##### Table of Contents



As filed with the Securities and Exchange
Commission on November 29, 2004








SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 20-F

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g)

OF THE SECURITIES EXCHANGE ACT OF
1934 o


OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended September 30,
2004. þ

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from ____________ to
____________. o

Commission file number: 1-15174

Siemens Aktiengesellschaft

(Exact name of Registrant as specified in its
charter)


Federal Republic of Germany

(Jurisdiction of incorporation or
organization)


Wittelsbacherplatz 2

D-80333 Munich


Federal Republic of Germany


(Address of principal executive
offices)


Securities registered or to be registered
pursuant to Section 12(b) of the Act:

|                                                  |  |                        
|------------------------------------------------- |  | -----------------------
|                                                  |  | Name of each exchange  
|Title of each class                               |  | on which registered    
|                                                  |  |                        
|American Depositary Shares, each representing one |  |                        
|Common Share, no par value                        |  | New York Stock Exchange
|Common Shares, no par value*                      |  | New York Stock Exchange



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|  |                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Listed, not for trading or quotation purposes,
    but only in connection with the registration of American
    Depositary Shares pursuant to the requirements of the Securities
    and Exchange Commission.



---

Securities
registered or to be registered pursuant to Section 12(g) of
the Act: None



---

Securities for
which there is a reporting obligation pursuant to Section 15(d)
of the Act: None



---

The number of
outstanding shares of each of the issuers classes of
capital or common stock as of September 30, 2004:
891,075,461 common shares, no par value.

Indicate by check
mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past 90 days.

Yes þ  No
o  Not applicable
o


Indicate by check
mark which financial statement item the registrant has elected
to follow.

Item 17
o  Item 18
þ



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TABLE OF CONTENTS

|             |  |                                                                                  |  |      |       | 
|------------ |  | -------------------------------------------------------------------------------- |  | ---- | ----- | 
|             |  |                                                                                  |  | Page
|             |  |                                                                                  |  |     
|Item 1:      |  | Identity of Directors,
    Senior Management and Advisers                        |  |      | 1     | 
|Item 2:      |  | Offer Statistics and
    Expected Timetable                                      |  |      | 1     | 
|Item 3:      |  | Key Information                                                                  |  |      | 1     | 
|Item 4:      |  | Information on the
    Company                                                   |  |      | 6     | 
|Item 5:      |  | Operating and Financial
    Review and Prospects                                 |  |      | 49    | 
|Item 6:      |  | Directors, Senior Management
    and Employees                                   |  |      | 85    | 
|Item 7:      |  | Major Shareholders and
    Related Party Transactions                            |  |      | 99    | 
|Item 8:      |  | Financial Information                                                            |  |      | 99    | 
|Item 9:      |  | The Offer and Listing                                                            |  |      | 99    | 
|Item 10:     |  | Additional Information                                                           |  |      | 101   | 
|Item 11:     |  | Quantitative and Qualitative
    Disclosure About Market Risk                    |  |      | 117   | 
|Item 12:     |  | Description of Securities
    Other than Equity Securities                       |  |      | 120   | 
|Item 13:     |  | Defaults, Dividend
    Arrearages and Delinquencies                              |  |      | 120   | 
|Item 14:     |  | Material Modifications to
    the Rights of Security Holders and Use of Proceeds |  |      | 120   | 
|Item 15:     |  | Controls and Procedures                                                          |  |      | 120   | 
|Item 16A:    |  | Audit Committee Financial
    Experts                                            |  |      | 120   | 
|Item 16B:    |  | Code of Ethics                                                                   |  |      | 120   | 
|Item 16C:    |  | Principal Accountant Fees
    and Services                                       |  |      | 121   | 
|Item 18:     |  | Financial Statements                                                             |  |      | F-1   | 
|Item 19:     |  | Exhibits                                                                         |  |      | III-1 | 
|Exhibit 1.1 
|Exhibit 8.1 
|Exhibit 12.1
|Exhibit 12.2
|Exhibit 13.1
|Exhibit 13.2
|Exhibit 14.1



FORWARD LOOKING STATEMENTS

This Form 20-F contains forward-looking
statements and information that is, statements related to
future, not past, events. These statements may be identified by
words as expects, anticipates,
intends, plans, believes,
seeks, estimates, will or
words of similar meaning. Such statements are based on our
current expectations and certain assumptions, and are,
therefore, subject to certain risks and uncertainties. A variety
of factors, many of which are beyond Siemens control,
affect its operations, performance, business strategy and
results and could cause the actual results, performance or
achievements of Siemens worldwide to be materially different
from any future results, performance or achievements that may be
expressed or implied by such forward-looking statements. For us,
particular uncertainties arise, among others, from changes in
general economic and business conditions, changes in currency
exchange rates and interest rates, introduction of competing
products or technologies by other companies, lack of acceptance
of new products or services by customers targeted by Siemens
worldwide, changes in business strategy and various other
factors. More detailed information about certain of these
factors is contained throughout this report. Should one or more
of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary
materially from those described in the relevant forward-looking
statement as anticipated, believed, estimated, expected,
intended, planned or projected. Siemens does not intend or
assume any obligation to update or revise these forward-looking
statements in light of developments which differ from those
anticipated.

In this Form 20-F, references to
we, us, our,
Company or Siemens are to Siemens
Aktiengesellschaft and, unless the context otherwise requires,
to its consolidated subsidiaries. In Item 4:
Information on the Company, we use the terms
we and us to refer to a specific Siemens
group. Throughout this annual report, whenever a reference is
made to our Companys website, such reference does not
incorporate information from the website by reference into this
annual report. On February 22, 2001, our shareholders
approved a stock split of one share for every two shares held.
The stock split took effect for trading purposes on
April 30, 2001. See Item 3: Key
Information Dividends. Except as otherwise
specified, the share data in this document reflect this stock
split.

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PART I




ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS

Not applicable.




ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.




ITEM 3: KEY INFORMATION

SELECTED CONSOLIDATED FINANCIAL AND STATISTICAL DATA

The United States Generally Accepted Accounting
Principles (U.S. GAAP) selected financial data set forth below
should be read in conjunction with, and are qualified in their
entirety by reference to, the Consolidated Financial Statements
and the Notes thereto presented elsewhere in this document.

INCOME STATEMENT DATA

|                           |  |                                        |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|-------------------------- |  | -------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                           |  |                                       
|                           |  | Year ended September 30,              
|                           |  |                                       
|                           |  | 2004                                   |        | 2003 |  | 2002 |        | 2001 |  | 2000
|                           |  |                                        |        |      |  |      |        |      |  |     
|                           |  |                                       
|                           |  | ( in millions, except per share data)
|Net sales                  |  |                                        | 75,167 |      |  |      | 74,233 |      |  |      | 84,016 |  |  |  | 87,000 |  |  |  | 77,484 | 
|Income before income taxes |  |                                        | 4,232  |      |  |      | 3,372  |      |  |      | 3,475  |  |  |  | 2,678  |  |  |  | 12,239 | 
|Net income                 |  |                                        | 3,405  |      |  |      | 2,445  |      |  |      | 2,597  |  |  |  | 2,088  |  |  |  | 8,860  | 
|Basic earnings per share   |  |                                        | 3.82   |      |  |      | 2.75   |      |  |      | 2.92   |  |  |  | 2.36   |  |  |  | 9.97   | 
|Diluted earnings per share |  |                                        | 3.66   |      |  |      | 2.75   |      |  |      | 2.92   |  |  |  | 2.36   |  |  |  | 9.96   | 

BALANCE SHEET DATA

|                     |  |                  |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|-------------------- |  | ---------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                     |  |                 
|                     |  | At September 30,
|                     |  |                 
|                     |  | 2004             |        | 2003 |  | 2002 |        | 2001 |  | 2000
|                     |  |                  |        |      |  |      |        |      |  |     
|                     |  |                 
|                     |  | ( in millions) 
|Total assets         |  |                  | 79,518 |      |  |      | 77,605 |      |  |      | 77,939 |  |  |  | 90,118 |  |  |  | 81,654 | 
|Long-term debt       |  |                  | 9,785  |      |  |      | 11,433 |      |  |      | 10,243 |  |  |  | 9,973  |  |  |  | 6,734  | 
|Shareholders equity |  |                  | 26,855 |      |  |      | 23,715 |      |  |      | 23,521 |  |  |  | 23,812 |  |  |  | 28,480 | 
|Capital stock        |  |                  | 2,673  |      |  |      | 2,673  |      |  |      | 2,671  |  |  |  | 2,665  |  |  |  | 1,505  | 

The number of shares issued at September 30,
2004, 2003, 2002, 2001 and 2000 was 891,075,711, 890,866,301,
890,374,001 and 888,230,245, 882,930,900, respectively, after
stock split.

DIVIDENDS

The following table sets forth in euros and in
dollars the dividend paid per share for the years ended
September 30, 2000, 2001, 2002, 2003 and the proposed
dividend per share for the year ended September 30, 2004.
The table does not reflect the related tax credits available to
German taxpayers who receive dividend payments. Owners of our
shares who are United States residents should be aware that they
will be subject to German withholding tax on dividends received.
See Item 10: Additional
InformationTaxation.

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|                         |  |               |      |        |  |  |      |       
|------------------------ |  | ------------- | ---- | ------ |  |  | ---- | ------
|                         |  |              
|                         |  | Dividend paid
|                         |  | per share    
|                         |  |              
|Year ended September 30, |  | Euro          |      | Dollar
|                         |  |               |      |       
|2000                     |  |               | 1.60 | (1)(2) |  |  | 1.41 | (1)(2)
|2001                     |  |               | 1.00 |        |  |  | 1.14 |       
|2002                     |  |               | 1.00 |        |  |  | 1.08 |       
|2003                     |  |               | 1.10 |        |  |  | 1.40 |       
|2004                     |  |               | 1.25 | (3)    |  |  |     |       






|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a special dividend of
    0.67 per share.                                                                                                          
|   
|(2) | Adjusted for stock split.                                                                                                                                    
|   
|(3) | Proposed by the Managing Board and the
    Supervisory Board; to be approved by the shareholders at the
    shareholders annual meeting on January 27, 2005.

On February 22, 2001, our shareholders
approved an increase in our share capital from capital reserves,
thereby creating new shares in an amount equal to 50% of our
outstanding shares. This stock split became effective for
trading purposes on April 30, 2001. As a result, the number
of our outstanding shares increased by 295,812,450 shares, from
591,624,900 shares to 887,437,350 shares, based on the number of
shares outstanding as of February 22, 2001. These new
shares were distributed to shareholders at a ratio of one
additional share for every two shares owned. In this document,
we refer to this distribution as the stock split.

EXCHANGE RATE INFORMATION

We publish our Consolidated Financial Statements
in euros. As used in this document, euro or

means the single unified currency that was introduced in the
Federal Republic of Germany and ten other participating member
states of the European Union on January 1, 1999. U.S.
dollar, U.S.$, USD or
$ means the lawful currency of the United States of
America. The currency translations made in the case of dividends
we have paid have been made at the noon buying rate at the date
of the Annual Shareholders Meeting at which the dividends
were approved. As used in this document, the term noon
buying rate refers to the rate of exchange for euro,
expressed in U.S. dollar per euro, as announced by the Federal
Reserve Bank of New York for customs purposes as the rate in The
City of New York for cable transfers in foreign currencies.

In order that you may ascertain how the trends in
our financial results might have appeared had they been
expressed in U.S. dollars, the table below shows the average
noon buying rates in The City of New York for cable transfers in
foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York for U.S. dollar per euro for
our fiscal years. The average is computed using the noon buying
rate on the last business day of each month during the period
indicated.

|                                |  |         |        | 
|------------------------------- |  | ------- | ------ | 
|Fiscal year ended September 30, |  | Average
|                                |  |        
|2000                            |  |         | 0.9549 | 
|2001                            |  |         | 0.8886 | 
|2002                            |  |         | 0.9208 | 
|2003                            |  |         | 1.0919 | 
|2004                            |  |         | 1.2199 | 

The following table shows the noon buying rates
for euro in U.S. dollars for the last six months.

|          |  |      |        |     |  |  |        | 
|--------- |  | ---- | ------ | --- |  |  | ------ | 
|2004      |  | High |        | Low
|          |  |      |        |    
|June      |  |      | 1.2320 |     |  |  | 1.2006 | 
|July      |  |      | 1.2437 |     |  |  | 1.2032 | 
|August    |  |      | 1.2368 |     |  |  | 1.2025 | 
|September |  |      | 1.2417 |     |  |  | 1.2052 | 
|October   |  |      | 1.2783 |     |  |  | 1.2271 | 
|November  |  |      | 1.3059 |     |  |  | 1.2703 | 

On November 22, 2004, the noon buying rate
was U.S.$1.3048 per
1.00.

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Commencing January 1999, our shares have traded
on the Frankfurt Stock Exchange in euro. Fluctuations in the
exchange rate between the euro and the U.S. dollar will affect
the U.S. dollar equivalent of the euro price of the shares on
the Frankfurt Stock Exchange and, as a result, are likely to
affect the market price of the American Depositary Shares
(referred to as ADSs) on the New York Stock Exchange. We will
declare any cash dividends in euro and exchange rate
fluctuations will affect the U.S. dollar amounts received by
holders of ADSs on conversion of cash dividends on the shares
represented by the ADSs.

RISK FACTORS

Our business, financial condition or results of
operations could suffer material adverse effects due to any of
the following risks. We have described all the risks that we
consider material but the risks described below are not the only
ones we face. Additional risks not known to us or that we now
consider immaterial may also impair our business operations.

Our business is affected by the
uncertainties of economic and political conditions:Our business environment is
influenced by conditions in the domestic and global economies.
Numerous factors, such as global political conflicts, including
situations in the Middle East and other regions, continue to
impact macroeconomic parameters and the international capital
markets. The uncertainty of economic and political conditions
can impact the demand for our products and services, and also
make our budgeting and forecasting more difficult.

Our Information and Communication Networks
(ICN) and Information and Communication Mobile
(ICM) Groups are particularly affected by the market
conditions in the telecommunications industry. In addition,
Siemens VDO Automotive (SV) and Osram are suppliers to the
automotive industry, and their sales and the profitability could
be negatively impacted by the financial condition of their
automotive customers. Furthermore, the demand for products of
our Groups is linked to the consumer demand for automobiles,
which may be adversely impacted by the continuing uncertain
economic environment.

In light of these economic conditions, in fiscal
year 2004, we continued our cost-cutting initiatives across our
business Groups. These include adjusting existing capacities
through consolidation of manufacturing facilities, streamlining
product portfolios and reducing headcount. The contribution of
these measures to our profitability will be influenced by the
actual savings achieved and by our ability to sustain these
ongoing efforts.

We operate in highly competitive markets,
which are subject to price pressure and rapid changes:The worldwide markets for our
products are highly competitive in terms of pricing, product and
service quality, development and introduction time, customer
service and financing terms. We face strong competitors, some of
which are larger and may have greater resources in a given
business area. Siemens faces downward price pressure and is
exposed to market downturns or slower growth. Some industries in
which we operate are undergoing consolidation, which may result
in stronger competitors and a change in our relative market
position. In some of our markets new products must be developed
and introduced rapidly in order to capture available
opportunities, and this can lead to quality problems. Our
operating results depend to a significant extent on our ability
to adapt to changes in the market and reduce the costs of
producing high-quality new and existing products.

Our businesses must keep pace with
technological change and develop new products and services to
remain competitive:The markets in
which our businesses operate experience rapid and significant
changes due to the introduction of innovative technologies. To
meet our customers needs in these businesses, we must
continuously design new, and update existing, products and
services and invest in and develop new technologies. This is
especially true for our Groups ICN, ICM, Siemens Business
Services (SBS), Medical Solutions (Med) and SV. For example, ICN
and ICM are currently involved in developing marketable
components, products and systems, for a new generation of
wireless communications technology. Introducing such new
offerings requires a significant commitment to research and
development, which may not always result in success. Our sales
may suffer if we invest in technologies that do not function as
expected or are not accepted in the marketplace, if our products
or systems are not brought to market in a timely manner, or if
they become obsolete.

We may have difficulty in identifying and
executing acquisitions, strategic alliances, joint ventures and
mergers and in executing divestitures:Our strategy involves divesting
our interests in some business areas and

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strengthening others through acquisitions,
strategic alliances, joint ventures and mergers. Transactions
such as these are inherently risky because of the difficulties
of integrating people, operations, technologies and products
that may arise. Strategic alliances may also pose risks for us
because we compete in some business areas with companies with
which we have strategic alliances. We may incur significant
acquisition, administrative and other costs in connection with
these transactions, including costs related to integration of
acquired or restructured businesses. There can be no assurance
that any of the businesses we acquire can be successfully
integrated or that they will perform well once integrated.
Acquisitions may also lead to potential write-downs of
long-lived assets including goodwill due to unforeseen business
developments that may adversely affect our earnings.


Our financial results and cash flows may be
adversely affected by cost overruns or additional payment
obligations particularly with respect to our long-term
contracts:A majority of our
operating Groups, including ICN, ICM, SBS, Industrial Solutions
& Services (I&S), Logistics and Assembly Systems
(L&A), Power Generation (PG), Power Transmission &
Distribution (PTD) and Transportation Systems (TS), perform
a significant portion of their business, especially large
projects, under long-term contracts that are awarded on a
competitive bidding basis. The profit margins realized on such
fixed-priced contracts may vary from original estimates as a
result of changes in costs and productivity over their term. We
sometimes bear the risk of quality problems, cost overruns or
contractual penalties caused by unexpected technological
problems, unforeseen developments at the project sites, problems
with our subcontractors or other logistic difficulties. Certain
of our multi-year contracts also contain demanding installation
and maintenance requirements, in addition to other performance
criteria relating to timing, unit cost requirements and
compliance with government regulations, which, if not satisfied,
could subject us to substantial contractual penalties, damages,
non-payment or contract termination. There can be no assurance
that all of our fixed-priced contracts can be completed
profitably.

We face operational risks in our value
chain processes:Our value chain
comprises all the steps in our operations, from research and
development, to production, marketing and sales. Operational
failures in our value chain processes could result in quality
problems or potential product, labor safety, regulatory or
environmental risks. Such risks are particularly present in
relation to our production facilities, which are located all
over the world and have a high degree of organizational and
technological complexity. From time to time, some of the
products we sell have quality issues originating from the design
or manufacture of the product, or from the software integrated
into them. These quality issues may have financial and legal
ramifications.

We are dependent upon the ability of third
parties to deliver parts, components and services on time:We rely on third parties to supply
us with parts, components and services. Using third parties to
manufacture, assemble and test our products reduces our control
over manufacturing yields, quality assurance, product delivery
schedules and costs. The third parties that supply us with parts
and components also have other customers and may not have
sufficient capacity to meet all of their customers needs,
including ours, during periods of excess demand. Component
supply delays can affect the performance of certain of our
operating Groups. Although we work closely with our suppliers to
avoid supply-related problems, there can be no assurance that we
will not encounter supply problems in the future or that we will
be able to replace a supplier that is not able to meet our
demand. These shortages and delays could materially harm our
business. Unanticipated increases in the price of components due
to market shortages could also adversely affect the performance
of certain of our business Groups.

We may be adversely affected by rising raw
material prices:Our operating
Groups are exposed to fluctuations in energy and raw material
prices. In the recent past, oil, steel and copper prices in
particular have increased on a worldwide basis. If we are not
able to compensate or pass on our increased costs to customers,
this could have an adverse impact on our financial results.

We are exposed to currency risks and
interest rate risks:We are
particularly exposed to fluctuations in the exchange rate
between the U.S. dollar and the euro, because a high percentage
of our business volume is conducted in the U.S. and as exports
from Europe. Our currency risksas well as interest rate
risksare hedged on a company-wide basis using derivative
financial instruments. Depending on the development of foreign
currency exchange rates, our hedging activities can have
significant effects on our cash flow, particularly for our
treasury activities (Corporate Treasury). In addition, the
interest rate hedging activities not qualifying for hedge
accounting of our Corporate Treasury, are subject to changes in
interest rates. Exchange rate and interest rate

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fluctuations may influence our financial results.
A further strengthening of the euro particularly against the
U.S. dollar may also change our competitive position as many of
our competitors may benefit from having a substantial portion of
their costs based in weaker currencies, enabling them to offer
their products at lower prices. For more details regarding
currency risks, interest rate risks, hedging activities and
other market risks, please see Item 11: Quantitative
and Qualitative Disclosure About Market Risk.


Our financing activities subject us to
various risks including credit and interest rate risk:We provide to our customers
various forms of direct and indirect financing in connection
with large projects such as those undertaken by ICN, ICM, PG and
TS. Financing of GSM or UMTS wireless network equipment for ICM
customers who lack established credit histories may cause
special credit risks for us. We also finance a large number of
smaller customer orders, through for example, the leasing of
telephone systems and medical equipment, in part, through
Siemens Financial Services (SFS). SFS also incurs credit risk by
financing third-party equipment. For additional information on
customer financing see Item 5: Operating and
Financial Review and ProspectsLiquidity and Capital
ResourcesCapital Resources and Capital
RequirementsCustomer financing. We also sometimes
take a security interest in the projects we finance. We may lose
money if any of our customers are not able to pay us, if the
value of the property that we have taken a security interest in
declines, if interest rates or foreign exchange rates fluctuate,
or if the projects in which we invest are unsuccessful. Siemens
evaluates such financing requirements on a very selective basis
and has forgone, and will continue to forgo, new business
contracts if the financing risks are not justifiable.

The funded status of our off-balance sheet
pension benefit plans and its financial statement impact is
dependent on several factors:Significant changes in investment
performance or a change in the portfolio mix of invested assets
can result in corresponding increases and decreases in the
valuation of plan assets, particularly equity securities, or in
a change of the expected rate of return on plan assets. Pension
plan valuation assumptions can also affect the funded status.
For example, a change in discount rates would result in a
significant increase or decrease in the valuation of pension
obligations, affecting the reported funded status of our pension
plans, as well as the net periodic pension cost in the following
financial year. Similarly, changes in the expected return on
plan assets assumption can result in significant changes in the
net periodic pension cost in the following financial year.
Changes in other pension plan assumptions, such as discount
rate, expected return on plan assets, the compensation increase
rate and pension progression, can also materially impact net
periodic pension expense.

We are dependent upon hiring and retaining
highly qualified management and technical personnel:Competition for highly qualified
management and technical personnel remains intense in the
industries in which our business Groups operate. In many of our
business areas, we further intend to extend our service
businesses significantly, for which we will need highly skilled
employees. Our future success depends in part on our continued
ability to hire, assimilate and retain engineers and other
qualified personnel. There can be no assurance that we will
continue to be successful in attracting and retaining highly
qualified employees in the future.

We are subject to regulatory and similar
risks associated with our international operations:Changes in regulatory
requirements, tariffs and other trade barriers and price or
exchange controls could impact our sales and profitability and
make the repatriation of profits difficult. In addition, the
uncertainty of the legal environment in some regions could limit
our ability to enforce our rights. We expect that sales to
emerging markets will continue to be an increasing portion of
total sales, as our business naturally evolves and as developing
nations and regions around the world increase their demand for
our offerings. Emerging market operations present several risks,
including volatility in gross domestic product, civil
disturbances, economic and governmental instability, the
potential for nationalization of private assets, and the
imposition of exchange controls. In particular, our sizeable
operations in China are influenced by a legal system that is
still developing and is subject to change. The demand for many
of the products of our business Groups, particularly those that
derive their revenue from large projects, can be affected by
expectations of future demand, prices and gross domestic product
in the markets in which those Groups operate.

We are subject to environmental and other
government regulations:Some of
the industries we operate in are highly regulated. Med, for
example, is subject to the restrictive regulatory requirements
of the Food and Drug Administration (FDA) in the U.S.
Current and future environmental and other government
regulations, or changes thereto, may result in significant
increases in our operating or product costs. We could also face
liability for

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damage or remediation for environmental
contamination at the facilities we design or operate. See
Item 4: Information on the CompanyEnvironmental
Matters for a discussion of significant environmental
matters. We accrue for environmental risks when it is probable
that an obligation has been incurred and the amount can be
reasonably estimated. With regard to certain environmental
risks, we maintain liability insurance at levels that our
management believes are appropriate and in accordance with
industry practice. There can be no assurance that (i) we
will not incur environmental losses beyond the limits, or
outside the coverage, of such insurance or that any such losses
would not have a material adverse effect on the results of our
operations or financial condition, or (ii) our provisions
for environmental remediation will be sufficient to cover the
ultimate loss or expenditure.


Our business could suffer as a result of
current or future litigation:We
are subject to numerous risks relating to legal proceedings to
which we are currently a party or that could develop in the
future. In the ordinary course of our business we become
implicated in lawsuits, including suits involving allegations of
improper delivery of goods or services, product liability,
product defects, quality problems and intellectual property
infringement. For additional information with respect to legal
proceedings see Item 4: Information on the
CompanyLegal Proceedings. There can be no assurance
that the results of these or other legal proceedings will not
materially harm our business, reputation or brand. We maintain
liability insurance for legal risks at levels our management
believes are appropriate and in accordance with industry
practice. We accrue for litigation risks when it is probable
that an obligation has been incurred and the amount can be
reasonably estimated. There can be no assurance that (i) we
will not incur losses relating to litigation beyond the limits,
or outside the coverage, of such insurance or that any such
losses would not have a material adverse effect on the results
of our operations or financial condition, or (ii) our
provisions for litigation related losses will be sufficient to
cover our ultimate loss or expenditure.




ITEM 4: INFORMATION ON THE COMPANY

OVERVIEW

Siemens traces its origins to 1847. Beginning
with advances in telegraph technology, the Company quickly
expanded its product line and geographic scope, and was already
a multi-national business by the end of the 19th century. The
Company formed a partnership under the name Siemens & Halske
in 1847, reorganized as a limited partnership in 1889 and again
as a stock corporation in 1897. The Company moved its
headquarters from Berlin to Munich in 1949, and assumed its
current name as Siemens Aktiengesellschaft, a stock corporation
under the Federal laws of Germany, in 1966. The address of our
principal executive offices is Wittelsbacherplatz 2,
D-80333 Munich, Germany; telephone
number +49 (89) 636 00.

During fiscal 2004, Siemens employed an average
of 419,200 people in approximately 190 countries worldwide. In
fiscal 2004, we had net sales of
75.167 billion.
Our balanced business portfolio is based on leadership in
electronics and electrical engineering. We have combined this
expertise with a commitment to original research and development
(R&D) to build strong global market positions in equipment
for telecommunications and networking, industrial automation,
power generation and medical diagnostics. We are also a major
world competitor in rail transportation systems, automotive
electronics and lighting. Our businesses operate under a range
of regional and economic conditions. In internationally oriented
long-cycle industries, for example, customers have multi-year
planning and implementation horizons that tend to be independent
of short-term economic trends. Our activities in these areas
include power generation, power transmission and distribution,
medical solutions and rail systems. By contrast, in fields with
more industry-specific cycles, customers tend to have shorter
horizons for their spending decisions and greater sensitivity to
current economic conditions. Our activities in these areas
include information and communications, automation and drives
and lighting. Some activities, especially information and
communications, medical solutions and automotive, are also
influenced by technological change and the rate of acceptance of
new technologies by end users.

In fiscal 2003, we vigorously pursued a strategy
we called Operation 2003 with the overriding purpose to increase
profitability through a set of strategic programs and
initiatives aimed at achieving specific earnings margin targets
for our business Groups and generating cash during a period of
slow macroeconomic growth. Upon the successful completion of
Operation 2003, we conducted a thorough review of our management
system,

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in order to further refine and improve it. We
expanded our top+ business excellence program at the start of
fiscal 2004, integrating it into a reorganized Siemens
Management System (SMS) consisting of three programs:
Innovation, Customer Focus and Global Competitiveness. Launched
in October 2003, the SMS motivates Siemens business Groups to
further intensify their R&D activities to yield new and
improved innovative products and to expand and develop customer
relationships. Accordingly, we enhance their overall cost
position as one way, among many others, to further advance
Siemens competitiveness in the global marketplace. In
fiscal 2004, we began our Go for Profit and Growth
initiative, which we will continue in fiscal 2005.


In the remainder of this section, we detail the
SMS strategy, highlight portfolio optimization activities in
recent years, and describe the long-term, broad-based management
strategies that span all of our businesses and will guide our
growth in the years ahead.

SIEMENS MANAGEMENT SYSTEM

Innovationhas
been a hallmark of Siemens since its inception, and our
commitment to innovation remains strong, with a total
5.063 billion
of R&D expenses and approximately 6.7% of sales invested in
R&D in fiscal 2004. Innovation cycles are increasingly
shorter. The role of management is to identify opportunities to
bring innovation to market as rapidly and profitably as
possible, such as by using common technology platforms across
multiple businesses.

Customer
focusmeans meeting a
customers needs rather than simply selling a product or
service. In practice, we market our products, solutions and
services not only through our business Groups but also take
advantage of cross-selling opportunities. We intend to maximize
our customers satisfaction and market penetration through
various initiatives, including cross-selling programs.
Throughout our Groups, we will initiate further emphasis of our
service business to stimulate sales. It is important to treat
our customers as partners, to involve them in our own
development processes and to provide them with market-oriented
solutions.

Global
competitivenessthe third
component of the Siemens Management System, concerns our ability
to compete and market our products on a worldwide basis. Siemens
is present in approximately 190 countries and benefits from its
multicultural mix of managers and employees in these countries.
It is our primary goal to secure competitive strength by
utilizing and optimizing all parts of our worldwide value chain
including procurement, production and hardware, development of
software, shared services and back-office functions. In
addition, we plan to expand our presence in our growth regions.

PORTFOLIO ACTIVITIES

Since fiscal 2002, we have completed the
following significant transactions in our efforts to realign our
businesses in order to achieve sustainable profitability growth:

Acquisitions



| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquisition of USFilter Corporation (USFilter)
    which offers water systems and services products in the
    municipal and industrial water treatment and supply market in
    the fourth quarter of fiscal 2004;                                                                                                                                                          
|
| |  | Acquisition of three entities not significant
    individually in fiscal 2004: Trench Electric Holdings BV,
    Netherlands, BBC Technology Holdings Ltd., UK and the
    Huntsville, Alabama, USA business group of an automotive
    electronics manufacturer; and                                                                                                         
|
| |  | Acquisition of the industrial turbine business of
    Alstom S.A. (Alstom), Paris, which was structured in two
    transactions; in the first transaction in April 2003, Power
    Generation (PG) acquired the small gas turbine business of
    Alstom; and in the second transaction in July 2003, PG acquired
    Alstoms medium-sized gas and steam turbine businesses.

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Dispositions



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In the fourth quarter of fiscal 2004, Siemens
    divested a 74.9% interest in SBS banking software company
    KORDOBA Gesellschaft für Bankensoftware mbH & Co. KG
    (Kordoba);                                                                                                                                                                                                                                                                                              
|
| |  | Siemens contributed the Patient Care System and
    Electro Cardiography System businesses of our Medical business
    Group into a joint venture with Drägerwerk AG in exchange
    for a 35% interest in the joint venture Dräger Medical AG
    & Co. KGaA (Dräger Medical) in June 2003. In October
    2003, Siemens completed the sale of its Life Support Systems
    business to Getinge AB, Sweden and contributed the net proceeds
    from this sale to Dräger Medical;
|
| |  | In September 2002, Siemens divested of several
    business activities to Kohlberg Kravis Roberts & Co. L.P.
    (KKR), including units acquired as part of our acquisition of
    the Atecs Mannesmann group, the Metering division of our PTD
    Group, the Ceramics division of our PG Group and a regional
    service business belonging to our ICN Group;                                                                                                                  
|
| |  | In July 2002, divestiture of Unisphere Networks,
    Inc.;                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | In fiscal 2002, divestiture of certain other
    businesses and assets related to the acquisition of Atecs
    Mannesmann AG; and                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Siemens decreased its ownership interest in
    Infineon Technologies AG (Infineon) from 64.0% at the beginning
    of fiscal 2002 to 18.2% at the end of fiscal 2004.                                                                                                                                                                                                                                                                                                            

For a detailed discussion of our acquisitions and
dispositions, see Notes to Consolidated Financial
Statements.

ECONOMIC VALUE ADDED (EVA)

A core element of our strategy has been an
emphasis on EVA as a measurement of the success of each of our
business Groups and of our Company as a whole. Economic value
added provides a measure of the return of a business Group over
its cost of capital. We believe that our management incentive
compensation, which is based on economic value added targets,
plays a key role in keeping us focused on our profitability
goals.

CORPORATE STRUCTURE

Our corporate structure consists of fifteen
different business Groups active in seven different business
areas.

The majority of our business is devoted to
providing products and services to customers based on
Siemens historical expertise in innovative electrical
engineering and electronics. We refer to this component of our
business as Operations, which is divided into the 13 operating
Groups. These Groups typically design, manufacture, market,
sell, and service products and systems, or help customers use
and manage those products and systems. A Group is equivalent to
a reportable segment as defined by U.S. GAAP.

Another component of our Company is made up of
two Groups, involved in non-manufacturing activities such as
financing, leasing, and real estate. We refer to this component
as Financing and Real Estate.

For a detailed description of our business
Groups, see Description of Business.

In addition, we hold non-controlling interests in
a number of businesses. The most significant of these is our
interest in BSH Bosch und Siemens Hausgeräte GmbH which
manufactures consumer household appliances, often referred to as
white goods and Fujitsu Siemens Computers for
computers.

Our business Groups are supported by regional
units and central corporate departments. Our regional units
include sales units in each region where we operate to
complement the sales efforts of our individual business Groups
and take advantage of cross-marketing opportunities. Our
corporate departments also support the business Groups with
financial resources, human resources, planning and development
and information and communications infrastructures.

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We operate through hundreds of subsidiaries, some
of which are organized along the lines of our business Groups
and others of which are organized on a geographic basis.

DESCRIPTION OF BUSINESS

Our seven business areas and fifteen Groups are
as follows:

(FLOW CHART)






|  |                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------
|* | The Groups ICN and ICM were combined into one
    Group named Communications (Com) as of October 1, 2004.

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INFORMATION AND COMMUNICATIONS

Information and Communication Networks (ICN)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 6.994 billion | 
|External sales as percentage of Siemens net sales |  |                    | 8.41%          | 
|Group profit                                      |  |                    | 222 million   | 

ICN develops, manufactures and sells
comprehensive public and enterprise communication systems,
including related hardware and software, and provides a wide
variety of consultancy, maintenance and other services.
ICNs worldwide customer base comprises service providers,
such as network operators and internet service providers, as
well as private companies, ranging from small businesses to
large multinational enterprises.

Our focus has shifted from traditional
communication systems that carry primarily voice (narrowband
networks) to systems that can combine voice, data and
multimedia, such as video transmissions (broadband or next
generation networks). Our carrier business upgrades existing
voice-centered networks primarily to allow the transmission of
voice, data and multimedia, based on internet protocol (IP)
(often referred to as IP convergence), so that service
providers can address new revenue opportunities while protecting
their significant investments in their existing networks. For
our new customers, we also design and build new IP-based
networks. Our enterprise business offers comprehensive
communication products and solutions designed to increase
productivity of enterprises by converging their voice and data
networks on a single unified network infrastructure and by
integrating real-time communication applications. Our Group is
organized in three divisions: Carrier Networks, Carrier Service
and Enterprise Networks.

Carrier Networks.This division is a leading system provider for public fixed-line
communication network infrastructure. We offer innovative and
comprehensive solutions designed to reduce the operating costs
of our carrier customers and to increase the efficiency of their
networks. Additionally, we provide applications that enable our
customers to increase their revenues by allowing them to offer
more products and services such as telephone and video
conferencing and to thus carry more IP-converged traffic over
their networks. Our customers worldwide include telephone
operators, cable and other alternative operators, data carriers,
internet service providers and application service providers.

Our product portfolio addresses each of the
following three telecommunication networks segments: access,
transport and control. For network access, we provide products
and solutions that upgrade the portion of a telephone network
between a home or a business and the first network switching
system (the last mile) equipping it to carry not only voice but
data requiring very high bandwidth. We also offer broadband
equipment for homes and businesses, including modems for
high-speed internet access. As part of our new network access
strategy, in fiscal 2004, we initiated a comprehensive
partnership with the Korean access specialist Dasan Networks
Inc. (Dasan), in which we held a significant minority interest,
giving us a strong local partner in Asia. After receiving
approval from the German antitrust authorities, in fiscal 2005,
we acquired a controlling interest in Dasan on October 18,
2004. Dasan offers broadband access products such as DSLAMs (DSL
access multiplexers) and switches based on Ethernet. For network
transport, we offer transport solutions for optical networks,
which use light waves to transmit communications signals through
fiber optic cables. Our transport solutions combine hardware and
software designed to deliver higher transmission rates between
network elements. To complete our transport network product
portfolio, in fiscal 2004, we entered into a global reseller
agreement with the Chinese company, Photonic Bridges, Inc.
(Photonic Bridges). For network control, we provide solutions
which switch and direct voice, data and video signals within a
network. In addition, our portfolio includes products for voice
switching in traditional networks and for voice and data
switching in IP converged networks, as well as interfaces
between these narrowband and broadband networks. All our carrier
products are offered under the common brand, SURPASS®. In
order to offer the full spectrum of network products for the
Chinese market, during fiscal 2004, we increased our minority
ownership in Beijing International Switching Company
(BISC) to a majority ownership, and subsequently renamed it
Siemens Communication Networks, Beijing (SCNB).

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For multimedia applications, we provide open
application programming interfaces to members of our SURPASS
partner program, weSURPASS®. This allows
weSURPASS partners to develop features and
applications that enhance the value of SURPASS for its users. We
have also launched SURPASS Home Entertainment allowing our
carrier customers to create a customized strategy for entry into
the multimedia business, providing both entertainment and
communication services on TV.

Our portfolio is also complemented by the data
routing products of Juniper Networks, Inc. (Juniper) for which
we act as a global reseller.

Carrier Service.This division provides services for the network operation
processes of our customers. The service portfolio comprises
network maintenance and professional services. Network
maintenance includes comprehensive service packages, including a
customer interaction center, network care, repair and
replacement services and evolution services, which
allow networks to keep pace with technological developments. Our
professional services focus on operational out-tasking and also
include consulting, design and education services.

Enterprise Networks.This division provides comprehensive real-time communication
products and solutions for enterprises, government agencies and
other organizations. Our products and services are based on our
enterprise IP convergence architecture, called
HiPath®. Our portfolio contains a comprehensive range of
communications platforms, a broad offering of traditional and IP
phones and software-based telephone applications for personal
computers, IP-based applications for customer relationship
management and remote office environments, a wide array of
installation and maintenance services, professional and managed
services, and network security systems and solutions. In
addition, our open, real-time communications application suite,
OpenScape®, integrates traditional telephony services with
voice over IP and collaborative applications, such as multimedia
conferencing, offering a fully integrated, real-time framework
that simplifies business processes. As a result of the general
shift towards open standards IP communications solutions,
we are moving from a hardware-based business to an increasingly
software-and solutions-driven business. Thus, our focus is on
optimizing an enterprises business processes through
software solutions which are integrated in its existing
IT structure. We design our solutions to provide customers
with a prompt return on investment and to open new business
opportunities for them, such as through the integration of fax,
e-mail, internet and video into existing telephone call center
systems.

In order to extend our data networks and
information technology security offerings, during fiscal 2004,
we have entered into reseller agreements with Huawei
Technologies Co. Ltd. (Huawei) and Oblix Inc. (Oblix).

During fiscal 2004, ICN continued to implement
its LifeWorks® concept as its vision for the future of
telecommunications worldwide. LifeWorks is a unified
communications platform that incorporates elements of our
SURPASS carrier technology and our HiPath enterprise technology
in order to integrate the technologies, devices and applications
of enterprises and carriers and to produce a single, homogeneous
communications environment where information can be accessed at
any time and from any remote point. As a further step to
implement our LifeWorks vision, we have launched our HiPath
Openscape and our SURPASS Home Entertainment.

ICN operates its own sales force in Germany and
uses dedicated personnel in Siemens worldwide network of
regional sales units. Our global presence and our expertise in
voice and IP communication allow us to deliver ready-for-use
network solutions on a wide scale and of varied complexity
throughout the world. Some of our more significant carrier
customers include Deutsche Telekom, Telecom Italia, China
Telecom, SBC and France Telecom, while our more significant
enterprise customers include research and governmental
institutions (including certain departments of the United States
federal government), Ford Motor Company, DaimlerChrysler and
RWE. Being faced with an almost stable market development, we
have not experienced a significant change in the number of our
carrier customers or in the number of our enterprise customers.
Our larger contracts with both our carrier and enterprise
customers often involve tens of millions of euros. We have no
customer who contributed more than 5% of total sales in fiscal
2004.

We have provided, and expect to continue to
provide, some of our customers with various forms of direct and
indirect financing in connection with large infrastructure
projects.

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We derive approximately two thirds of our sales
from Europe, with 35% from Germany, and a smaller yet
significant amount from the Americas, mainly the U.S.

ICN has established a number of smaller joint
ventures in order to share costs and risks of developing new
technologies, to manufacture products under local conditions and
to facilitate market entry. In addition, we enter into strategic
alliances in order to help achieve a leading position in the
market for real-time communications. Typical examples are our
strategic alliances with leading enterprise IT companies, such
as IBM, Microsoft and SAP.

ICNs market continues to be characterized
by:



| |   |                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Growth in the amount and speed of data
    communications traffic due to the increased availability of
    broadband access, multimedia applications, such as messaging and
    games, and real-time communications;             
|
| |  | Continued convergence of voice, data and video
    communications and increasing volatility of such converged
    digital traffic within networks;                                                                               
|
| |  | Decreasing revenues for many large carriers from
    fixed line telephony and voice due to mobile substitution,
    further price erosion, and migration to internet telephony
    (often referred to as voice over IP services);
|
| |  | Growing maturity of IP voice technologies, such
    as voice over IP, endangering more expensive traditional
    technologies and lowering market entry barriers faced by new
    competitors; and                               
|
| |  | Low levels of capital expenditure by carriers and
    enterprises in established voice infrastructure.                                                                                                                           

ICN is challenged by a changing competitive
landscape. In addition to our traditional competitors, such as
Alcatel, Lucent, Nortel and Avaya, there are also recent
entrants, such as Huawei, UTStarcom and ZTE, targeting our
traditional customers. As a result of the importance of IP
convergence and the applications business, we also face new
competitors which formerly focused on software, IT services
and/or data networks, such as Microsoft, SAP, Cisco Systems and
IBM.

For our carrier business, market conditions
remained difficult throughout fiscal 2004, largely due to the
continued weak level of capital expenditures among
telecommunications operators. Our enterprise business suffered
from a continuing reluctance to engage in IT spending,
particularly in the United States and Germany.

In fiscal 2004, adjusting our research and
development activities to reflect current market conditions, our
research and development costs were 10.2 % of ICN total sales,
compared to 11.8% of total sales in fiscal 2003. We remain
focused on improving the efficiency of our research and
development activities, which includes reducing and transferring
development sites to lower-cost countries, as well as directing
research and development efforts on targeted projects in order
to decrease overhead costs and development time.

More generally, in response to the decline of
ICNs volume and changes in the competitive landscape, we
have undertaken further comprehensive adjustments to our cost
structure and business portfolio and continued our efforts in
working capital management. During fiscal 2004, we started to
implement our ICN Top+ Program aiming for innovation in products
and services, improved customer focus and profitable,
sustainable growth in turnover and market share. We also
continued to maintain our focus on the key elements of our
former Profitability and Cash Turnaround (PACT) Program:
improving management of working capital, cutting costs, reducing
personnel, consolidating our worldwide manufacturing structure
and improving portfolio management.

The large size of some of our projects
occasionally exposes us to risks associated with technical
performance, a customer, or a country. For additional
information with respect to our long-term contracts, see
Item 3: Key Information Risk Factors.

Effective October 1, 2004, our ICN and ICM
Groups were combined to form our new Siemens Communications
(Com) Group. Com is organized into three businesses around the
telecommunications industry with eight divisions. The devices
business consists of Mobile Devices, Customer Premises
Equipment Devicesand Wireless Modules; the
enterprise networks business consists of the two divisions
Enterprise Systemsand

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Enterprise Services ;
and the carrier networks business consists of the Mobile
Networks, Fixed Networksand Carrier Servicesdivisions.


Information and Communication Mobile (ICM)

|                                                  |  |                    |                 | 
|------------------------------------------------- |  | ------------------ | --------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 11.042 billion | 
|External sales as percentage of Siemens net sales |  |                    | 14.48%          | 
|Group profit                                      |  |                    | 347 million    | 

ICM designs, manufactures and sells a broad range
of mobile network products and systems and communication devices
including mobile, cordless and corded fixed-line telephones. ICM
is one of the worlds leading providers of mobile
infrastructure and devices.

In fiscal 2004, our Group comprised four
divisions: Mobile Networks, Mobile Phones, Cordless
Products, and Wireless Modules.

Mobile Networks.The
Mobile Networks division provides mobile network operators and
enterprises with a complete range of products for building,
expanding and enhancing mobile networks, including the dominant
second generation (2G) mobile standard, GSM, the mobile data
standard, GPRS and the further enhancement of GPRS data
transmission, EDGE, as well as the dominant third generation
(3G) mobile technology, W-CDMA.

The divisions product portfolio includes
radio base stations, base station controllers, switching systems
for mobile communications networks, intelligent network systems,
applications, and microwave technology systems. The division has
started to address the increasing demand of corporate customers
offering mobile enterprise solutions to operators. Additionally,
the division also focuses on customized solutions in the areas
of multimedia solutions and services for operators such as
charging which use the divisions hardware and software, as
well as third party technology. Based on industry estimates of
market share published by Gartner, Inc. in May 2004, our Mobile
Networks division is among the leading global providers of GSM
and W-CDMA networks and prepaid services.

The universal mobile telecommunications system
(UMTS) standard used in 3G networks offers faster and more
reliable transmission of voice, data and multimedia
communications over mobile devices through higher efficiency and
speed of radio transmission. These new types of mobile networks
are expected to provide a platform for wireless Internet access
and a variety of new applications. Supported by Mobisphere, our
joint venture with NEC, we are well positioned in the UMTS
market. We have already been awarded 30 commercial contracts for
3G network projects. Currently, we are working on a number of
rollouts of W-CDMA infrastructure in Europe and Asia.

Mobile Phones.We
offer digital mobile phones for all customer segments based on
GSM/ GPRS and UMTS, the widely distributed mobile phone
technology standards that allow faster data transmission rates.
We build our major mobile phone products from common platforms
to reduce production costs while allowing us to readily tailor
features for different market segments. To broaden our mobile
phone line, we continue to introduce high-end products, with
multimedia capabilities. The core of our sales come from medium-
and lower-priced phones designed for the consumer market. In
fiscal 2004, we discontinued our Xelibri brand of fashion
accessory phones.

During fiscal 2004, we launched a variety of new
products, including:



| |   |                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | SX1 smart phone, our first smart phone based on
    an open operating system offering multimedia capabilities,
    including audio, video and an integrated camera;               
|
| |  | business phones, such as the S65, a high-end bar
    phone with BluetoothTM technology, exchangeable
    MultiMediaCard, integrated camera, and high resolution color
    display;

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fun phones, such as the M65 and the CX65, with a
    fashionable design and features such as multimedia messaging
    service (MMS), JAVATM technology, color displays,
    entertaining and easy to use menus, integrated camera with
    digital zoom, polyphonic ringer, video, and an attachable flash
    as an accessory; as well as basic-class multimedia phones like
    C65, for mainstream users;
|
| |  | the slider phone SL65, which features a
    distinctive design, allowing it to slide open to reveal its
    keypad, and a camera with digital zoom and video;                                                                                                                                                                                                                                               
|
| |  | clam shell phones, such as the entry level CF62
    developed in China, featuring a distinctive design with an
    antenna loop and an attractive illumination concept, MMS,
    JAVATM technology, color display and an attachable
    camera;                                                                                                                                                             
|
| |  | market entry phones, including the A57, designed
    to appeal to first-time users or price sensitive customers; and                                                                                                                                                                                                                                                                                        
|
| |  | a 3G phone, the U15, which provides a large
    variety of multimedia features, including video and an MP3
    player.                                                                                                                                                                                                                                                                                      

Currently, we rely on Infineon and Lumberg as
significant suppliers of semiconductors and other components for
mobile handsets. As is common in our industry, we also use
electronic manufacturing services (EMS) providers, who
supply us with manufacturing capacity. In addition, we use
original design manufacturing (ODM) suppliers, who supply
us with certain product design and technology features that we
use to serve market-specific needs.

Cordless Products.Our cordless products portfolio is
based on digitally enhanced cordless technology (DECT) and
covers the entire range of products for the consumer, home
office, and small business segments. Apart from voice products,
we increasingly focus on data products, such as modems and
set-top boxes.

In fiscal 2004, we introduced a new generation of
Gigaset cordless phones. This is the first Gigaset cordless
phone product line to provide access to internet telephony
(often referred to as voice over IP), making use of
the new Gigaset M34 universal serial bus (USB) device to
link the cordless phone with a personal computer. We also
introduced the SL740/ SLX740, which is the worlds first
cordless home phone with integrated camera and MMS.

Wireless Modules.Our Wireless Modules division produces
communication modules which enable wireless voice communications
and machine-to-machine data transfer. Our customers include them
in personal data assistants, smart phones, vending machines,
traffic control systems, burglar alarms, measuring instruments,
navigation systems, automotive communication systems and other
electronic systems and devices.

Our communication modules are based on the GSM
and GPRS mobile technology standards. In fiscal 2004, our XT55
module was the first tri-band GPS/ GPRS module to be introduced
in the market. The XT55 can be used for fleet management, asset
tracking, person tracking and car security, as well as various
other applications that focus on location-based communication.

Our Siemens Mobile Acceleration GmbH continues to
make strategic investments in start-up companies in the mobile
telecommunications field.

Our divisions continue to be actively involved in
collaborative ventures. Our Mobile Phones division increased its
share in Symbian, a software licensing joint venture that
supplies an open operating system for data-enabled mobile
handsets. The company is jointly owned by wireless industry
leaders, including Nokia, Ericsson, Matsushita, Sony-Ericsson
and us. In addition, our Mobile Phones division entered into a
strategic partnership with Chinese Ningbo Bird Co., Ltd. (Bird),
leveraging Birds leading sales and distribution network
with the aim of achieving strong growth in China.

In fiscal 2004, our research and development
costs were 10.6% of ICMs total sales, compared to 11.3% of
total sales in fiscal 2003. In addition to Mobile Networks
significant long-term development efforts in UMTS, it has
focused development efforts on GPRS and EDGE technology. With
other leading industry participants, such as Ericsson, Huawei,
NEC and Nortel, our Mobile Networks division also launched the
Common Platform Radio Interface (CPRITM) initiative.
The CPRITM focuses on a 3G radio base station design
that divides the radio base

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station into a radio and a control part, by
establishing one new public interface as the sole connecting
point between the two parts. This is intended to allow each of
the two parts to better benefit from technology advancements in
its respective area. The CPRITM initiative generated
its first products during fiscal 2004. Research for the next
generation of mobile technologies has been intensified. For
example, we participate in the European Union (EU) research
for the next generation of mobile network architecture and
technologies (beyond 3G). The Mobile Phones division is
developing new product architectures in order to drive
modularization of platforms, which enable flexible and quick
product development. Cordless Products is a leading technology
and innovation driver for the new fixed-line MMS standard in
Europe, which allows sending and receiving multimedia like
pictures and videos with fixed-line phones.


The technology relevant to our business continues
to grow more and more complex, and the functionality of
different products increasingly overlaps. As a result, ICM, like
other competitors in the wireless market, may be more likely to
face patent infringement and other intellectual property-related
claims, which could have a negative impact on our competitive
position.

Customers of our Mobile Networks division
primarily include mobile network operators, as well as service
providers and a variety of enterprises. Our Mobile Phones and
Cordless Products customers are primarily large
telecommunications operators, distribution companies and
consumer retailers. Our Cordless Products division also sells
cordless and corded telecommunications equipment to ICN for
resale to business customers as part of its complete
telecommunications solutions offerings. Customers of our
Wireless Modules division primarily include information and
communication device manufacturers, automobile manufacturers, IT
vendors and other businesses.

In fiscal 2004, we continued our efforts in
building our North American customer base as network providers
in the United States continue to shift from TDMA (a 2G
technology used only regionally) to GSM technology. In South
America, we are taking advantage of the shift from TDMA to GSM
standard, and the build-out of GSM in general, to grow our
handset business.

We have provided and expect to continue to
provide some of our customers with various forms of direct and
indirect financing in connection with large infrastructure
projects, including build-outs of 3G networks.

Our products and services are sold through our
own sales units in approximately 70 countries, as part of
Siemens worldwide network of regional sales units. We
derive over half of our sales from Europe and a smaller but
significant amount from the Americas and the Asia-Pacific region.

We have approximately ten significant
manufacturing and assembly locations worldwide, including six in
Europe, of which four are located in Germany.

Fiscal 2004 brought a recovery in investment in
mobile network technology due to the wide scale launch of
commercial 3G services, continued investment in 2G and 2.5G
mobile services and a growing market for services such as
network integration and security. The mobile phones market
continues to grow, especially for market-entry models, and in
emerging markets such as India, the Middle East and Latin
America, with a growing demand for ultra-low-cost phones. The
prospects in both the mobile network and phone markets will
depend on various factors, including the success of the
commercial launch of 3G products and services and their
widespread acceptance by consumers, the development of worldwide
economic conditions and the severe financial constraints to
which many wireless network providers are subject.

To improve and enhance profitability, ICM has
continued its productivity program. The measures include process
improvements, enhanced purchasing coordination, as well as
headcount reduction. For example, we both continued and
accelerated our increased use of low-cost development resources
in China and India.

On an ongoing basis, demand for our products,
systems and solutions depends on worldwide economic conditions
and continuing growth in communications and information
technology use in the areas and standards we serve. In the
mature markets, the mobile phone industry is in a transition
from serving a voice-centered market to addressing significant
data services demand, and future demand for wireless equipment
may depend on the availability and acceptance of such data
services. Demand for wireless equipment will continue to be
affected by the financial constraints facing most
telecommunications operators, especially in Europe, which limit
their ability

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to invest in wireless infrastructure. Demand for
our mobile and cordless phone products also typically fluctuates
by season, with most of the sales to the end-consumer
historically occurring around the Christmas holidays. Due to
generally short product life cycles in our mobile handset
business, to remain competitive we must be able to design and
successfully bring new products to market quickly and in
sufficient amounts to meet customer demand.


We compete with both large, established mobile
network and handset telecommunications manufacturers with a
broad focus, as well as smaller start-up companies concentrating
on particular market niches. In addition, we experience new
competitors with a strong regional focus, for example China, who
build on their low cost structures and abilities to integrate
third-party modules and components in their own products. In
general, some of our most significant competitors include Nokia,
Motorola, Nortel, Lucent, Ericsson, Sony-Ericsson, LG and
Samsung, in mobile networks and mobile phones, and Matsushita,
Atlinks, and Vtech, in other digital communications products.
Additionally, in Mobile Networks, we are facing both low-cost
competitors such as Huawei and ZTE and traditional IT firms such
as Cisco, who are strengthening their market positions. Mobile
Networks is also confronted with intensifying competition from
telecommunications suppliers such as Ericsson and IT integrators
such as Capgemini, Hewlett-Packard (HP) and Accenture, in
the system integration market segment. Additional competitive
pressure in mobile phones comes from network operators who are
selling phones under their own brand (white label phones). Also,
forward integrating technology providers, such as chip
manufacturers, expand their share in the value creation as they
are able to build more of the phones functionalities into their
components. In addition, EMS suppliers, who possess the
necessary manufacturing know-how, participate in the
manufacturing value creation. In Wireless Modules, we are facing
competition mainly from Wavecom and substitution risks from
semiconductor companies such as Intel, Infineon and Texas
Instruments.

The large size of some of our projects
occasionally exposes us to risks associated with technical
performance, a customer, or a country. For additional
information with respect to our long-term contracts, see
Item 3: Key Information Risk Factors.

Several recent or proposed governmental actions
may have an impact on our sales and costs. These include the EU
directives concerning the disposal of used electronic equipment
and the reduction of hazardous waste, and the possible
establishment in the EU and other major markets of limits on the
Specific Absorption Rate (SAR), a measure of the rate at which
radio frequency energy is absorbed by the body, for hand-held
phones and other devices. In addition, from 2006 on, the EU and
China will exclude lead-containing electronic products from
their markets. Our Mobile Phones and Wireless Modules divisions
are preparing the migration to a lead-free product portfolio.
See Environmental Matters. We are already
running pilot projects intended to assure our compliance by the
applicable dates. The potential impact of these environmental
regulations on our sales or profitability will depend in part on
how they are ultimately implemented through national legislation
and enforced.

Effective October 1, 2004, our ICN and ICM
Groups were combined to form our new Siemens Communications
(Com) Group. Com is organized into three businesses around the
telecommunications industry with eight divisions. The devices
business consists of Mobile Devices, Customer Premises
Equipment Devicesand Wireless Modules; the
enterprise networks business consists of the two divisions
Enterprise Systemsand Enterprise Services; and
the carrier networks business consists of the Mobile
Networks, Fixed Networksand Carrier Servicesdivisions.

Siemens Business Services (SBS)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 4.716 billion | 
|External sales as percentage of Siemens net sales |  |                    | 4.79%          | 
|Group profit                                      |  |                    | 40 million    | 

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SBS provides information and communications
services to customers in industry, the public sector, financial
services, telecommunications, transportation and utilities. SBS
designs, builds and operates both discrete and large scale
information and communications systems, and provides related
maintenance and support services.

SBS has expanded into the operation of
communications systems to provide comprehensive information
technology and communications solutions from a single source.
SBS creates these solutions for customers by drawing on its
management consulting resources to redesign customer processes;
on our professional services to integrate, upgrade, build,
install and maintain information technology systems; and on our
operational capabilities to run these systems on an ongoing
basis. SBS serves primarily external customers, who account for
approximately 76% of total sales.

SBS has three divisions which reflect the types
of services SBS offers. The Solution Businessdivision
offers project-oriented consulting, design and implementation
services. These include selecting, adapting and introducing new
solutions to support business processes, as well as integration
of systems and enterprise applications. Many of our solutions
are based on software platforms from our partners, such as SAP.
The Operation-Related Servicesdivision provides
outsourcing services (operation of a customers IT
infrastructure or of selected business processes), with a focus
on full-scale IT operations spanning hosting, call center,
network and desktop services. The Product-Related Servicesdivision offers infrastructure maintenance, including
hardware and software maintenance and infrastructure service
solutions, including security services and concepts designed to
minimize business process interruption caused by failures in the
IT infrastructure. In fiscal 2004, we generated more than a
quarter of total sales from the Solution Business, less than
half from Operation-Related Services and slightly more than a
quarter from Product-Related Services. SBS will seek to expand
its outsourcing business and formed a fourth division,
Business Process Outsourcing, focusing on business
process outsourcing, especially in the areas of human resource
administration and financial service back-office operations as
of October 1, 2004 to support this initiative.

SBS provides information technology solutions and
services designed to support and optimize the following core
processes of its customers:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | customer relationship management to assist
    businesses in aligning their organizations to better serve the
    needs and requirements of their customers. In this area, SBS
    offers solutions for integrated management of all sales,
    marketing and customer care activities, including operation of
    call centers and the supply of sales control systems that allow
    businesses to follow and maintain their customer relationships
    by gathering and analyzing sales information;                                                                                                                                 
|
| |  | business information management to improve our
    customers business processes, by electronically
    structuring, processing, analyzing and evaluating data and
    information, and making it available around the clock. Our
    portfolio in this area includes services and solutions for
    business information, document and product data management;                                                                                                                                                                                                                                                                        
|
| |  | supply chain management to facilitate the
    efficient interplay of all of a business operational
    processes with those of its suppliers, from receipt of orders
    through production and shipment, enabling optimization of
    delivery times, capacities, inventories and production
    processes, as well as cost reductions. SBS offers a complete
    portfolio of offerings in this area, from planning, design and
    implementation of a customers production and logistics
    information technology systems to the operation of production
    and logistics systems as an outsource services provider;           
|
| |  | enterprise resource management to optimize a
    customers internal management and production processes
    through the supply and support of configurable software packages
    for integrated management of a wide variety of the
    customers business processes, from procurement to
    manufacturing and distribution to treasury management and
    accounting functions across different industries. SBS tailors
    standard software packages according to customer requirements to
    create and optimize solutions, making it available throughout
    the enterprise and offering global, around-the-clock support; and
|
| |  | e-commerce systems and solutions in a range of
    industries that allow customers to offer a variety of
    Internet-based services through design and implementation of
    software for on-line media, communications and transactions
    applications.                                                                                                                                                                                                                                                                                                                                                                             

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Most of SBS consulting and design services relate
to information technology and communications systems that we
also build or operate. SBS designs and builds systems and
provides services using the software of many companies with
which it has established relationships, such as SAP, Microsoft,
Siebel, i2 Technologies, Oracle and Computer Associates. We also
provide technical support and maintenance of existing
information and communication systems. As part of our
outsourcing services, we provide the operation of an entire
information technology system or only one or more discrete
services, from data storage and processing to billing. Going
forward, SBS will continue to focus on IT outsourcing activities
while further intensifying its efforts in business process
outsourcing.

Currently, the Group is focusing its efforts on
the manufacturing industry, public sector and financial
services. For example, during fiscal 2004, we were selected as
the single preferred bidder for a new IT-technology framework
for the British Broadcasting Corporation (BBC), which resulted
in a ten year contract with expected total contract volume of
2.7 billion.
As part of that deal, we acquired BBC Technology, a commercial
subsidiary of BBC which will transfer about 1,400 BBC Technology
employees to us. Among our larger customers are Fujitsu Siemens
Computers, Deutsche Bank and National Savings & Investment.
At the same time, the percentage of our revenue derived
internally from Siemens has declined, in general due to a
decline in IT budgets across the majority of the Siemens
business Groups. Although we compete with external service
providers for all Siemens contracts and each Siemens business
Group determines on an arms length basis whether to do
business with SBS, we remain the largest supplier of information
technology and communications services to Siemens. Siemens
businesses collectively continue to be our largest customer.

SBS operates worldwide in more than 40 countries,
but we have traditionally generated most of our sales in
Germany, followed by a significant percentage of sales to other
European countries. In fiscal 2004, Germany represented slightly
less than half of our total sales.

SBS has its own sales and delivery force, as well
as relationships with selected companies that act as dedicated
delivery partners in certain smaller regional markets, such as
our relationship with Fujitsu in the Asia Pacific region and
selected countries in South America. During fiscal 2004, SBS and
Fidelity Information Services (FIS) formed a strategic
partnership to offer banking solutions services on an
international basis, albeit focusing initially on Germany. SBS
will provide IT services and FIS will provide the banking
software and solutions services of our KORDOBA Gesellschaft
für Bankensoftware mbH & Co. KG, in which it acquired a
74.9% interest in September 2004.

We continue to concentrate on improving our
profitability through cost-cutting measures, including
adaptation of capacity in selected segments, as well as several
company-wide programs intended to enhance our operational
efficiency. In addition, we have set up a global sourcing
program to optimize the advantages of a globally distributed
workforce.

Our most significant competitors vary by region
and type of service. A few are global, full-service IT providers
such as IBMs Global Services division and EDS. Our
competitors that focus more narrowly on specific regions or
customers include T-Systems, a unit of Deutsche Telekom, in
Germany, and Capita, in the United Kingdom. Those focusing
primarily on a particular service include Accenture in
consulting, Capgemini in systems integration and Affiliated
Computer Services in outsourcing. As a service business, SBS
requires strong local presences and the ability to build close
customer relationships and provide customized solutions while
achieving economies of scale and successfully managing risks in
large projects.

Consolidation of the IT Services market
continued. Main international transactions have been the
acquisitions of SchlumbergerSema (by Atos Origin) and of
Transiciel (by Capgemini). In addition, HP acquired Triaton, the
former IT subsidiary of ThyssenKrupp, focused on SBS
German home market. The competitive environment of business
process outsourcing changed by the merger of Hewitt Associates
and Exult. Nevertheless, the markets in which we operate
essentially remain fragmented.

We enter into large scale, and sometimes
long-term, projects. The large size of some of these projects,
as well as the long-term frame contracts with our largest
customers, occasionally expose us to technical performance,
customer-or country-related risks. Risks associated with
long-term outsourcing contracts remain a

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management priority at SBS. For additional
information with respect to our long-term contracts, see
Item 3: Key Information Risk Factors.


AUTOMATION AND CONTROL

Automation and Drives (A&D)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 8.829 billion | 
|External sales as percentage of Siemens net sales |  |                    | 10.07%         | 
|Group profit                                      |  |                    | 1.077 billion | 

Our A&D Group is a market leader in factory
automation, offering standard and customized electronic and
electro-mechanical products and systems for industrial and
electrical installation applications, as well as comprehensive
automation solutions for durable goods manufacturing and certain
raw materials and materials processing industries.

We offer products, solutions and services in four
main areas, which combine various internal organizational units:
low voltage control and installation technology; manufacturing
automation; motion control and drive systems; and process
automation.

Low voltage control and installation
technologyproducts include low
voltage switchboards, circuit protection and distribution
products and command and signaling devices. These products are
used in the control cabinets of switchgear and control gear
manufacturers and automation providers, who in turn serve
producers of mechanical and electrical machinery and companies
in the construction industry. We also offer electrical
installation products such as circuit protection systems, small
distribution board systems, wiring devices, switches and sockets
for the distribution of electricity in residential and
industrial buildings. Our modern bus systems for
communication and monitoring links products and systems together
and further links these to building automation systems. The
bus systems are used principally in residential
buildings and large commercial facilities such as plants and
office buildings. In this area, we increasingly combine systems
designed to optimize power distribution and management, which we
market under the name totally integrated power, with
factory automation systems, which we market under the name
totally integrated automation.

Manufacturing automationproducts include programmable logic
controllers (PLCs), human machine interfaces (HMIs) for
integrated automated systems using a single system platform, and
industrial communications systems. Our main customers are the
durable goods and capital equipment industries, especially
mechanical engineering companies. In addition, we integrate
these products into industry- or customer-specific hardware and
software solutions and, for the automotive industry, plan,
engineer and sell complete manufacturing automation solutions.
Our products continue to keep pace with innovations in software
and Internet-based capabilities.

Motion control and drive systemsproducts include motors, drives and
computerized numerical controls (CNCs) for machine tools, as
well as automation and drive equipment for all types of
production machines and material handling equipment. We also
sell motors and drives, from low to high voltage, for various
applications in different industries and in infrastructure
facilities. Applications include rolling mills and ships,
engines for all kinds of rail vehicles and ventilation and water
and waste water transportation systems. We have recently
developed and introduced a common drive platform, Sinamics, and
a drive-based platform, Simotion, which we expect to utilize in
motion control applications across product areas.

Process automationengineers and sells process
instrumentation and analytics to companies in the raw materials
and other materials processing and capital equipment industries.
We plan, engineer and sell complete solutions that integrate
these products for specific applications in the chemical,
pharmaceutical, food and beverage, and non-metallic minerals
industries. We use our computerized process control system,
which we continually develop, as the basis for our batch and
process solutions.

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In all of our business units, we supply
consulting, design and support services to our customers, both
independently, and as a part of, our sales contract work.

To offer our customers a broad portfolio of
products and systems as a one stop shop supplier, we
are strengthening our market position through acquisitions and
joint ventures in the field of process instruments and drive
systems. In order to improve our position in the low voltage
installation sector, in fiscal 2004, we acquired the busbar
trunking systems unit of the Moeller group. Busbar trunking
systems are used to transmit and distribute electrical power in
buildings and offer advantages compared to conventional cables.
The business, with approximately 600 employees and four
manufacturing locations, is expected to reinforce our market
position in Europe, the Middle East and Asia.

We sell our products primarily through our own
sales force in Germany and through dedicated personnel in
Siemens worldwide network of regional sales units. We also
sell a significant proportion of our products to original
equipment manufacturers and third-party distributors for resale
to end users. The majority of our sales to third parties goes to
industrial customers in the mechanical and electrical machines
industries. A significant portion is also made to distributors,
system and software houses and engineering companies. For
example, we reach customers of our electrical installation
products and systems in the building construction industry
through third-party distributors.

For many years, we have also cooperated closely
with customers in the automotive and chemical industries and we
are working to expand both our business and our cooperation in
this area. To meet the distinctive needs of our customers in
these industries, we have developed a broad range of
standardized products tailored to specific industry segments,
thus increasing efficiency in the planning, construction and
commissioning of plants. While A&D serves a diverse group of
customers, the other Siemens business Groups, such as
Transportation Systems (TS), Industrial Solutions and Services
(I&S) and Power Generation (PG), considered together,
traditionally comprise our largest single customer, accounting
for approximately 14.3% of our total sales in fiscal 2004.
Because a portion of our business involves contracts for large
scale automation solutions, our list of significant customers
may vary substantially from year to year.

We derive more than two thirds of our sales from
Europe, with 40% from Germany, and a smaller but significant
amount from the Americas, mainly the United States. Our sales in
China are growing in importance.

We have 54 significant manufacturing and assembly
locations around the world, including 22 in the Americas, nine
in Asia, and 23 in Europe, of which twelve are located in
Germany.

In fiscal 2004, our research and development
costs were 6.3% of A&Ds total sales, compared to 6.2%
of total sales, in fiscal 2003. Our research and development
efforts are currently focused on implementing technological
progress in micro-electronics, software technology and
industrial communication into our products, systems and
solutions; improving the functionality of our products; and
enlarging our field of activities.

Economic conditions affecting our relevant
markets improved during fiscal 2004, in particular in the United
States and China, where we experienced sales and order growth.

Our goal is to grow sales in our traditional
markets in Germany and Western Europe and to continue our
expansion in Eastern Europe, the Americas and the Asia-Pacific
region, in particular China. In addition, we intend to increase
our profitability through productivity improvements and
continuous cost management. In fiscal 2004, we have continued to
streamline our portfolio through the disposal of small non-core
operations. For example, we sold our in-house circuit board
contract manufacturer to Sanmina-SCI Corporation, a U.S.-based
electronics manufacturer.

Consolidation in our industry is occurring on
multiple levels. Suppliers of automation solutions to
manufacturing companies have supplemented their activities with
drives technology. Suppliers of manufacturing and process
control systems are cooperating or combining through
acquisitions or cooperative ventures with suppliers of field
technology and outsource facility operation and monitoring
activities to establish comprehensive automation suppliers.
During the past fiscal year, some of our competitors have
strengthened their portfolios through acquisitions and formation
of joint ventures, primarily in Eastern Europe and China.

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Intense competition and rapid technical progress
within our industry place significant pressure on prices.
Average product lifetimes in our businesses tend to be short,
typically from one to five years after introduction, and are
even shorter where software and electronics play an important
role. Product lifetimes tend to be longer in motors and in
electronic devices.

Our principal competitors ABB, Emerson, Rockwell
and Schneider Electric have broad business portfolios similar to
ours. We also compete with specialized companies such as Eaton,
Honeywell and Fanuc. Our U.S. competitors traditionally have had
strong positions in software technologies, while some Japanese
competitors have generally focused on large-scale production and
cost cutting. Nevertheless, most of our major competitors have
established global bases for their businesses. In addition,
competition in the field has become increasingly focused on
technological improvements to electronics and software.

Industrial Solutions and Services (I&S)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 4.290 billion | 
|External sales as percentage of Siemens net sales |  |                    | 4.19%          | 
|Group profit                                      |  |                    | 95 million    | 

I&S develops, builds, and upgrades plants for
industry and infrastructure facilities. With the development of
sector-specific product families, I&S combines various
drive-, automation-, information technology-, and
maintenance-solutions from other Siemens Groups to form an
integrated complete offering for the life cycle of a plant.
I&S thus optimizes the production and operational processes
of our customers in the sectors water, metals, traffic control,
marine solutions, oil and gas, paper and mining.

Our four core competencies are:



| |   |                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | industry sector solutionsfor customers in materials processing
    industries and infrastructure-related industries including
    automation, instrumentation, drives, power distribution and
    control systems;                                      
|
| |  | information technology solutionsthat enhance productivity in
    facilities for manufacturing and materials processing by linking
    different levels of automation, process control and management
    information systems;                           
|
| |  | technical services,including plant construction and
    modernization, on-call and logistics services and integral plant
    maintenance, as well as auxiliary process management services
    provided to customers in a broad range of industries; and
|
| |  | traffic control,including traffic guidance systems and
    transport telematics, enables us to integrate different
    technologies and services into solutions for modern traffic
    management, resulting in improved traffic mobility.              

During fiscal 2004, we provided our solutions and
services through the following five divisions:

Industrial Plantsuses industry-specific expertise to
design, engineer and deliver solutions tailored to the needs of
customers in various industry sectors. Increasingly, we focus on
offering complete, integrated solutions rather than isolated
solutions serving a single function. For metal and
paper-processing industries, we provide automation and process
control systems, drive systems and electrical equipment used in
plants that make, roll and process steel and in mills producing
pulp and paper. For the open-pit mining industry, we offer
solutions, including electrical power, drive and automation
systems for bulk material handling and processing. We also
provide solutions for off- and on-shore operations of the oil
and gas industry, including power and integrated drive systems,
automation and process control. Our solutions and services in
the oil and gas segment address both upstream exploration, as
well as midstream transportation and pipeline activities. We
also deliver propulsion drives and integrated electrical systems
for ships, as well as drive systems, fuel cells and automation
systems for submarines.

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Industrial Servicesis responsible for our industrial
technical services activities, providing a wide range of
technical services covering each stage of the lifecycle of
industrial plants, infrastructure facilities and utilities. We
serve customers in a variety of industries. Under the trade name
Siemens Industrial Services, we provide engineering and general
contracting services for plant construction and modernization
and deliver on-call and logistics services, maintenance
services, including predictive maintenance, as well as auxiliary
process management services. We are active globally on a local
basis through a network of about 200 service locations in
more than 50 countries. Our strong local presence allows us to
be close to our customers, increasing speed and efficiency in
delivering our services.

Intelligent Traffic Systemsoffers automated systems for urban and
inter-urban traffic control and management. These systems
include information technology for traffic detection,
information and guidance and parking space management, in
addition to solutions for electronic tolls and tunnel traffic
guidance and access control. Our airfield technologies business
provides systems and solutions for the accurate monitoring,
navigation and control of aircraft ground movement, as well as a
variety of lighting systems for the visual guidance of traffic
on the airfield.

Water Technologieswas established as a new division in
August 2004 with the acquisition of USFilter Corporation
(USFilter), a leading supplier of products and services with a
broad customer base for municipal and industrial water treatment
in North America, which we acquired in July 2004 from the Veolia
Environnement group. With the acquisition, we expect to position
ourselves as a leader in the growing global water and wastewater
market. For additional information with respect to the USFilter
acquisition, see Portfolio
ActivitiesAcquisitions. Water Technologies offers
products (filters, membranes, resin), integrated solutions
(membrane systems, filtration solutions, chemical feed, ion
exchange systems, disinfections systems, biological treatment)
and outsourcing solutions (contract operations,
build-own-operate solutions and customer asset
management). Siemens will contribute its automation and
electrical engineering expertise to USFilters business.
Synergies arising from the competencies of Siemens and USFilter
will make Siemens a strong and attractive partner for our
customers in the water business. I&S global presence
gives the existing USFilter business access to its worldwide
facilities, thereby enhancing USFilters market presence
immediately and giving it the opportunity to expand its business
internationally, especially in Europe and China. I&S
objective is to continue to expand the Siemens portfolio for the
optimization of production processes in the process industry,
especially in the oil & gas, metals & mining, and
pulp & paper sectors.

IT Plant
Solutionsresponsible for
information technology plant solutionsprovides high
value-added solutions for the growing market in advanced
industrial information technology and industry-specific
manufacturing execution solutions. Beginning in fiscal 2005, the
activities of IT Plant Solutions will be integrated within
our other divisions. Through this realignment we hope to
strengthen our focus on specific sectors, increase efficiencies
and enhance synergies within our industry sector solutions.

In fiscal 2004, we continued efforts to
rationalize our organization in order to improve profitability
and competitiveness. Our goal is to focus I&S on its core
competencies and higher margin businesses.

Our Industrial Plants division derives its sales
revenues primarily from projects awarded on the basis of
internationally solicited tenders. These projects tend to be
performed under long-term, high-value contracts with a
relatively limited number of customers. Intelligent Traffic
Systems works predominantly with state and municipal customers
under long-term fixed-price contracts. Our newly formed Water
Technologies division focuses on municipal, as well as
industrial and institutional customers. Our Industrial Services
division provides services to numerous customers across a
variety of industries, as well as to our Industrial Plants
division and other Siemens Groups, principally A&D, Power
Generation, Power Transmission and Distribution and
Transportation Systems. Siemens businesses collectively continue
to be our largest customer.

We market our services to our customers primarily
through our dedicated sales force, supplemented by Siemens
worldwide network of regional sales units. We derive most of our
total sales revenue from Europe and a smaller, but significant,
amount from the Americas and increasingly from the Asia Pacific
region. In fiscal 2004, we generated more than two thirds of
total sales from projects and services performed in Europe, with
41% in Germany. In Europe, our primary goal is to increase our
business outside of Germany. We are also seeking to continue our
growth in selected markets in the Americas and Asia.

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Most of our research and development is
undertaken in connection with specific projects for our
customers, and our reported research and development expenses do
not reflect those activities. Therefore, I&S does not
traditionally incur high expenses relative to sales for research
and development. In fiscal 2004, our research and development
costs were 1.0% of I&S total sales, compared to 0.9%
of total sales, in fiscal 2003. Our principal ongoing research
efforts relate to industrial information technology, innovative
automation, drive systems and power supply, as well as
e-solutions. These include, for example, Internet-based
technologies, such as remote commissioning, diagnosis,
monitoring and control of industrial systems and facilities. We
are also developing self-training expert systems for improved
plant diagnosis and troubleshooting, as well as tools for plant
simulation in order to optimize plant efficiencies in areas such
as production output and energy consumption. In 2004, we
launched our product family strategy marketed under the name
Completely Integrated Solutions which offers
integrated solutions for specific industries.

Our competitors vary by business area and region.
They range from large, diversified multinationals to small,
highly specialized local companies. I&S main
competitors internationally include ABB, General Electric,
Honeywell, Invensys and Alstom. Our Industrial Services division
also competes with a large variety of small locally based
suppliers of contracting, maintenance and support services.
Unlike our principal competitors, we have not limited our
Industrial Services business to particular industries, allowing
us to take advantage of the growing demand for outsourced
maintenance and support services in a variety of industries,
including those for which Siemens does not provide products or
systems and irrespective of the manufacturer of the original
system or facility. We believe that we possess a competitive
advantage in our unique combination of competences in the
industrial sector and the information technology and technical
services fields.

The large size of the projects performed by our
Industrial Plants division occasionally exposes us to risks
related to our technical performance, to a customer or to a
country. For additional information with respect to our
long-term contracts, see Item 3: Key
Information Risk Factors.

Logistics and Assembly Systems (L&A)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 2.338 billion | 
|External sales as percentage of Siemens net sales |  |                    | 2.89%          | 
|Group profit                                      |  |                    | 2 million     | 

L&A (formerly Siemens Dematic) designs,
engineers, manufactures and sells factory automation and
logistics automation equipment, systems and solutions, postal
automation, electronics assembly systems and internal transport
systems for on-site use. We are the largest participant in the
material handling automation market overall. Following a
reorganization of our divisional structure in fiscal 2004, our
business consists of four divisions: Distribution and Industry
Logistics, Airport Logistics, Postal Automation and Electronics
Assembly Systems.

Our Distribution and Industry Logisticsdivision designs, manufactures and assembles integrated
distribution and factory logistic systems, and offers
after-sales services to its customers. We automate materials
flow, handling and logistics processes for major retail and
wholesale operations and durable and non-durable goods
manufacturers, principally in the chemical, pharmaceutical, food
and beverage, and automotive sectors. In this division, we focus
on globally standardized product and systems development,
planning, information technology, material handling automation
architecture and consulting in support of our systems sales.

Airport Logisticsoffers systems to track and control
cargo in and around airport terminals, as well as a full range
of baggage handling functions, from the check-in counter and
screening, to baggage reclaim, including services and parts for
such systems. We also provide security solutions for the
aviation industry, integrating baggage screening and explosives
detection technologies.

Postal Automationprovides equipment for sorting of both
standard and large letters (so-called flats); reading and coding
systems; postal information technology; mail security solutions;
and postal services such as product-

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related after-sales services and general
contracting. As part of the Groups reorganization, the
parcel and systems business was transferred to the Postal
Automation division. Key customers for this business are the
traditional post and parcel services, including the German and
United States postal services. The United States Postal Service
is our largest customer in this division, accounting for more
than 5% of L&As sales in fiscal 2004. Our target
customers include private parcel and package carriers, of whom
FedEx, UPS and DHL are current customers.


In the Distribution and Industry Logistics,
Airport Logistics and Postal Automation divisions, we deliver
value to our customers through the intelligent combination of
electronics, software and mechanical elements in our integrated
systems, solutions and services. Our products feature a wide
range of transport systems and sorters. They are designed, using
our industry specific knowledge, for precise control of
materials flow and utilize optical character recognition systems
in conjunction with complex computer software. These divisions
are involved in the design, manufacture, integration,
installation and service of systems and solutions. Other Siemens
businesses and outside sources typically supply us with various
components. For example, we purchase our electro and electronic
equipment, including drives and programmable logic controllers,
and some software from A&D. In fiscal 2004, the market for
logistics continued to be negatively affected by weak capital
spending by the manufacturing industry and logistics and postal
service providers, resulting in excess capacity in our Airport
Logistics and Distribution and Industry Logistics divisions. In
the first quarter of fiscal 2004, the Airport Logistics division
was able to secure the order for the installation of automated
baggage and cargo handling systems at Dubai International
Airport. In the second quarter of fiscal 2004, the Postal
Automation division was awarded a large order from the United
States Postal Service to supply systems and equipment for
optimizing existing mail sorting systems.

We expect that going forward, our Distribution
and Industry Logistics division will benefit from an increase in
demand from traditional customers investing in integrated
solutions. We believe that these integrated
solutionsincluding information technology systems and our
industry knowledgecreate opportunities to increase our
customer base. In addition, as formerly government-owned postal
and airport authorities are deregulated and privatized, we
believe that competition in the markets in which they operate
will continue to increase. We expect that companies attempting
to compete effectively will be likely to increase their
investment in integrated, automated systems and technologies in
order to improve their productivity and speed, creating an
opportunity for us. We also expect that postal and parcel
services in Eastern Europe will increasingly invest in
automation. Furthermore, due to our large installed base of
postal, logistics and production automation systems, we aim to
continue generating sales over the coming years through
value-added upgrading and servicing of this equipment base.

Our Electronics Assembly Systemsdivisions principal products are surface mount
technology (SMT) placement systems that automate the
mounting of components onto printed circuit boards. These
systems are capable of processing numerous component types and
can be tailored to the requirements of individual line
configurations by a complete modular platform concept. Our
principal customers are manufacturers in the electronics field
that use SMT, including manufacturers of mobile phones, handheld
computers and automotive, industrial and consumer electronics,
and, increasingly, electronic manufacturing services providers.
Until recently, our focus has been on the technical qualities,
speed and precision of our placement systems. Increasingly, we
are designing, manufacturing and selling entire standardized SMT
production line configurations, which integrate our SMT
placement systems with the products of our strategic partners.
Since our customers continue to be under pressure to reduce
assembly costs, we support them with our know-how and expertise
in process planning and improvement methodologies, the most
common being lean manufacturing, a system cutting
out anything from the manufacturing process that does not add
value to the customer.

In fiscal 2004, the global assembly automation
industry experienced a recovery, following several years of
weakness in the electronics industry market. We are shifting our
business focus to the Asia-Pacific region, where many of our
customers in the electronics industry have moved their
manufacturing locations. We are also penetrating new market
segments for our placement systems through the introduction of
products designed for mid-range companies with low-to
medium-volume production requirements, variable batch sizes and
frequent product changes. The market for electronics assembly
systems, particularly in Asia, continues to be sensitive to
pricing, which increases the pressure to contain costs in this
division.

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L&A distributes its products primarily
through its sales force in Germany and its local distribution
companies throughout the world.

We derive the majority of our sales from Europe
and the United States and an increasingly important portion from
Asia-Pacific.

We have four significant manufacturing and
assembly facilities in Germany and two in the United States. In
fiscal 2004, we opened a new electronics assembly production
facility in Singapore.

In fiscal 2004, our research and development
costs were 5.5% of L&As total sales, compared to 5.2%
of total sales in fiscal 2003. Main areas of focus in the
Electronics Assembly business include a new high performance SMT
placement product, as well as the development of standardized
modules which can be used across our various placement machine
platforms. In the Distribution and Industry Logistics division,
a main area of focus is so-called mechatronics. The objective of
this initiative is the development of a globally applicable
standard product family for conveyors. The aim is to reduce
product and project costs (through increased economies of scale
in manufacturing and project engineering, and reduction of
project technical risks) and to increase the efficiency of our
system development by improving repeatability, through increased
modularity of our products and solutions.

In fiscal 2004, we continued to focus on
improving profitability, including through consolidation of our
production facilities, and shifting our resources and attention
to what we view as the most promising markets. We have also
focused on improving revenue generation from our service
business. Furthermore, we have placed special emphasis on
project management initiatives, in particular leadership
development, additional training of project managers,
performance controlling and benchmarking. Other measures
designed to enhance profitability included increasing our
efficiency in purchasing and reviewing our portfolio with a view
toward divesting non-core activities. For example, in fiscal
2004, we sold to GEA AG our Colby Powder Systems, a
business focused on the supply of equipment and integrated
systems for handling and packing of powdered products.

Our main competitors in our Distribution and
Industry Logistics, Airport Logistics and Postal Automation
businesses are FKI Logistex (including the former Crisplant),
Daifuku, Swisslog, Northrop Grumman (including Solystic),
Lockheed Martin, Elsag, NEC, Toshiba, Pitney-Bowes and
Bell & Howell. Other competitors operate within niche
markets or offer market specialized technologies to their
customers; these include Vanderlande, Schaeffer-Noell and Duerr.
Competition in this area, including price competition, is strong
due to weakened demand and excess capacity. Several of our
competitors in the Distribution and Industry Logistics business
are strengthening their presence in the United States market, a
region from which we derive a substantial portion of our
revenues. Major competitors of our Electronics Assembly Systems
division include Panasonic Factory Solutions; Fuji Machine;
Universal Instruments, a subsidiary of the Dover Group; and
Assembleon. In the growing and price-sensitive market segment
for mid-range placement machines, we compete with Yamaha and
Juki.

The large size and complexity of some projects
performed by our Distribution and Industry Logistics, Postal
Automation and Airport Logistics divisions expose us to risks
related to technical performance. For additional information
with respect to our long-term contracts, see Item 3:
Key Information Risk Factors and Item 5:
Operating and Financial Review and Prospects Segment
Information and Analysis Operations Automation and
Control Logistics and Assembly Systems.

Based on the results of the analysis of current
projects in conjunction with the changing markets described
above, as well as the structural challenges to attaining
originally targeted profitability, management revised its
related business plan and concluded that goodwill for the
Distribution and Industry Logistics and Airport Logistics
division was impaired. For further information with respect to
the goodwill impairment, see Item 5: Operating and
Financial Review and Prospects Segment Information and
Analysis Operations Automation and Control
Logistics and Assembly Systems and Notes to
Consolidated Financial Statements.

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Siemens Building Technologies (SBT)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 4.247 billion | 
|External sales as percentage of Siemens net sales |  |                    | 5.55%          | 
|Group profit                                      |  |                    | 108 million   | 

SBT provides products, systems, solutions and
services for monitoring and regulating the temperature, fire
safety, ventilation, electricity, lighting and security of
commercial and industrial property, tunnels, ships and aircraft.
In addition, we also provide planning, management and
technology-related electrical contracting services in connection
with building projects.

During fiscal 2004, SBT consisted of the
following six divisions:

Security Systemsoffers solutions and services for
electronic building security, including intruder detection and
alarm systems, closed-circuit television video-surveillance,
personal identification and building access control systems, as
well as managed services such as centralized monitoring and
control of each of these individual systems.

Fire Safetyoffers
solutions and services to the non-residential markets for fire
detection and protection, including computerized gas leakage and
fire alarms and non-water based fire extinguishing systems, as
well as comprehensive computer-based danger management systems
that centrally monitor and control each of these individual
systems.

Fire & Security Productsmanufactures and sells system
components for the global fire safety and security industry. Our
products serve to protect against fire, burglary, unauthorized
access and loss of assets. We market our products primarily to
system builders and integrators, installers and original
equipment manufacturers (OEM). Our products are also used by
other Siemens Groups and are incorporated into solutions and
services offered by SBTs other divisions, in particular
Security Systems and Fire Safety.

Building Automationoffers solutions to the
non-residential markets for automating and regulating heating,
ventilation and air conditioning (HVAC), electricity and
lighting, including computerized building automation systems
that integrate and manage all of these functions for an entire
building. In addition, the division offers maintenance and
training services for its systems. Building Automation also
provides energy solutions and services, aiming to improve a
buildings energy costs, reliability and performance while
minimizing impact on the environment. For example, we refurbish
buildings to improve their energy efficiency and provide our
customers with a guaranteed level of energy cost savings. We
also arrange for financing of the refurbishment.

HVAC Productsmanufactures and sells controls,
sensors, detectors, valves and actuators used in systems that
regulate heating, ventilation and air conditioning, electricity
and lighting in buildings and factories. This division sells to
the Building Automation division and to original equipment
manufacturers (OEM), value-added partners, resellers and
installers.

During fiscal 2004, we divested the majority of
our Facility Management Servicesdivision. To optimize
our portfolio, we disposed of the operations of the
divisions facility management unit which operated and
maintained entire building sites for tenants and owners as an
outsource provider and offered facility management consulting
services to building operators. In addition, we significantly
downsized the activities of the project business unit which
provides services relating to the planning and management of
electrical contracting projects.

Effective as of October 1, 2004, the
divisions Fire Safety and Fire & Security Products will
be merged to form a new division, Fire Safety and Security
Products, that will be responsible for all activities including
products, systems, solutions and services for the fire safety
business and the security products business.

Our customers consist of a large, widely
dispersed group of locally-based building owners, operators and
tenants, building construction general contractors, mechanical
and electrical contractors, OEM of HVAC systems, wholesalers,
specialized system builders and installers. The project business
in Security Systems, Fire Safety and Building Automation
generated sales of approximately
2.1 billion
in 2004. More than 75% of this volume is

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attributable to orders with a volume less than
750,000. The
average project size is
30,000 and most
projects are
25,000 or less.


SBT has a decentralized business organization
that combines a small central headquarters, design and
manufacturing at sites in seven countries in Europe, North
America and Asia and our own distribution network, consisting of
approximately 400 local sales, project execution and
services branch offices in more than 40 countries. In order
to improve cost synergies with Siemens regional companies,
we integrated the majority of SBTs local organizations
with the Siemens regional companies during fiscal 2004. For some
markets, we also distribute our products and systems through a
network of independent field offices and distributors. Our
services businesses and sales network have significant local
presences arising from the need to be close to the customers and
buildings that use our products, systems and services. Our
manufacturing and design sites and our regional sales units with
their branch offices are connected to each other and to our
central management by a central communications network.

We sell our products and systems throughout the
world, and derive nearly two thirds of sales from Europe, nearly
one third from the Americas, primarily the United States, and
the remainder from Asia Pacific.

We have 11 manufacturing and assembly
facilities worldwide, including 7 in Europe, of which three are
located in Germany. In fiscal 2004, we continued to take
measures to scale back our production capacity and finalized the
closure of production plants in Staefa (Switzerland) and
Redditch (United Kingdom). We have relocated most operations at
those locations to our existing sites in Switzerland and Germany
and outsourced some operations to the Czech Republic. We also
disposed of an assembly factory in Nelm (Switzerland).

In fiscal 2004, our research and development
costs were 3.6% of SBTs total sales, compared to 3.3% in
fiscal 2003. The trend in our industry is toward the use of
open platforms which are compatible with all current
standards used in the building management systems market. We are
working to develop open system platforms and systems
with backward and forward compatibility that will enhance
product flexibility and protect a customers investment by
allowing our customers to create linked systems with products
from different suppliers. We are also working to develop
remote control building automation systems that will
allow the user to control a buildings maintenance, safety
and security systems offsite via the Internet. We strive to
become a market leader in new technologies. In fiscal 2004, for
example, we established a partnership with ZN Visage to
develop and market 3-D face recognition systems for use in
building security.

Traditionally, the HVAC, electricity, security
and fire safety systems used in buildings have been designed and
sold as separate, stand-alone systems that could not be
integrated to combine functions or allow for centralized
control. During the past several years, the increased use of
computers in building systems has allowed manufacturers to link
individual systems and to offer multi-function building
automation systems. We continue our efforts to develop and offer
building management solutions, which use a common technological
platform and can therefore integrate various building management
features. SBT offers such integrated building automation systems
globally. Sales have occurred primarily in the United States,
Europe and other selected countries, such as Australia.

Our near-term strategy is to grow profitable
business fields at rates that at least keep pace with the market
overall. We expect our Security Systems division to grow in part
through cross-selling to existing customers of the Building
Automation and Fire Safety divisions. The Fire & Security
Products and HVAC Products divisions are making a wider range of
their products available to third-parties and are refocusing
their sales and marketing functions to achieve stronger growth
in third-party customer channels. In addition, both divisions
are expanding their offering of products and components for OEM,
making more of our existing products available for offering on
an OEM-basis. Our Systems and Services divisions (Security
Systems, Fire Safety and Building Automation) are using their
current large installed base of building technology products and
systems as a means of generating service and maintenance
contracts. Going forward, we intend to increase the portion of
sales generated from services.

Our focus is on improved profitability and
growth. We have strengthened our productivity improvement
initiatives, which include process improvements, enhanced
purchasing coordination, reduction of our product

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portfolio, reducing sales of low-margin segments
and headcount reductions. We also consolidated our manufacturing
capacity, as described above, in order to improve productivity.


SBT has a leading position in the worldwide
markets for fire safety and building automation. Three of our
divisions, Fire Safety, Building Automation and HVAC Products,
which account for approximately 80% of SBTs sales, each
operate in very concentrated markets in which the top three or
four providers control more than half of the market. The main
global competitors for Fire Safety, are Tyco and Honeywell; for
HVAC Products, they are Honeywell, Invensys, Danfoss and
recently Schneider, through its acquisition of TAC and Andover
Controls; while for Building Automation, Johnson Controls and
Honeywell are the largest competitors. In the building
automation field, we face additional competition from niche
competitors offering web-based solutions and from new entrants,
such as utility companies and consulting firms, exploiting an
increased demand for energy cost management. The recent downturn
in the building automation market has created overcapacity and
prompted downward pressure on prices. Likewise, the market for
fire safety solutions has experienced increased price
competition as a result of a shift of production to low-cost
countries.

The security solutions and products markets are
fragmented, with many locally based companies and, in certain
instances, a few large globally-based competitors holding
relatively small market shares. In the electronic security
solutions and products market, Tyco is a market leader.
Telecommunication companies and defensecontractor firms are also
beginning to enter the market for security solutions.
Consolidation is beginning to occur in certain areas. For
example, General Electric and United Technologies have become
active competitors in the security products market through
acquisitions. Despite this emerging consolidation trend, the
market remains fragmented. Many of our competitors focus on a
particular product, system or service, or have a regional
orientation. We plan to continue to expand our customized
solutions business, where we can build close relationships with
our end-user customers by providing high value-added services.
We will further focus on providing security solutions integrated
with Fire Safety and/or Building Automation systems.

POWER

Power Generation (PG)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 7.527 billion | 
|External sales as percentage of Siemens net sales |  |                    | 9.98%          | 
|Group profit                                      |  |                    | 961 million   | 

PG provides customers worldwide with a full
range of equipment necessary for the efficient conversion of
energy into electricity and heat. We also customize gas and
steam turbines in the smaller output range, which can be used as
drives for compressors or large pumps, to meet specific project
needs. We offer a broad range of power plant technology, with
activities that include: development and manufacture of key
components, equipment, and systems; planning, engineering and
construction of new power plants; and comprehensive servicing,
retrofitting and modernizing of existing facilities.

PG consists of three businesses, each with a
clear market focus on specific customer groups and technologies:
Fossil Power Generation; Industrial Applications; and
Instrumentation and Control. Fossil Power Generation is by far
the largest of our businesses, accounting for approximately 67%
of total sales in fiscal 2004.

Power plants, together with transmission and
distribution grids, are the fundamental parts of a system that
meets the requirements of individual households and business and
industrial customers for a reliable supply of power delivered to
a high quality standard.

A power plants function is the efficient
conversion of primary energy, such as coal or gas, into
electricity. In a fossil fuel plant, the power generation
process begins with working media such as water, steam or
compressed air, which are initially transferred to high pressure
states by heating in boilers or combustion sections of gas
turbines. Thereafter, steam and gas turbines convert this energy
into mechanical energy, which in turn is converted into
electricity by generators. In so-called combined cycle plants, a
combination of gas and steam

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turbines is used to reach highly efficient
conversion rates of nearly 60%. At the end of the process,
electricity is fed into transmission grids from the plant site.


Fossil Power
Generationincludes power plants and
systems engineering, as well as components and equipment
engineering and manufacturing, such as fossil fuel-fired power
plants, co-generation heat and power plants. Our fossil fuel
power generation business concentrates on turbo generators, gas
and steam turbines in the larger power range, with an emphasis
on combined-cycle gas and steam power plants. We also perform
power plant service, such as maintenance, rehabilitation and
operations.

Industrial
Applicationsincludes steam and gas
turbines in the small and medium power ranges, as well as turbo
generators, turbo compressors, compressor solutions for the oil
and gas industry, and offers complete engineering services for
power plants. Our activities encompass design, engineering,
supply and service. We develop and manufacture steam turbines
for application in industrial, municipal and independent heat
and power generation and for mechanical drives, as well as turbo
compressors. In addition, we offer our customers combined cycle
power plants. In the renewable energy sector, we also offer
biomass power plants.

We expanded our product portfolio in this area in
fiscal 2003, through the acquisition of the small gas turbine
(3-15 megawatts) and medium gas turbine
(15-50 megawatts) businesses and industrial steam turbine
businesses of Alstom S.A., Paris (Alstom). We see the
products and services we acquired from Alstom as complementing
the pre-existing portfolio of our Industrial Applications
division. In particular, the acquisition has strengthened our
product offering for the oil and gas industry, including gas and
steam turbines for power generation and mechanical drives which
complement our compressor products. The acquisition has
furthered our efforts to provide a complete range of products
and services from one source to our customers and gives PG a
leading position worldwide in the marketplace for industrial
power and compressor solutions. With an installed base of
approximately 3,500 gas turbines and 4,100 steam
turbines, the acquisition has also created new opportunities to
grow our service business.

Our installed base of thermal power plant
capacity (all power ranges) of more than 650 gigawatts
provides us with a good opportunity to grow our service business.

Instrumentation and
Controlsdesigns, installs and
commissions instrumentation and control systems and related
equipment for use in power generation, including information
technology solutions providing management applications from the
plant to the enterprise level. We also provide a wide variety of
related services.

Additional areas of PGs activity
include the development and production of systems based on
emerging technologies such as fuel cells.

We also have minority stakes in joint ventures in
the areas of nuclear and hydropower generation. We account for
these investments under the equity method.

Although we aim to expand primarily through
internal growth, we will continue to make acquisitions and form
alliances where appropriate to increase market penetration,
share costs or technologies and adapt to market changes. In July
2004, we announced a proposed joint venture with Interros. This
joint venture, which is subject to regulatory approvals, would
own a majority stake in OAO Power Machines, a Russian
turbine manufacturer. Siemens plans to hold an at-equity
investment in the joint venture. We have committed to make an
ongoing investment in OAO Power Machines over the next
three to five years. Furthermore, on October 20, 2004, we
entered into an agreement to acquire the Danish company, Bonus
Energy A/ S, one of the major suppliers of wind energy systems
worldwide. With the acquisition, we are expanding our product
portfolio and are entering the growing international wind energy
business. The acquisition is conditional upon the approval of
the relevant competition authorities. The closing is planned in
December 2004.

PGs principal customers are large power
utilities and independent power producers, as well as
construction engineering firms and developers. Because certain
areas of our business, such as power plant construction, involve
working on medium- or longer-term projects for customers who may
not require our services again in the short term, our most
significant customers may vary significantly from year to year.
The Ministry of Electricity, in Kuwait; Union Fenosa, in Spain;
and Calpine Corporation and Bechtel Power Corporation, in the
United

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States, are among our largest customers. We also
generate an increasing portion of sales from industrial
customers, who represent an important market for smaller power
plants, turbines and compressor solutions.


Our business activities vary widely in size from
component delivery and comparatively small projects to turnkey
contracts for new power plant construction with contract values
of more than half a billion euro each. The large size of some of
our projects occasionally exposes us to risks related to
technical performance, a customer or a country. For additional
information with respect to our long-term contracts, see
Item 3: Key Information Risk Factors.

Our sales efforts are conducted by our own
dedicated sales organizations in Germany, the United States and
Asia, supported by Siemens worldwide network of regional
sales units.

We derive more than one third of our sales from
Europe. The remainder of our sales is geographically well
balanced.

We have 14 significant manufacturing and
assembly facilities worldwide, including three in the Americas
and eleven in Europe. Of these, six are located in Germany. We
manufacture steam turbines principally at the Mülheim
(Germany) plant, turbo generators in Charlotte (United States),
60 Hertz gas turbines in Hamilton (Canada),
50/60 Hertz gas turbines in Berlin (Germany) and turbo
compressors in Duisburg (Germany). Through our acquisition of
Alstoms industrial turbine businesses, we have added
manufacturing sites in Brno (Czech Republic), Finspong (Sweden),
Lincoln (United Kingdom) and Nuremberg (Germany).

PGs research and development efforts are
currently focused on advancing products and concepts that
combine turbo machinery technologies (gas and steam turbines,
generators and compressors), particularly for use in new power
plant designs combining high efficiency and lower emissions. Our
research and development is also targeted at improving a
plants capability to meet short-term variations in power
demand and the reduction of life-cycle costs for new power
plants, particularly by enhancing the durability of parts and
components. Weare also working to further boost operating
efficiency and performance of new and existing power plants
while reducing the emissions of such plants. In fiscal 2004, our
research and development costs were 4.0% of PGs total
sales, compared to 3.7% of total sales, in fiscal 2003.

The worldwide market for new power plants has
stabilized near the high level experienced in the late 1990s.
The development has been driven primarily by the strong economic
development in China, which accounts for almost half of
worldwide power equipment orders. The demand for gas turbines in
the United States in fiscal 2004 remained relatively unchanged
at historically low levels due to overcapacity built up during
the recent gas turbine power plant boom. Project cancellations
have created a market, mainly in the United States, for turbines
that have been already manufactured but are not in operation.
This trend has had a negative effect on overall demand and
prices.

In the medium term, we anticipate a moderate
growth in demand for new power plants, especially for
combined-cycle plants. We believe that fossil fuel-fired power
plants will likely continue to dominate the power market,
accounting for the majority of total new units sold. Although
the power generation industry is a long-cycle business, it is
affected by trends in cyclical industries and fluctuations in
fuel prices that can have implications for demand for certain
product types. Rising gas prices, for example, are creating
focus on fuel diversification and coal-fired power plants.
Factors contributing to worldwide demand for new plants and
retrofitting services include deregulation and the need for
reduced emissions and higher fuel efficiency. Furthermore, we
expect that power plant retirement in industrialized countries
will create an additional market in which we plan to
participate. We believe that competition in deregulated power
supply markets will give our customers an incentive to replace
existing units which have ceased to be competitive.

In fiscal 2004, we continued to adapt our
workforce at various locations, in line with lower market
capacities. We have implemented a cost containment program by
further process improvement efforts and optimization of our
manufacturing network. We are working to further boost operating
efficiency and performance of our service activities.

Our industry is one in which a relatively small
number of companies, some with very strong positions in their
domestic markets, play a key role. Our principal competitors
vary by business, but primarily include General

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Electric, Alstom Power, Mitsubishi Heavy
Industries, as well as Hitachi and Toshiba in fossil power
generation. Within industrial applications, we face competition
from General Electric, Solar, MAN Turbo and Dresser Rand. In
instrumentation and controls, where the market is more
fragmented, ABB is our main competitor. The decreased demand in
our markets has intensified competition. Potential new
competitors face significant barriers, including high capital
investments in engineering and production capacity, the high
cost of research and development and of developing a customer
base, the need for broad systems know-how and global economies
of scale.


Power Transmission and Distribution (PTD)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 3.611 billion | 
|External sales as percentage of Siemens net sales |  |                    | 4.38%          | 
|Group profit                                      |  |                    | 238 million   | 

PTD supplies energy utilities and large
industrial power users with equipment, systems and services used
to process and transmit electrical power from the source,
typically a power plant, to various points along the power
transmission network and to distribute power via a distribution
network to the end-user.

At the first step of the power transmission and
distribution process, power generated by a power plant is
transformed to a high voltage that can be transported
efficiently over long distances along overhead lines or
underground cables. This step occurs at or near the site of the
power plant, and requires transformation, control, transmission,
switching and protection systems. At the second stage of the
process, the power passes through one or more substations, which
use distribution switchgear to control the amounts delivered and
circuit breakers and surge arresters to protect against hazards
in transmitting the power. At this stage, transformers step down
the voltage to a medium level at which it can be safely
distributed in populated areas. In the final stage of the
process, distribution transformers step down the voltage again
to a level usable by end-users and metering systems measure and
record the locations and amounts of power transmitted.

We provide our customers with turn-key
transmission systems and distribution substations, discrete
products and equipment for integration by our customers into
larger systems; information technology systems and consulting
services relating to the design and construction of power
transmission and distribution networks. We offer the following
solutions, products and services, presented roughly in the order
in which they are used in a power transmission and distribution
network. Our internal divisions are organized around the
following products:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | power systems controlequipment and information technology
    systems, including computerized power management systems used to
    operate power transmission networks, determine customer needs
    and regulate the flow of power from power plants to the
    distribution network (offered through our Energy Management and
    Information Systems division, which, as of the beginning of
    fiscal year 2005, has been combined with our Power Automation
    division and renamed Energy Automation);
|
| |  | transformersincluding both the power transformers
    used at the beginning of the transmission process to step up the
    voltage of the power generated by power plants to a voltage that
    can be carried efficiently on the power network, and the
    distribution transformers and their components used at the end
    of the distribution process to step down power from high voltage
    to lower voltage levels for the end-user;                                                                 
|
| |  | high voltage productsand ready-to-use systems, in both
    alternating and direct current, used in the physical
    transmission of power from power plants to the distribution
    network before the voltage is stepped down for distribution in
    populated areas, including ready-to-operate indoor and outdoor
    high voltage substations and the switchgear and protection
    systems required to control the flow of power and prevent damage
    to the power transmission network;               
|
| |  | protection and substation control systemsincluding equipment and systems used
    at power distribution network substations, such as relays and
    computerized protection and control equipment (offered through                                                                                                                                                                                                                                                                                             

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| |   |                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | our Power Automation division, which, as of the
    beginning of fiscal year 2005, has been combined with our Energy
    Management and Information Systems division and renamed Energy
    Automation); and                                    
|
| |  | medium voltage equipmentincluding circuit breakers and
    distribution switchgear systems and components that regulate the
    flow of power on the distribution network before it is stepped
    down to a low voltage level for the end-user.

In addition to our equipment and systems, we
offer a growing range of services and integrated solutions for
various stages in the power transmission and distribution
process. These include: technical support and maintenance
services and, to an increasing extent, outsourcing projects and
operations; consulting relating to the planning, design and
optimization of power transmission and distribution networks;
information technology services and solutions to support
customer management and energy trading; training programs; and
metering services for electric, gas and heat. We also provide
analytical and consulting services, as well as equipment and
systems, in the power quality field that are designed to improve
the availability and reliability of power transmitted by
analyzing and reducing the causes of power fluctuations and
failures. Power quality systems and services have become
increasingly important with the growing use of sensitive
computerized, electronic and other equipment requiring
continuous power with very little fluctuation in voltage or
frequency. Our PTD Services division aims specifically at
responding to our customers increasing demands for these
services.

In July 2004, we acquired Trench Electric
Holding, B.V. (Trench), a leading manufacturer of components of
high voltage power distribution and transmission systems. In
2003, Trench employed approximately 1,800 employees and had
annual sales of roughly
250 million.
The acquisition is expected to strengthen our high-voltage
product portfolio, allowing us to offer our customers a full
spectrum of high voltage products from a single source, and to
expand our market position in China and North and South America.

Our power transmission and distribution customers
are primarily power utilities and independent power
distributors. Due to deregulation in the power industry, our
customer base continues to diversify from one formerly composed
almost exclusively of power utilities responsible for all stages
in power transmission and distribution to one that includes an
increasing number of independent system operators and power
distributors supplying services at different points of the power
transmission and distribution network. We have increased our
sales to industrial customers, providing them with equipment and
systems for power networks associated with manufacturing
facilities. We distribute our systems and components through our
sales force in Germany and through dedicated personnel in the
regional Siemens sales units worldwide.

We generate our sales from project business, as
well as from sales of systems, components and services. A
relatively small portion of our project business involves
construction of large power networks and other projects with
values of more than
50 million.
Most of our business is generated from smaller projects and
sales of systems and components to a variety of smaller
customers. We strive to provide our customers with complete
solutions.

Demand for our products and services depends on
several factors, including investment in building and upgrading
of power transmission and distribution networks in developing
countries, demand for new power generation primarily in
industrializing countries and demand for new products, systems
and services in connection with deregulation and liberalization
in the power industry. In light of these factors, future demand
is likely to come, to a large extent, from emerging
industrialized countries and regions with growing energy
requirements, including Asia, especially China and India,
Eastern Europe and the Americas. We continue to evaluate
opportunities to penetrate these markets, including formation of
joint ventures with local partners to help us secure future
project work.

Although the power transmission industry in
industrial countries is a mature business, additional demand for
our products, systems and services arises in the industrial
world as utilities and private power companies respond to
deregulation by seeking ways to improve efficiency and reduce
costs. Deregulation has also increased demand for more
sophisticated products, such as systems used in energy trading
among suppliers, and for related services, such as metering. New
orders to replace old equipment have also been driven by
changing requirements due to environmental regulation. In
addition to responding to these new sources of demand, we
continue to seek new

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markets for expansion, in particular in the
United States and Asia, and to develop innovative new products
and systems to respond to ongoing pricing pressures in our
markets.


We derive approximately forty percent of our
sales from Europe and more than one quarter from the
Asia-Pacific region. While regions in the developing world
represent growth markets for power transmission and distribution
products and systems, our activities there can also expose us to
risks associated with economic, financial and political
disruptions that could result in lower demand or affect our
customers ability to pay. Our largest projects in the
developing world currently include two developments in the
Peoples Republic of China: the Three Gorges Dam project
and the construction and equipping of converter stations for a
new high-voltage direct-current transmission line for the
transportation of 3,000 megawatts of electricity across 940
kilometers. Our other ongoing significant projects include the
supply of two converter stations for a submarine cable link
across the Bass Straits between Tasmania and the state of
Victoria on the Australian mainland. As a consortium leader of
the project, we supply and install the high-voltage
direct-current equipment which allows transmission of electrical
power with low energy losses over long distances.

The large size of some of our projects
occasionally exposes us to risks associated with technical
performance, a customer or a country. For additional information
with respect to our long-term contracts, see Item 3:
Key Information Risk Factors.

We have significant manufacturing and assembly
facilities worldwide, including in the Americas, Asia, and
Europe, in particular in Germany. In fiscal 2004, we acquired
additional manufacturing capacity as part of our acquisition of
Trench. In fiscal 2004, our research and development costs were
2.5% of PTDs total sales, compared to 3.1% of total sales,
in fiscal 2003.

Competition in our markets comes primarily from a
small group of large, multinational companies offering a wide
variety of products, systems and services, although a few
notable specialists maintain strong positions in certain niches.
Globally, our most significant competitors include ABB, the
Areva Group, which acquired Alstoms power transmission and
distribution activities in 2004, and General Electric, as well
as Japanese competitors. In some of our markets, increasing
international competition is emerging from low-cost countries,
such as China and India. To improve our competitive position, in
recent years we have located new production facilities and
expanded production in the Asia-Pacific region, allowing us to
work more closely with our customers, reduce costs and meet
local content requirements. We are party to several joint
ventures in China, our second largest market. During fiscal
2004, we continued initiatives to improve productivity and
enhance the efficiency of our business processes.

TRANSPORTATION

Transportation Systems (TS)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 4.310 billion | 
|External sales as percentage of Siemens net sales |  |                    | 5.70%          | 
|Group profit                                      |  |                    | (434) million | 

We are a leader in the global rail industry,
offering a full range of products and services for railway
transportation. We offer our customers innovative solutions and
systems in such areas as modular vehicle concepts for mass
transit and mainline systems; technology for driverless metros
and computer-controlled electronic switches; optical sensor
systems; and global positioning system (GPS)-based service and
diagnostic concepts, among others. We combine rolling stock with
automation and power product offerings in our turnkey systems
business, and combine service and maintenance activities in our
integrated services unit. Rolling stock refers to all major
components of rail vehicles, including locomotives, railway
cars, subway cars and streetcars.

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We develop, manufacture and sell a full range of
rolling stock in three product-focused divisions:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Mass
    TransitThis division includes
    both the former light rail and heavy rail divisions, which we
    merged as of October 1, 2003, as part of a wider
    realignment to strengthen our market position in rolling stock.
    Our products include subway and suburban rapid transit trains,
    subway cars, as well as their subsystems and components and
    streetcars, light rail vehicles and their components.
|
| |  | LocomotiveOur
    products include electric and European standard
    diesel-electrical locomotives for passenger or freight rail. In
    addition to our manufacturing operations, we also refurbish and
    maintain locomotives and locomotive pools and provide locomotive
    leasing services tailored to meet the requirements of
    deregulated local rail operators.                                                
|
| |  | TrainsOur
    products comprise rail vehicles with traction equipment
    integrated into the running gear and distributed over the entire
    train, including high speed trains, tilting trains, regional and
    rapid transit units and passenger coaches, as well as subsystems
    and components.                                                                                                                      

Our rolling stock business was our largest in
terms of sales in fiscal 2004.

In our automation and power business, we conduct
our operations in two divisions:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rail
    AutomationFor passenger and
    freight railway operations, we develop, manufacture and sell
    central control systems, signaling systems and equipment,
    interlockings and automated train control systems that regulate
    a trains speed through automatic application of its brakes
    when it exceeds speed limits or fails to respond to a signal. We
    sell entire systems and networks, as well as individual products
    for integration into existing signaling systems. For mass
    transit, we develop, manufacture and sell operation control
    centers for the operation of signals and switches in rail yards
    and between destinations, and signaling and vehicle control
    systems (including automated, driverless systems).
|
| |  | ElectrificationFor
    high speed, main line and mass transit, we supply products and
    systems for contact line and rail power supply.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

Our automation and power business was our second
largest in terms of sales in fiscal 2004.

In our Turnkey Systemsdivision, we aim to
optimize the design and construction of entire railway systems.
We cooperate closely with the other TS businesses, integrating
their products and services to offer turnkey projects from a
single source. Among our active projects during fiscal 2004,
were the Transrapid project in China (an electromagnetically
elevated and propelled high-speed train), the construction of
the new Kaohshiung subway system in Taiwan, and a new light rail
transit system in the Venezuelan city of Maracaibo. We also
assist our customers with arranging financing in cooperation
with Siemens Financial Services.

With our Integrated Servicesdivision, we
are placing an increasing emphasis on our service and
maintenance activities. We provide corrective and preventive
maintenance services, replacement and spare parts for our own
products and for products manufactured by others. We also
provide training, documentation and consulting services relating
to a wide variety of customer needs, with a particular focus on
extending the life-cycle of our customers investments in
their rail products and systems.

Our primary customers are transport authorities
and national and private rail companies worldwide. Deutsche Bahn
is a significant customer of TS. We distribute our products
through our own sales force in Germany and through dedicated
personnel in the local Siemens companies worldwide.

Germany and other European countries have
traditionally been our most important regional markets. We
believe the most important regional growth markets are in the
Americas and the Asia-Pacific region. Demand in the German
market for railway transportation products has continued to
decline in recent years, especially in fiscal 2004, as a result
of reduced government funding of, and low investment in, the
German rail transportation systems and we expect that trend to
continue for the foreseeable future. We derive approximately
three quarters of our sales from Europe with 32% in Germany and
a smaller but significant amount from Asia-Pacific.

We have approximately fifteen significant
manufacturing, assembly and testing locations worldwide,
including eleven in Europe, of which five are located in Germany.

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In fiscal 2004, our research and development
costs were 3.1% of TS total sales, compared to 3.2% of
total sales in fiscal 2003.

The world markets for products and services in
the railway transportation industry continue to be in flux.
Despite the trend toward privatizing state-owned railways and
liberalization of the railways markets, national authorities
continue to have influence in areas such as security and
deregulation, or as general watchdog authorities over transport
or railway facilities. In many countries, governments impose
local content requirements, the fulfillment of which is often a
basic precondition for market entry. The number of rail
operators is increasing, and both new and traditional operators,
are focusing not only on quality but also on price and low
life-cycle costs that drive their own profitability. Price
pressure is further influenced by budget constraints faced by
many state operators, requiring innovative financing solutions.
In fiscal 2004, our industry continued to face increasing prices
for some key components since there are only a limited number of
suppliers, partly as a result of consolidation in the industry.
There is a growing trend towards the outsourcing of servicing
and maintenance of systems and equipment.

To address these market trends, we continue to
pursue the following strategic goals:



| |   |                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rolling StockFocus on innovation in design
    and engineering; and to enter new geographic markets, in part by
    expanding our partnerships worldwide and tailoring them
    case-by-case to meet both project needs and local content
    requirements.                                                                     
|
| |  | Automation and PowerCapitalize on and
    expand our existing international presence, experience and
    technological leadership to become a global supplier of products
    and systems platforms, particularly in the area of traffic
    automation solutions.                                                              
|
| |  | Integrated ServicesExpand through strategic
    alliances in service enterprises; emphasize our System
    plus Service segment, which offers a complete package of
    new products plus service and maintenance; enter the market for
    third-party maintenance and improve our market penetration
    through e-business.

The large size of our projects occasionally
exposes us to risks associated with technical performance, a
customer or a country. In the recent past, we have experienced
losses in connection with such risks. For example, in fiscal
2004, we experienced significant charges in our rolling stock
business. The charges primarily related to our innovative
low-floor light rail vehicle with a modular platform concept,
marketed under the name Combino. Following an internal report on
fatigue strength concerns with our Combino trams, as a
precautionary measure, we advised our customers to take vehicles
that have traveled distances of over 120,000 kilometers
temporarily out of service. We have formed a specific
subdivision with teams of internal and external experts working
on a long-term solution for the Combino fleet. By the end of
fiscal 2004, we have made considerable progress towards
identifying suitable measures that will enable the affected
Combino components to be improved and are also making headway
towards a permanent repair solution. In this context, we are
currently intensifying our quality program and are introducing
new processes in order to enhance systematic detection and
minimization of business risks and quality assurance of
projects. We also continue to explore possibilities for
cooperation with other companies in our industry as a means of
reducing development costs, meeting local content requirements,
improving market access, reducing risks and meeting customer
requests. For additional information with respect to our
long-term contracts, see Item 5: Operating and
Financial Review and Prospects Segment Information and
Analysis Operations Transportation
Transportation Systems and Item 3: Key
Information Risk Factors.

We compete in our industry, on a global scale,
with a relatively small number of large companies and with
numerous small to midsized competitors who are either active on
a regional level or specialize within narrow product spectrums.
Our principal competitors are Alstom and Bombardier.

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Siemens VDO Automotive (SV)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 9.001 billion | 
|External sales as percentage of Siemens net sales |  |                    | 11.96%         | 
|Group profit                                      |  |                    | 562 million   | 

SV designs, manufactures and sells integrated
electrical, electronic and electromechanical systems and modules
and individual components used in automotive applications. Our
product range includes components and systems used in automobile
powertrains, body electronic systems, safety and chassis
systems, electric motor drives, information and cockpit systems,
and driver information, communication and multimedia systems.

We offer our systems and products in the
following four divisions:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Powertrain,
    including components, modules and systems for use in diesel and
    gasoline fuel injection handling, drive train transmission
    management and air intake systems, fuel pumps, supply units, as
    well as engine actuators and emissions controls and sensors;                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Chassis &
    Carbody, including active and passive
    electronic safety systems, such as crash and occupant sensors
    for controlling airbags and seatbelts and for monitoring air
    pressure in tires; chassis electronics used in steering and
    braking; electric motor drives for use in antilock brakes,
    heating, ventilation and engine cooling systems and power
    windows and sunroofs; drive systems for electric and hybrid
    vehicles; access control and security systems with electric door
    and seat controls and radio receivers within the vehicle;
    intelligent switching units and climate control units;
|
| |  | Interior &
    Infotainment, including complete
    cockpit systems, drivers workplace systems in commercial
    vehicles, instrument clusters, tachographs, human-machine
    interface displays, heads-up displays for passenger and
    commercial vehicles; car audio, navigation and telematics and
    complex multimedia systems; and                                                                                                                                                                                                                                                                                                    
|
| |  | Service & Special
    Solutions, which offers spare parts
    and accessories for passenger and commercial vehicles, fleet
    management systems and hardware and software products for car
    audio, navigation, and telematics.                                                                                                                                                                                                                                                                                                                                                                                                              

Some of our recent product innovations and
developments include:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | common-rail injection systems with
    piezo-electronic actuators, resulting in quieter and lower
    emission diesel engines;                              
|
| |  | innovative gas sensors such as our NOx sensor and
    our Ozone sensor, which help car manufacturers comply with ever
    more stringent emission standards;
|
| |  | integrated powertrain management, allowing
    significant savings in fuel consumption;                                                                     
|
| |  | color heads-up display that projects information
    about driving conditions and navigation instructions onto the
    windshield;                          
|
| |  | voice-controlled car communication computer for
    passenger cars, which includes a multimedia system, as well as
    climate and speed control function;  
|
| |  | digital tachograph that collects important data
    concerning the operation of vehicles, allowing more
    sophisticated management of fleets;             
|
| |  | contactless and modular fuel level sensors for
    long-life, high-performance fuel supply systems;                                                         
|
| |  | tire pressure monitoring system;                                                                                                                            
|
| |  | advanced weight sensing (AWS), which adjusts the
    safety settings on seat belts and airbags depending on the
    passengers weight;                     

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| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | an advanced radar system for crash avoidance and
    adaptive cruise control; and                                             
|
| |  | an optical passenger detection device that makes
    airbags more intelligent and offers greater protection to
    passengers.

In addition to researching and developing these
and other innovations, we also design and manufacture systems
and modules, which typically offer superior profit margins and
better opportunities for maintaining customer relationships,
compared to selling individual components.

Most of our customers are large automobile
manufacturers, including four of the worlds five largest
automobile manufacturers. We also sell components to suppliers
of complete automotive systems and modules. Our car manufacturer
customers frequently contract for a supplier to provide a system
or set of components for the production run of a particular car
model or engine line. In fiscal 2004, our ten largest customers
together accounted for more than three-quarters of our total
sales.

Base materials and components account for about
half of the total cost of our products. We rely on a few
suppliers to provide us with most of our semiconductors, other
electronic components and some other base materials and
components. These suppliers include Infineon, Philips and ST
Microelectronics, for semiconductors; Tyco, for wire housings
and connectors; and ALCOA for drives.

We have our own independent sales force, which is
active worldwide. We generate two thirds of our sales in Europe,
with 31% in Germany, and a smaller but significant amount from
the Americas, mainly in the United States, with an increasing
share in the Asia-Pacific region. In fiscal 2004, we continued
our sales initiative directed at increasing our sales in China,
Japan, Korea and other Asian countries. The Japanese market is
still served mostly by local and in-house suppliers.

We have approximately 51 manufacturing and
assembly facilities, including 16 in the Americas and 25 in
Europe. Of these, 10 are located in Germany.

In fiscal 2004, our research and development
costs were 8.4% of SVs total sales, compared to 8.3% of
total sales in fiscal 2003. To secure competitiveness in markets
with ongoing price pressure, we must continue to make
productivity gains and develop innovative products. Investment
in new technologies has also grown in importance due to the
increasing use of electronics and related software in
automobiles, and as more manufacturers offer former options such
as theft protection and safety devices as standard features in
an effort to increase margins. Additionally, environmental
concerns have increased demand for direct injection and other
new engine technologies offering improved efficiency, as well as
for fuel cells and other possible alternatives to the internal
combustion engine. In addition to continuing to invest in
research and development, we must also continue to attract and
retain skilled engineers and other technically proficient
employees to remain technologically competitive.

For the last several years, automobile
manufacturers and their suppliers have been going through a
period of significant change and consolidation, and we expect
this trend to continue. Opportunities and competition for
independent suppliers have increased as car manufacturers have
spun-off or exposed their former in-house suppliers to increased
competition. For example, during fiscal 2004, we acquired from
DaimlerChrysler its automotive electronic products facility,
located in Huntsville, Alabama (United States). Manufacturers,
in an effort to achieve cost efficiencies and ease of
production, are also using more pre-assembled systems and
modules instead of individual components. Systems and modules
integrate all of the components needed for major automotive
subsystems, such as the cockpit or vehicle safety systems. These
systems and modules are assembled near or at the customers
production site on a just-in-time,
just-in-sequence delivery basis for assembly
directly onto the chassis without significant further
modification, sometimes using the customers production
machinery. The trend toward greater use of modules and systems
has increased pressure on suppliers of individual components and
smaller companies to combine or form alliances, resulting
especially in growing convergence of electronics and mechanical
component suppliers and making the industry more capital
intensive.

In fiscal 2004, demand in the mass market for
passenger cars stagnated, whereas demand in the truck market
increased. Automobile production levels declined in the Americas
and Western Europe, especially Germany. The Asia-Pacific region,
with a growing market in China, did not fully offset this
worldwide trend. Globalization and

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the opening of markets to competition continue to
put downward pressure on prices. Customers that incorporate our
products into their own equipment make ever greater demands on
both our performance and the quality of our products. In the
current market environment, many automobile manufacturers
extract price and other concessions from their suppliers,
including SV, and some of our automobile manufacturer customers
have cancelled or postponed new development projects with us.
For SV, however, the impact of these developments is partly
offset by our focus on automotive electronics, which constitutes
an increasingly large percentage of the cost of each automobile
produced. Increased demand for diesel engines also led to growth
in sales of our common-rail injection systems with
piezo-electronic actuators.


In response to these difficult market conditions,
we are continuing our program to cut costs, increase
productivity, optimize our product and project portfolio, and
reduce inventory, personnel and the production and assembly
facilities. In fiscal 2004, we continued to shift production
facilities to locations where we can reduce our manufacturing
costs and/or be closer to our customers. However, other major
suppliers are also moving manufacturing and engineering
capacities to China and Eastern Europe to contain costs.

We are a first-tier supplier to automobile
manufacturers in North America, South America and Asia. Our most
significant competitors are generalists with a broad product
range, systems integration capabilities and global presence.
These include Bosch, Toyotas Denso and the independent,
former in-house suppliers Visteon and Delphi, all of which are
significantly larger than we are. Moreover, in Europe, Denso,
Visteon and Delphi continue to be aggressive competitors and
Denso is expected to enter the common-rail diesel market in
2005. Competition from low-cost suppliers from Asia and Eastern
Europe is increasing in commodity products, such as electrical
motors. Finally, additional competitive pressure could also
result from a vertical integration between semiconductor
suppliers and traditional automotive suppliers, such as in the
case of NEC and Nestec or Infineon and Sensonor.

MEDICAL

Medical Solutions (Med)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 7.072 billion | 
|External sales as percentage of Siemens net sales |  |                    | 9.27%          | 
|Group profit                                      |  |                    | 1.046 billion | 

Med develops, manufactures and markets diagnostic
and therapeutic systems and devices, as well as information
technology systems for clinical and administrative purposes. We
provide technical maintenance, professional and consulting
services. We also work with Siemens Financial Services to
provide financing and related services to our customers. We are
one of the leading companies in our field.

Our offerings include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | medical imaging
    systems, representing a full range of
    systems including x-ray, computed tomography, magnetic
    resonance, nuclear medicine and ultrasound, as well as related
    computer-based workstations enabling the health care
    professional to retrieve and process relevant information. Our
    imaging systems are used to generate, in various modalities and
    without surgery, morphological and functional images of, and
    related information concerning, the human body, such as internal
    organs. This information is used both for diagnostic purposes
    and in preparation for potential treatment, including
    interventional and minimally-invasive procedures. We focus on
    technically innovative products, examples of which are our
    computed tomography scanner, Somatom Sensation 64; our
    magnetic resonance scanner, Magnetom Avanto with a total imaging
    matrix; and or our x-ray angiography platform Axiom Artis;
|
| |  | information technology systems,including image management systems and
    systems for clinical and administrative applications. Our
    information technology systems are used to facilitate digital
    storage, retrieval and transmission of medical images and other
    clinical and administrative information, facilitating efficient
    workflows in health care environments. Our offerings include
    web-based products using the Internet as the communication
    medium;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | electromedical
    systems, including patient monitoring
    systems, life support systems and electrophysiological measuring
    systems. These systems are primarily used in critical care
    situations and during surgery for the purpose of patient
    transport, monitoring vital functions via body sensors,
    supporting breathing and administering anesthetic agents. Our
    product portfolio further includes respiratory machines designed
    for home care and systems for intensive neonatal care. We
    provide such electromedical systems primarily through our joint
    venture with Dräger Medical of Lübeck, Germany, which
    was formed in fiscal 2003 in which we hold a 35% share. In
    October 2003, we sold our Life Support Systems business, which
    provided anesthesiology and ventilation equipment, to Getinge
    AB, a Swedish medical technology group, as a condition to
    European antitrust approval for the joint venture with
    Dräger;
|
| |  | oncology care
    systems, including linear
    accelerators, which are used for cancer treatment; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | hearing aidsand
    related products and supplies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Our medical imaging operations are the largest
part of our business, representing about 70% of total sales in
fiscal 2004. These businesses are organized into divisions
according to the type of medical imaging system offered,
including Magnetic Resonance, Computed Tomography, Ultrasound,
Angiography, Fluoroscopic and Radiographic Systems, Nuclear
Medicine and Special X-Ray Systems. Our Health Services
division, which focuses on information technology systems,
represents the second largest part of our business.

Over the long term, we expect worldwide demand
for our products and services to continue to grow due to a
variety of factors, including the growing population of older
people, the trend toward early diagnosis and the improvement of
health care delivery in developing countries. In addition,
efforts in many industrialized countries to contain health care
costs are driving a need for improved efficiency in diagnostic
and therapeutic processes. For example, health care providers
must be able to deliver patient information to every other
caregiver who needs it. This need continues to fuel demand for
integrated information technology systems, including electronic
patient records, as well as related professional consulting and
implementation services.

Our customers are health care providers such as
hospital groups and individual hospitals, group and individual
medical practices and outpatient clinics. Our products are sold
and serviced primarily through our own dedicated personnel. A
small portion of our sales involve delivery of certain of our
products and components to competitors on an original equipment
manufacturing (OEM) basis.

We have a strong worldwide presence. The United
States is our largest single geographic market, representing 46%
of our total sales in fiscal 2004. In addition, we derive nearly
one third of our sales from Europe and a smaller but significant
amount in the Asia-Pacific region.

Our worldwide business is reflected in our
regional organization. The headquarters for our oncology care
systems business and, in the medical imaging field, our
Ultrasound and Nuclear Medicine divisions, as well as our Health
Services division, are located in the United States. The
remaining divisions are headquartered in Germany. Excluding our
joint ventures, we have approximately 16 significant
manufacturing and assembly facilities worldwide, including six
in North America and five in Europe. Of these, three are located
in Germany.

We have research and development and OEM
cooperation agreements with various companies, including with
Bruker, in the field of magnetic resonance imaging; Toshiba, in
the field of ultrasound and magnetic resonance imaging; Philips,
in computed tomography systems; and Matsushita, for low- and
mid-range ultrasound systems. We also have joint ventures with
CTI Molecular Imaging, Inc., to develop and manufacture Positron
Emission Tomography systems which are new scanning systems
capable of showing the chemical functioning of an organ or
tissue; with Philips and Thales, to manufacture flat panel
detectors for medical imaging; and with Mochida
Pharmaceutical Co. Ltd., in the field of ultrasound in
Japan.

R&D plays an important role in our business.
We maintain research and development centers at locations in
Europe, the United States and Asia. In fiscal 2004, our research
and development costs were 8.8% of Meds total sales,
compared to 9.1% of total sales in fiscal 2003. Approximately
two-thirds of our research and development expenditure is
typically spent on medical imaging systems. An important project
within our information technology systems business is the
continued development of a new workflow management system,
Soarian, designed to optimize information-based processes
throughout the entire cycle of a patients diagnosis and

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treatment. Several applications of this workflow
management system have already been sold and are in use at
customer sites.


Our goal is to become the preferred partner for
health care providers around the world by supporting their
efforts in optimizing their workflow, that is their diagnostic
and therapeutic processes. Our strategy is to combine our
knowledge and innovative products in medical engineering and
information technology with our experience in process
improvement and consulting to provide comprehensive customer
solutions. In addition, we are intensifying our activities in
molecular medicine.

We seek to make selective investments in
innovative businesses to strengthen our product portfolio. In
2004, we acquired minority interests in several companies. These
include peS Gesellschaft für Medizinische Diagnosesysteme
mbH, a German company focused on the development of point of
care immunoassay systems that allow rapid and accurate diagnosis
of various diseases (so-called lab on a chip). We
also acquired CADVision, a small Israeli company developing
software for computer-aided detection and diagnosis of breast
lesions. In addition, we acquired the remaining share from our
partner Oxford Instruments plc in the Oxford Magnet Technology
Ltd. joint venture and renamed the business to Siemens Magnet
Technology Ltd.

Our principal competitors in medical imaging are
General Electric, Philips, Toshiba, Hitachi and Hologic. Other
competitors include McKesson HBOC, Cerner and IDX, for
information technology systems; Phonak, Resound, Starkey, Widex
and William Demant, for hearing aids; and Elekta and Varian
Medical, for oncology care systems. The trend toward
consolidation in our industry continues. General Electric
recently acquired both Instrumentarium, a leading supplier of
critical care and patient monitoring systems and solutions, and
Amersham, a leading provider of imaging enhancing agents and
systems for disease research and drug development. The latter
acquisition was the first to combine medical technology and life
sciences businesses, reflecting the growing importance of
molecular medicine for diagnosis and therapy. Competition among
the three leading companies in our field Siemens, General
Electric and Philips continues to be strong, including
with respect to price.

LIGHTING

Osram

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 4.240 billion | 
|External sales as percentage of Siemens net sales |  |                    | 5.51%          | 
|Group profit                                      |  |                    | 445 million   | 

Our Lighting Group, Osram, offers a full spectrum
of lighting products for a variety of applications. Osram
designs, manufactures or sells the following types of lighting
products and related materials, components and equipment through
the following six divisions:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | General Lighting:incandescent, halogen, compact fluorescent, fluorescent and
    high-intensity discharge lamps for household and commercial
    applications, and public buildings, spaces and streets;                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Automotive Lighting:halogen, incandescent and xenon discharge lamps for use in motor
    vehicle headlights, brake lights, turn signals and instrument
    panels, and, through an equal joint venture with Valeo,
    completed head- and tail-light assemblies for distribution in
    North America;                                                                                                                                                                                                                                                    
|
| |  | Photo-Optic
    Lighting:special purpose halogen and
    high-intensity discharge lamps for lighting airport runways,
    film studios, microchip manufacturing plants, video and overhead
    projectors and medical and other applications requiring very
    intense lighting. Effective October 1, 2004, we renamed the
    division to Display/ Optic. The display applications within the
    General Lighting and the sale of LED products for displays of
    our Opto-Semiconductors divisions was transferred to the
    Display/ Optic division;
|
| |  | Opto-Semiconductors:light emitting diodes (LED), organic light emitting diodes
    (OLED), high power laser diodes and other semiconductor devices
    that generate visible light and ultraviolet and infrared
    radiation for use in interior and exterior automotive lighting
    and other applications, electronic equipment                                                                                                                                                                                                                        

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | displays, traffic and signal lighting, signs and
    decorative lighting and infrared transmitters and sensors for
    industrial and consumer electronics;                                                                                                                                                                                                                                                      
|
| |  | Ballasts and
    Luminaires:electronic ballasts for
    optimized operation of compact fluorescent, fluorescent,
    high-intensity discharge low-voltage halogen lamps and LED
    modules, as well as consumer fixtures and, increasingly,
    lighting control systems; and                                                                                                                                   
|
| |  | Precision Materials and
    Components:glass for bulbs, phosphor
    powders for fluorescent lamps, computer monitors and television
    screens, tungsten and other metals for filaments in incandescent
    lamps and heavy duty tools and electronic components and
    materials for lamps and applications in the automotive industry,
    as well as equipment used in the production of lighting products.

General lighting typically accounts for
approximately half of Osrams total sales. The market for
general lighting products is typically stable because of the
large investments consumers, businesses and municipalities have
in lighting fixtures. We market our products worldwide and have
manufacturing locations throughout North and South America,
Western and Eastern Europe and Asia, allowing us to stay close
to our major customer regions and keep shipping charges low to
help maximize the profitability of our lower margin products. We
produce most of our own key precision materials and components
to ensure that we have access to raw materials in the necessary
amounts, prices and levels of quality. We also sell precision
materials and components we manufacture to third parties. We
have 53 significant manufacturing and assembly facilities
worldwide, including 25 in the Americas, 8 in Asia and 20 in
Europe. Of these, 12 are located in Germany.

In all our divisions, we focus on innovative
products to sustain and improve our level of profitability.
Although incandescent lighting continues to be widely used in
general lighting, compact fluorescent, high intensity discharge
and other newer technologies have been growing more rapidly
because they save energy and are longer-lasting. Newer
technologies also offer additional features and smaller lamp
sizes. In our consumer luminaires business in selected markets,
we offer models that demonstrate applications of some of these
newer technologies. In the automotive lighting area, we recently
introduced innovative 24-volt headlights for trucks and busses,
which shed up to 100 percent more light onto the roads than
conventional lamps and have almost twice the service life of
conventional lamps.

In the area of opto-semiconductors, we are
introducing new applications for LED products as it becomes
possible to achieve greater brightness and more colors. We
continue to increase the brightness of light emitting diodes
through the use of an advanced thin-film technology, thus
opening up a wide variety of new applications, for example in
the long run in automotive exterior lighting. Recently, we have
taken first steps in developing LEDs for use in projection
systems. In the coming years, we expect electronics to become
increasingly important across all areas of the lighting industry
and that electronic ballasts, electronically-driven lighting
systems and opto-semiconductors will account for an increasing
portion of Osrams sales. By expanding opto-semiconductor
production capacity at our advanced opto-chip factory in
Regensburg (Germany), we have positioned ourselves to take
advantage of this trend.

In fiscal 2004, our R&D costs were 5.0% of
Osrams total sales, compared to 4.9% of total sales in
fiscal 2003. We devote a significant portion of our research and
development efforts to enhancing the performance and reducing
the environmental impact of our products and processes. In the
area of opto-semiconductors, we are working on R&D projects
on OLED, LED and laser applications. OLEDs are self-luminous
plastic films which allow the design of clearly legible,
extremely flat and bright displays with a wide viewing angle,
low power consumption and minimum weight. OLEDs are typically
used in products such as mobile phones, digital video cameras,
as well as certain medical equipment. In fiscal 2004, we began
volume production of OLEDs at our facility in Malaysia. We are
party to several patent license agreements in the
opto-semiconductors field.

Our customers include wholesalers, retailers and
manufacturers of lighting fixtures, lamp components and
automotive systems. We distribute our products through
Osrams own network of subsidiaries, sales offices and
local independent agents in approximately 140 countries. The
importance of the Internet as a sales channel is also
increasing. Osram has successfully implemented
business-to-business extranet services in several countries and
we presently process over one third of our sales electronically.

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In recent years, the world market for lighting
products has grown at moderate rates, with relatively higher
growth in Asia-Pacific and Eastern Europe. In fiscal 2004, we
generated 43% of our total sales in the Americas, primarily in
the United States. More than one third of our total sales is
derived from Europe and a significant amount from the
Asia-Pacific region. In North America, we market most of our
lighting products under the brand name Sylvania. In fiscal 2004,
we significantly increased our sales presence in Asia, in
particular China.

As a result of acquisitions and consolidations
over the last decade, Osram, Philips and General Electric
together represent almost two thirds of the world lighting
market. Osram holds a number one or number two position
worldwide in most of its product markets, such as lamps,
electronic ballasts, automotive lamps and opto-semiconductors,
competing principally with Philips and General Electric. Through
joint ventures with Mitsubishi and Toshiba, we are the largest
foreign manufacturer of lighting products in Japan, where
Matsushita and Toshiba also hold strong market positions.

Price competition is intense in some areas of
both the traditional and innovative lighting product markets,
due to competition among Philips, Osram and General Electric, as
well as rising competition from new entrants, including a
growing number of Chinese manufacturers. Price competition is
also intensifying in the more advanced halogen and compact
fluorescent lamp types due to an increasing presence of Chinese
manufacturers. To counteract price pressure and improve our
competitiveness for mass market lighting products, we
manufacture some of our lower-priced product lines in countries
with lower labor costs. For example, we assemble our LED
products in Malaysia. As part of our ongoing efforts to reduce
labor costs, over the last several years, we have established or
expanded manufacturing operations in China, India, Indonesia,
Mexico and Eastern Europe. We have recently finalized the
transfer of part of our coil production from the United States
and Germany to the Czech Republic and continue to consolidate
our United States glass manufacturing operations. In January
2004, we acquired a 90.7% stake in SVET, a leading Russian
manufacturer of fluorescent tubes located in Smolensk. We have
also initiated numerous projects aimed at reducing manufacturing
and distribution costs. Quality, efficiency and innovation are
very important factors in the newer and more specialized product
areas, and we are actively promoting more advanced lamp types as
alternatives to traditional products for general use.

The manufacture of many lighting products
requires mercury, lead and other hazardous materials, as well as
thorium and other radioactive materials. While we have not
experienced any significant liability in the past as a result of
our use of these materials, we are continuing to work to reduce
their use in our products.

FINANCING AND REAL ESTATE

Siemens Financial Services (SFS)

|                                             |  |                    |                | 
|-------------------------------------------- |  | ------------------ | -------------- | 
|                                             |  | Year ended        
|                                             |  | September 30, 2004
|                                             |  |                   
|Total assets                                 |  |                    | 9.055 billion | 
|Total assets as percentage of Siemens assets |  |                    | 11.39%         | 
|Income before income taxes                   |  |                    | 250 million   | 

SFS provides a variety of financial services and
products both to third parties and, on arms-length terms,
to other Siemens business Groups and their customers. SFS is
organized in six business divisions. Two of these
divisions Equipment and Sales Financing and Equity
have significant dealings with third parties including customers
of other Siemens Groups. The four other divisions Project
and Export Financing, Treasury and Financing Services,
Investment Management, and Insurance currently support and
advise Siemens and our other business Groups and have
comparatively little external business. In its captive
businesses, SFS makes an important contribution to Siemens
through financing arrangements and services in the context of
financing of goods and services sold by Siemens and financial
services delivered to Siemens as a whole. More than 50% of our
assets are derived from other Siemens business Groups through
the customer financing and equipment leasing services provided
by our Equipment and Sales Financing division.

In fiscal 2004, our total assets increased to
9.055 billion
at September 30, 2004 from
8.445 billion
at September 30, 2003. Our principal assets are lease
receivables and equipment leased under operating leases
(together accounting for 55% of our assets) and purchased trade
receivables (accounting for 38% of our assets)

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attributable to our Equipment and Sales Financing
division. Interest and fee income are the main sources of our
earnings, with fee income stemming primarily from our internal
advisory businesses. SFS acts according to banking industry
standards in the international financial markets in its
transactions with Siemens, as well as those with third parties.


Equipment and Sales
Financing.This is our largest
division and it combines our mid-market finance and credit
portfolio management business activities.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Midmarket Financeour principal product is
    equipment lease financing, where we typically purchase equipment
    supplied by various Siemens Groups or third-party manufacturers
    and lease it to the customer for a specified term, generally
    with an option for the customer to purchase the equipment or
    renew the lease at the end of the term. Capital leases account
    for the largest portion of our leasing business (more than 80%
    of the book value of the leased assets). We also offer our
    clients services complementary to our leasing business,
    including services relating to the management of their leased
    equipment base and product upgrade services. Other products
    include asset-based lending, underwriting and syndication for
    larger credits.
|
| |  | Credit Portfolio Management we purchase,
    without recourse, receivables from other Siemens Groups, as well
    as from third parties. The selling companies remain responsible
    for collection and documentation. Our portfolio consists
    primarily of trade receivables. Centralizing a portion of the
    Siemens Groups receivables risk allows Siemens to more
    effectively manage its overall receivables exposure.                                                                                                                                                                                                                                                                                                                                                                        

The Equipment and Sales Financing division
finances both Siemens and third-party equipment. Siemens
products come primarily from Medical Solutions (Med),
Information and Communication Networks (ICN) and Logistics
& Assembly Systems (L&A). Third-party products are
primarily computers and other IT equipment.

Equity.This
division participates in infrastructure projects as a project
developer and equity investor, predominantly in projects for
which Siemens provides capital goods. At September 30,
2004, the equity investment in these projects amounted to
approximately 4% of the total assets of SFS and 0.5% of the
total assets of Siemens worldwide. In recent years, we have
shifted our focus from larger projects to diversifying our
portfolio with smaller investments.

Project and Export Financing.This division, formerly called
Structured Finance, advises other Siemens Groups on project and
sales financing transactions. We have a global network of
established contacts with multilateral financial institutions,
such as the World Bank or the Asian Development Bank, as well as
with national development and export banks and export credit
agencies, such as Kreditanstalt für Wiederaufbau (KfW) and
Hermes, in Germany, and Export-Import Bank, in the United
States. By offering our services to other Siemens Groups, we
ensure that they benefit from our in-house know-how and market
presence. We also provide advice, management and documentation
services in connection with guarantees issued by Siemens,
related principally to long-term contracts of the Operations
Groups.

Treasury and Financing
Services.This division provides
services to Siemens Corporate Treasury, including cash
management and payment (including intercompany payments) and
capital-market financing. In addition, we pool and analyze
interest rate and currency risk exposure of the business Groups
and, in the name and for the account of Siemens Corporate
Treasury, enter into derivative financial instruments with
third-party financial institutions to offset pooled exposures.
Siemens believes that, from a practical standpoint, it is not
cost efficient to avoid having any open positions due to timing
differences, yet, we closely monitor these positions within
pre-determined limits. Our derivative activities are described
under Item 11: Quantitative and Qualitative
Disclosure About Market Risk. We also offer consulting
services with respect to treasury activities to third-party
customers.

Investment
Management.This division manages
mainly Siemens and affiliated companies pension
assets in Germany and Austria, as well as mutual funds,
predominantly for employees. We also offer pension advisory
services to Siemens and third parties.

Insurance.This
division acts as a broker and provides other Siemens Groups with
liability, property, marine and project insurance brokerage
coverage via third-party insurers. We provide these services not
only to

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Siemens business Groups, but also to external
customers. We also act as an insurance agent in offering private
insurance policies to Siemens employees.


SFS main sources of risk are our external
customers credit risk and the risk associated with
SFS equity portfolio. Interest rate and currency exposures
are typically matched. The funding for SFS is provided by
Siemens Corporate Treasury.

Our competition mainly includes captive leasing
and finance companies from both inside and outside the
electronics industry, including those of General Electric,
Hewlett Packard and IBM, as well as pure leasing companies and
leasing and finance operations related to banks or investment
banks and investment management companies.

Siemens Real Estate (SRE)

|                                                  |  |                    |                | 
|------------------------------------------------- |  | ------------------ | -------------- | 
|                                                  |  | Year ended        
|                                                  |  | September 30, 2004
|                                                  |  |                   
|Total sales                                       |  |                    | 1.584 billion | 
|External sales as percentage of Siemens net sales |  |                    | 2.11%          | 
|Income before income taxes                        |  |                    | 108 million   | 

SRE offers the operating Groups of Siemens a
range of services encompassing real estate development, real
estate disposal and asset management, as well as lease and
services management. SRE also rents, in certain limited
circumstances, available space to third parties. The overall
goal of our activities is to manage Siemens real estate
needs in a professional and cost effective way.

On January 1, 2004, we changed our
organizational structure from three divisions to two. Our two
divisions are Real Estate Management (comprising the former
Portfolio Management and Property Management & Services
(German/ International) divisions and Development, Projects
& Sales, formerly the Development & Sales division.

Real Estate Managementis responsible for the active
management of Siemens real estate portfolio. First, it
formulates the general strategy for our real estate business and
contributes support in real estate decision-making by providing
portfolio analysis, economic analysis, development of financing
alternatives, market research, risk analysis and valuation and
similar services, including preparing recommendations for
divestitures, as well as rental rates. Second, it provides pure
property management and leasing services to Siemens Groups and,
to a limited extent, to third-party lessees. These services
include billing and collecting lease payments and related
charges such as utilities and providing other general services
of a landlord. Third, it arranges facilities services to Siemens
Groups and external tenants on an arms-length contract
basis. The services we arrange include cleaning, maintenance,
security, catering and a variety of other services. We generally
subcontract these services with third-party suppliers, thereby
leveraging the purchasing power of the entire Siemens group.

Development, Projects & Salesis responsible for the sale of land,
office and commercial real estate that is surplus to the
operational needs of the Siemens group and for internal
construction projects. It also acts as a developer of
Siemens-owned properties.

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The book value of Siemens worldwide real
estate assets, at September 30, 2004, amounted to
approximately
4.646 billion,
of which approximately more than half was managed by SRE. The
following table sets forth the key balance sheet and statistical
data for SRE:

SRE Balance Sheet and Statistical
Data

|                                                            |  |                  |       |      |  |  |       | 
|----------------------------------------------------------- |  | ---------------- | ----- | ---- |  |  | ----- | 
|                                                            |  |                 
|                                                            |  | At September 30,
|                                                            |  |                 
|                                                            |  | 2004             |       | 2003
|                                                            |  |                  |       |     
|                                                            |  |                 
|                                                            |  | ( and          
|                                                            |  | square meters   
|                                                            |  | in millions)    
|Total assets (in euros)                                     |  |                  | 3,455 |      |  |  | 3,607 | 
|Real estate assets under management (in euros)              |  |                  | 2,826 |      |  |  | 3,075 | 
|Total site area (in square meters)                          |  |                  | 20.1  |      |  |  | 21.4  | 
|Total building area (rentable space) (in square
    meters) |  |                  | 10.0  |      |  |  | 10.2  | 

Over the past few years, operational adjustments
by some Siemens Groups resulted in the consolidation of
Siemens locations and the divestment by SRE of surplus property.
However, while we will continue to divest surplus property over
the next few years, we expect that we will not be able to
dispose of properties as quickly or the same extent as we have
previously.

EMPLOYEES AND LABOR RELATIONS

The following tables show the division of our
employees by business Group and geographic region at
September 30 for each of the years shown:

EMPLOYEES BY BUSINESS GROUP

|                                       |  |                  |     |      |  |      |     |  |  |  |     | 
|-------------------------------------- |  | ---------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                                       |  |                 
|                                       |  | At September 30,
|                                       |  |                 
|                                       |  | 2004             |     | 2003 |  | 2002
|                                       |  |                  |     |      |  |     
|                                       |  |                 
|                                       |  | (in thousands)  
|Information and Communication Networks |  |                  | 34  |      |  |      | 33  |  |  |  | 39  | 
|Information and Communication Mobile   |  |                  | 27  |      |  |      | 27  |  |  |  | 29  | 
|Siemens Business Services              |  |                  | 36  |      |  |      | 35  |  |  |  | 34  | 
|Automation and Drives                  |  |                  | 52  |      |  |      | 50  |  |  |  | 51  | 
|Industrial Solutions and Services      |  |                  | 30  |      |  |      | 26  |  |  |  | 29  | 
|Logistics and Assembly Systems         |  |                  | 10  |      |  |      | 10  |  |  |  | 12  | 
|Siemens Building Technologies          |  |                  | 28  |      |  |      | 33  |  |  |  | 36  | 
|Power Generation                       |  |                  | 31  |      |  |      | 30  |  |  |  | 26  | 
|Power Transmission and Distribution    |  |                  | 19  |      |  |      | 16  |  |  |  | 17  | 
|Transportation Systems                 |  |                  | 18  |      |  |      | 18  |  |  |  | 17  | 
|Siemens VDO Automotive                 |  |                  | 48  |      |  |      | 44  |  |  |  | 43  | 
|Medical Solutions                      |  |                  | 32  |      |  |      | 31  |  |  |  | 31  | 
|Osram                                  |  |                  | 37  |      |  |      | 36  |  |  |  | 35  | 
|Siemens Financial Services             |  |                  | 2   |      |  |      | 1   |  |  |  | 1   | 
|Siemens Real Estate                    |  |                  | 2   |      |  |      | 2   |  |  |  | 2   | 
|Other(1)                               |  |                  | 24  |      |  |      | 25  |  |  |  | 24  | 
|                                       |  |                  |     |      |  |      |     |  |  |  |     | 
|Total                                  |  |                  | 430 |      |  |      | 417 |  |  |  | 426 | 
|                                       |  |                  |     |      |  |      |     |  |  |  |     | 






|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|(1) | Includes employees in corporate functions and
    services and business units not allocated to any business Group.

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EMPLOYEES BY GEOGRAPHIC REGION

|                            |  |                  |     |      |  |      |     |  |  |  |     | 
|--------------------------- |  | ---------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                            |  |                 
|                            |  | At September 30,
|                            |  |                 
|                            |  | 2004             |     | 2003 |  | 2002
|                            |  |                  |     |      |  |     
|                            |  |                 
|                            |  | (in thousands)  
|Germany                     |  |                  | 164 |      |  |      | 170 |  |  |  | 175 | 
|Europe (other than Germany) |  |                  | 110 |      |  |      | 108 |  |  |  | 106 | 
|The Americas                |  |                  | 96  |      |  |      | 87  |  |  |  | 93  | 
|Asia-Pacific                |  |                  | 51  |      |  |      | 44  |  |  |  | 45  | 
|Africa, Middle East, CIS    |  |                  | 9   |      |  |      | 8   |  |  |  | 7   | 
|                            |  |                  |     |      |  |      |     |  |  |  |     | 
|Total                       |  |                  | 430 |      |  |      | 417 |  |  |  | 426 | 
|                            |  |                  |     |      |  |      |     |  |  |  |     | 

A significant percentage of our manufacturing
employees, especially in Germany, are covered by collective
bargaining agreements determining working hours and other
conditions of employment, and are represented by works councils.
Works councils have numerous rights to notification and of
codetermination in personnel, social and economic matters. Under
the German Works Constitution Act
(Betriebsverfassungsgesetz), works councils are required
to be notified in advance of any proposed employee termination,
they must confirm hirings and relocations and similar matters,
and they have a right to codetermine social matters such as work
schedules and rules of conduct. Management considers its
relations with the works councils to be good.

During the last three years we have not
experienced any major labor disputes resulting in work stoppages.

ENVIRONMENTAL MATTERS

In each of the jurisdictions in which it
operates, Siemens is subject to national and local environmental
and health and safety laws and regulations that affect its
operations, facilities, products, and, in particular, its former
nuclear power generation business. These laws and regulations
impose limitations on the discharge of pollutants into the air,
soil and water, establish standards for the treatment, storage
and disposal of solid and hazardous waste and might sometimes
require us to clean up a site at significant cost. Because of
our commitments to protecting the environment and conservation
and because we recognize that leadership in environmental
protection is an important competitive factor in the
marketplace, we have incurred significant costs to comply with
these laws and regulations and we expect to continue to incur
significant compliance costs in the future.

In 1994, we closed a site in Hanau, Germany, that
we had used for the production of uranium and mixed-oxide fuel
elements. We are in the process of cleaning-up the facility in
accordance with the German Atomic Energy Act. We have developed
a plan to decommission the Hanau facilities that involves the
following steps: clean-out, decontamination and disassembly of
equipment and installations, decontamination of the facilities
and buildings, sorting of radioactive materials and intermediate
and final storage of radioactive waste. This process will be
supported by ongoing engineering studies and radioactive
sampling under the supervision of German federal and state
authorities. The German Atomic Energy Act requires that
radioactive waste be transported to a government-developed
storage facility, which, in our case, we do not expect to be
available until 2030. We expect that the process of
decontamination, disassembly and sorting of radioactive waste
will continue until 2009, and we will be responsible for storing
the material until the government-developed storage facility is
available. The ultimate costs of this project will depend, in
part, on where the government-developed storage facility is
located and when it becomes available. We have an accrual of
513 million
at September 30, 2004 with respect to this matter. This
accrual is based on a number of significant estimates and
assumptions as to the ultimate costs of this project. We believe
this amount to be adequate to cover the present value of the
costs associated with this project, based on current estimates.
See Notes to Consolidated Financial Statements.

Two Directives of the European Parliament and of
the Council on Waste Electrical and Electronic Equipment
(2002/96/ECWEEE) and on the Restriction of the Use of
Certain Hazardous Substances in Electrical and Electronic
Equipment (2002/95/ECRoHS) have an impact on some of our
products. The WEEE Directive regulates the collection, reuse and
recycling of waste from many electrical and electronic products,
and the RoHS Directive bans the use in electrical and electronic
equipment of certain hazardous materials, such as lead, cadmium,
mercury, chromium, brominated biphenyls and diphenylethers. The
required collection of

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electrical and electronic waste from end users
under the WEEE Directive will begin in August 2005. Siemens has
been working together with national trade and environmental
associations to timely establish collection systems for
electronic scrap. Starting August 13, 2005, producers will
be obliged to finance the collection systems for electronic
scrap. Because certain of the specific legal requirements to be
set up in the European States have not yet been finalized, we
are presently unable to estimate the potential costs of
complying with these new requirements. With respect to the RoHS
Directive, a transition period until July 1, 2006 has been
established to allow manufacturers to make necessary production
adjustments. Siemens has identified its products which are
affected by the restrictions and has formulated strategies to
help ensure a timely transition from lead to lead-free soldering
technology. The other substances mentioned are either not in our
products or their substitution is not a problem. Our first
lead-free products have already been developed. Restrictions of
the use of certain substances comparable to those of the RoHS
Directive are under discussion in several other states, such as
the U.S., China, Japan and Switzerland.


On April 30, 2004, a new EU-Directive
(2004/35/CE) addressing the prevention and remediation of
environmental damage became effective. It has to be transposed
into national law by April 30, 2007. A significant number
of our production sites is affected by this directive. The
directive requires remediation measures for damage to protected
species and natural habitats, which go beyond current legal
requirements. However, the directive will only apply for damages
caused by emissions made after 2007. We believe that in 2007,
there will continue to be adequate insurance coverage or other
financial security instruments available to cover the increased
risks.

It is our policy to comply with environmental
requirements and to provide workplaces for employees that are
safe, environmentally sound, and that do not adversely affect
the health or environment of their communities. We have obtained
all material environmental permits required for our operations
and all material environmental authorizations required for our
products. Although we believe that we are in substantial
compliance with all environmental and health and safety laws and
regulations, there is a risk that we may incur expenditures
significantly in excess of our expectations to cover
environmental liabilities, to maintain compliance with current
or future environmental and health and safety laws and
regulations and/or to undertake any necessary remediation.

PROPERTY

Siemens and its consolidated subsidiaries have,
as of September 30, 2004, approximately 274 production and
manufacturing facilities throughout the world. Approximately 148
of these are located in Europe, with approximately 89 in
Germany, and approximately 82 are located in the Americas, with
approximately 57 in the United States. We also have 39
facilities in Asia. Siemens also owns or leases other properties
including office buildings, warehouses, research and development
facilities and sales offices in approximately 190 countries.

Siemens principal executive offices are
located in Munich, Germany.

None of our properties in Germany are subject to
mortgages and other security interests granted to secure
indebtedness to financial institutions. We have granted security
interests in other jurisdictions.

We believe that our current facilities are in
good condition and adequate to meet the requirements of our
present and foreseeable future operations.

INTELLECTUAL PROPERTY

Siemens as a whole has several thousand patents
and licenses, and R&D is a priority on a Siemens-wide and
business Group basis. For a discussion of the main focus of our
current R&D efforts of each business Group see
Description of Business. Siemens also has many
thousand trademark registrations worldwide. However, neither the
Company, nor any of our business Groups, is dependent on any
single patent, license or trademark or any group of related
patents, licenses or trademarks.

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LEGAL PROCEEDINGS

In 1994, a Siemens subsidiary was sued in the
United States District Court for the Northern District of
Georgia by five independent service organizations and two
customer end users for alleged monopoly pricing of parts and
maintenance services. The case was originally filed as a class
action but class certification was denied by the court. After
discovery, the plaintiffs claimed treble damages of
approximately $156.36 million. Siemens counterclaimed for
misappropriation of trade secrets, interference with contractual
relationships and patent and copyright infringement. In 1999, a
jury rendered a verdict in favor of Siemens on these claims and
awarded Siemens $7 million in damages, which the court
reduced to just under $2 million. In 2000, the court
dismissed the plaintiffs case in its entirety, with
prejudice, holding that the lawful exercise of Siemens
intellectual property rights insulated it from anti-trust
liability. On October 21, 2004 the United States Circuit
Court of Appeals for the 11th Circuit affirmed the
jurys verdict and the dismissal of the anti-trust claims.

We have requested arbitration against the
Republic of Argentina before the International Center for
Settlement of Investment Disputes (ICSID) of the World
Bank. We claim that Argentina unlawfully terminated our contract
for the development and operation of a system for the production
of identity cards, boarder control, collection of data and
voters registers and thereby violated the Bilateral
Investment Protection Treaty between Argentina and Germany
(BIT). We are seeking damages for expropriation and violation of
the BIT of approximately $500 million. Argentina has
disputed jurisdiction of the ICSID arbitration tribunal and has
argued in favor of jurisdiction of the Argentine administrative
courts. The arbitration tribunal rendered a decision on
August 4, 2004 finding that it has jurisdiction of
Siemens claims and that Siemens is entitled to present its
claims. A hearing before the ICSID arbitration tribunal on the
merits of the case is scheduled to be held in April 2005.

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. We are cooperating with the
authorities. 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 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. Furthermore, the authorities of Australia,
Hungary, Mexico and New Zealand initiated investigations into
the same possible anti-trust violations.

German prosecutors are conducting an
investigation against certain Siemens employees regarding
allegations that they participated in fraud and in providing
improper benefits related to the awarding of an EU contract for
the refurbishment of a power plant in Serbia. The investigation
is still ongoing.

Siemens AG and its subsidiaries have been named
as defendants in various other legal actions and proceedings
arising in connection with their activities as a global
diversified group. Some of these pending proceedings have been
previously disclosed. Some of the legal actions include claims
for substantial compensatory or punitive damages or claims for
indeterminate amounts of damages. In the ordinary course of
business, Siemens may also be involved in investigations and
administrative and governmental proceedings. Given the number of
legal actions and other proceedings to which Siemens is subject,
some may result in adverse decisions. Siemens believes it has
defenses to the actions and contests them when appropriate. In
view of the inherent difficulty of predicting the outcome of
such matters, particularly in cases in which claimants seek
substantial or indeterminate damages, Siemens often cannot
predict what the eventual loss or range of loss related to such
matters will be. Although the final resolution of such matters
could have a material effect on Siemens consolidated
operating results for any reporting period in which an adverse
decision is rendered, Siemens believes that its consolidated
financial position should not be materially affected.

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ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

INTRODUCTION

This Form 20-F contains forward-looking
statements and information that is, statements related to
future, not past, events. These statements may be identified by
words as expects, anticipates,
intends, plans, believes,
seeks, estimates, will or
words of similar meaning. Such statements are based on our
current expectations and certain assumptions, and are,
therefore, subject to certain risks and uncertainties. A variety
of factors, many of which are beyond Siemens control,
affect our operations, performance, business strategy and
results and could cause the actual results, performance or
achievements of Siemens worldwide to be materially different
from any future results, performance or achievements that may be
expressed or implied by such forward-looking statements. For us,
particular uncertainties arise, among others, from changes in
general economic and business conditions, changes in currency
exchange rates and interest rates, introduction of competing
products or technologies by other companies, lack of acceptance
of new products or services by customers targeted by Siemens
worldwide, changes in business strategy and various other
factors. More detailed information about certain of these
factors is contained throughout this report. Should one or more
of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary
materially from those described in the relevant forward-looking
statement as anticipated, believed, estimated, expected,
intended, planned or projected. Siemens does not intend or
assume any obligation to update or revise these forward-looking
statements in light of developments which differ from those
anticipated.

TABLE OF CONTENTS

|                                                                 |                                               |      |    |    | 
|---------------------------------------------------------------- | --------------------------------------------- | ---- | -- | -- | 
|                                                                 |                                               | Page
|                                                                 |                                               |     
|Financial Overview                                               |                                               |      | 50 |   
|Basis of Presentation                                            |                                               |      | 51 |   
|Strategic Overview                                               |                                               |      | 52 |   
|Fiscal 2004 Compared to Fiscal 2003.                             |                                               |      | 53 |   
|                                                                 | Consolidated Operations of Siemens worldwide  |      |    | 53 | 
|                                                                 | Segment Information Analysis                  |      |    | 56 | 
|Fiscal 2003 Compared to Fiscal 2002                              |                                               |      | 63 |   
|                                                                 | Consolidated Operations of Siemens worldwide  |      |    | 63 | 
|                                                                 | Segment Information Analysis                  |      |    | 65 | 
|Liquidity and Capital Resources                                  |                                               |      | 73 |   
|                                                                 | Cash FlowFiscal 2004 Compared to Fiscal 2003 |      |    | 73 | 
|                                                                 | Cash FlowFiscal 2003 Compared to Fiscal 2002 |      |    | 74 | 
|                                                                 | Capital Resources and Capital Requirements    |      |    | 75 | 
|Critical Accounting Estimates                                    |                                               |      | 81 |   
|Recent Accounting Pronouncements                                 |                                               |      | 83 |   
|Accounting Under International Financial
    Reporting Standards |                                               |      | 83 |   
|Outlook                                                          |                                               |      | 85 |   
|Subsequent Events                                                |                                               |      | 85 |   

The following discussion of our financial
condition and results of operations should be read in
conjunction with our Consolidated Financial Statements and the
related Notes prepared in accordance with U.S. Generally
Accepted Accounting Principles (U.S. GAAP) as of, and for the
years ended, September 30, 2004, 2003 and 2002.

The comparability of our Consolidated Financial
Statements between different periods is affected by currency
translation effects resulting from our international operations.
In fiscal 2004, 2003 and 2002, foreign currency translation
effects impacted our results arising from the comparison of the
euro, in which our Consolidated Financial Statements are
denominated, to other currencies, most notably the U.S. dollar
and to a lesser extent the Swiss franc, the British pound and
the Japanese yen. All of our business Groups are subject to
foreign currency translation effects; however, the business
Groups Med, Osram and L&A are particularly affected

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since they generate a significant portion of
their operations through subsidiaries whose results are subject
to foreign currency translation effects particularly in the U.S.
For significant quantitative effects of currency translation on
sales of our business Groups, see Segment
Information AnalysisOperations. For additional
information on foreign currency translation, see Item 11:
Quantitative and Qualitative Disclosure About Market
RiskForeign Currency Exchange Rate Risk and
Notes to Consolidated Financial Statements. In
addition, the effect of acquisitions and dispositions on our
consolidated revenues and expenses also affects the
comparability of our Consolidated Financial Statements between
different periods.


FINANCIAL OVERVIEW

In fiscal 2004, ended September 30, 2004,
Siemens achieved its goals of double-digit income growth
accompanied by revenue and order growth.

Siemens reported net income of
3.405 billion,
up 39% from
2.445 billion
in fiscal 2003. Basic earnings per share rose to
3.82 compared to
2.75 in the
prior year. Net income in fiscal 2004 benefited from a pre-tax
gain of 590
million and a reversal of
246 million
in deferred tax liabilities related to the sale of shares of
Infineon, partially offset by a goodwill impairment of
433 million
related to L&A. Excluding these effects, net income was up
23% year-over-year.

Siemens achieved its goal of restoring revenue
growth in fiscal 2004 with sales of
75.167 billion
compared to
74.233 billion
a year earlier. Sales were up 3% year-over-year on a comparable
basis, excluding currency translation effects and the net effect
of acquisitions and dispositions. Orders rose to
80.830 billion
from
75.056 billion
in the prior fiscal year, a 9% increase on a comparable basis. A
majority of the Groups in Operations increased both sales and
orders for the year, despite declining business volume in
Germany.

Net cash from operating and investing activities
was
3.262 billion
in fiscal 2004 compared to
1.773 billion
a year earlier. The difference is due primarily to net proceeds
of
1.794 billion
from the sale of Infineon shares in fiscal 2004. Net cash from
operating activities within Operations was more than
4 billion
in both fiscal 2004 and fiscal 2003, including supplemental cash
contributions to Siemens pension plans in both years, totaling
1.255 billion
in fiscal 2004 and
1.192 billion
a year earlier. Fiscal 2004 included
1.477 billion
used in investing activities for acquisitions, up from
1.055 billion
a year earlier.

Based on their current performance, our Groups
can currently be divided into four categories:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A&D, Med, PG, Osram, SV, SFS and PTD are in
    the first category. These Groups met or exceeded the specific
    earnings margin targets established with the Managing Board,
    proving that sustainable success can be achieved by utilizing
    all the tools of our top+ business excellence
    management system.                                                                                                                                                                                                                                                                                                                      
|
| |  | The second category comprises SBT, I&S and
    L&A. These Groups have not yet met their earnings margin
    targets. However, they have overcome their earlier difficulties
    and are now on the right track.                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The Groups in our Information and Communications
    business area, the third category, have come through the
    industry problems that began in 2001. The two Groups, ICN and
    ICM, were combined into one Group named Communications (Com) as
    of October 1, 2004, which offers a complete range of
    information and communications technologies in the areas of
    wireless and wireline networks and devices and related services.
    As for SBS, the Group faced declining demand for IT solutions in
    fiscal 2004, particularly in Germany. These Groups are working
    to achieve long-term stability and profitability.
|
| |  | TS is in the fourth category. After rebounding in
    the last few years, railway systems incurred losses in fiscal
    2004. This was largely due to technical problems in our Combino
    low-floor trams and the related provisions. The Group identified
    technical solutions during the year and is beginning to
    implement them.                                                                                                                                                                                                                                                                                                   

To further improve overall earnings, our weak
Groups must intensively utilize the tools in our management
system in order to approach their margin targets and achieve
steady, sustainable progress. In particular, we are focusing on
solving project-related problems at TS and positioning Com and
SBS for future success. Our strong Groupswhich have
demonstrated their abilities to optimize processes and achieve
growth through innovation

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and customer loyaltymust also move forward.
These Groups will continue their efforts and further strengthen
their position.


External factors also affect our business and our
success depends on anticipating and reacting early to trends in
the global economy and major currencies. In fiscal 2004, the
global economy grew moderately overall with significant regional
variations. For example, the economy remained stalled in
Germany, our largest national market, but expanded rapidly in
China. Despite price increases for raw materials, commodities
and energy, which put upward pressure on cost of goods sold, the
Groups were able to mitigate the related margin impact in fiscal
2004. The most important currency trend for us in recent years
has been the weakening of the U.S. dollar against the euro. This
trend moderated in fiscal 2004 compared to fiscal 2003, but
still had a significant influence on our reported sales and
orders for the fiscal year.

BASIS OF PRESENTATION

To help shareholders understand and follow our
progress, we present our results in aggregate, for Siemens
worldwide, and also break out the major components of our
business. The sum of results for the components equals the
result for Siemens worldwide.

The majority of our business is devoted to
providing products and services to customers based on
Siemens historical expertise in innovative electrical
engineering. We call this component of our business Operations.
The 13 Groups in Operations design, manufacture, market,
sell, and service products and systems, or help customers use
and manage those products and systems. A Group is equivalent to
a reportable segment as defined by U.S. GAAP.

We measure the performance of these Groups using
Group profit, which is earnings before centrally managed items
including income taxes, financing costs, and certain pension
costs. For additional information with respect to Group profit,
see Notes to Consolidated Financial Statements.

Another component of our Company is made up of
two Groups involved in non-manufacturing activities such as
financing, leasing, investing, and real estate. We call this
component of our business Financing and Real Estate. We evaluate
the profitability of our Financing and Real Estate Groups using
income before income taxes.

In breaking out the Operations and Financing and
Real Estate components and in order to show more clearly our
external performance, we exclude the business they conduct with
each other and with our Corporate Treasury department, which
provides cash management services for our Groups and corporate
finance activities. These internal transactions are therefore
included into a component called Eliminations, reclassifications
and Corporate Treasury. This component is the difference between
the results for Operations and Financing and Real Estate and the
results of Siemens worldwide.

For additional information, see Notes to
Consolidated Financial Statements.

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(SIEMENS OPERATIONS)

STRATEGIC OVERVIEW

Siemens success depends on innovation,
customer focus, global competitiveness, and
portfolio optimization. Our commitment to innovation
includes spending more than
5 billion
in R&D in fiscal 2004. We bring innovation to market as
rapidly and profitably as possible, such as by using cross-Group
technology platforms. All Siemens Groups are required to conduct
frequent innovation benchmark studies. This means that they
compare their power of innovation with that of their leading
competitors and implement specific programs to rapidly close any
gaps they discover. We are in the process of further expanding
our global R&D activities and new research centers have been
opened in China, Russia and India. In our global R&D
activities, all facilities including those in
Germany can leverage their specific strengths and the
Groups are able to internationalize their R&D departments as
well. For additional information with respect to the R&D
activities of our Groups, see Item 4: Information on
the Company Description of Business.

Customer focusmeans
meeting our customers needs rather than simply selling a
product or service. We maximize our customers satisfaction
and our market penetration through various initiatives,
including cross-selling programs and our service businesses. In
recent years, change in this area has been particularly dramatic
as our customers have also undergone major transformations
themselves. Some who were previously public-sector companies or
governmental authorities have now been privatized and now must
contend with tough competitive environments. Accordingly, we
have adapted our corporate culture to accommodate this shift as
we strive to strengthen our customers to keep them competitive.
We treat them as partners, involving them in our own development
processes to ensure market-oriented solutions.

Customer orientationis also a primary focus of our Siemens
One initiative, in which several Groups cooperate on large-scale
projects. Similar measures have been implemented or initiated in
nearly 40 regions. We have also established a Siemens One team
that generates its own business and assists the Groups and
regional companies in creating an appropriate local framework.
Siemens One helps our Groups present one face to the
customer in key segments and enables us to complement the
vertical organization of our Groups by strengthening horizontal
cross-Group cooperation. This strategy sets us apart from our
competitors who operate

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in only one or a few businesses. Our customers
expect us to approach them as a single team and we intend to
exploit this strategy even more rigorously in the future.


We secure and enhance our global
competitivenessby utilizing and optimizing all parts of our
worldwide value chain, which reaches approximately 190
countries. In addition, we identify and execute on opportunities
to expand our presence in our growth regions. Customer proximity
everywhere in the world is a key principle of our corporate
philosophy that applies to more than just our sales activities.
Global presence can be achieved only when all links in the value
chain R&D, hardware and software development,
procurement, production, service and sales are combined
within a global network. In recent years, there have been
fundamental geopolitical changes. A prime example is the opening
of Chinas market, which began 20 years ago and has
created vast new business opportunities for Western companies.
Russia is undergoing a similar transformation and the changes
that have taken place in Central, Eastern and Southern Europe
are just as fundamental. The eastern expansion of the European
Union has also created extraordinary business opportunities. As
a result, the world map of regional strengths and weaknesses now
looks very different than it did before a development that
we will continue to monitor.

Siemens is a diversified company with businesses
in both short-cycle and long-cycle industries. This
cross-industry advantage helps to limit our risks. As part of
this diversification, power engineering, communications
technology and medical solutions have been the three main
pillars of our business for decades. Our key tasks include:
strengthening weak businesses with acquisitions and cooperative
ventures, withdrawing from stagnant markets and investing in
high-growth sectors. In the future, we plan to continue
generating growth both organically, as well as through
acquisitions.

As we strive to optimize our businesses through
strategic acquisitions and dispositions, we will continue to
enter into transactions as we did during fiscal 2004, including
the following:



| |   |                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In July 2004, we entered the U.S. market for
    municipal and industrial water supply and wastewater treatment
    through the acquisition of USFilter;                                                                        
|
| |  | In September 2004, as part of exiting the banking
    software business, we sold a 74.9% interest of our Kordoba unit;
    and                                                                                                  
|
| |  | In October 2003 (the first quarter of fiscal
    2004), in connection with the creation of a joint venture with
    Drägerwerk AG, we completed the sale of our Life Support
    Systems (LSS) business to Getinge AB of Sweden.

FISCAL 2004 COMPARED TO FISCAL 2003

CONSOLIDATED OPERATIONS OF SIEMENS WORLDWIDE

Results of Siemens worldwide

The following discussion presents Siemens
worldwide selected information for the fiscal year ended:

|           |                       |                 |        |        |  |  |        |        | 
|---------- | --------------------- | --------------- | ------ | ------ |  |  | ------ | ------ | 
|           |                       | 2004            |        | 2003  
|           |                       |                 |        |       
|           |                       |                
|           |                       | ( in millions)
|New orders |                       |                 | 80,830 |        |  |  | 75,056 |       
|           | New orders in Germany |                 |        | 16,001 |  |  |        | 16,796 | 
|           | International orders  |                 |        | 64,829 |  |  |        | 58,260 | 
|Sales      |                       |                 | 75,167 |        |  |  | 74,233 |       
|           | Sales in Germany      |                 |        | 17,073 |  |  |        | 17,100 | 
|           | International sales   |                 |        | 58,094 |  |  |        | 57,133 | 

Orders for Siemens worldwide increased 8% to
80.830 billion.
Sales for Siemens worldwide in fiscal 2004 were
75.167 billion,
up from
74.233 billion
a year earlier. On a comparable basis, excluding currency
translation effects and the net effect of acquisitions and
dispositions, orders and sales rose year-over-year 9% and 3%,
respectively. Both orders and sales increased primarily on the
strength of international business. In Germany,

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sales of
17.073 billion
were level with the prior year and orders of
16.001 billion
came in 5% lower. International sales increased 2%
year-over-year, to
58.094 billion,
and international orders climbed 11%, to
64.829 billion.


Sales in Europe, excluding Germany, were nearly
level year-over-year at
25.151 billion
and orders rose 12% to
28.745 billion.
Sales in the Asia Pacific region increased 7% year-over-year to
9.349 billion
and orders rose 10% to
10.028 billion.
Sales in China were up 1% at
2.873 billion
and orders rose 12% year-over-year to
3.134 billion.
Sales in the U.S. were
13.621 billion,
11% lower compared to the same period a year earlier. U.S.
orders of
14.043 billion
were 4% lower year-over-year. Excluding currency translation
effects, sales were level and orders increased 8% in the U.S.

In Operations, the main driver of Siemens
worldwide revenues, sales increased to
74.573 billion
in fiscal 2004 from
73.744 billion
in the prior year. Sales growth was broad-based, including
Groups in the automotive, industrial automation, lighting, power
and wireless communication businesses. For example, sales at ICM
grew 11% year-over-year on strong demand for both mobile
networks and mobile phones, while SV benefited from continued
strong demand in the automotive sector and was strengthened by
the acquisition of an automotive electronics business. These
increases were partially offset by revenue declines at SBT and
SBS. SBT intentionally reduced its revenue basis by divesting
its facility management business, while declining demand for IT
solutions, particularly in Germany, resulted in a sales decline
at SBS.

|                      |                        |                 |        |      |   |  |        |      |  
|--------------------- | ---------------------- | --------------- | ------ | ---- | - |  | ------ | ---- | -
|                      |                        | 2004            |        | 2003
|                      |                        |                 |        |     
|                      |                        |                
|                      |                        | ( in millions)
|Gross profit on sales |                        |                 | 21,645 |      |   |  | 20,883 |     
|                      | as percentage of sales |                 |        | 28.8 | % |  |        | 28.1 | %

Gross profit as a percentage of sales in fiscal
2004 increased to 28.8% from 28.1% in the prior year. Ten of the
13 Groups in Operations increased their gross profit in fiscal
2004, led by ICM, A&D and PG. Productivity improvement
programs were largely responsible for the improvement,
particularly when combined with sales growth such as at ICM and
A&D. The gross profit increase at PG benefited from
full-year inclusion of the industrial turbine businesses
acquired from Alstom midway through fiscal 2003 and higher
inventory allowances in the prior year. At Med, gross profit
declined in fiscal 2004 primarily due to the divestment of its
Electromedical Systems business and increased competition. At
TS, the Group took significant charges for resolution of
technical problems in its rolling stock business.

|                                                           |                        |                 |        |      |   |  |        |      |  
|---------------------------------------------------------- | ---------------------- | --------------- | ------ | ---- | - |  | ------ | ---- | -
|                                                           |                        | 2004            |        | 2003
|                                                           |                        |                 |        |     
|                                                           |                        |                
|                                                           |                        | ( in millions)
|Research and development expenses                          |                        |                 | 5,063  |      |   |  | 5,067  |     
|                                                           | as percentage of sales |                 |        | 6.7  | % |  |        | 6.8  | %
|Marketing, selling and general administrative
    expenses |                        |                 | 13,567 |      |   |  | 13,534 |     
|                                                           | as percentage of sales |                 |        | 18.0 | % |  |        | 18.2 | %

Research and development (R&D) expense
remained nearly unchanged year-over-year at
5.063 billion.
Due to rising sales, R&D spending as a percentage of sales
came in at 6.7%, lower than 6.8% in fiscal 2003. For additional
information about R&D at our Groups, see Item 4:
Information on the CompanyDescription of
Business.

Siemens held marketing, selling and general
administrative expenses nearly level at
13.567 billion,
even as sales rose. Company-wide cost-control efforts were
evident across the Groups, particularly at ICN. As a result,
marketing, selling and general administrative expenses fell to
18.0% of sales compared to 18.2% in fiscal 2003.

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|                                                                          |  |                 |       |      |  |  |     | 
|------------------------------------------------------------------------- |  | --------------- | ----- | ---- |  |  | --- | 
|                                                                          |  | 2004            |       | 2003
|                                                                          |  |                 |       |     
|                                                                          |  |                
|                                                                          |  | ( in millions)
|Other operating income (expense), net                                     |  |                 | (156  | )    |  |  | 642 | 
|Income from investments in other companies, net                           |  |                 | 1,031 |      |  |  | 142 | 
|Income (expense) from financial assets and
    marketable securities, net |  |                 | 70    |      |  |  | 61  | 
|Interest income of Operations, net                                        |  |                 | 18    |      |  |  | 31  | 
|Other interest income (expense), net                                      |  |                 | 254   |      |  |  | 214 | 

Other operating income (expense), net was a
negative
156 million
compared to a positive
642 million
in fiscal 2003. The prior year benefited from
359 million in
gains from project cancellations at PG and also included a gain
resulting from Meds contribution of assets to a joint
venture with Drägerwerk AG. In contrast, fiscal 2004
included the
433 million
goodwill impairment related to L&A. The impairment was
partially offset by gains from divestments, particularly the
sale of Meds LSS business and SBS sale of a 74.9%
interest in its Kordoba banking software business.

Income from investments in other companies, net
increased to
1.031 billion,
up from
142 million
in the prior year. The largest factor in the change is the
pre-tax gain of
590 million
from the sale of Infineon shares. In addition, Siemens
equity share of Infineons net income in fiscal 2004 was
14 million
compared to a negative
170 million
equity share of Infineons net loss in fiscal 2003. In the
second quarter of fiscal 2004, Siemens relinquished its ability
to exercise significant influence over the operating and
financial policies of Infineon. Consequently, we ceased
accounting for our investment in Infineon under the equity
method and began accounting for it as a marketable security. For
further information with respect to our ownership interest in
Infineon, see Notes to Consolidated Financial
Statements.

|                           |                                                 |                 |       |      |   |  |       |    |  
|-------------------------- | ----------------------------------------------- | --------------- | ----- | ---- | - |  | ----- | -- | -
|                           |                                                 | 2004            |       | 2003
|                           |                                                 |                 |       |     
|                           |                                                 |                
|                           |                                                 | ( in millions)
|Income before income taxes |                                                 |                 | 4,232 |      |   |  | 3,372 |   
|Income taxes               |                                                 |                 | (661  | )    |   |  | (867  | ) 
|                           | as percentage of income before income
    taxes |                 |       | 16   | % |  |       | 26 | %

Siemens effective tax rate for fiscal 2004
was 16%, well below the rate of 26% in fiscal 2003. The
difference was driven by a
246 million
reversal in deferred tax liabilities related to the Infineon
share sale, tax-free dispositions of business interests
including the sale of Infineon shares, and a number of positive
tax effects outside of Germany in the current year. Fiscal 2003
also benefited from effects related to dispositions of business
interests.

|           |  |                 |       |      |  |  |       | 
|---------- |  | --------------- | ----- | ---- |  |  | ----- | 
|           |  | 2004            |       | 2003
|           |  |                 |       |     
|           |  |                
|           |  | ( in millions)
|Net income |  |                 | 3,405 |      |  |  | 2,445 | 

Net income was
3.405 billion,
up 39% from
2.445 billion
a year earlier. Net income in fiscal 2004 benefited from a
pre-tax gain of
590 million
and a reversal of
246 million
in deferred tax liabilities related to the sale of shares of
Infineon, partially offset by a goodwill impairment of
433 million
related to L&A. Excluding these effects, net income was up
23% year-over-year. Basic and diluted earnings per share were
3.82 and
3.66,
respectively, well above basic and diluted earnings per share of
2.75 in the
prior year.

|                                                            |  |                 |        |      |  |  |        |  
|----------------------------------------------------------- |  | --------------- | ------ | ---- |  |  | ------ | -
|                                                            |  | 2004            |        | 2003
|                                                            |  |                 |        |     
|                                                            |  |                
|                                                            |  | ( in millions)
|Net cash provided by operating activities                   |  |                 | 5,080  |      |  |  | 5,712  |  
|Net cash used in investing activities                       |  |                 | (1,818 | )    |  |  | (3,939 | )
|Net cash provided by operating and investing
    activities |  |                 | 3,262  |      |  |  | 1,773  |  

Net cash provided by operating activities was
5.080 billion,
after Siemens made a supplemental cash contribution of
1.255 billion
to its pension plans and Operations used
198 million
in cash for net working capital. Net cash used in investing
activities of
1.818 billion
included
1.794 billion
in proceeds from the sale of

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Infineon shares and
822 million
in cash paid for the acquisition of USFilter. For additional
information, see Liquidity and Capital
ResourcesCash FlowFiscal 2004 compared to Fiscal
2003.


Siemens Managing and Supervisory Boards
propose a dividend of
1.25 per share.
The prior-year dividend per share was
1.10.

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

SEGMENT INFORMATION ANALYSIS

Operations

Information and Communications

Information and Communication Networks
(ICN)

|                    |  |                 |       |          |  |        |       |             |  |  |    |    |  |  |   |  
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | -- | -- |  |  | - | -
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | 222   |          |  |        | (366  | )           |  |  |    |    |  |  |   |  
|Group profit margin |  |                 | 3.2   | %        |  |        | (5.1  | )%          |  |  |    |    |  |  |   |  
|Sales               |  |                 | 6,994 |          |  |        | 7,122 |             |  |  | (2 | )% |  |  | 0 | %
|New orders          |  |                 | 7,011 |          |  |        | 7,070 |             |  |  | (1 | )% |  |  | 1 | %






|  |                                                                                                     
|- | ----------------------------------------------------------------------------------------------------
|* | Excluding currency translation effects of (3)%,
    and portfolio effects of 1% on sales and orders.

ICN posted profits in all four quarters and
delivered Group profit of
222 million for
the full fiscal year. The loss of
366 million
a year earlier included significant charges for severance, as
well as write-downs of venture capital and other investments.
ICNs Carrier Networks and Services businesses accounted
for much of the profit improvement year-over-year. While sales
remained virtually unchanged year-over-year, at
3.426 billion,
carrier activities delivered
98 million
in earnings compared to a loss of
439 million
a year earlier. The Enterprise Networks division earned
208 million
on sales of
3.578 billion,
close to prior-year levels. For ICN overall, sales of just under
7.0 billion
for the fiscal year were level with the prior year on a
comparable basis. Orders also remained stable year-over-year.

Effective October 1, 2004, our ICN and ICM
Groups were combined to form our new Siemens Communications
(Com) Group. Com is organized into three businesses around the
telecommunications industry with eight divisions. The devices
business consists of Mobile Devices, Customer Premises
Equipment Devicesand Wireless Modules; the
enterprise networks business consists of the two divisions
Enterprise Systemsand Enterprise Services; and
the carrier networks business consists of the Mobile
Networks, Fixed Networksand Carrier Servicesdivisions.

Information and Communication Mobile
(ICM)

|                    |  |                 |        |          |  |        |       |             |  |  |    |   |  |  |    |  
|------------------- |  | --------------- | ------ | -------- |  | ------ | ----- | ----------- |  |  | -- | - |  |  | -- | -
|                    |  |                 |        |          |  |       
|                    |  | Year ended      |        |         
|                    |  | September 30,   |        | % Change
|                    |  |                 |        |         
|                    |  | 2004            |        | 2003     |  | Actual |       | Comparable*
|                    |  |                 |        |          |  |        |       |            
|                    |  |                 |        |          |  |       
|                    |  | ( in millions) |        |          |  |       
|Group profit        |  |                 | 347    |          |  |        | 180   |             |  |  | 93 | % |  |  |    |  
|Group profit margin |  |                 | 3.1    | %        |  |        | 1.8   | %           |  |  |    |   |  |  |    |  
|Sales               |  |                 | 11,042 |          |  |        | 9,964 |             |  |  | 11 | % |  |  | 13 | %
|New orders          |  |                 | 11,459 |          |  |        | 9,960 |             |  |  | 15 | % |  |  | 17 | %






|  |                                        
|- | ---------------------------------------
|* | Excluding currency translation effects.

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In fiscal 2004, ICM substantially increased its
Group profit compared to fiscal 2003 and also achieved
double-digit growth in sales and orders. The improvement was due
primarily to the Mobile Networks division, which delivered
396 million
in earnings on sales of
4.979 billion.
Both figures were up strongly from the prior year, when the
division earned
116 million
on 4.311 billion
in sales. The Cordless Products division also contributed
increases in both earnings and sales year-over-year. ICMs
Mobile Phones division sold 51.1 million handsets during the
year, well above the 39.1 million handsets sold a year
earlier. Competitive pressures reduced average selling price per
unit, however, and quality issues delayed both the rollout and
full profitability of the divisions new 65 series of
mobile handsets. As a result, Mobile Phones posted a loss of
152 million
on sales of
4.979 billion
compared to earnings of
27 million
on sales of
4.474 billion
in the prior year.

As mentioned above, effective October 1,
2004, our ICN and ICM Groups were combined to form our new
Siemens Communications (Com) Group.

Siemens Business Services
(SBS)

|                    |  |                 |       |          |  |        |       |             |  |  |     |    |  |  |    |   
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | --- | -- |  |  | -- | --
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | 40    |          |  |        | 13    |             |  |  | 208 | %  |  |  |    |   
|Group profit margin |  |                 | 0.8   | %        |  |        | 0.2   | %           |  |  |     |    |  |  |    |   
|Sales               |  |                 | 4,716 |          |  |        | 5,205 |             |  |  | (9  | )% |  |  | (9 | )%
|New orders          |  |                 | 6,293 |          |  |        | 5,226 |             |  |  | 20  | %  |  |  | 8  | % 






|  |                                              
|- | ---------------------------------------------
|* | Excluding portfolio effects of 12% on orders.

SBS posted Group profit of
40 million
compared to
13 million
a year earlier. The current year includes a
93 million
gain from the sale of 74.9% of SBS Kordoba unit to its
strategic partner Fidelity Information Services (FIS), largely
offset by charges for severance. For additional information with
respect to the Kordoba disposition, see Notes to
Consolidated Financial Statements. The prior year included
significant charges for risks associated with a long-term
business process outsourcing contract. Declining demand for
IT solutions, particularly in Germany, resulted in sales of
4.716 billion
compared to
5.205 billion
a year earlier. SBS won two major outsourcing contracts in
England, which pushed orders up 20% year-over-year, to
6.293 billion.

Automation and Control

Automation and Drives
(A&D)

|                    |  |                 |       |          |  |        |       |             |  |  |    |   |  |  |   |  
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | -- | - |  |  | - | -
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | 1,077 |          |  |        | 806   |             |  |  | 34 | % |  |  |   |  
|Group profit margin |  |                 | 12.2  | %        |  |        | 9.6   | %           |  |  |    |   |  |  |   |  
|Sales               |  |                 | 8,829 |          |  |        | 8,375 |             |  |  | 5  | % |  |  | 7 | %
|New orders          |  |                 | 8,980 |          |  |        | 8,476 |             |  |  | 6  | % |  |  | 8 | %






|  |                                                                                                     
|- | ----------------------------------------------------------------------------------------------------
|* | Excluding currency translation effects of (3)%,
    and portfolio effects of 1% on sales and orders.

A&D exemplified the success of Siemens
profit and growth initiative in fiscal 2004, driving Group
profit up to
1.077 billion
for the year on solid gains in sales and orders. A&D further
improved its earnings margin, as a result of increased
productivity and higher capacity utilization. Stronger demand in
international markets, including 25% growth with external
customers in Asia-Pacific, increased sales to
8.829 billion
for the year. Orders rose 6% year-over-year, to
8.980 billion.

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Industrial Solutions and Services
(I&S)

|                    |  |                 |       |          |  |        |       |             |  |  |    |   |  |  |   |  
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | -- | - |  |  | - | -
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | 95    |          |  |        | (41   | )           |  |  |    |   |  |  |   |  
|Group profit margin |  |                 | 2.2   | %        |  |        | (1.0  | )%          |  |  |    |   |  |  |   |  
|Sales               |  |                 | 4,290 |          |  |        | 4,012 |             |  |  | 7  | % |  |  | 7 | %
|New orders          |  |                 | 4,356 |          |  |        | 3,955 |             |  |  | 10 | % |  |  | 9 | %






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

I&S contributed
95 million
in Group profit for the year, on broad-based earnings
improvement. Group profit also benefited from positive effects
related to capacity reduction programs. In contrast, severance
charges contributed to a loss a year earlier. Sales at I&S
were up 7% year-over-year, to
4.290 billion,
and orders rose 10%, to
4.356 billion,
benefiting from the USFilter acquisition between the periods
under review. For additional information, see Notes to
Consolidated Financial Statements.

Logistics and Assembly Systems
(L&A)

|                    |  |                 |       |          |  |        |       |             |  |  |     |    |  |  |    |   
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | --- | -- |  |  | -- | --
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | 2     |          |  |        | (218  | )           |  |  |     |    |  |  |    |   
|Group profit margin |  |                 | 0.1   | %        |  |        | (8.4  | )%          |  |  |     |    |  |  |    |   
|Sales               |  |                 | 2,338 |          |  |        | 2,600 |             |  |  | (10 | )% |  |  | (5 | )%
|New orders          |  |                 | 2,687 |          |  |        | 2,599 |             |  |  | 3   | %  |  |  | 9  | % 






|  |                                        
|- | ---------------------------------------
|* | Excluding currency translation effects.

L&A finished in the black following a loss in
fiscal 2003. Fiscal 2004 included charges related to excess
capacity and cost overruns, while the prior year included
substantial loss provisions related to two large contracts. The
Electronics Assembly division was the Groups leading
earnings contributor, and also increased its sales, orders, and
earnings margin year-over-year. Completion of major projects led
to lower sales, at
2.338 billion.
Orders of
2.687 billion
were up 3% year-over-year. 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, pensions and eliminations.

Siemens Building Technologies
(SBT)

|                    |  |                 |       |          |  |        |       |             |  |  |     |    |  |  |    |   
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | --- | -- |  |  | -- | --
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | 108   |          |  |        | 101   |             |  |  | 7   | %  |  |  |    |   
|Group profit margin |  |                 | 2.5   | %        |  |        | 2.0   | %           |  |  |     |    |  |  |    |   
|Sales               |  |                 | 4,247 |          |  |        | 4,990 |             |  |  | (15 | )% |  |  | (4 | )%
|New orders          |  |                 | 4,358 |          |  |        | 4,775 |             |  |  | (9  | )% |  |  | 2  | % 






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

SBT increased Group profit to
108 million
despite lower sales following the divestment of its facility
management business early in the year. Group profit of
101 million
a year earlier included substantial severance

58



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charges. On a comparable basis, SBTs sales
of
4.247 billion
for fiscal 2004 were 4% below the prior-year level and orders of
4.358 billion
were up 2% year-over-year.


Power

Power Generation (PG)

|                    |  |                 |       |          |  |        |       |             |  |  |     |    |  |  |    |  
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | --- | -- |  |  | -- | -
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | 961   |          |  |        | 1,171 |             |  |  | (18 | )% |  |  |    |  
|Group profit margin |  |                 | 12.8  | %        |  |        | 16.8  | %           |  |  |     |    |  |  |    |  
|Sales               |  |                 | 7,527 |          |  |        | 6,967 |             |  |  | 8   | %  |  |  | 0  | %
|New orders          |  |                 | 9,243 |          |  |        | 7,302 |             |  |  | 27  | %  |  |  | 14 | %






|  |                                                                                                                                                    
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------
|* | Excluding currency translation effects of (4)% on
    sales and orders, and portfolio effects of 12% and 17% on sales
    and orders, respectively.

PG contributed
961 million
in Group profit for the year. Fiscal 2004 included gains related
to the cancellation of orders of
47 million
compared to the prior year, which benefited from gains of
359 million,
partly offset by
92 million
in allowances on inventories associated with the cancellations.
Excluding the net effect of cancellations, Group profit was
stable year-over-year. Sales at PG rose 8% year-over-year, to
7.527 billion.
Orders climbed 27%, to
9.243 billion,
driven in part by full-year inclusion of the industrial turbine
businesses PG acquired in the second half of fiscal 2003. For
additional information with respect to the Alstom acquisition,
see Notes to Consolidated Financial Statements.
Order growth was regionally widespread, as PG won new
business in Africa, Asia, Europe, the Near East, and Latin
America. PGs service business also continued to grow
year-over-year.

Power Transmission and Distribution
(PTD)

|                    |  |                 |       |          |  |        |       |             |  |  |    |   |  |  |    |  
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | -- | - |  |  | -- | -
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | 238   |          |  |        | 207   |             |  |  | 15 | % |  |  |    |  
|Group profit margin |  |                 | 6.6   | %        |  |        | 6.1   | %           |  |  |    |   |  |  |    |  
|Sales               |  |                 | 3,611 |          |  |        | 3,399 |             |  |  | 6  | % |  |  | 9  | %
|New orders          |  |                 | 3,863 |          |  |        | 3,586 |             |  |  | 8  | % |  |  | 11 | %






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

PTD increased Group profit to
238 million
for the year on broad-based earnings growth within the Group.
PTD also achieved solid sales growth, particularly in Europe and
Asia-Pacific. Overall, sales rose 6% year-over-year, to
3.611 billion,
and orders were up 8%, at
3.863 billion,
particularly as a result of the volume growth in the fourth
quarter, which included PTDs acquisition of Trench
Electric Holding and new orders in Africa and the Middle East.

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Transportation

Transportation Systems (TS)

|                    |  |                 |       |          |  |        |       |             |  |  |    |    |  |  |    |   
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | -- | -- |  |  | -- | --
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | (434  | )        |  |        | 284   |             |  |  |    |    |  |  |    |   
|Group profit margin |  |                 | (10.1 | )%       |  |        | 6.0   | %           |  |  |    |    |  |  |    |   
|Sales               |  |                 | 4,310 |          |  |        | 4,697 |             |  |  | (8 | )% |  |  | (7 | )%
|New orders          |  |                 | 4,321 |          |  |        | 4,674 |             |  |  | (8 | )% |  |  | (7 | )%






|  |                                        
|- | ---------------------------------------
|* | Excluding currency translation effects.

In fiscal 2004, TS responded decisively to the
technical problems and associated issues that affected its
rolling stock business, particularly the innovative low-floor
light rail vehicle with a modular platform concept, marketed
under the name Combino. The Group identified technical solutions
during the year and is beginning to implement them. These
actions and associated charges, accompanied by a corresponding
slow-down in rolling stock sales, led to a loss of
434 million.
For additional information with respect to the Combino, see
Item 4: Information on the CompanyDescription
of BusinessTransportationTransportation
Systems. In addition to these factors, TS also faced
generally slower demand for rail transportation systems,
particularly in Germany. As a result, sales and orders at TS
were
4.310 billion
and
4.321 billion,
respectively, 8% below fiscal 2003 levels.

Siemens VDO Automotive (SV)

|                    |  |                 |       |          |  |        |       |             |  |  |    |   |  |  |    |  
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | -- | - |  |  | -- | -
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | 562   |          |  |        | 418   |             |  |  | 34 | % |  |  |    |  
|Group profit margin |  |                 | 6.2   | %        |  |        | 5.0   | %           |  |  |    |   |  |  |    |  
|Sales               |  |                 | 9,001 |          |  |        | 8,375 |             |  |  | 7  | % |  |  | 9  | %
|New orders          |  |                 | 9,029 |          |  |        | 8,375 |             |  |  | 8  | % |  |  | 10 | %






|  |                                                                                                     
|- | ----------------------------------------------------------------------------------------------------
|* | Excluding currency translation effects of (3)%,
    and portfolio effects of 1% on sales and orders.

Group profit of
562 million
at SV enabled the Group to break even relative to its full-year
cost of capital for the first time. Earnings improved at all
divisions within SV, with the fastest growth coming at the
Interior & Infotainment division. Revenue growth was
also broad-based, as sales rose 7% compared to the prior year,
to
9.001 billion.
Orders rose 8%, to
9.029 billion.
The development also includes SVs acquisition of a United
States automotive electronics business from DaimlerChrysler
during the second quarter of fiscal 2004.

Medical

Medical Solutions (Med)

|                    |  |                 |       |          |  |        |       |             |  |  |    |    |  |  |    |  
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | -- | -- |  |  | -- | -
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | 1,046 |          |  |        | 1,118 |             |  |  | (6 | )% |  |  |    |  
|Group profit margin |  |                 | 14.8  | %        |  |        | 15.1  | %           |  |  |    |    |  |  |    |  
|Sales               |  |                 | 7,072 |          |  |        | 7,422 |             |  |  | (5 | )% |  |  | 6  | %
|New orders          |  |                 | 8,123 |          |  |        | 7,835 |             |  |  | 4  | %  |  |  | 15 | %






|  |                                                                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Excluding currency translation effects of (6)%
    and (7)% on sales and orders, respectively, and portfolio
    effects of (5)% and (4)% on sales and orders, respectively.

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Med again delivered more than
1 billion
in full-year Group profit. Fiscal 2004 included
118 million
in gains from portfolio transactions, primarily the sale of
Meds Life Support Systems (LSS) business. For
comparison, fiscal 2003 included a
63 million
gain related to the contribution of a portion of Meds
electromedical systems business to a joint venture with
Drägerwerk AG. While these transactions reduced
Meds revenue base compared to the prior year, sales of
7.072 billion
were up 6% year-over-year, excluding currency translation and
portfolio effects. Orders climbed to
8.123 billion,
up 15% on a comparable basis. For additional information with
respect to the disposition of LSS, see Notes to
Consolidated Financial Statements.

Lighting

Osram

|                    |  |                 |       |          |  |        |       |             |  |  |   |   |  |  |   |  
|------------------- |  | --------------- | ----- | -------- |  | ------ | ----- | ----------- |  |  | - | - |  |  | - | -
|                    |  |                 |       |          |  |       
|                    |  | Year ended      |       |         
|                    |  | September 30,   |       | % Change
|                    |  |                 |       |         
|                    |  | 2004            |       | 2003     |  | Actual |       | Comparable*
|                    |  |                 |       |          |  |        |       |            
|                    |  |                 |       |          |  |       
|                    |  | ( in millions) |       |          |  |       
|Group profit        |  |                 | 445   |          |  |        | 410   |             |  |  | 9 | % |  |  |   |  
|Group profit margin |  |                 | 10.5  | %        |  |        | 9.8   | %           |  |  |   |   |  |  |   |  
|Sales               |  |                 | 4,240 |          |  |        | 4,172 |             |  |  | 2 | % |  |  | 8 | %
|New orders          |  |                 | 4,240 |          |  |        | 4,172 |             |  |  | 2 | % |  |  | 8 | %






|  |                                        
|- | ---------------------------------------
|* | Excluding currency translation effects.

Osram increased its Group profit 9% for the year,
to
445 million,
leveraging higher manufacturing productivity to achieve a
double-digit earnings margin for the year. Sales increased to
4.240 billion,
up 8% year-over-year on a comparable basis. Higher revenue
year-over-year was highlighted by particularly strong growth in
Asia-Pacific and Latin America.

Other Operations

Other Operations consist of centrally held equity
investments and other operating businesses not related to a
Group, such as Siemens joint ventures for household
appliances (BSH Bosch und Siemens Hausgeräte GmbH) and
computers (Fujitsu Siemens Computers). Equity earnings from
these joint ventures again were the primary contributor to
earnings from Other Operations, which totaled
289 million
in fiscal 2004 compared to
212 million
in fiscal 2003.

Corporate items, pensions and eliminations

Corporate items, pensions and eliminations were a
negative
1.207 billion
in fiscal 2004 compared to a negative
1.576 billion
in the same period a year earlier. Corporate items totaled a
negative
450 million
for the year compared to a negative
747 million
in fiscal 2003. Corporate items in fiscal 2004 included the
pre-tax gain of
590 million
from the sale of Infineon shares, partly offset by the
433 million
goodwill impairment related to L&A. This impairment is taken
centrally because the relevant businesses were acquired at the
corporate level as part of Siemens Atecs Mannesmann
transaction. Corporate items a year earlier benefited from the
positive resolution of an arbitration proceeding. Siemens
equity share of Infineons net result was a positive
14 million,
compared to a negative
170 million
in fiscal 2003. In the second quarter of fiscal 2004, Siemens
relinquished its ability to exercise significant influence over
the operating and financial policies of Infineon. Consequently,
we ceased accounting for our investment in Infineon under the
equity method and began accounting for it as a marketable
security. Centrally carried pension expense was
730 million
in fiscal 2004, compared to
828 million a
year earlier. Domestic pension service costs were carried
centrally in fiscal 2003 but are allocated to the Groups
beginning in fiscal 2004. The effect of this change was partly
offset by higher amortization of unrealized pension plan losses
in fiscal 2004. For additional information with respect to the
Atecs Mannesmann transaction, ownership in Infineon and pension
plans, see Notes to Consolidated Financial
Statements.

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Financing and Real Estate

Siemens Financial Services
(SFS)

|                           |  |                 |       |          |  |        |       |  |  |  |    |   
|-------------------------- |  | --------------- | ----- | -------- |  | ------ | ----- |  |  |  | -- | --
|                           |  |                 |       |         
|                           |  | Year ended      |       |         
|                           |  | September 30,   |       |         
|                           |  |                 |       | % Change
|                           |  | 2004            |       | 2003     |  | Actual
|                           |  |                 |       |          |  |       
|                           |  |                 |       |         
|                           |  | ( in millions) |       |         
|Income before income taxes |  |                 | 250   |          |  |        | 269   |  |  |  | (7 | )%
|Total assets               |  |                 | 9,055 |          |  |        | 8,445 |  |  |  | 7  | % 

Income before income taxes at SFS in fiscal 2004
was
250 million
compared to
269 million
a year earlier. The difference is due in part to higher
write-downs of receivables in the Equipment & Sales
Financing (ESF) division compared to the prior year. Income
at SFS for the year also reflects an expansion of the ESF
division in Europe and North America, resulting in a
corresponding increase in total assets compared to fiscal 2003.

Siemens Real Estate (SRE)

|                           |  |                 |       |          |  |        |       |  |  |  |     |   
|-------------------------- |  | --------------- | ----- | -------- |  | ------ | ----- |  |  |  | --- | --
|                           |  |                 |       |         
|                           |  | Year ended      |       |         
|                           |  | September 30,   |       |         
|                           |  |                 |       | % Change
|                           |  | 2004            |       | 2003     |  | Actual
|                           |  |                 |       |          |  |       
|                           |  |                 |       |         
|                           |  | ( in millions) |       |         
|Income before income taxes |  |                 | 108   |          |  |        | 206   |  |  |  | (48 | )%
|Sales                      |  |                 | 1,584 |          |  |        | 1,592 |  |  |  | (1  | )%

Income before income taxes at SRE in fiscal 2004
was
108 million
compared to
206 million
a year earlier. While sales were level with the prior year,
weakness in the market for commercial real estate reduced
returns. Market conditions also led the Group to terminate a
major development project in Frankfurt during fiscal 2004, and
the associated charges contributed to the decline in income for
the year.

Eliminations, reclassifications and Corporate Treasury

Income before taxes from Eliminations,
reclassifications and Corporate Treasury of
224 million
for fiscal year 2004 included higher interest income. In
comparison, the prior year amount of
266 million
included higher positive effects from hedging activities not
qualifying for hedge accounting, as well as a
35 million
gain related to the buyback of a note exchangeable into Infineon
shares.

ECONOMIC VALUE ADDED

Siemens ties a portion of its executive incentive
compensation to achieving economic value added
(EVA) targets. EVA measures the profitability of a business
(using Group profit for the operations Groups and income before
income taxes for the Financing and Real Estate businesses as a
base) against the additional cost of capital used to run a
business (using Net capital employed for the operations Groups
and risk-adjusted equity for the Financing and Real Estate
businesses as a base). A positive EVA means that a business has
earned more than its cost of capital, whereas a negative EVA
means that a business has earned less than its cost of capital.
Depending on the EVA development year-over-year, a business is
defined as value-creating or value-destroying. Other companies
that use EVA may define and calculate EVA differently.

62



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##### Table of Contents



FISCAL 2003 COMPARED TO FISCAL 2002

CONSOLIDATED OPERATIONS OF SIEMENS WORLDWIDE

Results of Siemens worldwide

The following discussion presents Siemens
worldwide selected information for the fiscal year ended:

|           |                       |                 |        |        |  |  |        |        | 
|---------- | --------------------- | --------------- | ------ | ------ |  |  | ------ | ------ | 
|           |                       | 2003            |        | 2002  
|           |                       |                 |        |       
|           |                       |                
|           |                       | ( in millions)
|New orders |                       |                 | 75,056 |        |  |  | 86,214 |       
|           | New orders in Germany |                 |        | 16,796 |  |  |        | 17,812 | 
|           | International orders  |                 |        | 58,260 |  |  |        | 68,402 | 
|Sales      |                       |                 | 74,233 |        |  |  | 84,016 |       
|           | Sales in Germany      |                 |        | 17,100 |  |  |        | 18,102 | 
|           | International sales   |                 |        | 57,133 |  |  |        | 65,914 | 

Orders in fiscal 2003 were
75.056 billion
compared to
86.214 billion
a year earlier, and sales in fiscal 2003 were
74.233 billion
compared to
84.016 billion.
Excluding currency translation effects and the net effect of
acquisitions and dispositions, orders and sales were 5% and 4%
lower, respectively, than a year earlier. Orders in Germany in
fiscal 2003 were
16.796 billion
compared to
17.812 billion
the same period a year earlier. Sales in Germany were
17.100 billion
compared to
18.102 billion
a year earlier. International orders were
58.260 billion
compared to
68.402 billion
a year earlier. Excluding currency translation and the net
effects of acquisitions and dispositions, the decline in
international orders was 6%. International sales were
57.133 billion
compared to
65.914 billion
in fiscal 2002. Excluding currency translation and the net
effects of acquisitions and dispositions, the decline in
international sales was 4%.

Orders in the United States in fiscal 2003 were
14.702 billion
compared to
21.205 billion
a year earlier. Sales in the United States were
15.357 billion
compared to
20.288 billion
in the prior year. The change in sales was driven by expected
volume declines at PG following the end of the gas turbine
energy boom and by a negative 14% currency translation effect.
Orders in Asia-Pacific in fiscal 2003 were
9.152 billion
compared to
10.092 billion
and sales were
8.728 billion
compared to
9.668 billion
a year earlier, in part due to currency translation and the net
effect of acquisitions and dispositions. Sales in China in
fiscal 2003 were
2.838 billion
compared to
3.223 billion
a year earlier, due in large part to the effect of currency
translation and dispositions.

|                      |                        |                 |        |      |   |  |        |      |  
|--------------------- | ---------------------- | --------------- | ------ | ---- | - |  | ------ | ---- | -
|                      |                        | 2003            |        | 2002
|                      |                        |                 |        |     
|                      |                        |                
|                      |                        | ( in millions)
|Gross profit on sales |                        |                 | 20,883 |      |   |  | 23,206 |     
|                      | as percentage of sales |                 |        | 28.1 | % |  |        | 27.6 | %

Gross profit as a percentage of sales in fiscal
2003 increased to 28.1% from 27.6% in the prior year. Most of
the Groups increased their gross margins, particularly SV, ICN,
PTD, and Med. ICNs improvement reflects the results of its
Profitability and Cash Turnaround (PACT) program, and PTD and SV
made significant improvements in reducing materials costs and
other productivity measures. Osram, A&D and TS maintained
their gross margins levels in fiscal 2003. Partly offsetting
these results were gross margin declines at L&A (reported as
Siemens Dematic (SD) until the second quarter of fiscal
2004) and SBS, as these Groups took charges relating to
long-term contracts during fiscal 2003. ICMs gross margin
decreased less sharply in fiscal 2003, in part due to lower
average earnings per mobile phone sold.

|                                  |                        |                 |        |      |    |  |        |      |   
|--------------------------------- | ---------------------- | --------------- | ------ | ---- | -- |  | ------ | ---- | --
|                                  |                        | 2003            |        | 2002
|                                  |                        |                 |        |     
|                                  |                        |                
|                                  |                        | ( in millions)
|Research and development expenses |                        |                 | (5,067 | )    |    |  | (5,819 | )   
|                                  | as percentage of sales |                 |        | (6.8 | )% |  |        | (6.9 | )%

R&D expenses were
5.067 billion
in fiscal 2003 compared to
5.819 billion
in the prior year. R&D spending represented 6.8% of sales,
compared to 6.9% in fiscal year 2002. Among the Groups in fiscal
2003,

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Med increased its R&D spending and ICN and
ICM maintained stable R&D expenditures relative to declining
sales.


|                                                           |                        |                 |         |       |    |  |         |       |   
|---------------------------------------------------------- | ---------------------- | --------------- | ------- | ----- | -- |  | ------- | ----- | --
|                                                           |                        | 2003            |         | 2002 
|                                                           |                        |                 |         |      
|                                                           |                        |                
|                                                           |                        | ( in millions)
|Marketing, selling and general administrative
    expenses |                        |                 | (13,534 | )     |    |  | (15,455 | )    
|                                                           | as percentage of sales |                 |         | (18.2 | )% |  |         | (18.4 | )%

Marketing, selling and general administrative
expenses were
13.534 billion
in fiscal 2003 compared to
15.455 billion
in fiscal 2002 and declined as a percentage of sales from 18.4%
to 18.2%. Cost cutting and productivity programs at ICN, ICM,
I&S, SV and Osram contributed to this result, as did lower
provisions for accounts and loans receivable, partially
resulting from revised estimates, in particular at ICM.

|                                                                |  |                 |     |      |  |  |       |  
|--------------------------------------------------------------- |  | --------------- | --- | ---- |  |  | ----- | -
|                                                                |  | 2003            |     | 2002
|                                                                |  |                 |     |     
|                                                                |  |                
|                                                                |  | ( in millions)
|Other operating income (expense), net                           |  |                 | 642 |      |  |  | 1,321 |  
|Income (loss) from investments in other
    companies, net      |  |                 | 142 |      |  |  | (114  | )
|Income from financial assets and marketable
    securities, net |  |                 | 61  |      |  |  | 18    |  
|Interest income (expense) of Operations, net                    |  |                 | 31  |      |  |  | 94    |  
|Other interest income, net                                      |  |                 | 214 |      |  |  | 224   |  

Other operating income (expense), net was
642 million
compared to
1.321 billion in
fiscal 2002. Fiscal 2003 included
359 million
of net gains related to cancellation of orders at PG, which were
partly offset by inventory allowances recorded in cost of sales.
Also included in fiscal 2003 was a
63 million gain
from Meds contribution of assets to a joint venture with
Drägerwerk AG. The prior year included a
936 million
tax-free gain resulting from Infineon share sales, a
421 million
gain on the sale of Unisphere Networks by ICN, a
60 million
gain at ICN, a
56 million
gain on the sale of Hydraulik-Ring by SV, a
21 million
gain from the KKR transaction, and significantly lower contract
customer cancellation gains at PG. Partially offsetting these
gains in fiscal 2002 was a
378 million
impairment at ICN.

Income (loss) from investments in other
companies, net in fiscal 2003 was a positive
142 million
compared to a negative
114 million
in the prior year. In Operations, fiscal 2003 included higher
contributions from joint ventures compared to fiscal 2002. In
addition, the fiscal 2002 included higher losses associated with
Siemens equity share of Infineon partly offset by a
133 million gain
on the sale of two investments.

|                           |                                                 |                 |       |      |   |  |       |    |  
|-------------------------- | ----------------------------------------------- | --------------- | ----- | ---- | - |  | ----- | -- | -
|                           |                                                 | 2003            |       | 2002
|                           |                                                 |                 |       |     
|                           |                                                 |                
|                           |                                                 | ( in millions)
|Income before income taxes |                                                 |                 | 3,372 |      |   |  | 3,475 |   
|Income taxes               |                                                 |                 | (867  | )    |   |  | (849  | ) 
|                           | as percentage of income before income
    taxes |                 |       | 26   | % |  |       | 24 | %

The effective tax rate on income for the fiscal
year 2003 was approximately 26% and was positively impacted by
tax benefits resulting from the dispositions of business
interests. The effective tax rate on income for the fiscal year
2002 was approximately 24%, which was positively impacted by the
tax-free sales of Infineon shares and negatively affected by
non-deductible goodwill impairment.

|           |  |                 |       |      |  |  |       | 
|---------- |  | --------------- | ----- | ---- |  |  | ----- | 
|           |  | 2003            |       | 2002
|           |  |                 |       |     
|           |  |                
|           |  | ( in millions)
|Net income |  |                 | 2,445 |      |  |  | 2,597 | 

In fiscal 2003 net income was
2.445 billion
and earnings per share were
2.75. Fiscal
2002 included a tax-free gain of
936 million
on sales of shares in Infineon, which boosted net income in that
period to 2.597
billion and earnings per share to
2.92. Excluding
the Infineon gain, net income rose 47% year-over-year from
1.661 billion.

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|                                                 |  |                 |        |      |  |  |       |  
|------------------------------------------------ |  | --------------- | ------ | ---- |  |  | ----- | -
|                                                 |  | 2003            |        | 2002
|                                                 |  |                 |        |     
|                                                 |  |                
|                                                 |  | ( in millions)
|Net cash provided from operating activities      |  |                 | 5,712  |      |  |  | 5,564 |  
|Net cash used in investing activities            |  |                 | (3,939 | )    |  |  | (810  | )
|Net cash from operating and investing activities |  |                 | 1,773  |      |  |  | 4,754 |  

In fiscal 2003, net cash from operating and
investing activities was
1.773 billion,
including
5.712 billion
in net cash from operating activities. Net cash provided by
operating activities included cash outflows of
1.192 billion
in supplemental cash contributions to Siemens pension trusts.
Net cash used in investing activities of
3.939 billion
included increases in investments and marketable securities of
957 million,
and
929 million
for a strategic acquisition at Power Generation.

For fiscal 2003, the Company paid a dividend of
1.10 per share.
The prior-year dividend per share was
1.00.

On October 1, 2002, Siemens adopted
Statement of Accounting Financial Standards (SFAS) 143,
Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and
associated asset retirement costs. As a result of the adoption
of SFAS 143, income of
59 million
(36 million net
of income taxes, or
0.04 per share)
was recorded as a cumulative effect of a change in accounting
principle.

ACQUISITIONS AND DISPOSITIONS

Alstom

In July 2003, Siemens completed the acquisition
of the industrial turbine business of Alstom, which was
structured in two transactions. In the first transaction in
April 2003, effective April 30, PG acquired the small gas
turbine business of Alstom. In the second transaction in July
2003, PG acquired Alstoms medium-sized gas and steam
turbine businesses. The two transactions resulted in an
aggregate net purchase price of
942 million,
net of cash acquired.

Dräger Medical

In June 2003, Med contributed its Patient Care
System and Electro Cardiography System businesses into a joint
venture with Drägerwerk AG in exchange for a
35 percent interest in a joint venture Dräger Medical.
In connection with the contribution, Siemens realized a pretax
gain of
63 million.
The contribution agreement also obligates Siemens to contribute
to Dräger Medical the net proceeds from the sale of its
Life Support Systems business. By consenting to this sale,
Siemens and Drägerwerk AG received approval for the joint
venture by antitrust authorities. In August 2003, Siemens signed
a contract toward the sale of its Life Support Systems business
to Getinge AB, Sweden. This sale closed in October 2003.
Meds interest in Dräger Medical is accounted for
using the equity method.

SEGMENT INFORMATION ANALYSIS

Operations

Information and Communications

Information and Communication Networks
(ICN)

|                    |  |        |     |                 |  |      |       |    |  |  |       |   
|------------------- |  | ------ | --- | --------------- |  | ---- | ----- | -- |  |  | ----- | --
|                    |  |        |     |                
|                    |  |        |     | Year ended     
|                    |  |        |     | September 30,  
|                    |  |        |     |                
|                    |  | Change |     | 2003            |  | 2002
|                    |  |        |     |                 |  |     
|                    |  |        |     |                
|                    |  |        |     | ( in millions)
|Group profit        |  |        | 47  | %               |  |      | (366  | )  |  |  | (691  | ) 
|Group profit margin |  |        |     |                 |  |      | (5.1  | )% |  |  | (7.2  | )%
|Total sales         |  |        | (26 | )%              |  |      | 7,122 |    |  |  | 9,647 |   
|New orders          |  |        | (19 | )%              |  |      | 7,070 |    |  |  | 8,697 |   

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In fiscal 2003, ICN improved its Group profit
despite ongoing market challenges, narrowing its loss
quarter-by-quarter throughout the year and posting a profit in
the fourth quarter. The market for telecommunications and
networking equipment remained challenging, as customers held
capital expenditures down while absorbing and integrating past
investments. However, for the year as a whole, ICN cut its loss
to
366 million
from
691 million
a year earlier, a period which benefited from
634 million
in gains primarily related to the sale of businesses, including
Unisphere Networks, partially offset by an asset impairment of
378 million
at Efficient Networks and charges for asset write-downs of
225 million.
As ICN made significant progress in its PACT program, severance
charges in fiscal 2003 were
119 million
compared to
352 million
in the prior fiscal year. Fiscal 2003 sales of
7.122 billion
were 26% lower than in fiscal 2002, and orders of
7.070 billion
were 19% lower than a year earlier. While market forces
accounted for much of these decreases, five percentage points of
the declines in sales and orders were due to effects from
currency translation.

At the division level, the Carrier Networks and
Services business recorded a loss of
439 million
in fiscal 2003, substantially lower than in the prior year.
Sales were lower at
3.455 billion
in fiscal 2003, substantially lower than in the prior year.
Enterprise Networks reported progressively higher profits in all
four quarters, and more than doubled its profit year-over-year,
with earnings totaling
220 million
on sales of
3.684 billion.
The division benefited primarily from a streamlined cost
structure, and also from higher market demand for lease sales.

Information and Communication Mobile
(ICM)

|                    |  |        |     |                 |  |      |       |   |  |  |        |  
|------------------- |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ------ | -
|                    |  |        |     |                
|                    |  |        |     | Year ended     
|                    |  |        |     | September 30,  
|                    |  |        |     |                
|                    |  | Change |     | 2003            |  | 2002
|                    |  |        |     |                 |  |     
|                    |  |        |     |                
|                    |  |        |     | ( in millions)
|Group profit        |  |        | 88  | %               |  |      | 180   |   |  |  | 96     |  
|Group profit margin |  |        |     |                 |  |      | 1.8   | % |  |  | 0.9    | %
|Total sales         |  |        | (10 | )%              |  |      | 9,964 |   |  |  | 11,045 |  
|New orders          |  |        | (14 | )%              |  |      | 9,960 |   |  |  | 11,538 |  

In fiscal 2003, Group profit at ICM rose to
180 million
from
96 million
in fiscal 2002. Sales of
9.964 billion
for fiscal 2003 compared to
11.045 billion
in fiscal 2002, and orders were
9.960 billion
compared to
11.538 billion
a year earlier, reflecting particularly the continuing decline
in the wireless infrastructure market. Both years included
charges for severance, totaling
86 million
in fiscal 2003 and
105 million
in fiscal 2002, primarily related to Mobile Networks. Continuing
its Group wide productivity programs, which were initiated in
fiscal 2001, ICM announced in July plans for further cost
reductions, including an additional targeted headcount reduction
of 2,300 positions through fiscal 2004. The Group began
implementing the new reductions and taking associated charges in
the fourth quarter, which will continue into fiscal 2004.

Handset sales at ICMs Mobile Phones
division surged to 39.1 million units from
33.3 million units a year earlier, on strong demand for new
products, and sales rose 5% to
4.474 billion
for the year. Increased competition continued to drive down
average selling price per unit. In addition, a separately
branded mobile handset line introduced in fiscal 2003 incurred
operating losses and charges to inventory. As a result, Mobile
Phones contributed
27 million
to Group profit for the year, down from
82 million
a year earlier. The Cordless Products business again made a
significant contribution to ICMs Group profit for the
year. Mobile Networks continued to streamline operations in line
with market conditions, which were reflected in the
divisions sales of
4.311 billion,
20% lower than a year earlier. Charges for severance of
72 million
were more than offset by positive resolutions of customer
financing risks, and the division contributed
116 million
to Group profit compared to
5 million a
year earlier.

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Siemens Business Services
(SBS)

|                    |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------- |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                    |  |        |     |                
|                    |  |        |     | Year ended     
|                    |  |        |     | September 30,  
|                    |  |        |     |                
|                    |  | Change |     | 2003            |  | 2002
|                    |  |        |     |                 |  |     
|                    |  |        |     |                
|                    |  |        |     | ( in millions)
|Group profit        |  |        | (87 | )%              |  |      | 13    |   |  |  | 101   |  
|Group profit margin |  |        |     |                 |  |      | 0.2   | % |  |  | 1.7   | %
|Total sales         |  |        | (10 | )%              |  |      | 5,205 |   |  |  | 5,773 |  
|New orders          |  |        | (16 | )%              |  |      | 5,226 |   |  |  | 6,256 |  

SBS posted a Group profit of
13 million
in fiscal 2003 compared to
101 million in
fiscal 2002. The decline predominantly reflects
77 million
in charges for risks associated with a long-term business
process outsourcing contract in the United Kingdom. Sales of
5.205 billion
and orders of
5.226 billion
were lower than in the previous year, driven in part by weakness
in the IT consulting market and intense pricing pressure in the
IT maintenance and outsourcing markets.

Automation and Control

Automation and Drives
(A&D)

|                    |  |        |    |                 |  |      |       |   |  |  |       |  
|------------------- |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                    |  |        |    |                
|                    |  |        |    | Year ended     
|                    |  |        |    | September 30,  
|                    |  |        |    |                
|                    |  | Change |    | 2003            |  | 2002
|                    |  |        |    |                 |  |     
|                    |  |        |    |                
|                    |  |        |    | ( in millions)
|Group profit        |  |        | 11 | %               |  |      | 806   |   |  |  | 723   |  
|Group profit margin |  |        |    |                 |  |      | 9.6   | % |  |  | 8.4   | %
|Total sales         |  |        | (3 | )%              |  |      | 8,375 |   |  |  | 8,635 |  
|New orders          |  |        | (3 | )%              |  |      | 8,476 |   |  |  | 8,728 |  

In fiscal 2003, A&D was again a standout
among Siemens Groups, increasing Group profit 11% year-over-year
to
806 million,
further improving its Group profit margin to 9.6%, and
strengthening its market position. Both periods included charges
for severance programs, particularly in the United States,
totaling
50 million
in fiscal 2003 and
26 million
in fiscal 2002. Sales of
8.375 billion
and orders of
8.476 billion
for the year were both 3% lower than A&D reported in fiscal
2002. Excluding currency exchange effects, sales and orders both
rose 2% year-over-year, as A&D continued to balance its
business base with growth in the Asia-Pacific region while
gaining market share in Europe.

Industrial Solutions and Services
(I&S)

|                    |  |        |     |                 |  |      |       |    |  |  |       |   
|------------------- |  | ------ | --- | --------------- |  | ---- | ----- | -- |  |  | ----- | --
|                    |  |        |     |                
|                    |  |        |     | Year ended     
|                    |  |        |     | September 30,  
|                    |  |        |     |                
|                    |  | Change |     | 2003            |  | 2002
|                    |  |        |     |                 |  |     
|                    |  |        |     |                
|                    |  |        |     | ( in millions)
|Group profit        |  |        | 79  | %               |  |      | (41   | )  |  |  | (198  | ) 
|Group profit margin |  |        |     |                 |  |      | (1.0  | )% |  |  | (4.4  | )%
|Total sales         |  |        | (10 | )%              |  |      | 4,012 |    |  |  | 4,480 |   
|New orders          |  |        | (4  | )%              |  |      | 3,955 |    |  |  | 4,120 |   

I&S significantly improved its bottom line in
fiscal 2003, posting a Group profit of negative
41 million
compared to a negative
198 million
a year earlier, in part due to lower charges for severance of
24 million
in fiscal 2003 compared to
118 million
in fiscal 2002. A continuing contraction in the market for
industrial solutions led to orders of
3.955 billion
compared to
4.120 billion
a year earlier, and sales of
4.012 billion
compared to
4.480 billion in
the prior year. Five percentage points of the decrease in orders
resulted from the effects of currency translation and
acquisitions and dispositions.

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Logistics and Assembly Systems (L&A)
(formerly reported as SD)

|                    |  |        |     |                 |  |      |       |    |  |  |       |  
|------------------- |  | ------ | --- | --------------- |  | ---- | ----- | -- |  |  | ----- | -
|                    |  |        |     |                
|                    |  |        |     | Year ended     
|                    |  |        |     | September 30,  
|                    |  |        |     |                
|                    |  | Change |     | 2003            |  | 2002
|                    |  |        |     |                 |  |     
|                    |  |        |     |                
|                    |  |        |     | ( in millions)
|Group profit        |  |        |     |                 |  |      | (218  | )  |  |  | 45    |  
|Group profit margin |  |        |     |                 |  |      | (8.4  | )% |  |  | 1.5   | %
|Total sales         |  |        | (13 | )%              |  |      | 2,600 |    |  |  | 2,995 |  
|New orders          |  |        | (8  | )%              |  |      | 2,599 |    |  |  | 2,810 |  

L&A posted a Group loss of
218 million
for fiscal 2003 compared to Group profit of
45 million
in fiscal 2002. A substantial increase in loss provisions and
charges, in an aggregate of
209 million
related to two large contracts in Europe was the key factor in
this result, together with other charges. The majority of the
loss provisions occurred at the Material Handling Automation
division. The charges are related primarily to a contract for
the design and installation of a complete logistical
infrastructure for a postal sorting center in the United
Kingdom. The Postal Automation division increased its profit and
earnings margin and won large orders from the United States
Postal Service, while the Electronics Assembly Systems division
narrowed its loss year-over-year and restored sales growth in
its large pick-and-place equipment business on a breakeven basis.

In fiscal 2003, L&A as a whole, sales were
2.600 billion
compared to
2.995 billion
in fiscal 2002, and orders were
2.599 billion
compared to
2.810 billion
a year earlier. Excluding the effects of currency translation
and portfolio activities, sales were down 4% and orders rose 2%
for the year.

Siemens Building Technologies
(SBT)

|                    |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------- |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                    |  |        |     |                
|                    |  |        |     | Year ended     
|                    |  |        |     | September 30,  
|                    |  |        |     |                
|                    |  | Change |     | 2003            |  | 2002
|                    |  |        |     |                 |  |     
|                    |  |        |     |                
|                    |  |        |     | ( in millions)
|Group profit        |  |        | (48 | )%              |  |      | 101   |   |  |  | 195   |  
|Group profit margin |  |        |     |                 |  |      | 2.0   | % |  |  | 3.5   | %
|Total sales         |  |        | (11 | )%              |  |      | 4,990 |   |  |  | 5,619 |  
|New orders          |  |        | (15 | )%              |  |      | 4,775 |   |  |  | 5,601 |  

Group profit at SBT was
101 million
in fiscal 2003, which included
80 million in
severance charges taken to realign the Groups workforce
with market conditions. Group profit a year earlier was
195 million.
Sales were 4.990
billion compared to
5.619 billion
in fiscal 2002, and orders were
4.775 billion
compared to
5.601 billion
a year earlier. Excluding the effects of currency translation,
sales were down 5% and orders were down 9% year-over-year.

Power

Power Generation (PG)

|                    |  |        |     |                 |  |      |       |   |  |  |        |  
|------------------- |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ------ | -
|                    |  |        |     |                
|                    |  |        |     | Year ended     
|                    |  |        |     | September 30,  
|                    |  |        |     |                
|                    |  | Change |     | 2003            |  | 2002
|                    |  |        |     |                 |  |     
|                    |  |        |     |                
|                    |  |        |     | ( in millions)
|Group profit        |  |        | (26 | )%              |  |      | 1,171 |   |  |  | 1,582  |  
|Group profit margin |  |        |     |                 |  |      | 16.8  | % |  |  | 16.7   | %
|Total sales         |  |        | (26 | )%              |  |      | 6,967 |   |  |  | 9,446  |  
|New orders          |  |        | (31 | )%              |  |      | 7,302 |   |  |  | 10,586 |  

In fiscal 2003, PG led all Siemens Groups with
1.171 billion
in Group profit and a Group profit margin of 16.8%. In fiscal
2003, PG increased the percentage of its revenues and profits
coming from services, acquired the industrial turbine businesses
of Alstom to complement its existing large turbine business, and
further diversified its business base with significant orders in
Asia, Europe and the Middle East. The negative demand trend in
the United States market continues to affect comparison of
PGs sales and orders with prior periods, resulting in 26%

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lower sales for PG overall, or
6.967 billion in
fiscal 2003 compared to
9.446 billion
in fiscal 2002, and orders of
7.302 billion,
down from
10.586 billion.
Currency translation effects accounted for seven and four
percentage points of the decline in sales and orders,
respectively.


The reduction in sales was the primary reason for
PGs lower Group profit year-over-year. However, PG
maintained its Group profit margin at the same level as a year
earlier, including net gains of
359 million
related to cancellation of orders, partly offset by
92 million
in allowances on inventories associated with the cancellations.
Charges for severance were lower compared to the prior year.

The acquisition of Alstoms industrial
turbine business added
1.2 billion
to the Groups order backlog, which totaled
14.3 billion
at the end of fiscal 2003. These additions were offset in large
part due to the negative currency effects during the year. For
comparison, PGs backlog at the end of the prior year was
14.7 billion.
Both totals exclude reservations.

Power Transmission and Distribution
(PTD)

|                    |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------- |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                    |  |        |     |                
|                    |  |        |     | Year ended     
|                    |  |        |     | September 30,  
|                    |  |        |     |                
|                    |  | Change |     | 2003            |  | 2002
|                    |  |        |     |                 |  |     
|                    |  |        |     |                
|                    |  |        |     | ( in millions)
|Group profit        |  |        | 90  | %               |  |      | 207   |   |  |  | 109   |  
|Group profit margin |  |        |     |                 |  |      | 6.1   | % |  |  | 2.6   | %
|Total sales         |  |        | (19 | )%              |  |      | 3,399 |   |  |  | 4,199 |  
|New orders          |  |        | (19 | )%              |  |      | 3,586 |   |  |  | 4,429 |  

In fiscal 2003, PTD delivered
207 million
in Group profit generated particularly at its High Voltage and
Medium Voltage divisions. Group profit of
109 million
in the prior year included a
54 million
loss on the sale of PTDs Metering division. Fiscal 2002
also included charges of
34 million
primarily for a severance program. Sales of
3.399 billion
and orders of
3.586 billion
both decreased 19%, impacted by the divestment of Metering and
currency translation effects. Excluding the effects of currency
translation and portfolio activities, both sales and orders were
2% and 3% lower, respectively, compared to the prior fiscal year.

Transportation

Transportation Systems (TS)

|                    |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------- |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                    |  |        |     |                
|                    |  |        |     | Year ended     
|                    |  |        |     | September 30,  
|                    |  |        |     |                
|                    |  | Change |     | 2003            |  | 2002
|                    |  |        |     |                 |  |     
|                    |  |        |     |                
|                    |  |        |     | ( in millions)
|Group profit        |  |        | 15  | %               |  |      | 284   |   |  |  | 247   |  
|Group profit margin |  |        |     |                 |  |      | 6.0   | % |  |  | 5.7   | %
|Total sales         |  |        | 8   | %               |  |      | 4,697 |   |  |  | 4,367 |  
|New orders          |  |        | (11 | )%              |  |      | 4,674 |   |  |  | 5,247 |  

In fiscal 2003, TS increased its Group profit
15%, to
284 million,
despite having to take higher warranty provisions, particularly
in the fourth quarter. The Group-wide productivity program also
continued to yield results. Sales for the year rose to
4.697 billion,
as TS converted large orders from prior years into current
business. Orders for the year of
4.674 billion
included large new rolling stock contracts in China, England,
Norway and Switzerland, as well as major new maintenance
contracts in the U.K. The Groups order backlog remained at
11.2 billion,
the same level as at the end of fiscal 2002.

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Siemens VDO Automotive (SV)

|                    |  |        |    |                 |  |      |       |   |  |  |       |  
|------------------- |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                    |  |        |    |                
|                    |  |        |    | Year ended     
|                    |  |        |    | September 30,  
|                    |  |        |    |                
|                    |  | Change |    | 2003            |  | 2002
|                    |  |        |    |                 |  |     
|                    |  |        |    |                
|                    |  |        |    | ( in millions)
|Group profit        |  |        |    |                 |  |      | 418   |   |  |  | 65    |  
|Group profit margin |  |        |    |                 |  |      | 5.0   | % |  |  | 0.8   | %
|Total sales         |  |        | (2 | )%              |  |      | 8,375 |   |  |  | 8,515 |  
|New orders          |  |        | (2 | )%              |  |      | 8,375 |   |  |  | 8,515 |  

In fiscal 2003, SV increased Group profit to
418 million
for the year compared to
65 million
a year earlier, which included a
56 million
gain from the sale of the Hydraulik-Ring business, partly offset
by write-downs of certain intangible assets. The Groups
innovative diesel injection and onboard infotainment systems
were major factors in the earnings improvement in fiscal 2003.
SVs profitability improvement program also contributed to
earnings growth, as the Group cut material costs, streamlined
its R&D and production processes, and tightened
administrative and IT spending. As a result, SV increased its
Group profit margin from 0.8% in fiscal 2002 to 5.0% in fiscal
2003, though it still fell short of earning its cost of capital.
Earnings improved primarily at the Groups Powertrain,
Chassis & Carbody, and Interior & Infotainment divisions
after multi-year investments in innovative technologies.

In fiscal 2003, sales and orders of
8.375 billion
were down 2% year-over-year, partly due to SVs
third-quarter transfer of its automotive cockpit module
business, with annual revenues of approximately
800 million,
to an existing joint venture with Faurecia S.A. Excluding this
transaction and currency translation effects, both sales and
orders at SV rose 8% for the year.

Medical

Medical Solutions (Med)

|                    |  |        |    |                 |  |      |       |   |  |  |       |  
|------------------- |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                    |  |        |    |                
|                    |  |        |    | Year ended     
|                    |  |        |    | September 30,  
|                    |  |        |    |                
|                    |  | Change |    | 2003            |  | 2002
|                    |  |        |    |                 |  |     
|                    |  |        |    |                
|                    |  |        |    | ( in millions)
|Group profit        |  |        | 10 | %               |  |      | 1,118 |   |  |  | 1,018 |  
|Group profit margin |  |        |    |                 |  |      | 15.1  | % |  |  | 13.4  | %
|Total sales         |  |        | (3 | )%              |  |      | 7,422 |   |  |  | 7,623 |  
|New orders          |  |        | (7 | )%              |  |      | 7,835 |   |  |  | 8,425 |  

Med increased its Group profit 10%, to
1.118 billion,
and its Group profit margin climbed above 15% in fiscal 2003.
Innovative new products, particularly for diagnostic imaging
applications, again led the way. Group profit in fiscal 2003
benefited also from a
63 million
gain related to the contribution of a portion of Meds
electromedical systems business to a new joint venture,
Dräger Medical, in return for a 35% equity stake. The
divestment of the remaining portion of the electromedical
systems business, announced in the fourth quarter, did not close
until after the close of the fiscal year. Meds sales for
fiscal 2003 were
7.422 billion
compared to
7.623 billion in
fiscal 2002, and orders were
7.835 billion
compared to
8.425 billion a
year earlier. Excluding currency translation effects, sales rose
7% and orders increased 3% year-over-year, in part due to
continued growth in the highly competitive United States market.

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Lighting

Osram

|                    |  |        |    |                 |  |      |       |   |  |  |       |  
|------------------- |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                    |  |        |    |                
|                    |  |        |    | Year ended     
|                    |  |        |    | September 30,  
|                    |  |        |    |                
|                    |  | Change |    | 2003            |  | 2002
|                    |  |        |    |                 |  |     
|                    |  |        |    |                
|                    |  |        |    | ( in millions)
|Group profit        |  |        | 12 | %               |  |      | 410   |   |  |  | 365   |  
|Group profit margin |  |        |    |                 |  |      | 9.8   | % |  |  | 8.4   | %
|Total sales         |  |        | (4 | )%              |  |      | 4,172 |   |  |  | 4,363 |  
|New orders          |  |        | (4 | )%              |  |      | 4,172 |   |  |  | 4,363 |  

In fiscal 2003, Osram generated
410 million
in Group profit, a 12% increase over
365 million
in the prior year, and improved its Group profit margin still
further, to 9.8%. The Opto Semiconductors division improved
sales and earnings year-over-year and stringent cost containment
Group-wide helped offset intense pricing pressure. Sales and
orders for fiscal 2003 were
4.172 billion
compared to
4.363 billion
a year earlier, as the General Lighting division strengthened
its market position in the United States and the Group expanded
its business in the Asia-Pacific region and eastern Europe.
Excluding strong currency translation effects, sales and orders
increased 6% year-over-year.

Other Operations and Reconciliation to
Financial Statements

Other Operations and Reconciliation to financial
statements include various categories of items which are not
allocated to the Groups, because the Managing Board has
determined that such items are not indicative of Group
performance. These include results from centrally managed
projects. Reconciliation to financial statements includes
various items excluded by definition from Group profit.

Other Operations

Other Operations includes certain centrally held
equity investments such as BSH Bosch und Siemens Hausgeräte
GmbH (for household appliances) and Fujitsu Siemens Computers
and other operating activities not associated with a Group. In
fiscal 2003, higher contributions from joint ventures increased
Group profit from Other Operations to
212 million
from
99 million
in the prior year.

Reconciliation to Financial
Statements

Reconciliation to financial statementsconsists of Corporate items,
pensions and eliminations, Other interest expense, as
well as Gains on sales and dispositions of significant
business interests.

Corporate items, pensions and eliminations:
Corporate itemsincludes corporate
charges such as personnel costs for corporate headquarters, the
results of corporate-related derivative activities as well as
corporate projects and non-operating investments including the
Companys share of earnings (losses) from the equity
investment in Infineon. Pensionsinclude the
Companys pension related income (expenses) not
allocated to the Groups and consists of all pension related
costs, other than amounts related to the service cost of foreign
pension plans. Eliminationsrepresent the consolidation
of transactions within the Operationscomponent.
Corporate items, pensions and eliminationswas a negative
1.576 billion
in fiscal 2003, compared to a negative
1.282 billion
in the same period a year earlier. Corporate itemswas a
negative
747 million,
down from a negative
947 million
in the prior year, the difference due primarily to a lower loss
in fiscal 2003 related to Siemens equity interest in
Infineon and the positive resolution of an arbitration
proceeding as well as reduced corporate costs in fiscal 2003.
Siemens equity share of Infineons loss was
170 million
in fiscal 2003, compared to
338 million a
year earlier. Pensionswas
828 million
in fiscal 2003 compared to
250 million
a year earlier, with the change due to lower return assumptions
on lower net asset values in our pension trusts, and increased
amortization expense related to the underfunding of our pension
trusts.

Other interest expensefor fiscal 2003 was
88 million,
compared to 96
million in fiscal 2002, reflecting lower interest rates in
fiscal 2003.

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##### Table of Contents



Gains on sales and dispositions of significant
business interestsin fiscal 2002
include tax-free gains of
936 million
resulting from the sale of 23.1 million Infineon shares
during the first quarter and an additional 40 million
shares in the second quarter. Both transactions took place on
the open market.

Financing and Real Estate

Siemens Financial Services
(SFS)

|                           |  |        |    |                 |  |      |       |  |  |  |       | 
|-------------------------- |  | ------ | -- | --------------- |  | ---- | ----- |  |  |  | ----- | 
|                           |  |        |    |                
|                           |  |        |    | Year ended     
|                           |  |        |    | September 30,  
|                           |  |        |    |                
|                           |  | Change |    | 2003            |  | 2002
|                           |  |        |    |                 |  |     
|                           |  |        |    |                
|                           |  |        |    | ( in millions)
|Income before income taxes |  |        | 25 | %               |  |      | 269   |  |  |  | 216   | 
|Total assets               |  |        | (3 | )%              |  |      | 8,445 |  |  |  | 8,681 | 

In fiscal 2003, income before income taxes rose
25% at SFS, to
269 million
compared to
216 million
a year ago. The Equity division again contributed to higher
earnings for the Group, in particular due to equity earnings
from an investment in an Indonesian power station. Income before
income taxes also benefited from lower provisions and write-offs
at the Equipment and Sales Financing division.

Siemens Real Estate (SRE)

|                           |  |        |     |                 |  |      |       |  |  |  |       | 
|-------------------------- |  | ------ | --- | --------------- |  | ---- | ----- |  |  |  | ----- | 
|                           |  |        |     |                
|                           |  |        |     | Year ended     
|                           |  |        |     | September 30,  
|                           |  |        |     |                
|                           |  | Change |     | 2003            |  | 2002
|                           |  |        |     |                 |  |     
|                           |  |        |     |                
|                           |  |        |     | ( in millions)
|Income before income taxes |  |        | (10 | )%              |  |      | 206   |  |  |  | 229   | 
|Total sales                |  |        | (1  | )%              |  |      | 1,592 |  |  |  | 1,612 | 

In fiscal 2003, SRE earned
206 million
before income taxes compared to
229 million
a year earlier, as lower interest costs were more than offset by
the effects of lower occupancy rates. Sales edged down 1% to
1.592 billion
compared to
1.612 billion
in fiscal 2002.

Eliminations, reclassifications and Corporate Treasury

This component of Siemens worldwide includes
results of intra-Siemens activity by our Corporate Treasury,
which provides corporate finance and treasury management
services to our Operations component and to our Financing and
Real Estate component. It also includes eliminations of activity
conducted between those two components, and reclassification of
financial items.

Income before income taxes from Eliminations,
reclassifications and Corporate Treasury in fiscal 2003 was
266 million,
up from a loss of
284 million in
the prior year. The improvement in fiscal 2003 resulted from
positive effects from Corporate Treasury, due primarily to lower
short-term interest rates, a
35 million
gain from the buyback of a nominal
1.440 billion of
a bond exchangeable into shares of Infineon and net gains from
financial instrument transactions not qualifying for hedge
accounting. Reclassifications in fiscal 2002 include gains of
936 million
resulting from the Infineon share sales, reclassified from gains
on sales and disposition of significant business interests to
other operating income for Siemens worldwide.

From December 2001 until the second quarter of
fiscal 2004, Infineon was accounted for under the equity method.
The results of Infineon for the first two months of fiscal 2002,
a loss of
115 million,
are included in Eliminations, reclassifications and Corporate
Treasury.

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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWFISCAL 2004 COMPARED TO FISCAL 2003

|                                                 |  |                 |        |      |  |  |        | 
|------------------------------------------------ |  | --------------- | ------ | ---- |  |  | ------ | 
|                                                 |  |                
|                                                 |  | Year ended     
|                                                 |  | September 30,  
|                                                 |  |                
|                                                 |  | 2004            |        | 2003
|                                                 |  |                 |        |     
|                                                 |  |                
|                                                 |  | ( in millions)
|Cash and cash equivalents at end of period       |  |                 | 12,190 |      |  |  | 12,149 | 
|Cash and cash equivalents at beginning of period |  |                 | 12,149 |      |  |  | 11,196 | 
|                                                 |  |                 |        |      |  |  |        | 
|Net increase in cash and cash equivalents        |  |                 | 41     |      |  |  | 953    | 
|                                                 |  |                 |        |      |  |  |        | 

|                                                          |                      |                          |  |        |   |                   |  |        |   |      |  |       |   |  |  |       |   |  |      |        |   |  |      |        |  
|--------------------------------------------------------- | -------------------- | ------------------------ |  | ------ | - | ----------------- |  | ------ | - | ---- |  | ----- | - |  |  | ----- | - |  | ---- | ------ | - |  | ---- | ------ | -
|                                                          |                      |                          |  |        |   |                  
|                                                          |                      | Operations               |  | Other* |   | Siemens worldwide
|                                                          |                      |                          |  |        |   |                  
|                                                          |                      |                         
|                                                          |                      | Year ended September 30,
|                                                          |                      |                         
|                                                          |                      | 2004                     |  | 2003   |   | 2004              |  | 2003   |   | 2004 |  | 2003 
|                                                          |                      |                          |  |        |   |                   |  |        |   |      |  |      
|                                                          |                      |                         
|                                                          |                      | ( in millions)         
|Net cash provided by/(used in):                           |                      |                          |  |        |   |                   |  |        |   |      |  |       |   |  |  |       |   |  |      |        |   |  |      |       
|                                                          | Operating activities |                          |  | 4,008  |   |                   |  | 4,123  |   |      |  | 1,072 |   |  |  | 1,589 |   |  |      | 5,080  |   |  |      | 5,712  |  
|                                                          | Investing activities |                          |  | (1,523 | ) |                   |  | (3,655 | ) |      |  | (295  | ) |  |  | (284  | ) |  |      | (1,818 | ) |  |      | (3,939 | )
|                                                          | Financing activities |                          |  |        |   |                   |  |        |   |      |  |       |   |  |  |       |   |  |      | (3,108 | ) |  |      | (487   | )
|Effect of exchange rates on cash and cash
    equivalents |                      |                          |  |        |   |                   |  |        |   |      |  |       |   |  |  |       |   |  | (113 | )      |   |  | (333 | )     
|                                                          |                      |                          |  |        |   |                   |  |        |   |      |  |       |   |  |  |       |   |  |      |        |   |  |      |       
|Net increase in cash and cash equivalents                 |                      |                          |  |        |   |                   |  |        |   |      |  |       |   |  |  |       |   |  | 41   |        |   |  | 953  |       
|                                                          |                      |                          |  |        |   |                   |  |        |   |      |  |       |   |  |  |       |   |  |      |        |   |  |      |       






|  |                                       
|- | --------------------------------------
|* | incl. SFS, SRE and Corporate Treasury.

In fiscal 2004, Siemens again generated more than
5.0 billion
of net cash from operating activities, maintaining a high level
of liquidity and flexibility for ongoing operating, investing
and financing activities.

Net cash provided by operating activities in
fiscal 2004 was
5.080 billion
compared to
5.712 billion
in fiscal 2003. Net working capital within Operations used cash
of
198 million
in fiscal 2004 compared to
482 million
a year earlier, primarily due to business growth, as well as a
shift in customer payment patterns in project-oriented markets
such as transportation and energy. For example, ICM had
double-digit sales and order growth in fiscal 2004, which is
reflected in turn in expanded inventories but also in
significantly higher accounts payable compared to fiscal 2003.
In the current year, higher inventories at TS were due mainly to
the use of advance project payments not being replenished with
current payments from orders. Lower sales resulted in accounts
receivable decreases at ICN and PG in the prior year. In fiscal
2003 at PG, a decrease in other current liabilities was due to
lower advance payments on large orders. Both years included cash
used to reduce the underfunding of Siemens pension plans,
including supplemental contributions of
1.255 billion
and
1.192 billion
in fiscal 2004 and 2003, respectively. In fiscal 2003, when
exchange rate fluctuations included a major change in the euro
relative to the U.S. dollar, Corporate Treasury activities
undertaken to manage Siemens exchange rate exposure
provided more than
1 billion
to net cash from operating activities, primarily related to
intercompany financing. In fiscal 2004, effects from exchange
rate fluctuations for Siemens were far more moderate.

Net cash used in investing activities in fiscal
2004 was
1.818 billion
compared to
3.939 billion
in fiscal 2003. The change year-over-year is primarily due to
1.794 billion
in proceeds from the sale of Infineon shares in fiscal 2004.
Cash used for acquisitions and purchases of investments totaled
1.851 billion,
near the level of
1.791 billion
a year earlier but weighted toward acquisitions of businesses
within Operations in fiscal 2004. For example, the current year
included
822 million
for the acquisition of USFilter, representing a strategic entry
into the U.S. water systems and service market by I&S. Other
acquisitions included BBC Technology in the U.K. (SBS), Trench
Electric Holding B.V. (PTD) and a U.S. automotive
electronics business (SV). Fiscal 2003 included PGs
acquisition of Alstoms industrial turbine businesses for
929 million,
along with higher purchases

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##### Table of Contents



of investments and marketable securities. The
higher level of cash used in investing activities in the
Financing and Real Estate component reflects asset growth in the
financing business at SFS in fiscal 2004.


Net cash used in financing activities in fiscal
2004 was
3.108 billion
compared to
487 million
in fiscal 2003. The primary difference between the periods was
2.5 billion
in proceeds from the issuance of notes convertible into Siemens
shares in fiscal 2003. Both periods included repurchases of
notes exchangeable into Infineon shares, contributing to
repayments of debt totaling
1.564 billion
in fiscal 2004 and
1.742 billion
in fiscal 2003. Dividend payments of
978 million
in fiscal 2004 were higher than in fiscal 2003.

CASH FLOWFISCAL 2003 COMPARED TO FISCAL 2002

|                                                 |  |                 |        |      |  |  |        | 
|------------------------------------------------ |  | --------------- | ------ | ---- |  |  | ------ | 
|                                                 |  |                
|                                                 |  | Year ended     
|                                                 |  | September 30,  
|                                                 |  |                
|                                                 |  | 2003            |        | 2002
|                                                 |  |                 |        |     
|                                                 |  |                
|                                                 |  | ( in millions)
|Cash and cash equivalents at end of period       |  |                 | 12,149 |      |  |  | 11,196 | 
|Cash and cash equivalents at beginning of period |  |                 | 11,196 |      |  |  | 7,802  | 
|                                                 |  |                 |        |      |  |  |        | 
|Net increase in cash and cash equivalents        |  |                 | 953    |      |  |  | 3,394  | 
|                                                 |  |                 |        |      |  |  |        | 

|                                                                                                          |                      |                          |  |        |   |                   |  |       |   |      |  |       |   |  |  |       |   |  |      |        |   |  |       |       |  
|--------------------------------------------------------------------------------------------------------- | -------------------- | ------------------------ |  | ------ | - | ----------------- |  | ----- | - | ---- |  | ----- | - |  |  | ----- | - |  | ---- | ------ | - |  | ----- | ----- | -
|                                                                                                          |                      |                          |  |        |   |                  
|                                                                                                          |                      | Operations               |  | Other* |   | Siemens worldwide
|                                                                                                          |                      |                          |  |        |   |                  
|                                                                                                          |                      |                         
|                                                                                                          |                      | Year ended September 30,
|                                                                                                          |                      |                         
|                                                                                                          |                      | 2003                     |  | 2002   |   | 2003              |  | 2002  |   | 2003 |  | 2002 
|                                                                                                          |                      |                          |  |        |   |                   |  |       |   |      |  |      
|                                                                                                          |                      |                         
|                                                                                                          |                      | ( in millions)         
|Net cash provided by/(used in):                                                                           |                      |                          |  |        |   |                   |  |       |   |      |  |       |   |  |  |       |   |  |      |        |   |  |       |      
|                                                                                                          | Operating activities |                          |  | 4,123  |   |                   |  | 4,277 |   |      |  | 1,589 |   |  |  | 1,287 |   |  |      | 5,712  |   |  |       | 5,564 |  
|                                                                                                          | Investing activities |                          |  | (3,655 | ) |                   |  | (250  | ) |      |  | (284  | ) |  |  | (560  | ) |  |      | (3,939 | ) |  |       | (810  | )
|                                                                                                          | Financing activities |                          |  |        |   |                   |  |       |   |      |  |       |   |  |  |       |   |  |      | (487   | ) |  |       | (859  | )
|Effects of exchange rates and deconsolidation of
    Infineon in fiscal 2002 on cash and cash equivalents |                      |                          |  |        |   |                   |  |       |   |      |  |       |   |  |  |       |   |  | (333 | )      |   |  | (501  | )    
|                                                                                                          |                      |                          |  |        |   |                   |  |       |   |      |  |       |   |  |  |       |   |  |      |        |   |  |       |      
|Net increase in cash and cash equivalents                                                                 |                      |                          |  |        |   |                   |  |       |   |      |  |       |   |  |  |       |   |  | 953  |        |   |  | 3,394 |      
|                                                                                                          |                      |                          |  |        |   |                   |  |       |   |      |  |       |   |  |  |       |   |  |      |        |   |  |       |      






|  |                                       
|- | --------------------------------------
|* | incl. SFS, SRE and Corporate Treasury.

Net cash provided by the operating activities of
the Operations component for fiscal 2003 was
4.123 billion
compared to
4.277 billion
in the prior year. The current year includes increased earnings
in fiscal 2003 in comparison to the prior year after adjusting
for non-cash gains in fiscal 2002. Both periods included
supplemental cash contributions to Siemens pension trusts,
totaling
1.192 billion
and
1.782 billion
in fiscal 2003 and 2002, respectively. Changes in net working
capital (current assets less current liabilities) within
Operations used cash of
482 million,
compared to cash provided of
1.019 billion
in the same period a year earlier. While the prior fiscal year
included positive cash flows from significant reductions in
inventory at ICN, ICM and PG, further decreases at these Groups
in fiscal 2003 were offset by an increase in inventories at TS.
Other current liabilities decreased, in particular at PG, as a
result of lower advance payments due to order cancellations in
the U.S and as the Group used advance payments for project
inventories. Severance programs negatively impacted cash flow
during fiscal 2003 and we expect payments from these programs to
continue in fiscal 2004, but at a lesser amount. Among the
Groups, ICN, ICM, A&D and PTD achieved improvements in net
working capital.

Net cash used in investing activities within
Operations was
3.655 billion
in fiscal 2003. Expenditures for intangible assets and property,
plant and equipment were
2.468 billion,
681 million
lower than in the previous fiscal year. Cash outflows for
acquisitions in fiscal 2003 include
929 million
for the purchase of the industrial turbine businesses of Alstom.
Purchases of investments and marketable securities include an
aggregate
599 million
for the acquisition of various debt and fund securities. Total
outlays within Operations for investments and marketable
securities were
841 million.
Net cash used in investing activities within Operations

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in fiscal 2002 was
250 million.
Cash used for acquisitions in fiscal 2002 was
3.787 billion
which included a
3.657 billion
payment to complete the Atecs-Mannesmann acquisition initiated
in fiscal 2001. Proceeds from sales and dispositions of
businesses in fiscal 2002 totaled
6.097 billion,
including sales of businesses related to Atecs including Rexroth
AG and Mannesmann Sachs AG, as well as the sale of a portfolio
of businesses to KKR. Other dispositions included the sale of
Unisphere Networks, Inc. and the Hydraulik-Ring business of SV.
Fiscal 2002 also included proceeds of
1.522 billion
related to sales of shares of Infineon.


Net cash provided by operating activities within
the Financing and Real Estate component in fiscal 2003 was
469 million
compared to
558 million
in fiscal 2002. Fiscal 2003 reflects improved earnings at SFS
offset by a decrease in other liabilities.

Net cash used in investing activities within the
Financing and Real Estate component was
515 million
compared to net cash used of
100 million
a year earlier. Fiscal 2003 included a net increase in financing
receivables, compared to a substantial reduction in the prior
year. Fiscal 2002 included a negative
607 million
net effect from the sale of receivables by SFS, as collections
on previously sold accounts receivable were greater than new
sales. Sales of accounts receivable using the SieFunds asset
securitization program have been discontinued for the time being.

Net cash provided by operating activities of
Siemens worldwide totaled
5.712 billion
in fiscal 2003 compared to
5.564 billion
for fiscal 2002. Strong worldwide earnings were a primary factor
in the high level achieved in the current year. As noted above,
both periods included supplemental cash contributions to Siemens
pension trusts. Changes in net working capital for Siemens
worldwide provided cash of
71 million
in fiscal 2003 compared to
1.323 billion
in the prior year. Within this development, fiscal 2002 included
substantial decreases in inventory, while fiscal 2003 decreases
at several Groups were offset by an increase in inventory at TS.
In addition, net cash includes a positive net effect from
Corporate Treasury of over
1 billion
associated with financial instruments which are utilized to help
manage the Companys exposure to fluctuations in foreign
exchange rates, particularly with regard to intra-company
financing.

Net cash used in investing activities of Siemens
worldwide was
3.939 billion in
fiscal 2003 compared to
810 million
in fiscal 2002, a period which included approximately
2.8 billion
in net proceeds from portfolio activities described above. The
current period included cash outflows of
929 million
for the acquisition of the industrial turbine businesses of
Alstom and
957 million
for purchases of investments and marketable securities.

Net cash used by financing activities of Siemens
worldwide was
487 million in
fiscal 2003 compared to net cash used of
859 million
in fiscal 2002. The current year total includes proceeds of
2.5 billion
from the issuance of notes, convertible into shares of Siemens
AG. In fiscal 2003, Siemens made repayments of debt totaling
1.742 billion,
which includes the repurchase of nominal
1.440 billion
of a bond exchangeable into Infineon shares. In fiscal 2003,
896 million
of dividends were paid to shareholders. Fiscal 2002 included
847 million
for repayment of debt and
888 million
in dividend payments.

For Siemens worldwide, total net cash provided by
operating activities of
5.712 billion,
less net cash used in investing and financing activities of
4.426 billion,
less currency translation effects of
333 million,
resulted in a
953 million
increase in cash and cash equivalents, to
12.149 billion
at September 30, 2003.

CAPITAL RESOURCES AND CAPITAL REQUIREMENTS

Siemens is committed to a strong financial
profile, characterized by a conservative capital structure that
gives us excellent financial flexibility.

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Ratings

Our current corporate credit ratings from
Moodys Investors Service and Standard & Poors
are noted below:

|                |  |           |     |          |  |  |      | 
|--------------- |  | --------- | --- | -------- |  |  | ---- | 
|                |  | Moodys   |     | Standard
|                |  | Investors |     | &       
|                |  | Service   |     | Poors  
|                |  |           |     |         
|Long-term debt  |  |           | Aa3 |          |  |  | AA-  | 
|Short-term debt |  |           | P-1 |          |  |  | A-1+ | 

Moodys Investor Service rates our long-term
corporate credit Aa3 (stable outlook). The rating classification
of Aa is the second highest rating within the agencys debt
ratings category. The numerical modifier 3 indicates that our
long-term debt ranks in the lower end of the Aa category. The
Moodys rating outlook is an opinion regarding the likely
direction of an issuers rating over the medium-term.
Rating outlooks fall into the following six categories:
Positive, Negative, Stable, Developing, Ratings Under Review and
No Outlook. Our outlook was changed from negative to stable in
January 2004.

Moodys Investors Services rating for
our short-term corporate credit and commercial paper is P-1, the
highest available rating in the prime rating system, which
assesses issuers ability to honor senior financial
obligations and contracts generally with a maturity not
exceeding one year.

Standard & Poors rates our long-term
corporate credit AA- (stable outlook). Within Standard &
Poors long-term issue and issuer credit ratings, an
obligation rated AA has the second highest rating category
assigned. The modifier - indicates that our
long-term debt ranks in the lower end of the AA category. The
Standard & Poors rating outlook is an opinion
regarding the likely direction of an issuers rating over
the intermediate to longer term. Rating outlooks fall into the
following four categories: Positive, Negative, Stable and
Developing.

Our short-term debt and commercial paper is rated
A-1+ within Standard & Poors short-term issue credit
ratings, giving Siemens the highest-ranking short-term rating.

Siemens has no other agreements with nationally
recognized statistical rating organizations to provide long-term
and short-term credit ratings.

The rating agencies have focused more
specifically on an assessment of liquidity risk. Moodys
most recent liquidity risk assessment for Siemens as of
August 11, 2004 classified the liquidity profile of the
Company as very healthy.

Please be advised that security ratings are not a
recommendation to buy, sell or hold securities. Credit ratings
may be subject to revision or withdrawal by the rating agencies
at any time. You should evaluate each rating independently of
any other rating.

Capital Resources

Capital resources at September 30, 2004
included
12.190 billion
in cash and cash equivalents held in various currencies.
Corporate Treasury generally manages cash and cash equivalents
for the entire Company, except in countries where local capital
controls require otherwise. At September 30, 2004,
Corporate Treasury managed approximately 92% of Siemens
worldwide cash and cash equivalents. Corporate Treasury
carefully manages investments of cash and cash equivalents
subject to strict credit requirements and counterparty limits.
Another
1.386 billion
is held in marketable securities, including shares in Infineon
and Epcos AG (Epcos).

Our shareholders equity at
September 30, 2004 was
26.855 billion,
an increase of
3.140 billion
since September 30, 2003. See also the discussion of
pension plan funding below, as well as the Consolidated
Statements of Changes in Shareholders Equity. We have
authorization from our shareholders to repurchase up to 10% of
our outstanding shares at any time 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

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Board is 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.


Our principal source of Company financing is cash
flow from operating and investing activities, totaling
3.262 billion
in fiscal 2004 after supplemental cash contributions of
1.255 billion
to Siemens pension trusts and
1.794 billion
proceeds from the sale of Infineon shares. We further
strengthened our financial flexibility through a set of backstop
facilities, commercial paper programs and a medium-term note
program described below:

Our backstop facilities at September 30,
2004 consisted of
3.2 billion
in unused committed lines of credit which are available in the
unlikely event that we are unable to access commercial paper or
medium-term notes markets. The backstop facilities at our
disposal include a U.S.$3.0 billion multi-currency
revolving loan facility expiring May 2007 provided by a
syndicate of international banks and a revolving loan facility
with a domestic bank for an aggregate amount of
750 million
expiring in June 2008. During the third quarter of fiscal 2004,
we terminated our
400 million
backstop facility, expiring in July 2006, with a domestic bank.
None of our backstop facilities contain a material adverse
change clause of the type typically included in low-risk
backstop facility agreements.

We also have two commercial paper programs, under
which we typically issue instruments with a maturity of less
than 90 days, for an aggregate of U.S.$3.0 billion in the
U.S. domestic market and an aggregate
3.0 billion
in the euro market. The amount outstanding under these
commercial paper programs was
242 million at
September 30, 2004.

In addition, the Company has a medium-term note
program, under which we may issue up to
5.0 billion
in medium-term notes. The amount outstanding under this program
was
947 million
at September 30, 2004.

Neither our commercial paper and medium-term note
programs nor our backstop facilities have specific financial
covenants such as rating triggers or interest coverage, leverage
or capitalization ratios that could trigger remedies, such as
acceleration of repayment or additional collateral support,
except in the case of nonpayment of amounts when due.

In addition to the above-described sources of
liquidity, we constantly monitor funding options available in
the capital markets, as well as trends in the availability and
cost of such funding, with a view to maintaining excellent
financial flexibility and limiting undue repayment risks.

Capital Requirements

Capital requirements include normal debt service
and regular capital spending and cash requirements. Other
commercial commitments, including primarily guarantees, are
contingent upon the occurrence of specific events. Approximately
1.4 billion
of debt, including
242 million
of commercial paper, is scheduled to become due in fiscal 2005.
We plan capital expenditures for property, plant and equipment
for the coming fiscal year to approximate current depreciation
expense of approximately
2.2 billion
for fiscal 2004.

In June 2003, the Company issued
2.5 billion
of convertible notes through its wholly owned Dutch subsidiary,
Siemens Finance B.V., which are fully and unconditionally
guaranteed by Siemens AG. The convertible notes have a 1.375%
coupon and are convertible into approximately 44.5 million
shares of Siemens AG at a conversion price of
56.1681 per
share, which is subject to change under certain circumstances.
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 on at least 20 trading days in a period of 30
consecutive trading days ending on the last trading day of any
calendar quarter. The Company may, at any time from
June 18, 2007, redeem the notes outstanding at their
principal amount together with interest accrued thereon, if
Siemens share price exceeds 130% of the conversion price
on any 15 of 30 consecutive trading days before notice of early
redemption. Unless previously redeemed, converted or repurchased
and cancelled, the notes mature on June 4, 2010. The
conversion condition described above was met at the end of the
first quarter of fiscal 2004. Accordingly, the convertible
shares have been included in the diluted earnings per share.

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Contractual Obligations

In the ordinary course of business, Siemens
primary contractual obligations regarding cash involve debt
service, purchase obligations, as well as operating lease
commitments.

The following table summarizes contractual
obligations for future cash outflows as of September 30,
2004:

|                                   |  |                 |        |                        |  |           |       |           |  |         |       |  |  |  |       |  |  |  |       | 
|---------------------------------- |  | --------------- | ------ | ---------------------- |  | --------- | ----- | --------- |  | ------- | ----- |  |  |  | ----- |  |  |  | ----- | 
|                                   |  |                 |        |                       
|                                   |  |                 |        | Payments due by period
|                                   |  |                 |        |                       
|                                   |  |                 |        | Less than              |  |           |       | After    
|                                   |  | Total           |        | 1 year                 |  | 1-3 years |       | 4-5 years |  | 5 years
|                                   |  |                 |        |                        |  |           |       |           |  |        
|                                   |  |                
|                                   |  | ( in millions)
|Debt                               |  |                 | 11,219 |                        |  |           | 1,434 |           |  |         | 3,602 |  |  |  | 989   |  |  |  | 5,194 | 
|Purchase obligations               |  |                 | 8,996  |                        |  |           | 7,847 |           |  |         | 747   |  |  |  | 376   |  |  |  | 26    | 
|Operating leases                   |  |                 | 2,863  |                        |  |           | 628   |           |  |         | 893   |  |  |  | 569   |  |  |  | 773   | 
|                                   |  |                 |        |                        |  |           |       |           |  |         |       |  |  |  |       |  |  |  |       | 
|Total contractual cash obligations |  |                 | 23,078 |                        |  |           | 9,909 |           |  |         | 5,242 |  |  |  | 1,934 |  |  |  | 5,993 | 
|                                   |  |                 |        |                        |  |           |       |           |  |         |       |  |  |  |       |  |  |  |       | 

DebtAt
September 30, 2004, Siemens worldwide had
11.219 billion
of short- and long-term debt, of which
1.434 billion
will become due within the next 12 months. Included in
short-term debt is
242 million
of commercial paper, reflecting all amounts outstanding under
our commercial paper programs, therefore limiting refinancing
risk. The remainder is represented by bonds and other loans from
banks coming due within the next 12 months. At
September 30, 2004, the weighted average maturity of our
bonds and notes due after one year was 4.5 years. At
September 30, 2003, total debt was
13.178 billion.
Further information about the components of debt is given in
Notes to Consolidated Financial Statements.

Debt for Siemens worldwide at September 30,
2004 consisted of the following:

|                                 |  |                 |       |           |  |       |       |  |  |  |        | 
|-------------------------------- |  | --------------- | ----- | --------- |  | ----- | ----- |  |  |  | ------ | 
|                                 |  | Short-Term      |       | Long-Term |  | Total
|                                 |  |                 |       |           |  |      
|                                 |  |                
|                                 |  | ( in millions)
|Notes and bonds                  |  |                 | 621   |           |  |       | 8,345 |  |  |  | 8,966  | 
|Loans from banks                 |  |                 | 478   |           |  |       | 266   |  |  |  | 744    | 
|Other financial indebtedness     |  |                 | 295   |           |  |       | 971   |  |  |  | 1,266  | 
|Obligations under capital leases |  |                 | 40    |           |  |       | 203   |  |  |  | 243    | 
|                                 |  |                 |       |           |  |       |       |  |  |  |        | 
|Total debt                       |  |                 | 1,434 |           |  |       | 9,785 |  |  |  | 11,219 | 
|                                 |  |                 |       |           |  |       |       |  |  |  |        | 

Our notes and bonds contain no specific financial
covenants such as rating triggers or interest coverage, leverage
or capitalization ratios that could trigger a requirement for
early payment or additional collateral support, except in the
case of nonpayment of interest or principal.

Our Corporate Treasury has primary responsibility
for raising funds in the capital markets for the entire Company,
including the Financing and Real Estate component, except in
countries with conflicting capital market controls. In these
countries, the Siemens subsidiary companies obtain financing
primarily from local banks. Corporate Treasury lends funds via
intracompany financing to the Operations and Financing and Real
Estate components. This intracompany financing together with
intracompany liabilities between the components is shown under
intracompany liabilities in the balance sheets. Under this
approach, at September 30, 2004,
7.677 billion
of such intracompany financing was directly attributable to the
Financing and Real Estate component and the remainder to the
Operations component. At September 30, 2004, the Financing
and Real Estate component additionally held
133 million
in short-term and
497 million in
long-term debt from external sources.

In fiscal 2000, Siemens Nederland N.V., as the
owner of the underlying shares of stock of Infineon issued
2.5 billion
of 1% exchangeable notes due in 2005. In fiscal 2004, Siemens
repurchased and retired a notional amount of
465 million
of the notes, which resulted in a gain of
1.8 million.
In fiscal 2003, Siemens repurchased and retired a notional
amount of
1.440 billion
of exchangeable notes, which resulted in a gain of
35 million. As
of September 30, 2004, of the issued
2.5 billion,
notional 596
million is still outstanding.

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In 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 repurchased notional
405 million
of a 5%
2 billion
bond.

The capital structure of the Financing and Real
Estate component at September 30, 2004 and 2003 consisted
of the following:

|                     |                                    |                 |       |               |  |     |       |     |  |  |       |       |  |  |       |       | 
|-------------------- | ---------------------------------- | --------------- | ----- | ------------- |  | --- | ----- | --- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                     |                                    |                 |       |              
|                     |                                    | September 30,   |       | September 30,
|                     |                                    | 2004            |       | 2003         
|                     |                                    |                 |       |              
|                     |                                    | SFS             |       | SRE           |  | SFS |       | SRE
|                     |                                    |                 |       |               |  |     |       |    
|                     |                                    |                
|                     |                                    | ( in millions)
|Assets               |                                    |                 | 9,055 |               |  |     | 3,455 |     |  |  | 8,445 |       |  |  | 3,607 |      
|Allocated equity     |                                    |                 | 1,015 |               |  |     | 920   |     |  |  | 1,080 |       |  |  | 920   |      
|Total debt           |                                    |                 | 7,245 |               |  |     | 1,061 |     |  |  | 6,821 |       |  |  | 1,469 |      
|                     | Therein intracompany financing     |                 |       | 6,975         |  |     |       | 702 |  |  |       | 6,571 |  |  |       | 1,088 | 
|                     | Therein debt from external sources |                 |       | 270           |  |     |       | 359 |  |  |       | 250   |  |  |       | 381   | 
|Debt to equity ratio |                                    |                 | 7.14  |               |  |     | 1.15  |     |  |  | 6.32  |       |  |  | 1.60  |      

Both Moodys and Standard & Poors
view SFS as a captive finance company. These ratings agencies
generally recognize and accept higher levels of debt
attributable to captive finance subsidiaries in determining
long-term and short-term credit ratings.

The allocated equity for SFS is determined and
influenced by the respective credit ratings of the rating
agencies and by the expected size and quality of its portfolio
of leasing and factoring assets and equity investments and is
determined annually. This allocation is designed to cover the
risks of the underlying business and is in line with common
credit risk management standards in banking. The actual risk
profile of the SFS portfolio is monitored and controlled monthly
and is evaluated against the allocated equity.

Purchase
obligationsAt
September 30, 2004, the Company had
8.996 billion
in purchase obligations. Purchase obligations include agreements
to purchase goods or services that are enforceable and legally
binding and which specify at least all of the following items:
(i) fixed or minimum quantities, (ii) fixed, minimum
or variable price provisions and (iii) approximate timing
of the transaction.

Operating
leasesAt September 30,
2004, the Company had a total of
2.863 billion in
total future payment obligations under non-cancelable operating
leases.

Furthermore, we are subject to asset retirement
obligations related to certain tangible long-lived assets. Such
asset retirement obligations are primarily attributable to
environmental clean-up costs, which amounted to
513 million as
of September 30, 2004 and to costs associated with the
removal of leasehold improvements at the end of the lease term
amounting to
39 million
as of September 30, 2004. For additional information with
respect to asset retirement obligations see Notes to
Consolidated Financial Statements.

Off-Balance Sheet Arrangements

GuaranteesGuarantees
are principally represented by credit guarantees and guarantees
of third-party performance. As of September 30, 2004, the
undiscounted amount of maximum potential future payments for
guarantees was
1.236 billion.
Credit guarantees cover the financial obligation of
third-parties in cases where Siemens is the vendor and/or
contractual partner. In addition, Siemens provides credit line
guarantees with variable utilization to associated and related
companies. The total amount for credit guarantees was
341 million
as of September 30, 2004. Performance bonds and guarantees
of advanced payments guarantee the fulfillment of contractual
commitments of partners in a consortium where Siemens may be the
general or subsidiary partner. In the event of non-performance
under the contract by the consortium partner(s), Siemens will be
required to pay up to an agreed-upon maximum amount. Guarantees
of third-party performance amounted to
370 million
as of September 30, 2004. Furthermore, the Company has
provided indemnifications in connection with dispositions of
business entities, which protect the buyer from tax, legal, and
other risks related to the purchased business entity. These
other guarantees were
525 million
as of September 30, 2004. In the event that it becomes
probable that

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Siemens will be required to satisfy these
guarantees, provisions are established. Such provisions are
established in addition to the liabilities recognized for the
non-contingent component of the guarantees. Most of the
guarantees have fixed or scheduled expiration dates, and in
practice such guarantees are rarely drawn. For additional
information with respect to our guarantees, see Notes to
Consolidated Financial Statements.


Variable Interest
EntitiesThe Company holds
variable interests in various Variable Interest Entities
(VIEs), which are not significant either individually or
in the aggregate. The impact of consolidating certain of these
VIEs on the Companys financial statements was not
material. For additional information on VIEs, see
Notes to Consolidated Financial Statements.

Customer Financing

Siemens strong financial profile enables us
to selectively provide customers with financing. We also
selectively assist customers in arranging financing from various
third-party sources, including export credit agencies. This has
historically been an important competitive advantage in such
long-cycle businesses as power generation, transportation and
telecommunications. We also provide direct vendor financing and
grant guarantees to banks in support of loans to Siemens
customers and we may enter into a combination of the above
arrangements. Financing requirements are entered into on a very
selective basis; we have forgone, and will continue to forgo,
new business contracts if the financing risks are not
justifiable relative to the rewards. Due to the continued weak
level of capital expenditures at most major telecommunications
operators, however, requests for such financing have decreased.
As a result, customer financing commitments requiring the
approval of Siemens Corporate Executive Committee of the
Managing Board have decreased significantly. The total loans and
guarantees relating to such customer financing as of
September 30, 2004 amounted to
724 million,
including loans and guarantees of
488 million
for approved and utilized commitments and
236 million
for approved but not utilized commitments. As of
September 30, 2003, total loans and guarantees relating to
this customer financing amounted to
1.378 billion,
including loans and guarantees of
756 million
for approved and utilized commitments and
622 million for
approved but not utilized commitments.

Pension Plan Funding

Siemens projected benefit obligation (PBO),
which considers future compensation increases, amounted to
20.8 billion
on September 30, 2004 compared to
20.9 billion
on September 30, 2003. The fair value of plan assets as of
September 30, 2004 was
17.7 billion
compared to
15.9 billion
on September 30, 2003. The measurement dates for the
valuation of certain Siemens pension funds, particularly our
funds in the U.S. and U.K., do not coincide with the end of our
fiscal year. While the return over the last twelve months
amounted to 6.6% or
1.128 billion,
the aggregate return on plan assets between the last measurement
dates amounted to 7.0% or
1.202 billion.
On September 30, 2004, the combined funding status of
Siemens principal pension plans showed an underfunding of
3.1 billion,
substantially improved from the end of fiscal 2003 due primarily
to supplemental contributions at the beginning of fiscal 2004.
At the beginning of fiscal 2005, a further supplemental
contribution in the amount of
1.5 billion
was made to our pension funds in Germany and the U.S.

Siemens funding policy for its pension
funds is part of its overall commitment to a sound financial
management, which also includes an ongoing analysis of the
structure of its pension liabilities, particularly the duration
by class of beneficiaries. We constantly review the asset
allocation of each plan in light of the duration of the related
pension liabilities and analyze trends and events that may
affect asset values in order to initiate appropriate measures at
a very early stage.

The Company also regularly reviews the design of
its pension plans. Historically, the majority of Siemens pension
plans have included significant defined benefits. However, in
order to reduce the Companys exposure to certain risks
associated with defined benefit plans, such as longevity,
inflation, effects of compensation increases and other factors,
Siemens AG and the majority of our domestic affiliates
implemented a new pension plan in fiscal 2004, covering
essentially all active employees in Germany, BSAV
(Beitragsorientierte Siemens Altersversorgung). The benefits of
this new plan are based predominantly on contributions made by
the Company and are to be funded by the assets of a new trust.
Under the BSAV, Siemens will establish a benefit account for each

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employee reflecting the contributions by the
employer and interest earned on the balance in the account.
Conceptually, the contributions are determined as a percentage
of the target annual compensation; however the Company has the
option to review the contribution level every year. The Company
will credit interest annually on the balance in the
beneficiarys account until retirement, at the applicable
guaranteed interest rate, currently 2.75%. At the time of
retirement a one-time surplus credit will be awarded, depending
on how the invested capital has performed. The funds in the
benefit account will be paid at retirement, at the
employees election, either in installments or in the form
of a life annuity. Contrary to the defined benefit model used by
the plans funded via our existing domestic pension trust
Siemens German Pension Trust, benefit payments under the BSAV
are based predominantly on the accumulated contributions in the
employees benefit account and, to a minor extent, the
effects of mortality, inflation adjustments and interest rates.
Although this plan, from an economic perspective, is essentially
a defined contribution plan, it currently has to be accounted
for as a defined benefit plan.


Some of our major international subsidiaries,
including the U.S. and the U.K., also implemented new plans in
recent years whose benefits are based predominantly on
contributions made by the Company. We expect to continue to
review the need for the implementation of similar plan designs
outside Germany in the coming years to better control future
benefit obligations and related costs.

For more information on Siemens pension plans,
see Notes to Consolidated Financial Statements.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements requires
management estimates and assumptions that affect reported
amounts and related disclosures. All estimates and assumptions
are made to the best of managements knowledge and belief
in order to fairly present our position and the results of our
operations. The following of our accounting policies are
significantly impacted by such management judgment and estimates.

Revenue Recognition on Long-Term
Construction ContractsOur
Groups, particularly ICN, ICM, I&S, L&A, PG, PTD and TS,
conduct a significant portion of their business under long-term
construction contracts with customers. We generally account for
long-term construction projects using the
percentage-of-completion method, recognizing revenue as
performance on a contract progresses. This method places
considerable importance on accurate estimates of the extent of
progress towards completion. Depending on the methodology to
determine contract progress, the significant estimates include
total contract costs, remaining costs to completion, total
contract revenues, contract risks and other judgments. The
managements of the operating Groups continually review all
estimates involved in such long-term contracts and adjust them
as necessary. We also use the percentage-of-completion method
for projects financed directly or indirectly by Siemens. In
order to qualify for such accounting, the credit quality of the
customer must meet certain minimum parameters as evidenced by
the customers credit rating or by a credit analysis
performed by SFS, which performs such reviews in support of the
Corporate Executive Committee. At a minimum, a customers
credit rating must be single B from the rating agencies, or an
equivalent SFS-determined rating. In cases where the credit
quality does not meet such standards, we recognize revenue for
long-term contracts and financed projects based on the lower of
cash if irrevocably received, or contract completion. We believe
the credit factors that we use provide a reasonable basis for
assessing credit quality.

Accounts
ReceivableThe allowance for
doubtful accounts involves significant management judgment and
review of individual receivables based on individual customer
creditworthiness, current economic trends and analysis of
historical bad debts on a portfolio basis. For the determination
of the country-specific component of the individual allowance,
we also consider country credit ratings, which are centrally
determined based on information from external rating agencies.
Regarding the determination of the valuation allowance derived
from a portfolio-based analysis of historical bad debts, a
decline of receivables in volume results in a corresponding
reduction of such provisions. As of September 30, 2004 and
2003, Siemens recorded a total valuation allowance for accounts
receivable of
918 million
and
1.122 billion,
respectively. Siemens also selectively assists customers,
particularly in the telecommunication equipment area, through
arranging financing from various third-party sources, including
export credit agencies, in order to be awarded supply contracts.
In addition, the Company

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provides direct vendor financing and grants
guarantees to banks in support of loans to Siemens customers
when necessary and deemed appropriate. Due to the previous high
levels of capital spending and associated debt at most major
telecommunications operators, however, requests for such
financing continued to decrease.


GoodwillSFAS
142 requires that goodwill be tested for impairment at least
annually using a two-step approach at the division level. In the
first step, the fair value of the division is compared to its
carrying amount including goodwill. In order to determine the
fair value of the division, significant management judgment is
applied in order to estimate the underlying discounted future
free cash flows. In the case that the fair value of the division
is less than its carrying amount, a second step is performed
which compares the fair value of the divisions goodwill to
the carrying amount of its goodwill. The fair value of goodwill
is determined based upon the difference between the fair value
of the division and the net of the fair values of the
identifiable assets and liabilities of the division. If the fair
value of goodwill is less than the carrying amount, the
difference is recorded as an impairment. As of September 30,
2004 and 2003, Siemens had total goodwill of
6.476 billion
and 6.501
billion, respectively. For more information, see Notes to
Consolidated Financial Statements.

Pension and Postretirement Benefit
AccountingOur pension
benefit costs and credits are determined in accordance with
actuarial valuations, which rely on key assumptions including
discount rates and expected return on plan assets. We determine
the market-related value of plan assets for the majority of our
domestic pension plans based on the average of the historical
market values of plan assets over the four quarters of the
preceding fiscal year. This value is the basis for the
determination of the return on plan assets and amortization of
unrecognized losses in the fiscal year following the actuarial
valuation. For all other pension plans, asset values are based
upon the fair value of plan assets at the measurement date. Due
to the underfunded status of certain pension plans at their
respective measurement dates, an additional minimum liability is
recorded net of deferred tax assets in other comprehensive
income. Our postretirement benefit costs and credits are
determined in accordance with actuarial valuations, which rely
on key assumptions including discount rates, and increase or
decrease in health care trend rates. The discount rate
assumptions reflect the rates available on high-quality
fixed-income investments of appropriate duration at the
measurement dates of each plan. The expected return on plan
assets assumption is determined on a uniform basis, considering
long-term historical returns, asset allocation, and future
estimates of long-term investment returns. Other key assumptions
for our pension and postretirement benefit costs and credits are
based in part on current market conditions. Pension and related
postretirement benefit costs or credits could change due to
variations in these underlying key assumptions.

The assumptions used for the calculation of net
periodic pension cost in fiscal 2005 have already been
determined. A one percentage point increase (decrease) in
the discount rate assumption would result in a decrease
(increase) in net periodic pension cost of
196
(248) million.
A one percentage point change in the assumption for expected
return on plan assets would result in a decrease
(increase) of
191 million.
A one percentage point increase (decrease) in the rates of
compensation increase and pension progression would result in a
combined increase (decrease) of
357
(301) million.
If more than one of these assumptions were changed
simultaneously, the impact would not necessarily be the same as
if only one assumption was changed in isolation. For a
discussion of our current funding status and the impact of these
critical assumptions, see Notes to Consolidated Financial
Statements, Pension plans and similar commitments.

AccrualsSignificant
estimates are involved in the determination of provisions
related to contract losses and warranty costs. A significant
portion of the business of certain of our operating Groups is
performed pursuant to long-term contracts, often for large
projects, in Germany and abroad, awarded on a competitive
bidding basis. Siemens records an accrual for contract losses
when current estimates of total contract costs exceed contract
revenue. Such estimates are subject to change based on new
information as projects progress toward completion. Loss
contracts are identified by monitoring the progress of the
project and updating the estimate of total contract costs which
also requires significant judgment relating to achieving certain
performance standards, for example in the IT service business,
and estimates involving warranty costs.

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RECENT ACCOUNTING PRONOUNCEMENTS

In December 2003, the Financial Accounting
Standards Board (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 is
effective for fiscal years ending after December 15, 2003.
The Company adopted SFAS 132R for the interim period ending
December 31, 2003.

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.

In December 2003, the Medicare Prescription Drug,
Improvement and Modernization Act of 2003 (the Act) was signed
into law in the U.S. The Act introduces a prescription drug
benefit under Medicare (Medicare Part D), as well as a
federal subsidy to sponsors of retiree health care benefit plans
that provide a benefit that is at least actuarially equivalent
to Medicare Part D. In accordance with FASB Staff
Position (FSP) FAS 106-1, management elected to defer
any accounting for the effects of the Act on the plan in interim
periods preceding the fourth quarter. In May 2004, FSP
FAS 106-2 was issued being effective for interim periods
beginning after June 15, 2004. FSP FAS 106-2
supersedes FSP FAS 106-1 and provides authoritative
guidance on accounting for the federal subsidy prescribed by the
Act. Pursuant to FSP FAS 106-2 and the issuance of further
guidance from the Center of Medicare and Medicaid in July 2004,
management has concluded that Siemens U.S. health
care plans are at least actuarially equivalent to Medicare
Part D. Following the prospective application method
prescribed by FSP FAS 106-2, the Company has remeasured
Siemens U.S. postretirement obligation as of
July 1, 2004. The effect of the Act on the foreign net
periodic benefit costs as of September 30, 2004 is not
significant. For more information, see Notes to
Consolidated Financial Statements.

ACCOUNTING UNDER INTERNATIONAL FINANCIAL REPORTING STANDARDS
(IFRS)

EU REGULATION REGARDING IFRS

In compliance with the European Parliament and
Council Regulation on the application of International Financial
Reporting Standards (IFRS) adopted in July 2002, all listed
European Union companies, including banks and insurance
companies, are required to prepare their consolidated financial
statements in accordance with IFRS for fiscal years commencing
on or after January 1, 2005. However, Member States may
defer mandatory application of IFRS until 2007, for companies
that either have listed debt securities only or already use
other internationally accepted standards for purposes of a
listing outside the European Union. The latter particularly
applies to companies, such as Siemens, listed on the New York
Stock Exchange and, therefore, currently preparing its
consolidated financial statements in accordance with
U.S. GAAP. In Germany, the option to defer IFRS-adoption
was implemented in October 2004, via the
Bilanzrechtsreformgesetz (BilReG). Accordingly, Siemens will not
be required to prepare consolidated financial statements in
accordance with IFRS until fiscal year commencing on
October 1, 2007.

However, according to our current plans, Siemens
expects to prepare and publish IFRS financial statements with a
reconciliation to U.S. GAAP for fiscal 2006 which will be
provided as supplemental information serving

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as basis for full IFRS reporting beginning with
the first quarter in fiscal 2007 (i.e. the quarter ending
December 31, 2006).


CONVERGENCE OF IFRS AND U.S. GAAP

In preparation for our adoption of IFRS, we
closely track developments and activities at both standard
setting bodies, the IASB and the U.S. Financial Accounting
Standards BoardFASB, and expressly welcome the joint
initiatives that have already and will further significantly
increase the speed and extent of convergence of IFRS and
U.S. GAAP. Following a formal commitment to the common goal
of convergence in September 2002, both Boards have added a joint
short-term convergence project to their agendas which is aimed
at removing a number of individual differences in the
short-term. That is in consideration of the 2005 IFRS adoption
date in Europe, usually by selecting current practice either
under existing IFRS or U.S. GAAP. A long-term objective for
the IASB and the FASB is to work together to reduce or eliminate
remaining differences on an ongoing basis, through a series of
joint projects and through coordination of future work programs.
In addition, the Boards have agreed to work together through
their respective interpretive bodies in converging
interpretation and application issues.

Siemens strongly supports further alignments
between IFRS and U.S. GAAP to increase international
comparability and transparency in financial reporting. Thus, we
are actively taking part in the due process of the IASB and the
joint convergence project with the FASB through submission of
comments to Exposure Drafts, recommendations for urgent
accounting issues and participation in field visits. Although
progress has been and is being made in considerably reducing
differences between the two sets of standards, a large number of
differences remain at present, for example, pertaining to the
treatment of R&D costs, pension accounting, reversal of
impairment losses, hedge accounting or goodwill impairment
tests. The effects of such differences may vary depending on the
entities or industries affected.

Siemens expects the adoption of IFRS to have a
limited impact on the comparability or consistency of its
financial reporting. Based on current U.S. GAAP and IFRS
standards, we consider differences with a significant impact on
our Consolidated Financial Statements to be limited. They will
primarily relate to the following:

Research and development
costsU.S. GAAP
generally requires R&D costs to be expensed as incurred.
Separate rules apply to software development costs, which may
qualify for capitalization under certain circumstances. Under
IFRS, a distinction is to be made between research and
development. All costs identified as research costs are to be
expensed as incurred, whereas development costs are to be
capitalized and amortized if specified criteria are met.

Compound financial
instrumentsUnder
U.S. GAAP, compound financial instruments are treated as a
unit and recorded as a liability, with no separate recognition
of the equity component. IFRS requires to split a compound
financial instrument into separate liability and equity
components at inception. Accordingly, the equity component,
representing an equity conversion right, has to be recognized in
equity. The liability component is classified as a liability and
measured at fair value, which represents the present value based
on a discount rate equal to the market rate for non-convertible
debt. The liability component will accrete subsequently due to
the recognition of imputed discount calculated on the carrying
amount of the liability component at the beginning of each year.

Pension
accountingFresh
startBesides further divergences between
U.S. GAAP and IFRS, for example, pertaining to the
measurement date of plan assets and obligations or the
recognition of an additional minimum liability, pension
accounting under U.S. GAAP and IFRS will differ due to the
application of IFRS 1, First-time Adoption of
International Financial Reporting Standards.This standard
provides, among other exemptions, an exemption from calculating
the net cumulative unrecognized actuarial gains and losses under
IFRS, which would generally be required at the date of
transition by applying IAS 19 retrospectively for each year
since inception of the respective pension plans. According to
this exemption, cumulative unrecognized actuarial gains and
losses that had previously not been recognized through
application of the corridor approach under U.S. GAAP could
be recognized by adjusting retained earnings. Therefore, the
corridor will be set to zero in the IFRS opening balance sheet
(exemption for fresh start), thus resulting in a
difference between

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U.S. GAAP and IFRS, which, from todays
perspective, has the most significant impact on net income and
shareholders equity of our Consolidated Financial
Statements.


OUTLOOK

We successfully implemented our Go for
Profit and Growth initiative in fiscal 2004. We are
continuing this initiative in fiscal 2005. We are also pursuing
further operational improvements at our Groups, given that
factors such as a weakening U.S. dollar and rising
commodity prices may make the macroeconomic environment more
challenging. In addition, we will deal with the particular
issues at TS, SBS and Com.

SUBSEQUENT EVENTS

After the close of the fiscal year, Siemens made
a supplemental cash contribution to its pension plans of
1.5 billion.

Siemens AG Österreich acquired Victory
Industriebeteiligung AG, Austria (Victory), on
November 10, 2004, which holds an equity share of 16.45% in
VA Technologie AG (VA Tech). Siemens AG Österreich
submitted a voluntary takeover bid for all of VA Techs
outstanding shares to the Austrian takeover panel on
November 18, 2004, in which it offers
55 per share to
VA Techs shareholders.




ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

MANAGEMENT

In accordance with the German Stock Corporation
Act (Aktiengesetz), we have a Supervisory Board and a
Managing Board. The two boards are separate and no individual
may simultaneously be a member of both boards. The Managing
Board is responsible for managing our business in accordance
with applicable laws, our Articles of Association and the Bylaws
of the Managing Board. It represents us in our dealings with
third parties. The Supervisory Board appoints and removes the
members of the Managing Board. The Supervisory Board oversees
our management but is not permitted to make management decisions.

In carrying out their duties, each member of the
Managing Board and Supervisory Board must exercise the standard
of care of a prudent and diligent businessman, and is liable to
Siemens for damages if they fail to do so. Both boards are
required to take into account a broad range of considerations in
their decisions, including the interests of Siemens and those of
its shareholders, employees and creditors. The Managing Board is
required to respect the rights of shareholders to be treated on
an equal basis and receive equal information. The Managing Board
is also required to ensure appropriate risk management within
Siemens and to establish an internal monitoring system.

The Supervisory Board has comprehensive
monitoring functions. To ensure that these functions are carried
out properly, the Managing Board must, among other things,
regularly report to the Supervisory Board with regard to current
business operations and future business planning. The
Supervisory Board is also entitled to request special reports at
any time.

As a general rule under German law, a shareholder
has no direct recourse against the members of the Managing Board
or the Supervisory Board in the event that they are believed to
have breached a duty to Siemens. Apart from insolvency or other
special circumstances, only Siemens may assert a claim for
damages against members of either board. Moreover, we may only
waive these damages or settle these claims if at least three
years have passed and if the shareholders approve the waiver or
settlement at the shareholders meeting with a simple
majority of the votes cast, provided that opposing shareholders
do not hold, in the aggregate, one-tenth or more of our share
capital and do not have their opposition formally noted in the
minutes maintained by a German notary.

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SUPERVISORY BOARD

As required by our Articles of Association and
German law, our present Supervisory Board consists of
20 members. Ten were elected by our shareholders and ten
were elected by our employees. The shareholders may remove any
member of the Supervisory Board they have elected in a general
meeting by a simple majority of the votes cast by the
shareholders in a general meeting. The employee representatives
may be removed by the employee assembly which elected them with
a majority of three-quarters of the votes cast.

The Supervisory Board elects a chairman and two
deputy chairmen from among its members. The election of the
chairman and the first deputy chairman requires a two-thirds
majority vote. If either the chairman or the first deputy
chairman is not elected by a vote of two-thirds of the members
of the Supervisory Board, the shareholder representatives elect
the chairman and the employee representatives elect the first
deputy chairman by a simple majority of the votes cast. The
board elects a second deputy chairman by simple majority vote.
The Supervisory Board normally acts by simple majority vote,
unless otherwise required by law, with the chairman having a
deciding vote in the event of a second deadlock.

The Supervisory Board meets at least twice during
each half year, normally five times each year. Its main
functions are:



| |   |                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to monitor the management of the Company;                                                                                                                                                                                                                                                                                                                            
|
| |  | to appoint and dismiss members of our Managing
    Board;                                                                                                                                                                                                                                                                                                            
|
| |  | to represent the Company in its dealings with the
    Managing Board or when its interests are adverse to those of the
    Managing Board, for example, when the Company enters into an
    employment agreement with a Managing Board member, the
    Supervisory Board determines the salary and other compensation
    components, including pension benefits; and
|
| |  | to approve matters in any areas that the
    Supervisory Board has made subject to its approval, either
    generally or in a specific case.                                                                                                                                                                                                                         

The members of the Supervisory Board are each
elected for a maximum term of about five years. The term expires
at the end of the Annual Shareholders Meeting in which the
shareholders discharge the Supervisory Board member for the
fourth fiscal year following the fiscal year in which he or she
was elected. Our Articles of Association establish the
compensation of the Supervisory Board members. For further
details, see Compensation.

The following table sets forth the names of the
current members of our Supervisory Board, their dates of birth,
the expiration of their respective terms, their board positions
and principal occupations, and their principal outside
directorships at September 30, 2004:

|                         |  |         |            |         |  |                      |           |                               |  |                                                                                            |  |                                                                      
|------------------------ |  | ------- | ---------- | ------- |  | -------------------- | --------- | ----------------------------- |  | ------------------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------
|                         |  |         |            |         |  |                      |           | Companies at which           
|                         |  | Date of |            | Term    |  | Board position and   |           | Supervisory Board and similar
|Name                     |  | birth   |            | expires |  | principal occupation |           | positions were held          
|                         |  |         |            |         |  |                      |           |                              
|Dr. Karl-Hermann Baumann |  |         | 07/22/1935 |         |  |                      | 1/24/2008 |                               |  | Chairman of the Supervisory Board                                                          |  | Deutsche Bank AG; E.ON AG; Linde AG; Schering AG;
    ThyssenKrupp AG
|                        
|Ralf Heckmann(1)         |  |         | 07/19/1949 |         |  |                      | 1/24/2008 |                               |  | First Deputy Chairman; Chairman of the Central
    Works Council, Siemens AG               |  |                                                                     
|                        
|Dr. Josef Ackermann      |  |         | 02/07/1948 |         |  |                      | 1/24/2008 |                               |  | Second Deputy Chairman; Spokesman of the Board of
    Managing Directors, Deutsche Bank AG |  | Bayer AG; Linde AG; Deutsche Lufthansa AG                            

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|                           |  |         |            |         |  |                      |           |                               |  |                                                                                                                                   |  |                                                                                                                                                          
|-------------------------- |  | ------- | ---------- | ------- |  | -------------------- | --------- | ----------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------
|                           |  |         |            |         |  |                      |           | Companies at which           
|                           |  | Date of |            | Term    |  | Board position and   |           | Supervisory Board and similar
|Name                       |  | birth   |            | expires |  | principal occupation |           | positions were held          
|                           |  |         |            |         |  |                      |           |                              
|                          
|Lothar Adler(1)            |  |         | 02/22/1949 |         |  |                      | 1/24/2008 |                               |  | Member; Deputy Chairman of the Central Works
    Council, Siemens AG                                                              |  |                                                                                                                                                         
|                          
|Gerhard Bieletzki(1)       |  |         | 05/16/1947 |         |  |                      | 1/24/2008 |                               |  | Member; Member of the Combined Works Council,
    Siemens AG                                                                      |  |                                                                                                                                                         
|                          
|John David Coombe          |  |         | 03/17/1945 |         |  |                      | 1/24/2008 |                               |  | Member; Chief Financial Officer, GlaxoSmithKline
    plc                                                                          |  |                                                                                                                                                         
|                          
|Hildegard Cornudet(1)(2)   |  |         | 04/16/1949 |         |  |                      | 1/24/2008 |                               |  | Member; Chairwoman of the Works Council, SBS GmbH
    & Co OHG                                                                    |  |                                                                                                                                                         
|                          
|Dr. Gerhard Cromme         |  |         | 02/25/1943 |         |  |                      | 1/24/2008 |                               |  | Member; Chairman of the Supervisory Board,
    ThyssenKruppAG                                                                     |  | Allianz AG; Axel Springer Verlag AG;
    Deutsche Lufthansa AG; E.ON AG; E.ON Ruhrgas AG;
    Hochtief AG; Volkswagen AG; BNP Paribas S.A.;
    SUEZ S.A.
|                          
|Birgit Grube(1)            |  |         | 08/21/1945 |         |  |                      | 1/24/2008 |                               |  | Member; Office clerk                                                                                                              |  |                                                                                                                                                         
|                          
|Heinz Hawreliuk(1)         |  |         | 03/20/1947 |         |  |                      | 1/24/2008 |                               |  | Member; Head of the Company Co-determination
    Department, IG Metall                                                            |  | Astrium GmbH; DaimlerChrysler Aerospace AG;
    DaimlerChrysler Luft und Raumfahrt Holding AG; Eurocopter
    Deutschland GmbH; Infineon Technologies AG 
|                          
|Berthold Huber(1)(3)       |  |         | 02/15/1950 |         |  |                      | 1/24/2008 |                               |  | Member; Second Chairman, IG Metall                                                                                                |  | RWE AG; Heidelberger Druckmaschinen AG; Audi AG                                                                                                          
|                          
|Prof. Dr. Walter Kröll     |  |         | 05/30/1938 |         |  |                      | 1/24/2008 |                               |  | Member; President of the Helmholtz-Gemeinschaft
    Deutscher Forschungszentren e.V. (Association of German Research
    Centers) |  | MTU Aero Engines GmbH; Wincor Nixdorf AG                                                                                                                 
|                          
|Wolfgang Müller(1)         |  |         | 01/14/1948 |         |  |                      | 1/24/2008 |                               |  | Member; Head of the Siemens team, IG Metall                                                                                       |  | Infineon Technologies AG                                                                                                                                 
|                          
|Georg Nassauer(1)          |  |         | 03/08/1948 |         |  |                      | 1/24/2008 |                               |  | Member; Steel casting constructor                                                                                                 |  |                                                                                                                                                         
|                          
|Dr. Albrecht Schmidt       |  |         | 03/13/1938 |         |  |                      | 1/24/2008 |                               |  | Member; Chairman of the Supervisory Board,
    Bayerische Hypo- und Vereinsbank AG                                                |  | Münchener Rückversicherungs
    Gesellschaft AG; Thyssensche Handelsgesellschaft m.b.H.                                                                 
|                          
|Dr. Henning Schulte-Noelle |  |         | 08/26/1942 |         |  |                      | 1/24/2008 |                               |  | Member; Chairman of the Supervisory Board,
    Allianz AG                                                                         |  | E.ON AG; ThyssenKrupp AG                                                                                                                                 
|                          
|Peter von Siemens          |  |         | 08/10/1937 |         |  |                      | 1/24/2008 |                               |  | Member; Industrial manager                                                                                                        |  | Münchener Tierpark Hellabrunn AG                                                                                                                         
|                          
|Jerry I. Speyer            |  |         | 06/23/1940 |         |  |                      | 1/24/2008 |                               |  | Member; President, TishmanSpeyer Properties                                                                                       |  |                                                                                                                                                         

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|                             |  |         |            |         |  |                      |           |                               |  |                                                             |  |  
|---------------------------- |  | ------- | ---------- | ------- |  | -------------------- | --------- | ----------------------------- |  | ----------------------------------------------------------- |  | -
|                             |  |         |            |         |  |                      |           | Companies at which           
|                             |  | Date of |            | Term    |  | Board position and   |           | Supervisory Board and similar
|Name                         |  | birth   |            | expires |  | principal occupation |           | positions were held          
|                             |  |         |            |         |  |                      |           |                              
|                            
|Lord Iain Vallance of Tummel |  |         | 05/20/1943 |         |  |                      | 1/24/2008 |                               |  | Member; Vice-Chairman, The Royal Bank of Scotland
    Group |  | 
|                            
|Klaus Wigand(1)              |  |         | 11/19/1945 |         |  |                      | 1/24/2008 |                               |  | Member; Industrial manager                                  |  | 






|    |                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Elected by employees.                                                                                                                                              
|   
|(2) | Rolf Dittmar who was elected on January 23,
    2003, ceased to be a member of the Supervisory Board on
    March 31, 2004. He was succeeded by Hildegard Cornudet.
|   
|(3) | Bertin Eichler who was reelected on
    January 23, 2003, ceased to be a member of the Supervisory
    Board on June 30, 2004. He was succeeded by Berthold Huber. 

There are four Supervisory Board committees: the
Chairmans Committee, the Audit Committee, the Ownership
Rights Committee (formerly called the Investment Committee) and
the Mediation Committee. Set forth in the table below are the
current members of each committee. For a comprehensive
discussion of the functions of our committees, please refer to
Item 10: Additional Information Corporate
Governance.

|                           |  |                                                                                                                                                                              
|-------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name of committee          |  | Current members                                                                                                                                                              
|                           |  |                                                                                                                                                                              
|Chairmans Committee       |  | Chairman Dr. Karl-Hermann Baumann, First
    Deputy Chairman Ralf Heckmann*, Second Deputy Chairman
    Dr. Josef Ackermann                                                  
|Audit Committee            |  | Chairman Dr. Karl-Hermann Baumann, First
    Deputy Chairman Ralf Heckmann*, Second Deputy Chairman
    Dr. Josef Ackermann, Heinz Hawreliuk*, Dr. Henning
    Schulte-Noelle
|Ownership Rights Committee |  | Chairman Dr. Karl-Hermann Baumann, Second
    Deputy Chairman Dr. Josef Ackermann, Dr. Albrecht
    Schmidt                                                                  
|Mediation Committee        |  | Chairman Dr. Karl-Hermann Baumann, First
    Deputy Chairman Ralf Heckmann*, Second Deputy Chairman
    Dr. Josef Ackermann, Heinz Hawreliuk*                                






|  |                      
|- | ---------------------
|* | Elected by employees.

The business address of the members of our
Supervisory Board is the same as our business address,
Wittelsbacherplatz 2, D-80333 Munich, Germany, care of
Dr. Karl-Hermann Baumann.

MANAGING BOARD

Our Managing Board currently consists of
12 members. Under our Articles of Association, our
Supervisory Board determines the Managing Boards size,
although it must have more than one member. Under German law,
the Managing Board is responsible for all management matters,
including the following which are specifically reserved to the
Managing Board:



| |   |                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------
| |  | preparation of the annual financial statements;                                                          
|
| |  | the calling of the Annual Shareholders
    Meeting and preparation and execution of the resolutions; and
|
| |  | reports to the Supervisory Board and the Annual
    Shareholders Meeting concerning certain matters.    

The Managing Board, with the approval of the
Supervisory Board, has adopted Bylaws for the conduct of its
affairs. Pursuant to the current Bylaws of the Managing Board, a
Corporate Executive Committee has been created. This Corporate
Executive Committee consists exclusively of members of the
Managing Board and is authorized to make all management
decisions, in particular strategic decisions, that are not
specifically reserved to the full Managing Board by law, our
Articles of Association or the Bylaws of the Managing Board. The
Bylaws of the Managing Board state that the maximum number of
Corporate Executive Committee members

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should not exceed nine. (Between October 1,
2004 and Heinrich v. Pierers resignation as Chief
Executive Officer (CEO) on January 27, 2005, the Corporate
Executive Committee will have 10 members.) The Bylaws require
that the Chief Executive Officer and his deputies, if any, the
Chief Financial Officer (CFO) and the member of the Managing
Board who heads Corporate Human Resources (Corporate Personnel
Department) all be members of the Corporate Executive Committee.
Appointments of the remaining unspecified members of the
Corporate Executive Committee require the approval of the
Supervisory Board. Our current Corporate Executive Committee
consists of President and CEO, Heinrich v. Pierer; Deputy
Chairman of the Managing Board and Executive Vice-President,
Klaus Kleinfeld; Executive Vice-President and CFO, Heinz-Joachim
Neubürger; as well as Executive Vice-Presidents, Johannes
Feldmayer, Thomas Ganswindt, Rudi Lamprecht, Edward G.
Krubasik, Jürgen Radomski, Uriel J. Sharef and Klaus
Wucherer.


Other committees of our Managing Board are
authorized to make certain decisions without seeking the
approval of the full Managing Board. The Managing Boards
committees include an Equity Committee, responsible for certain
capital measures. The members of this committee are President
and CEO, Heinrich v. Pierer; Executive Vice-President and CFO,
Heinz-Joachim Neubürger and Executive Vice-President,
Jürgen Radomski. The Managing Board has also established a
Committee Responsible for the Issuance of Employee Stock,
including the determination of the terms of such issuances. The
members of this committee are President and CEO, Heinrich v.
Pierer; Executive Vice-President and CFO, Heinz-Joachim
Neubürger and Executive Vice-President, Jürgen
Radomski.

The Supervisory Board appoints the members of the
Managing Board for a maximum term of five years. They may be
re-appointed or have their term extended for one or more terms
of up to a maximum of five years each. The Supervisory Board may
remove a member of the Managing Board prior to the expiration of
his or her term for good cause. According to the Managing
Boards Bylaws, the age of a member of the Managing Board
shall not exceed 65.

The Bylaws require the Managing Board to take
action by a two-thirds majority vote unless applicable law
requires a larger majority. In practice, the Managing Board
reaches its decisions by consensus.

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The following table sets forth the names of the
members of our Managing Board, their dates of birth, the
expiration of their respective terms, their current positions
and their principal outside directorships at September 30,
2004:

|                             |  |               |            |              |  |                  |           |                               |  |                                                                        |  |                                                                                      
|---------------------------- |  | ------------- | ---------- | ------------ |  | ---------------- | --------- | ----------------------------- |  | ---------------------------------------------------------------------- |  | -------------------------------------------------------------------------------------
|                             |  |               |            |              |  |                  |           | Companies at which           
|                             |  |               |            |              |  |                  |           | Supervisory Board and similar
|Name                         |  | Date of birth |            | Term expires |  | Current position |           | positions were held          
|                             |  |               |            |              |  |                  |           |                              
|Dr. Heinrich v. Pierer       |  |               | 01/26/1941 |              |  |                  | 1/27/2005 |                               |  | President and CEO                                                      |  | Bayer AG; Hochtief AG; Münchener
    Rückversicherungs-Gesellschaft AG; Volkswagen AG
|Dr. Klaus Kleinfeld          |  |               | 11/06/1957 |              |  |                  | 9/30/2007 |                               |  | Deputy Chairman of the Managing Board and
    Executive Vice-President |  | Alcoa Inc.; The Turner Corporation                                                   
|Johannes Feldmayer           |  |               | 10/16/1956 |              |  |                  | 9/30/2007 |                               |  | Executive Vice-President                                               |  |                                                                                     
|Thomas Ganswindt*            |  |               | 11/18/1960 |              |  |                  | 9/30/2007 |                               |  | Executive Vice-President                                               |  |                                                                                     
|Prof. Dr. Edward G. Krubasik |  |               | 01/19/1944 |              |  |                  | 9/30/2006 |                               |  | Executive Vice-President                                               |  | Dresdner Bank AG                                                                     
|Rudi Lamprecht*              |  |               | 10/12/1948 |              |  |                  | 3/31/2009 |                               |  | Executive Vice-President                                               |  |                                                                                     
|Heinz-Joachim Neubürger      |  |               | 01/11/1953 |              |  |                  | 9/30/2007 |                               |  | Executive Vice-President and CFO                                       |  | Allianz Versicherungs-AG; Bayerische Börse
    AG; Merrill Lynch & Co., Inc.         
|Dr. Jürgen Radomski          |  |               | 10/26/1941 |              |  |                  | 9/30/2006 |                               |  | Executive Vice-President                                               |  | Deutsche Krankenversicherung AG; Dräger
    Medical AG                               
|Prof. Dr. Erich R. Reinhardt |  |               | 10/03/1946 |              |  |                  | 9/30/2006 |                               |  | Senior Vice-President                                                  |  | BioMAG; Dräger Medical AG                                                            
|Dr. Uriel J. Sharef          |  |               | 08/19/1944 |              |  |                  | 3/31/2008 |                               |  | Executive Vice-President                                               |  |                                                                                     
|Prof. Dr. Claus Weyrich      |  |               | 01/06/1944 |              |  |                  | 9/30/2006 |                               |  | Senior Vice-President                                                  |  | HERAEUS Holding GmbH                                                                 
|Prof. Dr. Klaus Wucherer     |  |               | 07/09/1944 |              |  |                  | 3/31/2008 |                               |  | Executive Vice-President                                               |  | Deutsche Messe AG; Infineon Technologies AG                                          






|  |                                                                                                                                            
|- | -------------------------------------------------------------------------------------------------------------------------------------------
|* | The Supervisory Board appointed Thomas Ganswindt
    and Rudi Lamprecht to the Corporate Executive Committee
    effective October 1, 2004.

The business address of the members of our
Managing Board is the same as our business address,
Wittelsbacherplatz 2, D-80333 Munich, Germany.

COMPENSATION

This section outlines the principles used for
determining the compensation of the Managing Board of Siemens AG
and sets out the level and structure of Managing Board
remuneration.

In addition, the section describes the policies
and levels of compensation paid to Supervisory Board members.
For details of stock ownership by members of the Managing and
Supervisory Boards see Share ownership.

Managing Board Remuneration

The Chairmans Committee of the Supervisory
Board is responsible for determining the remuneration of members
of the Managing Board. The Committee comprises
Dr. Karl-Hermann Baumann (Chairman of the Supervisory
Board), and Dr. Josef Ackermann and Mr. Ralf Heckmann (both
Deputy Chairmen of the Supervisory Board).

The remuneration of members of the Managing Board
of Siemens AG is based on the Companys size and global
presence, its economic and financial position, and the level and
structure of managing board compensation at comparable companies
in and outside Germany. In addition, the compensation for each
Board member reflects

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his or her responsibilities and performance. The
level of compensation is designed to be competitive in the
international market for highly qualified executives in a
high-performance culture.


The Managing Board remuneration is
performance-related. In fiscal year 2004, it had three
components: a fixed salary, a variable bonus and stock-based
compensation. The fixed salary and the bonus are based on a
target compensation that comprises 50 percent fixed and
50 percent variable remuneration. The target compensation
is reviewed regularly every two to three years on the basis of
an analysis of the compensation paid by international peer
companies to their top managers. The last review was conducted
on April 1, 2003.

The remuneration of the Managing Board members is
composed as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The fixed compensation is paid as a monthly
    salary.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | The bonus is based on the Companys
    attainment of certain EVA targets and other financial goals, if
    any, that are set at the start of the fiscal year by the
    Chairmans Committee of the Supervisory Board. One half of
    the bonus is paid as an annual bonus which is contingent upon
    achieving the Company-wide EVA target established for the fiscal
    year. The other half is granted as a long-term bonus
    (LT bonus) whose amount depends on the average attainment
    of EVA targets over a three-year period. The annual bonus and
    the LT bonus may not exceed 250 percent of the base
    amount applicable to the variable compensation component. One
    half of the LT bonus is paid in cash. The other half is in
    the form of a commitment to issue or transfer shares of Siemens
    AG (stock awards) which will be settled four years after the
    commitment is made.



| |                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The same principles for determining the bonus
    apply to Managing Board members who are not members of the
    Corporate Executive Committee. Their goals, however, depend
    primarily on the financial performance of the corporate units
    they lead.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The third component of Managing Board
    remuneration for fiscal year 2004 is stock-based compensation
    determined by the Chairmans Committee of the Supervisory
    Board, one half of which consists of stock options issued under
    the terms of the 2001 Siemens Stock Option Plan as authorized by
    shareholders at the Annual Shareholders Meeting of Siemens
    AG on February 22, 2001, and the other half consists of a
    commitment to issue or to transfer shares of Siemens AG (stock
    awards).

At its meeting on November 10, 2004, the
Chairmans Committee of the Supervisory Board determined
the bonus amounts and the number of stock awards and stock
options to be granted, after assessing the attainment of the
goals set at the start of the fiscal year. As a result, cash
compensation amounted to
26.7 million
(2003:
27.5 million)
and total remuneration amounted to
33.4 million
(2003:
30.7 million),
representing a decrease of 2.9 percent and an increase of
8.8 percent, respectively.

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The following compensation was determined for
members of the Managing Board for fiscal year 2004:

|                                    |  |                     |            |               |  |       |           |  |  |  |            | 
|----------------------------------- |  | ------------------- | ---------- | ------------- |  | ----- | --------- |  |  |  | ---------- | 
|                                    |  |                     |            | Fair value of |  |      
|                                    |  | Cash                |            | stock-based   |  |      
|                                    |  | compensation        |            | compensation  |  | Total
|                                    |  |                     |            |               |  |      
|                                    |  |                    
|                                    |  | (Expressed in )(1)
|Dr. Heinrich v. Pierer              |  |                     | 3,560,053  |               |  |       | 1,077,993 |  |  |  | 4,638,046  | 
|Dr. Klaus Kleinfeld                 |  |                     | 2,679,904  |               |  |       | 641,286   |  |  |  | 3,321,190  | 
|Johannes Feldmayer                  |  |                     | 2,339,465  |               |  |       | 719,638   |  |  |  | 3,059,103  | 
|Prof. Dr. Edward G. Krubasik        |  |                     | 2,278,056  |               |  |       | 719,638   |  |  |  | 2,997,694  | 
|Heinz-Joachim Neubürger             |  |                     | 2,260,585  |               |  |       | 719,638   |  |  |  | 2,980,223  | 
|Dr. Jürgen Radomski                 |  |                     | 2,252,307  |               |  |       | 719,638   |  |  |  | 2,971,945  | 
|Dr. Uriel J. Sharef                 |  |                     | 2,264,607  |               |  |       | 719,638   |  |  |  | 2,984,245  | 
|Prof. Dr. Klaus Wucherer            |  |                     | 2,261,306  |               |  |       | 719,638   |  |  |  | 2,980,944  | 
|                                   
|Thomas Ganswindt(2)                 |  |                     | 1,634,261  |               |  |       | 149,990   |  |  |  | 1,784,251  | 
|Rudi Lamprecht(2)                   |  |                     | 1,741,472  |               |  |       | 149,990   |  |  |  | 1,891,462  | 
|Prof. Dr. Erich R.
    Reinhardt(2) |  |                     | 1,823,818  |               |  |       | 149,990   |  |  |  | 1,973,808  | 
|Prof. Dr. Claus Weyrich(2)          |  |                     | 1,649,402  |               |  |       | 129,989   |  |  |  | 1,779,391  | 
|                                    |  |                     |            |               |  |       |           |  |  |  |            | 
|Total                               |  |                     | 26,745,236 |               |  |       | 6,617,066 |  |  |  | 33,362,302 | 
|                                    |  |                     |            |               |  |       |           |  |  |  |            | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The fair values of stock-based compensation shown
    in this table relate to stock options and stock awards granted
    in November 2004 for fiscal year 2004. The values do not
    correspond to the figures presented in Notes to Consolidated
    Financial Statements because, in accordance with accounting
    rules, the amounts disclosed for fiscal year 2004 as a component
    of Managing Board remuneration represent the values of stock
    options issued during the fiscal year in November 2003. In
    addition, part of the expense of stock-based compensation is to
    be recorded over the service period.
|   
|(2) | Deputy members of the Managing Board.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

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The following table describes the details of cash
compensation.

|                                |  |                   |           |              |  |              |            |          |  |       |           |  |  |  |         |  |  |  |            | 
|------------------------------- |  | ----------------- | --------- | ------------ |  | ------------ | ---------- | -------- |  | ----- | --------- |  |  |  | ------- |  |  |  | ---------- | 
|                                |  |                  
|                                |  | Cash compensation
|                                |  |                  
|                                |  |                   |           | LT bonus     |  |             
|                                |  | Salary            |           | Annual bonus |  | cash portion |            | Other(1) |  | Total
|                                |  |                   |           |              |  |              |            |          |  |      
|                                |  |                  
|                                |  | (Expressed in ) 
|Dr. Heinrich v. Pierer          |  |                   | 1,215,000 |              |  |              | 1,581,250  |          |  |       | 738,078   |  |  |  | 25,725  |  |  |  | 3,560,053  | 
|Dr. Klaus Kleinfeld             |  |                   | 762,627   |              |  |              | 883,116    |          |  |       | 510,387   |  |  |  | 523,774 |  |  |  | 2,679,904  | 
|Johannes Feldmayer              |  |                   | 755,040   |              |  |              | 1,006,200  |          |  |       | 469,639   |  |  |  | 108,586 |  |  |  | 2,339,465  | 
|Prof. Dr. Edward G. Krubasik    |  |                   | 755,040   |              |  |              | 1,006,200  |          |  |       | 469,639   |  |  |  | 47,177  |  |  |  | 2,278,056  | 
|Heinz-Joachim Neubürger         |  |                   | 755,040   |              |  |              | 1,006,200  |          |  |       | 469,639   |  |  |  | 29,706  |  |  |  | 2,260,585  | 
|Dr. Jürgen Radomski             |  |                   | 755,040   |              |  |              | 1,006,200  |          |  |       | 469,639   |  |  |  | 21,428  |  |  |  | 2,252,307  | 
|Dr. Uriel J. Sharef             |  |                   | 755,040   |              |  |              | 1,006,200  |          |  |       | 469,639   |  |  |  | 33,728  |  |  |  | 2,264,607  | 
|Prof. Dr. Klaus Wucherer        |  |                   | 755,040   |              |  |              | 1,006,200  |          |  |       | 469,639   |  |  |  | 30,427  |  |  |  | 2,261,306  | 
|                               
|Thomas Ganswindt(2)             |  |                   | 500,040   |              |  |              | 602,617    |          |  |       | 480,380   |  |  |  | 51,224  |  |  |  | 1,634,261  | 
|Rudi Lamprecht(2)               |  |                   | 550,020   |              |  |              | 575,240    |          |  |       | 589,982   |  |  |  | 26,230  |  |  |  | 1,741,472  | 
|Prof. Dr. Erich R. Reinhardt(2) |  |                   | 500,040   |              |  |              | 607,153    |          |  |       | 686,692   |  |  |  | 29,933  |  |  |  | 1,823,818  | 
|Prof. Dr. Claus Weyrich(2)      |  |                   | 450,000   |              |  |              | 606,250    |          |  |       | 565,922   |  |  |  | 27,230  |  |  |  | 1,649,402  | 
|                                |  |                   |           |              |  |              |            |          |  |       |           |  |  |  |         |  |  |  |            | 
|Total                           |  |                   | 8,507,967 |              |  |              | 10,892,826 |          |  |       | 6,389,275 |  |  |  | 955,168 |  |  |  | 26,745,236 | 
|                                |  |                   |           |              |  |              |            |          |  |       |           |  |  |  |         |  |  |  |            | 






|    |                                                                                                            
|--- | -----------------------------------------------------------------------------------------------------------
|(1) | Non-cash benefits in the form of company cars,
    subsidized insurance, accommodation and moving expenses.
|   
|(2) | Deputy members of the Managing Board.                                                                      

Both the number and the values of the stock-based
compensation component are shown in the following table. The
fair value of the stock options was determined using the
Black-Scholes option pricing model. Because a cap was placed on
stock options granted to Managing Board members, disclosure of
stock options in the financial statements depends on their
intrinsic value, which was zero on the grant date. Without a cap
the fair value would have been
4.54 per option,
which amount was taken as a basis in this table. The stock
awards were recorded at the market price of the Siemens share on
the date of commitment less the present value of dividends
expected during the holding period, because awards are not
eligible to receive dividends. The resulting value amounted to
55.63.

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The members of the Managing Board received a
total of 94,769 stock awards and 296,270 stock options,
representing 7.8 percent and 10.1 percent,
respectively, of the aggregate stock awards and stock options
granted for fiscal year 2004. Accordingly, stock-based
compensation was as follows:

|                                 |  |                             |        |                                        |  |            |        |                    |  |             |         |            |  |       |           |  |  |  |           |  |  |  |           |  |  |  |           | 
|-------------------------------- |  | --------------------------- | ------ | -------------------------------------- |  | ---------- | ------ | ------------------ |  | ----------- | ------- | ---------- |  | ----- | --------- |  |  |  | --------- |  |  |  | --------- |  |  |  | --------- | 
|                                 |  |                             |        |                                       
|                                 |  | Stock-based compensation(1) |        | Fair value of stock-based compensation
|                                 |  |                             |        |                                       
|                                 |  | Stock awards                |        | Other stock                            |  | Stock      |        | Stock awards       |  | Other stock |         | Stock      |  |      
|                                 |  | (from LT bonus)(1)          |        | awards(1)                              |  | options(2) |        | (from LT bonus)(1) |  | awards(1)   |         | options(2) |  | Total
|                                 |  |                             |        |                                        |  |            |        |                    |  |             |         |            |  |      
|                                 |  |                             |        |                                       
|                                 |  | (Number of units)           |        | (Expressed in )                      
|Dr. Heinrich v. Pierer           |  |                             | 13,266 |                                        |  |            | 3,056  |                    |  |             | 37,445  |            |  |       | 737,988   |  |  |  | 170,005   |  |  |  | 170,000   |  |  |  | 1,077,993 | 
|Dr. Klaus Kleinfeld              |  |                             | 6,674  |                                        |  |            | 2,427  |                    |  |             | 29,735  |            |  |       | 371,275   |  |  |  | 135,014   |  |  |  | 134,997   |  |  |  | 641,286   | 
|Johannes Feldmayer               |  |                             | 8,442  |                                        |  |            | 2,247  |                    |  |             | 27,535  |            |  |       | 469,628   |  |  |  | 125,001   |  |  |  | 125,009   |  |  |  | 719,638   | 
|Prof. Dr. Edward G. Krubasik     |  |                             | 8,442  |                                        |  |            | 2,247  |                    |  |             | 27,535  |            |  |       | 469,628   |  |  |  | 125,001   |  |  |  | 125,009   |  |  |  | 719,638   | 
|Heinz-Joachim Neubürger          |  |                             | 8,442  |                                        |  |            | 2,247  |                    |  |             | 27,535  |            |  |       | 469,628   |  |  |  | 125,001   |  |  |  | 125,009   |  |  |  | 719,638   | 
|Dr. Jürgen Radomski              |  |                             | 8,442  |                                        |  |            | 2,247  |                    |  |             | 27,535  |            |  |       | 469,628   |  |  |  | 125,001   |  |  |  | 125,009   |  |  |  | 719,638   | 
|Dr. Uriel J. Sharef              |  |                             | 8,442  |                                        |  |            | 2,247  |                    |  |             | 27,535  |            |  |       | 469,628   |  |  |  | 125,001   |  |  |  | 125,009   |  |  |  | 719,638   | 
|Prof. Dr. Klaus Wucherer         |  |                             | 8,442  |                                        |  |            | 2,247  |                    |  |             | 27,535  |            |  |       | 469,628   |  |  |  | 125,001   |  |  |  | 125,009   |  |  |  | 719,638   | 
|                                
|Thomas Ganswindt(3)              |  |                             |        |                                        |  |            | 1,348  |                    |  |             | 16,520  |            |  |       |           |  |  |  | 74,989    |  |  |  | 75,001    |  |  |  | 149,990   | 
|Rudi Lamprecht(3)                |  |                             |        |                                        |  |            | 1,348  |                    |  |             | 16,520  |            |  |       |           |  |  |  | 74,989    |  |  |  | 75,001    |  |  |  | 149,990   | 
|Prof. Dr. Erich R. Reinhardt (3) |  |                             |        |                                        |  |            | 1,348  |                    |  |             | 16,520  |            |  |       |           |  |  |  | 74,989    |  |  |  | 75,001    |  |  |  | 149,990   | 
|Prof. Dr. Claus Weyrich(3)       |  |                             |        |                                        |  |            | 1,168  |                    |  |             | 14,320  |            |  |       |           |  |  |  | 64,976    |  |  |  | 65,013    |  |  |  | 129,989   | 
|                                 |  |                             |        |                                        |  |            |        |                    |  |             |         |            |  |       |           |  |  |  |           |  |  |  |           |  |  |  |           | 
|Total                            |  |                             | 70,592 |                                        |  |            | 24,177 |                    |  |             | 296,270 |            |  |       | 3,927,031 |  |  |  | 1,344,968 |  |  |  | 1,345,067 |  |  |  | 6,617,066 | 
|                                 |  |                             |        |                                        |  |            |        |                    |  |             |         |            |  |       |           |  |  |  |           |  |  |  |           |  |  |  |           | 






|    |                                                                                                                                                                                                                                                                                                
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | After a holding period of four years, the stock
    awards will be settled on November 12, 2008. Under the
    stock award agreement, the eligible grantees will receive a
    corresponding number of Siemens shares without additional
    payment.                                          
|   
|(2) | After a holding period of two years, the stock
    options will be exercisable between November 20, 2006 and
    November 19, 2009 at a price of
    72.54 per share
    at the terms and conditions specified in the 2001 Stock Option
    Plan. For details see Stock-Based Compensation.
|   
|(3) | Deputy members of the Managing Board.                                                                                                                                                                                                                                                          

Pension
commitmentsPension commitments
up to and including fiscal year 2004 were made on a defined
benefit basis. The commitments corresponded to a percentage of
56 percent of the fixed compensation component.

With the realignment of the German pension plan
of Siemens AG into a new plan (BSAV), whose benefits are based
largely on contributions made by the Company, the present system
of defined benefits for Managing Board members was replaced with
effect from October 1, 2004 by a contribution-based system.
Benefits earned until September 30, 2004 are not affected.
The amount of the contributions for the BSAV is determined by
the Chairmans Committee of the Supervisory Board.

Pension commitments to current members of the
Managing Board are covered by Siemens AG. As of
September 30, 2004, accruals of
46.3 million
have been recorded. With respect to these amounts, see
Notes to Consolidated Financial Statements.

Former members of the Managing Board and their
surviving dependents received pensions and transitional payments
of
13.5 million
for the year ended September 30, 2004. Members of the
Managing Board who were appointed to the Managing Board before
October 1, 2002, have the contractually accorded right to
receive transitional payments after leaving the Managing Board.
The transitional payments generally amount to the fixed salary
of the year of resignation and the average of variable bonus
paid for the last three fiscal years before resignation. In
single cases, the transitional payments equal a one-year target
compensation. If a member of the Managing Board resigns early
from office, the member has the right to receive a severance
payment which amounts to the target compensation for the
remaining contractual term of office.

Pension commitments to former members of the
Managing Board and their surviving dependents are also covered
by Siemens AG. As of September 30, 2004, accruals of
102.2 million
have been recorded. With respect to these amounts, see
Notes to Consolidated Financial Statements.

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No loans from the Company are provided to members
of the Managing Board.

Supervisory Board Remuneration

The remuneration of members of the Supervisory
Board was set at the Annual Shareholders Meeting through
shareholder approval of a proposal by the Managing and
Supervisory Boards. Details of the remuneration are set forth in
the Articles of Association of Siemens AG.

The remuneration of members of the Supervisory
Board is based on the Companys size, the assignments, and
the responsibilities of Supervisory Board members, and the
Companys overall business position and performance. In
addition to a fixed payment, the remuneration includes a
dividend-related and a stock-based component. The Chairman, the
Deputy Chairmen, as well as the Chairman and members of the
Audit Committee receive additional compensation.

The current remuneration policies for the
Supervisory Board were authorized at the Annual
Shareholders Meeting of February 18, 1999.
Compensation policies for service as committee chairman were set
at the Annual Shareholders Meeting of January 23,
2003. Details are set out in § 17 of the Articles of
Association of Siemens AG.

The compensation of Supervisory Board members for
fiscal year 2004 incorporates three components:



| |   |                                                                              
| | - | -----------------------------------------------------------------------------
| |  | a fixed component,                                                           
|
| |  | a variable component depending on the annual
    dividend, and               
|
| |  | a long-term component based on the development of
    the stock market price.

In accordance with these remuneration policies,
the fixed compensation of each Supervisory Board member is
6,000, and the
dividend-dependent compensation is
3,500 for each
0.05 dividend
distributed per share in excess of
0.20. For fiscal
year 2004, the proposed dividend is
1.25 per share.
The Chairman of the Supervisory Board receives twice the
standard compensation rate of an ordinary member and each Deputy
Chairman receives 1.5 times the standard compensation rate. The
Chairman of the Audit Committee receives an additional
100 percent and each remaining member of the Audit
Committee an additional 50 percent of the standard
compensation rate. The members of the Supervisory Board are
reimbursed for any out-of-pocket expenses incurred in connection
with their duties, including any sales taxes paid.

In addition, each member of the Supervisory Board
receives annually 1,500 stock appreciation rights (SARs) granted
and exercisable on the same terms as options issued under the
Siemens stock option plan then in effect.

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The Managing Board and the Supervisory Board will
propose to the Annual Shareholders Meeting on
January 27, 2005 that the remuneration of the Supervisory
Board be modified with effect from October 1, 2004. In
addition to a fixed remuneration of
50,000, a short-
and medium-term compensation component depending on earnings per
share is expected to be paid in the future.

|                               |  |                  |         |              |  |                 |           |       |  |  |         |  |  |  |           | 
|------------------------------ |  | ---------------- | ------- | ------------ |  | --------------- | --------- | ----- |  |  | ------- |  |  |  | --------- | 
|                               |  |                  |         |              |  | Fair value of   |           |      
|                               |  | Fixed            |         | Variable     |  | stock-based     |           |      
|                               |  | compensation     |         | compensation |  | compensation(1) |           | Total
|                               |  |                  |         |              |  |                 |           |      
|                               |  |                 
|                               |  | (Expressed in )
|Dr. Karl-Hermann Baumann(2)(3) |  |                  | 18,000  |              |  |                 | 220,500   |       |  |  | 6,810   |  |  |  | 245,310   | 
|Ralf Heckmann(2)               |  |                  | 12,000  |              |  |                 | 147,000   |       |  |  | 6,810   |  |  |  | 165,810   | 
|Dr. Josef Ackermann(2)         |  |                  | 12,000  |              |  |                 | 147,000   |       |  |  | 6,810   |  |  |  | 165,810   | 
|Lothar Adler                   |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|Gerhard Bieletzki              |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|John David Coombe              |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|Hildegard Cornudet(4)          |  |                  | 3,000   |              |  |                 | 36,750    |       |  |  | 3,405   |  |  |  | 43,155    | 
|Dr. Gerhard Cromme             |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|Rolf Dittmar(4)                |  |                  | 3,000   |              |  |                 | 36,750    |       |  |  | 3,405   |  |  |  | 43,155    | 
|Bertin Eichler(5)              |  |                  | 4,500   |              |  |                 | 55,125    |       |  |  | 5,108   |  |  |  | 64,733    | 
|Birgit Grube                   |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|Heinz Hawreliuk(2)             |  |                  | 9,000   |              |  |                 | 110,250   |       |  |  | 6,810   |  |  |  | 126,060   | 
|Berthold Huber(5)              |  |                  | 1,500   |              |  |                 | 18,375    |       |  |  | 1,703   |  |  |  | 21,578    | 
|Prof. Dr. Walter Kröll         |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|Wolfgang Müller                |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|Georg Nassauer                 |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|Dr. Albrecht Schmidt           |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|Dr. Henning Schulte-Noelle(2)  |  |                  | 9,000   |              |  |                 | 110,250   |       |  |  | 6,810   |  |  |  | 126,060   | 
|Peter von Siemens              |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|Jerry I. Speyer                |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|Lord Iain Vallance of Tummel   |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|Klaus Wigand                   |  |                  | 6,000   |              |  |                 | 73,500    |       |  |  | 6,810   |  |  |  | 86,310    | 
|                               |  |                  |         |              |  |                 |           |       |  |  |         |  |  |  |           | 
|Total                          |  |                  | 150,000 |              |  |                 | 1,837,500 |       |  |  | 136,201 |  |  |  | 2,123,701 | 
|                               |  |                  |         |              |  |                 |           |       |  |  |         |  |  |  |           | 






|    |                                                                                                                                                                                                                                                                                                                                            
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On the grant date, the stock appreciation rights
    had a fair value of
    4.54 each, as
    calculated using the Black-Scholes option pricing model.                                                                                                                                                                                   
|   
|(2) | Dr. Baumann as Chairman of the Supervisory
    Board and the Audit Committee, Mr. Ralf Heckmann and
    Dr. Josef Ackermann as Deputy Chairmen of the Supervisory
    Board and members of the Audit Committee, and Mr. Hawreliuk
    and Dr. Schulte-Noelle as members of the Audit Committee
    received a higher standard compensation.
|   
|(3) | The Chairman of the Supervisory Board is provided
    an office with secretarial services and a company car.                                                                                                                                                                                                                               
|   
|(4) | Ms. Hildegard Cornudet, formerly a
    substitute member of the Supervisory Board of Siemens AG, became
    a member of the Supervisory Board as a successor for
    Mr. Rolf Dittmar with effect from April 1, 2004.                                                                                                                      
|   
|(5) | Mr. Berthold Hubers appointment to the
    Supervisory Board of Siemens AG as a successor for
    Mr. Bertin Eichler was approved by the registry court with
    effect from July 1, 2004.                                                                                                                                                

An existing agreement with Mr. Peter von
Siemens was renewed after the Annual Shareholders Meeting
2003 with unchanged terms and conditions under which he, as a
member of the founders family, is entitled to
reimbursement of expenses and the provision of a company car and
secretarial services for representing the Company at official
events in Germany and abroad and in various associations.

No loans from the Company are provided to members
of the Supervisory Board.

Other

The members of the governing bodies of Siemens AG
and all board members of its domestic and foreign subsidiaries
are indemnified by Siemens AG or its subsidiaries against
third-party liability claims to the extent permissible by law.
For this purpose, the Company provides a group insurance policy
for board and committee members and employees of the Siemens
organization which is taken out for one year and renewed
annually. The

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insurance covers the personal liability of the
insured in the case of a financial loss associated to employment
functions. There is no deductible in terms of Section 3.8
paragraph 2 of the German Corporate Governance Code. It is
not considered appropriate in the case of a group insurance
policy to differentiate between members of the Supervisory and
Managing Boards of Siemens AG and high-level personnel of its
subsidiaries. Furthermore, such a deductible is not common
market practice outside Germany.


STOCK-BASED COMPENSATION

Stock Option Plan

We have a stock option plan, the 2001 Siemens
Stock Option Plan, for members of our Managing Board, executive
officers and other eligible employees. Non-transferable options
exercisable for up to an aggregate of 55 million of our
shares may be issued under this plan, of which options
exercisable for no more than 3.3 million shares may be
granted to members of the Managing Board, options exercisable
for up to an aggregate of 8.8 million shares may be granted
to executive officers and options exercisable for up to
42.9 million shares may be granted to other eligible
employees. The authority to distribute options under this plan
will expire on December 13, 2006.

Under the 2001 Stock Option Plan, the Supervisory
Board decides annually after the end of each fiscal year how
many options to grant to the Managing Board and the Managing
Board decides annually how many options to grant to executive
officers and eligible employees. As of November 18, 2004,
we had outstanding options exercisable for 30,841,476 shares
under our option plans, including 2,945,035 options granted to
our executive officers and eligible employees on
November 12, 2004. Options to executive officers and
eligible employees may be granted within 30 days after
publication of quarterly, half-year or yearly results. Options
to Managing Board members may be granted only once a year after
publication of the yearly results. The following table sets
forth information as to the options we issued to members of our
Managing Board during fiscal 2005, 2004 and 2003:

|                               |  |                    |                   |                    |  |                    |                   |  |  |  |                   | 
|------------------------------ |  | ------------------ | ----------------- | ------------------ |  | ------------------ | ----------------- |  |  |  | ----------------- | 
|                               |  | With respect to    |                   | With respect to    |  | With respect to   
|                               |  | options granted in |                   | options granted in |  | options granted in
|                               |  | fiscal 2005        |                   | fiscal 2004        |  | fiscal 2003       
|                               |  |                    |                   |                    |  |                   
|Number of shares upon exercise |  |                    | 296,270           |                    |  |                    | 262,500           |  |  |  | 345,000           | 
|Exercise price                 |  |                    | 72.54            |                    |  |                    | 73.25            |  |  |  | 53.70            | 
|Expiration date                |  |                    | November 19, 2009 |                    |  |                    | November 21, 2008 |  |  |  | November 21, 2007 | 

The exercise price for options that have been
issued under our 1999 Stock Option Plan, which was replaced by
our 2001 Stock Option Plan, is equal to the average market price
of the Siemens stock during the five trading days preceding the
day of grant of the options. Holders of options under the 1999
Plan may exercise them during fixed time periods after the
publication of our quarterly, half-year or yearly results within
a five-year period following a holding period of two years. In
addition, these options may be exercised only if the trading
price of our shares on the Frankfurt Stock Exchange has reached
an exercise threshold, which is based on the Dow Jones
Stoxx-Index, at least once during the five-year term of the
options. However, options may only be exercised if the threshold
has been reached within the six-week period prior to the
exercise date. For further information about the terms of these
options see Notes to Consolidated Financial
Statements.

The exercise price for options under the 2001
Plan is 120% of the average opening price of our shares on the
Xetra-system of the Frankfurt Stock Exchange during the five
trading days preceding the day of grant of the options. Holders
of options under the 2001 Plan may exercise them during fixed
time periods after the publication of our quarterly, half-year
or yearly results within a three-year period following a holding
period of two years plus one week. In addition, options under
the 2001 Plan may be exercised only if the trading price of our
shares on the Frankfurt Stock Exchange reaches the option
exercise price at least once during the five-year term of the
options.

The exercise price of options under our stock
option plans and the number of shares for which an option may be
exercised are subject to adjustment to account for changes in
our share capital.

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The options may be settled in newly issued shares
of common stock of Siemens AG from the conditional capitals
reserved for this purpose, in treasury stock or in cash. The
alternatives available to optionees are determined by the
Managing Board, in each case as approved by the Supervisory
Board.

Stock Awards

In November 2004, we introduced stock awards as a
new component of stock-based compensation for the members of our
Managing Board, executive officers and other eligible employees.
Stock awards are commitments to issue or transfer shares of
Siemens AG to the grantee. Each is subject to a vesting period
of four years. Upon expiration of the vesting period, the
grantee receives a corresponding number of shares of Siemens AG
without additional payment.

Stock awards are forfeited if the grantees
employment with Siemens terminates prior to the expiration of
the vesting period. Stock awards cannot be transferred, sold,
pledged or otherwise encumbered. They can be inherited only by
spouses orin absence of a spouseby children of the
grantee. Stock awards are not entitled to dividends issued
during the vesting period.

The Supervisory Board decides annually after the
end of each fiscal year how many stock awards to grant to the
Managing Board and the Managing Board decides annually how many
stock awards to grant to executive officers and eligible
employees. Stock awards may be granted only once a year within
30 days after publication of the yearly results.

On November 10, 2004, the Supervisory Board
granted 24,177 stock awards to members of our Managing Board
with an award date of November 12, 2004. On the same date,
the Managing Board granted 1,128,331 stock awards to executive
officers and other eligible employees of the Company with an
award date of November 12, 2004.

Furthermore, the members of our Managing Board
received one-half of their long-term bonus for fiscal 2004 as
deferred income in the form of immediately vested stock awards.
For further details including the number of awards granted to
the individual members of our Managing Board and their fair
value see Compensation.

The fair value of the stock awards are recorded
at the market price of the Siemens share on the date of
commitment less the present value of dividends expected during
the holding period. In fiscal 2005, the resulting value amounts
to
64.1 million
representing
55.63 per stock
award.

Stock awards may be settled in newly issued
shares of common stock of Siemens AG from the authorized or the
conditional capitals reserved for this purpose, in treasury
stock or in cash. The settlement method will be determined
subsequently by the Managing Board and the Supervisory Board.

SHARE OWNERSHIP

As of October 15, 2004, members of the
Managing Board during fiscal 2004 held 737,514 Siemens shares
and stock options on Siemens shares (exercisable within sixty
days), representing 0.083 percent of the outstanding
capital stock of Siemens AG. On October 15, 2004, members
of the Supervisory Board during fiscal 2004 held 18,824 Siemens
shares and stock options on Siemens shares (exercisable within
sixty days), representing 0.002 percent of the outstanding
capital stock of Siemens AG. These figures do not include
16,364,977 shares, or 1.8 percent of the capital stock,
that are held by the von Siemens-Vermögensverwaltungs GmbH
(vSV)a German limited liability entity that functions much
like a trustand 38,685,250 shares, or some
4.3 percent of the capital stock, over which the vSV has
voting control under a power of attorney. Mr. Peter von
Siemens is authorized to vote these shares as a representative
of the founders family. The vSV is described in more
detail under Item 7: Major Shareholders and Related
Party Transactions-Major Shareholders.

Pursuant to § 15a of the German
Securities Trading Act (WpHG) in effect during the reporting
period, members of the Managing and Supervisory Boards were
required to disclose significant purchases or sales of shares of
Siemens AG. In fiscal 2004, no such transactions were reported.

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ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS

MAJOR SHAREHOLDERS

The vSV holds approximately 2% of our outstanding
shares in trust for, and, in addition, has a power of attorney
allowing it to vote approximately 4% of our outstanding shares
on behalf of, members of the Siemens family and family-sponsored
foundations. To the extent these shares are voted on behalf of
members of the Siemens family or family-sponsored foundations,
these shares are voted together by the vSV. The vSV exercises
its voting power in respect of these shares upon approval by the
chairman of its shareholders meeting. As a result, the
chairman has voting power over these Siemens shares. The current
chairman is Mr. Peter von Siemens, who is also a member of
our Supervisory Board. To our knowledge and based on public
filings, there is no other single person that may be considered
a beneficial owner of 5% or more of our outstanding shares.

As of November 8, 2004, we had approximately
1.0 million shareholders. Approximately 52,800 were U.S.
holders, of which approximately 300 were holders of record.
Based on our share register, U.S. holders held approximately 12%
of our ordinary shares as of September 30, 2004.

RELATED PARTY TRANSACTIONS

As reflected in the information in the tables
above under Item 6: Directors, Senior Management and
EmployeesManagementSupervisory Board and
Managing Board, some of our board members
hold, or in the last year have held, positions of significant
responsibility with other entities. We have relationships with
almost all of these entities in the ordinary course of our
business whereby we buy and sell a wide variety of products and
services on arms length terms. Dr. Josef Ackermann is
the Spokesman of the Managing Board of Deutsche Bank AG.
Our transactions with Deutsche Bank AG are conducted on
arms length basis and include securities underwriting,
other investment banking services, and credit, money market and
foreign exchange business.

During the last fiscal year, there were no loans
outstanding to members of our management.

We have a number of significant joint ventures
and other equity investments in large companies. We have
relationships with many of these entities in the ordinary course
of business whereby we buy and sell a wide variety of products
and services on arms length terms. Our most significant
equity investments are Infineon, Juniper and Epcos. Also
significant are our relationships with our joint ventures BSH
Bosch und Siemens Hausgeräte GmbH, Fujitsu Siemens
Computers and Framatome Advanced Nuclear Power.




ITEM 8: FINANCIAL INFORMATION

See Item 5: Operating and Financial
Review and Prospects and Item 18: Financial
Statements.




ITEM 9: THE OFFER AND LISTING

TRADING MARKETS

The principal trading market for our shares is
the Frankfurt Stock Exchange. Our shares are also traded on the
other German stock exchanges in Berlin, Düsseldorf,
Hamburg, Hannover, Munich and Stuttgart and on other European
stock exchanges in London and the Swiss Stock Exchange. In
September 2003, we applied for a delisting of our shares from
the Paris Stock Exchange and the delisting was effective by
December 31, 2003. The ADRs of Siemens AG, each evidencing
one ADS, which represents one share, trade on the New York Stock
Exchange under the symbol SI.

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MARKET PRICE INFORMATION

The table below sets forth, for the calendar
periods indicated, the high and low closing sales prices on the
Frankfurt Stock Exchange for the ordinary shares of Siemens as
reported by the Electronic cash market trading system (Xetra).
The table also shows, for the periods indicated, the closing
highs and lows of the DAX, a German stock index which measures
the performance of the 30 largest German companies in terms
of order book volume and market capitalization, and the average
daily trading volume of our ordinary shares on Xetra. See the
discussion under Item 3: Key
InformationExchange Rate Information, for
information with respect to rates of exchange between the U.S.
dollar and the euro applicable during the periods set forth
below.

|                         |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|------------------------ |  | ------------------ | ------ | --- |  | ------- | ----- | ------------ |  | --------- | ------- |  |  |  | ------- |  |  |  | ----- | 
|                         |  |                    |        |     |  |         |       |             
|                         |  | Price per ordinary |        |     |  | Average
|                         |  | share              |        | DAX |  | daily  
|                         |  |                    |        |     |  | trading
|                         |  | High               |        | Low |  | High    |       | Low          |  | volume(1)
|                         |  |                    |        |     |  |         |       |              |  |          
|                         |  |                    |        |     |  |         |       | (millions of
|                         |  | ()                |        |     |  |         |       | shares)     
|Annual highs and lows    |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|2000                     |  |                    | 127.67 |     |  |         | 75.40 |              |  |           | 8,065.0 |  |  |  | 6,200.7 |  |  |  | 4.012 | 
|2001                     |  |                    | 105.77 |     |  |         | 37.50 |              |  |           | 6,795.1 |  |  |  | 3,787.2 |  |  |  | 5.771 | 
|2002                     |  |                    | 78.52  |     |  |         | 32.05 |              |  |           | 5,462.6 |  |  |  | 2,597.9 |  |  |  | 6.226 | 
|2003                     |  |                    | 64.85  |     |  |         | 32.55 |              |  |           | 3,965.2 |  |  |  | 2,203.0 |  |  |  | 6.274 | 
|2004(2)                  |  |                    | 68.30  |     |  |         | 53.40 |              |  |           | 4,183.4 |  |  |  | 3,647.0 |  |  |  | 4.925 | 
|Quarterly highs and lows |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|2002                     |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|First quarter            |  |                    | 78.52  |     |  |         | 61.82 |              |  |           | 5,462.6 |  |  |  | 4,745.6 |  |  |  | 6.428 | 
|Second quarter           |  |                    | 73.30  |     |  |         | 55.26 |              |  |           | 5,397.3 |  |  |  | 4,099.1 |  |  |  | 5.616 | 
|Third quarter            |  |                    | 63.00  |     |  |         | 34.00 |              |  |           | 4,483.0 |  |  |  | 2,769.0 |  |  |  | 6.399 | 
|Fourth quarter           |  |                    | 51.37  |     |  |         | 32.05 |              |  |           | 3,380.2 |  |  |  | 2,597.9 |  |  |  | 6.462 | 
|2003                     |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|First quarter            |  |                    | 45.04  |     |  |         | 32.55 |              |  |           | 3,157.3 |  |  |  | 2,203.0 |  |  |  | 6.982 | 
|Second quarter           |  |                    | 46.15  |     |  |         | 37.80 |              |  |           | 3,304.2 |  |  |  | 2,450.2 |  |  |  | 6.655 | 
|Third quarter            |  |                    | 58.32  |     |  |         | 41.35 |              |  |           | 3,668.7 |  |  |  | 3,146.6 |  |  |  | 6.179 | 
|Fourth quarter           |  |                    | 64.85  |     |  |         | 52.02 |              |  |           | 3,965.2 |  |  |  | 3,276.6 |  |  |  | 5.273 | 
|2004                     |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|First quarter            |  |                    | 68.30  |     |  |         | 57.30 |              |  |           | 4,151.8 |  |  |  | 3,726.1 |  |  |  | 5.426 | 
|Second quarter           |  |                    | 65.05  |     |  |         | 54.95 |              |  |           | 4,134.1 |  |  |  | 3,754.4 |  |  |  | 4.885 | 
|Third quarter            |  |                    | 61.06  |     |  |         | 53.40 |              |  |           | 4,035.0 |  |  |  | 3,647.0 |  |  |  | 4.564 | 
|Fourth quarter(2)        |  |                    | 61.85  |     |  |         | 57.50 |              |  |           | 4,183.4 |  |  |  | 3,854.4 |  |  |  | 4.770 | 
|Monthly highs and lows   |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|2004                     |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|June                     |  |                    | 60.03  |     |  |         | 55.53 |              |  |           | 4,069.7 |  |  |  | 3,864.2 |  |  |  | 4.478 | 
|July                     |  |                    | 58.60  |     |  |         | 53.95 |              |  |           | 4,035.0 |  |  |  | 3,752.6 |  |  |  | 4.819 | 
|August                   |  |                    | 57.90  |     |  |         | 53.40 |              |  |           | 3,877.3 |  |  |  | 3,647.0 |  |  |  | 4.132 | 
|September                |  |                    | 61.06  |     |  |         | 57.42 |              |  |           | 3,991.0 |  |  |  | 3,817.6 |  |  |  | 4.741 | 
|October                  |  |                    | 61.85  |     |  |         | 57.50 |              |  |           | 4,049.7 |  |  |  | 3,854.4 |  |  |  | 4.962 | 
|November(2)              |  |                    | 61.55  |     |  |         | 59.15 |              |  |           | 4,183.4 |  |  |  | 4,012.6 |  |  |  | 4.519 | 




(1) Data from Datastream International.

(2) Up to and including November 22,
2004.

On November 22, 2004, the closing sale price
per Siemens AG ordinary share on Xetra was
60.58, which was
equivalent to $79.04 per ordinary share, translated at the noon
buying rate for euros on such date.

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TRADING ON THE NEW YORK STOCK EXCHANGE

Official trading of Siemens AG ADSs on the New
York Stock Exchange commenced on March 12, 2001. Siemens AG
ADRs trade under the symbol SI.

The following table sets forth, for the calendar
periods indicated, the high and low closing sales prices per
Siemens AG ADR as reported on the New York Stock Exchange
Composite Tape:

|                         |  |               |       |     |  |  |       | 
|------------------------ |  | ------------- | ----- | --- |  |  | ----- | 
|                         |  |              
|                         |  | Price per ADS
|                         |  |              
|                         |  | High          |       | Low
|                         |  |               |       |    
|                         |  |              
|                         |  | ($)          
|Annual highs and lows    |  |               |       |     |  |  |       | 
|2001                     |  |               | 79.31 |     |  |  | 38.10 | 
|2002                     |  |               | 70.45 |     |  |  | 30.85 | 
|2003                     |  |               | 79.98 |     |  |  | 36.61 | 
|2004(1)                  |  |               | 87.50 |     |  |  | 65.48 | 
|Quarterly highs and lows |  |               |       |     |  |  |       | 
|2002                     |  |               |       |     |  |  |       | 
|First quarter            |  |               | 70.45 |     |  |  | 54.76 | 
|Second quarter           |  |               | 67.00 |     |  |  | 55.19 | 
|Third quarter            |  |               | 60.70 |     |  |  | 33.61 | 
|Fourth quarter           |  |               | 51.04 |     |  |  | 30.85 | 
|2003                     |  |               |       |     |  |  |       | 
|First quarter            |  |               | 47.12 |     |  |  | 36.61 | 
|Second quarter           |  |               | 52.55 |     |  |  | 41.20 | 
|Third quarter            |  |               | 64.79 |     |  |  | 48.65 | 
|Fourth quarter           |  |               | 79.98 |     |  |  | 61.15 | 
|2004                     |  |               |       |     |  |  |       | 
|First quarter            |  |               | 87.50 |     |  |  | 69.75 | 
|Second quarter           |  |               | 77.35 |     |  |  | 65.71 | 
|Third quarter            |  |               | 75.66 |     |  |  | 65.48 | 
|Fourth quarter(1)        |  |               | 79.95 |     |  |  | 72.48 | 
|Monthly highs and lows   |  |               |       |     |  |  |       | 
|2004                     |  |               |       |     |  |  |       | 
|June                     |  |               | 74.35 |     |  |  | 67.72 | 
|July                     |  |               | 71.20 |     |  |  | 65.85 | 
|August                   |  |               | 70.08 |     |  |  | 65.48 | 
|September                |  |               | 75.66 |     |  |  | 69.95 | 
|October                  |  |               | 76.43 |     |  |  | 72.48 | 
|November(1)              |  |               | 79.95 |     |  |  | 75.44 | 




(1) Up to and including November 22,
2004.

On November 22, 2004, the closing sales
price per Siemens AG ADS on the New York Stock Exchange as
reported on the New York Stock Exchange Composite Tape was
$79.57.




ITEM 10: ADDITIONAL INFORMATION

ARTICLES OF ASSOCIATION AND RELEVANT PROVISIONS OF GERMAN
LAW

This section summarizes the material provisions
of our Articles of Association (Satzung) and German law
to the extent that they affect the rights of our shareholders.
The description is only a summary and does not describe
everything that our Articles of Association contain.

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ORGANIZATION

We are a stock corporation organized in the
Federal Republic of Germany under the German Stock Corporation
Act (Aktiengesetz). We are registered in the Commercial
Register (Handelsregister) maintained by the local courts
in Munich, Germany, under the entry number 6684 and in Berlin
Charlottenburg, Germany, under the entry number 12300. Copies of
our Articles of Association are publicly available from the
Commercial Register in Berlin and Munich, and an English
translation is filed with the Securities and Exchange Commission
in the United States. You can find both of them also on our
website www.siemens.com/corporate governance.
Information on our website is not incorporated by reference into
this annual report.

CORPORATE GOVERNANCE

Set forth below is a statement of our Managing
Board and our Supervisory Board regarding corporate governance.

Good corporate governance has traditionally been
a high priority at Siemens. We continue to welcome the ongoing
corporate governance initiatives within and outside of Germany.

The German Corporate Governance Code (the Codex),
first issued in 2002, was expanded in May 2003. Siemens complies
with this expanded version in all but one respect: our directors
and officers liability (D&O) insurance policy does not
include a deductible for Managing Board and Supervisory Board
members. Our senior managers, both in and outside Germany, are
covered by a group insurance policy. It is not considered
appropriate to differentiate between board members and other
high-level personnel. Furthermore, such a deductible is not
common outside Germany.

Our Declaration of Conformity, set forth below,
is posted on our website and updated as necessary. Siemens
voluntarily complies with all of the Codexs non-obligatory
suggestions, with only minor exceptions. Specific details may be
found at the Corporate Governance section of our website.

Due to our listing on the New York Stock Exchange
(NYSE), we are subject to certain U.S. capital markets laws and
regulations of the U.S. Securities and Exchange Commission (SEC)
and rules of the NYSE. In July 2002, the Sarbanes-Oxley Act
(SOA) became U.S. law. The SOA aims to strengthen investor
protection and restore confidence in the U.S. capital markets.
To those ends, the SOAtogether with associated SEC and
NYSE rulesintroduced numerous changes in corporate
governance regulations for all companies listed in the U.S.

To facilitate our compliance with the SOA, we
have, among other things, established a Disclosure Committee
(comprised of eight central department heads) that is
responsible for reviewing and approving certain financial and
non-financial information before we make it public. We have also
introduced procedures that require the respective managements of
our Groups and subsidiaries to certify certain matters, as
discussed below. These procedures and certifications provide a
basis on which the Chief Executive Officer (CEO) and the Chief
Financial Officer (CFO) of Siemens AG certify our financial
statements to the SEC, as required by the SOA. Pursuant to the
requirements of the SOA, Siemens has conformed the Bylaws of the
Audit Committee of its Supervisory Board, revised its procedures
governing its relationship to the Companys independent
auditors, implemented procedures for handling complaints related
to accounting practices and introduced a Code of Ethics for
Financial Matters.

MANAGEMENT AND CONTROL STRUCTURETHE SUPERVISORY
BOARD

As a German stock corporation with registered
offices in Berlin and Munich, Siemens is subject to German
corporate law. Consequently, the Company has a two-tier
management and oversight structure consisting of a Managing
Board and a Supervisory Board. The Supervisory Board has twenty
members. As stipulated by the German Co-determination Act (the
Co-determination Act), one-half of the Boards members
represent Company shareholders, and one-half represent Company
employees. The shareholder representatives are elected by the
Annual Shareholders Meeting. The employee representatives
are elected by an assembly representing Siemens employees
in Germany. Seven of the employee representatives must be
Siemens group employees, and three must be external
representatives nominated by certain German unions. According to
the Bylaws of the Supervisory

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Board, the shareholder representatives must be
independent. Some Supervisory Board members hold, or held in the
past year, high-ranking positions at other companies. Siemens
maintains normal business relationships with almost all of these
companies. However, our sales of products and/or services to
them are transacted on arms length bases. Furthermore, the
volumes of these respective sales are quite small in relation to
each of the companies total sales. Consequently, we
believe that these dealings do not compromise the independence
of our Supervisory Board members associated with these companies.


The Supervisory Board is elected for five years.
It normally meets five times each year and regularly convenes in
executive session without the Managing Board in attendance. The
duties, procedures and committees of the Supervisory Board are
specified in its bylaws. These bylaws contain rules regarding,
among other things, the independence, experience and knowledge
required of Supervisory Board members and rules regarding
conflicts of interest.

The Supervisory Board oversees and advises the
Managing Board in its management of Company business. At regular
intervals, it discusses business development, planning, strategy
and implementation. It also reviews Siemens quarterly
reports and approves the annual, stand-alone financial
statements of Siemens AG, as well as the Consolidated Financial
Statements of Siemens, taking into account both the audit
reports provided by the independent auditors and the results of
the review conducted by the Audit Committee. In addition, the
Supervisory Board appoints the members of the Managing Board and
allocates members individual duties. Important Managing
Board decisions such as major acquisitions, divestments
and financial measures require Supervisory Board approval.

The Supervisory Boards Bylaws establish
four committees, whose duties, responsibilities and procedures
fulfill the requirements of the Codex, reflect applicable SOA
requirements and incorporate applicable NYSE rules, as well as
certain NYSE rules not mandatorily applicable to Siemens AG.
Committee bylaws are posted on our website.

The Chairmans Committee, comprising
two shareholder representatives and one employee representative,
performs the collective tasks of nominating, compensation and
corporate governance committees. It meets at least five times
each year without the Managing Board in attendance. The
Chairmans Committee determines the conditions of
employment of Managing Board members and the level and structure
of their remuneration, including what part of the Managing
Boards total compensation will take the form of
stock-based compensation. In addition, the Chairmans
Committee makes proposals regarding the appointment of Managing
Board members. Finally, it reviews and ensures the further
development of Siemens corporate governance principles.

The Audit Committeeconsists of three
shareholder representatives and two employee representatives.
The SOA requires that all members of our Audit Committee must be
independent, as provided in the SOA, no later than July 31,
2005. Nevertheless, SEC rules provide a limited exemption from
this requirement for the employee representatives, to the extent
that they are employees of the Company and elected in accordance
with the Co-determination Act. The Audit Committee oversees the
appropriateness and the effectiveness of the Companys
external and internal accounting processes, meeting at least
five times each year. The Audit Committee and the independent
auditors also review the Companys financial statements
prepared quarterly and annually by management. On the basis of
the independent auditors report on its review of the
annual financial statements, the Audit Committee makes a
recommendation to the Supervisory Board whether or not it should
approve those financial statements. In addition, the Audit
Committee oversees the Companys internal control system
and its procedures for assessing, monitoring and managing risk.
It also monitors statutory and regulatory compliance. The
Companys Financial Audit Department reports regularly to
the Audit Committee, which determines the scope and focal points
of its financial audit. The Audit Committee is also responsible
for liaising between the Company and its independent auditors.
In particular, it awards the annual audit contract to the
independent auditors appointed at the Annual Shareholders
Meeting and initially determines the focal points of their
audit, as well as their fee. In addition, the Audit Committee
monitors the independence, qualifications, rotation and
performance of the independent auditors.

In accordance with the requirements of the SOA,
the Supervisory Board has determined that Dr. Josef
Ackermann, Dr. Karl-Hermann Baumann and Dr. Henning
Schulte-Noelle qualify to serve as Audit Committee financial
experts.

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The Mediation Committeecomprises two
shareholder representatives and two employee representatives. In
the event that the Supervisory Board cannot reach the two-thirds
majority required to appoint a Managing Board member, the
Mediation Committee submits proposals for resolution to the
Supervisory Board.

The Ownership Rights Committee (formerly
called the Investment Committee), comprising three
shareholder representatives, is responsible for decisions
regarding the exercise of Siemens shareholder rights in
other companies.

THE MANAGING BOARD

The Managing Board of Siemens AG, which currently
has twelve members, is the Companys top management body.
It is obligated to promote the interests of the Company at all
times and to drive sustainable growth in company value. Since
October 2004, its Corporate Executive Committee has ten members
(effective January 27, 2005, it will have nine members).
The President and CEO defines overall Company policies in
cooperation with the Corporate Executive Committee. The Managing
Boards responsibilities include determining the
Companys strategic orientation, planning and finalizing
the Company budget, allocating resources, and monitoring the
executive management of each Group. Furthermore, the Managing
Board is responsible for the preparation of the Companys
quarterly reports; the annual, stand-alone financial statements
of Siemens AG and the Consolidated Financial Statements of
Siemens. It also appoints personnel to fill key Company
positions.

The Managing Board cooperates closely with the
Supervisory Board. It informs the Supervisory Board regularly,
promptly and comprehensively regarding all issues related to
Company strategy and strategy implementation, planning, business
development, financial position, earnings and risks. Major
decisions of the Managing Board require Supervisory Board
approval.

SHAREHOLDER RELATIONS

Four times each year at dates specified in
our financial calendar Siemens AG reports to its
shareholders regarding its business development, financial
position and earnings. The CEO and the CFO report to investors,
analysts and the press regarding the quarterly and full-year
results. Information which may materially affect Siemens
share price is published in press releases throughout the year.

An ordinary Annual Shareholders Meeting
normally takes place within the first four months of each fiscal
year, with each share carrying one vote. All shareholders listed
in the stock register and from whom notification of attendance
has been received by a specified date are entitled to
participate. The Managing Board facilitates shareholder
participation in the meeting through the use of electronic means
of communication in particular the Internet and
enables shareholders who are unable to attend the meeting to
exercise their voting rights by communicating instructions
directly to their representatives. In connection with the
January 2005 Annual Shareholders Meeting, for the first
time shareholders may receive their notice of the meeting
electronically. The meeting is directed by the Chairman of the
Supervisory Board.

The Annual Shareholders Meeting decides on
all matters assigned to it by law. Its decisions are binding on
all shareholders and on the Company. They include, in
particular, voting on the appropriation of net income,
ratification of the acts of the Managing and Supervisory Boards,
and the appointment of the independent auditors. Amendments to
the Articles of Association and measures which change the
Companys capital stock are approved exclusively at the
Annual Shareholders Meeting and implemented by the
Managing Board with the approval of the Supervisory Board.
Shareholders may submit counter-proposals to the proposals of
the Managing and Supervisory Boards and may contest decisions of
the Annual Shareholders Meeting. Shareholders owning
Siemens stock with an aggregate par value of
1 million
or more may also demand a special judicial review of a
particular decision.

As part of our investor relations activities, the
CEO, the CFO and individual members of the Group executive
managements meet regularly with analysts and institutional
investors. We hold a conference for analysts once a year, as
well as telephone conferences with analysts upon the publication
of our quarterly results. Our website provides access to
financial data and other business-related information regarding
Siemens.

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RISK MANAGEMENT

The Company has a system for assessing and
monitoring its potential business and financial risks. The
components of this risk management system are designed to help
enable us to anticipate risks and to manage them carefully in
the pursuit of our business goals. The principles, guidelines,
processes and responsibilities of our internal control system
have been defined and established to help ensure prompt and
accurate accounting of all business transactions and to
continuously provide reliable information about the
Companys financial position for internal and external use.

However, the components of the internal control
and risk management system do not eliminate risk entirely and,
thus, cannot prevent loss or fraud in all cases. We intend to
rapidly adjust the risk management and monitoring procedures of
all businesses acquired during the fiscal year, so that they
conform to Siemens standards.

FINANCIAL ACCOUNTING

The Consolidated Financial Statements of Siemens
worldwide are prepared in accordance with the United States
Generally Accepted Accounting Principles (U.S. GAAP), as
permitted by the German Commercial Code. The annual, stand-alone
financial statements of Siemens AG are prepared in accordance
with the accounting rules set out in the German Commercial Code.
The Managing Board directs the preparation of the financial
statements. The existing internal control system and the
Company-wide use of uniform guidelines help to ensure the
accuracy of our financial statements. In addition, we have
established a system of internal certification by which the
executive management of each of our Groups and subsidiaries
certify, among other things, the accuracy of their reports to
the Managing Board, including that such reports fairly present
in all material respects the financial condition, results of
operations and cash flows of the reporting entity. They also
certify that such management has reviewed the reporting
entitys disclosure controls and procedures and concluded
that they were effective as of the end of the period covered by
the relevant report. This system is a basis for the statements
of certification that must be signed by the CEO and the CFO and
submitted to the SEC with the annual report on Form 20-F,
in accordance with the SOA requirements. In those statements,
the CEO and the CFO certify the accuracy of the statements in
the annual report, including that the financial statements
fairly present (in all material respects) the financial
condition, results of operations and cash flows of Siemens. They
also certify (1) that the effectiveness of Siemens
system of disclosure controls and procedures has been evaluated,
(2) that they have presented in this annual report their
conclusions related to this evaluation and (3) that they
have disclosed in this report any change in the Companys
internal controls over financial reporting that occurred during
the period covered by this report that has materially affected,
or is reasonably likely to materially affect, the Companys
internal controls over financial reporting.

Additional SOA requirements, which will come into
effect for Siemens in fiscal 2005, mandate that we include in
our management report on internal controls the conclusions of
management about the effectiveness of Siemens internal
controls over financial reporting, based on managements
review of those controls. The additional requirements also
demand that the independent auditors provide an
attestation regarding the managements
assessment.

BUSINESS CONDUCT GUIDELINES AND CODE OF ETHICS

Siemens is committed to conducting its business
responsibly and in compliance with all relevant statutory and
regulatory requirements. The Managing Board has established firm
guidelines to help ensure that this goal is achieved. The
Business Conduct Guidelines comprise rules regarding compliance
with applicable laws, conflicts of interest, the use of Company
assets and facilities, and insider trading. These rules are
binding for all Siemens employees, the Managing Board and the
Supervisory Board. The Guidelines also specify procedures for
dealing with complaints. A compliance officer, who reports to
the Audit Committee, processes all complaints, including those
submitted anonymously. In accordance with the requirements of
the SOA, procedures for handling potential complaints related to
accounting practices, and procedures for handling relevant
complaints from specific attorneys (internal and external) have
been implemented during fiscal 2004. In addition, the Managing
Board and

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the Supervisory Board have implemented a Code of
Ethics for Financial Matters, as required by the SOA rules. Both
the Business Conduct Guidelines and the Code of Ethics for
Financial Matters are available on our website.


SIGNIFICANT DIFFERENCES FROM NYSE CORPORATE GOVERNANCE
STANDARDS

Companies listed on the NYSE are subject to the
Corporate Governance Standards of Section 303A (the NYSE
Standards) of the NYSE Listed Company Manual. Under the NYSE
Standards, Siemens AG, as a foreign private issuer, is permitted
to follow its home-country corporate governance practices in
lieu of the NYSE Standards, except that it is required to comply
with the NYSE Standards relating to the having of an audit
committee (comprised of members who are independent
under the SOA) and to certain NYSE notification obligations. In
addition, the NYSE Standards require that foreign private
issuers disclose any significant ways in which their corporate
governance practices differ from those required of
U.S. domestic companies under the NYSE Standards.

As a company incorporated in Germany, Siemens AG
generally follows German corporate governance principles,
particularly those set forth in the German Stock Corporation Act
(the Stock Corporation Act), the Co-determination Act and the
Codex. (For additional information on our corporate governance,
please refer to Item 6: Directors, Senior Management
and Employees and to the other subsections of this
Item 10.)

The significant differences between our
governance practices and those of domestic NYSE issuers are as
follows:

Two-Tier
Board The Stock Corporation
Act requires Siemens AG to have a two-tier board structure
consisting of a Managing Board and a Supervisory Board which is
not comparable to the one-tier (or unitary) board system in the
U.S. The two-tier system provides a strict separation of
management and supervision. Roles and responsibilities of each
of the two boards are clearly defined by law.

The composition of the Supervisory Board is
determined in accordance with the Co-determination Act, which
requires that one-half of the required 20 Supervisory Board
members must be elected by our domestic employees. In the event
of a tie vote at the Supervisory Board, the Chairman of the
Supervisory Board is entitled to cast a deciding vote.

Independence
Under this two-tier board system, our methods for determining
and ensuring the independence of our Supervisory Board differ
from those of the NYSE Standards, which generally contemplate a
U.S.-style, one-tier system. In contrast to the NYSE Standards,
which require the board to affirmatively determine the
independence of the individual directors with reference to
specific tests of independence, German law does not require the
Supervisory Board to make such affirmative findings on an
individual basis. At the same time, the Bylaws of our
Supervisory Board contain several provisions to help ensure the
independence of the Supervisory Boards advice and
supervision. Furthermore, the members of the Supervisory and
Managing Boards are strictly independent from one another; a
member of one board is legally prohibited from being
concurrently active on the other. Supervisory Board members have
independent decision making authority and are legally prohibited
from following the direction or instruction of any affiliated
party. Moreover, Supervisory Board members may not enter into
advisory, service or certain other contracts with Siemens,
unless approved by the Supervisory Board.

Committees
The NYSE Standards require the creation of several specified
board committees composed of independent directors and operating
pursuant to written charters that set forth their tasks and
responsibilities. The Supervisory Board of Siemens AG has
created several committees. In addition, both the Audit
Committee and the Chairmans Committee have written
bylaws adopted by the Supervisory Board based on the NYSE
Standards addressing their respective purposes and
responsibilities. Nevertheless, German law precludes certain
responsibilities from being delegated to a committee, such as
the selection of the independent auditors, who are required by
German law to be elected at the shareholders meeting. The
independence of the members of our Supervisory Board committees
is governed by the independence standards, set forth above,
applicable to Supervisory Board members.

Collectively, our Supervisory Board committees
are responsible for many of the same functions as the committees
required under the NYSE Standards. Yet, while the tasks
performed by committees meeting the

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NYSE Standards and the committees formed by
Siemens AG are similar in the aggregate, the specific division
of the various tasks among the committees differs.


For example, our Chairmans Committee
performs many of the tasks that nominating, corporate governance
and compensation committees perform under the NYSE
Standards such as, making recommendations to the
Supervisory Board on the appointment and dismissal of members of
the Managing Board, determining the Managing Boards
employment framework and remuneration, and corporate governance
issues.

Our Audit Committee is subject to the standards
of the SOA and the Securities Exchange Act of 1934, as
applicable to a foreign private issuer, and it performs
functions similar to those of an audit committee under the NYSE
Standards.

As discussed above, Siemens AG also has an
Ownership Rights Committee and a Mediation Committee, the latter
of which is required by German law. Neither is required under
the NYSE Standards.

Shareholder Approval of Equity Compensation
Plans; Stock Repurchases The
NYSE Standards generally require U.S. domestic companies to
obtain shareholder approval of all equity-compensation plans
(including stock option plans) and any material revisions to
them. Our adoption of stock option plans and any material
revisions thereto require the approval by our shareholders in so
far as the issuance of shares and/or stock options under
authorized or contingent capital authorizations requires
shareholder approval (which approval requires consideration of
the key elements of the applicable option plan or relevant
modifications). The 2001 Siemens Stock Option Plan was so
approved in 2001. Similarly, before we may repurchase our shares
in the market(s), any such buy-back as well as our use of
such repurchased shares for, among other things, offers to
members of the Managing Board and/or our employees
generally requires our shareholders approval. Such
approval was provided during our January 22, 2004 annual
shareholders meeting and such matters will generally be
voted upon annually.

Corporate Governance
Guidelines Various documents
pertaining to our corporate governance including
Siemens Articles of Association, the Bylaws of the
Supervisory Board and those of its committees, and the report on
our fulfillment of the requirements of the Codex may be
found on our internet website at
www.siemens.com/corporate_governance. The information on our
website is not incorporated by reference into this annual report.

DECLARATION OF CONFORMITY WITH THE CODEX

At their meetings on November 9 and 10,
2004, respectively, the Managing Board and the Supervisory Board
approved the following Declaration of Conformity pursuant to
§ 161 of the German Stock Corporation Act:

Siemens AG has fully complied with the
recommendations of the German Corporate Governance Code
(Codex) in the version of May 21,
2003 except in the respects identified in our declaration
of November 12, 2003 (Managing Board compensation not
reported on an individualized basis, our D&O insurance
without a deductible); and will fully comply with such
recommendations of the Codex, except in one respect (our D&O
insurance without a deductible).

OBJECTS AND PURPOSES

According to Section 2 of our Articles of
Association, the objects and purposes of our Company are:



| |   |                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to manufacture, distribute and supply industrial
    products in the fields of electrical engineering and
    electronics, mechanical engineering, precision mechanics as well
    as related sectors of engineering, including research and
    development in these fields;                           
|
| |  | to develop, plan, distribute, supply, assemble
    and commission trade-specific and customer-specific systems,
    solutions and facilities in the fields of electrical engineering
    and electronics, mechanical engineering, precision mechanics as
    well as related sectors of engineering; and

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| |   |                                                              
| | - | -------------------------------------------------------------
| |  | to render industrial and other business-related
    services.

Our Articles of Association authorize us to
engage in business of any kind and to take any and all measures
related to or useful in promoting our objects. We may also
operate domestic and foreign factories, establish branch
offices, found, acquire, consolidate with, or participate in
other companies, conclude or participate in other management
contracts, and enter into joint ventures.

DIRECTORS

Under German law, our Supervisory Board members
and Managing Board members owe a duty of loyalty and care to our
Company. They must exercise the standard of care of a prudent
and diligent businessman and bear the burden of proving they did
so if their actions are contested. Both boards have a duty to
take into account the interests of our shareholders and our
workers and, to some extent, are also required to observe the
public interest. Those who violate their duties are jointly and
severally liable to the Company for any damage that their
violations have caused unless their actions were validly
approved by a resolution at a prior shareholders meeting
with a simple majority of the votes cast.

No board member may vote on a matter that
concerns formal approval of his own acts or in which he has a
material interest, and no member of either our Supervisory Board
or our Managing Board may receive loans from us.

There is no mandatory retirement age for members
of either board under our Articles of Association. However,
according to the Managing Boards Bylaws, the age of a
member of the Managing Board shall not exceed 65. Likewise, the
Bylaws of the Supervisory Board recommend that members of the
Supervisory Board shall not be older than 70. There is no share
ownership requirement for the members of either of our boards.

See also Item 6: Directors, Senior
Management and EmployeesSupervisory Board
andManaging Board, for further information about the
Supervisory Board and the Managing Board.

RIGHTS, PREFERENCES AND RESTRICTIONS ATTACHING TO OUR
SHARES

VOTING RIGHTS

Our shareholders vote at shareholders
meetings. A shareholders meeting may be called by either
our Managing Board or our Supervisory Board. The Annual
Shareholders Meeting must take place within the first
eight months of each fiscal year. In addition, shareholders who
in the aggregate hold 5% or more of our registered share capital
may require the Managing Board to call a meeting. Shareholders
holding shares with an aggregate value of at least
500,000 of our
registered share capital may require that particular items be
placed on the agenda of the meeting.

Under German law and our Articles of Association,
we must publish notices of shareholder meetings in the Federal
Gazette at least one month prior to the deadline set by the
notice in which we ask our shareholders to notify us that they
intend to attend the meeting. In coming years, we intend to take
advantage of provisions in German law that allow the Internet to
be used as a means to communicate with shareholders.

In order to be entitled to participate and vote
at the meeting, a shareholder must be registered in the share
register on the meeting date, and must also have notified us in
writing or electronically no later than six full days, or such
lesser period as the Managing Board may specify, before the
meeting date that he or she wishes to attend the meeting.

At our shareholders meetings, each share
carries one vote. In certain cases, a shareholder can be
prevented from exercising his or her voting rights. This rule
applies, for example, if we discharge one of our shareholders
from liability or assert claims against one of our shareholders.
Resolutions are generally passed with a simple majority of the
votes cast at the meeting. Resolutions that require a capital
majority are passed with a simple majority of the issued capital
present at the meeting, unless statutory law or our Articles of
Association require otherwise. Under the German Stock
Corporation Act, a number of significant resolutions must be
passed by a

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vote of at least 75% of the share capital present
at the meeting. This 75% majority requirement applies, among
others, to the following matters:




| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | amendments of our Articles of Association (except
    amendments that would impose an additional duty upon our
    shareholders or change certain rights and obligations attaching
    to our shares, which in addition require the approval of all
    shareholders concerned);
|
| |  | capital increases and decreases;                                                                                                                                                                                                                                                
|
| |  | exclusion of preemptive rights in connection with
    a capital increase;                                                                                                                                                                                                       
|
| |  | the creation of authorized capital or conditional
    capital or the issue of convertible bonds and bonds with
    warrants attached;                                                                                                                                           
|
| |  | the dissolution of our Company;                                                                                                                                                                                                                                                 
|
| |  | merger or consolidation of our Company with
    another stock corporation or certain other corporate
    transformation;                                                                                                                                                        
|
| |  | transfer of all or virtually all of our assets;
    and                                                                                                                                                                                                                         
|
| |  | the approval of any direct control, profit and
    loss pooling or similar intercompany agreements.                                                                                                                                                                             

Although we must notify shareholders of an
ordinary or extraordinary shareholders meeting as
described above, neither the German Stock Corporation Act nor
our Articles of Association fix a minimum quorum requirement.
Accordingly, holders of a minority of our shares could control
the outcome of actions not requiring a specified majority of our
outstanding share capital.

Neither German law nor our Articles of
Association restrict the right of non-resident or foreign owners
of our shares to hold or vote the shares.

DIVIDEND RIGHTS

Under applicable German law, we may declare and
pay dividends only from annual net profits as they are shown in
the German statutory annual financial statements of Siemens AG.
For each fiscal year, the Managing Board approves the annual
financial statements and submits them to the Supervisory Board
with its proposal as to the appropriation of the annual net
profit. The proposal will set forth what amounts of the annual
net profit should be paid out as dividends, transferred to
capital reserves, or carried forward to the next fiscal year.
Upon approval by the Supervisory Board, the Managing Board and
the Supervisory Board submit their combined proposal to the
shareholders at the Annual Shareholders Meeting. The
general assembly of shareholders ultimately determines the
appropriation of annual net profits, including the amount of the
annual dividends. Our Managing and Supervisory Boards may not
allocate more than one half of our annual surplus to profit
reserves if, following this allocation, our accumulated profit
reserves would exceed one half of our share capital. In
determining the distribution of profits, however, our
shareholders may allocate additional amounts to profit reserves
and may carry forward profits in part or in full. Our
shareholders participate in profit distributions in proportion
to the number of shares they hold.

There are two different types of dividends: cash
dividends and dividends in kind. Dividends approved at a
shareholders meeting are payable on the first stock
exchange trading day after that meeting, unless otherwise
decided at the shareholders meeting. If you hold shares
that are entitled to dividends in a clearing system, the
dividends will be paid according to that clearing systems
rules. If you hold physical certificates, you are no longer able
to exercise dividend or other rights attaching to the shares
without first surrendering the physical certificates to a
financial institution that maintains securities accounts. We
will publish notice of dividends paid, and the paying agent or
agents that we have appointed, in the Federal Gazette.

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LIQUIDATION RIGHTS

In accordance with the German Stock Corporation
Act, if we are liquidated, any liquidation proceeds remaining
after all our liabilities have been paid off would be
distributed among our shareholders in proportion to the number
of common shares held by them.

PREEMPTIVE RIGHTS

Under the German Stock Corporation Act, our
shareholders generally have preemptive rights. Preemptive rights
are preferential rights to subscribe for issues of new shares in
proportion to the number of shares that a shareholder already
holds in the corporations existing share capital. These
rights do not apply to shares issued out of conditional capital
or if a capital increase has occurred and our shareholders have
waived their preemptive rights in connection with that increase.
Preemptive rights also apply to securities other than shares if
they may be converted into shares, such as options, securities
with warrants, profit-sharing certificates and securities with
dividend rights. The German Stock Corporation Act allows
companies to exclude or restrict preemptive rights in connection
with capital increases only in limited circumstances and only in
the same shareholders resolution that authorizes the capital
increase. At least 75% of the share capital represented at the
meeting that approves a capital increase has to vote for
exclusion or restriction of preemptive rights in connection with
that increase. In addition to being approved by the
shareholders, any exclusion or restriction of preemptive rights
requires a justification, which our Managing Board has to set
forth in a written report to our shareholders. The justification
requires a showing that our interest in excluding or restricting
preemptive rights outweighs the shareholders interest in
exercising these rights. If our Managing Board increases our
share capital for cash in accordance with our Articles of
Association, it may, for example, exclude preemptive rights:



| |   |                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to the extent that we have an obligation to grant
    new shares to holders of warrants or convertible bonds that we
    or any of our subsidiaries have issued;                                                                                                                                    
|
| |  | if the newly issued shares represent 10% or less
    of our existing share capital at the time we register the
    authorized capital or issue the new shares, and the issue price
    of the new shares is not substantially less than the stock
    exchange price as defined under German law; or
|
| |  | to the extent necessary to avoid fractional
    amounts that may arise in the case of share issuance upon the
    exercise of preemptive rights.                                                                                                                                                    

Under German law, preemptive rights may be
transferred separately from the underlying shares and may be
traded on any of the German stock exchanges on which our shares
are traded until a certain number of days prior to the last date
on which the preemptive rights may be exercised.

Our shareholders have waived their preemptive
rights with respect to shares issued to employees, with respect
to shares issued in exchange for an in-kind contribution out of
authorized capital and with respect to treasury stock; see also
 Repurchase of Our Own Shares. Additionally,
our shareholders have waived their preemptive rights in certain
cases with respect to the issuance of bonds with conversion
rights or warrants:



| |   |                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | if the issue price of the bond is not
    significantly lower than its fair market value determined in
    accordance with generally accepted actuarial methods;                       
|
| |  | if this is necessary with regard to small
    residual amounts that result from the exchange ratio; or                                                                                 
|
| |  | to the extent holders of such rights are
    entitled, upon their exercise, to subscribe for our common
    shares in order to avoid dilution of the economic value of such
    rights.

DISCLOSURE REQUIREMENT

Our Articles of Association do not require our
shareholders to advise us when their holdings exceed specified
thresholds. Under the German Securities Trading Act
(Wertpapierhandelsgesetz), however, holders of the voting
securities of German corporations admitted to organized markets
on a stock exchange within the European Union or the European
Economic Area are required to notify promptly and in writing the
company in

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which they hold the securities and the German
Federal Financial Supervisory Authority (Bundesanstalt
für Finanzdienstleistungsaufsicht) of the level of
their holdings whenever such holdings reach, exceed or fall
below certain thresholds. These thresholds are set at 5%, 10%,
25%, 50% or 75% of our outstanding voting rights. If a
shareholder fails to notify the company or the German Federal
Financial Supervisory Authority as required, he or she cannot
exercise any rights associated with the shares for as long as
the default continues. Additionally, the German Takeover Act
(Wertpapiererwerbs- und Übernahmegesetz) requires
the publication of the acquisition of control, which
is defined as holding of at least 30% of the voting rights in a
target company, within seven days.


The German Securities Trading Act, amended in
October 2004, requires the reporting of certain directors
dealings. According to the Act, persons discharging managerial
responsibilities within a publicly-traded issuer have to notify
both the issuer and the German Federal Financial Supervisory
Authority about their transactions relating to the issuers
shares and derivatives or other financial instruments linked to
those shares. Certain persons closely associated with these
managers, for example spouses, dependent children, or other
relatives sharing the same household, are under the same
obligation. Similarly, the reporting obligation also applies to
legal entities, trusts and partnerships that are managed or
controlled by any such manager or associated person, or that are
set up for the benefit of such a person, or whose economic
interests are substantially equivalent to those of such person.
Nevertheless, there is no notification obligation until the
total amount of transactions of a covered manager and all his
associated persons is at least
5,000 during any
calendar year. The issuer is obliged to publish on its website
all notifications it receives.

REPURCHASE OF OUR OWN SHARES

We may not acquire our own shares unless so
authorized by a resolution duly adopted by our shareholders at a
general meeting or in other very limited circumstances set forth
in the German Stock Corporation Act.

The German Stock Corporation Act generally limits
share repurchases to 10% of our share capital. In addition, any
shareholders resolution that authorizes us to repurchase
shares may not be in effect for a period of longer than
18 months. The resolution presently in effect is valid
until July 21, 2005. Shares that are repurchased may be
(i) retired with the approval of the Supervisory Board;
(ii) used to satisfy our obligations under the 1999 Siemens
Stock Option Plan and the 2001 Siemens Stock Options Plan;
(iii) offered for sale to employees within the employee
share program; (iv) used to service the conversion or
option rights granted by us in connection with the issuance of
bonds or (v) transferred to the members of the Managing
Board as stock-based compensation with a blocking period of at
least two years.

JURISDICTION

Our Articles of Association provide that by
subscription to or by otherwise acquiring shares or temporary
certificates for shares, a shareholder submits to the
jurisdiction of the courts of our legal domicile in all disputes
with us or our governing bodies.

MATERIAL CONTRACTS

On December 5, 2001, Siemens irrevocably
transferred 200 million Infineon shares or approximately
28.9% of Infineons outstanding share capital to First
Union Trust Company, N.A., as trustee under a trust agreement
that Siemens entered into with First Union Trust on
December 5, 2001. As a result of its merger with First
Union Trust, Wachovia Trust Company, N.A. succeeded First Union
Trust as the trustee under the trust agreement. In January 2004,
Siemens sold 150 million Infineon shares, 63,707,637 of
which were sold by the trustee, Wachovia Trust Company. As a
result of this transaction, Siemens ownership interest in
Infineon decreased to 18.9% (as of the effective date of the
sale).

The trust agreement provides that it will
terminate when Siemens and its affiliates, on a consolidated
basis, have held, directly or indirectly, less than 50% of the
voting share capital of Infineon, including the shares held in
trust by the trustee, for a period of two consecutive years. As
this occurred on November 28, 2004, the trust and

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the related standstill agreement terminated on
that date. Consequently, the 136,292,363 Infineon shares held by
the trustee reverted to Siemens and Siemens again is entitled to
vote these shares.


EXCHANGE CONTROLS

At present, Germany does not restrict the
movement of capital between Germany and other countries or
individuals except certain persons and entities associated with
Osama bin Laden, the Al-Qaida network and the Taliban and
certain other individuals and countries subject to embargoes in
accordance with German law and applicable resolutions adopted by
the United Nations and the EU.

For statistical purposes, with certain
exceptions, every corporation or individual residing in Germany
must report to the German Central Bank any payment received from
or made to a non-resident corporation or individual if the
payment exceeds
12,500 (or the
equivalent in a foreign currency). Additionally, corporations
and individuals residing in Germany must report to the German
Central Bank any claims of a resident against, or liabilities
payable to, a non-resident corporation or individual exceeding
an aggregate of
5 million
(or the equivalent in a foreign currency) at the end of any
calendar month. Resident corporations and individuals are also
required to report annually to the German Central Bank any
stakes of 10% or more they hold in the equity of non-resident
corporations with total assets of more than
3 million.
Corporations residing in Germany with assets in excess of
3 million
must report annually to the German Central Bank any stake of 10%
or more in the company held by an individual or a corporation
located outside Germany.

TAXATION

GERMAN TAXATION

The following discussion is a summary of the
material German tax consequences for beneficial owners of our
shares or ADSs (i) who are not German residents for German
income tax purposes (i.e., persons whose residence, habitual
abode, statutory seat or place of effective management and
control is not located in Germany) and (ii) whose shares or
ADSs do not form part of the business property of a permanent
establishment or fixed base in Germany. Throughout this section
we refer to these owners as Non-German Holders.

This summary is based on German tax laws and
typical tax treaties to which Germany is a party as they are in
effect on the date hereof, and is subject to changes in German
tax laws or such treaties. This summary also reflects changes
applicable to Siemens resulting from the Flood Victim Solidarity
Act which was enacted in September 2002. The changes resulting
from the Flood Victim Solidarity Act were applicable to Siemens
with respect to its fiscal year beginning October 1, 2002.
The following discussion does not purport to be a comprehensive
discussion of all German tax consequences that may be relevant
for Non-German Holders. You should consult your tax advisor
regarding the German federal, state and local tax consequences
of the purchase, ownership and disposition of our shares or ADSs
and the procedures to follow to obtain a refund of German taxes
withheld from dividends.

Taxation of the Company in Germany

German corporations are subject to a corporate
income tax rate of 25%. The solidarity surcharge of 5.5% on the
net assessed corporate income tax has been retained, so that the
corporate income tax and the solidarity surcharge, in the
aggregate, amount to a tax rate of 26.375%. The corporate income
tax rate was increased by the Flood Victim Solidarity Act. As a
result of this Act, the German corporate income tax rate
increased from 25% to 26.5% for the fiscal year 2003 only and,
accordingly, the aggregate amount of corporate income tax
including the Flood Victim Solidarity surcharge and the
solidarity surcharge, increased for fiscal year 2003 to 27.958%.

In addition, German corporations are subject to
profit-related trade tax on income, the exact amount of which
depends on the municipality in which the corporation maintains
its business establishment(s). Trade tax on income is a
deductible item in computing the corporations tax base for
corporate income tax purposes.

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Beginning in fiscal year 2004, the deduction for
a taxable loss carryforward is limited to 60% of the taxable
income for the fiscal year. The temporary loss carryforward is
unchanged and remains unlimited.

Taxation of Dividends

For dividend distributions paid by Siemens
attributable to its fiscal year ending on or after
September 30, 2002, a tax credit is no longer available to
German tax payers with respect to dividends. To avoid multiple
levels of taxation in a corporate chain, the German tax law
provides for an exemption comparable to a full dividend-received
deduction for inter-corporate dividends received by a German
corporate shareholder, irrespective of ownership percentage.
Commencing with fiscal year 2004, the full deduction for
received dividends is limited to 95%. German resident
individuals must recognize 50% of the dividends received as
taxable income. Certain transition rules apply in connection
with the change from the former corporate income tax credit
system to the current system.

Imposition of Withholding Tax

For dividend distributions made by Siemens
attributable to fiscal years beginning on or after
October 1, 2001, the withholding tax rate is reduced to
20%. A solidarity surcharge of 5.5% on the withholding tax has
been retained, resulting in a total withholding tax rate from
dividends of 21.1%.

For many Non-German Holders, the withholding tax
rate is reduced under applicable income tax treaties. Under most
income tax treaties to which Germany is a party, the rate of
dividend withholding tax is reduced to 15%. To reduce the
withholding to the applicable treaty rate of 15%, a Non-German
Holder must apply for a refund of withholding taxes paid. The
refund amounts to 11.375% of the declared dividend for dividend
distributions withheld at an aggregate 26.375% rate prior to the
German Tax Reform effective date and 6.1% of the declared
dividend for dividend distributions withheld thereafter at the
new rate of 21.1%. The application for refund must be filed with
the German Federal Tax Office (Bundesamt für Finanzen,
Friedhofstrasse 1, D  53221 Bonn, Germany;
http://www.bff-online.de/). The relevant forms can be obtained
from the German Federal Tax Office or from German embassies and
consulates.

Special Tax Rules for U.S. Shareholders

Under the U.S.-German Income Tax Treaty (the
Treaty), the withholding tax rate is reduced to 15%
of the gross amount of the dividends. Dividend payments to an
eligible U.S. holder made by Siemens attributable to fiscal
year 2002 and subsequent years will be subject to a 15% general
withholding tax rate under the Treaty.

For dividend distributions made by Siemens
attributable to fiscal 2002 and subsequent years, the dividends
are, in the absence of the Treaty, subject to a 20% withholding
tax plus a solidarity surcharge of 5.5% on the withholding tax,
resulting in an aggregate withholding of 21.1% of the declared
dividend. Eligible U.S. holders (as defined below under
 U.S. Taxation) are entitled to receive a
payment from the German tax authorities equal to 6.1% of the
declared dividend. Accordingly, for a declared dividend of 100,
an eligible U.S. holder initially will receive 78.9 (100
minus the 21.1% withholding tax). The eligible U.S. holder
is then entitled to a refund from the German tax authorities of
6.1 and will, as a result, effectively receive a total of 85
(i.e., 85% of the declared dividend). Thus, the eligible
U.S. holder will be deemed to have received a dividend of
100, subject to German withholding tax of 15.

Refund Procedure for U.S. Shareholders

For shares and ADSs kept in custody with The
Depository Trust Company in New York or one of its participating
banks, the German tax authorities have introduced a collective
procedure for the refund of German dividend withholding tax and
the solidarity surcharge thereon on a trial basis. Under this
procedure, the Depository Trust Company may submit claims for
refunds payable to eligible U.S. holders under the Treaty
collectively to the German tax authorities on behalf of these
eligible U.S. holders. The German Federal Tax

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Office will pay the refund amounts on a
preliminary basis to The Depository Trust Company, which will
redistribute these amounts to the eligible U.S. holders
according to the regulations governing the procedure. The German
Federal Tax Office may review whether the refund was made in
accordance with the law within four years after making the
payment to The Depository Trust Company. Details of this
collective procedure are available from The Depository Trust
Company.


Individual claims for refunds may be made on a
special German form which must be filed with the German Federal
Tax Office at the address noted above. Copies of this form may
be obtained from the German Federal Tax Office at the same
address or from the Embassy of the Federal Republic of Germany,
4645 Reservoir Road, N.W., Washington, D.C. 20007-1998. Claims
must be filed within a four-year period from the end of the
calendar year in which the dividend was received.

As part of the individual refund claim, an
eligible U.S. holder must submit to the German tax
authorities the original bank voucher (or a certified copy
thereof) issued by the paying agent documenting the tax
withheld, and an official certification on IRS Form 6166 of
its last United States federal income tax return. IRS
Form 6166 may be obtained by filing a request with the
Internal Revenue Service Center in Philadelphia, Pennsylvania,
Foreign Certification Request, P.O. Box 16347, Philadelphia, PA
19114-0447. Requests for certification must include the eligible
U.S. holders name, Social Security or Employer
Identification Number, tax return form number, and tax period
for which the certification is requested. Requests for
certifications can include a request to the Internal Revenue
Service to send the certification directly to the German tax
authorities. If no such request is made, the Internal Revenue
Service will send a certification on IRS Form 6166 to the
eligible U.S. holder, who then must submit this document
with his refund claim.

Capital Gains

Under German domestic tax law as currently in
effect, capital gains derived by a Non-German Holder from the
sale or other disposition of shares or ADSs are subject to tax
in Germany only if such Non-German Holder has held, directly or
indirectly, shares or ADSs representing 1% or more of the
registered share capital of the company at any time during the
five-year period immediately preceding the disposition. In
computing the relevant size of a Non-German Holders
shareholding, shareholdings existing prior to the effective date
of the German Tax Reform are also be taken into account. In
general, pursuant to the German Tax Reform, corporate Non-German
Holders will be fully exempt from German tax on capital gains
derived on or after January 1, 2002 from the sale or other
disposition of shares or ADSs.

U.S. holders that qualify for benefits under
the Treaty are exempt from taxation in Germany on capital gains
derived from the sale or disposition of shares or ADSs.

Inheritance and Gift Tax

Under German law, German gift or inheritance tax
will be imposed only on transfers by a holder of shares or ADSs
at death or by way of gift, if



| |       |                                                                                                                                                                                                                                                                                                             
| | ----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (i)   | the decedent or donor, or the heir, donee or
    other transferee has his residence in Germany at the time of the
    transfer;                                                                                                                                                                             
|
| | (ii)  | the decedent or donor, or the heir, donee or
    other transferee is a citizen of Germany, is not a resident in
    Germany, but has not been continuously outside of Germany for a
    period of more than five years; or                                                                                  
|
| | (iii) | the shares or ADSs subject to such transfer form
    part of a portfolio that represents 10% or more of the
    registered share capital of the company and has been held,
    directly or indirectly, by the decedent or donor, respectively,
    actually or constructively together with related parties.

The right of the German government to impose
inheritance or gift tax on a Non-German Holder may be further
limited by an applicable estate tax treaty (such as the
U.S.-German Inheritances and Gifts Tax Treaty of
December 3, 1980).

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Other Taxes

No German transfer, stamp or similar taxes apply
to the purchase, sale or other disposition of shares or ADSs by
a Non-German Holder. Currently, net worth tax is not levied in
Germany.

U.S. TAXATION

This section describes the material United States
federal income tax consequences of owning our shares or ADSs. It
applies to you only if you are a U.S. holder (as defined below)
and you hold shares or ADSs as capital assets for U.S. federal
income tax purposes. This section does not address all material
U.S. federal income tax consequences of owning shares or ADSs.
It does not address special classes of holders, some of which
may be subject to other rules, including:



| |   |                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------
| |  | tax-exempt entities;                                                                                   
|
| |  | life insurance companies;                                                                              
|
| |  | dealers in securities;                                                                                 
|
| |  | traders in securities that elect a mark-to-market
    method of accounting for securities holdings;    
|
| |  | investors liable for alternative minimum tax;                                                          
|
| |  | partnerships, or other entities classified as
    partnerships, for U.S. federal income tax purposes;  
|
| |  | investors that actually or constructively own 10%
    or more of our voting stock;                     
|
| |  | investors that hold shares or ADSs as part of a
    straddle or a hedging or conversion transaction; or
|
| |  | investors whose functional currency is not the
    U.S. dollar.                                        

This section is based on the tax laws of the
United States, including the Internal Revenue Code of 1986, as
amended, its legislative history, existing and proposed Treasury
regulations, and published rulings and court decisions, as well
as on the Treaty, all as currently in effect. These laws are
subject to change, possibly on a retroactive basis. In addition,
this section is based in part upon the representations of
JPMorgan Chase Bank, the depositary for the American Depositary
Receipt (or ADR) program. Assuming that each obligation in the
deposit agreement and any related agreement will be performed in
accordance with its terms for United States federal income tax
purposes, if you hold ADSs, you will generally be treated as the
owner of the shares represented by those ADSs. Exchanges of
shares for ADSs, and ADSs for shares, generally will not be
subject to United States federal income tax.

The United States Treasury has expressed concerns
that parties to whom ADSs are pre-released may be taking actions
that are inconsistent with the claiming of foreign tax credits
for U.S. holders of ADSs. Such actions would also be
inconsistent with the claiming of the reduced rate of tax,
described below, applicable to dividends received by certain
noncorporate U.S. holders. Accordingly, the analysis of the
creditability of German taxes and the availability of the
reduced tax rate for dividends received by certain noncorporate
U.S. holders, each described below, could be affected by actions
taken by parties to whom ADSs are pre-released.

You are a U.S. holder if you are a
beneficial owner of shares or ADSs and you are, for United
States federal income tax purposes:



| |   |                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a citizen or resident of the United States;                                                                                                                             
|
| |  | a corporation, or other entity taxable as a
    corporation, created or organized in or under the laws of the
    United States or any political subdivision thereof; or
|
| |  | an estate or trust, the income of which is
    subject to United States federal income taxation regardless of
    its source.                                           

This discussion addresses only United States
federal income taxation. You should consult your own tax advisor
regarding the United States federal, state, local and other tax
consequences of owning and disposing of

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shares and ADSs in your particular circumstances.
In particular, you should confirm that you are eligible for the
benefits under the Treaty with respect to income and gain from
the shares or ADSs.


This discussion assumes that Siemens is not, and
will not become, a passive foreign investment company as
discussed below.

Taxation of Dividends

You must include in your gross income the gross
amount, including any German withholding tax, of any dividend
paid by us out of our current or accumulated earnings and
profits, as these amounts are determined for United States
federal income tax purposes. Subject to applicable limitations,
dividends paid to non-Corporate U.S. holders in taxable years
beginning before January 1, 2009 will be taxable at a
maximum rate of 15%. Noncorporate U.S. holders should consult
their own tax advisors to determine whether they are subject to
any special rules that limit their ability to be taxed at this
favorable rate. See the description under German
TaxationSpecial Tax Rules for U.S. Shareholders for
examples of how you compute the amount of gross dividends
received. The dividend is ordinary income that you must include
in income when you, in the case of shares, or JPMorgan Chase
Bank, in the case of ADSs, receive the dividend, actually or
constructively. Dividends constitute income from sources outside
the United States. The dividend will not be eligible for the
dividends-received deduction generally allowed to United States
corporations in respect of dividends received from other United
States corporations. The amount of the dividend distribution
that you must include in your income will be the U.S. dollar
value of the euro payments made, determined at the spot euro/
U.S. dollar rate on the date the dividend distribution is
includable in your income, regardless of whether the payment is
in fact converted into U.S. dollars. Generally, any gain or loss
resulting from currency exchange fluctuations during the period
from the date you include the dividend payment in income to the
date you convert the payment into U.S. dollars will be treated
as ordinary income or loss. The gain or loss generally will be
income or loss from sources within the United States for foreign
tax credit limitation purposes.

Subject to certain limitations, the German tax
withheld in accordance with German law or the Treaty and paid
over to Germany will be creditable against your United States
federal income tax liability. To the extent a refund of the tax
withheld is available to you under German law or under the
Treaty, the amount of tax withheld that is refundable will not
be eligible for credit against your United States income tax
liability. See the description under German
TaxationRefund Procedure for U.S. Shareholders,
above for the procedures for obtaining a tax refund. The
limitation on foreign taxes eligible for credit is calculated
separately with respect to specific classes of income. The rules
governing foreign tax credits are complex. Therefore, you should
consult your own tax advisor regarding the availability of
foreign tax credits in your particular circumstances.

Taxation of Capital Gains

If you sell or otherwise dispose of your shares
or ADSs, you will recognize capital gain or loss for United
States federal income tax purposes equal to the difference
between the U.S. dollar value of the amount that you realize and
your tax basis, determined in U.S. dollars, in your shares or
ADSs. Capital gains will be long-term for shares or ADSs held
for more than one year. The gain or loss will generally be
income or loss from sources within the United States for foreign
tax credit limitation purposes.

Passive Foreign Investment Company Rules

We believe that we were not a passive
foreign investment company (PFIC) for United States
federal income tax purposes for our 2003 taxable year. However,
since PFIC status depends upon the composition of our income and
assets and the market value of our assets (including, among
others, less than 25% owned equity investments) from time to
time, there can be no assurance that we will not be considered a
PFIC for any taxable year. If we were treated as a PFIC for any
taxable year during which you held an ADS or a share, certain
adverse U.S. federal income tax consequences could apply.

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Information Reporting and Backup Withholding

Payment of dividends and sales proceeds that are
made within the United States or through certain U.S. related
financial intermediaries generally are subject to information
reporting and to backup withholding unless (i) you are a
corporation or other exempt recipient or (ii) in the case
of backup withholding, you provide a correct taxpayer
identification number and certify that you are not subject to
backup withholding. The amount of any backup withholding from a
payment to you will be allowed as a credit against your U.S.
federal income tax liability and may entitle you to a refund,
provided that the required information is timely furnished to
the Internal Revenue Service.

DOCUMENTS ON DISPLAY

We are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended. In
accordance with these requirements, we file reports and other
information with the Securities and Exchange Commission. These
materials, including this annual report and the exhibits
thereto, may be inspected and copied at the Commissions
Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. Copies of the materials may be obtained from the
Public Reference Room of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The public may
obtain information on the operation of the Commissions
Public Reference Room by calling the Commission in the United
States at 1-800-SEC-0330. Our filings, including this annual
report, are also available on the commissions website at
www.sec.gov. In addition, material filed by us can be inspected
at the offices of the New York Stock Exchange at 20 Broad
Street, New York, New York 10005.




ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK

Prudent financial market risk management is a key
priority for Siemens. Our international operations, financing
activities and investments expose us to financial market risks
from changes in foreign currency exchange rates, interest rates
and equity prices from our available for sale securities in the
ordinary course of business. Our objective for managing such
risks is to capitalize on the opportunities available in the
global market for our products and services while proactively
managing the associated financial market risk. We seek to manage
and control these risks primarily through our regular operating
and financing activities, but when we deem it appropriate, to
use derivative instruments.

Siemens has no material commodity price risk
resulting from derivative instruments and the foreign exchange
trading portfolio held by SFS is subject to tight limits and
thus, as of September 30, 2004 was not material. In
addition, SFS uses credit default swaps to protect against
credit risks stemming from its receivable purchase business and
are excluded from this market risk analysis, since risk
categories like credit risk, liquidity risk and operational risk
are not analyzed in this section. Any market sensitive
instruments, including equity and interest bearing securities,
that our pension plan hold are not included in this quantitative
and qualitative disclosure. For additional information, see
Notes to Consolidated Financial Statements.

The managing of financial market risk is part of
Siemens overall risk management system, which at the
highest level involves our Managing Board and its oversight over
all of our operations. Our Chief Financial Officer is a member
of the Managing Board and has the specific responsibility for
our financial market risk management. The Managing Board retains
ultimate accountability but for practical business purposes
delegates responsibilities to central functions and to the
business Groups.

Siemens uses the sensitivity analysis
method to present our financial market risk. Sensitivity
analysis is a widely used risk measurement tool that allows
management to make judgments regarding the risk positioning of
the company as a whole. Sensitivity analysis provides an
approximate answer to the question of how much could

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be lost if certain specified parameters were to
be met under a specific set of assumptions. The risk estimates
provided here assume:




| |   |                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------
| |  | a 20% decrease in equity prices of all our
    investments in marketable securities;                                          
|
| |  | a simultaneous, parallel foreign exchange rates
    shift in which the euro appreciates against all currencies by
    10%; and
|
| |  | a parallel shift of 100 basis points of the
    interest rate yield curves in all currencies.                                 

These potential economic impacts are based on the
occurrence of adverse market conditions and reflect estimated
changes resulting from our sensitivity analysis. Actual results
that are included in our statement of income may differ
materially from these estimates due to actual developments in
the global financial market.

FINANCIAL MARKET RISK MANAGEMENT

EQUITY PRICE RISK

We have direct and indirect investments in
publicly traded companies, which are held for purposes other
than trading. The market value of these investments as of
September 30, 2004 was
2.221 billion,
with our 18.2% interest in Infineon, our 12.5% interest in Epcos
and our 9.7% interest in Juniper Networks representing a large
share. An adverse move in equity prices of 20% would reduce the
value of these investments by negative
444 million.
This decrease from negative
824 million
as of September 30, 2003 is primarily due to a reduction of
our interest in Infineon.

FOREIGN CURRENCY EXCHANGE RATE RISK

Transaction Risk and Currency Management

As a company doing business around the world,
Siemens is exposed to foreign currency cash-flows from the sale
of products and services which may not be denominated in the
functional currency of the respective Siemens unit. The
operative foreign currency exposure arising from our operating
units is partly offset through our production facilities abroad,
as well as through procurement activities conducted in foreign
currencies. In addition a financial foreign currency exposure
arises from investments and financing activities of Siemens as a
whole in foreign currencies.

We define generally foreign currency exposure as
balance sheet items, firm commitments and foreign currency
denominated cash in-flows and cash out-flows from anticipated
transactions for the next three months. This foreign currency
exposure is determined based on the respective functional
currencies of the exposed Siemens entity. Operating units
are prohibited from borrowing or investing in foreign currencies
on a speculative basis. Intercompany financing or investments of
operating units are preferably done in their functional currency
or on a hedged basis.

The following table shows the break-down by
currency of the underlying net foreign exchange transaction
exposure as of September 30, 2004 (in some of the
currencies, especially in the U.S. dollar, Siemens has both
substantial sales, as well as costs, which have been netted in
the table):

|                                                                           |  |     |    |     |  |     |    |       |  |  |   |   |  |  |   |  
|-------------------------------------------------------------------------- |  | --- | -- | --- |  | --- | -- | ----- |  |  | - | - |  |  | - | -
|                                                                           |  | USD |    | GBP |  | CHF |    | Other
|                                                                           |  |     |    |     |  |     |    |      
|Net foreign exchange transaction exposure as a
    percentage of the total |  |     | 73 | %   |  |     | 17 | %     |  |  | 2 | % |  |  | 8 | %

Our group-wide guidelines require each entity to
monitor their foreign currency transaction exposure. Based on a
guideline developed by our Corporate Finance department, the
entities are required to hedge operative foreign currency
transaction exposure of at least 75% of the total net currency
position. The values presented in the foreign currency exchange
risk disclosure made in this document are the unhedged positions
multiplied by an assumed 10% appreciation of the euro against
all currencies. In determining our foreign exchange rate
sensitivity, we aggregate the net foreign exchange rate exposure
of the Operations and Financing and Real Estate Groups and
Corporate Treasury. At September 30, 2004, a parallel 10%
negative alteration of all foreign currencies would

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have resulted in a decline in euro value of
61 million
in future cash flows whereas such 10% alteration at
September 30, 2003 would have resulted in a decline in euro
value of
8 million
in future cash flows. Such decline in euro values of future cash
flows might reduce the unhedged portion of revenues but would
decrease the unhedged portion of cost of materials. Because our
foreign currency inflows exceed our outflows, an appreciation of
the euro against foreign currencies, particularly the U.S.
dollar would have a negative financial impact to the extent that
future sales are not already hedged. Future changes in the
foreign exchange rates can impact sales prices and may lead to
margin impacts, the extent of which is determined by the
matching of foreign currency revenues and expenses.


Effects of Currency Translation

Many of our subsidiaries are located outside the
euro zone. Since our financial reporting currency is the euro,
we translate the income statements of these subsidiaries into
euros so that we can include their financial results in our
Consolidated Financial Statements. To address the effects of
foreign exchange translation riskin our risk management,
our working assumption is that investments in our foreign-based
operations are permanent and that reinvestment is continual.
Whenever a divestment of a particular asset or entity is made,
we incorporate the value of this transaction riskinto
our sensitivity analyses. Effects from currency fluctuations on
the translation of net asset amounts into euro are reflected in
the Siemens consolidated equity position.

INTEREST RATE EXPOSURE

Our interest rate exposure results mainly from
debt obligations and interest bearing investments. We measure
interest rate risk using either a fair value sensitivity or a
cash flow sensitivity depending on whether the instrument has a
fixed or variable interest rate. We use the fair value
sensitivity calculation for fixed interest instruments to show
the change in the fair value (defined as net present value)
caused by a hypothetical 100-basis point shift in the yield
curve. The first step in this calculation is to use the yield
curve to discount the gross cash flows, meaning the net present
value of future interest and principal payments of financial
instruments with fixed interest rates. A second calculation
discounts the gross cash flows using a 100-basis point shift of
the yield curve. In all cases, we use the generally accepted and
published yield curves on the relevant balance sheet date. The
cash flow sensitivity shows the change in future cash flows of
financial instruments with a variable interest rate also
assuming a 100-basis point shift of the yield curves. The total
fair value sensitivity, as well as the total cash flow
sensitivity is generated by aggregating the sensitivities of the
exposure denominated in various currencies. Depending if we have
a long or short interest position in fixed or variable interest
rates, interest rate risk can arise on increasing or decreasing
market moves in the yield curve.

Our fair value interest risk results primarily
from our long-term fixed rate debt obligations and interest
bearing investments. We seek to limit this risk through the use
of derivative instruments which allow us to hedge fair value
changes by swapping fixed rates of interest into variable rates
of interest. Assuming a 100-basis point decrease in interest
rates, this risk was
106 million
at September 30, 2004, increasing from
22 million
at September 30, 2003, assuming a 100 basis point increase. This
change in position was primarily due to adjusting the maturity
periods of liquidity invested from a short term basis to
predominantly matching the intended maturity periods in our
interest overlay management program.

Our cash flow interest rate risk on our variable
rate portfolio was
47 million
at September 30, 2004 and
85 million
at September 30, 2003 assuming a 100-basis point increase
in interest rates. Such risk is largely related to variable
interest rates resulting from the aforementioned hedges of fixed
rate debt obligations. Higher interest payments would result in
a higher interest expense.

In order to minimize our overall financial
interest rate risk, Treasury performs corporate wide interest
overlay management to match interest periods of our hedges with
intended maturities of assets and liabilities.

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ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY
SECURITIES

Not applicable.




ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.




ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
HOLDERS AND USE OF PROCEEDS

Not applicable.




ITEM 15: CONTROLS AND PROCEDURES

For its fiscal year 2004, Siemens performed an
evaluation of the effectiveness of the design and operation of
its disclosure controls and procedures. Disclosure controls and
procedures are designed to ensure that the material financial
and non-financial information required to be disclosed in the
Form 20-F and filed with the U.S. Securities and Exchange
Commission is recorded, processed, summarized and reported
timely. The evaluation was performed with the participation of
our key corporate senior management, senior management of each
business Group, and under the supervision of our CEO, Heinrich
v. Pierer, and our CFO, Heinz-Joachim Neubürger. In
designing and evaluating the disclosure controls and procedures,
management recognized that any controls and procedures, no
matter how well designed and operated, can provide only
reasonable, rather than absolute, assurance of achieving the
desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the
foregoing, the Companys management, including the CEO and
CFO, concluded that Siemens disclosure controls and
procedures were effective as of September 30, 2004.

In addition, there have been no changes in the
Companys internal control over financial reporting that
occurred during fiscal year 2004, which have materially affected
or are reasonably likely to materially affect the Companys
internal control over financial reporting.




ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT

Our Supervisory Board has determined that the
Companys Audit Committee currently includes three
financial experts: Dr. Josef Ackermann,
Dr. Karl-Hermann Baumann and Dr. Henning
Schulte-Noelle.




ITEM 16B: CODE OF ETHICS

The Company has adopted a code of ethics for
financial matters that applies to the Chief Executive Officer,
the Chief Financial Officer and the Head of its Financial
Reporting and Controlling Department, as well as to all of the
Companys employees performing similar functions in and
outside Germany and to all other senior financial personnel. The
code of ethics for financial matters is available on the
Companys website at www.siemens.com/corporate_governance.
The information on our website is not incorporated by reference
into this annual report.

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ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES

Fees related to professional services rendered by
the Companys principal accountant, KPMG Deutsche
Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft (KPMG), for the fiscal
years 2004 and 2003 were as follows:

|                   |  |                 |      |      |  |  |      | 
|------------------ |  | --------------- | ---- | ---- |  |  | ---- | 
|                   |  |                
|                   |  | Year ended     
|                   |  | September 30,  
|                   |  |                
|Type of Fees       |  | 2004            |      | 2003
|                   |  |                 |      |     
|                   |  |                
|                   |  | ( in millions)
|Audit Fees         |  |                 | 41.9 |      |  |  | 38.9 | 
|Audit-Related Fees |  |                 | 5.9  |      |  |  | 5.3  | 
|Tax Fees           |  |                 | 4.2  |      |  |  | 5.4  | 
|All Other Fees     |  |                 | 0.9  |      |  |  | 1.2  | 
|                   |  |                 |      |      |  |  |      | 
|Total              |  |                 | 52.9 |      |  |  | 50.8 | 
|                   |  |                 |      |      |  |  |      | 

In the above table, audit fees are
the aggregate KPMG fees for professional services in connection
with the audit of the Companys consolidated annual
financial statements, reviews of interim financial statements,
as well as audits of statutory financial statements of Siemens
AG and its subsidiaries. Also included in audit fees
are amounts for attestation services in relation to regulatory
filings and other compliance requirements. Audit-related
fees are fees for accounting advice on actual or
contemplated transactions, due diligence engagements related to
acquisitions or divestments, attestation regarding compliance
with certain agreements, employee benefit plan audits and other
agreed-upon procedures. Tax fees are fees for tax
advice on actual or contemplated transactions, tax compliance,
expatriate employee tax services and transfer pricing studies.

AUDIT COMMITTEE PRE-APPROVAL POLICIES

In accordance with German law, Siemens
independent auditors are appointed at the Annual
Shareholders Meeting based on a recommendation of our
Supervisory Board. The Audit Committee of the Supervisory Board
prepares the boards recommendation on the selection of the
independent auditors. Subsequent to the auditors
appointment, the Audit Committee awards the contract and in its
sole authority approves the terms and scope of the audit and all
audit engagement fees, as well as monitors the auditors
independence. On January 22, 2004, at the Annual
Shareholders Meeting KPMG was appointed to serve as the
Companys independent auditors for the 2004 fiscal year.

In order to assure the integrity of independent
audits, Siemens Audit Committee established a policy to
approve all audit and permissible non-audit services provided by
our independent auditors prior to the auditors engagement.
As part of this approval process, the Audit Committee adopted
pre-approval policies and procedures pursuant to which the Audit
Committee annually pre-approves certain types of services to be
performed by Siemens independent auditors. Under the
policies, the Companys independent auditors are not
allowed to perform any non-audit services which may impair the
auditors independence under the rules of the U.S.
Securities and Exchange Commission. Furthermore, the Audit
Committee has limited the aggregate amount of non-audit fees
incurred during a fiscal year to a maximum of 50% of all KPMG
fees in the preceding financial year.

In fiscal 2004, the Audit Committee pre-approved
the performance by KPMG of the following audit and permitted
non-audit services:

AUDIT SERVICES



| |   |                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------
| |  | Annual U.S. GAAP audit of Siemens
    Consolidated Financial Statements                                                            
|
| |  | Quarterly review of Siemens interim
    financial statements                                                                       
|
| |  | Statutory audits of financial statements of
    Siemens AG and of its subsidiaries under the rules of their
    respective countries

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| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Attestation of internal controls as part of the
    external audit                                                                                    
|
| |  | Attestation of regulatory filing and other
    compliance requirements, including regulatory advice, such as
    carve out reports and comfort letters

AUDIT-RELATED SERVICES



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | Accounting advice relating to actual transactions
    or events                                               
|
| |  | Due diligence relating to carve outs, including
    consultation in accounting matters and post closing audits
|
| |  | Due diligence relating to contemplated
    acquisitions                                                       
|
| |  | Accounting advice relating to contemplated
    transactions or events                                         
|
| |  | Attestation of compliance with provisions or
    calculations required by agreements                          
|
| |  | Employee benefit plan audits                                                                                  
|
| |  | Agreed-upon procedures engagements                                                                            

TAX SERVICES



| |   |                                                                                   
| | - | ----------------------------------------------------------------------------------
| |  | Tax advice relating to actual transactions or
    events, including tax compliance
|
| |  | Tax advice relating to contemplated transactions
    or events                    
|
| |  | Expatriate employee tax services                                                  
|
| |  | Transfer pricing studies                                                          

ALL OTHER SERVICES



| |   |                  
| | - | -----------------
| |  | Forensic services

Services that are not included in one of the
categories listed above require specific pre-approval of the
Audit Committees chairman. An approval may not be granted
if the service falls into a category of services not permitted
by current law or if it is inconsistent with maintaining auditor
independence, as expressed in the three principles promulgated
by the U.S. Securities and Exchange Commission: An auditor may
not function in the role of management; an auditor may not audit
his or her own work; and an auditor may not serve in an advocacy
role for his or her client.

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PART III




ITEM 18:      FINANCIAL
STATEMENTS

Siemens AG

Index to Consolidated Financial Statements

|                                                                                                                                                                |  |      |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                                |  | Page
|                                                                                                                                                                |  |     
|Independent Auditors Report                                                                                                                                    |  |      | F-2 | 
|Consolidated Financial Statements                                                                                                                               |  |      |     | 
|Consolidated Statements of Income for the fiscal
    years ended September 30, 2004, September 30, 2003 and
    September 30, 2002                              |  |      | F-3 | 
|Consolidated Balance Sheets as of
    September 30, 2004 and September 30, 2003                                                                                 |  |      | F-4 | 
|Consolidated Statements of Cash Flow for the
    fiscal years ended September 30, 2004, September 30,
    2003 and September 30, 2002                           |  |      | F-5 | 
|Consolidated Statements of Changes in
    Shareholders Equity for the fiscal years ended
    September 30, 2004, September 30, 2003 and
    September 30, 2002 |  |      | F-6 | 
|Segment Information for the fiscal years ended
    September 30, 2004, September 30, 2003 and
    September 30, 2002                                            |  |      | F-7 | 
|Notes to the Consolidated Financial Statements                                                                                                                  |  |      | F-9 | 

F-1



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

The Supervisory Board of

Siemens AG:


We have audited the accompanying consolidated
balance sheets of Siemens AG and subsidiaries as of
September 30, 2004 and 2003, and the related consolidated
statements of income, cash flow and changes in
shareholders equity for each of the years in the
three-year period ended September 30, 2004. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Siemens AG and subsidiaries
as of September 30, 2004 and 2003, and the results of their
operations and their cash flows for each of the years in the
three-year period ended September 30, 2004 in conformity
with accounting principles generally accepted in the United
States of America.

As discussed in Note 2 to the consolidated
financial statements, Siemens AG adopted Statement of Financial
Accounting Standards No. 143, Accounting for Asset
Retirement Obligations effective October 1, 2002.



| |                                    
| | -----------------------------------
| | KPMG Deutsche Treuhand-Gesellschaft
| | Aktiengesellschaft                 
| | Wirtschaftsprüfungsgesellschaft    

Munich, Germany

November 17, 2004


F-2



---



##### Table of Contents



SIEMENS AG

CONSOLIDATED STATEMENTS OF INCOME

For the fiscal years ended September 30,
2004, 2003 and 2002


(in millions of
, per share
amounts in
)


|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |   |     | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | --- | ----------------- |  | --------------------- | ------- | ---------- | ----- | ------------- | ------- | ---- | ----- | ---- | ------- | ---- | ----- | ---- | ------ | ---- | --- | ---- | ------ | ---- | --- | ---- | ------ | - | ---- | - | ------- | - | ----- |  | ------- | - | ----- |  | ------- | - | ----- |  | ------ | - | --- |  | ------ | - | --- |  | ------ | - | --- | 
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |     
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       | Eliminations, |         |      |       |      |         |      |       |     
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  | reclassifications and |         |            |       | Financing and
|                                                                                                                                                         |                                                                              |                                                                              |     | Siemens worldwide |  | Corporate Treasury(2) |         | Operations |       | Real Estate  
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |              
|                                                                                                                                                         |                                                                              | Note                                                                         |     | 2004              |  | 2003                  |         | 2002       |       | 2004          |         | 2003 |       | 2002 |         | 2004 |       | 2003 |        | 2002 |     | 2004 |        | 2003 |     | 2002
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |     
|Net sales                                                                                                                                                |                                                                              |                                                                              |     |                   |  |                       | 75,167  |            |       |               | 74,233  |      |       |      | 84,016  |      |       |      | (1,539 | )    |     |      | (1,623 | )    |     |      | (1,297 | ) |      |   | 74,573  |   |       |  | 73,744  |   |       |  | 83,127  |   |       |  | 2,133  |   |     |  | 2,112  |   |     |  | 2,186  |  
|Cost of sales                                                                                                                                            |                                                                              |                                                                              |     |                   |  |                       | (53,522 | )          |       |               | (53,350 | )    |       |      | (60,810 | )    |       |      | 1,539  |      |     |      | 1,625  |      |     |      | 1,222  |   |      |   | (53,320 | ) |       |  | (53,298 | ) |       |  | (60,322 | ) |       |  | (1,741 | ) |     |  | (1,677 | ) |     |  | (1,710 | )
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |  
|Gross profit on sales                                                                                                                                    |                                                                              |                                                                              |     |                   |  |                       | 21,645  |            |       |               | 20,883  |      |       |      | 23,206  |      |       |      |       |      |     |      | 2      |      |     |      | (75    | ) |      |   | 21,253  |   |       |  | 20,446  |   |       |  | 22,805  |   |       |  | 392    |   |     |  | 435    |   |     |  | 476    |  
|Research and development expenses                                                                                                                        |                                                                              |                                                                              |     |                   |  |                       | (5,063  | )          |       |               | (5,067  | )    |       |      | (5,819  | )    |       |      |       |      |     |      |       |      |     |      | (169   | ) |      |   | (5,063  | ) |       |  | (5,067  | ) |       |  | (5,650  | ) |       |  |       |   |     |  |       |   |     |  |       |  
|Marketing, selling and general administrative
    expenses                                                                                               |                                                                              |                                                                              |     |                   |  |                       | (13,567 | )          |       |               | (13,534 | )    |       |      | (15,455 | )    |       |      | (1     | )    |     |      |       |      |     |      | (90    | ) |      |   | (13,284 | ) |       |  | (13,243 | ) |       |  | (15,083 | ) |       |  | (282   | ) |     |  | (291   | ) |     |  | (282   | )
|Other operating income (expense), net (therein
    gain on issuance of subsidiary and associated company stock
    ,
    3 and
    37, respectively) |                                                                              |                                                                              | 3,4 |                   |  |                       | (156    | )          |       |               | 642     |      |       |      | 1,321   |      |       |      | (76    | )    |     |      | (77    | )    |     |      | 844    |   |      |   | (176    | ) |       |  | 555     |   |       |  | 326     |   |       |  | 96     |   |     |  | 164    |   |     |  | 151    |  
|Income (loss) from investments in other
    companies, net                                                                                               |                                                                              |                                                                              | 5   |                   |  |                       | 1,031   |            |       |               | 142     |      |       |      | (114    | )    |       |      |       |      |     |      |       |      |     |      | (16    | ) |      |   | 972     |   |       |  | 66      |   |       |  | (142    | ) |       |  | 59     |   |     |  | 76     |   |     |  | 44     |  
|Income (expense) from financial assets and
    marketable securities, net                                                                                |                                                                              |                                                                              | 6   |                   |  |                       | 70      |            |       |               | 61      |      |       |      | 18      |      |       |      | 24     |      |     |      | 135    |      |     |      | (81    | ) |      |   | 71      |   |       |  | (69     | ) |       |  | 124     |   |       |  | (25    | ) |     |  | (5     | ) |     |  | (25    | )
|Interest income (expense) of Operations, net                                                                                                             |                                                                              |                                                                              | 7   |                   |  |                       | 18      |            |       |               | 31      |      |       |      | 94      |      |       |      |       |      |     |      |       |      |     |      |       |   |      |   | 18      |   |       |  | 31      |   |       |  | 94      |   |       |  |       |   |     |  |       |   |     |  |       |  
|Other interest income (expense), net                                                                                                                     |                                                                              |                                                                              | 7   |                   |  |                       | 254     |            |       |               | 214     |      |       |      | 224     |      |       |      | 277    |      |     |      | 206    |      |     |      | 239    |   |      |   | (141    | ) |       |  | (88     | ) |       |  | (96     | ) |       |  | 118    |   |     |  | 96     |   |     |  | 81     |  
|Gains on sales and dispositions of significant
    business interests                                                                                    |                                                                              |                                                                              |     |                   |  |                       |        |            |       |               |        |      |       |      |        |      |       |      |       |      |     |      |       |      |     |      | (936   | ) |      |   |        |   |       |  |        |   |       |  | 936     |   |       |  |       |   |     |  |       |   |     |  |       |  
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                         |                                                                              | Income (loss) before income taxes                                            |     |                   |  |                       |         |            | 4,232 |               |         |      | 3,372 |      |         |      | 3,475 |      |        |      | 224 |      |        |      | 266 |      |        |   | (284 | ) |         |   | 3,650 |  |         |   | 2,631 |  |         |   | 3,314 |  |        |   | 358 |  |        |   | 475 |  |        |   | 445 | 
|Income taxes(1)                                                                                                                                          |                                                                              |                                                                              | 8   |                   |  |                       | (661    | )          |       |               | (867    | )    |       |      | (849    | )    |       |      | (35    | )    |     |      | (68    | )    |     |      | 69     |   |      |   | (570    | ) |       |  | (677    | ) |       |  | (809    | ) |       |  | (56    | ) |     |  | (122   | ) |     |  | (109   | )
|Minority interest                                                                                                                                        |                                                                              |                                                                              |     |                   |  |                       | (166    | )          |       |               | (96     | )    |       |      | (29     | )    |       |      |       |      |     |      |       |      |     |      | 2      |   |      |   | (166    | ) |       |  | (96     | ) |       |  | (31     | ) |       |  |       |   |     |  |       |   |     |  |       |  
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                         |                                                                              | Income (loss) before cumulative effect of
    change in accounting principle |     |                   |  |                       |         |            | 3,405 |               |         |      | 2,409 |      |         |      | 2,597 |      |        |      | 189 |      |        |      | 198 |      |        |   | (213 | ) |         |   | 2,914 |  |         |   | 1,858 |  |         |   | 2,474 |  |        |   | 302 |  |        |   | 353 |  |        |   | 336 | 
|Cumulative effect of change in accounting
    principle, net of income taxes                                                                             |                                                                              |                                                                              |     |                   |  |                       |        |            |       |               | 36      |      |       |      |        |      |       |      |       |      |     |      |       |      |     |      |       |   |      |   |        |   |       |  | 39      |   |       |  |        |   |       |  |       |   |     |  | (3     | ) |     |  |       |  
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                         |                                                                              | Net income (loss)                                                            |     |                   |  |                       |         |            | 3,405 |               |         |      | 2,445 |      |         |      | 2,597 |      |        |      | 189 |      |        |      | 198 |      |        |   | (213 | ) |         |   | 2,914 |  |         |   | 1,897 |  |         |   | 2,474 |  |        |   | 302 |  |        |   | 350 |  |        |   | 336 | 
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |  
|Basic earnings per share                                                                                                                                 |                                                                              |                                                                              | 30  |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                         | Income before cumulative effect of change in
    accounting principle        |                                                                              |     |                   |  |                       |         | 3.82       |       |               |         | 2.71 |       |      |         | 2.92 |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                         | Cumulative effect of change in accounting
    principle, net of income taxes |                                                                              |     |                   |  |                       |         |           |       |               |         | 0.04 |       |      |         |     |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                         | Net income                                                                   |                                                                              |     |                   |  |                       |         | 3.82       |       |               |         | 2.75 |       |      |         | 2.92 |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |  
|Diluted earnings per share                                                                                                                               |                                                                              |                                                                              | 30  |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                         | Income before cumulative effect of change in
    accounting principle        |                                                                              |     |                   |  |                       |         | 3.66       |       |               |         | 2.71 |       |      |         | 2.92 |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                         | Cumulative effect of change in accounting
    principle, net of income taxes |                                                                              |     |                   |  |                       |         |           |       |               |         | 0.04 |       |      |         |     |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                         | Net income                                                                   |                                                                              |     |                   |  |                       |         | 3.66       |       |               |         | 2.75 |       |      |         | 2.92 |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                         |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |      |       |      |         |      |       |      |        |      |     |      |        |      |     |      |        |   |      |   |         |   |       |  |         |   |       |  |         |   |       |  |        |   |     |  |        |   |     |  |        |  






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

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

F-3



---



##### Table of Contents



SIEMENS AG

CONSOLIDATED BALANCE SHEETS

As of September 30, 2004 and
2003


(in millions of
)


|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |       |        | 
|---------------------------------------- | -------------------------------------------------------------- | -------------------------------------------------------------------- | -- | --------- |  | ----------------- | ------ | ------------- | ------ | ------------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | - | ------ | ------ | ------ |  | ------ | ------ | ------ |  | ----- | ----- | ------ |  | ----- | ----- | ------ | 
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |        
|                                         |                                                                |                                                                      |    |           |  |                   |        | Eliminations, |        |               |        |         |        |         |        |        
|                                         |                                                                |                                                                      |    |           |  | reclassifications |        |               |        |               |        |        
|                                         |                                                                |                                                                      |    | Siemens   |  | and Corporate     |        |               |        | Financing and
|                                         |                                                                |                                                                      |    | worldwide |  | Treasury          |        | Operations    |        | Real Estate  
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |              
|                                         |                                                                | Note                                                                 |    | 9/30/04   |  | 9/30/03           |        | 9/30/04       |        | 9/30/03       |        | 9/30/04 |        | 9/30/03 |        | 9/30/04 |        | 9/30/03
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |        
|ASSETS                                   |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|Current assets                           |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|                                         | Cash and cash equivalents                                      |                                                                      |    |           |  |                   |        | 12,190        |        |               |        | 12,149  |        |         |        | 11,251  |        |         |        | 11,345  |        |   |        | 908    |        |  |        | 725    |        |  |       | 31    |        |  |       | 79    |       
|                                         | Marketable securities                                          |                                                                      |    | 9         |  |                   |        | 1,386         |        |               |        | 650     |        |         |        | 8       |        |         |        | 101     |        |   |        | 1,361  |        |  |        | 529    |        |  |       | 17    |        |  |       | 20    |       
|                                         | Accounts receivable, net                                       |                                                                      |    | 10        |  |                   |        | 15,470        |        |               |        | 14,511  |        |         |        | (8      | )      |         |        | (9      | )      |   |        | 11,275 |        |  |        | 10,894 |        |  |       | 4,203 |        |  |       | 3,626 |       
|                                         | Intracompany receivables                                       |                                                                      |    |           |  |                   |        |              |        |               |        |        |        |         |        | (12,257 | )      |         |        | (10,777 | )      |   |        | 12,251 |        |  |        | 10,742 |        |  |       | 6     |        |  |       | 35    |       
|                                         | Inventories, net                                               |                                                                      |    | 11        |  |                   |        | 11,358        |        |               |        | 10,366  |        |         |        | (2      | )      |         |        | (4      | )      |   |        | 11,295 |        |  |        | 10,284 |        |  |       | 65    |        |  |       | 86    |       
|                                         | Deferred income taxes                                          |                                                                      |    | 8         |  |                   |        | 1,144         |        |               |        | 1,063   |        |         |        | 61      |        |         |        | 77      |        |   |        | 1,018  |        |  |        | 909    |        |  |       | 65    |        |  |       | 77    |       
|                                         | Other current assets                                           |                                                                      |    | 12        |  |                   |        | 4,398         |        |               |        | 4,750   |        |         |        | 710     |        |         |        | 736     |        |   |        | 2,793  |        |  |        | 3,143  |        |  |       | 895   |        |  |       | 871   |       
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|                                         |                                                                | Total current assets                                                 |    |           |  |                   |        |               | 45,946 |               |        |         | 43,489 |         |        |         | (237   | )       |        |         | 1,469  |   |        |        | 40,901 |  |        |        | 37,226 |  |       |       | 5,282  |  |       |       | 4,794  | 
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|Long-term investments                    |                                                                |                                                                      | 13 |           |  |                   | 4,122  |               |        |               | 5,992  |         |        |         |       |         |        |         | 19     |         |        |   | 3,790  |        |        |  | 5,636  |        |        |  | 332   |       |        |  | 337   |      
|Goodwill                                 |                                                                |                                                                      | 14 |           |  |                   | 6,476  |               |        |               | 6,501  |         |        |         |       |         |        |         |       |         |        |   | 6,394  |        |        |  | 6,421  |        |        |  | 82    |       |        |  | 80    |      
|Other intangible assets, net             |                                                                |                                                                      | 15 |           |  |                   | 2,514  |               |        |               | 2,358  |         |        |         |       |         |        |         |       |         |        |   | 2,501  |        |        |  | 2,338  |        |        |  | 13    |       |        |  | 20    |      
|Property, plant and equipment, net       |                                                                |                                                                      | 16 |           |  |                   | 10,683 |               |        |               | 10,756 |         |        |         | 1      |         |        |         | 1      |         |        |   | 7,242  |        |        |  | 7,114  |        |        |  | 3,440 |       |        |  | 3,641 |      
|Deferred income taxes                    |                                                                |                                                                      | 8  |           |  |                   | 4,811  |               |        |               | 4,359  |         |        |         | 1,133  |         |        |         | 1,127  |         |        |   | 3,598  |        |        |  | 3,165  |        |        |  | 80    |       |        |  | 67    |      
|Other assets                             |                                                                |                                                                      | 17 |           |  |                   | 4,966  |               |        |               | 4,150  |         |        |         | 44     |         |        |         | 131    |         |        |   | 2,217  |        |        |  | 1,371  |        |        |  | 2,705 |       |        |  | 2,648 |      
|Other intracompany receivables           |                                                                |                                                                      |    |           |  |                   |       |               |        |               |       |         |        |         | (1,284 | )       |        |         | (1,204 | )       |        |   | 1,284  |        |        |  | 1,204  |        |        |  |      |       |        |  |      |      
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|                                         |                                                                | Total assets                                                         |    |           |  |                   |        |               | 79,518 |               |        |         | 77,605 |         |        |         | (343   | )       |        |         | 1,543  |   |        |        | 67,927 |  |        |        | 64,475 |  |       |       | 11,934 |  |       |       | 11,587 | 
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|LIABILITIES AND SHAREHOLDERS
    EQUITY |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|Current liabilities                      |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|                                         | Short-term debt and current maturities of
    long-term debt   |                                                                      |    | 20        |  |                   |        | 1,434         |        |               |        | 1,745   |        |         |        | 850     |        |         |        | 977     |        |   |        | 451    |        |  |        | 646    |        |  |       | 133   |        |  |       | 122   |       
|                                         | Accounts payable                                               |                                                                      |    |           |  |                   |        | 9,326         |        |               |        | 8,404   |        |         |        | (3      | )      |         |        | 4       |        |   |        | 9,109  |        |  |        | 8,216  |        |  |       | 220   |        |  |       | 184   |       
|                                         | Intracompany liabilities                                       |                                                                      |    |           |  |                   |        |              |        |               |        |        |        |         |        | (7,449  | )      |         |        | (7,426  | )      |   |        | 1,703  |        |  |        | 1,771  |        |  |       | 5,746 |        |  |       | 5,655 |       
|                                         | Accrued liabilities                                            |                                                                      |    | 18        |  |                   |        | 9,240         |        |               |        | 8,884   |        |         |        | 6       |        |         |        | 6       |        |   |        | 9,055  |        |  |        | 8,748  |        |  |       | 179   |        |  |       | 130   |       
|                                         | Deferred income taxes                                          |                                                                      |    | 8         |  |                   |        | 1,522         |        |               |        | 870     |        |         |        | (282    | )      |         |        | (271    | )      |   |        | 1,528  |        |  |        | 877    |        |  |       | 276   |        |  |       | 264   |       
|                                         | Other current liabilities                                      |                                                                      |    | 19        |  |                   |        | 11,850        |        |               |        | 12,125  |        |         |        | 452     |        |         |        | 284     |        |   |        | 11,173 |        |  |        | 11,578 |        |  |       | 225   |        |  |       | 263   |       
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|                                         |                                                                | Total current liabilities                                            |    |           |  |                   |        |               | 33,372 |               |        |         | 32,028 |         |        |         | (6,426 | )       |        |         | (6,426 | ) |        |        | 33,019 |  |        |        | 31,836 |  |       |       | 6,779  |  |       |       | 6,618  | 
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|Long-term debt                           |                                                                |                                                                      | 20 |           |  |                   | 9,785  |               |        |               | 11,433 |         |        |         | 8,538  |         |        |         | 10,176 |         |        |   | 750    |        |        |  | 748    |        |        |  | 497   |       |        |  | 509   |      
|Pension plans and similar commitments    |                                                                |                                                                      | 21 |           |  |                   | 4,392  |               |        |               | 5,843  |         |        |         |       |         |        |         |       |         |        |   | 4,392  |        |        |  | 5,813  |        |        |  |      |       |        |  | 30    |      
|Deferred income taxes                    |                                                                |                                                                      | 8  |           |  |                   | 569    |               |        |               | 534    |         |        |         | 184    |         |        |         | 182    |         |        |   | 274    |        |        |  | 250    |        |        |  | 111   |       |        |  | 102   |      
|Other accruals and provisions            |                                                                |                                                                      | 22 |           |  |                   | 4,016  |               |        |               | 3,418  |         |        |         | 25     |         |        |         | 21     |         |        |   | 3,586  |        |        |  | 3,101  |        |        |  | 405   |       |        |  | 296   |      
|Other intracompany liabilities           |                                                                |                                                                      |    |           |  |                   |       |               |        |               |       |         |        |         | (2,664 | )       |        |         | (2,410 | )       |        |   | 457    |        |        |  | 378    |        |        |  | 2,207 |       |        |  | 2,032 |      
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|                                         |                                                                |                                                                      |    |           |  |                   | 52,134 |               |        |               | 53,256 |         |        |         | (343   | )       |        |         | 1,543  |         |        |   | 42,478 |        |        |  | 42,126 |        |        |  | 9,999 |       |        |  | 9,587 |      
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|Minority interests                       |                                                                |                                                                      |    |           |  |                   | 529    |               |        |               | 634    |         |        |         |       |         |        |         |       |         |        |   | 529    |        |        |  | 634    |        |        |  |      |       |        |  |      |      
|Shareholders equity                     |                                                                |                                                                      | 23 |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|                                         | Common stock, no par value                                     |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |       |       
|                                         |                                                                | Authorized: 1,113,285,711 and 1,129,742,969
    shares, respectively |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |       |        | 
|                                         |                                                                | Issued: 891,075,711 and 890,866,301 shares,
    respectively         |    |           |  |                   |        |               | 2,673  |               |        |         | 2,673  |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |       |        | 
|                                         | Additional paid-in capital                                     |                                                                      |    |           |  |                   |        | 5,121         |        |               |        | 5,073   |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |       |       
|                                         | Retained earnings                                              |                                                                      |    |           |  |                   |        | 25,447        |        |               |        | 23,020  |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |       |       
|                                         | Accumulated other comprehensive income (loss)                  |                                                                      |    |           |  |                   |        | (6,386        | )      |               |        | (7,051  | )      |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |       |       
|                                         | Treasury stock, at cost 250 and 1,184 shares,
    respectively |                                                                      |    |           |  |                   |        |              |        |               |        |        |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |       |       
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|                                         |                                                                | Total shareholders equity                                           |    |           |  |                   |        |               | 26,855 |               |        |         | 23,715 |         |        |         |       |         |        |         |       |   |        |        | 24,920 |  |        |        | 21,715 |  |       |       | 1,935  |  |       |       | 2,000  | 
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      
|                                         |                                                                | Total liabilities and shareholders equity                           |    |           |  |                   |        |               | 79,518 |               |        |         | 77,605 |         |        |         | (343   | )       |        |         | 1,543  |   |        |        | 67,927 |  |        |        | 64,475 |  |       |       | 11,934 |  |       |       | 11,587 | 
|                                         |                                                                |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |       |      

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

F-4



---



##### Table of Contents



SIEMENS AG

CONSOLIDATED STATEMENTS OF CASH FLOW

For the fiscal years ended September 30,
2004, 2003 and 2002


(in millions of
)


|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |      |     |     |      |  
|---------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------ | ------------------------------------------------------- | ------ | ---------- | ------ | ------------- | ------ | ----- | ------ | ------ | ------ | ------ | ------ | ------ | --- | ---- | ------ | ------ | --- | ---- | ------ | ----- | ---- | ---- | ----- | ------ | ------ | ---- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ---- | --- | --- | ----- | ---- | --- | ---- | ---- | ---- | --- | --- | ---- | -
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        | Eliminations, |        |       |        |        |        |        |        |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | reclassifications and                                   |        |            |        | Financing and
|                                                                       |                                                                                                 | Siemens worldwide                                                                                                                                            |                                                                    | Corporate Treasury                                      |        | Operations |        | Real Estate  
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |              
|                                                                       |                                                                                                 | 2004                                                                                                                                                         |                                                                    | 2003                                                    |        | 2002       |        | 2004          |        | 2003  |        | 2002   |        | 2004   |        | 2003   |     | 2002 |        | 2004   |     | 2003 |        | 2002 
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |      
|Cash flows from operating activities                                   |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |     
|                                                                       | Net income (loss)                                                                               |                                                                                                                                                              |                                                                    | 3,405                                                   |        |            |        | 2,445         |        |       |        | 2,597  |        |        |        | 189    |     |      |        | 198    |     |      |        | (213  | )    |      |       | 2,914  |        |      |        | 1,897  |        |       |        | 2,474  |        |       |        | 302  |     |     |       | 350  |     |      |      | 336  |    
|                                                                       | Adjustments to reconcile net income to cash
    provided                                        |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |      |    
|                                                                       |                                                                                                 | Minority interest                                                                                                                                            |                                                                    |                                                         | 166    |            |        |               | 96     |       |        |        | 29     |        |        |        |    |      |        |        |    |      |        |       | (2   | )    |       |        | 166    |      |        |        | 96     |       |        |        | 31     |       |        |      |    |     |       |      |    |      |      |      |    |    
|                                                                       |                                                                                                 | Amortization, depreciation and impairments                                                                                                                   |                                                                    |                                                         | 3,344  |            |        |               | 3,334  |       |        |        | 4,126  |        |        |        |    |      |        |        |    |      |        |       | 209  |      |       |        | 2,951  |      |        |        | 2,894  |       |        |        | 3,440  |       |        |      | 393 |     |       |      | 440 |      |      |      | 477 |    
|                                                                       |                                                                                                 | Deferred taxes                                                                                                                                               |                                                                    |                                                         | (309   | )          |        |               | 262    |       |        |        | (191   | )      |        |        | (16 | )    |        |        | 20  |      |        |       | (185 | )    |       |        | (267   | )    |        |        | 206    |       |        |        | 18     |       |        |      | (26 | )   |       |      | 36  |      |      |      | (24 | )  
|                                                                       |                                                                                                 | Gains on sales and disposals of businesses and
    property, plant and equipment, net, and gain from issuance of
    subsidiary and associated company stock |                                                                    |                                                         | (246   | )          |        |               | (232   | )     |        |        | (1,610 | )      |        |        |    |      |        |        |    |      |        |       | (936 | )    |       |        | (222   | )    |        |        | (145   | )     |        |        | (588   | )     |        |      | (24 | )   |       |      | (87 | )    |      |      | (86 | )  
|                                                                       |                                                                                                 | Losses (gains) on sales of investments, net                                                                                                                  |                                                                    |                                                         | (612   | )          |        |               | 2      |       |        |        | (177   | )      |        |        |    |      |        |        |    |      |        |       | 7    |      |       |        | (612   | )    |        |        | 2      |       |        |        | (172   | )     |        |      |    |     |       |      |    |      |      |      | (12 | )  
|                                                                       |                                                                                                 | Gains on sales and dispositions of significant
    business interests                                                                                        |                                                                    |                                                         |       |            |        |               |       |       |        |        |       |        |        |        |    |      |        |        |    |      |        |       | 936  |      |       |        |       |      |        |        |       |       |        |        | (936   | )     |        |      |    |     |       |      |    |      |      |      |    |    
|                                                                       |                                                                                                 | Losses (gains) on sales and impairments of
    marketable securities, net                                                                                    |                                                                    |                                                         | (47    | )          |        |               | 23     |       |        |        | 4      |        |        |        | (12 | )    |        |        | 9   |      |        |       | (2   | )    |       |        | (33    | )    |        |        | 13     |       |        |        | 3      |       |        |      | (2  | )   |       |      | 1   |      |      |      | 3   |    
|                                                                       |                                                                                                 | Loss (income) from equity investees, net of
    dividends received                                                                                           |                                                                    |                                                         | (287   | )          |        |               | 10     |       |        |        | 298    |        |        |        |    |      |        |        |    |      |        |       | 17   |      |       |        | (293   | )    |        |        | 70     |       |        |        | 322    |       |        |      | 6   |     |       |      | (60 | )    |      |      | (41 | )  
|                                                                       |                                                                                                 | Change in current assets and liabilities                                                                                                                     |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |      |     |    
|                                                                       |                                                                                                 |                                                                                                                                                              | (Increase) decrease in inventories, net                            |                                                         |        | (941       | )      |               |        | 8     |        |        |        | 1,349  |        |        |     |     |        |        |     |     |        |       |      | 86   |       |        |        | (962 | )      |        |        | 14    |        |        |        | 1,234 |        |      |     | 21  |       |      |     | (6   | )    |      |     | 29  |     
|                                                                       |                                                                                                 |                                                                                                                                                              | (Increase) decrease in accounts receivable, net                    |                                                         |        | (866       | )      |               |        | 623   |        |        |        | 1,763  |        |        |     | (658 | )      |        |     | (527 | )      |       |      | 844  |       |        |        | (208 | )      |        |        | 1,141 |        |        |        | 871   |        |      |     |    |       |      |     | 9    |      |      |     | 48  |     
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in outstanding balance
    of receivables sold |                                                         |        | 133        |        |               |        | (291  | )      |        |        | (503   | )      |        |     | 65   |        |        |     | (21  | )      |       |      | (607 | )     |        |        | 68   |        |        |        | (270  | )      |        |        | 104   |        |      |     |    |       |      |     |     |      |      |     |    |     
|                                                                       |                                                                                                 |                                                                                                                                                              | (Increase) decrease in other current assets                        |                                                         |        | 661        |        |               |        | 1,416 |        |        |        | 1,213  |        |        |     | 566  |        |        |     | 835  |        |       |      | 459  |       |        |        | (183 | )      |        |        | 561   |        |        |        | 833   |        |      |     | 278 |       |      |     | 20   |      |      |     | (79 | )   
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in accounts payable                            |                                                         |        | 857        |        |               |        | (396  | )      |        |        | (899   | )      |        |     | (6   | )      |        |     | 3    |        |       |      | (254 | )     |        |        | 827  |        |        |        | (396  | )      |        |        | (595  | )      |      |     | 36  |       |      |     | (3   | )    |      |     | (50 | )   
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in accrued liabilities                         |                                                         |        | 302        |        |               |        | (621  | )      |        |        | (575   | )      |        |     |     |        |        |     |     |        |       |      | 30   |       |        |        | 210  |        |        |        | (571  | )      |        |        | (577  | )      |      |     | 92  |       |      |     | (50  | )    |      |     | (28 | )   
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in other current
    liabilities               |                                                         |        | (323       | )      |               |        | (668  | )      |        |        | (1,025 | )      |        |     | (330 | )      |        |     | 466  |        |       |      | (99  | )     |        |        | 50   |        |        |        | (961  | )      |        |        | (851  | )      |      |     | (43 | )     |      |     | (173 | )    |      |     | (75 | )   
|                                                                       |                                                                                                 | Supplemental contributions to pension trusts                                                                                                                 |                                                                    |                                                         | (1,255 | )          |        |               | (1,192 | )     |        |        | (1,782 | )      |        |        |    |      |        |        |    |      |        |       |     |      |       |        | (1,255 | )    |        |        | (1,192 | )     |        |        | (1,782 | )     |        |      |    |     |       |      |    |      |      |      |    |    
|                                                                       |                                                                                                 | Change in other assets and liabilities                                                                                                                       |                                                                    |                                                         | 1,098  |            |        |               | 893    |       |        |        | 947    |        |        |        | 156 |      |        |        | 137 |      |        |       | 439  |      |       |        | 857    |      |        |        | 764    |       |        |        | 448    |       |        |      | 85  |     |       |      | (8  | )    |      |      | 60  |    
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | Net cash provided by (used in) operating
    activities |        |            | 5,080  |               |        |       | 5,712  |        |        |        | 5,564  |        |     |      | (46    | )      |     |      | 1,120  |       |      |      | 729   |        |        |      | 4,008  |        |        |       | 4,123  |        |        |       | 4,277  |      |     |     | 1,118 |      |     |      | 469  |      |     |     | 558  |  
|Cash flows from investing activities                                   |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |     
|                                                                       | Additions to intangible assets and property,
    plant and equipment                            |                                                                                                                                                              |                                                                    | (2,764                                                  | )      |            |        | (2,852        | )      |       |        | (3,894 | )      |        |        |       |     |      |        |       |     |      |        | (149  | )    |      |       | (2,328 | )      |      |        | (2,468 | )      |       |        | (3,149 | )      |       |        | (436 | )   |     |       | (384 | )   |      |      | (596 | )  
|                                                                       | Acquisitions, net of cash acquired                                                              |                                                                                                                                                              |                                                                    | (1,477                                                  | )      |            |        | (1,055        | )      |       |        | (3,787 | )      |        |        |       |     |      |        |       |     |      |        |      |      |      |       | (1,472 | )      |      |        | (1,055 | )      |       |        | (3,787 | )      |       |        | (5   | )   |     |       |     |     |      |      |     |    
|                                                                       | Purchases of investments                                                                        |                                                                                                                                                              |                                                                    | (374                                                    | )      |            |        | (736          | )      |       |        | (332   | )      |        |        |       |     |      |        |       |     |      |        | (65   | )    |      |       | (367   | )      |      |        | (714   | )      |       |        | (263   | )      |       |        | (7   | )   |     |       | (22  | )   |      |      | (4   | )  
|                                                                       | Purchases of marketable securities                                                              |                                                                                                                                                              |                                                                    | (106                                                    | )      |            |        | (221          | )      |       |        | (338   | )      |        |        | (20    | )   |      |        | (92    | )   |      |        | (306  | )    |      |       | (86    | )      |      |        | (127   | )      |       |        | (27    | )      |       |        |     |     |     |       | (2   | )   |      |      | (5   | )  
|                                                                       | (Increase) decrease in receivables from financing
    activities                                |                                                                                                                                                              |                                                                    | (247                                                    | )      |            |        | (94           | )      |       |        | (172   | )      |        |        | 569    |     |      |        | 276    |     |      |        | (864  | )    |      |       |       |        |      |        |       |        |       |        |       |        |       |        | (816 | )   |     |       | (370 | )   |      |      | 692  |    
|                                                                       | Increase (decrease) in outstanding balance
    of receivables sold by SFS                       |                                                                                                                                                              |                                                                    |                                                        |        |            |        |              |        |       |        |       |        |        |        | (65    | )   |      |        | 21     |     |      |        | 607   |      |      |       |       |        |      |        |       |        |       |        |       |        |       |        | 65   |     |     |       | (21  | )   |      |      | (607 | )  
|                                                                       | Proceeds from sales of long-term investments,
    intangibles and property, plant and equipment |                                                                                                                                                              |                                                                    | 2,639                                                   |        |            |        | 839           |        |       |        | 1,218  |        |        |        | 19     |     |      |        |       |     |      |        |      |      |      |       | 2,357  |        |      |        | 556    |        |       |        | 801    |        |       |        | 263  |     |     |       | 283  |     |      |      | 417  |    
|                                                                       | Proceeds from sales and dispositions of businesses                                              |                                                                                                                                                              |                                                                    | 325                                                     |        |            |        | 119           |        |       |        | 6,097  |        |        |        |       |     |      |        |       |     |      |        |      |      |      |       | 306    |        |      |        | 119    |        |       |        | 6,097  |        |       |        | 19   |     |     |       |     |     |      |      |     |    
|                                                                       | Proceeds from sales of marketable securities                                                    |                                                                                                                                                              |                                                                    | 186                                                     |        |            |        | 61            |        |       |        | 398    |        |        |        | 104    |     |      |        | 26     |     |      |        | 317   |      |      |       | 67     |        |      |        | 34     |        |       |        | 78     |        |       |        | 15   |     |     |       | 1    |     |      |      | 3    |    
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | Net cash provided by (used in) investing
    activities |        |            | (1,818 | )             |        |       | (3,939 | )      |        |        | (810   | )      |     |      | 607    |        |     |      | 231    |       |      |      | (460  | )      |        |      | (1,523 | )      |        |       | (3,655 | )      |        |       | (250   | )    |     |     | (902  | )    |     |      | (515 | )    |     |     | (100 | )
|Cash flows from financing activities                                   |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |     
|                                                                       | Proceeds from issuance of common stock                                                          |                                                                                                                                                              |                                                                    | 4                                                       |        |            |        |              |        |       |        | 156    |        |        |        |       |     |      |        |       |     |      |        |      |      |      |       | 4      |        |      |        |       |        |       |        | 156    |        |       |        |     |     |     |       |     |     |      |      |     |    
|                                                                       | Purchase of common stock of Company                                                             |                                                                                                                                                              |                                                                    |                                                        |        |            |        |              |        |       |        | (152   | )      |        |        |       |     |      |        |       |     |      |        |      |      |      |       |       |        |      |        |       |        |       |        | (152   | )      |       |        |     |     |     |       |     |     |      |      |     |    
|                                                                       | Proceeds from issuance of treasury shares                                                       |                                                                                                                                                              |                                                                    |                                                        |        |            |        | 4             |        |       |        | 81     |        |        |        |       |     |      |        |       |     |      |        |      |      |      |       |       |        |      |        | 4      |        |       |        | 81     |        |       |        |     |     |     |       |     |     |      |      |     |    
|                                                                       | Proceeds from issuance of debt                                                                  |                                                                                                                                                              |                                                                    |                                                        |        |            |        | 2,702         |        |       |        | 384    |        |        |        |       |     |      |        | 2,702  |     |      |        | 384   |      |      |       |       |        |      |        |       |        |       |        |       |        |       |        |     |     |     |       |     |     |      |      |     |    
|                                                                       | Repayment of debt                                                                               |                                                                                                                                                              |                                                                    | (1,564                                                  | )      |            |        | (1,742        | )      |       |        | (847   | )      |        |        | (1,270 | )   |      |        | (1,700 | )   |      |        | (809  | )    |      |       | (266   | )      |      |        | (12    | )      |       |        | (15    | )      |       |        | (28  | )   |     |       | (30  | )   |      |      | (23  | )  
|                                                                       | Change in short-term debt                                                                       |                                                                                                                                                              |                                                                    | (469                                                    | )      |            |        | (445          | )      |       |        | 512    |        |        |        | (414   | )   |      |        | (106   | )   |      |        | 843   |      |      |       | (170   | )      |      |        | (323   | )      |       |        | (481   | )      |       |        | 115  |     |     |       | (16  | )   |      |      | 150  |    
|                                                                       | Change in restricted cash                                                                       |                                                                                                                                                              |                                                                    |                                                        |        |            |        |              |        |       |        | (2     | )      |        |        |       |     |      |        |       |     |      |        | (2    | )    |      |       |       |        |      |        |       |        |       |        |       |        |       |        |     |     |     |       |     |     |      |      |     |    
|                                                                       | Dividends paid                                                                                  |                                                                                                                                                              |                                                                    | (978                                                    | )      |            |        | (896          | )      |       |        | (888   | )      |        |        |       |     |      |        |       |     |      |        |      |      |      |       | (978   | )      |      |        | (896   | )      |       |        | (888   | )      |       |        |     |     |     |       |     |     |      |      |     |    
|                                                                       | Dividends paid to minority shareholders                                                         |                                                                                                                                                              |                                                                    | (101                                                    | )      |            |        | (110          | )      |       |        | (103   | )      |        |        |       |     |      |        |       |     |      |        |      |      |      |       | (101   | )      |      |        | (110   | )      |       |        | (103   | )      |       |        |     |     |     |       |     |     |      |      |     |    
|                                                                       | Intracompany financing                                                                          |                                                                                                                                                              |                                                                    |                                                        |        |            |        |              |        |       |        |       |        |        |        | 1,115  |     |      |        | (907   | )   |      |        | 3,178 |      |      |       | (765   | )      |      |        | 787    |        |       |        | (2,615 | )      |       |        | (350 | )   |     |       | 120  |     |      |      | (563 | )  
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | Net cash provided by (used in) financing
    activities |        |            | (3,108 | )             |        |       | (487   | )      |        |        | (859   | )      |     |      | (569   | )      |     |      | (11    | )     |      |      | 3,594 |        |        |      | (2,276 | )      |        |       | (550   | )      |        |       | (4,017 | )    |     |     | (263  | )    |     |      | 74   |      |     |     | (436 | )
|Effect of deconsolidation of Infineon on cash and
    cash equivalents |                                                                                                 |                                                                                                                                                              |                                                                   |                                                         |        |            |       |               |        |       | (383   | )      |        |        |       |        |     |      |       |        |     |      | (383   | )     |      |      |      |        |        |      |       |        |        |       |       |        |        |       |       |      |     |     |      |      |     |      |     |     
|Effect of exchange rates on cash and cash
    equivalents              |                                                                                                 |                                                                                                                                                              | (113                                                               | )                                                       |        |            | (333   | )             |        |       | (118   | )      |        |        | (86    | )      |     |      | (264   | )      |     |      | (71    | )     |      |      | (26   | )      |        |      | (66    | )      |        |       | (44    | )      |        |       | (1     | )    |     |     | (3    | )    |     |      | (3   | )   
|Net increase (decrease) in cash and cash
    equivalents               |                                                                                                 |                                                                                                                                                              | 41                                                                 |                                                         |        |            | 953    |               |        |       | 3,394  |        |        |        | (94    | )      |     |      | 1,076  |        |     |      | 3,409  |       |      |      | 183   |        |        |      | (148   | )      |        |       | (34    | )      |        |       | (48    | )    |     |     | 25    |      |     |      | 19   |     
|Cash and cash equivalents at beginning of period                       |                                                                                                 |                                                                                                                                                              | 12,149                                                             |                                                         |        |            | 11,196 |               |        |       | 7,802  |        |        |        | 11,345 |        |     |      | 10,269 |        |     |      | 6,860  |       |      |      | 725   |        |        |      | 873    |        |        |       | 907    |        |        |       | 79     |      |     |     | 54    |      |     |      | 35   |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |     
|Cash and cash equivalents at end of period                             |                                                                                                 |                                                                                                                                                              | 12,190                                                             |                                                         |        |            | 12,149 |               |        |       | 11,196 |        |        |        | 11,251 |        |     |      | 11,345 |        |     |      | 10,269 |       |      |      | 908   |        |        |      | 725    |        |        |       | 873    |        |        |       | 31     |      |     |     | 79    |      |     |      | 54   |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |     
|Supplemental disclosure of cash paid for:                              |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |       |        |        |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |     
|                                                                       | Interest                                                                                        |                                                                                                                                                              |                                                                    | 385                                                     |        |            |        | 545           |        |       |        | 794    |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |      |    
|                                                                       | Income taxes                                                                                    |                                                                                                                                                              |                                                                    | 746                                                     |        |            |        | 795           |        |       |        | 389    |        |        |        |        |     |      |        |        |     |      |        |       |      |      |       |        |        |      |        |        |        |       |        |        |        |       |        |      |     |     |       |      |     |      |      |      |    

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

F-5



---



##### Table of Contents



SIEMENS AG

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

For the fiscal years ended September 30,
2004, 2003 and 2002


(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, 2001                                |                            |        | 2,665 |            |  |          | 4,901 |                             |  |            | 19,762 |             |  |           | 401    |          |   |       | 54   |      |   |  | 23  |     |   |  | (3,994 | )      |   |  |     |   |  |  | 23,812 |      
|                                                          |                            |        |       |            |  |          |       |                             |  |            |        |             |  |           |        |          |   |       |      |      |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |      
|Net income                                                |                            |        |      |            |  |          |      |                             |  |            | 2,597  |             |  |           |       |          |   |       |     |      |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 2,597  |      
|Change in currency translation adjustment                 |                            |        |      |            |  |          |      |                             |  |            |       |             |  |           | (533   | )        |   |       |     |      |   |  |    |     |   |  |       |        |   |  |     |   |  |  | (533   | )    
|Change in unrealized gains and losses                     |                            |        |      |            |  |          |      |                             |  |            |       |             |  |           |       |          |   |       | (239 | )    |   |  | 36  |     |   |  | (1,418 | )      |   |  |     |   |  |  | (1,621 | )    
|                                                          |                            |        |       |            |  |          |       |                             |  |            |        |             |  |           |        |          |   |       |      |      |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |      
|                                                          | Total comprehensive income |        |       |           |  |          |       |                            |  |            |        | 2,597       |  |           |        | (533     | ) |       |      | (239 | ) |  |     | 36  |   |  |        | (1,418 | ) |  |      |  |  |  |        | 443   | 
|Dividends paid                                            |                            |        |      |            |  |          |      |                             |  |            | (888   | )           |  |           |       |          |   |       |     |      |   |  |    |     |   |  |       |        |   |  |     |   |  |  | (888   | )    
|Issuance of common stock and stock-based
    compensation |                            |        | 6     |            |  |          | 152   |                             |  |            |       |             |  |           |       |          |   |       |     |      |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 158    |      
|Purchase of common stock                                  |                            |        |      |            |  |          |      |                             |  |            |       |             |  |           |       |          |   |       |     |      |   |  |    |     |   |  |       |        |   |  | (167 | ) |  |  | (167   | )    
|Re-issuance of treasury stock                             |                            |        |      |            |  |          |      |                             |  |            |       |             |  |           |       |          |   |       |     |      |   |  |    |     |   |  |       |        |   |  | 163  |   |  |  | 163    |      
|Balance at September 30, 2002                             |                            |        | 2,671 |            |  |          | 5,053 |                             |  |            | 21,471 |             |  |           | (132   | )        |   |       | (185 | )    |   |  | 59  |     |   |  | (5,412 | )      |   |  | (4   | ) |  |  | 23,521 |      
|                                                          |                            |        |       |            |  |          |       |                             |  |            |        |             |  |           |        |          |   |       |      |      |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |      
|Net income                                                |                            |        |      |            |  |          |      |                             |  |            | 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 and stock-based
    compensation |                            |        | 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                                                |                            |        |      |            |  |          |      |                             |  |            | 3,405  |             |  |           |       |          |   |       |     |      |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 3,405  |      
|Change in currency translation adjustment                 |                            |        |      |            |  |          |      |                             |  |            |       |             |  |           | (249   | )        |   |       |     |      |   |  |    |     |   |  |       |        |   |  |     |   |  |  | (249   | )    
|Change in unrealized gains and losses                     |                            |        |      |            |  |          |      |                             |  |            |       |             |  |           |       |          |   |       | 77   |      |   |  | (28 | )   |   |  | 865    |        |   |  |     |   |  |  | 914    |      
|                                                          |                            |        |       |            |  |          |       |                             |  |            |        |             |  |           |        |          |   |       |      |      |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |      
|                                                          | Total comprehensive income |        |       |           |  |          |       |                            |  |            |        | 3,405       |  |           |        | (249     | ) |       |      | 77   |   |  |     | (28 | ) |  |        | 865    |   |  |      |  |  |  |        | 4,070 | 
|Dividends paid                                            |                            |        |      |            |  |          |      |                             |  |            | (978   | )           |  |           |       |          |   |       |     |      |   |  |    |     |   |  |       |        |   |  |     |   |  |  | (978   | )    
|Issuance of common stock and stock-based
    compensation |                            |        |      |            |  |          | 50    |                             |  |            |       |             |  |           |       |          |   |       |     |      |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 50     |      
|Purchase of common stock                                  |                            |        |      |            |  |          |      |                             |  |            |       |             |  |           |       |          |   |       |     |      |   |  |    |     |   |  |       |        |   |  | (106 | ) |  |  | (106   | )    
|Re-issuance of treasury stock                             |                            |        |      |            |  |          | (2    | )                           |  |            |       |             |  |           |       |          |   |       |     |      |   |  |    |     |   |  |       |        |   |  | 106  |   |  |  | 104    |      
|                                                          |                            |        |       |            |  |          |       |                             |  |            |        |             |  |           |        |          |   |       |      |      |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |      
|Balance at September 30, 2004                             |                            |        | 2,673 |            |  |          | 5,121 |                             |  |            | 25,447 |             |  |           | (1,076 | )        |   |       | 160  |      |   |  | 55  |     |   |  | (5,525 | )      |   |  |     |   |  |  | 26,855 |      
|                                                          |                            |        |       |            |  |          |       |                             |  |            |        |             |  |           |        |          |   |       |      |      |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |      

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

F-6



---



##### Table of Contents



SIEMENS AG

SEGMENT INFORMATION

As of and for the fiscal years ended
September 30, 2004, 2003 and 2002


(in millions of
)


|                                       |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  |  |        |       |  |  |        |        |  |  |        |        |  |  |        |        | 
|-------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ |  | -------------- | ------ | ------------------ |  | ----------- | ------ | ---- |  | ------ | ------ | ---- |  | ------ | ------ | ---- |  | ------ | ------ | ---- |  | ------ | ------ |  |  | ------ | ----- |  |  | ------ | ----- |  |  | ------ | ----- |  |  | ------ | ------ |  |  | ------ | ------ |  |  | ------ | ------ | 
|                                       |                                                                       |                                                                                                                          |  |                |        |                    |  |            
|                                       |                                                                       | New orders (unaudited)                                                                                                   |  | External sales |        | Intersegment sales |  | Total sales
|                                       |                                                                       |                                                                                                                          |  |                |        |                    |  |            
|                                       |                                                                       | 2004                                                                                                                     |  | 2003           |        | 2002               |  | 2004        |        | 2003 |  | 2002   |        | 2004 |  | 2003   |        | 2002 |  | 2004   |        | 2003 |  | 2002  
|                                       |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |       
|Operations Groups                      |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  |  |        |       |  |  |        |        |  |  |        |        |  |  |       
|                                       | Information and Communication Networks (ICN)                          |                                                                                                                          |  | 7,011          |        |                    |  | 7,070       |        |      |  | 8,697  |        |      |  | 6,323  |        |      |  | 6,592  |        |      |  | 9,169  |        |  |  | 671    |       |  |  | 530    |       |  |  | 478    |       |  |  | 6,994  |        |  |  | 7,122  |        |  |  | 9,647  |       
|                                       | Information and Communication Mobile (ICM)                            |                                                                                                                          |  | 11,459         |        |                    |  | 9,960       |        |      |  | 11,538 |        |      |  | 10,881 |        |      |  | 9,811  |        |      |  | 10,910 |        |  |  | 161    |       |  |  | 153    |       |  |  | 135    |       |  |  | 11,042 |        |  |  | 9,964  |        |  |  | 11,045 |       
|                                       | Siemens Business Services (SBS)                                       |                                                                                                                          |  | 6,293          |        |                    |  | 5,226       |        |      |  | 6,256  |        |      |  | 3,598  |        |      |  | 3,964  |        |      |  | 4,212  |        |  |  | 1,118  |       |  |  | 1,241  |       |  |  | 1,561  |       |  |  | 4,716  |        |  |  | 5,205  |        |  |  | 5,773  |       
|                                       | Automation and Drives (A&D)                                           |                                                                                                                          |  | 8,980          |        |                    |  | 8,476       |        |      |  | 8,728  |        |      |  | 7,569  |        |      |  | 7,159  |        |      |  | 7,430  |        |  |  | 1,260  |       |  |  | 1,216  |       |  |  | 1,205  |       |  |  | 8,829  |        |  |  | 8,375  |        |  |  | 8,635  |       
|                                       | Industrial Solutions and Services (I&S)                               |                                                                                                                          |  | 4,356          |        |                    |  | 3,955       |        |      |  | 4,120  |        |      |  | 3,147  |        |      |  | 2,907  |        |      |  | 3,378  |        |  |  | 1,143  |       |  |  | 1,105  |       |  |  | 1,102  |       |  |  | 4,290  |        |  |  | 4,012  |        |  |  | 4,480  |       
|                                       | Logistics and Assembly Systems (L&A)                                  |                                                                                                                          |  | 2,687          |        |                    |  | 2,599       |        |      |  | 2,810  |        |      |  | 2,173  |        |      |  | 2,444  |        |      |  | 2,894  |        |  |  | 165    |       |  |  | 156    |       |  |  | 101    |       |  |  | 2,338  |        |  |  | 2,600  |        |  |  | 2,995  |       
|                                       | Siemens Building Technologies (SBT)                                   |                                                                                                                          |  | 4,358          |        |                    |  | 4,775       |        |      |  | 5,601  |        |      |  | 4,174  |        |      |  | 4,706  |        |      |  | 5,291  |        |  |  | 73     |       |  |  | 284    |       |  |  | 328    |       |  |  | 4,247  |        |  |  | 4,990  |        |  |  | 5,619  |       
|                                       | Power Generation (PG)                                                 |                                                                                                                          |  | 9,243          |        |                    |  | 7,302       |        |      |  | 10,586 |        |      |  | 7,505  |        |      |  | 6,949  |        |      |  | 9,398  |        |  |  | 22     |       |  |  | 18     |       |  |  | 48     |       |  |  | 7,527  |        |  |  | 6,967  |        |  |  | 9,446  |       
|                                       | Power Transmission and Distribution (PTD)                             |                                                                                                                          |  | 3,863          |        |                    |  | 3,586       |        |      |  | 4,429  |        |      |  | 3,292  |        |      |  | 3,188  |        |      |  | 3,928  |        |  |  | 319    |       |  |  | 211    |       |  |  | 271    |       |  |  | 3,611  |        |  |  | 3,399  |        |  |  | 4,199  |       
|                                       | Transportation Systems (TS)                                           |                                                                                                                          |  | 4,321          |        |                    |  | 4,674       |        |      |  | 5,247  |        |      |  | 4,284  |        |      |  | 4,668  |        |      |  | 4,349  |        |  |  | 26     |       |  |  | 29     |       |  |  | 18     |       |  |  | 4,310  |        |  |  | 4,697  |        |  |  | 4,367  |       
|                                       | Siemens VDO Automotive (SV)                                           |                                                                                                                          |  | 9,029          |        |                    |  | 8,375       |        |      |  | 8,515  |        |      |  | 8,987  |        |      |  | 8,365  |        |      |  | 8,491  |        |  |  | 14     |       |  |  | 10     |       |  |  | 24     |       |  |  | 9,001  |        |  |  | 8,375  |        |  |  | 8,515  |       
|                                       | Medical Solutions (Med)                                               |                                                                                                                          |  | 8,123          |        |                    |  | 7,835       |        |      |  | 8,425  |        |      |  | 6,969  |        |      |  | 7,345  |        |      |  | 7,604  |        |  |  | 103    |       |  |  | 77     |       |  |  | 19     |       |  |  | 7,072  |        |  |  | 7,422  |        |  |  | 7,623  |       
|                                       | Osram                                                                 |                                                                                                                          |  | 4,240          |        |                    |  | 4,172       |        |      |  | 4,363  |        |      |  | 4,143  |        |      |  | 4,113  |        |      |  | 4,308  |        |  |  | 97     |       |  |  | 59     |       |  |  | 55     |       |  |  | 4,240  |        |  |  | 4,172  |        |  |  | 4,363  |       
|                                       | Other Operations(5)                                                   |                                                                                                                          |  | 2,102          |        |                    |  | 1,840       |        |      |  | 1,895  |        |      |  | 1,174  |        |      |  | 1,129  |        |      |  | 1,238  |        |  |  | 976    |       |  |  | 728    |       |  |  | 785    |       |  |  | 2,150  |        |  |  | 1,857  |        |  |  | 2,023  |       
|                                       |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  |  |        |       |  |  |        |        |  |  |        |        |  |  |       
|                                       |                                                                       | Total Operations Groups                                                                                                  |  |                | 86,065 |                    |  |             | 79,845 |      |  |        | 91,210 |      |  |        | 74,219 |      |  |        | 73,340 |      |  |        | 82,600 |  |  |        | 6,148 |  |  |        | 5,817 |  |  |        | 6,130 |  |  |        | 80,367 |  |  |        | 79,157 |  |  |        | 88,730 | 
|Reconciliation to financial statements |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  |  |        |       |  |  |        |        |  |  |        |        |  |  |       
|                                       | Corporate items, pensions and eliminations                            |                                                                                                                          |  | (7,381         | )      |                    |  | (6,916      | )      |      |  | (7,688 | )      |      |  | 208    |        |      |  | 192    |        |      |  | 244    |        |  |  | (6,002 | )     |  |  | (5,605 | )     |  |  | (5,847 | )     |  |  | (5,794 | )      |  |  | (5,413 | )      |  |  | (5,603 | )     
|                                       | Other interest expense                                                |                                                                                                                          |  |               |        |                    |  |            |        |      |  |       |        |      |  |       |        |      |  |       |        |      |  |       |        |  |  |       |       |  |  |       |       |  |  |       |       |  |  |       |        |  |  |       |        |  |  |       |       
|                                       | Gains on sales and dispositions of significant
    business interests |                                                                                                                          |  |               |        |                    |  |            |        |      |  |       |        |      |  |       |        |      |  |       |        |      |  |       |        |  |  |       |       |  |  |       |       |  |  |       |       |  |  |       |        |  |  |       |        |  |  |       |       
|                                       | Other assets related reconciling items                                |                                                                                                                          |  |               |        |                    |  |            |        |      |  |       |        |      |  |       |        |      |  |       |        |      |  |       |        |  |  |       |       |  |  |       |       |  |  |       |       |  |  |       |        |  |  |       |        |  |  |       |       
|                                       |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  |  |        |       |  |  |        |        |  |  |        |        |  |  |       
|                                       |                                                                       | Total Operations (for columns Group profit/
    Net capital employed, i.e. Income before income taxes/
    Total assets) |  |                | 78,684 |                    |  |             | 72,929 |      |  |        | 83,522 |      |  |        | 74,427 |      |  |        | 73,532 |      |  |        | 82,844 |  |  |        | 146   |  |  |        | 212   |  |  |        | 283   |  |  |        | 74,573 |  |  |        | 73,744 |  |  |        | 83,127 | 
|                                       |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  |  |        |       |  |  |        |        |  |  |        |        |  |  |       
|                                      
|Financing and Real Estate Groups       |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  |  |        |       |  |  |        |        |  |  |        |        |  |  |       
|                                       | Siemens Financial Services (SFS)                                      |                                                                                                                          |  | 562            |        |                    |  | 532         |        |      |  | 582    |        |      |  | 453    |        |      |  | 433    |        |      |  | 436    |        |  |  | 109    |       |  |  | 99     |       |  |  | 146    |       |  |  | 562    |        |  |  | 532    |        |  |  | 582    |       
|                                       | Siemens Real Estate (SRE)                                             |                                                                                                                          |  | 1,584          |        |                    |  | 1,592       |        |      |  | 1,612  |        |      |  | 287    |        |      |  | 265    |        |      |  | 243    |        |  |  | 1,297  |       |  |  | 1,327  |       |  |  | 1,369  |       |  |  | 1,584  |        |  |  | 1,592  |        |  |  | 1,612  |       
|                                       | Eliminations                                                          |                                                                                                                          |  |               |        |                    |  |            |        |      |  |       |        |      |  |       |        |      |  |       |        |      |  |       |        |  |  | (13    | )     |  |  | (12    | )     |  |  | (8     | )     |  |  | (13    | )      |  |  | (12    | )      |  |  | (8     | )     
|                                       |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  |  |        |       |  |  |        |        |  |  |        |        |  |  |       
|                                       |                                                                       | Total Financing and Real Estate                                                                                          |  |                | 2,146  |                    |  |             | 2,124  |      |  |        | 2,194  |      |  |        | 740    |      |  |        | 698    |      |  |        | 679    |  |  |        | 1,393 |  |  |        | 1,414 |  |  |        | 1,507 |  |  |        | 2,133  |  |  |        | 2,112  |  |  |        | 2,186  | 
|                                       |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  |  |        |       |  |  |        |        |  |  |        |        |  |  |       
|                                       | Eliminations, reclassifications and Corporate
    Treasury            |                                                                                                                          |  |               |        |                    |  | 3           |        |      |  | 498    |        |      |  |       |        |      |  | 3      |        |      |  | 493    |        |  |  | (1,539 | )     |  |  | (1,626 | )     |  |  | (1,790 | )     |  |  | (1,539 | )      |  |  | (1,623 | )      |  |  | (1,297 | )     
|                                       |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  |  |        |       |  |  |        |        |  |  |        |        |  |  |       
|                                       | Siemens worldwide                                                     |                                                                                                                          |  | 80,830         |        |                    |  | 75,056      |        |      |  | 86,214 |        |      |  | 75,167 |        |      |  | 74,233 |        |      |  | 84,016 |        |  |  |       |       |  |  |       |       |  |  |       |       |  |  | 75,167 |        |  |  | 74,233 |        |  |  | 84,016 |       
|                                       |                                                                       |                                                                                                                          |  |                |        |                    |  |             |        |      |  |        |        |      |  |        |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  |  |        |       |  |  |        |        |  |  |        |        |  |  |       

F-7



---



##### Table of Contents



SIEMENS AG

SEGMENT INFORMATION(Continued)

As of and for the fiscal years ended
September 30, 2004, 2003 and 2002


(in millions of
)


|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |       |    |       |  |       |    |       |  |       |       |       |  |       |     |       |  |       |     |       |  |       |     |       | 
|-------------------------------- | ---------------------------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------ | ----------------------- | ------ | ------------------------ |  | ------------------- | ------ | ---------------- |  | ------- | ------ | ----- |  | ------ | ------ | ------ |  | ------ | ------ | ------------- |  | ------ | ------ | ------ |  | ----- | ------ | ----- |  | ----- | ------ | ----- | - | ----- | ------ | ----- |  | ----- | -- | ----- |  | ----- | -- | ----- |  | ----- | ----- | ----- |  | ----- | --- | ----- |  | ----- | --- | ----- |  | ----- | --- | ----- | 
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |       
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        | Amortization,
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        | Net cash from operating  |  |                     |        | depreciation and
|                                 |                                                            | Group profit(1)                                                       |                                                                                                                          | Net capital employed(2) |        | and investing activities |  | Capital spending(3) |        | impairments(4)  
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                 
|                                 |                                                            | 2004                                                                  |                                                                                                                          | 2003                    |        | 2002                     |  | 9/30/04             |        | 9/30/03          |  | 9/30/02 |        | 2004  |  | 2003   |        | 2002   |  | 2004   |        | 2003          |  | 2002   |        | 2004   |  | 2003  |        | 2002 
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |      
|Operations Groups                |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |       |    |       |  |       |    |       |  |       |       |       |  |       |     |       |  |       |     |       |  |      
|                                 | Information and Communication Networks (ICN)               |                                                                       |                                                                                                                          | 222                     |        |                          |  | (366                | )      |                  |  | (691    | )      |       |  | 1,261  |        |        |  | 722    |        |               |  | 1,100  |        |        |  | (212  | )      |       |  | 106   |        |       |   | 711   |        |       |  | 278   |    |       |  | 219   |    |       |  | 415   |       |       |  | 255   |     |       |  | 447   |     |       |  | 850   |    
|                                 | Information and Communication Mobile (ICM)                 |                                                                       |                                                                                                                          | 347                     |        |                          |  | 180                 |        |                  |  | 96      |        |       |  | 873    |        |        |  | 1,367  |        |               |  | 1,973  |        |        |  | 847   |        |       |  | 692   |        |       |   | 594   |        |       |  | 299   |    |       |  | 347   |    |       |  | 453   |       |       |  | 325   |     |       |  | 326   |     |       |  | 368   |    
|                                 | Siemens Business Services (SBS)                            |                                                                       |                                                                                                                          | 40                      |        |                          |  | 13                  |        |                  |  | 101     |        |       |  | 632    |        |        |  | 294    |        |               |  | 264    |        |        |  | (263  | )      |       |  | (62   | )      |       |   | 173   |        |       |  | 428   |    |       |  | 193   |    |       |  | 222   |       |       |  | 213   |     |       |  | 255   |     |       |  | 282   |    
|                                 | Automation and Drives (A&D)                                |                                                                       |                                                                                                                          | 1,077                   |        |                          |  | 806                 |        |                  |  | 723     |        |       |  | 1,951  |        |        |  | 1,925  |        |               |  | 2,197  |        |        |  | 1,026 |        |       |  | 1,060 |        |       |   | 1,019 |        |       |  | 312   |    |       |  | 281   |    |       |  | 248   |       |       |  | 209   |     |       |  | 231   |     |       |  | 240   |    
|                                 | Industrial Solutions and Services (I&S)                    |                                                                       |                                                                                                                          | 95                      |        |                          |  | (41                 | )      |                  |  | (198    | )      |       |  | 1,003  |        |        |  | 167    |        |               |  | 315    |        |        |  | (725  | )      |       |  | 54    |        |       |   | (107  | )      |       |  | 892   |    |       |  | 45    |    |       |  | 60    |       |       |  | 47    |     |       |  | 52    |     |       |  | 56    |    
|                                 | Logistics and Assembly Systems (L&A)                       |                                                                       |                                                                                                                          | 2                       |        |                          |  | (218                | )      |                  |  | 45      |        |       |  | 537    |        |        |  | 877    |        |               |  | 975    |        |        |  | (115  | )      |       |  | (170  | )      |       |   | (70   | )      |       |  | 31    |    |       |  | 42    |    |       |  | 71    |       |       |  | 36    |     |       |  | 55    |     |       |  | 62    |    
|                                 | Siemens Building Technologies (SBT)                        |                                                                       |                                                                                                                          | 108                     |        |                          |  | 101                 |        |                  |  | 195     |        |       |  | 1,359  |        |        |  | 1,447  |        |               |  | 1,778  |        |        |  | 195   |        |       |  | 375   |        |       |   | 295   |        |       |  | 75    |    |       |  | 82    |    |       |  | 133   |       |       |  | 127   |     |       |  | 144   |     |       |  | 155   |    
|                                 | Power Generation (PG)                                      |                                                                       |                                                                                                                          | 961                     |        |                          |  | 1,171               |        |                  |  | 1,582   |        |       |  | 1,997  |        |        |  | 1,712  |        |               |  | (144   | )      |        |  | 687   |        |       |  | (448  | )      |       |   | 662   |        |       |  | 214   |    |       |  | 1,120 |    |       |  | 300   |       |       |  | 181   |     |       |  | 163   |     |       |  | 184   |    
|                                 | Power Transmission and Distribution (PTD)                  |                                                                       |                                                                                                                          | 238                     |        |                          |  | 207                 |        |                  |  | 109     |        |       |  | 1,162  |        |        |  | 798    |        |               |  | 928    |        |        |  | 102   |        |       |  | 387   |        |       |   | 149   |        |       |  | 228   |    |       |  | 65    |    |       |  | 92    |       |       |  | 73    |     |       |  | 65    |     |       |  | 75    |    
|                                 | Transportation Systems (TS)                                |                                                                       |                                                                                                                          | (434                    | )      |                          |  | 284                 |        |                  |  | 247     |        |       |  | 49     |        |        |  | (252   | )      |               |  | (741   | )      |        |  | (495  | )      |       |  | (217  | )      |       |   | 95    |        |       |  | 83    |    |       |  | 120   |    |       |  | 135   |       |       |  | 65    |     |       |  | 65    |     |       |  | 64    |    
|                                 | Siemens VDO Automotive (SV)                                |                                                                       |                                                                                                                          | 562                     |        |                          |  | 418                 |        |                  |  | 65      |        |       |  | 3,542  |        |        |  | 3,949  |        |               |  | 3,746  |        |        |  | 1,030 |        |       |  | 184   |        |       |   | 224   |        |       |  | 515   |    |       |  | 569   |    |       |  | 534   |       |       |  | 394   |     |       |  | 400   |     |       |  | 435   |    
|                                 | Medical Solutions (Med)                                    |                                                                       |                                                                                                                          | 1,046                   |        |                          |  | 1,118               |        |                  |  | 1,018   |        |       |  | 3,173  |        |        |  | 3,128  |        |               |  | 3,414  |        |        |  | 762   |        |       |  | 845   |        |       |   | 1,124 |        |       |  | 449   |    |       |  | 321   |    |       |  | 321   |       |       |  | 202   |     |       |  | 227   |     |       |  | 206   |    
|                                 | Osram                                                      |                                                                       |                                                                                                                          | 445                     |        |                          |  | 410                 |        |                  |  | 365     |        |       |  | 2,011  |        |        |  | 2,074  |        |               |  | 2,436  |        |        |  | 453   |        |       |  | 528   |        |       |   | 284   |        |       |  | 256   |    |       |  | 280   |    |       |  | 330   |       |       |  | 264   |     |       |  | 268   |     |       |  | 289   |    
|                                 | Other Operations(5)                                        |                                                                       |                                                                                                                          | 289                     |        |                          |  | 212                 |        |                  |  | 99      |        |       |  | 1,672  |        |        |  | 1,515  |        |               |  | 535    |        |        |  | 311   |        |       |  | (362  | )      |       |   | 89    |        |       |  | 79    |    |       |  | 520   |    |       |  | 50    |       |       |  | 73    |     |       |  | 64    |     |       |  | 51    |    
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |       |    |       |  |       |    |       |  |       |       |       |  |       |     |       |  |       |     |       |  |      
|                                 |                                                            |                                                                       | Total Operations Groups                                                                                                  |                         |        | 4,998                    |  |                     |        | 4,295            |  |         |        | 3,756 |  |        |        | 21,222 |  |        |        | 19,723        |  |        |        | 18,776 |  |       |        | 3,603 |  |       |        | 2,972 |   |       |        | 5,242 |  |       |    | 4,139 |  |       |    | 4,204 |  |       |       | 3,364 |  |       |     | 2,464 |  |       |     | 2,762 |  |       |     | 3,317 | 
|                                 | Reconciliation to financial statements                     |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |       |    |       |  |       |    |       |  |       |       |       |  |       |     |       |  |       |     |       |  |       |    
|                                 |                                                            | Corporate items, pensions and eliminations                            |                                                                                                                          |                         | (1,207 | )                        |  |                     | (1,576 | )                |  |         | (1,282 | )     |  |        | (3,116 | )      |  |        | (3,781 | )             |  |        | (3,021 | )      |  |       | (1,118 | ) (6) |  |       | (2,504 | ) (6) |   |       | (1,215 | ) (6) |  |       | 28 |       |  |       | 33 |       |  |       | 3,835 |       |  |       | 487 |       |  |       | 132 |       |  |       | 123 |      
|                                 |                                                            | Other interest expense                                                |                                                                                                                          |                         | (141   | )                        |  |                     | (88    | )                |  |         | (96    | )     |  |        |       |        |  |        |       |               |  |        |       |        |  |       |       |       |  |       |       |       |   |       |       |       |  |       |   |       |  |       |   |       |  |       |      |       |  |       |    |       |  |       |    |       |  |       |    |      
|                                 |                                                            | Gains on sales and dispositions of significant
    business interests |                                                                                                                          |                         |       |                          |  |                     |       |                  |  |         | 936    |       |  |        |       |        |  |        |       |               |  |        |       |        |  |       |       |       |  |       |       |       |   |       |       |       |  |       |   |       |  |       |   |       |  |       |      |       |  |       |    |       |  |       |    |       |  |       |    |      
|                                 |                                                            | Other assets related reconciling items                                |                                                                                                                          |                         |       |                          |  |                     |       |                  |  |         |       |       |  |        | 49,821 |        |  |        | 48,533 |               |  |        | 51,944 |        |  |       |       |       |  |       |       |       |   |       |       |       |  |       |   |       |  |       |   |       |  |       |      |       |  |       |    |       |  |       |    |       |  |       |    |      
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |       |    |       |  |       |    |       |  |       |       |       |  |       |     |       |  |       |     |       |  |      
|                                 |                                                            |                                                                       | Total Operations (for columns Group profit/
    Net capital employed, i.e. Income before income taxes/ Total
    assets) |                         |        | 3,650                    |  |                     |        | 2,631            |  |         |        | 3,314 |  |        |        | 67,927 |  |        |        | 64,475        |  |        |        | 67,699 |  |       |        | 2,485 |  |       |        | 468   |   |       |        | 4,027 |  |       |    | 4,167 |  |       |    | 4,237 |  |       |       | 7,199 |  |       |     | 2,951 |  |       |     | 2,894 |  |       |     | 3,440 | 
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |       |    |       |  |       |    |       |  |       |       |       |  |       |     |       |  |       |     |       |  |      
|                                 |                                                            | Income before
    income taxes                                        |                                                                                                                          | Total assets            |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |      
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |      
|Financing and Real Estate Groups |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |       |    |       |  |       |    |       |  |       |       |       |  |       |     |       |  |       |     |       |  |      
|                                 | Siemens Financial Services (SFS)                           |                                                                       |                                                                                                                          | 250                     |        |                          |  | 269                 |        |                  |  | 216     |        |       |  | 9,055  |        |        |  | 8,445  |        |               |  | 8,681  |        |        |  | (159  | )      |       |  | (312  | )      |       |   | 282   |        |       |  | 311   |    |       |  | 237   |    |       |  | 283   |       |       |  | 194   |     |       |  | 220   |     |       |  | 271   |    
|                                 | Siemens Real Estate (SRE)                                  |                                                                       |                                                                                                                          | 108                     |        |                          |  | 206                 |        |                  |  | 229     |        |       |  | 3,455  |        |        |  | 3,607  |        |               |  | 4,090  |        |        |  | 457   |        |       |  | 351   |        |       |   | 309   |        |       |  | 137   |    |       |  | 169   |    |       |  | 317   |       |       |  | 199   |     |       |  | 220   |     |       |  | 206   |    
|                                 | Eliminations                                               |                                                                       |                                                                                                                          |                        |        |                          |  |                    |        |                  |  |        |        |       |  | (576   | )      |        |  | (465   | )      |               |  | (561   | )      |        |  | (82   | ) (6)  |       |  | (85   | ) (6)  |       |   | (133  | ) (6)  |       |  |      |    |       |  |      |    |       |  |      |       |       |  |      |     |       |  |      |     |       |  |      |    
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |       |    |       |  |       |    |       |  |       |       |       |  |       |     |       |  |       |     |       |  |      
|                                 |                                                            |                                                                       | Total Financing and Real Estate                                                                                          |                         |        | 358                      |  |                     |        | 475              |  |         |        | 445   |  |        |        | 11,934 |  |        |        | 11,587        |  |        |        | 12,210 |  |       |        | 216   |  |       |        | (46   | ) |       |        | 458   |  |       |    | 448   |  |       |    | 406   |  |       |       | 600   |  |       |     | 393   |  |       |     | 440   |  |       |     | 477   | 
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |       |    |       |  |       |    |       |  |       |       |       |  |       |     |       |  |       |     |       |  |      
|                                 | Eliminations, reclassifications and Corporate
    Treasury |                                                                       |                                                                                                                          | 224                     |        |                          |  | 266                 |        |                  |  | (284    | )      |       |  | (343   | )      |        |  | 1,543  |        |               |  | (1,970 | )      |        |  | 561   | (6)    |       |  | 1,351 | (6)    |       |   | 269   | (6)    |       |  |      |    |       |  |      |    |       |  | 214   |       |       |  |      |     |       |  |      |     |       |  | 209   |    
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |       |    |       |  |       |    |       |  |       |       |       |  |       |     |       |  |       |     |       |  |      
|                                 | Siemens worldwide                                          |                                                                       |                                                                                                                          | 4,232                   |        |                          |  | 3,372               |        |                  |  | 3,475   |        |       |  | 79,518 |        |        |  | 77,605 |        |               |  | 77,939 |        |        |  | 3,262 |        |       |  | 1,773 |        |       |   | 4,754 |        |       |  | 4,615 |    |       |  | 4,643 |    |       |  | 8,013 |       |       |  | 3,344 |     |       |  | 3,334 |     |       |  | 4,126 |    
|                                 |                                                            |                                                                       |                                                                                                                          |                         |        |                          |  |                     |        |                  |  |         |        |       |  |        |        |        |  |        |        |               |  |        |        |        |  |       |        |       |  |       |        |       |   |       |        |       |  |       |    |       |  |       |    |       |  |       |       |       |  |       |     |       |  |       |     |       |  |      






|    |                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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 Operationsprimarily 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.

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SIEMENS AG

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(in millions of
, except where
otherwise stated and per share amounts)


1.   Basis of
presentation

The accompanying Consolidated Financial
Statements present the operations of Siemens AG and its
subsidiaries, (the Company or Siemens). The Consolidated
Financial Statements have been prepared in accordance with
United States Generally Accepted Accounting Principles (U.S.
GAAP). Siemens has prepared and reported its Consolidated
Financial Statements in euros
().

Siemens is a German based multinational
corporation with a balanced business portfolio of activities
predominantly in the field of electronics and electrical
engineering (for further information see Note 31).

Financial statement presentation

The presentation of the Companys worldwide
financial data is accompanied by a component model presentation
breaking down Siemens financial position, results of
operations and cash flows into three components (see below).
These components contain the Companys reportable segments
(also referred to as Groups).



| |   |                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Siemens
    worldwideRepresents the
    Consolidated Financial Statements of the Company.                                                                                                                                                                                                                    
|
| |  | OperationsDefined
    as Siemens thirteen operating Groups including certain
    operating activities not associated with these Groups and
    centrally managed items including corporate headquarters, but
    excluding the activities of the Financing and Real EstateGroups and the Corporate Treasury.
|
| |  | Financing and Real
    EstateSiemens Financing
    and Real Estate Groups are responsible for the
    Companys international leasing, finance, credit and real
    estate management activities.                                                                                                           
|
| |  | Eliminations, reclassifications and Corporate
    TreasuryCaptures separately the
    consolidation of transactions among Operationsand
    Financing and Real Estate, as well as certain
    reclassifications. This component also includes the
    Companys Corporate Treasury activities.               

The Companys presentation of
Operations, Financing and Real Estateand
Corporate Treasuryreflects the management of these
components as distinctly different business activities, with
different goals and requirements. Management believes that this
presentation provides a clearer understanding of the components
of the Companys financial position, results of operations
and cash flows. The accounting principles applied to these
components are generally the same as those used for Siemens
worldwide. The Company has allocated shareholders
equity to the Financing and Real Estatebusiness based on
a management approach which takes into consideration the
inherent risk evident in the underlying assets. The remaining
amount of total shareholders equity is shown under
Operations. Income taxes are allocated to
Eliminations, reclassifications and Corporate Treasury,
Operationsand Financing and Real Estateby applying
the effective tax rate of Siemens worldwide to the income before
income taxes of each respective component. Deferred income tax
assets and liabilities are allocated to these components based
on available component specific information and applicable
proportions of such amounts to total assets and liabilities of
Siemens worldwide. The financial data presented for the
Operationsand Financing and Real Estatecomponents are not intended to purport the financial
position, results of operations and cash flows as if they were
separate entities under U.S. GAAP.

The information disclosed in these Notes relates
to Siemens worldwide unless otherwise stated.

2.   Summary of significant
accounting policies

Basis of
consolidationThe Consolidated
Financial Statements include the accounts of Siemens AG and
subsidiaries which are directly or indirectly controlled.
Additionally, the Company consolidates variable interest
entities (VIEs) for which it is deemed to be the primary
beneficiary. Results of associated companiescompanies in
which Siemens has the ability to exercise significant influence
over operating and financial policies

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


(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.

Foreign currency
translationThe assets and
liabilities of foreign subsidiaries, where the functional
currency is other than the euro, are translated using period-end
exchange rates, while the statements of operations are
translated using average exchange rates during the period.
Differences arising from such translations are included as a
separate component of shareholders equity.

The exchange rates of the significant currencies
of non-euro countries used in the preparation of the
Consolidated Financial Statements were as follows:

|              |  |          |     |                            |  |                                      |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|------------- |  | -------- | --- | -------------------------- |  | ------------------------------------ | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|              |  |          |     |                            |  |                                     
|              |  |          |     | Year-end exchange rate     |  | Annual average rate                 
|              |  |          |     | 1  quoted into currencies |  | 1  quoted into currencies specified
|              |  |          |     | specified below            |  | below                               
|              |  |          |     | September 30,              |  | Fiscal year                         
|              |  |          |     |                            |  |                                     
|Currency      |  | ISO Code |     | 2004                       |  | 2003                                 |       | 2004 |  | 2003 |       | 2002
|              |  |          |     |                            |  |                                      |       |      |  |      |       |     
|Swiss francs  |  |          | CHF |                            |  |                                      | 1.554 |      |  |      | 1.538 |      |  |  | 1.549 |  |  |  | 1.498 |  |  |  | 1.469 | 
|British pound |  |          | GBP |                            |  |                                      | 0.686 |      |  |      | 0.699 |      |  |  | 0.680 |  |  |  | 0.676 |  |  |  | 0.624 | 
|U.S. dollar   |  |          | USD |                            |  |                                      | 1.233 |      |  |      | 1.169 |      |  |  | 1.215 |  |  |  | 1.085 |  |  |  | 0.922 | 

Revenue
recognitionRevenue is recognized
for product sales when title passes, the risks and rewards of
ownership have been transferred to the customer, the fee is
fixed or determinable, and collection of the related receivable
is probable. If product sales are subject to customer
acceptance, revenues are not recognized until customer
acceptance occurs. Revenues from long-term construction-type
projects are generally recognized under the
percentage-of-completion method, based on the percentage of
costs to date compared to the total estimated contract costs,
contractual milestones or performance. Revenues from service
transactions are recognized as services are performed. For
long-term service contracts, revenues are recognized on a
straight-line basis over the term of the contract or, if the
performance pattern is other than straight-line, as the services
are provided. Revenue from software arrangements is recognized
at the time persuasive evidence of an arrangement exists,
delivery has occurred, the fee is fixed or determinable and
collectibility is probable. Revenue from maintenance,
unspecified upgrades or enhancements and technical support is
allocated using the residual value method and is recognized over
the period such items are delivered. If an arrangement to
deliver software requires significant production, modification,
or customization of software, the entire arrangement is
accounted for under the percentage-of-completion method.
Operating lease income for equipment rentals is recognized on a
straight-line basis over the lease term. Interest income from
capital leases is recognized using the interest method.

Sales of goods or services sometimes involves the
provision of multiple elements. In these cases, the Company
applies the guidance in Emerging Issues Task Force
(EITF) 00-21 Revenue Arrangements with Multiple
Deliverablesto determine whether the contract or
arrangement contains more than one unit of accounting. An
arrangement is separated if (1) the delivered element(s)
has value to the customer on a stand-alone basis, (2) there
is objective and reliable evidence of the fair value of the
undelivered element(s) and (3), if the arrangement includes a
general right of return relative to the delivered element(s),
delivery or performance of the undelivered element(s) is
considered probable and substantially in the control of the
Company. If all three criteria are fulfilled, the appropriate
revenue recognition convention is then applied to each separate
unit of accounting. The total arrangement consideration is
allocated to the separate units of accounting based on each
components objectively determined fair value, such as
sales prices for the component when it is regularly sold on a
stand-alone basis or third-party prices for similar components.
If the three criteria are not met, revenue is deferred until
such criteria are met or until the period(s) in which the last
undelivered element is delivered. The amount allocable to the
delivered elements is limited to the amount that is not
contingent upon delivery of additional elements or meeting other
specified performance conditions.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Product-related expenses and contract loss
provisionsProvisions for
estimated costs related to product warranties are recorded in
cost of sales at the time the related sale is recognized, and
are established on an individual basis, except for consumer
products. The estimates reflect historic trends of warranty
costs, as well as information regarding product failure
experienced during construction, installation or testing of
products. In the case of new products, expert opinions and
industry data are also taken into consideration in estimating
product warranty accruals. Research and development costs are
expensed as incurred. Contract loss provisions are established
in the period when the current estimate of total contract costs
exceeds contract revenue.

Earnings per
shareBasic earnings per share is
computed by dividing net income by the weighted average shares
outstanding during the year. Diluted earnings per share is
calculated by adjusting outstanding shares assuming conversion
or exercise of all potentially dilutive securities or stock
options.

Cash and cash
equivalentsThe Company considers
all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

Marketable securities and
investmentsThe Companys
marketable securities are accounted for at fair value if readily
determinable. Securities are classified as either
available-for-sale or trading securities. Management determines
the appropriate classification of its investments in marketable
securities at the time of purchase and reevaluates such
determination at each balance sheet date. Marketable securities
classified as available-for-sale are reported at fair value,
with unrealized gains and losses included in Accumulated
other comprehensive income(AOCI), net of applicable
deferred taxes. Realized gains and losses for individual
investments are accounted for using the average cost method.
Investments for which there is no readily determinable market
value are recorded at cost.

Available-for-sale marketable securities and
investments which incur a decline in value below cost that is
judged to be other than temporary are considered impaired. The
Company considers all available evidence such as market
conditions and prices, investee-specific factors and the
duration and extent to which fair value is less than cost in
evaluating potential impairment of its marketable securities and
investments. Impairments are recognized in earnings in the
period in which the decline in value is judged to be other than
temporary and a new cost basis in the marketable security or
investment is established.

InventoriesInventory
is valued at the lower of acquisition or production cost or
market, cost being generally determined on the basis of an
average or first-in, first-out method (FIFO). Production costs
comprise direct material and labor and applicable manufacturing
overheads, including depreciation charges.

Goodwill and Other intangible
assetsIntangible assets consist
of goodwill and patents, software, licenses and similar rights.
Since October 1, 2001, the Company amortizes intangible
assets with finite useful lives on a straight-line basis over
their respective estimated useful lives to their estimated
residual values. Estimated useful lives for software, patents,
licenses and other similar rights generally range from three to
five years, except for intangible assets with finite useful
lives acquired in business combinations. Goodwill and intangible
assets other than goodwill which are determined to have
indefinite useful lives are not amortized, but instead tested
for impairment at least annually. The Company evaluates the
recoverability of goodwill using a two-step impairment test
approach at the division level (reporting unit). In the first
step, the fair value of the division is compared to its carrying
amount including goodwill. In the case that the fair value of
the division is less than its carrying amount, a second step is
performed which compares the fair value of the divisions
goodwill to the carrying amount of its goodwill. The fair value
of goodwill is determined based upon the difference between the
fair value of the division and the net of the fair values of all
the assets and liabilities of the division (including any
unrecognized intangible assets). If the fair value of goodwill
is less than the carrying amount, the difference is recorded as
an impairment. See Note 14 and 15 for further information.

Property, plant and
equipmentProperty, plant and
equipment is valued at acquisition or manufacturing cost less
accumulated depreciation. Depreciation expense is recognized
either using the declining balance method

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


until the straight-line method yields larger
expenses or the straight-line method. Costs of construction of
certain long-term assets include capitalized interest, which is
amortized over the estimated useful life of the related asset.
The following useful lives are assumed:

|                                |  |  |                        | 
|------------------------------- |  |  | ---------------------- | 
|Factory and office buildings    |  |  | 20 to 50 years         | 
|Other buildings                 |  |  | 5 to 10 years          | 
|Technical machinery & equipment |  |  | 5 to 10 years          | 
|Furniture & office equipment    |  |  | generally 5 years      | 
|Equipment leased to others      |  |  | generally 3 to 5 years | 

Impairment of long-lived
assetsThe Company reviews
long-lived assets held and used for impairment whenever events
or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. Recoverability of assets to be
held and used is measured by the comparison of the carrying
amount of the asset to the undiscounted future net cash flows
expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the
assets exceeds the fair value of the assets. Estimated fair
value is generally based on either appraised value or measured
by discounted estimated future cash flows. Long-lived assets to
be disposed of by sale are recorded at the lower of carrying
amount or fair value less costs to sell and depreciation is
ceased (see below Accounting changesfor information
regarding the adoption of SFAS 144).

Derivative instruments and hedging
activitiesIn accordance with
SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, derivative instruments, such as
interest rate swap contracts and foreign-currency exchange
contracts, are recognized in the financial statements and
measured at fair value regardless of the purpose or intent for
holding them. Changes in the fair value of derivative financial
instruments are recognized periodically either in income or, in
the case of a cash flow hedge, in shareholders equity (as
a component of other comprehensive income). Certain derivative
instruments embedded in host contracts are also accounted for
separately as derivatives. See Note 25, Derivative
instruments and hedging activities, for a description of the
Companys risk management strategies and the effect these
strategies have on the Consolidated Financial Statements.

TaxesThe
Company applies SFAS 109, Accounting for Income Taxes.
Under the asset and liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. The effect on deferred tax
assets and liabilities of a change in tax laws is recognized in
the results of operations in the period the new laws are
enacted. A valuation allowance is recorded to reduce the
carrying amounts of deferred tax assets unless it is more likely
than not that such assets will be realized.

Asset retirement
obligationsOn October 1,
2002, Siemens adopted SFAS 143, Accounting for Asset
Retirement Obligations(see Accounting changesbelow). Legal obligations associated with the retirement of
long-lived assets that result from the acquisition,
construction, development or normal use of the asset are
recognized at fair value in the period in which the liability is
incurred if a reasonable estimate of fair value can be made.
Such estimates are generally determined based upon estimated
future cash flows discounted using a credit-adjusted risk-free
interest rate. The fair value of the liability is added to the
carrying amount of the associated asset. The additional carrying
amount is depreciated over the life of the asset. The liability
is accreted at the end of each period through charges to
operating expense. If the obligation is settled for other than
the carrying amount of the liability, the Company will recognize
a gain or loss on settlement.

Issuance of shares by subsidiaries or
associated companiesGains or
losses arising from the issuances of shares by subsidiaries or
associated companies, due to changes in the Companys
proportionate share of the value of the issuers equity,
are recorded as income or expense pursuant to U.S. Securities
and Exchange Commission Staff Accounting Bulletin Topic 5H,
Accounting for Sales of Stock by a Subsidiary.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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 SFAS 123, Accounting for Stock-Based Compensationusing the prospective method set forth in SFAS 148,
Accounting for Stock-Based
CompensationTransition and Disclosurefor all
awards granted, modified or settled on or after October 1,
2003. Stock-based compensation cost is measured at the grant
date at the fair value of the award based on the Black-Scholes
option pricing model and is recognized as expense over the
vesting period. Awards granted before October 1, 2003,
continue to be accounted for under the intrinsic value based
recognition and measurement provisions of APB Opinion
No. 25, Accounting for Stock Issued to Employees,and related Interpretations. Under APB Opinion No. 25,
compensation cost, if any, is measured based on the excess of
the quoted market price at grant date over the amount an
employee must pay to acquire the stock. 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:

|                                                                                                                      |             |                          |       |      |  |      |       |      |  |  |       |      | 
|--------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------------ | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- | ---- | 
|                                                                                                                      |             |                         
|                                                                                                                      |             | Year ended September 30,
|                                                                                                                      |             |                         
|                                                                                                                      |             | 2004                     |       | 2003 |  | 2002
|                                                                                                                      |             |                          |       |      |  |     
|Net income                                                                                                            |             |                          |       |      |  |      |       |      |  |  |       |     
|As reported                                                                                                           |             |                          | 3,405 |      |  |      | 2,445 |      |  |  | 2,597 |     
|Plus: Stock-based employee compensation expense
    included in reported net income, net of taxes                     |             |                          | 63    |      |  |      | 28    |      |  |  | 46    |     
|Less: Stock-based employee compensation expense
    determined under fair value based accounting method, net of taxes |             |                          | (115  | )    |  |      | (147  | )    |  |  | (144  | )   
|                                                                                                                      |             |                          |       |      |  |      |       |      |  |  |       |     
|Pro forma                                                                                                             |             |                          | 3,353 |      |  |      | 2,326 |      |  |  | 2,499 |     
|                                                                                                                      |             |                          |       |      |  |      |       |      |  |  |       |     
|Basic earnings per share                                                                                              |             |                          |       |      |  |      |       |      |  |  |       |     
|                                                                                                                      | As reported |                          |       | 3.82 |  |      |       | 2.75 |  |  |       | 2.92 | 
|                                                                                                                      | Pro forma   |                          |       | 3.76 |  |      |       | 2.61 |  |  |       | 2.81 | 
|Diluted earnings per share                                                                                            |             |                          |       |      |  |      |       |      |  |  |       |     
|                                                                                                                      | As reported |                          |       | 3.66 |  |      |       | 2.75 |  |  |       | 2.92 | 
|                                                                                                                      | Pro forma   |                          |       | 3.60 |  |      |       | 2.61 |  |  |       | 2.81 | 

See Note 27 for further information on
stock-based compensation.

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 is
effective for fiscal years ending after December 15, 2003.
The Company adopted SFAS 132R for the interim period ending
December 31, 2003.

On December 8, 2003, the Medicare
Prescription Drug, Improvement and Modernization Act of 2003
(the Act) was signed into law in the U.S. The Act introduces a
prescription drug benefit under Medicare (Medicare Part D), as
well as a federal subsidy to sponsors of retiree health care
benefit plans that provide a benefit that is at least
actuarially equivalent to Medicare Part D. In accordance with
FASB Staff Position (FSP) FAS 106-1, management elected to
defer any accounting for the effects of the Act on the plan in
interim periods preceding the

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


fourth quarter. In May 2004, FSP FAS 106-2 was
issued being effective for interim periods beginning after
June 15, 2004. FSP FAS 106-2 supersedes FSP FAS 106-1 and
provides authoritative guidance on accounting for the federal
subsidy prescribed by the Act. Pursuant to FSP FAS 106-2 and the
issuance of further guidance from the Center of Medicare and
Medicaid on July 26, 2004, management has concluded that
Siemens U.S. health care plans are at least actuarially
equivalent to Medicare Part D. Following the prospective
application method prescribed by FSP FAS 106-2, Siemens has
remeasured Siemens U.S. postretirement obligation as of
July 1, 2004. This remeasurement reduced Siemens
Accumulated Postretirement Benefit Obligation (APBO) by
49 and increased
the unrecognized gain component by the same amount. The impact
of this remeasurement will be amortized over the average working
life of Siemens U.S. employees eligible for postretirement
benefits beginning October 1, 2004. The effect of the Act
on the foreign net periodic benefit costs as of September 30,
2004 is not significant.

In January 2003, the FASB issued FASB
Interpretation (FIN) 46, Consolidation of Variable
Interest Entities, which interprets Accounting Research
Bulletin (ARB) 51, Consolidated Financial
Statements. FIN 46 clarifies the application of ARB 51
with respect to the consolidation of certain entities
(VIEs) to which the usual condition for consolidation
described in ARB 51 does not apply because the controlling
financial interest in VIEs may be achieved through
arrangements that do not involve voting interests. In addition,
FIN 46 requires the primary beneficiary of VIEs and the
holder of a significant variable interest in VIEs to
disclose certain information relating to their involvement with
the VIEs. The provisions of FIN 46 apply immediately to
VIEs created after January 31, 2003, and to
VIEs in which an enterprise obtains an interest after that
date. On October 9, 2003, the FASB issued FASB Staff
Position (FSP) FIN 46-6, Effective Date of FASBs
Interpretation No. 46, Consolidation of Variable Interest
Entities, which deferred the effective date for initial
application of FIN 46 for VIEs created before
February 1, 2003 to December 31, 2003. Following FSP
FIN 46-6, the Company originally decided to adopt FIN 46 as of
December 31, 2003 for those VIEs created before
February 1, 2003. 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 November 2002, the EITF reached a final
consensus on EITF Issue 00-21, Revenue Arrangements with
Multiple Deliverables. This Issue addresses certain aspects
of the accounting by a vendor for arrangements under which it
will perform multiple revenue-generating activities,
specifically how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting.
The Issue also addresses how arrangement consideration should be
measured and allocated to the separate units of accounting in
the arrangement. This issue is effective for revenue
arrangements entered into in fiscal periods beginning after
June 15, 2003. The adoption of EITF Issue 00-21 did not
have a material impact on the Companys financial
statements.

In November 2002, the FASB issued FIN 45,
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others, which addresses the disclosure to be made by a
guarantor in its interim and annual financial statements about
its obligation under guarantees. FIN 45 also requires the
guarantor to recognize a liability for the non-contingent
component of the guarantee, that is, the obligation to stand
ready to perform in the event that specified triggering events
or conditions occur. The initial

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


measurement of this liability is the fair value
of the guarantee at inception. The Company has adopted the
disclosure requirements of FIN 45 (see Note 24 for
information about guarantees and for information related to
product warranties, see above Product-related expenses and
contract loss provisionsand Note 18) and has applied the
recognition and measurement provisions for all guarantees
entered into or modified after December 31, 2002.

On October 1, 2002, Siemens adopted SFAS
143, Accounting for Asset Retirement Obligations, as
described above (see Asset retirement obligations). As a
result of adopting SFAS 143, income of
59
(36 net of
income taxes) has been recorded as a cumulative effect of a
change in accounting principle, primarily in connection with
the Companys remediation and environmental accrual related
to the decommissioning of the facilities for the production of
uranium and mixed-oxide fuel elements in Hanau, Germany (Hanau
facilities), as well as the facilities in Karlstein, Germany
(Karlstein facilities). See Note 22 for further information.

On October 1, 2002, the Company adopted SFAS
144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which supersedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, and the accounting and reporting provisions of
APB Opinion 30, Reporting the Results of Operations
Reporting the Effects of Disposal of a Segment of a Business,
and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business.
This statement establishes a single accounting model based on
SFAS 121 for long-lived assets to be disposed of by sale,
including discontinued operations. Major changes include
additional criteria for long-lived assets to qualify as
held for sale and the requirement that long-lived
assets to be disposed of other than by sale be classified as
held and used until the disposal transaction occurs. SFAS 144
retains the current requirement to separately report
discontinued operations but expands that reporting to include a
component of an entity (rather than only a segment of a
business) that either has been disposed of or is classified as
held for sale. SFAS 144 requires long-lived assets to be
disposed of by sale to be recorded at the lower of carrying
amount or fair value less costs to sell and to cease
depreciation. Siemens applied the provisions of SFAS 144
prospectively and the adoption of SFAS 144 did not have a
material impact on the Companys financial statements.

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

3.   Acquisitions and
dispositions

Acquisitions

During the years ended September 30, 2004,
2003 and 2002, the Company completed a number of acquisitions.
These acquisitions have been accounted for under the purchase
method and have been included in the Companys Consolidated
Financial Statements since the date of acquisition. None of
these acquisitions are considered material, individually or in
the aggregate.

Effective in the fourth quarter of fiscal 2004,
the Company acquired USFilter Corporation (USFilter), a group
offering products and services in the municipal and industrial
water and waste water treatment and supply market. The primary
reason for the acquisition was to enter the water treatment and
supply business in the North

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


American market. The business is integrated into
I&S and was consolidated as of August 1, 2004.
Preliminary acquisition costs amount to
822, net of cash
acquired. The Company has not yet finalized the purchase price
allocation for this acquisition. Based on the preliminary
purchase price allocation, approximately
219 was
allocated to intangible assets and
179 to goodwill.
Goodwill is expected to be largely deductible for tax purposes.

In fiscal 2004, the Company acquired three
entitiesTrench Electric Holdings BV, Netherlands, a power
engineering company and designer of specialized electrical
products; BBC Technology Holdings Ltd., UK, an IT services
business for the media industry primarily serving BBC; and the
Huntsville, Alabama, USA business group of an automotive
electronics manufacturer. The combined preliminary purchase
price of the three entities amounts to
359.

In July 2003, Siemens completed the acquisition
of the industrial turbine business of Alstom S.A., Paris
(Alstom), which was structured in two transactions. In the first
transaction in April 2003, PG acquired the small gas turbine
business of Alstom. In the second transaction in July 2003, PG
acquired the medium-sized gas and steam turbine businesses of
Alstom. Both transactions resulted in an aggregate net purchase
price of 942,
net of cash acquired (thereof
510 for the
first transaction and
432 for the
second transaction). In April 2004 and July 2004, the Company
finalized the purchase price allocation for the first and the
second transaction, respectively. Based on the final purchase
price allocation of both transactions,
345 was
allocated to intangible assets subject to amortization and
476 was recorded
as PG goodwill. Of the
345,
190 was
allocated to intellectual property rights and
155 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 18 years and 22
years, respectively.

In January 2002, the Company completed its
acquisition of Atecs through Vodafone AGs exercise of its
option to sell its 50% minus two shares stake in Atecs to
Siemens for cash consideration of approximately
3.7 billion.
The purchase price was paid on March 1, 2002.

The Company made certain other acquisitions
during the years ended September 30, 2004, 2003 and 2002,
which did not have a significant effect on the Consolidated
Financial Statements.

Dispositions

In September 2004, SBS sold a 74.9% interest in
its banking software company KORDOBA Gesellschaft für
Bankensoftware mbH & Co. KG, Munich to Fidelity Information
Systems, Inc. The transaction resulted in a preliminary pre-tax
gain of 93
reported in Other operating income (expense), net. The
remaining interest of 25.1% is accounted for using the equity
method.

In June 2003, Med contributed its Patient Care
System and Electro Cardiography System businesses into a joint
venture with Drägerwerk AG in exchange for a
35 percent interest in the joint venture Dräger
Medical AG & Co. KGaA (Dräger Medical), headquartered
in Luebeck, Germany. In connection with the contribution,
Siemens realized a pretax gain of
63. The
contribution agreement obligated Siemens to contribute to
Dräger Medical the net proceeds from the sale of its Life
Support Systems (LSS) business. By consenting to this sale,
Siemens and Drägerwerk AG received approval for the joint
venture transaction by antitrust authorities. In October 2003,
Siemens completed the sale of its LSS business to Getinge AB,
Sweden and realized a pre-tax gain of
105 in
connection with the LSS sale. Net proceeds from the LSS sale
totaled 176. As
stipulated by the contribution agreement for the joint venture
Dräger Medical, Siemens contributed to Dräger Medical
these net proceeds less expected taxes on the sale. The
Companys investment in Dräger Medical is accounted
for using the equity method.

In September 2002, Siemens completed the sale of
several business activities to Kohlberg Kravis Roberts & Co.
L.P. (KKR). KKR took over units that had belonged to the former
Atecs Mannesmann Group: Mannesmann Plastics Machinery, the gas
spring producer Stabilus, Demag Cranes & Components and the
harbor crane unit

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Gottwald. As part of the package, Siemens also
sold the metering business of its PTD Group, the Ceramics
division of its PG Group, and Network Systems, a regional
service business belonging to its ICN Group. The business
activities were placed in a holding company, called Demag
Holding s.a.r.l (Luxembourg). The gross purchase price totaled
1.69 billion.
KKR holds an 81% and Siemens a 19% stake in the holding company.
In addition to this 19% equity stake in the holding company,
Siemens received a vendor note of
215 and another
note receivable of
38. The
purchaser assumed net debt of
372, and Siemens
received net cash proceeds of approximately
1.0 billion.
The transaction resulted in a pretax gain of
21. Siemens
applies cost accounting for its 19% interest in Demag Holding.
The governing structure of Demag Holding provides for KKR to
have absolute control over virtually all operating, financial,
and other management decisions, while Siemens ownership is
proportionate to the investment and only passive in nature.

On July 1, 2002, Siemens completed the sale
of Unisphere Networks, Inc. (Unisphere) to Juniper Networks,
Inc. (Juniper) in exchange for
376 cash and
35.8 million shares of Juniper stock. At closing, the value
of the Juniper shares received was
208. The sale
transaction resulted in a pre-tax gain of
421. Included in
the gain calculation is
179,
representing the carrying amount of Unispheres goodwill
(see Note 14). As a result of the transaction, Siemens received
9.7% of Junipers common shares. The Juniper shares held by
Siemens are subject to certain restriction provisions.
Accordingly, Siemens may only sell 3 million of Juniper
common shares during each of the first three quarters beginning
3 months subsequent to closing and afterwards
6 million Juniper common shares each quarter thereafter
(see Note 13 for further information regarding the
Companys investment in Juniper shares).

On December 5, 2001, Siemens entered into a
transaction as described below under
Infineon-Transactions, the effect of which is that it no
longer has majority voting interest in Infineon and from such
date no longer included the assets and liabilities and results
of operations of Infineon in its Consolidated Financial
Statements but instead accounted for its interest in Infineon
using the equity method until the second quarter of fiscal 2004.
The Company relinquished its ability to exercise significant
influence over the operating and financial policies of Infineon
in the second quarter of fiscal 2004, and consequently 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.

On November 20, 2001, the Company sold
Mannesmann Sachs AG to ZF Friedrichshafen AG. The disposition
resulted in net proceeds of
716 and no gain
or loss was recorded as a result of the sale.

Infineon-Transactions

As of December 5, 2001, Siemens
deconsolidated Infineon Technologies AG (Infineon) and applied
the equity method of accounting. Under the equity method of
accounting, the Companys net investment in Infineon is
included within Long-term investmentsin the Consolidated
Balance Sheets, and its share of the net income or losses of
Infineon is included as part of Income (loss) from
investments in other companies, netin the Consolidated
Statements of Income. The deconsolidation followed a series of
other transactions pursuant to which the Company reduced its
total ownership interest and its voting interest in Infineon
from approximately 50.4% and 64.0%, respectively, at the
beginning of fiscal 2002 to 18.2% and % , respectively, at
September 30, 2004.

During the first quarter of fiscal 2002, the
Company sold 23.1 million shares of Infineon in open market
transactions resulting in net proceeds of
556 and reducing
its ownership interest to its December 31, 2001 level of
47.1%. As a result of these sales Siemens realized a tax-free
gain of 332.

On December 5, 2001, the Company transferred
200 million Infineon shares or approximately 28.9% of
Infineons share capital to an irrevocable, non-voting
trust under a trust agreement. In January 2004, 63,707,637
Infineon-shares of the non-voting trust were sold to third
parties (see below). The trustee is not related to the

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Company or any of its affiliates. Under the terms
of the trust agreement, the trustee has legal title to the
shares held in trust and the Company has irrevocably
relinquished all voting rights in the shares. However, the
trustee is not permitted to vote any Infineon shares it holds in
trust under the agreement. The Company continues to be entitled
to all the benefits of economic ownership of the shares held in
trust, including the right to receive cash dividends and other
cash distributions, which the trustee has agreed to pay to the
Company promptly upon receipt. The trustee is not entitled to
sell or encumber the shares held in trust except at the
Companys direction, but the Company has agreed not to
direct the sale of any such shares to itself, any affiliate, any
vehicle established by the Company or any of its affiliates, or
to Infineon. The trustee has agreed to pay to the Company any
proceeds resulting from a permitted sale. Under the arrangement,
the trustee holds the shares in trust for the benefit of the
beneficiaries under the trust agreement, which include the
Company as trustor and third party shareholders of Infineon. The
trust agreement will terminate only when the Company and its
affiliates, on a consolidated basis, have held, directly or
indirectly, less than 50% of the voting share capital of
Infineon, including the shares held in trust by the trustee, for
a period of two consecutive years. We have notified the trustee
that the trust will terminate in accordance with the terms of
the trust agreement on November 28, 2004. Upon termination,
any shares held by the trustee revert to the Company and the
Company is again entitled to vote these shares. Certain
provisions of the trust agreement, including those relating to
voting and transfer of the shares held in trust, may not be
amended without the approval of Infineons shareholders.

Under the terms of a related standstill
agreement, the Company has agreed with the trustee that it will
not, and it will not permit its affiliates to, directly or
indirectly, acquire or offer to acquire ownership of Infineon
shares, or securities convertible into Infineon shares, or any
other Infineon voting securities or securities convertible into
Infineon voting securities. The Company has also agreed that
neither it nor any of its affiliates will procure for itself any
third partys voting rights in respect of Infineon shares.
These provisions terminate on the termination of the trust
agreement.

The Companys irrevocable transfer of
Infineon shares to the non-voting trust on December 5,
2001, reduced the Companys voting interest in Infineon by
an amount corresponding to the number of shares transferred.
Accordingly, while the Companys ownership interest at
December 31, 2001 was 47.1%, its voting interest based on
total outstanding shares of Infineon was 18.2%. Such voting
interest, when combined with the voting interest in Infineon
shares of 13.2% held by the Companys domestic pension
trust, represented a combined voting interest of 31.4% as of
December 31, 2001. Since shareholders of Infineon other
than the Company and the pension trust owned approximately 39.7%
of Infineons share capital as of December 31, 2001,
they controlled a majority of the shares that may be voted at
any Infineon shareholders meeting. The effect of the
transfer of Infineon shares into the non-voting trust resulted
in shareholders in Infineon other than the Company and the
pension trust having a disproportionate voting interest (see
Note 13).

After the deconsolidation, in January 2002, the
Company sold an additional 40 million shares of Infineon in
open market transactions resulting in net proceeds of
966. As a result
of these sales, Siemens realized a tax-free gain of
604 and its
ownership interest in Infineon decreased to approximately 39.7%
(see Notes 5, 9 and 13).

In January 2004, the Company sold
150 million shares of 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%* voting interest as of the time
of the sale and 63,707,637 shares came from the non-voting
trust. Due to the sale, the Companys ownership interest in
Infineon declined to 18.9% (as of the effective date of the
sale). The Company has no voting interests in Infineon until
termination of the non-voting trust in November 2004. 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



---

|  |                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------
|* | Based upon total Infineon shares outstanding at
    the time of the sale less shares in the non-voting trust.



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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
(see Notes 5, 9 and 13).

Siemens net income for the fiscal years
ended September 30, 2004, 2003 and 2002, includes the
Companys at-equity share of the income (loss) of Infineon
of 14,
(170) and
(453),
respectively.



|   |                                          
|-- | -----------------------------------------
|4. | Other operating income (expense),
    net

|                                                |  |                          |      |      |  |      |     |  |  |  |       |  
|----------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | --- |  |  |  | ----- | -
|                                                |  |                         
|                                                |  | Year ended September 30,
|                                                |  |                         
|                                                |  | 2004                     |      | 2003 |  | 2002
|                                                |  |                          |      |      |  |     
|Impairment of goodwill                          |  |                          | (433 | )    |  |      |    |  |  |  | (378  | )
|Gains on sales and disposals of businesses, net |  |                          | 182  |      |  |      | 101 |  |  |  | 1,455 |  
|Gains on sales of real estate, net              |  |                          | 64   |      |  |      | 131 |  |  |  | 155   |  
|Other, net                                      |  |                          | 31   |      |  |      | 410 |  |  |  | 89    |  
|                                                |  |                          |      |      |  |      |     |  |  |  |       |  
|                                                |  |                          | (156 | )    |  |      | 642 |  |  |  | 1,321 |  
|                                                |  |                          |      |      |  |      |     |  |  |  |       |  

In fiscal 2004, Impairment of goodwillof
433 relates to
two of L&As reporting units, Distribution and Industry
Logistics and Airport Logistics (see Note 14). In fiscal
2002, goodwill amounting to
378 of the
Access Solutions division of ICN was impaired.

In fiscal 2004, Gains on sales and disposals
of businesses, netincludes a pre-tax gain of
105 from the
Companys sale of its Life Support Systems business to
Getinge AB, Sweden and
93 from the sale
of its banking software company KORDOBA Gesellschaft für
Bankensoftware mbH & Co. KG, Munich. In fiscal 2003,
Gains on sales and disposals of businesses, netwas
comprised of a gain of
63 relating to
the Companys contribution into the joint venture
Dräger Medical. For a description of significant items
included in Gains on sales and disposals of businesses, net,in fiscal 2002, see Note 3.

In fiscal 2003, Other, netincluded gains
of 359 in
connection with the cancellation of orders at PG.



|   |                                                           
|-- | ----------------------------------------------------------
|5. | Income (loss) from investments in other
    companies, net

|                                                          |  |                          |       |      |  |      |      |   |  |  |      |  
|--------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                          |  |                         
|                                                          |  | Year ended September 30,
|                                                          |  |                         
|                                                          |  | 2004                     |       | 2003 |  | 2002
|                                                          |  |                          |       |      |  |     
|Gains on sales of investments                             |  |                          | 617   |      |  |      | 21   |   |  |  | 209  |  
|Share in earnings (losses) from equity
    investees, net |  |                          | 460   |      |  |      | 236  |   |  |  | (158 | )
|Income from investments                                   |  |                          | 35    |      |  |      | 42   |   |  |  | 61   |  
|Write-downs on investments                                |  |                          | (84   | )    |  |      | (159 | ) |  |  | (193 | )
|Losses on sales of investments                            |  |                          | (5    | )    |  |      | (23  | ) |  |  | (32  | )
|Other                                                     |  |                          | 8     |      |  |      | 25   |   |  |  | (1   | )
|                                                          |  |                          |       |      |  |      |      |   |  |  |      |  
|                                                          |  |                          | 1,031 |      |  |      | 142  |   |  |  | (114 | )
|                                                          |  |                          |       |      |  |      |      |   |  |  |      |  

Share in earnings (losses) from equity
investees, netfor fiscal 2004, 2003
and 2002 includes the Companys at-equity-share in
Infineons net income (loss) of
14,
(170) and
(338),
respectively. In fiscal 2002, the equity share of
Infineons net loss comprises the period following the
deconsolidation of Infineon in December 2001. The Companys
total share of losses in Infineon amounted to
453 for fiscal
2002. As discussed in Note 3, the Company commenced
accounting for its investment in Infineon as a marketable
security at fair market value during fiscal 2004. Unrealized
gains and losses determined based on the difference between the
fair market value and the prior carrying value of the investment
are recorded in AOCI, net of applicable deferred taxes.
The sale of Infineon shares in fiscal 2004 resulted in a pre-tax
gain of 590 in
fiscal 2004, which is included in Gains on sales

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


of investments. 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. For further information on the Infineon sale
see Notes 3, 9 and 13. Gains on sales of investmentsfor fiscal 2002 includes the gains on the sale of two
centrally held investments totaling
133.



|   |                                                                
|-- | ---------------------------------------------------------------
|6. | Income from financial assets and marketable
    securities, net

|                                                                  |  |                          |    |      |  |      |    |   |  |  |    |  
|----------------------------------------------------------------- |  | ------------------------ | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                                                                  |  |                         
|                                                                  |  | Year ended September 30,
|                                                                  |  |                         
|                                                                  |  | 2004                     |    | 2003 |  | 2002
|                                                                  |  |                          |    |      |  |     
|Gains (losses) on sales of
    available-for-sale securities, net |  |                          | 54 |      |  |      | (6 | ) |  |  | 20 |  
|Other financial gains (losses), net                               |  |                          | 16 |      |  |      | 67 |   |  |  | (2 | )
|                                                                  |  |                          |    |      |  |      |    |   |  |  |    |  
|                                                                  |  |                          | 70 |      |  |      | 61 |   |  |  | 18 |  
|                                                                  |  |                          |    |      |  |      |    |   |  |  |    |  

In fiscal 2004, 2003 and 2002, Other financial
gains (losses), net contained impairments of certain
marketable securities totaling
7,
17 and
24,
respectively, where the decline in value was determined to be
other than temporary.



|   |                     
|-- | --------------------
|7. | Interest income, net

|                                   |                                       |                          |     |      |   |      |     |      |   |  |     |       |  
|---------------------------------- | ------------------------------------- | ------------------------ | --- | ---- | - | ---- | --- | ---- | - |  | --- | ----- | -
|                                   |                                       |                         
|                                   |                                       | Year ended September 30,
|                                   |                                       |                         
|                                   |                                       | 2004                     |     | 2003 |   | 2002
|                                   |                                       |                          |     |      |   |     
|Other interest income, net         |                                       |                          | 254 |      |   |      | 214 |      |   |  | 224 |      
|Interest income of Operations, net |                                       |                          | 18  |      |   |      | 31  |      |   |  | 94  |      
|                                   |                                       |                          |     |      |   |      |     |      |   |  |     |      
|Total interest income, net         |                                       |                          | 272 |      |   |      | 245 |      |   |  | 318 |      
|                                   |                                       |                          |     |      |   |      |     |      |   |  |     |      
|                                   | Thereof: Interest and similar income  |                          |     | 723  |   |      |     | 789  |   |  |     | 1,061 |  
|                                   | Thereof: Interest and similar expense |                          |     | (451 | ) |      |     | (544 | ) |  |     | (743  | )

Interest income of Operations,
netincludes 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 related hedging activities, as
well as interest income on corporate assets.



|   |             
|-- | ------------
|8. | Income taxes

Income (loss) before income taxes is
attributable to the following geographic regions:

|        |  |                          |       |      |  |      |       |  |  |  |        |  
|------- |  | ------------------------ | ----- | ---- |  | ---- | ----- |  |  |  | ------ | -
|        |  |                         
|        |  | Year ended September 30,
|        |  |                         
|        |  | 2004                     |       | 2003 |  | 2002
|        |  |                          |       |      |  |     
|Germany |  |                          | 867   |      |  |      | 477   |  |  |  | (1,033 | )
|Foreign |  |                          | 3,365 |      |  |      | 2,895 |  |  |  | 4,508  |  
|        |  |                          |       |      |  |      |       |  |  |  |        |  
|        |  |                          | 4,232 |      |  |      | 3,372 |  |  |  | 3,475  |  
|        |  |                          |       |      |  |      |       |  |  |  |        |  

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Income tax expense (benefit) consists of the
following:

|                        |                                    |                          |      |      |   |      |     |     |  |  |       |      |  
|----------------------- | ---------------------------------- | ------------------------ | ---- | ---- | - | ---- | --- | --- |  |  | ----- | ---- | -
|                        |                                    |                         
|                        |                                    | Year ended September 30,
|                        |                                    |                         
|                        |                                    | 2004                     |      | 2003 |   | 2002
|                        |                                    |                          |      |      |   |     
|Current:                |                                    |                          |      |      |   |      |     |     |  |  |       |     
|                        | German corporation and trade taxes |                          |      | 315  |   |      |     | 149 |  |  |       | 105  |  
|                        | Foreign income taxes               |                          |      | 655  |   |      |     | 457 |  |  |       | 935  |  
|                        |                                    |                          |      |      |   |      |     |     |  |  |       |     
|                        |                                    |                          | 970  |      |   |      | 606 |     |  |  | 1,040 |     
|                        |                                    |                          |      |      |   |      |     |     |  |  |       |     
|Deferred:               |                                    |                          |      |      |   |      |     |     |  |  |       |     
|                        | Germany                            |                          |      | (315 | ) |      |     | 16  |  |  |       | (454 | )
|                        | Foreign                            |                          |      | 6    |   |      |     | 245 |  |  |       | 263  |  
|                        |                                    |                          |      |      |   |      |     |     |  |  |       |     
|                        |                                    |                          | (309 | )    |   |      | 261 |     |  |  | (191  | )   
|                        |                                    |                          |      |      |   |      |     |     |  |  |       |     
|Income tax expense, net |                                    |                          | 661  |      |   |      | 867 |     |  |  | 849   |     
|                        |                                    |                          |      |      |   |      |     |     |  |  |       |     

For fiscal years ended September 30, 2004
and 2002, the Company was subject to German federal corporation
tax at a base rate of 25% plus solidarity surcharge of 5.5% on
federal corporation taxes payable. As a result, the statutory
rates for the years ended September 30, 2004 and 2002
consist of the federal corporate tax rate, including solidarity
surcharge of 26.4%, and trade tax net of federal benefit of
12.6%, for a combined rate of 39%.

For the fiscal year ended September 30,
2003, the Company was subject to German federal corporation
income tax at a base rate of 26.5% (including a 2003 surcharge
of 1.5% attributed to the Flood Victim Solidarity Act) plus a
solidarity surcharge of 5.5% on federal corporation taxes
payable. As a result, the statutory rate for the year ended
September 30, 2003 consisted of the federal corporate tax
rate, including solidarity surcharge, of 28% and trade tax net
of federal benefit of 13% for a combined rate of 41%.

Income tax expense differs from the amounts
computed by applying statutory German income tax rates (39%, 41%
and 39%, respectively, for fiscal years ended September 30,
2004, 2003 and 2002) as follows:

|                            |                                                         |                                                               |       |      |      |      |       |  |      |   |       |  |      |  
|--------------------------- | ------------------------------------------------------- | ------------------------------------------------------------- | ----- | ---- | ---- | ---- | ----- |  | ---- | - | ----- |  | ---- | -
|                            |                                                         |                                                              
|                            |                                                         | Year ended September 30,                                     
|                            |                                                         |                                                              
|                            |                                                         | 2004                                                          |       | 2003 |      | 2002
|                            |                                                         |                                                               |       |      |      |     
|Expected income tax expense |                                                         |                                                               | 1,650 |      |      |      | 1,383 |  |      |   | 1,355 | 
|                            | Increase (decrease) in income taxes
    resulting from: |                                                               |       |      |      |      |       |  |      |   |       |  |     
|                            |                                                         | Non-deductible losses and expenses                            |       |      | 101  |      |       |  | 88   |   |       |  | 164  |  
|                            |                                                         | Goodwill and acquired in-process research and
    development |       |      | 142  |      |       |  | 26   |   |       |  | 162  |  
|                            |                                                         | Tax-free income                                               |       |      | (110 | )    |       |  | (158 | ) |       |  | (18  | )
|                            |                                                         | Change in tax base of investments                             |       |      | 78   |      |       |  | 148  |   |       |  |     |  
|                            |                                                         | Tax-free gains from sales of business interests               |       |      | (476 | )    |       |  | (66  | ) |       |  | (586 | )
|                            |                                                         | Taxes for prior years                                         |       |      | 55   |      |       |  |     |   |       |  |     |  
|                            |                                                         | Effect of change in German tax rates                          |       |      | 6    |      |       |  |     |   |       |  | (7   | )
|                            |                                                         | Foreign tax rate differential                                 |       |      | (705 | )    |       |  | (419 | ) |       |  | (171 | )
|                            |                                                         | Tax effect of equity method investments                       |       |      | (109 | )    |       |  | (153 | ) |       |  | (72  | )
|                            |                                                         | Other                                                         |       |      | 29   |      |       |  | 18   |   |       |  | 22   |  
|                            |                                                         |                                                               |       |      |      |      |       |  |      |   |       | 
|Actual income tax expense   |                                                         |                                                               | 661   |      |      |      | 867   |  |      |   | 849   | 
|                            |                                                         |                                                               |       |      |      |      |       |  |      |   |       | 

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Deferred income tax assets and liabilities on a
gross basis are summarized as follows:

|                                             |                                      |                                                                        |       |       |       |   |       |       |       |  
|-------------------------------------------- | ------------------------------------ | ---------------------------------------------------------------------- | ----- | ----- | ----- | - | ----- | ----- | ----- | -
|                                             |                                      |                                                                       
|                                             |                                      | September 30,                                                         
|                                             |                                      |                                                                       
|                                             |                                      | 2004                                                                   |       | 2003 
|                                             |                                      |                                                                        |       |      
|Current assets:                              |                                      |                                                                        |       |       |       |   |       |      
|                                             | Inventories                          |                                                                        |       | 514   |       |   |       | 505   |      
|                                             | Receivables                          |                                                                        |       | 284   |       |   |       | 256   |      
|                                             | Accrued liabilities                  |                                                                        |       | 736   |       |   |       | 682   |      
|                                             | Liabilities                          |                                                                        |       | 400   |       |   |       | 324   |      
|                                             | Tax loss and credit carryforward     |                                                                        |       | 197   |       |   |       | 615   |      
|                                             | Other                                |                                                                        |       | 283   |       |   |       | 406   |      
|                                             |                                      |                                                                        |       |       |       |   |       |      
|                                             |                                      | Total current deferred tax assets, before
    valuation allowances     |       |       | 2,414 |   |       |       | 2,788 |  
|                                             |                                      | Valuation allowances                                                   |       |       | (42   | ) |       |       | (82   | )
|                                             |                                      |                                                                        |       |       |       |   |       |      
|                                             |                                      | Current deferred tax assets                                            |       |       | 2,372 |   |       |       | 2,706 |  
|                                             |                                      |                                                                        |       |       |       |   |       |      
|Current liabilities:                         |                                      |                                                                        |       |       |       |   |       |      
|                                             | Inventories                          |                                                                        |       | 1,751 |       |   |       | 1,482 |      
|                                             | Receivables                          |                                                                        |       | 341   |       |   |       | 281   |      
|                                             | Accrued liabilities                  |                                                                        |       | 303   |       |   |       | 423   |      
|                                             | Liabilities                          |                                                                        |       | 164   |       |   |       | 156   |      
|                                             | Other                                |                                                                        |       | 191   |       |   |       | 171   |      
|                                             |                                      |                                                                        |       |       |       |   |       |      
|                                             |                                      | Current deferred tax liabilities                                       |       |       | 2,750 |   |       |       | 2,513 |  
|                                             |                                      |                                                                        |       |       |       |   |       |      
|Current deferred tax (liability) assets, net |                                      |                                                                        | (378  | )     |       |   | 193   |      
|                                             |                                      |                                                                        |       |       |       |   |       |      
|Non-current assets:                          |                                      |                                                                        |       |       |       |   |       |      
|                                             | Intangibles                          |                                                                        |       | 235   |       |   |       | 269   |      
|                                             | Property, plant and equipment        |                                                                        |       | 205   |       |   |       | 140   |      
|                                             | Retirement plans                     |                                                                        |       | 2,122 |       |   |       | 1,993 |      
|                                             | Accrued liabilities                  |                                                                        |       | 672   |       |   |       | 576   |      
|                                             | Liabilities                          |                                                                        |       | 406   |       |   |       | 363   |      
|                                             | Tax loss and credit carryforward     |                                                                        |       | 1,770 |       |   |       | 1,605 |      
|                                             | Other                                |                                                                        |       | 626   |       |   |       | 881   |      
|                                             |                                      |                                                                        |       |       |       |   |       |      
|                                             |                                      | Total non-current deferred tax assets, before
    valuation allowances |       |       | 6,036 |   |       |       | 5,827 |  
|                                             |                                      | Valuation allowances                                                   |       |       | (417  | ) |       |       | (559  | )
|                                             |                                      |                                                                        |       |       |       |   |       |      
|                                             |                                      | Non-current deferred tax assets                                        |       |       | 5,619 |   |       |       | 5,268 |  
|                                             |                                      |                                                                        |       |       |       |   |       |      
|Non-current liabilities:                     |                                      |                                                                        |       |       |       |   |       |      
|                                             | Intangibles                          |                                                                        |       | 300   |       |   |       | 252   |      
|                                             | Property, plant and equipment        |                                                                        |       | 503   |       |   |       | 572   |      
|                                             | Accrued liabilities                  |                                                                        |       | 141   |       |   |       | 259   |      
|                                             | Liabilities                          |                                                                        |       | 11    |       |   |       | 21    |      
|                                             | Other                                |                                                                        |       | 422   |       |   |       | 339   |      
|                                             |                                      |                                                                        |       |       |       |   |       |      
|                                             |                                      | Non-current deferred tax liabilities                                   |       |       | 1,377 |   |       |       | 1,443 |  
|                                             |                                      |                                                                        |       |       |       |   |       |      
|                                             | Non-current deferred tax assets, net |                                                                        |       | 4,242 |       |   |       | 3,825 |      
|                                             |                                      |                                                                        |       |       |       |   |       |      
|Total deferred tax assets, net               |                                      |                                                                        | 3,864 |       |       |   | 4,018 |      
|                                             |                                      |                                                                        |       |       |       |   |       |      

As of September 30, 2004, the Company had
4,698 of gross
tax loss carryforwards. Of the total,
4,050 tax loss
carryforwards have unlimited carryforward periods and
648 expire over
the periods to 2022.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not
that some portion of the deferred tax asset will not be
realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable profits during
the periods in which those temporary differences and tax loss
carryforwards become deductible. Management considers the
scheduled reversal of deferred tax liabilities and projected
future taxable income in making this assessment. Based upon the
level of historical taxable income and projections for future
taxable income over the periods which the deferred tax assets
are deductible, management believes it is more likely than not
the Company will realize the benefits of these deductible
differences, after giving effect to related valuation allowances.

The Company provides for income taxes or foreign
withholding taxes on the cumulative earnings of foreign
subsidiaries when it is determined that such earnings either
will be subject to taxes or are intended to be repatriated.
During the year ended September 30, 2003, the Company
provided for 44
of deferred tax liabilities associated with declared, but
unpaid, foreign dividends. In fiscal 2004, income taxes on
cumulative earnings of
6,433 of foreign
subsidiaries have not been provided for because such earnings
will either not be subject to any such taxes or are intended to
be indefinitely reinvested in those operations. It is not
practicable to estimate the amount of the unrecognized deferred
tax liabilities for these undistributed foreign earnings.

Including the items charged or credited directly
to related components of AOCIand the benefit from
changes in accounting principles, the provision
(benefit) for income taxes consists of the following:

|                                                        |  |                          |       |      |  |      |      |   |  |  |        |  
|------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ---- | - |  |  | ------ | -
|                                                        |  |                         
|                                                        |  | Year ended September 30,
|                                                        |  |                         
|                                                        |  | 2004                     |       | 2003 |  | 2002
|                                                        |  |                          |       |      |  |     
|Provision for income taxes                              |  |                          | 661   |      |  |      | 867  |   |  |  | 849    |  
|Cumulative effect of change in accounting
    principle |  |                          |      |      |  |      | 23   |   |  |  |       |  
|Shareholders equity for other comprehensive
    income |  |                          | 588   |      |  |      | (394 | ) |  |  | (1,008 | )
|                                                        |  |                          |       |      |  |      |      |   |  |  |        |  
|                                                        |  |                          | 1,249 |      |  |      | 496  |   |  |  | (159   | )
|                                                        |  |                          |       |      |  |      |      |   |  |  |        |  

9.   Marketable
securities

As of September 30, 2004 and 2003, the
Companys portfolio of marketable securities consisted
solely of securities classified as available-for-sale.

The following tables summarize the current
portion of the Companys investment in available-for-sale
securities (for information regarding the non-current
available-for-sale securities, see Note 13):

|                  |  |                    |       |            |  |      |       |      |  |  |    |  |  |  |   | 
|----------------- |  | ------------------ | ----- | ---------- |  | ---- | ----- | ---- |  |  | -- |  |  |  | - | 
|                  |  |                   
|                  |  | September 30, 2004
|                  |  |                   
|                  |  |                    |       |           
|                  |  |                    |       | Unrealized
|                  |  |                    |       |           
|                  |  | Cost               |       | Fair Value |  | Gain |       | Loss
|                  |  |                    |       |            |  |      |       |     
|Equity securities |  |                    | 1,219 |            |  |      | 1,301 |      |  |  | 85 |  |  |  | 3 | 
|Debt securities   |  |                    | 77    |            |  |      | 77    |      |  |  |   |  |  |  |  | 
|Fund securities   |  |                    | 8     |            |  |      | 8     |      |  |  |   |  |  |  |  | 
|                  |  |                    |       |            |  |      |       |      |  |  |    |  |  |  |   | 
|                  |  |                    | 1,304 |            |  |      | 1,386 |      |  |  | 85 |  |  |  | 3 | 
|                  |  |                    |       |            |  |      |       |      |  |  |    |  |  |  |   | 

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


|                  |  |                    |     |            |  |      |     |      |  |  |    |  |  |  |   | 
|----------------- |  | ------------------ | --- | ---------- |  | ---- | --- | ---- |  |  | -- |  |  |  | - | 
|                  |  |                   
|                  |  | September 30, 2003
|                  |  |                   
|                  |  |                    |     |           
|                  |  |                    |     | Unrealized
|                  |  |                    |     |           
|                  |  | Cost               |     | Fair Value |  | Gain |     | Loss
|                  |  |                    |     |            |  |      |     |     
|Equity securities |  |                    | 118 |            |  |      | 194 |      |  |  | 78 |  |  |  | 2 | 
|Debt securities   |  |                    | 424 |            |  |      | 436 |      |  |  | 12 |  |  |  |  | 
|Fund securities   |  |                    | 20  |            |  |      | 20  |      |  |  | 1  |  |  |  | 1 | 
|                  |  |                    |     |            |  |      |     |      |  |  |    |  |  |  |   | 
|                  |  |                    | 562 |            |  |      | 650 |      |  |  | 91 |  |  |  | 3 | 
|                  |  |                    |     |            |  |      |     |      |  |  |    |  |  |  |   | 

Unrealized gains (losses) on
available-for-sale securities included in AOCIare shown
net of applicable deferred income taxes, as well as tax effects
which were previously provided but were reversed into earnings
upon the changes in enacted tax laws in prior periods. The tax
effects resulting from such changes total
134 and will
remain in AOCIuntil such time as the entire portfolio of
available-for-sale securities in the applicable jurisdiction is
liquidated.

In the second quarter of fiscal 2004, the Company
sold 150 million Infineon shares and relinquished its
ability to exercise significant influence over its operating and
financial policies (see Notes 3, 5 and 13). As a result, the
Company began reporting its interest in Infineon as an
available-for-sale marketable equity security. As of
September 30, 2004, cost, fair value and unrealized gains
for the investment in Infineon amounted to
1,094,
1,120, and
26, respectively.

Proceeds from sales of available-for-sale
securities for the years ended September 30, 2004, 2003 and
2002 were 186,
61 and
398,
respectively. Gross realized gains on sales of
available-for-sale securities for the years ended
September 30, 2004, 2003 and 2002 were
58,
8 and
29,
respectively. Gross realized losses on sales of
available-for-sale securities for the years ended
September 30, 2004, 2003 and 2002 were
4,
14 and
9, respectively.

10.   Accounts receivable,
net

|                                                               |  |               |        |      |  |  |        | 
|-------------------------------------------------------------- |  | ------------- | ------ | ---- |  |  | ------ | 
|                                                               |  |              
|                                                               |  | September 30,
|                                                               |  |              
|                                                               |  | 2004          |        | 2003
|                                                               |  |               |        |     
|Trade receivables from the sale of goods and
    services, net |  |               | 13,978 |      |  |  | 13,094 | 
|Receivables from sales and direct finance leases,
    net      |  |               | 1,365  |      |  |  | 1,289  | 
|Receivables from associated and related
    companies, net     |  |               | 127    |      |  |  | 128    | 
|                                                               |  |               |        |      |  |  |        | 
|                                                               |  |               | 15,470 |      |  |  | 14,511 | 
|                                                               |  |               |        |      |  |  |        | 

Related companies are those in which Siemens has
an ownership interest of less than 20% and exercises no
significant influence over their operating and financial
policies.

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The valuation allowance for accounts receivable
changed as follows:

|                                                                                                       |  |                          |       |      |  |      |       |   |  |  |       |  
|------------------------------------------------------------------------------------------------------ |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                                                       |  |                         
|                                                                                                       |  | Year ended September 30,
|                                                                                                       |  |                         
|                                                                                                       |  | 2004                     |       | 2003 |  | 2002
|                                                                                                       |  |                          |       |      |  |     
|Valuation allowance as of beginning of fiscal year                                                     |  |                          | 1,122 |      |  |      | 1,585 |   |  |  | 1,785 |  
|Increase (decrease) in valuation allowances
    recorded in the income statement in the current period |  |                          | 59    |      |  |      | (50   | ) |  |  | 215   |  
|Write-offs charged against the allowance                                                               |  |                          | (280  | )    |  |      | (383  | ) |  |  | (385  | )
|Recoveries of amounts previously written-off                                                           |  |                          | 32    |      |  |      | 23    |   |  |  | 37    |  
|Foreign exchange translation adjustment                                                                |  |                          | (15   | )    |  |      | (53   | ) |  |  | (67   | )
|                                                                                                       |  |                          |       |      |  |      |       |   |  |  |       |  
|Valuation allowance as of fiscal year-end                                                              |  |                          | 918   |      |  |      | 1,122 |   |  |  | 1,585 |  
|                                                                                                       |  |                          |       |      |  |      |       |   |  |  |       |  

Receivables from sales and direct finance leases:

|                                                   |  |               |        |  
|-------------------------------------------------- |  | ------------- | ------ | -
|                                                   |  | September 30,
|                                                   |  | 2004         
|                                                   |  |              
|are due as follows:                                |  |               |        |  
|2005                                               |  |               | 1,482  |  
|2006                                               |  |               | 1,063  |  
|2007                                               |  |               | 695    |  
|2008                                               |  |               | 447    |  
|2009                                               |  |               | 235    |  
|Thereafter                                         |  |               | 217    |  
|                                                   |  |               |        |  
|Minimum future lease payments                      |  |               | 4,139  |  
|Less: Unearned income                              |  |               | (539   | )
|Less: Allowance for doubtful accounts              |  |               | (105   | )
|Plus: Unguaranteed residual values                 |  |               | 179    |  
|                                                   |  |               |        |  
|Net investment in lease receivables                |  |               | 3,674  |  
|Less: Long-term portion                            |  |               | (2,309 | )
|                                                   |  |               |        |  
|Receivables from sales and finance leases, current |  |               | 1,365  |  
|                                                   |  |               |        |  

Investments in direct financing and sales-type
leases primarily relates to equipment for information and
communication products, data processing and medical engineering
equipment. Investments in direct financing leases also include
leases of industrial and consumer products of third party
manufacturers. Actual cash flows will vary from contractual
maturities due to future sales of finance receivables,
prepayments and write-offs.

Securitization of trade receivables

In fiscal year 2002, the Company recognized
pre-tax losses on securitization transactions of
22. Cash
received from securitization trusts totaled approximately
4,156 in fiscal
year 2002. Cash flows resulting from retained interests amounted
to 365 in fiscal
2002.

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


11. Inventories, net

|                                                                      |                           |               |        |        |   |  |        |        |  
|--------------------------------------------------------------------- | ------------------------- | ------------- | ------ | ------ | - |  | ------ | ------ | -
|                                                                      |                           |              
|                                                                      |                           | September 30,
|                                                                      |                           |              
|                                                                      |                           | 2004          |        | 2003  
|                                                                      |                           |               |        |       
|Raw materials and supplies                                            |                           |               | 2,282  |        |   |  | 2,118  |       
|Work in process                                                       |                           |               | 2,261  |        |   |  | 2,066  |       
|Costs and earnings in excess of billings on
    uncompleted contracts |                           |               | 6,650  |        |   |  | 5,787  |       
|Finished goods and products held for resale                           |                           |               | 2,777  |        |   |  | 2,770  |       
|Advances to suppliers                                                 |                           |               | 651    |        |   |  | 795    |       
|                                                                      |                           |               |        |        |   |  |        |       
|                                                                      |                           |               | 14,621 |        |   |  | 13,536 |       
|                                                                      | Advance payments received |               |        | (3,263 | ) |  |        | (3,170 | )
|                                                                      |                           |               |        |        |   |  |        |       
|                                                                      |                           |               | 11,358 |        |   |  | 10,366 |       
|                                                                      |                           |               |        |        |   |  |        |       

12. Other current assets

|                                                            |  |               |       |      |  |  |       | 
|----------------------------------------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                                                            |  |              
|                                                            |  | September 30,
|                                                            |  |              
|                                                            |  | 2004          |       | 2003
|                                                            |  |               |       |     
|Taxes receivable                                            |  |               | 1,033 |      |  |  | 1,100 | 
|Loans receivable                                            |  |               | 446   |      |  |  | 707   | 
|Other receivables from associated and related
    companies |  |               | 304   |      |  |  | 337   | 
|Other                                                       |  |               | 2,615 |      |  |  | 2,606 | 
|                                                            |  |               |       |      |  |  |       | 
|                                                            |  |               | 4,398 |      |  |  | 4,750 | 
|                                                            |  |               |       |      |  |  |       | 

13. Long-term investments

|                                    |  |               |       |      |  |  |       | 
|----------------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                                    |  |              
|                                    |  | September 30,
|                                    |  |              
|                                    |  | 2004          |       | 2003
|                                    |  |               |       |     
|Investments in associated companies |  |               | 2,823 |      |  |  | 4,834 | 
|Miscellaneous investments           |  |               | 1,299 |      |  |  | 1,158 | 
|                                    |  |               |       |      |  |  |       | 
|                                    |  |               | 4,122 |      |  |  | 5,992 | 
|                                    |  |               |       |      |  |  |       | 

As of September 30, 2003, Investments in
associated companiesincluded the Companys investment
in Infineon with a carrying amount of
2,249. In the
second quarter of fiscal 2004, the Company ceased accounting for
Infineon under the equity method and began reporting its
interest as available-for-sale marketable security at fair
market value (see Notes 3, 5 and 9). In January 2004, the
Company sold 150 million Infineon shares, 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).
Due to the sale, the Companys ownership interest in
Infineon of 39.7% as of September 30, 2003 declined to
18.9% (as of the effective date of the sale). As of
September 30, 2003, the Companys voting interest in
Infineon amounted to 16.6%. Subsequent to the sale of Infineon
shares in January 2004 until the date of the dissolution of the
non-voting trust on November 28, 2004, the Company has no
voting interests in Infineon. Upon termination of the non-voting
trust, any shares held by the

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


trustee revert to the Company and the Company is
again entitled to vote these shares, resulting in voting rights
being again equivalent to the Companys legal ownership
interest.

|                                  |  |               |      |           |  |  |         |           |  |  |      |    |  |  |         | 
|--------------------------------- |  | ------------- | ---- | --------- |  |  | ------- | --------- |  |  | ---- | -- |  |  | ------- | 
|                                  |  |              
|                                  |  | September 30,
|                                  |  |              
|                                  |  |               |      |          
|                                  |  | 2004          |      | 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
    September 30, 2004 and 2003, respectively, less 136,292
    thousand shares and 200 million shares, respectively, in
    the non-voting trust. As of September 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.

Until December 2001, Infineon was included in the
Consolidated Financial Statements of Siemens AG. For the
deconsolidation of Infineon see Note 3.

Summarized financial information for Infineon is
provided by the table below:

|                        |  |               |        | 
|----------------------- |  | ------------- | ------ | 
|                        |  | September 30,
|                        |  | 2003         
|                        |  |              
|Current assets          |  |               | 5,306  | 
|Non-current assets      |  |               | 5,499  | 
|Total assets            |  |               | 10,805 | 
|Current liabilities     |  |               | 2,134  | 
|Non-current liabilities |  |               | 3,005  | 
|Shareholders equity    |  |               | 5,666  | 

|                         |  |               |       |      |  |  |        |  
|------------------------ |  | ------------- | ----- | ---- |  |  | ------ | -
|                         |  |              
|                         |  | Year ended   
|                         |  | September 30,
|                         |  |              
|                         |  | 2003          |       | 2002
|                         |  |               |       |     
|Net sales                |  |               | 6,152 |      |  |  | 4,890  |  
|Gross profit on sales    |  |               | 1,538 |      |  |  | 601    |  
|Loss before income taxes |  |               | (351  | )    |  |  | (1,160 | )
|Net loss                 |  |               | (435  | )    |  |  | (1,021 | )

Miscellaneous investmentsgenerally include interests in other
companies for which there is no readily determinable market
value and which are recorded at the lower of cost or net
realizable value. As of September 30, 2004 and 2003, this
line item includes
459 and
308,
respectively, of the fair value related to its investment in
Juniper representing the Companys total non-current
portion of available-for-sale securities (as of
September 30, 2004 and 2003, for the fair value reported
portion, cost amounted to
111 and
117,
respectively and unrealized gains to
348 and
191,
respectively).

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


14. Goodwill

|                          |                                              |         |       |             |  |              |      |              |   |             |     |           |  |  |    |    |  |  |     |     |  |  |       |       | 
|------------------------- | -------------------------------------------- | ------- | ----- | ----------- |  | ------------ | ---- | ------------ | - | ----------- | --- | --------- |  |  | -- | -- |  |  | --- | --- |  |  | ----- | ----- | 
|                          |                                              |         |       |             |  | Acquisitions |      |              |   |             |     |          
|                          |                                              |         |       | Translation |  | and Purchase |      |              |   |             |     |          
|                          |                                              |         |       | adjustment  |  | Accounting   |      |              |   |             |     |          
|                          |                                              | 10/1/03 |       | and other   |  | Adjustments  |      | Dispositions |   | Impairments |     | 9/30/2004
|                          |                                              |         |       |             |  |              |      |              |   |             |     |          
|Operations                |                                              |         |       |             |  |              |      |              |   |             |     |           |  |  |    |    |  |  |     |     |  |  |       |      
|                          | Information and Communication Networks (ICN) |         |       | 249         |  |              |      | (7           | ) |             |     | 30        |  |  |    |   |  |  |     |    |  |  |       | 272   | 
|                          | Information and Communication Mobile (ICM)   |         |       | 96          |  |              |      | (1           | ) |             |     |          |  |  |    |   |  |  |     |    |  |  |       | 95    | 
|                          | Siemens Business Services (SBS)              |         |       | 281         |  |              |      | (9           | ) |             |     |          |  |  |    | 3  |  |  |     |    |  |  |       | 269   | 
|                          | Automation and Drives (A&D)                  |         |       | 328         |  |              |      | (6           | ) |             |     | 66        |  |  |    |   |  |  |     |    |  |  |       | 388   | 
|                          | Industrial Solutions and Services (I&S)      |         |       | 67          |  |              |      | (6           | ) |             |     | 197       |  |  |    |   |  |  |     |    |  |  |       | 258   | 
|                          | Logistics and Assembly Systems (L&A)         |         |       | 564         |  |              |      | (8           | ) |             |     |          |  |  |    |   |  |  |     | 433 |  |  |       | 123   | 
|                          | Siemens Building Technologies (SBT)          |         |       | 429         |  |              |      | (7           | ) |             |     |          |  |  |    | 7  |  |  |     |    |  |  |       | 415   | 
|                          | Power Generation (PG)                        |         |       | 943         |  |              |      | (14          | ) |             |     | 98        |  |  |    |   |  |  |     |    |  |  |       | 1,027 | 
|                          | Power Transmission and Distribution (PTD)    |         |       | 141         |  |              |      | 3            |   |             |     | 182       |  |  |    | 6  |  |  |     |    |  |  |       | 320   | 
|                          | Transportation Systems (TS)                  |         |       | 115         |  |              |      | (4           | ) |             |     |          |  |  |    |   |  |  |     |    |  |  |       | 111   | 
|                          | Siemens VDO Automotive (SV)                  |         |       | 1,524       |  |              |      |             |   |             |     |          |  |  |    |   |  |  |     |    |  |  |       | 1,524 | 
|                          | Medical Solutions (Med)                      |         |       | 1,602       |  |              |      | (72          | ) |             |     | 17        |  |  |    | 33 |  |  |     |    |  |  |       | 1,514 | 
|                          | Osram                                        |         |       | 82          |  |              |      | (4           | ) |             |     |          |  |  |    |   |  |  |     |    |  |  |       | 78    | 
|Financing and Real Estate |                                              |         |       |             |  |              |      |              |   |             |     |           |  |  |    |    |  |  |     |     |  |  |       |      
|                          | Siemens Financial Services (SFS)             |         |       | 80          |  |              |      | 2            |   |             |     |          |  |  |    |   |  |  |     |    |  |  |       | 82    | 
|                          | Siemens Real Estate (SRE)                    |         |       |            |  |              |      |             |   |             |     |          |  |  |    |   |  |  |     |    |  |  |       |      | 
|                          |                                              |         |       |             |  |              |      |              |   |             |     |           |  |  |    |    |  |  |     |     |  |  |       |      
|Siemens worldwide         |                                              |         | 6,501 |             |  |              | (133 | )            |   |             | 590 |           |  |  | 49 |    |  |  | 433 |     |  |  | 6,476 |      
|                          |                                              |         |       |             |  |              |      |              |   |             |     |           |  |  |    |    |  |  |     |     |  |  |       |      

F-28



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


|                          |                                              |         |       |             |  |              |      |              |   |         |     |     |  |  |    |    |  |  |       |       | 
|------------------------- | -------------------------------------------- | ------- | ----- | ----------- |  | ------------ | ---- | ------------ | - | ------- | --- | --- |  |  | -- | -- |  |  | ----- | ----- | 
|                          |                                              |         |       |             |  | Acquisitions |      |              |   |        
|                          |                                              |         |       | Translation |  | and Purchase |      |              |   |        
|                          |                                              |         |       | adjustment  |  | Accounting   |      |              |   |        
|                          |                                              | 10/1/02 |       | and other   |  | Adjustments  |      | Dispositions |   | 9/30/03
|                          |                                              |         |       |             |  |              |      |              |   |        
|Operations                |                                              |         |       |             |  |              |      |              |   |         |     |     |  |  |    |    |  |  |       |      
|                          | Information and Communication Networks (ICN) |         |       | 265         |  |              |      | (2           | ) |         |     | 4   |  |  |    | 18 |  |  |       | 249   | 
|                          | Information and Communication Mobile (ICM)   |         |       | 93          |  |              |      |             |   |         |     | 3   |  |  |    |   |  |  |       | 96    | 
|                          | Siemens Business Services (SBS)              |         |       | 230         |  |              |      | (23          | ) |         |     | 74  |  |  |    |   |  |  |       | 281   | 
|                          | Automation and Drives (A&D)                  |         |       | 281         |  |              |      | (1           | ) |         |     | 49  |  |  |    | 1  |  |  |       | 328   | 
|                          | Industrial Solutions and Services (I&S)      |         |       | 92          |  |              |      | (26          | ) |         |     | 1   |  |  |    |   |  |  |       | 67    | 
|                          | Logistics and Assembly Systems (L&A)         |         |       | 581         |  |              |      | (2           | ) |         |     |    |  |  |    | 15 |  |  |       | 564   | 
|                          | Siemens Building Technologies (SBT)          |         |       | 442         |  |              |      | (13          | ) |         |     | 1   |  |  |    | 1  |  |  |       | 429   | 
|                          | Power Generation (PG)                        |         |       | 598         |  |              |      | (64          | ) |         |     | 409 |  |  |    |   |  |  |       | 943   | 
|                          | Power Transmission and Distribution (PTD)    |         |       | 148         |  |              |      | (10          | ) |         |     | 3   |  |  |    |   |  |  |       | 141   | 
|                          | Transportation Systems (TS)                  |         |       | 115         |  |              |      |             |   |         |     |    |  |  |    |   |  |  |       | 115   | 
|                          | Siemens VDO Automotive (SV)                  |         |       | 1,528       |  |              |      | (1           | ) |         |     | 2   |  |  |    | 5  |  |  |       | 1,524 | 
|                          | Medical Solutions (Med)                      |         |       | 1,898       |  |              |      | (284         | ) |         |     | 19  |  |  |    | 31 |  |  |       | 1,602 | 
|                          | Osram                                        |         |       | 98          |  |              |      | (16          | ) |         |     |    |  |  |    |   |  |  |       | 82    | 
|Financing and Real Estate |                                              |         |       |             |  |              |      |              |   |         |     |     |  |  |    |    |  |  |       |      
|                          | Siemens Financial Services (SFS)             |         |       | 90          |  |              |      | (10          | ) |         |     |    |  |  |    |   |  |  |       | 80    | 
|                          | Siemens Real Estate (SRE)                    |         |       |            |  |              |      |             |   |         |     |    |  |  |    |   |  |  |       |      | 
|                          |                                              |         |       |             |  |              |      |              |   |         |     |     |  |  |    |    |  |  |       |      
|Siemens worldwide         |                                              |         | 6,459 |             |  |              | (452 | )            |   |         | 565 |     |  |  | 71 |    |  |  | 6,501 |      
|                          |                                              |         |       |             |  |              |      |              |   |         |     |     |  |  |    |    |  |  |       |      

In fiscal 2004, the strength of the euro
particularly against the U.S.$ resulted in foreign currency
translation and other adjustments of
(133) primarily
related to the Companys businesses in the U.S. Meds
sale of its Life Support Systems business reduced goodwill by
(33).
I&Ss acquisition of USFilter and PTDs
acquisition of Trench Electric Holdings BV increased goodwill by
185
(179 net of
foreign currency effects) and
182,
respectively. For further information on acquisitions and
dispositions see Note 3.

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) 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.

F-29



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


15. Other intangible assets,
net

|                                     |  |         |       |             |  |           |     |             |  |         |     |              |  |         |     |              |  |         |       |               |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       |  |  |  |     | 
|------------------------------------ |  | ------- | ----- | ----------- |  | --------- | --- | ----------- |  | ------- | --- | ------------ |  | ------- | --- | ------------ |  | ------- | ----- | ------------- |  |  | ----- |  |  |  | ----- |  |  |  | ----- |  |  |  | ----- |  |  |  | --- | 
|                                     |  |         |       |             |  |           |     |             |  |         |     |              |  | Net     |     |              |  | Net     |       |              
|                                     |  |         |       |             |  |           |     |             |  |         |     |              |  | book    |     |              |  | book    |       |              
|                                     |  |         |       |             |  |           |     |             |  |         |     |              |  | value   |     | Accumulated  |  | value   |       | Amortization 
|                                     |  |         |       | Translation |  |           |     |             |  |         |     | Accumulated  |  | as of   |     | amortization |  | as of   |       | during fiscal
|                                     |  | 10/1/03 |       | adjustment  |  | Additions |     | Retirements |  | 9/30/04 |     | amortization |  | 9/30/04 |     | 10/1/03      |  | 10/1/03 |       | year 2004    
|                                     |  |         |       |             |  |           |     |             |  |         |     |              |  |         |     |              |  |         |       |              
|Software                             |  |         | 1,659 |             |  |           | (33 | )           |  |         | 386 |              |  |         | 132 |              |  |         | 1,880 |               |  |  | 949   |  |  |  | 931   |  |  |  | 664   |  |  |  | 995   |  |  |  | 394 | 
|Patents, licenses and similar rights |  |         | 2,523 |             |  |           | (39 | )           |  |         | 501 |              |  |         | 207 |              |  |         | 2,778 |               |  |  | 1,195 |  |  |  | 1,583 |  |  |  | 1,160 |  |  |  | 1,363 |  |  |  | 246 | 
|                                     |  |         |       |             |  |           |     |             |  |         |     |              |  |         |     |              |  |         |       |               |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       |  |  |  |     | 
|Other intangible assets              |  |         | 4,182 |             |  |           | (72 | )           |  |         | 887 |              |  |         | 339 |              |  |         | 4,658 |               |  |  | 2,144 |  |  |  | 2,514 |  |  |  | 1,824 |  |  |  | 2,358 |  |  |  | 640 | 
|                                     |  |         |       |             |  |           |     |             |  |         |     |              |  |         |     |              |  |         |       |               |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       |  |  |  |     | 

Amortization expense for the years ended
September 30, 2003 and 2002 was
688 and
618,
respectively.

The estimated amortization expense of Other
intangible assets, netfor the next five fiscal years is as
follows:

|            |  |  |     | 
|----------- |  |  | --- | 
|Fiscal year |  | 
|            |  | 
|2005        |  |  | 557 | 
|2006        |  |  | 377 | 
|2007        |  |  | 284 | 
|2008        |  |  | 218 | 
|2009        |  |  | 173 | 

16. Property, plant and equipment,
net

|                                                   |  |         |        |             |  |           |      |           |  |             |       |         |  |              |      |         |  |              |       |         |  |               |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 
|-------------------------------------------------- |  | ------- | ------ | ----------- |  | --------- | ---- | --------- |  | ----------- | ----- | ------- |  | ------------ | ---- | ------- |  | ------------ | ----- | ------- |  | ------------- | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ----- | 
|                                                   |  |         |        |             |  |           |      |           |  |             |       |         |  |              |      | Net     |  |              |       | Net     |  |              
|                                                   |  |         |        |             |  |           |      |           |  |             |       |         |  |              |      | book    |  |              |       | book    |  |              
|                                                   |  |         |        |             |  |           |      |           |  |             |       |         |  |              |      | value   |  | Accumulated  |       | value   |  | Depreciation 
|                                                   |  |         |        | Translation |  |           |      | Reclassi- |  |             |       |         |  | Accumulated  |      | as of   |  | depreciation |       | as of   |  | during fiscal
|                                                   |  | 10/1/03 |        | adjustment  |  | Additions |      | fications |  | Retirements |       | 9/30/04 |  | depreciation |      | 9/30/04 |  | 10/1/03      |       | 10/1/03 |  | year 2004    
|                                                   |  |         |        |             |  |           |      |           |  |             |       |         |  |              |      |         |  |              |       |         |  |              
|Land and buildings                                 |  |         | 9,416  |             |  |           | (87  | )         |  |             | 368   |         |  |              | 91   |         |  |              | 626   |         |  |               | 9,162  |  |  |  | 4,516  |  |  |  | 4,646  |  |  |  | 4,586  |  |  |  | 4,830  |  |  |  | 291   | 
|Technical machinery and equipment                  |  |         | 8,449  |             |  |           | (123 | )         |  |             | 810   |         |  |              | 136  |         |  |              | 582   |         |  |               | 8,690  |  |  |  | 5,987  |  |  |  | 2,703  |  |  |  | 5,930  |  |  |  | 2,519  |  |  |  | 634   | 
|Furniture and office equipment                     |  |         | 9,622  |             |  |           | (109 | )         |  |             | 1,080 |         |  |              | 211  |         |  |              | 1,196 |         |  |               | 9,608  |  |  |  | 7,498  |  |  |  | 2,110  |  |  |  | 7,544  |  |  |  | 2,078  |  |  |  | 1,079 | 
|Equipment leased to others                         |  |         | 1,653  |             |  |           | (29  | )         |  |             | 251   |         |  |              | 2    |         |  |              | 405   |         |  |               | 1,472  |  |  |  | 819    |  |  |  | 653    |  |  |  | 945    |  |  |  | 708    |  |  |  | 177   | 
|Advances to suppliers and construction in progress |  |         | 623    |             |  |           | (9   | )         |  |             | 485   |         |  |              | (440 | )       |  |              | 88    |         |  |               | 571    |  |  |  |       |  |  |  | 571    |  |  |  | 2      |  |  |  | 621    |  |  |  |      | 
|                                                   |  |         |        |             |  |           |      |           |  |             |       |         |  |              |      |         |  |              |       |         |  |               |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 
|Property, plant and equipment                      |  |         | 29,763 |             |  |           | (357 | )         |  |             | 2,994 |         |  |              |     |         |  |              | 2,897 |         |  |               | 29,503 |  |  |  | 18,820 |  |  |  | 10,683 |  |  |  | 19,007 |  |  |  | 10,756 |  |  |  | 2,181 | 
|                                                   |  |         |        |             |  |           |      |           |  |             |       |         |  |              |      |         |  |              |       |         |  |               |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 

17. Other assets

|                                                                                 |  |               |       |      |  |  |       | 
|-------------------------------------------------------------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                                                                                 |  |              
|                                                                                 |  | September 30,
|                                                                                 |  |              
|                                                                                 |  | 2004          |       | 2003
|                                                                                 |  |               |       |     
|Long-term portion of receivables from sales and
    finance leases (see Note 10) |  |               | 2,309 |      |  |  | 2,156 | 
|Prepaid pension assets                                                           |  |               | 442   |      |  |  | 52    | 
|Long-term loans receivable                                                       |  |               | 541   |      |  |  | 531   | 
|Other                                                                            |  |               | 1,674 |      |  |  | 1,411 | 
|                                                                                 |  |               |       |      |  |  |       | 
|                                                                                 |  |               | 4,966 |      |  |  | 4,150 | 
|                                                                                 |  |               |       |      |  |  |       | 

F-30



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


18. Accrued liabilities

|                                        |  |               |       |      |  |  |       | 
|--------------------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                                        |  |              
|                                        |  | September 30,
|                                        |  |              
|                                        |  | 2004          |       | 2003
|                                        |  |               |       |     
|Employee related costs                  |  |               | 2,317 |      |  |  | 2,366 | 
|Product warranties                      |  |               | 2,096 |      |  |  | 1,830 | 
|Income and other taxes                  |  |               | 1,384 |      |  |  | 1,234 | 
|Accrued losses on uncompleted contracts |  |               | 1,061 |      |  |  | 987   | 
|Other                                   |  |               | 2,382 |      |  |  | 2,467 | 
|                                        |  |               |       |      |  |  |       | 
|                                        |  |               | 9,240 |      |  |  | 8,884 | 
|                                        |  |               |       |      |  |  |       | 

Employee related costsprimarily include accruals for
vacation pay, bonuses, accrued overtime and service anniversary
awards and the current portion of accruals for pension plans and
similar commitments, as well as provisions for severance
payments.

The current and non-current accruals for product
warranties changed as follows:

|                                                                                   |  |               |       |      |  |  |       |  
|---------------------------------------------------------------------------------- |  | ------------- | ----- | ---- |  |  | ----- | -
|                                                                                   |  |              
|                                                                                   |  | Year ended   
|                                                                                   |  | September 30,
|                                                                                   |  |              
|                                                                                   |  | 2004          |       | 2003
|                                                                                   |  |               |       |     
|Accrual as of beginning of fiscal year (thereof
    current 1,830
    and 1,634) |  |               | 2,353 |      |  |  | 2,094 |  
|Amount charged to expense in current period
    (additions)                        |  |               | 1,013 |      |  |  | 1,159 |  
|Reduction due to payments in cash or in kind
    (usage)                           |  |               | (920  | )    |  |  | (649  | )
|Foreign exchange translation adjustment                                            |  |               | (24   | )    |  |  | (77   | )
|Other changes related to existing warranties                                       |  |               | 402   |      |  |  | (174  | )
|                                                                                   |  |               |       |      |  |  |       |  
|Accrual as of fiscal year-end (thereof current
    2,096 and
    1,830)          |  |               | 2,824 |      |  |  | 2,353 |  
|                                                                                   |  |               |       |      |  |  |       |  

19. Other current liabilities

|                                                                                                     |  |               |        |      |  |  |        | 
|---------------------------------------------------------------------------------------------------- |  | ------------- | ------ | ---- |  |  | ------ | 
|                                                                                                     |  |              
|                                                                                                     |  | September 30,
|                                                                                                     |  |              
|                                                                                                     |  | 2004          |        | 2003
|                                                                                                     |  |               |        |     
|Billings in excess of costs and estimated
    earnings on uncompleted contracts and related advances |  |               | 4,585  |      |  |  | 4,755  | 
|Payroll and social security taxes                                                                    |  |               | 2,515  |      |  |  | 2,493  | 
|Bonus obligations                                                                                    |  |               | 1,151  |      |  |  | 1,099  | 
|Sales and other taxes                                                                                |  |               | 924    |      |  |  | 944    | 
|Deferred income                                                                                      |  |               | 634    |      |  |  | 633    | 
|Liabilities to associated and related companies                                                      |  |               | 368    |      |  |  | 428    | 
|Accrued interest                                                                                     |  |               | 128    |      |  |  | 140    | 
|Other liabilities                                                                                    |  |               | 1,545  |      |  |  | 1,633  | 
|                                                                                                     |  |               |        |      |  |  |        | 
|                                                                                                     |  |               | 11,850 |      |  |  | 12,125 | 
|                                                                                                     |  |               |        |      |  |  |        | 

F-31



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


20. Debt

|           |                                                   |                                                              |        |       |       |  |        |       |        | 
|---------- | ------------------------------------------------- | ------------------------------------------------------------ | ------ | ----- | ----- |  | ------ | ----- | ------ | 
|           |                                                   |                                                             
|           |                                                   | September 30,                                               
|           |                                                   |                                                             
|           |                                                   | 2004                                                         |        | 2003 
|           |                                                   |                                                              |        |      
|Short-term |                                                   |                                                              |        |       |       |  |        |      
|           | Notes and bonds                                   |                                                              |        | 621   |       |  |        | 436   |       
|           | Loans from banks                                  |                                                              |        | 478   |       |  |        | 777   |       
|           | Other financial indebtedness                      |                                                              |        | 295   |       |  |        | 494   |       
|           | Obligations under capital leases                  |                                                              |        | 40    |       |  |        | 38    |       
|           |                                                   |                                                              |        |       |       |  |        |      
|           |                                                   | Short-term debt and current maturities of
    long-term debt |        |       | 1,434 |  |        |       | 1,745  | 
|Long-term  |                                                   |                                                              |        |       |       |  |        |      
|           | Notes and bonds (maturing 2005-2011)              |                                                              |        | 8,345 |       |  |        | 9,997 |       
|           | Loans from banks (maturing 2005-2013)             |                                                              |        | 266   |       |  |        | 287   |       
|           | Other financial indebtedness (maturing 2005-2015) |                                                              |        | 971   |       |  |        | 904   |       
|           | Obligations under capital leases                  |                                                              |        | 203   |       |  |        | 245   |       
|           |                                                   |                                                              |        |       |       |  |        |      
|           |                                                   | Long-term debt                                               |        |       | 9,785 |  |        |       | 11,433 | 
|           |                                                   |                                                              |        |       |       |  |        |      
|           |                                                   |                                                              | 11,219 |       |       |  | 13,178 |      
|           |                                                   |                                                              |        |       |       |  |        |      

As of September 30, 2004, weighted-average
interest rates for loans from banks, other financial
indebtedness and obligations under capital leases were 4.3%
(2003: 4.5%), 3.5% (2003: 2.9%) and 6.2% (2003: 6.3%),
respectively. In some countries, the Company has pledged
securities and executed promissory notes to secure borrowings in
conformity with local practice.

The Company has agreements with financial
institutions under which it may issue up to
3 billion
of commercial paper and U.S.$3.0 billion
(2.4 billion
and
2.6 billion,
respectively, as of September 30, 2004 and 2003) of
commercial paper. As of September 30, 2004 and 2003,
outstanding commercial paper totaled
242 (interest
rates from 1.41% to 1.59%) and
385 (interest
rates from 1.0% to 1.04%), respectively.

The Company also has agreements with financial
institutions under which it may issue up to
5.0 billion
in medium-term notes. As of September 30, 2004 and 2003,
approximately
0.9 billion
and
1.4 billion,
respectively, were outstanding under this program.

In fiscal 2004, the Company terminated a
400
backstop-facility which was to expire in July 2006. As of
September 30, 2004, the remaining two global backstop
facilities are unchanged to fiscal 2003, and amount to U.S.$3.0
billion
(2.4 billion
and
2.6 billion,
respectively, as of September 30, 2004 and 2003) and
0.75 billion.
Borrowings under these credit facilities bear interest of 0.225%
above either EURIBOR (Euro Interbank Offered Rate) in case of a
drawdown in euros, or LIBOR (London Interbank Offered Rate) in
case of a drawdown in one of the other currencies agreed on. As
of September 30, 2004 and 2003, the full amounts of these lines
of credit remain unused. Commitment fees for each of the years
ended September 30, 2004, 2003 and 2002 totaled
approximately 3.
Under the terms of the agreements, credit may be used for
general business purposes.

Other financial indebtednessincludes
684 and
603, as of
September 30, 2004 and 2003, respectively, for the
Companys continuing involvement in certain real estate
assets sold or transferred in which Siemens has retained
significant risks and rewards of ownership, mainly through
assumption of construction risks and obligations or through
circumstances in which Siemens participates directly or
indirectly in the change in market value of the property.
Therefore, these transactions have been accounted for as
financing obligations. These real estate properties are carried
on the Companys Consolidated Balance Sheets and no sale
and profit has been recognized.

F-32



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


As of September 30, 2004, the minimum lease
payments under capital leases for the next five years and
thereafter are as follows:

|                                   |  |  |     |  
|---------------------------------- |  |  | --- | -
|Fiscal year                        |  | 
|                                   |  | 
|2005                               |  |  | 55  |  
|2006                               |  |  | 44  |  
|2007                               |  |  | 42  |  
|2008                               |  |  | 37  |  
|2009                               |  |  | 32  |  
|Thereafter                         |  |  | 100 |  
|                                   |  |  |     |  
|Minimum lease payment obligation   |  |  | 310 |  
|Less: unamortized interest expense |  |  | (67 | )
|                                   |  |  |     |  
|Obligations under capital leases   |  |  | 243 |  
|Less: current portion              |  |  | (40 | )
|                                   |  |  |     |  
|                                   |  |  | 203 |  
|                                   |  |  |     |  

As of September 30, 2004, the aggregate
amounts of indebtedness maturing during the next five years and
thereafter are as follows (excluding capital leases which are
disclosed separately):

|            |  |  |        | 
|----------- |  |  | ------ | 
|Fiscal year |  | 
|            |  | 
|2005        |  |  | 1,394  | 
|2006        |  |  | 2,028  | 
|2007        |  |  | 1,511  | 
|2008        |  |  | 894    | 
|2009        |  |  | 40     | 
|Thereafter  |  |  | 5,109  | 
|            |  |  |        | 
|            |  |  | 10,976 | 
|            |  |  |        | 

F-33



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Details of the Companys notes and bonds are
as follows:

|                                         |  |                    |     |                    |  |                   |       |    |  |  |       |  |  |  |     |  |  |  |       |  |  |  |        | 
|---------------------------------------- |  | ------------------ | --- | ------------------ |  | ----------------- | ----- | -- |  |  | ----- |  |  |  | --- |  |  |  | ----- |  |  |  | ------ | 
|                                         |  |                    |     |                   
|                                         |  | September 30, 2004 |     | September 30, 2003
|                                         |  |                    |     |                   
|                                         |  |                    |     |                   
|                                         |  | Currency           |     | Currency          
|                                         |  |                    |     |                   
|                                         |  |                    |     |                    |  |                   |       |   
|                                         |  | (notional amount)  |     | *                 |  | (notional amount) |       | *
|                                         |  |                    |     |                    |  |                   |       |   
|                                         |  |                    |     |                    |  |                   |       |    |  |  |       | 
|1.11% 2002/2003 U.S.$ LIBOR linked notes |  |                    |     |                    |  |                   |      |    |  |  |      |  |  |  | USD |  |  |  | 200   |  |  |  | 171    | 
|1.22% 2002/2003 U.S.$ LIBOR linked notes |  |                    |     |                    |  |                   |      |    |  |  |      |  |  |  | USD |  |  |  | 50    |  |  |  | 43     | 
|1.15% 2002/2004 U.S.$ LIBOR linked bonds |  |                    |     |                    |  |                   |      |    |  |  |      |  |  |  | USD |  |  |  | 125   |  |  |  | 107    | 
|3% 1994/2004 Swiss franc bonds           |  |                    |     |                    |  |                   |      |    |  |  |      |  |  |  | CHF |  |  |  | 178   |  |  |  | 115    | 
|1.0% 2000/2005 EUR exchangeable notes    |  |                    | EUR |                    |  |                   | 596   |    |  |  | 621   |  |  |  | EUR |  |  |  | 1,060 |  |  |  | 1,094  | 
|5.0% 2001/2006 EUR bonds                 |  |                    | EUR |                    |  |                   | 1,595 |    |  |  | 1,655 |  |  |  | EUR |  |  |  | 2,000 |  |  |  | 2,109  | 
|2.5% 2001/2007 Swiss franc bonds         |  |                    | CHF |                    |  |                   | 250   |    |  |  | 165   |  |  |  | CHF |  |  |  | 250   |  |  |  | 168    | 
|5.5% 1997/2007 EUR bonds                 |  |                    | EUR |                    |  |                   | 991   |    |  |  | 998   |  |  |  | EUR |  |  |  | 991   |  |  |  | 1,025  | 
|6% 1998/2008 U.S.$ notes                 |  |                    | USD |                    |  |                   | 970   |    |  |  | 870   |  |  |  | USD |  |  |  | 970   |  |  |  | 945    | 
|1.375% 2003/2010 EUR convertible notes   |  |                    | EUR |                    |  |                   | 2,500 |    |  |  | 2,500 |  |  |  | EUR |  |  |  | 2,500 |  |  |  | 2,500  | 
|5.75% 2001/2011 EUR bonds                |  |                    | EUR |                    |  |                   | 2,000 |    |  |  | 2,157 |  |  |  | EUR |  |  |  | 2,000 |  |  |  | 2,156  | 
|                                         |  |                    |     |                    |  |                   |       |    |  |  |       |  |  |  |     |  |  |  |       |  |  |  |        | 
|                                         |  |                    |     |                    |  |                   |       |    |  |  | 8,966 |  |  |  |     |  |  |  |       |  |  |  | 10,433 | 
|                                         |  |                    |     |                    |  |                   |       |    |  |  |       |  |  |  |     |  |  |  |       |  |  |  |        | 






|  |                                                          
|- | ---------------------------------------------------------
|* | Includes adjustments for fair value hedge
    accounting.

In June 2003, the Company issued
2.5 billion
of convertible notes through its wholly owned Dutch subsidiary,
Siemens Finance B.V., which are fully and unconditionally
guaranteed by Siemens AG. The convertible notes have a 1.375%
coupon and are convertible into approximately 44.5 million
shares of Siemens AG at a conversion price of
56.1681 per
share, which is subject to change under certain circumstances.
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 on at least 20 trading days in a period of 30
consecutive trading days ending on the last trading day of any
calendar quarter. This condition was met in the first quarter of
fiscal 2004. The Company may, at any time from June 18,
2007, redeem the notes outstanding at their principal amount
together with interest accrued thereon, if Siemens share
price exceeds 130% of the conversion price on any 15 of 30
consecutive trading days before notice of early redemption.
Unless previously redeemed, converted or repurchased and
cancelled, the notes mature on June 4, 2010.

In fiscal 2004, Siemens repurchased and retired
464.5 in
notional amount
(473 carrying
amount) of the Siemens Nederland N.V. 1.0% exchangeable notes
into shares of Infineon Technologies AG, which resulted in a
gain of 2.
Additionally, in fiscal 2004, the Company repurchased
405 in notional
amount (454
carrying amount) of the 5%
-bond resulting
in a loss of 1.
During fiscal 2003, Siemens repurchased and retired
1,440 of the
2,500 Siemens
Nederland N.V. 1.0% exchangeable notes and recognized a gain of
35.

21. Pension plans and similar
commitments

Pension benefits provided by Siemens are
currently organized primarily through defined benefit pension
plans which cover virtually all of the Companys domestic
employees and many of the Companys foreign employees. To
reduce the risk-exposure to Siemens out of its pension plans,
the Company has implemented new plans whose benefits are
predominantly based on contributions made by the Company. In
order to fund Siemens pension obligations, the
Companys major pension plans are funded with assets in
segregated pension entities. Furthermore, there are other
postretirement benefits, which primarily comprise transition
payments to German employees after retirement, as well as
postretirement health care and life insurance benefits to U.S.
employees. These predominantly unfunded other postretirement
benefit plans are qualified as defined benefit plans under
U.S. GAAP.

F-34



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


In addition to the above, the Company has foreign
defined contribution plans for pensions and other postretirement
benefits. The recognition of a liability is not required because
the obligation of the Company is limited to the payment of the
contributions into these plans.

Accounting for defined benefit plans

Consolidated
Balance Sheets

Defined benefit plans determine the entitlements
of their beneficiaries. The net present value of the total fixed
benefits for service already rendered is represented by the
actuarially calculated accumulated benefit obligation
(ABO).

An employees final benefit entitlement at
regular retirement age may be higher than the fixed benefits at
the measurement date due to future compensation or benefits
increases. The net present value of this ultimate future benefit
entitlement for service already rendered is represented by the
projected benefit obligation (PBO), which is actuarially
calculated with consideration for future compensation increases.

The accrued benefit cost is equal to the PBO when
the assumptions used to calculate the PBO such as discount rate,
compensation increase rate and pension progression rate are
achieved. In the case of funded plans, the market value of the
external assets is offset against the benefit obligations. The
net liability or asset recorded on the balance sheet is equal to
the under- or overfunding of the PBO in this case, when the
expected return on plan assets is subsequently realized.

Differences between actual experience and
assumptions made for the discount rate, compensation increase
rate and pension progression rate, as well as the differences
between actual and expected returns on plan assets, result in
the asset or liability related to pension plans being different
than the under-or overfunding of the PBO. Such a difference also
occurs when the assumptions used to value the PBO are adjusted
at the measurement date. If the difference is so significant
that the current benefit obligation represented by the ABO (or
the amount thereof not funded by plan assets) exceeds the
liability recorded on the balance sheet, such liability must be
increased. The unfunded portion of the ABO is referred to as the
Minimum Liability and an accrued pension liability that is at
least equal to this Minimum Liability amount should be
recognized without affecting the Consolidated Statements of
Income. The required increase in the liability is referred
to as the additional minimum liability (AML), and its
offsetting AML adjustment results in the recognition of either
an intangible asset or as a component of shareholders
equity (AOCI). The treatment as a separate component of
shareholders equity is recorded, net of tax, as a
reduction of shareholders equity. The recognition of the
AML results in the elimination of any existing prepaid pension
asset balance on a plan-by-plan basis.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The Consolidated Balance Sheetsinclude
the following significant components related to pension plans
and similar commitments based upon the situation at:

|                                                                |  |               |        |      |  |  |         |  
|--------------------------------------------------------------- |  | ------------- | ------ | ---- |  |  | ------- | -
|                                                                |  |              
|                                                                |  | September 30,
|                                                                |  |              
|                                                                |  | 2004          |        | 2003
|                                                                |  |               |        |     
|Accumulated other comprehensive income                          |  |               | (8,943 | )    |  |  | (10,340 | )
|thereof principal pension benefit
    plans                     |  |               | (8,760 | )    |  |  | (10,192 | )
|Less income tax effect                                          |  |               | 3,418  |      |  |  | 3,950   |  
|thereof principal pension benefit
    plans                     |  |               | 3,353  |      |  |  | 3,901   |  
|                                                                |  |               |        |      |  |  |         |  
|Accumulated other comprehensive income, net of
    income taxes |  |               | (5,525 | )    |  |  | (6,390  | )
|thereof principal pension benefit
    plans                     |  |               | (5,407 | )    |  |  | (6,291  | )
|Accruals for pension plans and similar commitments              |  |               | 4,392  |      |  |  | 5,843   |  
|thereof principal pension benefit
    plans                     |  |               | 2,391  |      |  |  | 3,935   |  
|thereof principal other postretirement benefit
    plans        |  |               | 1,317  |      |  |  | 1,303   |  
|thereof other                                                   |  |               | 684    |      |  |  | 605     |  

Consolidated
Statements of Income

The recognized expense related to pension plans
and similar commitments in the Consolidated Statements of Income
is referred to as net periodic pension cost (NPPC)and
consists of several separately calculated and presented
components. NPPC is comprised of the service cost, which
is the actuarial net present value of the part of the PBO for
the service rendered in the respective fiscal year; the
interest costfor the expense derived from the addition
of accrued interest on the PBO at the end of the preceding
fiscal year on the basis of the identified discount rate;
and the expected return on plan assets in the case of
funded benefit plans. Actuarial gains and losses, resulting for
example from an adjustment of the discount rate, and asset gains
and losses, resulting from a deviation of actual and expected
return on plan assets, are not recognized in the Consolidated
Statements of Incomeas they occur. If these unrecognized
gains and losses exceed 10% of the higher of PBO or market
related value of plan assets, they are amortized over the
remaining service period of the active employees as a separate
component of NPPC.

In the Consolidated Statements of Income, NPPC is
allocated among functional costs (cost of sales, research and
development, marketing, selling and general administrative
expense), according to the function of the employee groups
accruing benefits.

In the Consolidated Statements of Income, NPPC
expenses before income taxes for the Companys principal
pension and other postretirement benefits in fiscal 2004
accumulated to
1,135, compared
to 1,032 in the
previous fiscal year.

Consolidated
Statements of Cash Flow

The Company makes payments directly to the
participants in the case of unfunded benefit plans and the
payments are included in net cash used in operating activities.
For funded pension plans, the participants are paid by the
external pension fund and accordingly these payments are cash
neutral to the Company. In this case, the Companys regular
funding (service cost) and supplemental cash contributions
result in a net cash used in operating activities.

In the Consolidated Statements of Cash Flow, the
Companys principal pension and other postretirement
benefits resulted in a net cash used in operating activities of
1,828 compared
to 1,453 in the
previous fiscal year. The separately reported supplemental cash
contributions to pension trusts in fiscal 2004 and 2003 of
1,255 and
1,192,
respectively, were included in these amounts.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Principal pension benefits

The principal pension benefit plans cover
approximately 504,000 participants, including 239,000 active
employees, 90,000 former employees with vested benefits and
175,000 retirees and surviving dependants. Individual benefits
are generally based on eligible compensation levels and/or
ranking within the Company hierarchy and years of service.
Retirement benefits under these plans vary depending on legal,
fiscal and economic requirements in each country.

In order to reduce the Companys exposure to
certain risks associated with defined benefit plans, such as
longevity, inflation, effects of compensation increases, and
other factors. Siemens AG and the majority of our domestic
affiliates implemented a new pension plan in fiscal 2004
covering virtually all active employees in Germany, BSAV
(Beitragsorientierte Siemens Altersversorgung), whose benefits
are based largely on contributions made by the Company. These
benefits are to be funded by the assets of a new trust. Under
the BSAV, Siemens will establish a benefit account for each
employee, reflecting the contributions by the employer and
interest earned on the balance in the account. Conceptually, the
contributions are determined as a percentage of the target
annual compensation; however the Company has the option to
review the contribution level every year. The Company will
credit annually interest on the balance in the
beneficiarys account until retirement, at the applicable
guaranteed interest rate, currently 2.75%. At the time of
retirement, a one-off surplus credit will be awarded, depending
on how the invested capital has performed. The funds in the
benefit account will be paid at retirement, at the
employees election either in installments or in the form
of a life annuity. Contrary to the defined benefit model used by
the plans funded via our existing domestic pension
trust(Siemens German Pension Trust), benefit payments
under the BSAV are based predominantly on the accumulated
contributions in the employees benefit account and, to a
minor extent, the effects of mortality, inflation adjustments
and interest rates.

In connection with the implementation of the
BSAV, benefits provided under the pension plans funded via the
Siemens German Pension Trust have been modified to substantially
eliminate the effects of compensation increases. The elimination
of the effects of such compensation increases resulted in a
decrease in the PBO. Such decrease is treated as an unrecognized
prior service cost which will be amortized over the average
remaining service period of the active employees. The pension
plans funded via the Siemens German Pension Trust and the BSAV
are reported on a combined basis under domestic pension plans.

The Companys principal pension benefit
plans are explicitly explained in the subsequent sections with
regard to:



| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | Pension obligations and funded status,                                                         
| |  | Recognition of an additional minimum liability
    (AML),                                      
| |  | Components of NPPC,                                                                            
| |  | Assumptions for the calculation of the PBO and
    NPPC,                                       
| |  | Sensitivity analysis,                                                                          
| |  | Additional information concerning changes of the
    AML and the actual returns on plan assets,
| |  | Plan assets,                                                                                   
| |  | Pension plan funding, and                                                                      
| |  | Pension benefit payments.                                                                      

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Pension benefits: Pension obligations and
funded status

A reconciliation of the funded status of the
principal pension benefit plans to the amounts recognized in the
Consolidated Balance Sheets is as follows:

|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |        |  
|--------------------------------------------------------------------- | ------------------------------------ | ------------------ | ------ | ------------------ | - | ------- | ------ | ------ | - | -------- | ------ | ------- | - |  | ------ | ------ | - |  | ------ | ------ | - |  | ------ | ------ | -
|                                                                      |                                      |                    |        |                   
|                                                                      |                                      | September 30, 2004 |        | September 30, 2003
|                                                                      |                                      |                    |        |                   
|                                                                      |                                      | Total              |        | Domestic           |   | Foreign |        | Total  |   | Domestic |        | Foreign
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |        
|Fair value of plan assets                                             |                                      |                    | 17,708 |                    |   |         | 11,965 |        |   |          | 5,743  |         |   |  | 15,899 |        |   |  | 11,016 |        |   |  | 4,883  |       
|Projected benefit obligation (PBO)                                    |                                      |                    | 20,794 |                    |   |         | 13,851 |        |   |          | 6,943  |         |   |  | 20,878 |        |   |  | 14,156 |        |   |  | 6,722  |       
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|Funded status(1)                                                      |                                      |                    | (3,086 | )                  |   |         | (1,886 | )      |   |          | (1,200 | )       |   |  | (4,979 | )      |   |  | (3,140 | )      |   |  | (1,839 | )     
|                                                                      | Germany                              |                    |        | (1,886             | ) |         |        |        |   |          |        |         |   |  |        | (3,140 | ) |  |        |        |   |  |        |        |  
|                                                                      | U.S.                                 |                    |        | (392               | ) |         |        |        |   |          |        |         |   |  |        | (1,061 | ) |  |        |        |   |  |        |        |  
|                                                                      | U.K.                                 |                    |        | (537               | ) |         |        |        |   |          |        |         |   |  |        | (458   | ) |  |        |        |   |  |        |        |  
|                                                                      | Other                                |                    |        | (271               | ) |         |        |        |   |          |        |         |   |  |        | (320   | ) |  |        |        |   |  |        |        |  
|Unrecognized net losses(2)                                            |                                      |                    | 10,419 |                    |   |         | 8,625  |        |   |          | 1,794  |         |   |  | 11,295 |        |   |  | 9,313  |        |   |  | 1,982  |       
|Unrecognized prior service cost (benefit)                             |                                      |                    | (219   | )                  |   |         | (289   | )      |   |          | 70     |         |   |  | 83     |        |   |  |       |        |   |  | 83     |       
|Unrecognized net transition asset                                     |                                      |                    |       |                    |   |         |       |        |   |          |       |         |   |  | (1     | )      |   |  |       |        |   |  | (1     | )     
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|Net amount recognized                                                 |                                      |                    | 7,114  |                    |   |         | 6,450  |        |   |          | 664    |         |   |  | 6,398  |        |   |  | 6,173  |        |   |  | 225    |       
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|Amounts recognized in the Consolidated Balance
    Sheets consist of: |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|                                                                      | Prepaid pension assets               |                    |        | 442                |   |         |        |       |   |          |        | 442     |   |  |        | 52     |   |  |        |       |   |  |        | 52     |  
|                                                                      | Accrued pension liability            |                    |        | (2,391             | ) |         |        | (1,792 | ) |          |        | (599    | ) |  |        | (3,935 | ) |  |        | (2,702 | ) |  |        | (1,233 | )
|                                                                      | Intangible assets                    |                    |        | 303                |   |         |        | 289    |   |          |        | 14      |   |  |        | 89     |   |  |        |       |   |  |        | 89     |  
|                                                                      | Accumulated other comprehensive loss |                    |        | 8,760              |   |         |        | 7,953  |   |          |        | 807     |   |  |        | 10,192 |   |  |        | 8,875  |   |  |        | 1,317  |  
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |       
|Net amount recognized                                                 |                                      |                    | 7,114  |                    |   |         | 6,450  |        |   |          | 664    |         |   |  | 6,398  |        |   |  | 6,173  |        |   |  | 225    |       
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Funded status: The funded status shows the
    surplus/(deficit) of the PBO relative to the plan assets as of
    the measurement date, and, where applicable, fundings between
    the measurement date and the balance sheet date. The PBO is
    calculated based on the projected or the traditional unit credit
    method and reflects the net present value as of the measurement
    date of the accumulated pension entitlements of active
    employees, former employees with vested rights and of retirees
    and their surviving dependents with consideration of future
    compensation and pension increases.
|   
|(2) | Unrecognized net losses: The NPPC is determined
    at the beginning of the relevant measurement period based on
    assumptions for the discount rate, compensation increase rate
    and pension progression rate, as well as the long-term rate of
    return on plan assets. The cumulative effect of differences
    between the actual experience and the assumed assumptions and
    changes in the assumptions are disclosed in the line item
    unrecognized net losses.                                                                                                                                            

The measurement date of the PBO and fair value of
plan assets of the Companys domestic pension benefit plans
is September 30, and either September 30 or
June 30 for the majority of its foreign plans. For plans
with a measurement date of June 30, the actual investment
return of the plan assets relate to the period from July 1 of
the prior fiscal year until June 30 of the current fiscal
year.

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


A detailed reconciliation of the changes in the
PBO for fiscal 2004 and 2003, as well as additional information
by country is provided in the following table:

|                                            |                                                   |                                        |        |                    |        |         |        |        |      |          |       |         |      |   |        |        |        |   |        |        |      |   |       |       |      |  
|------------------------------------------- | ------------------------------------------------- | -------------------------------------- | ------ | ------------------ | ------ | ------- | ------ | ------ | ---- | -------- | ----- | ------- | ---- | - | ------ | ------ | ------ | - | ------ | ------ | ---- | - | ----- | ----- | ---- | -
|                                            |                                                   |                                        |        |                   
|                                            |                                                   | September 30, 2004                     |        | September 30, 2003
|                                            |                                                   |                                        |        |                   
|                                            |                                                   | Total                                  |        | Domestic           |        | Foreign |        | Total  |      | Domestic |       | Foreign
|                                            |                                                   |                                        |        |                    |        |         |        |        |      |          |       |        
|Change in projected benefit obligations:    |                                                   |                                        |        |                    |        |         |        |        |      |          |       |         |      |   |        |        |        |   |        |        |      |   |       |      
|                                            | Projected benefit obligation at beginning of year |                                        |        | 20,878             |        |         |        | 14,156 |      |          |       | 6,722   |      |   |        | 19,492 |        |   |        | 13,331 |      |   |       | 6,161 |     
|                                            |                                                   | Foreign currency exchange rate changes |        |                    | (140   | )       |        |        |     |          |       |         | (140 | ) |        |        | (739   | ) |        |        |     |   |       |       | (739 | )
|                                            |                                                   | Service cost                           |        |                    | 469    |         |        |        | 212  |          |       |         | 257  |   |        |        | 484    |   |        |        | 212  |   |       |       | 272  |  
|                                            |                                                   | Interest cost                          |        |                    | 1,105  |         |        |        | 742  |          |       |         | 363  |   |        |        | 1,121  |   |        |        | 767  |   |       |       | 354  |  
|                                            |                                                   | Settlements and curtailments           |        |                    |       |         |        |        |     |          |       |         |     |   |        |        | (2     | ) |        |        |     |   |       |       | (2   | )
|                                            |                                                   | Plan participants contributions       |        |                    | 48     |         |        |        |     |          |       |         | 48   |   |        |        | 32     |   |        |        |     |   |       |       | 32   |  
|                                            |                                                   | Amendments and other                   |        |                    | (313   | )       |        |        | (301 | )        |       |         | (12  | ) |        |        | 476    |   |        |        | (34  | ) |       |       | 510  |  
|                                            |                                                   | Actuarial (gains) losses, net          |        |                    | (174   | )       |        |        | (309 | )        |       |         | 135  |   |        |        | 1,000  |   |        |        | 563  |   |       |       | 437  |  
|                                            |                                                   | Acquisitions                           |        |                    | 117    |         |        |        | 91   |          |       |         | 26   |   |        |        | 44     |   |        |        | 10   |   |       |       | 34   |  
|                                            |                                                   | Divestments                            |        |                    | (205   | )       |        |        | (25  | )        |       |         | (180 | ) |        |        | (83    | ) |        |        | (7   | ) |       |       | (76  | )
|                                            |                                                   | Benefits paid                          |        |                    | (991   | )       |        |        | (715 | )        |       |         | (276 | ) |        |        | (947   | ) |        |        | (686 | ) |       |       | (261 | )
|                                            |                                                   |                                        |        |                    |        |         |        |        |      |          |       |         |      |   |        |        |        |   |        |        |      |   |       |      
|Projected benefit obligation at end of year |                                                   |                                        | 20,794 |                    |        |         | 13,851 |        |      |          | 6,943 |         |      |   | 20,878 |        |        |   | 14,156 |        |      |   | 6,722 |      
|                                            |                                                   |                                        |        |                    |        |         |        |        |      |          |       |         |      |   |        |        |        |   |        |        |      |   |       |      
|                                            |                                                   | Germany                                |        |                    | 13,851 |         |        |        |      |          |       |         |      |   |        |        | 14,156 |   |        |        |      |   |       |       |      |  
|                                            |                                                   | U.S.                                   |        |                    | 3,010  |         |        |        |      |          |       |         |      |   |        |        | 3,031  |   |        |        |      |   |       |       |      |  
|                                            |                                                   | U.K.                                   |        |                    | 2,200  |         |        |        |      |          |       |         |      |   |        |        | 1,919  |   |        |        |      |   |       |       |      |  
|                                            |                                                   | Other                                  |        |                    | 1,733  |         |        |        |      |          |       |         |      |   |        |        | 1,772  |   |        |        |      |   |       |       |      |  

The total projected benefit obligationat
the end of the fiscal year includes approximately
8,019 for active
employees, 2,379
for former employees with vested benefits and
10,396 for
retirees and surviving dependants. The column domestic pension
plans contains the PBO of both German pension plans. The item
amendments and otherreflects mainly the effect of the
implementation of the BSAV. In addition the PBO of the domestic
pension plans was decreased by the reduction of the pension
progression rate, reported in the position actuarial
(gains) and losses.

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The following table shows the change in plan
assets for fiscal year 2004 and 2003 and some additional
information concerning pension plans:

|                       |                                                |                                        |  |                    |        |         |  |        |      |          |  |         |      |   |  |        |        |   |  |        |       |   |  |       |      |  
|---------------------- | ---------------------------------------------- | -------------------------------------- |  | ------------------ | ------ | ------- |  | ------ | ---- | -------- |  | ------- | ---- | - |  | ------ | ------ | - |  | ------ | ----- | - |  | ----- | ---- | -
|                       |                                                |                                        |  |                   
|                       |                                                | September 30, 2004                     |  | September 30, 2003
|                       |                                                |                                        |  |                   
|                       |                                                | Total                                  |  | Domestic           |        | Foreign |  | Total  |      | Domestic |  | Foreign
|                       |                                                |                                        |  |                    |        |         |  |        |      |          |  |        
|Change in plan assets: |                                                |                                        |  |                    |        |         |  |        |      |          |  |         |      |   |  |        |        |   |  |        |       |   |  |      
|                       | Fair value of plan assets at beginning of year |                                        |  | 15,899             |        |         |  | 11,016 |      |          |  | 4,883   |      |   |  | 14,531 |        |   |  | 9,676  |       |   |  | 4,855 |     
|                       |                                                | Foreign currency exchange rate changes |  |                    | (99    | )       |  |        |     |          |  |         | (99  | ) |  |        | (546   | ) |  |        |      |   |  |       | (546 | )
|                       |                                                | Actual return on plan assets           |  |                    | 1,202  |         |  |        | 673  |          |  |         | 529  |   |  |        | 648    |   |  |        | 641   |   |  |       | 7    |  
|                       |                                                | Acquisitions and other                 |  |                    | 81     |         |  |        | 55   |          |  |         | 26   |   |  |        | 413    |   |  |        |      |   |  |       | 413  |  
|                       |                                                | Divestments and other                  |  |                    | (205   | )       |  |        |     |          |  |         | (205 | ) |  |        | (20    | ) |  |        |      |   |  |       | (20  | )
|                       |                                                | Employer contributions (supplemental)  |  |                    | 1,255  |         |  |        | 700  |          |  |         | 555  |   |  |        | 1,569  |   |  |        | 1,385 |   |  |       | 184  |  
|                       |                                                | Employer contributions (regular)       |  |                    | 518    |         |  |        | 236  |          |  |         | 282  |   |  |        | 219    |   |  |        |      |   |  |       | 219  |  
|                       |                                                | Plan participants contributions       |  |                    | 48     |         |  |        |     |          |  |         | 48   |   |  |        | 32     |   |  |        |      |   |  |       | 32   |  
|                       |                                                | Benefits paid                          |  |                    | (991   | )       |  |        | (715 | )        |  |         | (276 | ) |  |        | (947   | ) |  |        | (686  | ) |  |       | (261 | )
|                       |                                                |                                        |  |                    |        |         |  |        |      |          |  |         |      |   |  |        |        |   |  |        |       |   |  |      
|                       | Fair value of plan assets at end of year       |                                        |  | 17,708             |        |         |  | 11,965 |      |          |  | 5,743   |      |   |  | 15,899 |        |   |  | 11,016 |       |   |  | 4,883 |     
|                       |                                                |                                        |  |                    |        |         |  |        |      |          |  |         |      |   |  |        |        |   |  |        |       |   |  |      
|                       |                                                | Germany                                |  |                    | 11,965 |         |  |        |      |          |  |         |      |   |  |        | 11,016 |   |  |        |       |   |  |       |      |  
|                       |                                                | U.S.                                   |  |                    | 2,618  |         |  |        |      |          |  |         |      |   |  |        | 1,970  |   |  |        |       |   |  |       |      |  
|                       |                                                | U.K.                                   |  |                    | 1,664  |         |  |        |      |          |  |         |      |   |  |        | 1,461  |   |  |        |       |   |  |       |      |  
|                       |                                                | Other                                  |  |                    | 1,461  |         |  |        |      |          |  |         |      |   |  |        | 1,452  |   |  |        |       |   |  |       |      |  

Pension benefits: Recognition of an
Additional Minimum Liability (AML)

The ABO of the principal pension benefit plans
amounted to
19,962 and
19,779, as of
September 30, 2004 and 2003, respectively.

F-40



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


For fiscal 2004 and 2003, the PBO, ABO and fair
value of plan assets for the principal pension benefit plans
whose ABO exceeded the fair value of plan assets at the
measurement date were as follows:

|                                               |         |                    |        |                    |   |         |        |       |  |          |       |         |  |  |        |        |   |  |        |   |  |  |        |   | 
|---------------------------------------------- | ------- | ------------------ | ------ | ------------------ | - | ------- | ------ | ----- |  | -------- | ----- | ------- |  |  | ------ | ------ | - |  | ------ | - |  |  | ------ | - | 
|                                               |         |                    |        |                   
|                                               |         | September 30, 2004 |        | September 30, 2003
|                                               |         |                    |        |                   
|                                               |         | Total              |        | Domestic           |   | Foreign |        | Total |  | Domestic |       | Foreign
|                                               |         |                    |        |                    |   |         |        |       |  |          |       |        
|Projected benefit obligation                   |         |                    | 18,446 |                    |   |         | 13,851 |       |  |          | 4,595 |         |  |  | 20,701 |        |   |  | 14,156 |   |  |  | 6,545  |  
|                                               | Germany |                    |        | 13,851             |   |         |        |       |  |          |       |         |  |  |        | 14,156 |   |  |        |   |  |  |        |   | 
|                                               | U.S.    |                    |        | 866                |   |         |        |       |  |          |       |         |  |  |        | 3,031  |   |  |        |   |  |  |        |   | 
|                                               | U.K.    |                    |        | 2,200              |   |         |        |       |  |          |       |         |  |  |        | 1,919  |   |  |        |   |  |  |        |   | 
|                                               | Other   |                    |        | 1,529              |   |         |        |       |  |          |       |         |  |  |        | 1,595  |   |  |        |   |  |  |        |   | 
|Accumulated benefit obligation                 |         |                    | 17,829 |                    |   |         | 13,757 |       |  |          | 4,072 |         |  |  | 19,642 |        |   |  | 13,718 |   |  |  | 5,924  |  
|                                               | Germany |                    |        | 13,757             |   |         |        |       |  |          |       |         |  |  |        | 13,718 |   |  |        |   |  |  |        |   | 
|                                               | U.S.    |                    |        | 776                |   |         |        |       |  |          |       |         |  |  |        | 2,746  |   |  |        |   |  |  |        |   | 
|                                               | U.K.    |                    |        | 1,966              |   |         |        |       |  |          |       |         |  |  |        | 1,749  |   |  |        |   |  |  |        |   | 
|                                               | Other   |                    |        | 1,330              |   |         |        |       |  |          |       |         |  |  |        | 1,429  |   |  |        |   |  |  |        |   | 
|Fair value of plan assets                      |         |                    | 15,467 |                    |   |         | 11,965 |       |  |          | 3,502 |         |  |  | 15,744 |        |   |  | 11,016 |   |  |  | 4,728  |  
|                                               | Germany |                    |        | 11,965             |   |         |        |       |  |          |       |         |  |  |        | 11,016 |   |  |        |   |  |  |        |   | 
|                                               | U.S.    |                    |        | 586                |   |         |        |       |  |          |       |         |  |  |        | 1,970  |   |  |        |   |  |  |        |   | 
|                                               | U.K.    |                    |        | 1,643              |   |         |        |       |  |          |       |         |  |  |        | 1,450  |   |  |        |   |  |  |        |   | 
|                                               | Other   |                    |        | 1,273              |   |         |        |       |  |          |       |         |  |  |        | 1,308  |   |  |        |   |  |  |        |   | 
|                                               |         |                    |        |                    |   |         |        |       |  |          |       |         |  |  |        |        |   |  |        |   |  |  |        |  
|Underfunding of accumulated benefit obligation |         |                    | (2,362 | )                  |   |         | (1,792 | )     |  |          | (570  | )       |  |  | (3,898 | )      |   |  | (2,702 | ) |  |  | (1,196 | )
|                                               |         |                    |        |                    |   |         |        |       |  |          |       |         |  |  |        |        |   |  |        |   |  |  |        |  
|                                               | Germany |                    |        | (1,792             | ) |         |        |       |  |          |       |         |  |  |        | (2,702 | ) |  |        |   |  |  |        |   | 
|                                               | U.S.    |                    |        | (190               | ) |         |        |       |  |          |       |         |  |  |        | (776   | ) |  |        |   |  |  |        |   | 
|                                               | U.K.    |                    |        | (323               | ) |         |        |       |  |          |       |         |  |  |        | (299   | ) |  |        |   |  |  |        |   | 
|                                               | Other   |                    |        | (57                | ) |         |        |       |  |          |       |         |  |  |        | (121   | ) |  |        |   |  |  |        |   | 

The underfunded ABO of
2,362 (the
Minimum Liability) was recorded as an accrued pension liability.
Including a pension liability of
29 for principal
pension benefit plans whose ABO was not underfunded at their
measurement date, the total pension liability for the principal
pension benefit plans as of September 30, 2004 totaled
2,391.

Excluding the AML adjustment, the Company has a
net prepaid pension asset of
6,701, primarily
related to the transfer of Infineon shares to the domestic
pension plans in fiscal 2001 and from the supplemental funding
of the domestic pension plans in the past years. This amount
together with the underfunded ABO of
2,362, resulted
in an AML adjustment of
9,063. Of this
amount, 8,760
(5,407 net of
tax) was recorded in AOCIas a separate component of
shareholders equity and
303 was recorded
as an intangible asset.

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Pension benefits: Components of
NPPC

The components of the NPPC for the fiscal years
ended September 30, 2004, 2003 and 2002 were as follows:

|                                         |                                                |                    |        |                    |   |                    |      |       |  |          |      |         |   |       |        |          |  |         |      |     |  |  |      |    |  |  |        |     |  |  |        |     |  |  |      |    |  
|---------------------------------------- | ---------------------------------------------- | ------------------ | ------ | ------------------ | - | ------------------ | ---- | ----- |  | -------- | ---- | ------- | - | ----- | ------ | -------- |  | ------- | ---- | --- |  |  | ---- | -- |  |  | ------ | --- |  |  | ------ | --- |  |  | ---- | -- | -
|                                         |                                                |                    |        |                    |   |                   
|                                         |                                                | Year ended         |        | Year ended         |   | Year ended        
|                                         |                                                | September 30, 2004 |        | September 30, 2003 |   | September 30, 2002
|                                         |                                                |                    |        |                    |   |                   
|                                         |                                                | Total              |        | Domestic           |   | Foreign            |      | Total |  | Domestic |      | Foreign |   | Total |        | Domestic |  | Foreign
|                                         |                                                |                    |        |                    |   |                    |      |       |  |          |      |         |   |       |        |          |  |        
|Service cost                             |                                                |                    | 469    |                    |   |                    | 212  |       |  |          | 257  |         |   |       | 484    |          |  |         | 212  |     |  |  | 272  |    |  |  | 487    |     |  |  | 206    |     |  |  | 281  |   
|Interest cost                            |                                                |                    | 1,105  |                    |   |                    | 742  |       |  |          | 363  |         |   |       | 1,121  |          |  |         | 767  |     |  |  | 354  |    |  |  | 1,151  |     |  |  | 772    |     |  |  | 379  |   
|Expected return on plan assets           |                                                |                    | (1,154 | )                  |   |                    | (813 | )     |  |          | (341 | )       |   |       | (1,107 | )        |  |         | (814 | )   |  |  | (293 | )  |  |  | (1,421 | )   |  |  | (1,007 | )   |  |  | (414 | ) 
|Amortization of:                         |                                                |                    |        |                    |   |                    |      |       |  |          |      |         |   |       |        |          |  |         |      |     |  |  |      |    |  |  |        |     |  |  |        |     |  |  |      |   
|                                         | Unrecognized prior service cost                |                    |        | 10                 |   |                    |      |      |  |          |      | 10      |   |       |        | 12       |  |         |      |    |  |  |      | 12 |  |  |        | 14  |  |  |        |    |  |  |      | 14 |  
|                                         | Unrecognized net losses (gains)                |                    |        | 623                |   |                    |      | 520   |  |          |      | 103     |   |       |        | 451      |  |         |      | 392 |  |  |      | 59 |  |  |        | 208 |  |  |        | 212 |  |  |      | (4 | )
|                                         | Unrecognized net transition obligation (asset) |                    |        | (2                 | ) |                    |      |      |  |          |      | (2      | ) |       |        |         |  |         |      |    |  |  |      |   |  |  |        | 8   |  |  |        |    |  |  |      | 8  |  
|Loss due to settlements and curtailments |                                                |                    |       |                    |   |                    |     |       |  |          |     |         |   |       | 8      |          |  |         |     |     |  |  | 8    |    |  |  |       |     |  |  |       |     |  |  |     |   
|                                         |                                                |                    |        |                    |   |                    |      |       |  |          |      |         |   |       |        |          |  |         |      |     |  |  |      |    |  |  |        |     |  |  |        |     |  |  |      |   
|Net periodic pension cost                |                                                |                    | 1,051  |                    |   |                    | 661  |       |  |          | 390  |         |   |       | 969    |          |  |         | 557  |     |  |  | 412  |    |  |  | 447    |     |  |  | 183    |     |  |  | 264  |   
|                                         |                                                |                    |        |                    |   |                    |      |       |  |          |      |         |   |       |        |          |  |         |      |     |  |  |      |    |  |  |        |     |  |  |        |     |  |  |      |   
|                                         | Germany                                        |                    |        | 661                |   |                    |      |       |  |          |      |         |   |       |        | 557      |  |         |      |     |  |  |      |    |  |  |        | 183 |  |  |        |     |  |  |      |    |  
|                                         | U.S.                                           |                    |        | 217                |   |                    |      |       |  |          |      |         |   |       |        | 240      |  |         |      |     |  |  |      |    |  |  |        | 164 |  |  |        |     |  |  |      |    |  
|                                         | U.K.                                           |                    |        | 132                |   |                    |      |       |  |          |      |         |   |       |        | 111      |  |         |      |     |  |  |      |    |  |  |        | 58  |  |  |        |     |  |  |      |    |  
|                                         | Other                                          |                    |        | 41                 |   |                    |      |       |  |          |      |         |   |       |        | 61       |  |         |      |     |  |  |      |    |  |  |        | 42  |  |  |        |     |  |  |      |    |  

For the Siemens German Pension Trust, the
determination of the expected return on plan assetsand
the amortization of unrecognized net losses (gains) are
based on a market-related value of plan assets calculated using
the average of historical market values of plan assets over four
quarters. This market-related value was
12,094 as of
September 30, 2004,
129 above the
fair value of the plan assets of the Siemens German Pension
Trust. For all other plans, the market-related value of plan
assets is equal to the fair value of plan assets as of the
measurement date. If any significant supplemental contributions
are made after the measurement date, these contributions will be
considered on a pro-rata basis when determining the total
expected return on plan assets for the respective fiscal year.

Net unrecognized gains or losses in excess of 10%
of the greater of the projected benefit obligation or the
market-related value of plan assets are amortized over the
average remaining service period of active participants
(generally 15 years). Prior service costs are amortized on
a straight-line basis over the average remaining service period
of active participants to whom such costs relate.

The higher amortization of unrecognized net
losses (gains)is mainly due to negative developments in the
international capital markets during fiscal 2002 and 2001, as
well as the effect of reductions in the discount rate assumption
used to calculate the PBO in fiscal 2003. The supplemental cash
contributions in fiscal 2004 resulted in an increase in
expected absolute return on plan assets.

Pension benefits: Assumptions for the
calculation of the PBO and NPPC

Assumed discount rates, compensation increase
rates and pension progression rates used in calculating the PBO
together with long-term rates of return on plan assets vary
according to the economic conditions of the country in which the
retirement plans are situated, as well as capital market
expectations.

F-42



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The weighted-average assumptions used for the
actuarial valuation of the PBO as of the respective measurement
date (June 30 or September 30), were as follows:

|                              |         |                               |     |                               |   |         |      |       |  |          |     |         |  |  |     |      |   |  |      |   |  |  |     |   | 
|----------------------------- | ------- | ----------------------------- | --- | ----------------------------- | - | ------- | ---- | ----- |  | -------- | --- | ------- |  |  | --- | ---- | - |  | ---- | - |  |  | --- | - | 
|                              |         |                               |     |                              
|                              |         | Year ended September 30, 2004 |     | Year ended September 30, 2003
|                              |         |                               |     |                              
|                              |         | Total                         |     | Domestic                      |   | Foreign |      | Total |  | Domestic |     | Foreign
|                              |         |                               |     |                               |   |         |      |       |  |          |     |        
|Discount rate                 |         |                               | 5.5 | %                             |   |         | 5.25 | %     |  |          | 5.9 | %       |  |  | 5.4 | %    |   |  | 5.25 | % |  |  | 5.6 | %
|                              | Germany |                               |     | 5.25                          | % |         |      |       |  |          |     |         |  |  |     | 5.25 | % |  |      |   |  |  |     |   | 
|                              | U.S.    |                               |     | 6.5                           | % |         |      |       |  |          |     |         |  |  |     | 6.25 | % |  |      |   |  |  |     |   | 
|                              | U.K.    |                               |     | 5.7                           | % |         |      |       |  |          |     |         |  |  |     | 5.4  | % |  |      |   |  |  |     |   | 
|Rate of compensation increase |         |                               | 2.6 | %                             |   |         | 2.25 | %     |  |          | 3.3 | %       |  |  | 2.5 | %    |   |  | 2.25 | % |  |  | 2.9 | %
|                              | Germany |                               |     | 2.25                          | % |         |      |       |  |          |     |         |  |  |     | 2.25 | % |  |      |   |  |  |     |   | 
|                              | U.S.    |                               |     | 3.25                          | % |         |      |       |  |          |     |         |  |  |     | 3.0  | % |  |      |   |  |  |     |   | 
|                              | U.K.    |                               |     | 4.0                           | % |         |      |       |  |          |     |         |  |  |     | 3.6  | % |  |      |   |  |  |     |   | 
|Rate of pension progression   |         |                               | 1.3 | %                             |   |         | 1.0  | %     |  |          | 2.3 | %       |  |  | 1.4 | %    |   |  | 1.25 | % |  |  | 2.1 | %
|                              | Germany |                               |     | 1.0                           | % |         |      |       |  |          |     |         |  |  |     | 1.25 | % |  |      |   |  |  |     |   | 
|                              | U.K.    |                               |     | 2.8                           | % |         |      |       |  |          |     |         |  |  |     | 2.6  | % |  |      |   |  |  |     |   | 

The assumptions used for the calculation of the
PBO as of the measurement date (June 30 or
September 30) of the preceding fiscal year are used to
determine the calculation of interest cost and service cost of
the following year. Therefore, the assumptions used for the
calculation of the NPPC for fiscal 2005 are already determined.
Regarding the assumption of the expected rate of return on plan
assets, the Company decided to maintain the same fiscal 2004
return for fiscal 2005. Accordingly, the total expected return
for fiscal 2005 will be based on such expected rate of return
multiplied by the market-related value of plan assets at the
fiscal 2004 measurement date. The market related value and thus
the expected return on plan assets are adjusted for significant
events after measurement date, such as a supplemental funding.
Due to the implementation of the BSAV in fiscal 2004, the effect
of the compensation increases on the domestic pension plans is
substantially eliminated.

The weighted-average assumptions used for
determining the NPPC for the fiscal years ended
September 30, 2005, 2004, 2003 and 2002 are shown in the
following table:

|                               |         |                    |     |                    |   |                    |      |                    |  |          |     |         |  |       |     |          |   |         |      |       |  |          |     |         |  |  |     |      |   |  |      |   |  |  |     |   |  |  |     |      |   |  |      |   |  |  |     |   | 
|------------------------------ | ------- | ------------------ | --- | ------------------ | - | ------------------ | ---- | ------------------ |  | -------- | --- | ------- |  | ----- | --- | -------- | - | ------- | ---- | ----- |  | -------- | --- | ------- |  |  | --- | ---- | - |  | ---- | - |  |  | --- | - |  |  | --- | ---- | - |  | ---- | - |  |  | --- | - | 
|                               |         |                    |     |                    |   |                    |      |                   
|                               |         | Year ended         |     | Year ended         |   | Year ended         |      | Year ended        
|                               |         | September 30, 2005 |     | September 30, 2004 |   | September 30, 2003 |      | September 30, 2002
|                               |         |                    |     |                    |   |                    |      |                   
|                               |         | Total              |     | Domestic           |   | Foreign            |      | Total              |  | Domestic |     | Foreign |  | Total |     | Domestic |   | Foreign |      | Total |  | Domestic |     | Foreign
|                               |         |                    |     |                    |   |                    |      |                    |  |          |     |         |  |       |     |          |   |         |      |       |  |          |     |        
|Discount rate                  |         |                    | 5.5 | %                  |   |                    | 5.25 | %                  |  |          | 5.9 | %       |  |       | 5.4 | %        |   |         | 5.25 | %     |  |          | 5.6 | %       |  |  | 6.0 | %    |   |  | 5.75 | % |  |  | 6.4 | % |  |  | 6.2 | %    |   |  | 6.0  | % |  |  | 6.7 | %
|                               | Germany |                    |     | 5.25               | % |                    |      |                    |  |          |     |         |  |       |     | 5.25     | % |         |      |       |  |          |     |         |  |  |     | 5.75 | % |  |      |   |  |  |     |   |  |  |     | 6.0  | % |  |      |   |  |  |     |   | 
|                               | U.S.    |                    |     | 6.5                | % |                    |      |                    |  |          |     |         |  |       |     | 6.25     | % |         |      |       |  |          |     |         |  |  |     | 7.25 | % |  |      |   |  |  |     |   |  |  |     | 7.5  | % |  |      |   |  |  |     |   | 
|                               | U.K.    |                    |     | 5.7                | % |                    |      |                    |  |          |     |         |  |       |     | 5.4      | % |         |      |       |  |          |     |         |  |  |     | 5.7  | % |  |      |   |  |  |     |   |  |  |     | 6.2  | % |  |      |   |  |  |     |   | 
|Expected return on plan assets |         |                    | 6.7 | %                  |   |                    | 6.75 | %                  |  |          | 6.6 | %       |  |       | 6.7 | %        |   |         | 6.75 | %     |  |          | 6.6 | %       |  |  | 6.7 | %    |   |  | 6.75 | % |  |  | 6.7 | % |  |  | 8.0 | %    |   |  | 8.25 | % |  |  | 7.9 | %
|                               | Germany |                    |     | 6.75               | % |                    |      |                    |  |          |     |         |  |       |     | 6.75     | % |         |      |       |  |          |     |         |  |  |     | 6.75 | % |  |      |   |  |  |     |   |  |  |     | 8.25 | % |  |      |   |  |  |     |   | 
|                               | U.S.    |                    |     | 6.95               | % |                    |      |                    |  |          |     |         |  |       |     | 6.95     | % |         |      |       |  |          |     |         |  |  |     | 6.95 | % |  |      |   |  |  |     |   |  |  |     | 9.0  | % |  |      |   |  |  |     |   | 
|                               | U.K.    |                    |     | 6.85               | % |                    |      |                    |  |          |     |         |  |       |     | 6.85     | % |         |      |       |  |          |     |         |  |  |     | 6.85 | % |  |      |   |  |  |     |   |  |  |     | 7.2  | % |  |      |   |  |  |     |   | 
|Rate of compensation increase  |         |                    | 2.6 | %                  |   |                    | 2.25 | %                  |  |          | 3.3 | %       |  |       | 2.5 | %        |   |         | 2.25 | %     |  |          | 2.9 | %       |  |  | 3.1 | %    |   |  | 2.75 | % |  |  | 3.9 | % |  |  | 3.3 | %    |   |  | 3.0  | % |  |  | 4.1 | %
|                               | Germany |                    |     | 2.25               | % |                    |      |                    |  |          |     |         |  |       |     | 2.25     | % |         |      |       |  |          |     |         |  |  |     | 2.75 | % |  |      |   |  |  |     |   |  |  |     | 3.0  | % |  |      |   |  |  |     |   | 
|                               | U.S.    |                    |     | 3.25               | % |                    |      |                    |  |          |     |         |  |       |     | 3.0      | % |         |      |       |  |          |     |         |  |  |     | 4.25 | % |  |      |   |  |  |     |   |  |  |     | 4.5  | % |  |      |   |  |  |     |   | 
|                               | U.K.    |                    |     | 4.0                | % |                    |      |                    |  |          |     |         |  |       |     | 3.6      | % |         |      |       |  |          |     |         |  |  |     | 4.1  | % |  |      |   |  |  |     |   |  |  |     | 4.1  | % |  |      |   |  |  |     |   | 
|Rate of pension progression    |         |                    | 1.3 | %                  |   |                    | 1.0  | %                  |  |          | 2.3 | %       |  |       | 1.4 | %        |   |         | 1.25 | %     |  |          | 2.1 | %       |  |  | 1.4 | %    |   |  | 1.25 | % |  |  | 2.3 | % |  |  | 1.6 | %    |   |  | 1.5  | % |  |  | 2.3 | %
|                               | Germany |                    |     | 1.0                | % |                    |      |                    |  |          |     |         |  |       |     | 1.25     | % |         |      |       |  |          |     |         |  |  |     | 1.25 | % |  |      |   |  |  |     |   |  |  |     | 1.5  | % |  |      |   |  |  |     |   | 
|                               | U.K.    |                    |     | 2.8                | % |                    |      |                    |  |          |     |         |  |       |     | 2.6      | % |         |      |       |  |          |     |         |  |  |     | 2.5  | % |  |      |   |  |  |     |   |  |  |     | 2.5  | % |  |      |   |  |  |     |   | 

The discount rate assumptions reflect the rates
available on high-quality, fixed-income investments of
appropriate duration at the measurement date of each plan. The
expected return on plan assets is determined on a

F-43



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


uniform basis, considering long-term historical
returns, asset allocation, and future estimates of long-term
investment returns. Actuarial assumptions not shown in the table
above, such as employee turnover, mortality, disability and
other factors, remained primarily unchanged in 2004.

Pension benefits: Sensitivity
Analysis

A one-percentage-point change of the established
assumptions mentioned above, used for the calculation of the
NPPC for fiscal 2004, and a change of the market-related value
of plan assets of
500 as of
September 30, 2004, would result in the following impact on
the fiscal 2005 NPPC:

|                                    |  |                              |      |                 |  |  |      |  
|----------------------------------- |  | ---------------------------- | ---- | --------------- |  |  | ---- | -
|                                    |  |                             
|                                    |  | Effect on NPPC 2005 due to a
|                                    |  |                             
|                                    |  | one-percentage-              |      | one-percentage-
|                                    |  | point/500                   |      | point/500     
|                                    |  | increase                     |      | decrease       
|                                    |  |                              |      |                
|Discount rate                       |  |                              | 196  |                 |  |  | (248 | )
|Expected return on plan assets      |  |                              | 191  |                 |  |  | (191 | )
|Rate of compensation increase       |  |                              | (65  | )               |  |  | 57   |  
|Rate of pension progression         |  |                              | (292 | )               |  |  | 244  |  
|Market-related value of plan assets |  |                              | 68   |                 |  |  | (68  | )

Increases and decreases in the discount rate,
rate of compensation increase and rate of pension progression
which are used in determining the PBO do not have a symmetrical
effect on NPPC primarily due to the compound interest effect
created when determining the present value of the future pension
benefit. If more than one of the assumptions were changed
simultaneously, the impact would not necessarily be the same as
if only one assumption was changed in isolation.

Pension benefits: Additional information
concerning changes of the AML and actual returns on plan
assets

|                                                                                               |  |                    |        |                    |  |                    |      |       |  |          |      |         |  |       |       |          |  |         |     |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |     | 
|---------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ------------------ |  | ------------------ | ---- | ----- |  | -------- | ---- | ------- |  | ----- | ----- | -------- |  | ------- | --- |  |  |  | --- |  |  |  | ----- |  |  |  | ----- |  |  |  | --- | 
|                                                                                               |  |                    |        |                    |  |                   
|                                                                                               |  | Year ended         |        | Year ended         |  | Year ended        
|                                                                                               |  | September 30, 2004 |        | September 30, 2003 |  | September 30, 2002
|                                                                                               |  |                    |        |                    |  |                   
|                                                                                               |  | Total              |        | Domestic           |  | Foreign            |      | Total |  | Domestic |      | Foreign |  | Total |       | Domestic |  | Foreign
|                                                                                               |  |                    |        |                    |  |                    |      |       |  |          |      |         |  |       |       |          |  |        
|Increase in the minimum liability adjustment
    within accumulated other comprehensive income |  |                    | (1,432 | )                  |  |                    | (922 | )     |  |          | (510 | )       |  |       | 1,363 |          |  |         | 498 |  |  |  | 865 |  |  |  | 2,300 |  |  |  | 1,935 |  |  |  | 365 | 

The reduction of shareholders equity caused
by the underfunded ABO decreased by
1,432. This
reduction has no effect on income and was, among other effects,
caused by the decrease in the ABO as a result of the reduction
of the pension progression rate in Germany. The contributions to
plan assets had no effect on the AML. The contributions resulted
in a lower difference between the ABO and the fair value of plan
assets and at the same time prepaid pension assets before AML
adjustments increased by the same amount.

|                             |  |                    |       |                    |  |                    |     |       |  |          |     |         |  |       |     |          |  |         |     |  |  |  |   |  |  |  |        |   |  |  |      |   |  |  |      |  
|---------------------------- |  | ------------------ | ----- | ------------------ |  | ------------------ | --- | ----- |  | -------- | --- | ------- |  | ----- | --- | -------- |  | ------- | --- |  |  |  | - |  |  |  | ------ | - |  |  | ---- | - |  |  | ---- | -
|                             |  |                    |       |                    |  |                   
|                             |  | Year ended         |       | Year ended         |  | Year ended        
|                             |  | September 30, 2004 |       | September 30, 2003 |  | September 30, 2002
|                             |  |                    |       |                    |  |                   
|                             |  | Total              |       | Domestic           |  | Foreign            |     | Total |  | Domestic |     | Foreign |  | Total |     | Domestic |  | Foreign
|                             |  |                    |       |                    |  |                    |     |       |  |          |     |         |  |       |     |          |  |        
|Actual return on plan assets |  |                    | 1,202 |                    |  |                    | 673 |       |  |          | 529 |         |  |       | 648 |          |  |         | 641 |  |  |  | 7 |  |  |  | (1,187 | ) |  |  | (713 | ) |  |  | (474 | )

The measurement dates for the valuation of
certain Siemens pension funds, particularly our funds in the
U.S. and U.K., do not coincide with the end of the
Companys fiscal year. While the return over the last
twelve months amounted to 6.6% or
1.128 billion,
the aggregate return on plan assets between the last
measurements dates

F-44



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


amounted to 7.0% or
1.202 billion.
For the Siemens German Pension Trust,
673 or 5.6% was
realized, as compared to an expected return on plan assets of
6.75% or an amount of
813 that was
included in the NPPC. For the foreign pension plans,
529 or 10.2% was
realized, as compared to an expected return on plan assets of
6.6% or an amount of
341 that was
included in the NPPC.

Pension benefits: Plan Assets

The asset allocation of the plan assets of the
principal pension benefit plans as of the measurement date for
fiscal 2004 and 2003, as well as the target asset allocation for
fiscal year 2005, are as follows:

|             |  |                    |       |                                             |  |                    |     |         |  |       |     |          |  |         |     |   |  |  |     |   |  |  |     |   |  |  |     |  
|------------ |  | ------------------ | ----- | ------------------------------------------- |  | ------------------ | --- | ------- |  | ----- | --- | -------- |  | ------- | --- | - |  |  | --- | - |  |  | --- | - |  |  | --- | -
|             |  |                    |       |                                            
|             |  |                    |       | Asset allocation as of the measurement date
|             |  |                    |       |                                            
|             |  |                    |       |                                             |  |                   
|             |  | Target asset       |       | September 30, 2004                          |  | September 30, 2003
|             |  | allocation         |       |                                             |  |                   
|Asset class  |  | September 30, 2005 |       | Total                                       |  | Domestic           |     | Foreign |  | Total |     | Domestic |  | Foreign
|             |  |                    |       |                                             |  |                    |     |         |  |       |     |          |  |        
|Equity       |  |                    | 30-60 | %                                           |  |                    | 26  | %       |  |       | 18  | %        |  |         | 44  | % |  |  | 31  | % |  |  | 26  | % |  |  | 41  | %
|Fixed income |  |                    | 30-60 | %                                           |  |                    | 56  | %       |  |       | 64  | %        |  |         | 39  | % |  |  | 50  | % |  |  | 54  | % |  |  | 39  | %
|Real estate  |  |                    | 5-15  | %                                           |  |                    | 9   | %       |  |       | 8   | %        |  |         | 10  | % |  |  | 10  | % |  |  | 10  | % |  |  | 11  | %
|Cash         |  |                    | 5-15  | %                                           |  |                    | 9   | %       |  |       | 10  | %        |  |         | 7   | % |  |  | 9   | % |  |  | 10  | % |  |  | 9   | %
|             |  |                    |       |                                             |  |                    |     |         |  |       |     |          |  |         |     |   |  |  |     |   |  |  |     |   |  |  |     |  
|             |  |                    |       |                                             |  |                    | 100 | %       |  |       | 100 | %        |  |         | 100 | % |  |  | 100 | % |  |  | 100 | % |  |  | 100 | %
|             |  |                    |       |                                             |  |                    |     |         |  |       |     |          |  |         |     |   |  |  |     |   |  |  |     |   |  |  |     |  

The asset allocation represents the plan assets
exposure to market risk. For example, an equity which risk is
hedged by a derivative is not reported as equity but under cash.
Current asset allocation is biased towards high quality
government and selected corporate bonds. As of
September 30, 2004, the equity-portion of the pension
assets of the principal pension benefit plans was significantly
reduced in comparison to the prior year level.

Siemens constantly reviews the asset allocation
in light of the duration of its pension liabilities and analysis
trends and events that may affect asset values in order to
initiate appropriate measures at a very early stage.

Pension benefits: Pension Plan
Funding

Contributions made by the Company to its
principal pension benefit plans in fiscal 2004 and 2003, as well
as those planned in fiscal 2005, are as follows:

|                           |             |                    |       |                    |  |                    |       |       |  |          |     |         |  |       |       |          |  |         |     |     |  |  |     |     |  |  |       |       |  |  |       |       |  |  |     |     | 
|-------------------------- | ----------- | ------------------ | ----- | ------------------ |  | ------------------ | ----- | ----- |  | -------- | --- | ------- |  | ----- | ----- | -------- |  | ------- | --- | --- |  |  | --- | --- |  |  | ----- | ----- |  |  | ----- | ----- |  |  | --- | --- | 
|                           |             |                    |       |                    |  |                    |       |       |  |          |     |         |  |      
|                           |             | (unaudited)        |       |                    |  |                    |       |       |  |          |     |         |  |      
|                           |             | Year ended         |       |                    |  |                   
|                           |             | September 30, 2005 |       | Year ended         |  | Year ended        
|                           |             | (expected)         |       | September 30, 2004 |  | September 30, 2003
|                           |             |                    |       |                    |  |                   
|                           |             | Total              |       | Domestic           |  | Foreign            |       | Total |  | Domestic |     | Foreign |  | Total |       | Domestic |  | Foreign
|                           |             |                    |       |                    |  |                    |       |       |  |          |     |         |  |       |       |          |  |        
|Regular funding            |             |                    | 612   |                    |  |                    | 300   |       |  |          | 312 |         |  |       | 518   |          |  |         | 236 |     |  |  | 282 |     |  |  | 219   |       |  |  |      |       |  |  | 219 |    
|Supplemental contributions |             |                    |       |                    |  |                    |       |       |  |          |     |         |  |       |       |          |  |         |     |     |  |  |     |     |  |  |       |       |  |  |       |       |  |  |     |    
|                           | Cash        |                    |       | 1,500              |  |                    |       | 1,380 |  |          |     | 120     |  |       |       | 1,255    |  |         |     | 700 |  |  |     | 555 |  |  |       | 1,192 |  |  |       | 1,008 |  |  |     | 184 | 
|                           | Real estate |                    |       |                   |  |                    |       |      |  |          |     |        |  |       |       |         |  |         |     |    |  |  |     |    |  |  |       | 377   |  |  |       | 377   |  |  |     |    | 
|                           |             |                    |       |                    |  |                    |       |       |  |          |     |         |  |       |       |          |  |         |     |     |  |  |     |     |  |  |       |       |  |  |       |       |  |  |     |    
|Total                      |             |                    | 2,112 |                    |  |                    | 1,680 |       |  |          | 432 |         |  |       | 1,773 |          |  |         | 936 |     |  |  | 837 |     |  |  | 1,788 |       |  |  | 1,385 |       |  |  | 403 |    
|                           |             |                    |       |                    |  |                    |       |       |  |          |     |         |  |       |       |          |  |         |     |     |  |  |     |     |  |  |       |       |  |  |       |       |  |  |     |    

In fiscal 2004,
1,255 in cash
was contributed in October 2003 as follows:
700 to the
domestic pension plans and
555 to the
pension plan in the U.S. In fiscal 2003, Siemens made a
supplemental cash contribution to the pension plan in the U.K.
in October 2002 amounting to
184. Also in
fiscal 2003, supplemental contributions to the domestic pension
plans included
1,008 in cash,
thereof 258 in
October 2002 and
750 in September
2003, and 377 in
real estate in October 2002.

Beginning in fiscal 2004, regular funding is
generally based on the level of service costs incurred. For the
BSAV, funding corresponds to the contributions to the
beneficiaries accounts. Future funding decisions for the

F-45



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Companys pension plans will be made with
due consideration of developments affecting plan assets and
pension liabilities, taking into account minimum funding
requirements abroad and local tax deductibility.

Pension benefits: Pension benefit
payments

The following overview comprises pension benefits
paid out of the principal pension benefit plans during the years
ended September 30, 2004 and 2003, and expected pension
payments for the next five years and in the aggregate for the
five years thereafter (undiscounted):

|                          |  |       |       |          |  |         |       |  |  |  |       | 
|------------------------- |  | ----- | ----- | -------- |  | ------- | ----- |  |  |  | ----- | 
|                          |  | Total |       | Domestic |  | Foreign
|                          |  |       |       |          |  |        
|Pension benefits paid     |  |       |       |          |  |         |       |  |  |  |       | 
|2003                      |  |       | 947   |          |  |         | 686   |  |  |  | 261   | 
|2004                      |  |       | 991   |          |  |         | 715   |  |  |  | 276   | 
|Expected pension payments |  |       |       |          |  |         |       |  |  |  |       | 
|2005                      |  |       | 1,045 |          |  |         | 752   |  |  |  | 293   | 
|2006                      |  |       | 1,103 |          |  |         | 804   |  |  |  | 299   | 
|2007                      |  |       | 1,156 |          |  |         | 837   |  |  |  | 319   | 
|2008                      |  |       | 1,183 |          |  |         | 856   |  |  |  | 327   | 
|2009                      |  |       | 1,221 |          |  |         | 888   |  |  |  | 333   | 
|2010-2014                 |  |       | 6,583 |          |  |         | 4,542 |  |  |  | 2,041 | 

As pension benefit payments for Siemens
principal funded pension benefit plans reduce the PBO and plan
assets by the same amount, there is no impact on the funded
status of such plans.

Other postretirement benefits

In Germany, employees who entered into the
Companys employment on or before September 30, 1983,
are entitled to transition payments for the first six months
after retirement equal to the difference between their final
compensation and the retirement benefits payable under the
corporate pension plan. Certain foreign companies, primarily in
the U.S., provide other postretirement benefits in the form of
medical, dental and life insurance. The amount of obligations
for other postretirement benefits in the form of medical and
dental benefits specifically depends on the expected cost trend
in the health care sector. To be entitled to such health care
benefits participants must contribute to the insurance premiums.
Participant contributions are based on specific regulations of
cost sharing which are defined in the benefit plans. The Company
has the right to adjust the cost allocation at any time,
generally this is done on an annual basis. Premiums for life
insurance benefits are paid solely by the Company.

Other postretirement benefits are illustrated in
detail in the subsequent sections with regard to:



| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | Obligations and funded status,                                                                                                 
|
| |  | Plan assets,                                                                                                                   
|
| |  | Components of net periodic benefit cost for other
    postretirement benefits,                                                 
|
| |  | Assumptions used in the calculation of the PBO
    and the net periodic benefit cost for other postretirement
    benefits, and
|
| |  | Benefit payments.                                                                                                              

F-46



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Other postretirement benefits: Obligations
and funded status

The funded status of plan assets and a
reconciliation of the funded status to the amounts recognized in
the Consolidated Balance Sheets is as follows:

|                                                                      |  |                    |        |                    |  |         |      |       |  |          |      |         |  |  |        |   |  |  |      |   |  |  |      |  
|--------------------------------------------------------------------- |  | ------------------ | ------ | ------------------ |  | ------- | ---- | ----- |  | -------- | ---- | ------- |  |  | ------ | - |  |  | ---- | - |  |  | ---- | -
|                                                                      |  |                    |        |                   
|                                                                      |  | September 30, 2004 |        | September 30, 2003
|                                                                      |  |                    |        |                   
|                                                                      |  | Total              |        | Domestic           |  | Foreign |      | Total |  | Domestic |      | Foreign
|                                                                      |  |                    |        |                    |  |         |      |       |  |          |      |        
|Fair value of plan assets                                             |  |                    | 5      |                    |  |         |     |       |  |          | 5    |         |  |  | 3      |   |  |  |     |   |  |  | 3    |  
|Projected benefit obligations                                         |  |                    | 939    |                    |  |         | 443  |       |  |          | 496  |         |  |  | 1,088  |   |  |  | 482  |   |  |  | 606  |  
|                                                                      |  |                    |        |                    |  |         |      |       |  |          |      |         |  |  |        |   |  |  |      |   |  |  |      |  
|Funded status (plan assets less other
    postretirement obligations) |  |                    | (934   | )                  |  |         | (443 | )     |  |          | (491 | )       |  |  | (1,085 | ) |  |  | (482 | ) |  |  | (603 | )
|Unrecognized net (gain) loss                                          |  |                    | (373   | )                  |  |         | (274 | )     |  |          | (99  | )       |  |  | (211   | ) |  |  | (221 | ) |  |  | 10   |  
|Unrecognized prior service cost                                       |  |                    | (11    | )                  |  |         |     |       |  |          | (11  | )       |  |  | (8     | ) |  |  |     |   |  |  | (8   | )
|Unrecognized net transition asset                                     |  |                    | 1      |                    |  |         |     |       |  |          | 1    |         |  |  | 1      |   |  |  |     |   |  |  | 1    |  
|                                                                      |  |                    |        |                    |  |         |      |       |  |          |      |         |  |  |        |   |  |  |      |   |  |  |      |  
|Net amount recognized                                                 |  |                    | (1,317 | )                  |  |         | (717 | )     |  |          | (600 | )       |  |  | (1,303 | ) |  |  | (703 | ) |  |  | (600 | )
|                                                                      |  |                    |        |                    |  |         |      |       |  |          |      |         |  |  |        |   |  |  |      |   |  |  |      |  

The following table shows a detailed
reconciliation of the changes in the projected benefit
obligation for other postretirement benefits for the years ended
September 30, 2004 and 2003:

|                                            |                                                   |                                        |     |                    |      |         |     |       |     |          |     |         |      |   |       |       |      |   |     |     |     |   |     |     |      |  
|------------------------------------------- | ------------------------------------------------- | -------------------------------------- | --- | ------------------ | ---- | ------- | --- | ----- | --- | -------- | --- | ------- | ---- | - | ----- | ----- | ---- | - | --- | --- | --- | - | --- | --- | ---- | -
|                                            |                                                   |                                        |     |                   
|                                            |                                                   | September 30, 2004                     |     | September 30, 2003
|                                            |                                                   |                                        |     |                   
|                                            |                                                   | Total                                  |     | Domestic           |      | Foreign |     | Total |     | Domestic |     | Foreign
|                                            |                                                   |                                        |     |                    |      |         |     |       |     |          |     |        
|Change in projected benefit obligations:    |                                                   |                                        |     |                    |      |         |     |       |     |          |     |         |      |   |       |       |      |   |     |     |     |   |     |    
|                                            | Projected benefit obligation at beginning of year |                                        |     | 1,088              |      |         |     | 482   |     |          |     | 606     |      |   |       | 1,150 |      |   |     | 534 |     |   |     | 616 |     
|                                            |                                                   | Foreign currency exchange rate changes |     |                    | (31  | )       |     |       |    |          |     |         | (31  | ) |       |       | (104 | ) |     |     |    |   |     |     | (104 | )
|                                            |                                                   | Service cost                           |     |                    | 44   |         |     |       | 17  |          |     |         | 27   |   |       |       | 42   |   |     |     | 19  |   |     |     | 23   |  
|                                            |                                                   | Interest cost                          |     |                    | 60   |         |     |       | 26  |          |     |         | 34   |   |       |       | 66   |   |     |     | 30  |   |     |     | 36   |  
|                                            |                                                   | Settlements and curtailments           |     |                    | (3   | )       |     |       |    |          |     |         | (3   | ) |       |       | (29  | ) |     |     |    |   |     |     | (29  | )
|                                            |                                                   | Plan participants contributions       |     |                    | 2    |         |     |       |    |          |     |         | 2    |   |       |       | 1    |   |     |     |    |   |     |     | 1    |  
|                                            |                                                   | Plan amendments and other              |     |                    | (4   | )       |     |       | 7   |          |     |         | (11  | ) |       |       | (19  | ) |     |     |    |   |     |     | (19  | )
|                                            |                                                   | Actuarial (gains) losses, net          |     |                    | (170 | )       |     |       | (65 | )        |     |         | (105 | ) |       |       | 58   |   |     |     | (62 | ) |     |     | 120  |  
|                                            |                                                   | Acquisitions                           |     |                    | 10   |         |     |       | 1   |          |     |         | 9    |   |       |       |     |   |     |     |    |   |     |     |     |  
|                                            |                                                   | Divestments                            |     |                    | (2   | )       |     |       | (2  | )        |     |         |     |   |       |       | (24  | ) |     |     | (22 | ) |     |     | (2   | )
|                                            |                                                   | Benefits paid                          |     |                    | (55  | )       |     |       | (23 | )        |     |         | (32  | ) |       |       | (53  | ) |     |     | (17 | ) |     |     | (36  | )
|                                            |                                                   |                                        |     |                    |      |         |     |       |     |          |     |         |      |   |       |       |      |   |     |     |     |   |     |    
|Projected benefit obligation at end of year |                                                   |                                        | 939 |                    |      |         | 443 |       |     |          | 496 |         |      |   | 1,088 |       |      |   | 482 |     |     |   | 606 |    
|                                            |                                                   |                                        |     |                    |      |         |     |       |     |          |     |         |      |   |       |       |      |   |     |     |     |   |     |    

Management has concluded that prescription drug
benefits available under the plan for U.S. employees are
actuarially equivalent to Medicare Part D and thus qualify for
the subsidy under the Medicare Act. According to the Act,
subsidy receipts will begin in year 2006. For further
information see Note 2.

F-47



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Other postretirement benefits: Plan
assets

The following table shows the change in plan
assets for fiscal 2004 and 2003:

|                                      |                                                |                                  |   |                    |     |         |   |       |   |          |   |         |     |   |   |    |     |   |   |   |   |  |   |    |     |  
|------------------------------------- | ---------------------------------------------- | -------------------------------- | - | ------------------ | --- | ------- | - | ----- | - | -------- | - | ------- | --- | - | - | -- | --- | - | - | - | - |  | - | -- | --- | -
|                                      |                                                |                                  |   |                   
|                                      |                                                | September 30, 2004               |   | September 30, 2003
|                                      |                                                |                                  |   |                   
|                                      |                                                | Total                            |   | Domestic           |     | Foreign |   | Total |   | Domestic |   | Foreign
|                                      |                                                |                                  |   |                    |     |         |   |       |   |          |   |        
|Change in plan assets                 |                                                |                                  |   |                    |     |         |   |       |   |          |   |         |     |   |   |    |     |   |   |   |   |  |   |   
|                                      | Fair value of plan assets at beginning of year |                                  |   | 3                  |     |         |   |      |   |          |   | 3       |     |   |   | 13 |     |   |   |  |   |  |   | 13 |    
|                                      |                                                | Employer contributions           |   |                    | 32  |         |   |       |  |          |   |         | 32  |   |   |    | 25  |   |   |   |  |  |   |    | 25  |  
|                                      |                                                | Plan participants contributions |   |                    | 2   |         |   |       |  |          |   |         | 2   |   |   |    | 1   |   |   |   |  |  |   |    | 1   |  
|                                      |                                                | Benefits paid                    |   |                    | (32 | )       |   |       |  |          |   |         | (32 | ) |   |    | (36 | ) |   |   |  |  |   |    | (36 | )
|                                      |                                                |                                  |   |                    |     |         |   |       |   |          |   |         |     |   |   |    |     |   |   |   |   |  |   |   
|Fair value of plan assets at year end |                                                |                                  | 5 |                    |     |         |  |       |   |          | 5 |         |     |   | 3 |    |     |   |  |   |   |  | 3 |   
|                                      |                                                |                                  |   |                    |     |         |   |       |   |          |   |         |     |   |   |    |     |   |   |   |   |  |   |   

Other postretirement benefits: Components
of net periodic benefit cost

The components of the net periodic benefit cost
for other postretirement benefits for the years ended
September 30, 2004, 2003 and 2002 are as follows:

|                                             |                                 |                    |    |                    |   |                    |    |       |   |          |    |         |   |       |     |          |   |         |    |    |   |  |     |    |   |  |     |    |   |  |    |   |  |  |    |    |  
|-------------------------------------------- | ------------------------------- | ------------------ | -- | ------------------ | - | ------------------ | -- | ----- | - | -------- | -- | ------- | - | ----- | --- | -------- | - | ------- | -- | -- | - |  | --- | -- | - |  | --- | -- | - |  | -- | - |  |  | -- | -- | -
|                                             |                                 |                    |    |                    |   |                   
|                                             |                                 | Year ended         |    | Year ended         |   | Year ended        
|                                             |                                 | September 30, 2004 |    | September 30, 2003 |   | September 30, 2002
|                                             |                                 |                    |    |                    |   |                   
|                                             |                                 | Total              |    | Domestic           |   | Foreign            |    | Total |   | Domestic |    | Foreign |   | Total |     | Domestic |   | Foreign
|                                             |                                 |                    |    |                    |   |                    |    |       |   |          |    |         |   |       |     |          |   |        
|Service cost                                 |                                 |                    | 44 |                    |   |                    | 17 |       |   |          | 27 |         |   |       | 42  |          |   |         | 19 |    |   |  | 23  |    |   |  | 52  |    |   |  | 21 |   |  |  | 31 |   
|Interest cost                                |                                 |                    | 60 |                    |   |                    | 26 |       |   |          | 34 |         |   |       | 66  |          |   |         | 30 |    |   |  | 36  |    |   |  | 80  |    |   |  | 33 |   |  |  | 47 |   
|Amortization of:                             |                                 |                    |    |                    |   |                    |    |       |   |          |    |         |   |       |     |          |   |         |    |    |   |  |     |    |   |  |     |    |   |  |    |   |  |  |    |   
|                                             | Unrecognized prior service cost |                    |    | (8                 | ) |                    |    |      |   |          |    | (8      | ) |       |     | (5       | ) |         |    |   |   |  |     | (5 | ) |  |     |   |   |  |    |  |  |  |    |   |  
|                                             | Unrecognized net gains          |                    |    | (10                | ) |                    |    | (12   | ) |          |    | 2       |   |       |     | (13      | ) |         |    | (7 | ) |  |     | (6 | ) |  |     | (9 | ) |  |    |  |  |  |    | (9 | )
|Net gain due to settlements and curtailments |                                 |                    | (2 | )                  |   |                    |   |       |   |          | (2 | )       |   |       | (27 | )        |   |         |   |    |   |  | (27 | )  |   |  |    |    |   |  |   |   |  |  |   |   
|                                             |                                 |                    |    |                    |   |                    |    |       |   |          |    |         |   |       |     |          |   |         |    |    |   |  |     |    |   |  |     |    |   |  |    |   |  |  |    |   
|Net periodic benefit cost                    |                                 |                    | 84 |                    |   |                    | 31 |       |   |          | 53 |         |   |       | 63  |          |   |         | 42 |    |   |  | 21  |    |   |  | 123 |    |   |  | 54 |   |  |  | 69 |   
|                                             |                                 |                    |    |                    |   |                    |    |       |   |          |    |         |   |       |     |          |   |         |    |    |   |  |     |    |   |  |     |    |   |  |    |   |  |  |    |   

The effect of the Medicare act (Part D) on the
foreign net periodic benefit costs as of September 30, 2004
is not significant. For further information see Note 2.

Other postretirement benefits: Assumptions
used in the calculation of the PBO and net
periodic benefit cost

Discount rates and other key assumptions used for
transition payments in Germany are the same as those utilized
for domestic pension benefit plans.

The weighted-average assumptions used in
calculating the actuarial values for the postretirement
healthcare and life insurance benefits, primarily in the U.S.,
are as follows:

|                                              |                            |                    |            |                    |  |                    |            |               |  |  |            |               | 
|--------------------------------------------- | -------------------------- | ------------------ | ---------- | ------------------ |  | ------------------ | ---------- | ------------- |  |  | ---------- | ------------- | 
|                                              |                            | Year ended         |            | Year ended         |  | Year ended        
|                                              |                            | September 30, 2004 |            | September 30, 2003 |  | September 30, 2002
|                                              |                            |                    |            |                    |  |                   
|Discount rate                                 |                            |                    | 6.5%       |                    |  |                    | 6.25%      |               |  |  | 7.25%      |              
|Medical trend rates (initial/ultimate /year): |                            |                    |            |                    |  |                    |            |               |  |  |            |              
|                                              | Medicare ineligible pre-65 |                    |            | 10%/5%/2010        |  |                    |            | 8.33%/5%/2007 |  |  |            | 9.17%/5%/2007 | 
|                                              | Medicare eligible post-65  |                    |            | 10%/5%/2010        |  |                    |            | 8.33%/5%/2007 |  |  |            | 9.17%/5%/2007 | 
|Fixed dollar benefit                          |                            |                    | 4.5%       |                    |  |                    | 6%         |               |  |  | 6%         |              
|Dental trend rates (initial/ultimate/year)    |                            |                    | 6%/5%/2021 |                    |  |                    | 6%/5%/2021 |               |  |  | 6%/5%/2021 |              

The health care assumptions may be significantly
influenced by the expected progression in health care expense. A
one-percentage-point change in the health care trend rates would
have the following effects on the

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


accumulated postretirement benefit obligation and
the service and interest cost as of and for the year ended
September 30, 2004:

|                                                            |  |                      |    |          |  |  |     |  
|----------------------------------------------------------- |  | -------------------- | -- | -------- |  |  | --- | -
|                                                            |  |                     
|                                                            |  | September 30, 2004  
|                                                            |  | One-percentage-point
|                                                            |  |                     
|                                                            |  | increase             |    | decrease
|                                                            |  |                      |    |         
|Effect on accumulated postretirement benefit
    obligation |  |                      | 72 |          |  |  | (58 | )
|Effect on total of service and interest cost
    components |  |                      | 11 |          |  |  | (8  | )

Other postretirement benefits: Benefit
payments

The following overview comprises benefit payments
for other postretirement benefits paid out of the principal
other defined benefit postretirement plans during the years
ended September 30, 2004 and 2003, and expected pension
payments for the next five years and in the aggregate for the
five years thereafter (undiscounted):

|                                                        |  |       |     |          |  |         |     |  |  |  |     | 
|------------------------------------------------------- |  | ----- | --- | -------- |  | ------- | --- |  |  |  | --- | 
|                                                        |  | Total |     | Domestic |  | Foreign
|                                                        |  |       |     |          |  |        
|Payments for other postretirement
    benefits          |  |       |     |          |  |         |     |  |  |  |     | 
|2003                                                    |  |       | 53  |          |  |         | 17  |  |  |  | 36  | 
|2004                                                    |  |       | 55  |          |  |         | 23  |  |  |  | 32  | 
|Expected payments for other postretirement
    benefits |  |       |     |          |  |         |     |  |  |  |     | 
|2005                                                    |  |       | 63  |          |  |         | 34  |  |  |  | 29  | 
|2006                                                    |  |       | 67  |          |  |         | 37  |  |  |  | 30  | 
|2007                                                    |  |       | 73  |          |  |         | 42  |  |  |  | 31  | 
|2008                                                    |  |       | 75  |          |  |         | 43  |  |  |  | 32  | 
|2009                                                    |  |       | 80  |          |  |         | 47  |  |  |  | 33  | 
|2010-2014                                               |  |       | 430 |          |  |         | 257 |  |  |  | 173 | 

Since the benefit obligations for other
postretirement benefits are generally not funded, such payments
will impact the current operating cash flow of the Company.

There are no expected U.S. subsidy receipts for
the years 2004 and 2005 with regard to the Medicare Act. The
expected U.S. subsidy receipts for the years 2006-2014 total
22.

22. Other accruals and
provisions

|                             |  |               |       |      |  |  |       | 
|---------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                             |  |              
|                             |  | September 30,
|                             |  |              
|                             |  | 2004          |       | 2003
|                             |  |               |       |     
|Product warranties           |  |               | 728   |      |  |  | 523   | 
|Asset retirement obligations |  |               | 478   |      |  |  | 495   | 
|Deferred income              |  |               | 356   |      |  |  | 288   | 
|Other long-term accruals     |  |               | 2,454 |      |  |  | 2,112 | 
|                             |  |               |       |      |  |  |       | 
|                             |  |               | 4,016 |      |  |  | 3,418 | 
|                             |  |               |       |      |  |  |       | 

The Company is subject to asset retirement
obligations related to certain tangible long-lived assets. Such
asset retirement obligations are primarily attributable to
environmental clean-up costs which amounted to
513 and
543,
respectively, as of September 30, 2004 and 2003 (thereof
non-current portion of
445 and
460,
respectively) and to costs associated with the removal of
leasehold improvements at the end of the lease term amounting to
39 and
49, respectively
as of September 30, 2004 and 2003 (thereof non-current
portion of 33
and 35,
respectively).

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Environmental clean-up costs are mainly related
to remediation and environmental protection liabilities which
have been accrued for the estimated costs of decommissioning
facilities for the production of uranium and mixed-oxide fuel
elements in Hanau, Germany (Hanau facilities), as well as in
Karlstein, Germany (Karlstein facilities). According to the
German Atomic Energy Act, when such a facility is closed, the
resulting radioactive waste must be collected and delivered to a
government-developed final storage facility. In this regard, the
Company has developed a plan to decommission the Hanau and
Karlstein facilities in the following steps: clean-out,
decontamination and disassembly of equipment and installations,
decontamination of the facilities and buildings, sorting of
radioactive materials, and intermediate and final storage of the
radioactive waste. This process will be supported by continuing
engineering studies and radioactive sampling under the
supervision of German federal and state authorities. The
decontamination, disassembly and sorting activities are planned
to continue in Hanau until 2007 and in Karlstein until 2009;
thereafter, the Company is responsible for intermediate storage
of the radioactive materials until a final storage facility is
available. The final location is not expected to be available
before approximately 2030. The ultimate costs of the remediation
are contingent on the decision of the federal government on the
location of the final storage facility and the date of its
availability. Consequently, the accrual is based on a number of
significant estimates and assumptions. The Company does not
expect any recoveries from third parties and did not reduce the
accruals for such recoveries. The Company believes that it has
adequately provided for this exposure. Prior to the adoption of
SFAS 143 on October 1, 2002, liabilities for such
obligations were recorded based on estimated future cash flows
discounted using a risk-free rate. Therefore, the impact of the
adoption of SFAS 143 principally relates to the application of
current credit-adjusted risk-free interest rates. The interest
rates for the environmental liabilities relating to the
decommissioning of the Hanau and Karlstein facilities, ranging
from approximately 4% to 5% prior to the adoption of
SFAS 143, have been adjusted to a range from approximately
3% to 6%. The rates are determined based on the differing
durations of the steps of decommissioning. As of
September 30, 2004 and 2003, the accrual totals
513 and
543,
respectively, and is recorded net of a present value discount of
1,471, and
1,438,
respectively. The total expected payments for each of the next
five fiscal years and the total thereafter are
68,
43,
46,
11,
11 and
1,806 (includes
1,753 for the
costs associated with final storage in 2033).

The Company recognizes the accretion of the
liability for the Hanau facility using the effective interest
method. During the years ended September 30, 2004, 2003 and
2002, the Company recognized
26,
22 and
32,
respectively, in accretion expense in Other operating income
(expense), net.

The cumulative effect of initially applying
SFAS 143 in fiscal 2003 amounted to a positive
36 (net of
income taxes). Had SFAS 143 been applied as of and for the
year ended September 30, 2002, the impact on the liability
recorded, net income and earnings per share would not have been
material.

The current and non-current portion of asset
retirement obligations developed as follows:

|                                                                                                                  |  |               |     |               |  |  |     |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------- | --- | ------------- |  |  | --- | -
|                                                                                                                  |  | Year ended    |     | Year ended   
|                                                                                                                  |  | September 30, |     | September 30,
|                                                                                                                  |  | 2004          |     | 2003         
|                                                                                                                  |  |               |     |              
|Aggregate carrying amount as of the beginning of
    fiscal year (thereof current portion of
    97 and
    93) |  |               | 592 |               |  |  | 692 |  
|Effect of adopting SFAS 143, before income taxes                                                                  |  |               |    |               |  |  | (59 | )
|Liabilities incurred in the current period                                                                        |  |               | 4   |               |  |  | 10  |  
|Liabilities settled in the current period                                                                         |  |               | (87 | )             |  |  | (93 | )
|Accretion expense                                                                                                 |  |               | 28  |               |  |  | 25  |  
|Revision in estimated cash flows                                                                                  |  |               | 15  |               |  |  | 17  |  
|                                                                                                                  |  |               |     |               |  |  |     |  
|Aggregate carrying amount as of fiscal year-end
    (thereof current portion of
    74 and
    97)              |  |               | 552 |               |  |  | 592 |  
|                                                                                                                  |  |               |     |               |  |  |     |  

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


23. Shareholders equity

Common stock and Additional paid-in
capital

As of September 30, 2004, the Companys
common stock totaled
2,673 divided
into 891,076 thousand shares without par value and a notional
value of 3.00
per share. Each share of common stock is entitled to one vote.

As of September 30, 2003 and 2002, the
Companys common stock totaled
2,673 and
2,671
representing 890,866 thousand shares and 890,374 thousand
shares, respectively.

The following table provides a summary of
outstanding capital and the changes in authorized and
conditional capital for fiscal years 2004, 2003 and 2002:

|                          |                                       |                         |           |                    |  |                     |         |          |  |           |         |          |   |  |         |          |   |  |         |          |   |  |         |         |  
|------------------------- | ------------------------------------- | ----------------------- | --------- | ------------------ |  | ------------------- | ------- | -------- |  | --------- | ------- | -------- | - |  | ------- | -------- | - |  | ------- | -------- | - |  | ------- | ------- | -
|                          |                                       |                         |           |                    |  |                    
|                          |                                       | 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, 2001.    |                                       |                         | 2,664,690 |                    |  |                     | 888,230 |          |  |           | 772,630 |          |   |  | 257,543 |          |   |  | 194,525 |          |   |  | 64,842  |        
|                          | Stock options                         |                         |           | 413                |  |                     |         | 138      |  |           |         |         |   |  |         |         |   |  |         | (413     | ) |  |         | (138    | )
|                          | Settlement to former SNI shareholders |                         |           | 19                 |  |                     |         | 6        |  |           |         |         |   |  |         |         |   |  |         | (19      | ) |  |         | (6      | )
|                          | Capital increases                     |                         |           | 6,000              |  |                     |         | 2,000    |  |           |         | (6,000   | ) |  |         | (2,000   | ) |  |         |         |   |  |         |        |  
|                          |                                       |                         |           |                    |  |                     |         |          |  |           |         |          |   |  |         |          |   |  |         |          |   |  |         |        
|As of September 30, 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                         |                         |           | 195                |  |                     |         | 65       |  |           |         |         |   |  |         |         |   |  |         | (195     | ) |  |         | (65     | )
|                          | Settlement to former SNI shareholders |                         |           | 433                |  |                     |         | 145      |  |           |         |         |   |  |         |         |   |  |         | (433     | ) |  |         | (145    | )
|                          | New approved capital                  |                         |           |                   |  |                     |         |         |  |           |         | 600,000  |   |  |         | 200,000  |   |  |         | 733,528  |   |  |         | 244,509 |  
|                          | Expired capital                       |                         |           |                   |  |                     |         |         |  |           |         | (650,000 | ) |  |         | (216,667 | ) |  |         | (267,000 | ) |  |         | (89,000 | )
|                          |                                       |                         |           |                    |  |                     |         |          |  |           |         |          |   |  |         |          |   |  |         |          |   |  |         |        
|As of September 30, 2004. |                                       |                         | 2,673,227 |                    |  |                     | 891,076 |          |  |           | 666,630 |          |   |  | 222,210 |          |   |  | 925,516 |          |   |  | 308,505 |        
|                          |                                       |                         |           |                    |  |                     |         |          |  |           |         |          |   |  |         |          |   |  |         |          |   |  |         |        

Capital increases

In fiscal 2004, 2003 and 2002, common stock
increased by
195 thousand,
 and
413 thousand,
respectively, through the issuance of 65 thousand, , and
138 thousand shares, respectively, from the conditional
capital to service the stock option plans.

In fiscal 2004, 2003 and 2002, common stock
increased by
433 thousand,
1,477 thousand
and
19 thousand,
respectively, through the issuance of 145 thousand shares,
492 thousand shares and 6 thousand shares,
respectively, from the conditional capital as settlement to
former shareholders of Siemens Nixdorf Informationssysteme AG
(SNI AG).

In January 2002,
6 or 2,000,000
shares from Authorized Capital 2001/ II were issued to an
underwriter, repurchased and subsequently offered for sale to
employees with respect to the Companys employee share
program (see also Treasury stockbelow).

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Authorized and conditional capital

On September 30, 2004, the authorized but
unissued capital of the Company totaled
667 or
222,210 thousand common shares.

On September 30, 2003 and 2002, the
authorized but unissued capital of the Company totaled
717 and
767 or
238,877 thousand and 255,543 thousand common shares,
respectively.

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. 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.

Authorized Capital 1998 of
90 and
Authorized Capital 1999 of
210 were
replaced by resolution of the Annual Shareholders Meeting
on January 23, 2003. The Companys shareholders
authorized the Managing Board with the approval of the
Supervisory Board to increase the common stock by up to
250 through the
issuance of up to 83,333,334 shares for which the
shareholders pre-emptive rights are excluded since these
shares will be issued against contribution in kind (Authorized
Capital 2003). The Authorized Capital 2003 was to expire on
January 22, 2008. As mentioned above, Authorized Capital
2003 was replaced by resolution of the Annual Shareholders
Meeting on January 22, 2004.

On February 22, 2001, the Companys
shareholders authorized the Managing Board with the approval of
the Supervisory Board to increase the common stock by up to
400 through the
issuance of up to 133,333,334 shares for offer to existing
shareholders until February 1, 2006 (Authorized Capital
2001/ I). The Managing Board, with the approval of the
Supervisory Board, was authorized to increase the common stock
by up to 75
through the issuance of up to 25,000,000 shares until
February 1, 2006. The shareholders preemptive rights
were excluded since these shares were intended to be offered for
sale to employees (Authorized Capital 2001/ II). As mentioned
above, Authorized Capital 2001/ I was replaced by resolution of
the Annual Shareholders Meeting on January 22, 2004.

By resolution of the Annual Shareholders
Meeting on January 23, 2003, the Managing Board is
authorized to issue bonds in an aggregate principal amount of up
to
5 billion
with conversion rights (convertible bonds) or with warrants
entitling the holders to subscribe to new shares of Siemens AG.
The authorization will expire on December 31, 2007. The
shareholders also approved conditional share capital of
267 for the
issuance of up to 89,000,000 shares to service the exercise of
the conversion or option rights of holders of these convertible
bonds

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


or warrants attached to these bonds (Conditional
Capital 2003). As mentioned above, Conditional Capital 2003
was terminated by resolution of the Annual Shareholders
Meeting on January 22, 2004.

By resolution of the Annual Shareholders
Meeting on February 22, 2001, conditional share capital of
147 was approved
to service the 2001 Siemens Stock Option Plan (Conditional
Capital 2001). In addition, conditional capital of
45 was approved
by the Companys shareholders to service the 1999 Siemens
Stock Option Plan and the 2001 Siemens Stock Option Plan
(Conditional Capital 1999).

As of September 30, 2004, 2003 and 2002
conditional capital of
0.6,
1 and
2.5,
respectively, provides for the settlement offered to former
shareholders of SNI AG who had not tendered their SNI share
certificates.

Conditional capital to service the 2001 and 1999
Siemens Stock Option Plan amounts to
191,
192 and
192 as of
September 30, 2004, 2003 and 2002, respectively.

Conditional capital provided to service the
issuance of bonds with conversion rights or warrants amounts to
734,
267 and
 as of
September 30, 2004, 2003 and 2002, respectively.

Treasury stock

On January 22, 2004, the Companys
shareholders authorized the Company to repurchase up to 10% of
the 2,673 common
stock.

In fiscal 2004, Siemens repurchased a total of
1,702,776 shares (representing
5 or 0.2% of
common stock) at an average price of
62.24 per share
in addition to the 1,184 shares of treasury stock held at
beginning of the fiscal year. Of these shares, 1,703,710
(representing 5
or 0.2% of common stock) were sold to employees. The majority of
these shares was sold to employees at a preferential price of
40.90 per share
during the second quarter of fiscal 2004. As of
September 30, 2004, 250 shares of stock remained in
treasury with a carrying amount of
15 thousand.

On January 23, 2003, the Companys
shareholders authorized the Company to repurchase up to 10% of
the 2,671 common
stock.

In fiscal 2003, Siemens repurchased a total of
2,903,150 shares (representing
9 or 0.3% of
common stock) at an average price of
43.84 per share
in addition to the 49,864 shares of treasury stock held at
beginning of the fiscal year. Of these shares, 2,951,830
(representing 9
or 0.3% of common stock) were sold to employees. The majority of
these shares was sold to employees at a preferential price of
29 per share
during the second quarter of fiscal 2003. As of
September 30, 2003, 1,184 shares of stock remained in
treasury with a carrying amount of
52 thousand.

In fiscal 2002, Siemens repurchased 2,297,574
shares, including the 2,000,000 shares relating to the capital
increase from Authorized Capital 2001/ II and (representing
7 or 0.3% of
common stock), at an average price of
72.86 per share
in addition to the 1,116 shares of treasury stock held at the
beginning of the fiscal year. Of these shares 2,248,826 were
sold to employees, a majority of which was offered for sale to
employees at a preferential price of
40.39 per share.
As of September 30, 2002, 49,864 shares of stock remained
in treasury with a carrying amount of
4.

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Accumulated other comprehensive income
(loss)

The changes in the components of other
comprehensive income are as follows:

|                                                                              |  |                          |       |        |  |      |      |        |  |        |      |     |  |        |        |        |  |     |     |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  
|----------------------------------------------------------------------------- |  | ------------------------ | ----- | ------ |  | ---- | ---- | ------ |  | ------ | ---- | --- |  | ------ | ------ | ------ |  | --- | --- | - |  |  | ------ | - |  |  | ------ | - |  |  | ----- | - |  |  | ------ | -
|                                                                              |  |                         
|                                                                              |  | Year ended September 30,
|                                                                              |  |                         
|                                                                              |  |                          |       |        |  |     
|                                                                              |  | 2004                     |       | 2003   |  | 2002
|                                                                              |  |                          |       |        |  |     
|                                                                              |  |                          |       | Tax    |  |      |      |        |  | Tax    |      |     |  |        |        | Tax    |  |    
|                                                                              |  | Pretax                   |       | effect |  | Net  |      | Pretax |  | effect |      | Net |  | Pretax |        | effect |  | Net
|                                                                              |  |                          |       |        |  |      |      |        |  |        |      |     |  |        |        |        |  |    
|Changes in unrealized gains (losses) on
    securities:                       |  |                          |       |        |  |      |      |        |  |        |      |     |  |        |        |        |  |     |     |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  
|Unrealized holding gains (losses) for the period                              |  |                          | 218   |        |  |      | (79  | )      |  |        | 139  |     |  |        | 334    |        |  |     | (87 | ) |  |  | 247    |   |  |  | (368   | ) |  |  | 128   |   |  |  | (240   | )
|Reclassification adjustments for
    (gains) losses included in net income    |  |                          | (75   | )      |  |      | 13   |        |  |        | (62  | )   |  |        | 25     |        |  |     | (4  | ) |  |  | 21     |   |  |  | 4      |   |  |  | (3    | ) |  |  | 1      |  
|                                                                              |  |                          |       |        |  |      |      |        |  |        |      |     |  |        |        |        |  |     |     |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  
|Net unrealized gains (losses) on
    available-for-sale securities            |  |                          | 143   |        |  |      | (66  | )      |  |        | 77   |     |  |        | 359    |        |  |     | (91 | ) |  |  | 268    |   |  |  | (364   | ) |  |  | 125   |   |  |  | (239   | )
|Changes in unrealized gains (losses) on
    derivative financial instruments: |  |                          |       |        |  |      |      |        |  |        |      |     |  |        |        |        |  |     |     |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  
|Unrealized gains (losses) on derivative
    financial instruments             |  |                          | 73    |        |  |      | (33  | )      |  |        | 40   |     |  |        | 179    |        |  |     | (68 | ) |  |  | 111    |   |  |  | 110    |   |  |  | (43   | ) |  |  | 67     |  
|Reclassification adjustments for
    (gains) losses included in net income    |  |                          | (111  | )      |  |      | 43   |        |  |        | (68  | )   |  |        | (141   | )      |  |     | 54  |   |  |  | (87    | ) |  |  | (51    | ) |  |  | 20    |   |  |  | (31    | )
|                                                                              |  |                          |       |        |  |      |      |        |  |        |      |     |  |        |        |        |  |     |     |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  
|Net unrealized gains (losses) on derivative
    financial instruments         |  |                          | (38   | )      |  |      | 10   |        |  |        | (28  | )   |  |        | 38     |        |  |     | (14 | ) |  |  | 24     |   |  |  | 59     |   |  |  | (23   | ) |  |  | 36     |  
|Minimum pension liability                                                     |  |                          | 1,397 |        |  |      | (532 | )      |  |        | 865  |     |  |        | (1,477 | )      |  |     | 499 |   |  |  | (978   | ) |  |  | (2,324 | ) |  |  | 906   |   |  |  | (1,418 | )
|Foreign-currency translation adjustment                                       |  |                          | (249  | )      |  |      |     |        |  |        | (249 | )   |  |        | (695   | )      |  |     |    |   |  |  | (695   | ) |  |  | (533   | ) |  |  |      |   |  |  | (533   | )
|                                                                              |  |                          |       |        |  |      |      |        |  |        |      |     |  |        |        |        |  |     |     |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  
|                                                                              |  |                          | 1,253 |        |  |      | (588 | )      |  |        | 665  |     |  |        | (1,775 | )      |  |     | 394 |   |  |  | (1,381 | ) |  |  | (3,162 | ) |  |  | 1,008 |   |  |  | (2,154 | )
|                                                                              |  |                          |       |        |  |      |      |        |  |        |      |     |  |        |        |        |  |     |     |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  

Miscellaneous

Under the German Stock Corporation Act, the
amount of dividends available for distribution to shareholders
is based upon the earnings of Siemens AG as reported in its
statutory financial statements determined in accordance with the
German Commercial Code (Handelsgesetzbuch). During the
fiscal year ended September 30, 2004, Siemens AG management
distributed an ordinary dividend of
978
(1.10 per share)
of the 2003 earnings of Siemens AG as a dividend to its
shareholders. During the years ended September 30, 2003 and
2002, Siemens AG management distributed
888
(1.00 per share)
of the 2002 earnings and
888
(1.00 per share)
of the 2001 earnings of Siemens AG as a dividend to its
shareholders.

24. Commitments and
contingencies

Guarantees and other commitments

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

|           |                                       |               |       |      |  |  |       |     | 
|---------- | ------------------------------------- | ------------- | ----- | ---- |  |  | ----- | --- | 
|           |                                       |              
|           |                                       | September 30,
|           |                                       |              
|           |                                       | 2004          |       | 2003
|           |                                       |               |       |     
|Guarantees |                                       |               |       |      |  |  |       |    
|           | Credit guarantees                     |               |       | 341  |  |  |       | 515 | 
|           | Guarantees of third-party performance |               |       | 370  |  |  |       | 559 | 
|           | Other guarantees                      |               |       | 525  |  |  |       | 704 | 
|           |                                       |               |       |      |  |  |       |    
|           |                                       |               | 1,236 |      |  |  | 1,778 |    
|           |                                       |               |       |      |  |  |       |    

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Credit guaranteescover the financial obligations of
third parties in cases where Siemens 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, Siemens 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 year and five years. Except for statutory
recourse provisions against the primary debtor, credit
guarantees are generally not subject to additional contractual
recourse provisions. As of September 30, 2004 and 2003, the
Company has accrued
82 and
125,
respectively, relating to credit guarantees.

Furthermore, Siemens issues Guarantees of
third-party performance, which include performance bonds and
guarantees of advanced payments in cases where Siemens is the
general or subsidiary partner in a consortium. In the event of
non-fulfillment of contractual obligations by the consortium
partner(s), Siemens 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 guaranteesinclude indemnifications issued in
connection with dispositions of business entities. Such
indemnifications protect the buyer from tax, legal and other
risks related to the purchased business entity. As of
September 30, 2004 and 2003, the total accruals for
Other guaranteesamounted to
156 and
196,
respectively.

As of September 30, 2004, future payment
obligations under non-cancellable operating leases are as
follows:

|           |  |  |     | 
|---------- |  |  | --- | 
|2005       |  |  | 628 | 
|2006       |  |  | 494 | 
|2007       |  |  | 399 | 
|2008       |  |  | 311 | 
|2009       |  |  | 258 | 
|Thereafter |  |  | 773 | 

Total operating rental expense for the years
ended September 30, 2004, 2003 and 2002 was
769,
530 and
328,
respectively.

As of September 30, 2004 and 2003, the
Company has commitments to make capital contributions of
212 and
256,
respectively, to other companies.

The Company is jointly and severally liable and
has capital contribution obligations as a partner in companies
formed under the German Civil Code (BGB), through which it has
executed profit-and-loss transfer agreements with other
companies as a partner in commercial partnerships and in a
European Economic Interest Grouping (EEIG) and as a
participant in various consortiums.

Siemens AG and its subsidiaries have been named
as defendants in various legal actions and proceedings arising
in connection with their activities as a global diversified
group. Some of the legal actions include claims for substantial
compensatory or punitive damages or claims for indeterminate
amounts of damages. In the ordinary course of business, Siemens
may also be involved in investigations and administrative and
governmental proceedings. Given the number of legal actions and
other proceedings to which Siemens is subject, some may result
in adverse decisions. Siemens believes it has defenses to the
actions and contests them when appropriate. In view of the
inherent difficulty of predicting the outcome of such matters,
particularly in cases in which claimants seek substantial or
indeterminate damages, Siemens often cannot predict what the
eventual loss or range of loss related to such matters will be.
Although the final resolution of such matters could have a
material effect on

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Siemens consolidated operating results for
any reporting period in which an adverse decision is rendered,
Siemens believes that its consolidated financial position should
not be materially affected.



|    |                                                  
|--- | -------------------------------------------------
|25. | Derivative instruments and hedging
    activities

As part of the Companys risk management
program, a variety of derivative financial instruments are used
to reduce risks resulting primarily from fluctuations in
foreign-currency exchange rates and interest rates, as well as
to reduce credit risks. The following is a summary of
Siemens risk management strategies and the effect of these
strategies on the Consolidated Financial Statements.

Foreign
currency exchange risk management

Siemens significant international
operations expose the Company to significant foreign-currency
exchange risks in the ordinary course of business. The Company
employs various strategies discussed below involving the use of
derivative financial instruments to mitigate or eliminate
certain of those exposures.

Derivative
financial instruments not designated as hedges

The Company manages its risks associated with
fluctuations in foreign-currency-denominated receivables,
payables, debt, firm commitments and anticipated transactions
primarily through a Company-wide portfolio approach. This
approach concentrates the associated Company-wide risks
centrally, and various derivative financial instruments,
primarily foreign exchange contracts and, to a lesser extent,
interest rate and cross-currency interest rate swaps and
options, are utilized to minimize such risks. Such a strategy
does not qualify for hedge accounting treatment under SFAS 133.
Accordingly, all such derivative financial instruments are
recorded at fair value on the Consolidated Balance Sheets as
either an Other current assetor Other current
liabilityand changes in fair values are charged to earnings.

The Company also has foreign-currency derivative
instruments, which are embedded in certain sale and purchase
contracts denominated in a currency other than the functional
currency of the significant parties to the contract, principally
the U.S. dollar. Gains or losses relating to such embedded
foreign-currency derivatives are reported in Cost of salesin the Consolidated Statements of Income.

Hedging
activities

The Companys operating units applied hedge
accounting for certain significant anticipated transactions and
firm commitments denominated in foreign currencies.
Specifically, the Company entered into foreign exchange
contracts to reduce the risk of variability of future cash flows
resulting from forecasted sales and purchases and firm
commitments resulting from its business units entering into
long-term contracts (project business) which are denominated
primarily in U.S. dollars.

Cash flow
hedgesChanges in fair value of
forward exchange contracts that were designated as
foreign-currency cash flow hedges are recorded in AOCIas
a separate component of shareholders equity. During the
years ended September 30, 2004, 2003 and 2002, net gains of
21,
40 and
,
respectively, were reclassified from AOCIinto cost of
sales because the occurrence of the related hedged forecasted
transaction was no longer probable. During the years ended
September 30, 2004, 2003 and 2002, net gains
(losses) of
1,
5 and
(3),
respectively, were recognized in cost of sales representing
hedge ineffectiveness of derivative contracts.

It is expected that
64 of net
deferred gains in AOCIwill be reclassified into earnings
during the year ended September 30, 2005 when the hedged
forecasted foreign-currency denominated sales and purchases
occur.

As of September 30, 2004, the maximum length
of time over which the Company is hedging its future cash flows
associated with foreign-currency forecasted transactions is
58 months.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Fair value
hedgesAs of September 30,
2004 and 2003, the Company hedged firm commitments using forward
exchange contracts that were designated as foreign-currency fair
value hedges of future sales related primarily to the
Companys project business and, to a lesser extent,
purchases. As of September 30, 2004 and 2003, the hedging
transactions resulted in the recognition of an Other current
assetof 20
and 21,
respectively and Other current liabilityof
33 and
25,
respectively, for the hedged firm commitments, whose changes in
fair value were charged to cost of sales. Changes in fair value
of the derivative contracts were also recorded in cost of sales.
During the year ended September 30, 2003, a net loss of
13 was
recognized in cost of sales because the hedged firm commitment
no longer qualified as a fair value hedge. No such gains or
losses were recorded in fiscal 2004. During the year ended
September 30, 2004, a net gain of
1 representing
hedge ineffectiveness was recognized in cost of sales. No such
gains and losses were recorded in fiscal 2003 and 2002.

Interest rate risk management

Interest rate risk arises from the sensitivity of
financial assets and liabilities to changes in market rates of
interest. The Company seeks to mitigate such risk by entering
into interest rate derivative financial instruments such as
interest rate swaps, options and, to a lesser extent,
cross-currency interest rate swaps and interest rate futures.

Interest rate swap agreements are used to adjust
the proportion of total debt, and to a lesser extent
interest-bearing investments, that are subject to variable and
fixed interest rates. Under an interest rate swap agreement, the
Company either agrees to pay an amount equal to a specified
variable rate of interest times a notional principal amount, and
to receive in return an amount equal to a specified fixed rate
of interest times the same notional principal amount or,
vice-versa, to receive a variable-rate amount and to pay a
fixed-rate amount. The notional amounts of the contracts are not
exchanged. No other cash payments are made unless the agreement
is terminated prior to maturity, in which case the amount paid
or received in settlement is established by agreement at the
time of termination, and usually represents the net present
value, at current rates of interest, of the remaining
obligations to exchange payments under the terms of the contract.

Derivative
financial instruments not designated as hedges

The Company uses a portfolio-based approach to
manage its interest rate risk associated with certain
interest-bearing assets and liabilities, primarily
interest-bearing investments and debt obligations. This approach
focuses on mismatches in the structure of the interest terms of
these assets and liabilities without referring to specific
assets or liabilities. Such a strategy does not qualify for
hedge accounting treatment under SFAS 133. Accordingly, all
interest rate derivative instruments used in this strategy are
recorded at fair value as either an Other current assetor Other current liabilityand changes in the fair
values are charged to earnings.

Fair
value hedges of fixed-rate debt obligations

Under the interest rate swap agreements
outstanding during the years ended September 30, 2004 and
2003, the Company agrees to pay a variable rate of interest
multiplied by a notional principle amount, and receive in return
an amount equal to a specified fixed rate of interest multiplied
by the same notional principal amount. These interest rate swap
agreements offset an impact of future changes in interest rates
on the fair value of the underlying fixed-rate debt obligations.
The interest rate swap contracts are reflected at fair value in
the Companys Consolidated Balance Sheet and the related
portion of fixed-rate debt being hedged is reflected at an
amount equal to the sum of its carrying amount plus an
adjustment representing the change in fair value of the debt
obligations attributable to the interest rate risk being hedged.
Changes in the fair value of interest rates swap contracts, and
the offsetting changes in the adjusted carrying amount of the
related portion of fixed-rate debt being hedged, are recognized
as adjustments to the line item Income (expense) from
financial assets and

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


marketable securities, netin the Consolidated Statements of
Income. Net cash receipts and payments relating to such interest
rate swap agreements are recorded to interest expense.

The Company had interest rate swap contracts to
pay variable rates of interest (average rate of 2.3% as of
September 30, 2004 and 2003) and received fixed rates of
interest (average rate of 4.9% as of September 30, 2004 and
2003). The notional amount of indebtedness hedged as of
September 30, 2004 and 2003 was
4,746 and
5,153,
respectively. This resulted in 55% and 52% of the Companys
underlying notes and bonds being subject to variable interest
rates as of September 30, 2004 and 2003, respectively. The
notional amounts of these contracts mature at varying dates
based on the maturity of the underlying hedged items. The net
fair value of interest rate swap contracts used to hedge
indebtedness as of September 30, 2004 and 2003 was
251 and
309,
respectively. During the years ended September 30, 2004,
2003 and 2002, net gains of
15,
13 and
2, respectively,
on the interest rate swaps were recognized in Income
(expense) from financial assets and marketable securities,
netrepresenting hedge ineffectiveness.

Cash
flow hedges of revolving term deposits

During the year ended September 30, 2004,
the Company applied cash flow hedge accounting for a revolving
term deposit. Under the interest rate swap agreements entered,
the Company agrees to pay a variable rate of interest multiplied
by a notional principle amount, and to receive in return an
amount equal to a specified fixed rate of interest multiplied by
the same notional principal amount. These interest rate swap
agreements offset the effect of future changes in interest
payments of the underlying variable-rate term deposit. The
interest rate swap contracts are reflected at fair value and the
effective portion of changes in fair value of the interest rate
swap contracts that were designated as cash flow hedges are
recorded in AOCIas a separate component of
shareholders equity. During the year ended
September 30, 2004, there was no hedge ineffectiveness.

Credit risk management

Siemens Financial Services uses credit default
swaps to protect from credit risks stemming from its receivables
purchase business. The credit default swaps are classified as
derivatives under SFAS 133.



|    |                                    
|--- | -----------------------------------
|26. | Fair value of financial instruments

The fair value of a financial instrument
represents the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in
a forced sale or liquidation. In determining the fair values of
the derivative financial instruments, certain compensating
effects from underlying transactions (e.g., firm commitments and
anticipated transactions) are not taken into consideration.

Derivative financial
instruments

The Company enters into derivative financial
instruments with various counterparties, principally financial
institutions with investment grade credit ratings.

Derivative interest rate
contractsThe fair values of
derivative interest rate contracts (e.g., interest rate swap
agreements) are estimated by discounting expected future cash
flows using current market interest rates and yield curve over
the remaining term of the instrument. Interest rate options are
valued on the basis of quoted market prices or on estimates
based on option pricing models.

Derivative currency
contractsThe fair value of
forward foreign exchange contracts is based on forward exchange
rates. Currency options are valued on the basis of quoted market
prices or on estimates based on option pricing models.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Credit default
swapsThe fair value of credit
default swaps is calculated by comparing discounted expected
future cash flows using current bank conditions with discounted
expected future cash flows using contracted conditions.

As of September 30, 2004 and 2003, the fair
value of derivative financial instruments amounted to
489 and
757,
respectively, which was recorded on the Consolidated Balance
Sheets in Other current assetsamounting to
693 and
1,020,
respectively, and Other current liabilitiesin the amount
of 204 and
263,
respectively.

Non-derivative financial
instruments

The fair values for non-derivative financial
instruments are determined as follows: Fair value of cash and
cash equivalents, short-term receivables, accounts payable,
additional liabilities and commercial paper and borrowings under
revolving credit facilities approximate their carrying amount
due to the short-term maturities of these instruments.

Financial assets and
securities

Fair values for marketable securities and
publicly traded, long-term equity investments are derived from
quoted market prices. It is not practicable to estimate the fair
value of the Companys long-term investments which are not
publicly traded, as there are no readily available market
prices. The following table presents the fair value (if readily
available) and carrying amount of long-term investments:

|                |  |               |       |      |  |  |       | 
|--------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                |  |              
|                |  | September 30,
|                |  |              
|                |  | 2004          |       | 2003
|                |  |               |       |     
|Fair value      |  |               | 4,293 |      |  |  | 7,049 | 
|Carrying amount |  |               | 4,122 |      |  |  | 5,992 | 

Financing receivables

Long-term fixed-rate and variable-rate
receivables are evaluated by the Company based on parameters
such as interest rates, specific country risk factors,
individual creditworthiness of the customer and the risk
characteristics of the financed project. Based on this
evaluation, allowances are taken to account for the expected
losses of these receivables. As of September 30, 2004 and
2003, the carrying amounts of such receivables, net of
allowances, approximates their fair value.

Debt

The fair value of debt is estimated by
discounting future cash flows using rates currently available
for debt of similar terms and remaining maturities. As of
September 30, 2004 and 2003, the fair value and carrying
amount of debt is as follows:

|                |  |               |        |      |  |  |        | 
|--------------- |  | ------------- | ------ | ---- |  |  | ------ | 
|                |  |              
|                |  | September 30,
|                |  |              
|                |  | 2004          |        | 2003
|                |  |               |        |     
|Fair value      |  |               | 11,663 |      |  |  | 13,533 | 
|Carrying amount |  |               | 11,219 |      |  |  | 13,178 | 



|    |                         
|--- | ------------------------
|27. | Stock-based compensation

As of October 1, 2003, the Company adopted
the fair value recognition provisions of SFAS 123,
Accounting for Stock-Based Compensationusing the
prospective method set forth in SFAS 148, Accounting for
Stock-Based CompensationTransition and Disclosurefor
all awards granted, modified or settled after October 1,
2003.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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.

Description
of plans1999 Siemens Stock Option Plan

As part of a stock option plan for members of the
Managing Board, executive officers and other eligible employees,
the Companys shareholders authorized the Managing Board on
February 18, 1999 to distribute non-transferable options
exercisable for up to an aggregate of 10 million common
shares. The authority to distribute options under this plan
would have originally expired on February 18, 2004. With
the ratification by Siemens shareholders of the 2001 Siemens
Stock Option Plan (further details see below), the 1999 Siemens
Stock Option Plan (the 1999 Plan) has been terminated and
further options have not been granted.

Under the 1999 Plan, the exercise price is equal
to the average market price of Siemens stock during the
five days preceding the date the options were granted. The
options are exercisable within the five years following a
holding period of two years if Siemens AG stock price
outperforms the Dow Jones Stoxx-Index by at least two percentage
points on five consecutive days. This percentage applies to the
first year of the five-year option exercise period, and
increases by 0.5 percentage points in each subsequent year.
As a result of such performance requirements, the plan has been
accounted for as a variable plan under APB Opinion No. 25.

The terms of the plan allow the Company, at its
discretion upon exercise of the option, to offer optionees
settlement of the options in either newly issued shares of
common stock of Siemens AG from the Conditional Capital reserved
for this purpose, treasury stock or cash. The alternatives
offered to optionees are determined by the Managing Board in
each case as approved by the Supervisory Board. Compensation in
cash shall be equal to the difference between the exercise price
and the average market price of the Companys stock on the
five trading days preceding the exercise of the stock options.

Description
of plans2001 Siemens Stock Option Plan

At the Annual Shareholders Meeting on
February 22, 2001, shareholders authorized Siemens AG to
establish the 2001 Siemens Stock Option Plan, making available
up to 55 million options. Compared to the 1999 Plan, the
number of eligible recipients is significantly larger. The
option grants are subject to a two-year vesting period, after
which they may be exercised for a period of up to three years.
The exercise price is equal to 120% of the reference price,
which corresponds to the average opening market price of Siemens
AG during the five trading days preceding the date of the stock
option grant. However, an option may only be exercised if the
trading price of the Companys shares reaches a performance
target which is equal to the exercise price at least once during
the life of the option. The terms of the plan allow the Company,
at its discretion upon exercise of the option, to offer
optionees settlement of the options in either newly issued
shares of common stock of Siemens AG from the Conditional
Capital reserved for this purpose, treasury stock or cash. The
alternatives offered to optionees are determined by the Managing
Board in each case as approved by the Supervisory Board.
Compensation in cash shall be equal to the difference between
the exercise price and the opening market price of the
Companys stock on the day of exercising the stock options.
As a result of its design, the new plan has no income effect
under APB Opinion No. 25 in the case of settlement in
shares due to the fact that the exercise price is also the
performance target. Any settlements in cash would be recorded as
compensation expense.

Stock options may be granted within a period of
30 days after publication of the results for the fiscal
year or quarter then ended. The Supervisory Board decides how
many options to grant to the Managing Board, and the Managing
Board decides how many options to grant to executive officers
and other eligible employees. Option grants to members of the
Managing Board may only be made once annually after the close of
the fiscal year.

The issuance of stock options to members of the
Managing Board on or after October 1, 2003, is subject to
the proviso that the Supervisory Board may restrict the stock
option exercise in the event of extraordinary,

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


unforeseen changes in the market price of the
Siemens share. Those restrictions may reduce the number of
options exercisable by each Board Member, provide for an
exercise in cash for a constricted amount only, or suspend the
exercise of the option until the extraordinary effects on the
share price have ceased. The fair value of the awards has not
been adjusted for effects resulting from such restrictions.
Reasonable estimates cannot be made until it is probable that
such adverse events will occur. Since it is not possible to
reasonably estimate the fair value of those options at the grant
date, compensation costs are determined based on the current
intrinsic value of the option until the date at which the number
of shares to which a Board member is entitled and the exercise
price are determinable. Upon that date, fair value will be
determined in accordance with the fair value recognition
provisions of SFAS 123, Accounting for Stock-Based
Compensationbased on an appropriate fair value option
pricing model.

In November 2003, the Supervisory Board and
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. In November 2002, the Supervisory Board and Managing
Board granted options to 5,814 key executives for
9,397,005 shares with an exercise price of
53.70 of which
options for 345,000 shares were granted to the Managing
Board. In December 2001, the Supervisory Board and the Managing
Board granted options exercisable to 5,413 key executives under
the 2001 Siemens Stock Option Plan for 7,357,139 shares
with an exercise price of
87.19 of which
options exercisable for 151,000 shares were granted to the
Managing Board.

|                                 |  |                          |            |                  |  |         |        |                  |  |         |            |                  |  |  |        |  |  |  |            |   |  |  |        | 
|-------------------------------- |  | ------------------------ | ---------- | ---------------- |  | ------- | ------ | ---------------- |  | ------- | ---------- | ---------------- |  |  | ------ |  |  |  | ---------- | - |  |  | ------ | 
|                                 |  |                         
|                                 |  | Year ended September 30,
|                                 |  |                         
|                                 |  |                          |            |                  |  |        
|                                 |  | 2004                     |            | 2003             |  | 2002   
|                                 |  |                          |            |                  |  |        
|                                 |  |                          |            | Weighted average |  |         |        | Weighted average |  |         |            | Weighted average
|                                 |  | Options                  |            | exercise price   |  | Options |        | exercise price   |  | Options |            | exercise price  
|                                 |  |                          |            |                  |  |         |        |                  |  |         |            |                 
|Outstanding, beginning of period |  |                          | 20,410,876 |                  |  |         | 69.82 |                  |  |         | 11,648,767 |                  |  |  | 82.85 |  |  |  | 4,963,672  |   |  |  | 76.01 | 
|Granted                          |  |                          | 8,678,752  |                  |  |         | 73.25 |                  |  |         | 9,397,005  |                  |  |  | 53.70 |  |  |  | 7,357,139  |   |  |  | 87.19 | 
|Options exercised                |  |                          | (65,063    | )                |  |         | 57.73 |                  |  |         |           |                  |  |  |       |  |  |  | (139,826   | ) |  |  | 57.73 | 
|Options forfeited                |  |                          | (970,239   | )                |  |         | 71.18 |                  |  |         | (634,896   | )                |  |  | 70.28 |  |  |  | (532,218   | ) |  |  | 85.77 | 
|                                 |  |                          |            |                  |  |         |        |                  |  |         |            |                  |  |  |        |  |  |  |            |   |  |  |        | 
|Outstanding, end of period       |  |                          | 28,054,326 |                  |  |         | 70.86 |                  |  |         | 20,410,876 |                  |  |  | 69.82 |  |  |  | 11,648,767 |   |  |  | 82.85 | 
|                                 |  |                          |            |                  |  |         |        |                  |  |         |            |                  |  |  |        |  |  |  |            |   |  |  |        | 
|Exercisable, end of period       |  |                          | 10,804,159 |                  |  |         | 82.91 |                  |  |         | 4,573,058  |                  |  |  | 76.36 |  |  |  | 1,617,899  |   |  |  | 57.73 | 

The following table summarizes information on
stock options outstanding and exercisable at September 30,
2004:

|                    |        |                     |  |                |           |                |  |             |   |                  |  |  |        |  |  |  |           |  |  |  |        | 
|------------------- | ------ | ------------------- |  | -------------- | --------- | -------------- |  | ----------- | - | ---------------- |  |  | ------ |  |  |  | --------- |  |  |  | ------ | 
|                    |        |                    
|Options outstanding |        | Options exercisable
|                    |        |                    
|                    |        | Weighted average    |  | Weighted       |           |               
|                    |        | Options             |  | remaining life |           | average        |  | Number      |   | Weighted average
|Exercise prices     |        | outstanding         |  | (years)        |           | exercise price |  | exercisable |   | exercise price  
|                    |        |                     |  |                |           |                |  |             |   |                 
|                    | 53.70 |                     |  |                | 8,764,835 |                |  |             | 3 |                  |  |  | 53.70 |  |  |  |          |  |  |  |       | 
|                    | 57.73 |                     |  |                | 1,477,522 |                |  |             | 2 |                  |  |  | 57.73 |  |  |  | 1,477,522 |  |  |  | 57.73 | 
|                    | 73.25 |                     |  |                | 8,485,332 |                |  |             | 4 |                  |  |  | 73.25 |  |  |  |          |  |  |  |       | 
|                    | 86.23 |                     |  |                | 2,875,434 |                |  |             | 3 |                  |  |  | 86.23 |  |  |  | 2,875,434 |  |  |  | 86.23 | 
|                    | 87.19 |                     |  |                | 6,451,203 |                |  |             | 2 |                  |  |  | 87.19 |  |  |  | 6,451,203 |  |  |  | 87.19 | 

F-61



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Fair
value information

The Companys determination of the fair
value of grants is based on the Black-Scholes option pricing
model. The fair value of grants made during the years ended
September 30, 2004, 2003 and 2002, are as follows:

|                                                           |  |                           |        |      |  |      |        |   |  |  |        |  
|---------------------------------------------------------- |  | ------------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                           |  |                          
|                                                           |  | Assumptions at grant date
|                                                           |  |                          
|                                                           |  | 2004                      |        | 2003 |  | 2002
|                                                           |  |                           |        |      |  |     
|Risk-free interest rate                                    |  |                           | 3.22   | %    |  |      | 3.31   | % |  |  | 4.12   | %
|Expected dividend yield                                    |  |                           | 1.80   | %    |  |      | 2.23   | % |  |  | 1.41   | %
|Expected volatility                                        |  |                           | 31.85  | %    |  |      | 53.49  | % |  |  | 62.55  | %
|Expected option life                                       |  |                           | 3 yrs. |      |  |      | 3 yrs. |   |  |  | 4 yrs. |  
|Estimated weighted average fair value per option           |  |                           | 9.62  |      |  |      | 9.80  |   |  |  | 23.36 |  
|Fair value of total options granted during fiscal
    year |  |                           | 81    |      |  |      | 92    |   |  |  | 172   |  

The Black-Scholes option valuation model was
developed for use in estimating the fair values of options that
have no vesting restrictions. Option valuation models require
the input of highly subjective assumptions including the
expected stock price volatility. The Companys stock
options may have characteristics that vary significantly from
traded options and changes in subjective assumptions can
materially affect the fair value of the option.

Employee
share purchase plan

During the years ended September 30, 2004,
2003 and 2002, the Company incurred compensation expense (before
income taxes) of
35,
46 and
73,
respectively, related to the sale of repurchased shares to
employees.

Stock
appreciation rights

Supervisory Board members receive stock
appreciation rights under the same conditions as the Siemens
Stock Option Plans (for further information see Note 29).

Additionally, 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 fiscal
2004, 7,200 stock appreciation rights were forfeited resulting
in 198,850 stock appreciation rights outstanding as of
September 30, 2004.



|    |                
|--- | ---------------
|28. | Personnel costs

|                                                                                      |  |                          |        |      |  |      |        |  |  |  |        | 
|------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                                                      |  |                         
|                                                                                      |  | Year ended September 30,
|                                                                                      |  |                         
|                                                                                      |  | 2004                     |        | 2003 |  | 2002
|                                                                                      |  |                          |        |      |  |     
|Wages and salaries                                                                    |  |                          | 20,553 |      |  |      | 20,740 |  |  |  | 22,639 | 
|Statutory social welfare contributions and
    expenses for optional support payments |  |                          | 3,465  |      |  |      | 3,573  |  |  |  | 3,592  | 
|Expenses relating to pension plans and employee
    benefits                          |  |                          | 1,422  |      |  |      | 1,439  |  |  |  | 964    | 
|                                                                                      |  |                          |        |      |  |      |        |  |  |  |        | 
|                                                                                      |  |                          | 25,440 |      |  |      | 25,752 |  |  |  | 27,195 | 
|                                                                                      |  |                          |        |      |  |      |        |  |  |  |        | 

F-62



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The average number of employees in fiscal year
2004 and 2003 was 419,200 and 419,300, respectively. Part-time
employees are included on a proportionate basis rather than
being counted as full units. The employees were engaged in the
following activities:

|                                    |  |               |         |      |  |  |         | 
|----------------------------------- |  | ------------- | ------- | ---- |  |  | ------- | 
|                                    |  |              
|                                    |  | September 30,
|                                    |  |              
|                                    |  | 2004          |         | 2003
|                                    |  |               |         |     
|Manufacturing                       |  |               | 186,300 |      |  |  | 184,900 | 
|Sales and marketing                 |  |               | 139,400 |      |  |  | 132,100 | 
|Research and development            |  |               | 43,600  |      |  |  | 45,700  | 
|Administration and general services |  |               | 49,900  |      |  |  | 56,600  | 
|                                    |  |               |         |      |  |  |         | 
|                                    |  |               | 419,200 |      |  |  | 419,300 | 
|                                    |  |               |         |      |  |  |         | 

29. Additional information relating to
Board members

The following remuneration regarding the
stock-based compensation of the Supervisory and Managing Boards
was recorded in the respective fiscal year and is dependent on
the applied accounting principles relevant for that year. As of
October 1, 2003, Siemens adopted the fair value recognition
provisions of SFAS No. 123 for all awards granted after
that date. 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 service period under the fair
value recognition provisions of SFAS No. 123. For stock
options issued before October 1, 2003, the Company has
elected to apply APB Opinion No. 25 and related
Interpretations.

In accordance with the related accounting
principles the valuation of Stock Appreciation Rights
(SARs) granted to members of the Supervisory Board is
based on the intrinsic value at fiscal year-end. Stock options
awarded to members of the Managing Board under the 1999 Siemens
Stock Option Plan are also recorded at their intrinsic value.
Stock options granted under the 2001 Siemens Stock Option Plan
before October 1, 2003, have no income effect upon the
occurrence of share settlement. Due to a cap placed on stock
options granted to Managing Board members for stock options
granted after October 1, 2003, their valuation also depends
on their intrinsic value.

Supervisory
Board

The remuneration of members of the Supervisory
Board was set at the Annual Shareholders Meeting through
shareholder approval of a proposal by the Managing and
Supervisory Boards and is set out in § 17 of the
Articles of Association of Siemens AG. The remuneration
includes a fixed component, a variable, dividend-dependent
component and a stock-based compensation component. Accordingly,
the fixed compensation of each Supervisory Board member is
6 thousand, and
the dividend-dependent compensation is
3.5 thousand for
each 5 cent dividend distributed per share in excess of
20 cent. The Chairman of the Supervisory Board receives
twice the standard compensation rate of an ordinary member and
each Deputy Chairman receives 1.5 times the standard
compensation rate. The Chairman of the Audit Committee receives
an additional 100 percent and each remaining member of the
Audit Committee an additional 50 percent of the standard
compensation rate. In addition, each member of the Supervisory
Board receives annually 1,500 SARs granted and exercisable
on the same terms as options issued under the Siemens stock
option plan in effect.

The fixed component of the remuneration of the
members of the Supervisory Board amounts to
0.2,
0.2 and
0.1 for the
years ended September 30, 2004, 2003 and 2002,
respectively. The variable component amounts to
1.8 (fiscal 2003
and 2002: 1.6
and 1.2,
respectively) at a dividend rate of
1.25 per share.

In November 2003, each member of the Supervisory
Board received 1,500 SARs granted under the same
conditions as under the 2001 Siemens Stock Option Plan, which
had a fair value as of the grant date of
9.62 per

F-63



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


SAR totaling
0.3 in fiscal
2004 (fiscal 2003
9.80 per SAR
totaling 0.3 and
2002 23.36 per
SAR totaling
0.7), determined
using the Black-Scholes option pricing model. Since the
intrinsic value was zero for all SARs outstanding at the
end of September 30, 2004, 2003 and 2002, no compensation
cost for the stock-based compensation of members of the
Supervisory Board was recognized in the reported fiscal years.

Including the stock-based compensation expense
the total remuneration of the members of the Supervisory Board
amounted to 2.0,
1.8 and
1.3 for the
years ended September 30, 2004, 2003 and 2002.

An existing agreement with Mr. Peter von
Siemens was renewed after the Annual Shareholders Meeting
2003 with unchanged terms and conditions under which
Mr. Peter von Siemens, as a member of the founders
family, is entitled to reimbursement of expenses and the
provision of a company car and secretarial services for
representing the Company at official events in Germany and
abroad and in various associations.

During the last three fiscal years there have
been no loans outstanding to members of the Supervisory Board.

Managing
Board

The Chairmans Committee of the Supervisory
Board is responsible for determining the remuneration of the
members of the Managing Board. The remuneration takes into
consideration the Companys size and global presence, its
economical and financial position, and the level and structure
of the managing board compensation at peer group companies in
Germany and abroad. Furthermore, the remuneration is performance
related and has three components: a fixed compensation, a
variable bonus, and a stock-based compensation. A significant
portion of the goals for the members of the Corporate Executive
Committee is tied to company-wide EVA performance while for the
remaining members of the Managing Board their financial goals
depend primarily on the performance of the Group led by them.
One-half of the variable bonus is paid as an annual bonus while
the other half is granted as a long-term bonus (LT bonus).
The annual bonus is contingent upon achieving the EVA target
established for the fiscal year. The LT bonus depends on
the average attainment of EVA targets over a three-year period.
As additional stock-based compensation, members of the Managing
Board receive stock options under the Siemens stock option plans
authorized by the Annual Shareholders Meeting and stock
awards. The number granted for each member of the Managing Board
is performance-related and determined annually. For further
information relating to the conditions of the Siemens stock
option plans, see Note 27.

F-64



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Remuneration of the Managing Board comprised the
following:

|                         |                                                                               |      |      |      |  |      |      |      |  |  |      |     | 
|------------------------ | ----------------------------------------------------------------------------- | ---- | ---- | ---- |  | ---- | ---- | ---- |  |  | ---- | --- | 
|                         |                                                                               | 2004 |      | 2003 |  | 2002
|                         |                                                                               |      |      |      |  |     
|Cash compensation        |                                                                               |      |      |      |  |      |      |      |  |  |      |    
|                         | thereof salary                                                                |      |      | 8.5  |  |      |      | 6.5  |  |  |      | 4.9 | 
|                         | thereof annual bonus(1)                                                       |      |      | 10.9 |  |      |      | 12.6 |  |  |      | 9.8 | 
|                         | thereof LT bonus cash portion(1)                                              |      |      | 6.4  |  |      |      | 7.2  |  |  |      | 3.0 | 
|                         | thereof other(2)                                                              |      |      | 1.0  |  |      |      | 1.2  |  |  |      | 0.7 | 
|                         | thereof additional payment for the acquisition of
    shares of Siemens AG(3) |      |      |     |  |      |      |     |  |  |      | 0.1 | 
|Stock-based compensation |                                                                               |      |      |      |  |      |      |      |  |  |      |    
|                         | thereof stock awards from LT bonus(1)                                         |      |      | 3.9  |  |      |      | 0.7  |  |  |      |    | 
|                         | thereof other stock awards(1)                                                 |      |      |     |  |      |      |     |  |  |      |    | 
|                         | thereof stock options                                                         |      |      | 0.1  |  |      |      |     |  |  |      | 0.6 | 
|                         |                                                                               |      |      |      |  |      |      |      |  |  |      |    
|Total                    |                                                                               |      | 30.8 |      |  |      | 28.2 |      |  |  | 19.1 |    
|                         |                                                                               |      |      |      |  |      |      |      |  |  |      |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Annual bonus and LT-bonus are recorded in income
    of the fiscal year in which members of the Managing Board have
    rendered the related service. Since fiscal year 2003, only a
    part of the LT-bonus is paid in cash. The remainder is granted
    in the form of a commitment to transfer shares of
    Siemens AG (stock awards) which will be settled four years
    after the commitment is made. Under the stock award agreement,
    the eligible grantees will receive a corresponding number of
    Siemens shares without additional payment. Other stock
    awards will be granted to members of the Managing Board
    first in fiscal year 2005.
|   
|(2) | Non-cash benefits in the form of company cars,
    subsidized insurance, accommodation and moving expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|(3) | Additional payment for the acquisition of shares
    of Siemens AG for the year ended September 30, 2002
    relates to the remaining amount of fiscal 2001 remuneration
    component for the immediate acquisition of a total of
    775 shares under the condition that each board member,
    within a period of 18 months, buys the same number of
    shares on his own account, and that each board member pays any
    taxes and other levies associated with the initial payment.
    These shares are subject to a holding period until the holder
    leaves the Managing Board.                                                                           

In fiscal year 2004, 2003 and 2002, respectively,
the members of the Managing Board received 262,500, 345,000 and
151,000 stock options under the 2001 Siemens Stock Option Plan.
The fair value per option at grant date calculated using the
Black-Scholes option pricing model was
9.62 totaling
2.5 in
fiscal 2004,
9.80 totaling
3.4 in
fiscal 2003, and
23.36 totaling
3.5 in fiscal
2002. Since the LT-bonus is partly settled in the form of a
commitment to transfer shares, 70,592 and 11,717 stock awards
were granted for fiscal year 2004 and 2003, respectively.

Pension commitments.Pension commitments up to and including fiscal year 2004, were
made on a defined benefit basis, corresponding to a percentage
to the fixed compensation component.

With the realignment of the German pension plan
of Siemens AG into a new plan (BSAV), whose benefits are based
largely on contributions made by the Company, the present system
of defined benefits for Managing Board members was replaced with
effect from October 1, 2004 by a contribution-based system.
Benefits earned until September 30, 2004 are not affected.
The amount of the contributions for the BSAV is determined by
the Chairmans Committee of the Supervisory Board.

Pension commitments to current members of the
Managing Board are covered by Siemens AG. As of
September 30, 2004, 2003 and 2002, accruals of
46.3,
42.3 and
37.0,
respectively, have been recorded. Such amounts are included in
the amounts disclosed in Note 21.

Former members of the Managing Board and their
surviving dependents received pensions and transitional payments
of 13.5,
12.5 and
11.2 for the
years ended September 30, 2004, 2003 and 2002,
respectively. Members of the Managing Board who were appointed
to the Managing Board before October 1, 2002, have the
contractually accorded right to receive transitional payments
after leaving the Managing Board. The transitional

F-65



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


payments generally amount to the fixed salary of
the year of resignation and the average of variable bonus paid
for the last three fiscal years before resignation. In single
cases, the transitional payments equal a one-year target
compensation. If a member of the Managing Board resigns early
from office, the member has the right to receive a severance
payment which amounts to the target compensation for the
remaining contractual term of office.

Pension commitments to former members of the
Managing Board and their surviving dependents are also covered
by Siemens AG. As of September 30, 2004, 2003 and
2002, accruals of
102.2,
106.4 and
106.2,
respectively, have been recorded. Such amounts are included in
the amounts disclosed in Note 21.

In the past three years there have been no loans
outstanding to members of the Managing Board.

Stock ownership by members of the Managing and
Supervisory Boards

As of October 15, 2004, members of the
Managing Board held 1,000,014 Siemens shares and stock options
on Siemens shares, representing 0.112% percent of the capital
stock of Siemens AG. On October 15, 2004, members of the
Supervisory Board held 18,824 Siemens shares and stock options
on Siemens shares, representing 0.002 percent of the
capital stock of Siemens AG. These figures do not include
16,364,977 shares, or 1.8 percent of the capital stock,
that are held by the von Siemens-Vermögensverwaltungs GmbH
(vSV) a German limited liability entity that functions
much like a trust and 38,685,250 shares, or some
4.3 percent of the capital stock, over which the vSV has
voting control under a power of attorney. Mr. Peter von
Siemens is authorized to vote these shares as a representative
of the founders family.

Pursuant to § 15a of the German Securities
Trading Act (WpHG) (in effect during the reporting period),
members of the Managing and Supervisory Boards were required to
disclose significant purchases or sales of shares of
Siemens AG. In fiscal 2004, no such transactions were
reported.

Directors and officers (D&O) liability
insurance

The members of the governing bodies of
Siemens AG and all board members of its domestic and
foreign subsidiaries are indemnified by Siemens AG or its
subsidiaries against third-party liability claims to the extent
permissible by law. For this purpose, the Company provides a
group insurance policy for board and committee members and
employees of the Siemens organization which is taken out for one
year and renewed annually. The insurance covers the personal
liability of the insured in the case of a financial loss
associated to employment functions. There is no deductible in
terms of Section 3.8, paragraph 2, of the German
Corporate Governance Code. It is not considered appropriate in
the case of a group insurance policy to differentiate between
members of the Supervisory and Managing Boards of
Siemens AG and high-level personnel of its subsidiaries.
Furthermore, such a deductible is not common practice outside of
Germany.

Related party transactions

Certain of the Managing and Supervisory board
members of Siemens AG hold or in the last fiscal year have held
positions of significant responsibility with other entities. The
Company has relationships with almost all of these entities in
the ordinary course of business, whereby it buys and sells a
wide variety of products and services at arms length.
Significant are the relationships with Deutsche Bank AG.
Dr. Josef Ackermann is the Spokesman of the Managing Board
of Deutsche Bank AG. The Companys transactions with
Deutsche Bank AG include securities underwritings, other
investment banking services, and credit, money market and
foreign exchange business.

F-66



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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


30. Earnings per share

|                                                                     |  |                          |         |      |  |      |         |  |  |  |         | 
|-------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- |  |  |  | ------- | 
|                                                                     |  |                         
|                                                                     |  | Year ended September 30,
|                                                                     |  |                         
|                                                                     |  | 2004                     |         | 2003 |  | 2002
|                                                                     |  |                          |         |      |  |     
|                                                                     |  |                         
|                                                                     |  | (shares in thousands)   
|Net income                                                           |  |                          | 3,405   |      |  |      | 2,445   |  |  |  | 2,597   | 
|Plus: interest on dilutive convertible debt
    securities           |  |                          | 21      |      |  |      |        |  |  |  |        | 
|                                                                     |  |                          |         |      |  |      |         |  |  |  |         | 
|Net income plus effect of assumed conversion                         |  |                          | 3,426   |      |  |      | 2,445   |  |  |  | 2,597   | 
|Weighted average shares outstandingbasic                            |  |                          | 890,705 |      |  |      | 889,988 |  |  |  | 889,539 | 
|Effect of dilutive convertible debt securities
    and stock options |  |                          | 45,510  |      |  |      |        |  |  |  | 92      | 
|                                                                     |  |                          |         |      |  |      |         |  |  |  |         | 
|Weighted average shares outstandingdiluted                          |  |                          | 936,215 |      |  |      | 889,988 |  |  |  | 889,631 | 
|Basic earnings per share                                             |  |                          | 3.82    |      |  |      | 2.75    |  |  |  | 2.92    | 
|Diluted earnings per share                                           |  |                          | 3.66    |      |  |      | 2.75    |  |  |  | 2.92    | 

In June 2003, the Company issued
2.5 billion
of convertible notes (see Note 20). The conversion
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.

Fiscal 2003 earnings per share amounts are
reported after cumulative effects of a change in accounting
principle. Basic earnings per share and diluted earnings per
share before cumulative effects of a change in accounting
principle amounted to
2.71 and
2.71,
respectively, for the year ended September 30, 2003.

31. Segment information

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

Within the Operationscomponent, 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 Operationsare 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 statementsbelow.

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

The results of operations of Infineon for the
first two months of the fiscal year 2002 are included in
Eliminations, reclassifications and Corporate Treasury.
Siemens at-equity share in Infineons results is
shown under Operations(see below Reconciliation to
financial statements).

The accounting policies of these components, as
well as the Groups included, are generally the same as those
used for Siemens worldwideand are described in the
Summary of significant accounting policies(Note 2).
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.

F-67



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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Operations

The Managing Board is responsible for assessing
the performance of the OperationsGroups. 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. Group profit represents a performance
measure focused on operational success excluding the effects of
capital market financing issues.

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
OperationsGroups and Income before income taxes of
Financing and Real Estate, as well as the line item
Corporate items, pensions and eliminationswould have
amounted to
5,170,
361, and
(1,382),
respectively, had the corresponding
175 service
costs of domestic pension plans not been allocated to the Groups
in fiscal 2004.

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
OperationsGroups.

The Managing Board also determined Net capital
employed as additional information to assess the capital
intensity of the OperationsGroups. 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.

Other Operationsprimarily 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 Siemens intends to divest its remaining interest in
Infineon over time. In January 2004, the Company sold
150 million shares of Infineon (see Notes 3, 5, 9 and
13).

Reconciliation
to financial statements

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

Corporate itemsincludes corporate charges such as
personnel costs for corporate headquarters, the results of
corporate-related derivative activities, as well as corporate
projects and non-operating investments including, up to the
second quarter of fiscal 2004, the Companys share of
earnings (losses) from the equity investment in Infineon, as
well as goodwill impairment related to L&A (see Note 14).
Because the impaired businesses were acquired at the corporate
level as part of the Companys Atecs Mannesmann
transaction, the resulting goodwill

F-68



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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


impairment was taken centrally. Pensionsinclude the Companys pension related income
(expenses) not allocated to the Groups. Eliminationsrepresent the consolidation of transactions within the
Operations component.

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

|                |  |                          |        |      |  |      |        |   |  |  |        |  
|--------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                |  |                         
|                |  | Year ended September 30,
|                |  |                         
|                |  | 2004                     |        | 2003 |  | 2002
|                |  |                          |        |      |  |     
|Corporate items |  |                          | (450   | )    |  |      | (747   | ) |  |  | (947   | )
|Pensions        |  |                          | (730   | )    |  |      | (828   | ) |  |  | (250   | )
|Eliminations    |  |                          | (27    | )    |  |      | (1     | ) |  |  | (85    | )
|                |  |                          |        |      |  |      |        |   |  |  |        |  
|                |  |                          | (1,207 | )    |  |      | (1,576 | ) |  |  | (1,282 | )
|                |  |                          |        |      |  |      |        |   |  |  |        |  

In fiscal 2004, Corporate itemsinclude a
pre-tax gain of
590 from the
sale of Infineon shares (see Notes 3, 5 and 13),
14 representing
the Companys at-equity share in the net income generated
by Infineon and impairment charges at L&A of
433. In fiscal
2003, Corporate itemsinclude
170,
representing Siemens at-equity share in the net loss
incurred by Infineon. Fiscal 2003 also includes the
positive settlement of an arbitration proceeding, as well as
reduced corporate costs. Corporate itemsfor the fiscal
year ended September 30, 2002, includes negative
338 related to
the Companys share in the net loss of Infineon and the
gain on the sale of two centrally-held investments totaling
133, as well as
charges of 146
related to the sale of a portfolio of businesses to KKR (see
Note 3). The transaction in the fourth quarter of 2002 was
effected as a sale of a portfolio of businesses that resulted in
a net gain of
21. However,
separate results were allocated to the operating segments where
the sold businesses had previously resided. As a result, ICN and
PG were allocated gains of
153 and
68,
respectively, while PTD was allocated a loss of
54. The
allocated values are based on amounts stated in the sales
contracts and are not necessarily indicative of their actual
fair values. In addition, Corporate itemsfor
fiscal 2002, includes charges of
70 relating to
the write-off of centrally held investments.

Pensionsdeclined
primarily due to service costs of domestic pension plans
directly attributable to the Groups which were reported in
Corporate itemsin the prior year and allocated to the
Groups in fiscal 2004. This decline in Pensionswas
largely offset by higher amortization of unrecognized net
losses. Pensionsfor fiscal 2003 and 2002 were negatively
affected by changes in pension trust net asset values and lower
return assumptions. In addition, fiscal 2003 was impacted
by increased amortization expense primarily related to the
underfunding of the Companys pension trusts. For more
information related to the Companys pension plans, see
Note 21.

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

F-69



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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The following table reconciles total assets of
the Operationscomponent to Net capital employed of the
OperationsGroups as disclosed in Segment Informationaccording to the above definition:

|                                                                                                              |  |               |         |      |  |  |         |  
|------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ---- |  |  | ------- | -
|                                                                                                              |  |              
|                                                                                                              |  | September 30,
|                                                                                                              |  |              
|                                                                                                              |  | 2004          |         | 2003
|                                                                                                              |  |               |         |     
|Total assets of Operations                                                                                    |  |               | 67,927  |      |  |  | 64,475  |  
|Asset-based adjustments:                                                                                      |  |               |         |      |  |  |         |  
|Intracompany financing receivables and investments                                                            |  |               | (13,534 | )    |  |  | (11,931 | )
|Tax related assets                                                                                            |  |               | (4,889  | )    |  |  | (4,373  | )
|Liability-based adjustments:                                                                                  |  |               |         |      |  |  |         |  
|Pension plans and similar commitments                                                                         |  |               | (4,392  | )    |  |  | (5,813  | )
|Accruals                                                                                                      |  |               | (6,125  | )    |  |  | (6,022  | )
|Liabilities to third parties                                                                                  |  |               | (20,881 | )    |  |  | (20,394 | )
|                                                                                                              |  |               |         |      |  |  |         |  
|Total adjustments (line item Other assets related
    reconciling items within the Segment Information table) |  |               | (49,821 | )    |  |  | (48,533 | )
|Net capital employed of Corporate items, pensions
    and eliminations                                        |  |               | 3,116   |      |  |  | 3,781   |  
|                                                                                                              |  |               |         |      |  |  |         |  
|Net capital employed of Operations Groups                                                                     |  |               | 21,222  |      |  |  | 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 OperationsGroups, interest expense and
income is an important source of revenue and expense for
Financing and Real Estate.

For the years ended September 30, 2004, 2003
and 2002, Income before income taxesat SFS includes
interest revenue of
422,
445 and
510,
respectively, and interest expense of
223,
253 and
310,
respectively. In addition, Income before income taxesincludes earnings from equity investees for the years ended
September 30, 2004, 2003 and 2002 of
42,
60 and
41, respectively.

For the years ended September 30, 2004, 2003
and 2002, Income before income taxesat SRE includes
interest revenue of
8,
9 and
13,
respectively, and interest expense of
93,
105 and
132,
respectively.

Eliminations, reclassifications and Corporate
Treasury

Income before income taxesconsists primarily of interest income
due to cash management activities, corporate finance, and
certain currency and interest rate derivative instruments. For
the fiscal year ended September 30, 2003, Income before
income taxesalso includes a gain of
35 from the
repurchase and the retirement of
1,440 notional
amount of the Siemens Nederland N.V. 1.0% exchangeable notes.
For the fiscal year ended September 30, 2002, the results
of operations from Infineon for the first two months of the
fiscal year 2002 are included.

Description of business segments

The OperationsGroups are comprised of the
following businesses:

Information and Communication Networks
(ICN)ICN develops, manufactures
and sells comprehensive public and enterprise communication
systems, including related hardware and software, and provides a
wide variety of consultancy, maintenance and other services.
ICNs worldwide customer base comprises service providers,
such as network operators and internet service providers, as
well as private companies, ranging from small businesses to
large multinational enterprises.

F-70



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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Information and Communication Mobile
(ICM)ICM designs, manufactures
and sells a broad range of mobile network products and systems
and communication devices including mobile, cordless and corded
fixed-line telephones.

Siemens Business Services
(SBS)SBS provides information
and communications services to customers in industry, in the
public sector, and in the telecommunications, transport,
utilities and finance industries. SBS designs, builds and
operates both discrete and large-scale information and
communications systems, and provides related maintenance and
support services.

Automation and Drives
(A&D)A&D produces and
installs manufacturing automation systems, drives systems, low
voltage controllers and distributors, and process automation
products and instrument systems.

Industrial Solutions and Services
(I&S)I&S provides a
range of facilities systems and services, including general
contracting, to raw materials processing companies and
infrastructure customers.

Logistics & Assembly Systems (L&A
reported as Siemens Dematic in prior
periods)L&A supplies
logistics and factory automation equipment. It designs,
engineers, manufactures and supplies turnkey facilities and the
associated components, systems and services for electronic
assembly systems, logistics and factory automation equipment, as
well as postal automation systems.

Siemens Building Technologies
(SBT)SBT provides products,
systems and services for monitoring and regulating the
temperature, safety, electricity, lighting and security of
commercial and industrial property.

Power Generation
(PG)PG provides customers
worldwide with a full range of equipment necessary for the
efficient conversion of energy into electricity and heat. It
offers a broad range of power plant technology, with activities
that include: development and manufacture of key components,
equipment, and systems; planning, engineering and construction
of new power plants; and comprehensive servicing, retrofitting
and modernizing of existing facilities.

Power Transmission and Distribution
(PTD)PTD supplies energy
utilities and large industrial power users with equipment,
systems and services used to process and transmit electrical
power to various points along the power transmission network,
including end users.

Transportation Systems
(TS)TS provides products and
services for the rail industry, including signaling and control
systems, railway electrification systems, complete heavy rail
systems including rapid transit systems, locomotives, light rail
systems and other rail vehicles.

Siemens VDO Automotive
(SV)SV designs, manufactures and
sells integrated electrical, electronic and electromechanical
systems and modules and individual components used in automotive
applications. Its product range includes components and systems
used in automobile powertrains, body electronic systems, safety
and chassis systems, electric motor drives, information and
cockpit systems, and driver information, communication and
multimedia systems.

Medical Solutions
(Med)Med develops, manufactures
and markets diagnostic and therapeutic systems and devices such
as computed tomography, magnetic resonance imagers, ultrasound
and radiology devices, and hearing instruments, as well as
information technology systems for clinical and administrative
purposes. It provides technical maintenance, professional and
consulting services.

OsramOsram
designs, manufactures and sells a full spectrum of lighting
products for a variety of applications such as general lighting
and automotive, photo-optic and opto-semiconductor lighting.

F-71



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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The Financing and Real EstateGroups are
comprised of the following two businesses:

Siemens Financial Services
(SFS)SFS, the Companys
international financial services segment, provides a variety of
customized financial solutions both to third parties and to
other Siemens business Groups and their customers.

Siemens Real Estate
(SRE)SRE owns and manages a
substantial part of Siemens real estate portfolio and
offers service portfolio specializing in real estate development
projects, real estate disposals, asset management, and lease and
service management.

32. Geographic information

The following table presents data by geographic
region as of and for the years ended September 30, 2004,
2003 and 2002:

|                            |  |                               |        |                                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 
|--------------------------- |  | ----------------------------- | ------ | ------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                            |  |                               |        |                               
|                            |  | Sales by location of customer |        | Sales by location of companies
|                            |  |                               |        |                               
|                            |  | 2004                          |        | 2003                           |  | 2002 |        | 2004 |  | 2003 |        | 2002
|                            |  |                               |        |                                |  |      |        |      |  |      |        |     
|Germany                     |  |                               | 17,073 |                                |  |      | 17,100 |      |  |      | 18,102 |      |  |  | 27,470 |  |  |  | 27,123 |  |  |  | 28,845 | 
|Europe (other than Germany) |  |                               | 25,151 |                                |  |      | 25,327 |      |  |      | 26,597 |      |  |  | 23,159 |  |  |  | 22,196 |  |  |  | 23,326 | 
|U.S.                        |  |                               | 13,621 |                                |  |      | 15,357 |      |  |      | 20,288 |      |  |  | 13,611 |  |  |  | 15,293 |  |  |  | 21,078 | 
|Americas other than U.S.    |  |                               | 4,067  |                                |  |      | 3,206  |      |  |      | 4,389  |      |  |  | 3,363  |  |  |  | 2,683  |  |  |  | 3,229  | 
|Asia-Pacific                |  |                               | 9,349  |                                |  |      | 8,728  |      |  |      | 9,668  |      |  |  | 5,832  |  |  |  | 5,560  |  |  |  | 6,153  | 
|Other countries             |  |                               | 5,906  |                                |  |      | 4,515  |      |  |      | 4,972  |      |  |  | 1,732  |  |  |  | 1,378  |  |  |  | 1,385  | 
|                            |  |                               |        |                                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 
|Siemens worldwide           |  |                               | 75,167 |                                |  |      | 74,233 |      |  |      | 84,016 |      |  |  | 75,167 |  |  |  | 74,233 |  |  |  | 84,016 | 
|                            |  |                               |        |                                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 

|                            |  |                   |        |      |  |      |        |  |  |  |        | 
|--------------------------- |  | ----------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                            |  |                  
|                            |  | Long-lived assets
|                            |  |                  
|                            |  | 2004              |        | 2003 |  | 2002
|                            |  |                   |        |      |  |     
|Germany                     |  |                   | 4,190  |      |  |      | 4,340  |  |  |  | 4,447  | 
|Europe (other than Germany) |  |                   | 2,886  |      |  |      | 3,036  |  |  |  | 3,198  | 
|U.S.                        |  |                   | 2,295  |      |  |      | 2,174  |  |  |  | 2,735  | 
|Americas other than U.S.    |  |                   | 455    |      |  |      | 447    |  |  |  | 477    | 
|Asia-Pacific                |  |                   | 778    |      |  |      | 718    |  |  |  | 842    | 
|Other countries             |  |                   | 79     |      |  |      | 41     |  |  |  | 43     | 
|                            |  |                   |        |      |  |      |        |  |  |  |        | 
|Siemens worldwide           |  |                   | 10,683 |      |  |      | 10,756 |  |  |  | 11,742 | 
|                            |  |                   |        |      |  |      |        |  |  |  |        | 

Long-lived assets consist of property, plant and
equipment.

33. Subsequent event

In the first quarter of fiscal 2005, the Company
made a supplemental cash contribution of
1.5 billion
to its pension plans.

F-72



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##### Table of Contents



PART III, Continued




Item 19: Exhibits

|        |  |                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                  
|Number  |  | Description of Exhibit                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                  
|1.1     |  | English translation of Articles of Association of
    Siemens Aktiengesellschaft updated as of October 2004.                                                                                                     
|3.1     |  | Irrevocable Trust Agreement, by and among Siemens
    Aktiengesellschaft and First Union Trust Company, National
    Association (now Wachovia Trust Company, National Association),
    dated December 5, 2001.*
|3.2     |  | Standstill Agreement, between Siemens
    Aktiengesellschaft and First Union Trust Company, National
    Association (now Wachovia Trust Company, National Association),
    dated December 5, 2001.*            
|8.1     |  | List of Significant Subsidiaries.                                                                                                                                                                                
|12.1    |  | Certification of Chief Executive Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                          
|12.2    |  | Certification of Chief Financial Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                          
|13.1    |  | Certification Chief Executive Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                          
|13.2    |  | Certification Chief Financial Officer pursuant to
    18 U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                          
|14.1    |  | Consent of KPMG Deutsche Treuhand-Gesellschaft AG.                                                                                                                                                               






|  |                                                                                                                                            
|- | -------------------------------------------------------------------------------------------------------------------------------------------
|* | The exhibit is incorporated by reference to the
    Exhibits filed with the Companys Annual Report on
    Form 20-F dated January 7, 2002.

III-1



---



##### Table of Contents



SIGNATURES

The registrant hereby certifies that it meets all
of the requirements for filing on Form 20-F and has duly
caused the undersigned to sign this annual report on its behalf.

Date: November 29, 2004



| |                                        
| | ---------------------------------------
| | SIEMENS AKTIENGESELLSCHAFT             
|
| | /s/ HEINZ-JOACHIM NEUBÜRGER            
| |                                        
| | Heinz-Joachim Neubürger                
| | Chief Financial Officer                
|
| | /s/ KLAUS PATZAK                       
| |                                        
| | Dr. Klaus Patzak                       
| | Vice President and Corporate Controller

III-2



---



##### Table of Contents



INDEX

A

Accounting estimates 81


Accounts receivable 73, 75, 81, F-24-F-25


Accrued liabilities F-22, F-31


Acquisitions 3, 7, 53, 63, 65, 73-75, 103,
121-122, F-15-F-16, F-28-29


Automation and Drives (A&D) 19-21, 57, 67,
F-7-F-8, F-28-F-29, F-71


B

Balance sheets 1, 45, 78, 79, F-4

C

Cash flow 4, 73-75, 117-119, F-56-F-58

Changes in Shareholders Equity 1, 76, F-6,
F-51-F-54


Code of Ethics 102, 105-106, 120


Common stock 98, 100-101, F-51, F-51-F-53,
F-59-F-62


Communications (Com) 12, 16, 50, 56-57, 85


Comprehensive income 82, F-11-F-12, F-23, F-36,
F-44, F-54


Corporate Governance 102, 106-107, F-66


D

Debt 1, 74-79, 117-119, F-20, F-32-F-34,
F-56-F-58, F-59, F-67, F-69

Declaration of Conformity 102, 107


Derivative financial instruments 4, 43, 117-119,
F-12, F-54, F-56-F-59


Dispositions 8, 53, 63, F-16, F-28-F-29


Dividend 1-3, 56, 65, 74-75, 109, 113, 116


E

Earnings per share 1, 50, 55, 56, 64, 65, 77, 96,
F-3, F-11, F-13, F-50, F-67

Employees 45-46, 85-98, F-13, F-59-F-63


Environmental protection 46, F-49-F-50


Expected return on plan assets 5-6, 80-81,
F-34-F-46


F

Financial accounting 105

Financial overview 50


Foreign currency exchange rate risk 117-119


G

Geographic information 46, F-72

Goodwill 4, 25, 50, 55, 58, 61, 64, 82, F-11,
F-19, F-28-F-29


Guarantees and other commitments 79-80, F-54-F-56


H

Hedging activities 4, 62, F-12, F-56-F-58

I

Independent Auditors Report 103, F-2

Industrial Solutions and Services (I&S)
21-23, 58, 67, F-7-F-8, F-16, F-28-F-29, F-71


Infineon 8, 50, 55-56, 61-62, 64, 71-78, 99, 111,
118, F-17-F-19, F-24, F-26-F-27, F-34, F-41, F-67-F-70


Information and Communication Mobile (ICM) 13-16,
56-57, 66, F-7-F-8, F-28-F-29, F-71


Information and Communication Networks (ICN)
10-12, 56, 65-66, F-7-F-8, F-28-F-29, F-70


Intangible assets 74, F-11, F-30


Interest income 55, 62, 64, F-20


Interest rate exposure 119


Inventories 73-74, F-11, F-26


L

Liquidity and Capital Resources 73-77

Logistics and Assembly Systems (L&A) 23-25,
58, 68, F-7-F-8, F-28-F-29, F-71


Long-term investments F-26


M

Managing Board 85-98, 102-111, F-63-F-66

Marketable securities 55, 64-65, 74-76, 118,
F-11, F-20, F-23-F-24, F-58-F-59




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##### Table of Contents



Medical Solutions (Med) 38-40, 60-61, 65, 70,
F-7-F-8, F-16, F-28-F-29, F-71


O

Operating leases 78-79, F-10, F-55

Osram 40-42, 61, 71, F-7-F-8, F-28-F-29, F-71


Other accruals and provisions 6, 79-83, F-11,
F-15, F-31, F-49-F-50


Other assets F-26, F-30


Other liabilities F-31


Other operating income 55, 64, F-19


Outlook 85


P

Pension plans 5, 61, 80-85, F-13, F-31,
F-34-F-46, F-69

Personnel costs F-62-F-63


Power Generation (PG) 28-30, 59, 65, 68-69,
F-7-F-8, F-16, F-28-F-29, F-71


Power Transmission and Distribution (PTD) 31-33,
59, 69, F-7-F-8, F-17, F-28-F-29, F-71


Property, plant and equipment 74, 77, F-30, F-72


R

Ratings 76

Related Party Transactions 99, F-66


Research and development 3-4, 7, 54, 63, 84, F-63


Revenue recognition 81, F-10


Risk factors 3-6


S

Segment Information 56-62, 65-72, F-7-F-8,
F-67-F-72

Shareholders equity 76, F-4, F-6, F-35,
F-41, F-44, F-51-F-54, F-56-F-58


Siemens Building Technologies (SBT) 26-28, 58,
68, F-7-F-8; F-28-F-29, F-71


Siemens Business Services (SBS) 8, 16-19, 57, 67,
85, F-7-F-8, F-16, F-28-F-29, F-71


Siemens Financial Services (SFS) 42-44, 62, 72,
79, 117, F-7-F-8, F-28-F-29, F-67, F-70, F-72


Siemens Management System (SMS) 7


Siemens Real Estate (SRE) 44-45, 62, 72, 79,
F-7-F-8, F-28-F-29, F-67, F-70, F-72


Siemens VDO Automotive (SV) 36-38, 60, 70,
F-7-F-8, F-28-F-29, F-71


Statements of Cash Flow 73-75, F-5


Statements of Income 53-56, 63-65, F-3


Stock options 91-94, 97-98, 107, F-13, F-59-F-67


Summary of significant accounting
policies F-9-F-15, F-67


Supervisory Board 85-91, 95-98, 102-109, 120-121,
F-2, F-63-F-64


T

Taxes 55-56, 64-65, 112-117 F-20-F-24,

Transportation Systems (TS) 33-35, 60, 69, 81,
85, F-7-F-8, F-28-F-29, F-71