (current assets less current liabilities) within Operations used cash of €1.466 billion in the first nine months of fiscal 2004, down from cash used of €1.897 billion in the same period of fiscal 2003. The current period included an increase in net inventories, particularly at ICM, TS and ICN, and a decrease in other current liabilities. The prior year reflects cash used for other current liabilities, accounts payable, and net inventories, as well as cash provided by accounts receivable. The prior-year net cash used in investing activities included PG’s €505 million initial payment to acquire Alstom’s industrial turbine business as well as significant other cash outflows for investments and marketable securities.

The two other components of Siemens worldwide, which include Financing and Real Estate and Corporate Treasury activities, provided net cash from operating and investing activities of €1.048 billion for the first nine months compared to €1.477 billion in the prior-year period. Both periods include positive net effects from Corporate Treasury activities primarily related to the hedging of intra-company financings. These positive effects were substantially higher at Corporate Treasury in the prior-year period. At SFS, the current fiscal year was also positively influenced by €247 million in repayment of notes receivable. The prior-year period was impacted by a decrease in other current liabilities.

In aggregate, net cash provided by operating and investing activities for Siemens worldwide was €2.653 billion for the first nine months, up year-over-year from €527 million.

Net cash used in financing activities for Siemens worldwide was €1.423 billion compared to net cash provided of €823 million in the nine-month period of fiscal 2003, which included €2.5 billion from the issuance of a convertible note. The current year reflects higher dividends paid to shareholders and €544 million in repayment of debt. This was lower than €742 million in the prior year which included the buyback of a notional €500 million of notes exchangeable into shares of Infineon. Changes in short-term debt provided cash of €184 million compared to net cash used of €171 million in the prior-year period.

Capital Resources and Capital Requirements

Debt

During the third quarter, Siemens terminated a €400 million backstop facility with a domestic bank. As a result, Siemens has remaining undrawn backstop facilities in the total amount of €3.218 billion, including a U.S.$3 billion backstop facility.

During the first nine months of fiscal 2004, Siemens redeemed 1.11% U.S.$200 million and 1.22% U.S.$50 million LIBOR linked notes as well as a 3% Swiss francs 178 million bond. In addition, we also repurchased and retired a notional amount of €160 million of notes exchangeable into shares of Infineon. As of June 30, 2004, of the issued 1% €2.5 billion exchangeable notes, notional €900 million remain outstanding.

Furthermore, in July 2004, subsequent to the close of the quarter, we settled an additional notional €81 million of the notes exchangeable into shares of Infineon and repurchased notional €405 million of a 5% €2 billion bond due in 2006. These transactions are not reflected on the balance sheet as of June 30, 2004.

Equity

At the Annual Shareholders’ Meeting on January 22, 2004, our shareholders gave authorization to repurchase up to 10% of the €2.673 billion common stock until July 21, 2005. Such stock may be (i) retired with the approval of the Supervisory Board, (ii) used to satisfy the Company’s obligations under the 1999 and the 2001 Siemens Stock Option Plans, (iii) offered for purchase by employees of the Company and (iv) used to service the conversion or option rights granted by the Company in connection with the issuance of bonds. In addition, the Supervisory Board shall be authorized to transfer treasury stock repurchased by the Company to members of the Managing Board of Siemens AG as stock-based compensation with a holding period of at least two years. For further information with respect to the repurchase of shares for purchase by employees see Notes to Consolidated Financial Statements.

In addition, Authorized Capital 2001/I of €400 million (representing 133 million shares) and Authorized Capital 2003 of €250 million (representing 83 million shares) were replaced by resolution of Annual Shareholders’ Meeting on January 22, 2004. The Company’s shareholders authorized the Managing Board with the approval of the Supervisory Board to increase the capital stock by up to €600 million through the issuance of up to 200 million new shares against cash contributions and/or contributions in kind (Authorized Capital 2004). The Managing Board is authorized to determine, with the approval of the Supervisory Board, the further content of the rights embodied in the shares and the conditions of the share issue. The Managing Board is authorized, with the approval of the Supervisory Board, to exclude preemptive rights of shareholders in the event of capital increases against contributions in kind and in certain pre-stipulated circumstances against cash. The Authorized Capital 2004 will expire on January 21, 2009.

By resolution of the Annual Shareholders’ Meeting on January 22, 2004, Conditional Capital 2003 of €267 million (representing 89 million shares) was terminated. The Company’s shareholders authorized the Managing Board to issue in an aggregate principal amount of up to €11.250 billion with conversion rights (convertible bonds) or with warrants entitling the holders to subscribe to up to 200 million new shares of Siemens AG, representing a pro rata amount of up to €600 million of the capital stock. Since the Conditional Capital 2003 has partly been utilized, the new Conditional Capital 2004 permits the issuance of shares under the new authorization and the issuance of shares to service bonds issued under the old authorization. Therefore, total Conditional Capital 2004 allows the issuance of up to €734 million representing 245 million shares of Siemens AG. The authorization will expire on January 21, 2009.

Long-term Corporate Credit Rating

On January 23, 2004, Moody’s Investor Service affirmed the rating of our long-term corporate credit of Aa3 and changed the outlook from negative to stable. The Standard & Poor’s rating of AA– remains unchanged from September 30, 2003.

Customer Financing

Siemens’ approved and contractually committed customer financing requiring approval of Siemens’ Corporate Executive Committee of the Managing Board at June 30, 2004, amounted to €1.438 billion compared to €1.378 billion at September 30, 2003. The approved and contractually committed financing includes utilized and unutilized credits to suppliers or guarantees from Siemens to banks in support of loans to Siemens’ customers. The increase is primarily due to a new commitment relating to PG for a new order in Finland.

Pension Plan Funding

At the end of the first nine months of fiscal 2004, the combined funding status of Siemens’ principal pension plans showed an underfunding of €3.4 billion, compared to an underfunding of €5.0 billion at the end of fiscal 2003. The improvement was due to both supplemental contributions in the first quarter and regular funding of pension plan service costs as well as higher than expected investment returns.

The fair value of plan assets of Siemens’ principal funded pension plans on June 30, 2004 was €18.0 billion, compared to €15.9 billion on September 30, 2003.

In the first nine months of fiscal 2004, the supplemental cash contribution of €1.255 billion included €700 million to the Siemens German Pension Trust and €555 million to the pension plan in the U.S. In fiscal 2003, supplemental contributions included €1.192 billion in cash (thereof €442 million during the first nine months of fiscal 2003) and €377 million in real estate (during the first nine months of fiscal 2003). Beginning in fiscal 2004, regular funding is based generally on the level of service costs incurred, taking into account minimum funding requirements abroad. For the first nine months of fiscal 2004, regular employer contributions amounted to €452 million.

During the first nine months of fiscal 2004, the total actual return on plan assets of Siemens’ principal funded pension plans worldwide amounted to approximately €1.0 billion, representing a 8.1% return on an annualized basis, compared to the expected annual return of 6.7%.

The estimated projected benefit obligation (PBO), which considers future compensation increases, for Siemens’ principal pension plans amounted to €21.4 billion on June 30, 2004, an increase of approximately €500 million compared to the PBO of €20.9 billion on September 30, 2003, due to the net of pension service and interest costs less benefits paid during the nine-month period.

For more information on Siemens’ pension plans see Notes to Consolidated Financial Statements.

EVA PERFORMANCE

Economic Value Added (EVA) for Siemens worldwide improved significantly in the first nine months compared to the positive EVA in the same period a year earlier. The improvement in EVA was driven by higher earnings despite a volume-driven increase in net working capital.

Siemens ties a portion of its executive incentive compensation to achieving 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.

LEGAL PROCEEDINGS

Italian and German prosecutors are conducting investigations regarding allegations that Siemens provided improper benefits to former employees of Enel in connection with the awarding of Enel contracts. On May 5, 2004, an Italian investigating magistrate issued a preliminary injunction imposing a one-year ban prohibiting Siemens AG (but not its subsidiaries) from entering into delivery contracts for gas turbines with the Italian public administration. We have appealed the magistrate’s ruling.

In May 2004, the European Commission launched an investigation into possible anti-trust violations involving the major European producers of high-voltage gas-insulated switchgear, including Siemens AG. Gas-insulated switchgear is electrical equipment used as a major component for turnkey powersubstations. We are cooperating fully with the investigation of the European Commission which is still ongoing. The European Commission has not yet announced a schedule for the completion of the investigation.

SUBSEQUENT EVENT

In the fourth quarter, the Company completed the acquisition of the water systems and services business of US Filter Corporation, which generated an annual turnover of approximately €1 billion, from Veolia Environnement of France. The preliminary purchase price amounts to U.S.$993 million (approximately €822 million). The business, which is consolidated as of August 1, 2004, becomes part of I&S.

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, non-selective basis.

SIEMENS AG

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the three months ended June 30, 2004 and 2003
(in millions of €, per share amounts in €)


							Eliminations,
							reclassifications and												Financing and Real
	Siemens worldwide						Corporate Treasury						Operations						Estate
	2004			2003			2004			2003			2004			2003			2004			2003
Net sales		18,216			17,380			(378	)		(392	)		18,077			17,249			517			523
Cost of sales		(12,816	)		(12,274	)		378			393			(12,762	)		(12,258	)		(432	)		(409	)

Gross profit on sales		5,400			5,106			—			1			5,315			4,991			85			114
Research and development expenses		(1,264	)		(1,248	)		—			—			(1,264	)		(1,248	)		—			—
Marketing, selling and general administrative expenses		(3,287	)		(3,190	)		—			2			(3,203	)		(3,119	)		(84	)		(73	)
Other operating income (expense), net		13			124			(25	)		(16	)		(1	)		81			39			59
Income (loss) from investments in other companies, net		70			16			—			—			51			(3	)		19			19
Income (expense) from financial assets and marketable securities, net		(5	)		(63	)		(8	)		(3	)		7			(62	)		(4	)		2
Interest income of Operations, net		11			6			—			—			11			6			—			—
Other interest income (expense), net		70			75			79			59			(31	)		(11	)		22			27

Income before income taxes		1,008			826			46			43			885			635			77			148
Income taxes		(157	)		(183	)		(8	)		(9	)		(136	)		(140	)		(13	)		(34	)
Minority interest		(36	)		(11	)		—			—			(36	)		(11	)		—			—

Net income		815			632			38			34			713			484			64			114

Basic earnings per share		0.91			0.71
Diluted earnings per share		0.88			0.71

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

SIEMENS AG

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the nine months ended June 30, 2004 and 2003
(in millions of €, per share amounts in €)


							Eliminations,
							reclassifications and												Financing and Real
	Siemens worldwide						Corporate Treasury						Operations						Estate
	2004			2003			2004			2003			2004			2003			2004			2003
Net sales		54,339			54,455			(1,129	)		(1,178	)		53,895			54,050			1,573			1,583
Cost of sales		(38,392	)		(38,899	)		1,129			1,180			(38,260	)		(38,872	)		(1,261	)		(1,207	)

Gross profit on sales		15,947			15,556			—			2			15,635			15,178			312			376
Research and development expenses		(3,756	)		(3,821	)		—			—			(3,756	)		(3,821	)		—			—
Marketing, selling and general administrative expenses		(9,850	)		(9,930	)		(1	)		2			(9,639	)		(9,712	)		(210	)		(220	)
Other operating income (expense), net		(311	)		408			(60	)		(53	)		(338	)		347			87			114
Income (loss) from investments in other companies, net		952			44			—			—			905			(18	)		47			62
Income (expense) from financial assets and marketable securities, net		70			(26	)		29			39			66			(64	)		(25	)		(1	)
Interest income of Operations, net		15			27			—			—			15			27			—			—
Other interest income (expense), net		194			186			204			154			(98	)		(37	)		88			69

Income before income taxes		3,261			2,444			172			144			2,790			1,900			299			400
Income taxes⁽¹⁾		(393	)		(701	)		(21	)		(41	)		(336	)		(545	)		(36	)		(115	)
Minority interest		(117	)		(58	)		—			—			(117	)		(58	)		—			—

Income before cumulative effect of change in accounting principle		2,751			1,685			151			103			2,337			1,297			263			285
Cumulative effect of change in accounting principle, net of income taxes		—			36			—			—			—			39			—			(3	)

Net income		2,751			1,721			151			103			2,337			1,336			263			282

Basic earnings per share
Income before cumulative effect of change in accounting principle		3.09			1.89
Cumulative effect of change in accounting principle, net of income taxes		—			0.04

Net income		3.09			1.93

Diluted earnings per share
Income before cumulative effect of change in accounting principle		2.96			1.89
Cumulative effect of change in accounting principle, net of income taxes		—			0.04

Net income		2.96			1.93

(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.

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

SIEMENS AG

CONSOLIDATED BALANCE SHEETS (unaudited)
As of June 30, 2004 and September 30, 2003
(in millions of €)


							Eliminations,
							reclassifications and										Financing and Real
	Siemens worldwide						Corporate Treasury						Operations				Estate
	6/30/04			9/30/03			6/30/04			9/30/03			6/30/04		9/30/03		6/30/04		9/30/03
ASSETS
Current assets
Cash and cash equivalents		13,284			12,149			12,508			11,345			738		725		38		79
Marketable securities		2,096			650			8			101			2,069		529		19		20
Accounts receivable, net		14,621			14,511			(7	)		(9	)		10,921		10,894		3,707		3,626
Intracompany receivables		—			—			(11,164	)		(10,777	)		11,138		10,742		26		35
Inventories, net		11,624			10,366			(4	)		(4	)		11,575		10,284		53		86
Deferred income taxes		1,176			1,063			93			77			998		909		85		77
Other current assets		4,328			4,750			714			736			2,612		3,143		1,002		871

Total current assets		47,129			43,489			2,148			1,469			40,051		37,226		4,930		4,794

Long-term investments		4,167			5,992			19			19			3,816		5,636		332		337
Goodwill		6,107			6,501			—			—			6,023		6,421		84		80
Other intangible assets, net		2,187			2,358			—			—			2,172		2,338		15		20
Property, plant and equipment, net		10,347			10,756			1			1			6,822		7,114		3,524		3,641
Deferred income taxes		4,292			4,359			1,113			1,127			3,115		3,165		64		67
Other assets		4,168			4,150			64			131			1,473		1,371		2,631		2,648
Other intracompany receivables		—			—			(1,237	)		(1,204	)		1,237		1,204		—		—

Total assets		78,397			77,605			2,108			1,543			64,709		64,475		11,580		11,587

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term debt and current maturities of long-term debt		1,667			1,745			981			977			574		646		112		122
Accounts payable		8,567			8,404			(8	)		4			8,397		8,216		178		184
Intracompany liabilities		—			—			(6,778	)		(7,426	)		1,303		1,771		5,475		5,655
Accrued liabilities		8,991			8,884			5			6			8,746		8,748		240		130
Deferred income taxes		908			870			(265	)		(271	)		891		877		282		264
Other current liabilities		11,707			12,125			498			284			10,902		11,578		307		263

Total current liabilities		31,840			32,028			(5,567	)		(6,426	)		30,813		31,836		6,594		6,618

Long-term debt		11,074			11,433			9,868			10,176			693		748		513		509
Pension plans and similar commitments		4,934			5,843			—			—			4,902		5,813		32		30
Deferred income taxes		496			534			170			182			225		250		101		102
Other accruals and provisions		3,733			3,418			27			21			3,338		3,101		368		296
Other intracompany liabilities		—			—			(2,390	)		(2,410	)		353		378		2,037		2,032

		52,077			53,256			2,108			1,543			40,324		42,126		9,645		9,587

Minority interests		660			634			—			—			660		634		—		—
Shareholders’ equity
Common stock, no par value
Authorized: 1,113,265,813 and 1,129,742,969 shares, respectively Issued: 891,055,813 and 890,866,301 shares, respectively		2,673			2,673
Additional paid-in capital		5,090			5,073
Retained earnings		24,793			23,020
Accumulated other comprehensive income (loss)		(6,896	)		(7,051	)
Treasury stock, at cost 156 and 1,184 shares, respectively		—			—

Total shareholders’ equity		25,660			23,715			—			—			23,725		21,715		1,935		2,000

Total liabilities and shareholders’ equity		78,397			77,605			2,108			1,543			64,709		64,475		11,580		11,587

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

SIEMENS AG

CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited)
For the nine months ended June 30, 2004 and 2003
(in millions of €)


							Eliminations,
							reclassifications and												Financing and Real
	Siemens worldwide						Corporate Treasury						Operations						Estate
	2004			2003			2004			2003			2004			2003			2004			2003
Cash flows from operating activities
Net income		2,751			1,721			151			103			2,337			1,336			263			282
Adjustments to reconcile net income to cash provided
Minority interest		117			58			—			—			117			58			—			—
Amortization, depreciation and impairments		2,537			2,356			—			—			2,247			2,048			290			308
Deferred taxes		(186	)		10			(10	)		—			(159	)		12			(17	)		(2	)
Gains on sales and disposals of businesses and property, plant and equipment, net, and gain from issuance of subsidiary and associated company stock		(141	)		(188	)		—			—			(114	)		(125	)		(27	)		(63	)
Losses (gains) on sales of investments, net		(599	)		7			—			—			(599	)		7			—			—
Losses (gains) on sales and impairments of marketable securities, net		(48	)		25			(11	)		9			(36	)		15			(1	)		1
Loss (income) from equity investees, net of dividends received		(216	)		59			—			—			(224	)		103			8			(44	)
Change in current assets and liabilities
(Increase) decrease in inventories, net		(1,357	)		(874	)		—			—			(1,389	)		(932	)		32			58
(Increase) decrease in accounts receivable, net		(153	)		1,303			(153	)		252			5			1,049			(5	)		2
Increase (decrease) in outstanding balance of receivables sold		81			(550	)		64			(259	)		17			(291	)		—			—
(Increase) decrease in other current assets		595			823			354			593			(26	)		270			267			(40	)
Increase (decrease) in accounts payable		182			(873	)		(12	)		(9	)		200			(892	)		(6	)		28
Increase (decrease) in accrued liabilities		117			124			—			—			79			124			38			—
Increase (decrease) in other current liabilities		(452	)		(870	)		(140	)		521			(352	)		(1,225	)		40			(166	)
Supplemental contributions to pension trusts		(1,255	)		(442	)		—			—			(1,255	)		(442	)		—			—
Change in other assets and liabilities		712			621			196			180			471			417			45			24

Net cash provided by (used in) operating activities		2,685			3,310			439			1,390			1,319			1,532			927			388
Cash flows from investing activities
Additions to intangible assets and property, plant and equipment		(1,752	)		(1,888	)		—			—			(1,461	)		(1,619	)		(291	)		(269	)
Acquisitions, net of cash acquired		(314	)		(547	)		—			—			(309	)		(547	)		(5	)		—
Purchases of investments		(305	)		(645	)		—			—			(300	)		(639	)		(5	)		(6	)
Purchases of marketable securities		(56	)		(203	)		(20	)		(92	)		(36	)		(109	)		—			(2	)
(Increase) decrease in receivables from financing activities		(267	)		(144	)		28			(508	)		—			—			(295	)		364
Increase (decrease) in outstanding balance of receivables sold by SFS		—			—			(64	)		259			—			—			64			(259	)
Proceeds from sales of long-term investments, intangibles and property, plant and equipment		2,258			499			—			—			2,124			313			134			186
Proceeds from sales and dispositions of businesses		225			96			—			—			206			96			19			—
Proceeds from sales of marketable securities		179			49			104			25			62			23			13			1

Net cash provided by (used in) investing activities		(32	)		(2,783	)		48			(316	)		286			(2,482	)		(366	)		15
Cash flows from financing activities
Proceeds from issuance of common stock		3			—			—			—			3			—			—			—
Proceeds from issuance of treasury shares		—			4			—			—			—			4			—			—
Proceeds from issuance of debt		—			2,702			—			2,702			—			—			—			—
Repayment of debt		(544	)		(742	)		(430	)		(742	)		(114	)		—			—			—
Change in short-term debt		184			(171	)		175			(544	)		(9	)		433			18			(60	)
Dividends paid		(978	)		(888	)		—			—			(978	)		(888	)		—			—
Dividends paid to minority shareholders		(88	)		(82	)		—			—			(88	)		(82	)		—			—
Intracompany financing		—			—			1,005			(978	)		(386	)		1,316			(619	)		(338	)

Net cash provided by (used in) financing activities		(1,423	)		823			750			438			(1,572	)		783			(601	)		(398	)
Effect of exchange rates on cash and cash equivalents		(95	)		(309	)		(74	)		(245	)		(20	)		(62	)		(1	)		(2	)
Net increase (decrease) in cash and cash equivalents		1,135			1,041			1,163			1,267			13			(229	)		(41	)		3
Cash and cash equivalents at beginning of period		12,149			11,196			11,345			10,269			725			873			79			54

Cash and cash equivalents at end of period		13,284			12,237			12,508			11,536			738			644			38			57

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

SIEMENS AG

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
For the nine months ended June 30, 2004 and the year ended September 30, 2003
(in millions of €)


									Accumulated other
									comprehensive income (loss)
			Additional						Cumulative			Available-						Minimum			Treasury
	Common		paid-in			Retained			translation			for-sale			Derivative			pension			shares
	stock		capital			earnings			adjustment			securities			instruments			liability			at cost			Total
Balance at October 1, 2002		2,671		5,053			21,471			(132	)		(185	)		59			(5,412	)		(4	)		23,521

Net income		—		—			2,445			—			—			—			—			—			2,445
Change in currency translation adjustment		—		—			—			(695	)		—			—			—			—			(695	)
Change in unrealized gains and losses		—		—			—			—			268			24			(978	)		—			(686	)

Total comprehensive income		—		—			2,445			(695	)		268			24			(978	)		—			1,064
Dividends paid		—		—			(896	)		—			—			—			—			—			(896	)
Issuance of common stock		2		20			—			—			—			—			—			—			22
Purchase of common stock		—		—			—			—			—			—			—			(127	)		(127	)
Re-issuance of treasury stock		—		—			—			—			—			—			—			131			131

Balance at September 30, 2003		2,673		5,073			23,020			(827	)		83			83			(6,390	)		—			23,715

Net income		—		—			2,751			—			—			—			—			—			2,751
Change in currency translation adjustment		—		—			—			(197	)		—			—			—			—			(197	)
Change in unrealized gains and losses		—		—			—			—			382			(28	)		(2	)		—			352

Total comprehensive income		—		—			2,751			(197	)		382			(28	)		(2	)		—			2,906
Dividends paid		—		—			(978	)		—			—			—			—			—			(978	)
Issuance of common stock and stock-based compensation		—		19			—			—			—			—			—			—			19
Purchase of common stock		—		—			—			—			—			—			—			(106	)		(106	)
Re-issuance of treasury stock		—		(2	)		—			—			—			—			—			106			104

Balance at June 30, 2004		2,673		5,090			24,793			(1,024	)		465			55			(6,392	)		—			25,660

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

SIEMENS AG

SEGMENT INFORMATION (unaudited)
As of and for the three months ended June 30, 2004 and 2003 and as of September 30, 2003
(in millions of €)


											Intersegment
	New orders						External sales				sales						Total sales						Group profit⁽¹⁾
	2004			2003			2004		2003		2004			2003			2004			2003			2004			2003
Operations Groups
Information and Communication Networks (ICN)		1,608			1,756			1,489		1,533		189			154			1,678			1,687			51			(125	)
Information and Communication Mobile (ICM)		2,851			2,313			2,406		2,124		40			36			2,446			2,160			64			17
Siemens Business Services (SBS)		1,218			1,297			872		992		268			291			1,140			1,283			(2	)		17
Automation and Drives (A&D)		2,290			2,078			1,891		1,751		317			323			2,208			2,074			308			203
Industrial Solutions and Services (I&S)		952			911			723		692		278			267			1,001			959			19			5
Logistics and Assembly Systems (L&A)		513			571			542		622		26			18			568			640			14			(64	)
Siemens Building Technologies (SBT)		1,070			1,137			960		1,082		37			74			997			1,156			14			18
Power Generation (PG)		2,029			1,596			1,928		1,529		5			1			1,933			1,530			236			279
Power Transmission and Distribution (PTD)		848			868			754		795		68			74			822			869			62			52
Transportation Systems (TS)		942			732			1,014		1,086		5			14			1,019			1,100			(48	)		74
Siemens VDO Automotive (SV)		2,517			2,090			2,494		2,088		8			2			2,502			2,090			174			111
Medical Solutions (Med)		1,999			1,702			1,651		1,698		19			23			1,670			1,721			219			332
Osram		1,029			968			1,004		946		25			22			1,029			968			111			98
Other operations⁽⁵⁾		415			372			290		248		182			147			472			395			17			6

Total Operations Groups		20,281			18,391			18,018		17,186		1,467			1,446			19,485			18,632			1,239			1,023
Reconciliation to financial statements
Corporate items, pensions and eliminations		(1,724	)		(1,703	)		18		21		(1,426	)		(1,404	)		(1,408	)		(1,383	)		(323	)		(377	)
Other interest expense		—			—			—		—		—			—			—			—			(31	)		(11	)
Other assets related reconciling items		—			—			—		—		—			—			—			—			—			—

Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)		18,557			16,688			18,036		17,207		41			42			18,077			17,249			885			635

																							Income before income taxes

Financing and Real Estate Groups
Siemens Financial Services (SFS)		130			135			106		108		24			27			130			135			67			71
Siemens Real Estate (SRE)		390			391			74		64		316			327			390			391			10			77
Eliminations		—			—			—		—		(3	)		(3	)		(3	)		(3	)		—			—

Total Financing and Real Estate		520			526			180		172		337			351			517			523			77			148

Eliminations, reclassifications and Corporate Treasury		—			1			—		1		(378	)		(393	)		(378	)		(392	)		46			43

Siemens worldwide		19,077			17,215			18,216		17,380		—			—			18,216			17,380			1,008			826

[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⁾
	6/30/04			9/30/03			2004			2003			2004		2003		2004		2003
Operations Groups
Information and Communication Networks (ICN)		1,366			722			(192	)		(110	)		98		43		55		110
Information and Communication Mobile (ICM)		1,376			1,367			(95	)		105			70		89		76		83
Siemens Business Services (SBS)		536			294			83			(56	)		57		56		48		60
Automation and Drives (A&D)		1,987			1,925			230			315			107		49		48		55
Industrial Solutions and Services (I&S)		180			167			22			42			8		4		9		13
Logistics and Assembly Systems (L&A)		545			877			(24	)		(88	)		5		7		7		13
Siemens Building Technologies (SBT)		1,391			1,447			(1	)		38			23		21		27		27
Power Generation (PG)		1,921			1,712			159			(289	)		42		542		42		47
Power Transmission and Distribution (PTD)		869			798			20			128			19		14		15		16
Transportation Systems (TS)		102			(252	)		(250	)		(131	)		11		19		16		14
Siemens VDO Automotive (SV)		3,520			3,949			423			67			258		150		109		97
Medical Solutions (Med)		3,172			3,128			206			212			77		90		54		59
Osram		2,030			2,074			19			93			57		54		69		65
Other operations⁽⁵⁾		1,930			1,515			94			(473	)		17		471		18		14

Total Operations Groups		20,925			19,723			694			(147	)		849		1,609		593		673
Reconciliation to financial statements
Corporate items, pensions and eliminations		(3,755	)		(3,781	)		(315	)⁽⁶⁾		(422	)⁽⁶⁾		10		10		10		31
Other interest expense		—			—			—			—			—		—		—		—
Other assets related reconciling items		47,539			48,533			—			—			—		—		—		—

Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)		64,709			64,475			379			(569	)		859		1,619		603		704

	Total assets

Financing and Real Estate Groups
Siemens Financial Services (SFS)		8,638			8,445			(194	)		307			52		56		48		55
Siemens Real Estate (SRE)		3,573			3,607			109			80			22		71		43		47
Eliminations		(631	)		(465	)		(14	)⁽⁶⁾		(37	)⁽⁶⁾		—		—		—		—

Total Financing and Real Estate		11,580			11,587			(99	)		350			74		127		91		102

Eliminations, reclassifications and Corporate Treasury		2,108			1,543			(1	)⁽⁶⁾		485	⁽⁶⁾		—		—		—		—

Siemens worldwide		78,397			77,605			279			266			933		1,746		694		806

(1)		Group profit of the Operations Groups is earnings before financing interest, certain pension costs and income taxes.
(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.

SIEMENS AG

SEGMENT INFORMATION (unaudited)
As of and for the nine months ended June 30, 2004 and 2003 and as of September 30, 2003
(in millions of €)


											Intersegment
	New orders						External sales				sales						Total sales						Group profit⁽¹⁾
	2004			2003			2004		2003		2004			2003			2004			2003			2004			2003
Operations Groups
Information and Communication Networks (ICN)		5,230			5,385			4,526		4,834		470			336			4,996			5,170			139			(423	)
Information and Communication Mobile (ICM)		8,586			7,122			7,942		7,239		122			106			8,064			7,345			296			131
Siemens Business Services (SBS)		3,951			3,982			2,676		2,981		795			907			3,471			3,888			68			54
Automation and Drives (A&D)		6,670			6,467			5,417		5,169		943			921			6,360			6,090			764			566
Industrial Solutions and Services (I&S)		3,166			2,996			2,175		2,106		806			772			2,981			2,878			60			(24	)
Logistics and Assembly Systems (L&A)		2,135			1,797			1,523		1,853		90			67			1,613			1,920			(53	)		(40	)
Siemens Building Technologies (SBT)		3,205			3,629			2,964		3,395		69			195			3,033			3,590			69			63
Power Generation (PG)		7,119			6,079			5,537		4,993		11			13			5,548			5,006			755			950
Power Transmission and Distribution (PTD)		2,775			2,788			2,225		2,342		210			175			2,435			2,517			176			142
Transportation Systems (TS)		3,083			3,256			3,067		3,257		18			24			3,085			3,281			(305	)		206
Siemens VDO Automotive (SV)		6,716			6,408			6,685		6,401		18			7			6,703			6,408			402			303
Medical Solutions (Med)		5,626			5,505			4,951		5,330		75			52			5,026			5,382			774			832
Osram		3,190			3,154			3,120		3,120		70			34			3,190			3,154			336			305
Other operations⁽⁵⁾		1,383			1,294			875		847		507			460			1,382			1,307			195			128

Total Operations Groups		62,835			59,862			53,683		53,867		4,204			4,069			57,887			57,936			3,676			3,193
Reconciliation to financial statements
Corporate items, pensions and eliminations		(5,133	)		(5,012	)		113		76		(4,105	)		(3,962	)		(3,992	)		(3,886	)		(788	)		(1,256	)
Other interest expense		—			—			—		—		—			—			—			—			(98	)		(37	)
Other assets related reconciling items		—			—			—		—		—			—			—			—			—			—

Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)		57,702			54,850			53,796		53,943		99			107			53,895			54,050			2,790			1,900

																							Income before income taxes

Financing and Real Estate Groups
Siemens Financial Services (SFS)		407			410			336		322		71			88			407			410			190			213
Siemens Real Estate (SRE)		1,174			1,182			207		188		967			994			1,174			1,182			109			187
Eliminations		—			—			—		—		(8	)		(9	)		(8	)		(9	)		—			—

Total Financing and Real Estate		1,581			1,592			543		510		1,030			1,073			1,573			1,583			299			400

Eliminations, reclassifications and Corporate Treasury		—			2			—		2		(1,129	)		(1,180	)		(1,129	)		(1,178	)		172			144

Siemens worldwide		59,283			56,444			54,339		54,455		—			—			54,339			54,455			3,261			2,444

[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⁾
	6/30/04			9/30/03			2004			2003			2004			2003		2004		2003
Operations Groups
Information and Communication Networks (ICN)		1,366			722			(315	)		(58	)		192			131		187		346
Information and Communication Mobile (ICM)		1,376			1,367			230			272			155			235		231		221
Siemens Business Services (SBS)		536			294			(177	)		(224	)		147			120		154		185
Automation and Drives (A&D)		1,987			1,925			637			753			230			153		164		161
Industrial Solutions and Services (I&S)		180			167			24			(11	)		48			25		27		37
Logistics and Assembly Systems (L&A)		545			877			(172	)		(326	)		21			30		27		41
Siemens Building Technologies (SBT)		1,391			1,447			137			214			58			68		90		101
Power Generation (PG)		1,921			1,712			486			(218	)		122			627		130		113
Power Transmission and Distribution (PTD)		869			798			123			246			56			43		45		48
Transportation Systems (TS)		102			(252	)		(437	)		(537	)		35			69		46		43
Siemens VDO Automotive (SV)		3,520			3,949			865			64			448			405		295		292
Medical Solutions (Med)		3,172			3,128			500			406			359			230		144		157
Osram		2,030			2,074			338			407			156			172		196		198
Other operations⁽⁵⁾		1,930			1,515			15			(529	)		46			494		51		42

Total Operations Groups		20,925			19,723			2,254			459			2,073			2,802		1,787		1,985
Reconciliation to financial statements
Corporate items, pensions and eliminations		(3,755	)		(3,781	)		(649	)⁽⁶⁾		(1,409	)⁽⁶⁾		(3	)		3		460		63
Other interest expense		—			—			—			—			—			—		—		—
Other assets related reconciling items		47,539			48,533			—			—			—			—		—		—

Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)		64,709			64,475			1,605			(950	)		2,070			2,805		2,247		2,048

	Total assets

Financing and Real Estate Groups
Siemens Financial Services (SFS)		8,638			8,445			332			300			216			137		146		163
Siemens Real Estate (SRE)		3,573			3,607			282			214			85			138		144		145
Eliminations		(631	)		(465	)		(53	)⁽⁶⁾		(111	)⁽⁶⁾		—			—		—		—

Total Financing and Real Estate		11,580			11,587			561			403			301			275		290		308

Eliminations, reclassifications and Corporate Treasury		2,108			1,543			487	⁽⁶⁾		1,074	⁽⁶⁾		—			—		—		—

Siemens worldwide		78,397			77,605			2,653			527			2,371			3,080		2,537		2,356

(1)		Group profit of the Operations Groups is earnings before financing interest, certain pension costs and income taxes.
(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.

SIEMENS AG

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

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 (€).

Siemens is a German based multinational corporation with a balanced business portfolio of activities predominantly in the field of electronics and electrical engineering.

Interim financial statements—The accompanying Consolidated Balance Sheet as of June 30, 2004, the Consolidated Statements of Income for the three months and nine months ended June 30, 2004 and 2003, the Consolidated Statements of Cash Flow for the nine months ended June 30, 2004 and 2003, the Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended June 30, 2004 and the Notes to the Consolidated Financial Statements are unaudited and have been prepared for interim financial information. 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 Consolidated Financial Statements included in the Company’s 2003 Annual Report. Results for the three months and nine months ended June 30, 2004 are not necessarily indicative of future results.

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 businesses (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 16). The information disclosed in these Notes relates to Siemens worldwide unless otherwise stated.

Basis of consolidation—The Consolidated Financial Statements include the accounts of Siemens AG and all subsidiaries, which are directly or indirectly controlled. Associated companies—companies in which Siemens has the ability to exercise significant influence over their operating and financial policies (generally through direct or indirect ownership of 20% to 50% of the voting rights)—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 year presentation.

Accounting changes—As of October 1, 2003, the Company adopted the fair value recognition provisions of Statements of Financial Accounting Standards (SFAS) 123, Accounting for Stock-Based Compensation using the prospective method set forth in SFAS 148, Accounting for Stock-Based Compensation—Transition and Disclosure for all awards granted, modified or settled after October 1, 2003. Stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period under the fair value recognition provisions of SFAS 123. Awards granted before October 1, 2003 continue to be accounted for under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. The following table illustrates the effect on net income and earnings per share if the fair value based method of SFAS 123 had been applied to all awards:

SIEMENS AG

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


	Three months ended						Nine months ended
	June 30,						June 30,
	2004			2003			2004			2003
Net income
As reported		815			632			2,751			1,721
Plus: Stock-based employee compensation expense included in reported net income, net of taxes		8			—			50			28
Less: Stock-based employee compensation expense determined under fair value based accounting method, net of taxes		(20	)		(30	)		(91	)		(118	)

Pro forma		803			602			2,710			1,631

Basic earnings per share
As reported		0.91			0.71			3.09			1.93
Pro forma		0.90			0.68			3.04			1.83
Diluted earnings per share
As reported		0.88			0.71			2.96			1.93
Pro forma		0.86			0.68			2.91			1.83

The Pro forma disclosures incorporate expense related to stock options and employee stock purchase plans. With regard to the Company’s annual employee stock purchase plan, which is a compensatory plan under U.S. GAAP, stock-based compensation costs recognized under the provisions of APB Opinion No. 25 nearly approximate compensation costs measured in accordance with the fair value provisions of SFAS 123. Accordingly, the Company’s compensatory employee stock purchase plans have only a minor effect on the Pro forma net income and earnings per share amounts.

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation (FIN) 46, Consolidation of Variable Interest Entities. FIN 46 clarifies the application of Accounting Research Bulletin (ARB) 51 with respect to the consolidation of certain entities (VIE’s) in which a company has a controlling financial interest through arrangements that do not involve voting interests. FIN 46 requires that if an entity is the primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the variable interest entity should be included in the Consolidated Financial Statements of the entity. In December 2003, the FASB issued a revised version of FIN 46, FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (FIN 46R), which requires public companies that did not apply FIN 46 prior to the issuance of FIN 46R to apply FIN 46R (or FIN 46) to those VIE’s commonly referred to as special-purpose entities for periods ending after December 15, 2003, and to apply FIN 46R to all other VIE’s for periods ending after March 15, 2004. Differences between FIN 46R and FIN 46 include new scope exceptions, revised requirements on how to evaluate sufficiency of equity at risk, and quantification and allocation of an entity’s economic risks and rewards. Additionally, requirements on evaluating a controlling financial interest, reconsidering whether an entity is a VIE and whether to consolidate were clarified. The Company holds variable interests in various VIE’s, which are not significant either individually or in the aggregate. In accordance with the effective date provisions of FIN 46R, the Company applied FIN 46R as of March 31, 2004. The adoption of FIN 46R did not have a material impact on the Company’s Consolidated Financial Statements.

In December 2003, the FASB issued SFAS 132 (revised 2003), Employers’ Disclosures about Pensions and Other Postretirement Plans (SFAS 132R), which amends the disclosure provisions of SFAS 132 and requires additional disclosures to those in the original SFAS 132 about the assets, obligations, cash flows, and net periodic benefit costs of defined benefit pension plans and other defined benefit postretirement plans. It does not change the measurement or recognition provisions of those plans. SFAS 132R will be effective for fiscal years ending after December 15, 2003 and for interim periods beginning after December 15, 2003. The Company adopted SFAS 132R for the interim period ending December 31, 2003. The Company already applied the majority of the recommendations regarding pension disclosures in its last Annual Report for the fiscal year ended September 30, 2003 as presented in the Exposure Draft Employers’ Disclosures about Pensions and Other Postretirement Benefits which preceded the issuance of SFAS 132R.

SIEMENS AG

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

Disposition

In the nine months ended June 30, 2004, Med realized €118 in gains from portfolio transactions. Included in this amount was a pre-tax gain of €105 in connection with Med’s sale of its Life Support Systems business to Getinge AB, Sweden. Net proceeds from the sale totaled €176. As stipulated by the contribution agreement for the joint venture Dräger Medical AG & Co. KGaA (Dräger), Siemens contributed to Dräger these net proceeds less expected taxes on the sale.

Infineon transaction

In January 2004, the Company sold 150 million shares of Infineon Technologies AG (Infineon), representing approximately 20.8% of the outstanding shares of Infineon for cash consideration of €1,794. Of the 150 million shares sold, 86,292,363 shares represented all of the Company’s 16.6% current voting interests* and 63,707,637 shares came from the non-voting trust (see Note 3 to the Consolidated Financial Statements contained in the Company’s Annual Report for the year ended September 30, 2003 for a description of the non-voting trust).

The sale resulted in a net pre-tax gain of €590 which is included in the line item Income (loss) from investments in other companies, net in the Consolidated Statement of Income. In connection with the sale of the Infineon shares, an income tax benefit of €246 was recognized upon the reversal of deferred tax liabilities accrued in connection with intercompany sales of Infineon shares in prior periods. Due to the sale, the Company’s ownership interest in Infineon declined to 18.9% (as of the effective date of the sale). Effective as of the date of the sale of the Infineon shares in January 2004 until the date of the dissolution of the non-voting trust in the first quarter of fiscal 2005, the Company has no voting interests in Infineon.


	June 30, 2004					September 30, 2003
				shares in					shares in
				thousands					thousands

Siemens’ ownership interest		18.2	%		136,292		39.7	%		286,292
Less: Non-voting trust’s interest					136,292					200,000

Siemens’ voting interest		—	*		—		16.6	%*		86,292

Based upon total Infineon shares outstanding at June 30, 2004 and September 30, 2003, respectively, less 136.3 million shares and 200 million shares, respectively, in the non-voting trust. As of June 30, 2004, the Company has no active voting interest based on the total shares outstanding. As of September 30, 2003, the Company’s total voting interest was 12.0% based on the total shares outstanding.

In the second quarter of fiscal 2004, the Company relinquished its ability to exercise significant influence over the operating and financial policies of Infineon. Consequently, the Company ceased accounting for its interest in Infineon under the equity method and began accounting for its interest as an available-for-sale marketable security at fair market value. The excess of the fair market value over the prior carrying value of the investment is recorded as a separate component of Accumulated Other Comprehensive Income as an unrealized gain. As of June 30, 2004, the cost, fair value and unrealized gain for the Company’s investment in Infineon totaled €1,094, €1,503 and €409, respectively.

SIEMENS AG

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

Other operating income (expense), net


	Three months ended						Nine months ended
	June 30,						June 30,
	2004			2003			2004			2003
Impairment of goodwill		—			—			(433	)		—
Gain on sales and disposals of businesses, net		6			80			100			101
Gain on sales of real estate, net		14			47			41			87
Other, net		(7	)		(3	)		(19	)		220

		13			124			(311	)		408

During the second quarter of fiscal 2004, the Company recorded an Impairment of goodwill of €433 (see Note 8). Gain on sales and disposals of businesses, net for the nine months ended June 30, 2004 includes a pre-tax gain of €105 from the Company’s sale of its Life Support Systems business to Getinge AB, Sweden (see Note 2). In the same period of the previous year, Gain on sales and disposals of businesses, net includes a gain of €74 relating to the Company’s contribution into the joint venture Dräger. The decrease in line item Other, net is primarily due to prior year’s cancellation of orders at PG resulting in net gains of €323 recognized in the nine months ended June 30, 2003.

Interest income, net


	Three months ended						Nine months ended
	June 30,						June 30,
	2004			2003			2004			2003
Interest income of Operations, net		11			6			15			27
Other interest income, net		70			75			194			186

Total interest income, net		81			81			209			213

Thereof: Interest and similar income		188			189			540			581
Thereof: Interest and similar expense		(107	)		(108	)		(331	)		(368	)

Interest income of Operations, net includes interest income and expense related to receivables from customers and payables to suppliers, interest on advances from customers and advanced financing of customer contracts. Other interest income, net includes all other interest amounts primarily consisting of interest relating to debt and associated hedging activities as well as interest income on corporate assets.

Inventories, net


	June 30,			September 30,
	2004			2003
Raw materials and supplies		2,385			2,118
Work in process		2,354			2,066
Costs and earnings in excess of billings on uncompleted contracts		7,017			5,787
Finished goods and products held for resale		2,886			2,770
Advances to suppliers		710			795

		15,352			13,536
Advance payments received		(3,728	)		(3,170	)

		11,624			10,366

SIEMENS AG

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

Long-term investments


	June 30,		September 30,
	2004		2003
Investments in associated companies		2,838		4,834
Miscellaneous investments		1,329		1,158

		4,167		5,992

As of September 30, 2003, Investments in associated companies included the Company’s investment in Infineon with a carrying amount of €2,249. The decrease in Investments in associated companies is due primarily to the Infineon transaction (see Note 3).

Goodwill

The table below presents the carrying amount of goodwill by segment:


	June 30,		September 30,
	2004		2003
Operations
Information and Communication Networks (ICN)		275		249
Information and Communication Mobile (ICM)		96		96
Siemens Business Services (SBS)		275		281
Automation and Drives (A&D)		345		328
Industrial Solutions and Services (I&S)		85		67
Logistics and Assembly Systems (L&A)		123		564
Siemens Building Technologies (SBT)		420		429
Power Generation (PG)		1,006		943
Power Transmission and Distribution (PTD)		145		141
Transportation Systems (TS)		112		115
Siemens VDO Automotive (SV)		1,524		1,524
Medical Solutions (Med)		1,538		1,602
Osram		79		82
Financing and Real Estate
Siemens Financial Services (SFS)		84		80
Siemens Real Estate (SRE)		—		—

Siemens worldwide		6,107		6,501

Goodwill decreased by €394 which was mainly attributable to impairment charges to businesses acquired by the Company (see below). The strength of the euro particularly against the U.S.$ resulted in a further decrease of goodwill, resulting in foreign currency translation and other adjustments of €(85) primarily related to the Company’s businesses in the U.S. Med’s sale of its Life Support Systems business and a smaller disposition at SBT additionally reduced goodwill by €(40). Acquisitions and purchase accounting adjustments resulted in a total increase in goodwill of €164 which were attributable to PG, ICN, Med, A&D and I&S.

During the second quarter of fiscal 2004, the Company recorded a goodwill impairment of €433. Based on the results of the Company’s analysis of current projects at Logistics and Assembly Systems (L&A reported as SD in prior periods) in conjunction with changing markets, new competition and structural challenges to attaining originally targeted profitability, the Company revised its related business plan and concluded that goodwill of two of L&A’s reporting units, Distribution and Industry Logistics (DI) and Airport Logistics (AL), was impaired. Rapid market deterioration followed by excess capacity and significant margin declines caused the Company to reassess its estimated future cash flows from its DI business at a level materially below earlier estimates, resulting in an impairment charge of €293. In the AL business, increasing competition, particularly in the U.S., led to reductions in estimated future cash flows and resulted in a goodwill impairment of €140. The fair values of the reporting units were estimated using the present value of expected future cash flows.

SIEMENS AG

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

In the nine months ended June 30, 2003, Goodwill increased by €158 from acquisitions primarily at SBS, PG and Med, and decreased by €418 from currency translation effects and by €59 from dispositions primarily at Med and L&A. No goodwill was impaired in the nine months ended June 30, 2003.

Other intangible assets, net


	June 30,			September 30,
		2004		2003
Software		1,864			1,659
Less: accumulated amortization		(932	)		(664	)

Software, net		932			995

Patents, licenses and similar rights		2,450			2,523
Less: accumulated amortization		(1,195	)		(1,160	)

Patents, licenses and similar rights, net		1,255			1,363

Other intangible assets, net		2,187			2,358

Amortization expense for the three months ended June 30, 2004 and 2003 amounted to €155 and €181, respectively, and €464 and €464, respectively, for the nine months ended June 30, 2004 and 2003.

In April 2004, Power Generation (PG) finalized the purchase price allocation for the acquisition of the small gas turbine business of Alstom S.A., Paris (first transaction). The final purchase price for this transaction amounts to €510, net of cash acquired. Based on the final purchase price allocation, €149 was allocated to intangible assets subject to amortization and €250 was recorded as PG goodwill. Of the €149, €79 was allocated to intellectual property rights and €70 to customer relationships. Both the intellectual property rights and the customer relationships are amortized on a straight line basis over weighted-average useful lives of 16 years and 20 years, respectively, which results in a total weighted-average amortization period for intangible assets subject to amortization of 18 years. The final purchase price allocation for the PG acquisition of the medium-sized gas and steam turbine businesses of Alstom S.A., Paris (second transaction) will be finalized in the fourth quarter of fiscal 2004.

SIEMENS AG

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

10.

Accrued liabilities


	June 30,		September 30,
		2004	2003
Employee related costs		2,445		2,366
Product warranties		1,884		1,830
Income and other taxes		1,303		1,234
Accrued losses on uncompleted contracts		1,057		987
Other		2,302		2,467

Total short-term accrued liabilities		8,991		8,884

Changes in current and non-current accruals for product warranties were as follows:


	Nine months ended
	June 30,
	2004			2003
Accrual as of the beginning of the period		2,353			2,094
Amount charged to expense in the current period (additions)		414			449
Reduction due to payments in cash or in kind (usage)		(626	)		(480	)
Foreign exchange translation adjustment		(18	)		(68	)
Other changes related to existing warranties		442			146

Accrual as of the end of the period		2,565			2,141

SIEMENS AG

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

11. Pension plans and similar commitments

Principal pension benefits: Components of net periodic pension cost (NPPC)


	Three months ended									Three months ended
	June 30, 2004									June 30, 2003
	Total			Domestic			Foreign			Total			Domestic			Foreign
Service cost		117			54			63			119			53			66
Interest cost		277			185			92			276			191			85
Expected return on plan assets		(289	)		(204	)		(85	)		(274	)		(204	)		(70	)
Amortization of:
Unrecognized prior service cost		3			—			3			3			—			3
Unrecognized net losses		156			130			26			112			98			14

Net periodic pension cost		264			165			99			236			138			98

Siemens German Pension Trust		165									138
U.S.		55									57
U.K.		35									27
Other		9									14


	Nine months ended June 30, 2004									Nine months ended June 30, 2003
	Total			Domestic			Foreign			Total			Domestic			Foreign
Service cost		352			160			192			366			159			207
Interest cost		828			557			271			843			575			268
Expected return on plan assets		(866	)		(610	)		(256	)		(833	)		(611	)		(222	)
Amortization of:
Unrecognized prior service cost		8			—			8			9			—			9
Unrecognized net losses		466			390			76			339			294			45
Loss due to settlements and curtailments		—			—			—			6			—			6

Net periodic pension cost		788			497			291			730			417			313

Siemens German Pension Trust		497									417
U.S.		161									184
U.K.		100									84
Other		30									45

SIEMENS AG

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

Other postretirement benefits: Components of net periodic benefit cost


	Three months ended									Three months ended
	June 30, 2004									June 30, 2003
	Total			Domestic			Foreign			Total			Domestic			Foreign
Service cost		11			4			7			10			5			5
Interest cost		15			6			9			16			8			8
Amortization of:
Unrecognized prior service cost		(4	)		—			(4	)		(1	)		—			(1	)
Unrecognized (gains) losses, net		(2	)		(3	)		1			(3	)		(2	)		(1	)
Gain due to settlements and curtailments		(2	)		—			(2	)		—			—			—

Net periodic benefit cost		18			7			11			22			11			11


	Nine months ended June 30, 2004									Nine months ended June 30, 2003
	Total			Domestic			Foreign			Total			Domestic			Foreign
Service cost		33			12			21			31			14			17
Interest cost		45			19			26			50			23			27
Amortization of:
Unrecognized prior service cost		(6	)		—			(6	)		(4	)		—			(4	)
Unrecognized (gains) losses, net		(7	)		(9	)		2			(9	)		(5	)		(4	)
Gain due to settlements and curtailments		(2	)		—			(2	)		(27	)		—			(27	)

Net periodic benefit cost		63			22			41			41			32			9

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was issued in the U.S. In accordance with FASB Staff Position (FSP) FAS 106-1, any measure of the Accumulated Postretirement Benefit Obligation (APBO) or net periodic postretirement benefit cost in the financial statements or accompanying notes do not reflect the effects of the Act on the plan. FSP FAS 106-2 was issued in May 2004 and is effective for interim periods beginning after June 15, 2004. When effective, FSP FAS 106-2 will supersede FSP FAS 106-1. FSP FAS 106-2 provides authoritative guidance on accounting for the federal subsidy prescribed by the Act and could require changes to previously reported information. The impact of adopting FSP FAS 106-2 has not been determined as the Company is currently assessing whether the benefits provided are actuarially equivalent to Medicare Part D under the Act.

12. Shareholders’ equity

Common stock and Additional paid-in capital

The following table provides a summary of outstanding capital and the changes in authorized and conditional capital for the nine months ended June 30, 2004 and for fiscal year 2003:


	Common stock				Authorized capital						Conditional capital
	(authorized and issued)				(not issued)						(not issued)
	in		in		in			in			in			in
	thousands		thousand		thousands			thousand			thousands			thousand
	of €		shares		of €			shares			of €			shares
As of October 1, 2002		2,671,122		890,374		766,630			255,543			194,093			64,698
Settlement to former SNI shareholders		1,477		492		—			—			(1,477	)		(492	)
New approved capital		—		—		250,000			83,334			267,000			89,000
Expired capital		—		—		(300,000	)		(100,000	)		—			—

As of September 30, 2003		2,672,599		890,866		716,630			238,877			459,616			153,206

Stock options		177		59		—			—			(177	)		(59	)
Settlement to former SNI shareholders		392		131		—			—			(392	)		(131	)
New approved capital		—		—		600,000			200,000			733,528			244,509
Expired capital		—		—		(650,000	)		(216,667	)		(267,000	)		(89,000	)

As of June 30, 2004		2,673,168		891,056		666,630			222,210			925,575			308,525

SIEMENS AG

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

Capital increases

In the nine months ended June 30, 2004, common stock increased by €177 thousand through the issuance of 58,950 shares from the conditional capital to fund the exercise of stock options granted under the 1999 Siemens Stock Option Plan (Conditional Capital 1999).

In the nine months ended June 30, 2004, common stock increased by €392 thousand through the issuance of approximately 131 thousand shares from the conditional capital as settlement to former shareholders of SNI AG.

Treasury stock

On January 22, 2004, the Company’s shareholders authorized the Company to repurchase up to 10% of the €2,673 common stock until July 21, 2005.

In the nine months ended June 30, 2004, the Company repurchased a total of 1,702,606 shares at an average price of €62.24 per share for the purpose of issuing them to employees at preferential prices. The Company issued 1,703,634 shares to employees in the nine months ended June 30, 2004 at a preferential price of €40.90 per share. Compensation expense of €35, measured in accordance with the fair value provisions of SFAS 123, was recorded under the compensatory employee stock purchase plan in the nine months ended June 30, 2004.

Authorized and conditional capital

Authorized Capital 2001/I of €400 (representing 133 million shares) and Authorized Capital 2003 of €250 (representing 83 million shares) were replaced by resolution of the Annual Shareholders’ Meeting on January 22, 2004. The Company’s shareholders authorized the Managing Board with the approval of the Supervisory Board to increase the capital stock by up to €600 through the issuance of up to 200 million new shares against cash contributions and/or contributions in kind (Authorized Capital 2004). The Managing Board is authorized to determine, with the approval of the Supervisory Board, the further content of the rights embodied in the shares and the conditions of the share issue. The Managing Board is authorized, with the approval of the Supervisory Board, to exclude pre-emptive rights of shareholders in the event of capital increases against contributions in kind and, in certain pre-stipulated circumstances, against cash. The Authorized Capital 2004 will expire on January 21, 2009.

By resolution of the Annual Shareholders’ Meeting on January 22, 2004, Conditional Capital 2003 of €267 (representing 89 million shares) was terminated. The Company’s shareholders authorized the Managing Board to issue bonds in an aggregate principal amount of up to €11,250 with conversion rights (convertible bonds) or with warrants entitling the holders to subscribe to up to 200 million new shares of Siemens AG, representing a pro rata amount of up to €600 of the capital stock (Bonds). Since the Conditional Capital 2003 has partly been utilized, the new Conditional Capital 2004 permits the issuance of shares under the new authorization and the issuance of shares to service bonds issued under the old authorization. Therefore, total Conditional Capital 2004 allows the issuance of up to €734 representing 244,509 thousand shares of Siemens AG. The authorization will expire on January 21, 2009.

SIEMENS AG

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

13. Commitments and contingencies

Guarantees and other commitments

The following table presents the undiscounted amount of maximum potential future payments for each major group of guarantees:


	June 30,		September 30,
		2004	2003
Guarantees:
Credit guarantees		437		515
Guarantees of third-party performance		372		559
Other guarantees		791		704

		1,600		1,778

Credit guarantees cover the financial obligations of third parties in cases where the Company is the vendor and/or contractual partner. These guarantees generally provide that in the event of default or non-payment by the primary debtor, Siemens will be required to pay such financial obligations. In addition, the Company provides credit guarantees generally as credit-line guarantees with variable utilization to associated and related companies. The maximum amount of these guarantees is subject to the outstanding balance of the credit or, in case where a credit line is subject to variable utilization, the nominal amount of the credit line. These guarantees usually have terms of between one to five years. Except for statutory recourse provisions against the primary debtor, credit guarantees are generally not subject to additional contractual recourse provisions. As of June 30, 2004 and September 30, 2003, the Company has accrued €80 and €125, respectively, relating to credit guarantees.

Furthermore, Siemens issues Guarantees of third-party performance, which include performance guarantees and guarantees of advanced payments in cases where Siemens is the general or subsidiary partner in a consortium. In the event of non-fulfillment of contractual obligations by the consortium partner(s), the Company will be required to pay up to an agreed-upon maximum amount. These agreements span the term of the contract, typically ranging from three months to five years. Generally, consortium agreements provide for fallback guarantees as a recourse provision among the consortium partners. No significant liability has been recognized in connection with these guarantees.

Other guarantees include indemnification rights provided in connection with dispositions of business entities. Such indemnification may protect the buyer from tax, legal and other risks related to the purchased business entity. As of June 30, 2004 and September 30, 2003, the total accruals for Other guarantees amounted to €159 and €196, respectively.

14. Stock-based compensation

In November 2003, the Supervisory Board and the Managing Board granted options to 5,625 key executives for 8,678,752 shares with an exercise price of €73.25 of which options for 262,500 shares were granted to the Managing Board. The options were granted under the 2001 Siemens Stock Option Plan. The exercise price of €73.25 is equal to 120% of the average opening market price of Siemens AG during the five trading days preceding the date of the stock option grant.

SIEMENS AG

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

Details on option activity and weighted average exercise prices for the nine months ended June 30, 2004 and 2003, are as follows:


	Nine months ended June 30, 2004					Nine months ended June 30, 2003
				Weighted Average					Weighted Average
	Options			Exercise Price		Options			Exercise Price
Outstanding, beginning of the period		20,410,876		€	69.82		11,648,767		€	82.85
Granted		8,678,752		€	73.25		9,397,005		€	53.70
Options exercised		(58,950	)	€	57.73		—			—
Options forfeited		(791,314	)	€	71.84		(501,403	)	€	69.45

Outstanding, end of period		28,239,364		€	70.84		20,544,369		€	69.84

Exercisable, end of period		10,870,522		€	82.89		4,599,421		€	76.38

The Company’s determination of the fair value of grants is based on a Black-Scholes option pricing model. The fair value of options granted in November 2003 amounted to €9.62 per option.

Additionally, in rare cases, where local regulations restrict the grants of stock options in certain jurisdictions, the Company grants stock appreciation rights to employees. In fiscal 2004, 206,050 stock appreciation rights, which allow settlement in cash only, were granted at an exercise price of €73.25 under the same conditions as the 2001 Siemens Stock Option Plan. In the nine months ended June 30, 2004, 3,900 stock appreciation rights were forfeited resulting in 202,150 stock appreciation rights outstanding as of June 30, 2004.

15. Earnings per share


	Three months ended June 30,				Nine months ended June 30,
	2004		2003		2004		2003
	(shares in thousands)				(shares in thousands)
Net income		815		632		2,751		1,721
Plus: interest on dilutive convertible debt securities		5		—		16		—

Net income plus effect of assumed conversions.		820		632		2,767		1,721
Weighted average shares outstanding—basic		891,043		890,393		890,586		889,748
Effect of dilutive convertible debt securities and stock options		45,361		—		45,626		—

Weighted average shares outstanding—diluted		936,404		890,393		936,212		889,748
Basic earnings per share		0.91		0.71		3.09		1.93
Diluted earnings per share		0.88		0.71		2.96		1.93

In June 2003, the Company issued €2.5 billion of convertible notes. The notes are convertible into approximately 44.5 million shares of Siemens AG at a conversion price of €56.1681 per share. The conversion right is contingently exercisable by the holders upon the occurrence of one of several conditions, including upon the Company’s share price having exceeded 110% of the conversion price for a stipulated period of time. This condition was met in the first quarter of fiscal 2004, and the dilutive effect of potential common shares has been incorporated in determining diluted earnings per share.

16. Segment information

The Company has fifteen reportable segments (referred to as Groups) reported among the components used in the Company’s financial statement presentation (see Note 1). The Groups are organized based on the nature of products and services provided.

SIEMENS AG

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

Within the Operations component, Siemens has thirteen Groups which involve manufacturing, industrial and commercial goods, solutions and services in areas more or less related to Siemens origins in the electrical business. Also included in Operations are operating activities not associated with a Group, which are reported under Other operations (see below) as well as other reconciling items discussed in Reconciliation to financial statements below.

The Financing and Real Estate component includes the Groups SFS and SRE. The Eliminations, reclassifications and Corporate Treasury component separately reports the consolidation of transactions among Operations and Financing and Real Estate as well as certain reclassifications and the activities of the Company’s Corporate Treasury.

The accounting policies of these components, as well as the Groups included, are generally the same as those used for Siemens worldwide. Corporate overhead is generally not allocated to segments. Intersegment transactions are generally based on market prices.

New orders are determined principally as the estimated sales value of accepted purchase orders and order value changes and adjustments, excluding letters of intent.

Operations

The Managing Board is responsible for assessing the performance of the Operations Groups. The Company’s profitability measure for its Operations Groups is earnings before financing interest, certain pension costs and income taxes (Group profit) as determined by the Managing Board as the chief operating decision maker (see discussion below).

Group profit excludes various categories of items which are not allocated to the Groups since the Managing Board does not regard such items as indicative of the Groups’ performance. Financing interest is any interest income or expense other than interest income related to receivables from customers, from cash allocated to the Groups and interest expense on payables to suppliers. Financing interest is excluded from Group profit because decision-making regarding financing is typically made centrally by Corporate Treasury.

Similarly, decision-making regarding essential pension items is done centrally. As a consequence, Group profit includes only amounts related to the service cost of pension plans, while all other pension related costs (including charges for the German pension insurance association and plan administration costs) are included in the line item Corporate items, pensions and eliminations. Until September 30, 2003, only service costs of foreign pension plans were allocated to the Groups. Beginning October 1, 2003, management decided to also allocate directly attributable service costs of domestic pension plans to the Groups. Group profit of the Operations Groups and Income before income taxes of Financing and Real Estate as well as the line item Corporate items, pensions and eliminations would have amounted to €1,283, €77, and €(367), respectively, had the corresponding €44 service costs of domestic pension plans not been allocated to the Groups in the three months ended June 30, 2004. In the nine months ended June 30, 2004, Group profit of the Operations Groups and Income before income taxes of Financing and Real Estate, as well as the line item Corporate items, pensions and eliminations would have amounted to €3,805, €301 and €(919), respectively, had the corresponding €131 service costs of domestic pension plans not been allocated to the Groups.

Furthermore, income taxes are excluded from Group profit since tax expense is subject to legal structures which typically do not correspond to the structure of the Operations Groups.

The Managing Board also determined Net capital employed as the asset measure used to assess the capital intensity of the Operations Groups. Its definition corresponds with the Group profit measure. Net capital employed is based on total assets excluding intracompany financing receivables and intracompany investments and tax related assets, as the corresponding positions are excluded from Group profit (Asset-based adjustments). The remaining assets are reduced by non-interest bearing liabilities other than tax related liabilities (e.g. accounts payable) and certain accruals (Liability-based adjustments) to derive Net capital employed. The reconciliation of total assets to Net capital employed is presented below.

SIEMENS AG

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

As a result, both Group profit and Net capital employed represent performance measures focused on operational success excluding the effects of capital market financing issues.

Other operations primarily refers to operating activities not associated with a Group and certain centrally-held equity investments (such as BSH Bosch und Siemens Hausgeräte GmbH), but excluding the equity investment in Infineon, which is not considered under an operating perspective since the Company intends to divest its remaining interest in Infineon over time. In January 2004, the Company sold 150 million shares of Infineon (see Note 3).

Reconciliation to financial statements

Reconciliation to financial statements includes items which are excluded from definition of Group profit as well as costs of corporate headquarters.

Corporate items includes corporate charges such as personnel costs for corporate headquarters, the results of corporate-related derivative activities, corporate projects and non-operating investments including the Company’s share of earnings (losses) from the equity investment in Infineon until the Infineon transaction (see Note 3) as well as goodwill impairment related to L&A (see Note 8). Because the impaired businesses were acquired at the corporate level as part of the Company’s Atecs Mannesmann transaction, the resulting goodwill impairment was taken centrally. Pensions include the Company’s pension related income (expenses) not allocated to the Groups. Eliminations represent the consolidation of transactions within the Operations component.

Corporate items, pensions and eliminations in the column Group profit consists of:


	Nine months ended June 30,
	2004			2003
Corporate items		(228	)		(672	)
Pensions		(549	)		(593	)
Eliminations		(11	)		9

		(788	)		(1,256	)

In the nine months ended June 30, 2004 and 2003, Corporate items include a pre-tax gain of €590 and €—, respectively from the sale of Infineon shares (see Note 3), €14 and €(187), respectively, representing the Company’s at-equity share in the net income (loss) generated by Infineon, and impairment charges to businesses acquired by L&A of €433 and €—, respectively (see Note 8). Pensions mainly declined due to directly attributable service costs of domestic pension plans which were reported in Corporate items in the prior year and allocated to the Groups in fiscal 2004. This decline in Pensions was largely offset by higher amortization of unrecognized net losses.

Other interest expense of Operations relates primarily to interest paid on debt and corporate financing transactions through Corporate Treasury.

SIEMENS AG

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

The following table reconciles total assets of the Operations component to Net capital employed of the Operations Groups as disclosed in Segment Information according to the above definition:


	June 30,			September 30,
	2004			2003
Total assets of Operations		64,709			64,475

Asset-based adjustments
Intracompany financing receivables and investments		(12,359	)		(11,931	)
Tax related assets		(4,400	)		(4,373	)
Liability-based adjustments
Pension plans and similar commitments		(4,902	)		(5,813	)
Accruals		(6,023	)		(6,022	)
Liabilities to third parties		(19,855	)		(20,394	)

Total adjustments (line item Other assets related reconciling items within the Segment Information table)		(47,539	)		(48,533	)
Net capital employed of Corporate items, pensions and eliminations		3,755			3,781

Net capital employed of Operations Groups		20,925			19,723

Financing and Real Estate

The Company’s performance measurement for its Financing and Real Estate Groups is Income before income taxes. In contrast to the performance measurement used for the Operations Groups, interest expense and income is an important source of revenue and expense for Financing and Real Estate.

For the three months ended June 30, 2004 and 2003, Income before income taxes at SFS includes interest revenue of €98 and €108, respectively, and interest expense of €54 and €59, respectively. For the nine months ended June 30, 2004 and 2003, Income before income taxes at SFS includes interest revenue of €314 and €341, respectively, and interest expense of €165 and €200, respectively.

For the three months ended June 30, 2004 and 2003, Income before income taxes at SRE includes interest revenue of €2 and €3, respectively, and interest expense of €24 and €25, respectively. For the nine months ended June 30, 2004 and 2003, Income before income taxes at SRE includes interest revenue of €6 and €7, respectively, and interest expense of €67 and €79, respectively.

Eliminations, reclassifications and Corporate Treasury

Income before income taxes consists primarily of interest income due to cash management activities, corporate finance, and certain currency and interest rate derivative instruments.

17.

Subsequent event

In the fourth quarter, the Company completed the acquisition of the water systems and services business of US Filter Corporation, which generated an annual turnover of approximately €1 billion, from Veolia Environnement of France. The preliminary purchase price amounts to U.S.$993 (approximates €822). The business, which is consolidated as of August 1, 2004, becomes part of I&S.

QUARTERLY SUMMARY
(in € unless otherwise indicated)


	Fiscal 2004				Fiscal 2003
	3rd Quarter		2nd Quarter		1st Quarter			4th Quarter		3rd Quarter		2nd Quarter		1st Quarter
Net sales (in millions of €)		18,216		17,794		18,329			19,778		17,380		18,230		18,845
Net income (in millions of €)		815		1,210		726			724		632		568		521
Net cash from operating and investing activities (in millions of €)		279		3,565		(1,191	)		1,246		266		1,398		(1,137	)
Key capital market data
Basic earnings per share		0.91		1.36		0.82			0.81		0.71		0.64		0.59
Diluted earnings per share		0.88		1.30		0.78			0.81		0.71		0.64		0.59
Siemens stock price⁽¹⁾
High		65.05		68.30		64.85			58.32		46.15		45.04		51.37
Low		54.95		57.30		52.02			41.35		37.80		32.55		32.05
Period-end		59.11		60.07		63.50			51.14		42.72		37.80		40.50
Siemens stock performance on a quarterly basis (in percentage points)
Compared to DAX^® index		–6.23		–2.22		+2.96			+19.15		–19.17		+10.15		+15.36
Compared to Dow Jones STOXX^® index		–4.10		–8.75		+13.59			+17.81		–2.75		+5.85		+16.00
Number of shares (in millions)		891		891		891			891		890		890		890
Market capitalization (in millions of €)		52,670		53,524		56,575			45,559		38,041		33,656		36,060
Credit rating of long-term debt
Standard & Poor’s	AA–		AA–		AA–			AA–		AA–		AA–		AA–
Moody’s	Aa3		Aa3		Aa3			Aa3		Aa3		Aa3		Aa3

(1)

XETRA closing prices, Frankfurt.

SUPERVISORY BOARD CHANGES

Effective April 1, 2004, the substitute member of the Supervisory Board, Hildegard Cornudet succeeded Rolf Dittmar as member of the Supervisory Board of the Company.

Effective July 1, 2004, Berthold Huber succeeded Bertin Eichler as member of the Supervisory Board of the Company.

The Supervisory Board decided at its meeting on July 28, 2004, that a change in the membership of the Supervisory Board is to be proposed and voted upon at the Annual Shareholders’ Meeting (the meeting) on January 27, 2005. Dr. Karl-Hermann Baumann will turn 70 on July 22, 2005, and will, as stipulated by company rules, retire at the end of the meeting on January 27, 2005. It will be proposed at the meeting that Dr. Heinrich v. Pierer, the Company’s current President of the Managing Board and CEO, be elected as member of the Supervisory Board. At the Supervisory Board meeting held subsequently on the same day, members will then vote on Dr. Heinrich v. Pierer’s election as Chairman of the Supervisory Board of Siemens AG.

MANAGING BOARD CHANGES

At the Supervisory Board meeting on July 28, 2004, Dr. Heinrich v. Pierer’s appointment as the Company’s President of the Managing Board and CEO, which was to expire on September 30, 2004, was extended until the end of the meeting on January 27, 2005.

At the Supervisory Board meeting on July 28, 2004, Dr. Klaus Kleinfeld was appointed Deputy President of the Managing Board of the Company effective August 1, 2004. Dr. Klaus Kleinfeld was elected President of the Managing Board and CEO succeeding Dr. Heinrich v. Pierer as of January 27, 2005.

Effective October 1, 2004, Thomas Ganswindt, currently President of ICN, was appointed full member of the Managing Board of Siemens AG and, at the same time, was elected as member of the Corporate Executive Committee. This election was approved at the meeting of the Supervisory Board on July 28, 2004.

Effective October 1, 2004, Rudi Lamprecht, currently President of ICM, was appointed full member of the Managing Board of Siemens AG and, at the same time, was elected as member of the Corporate Executive Committee. This election was approved at the meeting of the Supervisory Board on July 28, 2004.

SIEMENS FINANCIAL CALENDAR*


Preliminary figures for fiscal year/Press conference		Nov. 11, 2004
Annual Shareholders’ Meeting for fiscal 2004		Jan. 27, 2005

*Provisional. Updates will be posted at: www.siemens.com/financial_calendar

Information resources


Telephone		+49 89 636-33032 (Press Office)
		+49 89 636-32474 (Investor Relations)
Fax		+49 89 636-32825 (Press Office)
		+49 89 636-32830 (Investor Relations)
E-mail		press@siemens.com
		investorrelations@siemens.com

Address
Siemens AG
Wittelsbacherplatz 2
D-80333 Munich
Federal Republic of Germany
Internet www.siemens.com

Designations used in this Report may be trademarks, the use of which by third parties for their own purposes could violate the rights of the trademark owners.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	SIEMENS AKTIENGESELLSCHAFT

Date: August 6, 2004	/s/ DR. KLAUS PATZAK
	Name:	Dr. Klaus Patzak
	Title:	Vice President and Corporate Controller


	/s/ DR. GEORG KLEIN
	Name:	Dr. Georg Klein
	Title:	Head of Financial Disclosure