##### Table of Contents



As filed with the Securities and Exchange
Commission on December 6, 2002








SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

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,
2002. 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, 2002:
890,374,001 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



|                           |                                                                    |  |  |  |  |  |  | 
|-------------------------- | ------------------------------------------------------------------ |  |  |  |  |  |  | 
|TABLE OF CONTENTS         
|FORWARD LOOKING STATEMENTS
|PART I                    
|                           | Item 1: Identity of Directors, Senior Management and Advisers     
|                           | Item 2: Offer Statistics and Expected Timetable                   
|                           | Item 3: Key Information                                           
|Income Statement Data     
|Balance Sheet Data        
|                           | Item 4: Information on the Company                                
|                           | Item 5: Operating and Financial Review and Prospects              
|                           | Item 6: Directors, Senior Management and Employees                
|                           | Item 7: Major Shareholders and Related Party Transactions         
|                           | Item 8: Financial Information                                     
|                           | Item 9: The Offer and Listing                                     
|                           | Item 10: Additional Information                                   
|                           | Item 11: Quantitative and Qualitative Disclosure About Market Risk
|                           | Item 12: Description of Securities Other than Equity Securities   
|PART II                   
|                           | Item 15: Controls and Procedures                                  
|PART III                  
|                           | Item 18: Financial Statements                                     
|Item 19: Exhibits         
|Articles of Association   
|List of Subsidiaries      
|Auditors Consent          



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##### Table of Contents






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                                    |  |      | 8     | 
|Item 5:  |  | Operating and Financial Review and Prospects                  |  |      | 60    | 
|Item 6:  |  | Directors, Senior Management and Employees                    |  |      | 119   | 
|Item 7:  |  | Major Shareholders and Related Party Transactions             |  |      | 126   | 
|Item 8:  |  | Financial Information                                         |  |      | 126   | 
|Item 9:  |  | The Offer and Listing                                         |  |      | 126   | 
|Item 10: |  | Additional Information                                        |  |      | 128   | 
|Item 11: |  | Quantitative and Qualitative Disclosure About
    Market Risk |  |      | 143   | 
|Item 12: |  | Description of Securities Other than Equity
    Securities    |  |      | 148   | 
|Item 15: |  | Controls and Procedures                                       |  |      | 149   | 
|Item 18: |  | Financial Statements                                          |  |      | F-1   | 
|Item 19: |  | Exhibits                                                      |  |      | III-1 | 




FORWARD LOOKING STATEMENTS

This Form 20-F contains certain
forward-looking statements and information relating to Siemens
that are based on beliefs of its management as well as
assumptions made by and information currently available to
Siemens. When used in this document, the words
anticipate, believe,
estimate, expect, intend,
plan and project and similar
expressions, as they relate to Siemens or its management, are
intended to identify forward-looking statements. Such statements
reflect our current views with respect to future events and are
subject to certain risks, uncertainties and assumptions. Many
factors could cause the actual results, performance or
achievements of Siemens to be materially different from any
future results, performance or achievements that may be
expressed or implied by such forward-looking statements,
including, among others, changes in general economic and
business conditions, changes in currency exchange rates and
interest rates, introduction of competing products by other
companies, lack of acceptance of new products or services by
Siemens targeted customers, changes in business strategy
and various other factors, both referenced and not referenced in
this Form 20-F. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions
prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected,
intended, planned or projected. We do not intend, and do not
assume any obligation, to update these forward-looking
statements.

In this Form 20-F, references to
we, us, 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. 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.

i



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##### Table of Contents






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 U.S. GAAP selected financial data set
forth below as of and for each of the years in the three-year
period ended September 30, 2002 should be read in
conjunction with, and are qualified in their entirety by
reference to, the consolidated financial statements and the
Notes thereto presented elsewhere in this document.

We have also presented the selected financial
data below as of and for each of the years in the three-year
period ended September 30, 2000 in accordance with German
GAAP. The selected financial data presented in accordance with
German GAAP have been derived from our consolidated German GAAP
financial statements for those periods. In fiscal 1999, we began
to prepare our consolidated financial statements in accordance
with U.S. GAAP and in fiscal 2001, we discontinued
preparing consolidated German GAAP financial statements.
Accordingly, the information set forth below regarding the major
differences between U.S. GAAP and German GAAP is most
relevant in understanding the income statement and balance sheet
data presented in fiscal year 1998 where no corresponding data
under U.S. GAAP has been presented.

U.S. GAAP differs from German GAAP in
certain significant respects. The more significant accounting
differences that have an impact on the financial reporting of
Siemens are the following:

Revenue Recognition:Under U.S. GAAP, revenues and
profits on long-term contracts are recognized using the
percentage-of-completion method of accounting. Under German
GAAP, revenues and profits on long-term contracts are recorded
using the completed contract method. Under this method, sales
and gross profit are only recorded when performance under the
contract is completed and the customer acceptance has been
received, i.e., at a later point in time than allowed under the
percentage-of-completion method. Where the contract can be
divided into several technically independent performance
milestones and is invoiced separately, sales and gross profit
are recorded for each milestone when customer acceptance has
been received.

Derivatives:Under
U.S. GAAP, all derivative instruments are measured at fair
value and recognized on the balance sheet. Changes in fair value
(gains and losses) of derivatives not qualifying for hedge
accounting are recognized in the income statement. For German
GAAP, unrealized losses on derivatives are recognized as an
expense in the income statement and a liability on the balance
sheet while unrealized gains on derivatives are not recognized
in the financial statements.

Marketable securities:Our securities are segregated into one
of two categories: available for sale or trading. Under
U.S. GAAP, all marketable securities are recorded at fair
value. For marketable securities classified as trading
securities, the change in fair value is recorded in the income
statement. Unrealized gains and losses on marketable securities
classified as available-for-sale are reported as a separate
component of shareholders equity until such securities are
sold or when a decrease in value has been determined to be other
than temporary, at which time the gain or loss is recognized in
income. Under German GAAP, marketable securities are recorded at
the lower of cost or market with immediate effect on the income
statement. Unrealized gains are deferred until realized.

Accruals:Under
U.S. GAAP, a liability may only be accrued if it is
probable that an obligation has been incurred and the amount of
the obligation can be reasonably estimated. Under German GAAP,
accruals may be recorded for possible obligations with third
parties and losses for which the amount can be estimated.

1



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##### Table of Contents



Pension Costs:Under
U.S. GAAP, the pension obligations are recorded in
accordance with the projected unit credit method as set forth in
SFAS 87, Employers Accounting for Pensions.
Under German GAAP, Siemens historically provided for its
domestic pension costs based on actuarial studies using the
entry age method as defined in the German tax code. This method
does not allow the consideration of future inflationary
increases in salaries and pension payments. During fiscal 2000,
Siemens recorded an extraordinary charge in the income statement
for German GAAP to adjust its domestic pension obligations to
the projected unit credit method.

Deferred Taxes:Under U.S. GAAP, deferred income
taxes are provided for the effects of temporary differences
between an assets or liabilitys balance sheet
carrying value and the tax basis of such asset or liability in
the local tax jurisdiction. Under German GAAP, deferred taxes
are recorded for the tax effect of income and expense items
recognized in different periods for book and tax purposes.




Income Statement Data

|                                               |  |                                        |        |      |  |      |        |      |  |      |        |     |  |  |        |  |  |  |        |    
|---------------------------------------------- |  | -------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | --- |  |  | ------ |  |  |  | ------ | ---
|                                               |  |                                       
|                                               |  | Year ended September 30,              
|                                               |  |                                       
|                                               |  | 2002                                   |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                               |  |                                        |        |      |  |      |        |      |  |     
|                                               |  |                                       
|                                               |  | ( in millions, except per share data)
|Amounts in accordance with
    U.S. GAAP:      |  |                                        |        |      |  |      |        |      |  |      |        |     |  |  |        |  |  |  |        |    
|Net sales                                      |  |                                        | 84,016 |      |  |      | 87,000 |      |  |      | 77,484 |     |  |  | 68,069 |  |  |  | N/A    |    
|Income before income taxes                     |  |                                        | 3,475  | (1)  |  |      | 2,678  | (1)  |  |      | 12,239 | (1) |  |  | 2,118  |  |  |  | N/A    |    
|Net income                                     |  |                                        | 2,597  | (1)  |  |      | 2,088  | (1)  |  |      | 8,860  | (1) |  |  | 1,209  |  |  |  | N/A    |    
|Basic earnings per share                       |  |                                        | 2.92   | (1)  |  |      | 2.36   | (1)  |  |      | 9.97   | (1) |  |  | 1.36   |  |  |  | N/A    |    
|Diluted earnings per share                     |  |                                        | 2.92   | (1)  |  |      | 2.36   | (1)  |  |      | 9.96   | (1) |  |  | 1.36   |  |  |  | N/A    |    
|Amounts in accordance with German
    GAAP(2): |  |                                        |        |      |  |      |        |      |  |      |        |     |  |  |        |  |  |  |        |    
|Net sales                                      |  |                                        | N/A    |      |  |      | N/A    |      |  |      | 78,396 |     |  |  | 68,582 |  |  |  | 60,177 |    
|Net income(3)                                  |  |                                        | N/A    |      |  |      | N/A    |      |  |      | 7,901  | (1) |  |  | 1,865  |  |  |  | 469    | (4)
|Extraordinary items                            |  |                                        | N/A    |      |  |      | N/A    |      |  |      | 4,520  | (1) |  |  |       |  |  |  | (890   | )  
|Net income after minority interests(3)         |  |                                        | N/A    |      |  |      | N/A    |      |  |      | 7,549  |     |  |  | 1,614  |  |  |  | 337    |    
|Earnings per share(5)                          |  |                                        | N/A    |      |  |      | N/A    |      |  |      | 3.38   |     |  |  | 1.75   |  |  |  | 0.92   |    



---



|    |                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes gains on sales of significant business
    interests.                                                                                                                                                                                                                           
|   
|(2) | We have not included German GAAP data for fiscal
    2002 and 2001 because we no longer prepare German GAAP data on a
    group basis.                                                                                                                                                   
|   
|(3) | Net income under German GAAP includes income
    attributable to minority interests; accordingly, the amounts
    under Net income after minority interests are more
    directly comparable to the U.S. GAAP figures.                                                                 
|   
|(4) | In 1998, net income was negatively affected by
    the one-time charge relating to the closure by our Infineon
    group of a wafer fabrication facility located in North Tyneside,
    Northern England.                                                                                
|   
|(5) | Earnings per share are calculated based on net
    income including income attributable to minority interests in
    accordance with the standards of the German Society of Capital
    Market Experts (DVFA) and the German Society for Economic
    Science (Schmalenbachgesellschaft).

2



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Balance Sheet Data

|                                               |  |                  |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|---------------------------------------------- |  | ---------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                                               |  |                 
|                                               |  | At September 30,
|                                               |  |                 
|                                               |  | 2002             |        | 2001 |  | 2000 |        | 1999 |  | 1998
|                                               |  |                  |        |      |  |      |        |      |  |     
|                                               |  |                 
|                                               |  | ( in millions) 
|Amounts in accordance with
    U.S. GAAP:      |  |                  |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|Total assets                                   |  |                  | 77,939 |      |  |      | 90,118 |      |  |      | 81,654 |  |  |  | 71,720 |  |  |  | N/A    | 
|Long-term debt                                 |  |                  | 10,243 |      |  |      | 9,973  |      |  |      | 6,734  |  |  |  | 4,753  |  |  |  | N/A    | 
|Shareholders equity                           |  |                  | 23,521 |      |  |      | 23,812 |      |  |      | 28,480 |  |  |  | 19,138 |  |  |  | N/A    | 
|Capital stock                                  |  |                  | 2,671  |      |  |      | 2,665  |      |  |      | 1,505  |  |  |  | 1,521  |  |  |  | N/A    | 
|Amounts in accordance with German
    GAAP(1): |  |                  |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|Total assets                                   |  |                  | N/A    |      |  |      | N/A    |      |  |      | 79,255 |  |  |  | 61,495 |  |  |  | 57,277 | 
|Long-term debt                                 |  |                  | N/A    |      |  |      | N/A    |      |  |      | 6,222  |  |  |  | 4,079  |  |  |  | 4,326  | 
|Shareholders equity                           |  |                  | N/A    |      |  |      | N/A    |      |  |      | 25,640 |  |  |  | 17,200 |  |  |  | 15,488 | 
|Capital stock                                  |  |                  | N/A    |      |  |      | N/A    |      |  |      | 1,505  |  |  |  | 1,521  |  |  |  | 1,521  | 



---



|    |                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------
|(1) | We have not included German GAAP data for fiscal
    2002 and 2001 because we no longer prepare German GAAP data on a
    group basis.

The number of shares outstanding at
September 30, 2002, 2001, 2000, 1999 and 1998 was
890,374,001, 888,230,245, 882,930,900, 892,186,410 and
892,170,210, respectively.

Dividends

The following table sets forth in euros and in
dollars the dividend paid per share for the years ended
September 30, 1998, 1999, 2000 and 2001 and the proposed
dividend per share for the year ended September 30, 2002.
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.

|                         |  |               |      |        |  |  |      |    
|------------------------ |  | ------------- | ---- | ------ |  |  | ---- | ---
|                         |  |              
|                         |  | Dividend paid
|                         |  | per share    
|                         |  |              
|Year ended September 30, |  | Euro          |      | Dollar
|                         |  |               |      |       
|1998                     |  |               | 0.51 |        |  |  | 0.57 |    
|1999                     |  |               | 0.67 |        |  |  | 0.66 |    
|2000                     |  |               | 1.60 | (1)    |  |  | 1.41 | (1)
|2001                     |  |               | 1.00 |        |  |  | 1.14 |    
|2002                     |  |               | 1.00 | (2)    |  |  |     |    



---



|    |                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes a special dividend of
    0.67 per share.                                                                                                          
|   
|(2) | Proposed by the Managing Board and the
    Supervisory Board; to be approved by the shareholders at the
    shareholders annual meeting on January 23, 2003.

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. See Note 21 to the consolidated financial
statements for further information.

Exchange Rate Information

We publish our consolidated financial statements
in euros. As used in this document, euro or

means the new 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.
Deutsche Mark, DEM or DM

3



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##### Table of Contents



means the sub-unit of the euro designated as such
within the European Union, or, with respect to any time or
period before January 1, 1999, means the lawful currency of
the Federal Republic of Germany. 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
shareholders annual meeting at which the dividends were
approved. As used in this document, the term noon buying
rate refers to the rate of exchange for either Deutsche
Mark or euro, expressed in U.S. dollar per Deutsche Mark or
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. Since the euro
did not exist prior to January 1, 1999, the exchange rates
in the table for the period prior to January 1, 1999 do not
represent actual exchange rates between the euro and the
U.S. dollar, rather they represent exchange rates for
Deutsche Marks into U.S. dollars translated into euro using
the fixed conversion rate of
1 per
1.95583 DM. The exchange rate trend between the
U.S. dollar and the Deutsche Mark reflected in the table
below might have been different from the exchange rate trend
that would have existed between the U.S. dollar and the
euro during such period, had the euro been in existence. 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
|                                |  |        
|1998                            |  |         | 1.0982 | 
|1999                            |  |         | 1.0955 | 
|2000                            |  |         | 0.9549 | 
|2001                            |  |         | 0.8886 | 
|2002                            |  |         | 0.9208 | 

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

|          |  |      |        |     |  |  |        | 
|--------- |  | ---- | ------ | --- |  |  | ------ | 
|          |  | High |        | Low
|          |  |      |        |    
|June 2002 |  |      | 0.9885 |     |  |  | 0.9390 | 
|July      |  |      | 1.0156 |     |  |  | 0.9730 | 
|August    |  |      | 0.9882 |     |  |  | 0.9640 | 
|September |  |      | 0.9959 |     |  |  | 0.9685 | 
|October   |  |      | 0.9881 |     |  |  | 0.9708 | 
|November  |  |      | 1.0139 |     |  |  | 0.9895 | 

On November 29, 2002, the noon buying rate
was U.S.$0.99 per
1.00.

With effect from the beginning of 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 economic
downturn:Our business has been
negatively impacted by the prolonged economic downturn that
began in the U.S. in the latter part of 2000 and spread to
Europe in 2001. The business environment is influenced by
numerous political uncertainties, including the situation in the
Middle East

4



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##### Table of Contents



as well as South America and other regions, which
continue to impact macroeconomic parameters and the
international capital markets. Investment sentiment will
continue to be weak for our customers in important industry
segments and regional markets in the U.S., Europe, Asia and
South America. In fiscal 2002, the prevailing weak economic
conditions negatively affected a number of our business groups,
especially Information and Communication Networks (ICN), which
posted a significant loss.


Our Information and Communications business area
is particularly affected by the current market conditions in the
telecommunications industry. Capital expenditure budgets of
telecommunication carriers have been reduced drastically
worldwide and many infrastructure customers are burdened by
prohibitive debt levels because they borrowed heavily to build,
expand or upgrade systems for which there is currently weak
demand. The rate at which the telecommunications industry
recovers will have a material impact on the financial
performance of ICN, Information and Communication Mobile (ICM)
and Siemens Business Services (SBS).

Our Power Generation (PG) group also faces
changing market conditions with reduced demand for new power
generation equipment especially in the U.S., where significant
investments in gas turbine power plants and combined-cycle power
plants were made in the last three years. Gas turbine
overcapacities will contribute to increasing price pressure. PG
is responding to these risks by adjusting its capacities,
optimizing its manufacturing network and continuously improving
the efficiency of its gas turbines.

In light of these economic conditions, in fiscal
year 2002, we intensified cost-cutting initiatives across our
business groups. These include adjusting existing capacities
through consolidation of manufacturing facilities, streamlining
product portfolios and reducing headcount. In addition, we
divested a number of unprofitable or non-core businesses. The
resulting impact of these cost-reduction measures on our
profitability will be influenced by the actual amount of cost
savings achieved and on 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 especially
in ICN, ICM, SBS and Siemens Dematic (SD). 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 result in 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 new 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 ICN, ICM, SBS and Siemens VDO Automotive (SV) business
groups. For example, ICN and ICM are currently involved in
developing marketable components, products and systems for a new
generation of wireless communications technology, known as UMTS.
Introducing new products such as these requires a significant
commitment to research and development, which may not 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 or if our products or systems are not brought to
market in a timely manner or become obsolete.

We may have difficulty in identifying and
executing acquisitions, strategic alliances and joint ventures
and in executing divestitures:Our
strategy involves divesting our interests in some businesses and
strengthening other business areas through acquisitions,
strategic alliances or joint ventures. 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 due to
unforeseen business developments that may adversely affect our
earnings.

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Our financial results and cash flows may be
adversely affected by cost overruns or additional payment
obligations in connection with our project businesses:Certain of our operations groups,
including ICN, ICM, SBS, PG, Power Transmission &
Distribution (PTD), Transportation Systems (TS), Industrial
Solutions & Services (I&S) and SD, 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
or non-payment, or could result in contract termination. There
can be no assurance that all of our fixed-priced contracts can
be completed profitably. See Item 4: Information on
the CompanyLong-Term Contracts and Contract Losses.

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 to 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. We face such risks, for example, in
connection with the high production volumes at PG or TS.

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
operations 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 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 Europe. Our currency risksas well as
interest rate risksare hedged on a company-wide basis
using derivative financial instruments. Our hedging activities
are described in more detail under Item 11:
Quantitative and Qualitative Disclosure About Market
Risk. Exchange rate and interest rate fluctuations may,
however, influence our financial results, especially those of
ICN, ICM, Medical Solutions (Med), Automation and Drives
(A&D), SD, PG, PTD and Osram. A strengthening of the euro
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 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, and we also finance a large number of smaller customer
orders, such as through the leasing of telephone systems and
medical equipment. Additionally, financing of GSM or UMTS
wireless network equipment for ICM customers who lack
established credit histories may cause special credit risks for
us. For additional information on customer financing see
Item 5: Operating and Financial Review and
Prospects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

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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 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 of 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. For further information see
Item 5: Operating and Financial Review and
ProspectsCritical Accounting Policies.

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 limit operations 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 businesses in which we operate 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 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 and
product defects and quality problems and intellectual property
infringement. The most significant lawsuits to which we are a
party are described under Item 4: Information on the
CompanyLegal Proceedings. There can be no assurance
that the results of these or other legal proceedings

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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

History and Strategy

Siemens traces its origins to 1847. Beginning
with an improved design for telegraphs, the company quickly
expanded its product and geographic scope, and was already a
multi-national business by the end of the 19th century. We
moved our headquarters from Berlin to Munich in 1949. In 1966,
we assumed our current corporate form as Siemens
Aktiengesellschaft, a stock corporation under the Federal laws
of Germany. Siemens employed an average of 445,100 people in
some 190 countries worldwide during fiscal 2002. In fiscal
2002, we had net sales of
84.016 billion.

Siemens has a balanced business portfolio with
activities predominantly in the field of electronics and
electrical engineering, holding global leadership positions in
areas such as telecommunications equipment, industrial
automation equipment, power generation equipment and medical
equipment. These activities are influenced by a range of
different regional and economic factors. 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
this area include power generation, power transmission and
distribution, medical solutions and rail systems. 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 this area include
information and communications, automation and drives, and
lighting. Some activities, especially information and
communications and medical solutions, are also influenced by
technological change and the rate of acceptance of new
technologies by end users.

Economic conditions during fiscal 2002 were weak
on a global basis, which limited revenue growth opportunities.
Within this context, certain industries and regions experienced
even greater difficulties. For example, telecommunications
carriers are still burdened with substantial debt, resulting in
sharp cutbacks in capital spending. Another example is the
U.S. power generation market, where a boom in construction
of gas turbine power plants, driven by large swings in price and
supply attributable in part to the market activities by traders
and energy suppliers, came to a rapid end in fiscal 2002.

Three strategic areasbusiness excellence,
portfolio activities and synergiesare the key factor to
our success.

Within these strategic areas, Siemens
strategy has one overriding goal: the strengthening of
profitability and sustainable success. Our business excellence
is linked to the ongoing implementation of Operation
2003, a set of strategic programs and initiatives aimed at
achieving specific targets for EBIT as a percentage of sales, or
EBIT margin for the groups and generating cash during a period
of slow macroeconomic growth. For a definition of EBIT see
Item 5: Operating and Financial Review and
ProspectsBasis of Presentation. A core element of
our strategy has been an emphasis on economic value added as a
measurement of the success of each of our business groups and of
our company as a whole. Economic value added measures 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.

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The five major action areas of Operation 2003
include:



| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | Restoring profitability in the Information and
    Communications business area;                                               
|
| |  | Successfully integrating the businesses acquired
    from Atecs Mannesmann into our Siemens Dematic and Siemens VDO
    groups;
|
| |  | Increasing profitability in our
    U.S. operations, across the board;                                                         
|
| |  | Continuing to emphasize asset management, so as
    to maintain the healthy positive cash flows of the past two
    years; and 

   Reducing central and
group administrative costs.

The second strategic key factor, portfolio
activities, has involved a significant refocusing of our
structure. Our intent is to divest businesses that no longer fit
with our overall portfolio. Since fiscal 2000, we have completed
the following significant transactions aimed at realigning our
businesses in order to achieve sustainable growth in
profitability:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Divestiture of a majority of our original
    interest in Infineon Technologies AG through various means
    including a public offering, the transfer of an approximate 15%
    stake to the Siemens German Pension Trust (Siemens Pension Trust
    e.V.), the transfer of 200 million shares to an
    irrevocable, non-voting trust, open market sales and various
    other steps, as described below. Also, for further information
    on our deconsolidation of Infineon, see Note 3 to the
    consolidated financial statements;
|
| |  | Divestiture of all but 12.5% plus one share of
    EPCOS AG in a public offering; EPCOS is our former joint venture
    with Matsushita in the field of passive components and electron
    tubes;                                                                                                                                                                                                                                                                                                                                        
|
| |  | Divestiture of our electromechanical components
    business to Tyco;                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Divestiture of Siemens Nixdorf Retail and Banking
    Systems;                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Divestiture of our telecommunications cable
    activities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Divestiture of businesses and assets related to
    the acquisition of Atecs Mannesmann AG discussed below;                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Divestiture of Unisphere Networks, Inc.;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Transfer of our hydroelectric power plants
    business to a joint venture with J.M. Voith AG;                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Transfer of our nuclear power business into a
    joint venture with Framatome;                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Acquisition of Entex Information Service Inc., an
    information technology service provider in the United States;                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Acquisition of Efficient Networks Inc., a leading
    DSL equipment provider in the United States;                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Acquisition of Shared Medical Systems, Inc., a
    leading provider of information technology systems and services
    for the healthcare industry;                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Acquisition of Acuson Corporation, a leading
    medical ultrasound producer; and                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | Acquisition of VDO and Dematic and merger with
    our business groups Siemens Automotive and Siemens Production
    and Logistics Systems.                                                                                                                                                                                                                                                                                                                                                                                               

Of the portfolio activities mentioned above, the
following transactions occurred in fiscal 2002:

Atecs Mannesmann:

During fiscal 2002, Siemens undertook several
transactions related to the fiscal 2001 acquisition of Atecs
Mannesmann AG (Atecs), a large German automotive and automation
technology group.

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On November 20, 2001, the Company sold
Mannesmann Sachs AG to ZF Friedrichshafen AG. This business had
been accounted for as an asset held for sale, and no gain or
loss was recorded in connection with the disposition.

In January 2002, Siemens exercised its put option
contract, in connection with the Atecs transaction, which gave
Siemens the right to sell Rexroth AG (Rexroth), a wholly
owned subsidiary of Atecs, to Robert Bosch GmbH (Bosch) for an
adjusted equity value of
2.7 billion
less proceeds from businesses already sold to Bosch. The put
option was exercisable from January 2002 through
December 31, 2002.

In the second quarter, Vodafone AG exercised its
option to sell to Siemens its 50% minus two shares stake in
Atecs. In connection with this exercise, Siemens made a cash
payment of
3.7 billion
to Vodafone AG.

Infineon Technologies AG:

On December 5, 2001, we transferred
200 million Infineon shares or approximately 28.9% of
Infineons outstanding share capital to an irrevocable,
non-voting trust under a trust agreement. Under the terms of the
trust agreement, the shares transferred to the trust may not be
voted, as we have irrevocably relinquished our voting rights in
those shares and the trustee is not permitted to vote the shares
it holds in trust. We continue to be entitled to all the
benefits of economic ownership of the shares held by the
trustee. The transfer on December 5, 2001 reduced our
voting interest in Infineon by an amount corresponding to the
number of shares transferred.

During the first quarter of fiscal 2002, the
Company sold 23.1 million shares of Infineon, followed in
January 2002, with a sale of 40 million shares of Infineon.
At September 30, 2002 our ownership interest was 39.7% and
our voting interest was 33.3%, which includes the voting
interest of Infineon shares in the Siemens German Pension Trust.

As we no longer have a majority voting interest
in Infineon, we have from December 2001 no longer included the
assets and liabilities and results of operations of Infineon in
our consolidated financial statements and instead account for
our ownership interest in Infineon using the equity method. See
Note 3 to the consolidated financial statements.

Other dispositions:

On July 1, 2002, Siemens completed the sale
of Unisphere Networks, Inc. to Juniper Networks, Inc. for a
contribution in cash and Juniper stock. As a result of the
transaction, Siemens acquired 9.73% of Juniper Networks common
shares. The Juniper shares held by Siemens are subject to
certain disposal restrictions which limit the amount of shares
which Siemens may sell.

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 Gottwald. As part of the transaction, Siemens
also sold the Metering division of its Power Transmission and
Distribution group, the Ceramics division of its Power
Generation group, and Network Systems, a regional service
business belonging to its Information and Communication Networks
group. The business activities were sold to a holding company,
called Demag Holding s.a.r.l (Luxembourg). KKR holds an 81% and
Siemens a 19% stake in the holding company. The transaction was
treated as a sale of a portfolio of businesses. However,
separate results were allocated to the operating segments where
the sold businesses had previously resided.

Siemens will account for its 19% interest in
Demag Holding at cost. The governing structure of Demag Holding
provides for KKR to have absolute control over virtually all
operating, financial, and other management decisions, while
Siemens participation is only passive in nature.

The third strategic key factor, synergies,
confirms that our business portfolio in the various fields of
electrical engineering and electronics is the right one. In the
future, we will strive to utilize horizontal synergies more
effectively.

We will continue to concentrate on expanding our
business with services related to products, solutions and
projects. Three of our groups, Power Generation, Medical
Solutions and Transportation Systems have already

10



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been successful with this strategy. For example,
in the past year, all of our significant power plant and rail
transportation orders were combined with maintenance and service
contracts.


We remain committed to our goal: the
strengthening of profitability and achieving sustainable success
through our innovative strength, our global presence, our
financial integrity and through our social responsibility.

Corporate Structure

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

The chart below sets forth graphically our
different business groups as they are now structured. Thirteen
of our groups involve manufacturing, industrial and commercial
solutions and services, related more or less to our origins in
the electrical business. These groups are active in business
areas ranging from communications to energy to health care, to
name only three. We refer to these groups as our
Operations, to distinguish them from our financial
services activities.

Our financial services business comprises two
additional activities that have a different character from our
other businesses and that we manage differently from our
operations groups. For example, we measure economic value added
performance differently, based on earnings before taxes rather
than earnings before interest and taxes, since interest expense
and income is the primary source of revenue and expense for our
financial services groups. In addition, much of the business of
our two financial services groups consists today of internal
services provided to the Siemens operations groups, although
this is changing as we focus more on the value-creating
potential of these businesses.

In addition to our business groups, we hold
non-controlling interests in a number of businesses. Other than
Infineon, the most significant of these is our interest in Bosch
Siemens Hausgeräte GmbH (BSH), which manufactures consumer
household appliances, often referred to as white
goods.

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. We also
provide our business groups with support through our corporate
departments and offices in areas including finance, human
resources, planning and development and information and
communications structures.

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.

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We review below each of our operations and
financial services groups:

OPERATIONS-FINANCIAL SERVICES GROUPS

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Information and Communication Networks
(ICN)

|                     |                                                   |                    |                |        | 
|-------------------- | ------------------------------------------------- | ------------------ | -------------- | ------ | 
|                     |                                                   | Year ended        
|                     |                                                   | September 30, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 9.647 billion |       
|                     | External sales as percentage of Siemens net sales |                    |                | 10.91% | 
|EBIT                 |                                                   |                    | (691) million |       
|Net capital employed |                                                   |                    | 1.100 billion |       
|Employees            |                                                   |                    | 39 thousand    |       

The Information and Communication Networks group
develops, manufactures and sells public communication systems,
private business communication systems and related 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. We also supply
complete end-to-end solutions that include design, installation
and management of voice and data networks.

We upgrade existing voice-centered networks,
primarily to allow the transmission of data, so that service
providers can address new revenue opportunities while protecting
their significant investments in those networks. We also build
new networks optimized for the requirements of the Internet.
Consequently, our focus has shifted from systems that carry
primarily voice over the entire network infrastructure to
systems that combine voice and data transmission into a single
solution for our customers. Our products for achieving this
result, known as voice-data convergence products, enable network
service providers to combine telephone and Internet services and
enrich those services with further applications.

In fiscal 2002, we realigned the products and
services we provide from six divisions into four: Wireline
Networks, Enterprise Networks, Optical Networks and Access
Solutions.

Our Wireline Networks division offers
systems for next-generation Internet, traditional
circuit-switched telephone networks, IP infrastructure and
communication access equipment, as well as related services to
fixed-line network service providers. Its product portfolio
contains (i) softswitch products for managing
telephone calls and calling features in network switches;
(ii) voice/data convergence products, including gateways
for voice over IP and voice over Asynchronous Transfer Mode
(ATM) gateways (ATM products involve broadband switching
technology that permits the use of one network for transmission
of different kinds of information such as voice, data and
video); (iii) public telephone switching systems;
(iv) units allowing access to narrowband and broadband
channels along with public communication software that is
integrated into such products; and (v) IP routers, which we
purchase from Juniper Networks under the cooperation agreement
described below.

Our Wireline Networks products include the
following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | EWSD® (a German acronym for digital
    electronic switching system) is a product line comprised
    of central office circuit switching systems and related
    proprietary software that are primarily used for public
    telephone networks. Since its market introduction in the early
    1980s, EWSD has become one of the best-selling switches in the
    worldwide market, with more than 260 million EWSD ports
    delivered in over 110 countries.                                                                                                                        
|
| |  | Our SURPASS® product line enables network
    operators to combine packet-switched network technology and
    circuit-switched networks. By using SURPASS call servers,
    gateways and access solutions, network operators can build
    next-generation networks and offer voice, data and combined
    voice/data services across and independent from underlying
    network technologies. Because it integrates voice and data
    access across both packet-switched and circuit-switched
    networks, SURPASS helps customers protect their investment in
    existing networks.

SURPASS includes an open software platform for
application development, enabling third parties to offer new
network features with significantly shortened innovation cycles.
Examples of these new features include phone calls using voice
over IP, initiated from a Web page; an e-mail waiting indication
on phone sets and the ability to pick up e-mail messages using a
standard touchtone phone.

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The SURPASS architecture enables us to provide
our customers with a broad range of cost-saving and
revenue-generating solutions. Our IP-based local switch
introduces local switch functionality into the next-generation
Internet. Virtual trunking provides carrier-grade telephone
services over IP with complete network services and features.
Carrier-grade means that all single system
components and the network as a whole are designed so that their
proven reliability exceeds 99.99%. For multimedia applications,
we provide open application programming interfaces to members of
our SURPASS partner program, we SURPASS. This allows
we SURPASS partners to develop features and
applications that enhance the value of SURPASS for its users.

On July 1, 2002, we sold the bulk of our
Unisphere Networks division to Juniper Networks of Sunnyvale,
California, and in partial consideration acquired approximately
10% of Juniper Networks. We retained Unispheres voice
convergence portfolio (softswitch, media gateway), which is an
integral component of the Siemens SURPASS family of next
generation networking products. We also entered into an
agreement with Juniper Networks for sales and R&D, under
which we became a global reseller of all of their IP routing
products and solutions. Their comprehensive portfolio of IP
routing products is designed to ensure a high level of service
quality in the IP backbone and to provide optimal support for
our SURPASS network systems.

During the fiscal 2002, we also included our
network systems business in the United Kingdom, France and Italy
in the portfolio of business activities sold by Siemens to a
private equity investor, effective September 24, 2002. See
Item 5: Operating and Financial Review and
ProspectsFiscal 2002 Compared to Fiscal
2001Acquisitions and Dispositions.

Our Enterprise Networks division provides
comprehensive communication products and solutions for
enterprises, government agencies and other organizations. Its
product and service portfolio is based on ICNs new
enterprise convergence architecture, called HiPath®. This
architecture contains:



| |   |                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a comprehensive range of communications
    platforms, harmonized and optimized for the needs of enterprises
    of all sizes, together with any required applications, as well
    as features to address the mobility needs of employees, and
    interaction between different sites;                                                                   
|
| |  | a rich offering of workpoints such as time
    division multiplexing (TDM) and IP phones and software-based
    telephone applications for personal computers, suitable for use
    in both circuit- and packet-switched environments;                                                                                                                     
|
| |  | portable applications for customer relationship
    management and mobile office environments, including unified
    messaging, which permits the delivery of messages through
    multiple communication channels such as voice mail and e-mail;                                                                                                          
|
| |  | technology consulting, design and implementation
    services intended to provide system integration, maintenance and
    optimal performance for all solution components; and                                                                                                                                                                             
|
| |  | network security products, systems and services,
    which are of increased importance for enterprise customers,
    including tailor-made security systems featuring security
    analyses, integration and training in order to provide maximum
    security, confidentiality and integrity for our customers
    data transmissions and communications.

We provide IP convergence products and services
that are based on standard interfaces and are therefore designed
for a wide range of information and communication
infrastructures. These products and solutions integrate
information from both voice and data networks in areas such as
customer relationship management and multimedia messaging and
may be deployed across different platforms, including
communication servers or on personal computer workstations
allowing them to receive voice and fax as well as e-mail
communications. An important customer relationship management
application is the integration of media other than telephones
such as fax, Internet and video into existing call center
systems.

Enterprise Networks operates globally and has
installed products and systems for customers in more than 160
countries. We serve our customers with system installation,
systems integration, maintenance, consulting and training
services worldwide through local Siemens companies and a growing
number of independent distributors.

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Our Optical Networks division provides
end-to-end solutions to telecommunication operators that carry
voice and data over long distances using optical or electrical
transmission. The technologies applied include dense wave
division multiplexing (DWDM), synchronous digital hierarchy
(SDH) and time division multiplexing (TDM), as well as a
proprietary software management system for DWDM, SDH, IP and
third-party network elements. Our DWDM systems are developed for
long-span transmission with ultra-high capacity and equipped
with all optical add drop multiplexing (OADM), which permits
operators to dispense with the use of costly electro-optical
converters. Our SDH solutions provide reliable transport of
voice and data signals in communication networks so that growing
Ethernet and Internet traffic can be integrated into approved
network solutions and handled with high efficiency. We provide
our customers with system installation, systems integration,
maintenance, consulting and training services worldwide.

Access Solutionsprovides products and solutions that upgrade the last
mile of public telephone networks to carry not only voice
but data requiring very high bandwidth. The last
mile refers to that part of the telephone network between
a home or a business and the first network switching system the
home or business is connected to. The last mile is
often a copper wire originally intended solely for voice
transmission.

Access Solutions offers a comprehensive line of
hardware and software products for both customer premises and
central office equipment. The products provide the following
benefits to customers:



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | a smooth migration from narrowband to broadband;                                                                    
|
| |  | end-to-end operability and ease of installation;                                                                    
|
| |  | a clear roadmap for the transition from
    circuit-switched to packet-switched voice transmission; and             
|
| |  | simultaneous delivery of voice, video and data
    services over a complete suite of access networking technologies.

Our line of broadband access products is based
primarily on asymmetric digital subscriber line (ADSL)
technology. Our U.S. subsidiary, Efficient Networks, is a
leading provider of DSL broadband access equipment in the United
States and offers a complete line of customer premises
equipment. Our ADSL technology now comprises broadband access
products such as the XpressLink Digital Subscriber Line Access
Multiplexer (DSLAM) and the SpeedStream series of customer
premises equipment products, which provide high data rate
transmission and enable local exchange carriers to enter the
market for broadband Internet access by reusing their high
investment in the last mile of copper wires to the
home. In addition, we offer wireless access solutions that
enable new market entrants to bypass the last mile
of copper wires. In fiscal 2002, the broadband access market,
particularly in the United States, continued to be characterized
by weak demand and heightened competition, which had a negative
impact on our sales, earnings and cashflows. See Item 5:
Operating and Financial Review and ProspectsFiscal
2002 Compared to Fiscal 2001Segment Information
AnalysisOperationsInformation and
Communications.

Beginning November 1, 2002, in order to
optimize costs and to strengthen our sales and product
development efforts, we further streamlined our organization by
combining the product offerings of the Wireline Networks,
Optical Networks and Access Solutions divisions into a new
division named Carrier Networks. Services will be similarly
merged and organized in a new division named Carrier Services.
As a result, our business now consists of these two new
divisions together with the existing Enterprise Networks
division.

All of ICNs divisions offer services
including network planning, maintenance and consulting services.

ICN operates its own sales force in Germany and
uses dedicated personnel in Siemens worldwide network of
regional sales units. Some of our more significant carrier
customers include Deutsche Telekom, China Telecom, SBC, Telecom
Italia and Telefonica, while our larger non-carrier customers
include Coca Cola, Volvo, Deutsche Bank, Allianz and IBM. In
spite of declining markets, 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 one customer who contributed
between 5% and 10% of total sales in fiscal 2002. No other
customer contributed more than 5%.

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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. See Item 5: Operating and Financial Review
and ProspectsCustomer Financing below.

The following chart shows the geographic
distribution of ICNs total sales in fiscal 2002:

ICN 2002 Total Sales by Region

BAR GRAPH

Our global network of manufacturing sites and
operation centers helps us develop products to meet local
requirements. We have approximately 22 significant sites spread
throughout the world, with 14 in Europe, including two in
Germany.

In fiscal 2002, we spent
1.154 billion,
or 11.96% of ICN total sales, on research and development,
compared to
1.307 billion,
or 10.1% of total sales, in fiscal 2001. Our recent product
introductions and research and development efforts reflect our
focus on next generation switching/IP convergence, next
generation access and next generation optics. In the field of
convergence, we continue to develop and refine our HiPath brand
network products, which allow real-time voice and multimedia
communications over local area networks, as well as our SURPASS
brand, a carrier-grade network solution, that allows real-time
voice and multimedia communications in public service provider
networks.

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 ease market entry. A typical example is our Beijing
International Switching Systems (BISC) joint venture. BISC
manufactures our EWSD product line for delivery to the Chinese
market. Siemens holds a 40% stake in BISC. Our partners are the
Beijing Telecommunications Administration, Beijing C&W
Electronics Group and Beijing Comprehensive Investment Company.

The worldwide communications industry continues
to change in important ways:

Growth in data communications traffic.The growth of the Internet,
company-based intranets and local area computer networks as
means of transmitting information require networks that can
carry large amounts of different types of information at high
speeds.

Convergence of data, voice and video
communications.With the blurring of
distinctions between voice, data and video information in the
form of digital transmission, there is a growing trend towards
carrying all information over a single high-speed network able
to handle large amounts of digital traffic, rather than through
separate voice and data networks. This trend has been
accompanied by higher traffic volatility within networks, which
increasingly require systems that can manage such volatility
automatically.

Deregulation of communications markets and
privatization of communications providers.Throughout the world, governments have
been deregulating communications markets and opening them to
competition, as well as selling their stakes in state-owned
communications providers. This trend originally led to higher
investments in communications networks by new or newly private
companies, as well as more rapid development of new
communications products and applications. More recently,
however, the inability of many carriers, especially new
entrants, to increase revenues at anticipated rates has combined
with financing constraints to reduce overall levels of network
investment.

In response to these trends, ICN has focused its
strategy on packet-switched network technology providing network
solutions to our customers based on IP and designed to transport
voice, video and data over a cost-

16



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efficient, future-oriented platform. For new
entrants to the telecommunications market we offer consulting
services, innovative products and, in cooperation with Siemens
Financial Services, vendor financing.


Changes in the worldwide communications industry
over the past several years continue to have an impact on our
competitive environment. Like us, traditional voice
communications competitors such as Alcatel, Lucent and Nortel
have expanded their data communications activities. Conversely,
companies such as Cisco Systems, which formerly focused on
intra-company data networks, have in recent years acquired voice
communication capacity and have begun to provide products and
services to carriers. In addition to the companies mentioned
above, other major competitors include Ericsson, Fujitsu and
NEC. We also expect increasing competition from new entrants,
for example Huawei from China. In the enterprise market,
established PBX suppliers (PBX stands for private branch
exchange, a telephone switching platform for private
customers) have begun to focus on IP convergence solutions, and
new IT providers have entered the market with the first versions
of real-time communication and multimedia platforms.

For ICN, market conditions continued to
deteriorate in fiscal 2002, due largely to the ongoing downturn
in capital expenditures among telecommunications operators,
particularly in the United States and Germany. The demand for
voice over IP and multimedia applications in the enterprise
market has also been lower than anticipated. Given these
difficult market conditions, ICNs orders declined by
approximately 31% in fiscal 2002.

In response to these market conditions, ICN has
undertaken comprehensive adjustments to its cost structure and
business portfolio and intensified its efforts in working
capital management. We are continuing to implement our
Profitability and Cash Turnaround (PACT) Program, begun in
fiscal 2001, which is aimed at improving management of working
capital, cutting costs, reducing personnel, consolidating our
worldwide manufacturing structure and optimizing portfolio
management. In connection with our PACT Program, we are
proceeding toward the goals of reducing our overall worldwide
headcount by 20,500 and cutting our worldwide manufacturing
capacity by approximately half. See Item 5: Operating
and Financial Review and ProspectsFiscal 2002 Compared to
Fiscal 2001Segment Information
AnalysisOperationsInformation and
Communications.

The large size of some of our projects
occasionally exposes us to risks associated with technical
performance, a customer, or a country. See Long-Term
Contracts and Contract Losses. In the recent past, we have
not suffered significant losses in connection with such risks.

Information and Communication Mobile
(ICM)

|                     |                                                   |                    |                 |        | 
|-------------------- | ------------------------------------------------- | ------------------ | --------------- | ------ | 
|                     |                                                   | Year ended        
|                     |                                                   | September 30, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 11.045 billion |       
|                     | External sales as percentage of Siemens net sales |                    |                 | 12.99% | 
|EBIT                 |                                                   |                    | 96 million     |       
|Net capital employed |                                                   |                    | 1.973 billion  |       
|Employees            |                                                   |                    | 29 thousand     |       

Information and Communication Mobile designs,
manufactures and sells a broad range of communication devices,
applications and interfaces, and mobile network products and
systems including mobile, cordless and corded fixed-line
telephones and radio base stations, base station controllers and
switches for mobile communications networks as well as mobile
and intelligent network systems. Since its formation in fiscal
2000, ICM has become one of the worlds leading providers
of mobile devices and mobile infrastructure.

Our structure comprises five divisions: Mobile
Phones, Cordless Products, Wireless Modules, Networks and
Solutions.

Mobile Phones:We
offer digital mobile phones in GSM 900, 1800 and
1900 MHz as well as in GPRS technologies for all customer
segments. In addition, we offer mobile phones with combined GSM
and time division multiplexing access (TDMA) technology. We
build our major mobile phone products from a common platform to
reduce production costs while allowing us to readily tailor
features for different market segments. To

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broaden our mobile phone line, we continue to
introduce high-end products such as smart phones and wireless
PDAs. The core of our sales come from medium- and lower-priced
phones designed for the consumer market.


During fiscal 2002, we launched a variety of new
products, including: the S46, designed for the United States
market and our first mobile phone to combine GSM and TDMA
technology; the M50/MT50, a mid-class Java-based gaming phone
with magic buttons for direct access to applications
and services; the A50, a phone for the low-end segment that
supports enhanced messaging service (EMS), which allows the
transmission of very long short messaging service (SMS) messages
and specific graphics; the CL50, created for the Asian market
with a clamshell design, a polyphonic sound chip and dual
display; and the C55, our first phone that can be completely
personalized, with recordable sounds, CLIPit covers, smart
screen images and community building applications (such as
instant messaging finders, friend finders and event guides). We
sold 33.3 million mobile handsets in fiscal 2002, compared
with 28.7 million mobile handsets in fiscal 2001. ICM is
among the leading vendors of mobile phones worldwide, based on
market share data as of June 30, 2002 (Source: Gartner
Dataquest, November 2002).

Since the end of fiscal 2002, in order to take
advantage of the shift to GSM wireless networks in the United
States, we have launched several new phones tailored for the
United States market: the A56, designed to meet everyday
communication needs; the M46, which offers personalization
options and JAVA technology, and which will be marketed
exclusively through T-Mobile US (Voicestream); two new models
that offer consumers expanded entertainment options, the CT56,
which we designed for Cingular Wireless, and the C56; and the
S56, which has a color display, Multi Media Messaging (MMS)
capability, Bluetooth technology and an attachable camera. In
addition, Siemens and AT&T are now co-branding the SX56, a
combination phone and pocket personal computer already available
in the United States. We have also announced the launch of the
Asian and European counterparts of the S56 (the S57 and the S55,
respectively).

In addition, we recently shipped our first third
generation (3G) consumer product, the U10, to selected operators
for testing in connection with 3G network trials. The U10 is the
first product to result from our technical collaboration with
Motorola described below.

Currently, we rely on Infineon and Intel as
significant suppliers of semiconductors and other components for
mobile handsets.

Cordless Products:Our cordless products portfolio, based
on digitally enhanced cordless technology (DECT), covers the
entire range of products for the consumer, home office, and
small business segments.

In fiscal 2002, we launched the newest member of
the Gigaset 4000 family, the Gigaset H49xx, which allows
wireless home networking with higher data rates. Cordless
Products has also played an important part in the introduction
of standardized SMS protocols for the fixed network in Europe.

Wireless Modules:Our Wireless Modules division produces
communication modules based on the GSM standard. We have also
developed communications modules based on the GPRS standard,
including the first dual-band 900/1800 MHz GPRS
class 8 Module MC35, which came on the market in October
2001, and the newer class 10 Module, offering an increased
data rate. Our communication modules 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.

Networks:The
Networks division provides wireless network operators with a
complete range of products for building, expanding, and
enhancing GSM, GPRS and UMTS (W-CDMA, TD-SCDMA) mobile network
technologies as well as microwave networks. The divisions
product portfolio includes base stations and switching systems
for mobile communications networks and microwave technology
systems for faster and more cost-effective network rollout.
Additionally, the division offers hardware and software
platforms that enable the delivery of prepaid, payment and
location-based services. Based on estimated market share at
September 30, 2002, our Networks division is among the
leading global providers of GSM networks and prepaid services.

ICMs current mobile network products,
systems and solutions are designed to support the GSM standard
and GPRS and EDGE technology, as well as an entirely new
generation of ICM products based on the

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international UMTS standard (3G). UMTS offers
faster and more reliable transmission of voice, data and
multimedia communications over mobile phones through higher
efficiency and speed of radio transmission. These new types of
mobile network 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 currently
involved in 18 contracted 3G network projects. Despite the
uncertainty surrounding the timing of the buildout and
deployment of UMTS networks, we believe we are well positioned
in the European UMTS market at this early stage. We are
currently working on the rollout of W-CDMA infrastructure in
several Western European markets.


Solutions:This
division offers its customers the integration of mobile
applications and content packages. The Solutions division
focuses on customized solutions in the areas of multimedia
streaming, messaging, Java download services and
location-dependent services, which use the Networks
divisions platforms as well as third-party technology
platforms to provide applications tailored to customer needs.
The division provides these solutions in conjunction with a
comprehensive partner program, including a strategic partnership
with PacketVideo, a leading global provider of videostreaming
technology. In addition, we offer first-class messaging
solutions together with our strategic partner Openwave. Our main
customers are mobile network operators, and also mobile internet
service providers. We offer them customized solutions including
project-driven design, integration and hosting services.

Fujitsu Siemens Computers, ICMs 50% joint
venture with Fujitsu headquartered in Amsterdam, has
manufactured and marketed personal computers, laptops,
workstations, servers, mainframes and high capacity data storage
devices since 1999. The Managing Board has determined that the
operations of this joint venture do not fit within the product
portfolio of ICM. Accordingly, as of October 1, 2002, the
50% joint venture investment in Fujitsu-Siemens was transferred
from ICM and is now managed as a centrally-held investment to
allow Siemens to assess its options with respect to the
strategic direction of the joint venture.

In July 2001, we established Siemens Mobile
Acceleration GmbH to make strategic investments in start-up
companies in the mobile business field. Our Networks division
has continued to be involved in its joint venture Mobisphere,
located in the United Kingdom, to develop 3G mobile radio
infrastructure elements. Siemens holds a 51% stake in
Mobisphere, while NEC of Japan holds 49%.

In fiscal 2002, our Mobile Phones division
established collaborative relationships with Nokia, Motorola and
Symbian. These include the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In May 2002, we agreed with Nokia on a framework
    for the implementation of mobile terminal software based on open
    standards, with the goal of achieving maximum interoperability
    between mobile devices and applications. In addition, our Mobile
    Phones division has licensed the Nokia Series 60 software
    platform, which is designed to be one of the main software
    standards for smart phones and next generation handsets, and
    started working with Nokia on its further development.
|
| |  | Motorola has agreed to provide our Mobile Phones
    division with specially customized versions of its 3G terminals
    for use in its handsets. Our Mobile Phones division has also
    agreed to develop its own mainstream UMTS terminals using
    Motorolas i.300 Innovative Convergence 3G platform.                                                                                                                                                                                                         
|
| |  | We have also acquired a 5% stake in Symbian, a
    joint venture involving wireless industry leaders, such as
    Nokia, Ericsson, Matsushita, Motorola, Psion and Sony Ericsson
    for the development of open standard operating systems, to
    promote smartphones based on Symbian operating systems and to
    contribute our experience to the future technical, product and
    strategy development of Symbian operating systems.                                                                           

Other collaborative ventures include our
Solutions divisions strategic partnerships with
PacketVideo, a leading global provider of videostreaming
technology, and our Networks divisions Original Equipment
Manufacturing (OEM) agreement with Idetic, an innovative mobile
Internet company. ICM is also a member of OMA, the Open Mobile
Alliance, which is a standardization body for mobile
applications. OMA has approximately 230 member companies
covering the entire value chain of the mobile telecommunications
business: mobile operators, wireless vendors, IT vendors and
content/service vendors. OMAs goal is the creation of an
open mobile software and services market through the global
standardization of mobile services architecture.

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In fiscal 2002, we spent
1.231 billion,
or 11.1% of ICMs total sales, on research and development,
compared to
1.257 billion,
or 11.1% of total sales, in fiscal 2001. In addition to our
significant long-term development efforts in UMTS, we have
focused development efforts on GPRS and EDGE technology. We are
also continuing our collaboration with the China Academy of
Telecommunications and Technology, particularly with respect to
air interface standards (TD-SCDMA).

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.

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

In fiscal 2002, we made progress in building our
North American customer base as network providers in the United
States shift to GSM technology. The Networks division made a
significant entry into the United States market with a large
order from Cingular. The Mobile Phones division has added AWS
(AT&T Wireless), T-Mobile US (Voicestream), and Cingular as
its major customers.

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. See Item 5:
Operating and Financial Review and ProspectsCustomer
Financing.

Our products and services are sold through our
own sales units in over 70 countries, as part of Siemens
worldwide network of regional sales units.

The following chart shows the geographic
distribution of ICMs total sales in fiscal 2002:

ICM 2002 Total Sales by Region

BAR GRAPH

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

With increasing mobile phone penetration and the
maturing of the GSM network market, the markets for mobile
phones and wireless network products have continued to suffer,
particularly in Europe. In fiscal 2002, as in fiscal 2001,
demand for mobile phones was impacted by unfavorable economic
conditions and saturation, and the industry suffered from excess
inventories, oversupply and significantly reduced market prices
for mobile handsets. Demand in the wireless network market
declined significantly in fiscal 2002, and we currently expect a
further decline in the current fiscal year. The prospects for
stabilization and recovery in both the mobile phone and network
markets will depend on various factors, including: the timing
and rate of investment in third-generation (UMTS) infrastructure
and products, the timing and success of the commercial launch of
3G products and services and their widespread acceptance by
consumers, and a general improvement in consumer confidence.
These developments remain problematic, in part due to uncertain
worldwide economic conditions and the severe financial
constraints to which many wireless network providers are subject.

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In response to these difficult market conditions,
ICM initiated various cost-cutting programs in fiscal 2001 and
has continued to execute them in fiscal 2002. Our Mobile Phones
division has reduced its inventories significantly and
instituted cost-cutting measures so as to restore its
profitability in fiscal 2002. We also outsource a portion of our
mobile phone production to third parties. Our Top on
Air program, an additional program to reduce costs,
including headcount reductions, has been implemented at our
Networks division in fiscal 2002. We will continue the program
in fiscal 2003 in order to further reduce our costs and adjust
to the ongoing challenges of the market environment. See
Item 5: Operating and Financial Review and
ProspectsFiscal 2002 Compared to Fiscal 2001Segment
Information AnalysisOperationsInformation and
Communications.

On an ongoing basis, demand for our products,
systems and solutions depends on continuing growth in
communications and information technology use in the areas and
standards we serve. The mobile phone industry is in transition
from a voice-centered market to one that includes significant
data services, and future demand for wireless equipment may
depend on the availability and acceptance of such data services,
as well as worldwide economic conditions. Demand for wireless
equipment will continue to be affected by the financial
constraints facing most telecommunications operators, especially
in Europe, which limit their ability to invest in wireless
infrastructure. Demand for our mobile and cordless phone
products also typically fluctuates by season, with most of our
sales historically occurring around the Christmas holidays. Due
to generally short product life cycles in our mobile handset and
personal computer 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
handset and network telecommunications manufacturers and
computer companies with a broad focus as well as smaller
start-up companies concentrating on particular market niches.
Although competition differs by type of product, consolidation
in this industry is occurring rapidly as companies adjust to
address the increasing convergence of voice, data and multimedia
communications. Some of our most significant competitors include
Nokia, Motorola, Lucent Technologies, Nortel, Ericsson,
Sony-Ericsson and Samsung in mobile phones and mobile networks
and Matsushita, Atlinks, Panasonic and VTech in other digital
communications products. In mobile networks we are beginning to
face new low-cost competitors, such as Huawei of China. In
mobile phones Nokia and Microsoft have begun licensing their
open standard operating systems to other handset manufacturers
that compete with us. As a general matter, the most important
competitive factors in our business include speed in
technological innovation and product design, the ability to
design products compatible with the existing dominant standards,
the ability to manufacture products in sufficient quantities to
meet demand and the ability to attract and retain engineering
talent necessary to develop products for emerging standards.

Several recent or proposed governmental actions
may have an impact on our sales and costs. These include the
harmonization of consumer warranty periods at 24 months in
member states of the European Union (EU), which doubles the
length of the warranty period in Germany; the possible
establishment in the EU and other major markets of limits on the
Specific Absorption Rate or SAR for hand-held phones
and other devices (the SAR is a measure of the rate at which
radio frequency energy is absorbed by the body); and possible
environmental regulations, especially in Europe, concerning the
disposal of used electronic equipment and the reduction of
hazardous waste. See Environmental Matters. At
present, it is too early to tell what impact these developments
might have on our sales or profitability.

Siemens Business Services (SBS)

|                     |                                                   |                    |                |       | 
|-------------------- | ------------------------------------------------- | ------------------ | -------------- | ----- | 
|                     |                                                   | Year ended        
|                     |                                                   | September 30, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 5.773 billion |      
|                     | External sales as percentage of Siemens net sales |                    |                | 5.01% | 
|EBIT                 |                                                   |                    | 101 million   |      
|Net Capital Employed |                                                   |                    | 264 million   |      
|Employees            |                                                   |                    | 34 thousand    |      

Siemens Business Services provides information
and communications services to customers in industry, the public
sector, telecommunications, transport, utilities and financial
services. SBS designs, builds and operates

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both discrete and large scale information and
communications systems, and provides related maintenance and
support services.


Siemens established SBS in 1995 to provide
information technology services to Siemens and build external
business. SBS became a separate segment of Siemens in October
1998. SBS has expanded its activities to encompass the design
and building of information technology systems, initially for
Siemens and increasingly for external customers, who now account
for approximately 73% of total sales. SBS has also expanded into
the operation of communications systems to provide comprehensive
information technology and communications solutions from a
single source. We create these solutions for customers by
drawing on our management consulting resources to redesign
customer processes, our professional services to integrate,
upgrade, build and install information technology systems, and
our operational capabilities to run these systems on an ongoing
basis. In fiscal 2002, we generated approximately 32% of our
total sales from our project-driven solutions business, 46% from
operations-related services and 22% from product-related
services.

In fiscal 2002, we reorganized our divisions from
a regional-oriented structure to one that reflects the types of
services we offer: project-driven solutions, operations-related
services and product-related services. This structure continues
to be supported by a regional organization according to
geographic area.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | customer relationship management, to assist
    business 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s 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
    and 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 in different industries; SBS tailors
    standard software packages to a customers requirements to
    create a solution, optimizes it, makes it available throughout
    the enterprise and offers global, around-the-clock support for
    it; 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.                                                                                                                                                                                                                                                                                                                                                                                              

Most of the design and consulting services
provided by our consultants relate to information technology and
communications systems that we also build or operate. As
required by the customer, in a information technology
outsourcing arrangement we can operate an entire information
technology system or provide only one or more discrete services,
from data storage and processing to billing. We also provide
technical support and maintenance of existing information and
communication systems. Going forward, SBS will focus its
outsourcing activities on its IT core competencies. SBS is a
partner of SAP, Microsoft, Siebel, i2 Technologies, Oracle,
Toshiba and Computer Associates and can design and build systems
and provide services using their software.

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Our groups focus is on industry (including
Siemens), the public sector, telecommunications, transportation,
utilities and financial services. Siemens businesses
collectively continue to be our largest customer. Nevertheless,
the percentage of our revenue derived from Siemens has declined,
due in part to market conditions, which have led to a general
decline in IT budgets across all Siemens business segments, and
in part to the deconsolidation of Infineon. Although we compete
with external service providers for all Siemens contracts and
each Siemens business segment 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.

SBS is active worldwide in more than 50
countries. We have traditionally generated most of our sales in
Germany, followed by a significant percentage of sales to
European countries outside Germany. SBS has its own sales and
delivery force, as well as relationships with local companies
that act as dedicated delivery partners in certain smaller
countries.

The following chart shows the geographic
distribution of SBSs total sales in fiscal 2002:

SBS 2002 Total Sales by Region

BAR GRAPH

Continuing weakness in the IT services market,
and in the e-business sector in particular, has reduced demand
across our market segments. In response, we continue to
concentrate on improving our profitability through cost-cutting
measures, including adaption of capacity, primarily through
work-hour reductions and limitations on personnel outsourcing,
as well as several programs intended to enhance our operational
efficiency. See Item 5: Operating and Financial
Review and ProspectsFiscal 2002 Compared to Fiscal
2001Segment Information
AnalysisOperationsInformation and
Communications.

Our most significant competitors vary by region
and type of service. A few are global, full-service IT providers
of 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 AG, in
Germany and Atos/Origin in France and the Netherlands. Those
focusing on a particular service include Accenture (formerly
Andersen Consulting) in consulting, Cap Gemini/E&Y in
systems integration and Affiliated Computer Services in
outsourcing. As a service business, SBS needs a strong local
presence and the ability to build close customer relationships
and provide customized solutions while achieving economies of
scale and successfully managing risks in large projects.

Difficult market conditions have led to a
consolidation among our larger competitors, as reflected by the
following developments: the acquisition of PwC Consulting by
IBMs Global Services division, the acquisition of KPMG
Consultings United Kingdom and Netherlands businesses by
Atos/Origin, and the merger of Hewlett-Packard with Compaq. In
addition, many recently founded companies have either become
marginal competitors or gone out of business. Nevertheless, the
markets in which we operate remain fragmented.

The large size of some of our projects
occasionally exposes us to technical performance, customer or
country-related risks. In the recent past, we have suffered
significant losses in connection with such risks. Risks
associated with long-term business process outsourcing contracts
also remain a management focus at SBS. See Long-Term
Contracts and Contract Losses.

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Automation and Drives (A&D)

|                     |                                                   |                    |                |       | 
|-------------------- | ------------------------------------------------- | ------------------ | -------------- | ----- | 
|                     |                                                   | Year ended        
|                     |                                                   | September 30, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 8.635 billion |      
|                     | External sales as percentage of Siemens net sales |                    |                | 8.84% | 
|EBIT                 |                                                   |                    | 723 million   |      
|Net capital employed |                                                   |                    | 2.197 billion |      
|Employees            |                                                   |                    | 51 thousand    |      

Our Automation and Drives group is a market
leader for 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, which link products and systems
together and to building automation 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
automobile 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. Recent product
introductions include a motor whose winding made of
high-temperature superconducting materials enables
energy-efficient operation over long time periods.

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.

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

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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.

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 offices. For example,
we reach customers for 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 products
tailored to specific industry segments, thus increasing
efficiency in the planning, construction and commissioning of
plants. 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% of our total sales in fiscal 2002. Since a
portion of our business involves contracts for large scale
automation solutions, our list of significant customers may vary
significantly from year to year.

The following chart shows the geographic
distribution of A&Ds total sales in fiscal 2002:

A&D 2002 Total Sales by Region

BAR GRAPH

We have 53 significant manufacturing and assembly
locations around the world, including 22 in the Americas, nine
in Asia, and 22 in Europe, of which eleven are located in
Germany.

In fiscal 2002, we spent
511 million,
or 5.92% of A&Ds total sales, on research and
development, compared to
498 million,
or 5.6% of total sales, in fiscal 2001. 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 usability of our products; and
enlarging the field of our activities.

Worldwide economic conditions have deteriorated
over the past year, causing a sharp drop in investment in
machinery and equipment. This development had a negative effect
on our sales volumes and order intake. Our business activities
in the United States have experienced the most significant
decline, following a downward trend in the North American
automotive and machinery sectors where a large number of our
customers is concentrated. Our European business was less
severely affected because the European automotive industry was
able to better withstand the market downturn due to favorable
exchange rates and strong product portfolio.

An important goal in light of current economic
conditions is sales growth in our traditional markets in Germany
and Western Europe and continued expansion in 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 this regard, we
have reduced headcount at our U.S. operations, consolidated
production facilities and shifted production to lower cost
locations. We have also optimized our portfolio through disposal
of low-margin and non-core operations during fiscal 2002, such
as the sale of Elmo Vacuum Technology GmbH, a company
specializing in vacuum pumps and compressors. See also
Item 5: Operating and Financial Review and

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ProspectsFiscal 2002 Compared to Fiscal
2001Segment Information
AnalysisOperationsAutomation and Control.


Over the last several years, consolidation in our
industry has occurred 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 form comprehensive automation
suppliers. The rate of consolidation has slowed due to the
economic downturn, however, which has compelled some competitors
to divest parts of their businesses.

Intense competition and rapid technical progress
within this 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
circuitry. We estimate that approximately 75% of our total sales
in fiscal 2002 was generated by products that were introduced
within the last five years.

Our principal competitors ABB, Emerson,
Honeywell, Rockwell and Schneider have broad business portfolios
similar to ours. We also compete with specialized companies such
as Eaton, Omron and Fanuc. Our U.S. competitors
traditionally have had strong positions in software
technologies, while some Japanese companies have generally
focused on large-scale production and cost cutting. 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, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 4.480 billion |      
|                     | External sales as percentage of Siemens net sales |                    |                | 4.02% | 
|EBIT                 |                                                   |                    | (198) million |      
|Net capital employed |                                                   |                    | 315 million   |      
|Employees            |                                                   |                    | 29 thousand    |      

Industrial Solutions and Services provides
innovative solutions and services designed to enable our
customers to improve their competitiveness. Our offerings cover
the entire life cycle of industrial and infrastructure
facilities, from consulting and planning through installation,
operation, integration of IT-solutions, maintenance and
modernization.

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 servicesincluding 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 controlincluding 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.              

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In fiscal 2002, I&S was organized into
six divisions. Four of our current divisions use their
industry-specific expertise to design and deliver industry
sector solutions tailored to customers needs in the
industry sectors listed below:

Metals, Mining and Paper
Technologiesprovides 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.

Oil & Gas and Water
Technologiesoffers solutions for off-
and onshore operations of the oil and gas industry, including
power- and integrated drive systems, automation, process control
and information technology. In this industry, our solutions and
services address both upstream exploration as well as midstream
transportation and pipeline activities. In the water/wastewater
sectors, our offerings range from industry specific solution
packages (e.g., process simulation) to supplying the entire
spectrum of automation, process control, drive systems and
electrical equipment for plants.

Infrastructure and Marine
Solutionsprovides automated airport
ground traffic guidance and control systems and the electrical
equipment used in seaport freight handling systems. We also
deliver propulsion drives and integrated electrical systems for
ships as well as fuel cells for submarines. In addition, we
provide alternative power solutions such as combined heat and
power plants. We also specialize as a general contractor for
large- and medium-sized wind farms.

Intelligent Traffic
Systemsoffers automated systems for
urban and interurban 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 other two divisions complete our scope by
providing IT solutions and life-cycle services.

Industrial Servicesis our largest division, typically accounting for over half of
I&S total sales. It is responsible for our
industrial technical services activities, providing a
wide range of technical services covering each stage of the life
cycle 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 also provide plant decommissioning services. We are active
globally on a local basis through a network of about 300 service
locations in more than 90 countries with nearly 21,000
employees. Our strong local presence allows us to be close to
our customers, increasing speed and efficiency in delivering our
services.

IT Plant Solutionsis our division responsible for information technology plant
solutions. It provides high value-added solutions for the
growing market in advanced industrial information technology and
industry-specific manufacturing execution solutions. This
division provides consulting services, software applications and
system integration to deliver solutions tailored to specific
industries, such as oil and gas, petrochemicals, food and
beverage, metals and mining and pulp and paper. By integrating
the shop floor with production operations and business
management, our information technology solutions manage the
intricate flow of information among these levels and optimize
production processes, thereby creating an intelligent
plant.

Beginning with fiscal year 2003, we will
reorganize our business into four divisions: Industrial Plants,
Industrial Services, IT Plant Solutions and Intelligent Traffic
Systems.

Together with the planned reorganization of our
divisions in fiscal 2003, in the current fiscal year, we
initiated a plan to rationalize our organization and business
portfolio to address declining earnings and improve
competitiveness. Our goal is to focus I&S on its core
competencies and higher margin businesses. In this regard, we
have initiated productivity improvement and cost reduction
programs. In addition, we intend to optimize our business
portfolio. Activities which we have identified as outside of our
main competencies, such as the development and production of
printed circuit boards and the operation of repair facilities,
will be divested or transferred to other Siemens groups. The
rationalization plan will result in the reduction of headcount
through attrition, early retirement and voluntary and
involuntary terminations. In fiscal 2002, I&S incurred
severance

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charges in connection with the plan to eliminate
approximately 1,600 positions. Talks on further arrangements
with the employee organizations are underway. See also
Item 5: Operating and Financial Review and
ProspectsFiscal 2002 Compared to Fiscal 2001Segment
Information AnalysisOperationsAutomation and
Control.


We are a multiple source vendor and selectively
purchase products and systems regardless of their manufacturer.
We cooperate extensively with Siemens A&D and PTD
groups, integrating their products and systems into the
solutions we design and deliver.

In Europe, our primary goal is to increase our
business outside of Germany. We are also seeking to continue our
growth in the Americas and Asia.

Our industry sector divisions derive their sales
revenues primarily from projects awarded on the basis of
internationally solicited tenders. Our Industrial Services
division provides its services to numerous customers across a
variety of industries, as well as to our industry sector
divisions and other Siemens businesses. While services provided
to Siemens traditionally account for the most significant
portion of the total sales of Industrial Services, accounting
for approximately 50% of its sales in fiscal 2002, our goal is
to expand the portion of services we provide to outside
customers.

We market our services to our customers primarily
through our own 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. In fiscal
2002, we generated about 51% of our total sales from projects
and services performed outside Germany. The following chart
shows the geographical distribution of I&S total sales
in fiscal 2002:

I&S 2002 Total Sales by Region

BAR GRAPH

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 2002, we spent
44 million,
or 0.98% of I&S total sales, on research and
development, compared to
48 million,
or 1.1% of total sales, in fiscal 2001. 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 efficiency in areas such
as production output and energy consumption.

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 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 our competitive advantage is
our unique combination of competence in the industry sector,
information technology and technical services fields.

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The large size of the projects performed by our
industry sector divisions occasionally exposes us to risks
related to our technical performance, to a customer or to a
country. For further information on such risks, see
Long-Term Contracts and Contract Losses. We
have not experienced material losses in the past in connection
with these risks.

Siemens Dematic (SD)

|                     |                                                   |                    |                |       | 
|-------------------- | ------------------------------------------------- | ------------------ | -------------- | ----- | 
|                     |                                                   | Year ended        
|                     |                                                   | September 30, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 2.995 billion |      
|                     | External sales as percentage of Siemens net sales |                    |                | 3.44% | 
|EBIT                 |                                                   |                    | 45 million    |      
|Net capital employed |                                                   |                    | 975 million   |      
|Employees            |                                                   |                    | 12 thousand    |      

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. SD was
formed by the merger in April 2001 of the former Siemens
Production and Logistics Systems with Atecs Mannesmann Dematic
Systems group. As a result, we became the largest participant in
the material handling automation market overall. Our business
consists of three divisions: Material Handling Automation,
Postal Automation and Electronics Assembly Systems.

Our Material Handling Automation division
designs, manufactures and assembles integrated distribution and
factory logistic systems. We are organized into three regional
business groups covering Europe, the Americas and Asia-Pacific.
Each group consists of local market oriented units serving
different customer segments. We automate materials flow,
handling and logistics processes for major retail and wholesale
operations and durable and non-durable goods manufacturers
through our Distribution, Industrial and Automotive units. Our
Warehousing, Government, Postal & Parcel Operations (for
government contracts) and Airport-Baggage/Cargo units automate
parcel, freight, baggage and cargo handling for third-party
warehousing and forwarding agents. Our core competencies in this
division are globally standardized product and systems
development, planning, information technology, material handling
automation architecture and consulting in support of our systems
sales. This division represents more than half of SDs
total annual sales.

Postal Automationprovides equipment for: sorting of
both standard and large letters (so-called flats); reading and
coding systems; postal information technology; and postal
services such as product-related after-sales services, general
contracting and presort operations. Key customers for this
business are the traditional post and parcel services, including
the German and U.S. postal services. Our potential
customers include private parcel and package carriers, of whom
UPS and TNT are current customers, and are served jointly with
the Material Handling Automation division.

In both our Material Handling Automation 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. Both businesses 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 Automation & Drives (A&D). Our Material
Handling Automation and Postal Automation divisions have been
negatively affected by declining capital spending by the
manufacturing industry and logistics and postal service
providers. The effect has been exacerbated by excess capacity
resulting in part from the cessation of operations by many
Internet retail businesses, whose relatively new
product-handling and logistics systems are offered for sale in
secondary markets. In this adverse environment, the Postal
Automation division secured in June 2002, an important order
from the U.S. Postal Service for the production and
installation of a new mail forwarding system, after the
U.S. Postal Service lifted its investment freeze. Due to
our large installed base in the postal market, we expect to

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maintain a profitable business volume over the
coming years through value-added upgrading and servicing of this
equipment base.


We expect that going forward our Material
Handling Automation 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 an opportunity 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 increase their investment in
integrated, automated systems and technologies in order to
improve their productivity and speed, creating an opportunity
for us.

Our Electronics Assembly Systems
division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 service providers whose
emergence reflects a growing industry trend towards outsourcing.
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.
With increased pressure on our customers to reduce assembly
costs, we can now bring our total process knowledge to benefit
the customer through these standard line configurations.

This business has continued to experience the
downturn which began in calendar year 2001 caused primarily by
the decline in technology investment in the U.S. and the
recession in the global telecommunications industry. The ongoing
slow-down has negatively affected the level of sales and new
orders and profitability in this division. We have reduced our
production capacity in Germany and are shifting business focus
to the Asia-Pacific region where many of our customers have
moved their manufacturing locations.

In addition to our core placement systems
business, we are also actively developing new business
opportunities in various innovative areas. For instance, we have
recently began production of laser structuring machines that use
a CAD-data controlled laser to transfer microstructures onto
printed circuit boards. It enables high-density 50-micrometer
structures adapted to the requirement of the trend toward
miniaturization in the electronics manufacturing industry.

In fiscal year 2002, we announced our intention
to sell our Assembly and Plastics Technology business because
the nature of this business, engineering and building unique
equipment for customers, does not fit our overall strategy of
offering standardized solutions.

We distribute our products primarily through our
own sales force in Germany and our own local Siemens Dematic
distribution companies throughout the world.

The following chart shows our sales broken down
by region in fiscal 2002:

SD 2002 Total Sales by Region

BAR GRAPH

We have four significant manufacturing and
assembly facilities in Germany and two in the United States.

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In fiscal 2002, we spent
153 million
or 5.1% of SDs total sales on research and development,
compared to
147 million,
or 5.8% of total sales, in fiscal 2001. Main areas of focus
include our laser structuring machines in the Electronics
Assembly business, as well as a new high performance SMT
placement product. In the Material Handling Automation business,
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.

The current economic downturn has led us to
increase our emphasis on improving profitability, including
reducing costs by lowering headcount and consolidating our
production facilities. In addition, we implemented a
design-to-cost strategy that keeps customization of products
within a targeted cost structure. These efforts also include a
shift of resources and attention to what we view as the most
promising markets, for example, in the case of Electronics
Assembly Systems, from Europe and the Americas to the
Asia-Pacific region. 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. See
also Item 5: Operating and Financial Review and
ProspectsFiscal 2002 Compared to Fiscal 2001Segment
Information AnalysisOperationsAutomation and
Control.

Our main competitors in our Material Handling
Automation and Postal Automation businesses are FKI Logistex
(including the former Crisplant), Daifuku, Swisslog, Northrop
Grumman, Lockheed Martin, Elsag, NEC and Pitney-Bowes. Other
competitors operate within niche markets or market specialized
technologies to their customers; these include Vanderlande,
G&T Conveyor (which acquired BAE Division of Invensys)
and Duerr. Competition in this area is strong due to weakened
demand and excess capacity. Several of our competitors in the
Material Handling Automation business have recently entered the
U.S. market, a region from which we derive a substantial
portion of our revenues. Major competitors of our Electronics
Assembly Systems division include Fuji Machine, Panasonic,
Assembleon (formerly Philips Electronics Manufacturing
Technology) and Universal Instruments, a subsidiary of the Dover
Group. In fiscal 2002, Panasonic introduced a product which
competes directly with our key high speed electronic assembly
system HS-50.

Siemens Building Technologies AG
(SBT)

|                     |                                                   |                    |                |      | 
|-------------------- | ------------------------------------------------- | ------------------ | -------------- | ---- | 
|                     |                                                   | Year ended        
|                     |                                                   | September 30, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 5.619 billion |     
|                     | External sales as percentage of Siemens net sales |                    |                | 6.3% | 
|EBIT                 |                                                   |                    | 195 million   |     
|Net capital employed |                                                   |                    | 1.778 billion |     
|Employees            |                                                   |                    | 36 thousand    |     

Siemens Building Technologies provides products,
systems and services for monitoring and regulating the
temperature, safety, electricity, lighting and security of
commercial and industrial property, tunnels, ships and aircraft.
We also provide planning, management and technology-related
electrical contracting services in connection with building
projects. Finally, we operate and maintain entire building sites
as an outside technical facility management service provider.

SBT consists 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 centralized
monitoring and control of each of these individual systems.

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Fire Safetyoffers
solutions and services to the non-residential markets for fire
detection and protection, including computerized gas leakage and
fire alarms and 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
electronic security and hazard protection products and systems,
including complete computerized fire, gas leakage and intruder
detection and alarm systems. It sells these components to our
solutions providers, the Security Systems and Fire Safety
divisions, and also sells its products and systems to small
electrical installers through its own branded distribution
channel.

Building Automationoffers solutions to the non-residential markets for 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 performance contracting solutions, refurbishing
buildings to improve their energy efficiency and provide the
customer 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 (OEMs),
value-added partners and installers.

Facility Management
Serviceshas two businesses. The
Project Business unit of this division provides services
relating to the planning and management of electrical
contracting projects. The Facility Management unit operates and
maintains entire building sites for tenants and owners as an
outsource provider and also offers facility management
consulting services to building operators. We provide these
technical facility management and consulting services both for
buildings that use SBT products and systems as well as for
buildings using those of our competitors.

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, original equipment manufacturers of
HVAC systems and wholesalers, specialized system builders and
installers. Most of our sales are attributable to a large number
of relatively small orders and we generate a significant portion
of our sales from orders of
25,000 or less.
Siemens is traditionally the only customer responsible for more
than five percent of SBTs total sales, accounting for 5.8%
of SBTs total sales in fiscal 2002.

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 500 wholly owned local sales, project execution
and services branch offices in more than 40 countries. In order
to improve synergies with Siemens regional companies, over
the next few years, we plan to integrate SBTs local
organizations with the Siemens regional offices. For some
markets, we also distribute our products, systems and services
through a network of independent field offices and distributors.
Our services businesses and sales network have a significant
local presence 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.

The geographic focus of our business differs
significantly by division. Security Systems, Fire Safety, Fire
& Security Products, Building Automation and HVAC Products
sell their products and systems throughout the world, with the
majority of sales in Europe and the United States. These
divisions currently aim to expand in selected Asian and South
American markets. In contrast, our Facility Management Services
division offers services primarily in Germany, Switzerland,
Norway, Austria, Italy and Turkey.

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We generate most of our sales in Europe and the
United States. The following chart shows the geographic
distribution of SBTs total sales in fiscal 2002:

SBT 2002 Total Sales by Region

BAR GRAPH

We have 14 significant manufacturing and assembly
facilities worldwide, including ten in Europe, of which three
are located in Germany.

In fiscal 2002, we spent
171 million,
or 3% of SBTs total sales, on research and development,
compared to
168 million,
or 3% of total sales, in fiscal 2001. 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 of different ages 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 from a distance via the Internet.

Traditionally, the HVAC, electricity, security
and 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 these individual
systems and to offer multifunction building automation systems.
Sales of such integrated building automation systems have until
recently occurred primarily in the United States, and it remains
difficult to determine at what pace a significant market for
them will develop in other regions.

In recent years, our business experienced
double-digit growth, in part through acquisitions, with some of
our divisions growing faster than the market. In the near term,
we plan to continue to grow profitable business fields at
roughly the same rates as 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 original equipment
manufacturers, making more of our existing products available
for offering on an OEM basis. Our Systems and Services divisions
(Security Systems, Fire Safety, Building Automation and Facility
Management Services) are using their current large installed
base of building technology products and systems as a means of
generating service and maintenance contracts.

While we plan to sustain growth at market rates
for profitable segments, we have shifted our emphasis from sales
growth to increasing profitability, especially at our Security
Systems, Fire Safety and Building Automation divisions. To boost
profitability, we have strengthened our productivity improvement
initiatives which include process improvements, enhanced
purchasing coordination, reduction of our product portfolio,
reducing volumes of low-margin segments and some headcount
reductions.

In the markets for Fire Safety and Building
Automation, SBT has a leading position with approximately 20% of
the worldwide market. Three of our divisions, Fire Safety,
Building Automation and HVAC Products, which account for nearly
75% 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 Building Automation they are
Johnson Controls and Honeywell, while for HVAC Products
Honeywell, Invensys and Danfoss are the largest competitors.

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The Security and Facility Management markets are
both highly 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 market, Tyco is a market leader. General Electric has
recently entered the fire and security products market through
its acquisition of Interlogix. The market is still very
fragmented, however, with the top five companies comprising only
about 15% of the market. Most of our competitors focus on a
particular product, system or service, or have a regional
orientation. Despite the traditional fragmentation,
consolidation is beginning to occur in certain of our markets.
In addition, the influence of e-commerce and the introduction of
the euro are resulting in a harmonization of market prices for
products and systems across regions. In response to these
trends, 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.

Ensuring that our products and systems operate
reliably is important to our business since the failure of
building maintenance, safety and security systems can have
serious consequences. We have not experienced significant
liabilities in the past as a result of product or design defects.

Power Generation (PG)

|                     |                                                   |                    |                |        | 
|-------------------- | ------------------------------------------------- | ------------------ | -------------- | ------ | 
|                     |                                                   | Year ended        
|                     |                                                   | September 30, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 9.446 billion |       
|                     | External sales as percentage of Siemens net sales |                    |                | 11.19% | 
|EBIT                 |                                                   |                    | 1.582 billion |       
|Net capital employed |                                                   |                    | (144) million |       
|Employees            |                                                   |                    | 26 thousand    |       

Siemens Power Generation group provides
customers worldwide with a full range of equipment necessary for
the efficient conversion of energy into electricity and heat. 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.

Power Generation 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
83% of total sales in fiscal 2002.

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 into electricity. In a fossil fuel
plant, the power generation process begins with working media
such as water, steam or compressed air, which are initially
transferred to high pressure states by heating in boilers or
combustion sections of gas turbines. Thereafter steam and gas
turbines convert this energy into mechanical energy, which in
turn is converted into electricity by generators. In so-called
combined cycle plants, a combination of gas and steam turbines
is used to reach highly efficient conversion rates of nearly
60%. At the end of the process, electricity is fed into
transmission grids from the plant site.

Fossil Power
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. Our installed base of thermal power plant capacity
of approximately 500 gigawatts provides us with a good
opportunity to grow our service business. Our successful
integration of Westinghouses fossil power generation unit,
acquired in 1998, has improved our position in the market for 50
Hertz plants and strengthened our access to the 60 Hertz markets.

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Industrial
Applicationsincludes steam and gas
turbines in the small and medium power ranges, as well as
related turbo generators and power plants. This division now
also includes the turbo compressor business of Mannesmann Demag
Delaval, which we acquired as part of Siemens acquisition
of Mannesmann Atecs AG in fiscal 2001. 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. In addition, we offer our customers combined
cycle power plants fitted with gas turbines supplied by third
parties. In the renewable energy sector, we also offer biomass
power plants.

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 are establishing a
stationary fuel cell facility in Pittsburgh (United States).

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
2002, we acquired ICIS Technology Limited, a British provider of
IT systems and services for energy trading and power plant
management, and in October 2002, we acquired NewEnergy
Associates LLC, one of the leading U.S. providers of
software solutions for the energy sector. These businesses will
be integrated into the Instrumentation and Controls division.
The acquisitions are a part of the divisions strategy of
becoming a leading provider of information technology in the
energy sector. We will also continue to optimize our portfolio
by dispositions where appropriate. As part of the portfolio
optimization program, we included our ceramics business to the
portfolio of business activities sold by Siemens to a private
equity investor, effective September 24, 2002. See
Item 5: Operating Review and ProspectsFiscal
2002 Compared to Fiscal 2001Segment Information
AnalysisOperationsPower.

Power Generations principal customers are
large power utilities and an increasing number of 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. Calpine Corporation, Dynegy and
Tractebel are among our largest customers in the United States.
We also generate a portion of sales from industrial customers,
who represent an important market for smaller power plants and
turbines.

Our business activities vary widely in size from
comparatively small projects to turnkey contracts for new power
plant construction with contract values of over 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. In the past, we have experienced significant
losses in connection with such risks. See Long-Term
Contracts and Contract Losses.

We work with Siemens Financial Services group
(SFS) to assist our customers with financing. 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.

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The following chart shows the geographic
distribution of PGs total sales in fiscal 2002:

PG 2002 Total Sales by Region

BAR GRAPH

We have approximately 13 significant
manufacturing and assembly facilities worldwide, including four
in the Americas and nine 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)
and 50/60 Hertz gas turbines in Berlin (Germany). Following
the acquisition of the turbo compressor business of Mannesmann
Demag Delaval, we have decided to consolidate our turbo
compressor production primarily in Duisburg (Germany).

PGs research and development efforts are
currently focused on advancing products and concepts that
combine gas and steam technologies, particularly for use in new
power plant designs combining high efficiency and lower
emissions. We are also studying ways to reduce life-cycle costs
for new power plants, particularly by enhancing the durability
of parts and components, and further boost operating efficiency
and performance while reducing emissions. We have recently
developed standardized and modularized coal-fired power plants
especially for the Asian markets. In fiscal 2002, PG spent
309 million,
or 3.3% of its total sales, on research and development,
compared to
262 million,
or 3.1% of total sales, in fiscal 2001.

Following a period of high growth fuelled by
strong investment in gas turbines in the United States, we
expect the worldwide aggregate sales in the power plant markets
to return to levels that prevailed before this period of high
growth. 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, such as fluctuations in fuel prices, that
can have implications for demand for certain product types.
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 market will give our
customers an incentive to replace existing units which had
ceased to be competitive.

The recent decline in the power generation
industry has been most pronounced in the United States. This
decline has been caused primarily by the slowdown in the
U.S. economy, excess capacity built up in recent years and
our customers difficulties in securing financing for power
plant projects. We will continue to reorganize our worldwide
manufacturing, engineering, project execution and sales and
marketing locations in line with lower market volume. For
example, we plan to further concentrate our turbo generators
manufacturing in Charlotte (United States) and to relocate
component manufacturing from Newcastle (United Kingdom) to our
other existing European and U.S. operations. We have
implemented additional cost containment measures, including
headcount reductions, and process improvement efforts to
position ourselves for the contracting power environment. See
Item 5: Operating and Financial Review and
ProspectsFiscal 2002 Compared to Fiscal 2001Segment
Information AnalysisOperationsPower.

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 Electric, Alstom
Power, and Mitsubishi Heavy Industries in fossil power
generation. In instrumentation and

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controls, where the market is more fragmented,
ABB is our main competitor. In the recently acquired compressor
business, additional competitors are MAN Turbo, GE Nuovo Pignone
and Dresser Rand. 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, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 4.199 billion |      
|                     | External sales as percentage of Siemens net sales |                    |                | 4.68% | 
|EBIT                 |                                                   |                    | 109 million   |      
|Net capital employed |                                                   |                    | 928 million   |      
|Employees            |                                                   |                    | 17 thousand    |      

Our Power Transmission and Distribution group
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; and information technology systems and
consulting services relating to the design and construction of
power transmission and distribution networks. We offer the
following products and services, presented roughly in the order
in which they are used in a power transmission and distribution
network. Each group of products and services described
corresponds to an internal division of the same name unless
otherwise indicated:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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);                                                                                                                             
|
| |  | 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;

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| |   |                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 our Power Automation division); 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 design of power
transmission and distribution networks; information technology
services and solutions to support customer management and energy
trading; 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 expanded PTD Services division aims specifically
at responding to our customers increasing demands for
these services. During fiscal 2002, we launched a joint venture
with the German municipal utility Stadtwerke Leipzig to offer a
complete range of services and systems to German and other
European multiple utility providers.

For our large-scale projects we work together
with Siemens Industrial Solutions and Services group,
which assists with facility construction, and with Siemens
Financial Services, which provides financing for our customers.

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
own sales force in Germany and through dedicated personnel in
the regional Siemens sales units worldwide.

We generate approximately one-third of our sales
from projects and the remainder from sales of systems and
components. A relatively small portion of our project business
involves construction of large power networks and other projects
with values of more than
10 million.
Most of our business is generated from smaller projects and
sales of systems and components to a variety of smaller
customers, and we do not currently have any customers that
account for more than five percent of our total sales.

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 China, India, Taiwan, Malaysia and Korea and
South America.

Although the power transmission industry in
industrial countries is a mature business, new demand for our
products, systems and services has recently arisen in the
industrial world as utilities and private power companies
respond to deregulation by finding 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. In addition to responding to these new sources of
demand, we continue to seek new markets for expansion and to
develop innovative new products and systems to respond to
ongoing pricing pressures in our markets.

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The following chart shows the geographic
distribution of PTDs total sales in fiscal 2002:

PTD 2002 Total Sales by Region

BAR GRAPH

We generate a significant portion of our total
sales in developing countries in South America and the
Asia-Pacific region. While we believe these regions 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. For example, the political and economic crisis
in Argentina had an adverse impact on orders and sales in that
country during fiscal 2002. We began the construction and
equipping of converter stations for a new high-voltage
direct-current transmission line in the Peoples Republic
of China in fiscal 2002, for the transportation of 3000
megawatts of electricity across 940 kilometers under a
354 million
contract, the largest single contract PTD has secured to date.
Among our other large projects in the developing world are the
Three Gorges Dam project in China and the construction of
converter stations for a high-voltage direct-current power line
in India.

The large size of some of our projects
occasionally exposes us to risks associate with technical
performance, a customer or a country. See Long-Term
Contracts and Contract Losses. In the recent past, we have
not experienced material losses in connection with such risks.

We have approximately 32 significant
manufacturing and assembly facilities worldwide, including 6 in
the Americas, 9 in Asia, and 16 in Europe, of which seven
are located in Germany.

We included our metering products and systems
division to the portfolio of business activities which Siemens
sold to a private equity investor, effective September 24,
2002. See Item 5: Operating and Financial Review and
ProspectsFiscal 2002 Compared to Fiscal 2001Segment
Information AnalysisOperationsPower. We will
continue to provide metering services, mainly to customers in
the United Kingdom, through our Services division.

In fiscal 2002, we spent
102 million,
or 2.43% of PTDs total sales, on research and development,
compared to
111 million,
or 2.7% of total sales, in fiscal 2001. Our research efforts
currently include information and communications applications to
facilitate energy trading among companies in deregulated energy
markets.

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, Alstom
and Schneider, as well as General Electric, which recently
announced its intention to target the European power market,
Toshiba and VA Tech. There is also a trend toward increased
cooperation among competitors through formation of joint
ventures to focus on specific projects or market opportunities.
To improve our competitive position, in recent years we have
located new production facilities in the Asia-Pacific region and
upgraded our production facilities in South America, 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
2002, we initiated productivity improvement and cost-cutting
measures. We have also conducted a program to review and improve
the overall quality and efficiency of our project management,
including the management of potential contract claims. We have
responded to the recent decline in sales occasioned by the
market downturn in the U.S. and the economic crisis in
Argentina through headcount reduction in those locations.

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Transportation Systems (TS)

|                     |                                                   |                    |                |       | 
|-------------------- | ------------------------------------------------- | ------------------ | -------------- | ----- | 
|                     |                                                   | Year ended        
|                     |                                                   | September 30, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 4.367 billion |      
|                     | External sales as percentage of Siemens net sales |                    |                | 5.18% | 
|EBIT                 |                                                   |                    | 247 million   |      
|Net Capital Employed |                                                   |                    | (741) million |      
|Employees            |                                                   |                    | 17 thousand    |      

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 light rail
and mainline systems; technology for driverless metros and
computer-controlled electronic switches; optical sensor systems;
and 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.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Heavy railproducts
    include subway and suburban rapid transit trains, subway cars
    and running gear, as well as their subsystems and components.                                                                                                                                                                                                                    
|
| |  | Locomotiveproducts
    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.
|
| |  | Light railproducts
    include streetcars, light rail vehicles and their components.                                                                                                                                                                                                                                                                                      
|
| |  | Trainsproducts
    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 2002.

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 (including heavy and light
    rail), 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 2002.

In our turnkey systems business, we
cooperate closely with the other TS businesses, integrating
their products and services to offer turnkey projects from a
single source. We aim to optimize the design and construction of
entire railway systems, ensuring high quality and reducing
life-cycle costs. Current projects include the transrapid
project in China, an electromagnetically elevated and propelled
high-speed train; the construction of the new Bangkok subway
system; a new light rail transit system south of Lisbon and two
new

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street car lines in Verona. We also assist our
customers with arranging financing in cooperation with Siemens
Financial Services. Our turnkey systems business was our
smallest in terms of sales in fiscal 2002.


With our integrated services unit 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
AG 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. The
following chart shows the geographic distribution of TSs
total sales in fiscal 2002:

TS 2002 Total Sales by Region

BAR GRAPH

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 declined modestly
in recent years and we expect that trend to continue for the
foreseeable future.

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

In fiscal 2002, TS spent
139 million,
or 3.2% of our total sales, on research and development,
compared to
138 million,
or 3.4% of total sales, in fiscal 2001.

The world markets for products and services in
the railway transportation industry continue to be in flux.
Despite the continuing 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. Budget
pressures faced by many state operators further increase price
pressure and require increasingly innovative financing
solutions. 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:



| |   |                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | for rolling stock, to 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;       
|
| |  | for automation and power, to 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;

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| |   |                                                                                                                                                                                                                                                                                               
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | for integrated services, to expand through
    strategic alliances in service enterprises; to emphasize our
    System plus Service segment, which offers a complete
    package of new products plus service and maintenance; and to
    improve our market penetration through e-business.

We also continue to participate in industry
consolidation through acquisitions and joint ventures. In fiscal
2002, we significantly strengthened our market position for mass
transit vehicles in Eastern Europe by acquiring certain assets
of the Czech rolling stock manufacturer CKD DS. We have
also enhanced our integrated services capabilities by investing
in two 50% stake joint ventures in Leipzig in order to expand
and reinforce Leipzig as a center for rail transportation
infrastructure in Southern and Eastern Germany.

Our priority remains improving our profitability.
After experiencing losses in fiscal 1998, we brought in a new
management team and launched a program called the TS Initiative
to cut our costs and improve our performance. As a result, we
managed to improve our cost position and returned to modest
profitability in fiscal 2000. In fiscal 2001 we broadened the TS
Initiative to include improving sales, promoting innovation and
e-business and optimizing our product portfolio. We are
currently continuing the TS Initiative, which resulted in a
significant increase in profitability for fiscal 2002. See also
Item 5: Operating and Financial Review and
ProspectsFiscal 2002 Compared to Fiscal 2001Segment
Information AnalysisOperationsTransportation.

The large size of the projects performed by our
TS businesses 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.
See Long-Term Contracts and Contract Losses.
In this context, we have continued to improve our project
controlling, risk management and claims management systems. 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, reduction of risks and meeting customer requests.

On a global scale, we compete in our industry
segment 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 in a narrow product
spectrum. Our principal competitors are Alstom and Bombardier.

Siemens VDO Automotive (SV)

|                     |                                                   |                    |                |        | 
|-------------------- | ------------------------------------------------- | ------------------ | -------------- | ------ | 
|                     |                                                   | Year ended        
|                     |                                                   | September 30, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 8.515 billion |       
|                     | External sales as percentage of Siemens net sales |                    |                | 10.11% | 
|EBIT                 |                                                   |                    | 65 million    |       
|Net capital employed |                                                   |                    | 3.746 billion |       
|Employees            |                                                   |                    | 43 thousand    |       

Siemens VDO Automotive (SV) is the result of the
merger in April 2001 of the former Siemens Automotive with
Mannesmann VDO AG. The integration of Mannesmann VDO into
our group is now substantially complete.

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

In fiscal 2002, we established a new divisional
structure for SV so that we now 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, 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; chassis electronics used
    in steering and braking; tank                              

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | systems for fuel handling including fuel pumps,
    supply units and level sensors; 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; 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                                                                             
|
| |  | Trading &
    Aftermarket, 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;                                                                     
|
| |  | a color heads-up display that projects
    information about driving conditions and navigation instructions
    onto the windshield;                        
|
| |  | a digital tachograph that collects important data
    concerning the operation of vehicles, allowing more
    sophisticated management of fleets;           
|
| |  | contactless fuel level sensors for long-life,
    high-performance fuel supply systems;                                                                     
|
| |  | 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 than
selling individual components.

Most of our customers are large 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 2002, four of the worlds five
largest automobile manufacturers 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, Motorola STM and
Philips for semiconductors, Tyco for wire housings and
connectors, and APM for drives.

We have our own independent sales force, which is
active worldwide. We generate most of our sales in Europe and
the United States, with an increasing share in Asia-Pacific. The
Japanese market is still served mostly by local and in-house
suppliers.

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The following chart shows the geographic
distribution of SVs total sales in fiscal 2002:

SV 2002 Total Sales by Region

BAR GRAPH

We have approximately 50 manufacturing and
assembly facilities, including 14 in the Americas and 28 in
Europe. Of these, 11 are located in Germany.

In fiscal 2002, we spent
778 million,
or 9.14% of SVs total sales, on research and development,
compared to
533 million,
or 9.3% of total sales, in fiscal 2001. Excluding amounts
attributable to the former business of Mannesmann VDO, in fiscal
2001, we spent
398 million,
or 10% of SVs total sales, on research and development. 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 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.

We disposed of several non-core businesses in
fiscal 2002. These included our hydraulic components business,
which we sold to Hilite Industries, and our air outlet plant,
which we sold to Reum Beteiligungs GmbH.

Automobile manufacturers and their suppliers have
been going through a period of significant change and
consolidation, and we expect this trend to continue. In fiscal
2002, Johnson Controls acquired Sagem; Continental Teves
acquired Temic; Autoliv acquired the Restraint Electronics
Business of Visteon; and Magneti Marelli has agreed to sell its
European carburators activities to Finmek. Opportunities and
competition for independent suppliers have increased as car
manufacturers have spun off or exposed their former in-house
suppliers to increased competition. Two recent examples are
General Motors spinning off its former in-house supplier,
Delphi, and Ford doing the same with Visteon. On the other hand,
manufacturers, in an effort to achieve cost efficiencies and
ease of production, are using more pre-assembled systems and
modules instead of individual components. Systems and modules
integrate all of the components needed for major automotive
subsystems, such as the cockpit or vehicle safety systems. 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, occasionally 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 2002, demand in the automotive industry
continued to weaken, particularly for mass market cars and for
trucks. Automobile production levels declined in the Americas
and Western Europe, especially Germany, though this was
partially offset by an increase in overall automotive industry
production in the Asia-Pacific region. Globalization and the
opening of markets to competition continue to put downward
pressure on prices. Customers that incorporate our products into
their own equipment make ever greater demands on both our
performance and the quality of our products. In the current
market environment, many automobile manufacturers extract price
and other concessions from their suppliers, including SV, 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

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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,
in fiscal 2001 we began implementing a program to cut costs,
increase productivity, optimize our product and project
portfolio, and reduce inventory, personnel and the number of
production and assembly facilities. In fiscal 2001, we
eliminated approximately 1,000 positions. In fiscal 2002, we
shifted more than 1,800 positions from higher labor-cost regions
to regions with lower labor costs, and we plan to shift
approximately 1,200 more positions to lower-cost regions in
fiscal 2003. Where technologically and economically feasible, we
intend to do the same with production facilities, shifting to
countries in Southeast Asia, South America and Eastern Europe
where we can reduce our manufacturing costs and be closer to our
customers.

The VDO merger has already strengthened our
market position as a first-tier supplier to automobile
manufacturers in North America, South America, Southeast Asia,
China and Japan. Our most significant competitors are
generalists with a broad product range, systems integration
capabilities and global presence. These include Toyotas
Denso and the independent and former in-house suppliers Bosch,
Visteon and Delphi, all of which are significantly larger than
we are.

Medical Solutions (Med)

|                     |                                                   |                    |                |       | 
|-------------------- | ------------------------------------------------- | ------------------ | -------------- | ----- | 
|                     |                                                   | Year ended        
|                     |                                                   | September 30, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 7.623 billion |      
|                     | External sales as percentage of Siemens net sales |                    |                | 9.05% | 
|EBIT                 |                                                   |                    | 1.018 billion |      
|Net capital employed |                                                   |                    | 3.414 billion |      
|Employees            |                                                   |                    | 31 thousand    |      

Our Medical Solutions group 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 where the health care professional
    can 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 on the human body, such as internal organs. This
    information is used both for diagnostic purposes and in
    preparation for potential treatment, including interventional
    and minimal-invasive procedures. We focus on technically
    innovative products, an example of which are our recently
    introduced computed tomography scanner Somatom Sensation 16 or
    our angiography system Axiom Artis.
|
| |  | Information technology
    systems,including picture archiving
    and communications systems (PACS) and systems for clinical and
    administrative purposes. Our information technology systems are
    used to facilitate digital storage, retrieval and transmission
    of medical images and other clinical and administrative
    information, enabling an efficient workflow in healthcare
    environments. Our offerings include web-based products using the
    Internet as the communication medium.                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | 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 monitoring
    vital functions via body sensors, supporting breathing and
    administering anesthetic agents. As discussed below, we have
    entered into agreements to combine our electromedical systems
    business with the activities of Dräger Medical in a new
    joint venture.                                                                                                                                                                                                                                                                                                                                                     

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| |   |                                                                                                   
| | - | --------------------------------------------------------------------------------------------------
| |  | Oncology care
    systems, including linear
    accelerators, which are used for cancer treatment.
|
| |  | Hearing aidsand
    related products and supplies.                                                

Our medical imaging operations are the largest
part of our business, representing about 63.2% of total sales in
fiscal 2002. These businesses are organized into divisions
according to the type of medical imaging product offered,
including Magnetic Resonance, Computed Tomography, Ultrasound,
Angiography, Fluoroscopic and Radiographic Systems, Nuclear
Medicine and Special Systems. Our Health Services division
represents the second largest part of our business. This
business consists primarily of Shared Medical Systems, a company
headquartered in the United States which we acquired in fiscal
2000.

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 healthcare
delivery in developing countries.

In addition, efforts in many industrialized
countries to contain healthcare costs are driving a need for
improved efficiency in diagnostic and therapeutic processes. For
example, healthcare 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 healthcare 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 48%
of our total sales in fiscal 2002. The following chart shows the
geographic distribution of Meds total sales in fiscal 2002:

Med 2002 Total Sales by Region

BAR GRAPH

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. Our
electromedical systems business is based in Sweden. The other
divisions are headquartered in Germany. We have approximately 19
significant manufacturing and assembly facilities worldwide,
including seven in North America and eight in Europe. Of these,
five are located in Germany.

We have research and development and OEM
cooperation agreements with various companies, including with
Bruker and Toshiba in the field of magnetic resonance imaging
products, Philips in computed tomography systems and Matsushita
for low- and mid-range ultrasound systems. We also have joint
ventures with Oxford Instruments to develop and manufacture
magnets for magnetic resonance imaging, and with Philips and
Thomson to manufacture flat panel detectors for medical imaging.

Research and development plays an important role
in our business. We maintain research and development centers at
production sites in Germany, the United States and Sweden. In
fiscal 2002, we spent
615 million,
or 8.1% of Meds total sales on research and development,
compared to
603 million,
or 8.4% of total sales, in fiscal 2001. Approximately one-third
of our research and development expenditure is typically spent
on x-ray,

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computed tomography and magnetic resonance
imaging technologies. Over the last five years, we have
consistently spent at least 8% of total sales on the development
of new products and services and the improvement of our existing
offerings. An important project within our information
technology systems business is the development of a new workflow
management system, Soarian, designed to optimize
information-based processes throughout the entire cycle of a
patients hospitalization, including administration,
diagnosis, clinic, care, therapy and dismissal. The introduction
of this new workflow management system will be an important
milestone for our activities in this area.


Our goal is to become the preferred partner for
healthcare providers around the world by supporting their
efforts in optimizing 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 November 2002, we entered
into an agreement to form a joint venture with Dräger
Medical, of Lübeck, Germany, one of the worlds
leading manufacturers of medical equipment for critical care.
Subject to regulatory approval, we will contribute our
Electromedical Systems division in return for a 35% stake in
Dräger Medical AG & Co. KGaA. The combined business is
expected to have total sales volume of approximately
1.2 billion
and 6,400 employees. Upon completion, we expect to account for
this joint venture under the equity method.

In recent years, the medical equipment industry
has experienced an increase in consolidation following a number
of significant business combinations as well as acquisitions of
smaller companies by larger competitors. Our principal
competitors in medical imaging are General Electric, Hitachi,
Philips, which acquired Marconi, and Toshiba. Other competitors
include Dräger, Instrumentarium, which recently acquired
Spacelabs, a leader in patient monitoring, McKesson HBOC,
Resound, Starkey, Tyco, Hologic, Elekta, Cerner, IDX, Widex,
William Demant/Oticon and Varian Medical Systems.

Lighting (Osram)

|                     |                                                   |                    |                |       | 
|-------------------- | ------------------------------------------------- | ------------------ | -------------- | ----- | 
|                     |                                                   | Year ended        
|                     |                                                   | September 30, 2002
|                     |                                                   |                   
|Total sales          |                                                   |                    | 4.363 billion |      
|                     | External sales as percentage of Siemens net sales |                    |                | 5.13% | 
|EBIT                 |                                                   |                    | 365 million   |      
|Net capital employed |                                                   |                    | 2.436 billion |      
|Employees            |                                                   |                    | 35 thousand    |      

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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;                                                                                                                                               
|
| |  | Opto-semiconductors:light emitting diodes, or LEDs, 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 displays, traffic
    and signal lighting, signs and decorative lighting and infrared
    transmitters and sensors for industrial and consumer electronics;

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Ballasts and
    luminaires:electronic ballasts for
    optimized operation of compact fluorescent, fluorescent,
    high-intensity discharge low-voltage halogen lamps and LED
    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
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 approximately 54 significant manufacturing and assembly
facilities worldwide, including 26 in the Americas and 20 in
Europe. Of these, 13 are located in Germany.

We focus on innovative products, especially in
our automotive and photo-optic divisions, 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.
Opto-semiconductors is introducing new applications for LED
products as it becomes possible to achieve greater brightness
and more colors. Recently, we made a significant breakthrough in
the brightness of light emitting diodes by using an advanced
thin-film technology, thus opening up a wide variety of new
applications, for example in automotive exterior lighting. 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.

In fiscal 2002, we spent
224 million,
or 5.13% of Osrams total sales, on research and
development, compared to
217 million,
or 4.8% of total sales, in fiscal 2001. 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 developing organic light emitting diodes for which we have
established a production facility in Malaysia. Organic light
emitting diodes are considered a key innovation in the
production of clearly legible small displays with low power
consumption and minimum weight. 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 the United States and
myOSRAM.com, a web-based sales and information
portal for registered business customers in Germany, Austria and
Poland.

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 2002, Osram
generated approximately 85% of its total sales outside of
Germany, with most of its sales in Europe, North America and
Asia-Pacific. In North America we market most of our lighting
products under the brand name Sylvania. We currently intend to
expand our sales in

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Eastern Europe and Asia. The following chart
shows the geographic distribution of Osrams total sales in
fiscal 2002:


Osram 2002 Total Sales by Region

BAR GRAPH

As a result of acquisitions and consolidations
over the last decade, General Electric, Philips and Osram
together hold almost two-thirds of the world market. Osram is
the second largest lighting manufacturer worldwide behind
Philips, and the largest in Germany. Osram also has the second
largest market share in North America, where General Electric is
the leading manufacturer. General Electric is also the leading
incandescent lighting manufacturer worldwide. 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 in these areas. To counteract price pressure and
to improve our competitiveness for mass market lighting
products, we manufacture some of our lower-priced product lines
in countries low 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
manufacturing operations in China, India, Indonesia, Mexico and
Eastern Europe and continue to shift production to these
markets. Our recently announced measures to increase
profitability include the consolidation of our U.S. glass
manufacturing operations and the transfer of part of our coil
production from the United States and Germany to the Czech
Republic, both of which we plan to finalize during fiscal year
2004. To optimize our portfolio, in September 2002, we closed
our German subsidiary Elektro Röhren Gesellschaft whose
core business consisted of a niche production of glow and
cold-cathode lamps which had ceased to be cost-efficient.
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. We have not experienced
any significant liability in the past as a result of our use of
these materials and we are continuing to work to reduce their
use in our products.

Siemens Financial Services (SFS)

|                           |                                                   |                    |                |       | 
|-------------------------- | ------------------------------------------------- | ------------------ | -------------- | ----- | 
|                           |                                                   | Year ended        
|                           |                                                   | September 30, 2002
|                           |                                                   |                   
|Total sales                |                                                   |                    | 582 million   |      
|                           | External sales as percentage of Siemens net sales |                    |                | 0.52% | 
|Income before income taxes |                                                   |                    | 216 million   |      
|Total assets               |                                                   |                    | 8.681 billion |      
|Employees                  |                                                   |                    | 1 thousand     |      

Siemens Financial Services 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

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third parties including customers of other
Siemens groups. The four other divisionsStructured
Finance, Treasury and Financing Services, Investment Management
and Insurancecurrently support and advise Siemens and our
other business groups and have little external business. SFS
makes an important contribution to Siemens other
businesses through the financing of goods and services sold by
Siemens. 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 2002, our total assets declined, from
9.363 billion
at September 30, 2001 to
8.681 billion
at September 30, 2002. Our principal assets are lease
receivables and equipment leased under operating leases
(together accounting for 62.4% of our assets) and purchased
trade receivables (accounting for 31.1% of our assets)
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 deals according to banking industry standards in
the international financial markets with Siemens as well as with
third parties.

Our largest division is Equipment and Sales
Financing, which combines our mid-market finance and credit
portfolio management business activities. Our principal
mid-market finance product is equipment lease financing, where
typically we purchase equipment supplied by various Siemens
groups or a third-party manufacturer 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. In fiscal 2002, we further developed our vendor
financing program, in which third-party manufacturers offer us
the opportunity to provide financing to their customers.

The Equipment and Sales Financing division
finances both Siemens and third-party equipment. Siemens
products come primarily from Information and Communication
Networks (ICN), Medical Solutions (Med) and Siemens VDO
Automotive (SV). Customers that are familiar with our services
from past dealings are increasingly seeking financing for
transactions with unrelated manufacturers. Third-party products
are primarily computers and other IT equipment.

In our credit portfolio management
business, 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 groups receivables
risk allows Siemens to manage its overall receivables exposure
more effectively. In fiscal 2002, in coordination with
Siemens overall financing strategy, we continued packaging
portions of our portfolio and placing them on the market, to
third-party banks, as well as to our SieFunds program (which is
described below), improving the management of Siemens
balance sheet.

The Equity division participates in
infrastructure projects as a project developer and equity
investor, predominantly in projects for which Siemens provides
equipment. At September 30, 2002, the equity investment in
these projects amounted to approximately 3% of the total assets
of SFS and 0.3% of the total assets of Siemens worldwide. In
recent years, we have shifted our focus from larger projects to
diversifying our portfolio with smaller investments.

The Structured Finance division comprises
two separate activities: project/export finance and asset
securitization and placement.

Our project/export finance business
advises other Siemens groups on sales financing transactions. We
have a global network of established contacts with international
project and export finance lenders, like the World Bank or the
Asian Development Bank, as well as with national development and
export banks and export credit insurance agencies, such as
Kreditanstalt für Wiederaufbau and Hermes in Germany. 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.

Our asset securitization and placement
business advises other Siemens groups with respect to
identifying eligible assets for securitization or placement
transactions, such as receivables. Additionally, we offer our

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services to third parties for the purpose of
analyzing future receivables, future cash flows or inventory. We
identify the future cash flows of these assets and assist in
structuring capital-efficient financing solutions for selling or
repackaging them. In fiscal 2001, SFS launched
SieFunds, a non-consolidated asset-backed commercial
paper program. The program acquires assets and other receivables
from Siemens groups and third parties worldwide. It finances the
purchase price with the proceeds from commercial paper issuance.
Changes to U.S. GAAP will require us to consolidate
SieFunds as it is currently structured. These changes could lead
us to modify or discontinue our activities in this area.


Our Treasury and Financing Services
division provides the following services to Siemens
Corporate Treasury: 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 using a value-at-risk model. Siemens
believes that from a practical standpoint it is not cost
efficient to avoid having some open positions due to timing
differences, and 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 financing activities to third-party
customers.

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

The Insurance division acts as an agent
and provides other Siemens groups with liability, property,
marine and project insurance brokerage services. We plan to
provide these services not only to Siemens business groups but
also to external customers. We also act as an insurance agent in
offering private insurance policies for Siemens employees.

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

Our competition includes captive leasing and
finance companies from both inside and outside the electronics
industry, including those of General Electric, Hewlett Packard,
IBM, Philips and ATT, 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, 2002
|                           |  |                   
|Total sales                |  |                    | 1.612 billion | 
|Income before income taxes |  |                    | 229 million   | 
|Total assets               |  |                    | 4.090 billion | 
|Employees                  |  |                    | 2 thousand     | 

SRE offers its customers and partners a service
portfolio specializing in real estate development projects, real
estate disposal, asset management, and lease and services
management. In fiscal 2001, SRE reorganized its operations in
order to reinforce its focus on the non-Siemens real estate
market and to ensure strong and sustainable profitability. Our
divisions are Portfolio Management, Development &
Sales, and Property Management & Services
(Germany/International). SRE also offers building development
and building management through Siemens Industrial Building
Consultants GmbH (SIBC), for which SRE has the technical
operational responsibility.

Portfolio Managementis our strategic and advisory unit, providing the basis for and
stimulating the active management of Siemens real estate
portfolio. It focuses the general strategy for our real estate
business and gives informational support for decision making by
providing portfolio analysis, calculations of profitability,
develop-

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ment of financing alternatives, market research,
risk analysis and valuation and similar services, including
suggestions for divestiture and rental rates.


Development &
Saleswas established to sharpen our
focus on real estate development. This division is responsible
for the sale of land, office and commercial real estate that is
surplus to the operational needs of the Siemens group. It also
acts as a developer for projects we determine are more
appropriately retained (at least until developed) rather than
sold. In this regard, for example, it is currently planning the
refurbishment of several former Siemens sites in city center
locations in those markets where there is a high demand for
office and commercial space.

Property Management &
Serviceshas two principal activities.
First, it provides pure property management and leasing services
to Siemens operating groups and to third-party lessees of our
owned properties, billing and collecting lease payments and
related charges such as utilities and providing other general
services of a landlord. Second, it provides facilities services
to our business groups and external tenants on an arms
length contract basis. Our tenants, including Siemens group
companies, may outsource these services to us, provide them
internally or acquire them from third parties, depending on the
location. The services we provide include cleaning, maintenance,
security, catering and a variety of other services. We in turn
generally subcontract with third-party suppliers for these
services, thereby leveraging the purchasing power of the entire
Siemens group. This division manages the real estate of Siemens
in Germany as well as internationally.

The book value of Siemens worldwide real estate
assets at September 30, 2002 amounted to approximately
4.954 billion,
of which approximately
3.419 billion
in book value was managed by SRE. The overall goal of our real
estate activity is the optimization of Siemens real estate
needs, assuring that:



| |   |                                                                                                                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | attractive and use-appropriate real estate is
    provided at market rates to the entire group for all of our
    activities from manufacturing to sales administration, ensuring
    efficient use of space group-wide at optimal rental rates;
|
| |  | Siemens real estate capital is limited to
    the groups actual needs, and excess real estate is
    disposed of;                                                                                                                             
|
| |  | the value of Siemens real estate capital is
    maintained and enhanced by active management investment; and                                                                                                                                   
|
| |  | favorable financing alternatives are developed
    and implemented.                                                                                                                                                                             

The following table sets forth the key balance
sheet and statistical data for SRE:

SRE Balance Sheet and Statistical
Data

|                                               |  |                  |       |      |  |  |       | 
|---------------------------------------------- |  | ---------------- | ----- | ---- |  |  | ----- | 
|                                               |  |                 
|                                               |  | At September 30,
|                                               |  |                 
|                                               |  | 2002             |       | 2001
|                                               |  |                  |       |     
|                                               |  |                 
|                                               |  | ( and          
|                                               |  | square meters   
|                                               |  | in millions)    
|Total Assets (in euros)                        |  |                  | 4,090 |      |  |  | 3,791 | 
|Real Estate Assets Under Management (in euros) |  |                  | 3,419 |      |  |  | 3,187 | 
|Total Site Area (in square meters)             |  |                  | 23.5  |      |  |  | 24.3  | 
|Total Building Area (in square meters)         |  |                  | 11.7  |      |  |  | 11.6  | 

Total sales of our International division were up
in fiscal 2002. SREs international operations now
encompass more than twenty companies and management units in
leading real estate markets around the world. In fiscal 2002, we
established a new management unit in Poland and reorganized our
management unit in Switzerland.

Our revenues are derived primarily from our lease
administration and services operations, since gains on
dispositions are not recorded as sales but as other income. A
major portion of our overall earnings reflects capital gains on
sales of real estate assets. We believe that Siemens currently
owns more real estate than it needs for its operations, and that
for the next several years we will continue an active disposal
program. Income from

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disposals, especially in Germany, should continue
to be a strong contributor to our earnings for the foreseeable
future. Our objective is to increase the profitability of our
operational units steadily as we continue to adjust our rental
conditions to market rates. We also aim to increase our
profitability through the effective reinvestment of proceeds in
new projects. In addition, we contribute to the profitability of
Siemens as a whole by facilitating reductions and efficiency in
the use of space.


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,
|                                       |       |                 
|                                       |       | 2002             |    | 2001 |  | 2000
|                                       |       |                  |    |      |  |     
|                                       |       |                 
|                                       |       | (in thousands)  
|Information and Communication Networks |       |                  | 39 |      |  |      | 51 |     |  |  | 53 |    
|Information and Communication Mobile   |       |                  | 29 |      |  |      | 30 |     |  |  | 27 |    
|Siemens Business Services              |       |                  | 34 |      |  |      | 36 |     |  |  | 33 |    
|Automation and Drives                  |       |                  | 51 |      |  |      | 54 |     |  |  | 54 |    
|Industrial Solutions and Services      |       |                  | 29 |      |  |      | 30 |     |  |  | 30 |    
|Siemens Dematic(1)                     |       |                  | 12 |      |  |      | 12 |     |  |  | 6  |    
|Siemens Building Technologies          |       |                  | 36 |      |  |      | 37 |     |  |  | 34 |    
|Power Generation                       |       |                  | 26 |      |  |      | 26 |     |  |  | 27 |    
|Power Transmission and Distribution    |       |                  | 17 |      |  |      | 21 |     |  |  | 20 |    
|Transportation Systems                 |       |                  | 17 |      |  |      | 14 |     |  |  | 14 |    
|Siemens VDO Automotive(2)              |       |                  | 43 |      |  |      | 44 |     |  |  | 30 |    
|Medical Solutions                      |       |                  | 31 |      |  |      | 30 |     |  |  | 28 |    
|Lighting/Osram                         |       |                  | 35 |      |  |      | 35 |     |  |  | 32 |    
|Siemens Financial Services             |       |                  | 1  |      |  |      | 1  |     |  |  | 1  |    
|Siemens Real Estate                    |       |                  | 2  |      |  |      | 2  |     |  |  | 2  |    
|Other(3)                               |       |                  | 24 |      |  |      | 27 |     |  |  | 28 |    
|                                       |       |                  |    |      |  |      |    |     |  |  |    |    
|                                       | Total |                  |    | 426  |  |      |    | 450 |  |  |    | 419 | 
|                                       |       |                  |    |      |  |      |    |     |  |  |    |    
|Infineon Technologies(4)               |       |                  |   |      |  |      | 34 |     |  |  | 29 |    



---



|    |                                                                                                                                                                                                 
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Siemens Dematic was formed in fiscal 2001 through
    a merger of the existing businesses of Siemens Production and
    Logistics Systems and the Dematic AG operations of Mannesmann.          
|(2) | Siemens VDO automotive was formed in fiscal 2001
    through a merger of the existing businesses of Siemens
    Automotive and the Mannesmann VDO automotive operations of Atecs
    Mannesmann.
|(3) | Includes employees in corporate functions and
    services and business units not allocated to any business group.                                                                              
|(4) | As of December 5, 2001, Siemens
    deconsolidated Infineon.                                                                                                                                    

Employees by geographic region

|                            |       |                  |     |      |  |      |     |     |  |  |     |     | 
|--------------------------- | ----- | ---------------- | --- | ---- |  | ---- | --- | --- |  |  | --- | --- | 
|                            |       |                 
|                            |       | At September 30,
|                            |       |                 
|                            |       | 2002             |     | 2001 |  | 2000
|                            |       |                  |     |      |  |     
|                            |       |                 
|                            |       | (in thousands)  
|Germany                     |       |                  | 175 |      |  |      | 199 |     |  |  | 181 |    
|Europe (other than Germany) |       |                  | 106 |      |  |      | 118 |     |  |  | 111 |    
|The Americas                |       |                  | 93  |      |  |      | 107 |     |  |  | 105 |    
|Asia-Pacific                |       |                  | 45  |      |  |      | 53  |     |  |  | 45  |    
|Africa, Middle East, CIS    |       |                  | 7   |      |  |      | 7   |     |  |  | 6   |    
|                            |       |                  |     |      |  |      |     |     |  |  |     |    
|                            | Total |                  |     | 426  |  |      |     | 484 |  |  |     | 448 | 
|                            |       |                  |     |      |  |      |     |     |  |  |     |    

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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

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, in each of the
jurisdictions in which it operates. These laws and regulations
impose limitations on the discharge of pollutants into the air
and water, establish standards for the treatment, storage and
disposal of solid and hazardous waste and might sometime require
us to clean up a site at significant cost. 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 continuing 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 2007, 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 on
where the government-developed storage facility is located and
when it becomes available. We have an accrual of
641 million
at September 30, 2002 in our financial statements in
respect of 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.

In December 2002, we expect the completion of the
legislative process for two new EC-directives, the Waste of
Electro- and Electronics Equipment directive regulating the
collection and recycling of waste products and the Restrictions
of Hazardous Substances directive banning the use of some
hazardous materials, such as lead, cadmium, mercury, chromium,
brominated biphenyls and diphenylethers. The directives will be
effective after publication which is planned in March 2003.
These directives will then have to be implemented into national
law within 18 months. It is anticipated that the collection
of electronic waste under the directive will begin in 2006.
Siemens is already working together with national trade and
environmental associations to establish collection systems for
electronic scrap in time. At present, we are unable to determine
the amount of any accruals which may be necessary in order to
comply with the directive, as the precise legal requirements
have not yet been set forth. The directive banning hazardous
materials will be in effect beginning July 2006. Siemens is
currently working on the transition from lead to lead-free
soldering technology. Projects with regard to this transition
have begun for those products covered by the legislation which
will allow us to meet the requirements in time. The first
lead-free products under this initiative have already been
developed.

It is our policy to comply with environmental
requirements and to provide workplaces for employees that are
safe, environmentally sound, and that will not adversely affect
the health or environment of communities in which Siemens
operates. 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

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compliance with all environmental and health and
safety laws and regulations, there is a risk that we may have to
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 or to undertake any necessary remediation.


Long-Term Contracts and Contract
Losses

A significant portion of the business of certain
of our operations groups, including the Information &
Communications groups, Industrial Solutions & Services
(I&S), the Power groups and Transportation Systems (TS), is
performed pursuant to long-term, fixed-price contracts, often
for large projects, in Germany and abroad, awarded on a
competitive bidding basis.

These projects subject us to a variety of risks.
The profit margins realized on such fixed-price contracts may
vary from original estimates as a result of changes in costs and
productivity over their term. Cost overruns may also result from
unexpected quality issues, technological problems, unforeseen
developments at the project sites, problems with our
subcontractors or other logistical difficulties. Certain of our
multi-year contracts also contain demanding installation and
maintenance requirements, in addition to other performance
criteria relating to timing, unit cost requirements and
compliance with government regulations, which if not satisfied,
may subject us to substantial contractual penalties, damages or
non-payment, or could result in contract termination.

Siemens records an accrual for contract losses
when the current estimate of total contract costs exceeds
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 a project
and updating the estimates of total contract costs. As a matter
of policy, all significant contracts are monitored and reviewed
at least monthly.

As of September 30, 2002, provisions for
contract losses totaled approximately
1.0 billion.
Accrued contract losses relate primarily to the groups PG
(290 million),
TS
(130 million),
ICN
(116 million),
SBS
(80 million),
SD
(71 million)
and ICM
(73 million).
For all accrued contract losses, we anticipate that the cash
outflows for labor, materials, contract penalties and related
costs on such contract losses will occur predominately over the
next two fiscal years.

Losses on contracts are recorded at the segment
to which the contract relates except in case of those contracts
the Managing Board decides to manage centrally. This occurs in
the rare situations where the Managing Board as chief operating
decision maker for the Company directly oversees and makes key
strategic operational decisions regarding significant contracts
independent of segment management.

The ICN and ICM losses related to numerous
contracts, none of which was individually significant. Examples
of significant contracts that have given rise to losses include:



|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In fiscal 2000, losses were suffered on two
    related long-term construction contracts, originally entered
    into by PG, for the reconfiguration, expansion, modernization
    and refurbishment of two oil refineries and the construction of
    a pipeline in Mexico. These projects were the first of this
    specific type, complexity and magnitude entered into by our PG
    group for the oil, gas and petrochemicals industry. Both of
    these fixed-price projects are extremely large and involve a
    high degree of technical complexity, including vast worksites,
    large volumes of technically sophisticated hardware, and
    involved an on-site work force of several thousand, all in an
    environment of a running refinery. In these projects, PG was
    responsible for the process control and electrification
    elements. As the projects progressed, it became apparent that
    the cost of certain significant project elements were not
    adequately anticipated at the time of entering into the
    contracts. For example, certain technical and logistical issues
    could only be fully assessed after equipment had been taken off
    line and disassembled and accordingly the full cost of facility
    refurbishment required became clear only as work progressed. In
    addition, various technical design and specification issues
    arose, and the solutions were often more costly to us than
    originally expected. Finally, as on-site activities progressed,
    the project suffered considerable delays due to on-site
    difficulties encountered, such as environmental and property
    rights issues and archaeological findings. As a result of all of
    all the above, both the quantity of materials and labor hours
    required to ultimately complete the projects will significantly
    exceed our original expectations. We recognized losses of
    450 million
    in fiscal 2000 to take account of the resulting estimated

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|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | losses on these contracts. The Managing Board has
    taken the necessary steps to ensure that both projects are
    operated under the very close oversight of senior management
    through completion. The Managing Board also decided to require
    the PG group to cease offering such process control and
    electrification projects to the oil, gas and petrochemicals
    industry. Due to the fact that the Managing Board assumed direct
    oversight of these projects and required PG to no longer accept
    such projects, these losses were not included in the results of
    PG, but were recorded centrally within Reconciliation to
    Financial Statements. See Item 5: Operating and
    Financial Review and ProspectsFiscal 2001 Compared to
    Fiscal 2000Segment Information AnalysisCorporate,
    Eliminations (Operations) and Reconciliation to Financial
    Statements. See also discussion of centrally managed
    contracts above.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| 
| | In our PG business, it is common in the industry
    to guarantee customers certain delivery dates and that a turbine
    will achieve certain performance standards. If such delivery
    dates or performance standards are not met, the supplier is
    subject to substantial contractual penalties or must take
    measures to ensure that those standards are achieved.
    Accordingly, PG has contract losses relating to performance,
    warranty and other issues in the ordinary course of its
    business, for which accruals are made as appropriate. In
    particular, PG has experienced significant contract losses as a
    result of performance issues affecting a new generation of gas
    turbine introduced in the late 1990s. Numerous contracts were
    affected by these performance problems, notably in the following
    areas: delivery dates could not be met due to frequent repairs
    of the turbines during the construction period; committed
    performance levels were not achieved; and emissions levels were
    higher than contractually warranted. These performance issues
    have been resolved. The largest remaining loss contract at PG
    had an accrual of approximately
    54 million
    at September 30, 2002.                                                                                                                                                                           
| 
| | We have experienced significant losses on a
    fixed-price long-term production and outsourcing contract
    originally entered into by our SBS group that involves the
    processing of identity documents and the implementation of a
    border control system for the government of Argentina. In fiscal
    2000, a loss of
    68 million
    was recorded. This loss was the result of unfavorable contract
    pricing terms agreed to after it became necessary to renegotiate
    the original contract with the new government of Argentina that
    came into office in December 1999. Our Managing Board made the
    strategic decision to accept the new pricing terms in order to
    gain market entry into this important region. In fiscal 2001,
    this contract was canceled by government decree and a loss of
    258 million
    was recorded for the write-down of inventories and other assets
    associated with this project. Due to the fact that the Managing
    Board assumed the direct oversight of this project, the losses
    noted above were not included in the results of SBS, but were
    recorded centrally. See Item 5: Operating and
    Financial Review and ProspectsFiscal 2001 Compared to
    Fiscal 2000Segment Information AnalysisCorporate,
    Eliminations (Operations) and Reconciliation to Financial
    Statements. See also discussion of centrally managed
    contracts above.
| 
| | In fiscal 2001, SBS established contract loss
    provisions of
    192 million
    related to two long-term outsourcing contracts in the U.K. In
    January 1999, SBS entered into a ten-year agreement to insource
    the back-office functions of National Savings & Investments
    (NS&I), a government agency in the U.K. The contract
    comprised the design and implementation of a significant new IT
    system, the re-engineering of business processes for increased
    efficiency and a reduction in the number of staff employed. As
    the project progressed in fiscal 2001, it became apparent that,
    due to the complexity of the IT system, additional investment
    will be required before completion. In parallel, the intended
    re-engineering and reduction in staff numbers has not been
    achieved due to delays in the system rollout as well as greater
    difficulties than had originally been anticipated in effecting
    process improvements. As a result, both systems and staff costs
    on the project will significantly exceed original estimates.                                                                                                                                                                                                                                                                                                                                             



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In the spring of 1996, SBS entered into an
    agreement with the Immigration and Nationality Directorate (IND)
    of the U.K. government to redesign the processing of asylum and
    immigration applications. The seven-year contract focused on a
    complex document management and archiving system with the goal
    of increasing the efficiency of the systems processing
    functions as well as business process re-engineering and change
    management. As the project progressed, an unexpected increase in
    immigration cases led to a change in customer focus from cost
    reduction to the ability of the system to manage higher volumes
    of asylum and immigration applications. Due to this change in
    customer focus, additional costs have been incurred, payment for
    which the customer disputes. SBS has since redefined new
    processes and is working closely

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| |                                                                                                                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | with the customer to reduce project risk exposure
    and accordingly related costs, thus to ensure the successful
    completion of the project.                                                                                                                         
|
| | SBS management continues to focus on risks
    associated with long-term business process outsourcing
    contracts, particularly NS&I and IND; however, there can be
    no assurance that additional losses will not be incurred in
    connection with these contracts.

Property

Siemens and its consolidated subsidiaries have as
of September 30, 2002 approximately 210 production and
manufacturing facilities of over 15,000 square meters floor
space each throughout the world. Approximately 130 of these are
located in Europe, with approximately 75 in Germany, and
approximately 65 are located in the Americas, with approximately
50 in the United States. We also have 15 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 and those
of our consolidated subsidiaries are in good condition and
adequate to meet the requirements of our present and foreseeable
future operations.

Intellectual Property

Siemens as a whole has several thousand patents
and licenses and research and development is a priority on a
Siemens-wide and business group basis. For a discussion of the
main focus of our current research and development efforts of
each business group see the individual group discussions in
Item 4: Information on the Company. Siemens
also has many thousand trademark registrations worldwide.
However, none of our business groups is dependent on a single
patent, license or trademark or a group of related patents,
licenses or trademarks.

Legal Proceedings

Our former indirect subsidiary Siemens Business
Communication Systems, Inc. (now Siemens Enterprise Networks
LLC, a subsidiary of Siemens Information and Communications
Networks, Inc.) was sued in the United States District Court for
the Northern District of Georgia in 1994 by five independent
service organizations and two customer end-users seeking treble
damages of approximately $162 million for alleged monopoly
pricing for maintenance services and an injunction against
practices they allege to be anticompetitive, involving the sale
and service of Siemens-Rolm branded PBX equipment. Siemens filed
a countersuit against the five independent service organization
plaintiffs, alleging that they misappropriated Siemens
trade secrets, interfered with Siemens contractual and
prospective business relationships and infringed on
Siemens patents and copyrights. The court ordered that
these intellectual property and related claims be tried first
and separately. On September 2, 1999, the jury rendered a
verdict in favor of Siemens on all claims and awarded Siemens
damages of $7 million. On July 14, 2000, the court
upheld the jurys finding that Siemens copyrights and
patents were valid and that plaintiffs infringed Siemens
intellectual property rights but eliminated duplicative damages
awarded by the jury, reducing the $7 million award to just
under $2 million. On August 10, 2000, the court
granted Siemens renewed motion for summary judgment and
dismissed plaintiffs case with prejudice in its entirety,
holding that the lawful exercise of Siemens intellectual
property rights insulated Siemens from antitrust liability. On
September 8, 2000, plaintiffs filed a notice of appeal with
the United States Court of Appeals for the 11th Circuit
appealing the order dismissing their case, and Siemens
subsequently filed a cross-appeal on certain limited issues. On
procedural grounds, the clerk for the 11th Circuit forwarded the
notices of appeal to the Court of Appeals for the Federal
Circuit, the appropriate court to hear the issues presented on
appeal. The parties have filed briefs with the Court of Appeals
for the Federal Circuit and oral argument was heard on
February 4, 2002. Based on a procedural decision by the
U.S. Supreme Court in an unrelated case, the
plaintiffs/appellants have

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moved to transfer the appeal to the 11th Circuit,
the appellate court for non-patent cases in the
U.S. District Court for the Northern District of Georgia
where the case was tried. That motion was granted on
July 2, 2002, and the matter is now being rebriefed for the
11th Circuit.


We are defending a claim in the courts of
Pakistan for approximately $1 billion (based on current
exchange rates for Pakistan Rupees) in damages relating to
alleged breaches of claimed financing obligations. The claim
arises out of a transaction involving the Westinghouse business
unit that is the predecessor to Siemens Westinghouse Power
Corporation, an indirect subsidiary that is a part of our Power
Generation group. The claim was filed in the Civil Court in
Lahore, Pakistan in September 1998 by WAK Orient Power and Light
against Westinghouse Electric Corporation, Raytheon Ebasco
Overseas Ltd. and others. The claim was also subject to an
arbitration proceeding in London, decided on December 18,
2000, in which the arbitrators found in favor of Siemens
Westinghouse on all grounds and awarded Siemens Westinghouse
$2 million in damages and $762,000 in costs. The panel
found no breach of any obligation by Westinghouse, Raytheon or
any of the other defendants. On May 7, 1999, while the
claim was being arbitrated in London, WAK nonetheless obtained a
default judgment of approximately $1 billion from the trial
court in Pakistan. In October 2000, this judgment was vacated on
procedural grounds by the Lahore High Court. The High Court
declined to address Siemens application for a stay pending
conclusion of the London arbitration, however, and remanded the
case back to the trial court for further proceedings. Both
parties subsequently appealed this decision to the Supreme Court
of Pakistan. In a ruling announced July 12, 2002, the
Supreme Court rejected WAKs appeal, upheld the Lahore High
Courts vacating of the initial default judgment and
remanded the case to the Lahore District Court instructing it to
proceed, but to consider first whether it has jurisdiction in
view of the arbitration proceedings. It also ruled that
defendants shall furnish equivalent Bank Guarantee to the
satisfaction of the learned trial Judge for satisfaction of the
decree, if ultimately passed against them. WAK has argued
to the trial court that this language requires defendants to put
up a bond immediately. The defendants have filed a petition in
the Supreme Court to review this point. By an order dated
November 18, 2002, the trial court ordered the defendants
to file an answer in the case and to post a $1 billion bank
guarantee. The defendants have appealed this order. On
November 28, 2002, the Lahore High Court ordered that the
appeal be heard on January 22, 2003 and directed that no
order adverse to the defendants be entered by the trial court in
the interim. In addition to the proceedings in Pakistan, in June
1999, WAK also attempted to enforce the Pakistani trial
courts default judgment in the United States. The United
States District Court for the Eastern District of Pennsylvania
enjoined enforcement of the Pakistani default judgment and
confirmed the London arbitration award, entering judgment in
favor of Westinghouse Electric Corporation, Raytheon Ebasco
Overseas Ltd. and the other defendants. WAK appealed that
decision to the United States Court of Appeals for the Third
Circuit. On May 9, 2002, that appeal was dismissed by the
Third Circuit, and final judgment in favor of the defendants was
entered.

We are party to an action in the administrative
court in Antioquia, Colombia filed by a consortium of
contractors for the Aburra Valley mass transit system against
the Aburra Valley mass transit authority. The original action
seeks a judgment annulling a resolution by the authority that
declared a breach of contract by the consortium and triggered
the authoritys rights to certain legal remedies such as
liquidated damages for delay and contractual claims for damages.
In a counterclaim to this action, the authority has claimed
damages of $427 million for breach of contract without
specifying the details of the alleged breach. As part of a
consortium of six companies, Siemens would only be responsible
for its own share of any damages. The consortium has
unsuccessfully contested the jurisdiction of the administrative
court on the basis of the contractual provisions governing
jurisdiction and providing for arbitration. In April 2001, the
consortium successfully challenged a court order to take
evidence. A new order has not yet been issued. The court is
currently considering the case. A final decision is not expected
within the next five years.

We were subject to a valuation proceeding
(Spruchstellenverfahren) in connection with a resolution
passed at the 1999 annual shareholders meeting to abolish
multiple voting rights that were attached to an outstanding
class of preferred shares without providing compensation to the
holder. The holder of these shares, von
Siemens-Vermögensverwaltung GmbH (vSV), brought the
valuation proceeding seeking reasonable compensation for the
elimination of these multiple voting rights, based on an
experts opinion that assumed a value of
7.59 for each
voting right. The court of second instance, the Bayerische
Oberste Landesgericht, decided on July 31, 2002 that a

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value attributable to the multiple voting rights
could not be ascertained. Therefore, it ruled that abolishing
these rights without providing compensation was reasonable. This
decision is final.


We are subject to a valuation proceeding
(Spruchstellenverfahren) brought against us in 1992 in
connection with the integration of Siemens Nixdorf
Industries AG, Paderborn, into Siemens AG. According
to German Stock Corporation Law, in order to complete the
integration of Siemens Nixdorf as a wholly-owned subsidiary, we
had to make a mandatory offer to exchange the remaining
outstanding shares of Siemens Nixdorf for our shares. Based on
an experts opinion, we made an offer to all outstanding
Siemens Nixdorf shareholders at a share exchange rate of six
Siemens Nixdorf shares for one Siemens share, or fifteen Siemens
shares when adjusted for share splits that have occurred since
1992, and to buy any number of Siemens Nixdorf shares that
cannot be divided by six for DM 156.50
(80.02) per
share. 68 holders of Siemens Nixdorf shares alleged that the
value of our exchange offer was insufficient and brought a
proceeding before the Landgericht Dortmund, the regional court
in Dortmund. The proceeding relates to all 1,780,462 Siemens
Nixdorf shares that were subject to our exchange offer. The
Landgericht Dortmund asked an independent expert to give an
opinion as to the values of Siemens Nixdorf and Siemens shares.
This opinion concluded that the exchange ratio was sufficient
but suggested that the cash settlement amount be raised to
DM 177.80
(91.93) per
Siemens Nixdorf share. In spite of this opinion, on
November 18, 2000, the Landgericht Dortmund rendered a
decision setting the exchange ratio at three Siemens Nixdorf
shares for fifteen Siemens shares, after adjustment for share
splits that have occurred since 1992, and the cash settlement at
DM 209.38
(107.05) per
Siemens Nixdorf share. Siemens believes this decision is wrong
and has filed an appeal at the Oberlandesgericht
Düsseldorf, the court of the second instance, where certain
of the plaintiffs have also filed their own appeal.

On November 29, 2000, Siemens received a
written demand from the Atomic Energy Organization of Iran
claiming unspecified damages plus interest for the breach of a
1976 contract between Siemens and the Atomic Energy Organization
of Iran involving the construction of two nuclear power plants
in Bushehr. The Atomic Energy Organization of Iran requested a
sixty-day period from receipt of the demand to discuss the
claims with Siemens, after which the Atomic Energy Organization
of Iran threatened to take actions before arbitral tribunals
and/or competent national courts. The sixty-day period elapsed
in February 2001 without any resolution of the issue by the
parties. No actions have been initiated by the Atomic Energy
Organization of Iran before an arbitral tribunal or competent
national court. Siemens intends to defend vigorously against any
claim that arises from this situation.

Siemens AG and its subsidiaries are party to a
variety of other legal proceedings arising in the ordinary
course of business. These involve allegations of breach of
contract, improper delivery of goods or services, product
liability and patent and other intellectual property
infringement and other matters. We have accrued provisions for
litigation risks including the costs of legal representation and
the expected costs of resolving these matters. Although the
final resolution of such matters could have a material effect on
Siemens consolidated operating results for any reporting
period in which an adjustment of the estimated reserve is
recorded, Siemens believes that any resulting adjustments should
not materially affect its consolidated financial position.

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Item 5: Operating and Financial
Review and Prospects

This Annual Report contains forward-looking
statements based on beliefs of Siemens management. We use
the words anticipate, believe,
estimate, expect, intend,
should, plan and project to
identify forward-looking statements. Such statements reflect our
current views with respect to future events and are subject to
risks and uncertainties. Many factors could cause the actual
results to be materially different, including, among others,
changes in general economic and business conditions, changes in
currency exchange rates and interest rates, introduction of
competing products, lack of acceptance of new products or
services and changes in business strategy.

Table of Contents:

|                                    |                                               |      |     |     | 
|----------------------------------- | --------------------------------------------- | ---- | --- | --- | 
|                                    |                                               | Page
|                                    |                                               |     
|Basis of Presentation               |                                               |      | 61  |    
|Fiscal 2002 Compared to Fiscal 2001 |                                               |      | 62  |    
|                                    | Consolidated Operations of Siemens Worldwide  |      |     | 62  | 
|                                    | Acquisitions and Dispositions                 |      |     | 64  | 
|                                    | Segment Information Analysis                  |      |     | 66  | 
|                                    | Component InformationStatements of Income    |      |     | 79  | 
|                                    | EVA Performance                               |      |     | 83  | 
|Fiscal 2001 Compared to Fiscal 2000 |                                               |      | 84  |    
|                                    | Consolidated Operations of Siemens Worldwide  |      |     | 84  | 
|                                    | Joint Ventures and Acquisitions               |      |     | 86  | 
|                                    | Segment Information Analysis                  |      |     | 87  | 
|                                    | Component InformationStatements of Income    |      |     | 99  | 
|Liquidity and Capital Resources     |                                               |      | 105 |    
|                                    | Cash FlowFiscal 2002 Compared to Fiscal 2001 |      |     | 105 | 
|                                    | Cash FlowFiscal 2001 Compared to Fiscal 2000 |      |     | 106 | 
|                                    | Capital Resources and Capital Requirements    |      |     | 107 | 
|Customer Financing                  |                                               |      | 114 |    
|Critical Accounting Policies        |                                               |      | 115 |    
|Recent Accounting Pronouncements    |                                               |      | 117 |    
|Outlook                             |                                               |      | 118 |    

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The following discussion of our financial
condition and results of operations should be read in
conjunction with our consolidated financial statements and the
related Notes prepared in accordance with U.S. GAAP as of
and for the years ended September 30, 2002, 2001 and 2000.

Beginning October 1, 2001, Siemens adopted
the provisions of Statement of Financial Accounting Standards
(SFAS) 142, Goodwill and Other Intangible Assets, and no
longer amortizes goodwill but instead tests it for impairment.
Consistent with this change, EBITA is now referred to as EBIT.
EBIT is measured as earnings before financing interest, income
taxes and certain one-time items. In a concurrent change, EBITA
assets are now reported as Net capital employed. Net capital
employed equals EBITA assets less accumulated amortization of
goodwill and purchased in-process R&D expenses. Fiscal 2001
has been presented on a comparable basis. In fiscal 2001, we
also changed the measure of profitability of our operations from
EBIT to EBITA. Fiscal 2000 has been presented on a comparable
basis. Our EBIT measures are more fully described below.

In fiscal 2002 and 2001, foreign currency
translation effects had significant effects on our results in
which our consolidated financial statements are denominated,
compared to other currencies, most notably the U.S. dollar
and to a lesser extent the Swiss francs, the British pound and
the Japanese yen. All of our business groups are subject to
foreign currency translation effects; however, the business
groups PG, Med and Osram are particularly affected since they
generate a significant portion of their operations through
subsidiaries whose results are subject to foreign currency
translation effects particularly in the U.S. For
significant quantitative effects of currency translation on
sales of our business groups, see Segment
Information AnalysisOperations, as applicable. For
additional information on foreign currency translation see
Item 11: Quantitative and Qualitative Disclosure
About Market RiskForeign Currency Exposure and
Note 2 to the consolidated financial statements.

In addition, the effect of divestments and
acquisitions on our consolidated revenues and expenses also
affects the comparability of our consolidated financial
statements for different periods. The divestments and
acquisitions that were most significant to us are described
under Joint Ventures and Acquisitions. See
also Note 3 to the consolidated financial statements.

Our results of operations have been affected by
losses that result from cost overruns on significant multi-year
fixed-price contracts. For a discussion of the losses from such
contracts that were significant to us in fiscal 2002 and 2001,
see Item 4: Information on the CompanyLong-Term
Contracts and Contract Losses. A discussion of this and
other risk factors that could adversely affect our financial
condition and results of operations is contained in Item 3:
Key InformationRisk Factors.

BASIS OF PRESENTATION

Siemens financial results are reported in
accordance with U.S. GAAP. To help shareholders follow our
growth and progress, the presentation of our worldwide financial
results is enhanced by a component model presentation that
presents the worldwide results for our operating business
separately from the results for our financing and real estate
activities and the effects of eliminations, reclassifications
and Corporate Treasury. The three components of Siemens
worldwide are as follows:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | OperationsThis component is defined as
    Siemens 13 operating groups including corporate
    headquarters and excluding the activities of the Financing and
    Real Estate segments and Corporate Treasury.                                                                                                                                                                                                    
|
| |  | Financing and Real EstateThis component
    includes the Siemens Financial Services group, and the business
    of Siemens Real Estate. These businesses are responsible for our
    leasing, finance and real estate management activities.                                                                                                                                                                       
|
| |  | Eliminations, reclassifications and Corporate
    TreasuryThe third component included in our consolidated
    financial statements enhances the transparency of the other
    components by separately capturing the elimination of
    transactions among Operations and Financing and Real Estate, as
    well as certain reclassifications. This component also includes
    our Corporate Treasury activities.

Effective December 2001, we no longer consolidate
Infineon in our financial results. Instead we account for
Infineon as an investment using the equity method. Accordingly,
our net investment in Infineon is included in our

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consolidated balance sheet under long-term
investments, and we report our share of Infineons net
income or loss in our consolidated income statement as part of
investment income (see Notes to the consolidated financial
statements). The consolidated results of operations and cash
flows of Infineon for the first two months of fiscal 2002
(before the accounting change occurred) are in
Eliminations, reclassifications and Corporate
Treasury. In the prior fiscal year, Infineon was fully
consolidated. Accordingly, we continue to show Infineon as a
separate component in the results for fiscal 2001.


Our thirteen Operations business
groups involve manufacturing, industrial and commercial
solutions and services related more or less to our origins in
the electrical business. We refer to these groups as our
Operations to distinguish them from our financial
services activities. We measure the profitability of our
Operations component and of our segments by EBIT. EBIT is the
measure used by our Managing Board as the chief operating
decision maker for the Company in assessing performance. EBIT is
also the basis for calculating Economic Value Added (EVA) for
Operations, which in turn is part of the determination of the
amount of executive incentive compensation in accordance with
our company-wide bonus program. Therefore, we believe that EBIT
enhances investors understanding of our Operations because
we consider it the best measure of our groups operational
performance. Other companies that use EBIT may calculate it
differently, and their figures may not be comparable to ours.

EBIT for our Operations component is defined as
earnings before financing interest and income taxes, and
excludes certain one-time items (see Corporate,
Eliminations (Operations) and Reconciliation to Financial
StatementsReconciliation to Financial Statements),
which are deemed by the chief operating decision maker, the
Managing Board, to not relate to the business performance of the
Operations component. EBIT for segments is defined as earnings
before financing interest, certain pension costs and income
taxes and excludes certain one time items, which do not relate
to the business performance of the groups. Financing interest is
any interest income other than interest income related to
receivables from customers, from cash allocated to the segments
and interest expense on payables. We believe that it is
appropriate to exclude financing interest from EBIT because
decision-making regarding financing is typically made centrally
in Corporate Treasury. Similarly, income taxes are excluded from
EBIT since tax expense is subject to legal structures which
typically do not correspond to the structure of our Operating
segments. As a result, increases or decreases in EBIT reflect
only the operational performance of the operations, as defined
by the Managing Board, without regard to these effects. For
further information on segment EBIT, see also Notes to the
consolidated financial statements.

In contrast, we assess the profitability of our
Financing and Real Estate component by income before income
taxes since interest expense and income is an important source
of expense and revenue for this component. The profitability of
our Infineon component, however, is measured by EBIT as Infineon
has determined that EBIT, defined as earnings before interest,
taxes and minority interest, is the relevant measure for its
chief operating decision maker in assessing performance. Since
Infineon is a separately listed company, we integrate its
relevant measures into our financial reporting. Net capital
employed is the asset measure used to assess the capital
intensity of our Operations component and our segments. It
represents total assets less tax related assets, less accruals
and less non-interest bearing liabilities other than tax related
liabilities. For further information regarding Net capital
employed, see Notes to the consolidated financial statements.

FISCAL 2002 COMPARED TO FISCAL
2001

CONSOLIDATED OPERATIONS OF SIEMENS
WORLDWIDE

Economic Environment and Market
Trends

Siemens has a balanced business portfolio with
activities predominantly in the field of electronics and
electrical engineering. These activities are influenced by a
range of different regional and economic factors. 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 this area include power generation, power
transmission and distribution, medical solutions and rail
systems. 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 this area include information and communications,
automation and

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drives and lighting. Some activities, especially
information and communications and medical solutions, are also
influenced by technological change and the rate of acceptance of
new technologies by end users.


Economic conditions during fiscal 2002 were weak
on a global basis, which limited revenue growth opportunities.
Within this context, certain industries and regions experienced
even greater difficulties. For example, telecommunications
carriers are still burdened with substantial debt, resulting in
sharp cutbacks in capital spending. Another example is the
U.S. power generation market, where a boom in construction
of gas turbine power plants came to a rapid end in fiscal 2002.

Despite these adverse trends, our net income for
fiscal 2002 rose 24% to
2.597 billion.
Earnings from Operations and net cash from operating and
investing activities both increased strongly compared to the
prior year. A number of businesses which initiated cost cutting
measures in fiscal 2001 returned to profitability in fiscal
2002, most notably the ICM wireless communications group. And at
a time when many of our competitors were reporting sharply lower
revenues, our sales for fiscal 2002 were nearly unchanged from
the prior year on a comparable basis (excluding the effects of
currency exchange, acquisitions and dispositions, which are
discussed in detail below).

Operation 2003

Our successes in fiscal 2002 are linked to the
ongoing implementation of Operation 2003, a set of
strategic programs and initiatives aimed at achieving specific
earnings margin targets for the groups and generating cash
during a period of slow macroeconomic growth. The five major
action areas of Operation 2003 include:



| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | Restoring profitability in the Information &
    Communications business area;                                                 
|
| |  | Successfully integrating the businesses acquired
    from Atecs Mannesmann into our Siemens Dematic and Siemens VDO
    groups;
|
| |  | Increasing profitability in our
    U.S. operations, across the board;                                                         
|
| |  | Continuing to emphasize asset management, so as
    to maintain the healthy positive cash flows of the past two
    years; and 
|
| |  | Reducing central and group administrative costs.                                                                               

Execution of these strategic aims is an important
part of our discussion and analysis below, particularly for the
individual operating groups.

As a company domiciled in the European Union,
Siemens uses the euro as its official currency. Because we
conduct much of our business outside the EU, however, currency
translation effects involving the euro and other currencies can
have a noteworthy impact on our reported results. These effects
reduced reported sales by 2% for Siemens as a whole in fiscal
2002, and reduced reported new orders also by 2%.

Results of Siemens Worldwide



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sales for Siemens worldwide decreased 3% to
    84.016 billion
    and orders decreased 7% to
    86.214 billion.
    Excluding currency effects and the net effect of acquisitions
    and dispositions, sales remained level and orders decreased 5%.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Gross profit as a percentage of sales increased
    by one percentage point to 27.6% from 26.6% in the prior year, a
    period which included full-year consolidation of Infineons
    relatively lower gross profit margin. Higher productivity led to
    significantly higher gross margins at PG and Med. SVs
    gross margin increased in part due to the full-year
    consolidation of the acquired Atecs businesses and an improved
    cost position. SBS increased its gross margin in comparison to
    fiscal 2001 which included severance charges and higher loss
    contract accruals. In contrast, A&Ds gross profit
    margin declined in fiscal 2002 due in part to margin erosion and
    warranty charges. I&S recorded a lower gross margin in
    fiscal 2002 due primarily to severance charges.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Research and development expense decreased from
    6.782 billion
    to
    5.819 billion
    compared to prior year. R&D spending represented 6.9% of
    sales, compared to 7.8% last year. Included in R&D expenses
    for the prior year are IPR&D charges of
    126 million
    related to Operations, as well as R&D expenses of
    1.189 billion
    relating to Infineon. In the Operating groups, R&D spending
    increased at SV and Med, and remained stable relative to
    declining sales at ICN and ICM.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Marketing, selling and general administrative
    expenses were
    15.455 billion
    in fiscal 2002 compared to
    16.640 billion
    in fiscal 2001. This figure represents 18.4% of sales, compared
    to 19.1% last year. The majority of the decrease is attributable
    to the deconsolidation of Infineon, effective December 2001. In
    the prior year Infineon contributed
    786 million
    to the total. Operations also contributed to the decrease of
    marketing, selling and general administrative expenses, due to
    reduced outlays for marketing at ICN, ICM and A&D and lower
    provisions for accounts and loans receivable.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Other operating income, net was
    1.321 billion
    compared to
    2.762 billion
    last year. Fiscal 2002 includes gains of
    936 million
    resulting from Infineon share sales, a
    421 million
    gain on the sale of Unisphere Networks by ICN, a
    60 million
    non-recurring gain at ICN, a
    56 million
    gain on the sale of Hydraulik-Ring by SV, a gain from the sale
    of a portfolio of assets to Kohlberg Kravis Roberts & Co.
    L.P. (KKR), and contract cancellation penalties received by PG.
    Offsetting these gains was a
    378 million
    goodwill impairment at ICNs Access Solutions division
    related to Efficient Networks. The prior year included a
    3.459 billion
    pre-tax gain from the transfer of Infineon shares to pension
    trusts, a
    606 million
    gain related to capital increases at Infineon, and
    927 million
    in goodwill impairments related to the acquisitions of Efficient
    and Milltronics. Also included in other operating expense for
    fiscal 2001 is
    562 million
    of goodwill amortization. Beginning October 1, 2001,
    Siemens adopted the provisions of SFAS 142, Goodwill and
    Other Intangible Assets, and no longer amortizes goodwill.
|
| |  | Siemens earned net income for the fiscal year of
    2.597 billion,
    up 24% from
    2.088 billion
    in fiscal 2001. Net income in fiscal 2002 included our
    453 share of
    Infineons net loss in fiscal 2002. Earnings per share for
    the fiscal year were
    2.92, also up
    24% compared to
    2.36 a year
    earlier.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Net cash from operating and investing activities
    reached
    4.754 billion,
    up sharply from
    1.130 billion
    in the prior year. Net cash from operating activities totaled
    5.564 billion,
    after a
    1.782 billion
    cash contribution to Siemens pension trusts in Germany,
    the U.S. and the U.K. Investing activities, including
    approximately
    2.8 billion
    of net proceeds from portfolio activities, used
    810 million
    in fiscal 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | EBIT from Operations rose to
    2.474 billion
    from
    1.329 billion
    a year ago. Both periods include charges against earnings,
    primarily for severance and asset write-downs, totaling
    1.482 billion
    in fiscal 2002 and
    1.863 billion
    in fiscal 2001. Fiscal 2002 also includes gains of
    631 million
    on sales of businesses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Siemens management proposed a dividend of
    1.00 per share.
    The prior year dividend per share was
    1.00.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

Beginning October 1, 2001, Siemens
adopted the provisions of SFAS 142, Goodwill and Other
Intangible Assets. Accordingly, Siemens no longer amortizes
goodwill. Net income in fiscal 2001 included goodwill
amortization of
562 million,
which reduced reported earnings per share by
0.63. For all
periods presented, earnings per share reflect a stock split, at
a ratio of one additional share for every two shares owned,
which took effect on April 30, 2001.

ACQUISITIONS AND DISPOSITIONS

Atecs Mannesmann

During fiscal 2002, Siemens undertook several
transactions related to the fiscal 2001 acquisition of Atecs
Mannesmann AG (Atecs), a large German automotive and automation
technology group.

On November 20, 2001, the Company sold
Mannesmann Sachs AG to ZF Friedrichshafen AG. The disposition
resulted in net proceeds of
716 million.
This business had been accounted for as an asset held for sale,
and no gain or loss was recorded in connection with the
disposition.

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In January 2002, Siemens exercised its put option
contract, in connection with the Atecs transaction, which gave
Siemens the right to sell Rexroth AG (Rexroth), a wholly owned
subsidiary of Atecs, to Robert Bosch GmbH (Bosch) for an
adjusted equity value of
2.7 billion
less proceeds from businesses already sold to Bosch. The put
option was exercisable from January 2002 through
December 31, 2002.

In the second quarter of fiscal 2002, Vodafone AG
exercised its option to sell to Siemens its 50% minus two shares
stake in Atecs. In connection with this exercise, Siemens made a
cash payment of
3.7 billion
to Vodafone AG.

Infineon Technologies AG

On December 5, 2001, we transferred
200 million Infineon shares or approximately 28.9% of
Infineons outstanding share capital to an irrevocable,
non-voting trust under a trust agreement. Under the terms of the
trust agreement, the shares transferred to the trust may not be
voted, as we have irrevocably relinquished our voting rights in
those shares and the trustee is not permitted to vote the shares
it holds in trust. We continue to be entitled to all the
benefits of economic ownership of the shares held by the
trustee. The transfer on December 5, 2001 reduced our
voting interest in Infineon by an amount corresponding to the
number of shares transferred. For more information on the
Infineon non-voting trust, see Item 10: Additional
InformationMaterial Contracts.

During the first quarter of fiscal 2002, the
Company sold 23.1 million shares of Infineon for net
proceeds of
556 million
and a tax-free gain of
332 million.
In January 2002, the Company sold 40 million shares of
Infineon resulting in net proceeds of
966 million
with a resulting tax-free gain of
604 million.
At September 30, 2002 our ownership interest was 39.7% and
our voting interest was 33.3%, which includes the voting
interest of Infineon shares in the Siemens German Pension Trust
(Siemens Pension Trust e.V.).

As we no longer have a majority voting interest
in Infineon, we have from December 2001 no longer included the
assets and liabilities and results of operations of Infineon in
our consolidated financial statements and instead account for
our ownership interest in Infineon using the equity method. See
Notes to the consolidated financial statements.

Other Dispositions

On July 1, 2002, Siemens completed the sale
of Unisphere Networks, Inc. to Juniper Networks, Inc. for a
combined sales price of
376 million
cash and
208 million
in Juniper stock. The sale transaction resulted in a pre-tax
gain of
421 million.
As a result of the transaction, Siemens acquired 9.73% of
Juniper Networks common shares. The Juniper shares held by
Siemens are subject to certain disposal restrictions which limit
the amount of shares which Siemens may sell.

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 Gottwald. As part of the transaction, Siemens
also sold the Metering division of its Power Transmission and
Distribution group, the Ceramics division of its Power
Generation group, and Network Systems, a regional service
business belonging to its Information and Communication Networks
group. The business activities were sold to a holding company,
called Demag Holding s.a.r.l (Luxembourg). KKR holds an 81% and
Siemens a 19% stake in the holding company. The gross sales
price was
1.69 billion.
Taking into account Siemens stake in the holding company
as well as a shareholder note of
38 million,
a vendor note of
215 million
and the net debt of
372 million
assumed by KKR, Siemens received net cash proceeds of about
1.0 billion.
The transaction resulted in a pre-tax gain of
21 million
and was treated as a sale of a portfolio of businesses. However,
separate results were allocated to the operating segments where
the sold businesses had previously resided. As a result,
Information and Communication Networks (ICN), and Power
Generation (PG) were allocated gains of
153 million
and
68 million
respectively, while Power Transmission and Distribution (PTD)
was allocated a loss of
54 million.

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Siemens will account for its 19% interest in
Demag Holding at cost. The governing structure of Demag Holding
provides for KKR to have absolute control over virtually all
operating, financial, and other management decisions, while
Siemens participation is only passive in nature.

SEGMENT INFORMATION ANALYSIS

Key Performance Data by Business
Group

|                                       |                                                                       |                                                                                                             |   |                |        |         |       |             |        |      |   |        |        |      |       |        |        |  |   |        |       |  |        |        |        |   |        |        |        |  |        |        |        | 
|-------------------------------------- | --------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | - | -------------- | ------ | ------- | ----- | ----------- | ------ | ---- | - | ------ | ------ | ---- | ----- | ------ | ------ |  | - | ------ | ----- |  | ------ | ------ | ------ | - | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                       |                                                                       |                                                                                                             |   |                |        |         |       |             |        |      |   |       
|                                       |                                                                       | New orders(1)                                                                                               |   |                |        |         |       | Net capital
|                                       |                                                                       | (Unaudited)                                                                                                 |   | Total sales(2) |        | EBIT(3) |       | employed   
|                                       |                                                                       |                                                                                                             |   |                |        |         |       |            
|                                       |                                                                       | 2002                                                                                                        |   | 2001           |        | 2002    |       | 2001        |        | 2002 |   | 2001   |        | 2002 |       | 2001  
|                                       |                                                                       |                                                                                                             |   |                |        |         |       |             |        |      |   |        |        |      |       |       
|                                       |                                                                       |                                                                                                            
|                                       |                                                                       | ( in millions)                                                                                            
|Operations                             |                                                                       |                                                                                                             |   |                |        |         |       |             |        |      |   |        |        |      |       |        |        |  |   |        |       |  |        |        |        |   |        |        |        |  |        |       
|                                       | Information and Communication Networks (ICN)                          |                                                                                                             |   | 8,697          |        |         |       | 12,639      |        |      |   | 9,647  |        |      |       | 12,882 |        |  |   | (691   | )     |  |        | (861   | )      |   |        | 1,100  |        |  |        | 3,039  |       
|                                       | Information and Communication Mobile (ICM)                            |                                                                                                             |   | 11,538         |        |         |       | 11,866      |        |      |   | 11,045 |        |      |       | 11,299 |        |  |   | 96     |       |  |        | (307   | )      |   |        | 1,973  |        |  |        | 2,607  |       
|                                       | Siemens Business Services (SBS)                                       |                                                                                                             |   | 6,256          |        |         |       | 6,303       |        |      |   | 5,773  |        |      |       | 6,034  |        |  |   | 101    |       |  |        | (259   | )      |   |        | 264    |        |  |        | 492    |       
|                                       | Automation and Drives (A&D)                                           |                                                                                                             |   | 8,728          |        |         |       | 9,065       |        |      |   | 8,635  |        |      |       | 8,947  |        |  |   | 723    |       |  |        | 981    |        |   |        | 2,197  |        |  |        | 2,619  |       
|                                       | Industrial Solutions and Services (I&S)                               |                                                                                                             |   | 4,120          |        |         |       | 4,881       |        |      |   | 4,480  |        |      |       | 4,563  |        |  |   | (198   | )     |  |        | 97     |        |   |        | 315    |        |  |        | 487    |       
|                                       | Siemens Dematic (SD)                                                  |                                                                                                             |   | 2,810          |        |         |       | 2,281       |        |      |   | 2,995  |        |      |       | 2,520  |        |  |   | 45     |       |  |        | (59    | )      |   |        | 975    |        |  |        | 957    |       
|                                       | Siemens Building Technologies (SBT)                                   |                                                                                                             |   | 5,601          |        |         |       | 5,549       |        |      |   | 5,619  |        |      |       | 5,518  |        |  |   | 195    |       |  |        | 132    |        |   |        | 1,778  |        |  |        | 2,241  |       
|                                       | Power Generation (PG)                                                 |                                                                                                             |   | 10,586         |        |         |       | 12,219      |        |      |   | 9,446  |        |      |       | 8,563  |        |  |   | 1,582  |       |  |        | 634    |        |   |        | (144   | )      |  |        | (1,020 | )     
|                                       | Power Transmission and Distribution (PTD)                             |                                                                                                             |   | 4,429          |        |         |       | 3,887       |        |      |   | 4,199  |        |      |       | 4,053  |        |  |   | 109    |       |  |        | 96     |        |   |        | 928    |        |  |        | 994    |       
|                                       | Transportation Systems (TS)                                           |                                                                                                             |   | 5,247          |        |         |       | 5,647       |        |      |   | 4,367  |        |      |       | 4,021  |        |  |   | 247    |       |  |        | 186    |        |   |        | (741   | )      |  |        | (932   | )     
|                                       | Siemens VDO Automotive (SV)                                           |                                                                                                             |   | 8,515          |        |         |       | 5,702       |        |      |   | 8,515  |        |      |       | 5,702  |        |  |   | 65     |       |  |        | (261   | )      |   |        | 3,746  |        |  |        | 3,605  |       
|                                       | Medical Solutions (Med)                                               |                                                                                                             |   | 8,425          |        |         |       | 8,444       |        |      |   | 7,623  |        |      |       | 7,219  |        |  |   | 1,018  |       |  |        | 808    |        |   |        | 3,414  |        |  |        | 3,844  |       
|                                       | Osram                                                                 |                                                                                                             |   | 4,363          |        |         |       | 4,522       |        |      |   | 4,363  |        |      |       | 4,522  |        |  |   | 365    |       |  |        | 462    |        |   |        | 2,436  |        |  |        | 2,485  |       
|                                       | Corporate, eliminations                                               |                                                                                                             |   | (5,793         | )      |         |       | (6,890      | )      |      |   | (3,580 | )      |      |       | (3,416 | )      |  |   | (1,183 | )     |  |        | (320   | )      |   |        | (2,486 | )      |  |        | (2,805 | )     
|                                       |                                                                       |                                                                                                             |   |                |        |         |       |             |        |      |   |        |        |      |       |        |        |  |   |        |       |  |        |        |        |   |        |        |        |  |        |       
|                                       |                                                                       | Total Operations                                                                                            |   |                | 83,522 |         |       |             | 86,115 |      |   |        | 83,127 |      |       |        | 82,427 |  |   |        | 2,474 |  |        |        | 1,329  |   |        |        | 15,755 |  |        |        | 18,613 | 
|Reconciliation to financial statements |                                                                       |                                                                                                             |  |                |        |         |      |             |        |      |  |        |        |      |      |        |        |  |   |        |       |  |       |        |        |   | 51,944 |        |        |  | 50,587 |       
|                                       | Other interest expense                                                |                                                                                                             |   |               |        |         |       |            |        |      |   |       |        |      |       |       |        |  |   | (96    | )     |  |        | (304   | )      |   |        |       |        |  |        |       |       
|                                       | Goodwill amortization and purchased in-process
    R&D expenses       |                                                                                                             |   |               |        |         |       |            |        |      |   |       |        |      |       |       |        |  |   |       |       |  |        | (665   | )      |   |        |       |        |  |        |       |       
|                                       | Gains on sales and dispositions of significant
    business interests |                                                                                                             |   |               |        |         |       |            |        |      |   |       |        |      |       |       |        |  |   | 936    |       |  |        | 4,065  |        |   |        |       |        |  |        |       |       
|                                       | Other special items                                                   |                                                                                                             |   |               |        |         |       |            |        |      |   |       |        |      |       |       |        |  |   |       |       |  |        | (1,185 | )      |   |        |       |        |  |        |       |       
|                                       |                                                                       |                                                                                                             |   |                |        |         |       |             |        |      |   |        |        |      |       |        |        |  |   |        |       |  |        |        |        |   |        |        |        |  |        |       
|                                       |                                                                       | Operations income before income taxes/total
    assets/total amortization, depreciation and
    write-downs |   |                |       |         |       |             |       |      |   |        |       |      |       |        |       |  |   |        | 3,314 |  |        |        | 3,240  |   |        |        | 67,699 |  |        |        | 69,200 | 
|                                       |                                                                       |                                                                                                             |   |                |        |         |       |             |        |      |   |        |        |      |       |        |        |  |   |        |       |  |        |        |        |   |        |        |        |  |        |       
|Infineon Technologies (Infineon)       |                                                                       |                                                                                                             |  |                |        |         | 4,390 |             |        |      |  |        |        |      | 5,671 |        |        |  |  |        |       |  | (1,024 | )      |        |   |       |        |        |  | 6,471  |       
|                                       | Reconciliation to financial statements                                |                                                                                                             |   |               |        |         |       |            |        |      |   |       |        |      |       |       |        |  |   |       |       |  |        | (1     | )      |   |        |       |        |  |        | 3,272  |       
|                                       |                                                                       |                                                                                                             |   |                |        |         |       |             |        |      |   |        |        |      |       |        |        |  |   |        |       |  |        |        |        |   |        |        |        |  |        |       
|                                       |                                                                       | Infineon income (loss) before income
    taxes/total assets                                                 |   |                |       |         |       |             |       |      |   |        |       |      |       |        |       |  |   |        |      |  |        |        | (1,025 | ) |        |        |       |  |        |        | 9,743  | 
|                                       |                                                                       |                                                                                                             |   |                |        |         |       |             |        |      |   |        |        |      |       |        |        |  |   |        |       |  |        |        |        |   |        |        |        |  |        |       

|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |       |        | 
|------------------------- | ------------------------------------ | ------------------------------- |  | ----- | ----- |  |  | ----- | ----- | --------------- |  | ------------ | ----- | ---- |  | ----- | ----- |  |  | --- | --- |  |  | --- | --- |  |  | ----- | ------ |  |  | ----- | ------ | 
|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |     
|                          |                                      |                                 |  |       |       |  |  |       |       | Income before   |  |             
|                          |                                      |                                 |  |       |       |  |  |       |       | Income taxes    |  | Total assets
|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |             
|                          |                                      |                                 |  |       |       |  |  |       |       | 2002            |  | 2001         |       | 2002 |  | 2001 
|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |      |  |      
|                          |                                      |                                 |  |       |       |  |  |       |       |                
|                          |                                      |                                 |  |       |       |  |  |       |       | ( in millions)
|Financing and Real Estate |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |      
|                          | Siemens Financial Services (SFS)     |                                 |  | 582   |       |  |  | 481   |       |                 |  | 582          |       |      |  | 481   |       |  |  | 216 |     |  |  | 158 |     |  |  | 8,681 |        |  |  | 9,501 |       
|                          | Siemens Real Estate Management (SRE) |                                 |  | 1,612 |       |  |  | 1,542 |       |                 |  | 1,612        |       |      |  | 1,542 |       |  |  | 229 |     |  |  | 213 |     |  |  | 4,090 |        |  |  | 3,791 |       
|                          | Eliminations                         |                                 |  |      |       |  |  |      |       |                 |  | (8           | )     |      |  | (7    | )     |  |  |    |     |  |  |    |     |  |  | (561  | )      |  |  | (525  | )     
|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |      
|                          |                                      | Total Financing and Real Estate |  |       | 2,194 |  |  |       | 2,023 |                 |  |              | 2,186 |      |  |       | 2,016 |  |  |     | 445 |  |  |     | 371 |  |  |       | 12,210 |  |  |       | 12,767 | 
|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |      






|    |                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | New orders are determined principally as the
    estimated sales value of accepted purchase orders and order
    value changes and adjustments, excluding letters of intent.
|(2) | Includes intersegment sales.                                                                                                                                                

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(3) | EBIT is measured as earnings before financing
    interest, income taxes and certain one-time items included in
    Corporate, eliminations and Reconciliation to financial
    statements. EBIT differs from our Income before income taxes and
    you should not consider it to be the same. Other companies that
    use EBIT may calculate it differently, and their figures may not
    be comparable to ours.

Operations

Information and
Communications

Information and Communication Networks
(ICN)

|                                                 |  |        |     |                 |  |      |       |    |  |  |        |   
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | -- |  |  | ------ | --
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|ICN Performance Data                             |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|EBIT                                             |  |        | 20  | %               |  |      | (691  | )  |  |  | (861   | ) 
|EBIT margin                                      |  |        |     |                 |  |      | (7.2  | )% |  |  | (6.7   | )%
|Total sales                                      |  |        | (25 | )%              |  |      | 9,647 |    |  |  | 12,882 |   
|New orders                                       |  |        | (31 | )%              |  |      | 8,697 |    |  |  | 12,639 |   
|Net cash from operating and investing activities |  |        |     |                 |  |      | 711   |    |  |  | (2,350 | ) 

|                         |  |  |  |               |  |      |       |  |  |  |       | 
|------------------------ |  |  |  | ------------- |  | ---- | ----- |  |  |  | ----- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | 1,100 |  |  |  | 3,039 | 
|Employees (in thousands) |  |  |  |               |  |      | 39    |  |  |  | 51    | 

Continuing difficult conditions in the
telecommunications equipment market had the harshest effect on
ICN, which had EBIT of negative
691 million,
compared to a negative
861 million
in the prior year. The current year included
577 million
in severance charges and asset write-downs. Asset write-downs
included write-offs of inventory, receivables and venture
capital investments. In addition, the group recorded a goodwill
impairment of
378 million
at the Access Solutions division related to Efficient Networks,
as the market for Efficients DSL equipment significantly
weakened compared to expectations at the time ICN acquired the
business in fiscal 2001. Partially offsetting these charges were
634 million
in gains primarily related to the sale of businesses, including
Unisphere Networks. This figure includes a gain of
153 million
for the sale of ICNs network systems businesses in the
United Kingdom, France and Italy, which were part of the
portfolio of business activities sold to KKR. The prior year
included severance charges of
387 million
and write-downs of assets totaling
672 million,
partially offset by
120 million
in gains on the sale of investments in start-up companies.
ICNs EBIT in fiscal 2001 does not include the impairment
of goodwill associated with the Efficient acquisition, as
described below in Corporate, Eliminations
(Operations) and Reconciliation to Financial
StatementsReconciliation to Financial Statements.

The steep plunge in capital expenditures by
telecommunication network operators, particularly in the
U.S. and Germany, had a direct effect on the Carrier
Switching Business (consisting of the Wireline Networks, Optical
Networks and Access Solutions divisions), which suffered a sharp
decline in sales and orders and a corresponding impact on its
profitability. The Enterprise Networks division reversed its
loss in the prior year to stabilize its business and post a
solid profit in fiscal 2002. For ICN as a whole, sales in fiscal
2002 fell 25% compared to the prior year, to
9.647 billion,
while orders dropped 31%, to
8.697 billion.

Net capital employed decreased from
3.039 billion
to
1.100 billion
as a result of ICNs aggressive working capital management
initiatives, divestments, asset write-downs and the goodwill
impairment at the Access Solutions division related to
Efficient. Net cash from operating activities and investing
activities increased significantly from negative
2.350 billion
in fiscal 2001, which included the acquisition of Efficient
Networks, to a positive
711 million,
as the efforts just noted more than offset ICNs negative
EBIT for the year. Cash flow will be negatively affected in
future periods due to payments related to the planned headcount
reduction activities described below. EVA in fiscal 2002 was
negative, but improved compared to the prior year due to
ICNs reduction in Net capital employed.

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In fiscal 2001, ICN implemented its Profitability
and Cash Turnaround (PACT) program, which is aimed at cutting
costs, consolidating the groups worldwide manufacturing
infrastructure and optimizing its business portfolio. In fiscal
2002, the PACT program was expanded to include a total headcount
reduction of approximately 20,500 positions, up from a planned
10,000 positions announced in fiscal 2001. The reduction in
personnel is expected to be achieved through attrition, early
retirement, and voluntary and involuntary terminations. Fiscal
2001 severance charges totaling
387 million
were incurred related to the termination of employees in
locations worldwide, employed in various functions including
manufacturing and administration. The payout on this plan was
substantially completed in fiscal 2002. In fiscal 2002,
additional severance charges of
352 million
were incurred worldwide in connection with the PACT program for
employees in various functions. The majority of this is expected
to be paid out in fiscal 2003. ICN expects additional expenses
in fiscal 2003 to complete the headcount reduction program.

Information and Communication Mobile
(ICM)

|                                                 |  |        |    |                 |  |      |        |   |  |  |        |   
|------------------------------------------------ |  | ------ | -- | --------------- |  | ---- | ------ | - |  |  | ------ | --
|                                                 |  |        |    |                
|                                                 |  |        |    | Year ended     
|                                                 |  |        |    | September 30,  
|                                                 |  |        |    |                
|ICM Performance Data                             |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|EBIT                                             |  |        |    |                 |  |      | 96     |   |  |  | (307   | ) 
|EBIT margin                                      |  |        |    |                 |  |      | 0.9    | % |  |  | (2.7   | )%
|Total sales                                      |  |        | (2 | )%              |  |      | 11,045 |   |  |  | 11,299 |   
|New orders                                       |  |        | (3 | )%              |  |      | 11,538 |   |  |  | 11,866 |   
|Net cash from operating and investing activities |  |        |    |                 |  |      | 594    |   |  |  | 14     |   

|                         |  |  |  |               |  |      |       |  |  |  |       | 
|------------------------ |  |  |  | ------------- |  | ---- | ----- |  |  |  | ----- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | 1,973 |  |  |  | 2,607 | 
|Employees (in thousands) |  |  |  |               |  |      | 29    |  |  |  | 30    | 

ICM was back in the black in fiscal 2002, posting
EBIT of
96 million
compared to a
307 million
loss in the prior year, which included asset write-downs of
441 million.
The Mobile Phones division was primarily responsible for this
turnaround, posting EBIT of
82 million
compared to a negative
540 million
a year earlier, a period which included significant charges for
asset write-downs, particularly for excess handset inventories.
In fiscal 2002, the division was especially successful in the
mid- and low-end segment where it introduced a number of new
products. This resulted in an increase in unit sales to
33.3 million compared to 28.7 million handsets a year
earlier. The division leveraged this increase in unit volume by
significantly improving its cost structure within a cost-cutting
program initiated in fiscal 2001. In addition to streamlining
marketing and selling activities and improving its purchasing,
the division successfully implemented design-to-cost strategies,
including increased sharing of a common technology platform
across multiple product lines.

The Networks division recorded an EBIT of
5.0 million
compared to
435 million
in fiscal 2001. During fiscal 2002 the division faced ongoing
price erosion and declining demand for wireless infrastructure
products and services. In response to these prevailing market
conditions, the division is expanding its Top on Air
productivity program into fiscal 2003, in order to further
reduce its costs. A headcount reduction plan initiated in fiscal
2001 was expanded during the year to a total targeted reduction
of approximately 4,000 positions worldwide. The reduction in
personnel is expected to be achieved through attrition, early
retirement, and voluntary and involuntary terminations across
various functions. EBIT in fiscal 2002 included
105 million
for severance charges of which nearly half was paid to employees
during the year. The remainder is expected to be paid out in
fiscal 2003. In fiscal 2002, the division recorded higher
provisions on customer financing receivables, including a
51 million
write-off in the second half of the year associated with a
customer serving Africa and the Middle East. The Cordless
Products division made a significant contribution to ICMs
earnings for the year. The groups results for the year
also include ICMs share, amounting to
17 million,
of the loss at the Fujitsu Siemens Computers joint venture.

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For ICM as a whole, sales edged down 2%, to
11.045 billion,
and orders declined 3%, to
11.538 billion
compared to fiscal 2001. The decline in volume was evident at
the Networks division, as a drop in sales of GSM infrastructure
equipment was not compensated by an increase in sales of
next-generation UMTS equipment.

Net capital employed decreased from
2.607 billion
in fiscal 2001 to
1.973 billion
mainly due to aggressive working capital management, primarily
accounts receivable and inventories. Net cash from operating and
investing activities increased significantly to
594 million
in fiscal 2002 compared to
14 million
last year, due to increased profitability and improved asset
management. Cash flow will be negatively affected in future
periods due to payments related to the planned headcount
reduction activities noted above and due to commitments to
extend customer financing in the Networks division. For
additional information see Customer Financing.
EVA remained negative, but improved in fiscal 2002 due to
positive earnings and lower Net capital employed.

Siemens Business Services (SBS)

|                                                 |  |        |    |                 |  |      |       |   |  |  |       |   
|------------------------------------------------ |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | --
|                                                 |  |        |    |                
|                                                 |  |        |    | Year ended     
|                                                 |  |        |    | September 30,  
|                                                 |  |        |    |                
|SBS Performance Data                             |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|EBIT                                             |  |        |    |                 |  |      | 101   |   |  |  | (259  | ) 
|EBIT margin                                      |  |        |    |                 |  |      | 1.7   | % |  |  | (4.3  | )%
|Total sales                                      |  |        | (4 | )%              |  |      | 5,773 |   |  |  | 6,034 |   
|New orders                                       |  |        | (1 | )%              |  |      | 6,256 |   |  |  | 6,303 |   
|Net cash from operating and investing activities |  |        |    |                 |  |      | 173   |   |  |  | 339   |   

|                         |  |  |  |               |  |      |     |  |  |  |     | 
|------------------------ |  |  |  | ------------- |  | ---- | --- |  |  |  | --- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | 264 |  |  |  | 492 | 
|Employees (in thousands) |  |  |  |               |  |      | 34  |  |  |  | 36  | 

EBIT at SBS was
101 million
in fiscal 2002 compared to a negative
259 million
a year ago. The prior year included
242 million
charges for severance and asset write-downs and a
44 million
gain on a sale of an investment. The severance charges in fiscal
2001 totaled
196 million
as part of a plan to eliminate 2,200 positions. During fiscal
2002,
140 million
of this amount was paid to employees and the remainder is
expected to be paid out in fiscal 2003. The prior year was also
affected by loss provisions relating to two significant business
process outsourcing contracts totaling
192 million.
Management at SBS continues to focus on risks associated with
long-term business process outsourcing contracts, particularly
regarding our long-term contract with National Savings &
Investments in the U.K. EBIT margin at SBS increased to
1.7% in fiscal 2002 compared to negative 4.3% a year ago. Sales
slid 4% below the prior-year level, to
5.773 billion,
and orders held steady at
6.256 billion,
despite a difficult market for IT services. Net capital employed
decreased from
492 million
a year ago to
264 million
in fiscal 2002 due to working capital management and lower
capital expenditures. Net cash from operating and investing
activities was
173 million
in fiscal 2002, a period which included the severance payments
noted above. Net cash from operating and investing activities of
339 million
in fiscal 2001 benefited from higher sales of receivables to
Siemens Financial Services (SFS). EVA turned positive in fiscal
2002 due to higher earnings and lower Net capital employed.

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Automation and Control

Automation and Drives (A&D)

|                                                 |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|A&D Performance Data                             |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|EBIT                                             |  |        | (26 | )%              |  |      | 723   |   |  |  | 981   |  
|EBIT margin                                      |  |        |     |                 |  |      | 8.4   | % |  |  | 11.0  | %
|Total sales                                      |  |        | (3  | )%              |  |      | 8,635 |   |  |  | 8,947 |  
|New orders                                       |  |        | (4  | )%              |  |      | 8,728 |   |  |  | 9,065 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | 1,019 |   |  |  | 533   |  

|                         |  |  |  |               |  |      |       |  |  |  |       | 
|------------------------ |  |  |  | ------------- |  | ---- | ----- |  |  |  | ----- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | 2,197 |  |  |  | 2,619 | 
|Employees (in thousands) |  |  |  |               |  |      | 51    |  |  |  | 54    | 

A&D was one of Siemens top earnings
performers for the year, delivering
723 million
in EBIT and an 8.4% EBIT margin. Despite declining sales,
A&Ds largest division, Industrial Automation Systems,
was able to maintain a strong EBIT margin. The Large Drives
division achieved higher volume and EBIT as it translated large
orders into sales and benefited from productivity measures
initiated in fiscal 2001. EBIT also included charges of
26 million,
including headcount reduction in the U.S. and a
10 million
loss on the sale of an investment. In comparison, EBIT a year
earlier was
981 million.
EBIT in the prior year did not include an impairment of goodwill
associated with the acquisition of Milltronics, which is
discussed in Corporate, Eliminations (Operations)
and Reconciliation to Financial StatementsReconciliation
to Financial Statements. Sales for A&D overall slid 3%
to
8.635 billion
and orders declined 4% to
8.728 billion,
due in part to negative currency effects and weak demand in the
Americas, particularly in the U.S. Net capital employed
decreased from
2.619 billion
to
2.197 billion
due to improvements in working capital management, particularly
regarding inventories and accounts receivable. This development
also drove the improvement in net cash from operating and
investing activities, which almost doubled from
533 million
to
1.019 billion.
EVA was positive, but lower than in the prior year.

Industrial Solutions & Services
(I&S)

|                                                 |  |        |     |                 |  |      |       |    |  |  |       |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | -- |  |  | ----- | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|I&S Performance Data                             |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|EBIT                                             |  |        |     |                 |  |      | (198  | )  |  |  | 97    |  
|EBIT margin                                      |  |        |     |                 |  |      | (4.4  | )% |  |  | 2.1   | %
|Total sales                                      |  |        | (2  | )%              |  |      | 4,480 |    |  |  | 4,563 |  
|New orders                                       |  |        | (16 | )%              |  |      | 4,120 |    |  |  | 4,881 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | (107  | )  |  |  | (39   | )

|                         |  |  |  |               |  |      |     |  |  |  |     | 
|------------------------ |  |  |  | ------------- |  | ---- | --- |  |  |  | --- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | 315 |  |  |  | 487 | 
|Employees (in thousands) |  |  |  |               |  |      | 29  |  |  |  | 30  | 

I&S battled weakness in the market for
industrial solutions, posting EBIT of negative
198 million
for the year compared to a positive
97 million
in fiscal 2001. I&S took
152 million
in charges for severance programs and capacity adjustments in
fiscal 2002 primarily at the Industrial Services division, which
turned negative after solid earnings in fiscal 2001. Reduced
investments by major customers in the industrial sector resulted
in a sharp decline in volume at the Metals, Mining and Paper
Technologies division as well as at the Infrastructure and

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Marine Solutions division. These declines
resulted in negative EBIT, including severance charges for both
businesses after positive earnings a year ago. The severance
charges in fiscal 2002 totaled
118 million
for a plan to eliminate approximately 1,600 positions. During
fiscal 2002,
35 million
of this amount was paid to employees, with the remainder
scheduled for payment in fiscal 2003.


Sales fell 2%, to
4.480 billion,
while orders declined 16%, to
4.120 billion
in part due to greater selectivity regarding new business. Net
capital employed decreased to
315 million
due in part to higher liabilities and lower inventories,
compared to
487 million
in the prior year. Net cash from operating and investing
activities decreased from a negative
39 million
to a negative
107 million,
due to decreased profitability and lower sales of receivables to
SFS. I&S cash flow will be negatively affected in
future periods due to payments related to the planned headcount
reduction activities noted above. EVA turned negative primarily
due to lower profitability.

Siemens Dematic (SD)

|                                                 |  |        |    |                 |  |      |       |   |  |  |       |   
|------------------------------------------------ |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | --
|                                                 |  |        |    |                
|                                                 |  |        |    | Year ended     
|                                                 |  |        |    | September 30,  
|                                                 |  |        |    |                
|SD Performance Data                              |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|EBIT                                             |  |        |    |                 |  |      | 45    |   |  |  | (59   | ) 
|EBIT margin                                      |  |        |    |                 |  |      | 1.5   | % |  |  | (2.3  | )%
|Total sales                                      |  |        | 19 | %               |  |      | 2,995 |   |  |  | 2,520 |   
|New orders                                       |  |        | 23 | %               |  |      | 2,810 |   |  |  | 2,281 |   
|Net cash from operating and investing activities |  |        |    |                 |  |      | (70   | ) |  |  | 261   |   

|                         |  |  |  |               |  |      |     |  |  |  |     | 
|------------------------ |  |  |  | ------------- |  | ---- | --- |  |  |  | --- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | 975 |  |  |  | 957 | 
|Employees (in thousands) |  |  |  |               |  |      | 12  |  |  |  | 12  | 

SD posted EBIT of
45 million
compared to a negative
59 million
a year earlier, when the group recorded significantly higher
contract loss provisions and other charges totaling
95 million.
In contrast, SD was profitable in all four quarters of fiscal
2002, as the group successfully integrated the Dematics
businesses acquired from Atecs. The Material Handling division
increased profitability at its U.S. operations through
improved project management. The division also lowered contract
loss provisions particularly in Europe as it increased overall
productivity. The Postal Automation division returned to
profitability. In contrast, EBIT of the Electronics Assembly
Systems division turned negative compared to positive earnings a
year ago, primarily due to a prolonged and deepening slump in
the market for telecommunications equipment, affecting demand
for its pick and place equipment. EBIT margin for the group
improved to a positive 1.5%, compared to the negative level in
the prior year.

Sales of
2.995 billion
and orders of
2.810 billion
were 19% and 23% higher than in fiscal 2001, respectively,
primarily because the prior period included only five
months consolidation of the Dematic businesses. On a
comparable basis, sales and orders declined year-over-year,
reflecting the slowdown at the Electronics Assembly Systems
division. Net capital employed was nearly unchanged at
975 million.
Cash from operating and investing activities was a negative
70 million
compared to a positive
261 million
in the prior year, as customer prepayments decreased
significantly and the group made payments for previously accrued
contract loss provisions. Higher earnings helped improve
SDs EVA, which is still negative.

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Siemens Building Technologies (SBT)

|                                                 |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|SBT Performance Data                             |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|EBIT                                             |  |        | 48% |                 |  |      | 195   |   |  |  | 132   |  
|EBIT margin                                      |  |        |     |                 |  |      | 3.5   | % |  |  | 2.4   | %
|Total sales                                      |  |        | 2%  |                 |  |      | 5,619 |   |  |  | 5,518 |  
|New orders                                       |  |        | 1%  |                 |  |      | 5,601 |   |  |  | 5,549 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | 295   |   |  |  | 49    |  

|                         |  |  |  |               |  |      |       |  |  |  |       | 
|------------------------ |  |  |  | ------------- |  | ---- | ----- |  |  |  | ----- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | 1,778 |  |  |  | 2,241 | 
|Employees (in thousands) |  |  |  |               |  |      | 36    |  |  |  | 37    | 

SBT increased its EBIT in fiscal 2002 to
195 million
from 132 million
a year earlier. Prior-year results included charges primarily at
the Fire and Safety division in the U.S., together with costs
associated with the closure of certain facilities and related
headcount reduction at the Building Automation and Fire and
Safety divisions. EBIT margins improved as the group focused on
higher-margin projects and reorganized the Fire & Security
Products division.

Orders and sales for SBT overall were up 1% and
2%, respectively, to
5.601 billion
and
5.619 billion,
as increases at Building Automation and acquisition-related
increases at Security Systems were offset by decreases at
Facility Management. The decrease in Net capital employed from
2.241 billion
to
1.778 billion
was due to improvements in working capital and reductions in
property, plant and equipment. The improvement in net cash from
operating and investing activities, from
49 million
to
295 million,
was a result of lower capital expenditures as well as decreases
in inventories, increases in accounts payable and improvements
in accounts receivable management. EVA increased but remains
negative.

Power

Power Generation (PG)

|                                                 |  |        |     |                 |  |      |        |   |  |  |        |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ------ | - |  |  | ------ | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|PG Performance Data                              |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|EBIT                                             |  |        | 150 | %               |  |      | 1,582  |   |  |  | 634    |  
|EBIT margin                                      |  |        |     |                 |  |      | 16.7   | % |  |  | 7.4    | %
|Total sales                                      |  |        | 10  | %               |  |      | 9,446  |   |  |  | 8,563  |  
|New orders                                       |  |        | (13 | )%              |  |      | 10,586 |   |  |  | 12,219 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | 662    |   |  |  | 2,045  |  

|                         |  |  |  |               |  |      |      |   |  |  |        |  
|------------------------ |  |  |  | ------------- |  | ---- | ---- | - |  |  | ------ | -
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | (144 | ) |  |  | (1,020 | )
|Employees (in thousands) |  |  |  |               |  |      | 26   |   |  |  | 26     |  

PG led all Siemens groups with
1.582 billion
in EBIT and an EBIT margin of 16.7%, compared to
634 million
in EBIT and a 7.4% margin a year earlier. EBIT for fiscal 2002
included income of approximately
100 million
from the net effect of updated estimates of project completion
performance, a gain from the sale of a business included in the
portfolio of business activities which Siemens sold to KKR, fees
derived from customer cancellation of orders, which were
partially offset by charges related to planned consolidation of
manufacturing capacity. Further consolidation-related charges
may be incurred in fiscal 2003 depending on market developments.

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Sales increased 10% year-over-year, to
9.446 billion.
Much of the increase reflected the conversion of past orders to
current revenues. The sales trend slowed significantly over the
course of the year, especially in the fourth quarter. Orders
decreased 13% to
10.586 billion,
as U.S. demand for gas turbines, which began slowing in the
second quarter, came to a virtual halt by the fiscal years
end. PGs backlog dropped from
26 billion,
including approximately
11 billion
of reservations, at the end of the prior year to
20 billion
at September 30, 2002, including approximately
5 billion
in reservations. During the year, PG converted
4.1 billion
of reservations to confirmed orders.

Net capital employed rose from negative
1.020 billion
to negative
144 million,
as prior customer prepayments were translated into project
inventories and not replaced with new prepayments. This same
trend also affected net cash from operating and investing
activities, which decreased from
2.045 billion
a year ago to
662 million
in fiscal 2002. Cash flow will be impacted in future periods due
to expected lower customer prepayments. Excellent profitability
more than offset negative trends in lower customer prepayments
and contributed to PGs improved EVA.

Power Transmission and Distribution
(PTD)

|                                                 |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|PTD Performance Data                             |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|EBIT                                             |  |        | 14% |                 |  |      | 109   |   |  |  | 96    |  
|EBIT margin                                      |  |        |     |                 |  |      | 2.6   | % |  |  | 2.4   | %
|Total sales                                      |  |        | 4%  |                 |  |      | 4,199 |   |  |  | 4,053 |  
|New orders                                       |  |        | 14% |                 |  |      | 4,429 |   |  |  | 3,887 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | 149   |   |  |  | (331  | )

|                         |  |  |  |               |  |      |     |  |  |  |     | 
|------------------------ |  |  |  | ------------- |  | ---- | --- |  |  |  | --- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | 928 |  |  |  | 994 | 
|Employees (in thousands) |  |  |  |               |  |      | 17  |  |  |  | 21  | 

PTD reported
109 million
in EBIT despite a loss of
54 million
on the sale of its Metering division, which was included in the
portfolio of business activities sold by Siemens to KKR. EBIT in
the prior year was
96 million.
Fiscal 2002 earnings were driven primarily by strong performance
at the High Voltage, Medium Voltage and Power Automation
divisions. EBIT for the current fiscal year included charges of
34 million
primarily for a severance program. Sales rose 4%, to
4.199 billion,
and orders climbed 14%, to
4.429 billion,
benefiting from a large order booked early in the year. Sales
growth slowed at the end of the year due to slowing activity in
the U.S. power market. Net capital employed decreased
slightly to
928 million
due to improvements in working capital and the sale of the
Metering division. Working capital improvements also had a
positive effect on net cash from operating and investing
activities, which increased by
480 million
to
149 million.
The prior years cash flow was impacted by acquisitions.
EVA was negative, due primarily to the loss on the sale of the
Metering division.

73



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Transportation

Transportation Systems (TS)

|                                                 |  |        |      |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | ---- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |      |                
|                                                 |  |        |      | Year ended     
|                                                 |  |        |      | September 30,  
|                                                 |  |        |      |                
|TS Performance Data                              |  | Change |      | 2002            |  | 2001
|                                                 |  |        |      |                 |  |     
|                                                 |  |        |      |                
|                                                 |  |        |      | ( in millions)
|EBIT                                             |  |        | 33%  |                 |  |      | 247   |   |  |  | 186   |  
|EBIT margin                                      |  |        |      |                 |  |      | 5.7   | % |  |  | 4.6   | %
|Total sales                                      |  |        | 9%   |                 |  |      | 4,367 |   |  |  | 4,021 |  
|New orders                                       |  |        | (7)% |                 |  |      | 5,247 |   |  |  | 5,647 |  
|Net cash from operating and investing activities |  |        |      |                 |  |      | 95    |   |  |  | 752   |  

|                         |  |  |  |               |  |      |      |   |  |  |      |  
|------------------------ |  |  |  | ------------- |  | ---- | ---- | - |  |  | ---- | -
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | (741 | ) |  |  | (932 | )
|Employees (in thousands) |  |  |  |               |  |      | 17   |   |  |  | 14   |  

TS increased its EBIT 33% to
247 million
compared to
186 million
a year earlier. EBIT margin rose to 5.7% for the year compared
to 4.6% last year. Sales climbed 9%, to
4.367 billion,
as TS converted large prior year orders into current year sales.
Orders of
5.247 billion
were 7% lower than in fiscal year 2001, when TS booked a large
railcar order valued at approximately
1.6 billion.
This years new orders included a high-speed rail link in
the Netherlands for
404 million,
a turnkey subway system in Bangkok for
356 million
and a 14-year, full-service contract for maintenance of
high-speed trains in Spain for
305 million.
The groups backlog stood at
11.2 billion
at year-end, level with the end of the prior year. Net capital
employed increased from a negative
932 million
to a negative
741 million
as TS used advance payments for project inventories. Net cash
from operating and investing activities decreased from
752 million
to
95 million,
due to lower advance payments. The rate at which TS receives
advance payments for customer projects will have an impact on
its cash flow in future periods. EVA increased on higher
profitability due to improved productivity and an increased
focus on higher-margin projects.

Siemens VDO Automotive (SV)

|                                                 |  |        |     |                 |  |      |       |   |  |  |       |   
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | --
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|SV Performance Data                              |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|EBIT                                             |  |        |     |                 |  |      | 65    |   |  |  | (261  | ) 
|EBIT margin                                      |  |        |     |                 |  |      | 0.8   | % |  |  | (4.6  | )%
|Total sales                                      |  |        | 49% |                 |  |      | 8,515 |   |  |  | 5,702 |   
|New orders                                       |  |        | 49% |                 |  |      | 8,515 |   |  |  | 5,702 |   
|Net cash from operating and investing activities |  |        |     |                 |  |      | 224   |   |  |  | (89   | ) 

|                         |  |  |  |               |  |      |       |  |  |  |       | 
|------------------------ |  |  |  | ------------- |  | ---- | ----- |  |  |  | ----- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | 3,746 |  |  |  | 3,605 | 
|Employees (in thousands) |  |  |  |               |  |      | 43    |  |  |  | 44    | 

SV turned in a profitable year, with EBIT of
65 million
compared to a negative
261 million
in fiscal 2001 as its integration and consolidation programs,
initiated last year showed results. SV benefited from a
56 million
gain on the sale of its Hydraulik-Ring business in fiscal 2002
and from the effects of its cost-reduction program initiated in
fiscal 2001. The relative improvement in EBIT also benefited
from the fact that fiscal 2002 included 12 months of
results from the automotive operations acquired from Atecs,
while fiscal 2001 included only five months. The prior year
included
90 million
in asset write-downs split between losses on the divestment of
the

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groups wiring harness business and
write-downs of investments. The current year included charges
for write-downs of certain intangible assets. Sales and orders
of
8.515 billion
were 49% higher than in fiscal 2001, largely reflecting
full-year inclusion of the Atecs businesses compared to
five months in the prior year.


Net capital employed increased from
3.605 billion
to
3.746 billion
due to increased capital spending, especially for manufacturing
equipment for Diesel technology. Net cash from operating and
investing activities improved from negative
89 million
to positive
224 million,
due mainly to
107 million
in proceeds from the sale of Hydraulik-Ring and to the
improvement in earnings. Higher earnings also improved EVA,
which remained negative.

Medical

Medical Solutions (Med)

|                                                 |  |        |    |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |    |                
|                                                 |  |        |    | Year ended     
|                                                 |  |        |    | September 30,  
|                                                 |  |        |    |                
|Med Performance Data                             |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|EBIT                                             |  |        | 26 | %               |  |      | 1,018 |   |  |  | 808   |  
|EBIT margin                                      |  |        |    |                 |  |      | 13.4  | % |  |  | 11.2  | %
|Total sales                                      |  |        | 6  | %               |  |      | 7,623 |   |  |  | 7,219 |  
|New orders                                       |  |        | 0  | %               |  |      | 8,425 |   |  |  | 8,444 |  
|Net cash from operating and investing activities |  |        |    |                 |  |      | 1,124 |   |  |  | 86    |  

|                         |  |  |  |               |  |      |       |  |  |  |       | 
|------------------------ |  |  |  | ------------- |  | ---- | ----- |  |  |  | ----- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | 3,414 |  |  |  | 3,844 | 
|Employees (in thousands) |  |  |  |               |  |      | 31    |  |  |  | 30    | 

Med achieved a new high in earnings with EBIT of
1.018 billion,
26% higher than the
808 million
earned in fiscal 2001. Gross profit increased, particularly in
the groups imaging systems divisions, driven by
productivity improvements in connection with new products. EBIT
margin rose more than two percentage points, to 13.4%.
Meds imaging systems businesses also drove sales growth of
6% to
7.623 billion
compared with the prior year. Delayed investment decisions in
new technologies by customers of the Health Services division
combined with order increases at the imaging systems divisions
to result in stable order development for the year at
8.425 billion.

Net capital employed decreased from
3.844 billion
to
3.414 billion
due to improvements in accounts receivable management. Cash from
operating and investing activities was
1.124 billion,
up from
86 million
in the prior year which included the acquisition of Acuson. Cash
from operating and investing activities improved on increased
profitability and asset management. Higher earnings on decreased
assets increased EVA.

Lighting

Osram

|                                                 |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|Osram Performance Data                           |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|EBIT                                             |  |        | (21 | )%              |  |      | 365   |   |  |  | 462   |  
|EBIT margin                                      |  |        |     |                 |  |      | 8.4   | % |  |  | 10.2  | %
|Total sales                                      |  |        | (4  | )%              |  |      | 4,363 |   |  |  | 4,522 |  
|New orders                                       |  |        | (4  | )%              |  |      | 4,363 |   |  |  | 4,522 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | 284   |   |  |  | 349   |  

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|                         |  |  |  |               |  |      |       |  |  |  |       | 
|------------------------ |  |  |  | ------------- |  | ---- | ----- |  |  |  | ----- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Net capital employed     |  |  |  |               |  |      | 2,436 |  |  |  | 2,485 | 
|Employees (in thousands) |  |  |  |               |  |      | 35    |  |  |  | 35    | 

Osram generated
365 million
in EBIT compared to
462 million
a year earlier, a period that included
54 million
in non-operating gains. EBIT margin was also lower, at 8.4%, but
that level still ranked among the highest of the groups. Sales
of higher-margin products at the Automotive Lighting division
resulted in a solid improvement in EBIT margin which were more
than offset by margin erosion, in particular in the
Opto-semiconductors division. Sales and orders slid 4%, to
4.363 billion,
reflecting economic weakness particularly in Osrams large
U.S. market.

Net capital employed decreased slightly to
2.436 billion,
compared to
2.485 billion
in the prior year. Net cash from operating and investing
activities decreased from
349 million
to
284 million.
EVA decreased on lower earnings, but was still strongly positive.

Corporate, Eliminations (Operations) and
Reconciliation to Financial Statements

Corporate, eliminations (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 certain
non-recurring, one-time charges or gains and results from
centrally managed projects. In addition, Corporate, eliminations
(Operations) includes corporate costs such as domestic
pension-related income or expense, certain corporate-related
derivative activities, and centrally held equity investments,
business units and corporate projects. Reconciliation to
financial statements includes various items excluded by
definition from EBIT.

We believe that this presentation provides a more
meaningful comparison between the periods under review because
it eliminates one-time or non-recurring gains or losses that
management does not believe are indicative of the underlying
performance of our business. This presentation reflects the
assessment of our chief operating decision maker with respect to
the performance of our components. However, you should be aware
that different one-time or non-recurring items may occur in
every period. While management believes that excluding special
items in this way assists in understanding the underlying
performance of our business in the periods under review, you
should assess our performance on the basis of all the
information presented in this Item 5: Operating and
Financial Review and Prospects.

Corporate, Eliminations

Corporate, eliminations consists of four main
components: corporate items, consisting primarily of corporate
expenses; investment earnings (losses), which include our share
of earnings (losses) from equity investments held centrally;
non-allocated pension-related income (expense); and
eliminations, other. EBIT for Corporate,
eliminations as a whole was a negative
1.183 billion
compared to a negative
320 million
a year ago.

Corporate items decreased to
671 million
in fiscal 2002 from
838 million
in 2001, driven primarily by reduction in corporate expenses.

Investment earnings were a negative
16 million
compared to a positive
253 million
a year earlier. The current period includes gains on the sale of
two centrally held investments totaling
133 million,
which were more than offset by Siemens equity share of
Infineons net loss in fiscal 2002. Fiscal 2001 includes a
loss on the sale of a domestic equity and debt security fund of
209 million,
which was more than offset by gains of
227 million
on the sale of available-for-sale-securities.

Non-allocated pension-related income (expense)
was a negative
250 million
compared to a positive
279 million
in the prior year. This line item was negatively affected by
changes in pension trust net asset values, lower return
assumptions and increased amortization expense related to the
underfunding of our pension trusts.

Eliminations, other was negative
246 million
in fiscal 2002 compared to negative
14 million
in the prior year. Fiscal 2002 primarily includes charges of
146 million
related to the sale of a portfolio of businesses to

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KKR and charges of
70 million
relating to the write-off of centrally held investments. Fiscal
2001 included
78 million
in expenses on centrally managed litigation,
74 million
in corporate interest expense in part related to the Atecs
acquisitions and
63 million
in severance charges. Offsetting these items in fiscal 2001 were
a gain of
114 million
related to currency effects and the treatment of derivative
contracts not qualifying for hedge accounting, and a gain of
162 million
resulting from the positive resolution of certain asset-disposal
contingencies.


Reconciliation to Financial
Statements

Other interest
expense:Other interest expense for
fiscal 2002 was
96 million,
compared to
304 million
in fiscal 2001, a period which included interest expense on a
temporary
3.6 billion
liability related to the acquisition of Atecs. Lower interest
expense in the current period reflects lower interest rates and
lower payments on intracompany financing. See
Liquidity and Capital Resources below.

Goodwill amortization and purchased in-process
R&D expense:In fiscal 2001,
Siemens recorded
665 million
in goodwill amortization and purchased IPR&D expenses of
Operations. IPR&D of
126 million
derived from the acquisitions of Acuson, Efficient and Atecs.

Gains on sales and dispositions of significant
business interests:Gains on sales and
dispositions of significant business interests in fiscal 2002
include 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.

Included in gains on sales and dispositions of
significant business interests in fiscal 2001 was a
3.459 billion
pre-tax gain as a result of the irrevocable transfer of
93,825,225 shares of Infineon to the Siemens German Pension
Trust. We also recorded a
484 million
gain resulting from an additional capital offering by Infineon,
achieved through the sale of 60 million of its shares in
the fourth quarter of fiscal 2001. Following an earlier capital
increase at Infineon, achieved through acquisitions, we recorded
an aggregate gain of
122 million.
Siemens did not participate in these capital increases or
receive any proceeds from them.

The
3.459 billion
pre-tax gain on the contribution of the Infineon shares in April
2001 to the Siemens German Pension Trust was a non-cash item;
the total amount recorded was based upon the market price of
Infineon shares at the date of the transfer. The business
purpose of the contribution of the Infineon shares to this
pension trust was to shore up an already existing under-funded
position in the pension trust, ahead of substantial new pension
obligations arising from our acquisition of Atecs in the third
quarter of fiscal 2001. As part of the purchase price, Siemens
assumed Atecs unfunded pension obligations. In addition,
the transfer of Infineon shares represented a further step
towards meeting our long-stated goal of disposing of our
interest in Infineon over time. While U.S. pension plans
subject to the U.S. Employment Retirement Income Security
Act of 1974 (ERISA) are restricted in the amount of securities
they are permitted to own in the employer or its affiliates to
10% of plan assets, the Siemens German Pension Trust is not
subject to such ERISA provisions.

Other special items:Other special items in fiscal 2001 included charges totaling
927 million
taken for impairment of goodwill relating to acquisitions made
by ICN and A&D. These charges are not included in EBIT from
Operations. They include a charge of
746 million
resulting from the impairment of goodwill associated with the
acquisition by ICN of Efficient Networks, Inc., a provider of
DSL equipment in the United States. Shortly after the
acquisition of Efficient, worldwide demand for DSL products
contracted sharply. Additionally, the total charges include
181 million
for impairment of goodwill primarily associated with the
acquisition by A&D of Milltronics, Ltd. For more information
see Notes to the consolidated financial statements.

Also included in special items in fiscal 2001 is
a write-down of
258 million
of inventories and other assets in connection with a long-term,
centrally managed production and outsourcing contract for a
border control system in Argentina. This contract, originally
entered into by SBS, was canceled by government decree.

Lower tax rates enacted by the tax reform passed
in Germany in October 2000, and the consequent adjustment of
Siemens deferred tax balances at October 1, 2000,
resulted in a one-time reduction of
222 million
in income tax expense in fiscal 2001.

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Financing and Real Estate

Siemens Financial Services
(SFS)

|                                                 |  |        |    |                 |  |      |     |  |  |  |      |  
|------------------------------------------------ |  | ------ | -- | --------------- |  | ---- | --- |  |  |  | ---- | -
|                                                 |  |        |    |                
|                                                 |  |        |    | Year ended     
|                                                 |  |        |    | September 30,  
|                                                 |  |        |    |                
|SFS Performance Data                             |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Income before income taxes                       |  |        | 37 | %               |  |      | 216 |  |  |  | 158  |  
|Total sales                                      |  |        | 21 | %               |  |      | 582 |  |  |  | 481  |  
|Net cash from operating and investing activities |  |        |    |                 |  |      | 282 |  |  |  | (496 | )

|                         |  |  |  |               |  |      |       |  |  |  |       | 
|------------------------ |  |  |  | ------------- |  | ---- | ----- |  |  |  | ----- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Total assets             |  |  |  |               |  |      | 8,681 |  |  |  | 9,501 | 
|Employees (in thousands) |  |  |  |               |  |      | 1     |  |  |  | 1     | 

Earnings before income taxes rose 37% at SFS, to
216 million,
positively influenced by strong investment income in the Equity
division, especially equity earnings from an investment in a
power station in Indonesia and the sale of an investment in
Portugal. Higher net interest income and lower provisions in the
Equipment & Sales Financing division contributed
significantly to the groups earnings improvement. Earnings
before income taxes for SFS in fiscal 2001 were
158 million.
Sales increased 21%, to
582 million from
481 million
in fiscal 2001. Sales primarily represent lease revenues from
operating leases and do not reflect the bulk of the groups
business in capital leases and other financing activities. Total
assets decreased from
9.501 billion
to
8.681 billion
in fiscal 2002, primarily at the Equipment and Sales Financing
division, especially due to the divisions factoring
business and significant foreign exchange effects.

Net cash from operating activities and investing
activities increased significantly, from negative
496 million
in fiscal 2001 to a positive
282 million
primarily due to the above-mentioned asset reductions at the
Equipment and Sales Financing division. EVA improved due to the
increase in earnings.

Siemens Real Estate (SRE)

|                                                 |  |        |   |                 |  |      |       |  |  |  |       | 
|------------------------------------------------ |  | ------ | - | --------------- |  | ---- | ----- |  |  |  | ----- | 
|                                                 |  |        |   |                
|                                                 |  |        |   | Year ended     
|                                                 |  |        |   | September 30,  
|                                                 |  |        |   |                
|SRE Performance Data                             |  | Change |   | 2002            |  | 2001
|                                                 |  |        |   |                 |  |     
|                                                 |  |        |   |                
|                                                 |  |        |   | ( in millions)
|Income before income taxes                       |  |        | 8 | %               |  |      | 229   |  |  |  | 213   | 
|Total sales                                      |  |        | 5 | %               |  |      | 1,612 |  |  |  | 1,542 | 
|Net cash from operating and investing activities |  |        |   |                 |  |      | 309   |  |  |  | 393   | 

|                         |  |  |  |               |  |      |       |  |  |  |       | 
|------------------------ |  |  |  | ------------- |  | ---- | ----- |  |  |  | ----- | 
|                         |  |  |  |              
|                         |  |  |  | September 30,
|                         |  |  |  |              
|                         |  |  |  | 2002          |  | 2001
|                         |  |  |  |               |  |     
|Total assets             |  |  |  |               |  |      | 4,090 |  |  |  | 3,791 | 
|Employees (in thousands) |  |  |  |               |  |      | 2     |  |  |  | 2     | 

SRE earned
229 million
before income taxes on sales of
1.612 billion,
up from
213 million
and
1.542 billion,
respectively, a year earlier. The groups improved earnings
were primarily due to increased profitability on higher sales
related to real estate management and lease administration
activities, which more than offset a reduction in gains from the
disposal of real estate compared to the prior year. Total assets
increased from
3.791 billion
to
4.090 billion
in fiscal 2002, due to the assumption of control of most of
SBTs real estate properties in fiscal 2002. Net cash from
operating and investing activities decreased from
393 million
in fiscal 2001 to
309 million.
EVA improved due to the increase in earnings.

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COMPONENT INFORMATIONSTATEMENTS OF
INCOME

The following discussion adheres to our component
model of reporting and includes an analysis of the income
statement organized by component: Operations, Financing and Real
Estate, and Eliminations, reclassifications and Corporate
Treasury, followed by a summary of Siemens worldwide.

Operations

The following table presents selected income
statement information for the Operations component:

Operations

|                                                                |                        |                 |         |       |    |  |         |       |   
|--------------------------------------------------------------- | ---------------------- | --------------- | ------- | ----- | -- |  | ------- | ----- | --
|                                                                |                        |                
|                                                                |                        | Year ended     
|                                                                |                        | September 30,  
|                                                                |                        |                
|                                                                |                        | 2002            |         | 2001 
|                                                                |                        |                 |         |      
|                                                                |                        |                
|                                                                |                        | ( in millions)
|Net sales from operations                                       |                        |                 | 83,127  |       |    |  | 82,427  |      
|Gross profit on sales                                           |                        |                 | 22,805  |       |    |  | 22,235  |      
|                                                                | as percentage of sales |                 |         | 27.4  | %  |  |         | 27.0  | % 
|Research and development expenses                               |                        |                 | (5,650  | )     |    |  | (5,427  | )    
|                                                                | as percentage of sales |                 |         | (6.8  | )% |  |         | (6.6  | )%
|Marketing, selling and general administrative
    expenses      |                        |                 | (15,083 | )     |    |  | (15,559 | )    
|                                                                | as percentage of sales |                 |         | (18.1 | )% |  |         | (18.9 | )%
|Other operating income (expense), net                           |                        |                 | 326     |       |    |  | (118    | )    
|Income (loss) from investments in other
    companies, net      |                        |                 | (142    | )     |    |  | (24     | )    
|Income from financial assets and marketable
    securities, net |                        |                 | 124     |       |    |  | 263     |      
|Interest income (expense) of Operations, net                    |                        |                 | 94      |       |    |  | (41     | )    
|                                                                |                        |                 |         |       |    |  |         |      
|EBIT                                                            |                        |                 | 2,474   |       |    |  | 1,329   |      
|                                                                | as percentage of sales |                 |         | 3.0   | %  |  |         | 1.6   | % 
|                                                                |                        |                 |         |       |    |  |         |      

Net sales from Operations increased 1% to
83.127 billion
compared to
82.427 billion
a year earlier. The net effect of acquisitions and dispositions
contributed 4% to this development, reflecting primarily the
inclusion of the VDO and Dematic businesses beginning in May
2001. Revenues were negatively affected by foreign currency
effects of 2%, primarily involving exchange rates between the
U.S. dollar and the euro. Positive contributions primarily
from PG, TS and Med, as well as additions from the integration
of the VDO and Dematic businesses were offset by declining sales
at ICN, ICM, SBS as well as A&D.

Gross profit as a percentage of sales was 27.4%
compared to 27.0% in the prior year. Higher productivity led to
significantly higher gross margins at PG and Med. SVs
gross margin increased in part due to the full year
consolidation of the acquired Atecs businesses and an improved
cost position. SBS increased its gross margin in comparison to
fiscal 2001, a year which included severance charges and higher
loss contract accruals. In contrast, A&Ds gross profit
margin declined in fiscal 2002 due in part to margin erosion and
warranty charges. I&S recorded a lower gross margin in
fiscal 2002 due primarily to severance charges. See the analysis
above for further comments on the individual groups.

Research and development expenses (R&D)
increased 4% to
5.650 billion
in fiscal 2002, reflecting our ongoing commitment to R&D in
a wide variety of areas. R&D spending as a percentage of
sales was 6.8% compared to 6.6% a year earlier, driven by
increased R&D spending at SV and Med, and by stable R&D
investments at ICN and ICM relative to declining sales.

Marketing, selling and general administrative
expenses decreased 3% to
15.083 billion
compared to last year, and declined as a percentage of sales
from 18.9% to 18.1%. Reduced outlays for marketing lowered
expenses at ICN, ICM and A&D, while higher sales drove
higher expenses at PG and Med. The current year included lower
provisions for accounts and loans receivable, while the prior
year included higher loans receivable provisions including a
write-down of a loan related to Winstar Communications, Inc.

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Other operating income (expense), net was a
positive
326 million
compared to a negative
118 million
last year. The current period includes a
421 million
gain on the sale of Unisphere Networks by ICN, a
60 million
nonrecurring gain at ICN, a
56 million
gain on the sale of Hydraulik-Ring by SV, a
21 million
gain from the sale of a portfolio of business activities to KKR,
and contract cancellation penalties received by PG. Offsetting
these gains was a
378 million
impairment related to Efficient Networks at ICNs Access
Solutions division. The prior period included a loss on the
divestment of a business at SV.

Income (loss) from investments in other
companies, net was a negative
142 million
compared to a negative
24 million
in the prior year. The current year includes Siemens
equity loss relating to Infineon, offset by a
133 million
gain on the sale of two investments. The prior year included a
loss of
209 million
on the sale of a centrally managed investment and higher charges
and expenses resulting from write-downs of venture capital and
equity investments at ICN and SV.

Income from financial assets and marketable
securities, net was a positive
124 million
compared to a positive
263 million
in the last year. The current year was positively affected by
higher gains related to the treatment of derivative contracts
not qualifying for hedge accounting. Last year included a gain
of
227 million
on the sale of marketable securities from Siemens
centrally managed equities portfolio, a gain of
44 million
from the sale of an investment at SBS, as well as gains of
120 million
from the sale of venture capital investments at ICN, offset by
184 million
in charges from write-downs of marketable securities, that
suffered a material decline in value which we have determined to
be other than temporary.

Interest income (expense) of Operations, net was
94 million
compared to net interest expense of
41 million
a year earlier, primarily due to declining interest rates and
lower average interest-bearing liabilities.

EBIT from Operations for fiscal 2002 was
2.474 billion,
compared with
1.329 billion
for fiscal 2001 reflecting the factors noted above. Both periods
included charges of
1.482 billion
and
1.863 billion,
respectively, primarily for severance programs and asset
write-downs. EBIT margin increased to 3.0% compared to 1.6% in
fiscal 2001.

Other interest expense for fiscal 2002 was
96 million,
compared to
304 million
in fiscal 2001, a period which included interest expense on a
temporary
3.6 billion
liability related to the acquisition of Atecs. Lower interest
expense in the current period reflects lower interest rates and
lower payments on intracompany financing. See
Liquidity and Capital Resources below.

In fiscal 2001, Siemens recorded
665 million
in goodwill amortization and purchased IPR&D expenses of
Operations. IPR&D of
126 million
derived from the acquisitions of Acuson, Efficient and Atecs.

Gains on sales and dispositions of significant
business interests in fiscal 2002 include 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. Gains on sales and disposition of significant
business interests in the prior year included a gain of
3.459 billion
resulting from the irrevocable transfer of 93.8 million
Infineon shares into the Siemens German Pension Trust, and a
gain of
606 million
resulting from capital increases at Infineon.

Other special items in fiscal 2001 included
goodwill impairments of
927 million
related to Efficient and Miltronics, and a
258 million
write-down of inventories and assets associated with the
cancellation of a centrally managed outsourcing contract in
Argentina.

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##### Table of Contents



Financing and Real Estate

The following table presents selected income
statement information for the Financing and Real Estate
component:

Financing and Real Estate

|                                                                          |  |                 |       |      |  |  |       |  
|------------------------------------------------------------------------- |  | --------------- | ----- | ---- |  |  | ----- | -
|                                                                          |  |                
|                                                                          |  | Year ended     
|                                                                          |  | September 30,  
|                                                                          |  |                
|                                                                          |  | 2002            |       | 2001
|                                                                          |  |                 |       |     
|                                                                          |  |                
|                                                                          |  | ( in millions)
|Sales                                                                     |  |                 | 2,186 |      |  |  | 2,016 |  
|Gross profit on sales                                                     |  |                 | 476   |      |  |  | 435   |  
|Marketing, selling and general administrative
    expenses                |  |                 | (282  | )    |  |  | (297  | )
|Other operating income, net                                               |  |                 | 151   |      |  |  | 143   |  
|Income from investments in other companies, net                           |  |                 | 44    |      |  |  | 37    |  
|Income (expense) from financial assets and
    marketable securities, net |  |                 | (25   | )    |  |  | (15   | )
|Other interest income, net                                                |  |                 | 81    |      |  |  | 68    |  
|                                                                          |  |                 |       |      |  |  |       |  
|Income before income taxes                                                |  |                 | 445   |      |  |  | 371   |  
|                                                                          |  |                 |       |      |  |  |       |  

Sales from Financing and Real Estate for the
fiscal year 2002 increased 8% to
2.186 billion
compared to fiscal 2001. The increase is attributable
predominantly to the Equipment and Sales Financing division at
SFS and the assumption of SBTs real estate property at
SRE. Marketing, selling and general administrative expenses
decreased
15 million
to
282 million.
Other operating income, net was
151 million
compared to
143 million
last year. Income from investments in other companies, net
increased from
37 million
to
44 million
in fiscal 2002, reflecting in part strong investment earnings at
SFS Equity division. Income (expense) from financial
assets and marketable securities, net was a negative
25 million
compared to a negative
15 million
in the prior year. For fiscal 2002, other interest income, net
was
81 million
compared to
68 million
in fiscal 2001. As a result, income before income taxes for the
fiscal year 2002 increased to
445 million
compared to
371 million
for fiscal 2001.

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 (excluding Infineon
Technologies AG) and to our Financing and Real Estate component.
It also includes eliminations of activity conducted between
those two components, and reclassification of financial items
which are associated with Operations but not included in EBIT
from Operations. Since December 2001, Infineon has been
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. To the extent that Infineon provided products and
services to the Operations groups in the prior year, when
Infineon was still consolidated in Siemens results, those
effects are eliminated here as well.

Reclassifications in fiscal 2002 include gains of
936 million
resulting from the Infineon share sales mentioned above,
reclassified from gains on sales and disposition of significant
business interests to other operating income for Siemens
worldwide. Fiscal 2001 includes reclassification of
665 million
in goodwill amortization and purchased IPR&D, with
126 million
in IPR&D related to the acquisitions of Acuson, Atecs and
Efficient reclassified as research and development expense for
Siemens worldwide and the remainder consisting of goodwill
amortization reclassified into other operating expense.
Reclassifications from gains on sales and disposition of
significant business interests in fiscal 2001 include the
3.459 billion
gain from transferring shares of Infineon to the Siemens German
Pension Trust and the
606 million
gain from capital increases at Infineon, both reclassified to
other operating income. Reclassification of other special items
includes the
927 million
in Efficient and Milltronics impairments, reclassified as other
operating expense for Siemens

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worldwide, and the
258 million
write-down related to the contract in Argentina, reclassified
into cost of goods sold.


Siemens Worldwide

In connection with our component model of
reporting, below is a discussion of the Consolidated Statements
of Income for Siemens worldwide. Additional details relating to
the other components of Siemens worldwide: Operations, Financing
and Real Estate and Eliminations, reclassifications and
Corporate Treasury are discussed above.

The following table presents selected income
statement information for Siemens worldwide:

Siemens Worldwide

|                                                                |                                                 |                 |         |        |    |  |         |        |   
|--------------------------------------------------------------- | ----------------------------------------------- | --------------- | ------- | ------ | -- |  | ------- | ------ | --
|                                                                |                                                 |                
|                                                                |                                                 | Year ended     
|                                                                |                                                 | September 30,  
|                                                                |                                                 |                
|                                                                |                                                 | 2002            |         | 2001  
|                                                                |                                                 |                 |         |       
|                                                                |                                                 |                
|                                                                |                                                 | ( in millions)
|New orders                                                      |                                                 |                 | 86,214  |        |    |  | 92,528  |       
|                                                                | New orders in Germany                           |                 |         | 17,812 |    |  |         | 18,921 |   
|                                                                | International orders                            |                 |         | 68,402 |    |  |         | 73,607 |   
|Sales                                                           |                                                 |                 | 84,016  |        |    |  | 87,000  |       
|                                                                | Sales in Germany                                |                 |         | 18,102 |    |  |         | 19,144 |   
|                                                                | International sales                             |                 |         | 65,914 |    |  |         | 67,856 |   
|Gross profit on sales                                           |                                                 |                 | 23,206  |        |    |  | 23,105  |       
|                                                                | as percentage of sales                          |                 |         | 27.6   | %  |  |         | 26.6   | % 
|Research and development expenses                               |                                                 |                 | (5,819  | )      |    |  | (6,782  | )     
|                                                                | as percentage of sales                          |                 |         | (6.9   | )% |  |         | (7.8   | )%
|Marketing, selling and general administrative
    expenses      |                                                 |                 | (15,455 | )      |    |  | (16,640 | )     
|                                                                | as percentage of sales                          |                 |         | (18.4  | )% |  |         | (19.1  | )%
|Other operating income, net                                     |                                                 |                 | 1,321   |        |    |  | 2,762   |       
|Income (loss) from investments in other
    companies, net      |                                                 |                 | (114    | )      |    |  | 49      |       
|Income from financial assets and marketable
    securities, net |                                                 |                 | 18      |        |    |  | 173     |       
|Interest income (expense) of Operations, net                    |                                                 |                 | 94      |        |    |  | (32     | )     
|Other interest income, net                                      |                                                 |                 | 224     |        |    |  | 43      |       
|                                                                |                                                 |                 |         |        |    |  |         |       
|Income before income taxes                                      |                                                 |                 | 3,475   |        |    |  | 2,678   |       
|Income taxes                                                    |                                                 |                 | (849    | )      |    |  | (781    | )     
|                                                                | as percentage of income before income
    taxes |                 |         | 24     | %  |  |         | 29     | % 
|Minority interest                                               |                                                 |                 | (29     | )      |    |  | 191     |       
|                                                                |                                                 |                 |         |        |    |  |         |       
|Net income                                                      |                                                 |                 | 2,597   |        |    |  | 2,088   |       
|                                                                |                                                 |                 |         |        |    |  |         |       

New orders in fiscal 2002 decreased from
92.528 billion
to
86.214 billion.
Orders in Germany decreased 6% to
17.812 billion,
while international orders decreased 7% to
68.402 billion
in this year. Sales for the fiscal year 2002 decreased 3% to
84.016 billion.
Sales in Germany decreased 5% to
18.102 billion,
while international sales decreased 3% to
65.914 billion.
International business accounts for approximately 80% of
Siemens total volume. Orders in the U.S. for the
fiscal year decreased 14% to
21.205 billion
and sales decreased 4% to
20.288 billion.
The difference between sales and order trends in the
U.S. was driven primarily by the end of the gas turbine
boom. In Asia-Pacific, orders decreased 8% to
10.092 billion
and sales decreased 13% to
9.668 billion.
China continued to account for the largest share of sales in the
region, contributing
3.223 billion.
In Europe outside Germany, orders decreased 5% and sales
increased 2%. For more detailed information on geographic sales
for our business groups see Item 4: Information on
the Company.

Gross profit margin in fiscal 2002 increased by
one percentage point to 27.6% from 26.6% in the prior year, a
period which included full-year consolidation of Infineons
low gross profit margin. Higher gross profit margins

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at PG, Med, SV and SBS in the current year were
offset by lower margins primarily at A&D and I&S. Gross
profit in fiscal 2001 also included the effect of the
258 million
write-down related to Argentina.


Research and development (R&D) expenses
decreased from
6.782 billion
to
5.819 billion
compared to prior year. R&D spending represented 6.9% of
sales, compared to 7.8% last year. Included in R&D expenses
for the prior year are IPR&D charges of
126 million
related to Operations, as well as R&D expenses of
1.189 billion
relating to Infineon.

Marketing, selling and general administrative
expenses were
15.455 billion
in fiscal 2002 compared to
16.640 billion
in fiscal 2001. This figure represents 18.4% of sales, compared
to 19.1% last year. The majority of the decrease is attributable
to the deconsolidation of Infineon, effective December 2001. In
the prior year Infineon contributed
786 million
to the total. Operations also contributed to the decrease of
marketing, selling and general administrative expenses, due to
reduced outlays for marketing and lower provisions for accounts
and loans receivable.

Other operating income (expense), net was
1.321 billion
compared to
2.762 billion
in fiscal 2001. The current period includes gains of
936 million
resulting from Infineon share sales, the
421 million
gain on the sale of Unisphere Networks by ICN, the
60 million
non-recurring gain at ICN, the
56 million
gain on the sale of Hydraulik-Ring by SV, the gain from the KKR
transaction, and contract cancellation penalties received by PG.
Offsetting these gains was the
378 million
impairment at ICNs Access Solutions division related to
Efficient Networks. The prior year included the
3.459 billion
pre-tax gain from the transfer of Infineon shares to the Siemens
German Pension Trust, the
606 million
gain related to capital increases at Infineon, and the
927 million
in goodwill impairments related to the acquisitions of Efficient
and Milltronics. Also included in other operating expense in
fiscal 2001 is
562 million
of goodwill amortization. Beginning October 1, 2001,
Siemens adopted the provisions of SFAS 142, Goodwill and
Other Intangible Assets, and no longer amortizes goodwill.

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. The effective tax rate
on income for fiscal 2001 was approximately 29%, which was also
positively impacted by the tax-free sale of a part of our
interest in Infineon as well as lower income tax rates mandated
in fiscal 2001 by the tax reform passed in Germany in October
2000. This resulted in a one-time reduction of
222 million
in income tax expense resulting from the adjustment of
Siemens deferred tax balances at October 1, 2000.
Both periods included negative tax impacts from non-deductible
goodwill impairments.

EVA PERFORMANCE

During fiscal 2002, Siemens continued its
enterprise-wide focus on economic value added (EVA). We tie a
significant portion of our executive incentive compensation to
achieving EVA targets.

EVA is a financial performance measurement of the
value created or destroyed by a business. In simple terms, it
compares the profitability of a business against the cost of
capital used to run that business. We use this measure of
performance in addition to income before income taxes and EBIT
because those measures focus on results without taking into
consideration the cost of capital employed in the business. In
this manner, EVA complements EBIT. For each group in Operations,
the EVA calculation begins with Siemens central management
assessment of the risk-adjusted cost of capital for the group.
This amount is then multiplied by the Net capital employed for
the group, and the result is subtracted from net operating
profit after taxes to arrive at EVA. A positive EVA means that a
business has earned more than its cost of capital, and is
therefore defined as value-creating. A negative EVA means that a
business is earning less than its cost of capital and is
therefore defined as value-destroying.

Because the two major components of
SiemensOperations and Financing and Real Estateare
fundamentally different from each other, we adjust our
calculations of EVA accordingly. In the case of Operations, we
use EBIT as the base measure and apply a flat tax charge of 35%
for calculating net operating profit. We calculate the
percentage cost of capital for each group by taking the weighted
average of the after-tax cost of debt and equity of Siemens and
apply an adjustment factor, which takes into account the
specific risks associated with the

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particular business. In fiscal 2002,
managements determination of the cost of capital for the
groups within Operations ranged from 8% to 10%. This percentage
is applied against average net operating assets in order to
determine capital cost. In the case of Financing and Real
Estate, we take income before taxes as the base measure and
again apply a flat tax rate of 35% to arrive at income after
taxes. From this result we deduct the cost of capital, which is
calculated by multiplying the percentage cost of capital (as
determined by Siemens management) by the risk-adjusted equity
allocated to the Financing and Real Estate component. Other
organizations that use EVA as a measure of financial performance
may define and calculate EVA differently.


Siemens worldwide realized a positive EVA of
617 million
in fiscal 2002, compared to a negative
743 million
in fiscal 2001.

EVA calculation

|                                                                |                                                  |                    |      |        |   |  |        |        |  
|--------------------------------------------------------------- | ------------------------------------------------ | ------------------ | ---- | ------ | - |  | ------ | ------ | -
|                                                                |                                                  | 2002               |      | 2001  
|                                                                |                                                  |                    |      |       
|                                                                |                                                  |                   
|                                                                |                                                  | (in millions of )
|Operations                                                      |                                                  |                    |      |        |   |  |        |       
|                                                                | EBIT from Operations                             |                    |      | 2,474  |   |  |        | 1,329  |  
|                                                                | Taxes and other                                  |                    |      | (933   | ) |  |        | (332   | )
|                                                                |                                                  |                    |      |        |   |  |        |       
|                                                                | Net operating profit after taxes                 |                    |      | 1,541  |   |  |        | 997    |  
|                                                                | Net capital employed (at September 30)           |                    |      | 15,755 |   |  |        | 18,613 |  
|                                                                | Financial adjustments/average
    calculation(1) |                    |      | 6,960  |   |  |        | 8,801  |  
|                                                                | Average net operating assets                     |                    |      | 22,715 |   |  |        | 27,414 |  
|                                                                | Capital cost                                     |                    |      | (2,061 | ) |  |        | (2,524 | )
|                                                                |                                                  |                    |      |        |   |  |        |       
|Operations                                                      |                                                  |                    | (520 | )      |   |  | (1,527 | )     
|                                                                |                                                  |                    |      |        |   |  |        |       
|Financing and Real Estate                                       |                                                  |                    |      |        |   |  |        |       
|                                                                | Income before income taxes                       |                    |      | 445    |   |  |        | 371    |  
|                                                                | Taxes and other                                  |                    |      | (133   | ) |  |        | (110   | )
|                                                                |                                                  |                    |      |        |   |  |        |       
|                                                                | Net operating profit after taxes                 |                    |      | 312    |   |  |        | 261    |  
|                                                                | Equity                                           |                    |      | 1,850  |   |  |        | 1,790  |  
|                                                                | Capital cost                                     |                    |      | (165   | ) |  |        | (158   | )
|                                                                |                                                  |                    |      |        |   |  |        |       
|Financing and Real Estate                                       |                                                  |                    | 147  |        |   |  | 103    |       
|                                                                |                                                  |                    |      |        |   |  |        |       
|Eliminations, reclassifications and Corporate
    Treasury      |                                                  |                    | 54   |        |   |  | 45     |       
|                                                                |                                                  |                    |      |        |   |  |        |       
|Siemens excluding Infineon                                      |                                                  |                    | (319 | )      |   |  | (1,379 | )     
|EVA for Infineon(2)                                             |                                                  |                    |      |        |   |  | (1,368 | )     
|                                                                |                                                  |                    |      |        |   |  |        |       
|Siemens worldwide before adjustment                             |                                                  |                    | (319 | )      |   |  | (2,746 | )     
|                                                                |                                                  |                    |      |        |   |  |        |       
|Adjustment for certain centrally recorded
    gains/charges (3) |                                                  |                    | 936  |        |   |  | 2,003  |       
|                                                                |                                                  |                    |      |        |   |  |        |       
|Siemens worldwide                                               |                                                  |                    | 617  |        |   |  | (743   | )     
|                                                                |                                                  |                    |      |        |   |  |        |       






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The term net operating assets is the
    same as Net capital employed except for the effects of financial
    adjustments and the fact that average net operating assets are
    calculated as the average total of four fiscal quarters with a
    time lag of one quarter.                                                                                                                                                       
|(2) | In fiscal 2002 EVA for Infineon is included in
    EVA for Operations.                                                                                                                                                                                                                                                                                                                                                               
|(3) | Centrally recorded gains in fiscal 2002 represent
    gains on the sale of shares in Infineon. Prior year items
    included a gain of
    3.459 billion
    resulting from the transfer of the Infineon shares into the
    Siemens German Pension Trust and a gain resulting from capital
    increases at Infineon, partially offset by goodwill impairments
    and charges related to a centrally managed outsourcing contract.

FISCAL 2001 COMPARED TO FISCAL
2000

CONSOLIDATED OPERATIONS OF SIEMENS
WORLDWIDE

Economic Environment and Market
Trends

Despite a weakening economic environment
throughout fiscal 2001, many of our operating groups delivered
strong earnings, others were adversely affected by rapidly
deteriorating business conditions. These developments are best
understood in terms of the different market cycles in which our
groups operate.

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A number of groups operate in fields whose
    markets are stable over extended periods and are currently
    benefiting from favorable conditions. This applies particularly
    to Power Generation (PG), Transportation Systems (TS) and
    Medical Solutions (Med) which comprise roughly 30 percent
    of our business. Our market positions and profitability in these
    fields are continuing to improve. Power Transmission and
    Distribution (PTD) also belongs in this market cycle.                                                      
|
| |  | A second set of groupswhich also contribute
    about 30 percent of our salesare subject to shorter,
    general business cycles. Two good examples here are Automation
    and Drives (A&D) and Osram. Both units have sustained high
    levels of earnings, effectively demonstrating how a leading
    business can cope with economic cycles without significant
    declines in income. Industrial Solutions and Services (I&S),
    Siemens Building Technologies (SBT) and portions of Siemens
    Dematic (SD) also belong to this market cycle.
|
| |  | Around 40 percent of our sales are generated
    by groups dependent on industry-specific cycles currently
    experiencing deteriorating business conditions. These include
    primarily Information and Communication Networks (ICN),
    Information and Communication Mobile (ICM), Siemens Business
    Services (SBS), Siemens Dematic (SD), Siemens VDO Automotive
    (SV) and Infineon. Accordingly, these groups must make
    appropriate adjustments in light of these conditions.                                                            

Results of Siemens Worldwide

We took aggressive action to address the more
difficult market environment by restructuring the capacities of
ICN, ICM, SBS and SV, which resulted in total charges with
respect to restructuring and asset write-downs of
1.863 billion.
These effects contributed to a negative earnings development for
Siemens worldwide as a whole compared to the previous fiscal
year. In this difficult environment, we initiated successful
asset management measures and significantly improved our cash
flow.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Sales for Siemens worldwide increased 12%
    compared to fiscal 2000, to
    87.000 billion.
    Excluding Infineon, sales increased 15% to
    82.256 billion.
    Positive currency translation effects contributed one percentage
    point to this increase.                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Gross profit decreased by 1.2 percentage
    points to 26.6% in fiscal 2001. Higher gross margins at PG, TS
    and Med in fiscal 2001 were offset by charges taken due to
    deteriorating market conditions at ICN, ICM, SBS and SD, and
    margin erosion at ICN and ICM. Gross profit in fiscal 2001 also
    includes unusual charges from asset write-downs related to a
    large outsourcing contract and was negatively affected by the
    significant decrease in gross profit at Infineon.                                                                                                                                                                                            
|
| |  | R&D spending represented 7.8% of sales,
    compared to 7.5% last year. Marketing, selling and general
    administrative expenses were 19.1% of sales, compared to 18.3%
    of sales last year, reflecting in part higher provisions on
    trade and financing receivables at ICN and ICM a well as
    increased advertising costs at ICM. Other expenses in fiscal
    2001 includes
    927 million
    impairment charges related to ICN and A&D.                                                                                                                                                                                                                                           
|
| |  | Siemens worldwide net income of
    2.088 billion
    in fiscal 2001 included gains on sales and dispositions of
    significant business interests including
    4.065 billion,
    primarily related to the transfer of part of our share in
    Infineon to the Siemens German Pension Trust. Prior-year
    earnings of
    8.860 billion
    included
    7.826 billion
    in gains from divestments implemented as part of a portfolio
    optimization program. Infineon, in which we held a 50.4%
    economic interest at the end of fiscal 2001, recorded a net loss
    for the fiscal year of
    591 million
    compared to net income of
    1.126 billion
    in fiscal 2000.
|
| |  | Earnings per share were
    2.36 in fiscal
    2001, compared to
    9.97 in the
    previous year. For all periods presented, earnings per share
    reflect a stock split, at a ratio of one additional share for
    every two shares owned, which took effect for trading purposes
    on April 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | Net cash from operating activities of Siemens
    worldwide was
    7.016 billion
    for the year, sharply up from the previous years level of
    6.154 billion
    despite increasingly difficult market conditions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

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| |   |                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | EBITA from Operations was
    1.329 billion
    including restructuring charges and asset write-downs of
    1.863 billion.
    Excluding these charges and write-downs, EBITA from Operations
    was
    3.192 billion.
    Prior year EBITA was
    2.799 billion.
|
| |  | The proposed dividend of
    1 per share is
    comparable on a post-split basis to the prior-year dividend of
    0.93 excluding
    the prior-year bonus dividend.                                                                                                   

JOINT VENTURES AND ACQUISITIONS

We completed the following transactions in fiscal
2001:

In November 2000, Med acquired Acuson Corporation
of the United States for a purchase price of approximately
U.S.$700 million;

In January 2001, PG transferred its nuclear power
operations into a joint venture with Framatome in exchange for a
34% interest in the joint venture. This investment is accounted
for under the equity method;

In April 2001, Siemens completed the acquisition
of a controlling interest of 50% plus two shares in Atecs
Mannesmann AG (Atecs), an automotive and automation technology
company. In accordance with the purchase agreement, prior to
closing we paid
3.1 billion
to Mannesmann AG. As of the date of closing, Siemens made a
capital contribution to Atecs. The purchase agreement also
provides for our acquisition of Mannesmann AGs remaining
interest in Atecs, either at the option of Mannesmann during the
period from the date of closing through September 30, 2002,
or at the option of Siemens during the period from April 1,
2002 through December 31, 2003. We plan to exercise this
latter option. The purchase price for the remaining interest in
Atecs is between
3.7 and
3.8 billion
under both options. We have accounted for the Atecs transaction
as a purchase of a 100% interest, at a price of
9.6 billion,
using the purchase method of accounting. The purchase price,
including the assumption of
2.8 billion
of financial debt and pension liabilities, was allocated to the
assets acquired and liabilities assumed based on estimated fair
values. In connection with the Atecs transaction, we entered
into a put option contract giving Siemens the right to sell
Rexroth AG (Rexroth), a wholly-owned subsidiary of Atecs, to
Bosch for
2.7 billion.
The put option is exercisable from January, 2002 through
December 31, 2002. We plan to exercise this option.

The Dematic systems, VDO and Demag Delaval
businesses acquired in the Atecs transaction have been
integrated into our Siemens Dematic (previously Siemens
Production and Logistics Systems), Siemens VDO Automotive,
(previously Siemens Automotive) and Power Generation segments,
respectively. We intend to sell the other businesses acquired in
the Atecs acquisition. Accordingly, we have accounted for these
other businesses as assets held for sale.

In April, 2001, ICN completed the acquisition of
Efficient Networks, Inc. The purchase price was approximately
1.6 billion,
plus the assumption of
457 million
of debt.

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SEGMENT INFORMATION ANALYSIS

Key Performance Data by Business
Group

|                                       |                                                                       |                                                                                                              |   |                |        |          |   |                 |        |      |   |        |        |      |   |        |        |  |   |        |       |  |   |        |       |  |        |        |        |  |        |       |        | 
|-------------------------------------- | --------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------ | - | -------------- | ------ | -------- | - | --------------- | ------ | ---- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ----- |  | - | ------ | ----- |  | ------ | ------ | ------ |  | ------ | ----- | ------ | 
|                                       |                                                                       |                                                                                                              |   |                |        |          |   |                 |        |      |   |        |        |     
|                                       |                                                                       | New Orders(1)                                                                                                |   |                |        |          |   |                
|                                       |                                                                       | (Unaudited)                                                                                                  |   | Total Sales(2) |        | EBITA(3) |   | EBITA Assets(4)
|                                       |                                                                       |                                                                                                              |   |                |        |          |   |                
|                                       |                                                                       | 2001                                                                                                         |   | 2000           |        | 2001     |   | 2000            |        | 2001 |   | 2000   |        | 2001 |   | 2000  
|                                       |                                                                       |                                                                                                              |   |                |        |          |   |                 |        |      |   |        |        |      |   |       
|                                       |                                                                       |                                                                                                             
|                                       |                                                                       | ( in millions)                                                                                             
|Operations                             |                                                                       |                                                                                                              |   |                |        |          |   |                 |        |      |   |        |        |      |   |        |        |  |   |        |       |  |   |        |       |  |        |        |        |  |        |      
|                                       | Information and Communication Networks (ICN)                          |                                                                                                              |   | 12,639         |        |          |   | 11,648          |        |      |   | 12,882 |        |      |   | 11,323 |        |  |   | (861   | )     |  |   | 686    |       |  |        | 3,298  |        |  |        | 4,454 |       
|                                       | Information and Communication Mobile (ICM)                            |                                                                                                              |   | 11,866         |        |          |   | 10,420          |        |      |   | 11,299 |        |      |   | 8,910  |        |  |   | (307   | )     |  |   | 718    |       |  |        | 2,623  |        |  |        | 2,876 |       
|                                       | Siemens Business Services (SBS)                                       |                                                                                                              |   | 6,303          |        |          |   | 5,857           |        |      |   | 6,034  |        |      |   | 5,882  |        |  |   | (259   | )     |  |   | 70     |       |  |        | 518    |        |  |        | 1,396 |       
|                                       | Automation and Drives (A&D)                                           |                                                                                                              |   | 9,065          |        |          |   | 8,163           |        |      |   | 8,947  |        |      |   | 7,943  |        |  |   | 981    |       |  |   | 865    |       |  |        | 2,653  |        |  |        | 2,632 |       
|                                       | Industrial Solutions and Services (I&S)                               |                                                                                                              |   | 4,881          |        |          |   | 4,401           |        |      |   | 4,563  |        |      |   | 4,226  |        |  |   | 97     |       |  |   | 111    |       |  |        | 493    |        |  |        | 375   |       
|                                       | Siemens Dematic (SD)                                                  |                                                                                                              |   | 2,281          |        |          |   | 1,913           |        |      |   | 2,520  |        |      |   | 1,786  |        |  |   | (59    | )     |  |   | 196    |       |  |        | 984    |        |  |        | 560   |       
|                                       | Siemens Building Technologies (SBT)                                   |                                                                                                              |   | 5,549          |        |          |   | 5,066           |        |      |   | 5,518  |        |      |   | 4,932  |        |  |   | 132    |       |  |   | 297    |       |  |        | 2,276  |        |  |        | 2,226 |       
|                                       | Power Generation (PG)                                                 |                                                                                                              |   | 12,219         |        |          |   | 9,409           |        |      |   | 8,563  |        |      |   | 7,757  |        |  |   | 634    |       |  |   | 66     |       |  |        | (1,003 | )      |  |        | 178   |       
|                                       | Power Transmission and Distribution (PTD)                             |                                                                                                              |   | 3,887          |        |          |   | 3,566           |        |      |   | 4,053  |        |      |   | 3,151  |        |  |   | 96     |       |  |   | 45     |       |  |        | 1,004  |        |  |        | 784   |       
|                                       | Transportation Systems (TS)                                           |                                                                                                              |   | 5,647          |        |          |   | 3,722           |        |      |   | 4,021  |        |      |   | 3,710  |        |  |   | 186    |       |  |   | 75     |       |  |        | (916   | )      |  |        | (337  | )     
|                                       | Siemens VDO Automotive (SV)                                           |                                                                                                              |   | 5,702          |        |          |   | 3,839           |        |      |   | 5,702  |        |      |   | 3,833  |        |  |   | (261   | )     |  |   | 89     |       |  |        | 3,691  |        |  |        | 937   |       
|                                       | Medical Solutions (Med)                                               |                                                                                                              |   | 8,444          |        |          |   | 5,253           |        |      |   | 7,219  |        |      |   | 4,924  |        |  |   | 808    |       |  |   | 463    |       |  |        | 4,099  |        |  |        | 3,308 |       
|                                       | Osram                                                                 |                                                                                                              |   | 4,522          |        |          |   | 4,327           |        |      |   | 4,522  |        |      |   | 4,326  |        |  |   | 462    |       |  |   | 388    |       |  |        | 2,505  |        |  |        | 2,533 |       
|                                       | Corporate, eliminations                                               |                                                                                                              |   | (6,890         | )      |          |   | (4,759          | )      |      |   | (3,416 | )      |      |   | (1,100 | )      |  |   | (320   | )     |  |   | (1,270 | )     |  |        | (2,555 | )      |  |        | 2,143 |       
|                                       |                                                                       |                                                                                                              |   |                |        |          |   |                 |        |      |   |        |        |      |   |        |        |  |   |        |       |  |   |        |       |  |        |        |        |  |        |      
|                                       |                                                                       | Total Operations                                                                                             |   |                | 86,115 |          |   |                 | 72,825 |      |   |        | 82,427 |      |   |        | 71,603 |  |   |        | 1,329 |  |   |        | 2,799 |  |        |        | 19,670 |  |        |       | 24,065 | 
|Reconciliation to financial statements |                                                                       |                                                                                                              |  |                |        |          |  |                 |        |      |  |        |        |      |  |        |        |  |  |        |       |  |  |        |       |  | 51,247 |        |        |  | 45,044 |      
|                                       | Other interest expense                                                |                                                                                                              |   |               |        |          |   |                |        |      |   |       |        |      |   |       |        |  |   | (304   | )     |  |   | (220   | )     |  |        |       |        |  |        |      |       
|                                       | Goodwill amortization and purchased in-process
    R&D expenses       |                                                                                                              |   |               |        |          |   |                |        |      |   |       |        |      |   |       |        |  |   | (665   | )     |  |   | (253   | )     |  |        |       |        |  |        |      |       
|                                       | Gains on sales and dispositions of significant
    business interests |                                                                                                              |   |               |        |          |   |                |        |      |   |       |        |      |   |       |        |  |   | 4,065  |       |  |   | 7,826  |       |  |        |       |        |  |        |      |       
|                                       | Other special items                                                   |                                                                                                              |   |               |        |          |   |                |        |      |   |       |        |      |   |       |        |  |   | (1,185 | )     |  |   | (280   | )     |  |        |       |        |  |        |      |       
|                                       |                                                                       |                                                                                                              |   |                |        |          |   |                 |        |      |   |        |        |      |   |        |        |  |   |        |       |  |   |        |       |  |        |        |        |  |        |      
|                                       |                                                                       | Operations income before income taxes/
    total assets/total amortization, depreciation and
    write-downs |   |                |       |          |   |                 |       |      |   |        |       |      |   |        |       |  |   |        | 3,240 |  |   |        | 9,872 |  |        |        | 70,917 |  |        |       | 69,109 | 
|                                       |                                                                       |                                                                                                              |   |                |        |          |   |                 |        |      |   |        |        |      |   |        |        |  |   |        |       |  |   |        |       |  |        |        |        |  |        |      

|                                 |                                        |                                                             |       |   |   |  |       |   |   |                 |       |                |   |      |       |      |   |  |        |    |        |   |       |    |       |  |       |       |       |  |       |       |       | 
|-------------------------------- | -------------------------------------- | ----------------------------------------------------------- | ----- | - | - |  | ----- | - | - | --------------- | ----- | -------------- | - | ---- | ----- | ---- | - |  | ------ | -- | ------ | - | ----- | -- | ----- |  | ----- | ----- | ----- |  | ----- | ----- | ----- | 
|                                 |                                        |                                                             |       |   |   |  |       |   |   |                 |       |                |   |     
|                                 |                                        |                                                             |       |   |   |  |       |   |   |                 |       | Net Capital(6)
|                                 |                                        |                                                             |       |   |   |  |       |   |   | EBIT(5)         |       | Employed      
|                                 |                                        |                                                             |       |   |   |  |       |   |   |                 |       |               
|                                 |                                        |                                                             |       |   |   |  |       |   |   | 2001            |       | 2000           |   | 2001 |       | 2000
|                                 |                                        |                                                             |       |   |   |  |       |   |   |                 |       |                |   |      |       |     
|                                 |                                        |                                                             |       |   |   |  |       |   |   |                
|                                 |                                        |                                                             |       |   |   |  |       |   |   | ( in millions)
|Infineon Technologies (Infineon) |                                        |                                                             | 4,390 |   |   |  | 8,837 |   |   |                 | 5,671 |                |   |      | 7,283 |      |   |  | (1,024 | )  |        |   | 1,670 |    |       |  | 6,471 |       |       |  | 5,709 |      
|                                 | Reconciliation to financial statements |                                                             |       |  |   |  |       |  |   |                 |       |               |   |      |       |     |   |  |        | (1 | )      |   |       | 74 |       |  |       | 3,272 |       |  |       | 3,144 |      
|                                 |                                        |                                                             |       |   |   |  |       |   |   |                 |       |                |   |      |       |      |   |  |        |    |        |   |       |    |       |  |       |       |       |  |       |      
|                                 |                                        | Infineon income (loss) before income
    taxes/total assets |       |   |  |  |       |   |  |                 |       |                |  |      |       |      |  |  |        |    | (1,025 | ) |       |    | 1,744 |  |       |       | 9,743 |  |       |       | 8,853 | 
|                                 |                                        |                                                             |       |   |   |  |       |   |   |                 |       |                |   |      |       |      |   |  |        |    |        |   |       |    |       |  |       |       |       |  |       |      

|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |       |        | 
|------------------------- | ------------------------------------ | ------------------------------- |  | ----- | ----- |  |  | ----- | ----- | --------------- |  | ------------ | ----- | ---- |  | ----- | ----- |  |  | --- | --- |  |  | --- | --- |  |  | ----- | ------ |  |  | ----- | ------ | 
|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |     
|                          |                                      |                                 |  |       |       |  |  |       |       | Income before   |  |             
|                          |                                      |                                 |  |       |       |  |  |       |       | Income taxes    |  | Total assets
|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |             
|                          |                                      |                                 |  |       |       |  |  |       |       | 2001            |  | 2000         |       | 2001 |  | 2000 
|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |      |  |      
|                          |                                      |                                 |  |       |       |  |  |       |       |                
|                          |                                      |                                 |  |       |       |  |  |       |       | ( in millions)
|Financing and Real Estate |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |      
|                          | Siemens Financial Services (SFS)     |                                 |  | 481   |       |  |  | 354   |       |                 |  | 481          |       |      |  | 354   |       |  |  | 158 |     |  |  | 78  |     |  |  | 9,363 |        |  |  | 8,532 |       
|                          | Siemens Real Estate Management (SRE) |                                 |  | 1,542 |       |  |  | 1,410 |       |                 |  | 1,542        |       |      |  | 1,420 |       |  |  | 213 |     |  |  | 201 |     |  |  | 3,469 |        |  |  | 3,590 |       
|                          | Eliminations                         |                                 |  |      |       |  |  |      |       |                 |  | (7           | )     |      |  |      |       |  |  |    |     |  |  |    |     |  |  | (65   | )      |  |  | (508  | )     
|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |      
|                          |                                      | Total Financing and Real Estate |  |       | 2,023 |  |  |       | 1,764 |                 |  |              | 2,016 |      |  |       | 1,774 |  |  |     | 371 |  |  |     | 279 |  |  |       | 12,767 |  |  |       | 11,614 | 
|                          |                                      |                                 |  |       |       |  |  |       |       |                 |  |              |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |      






|    |                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | New orders are determined principally as the
    estimated sales value of accepted purchase orders and order
    value changes and adjustments, excluding letters of intent.                                                                                                       
|   
|(2) | Includes intersegment sales.                                                                                                                                                                                                                                                       
|   
|(3) | EBITA is measured as earnings before financing
    interest, income taxes, amortization of goodwill and purchased
    in-process R&D expenses and certain one-time items included
    in Corporate, eliminations and Reconciliation to financial
    statements. EBITA differs from

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|    |                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    | our Income before income taxes and you should not
    consider it to be the same. Other companies that use EBITA may
    calculate it differently, and their figures may not be
    comparable to ours.                                                                                                                                                                                                                     
|   
|(4) | EBITA assets represent Net capital employed
    (total assets less tax related assets, less accruals and less
    non-interest bearing liabilities other than tax related
    liabilities) without amortization of goodwill and purchased
    in-process R&D expenses. In fiscal 2002, the Company changed
    its segment asset measure from EBITA assets to Net capital
    employed. See before Basis of Presentation.
|   
|(5) | Infineon EBIT is measured as earnings before
    interest, taxes and minority interest. EBIT differs from Income
    before income taxes and you should not consider it to be the
    same. Other companies that use EBIT may calculate it
    differently, and their figures may not be comparable to those of
    Infineon.                                                                                               
|   
|(6) | Net Capital Employed, as an EBIT-related asset
    indicator, represents total assets less cash not allocated to
    the segments and deferred tax assets and less non-interest
    bearing liabilities other than deferred tax liabilities.                                                                                                                                                                                

The following discussion adheres to our component
model of reporting and includes an analysis of the financial
performance of Operations, Infineon, and our Financing and Real
Estate component.

Operations

Information and
Communications

Information and Communication Networks
(ICN)

|                      |  |        |       |                 |  |      |        |    |  |  |        |  
|--------------------- |  | ------ | ----- | --------------- |  | ---- | ------ | -- |  |  | ------ | -
|                      |  |        |       |                
|                      |  |        |       | Year ended     
|                      |  |        |       | September 30,  
|                      |  |        |       |                
|ICN Performance Data: |  | Change |       | 2001            |  | 2000
|                      |  |        |       |                 |  |     
|                      |  |        |       |                
|                      |  |        |       | ( in millions)
|EBITA                 |  |        |       |                 |  |      | (861   | )  |  |  | 686    |  
|EBITA margin          |  |        |       |                 |  |      | (6.7   | %) |  |  | 6.1    | %
|Total sales           |  |        | 13.8% |                 |  |      | 12,882 |    |  |  | 11,323 |  
|New orders            |  |        | 8.5%  |                 |  |      | 12,639 |    |  |  | 11,648 |  

|             |  |  |        |                  |  |      |       |  |  |  |       | 
|------------ |  |  | ------ | ---------------- |  | ---- | ----- |  |  |  | ----- | 
|             |  |  |        |                 
|             |  |  |        | At September 30,
|             |  |  |        |                 
|             |  |  |        | 2001             |  | 2000
|             |  |  |        |                  |  |     
|EBITA assets |  |  | (26.0% | )                |  |      | 3,298 |  |  |  | 4,454 | 

ICN was affected by substantial cut-backs in
capital spending by telecom operators for telecommunications and
networking products due to financial difficulties in these
sectors. In this challenging environment, ICNs EBITA for
the fiscal year was a negative
861 million,
including restructuring charges and asset write-downs of
1.059 billion.
Excluding these effects, EBITA at ICN was
198 million.
EBITA in fiscal 2000 was
686 million,
which included
204 million
in nonrecurring gains from the sales of investments and real
estate. Both fiscal 2000 and fiscal 2001 included approximately
120 million
in gains on shares of start-up companies. ICNs EBITA in
fiscal 2001 does not include the impairment of goodwill
associated with the Efficient acquisition, as described under
Corporate, Eliminations (Operations) and
Reconciliation to Financial StatementsReconciliation to
Financial Statements.

In fiscal 2001, ICN implemented its Profitability
and Cash Turnaround (PACT) program, which is aimed at cutting
costs, consolidating the groups worldwide manufacturing
infrastructure and optimizing its business portfolio. In
connection with its PACT Program, ICN intends to cut
approximately 10,000 positions and to reduce its worldwide
manufacturing locations by approximately half. The anticipated
reduction in employees will be achieved through attrition, early
retirement, and voluntary and involuntary terminations. In
fiscal 2001, the plan resulted in charges for employee severance
of
387 million
related to the termination of approximately 4,000 employees
employed in various functions, including manufacturing, and
administration which is expected to be paid out in fiscal 2002.
ICN expects to incur additional charges to complete this plan
during approximately the next two fiscal years. Asset
write-downs unrelated to the restructuring plan involved
accounts receivable, inventories, and venture capital
investments. Write-downs of accounts receivable totaled
330 million,
partly related to a major U.S. customer, Winstar Communications.
Inventory write-offs were
173 million
and the group also wrote down
169 million
primarily in venture capital investments.

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Margin erosion and pricing pressures impacted
earnings throughout the group. While the Wireline Networks
division remained strongly profitable, ICNs other major
divisions posted losses, involving the charges and write-downs
noted above. The most significant loss was in our Access
Solutions division which bore a substantial portion of the
restructuring and asset write-downs noted above and was also
negatively affected by start-up losses at Efficient Networks.
Weakening in their respective markets contributed to operating
losses in the Enterprise Networks and Optical Networks
divisions, both of which were profitable in the previous year.
Unisphere Networks division substantially narrowed its loss
compared to fiscal 2000.

EBITA margin was a negative 6.7% for ICN as a
whole. Excluding the restructuring charges and asset
write-downs, EBITA margin was a positive 1.5%. EVA remained
negative. Working off its large order backlog, ICN increased
sales to
12.882 billion
for the full fiscal year, 14% higher than in fiscal 2000. A
highlight was the Wireline Networks division, which delivered a
record 31 million EWSD (a German acronym for digital
electronic switching system) ports during the year. Order
growth slowed within the year, but still increased 9%
year-over-year to
12.639 billion.
Asset write-downs and disposal of certain marketable securities
were partially offset by increased goodwill due to the
acquisition of Efficient. This together with improved working
capital management resulted in a decrease of EBITA assets by
1.156 billion
year-over-year, to
3.298 billion
at the end of fiscal 2001. Cash flow was also negatively
affected by operating losses and the acquisition of Efficient
Networks. Cash flow will be negatively affected in future
periods due to the provisions for severance recorded in the
current year, as noted above.

Information and Communication Mobile
(ICM)

|                      |  |        |      |                 |  |      |        |    |  |  |        |  
|--------------------- |  | ------ | ---- | --------------- |  | ---- | ------ | -- |  |  | ------ | -
|                      |  |        |      |                
|                      |  |        |      | Year ended     
|                      |  |        |      | September 30,  
|                      |  |        |      |                
|ICM Performance Data: |  | Change |      | 2001            |  | 2000
|                      |  |        |      |                 |  |     
|                      |  |        |      |                
|                      |  |        |      | ( in millions)
|EBITA                 |  |        |      |                 |  |      | (307   | )  |  |  | 718    |  
|EBITA margin          |  |        |      |                 |  |      | (2.7   | %) |  |  | 8.1    | %
|Total sales           |  |        | 26.8 | %               |  |      | 11,299 |    |  |  | 8,910  |  
|New orders            |  |        | 13.9 | %               |  |      | 11,866 |    |  |  | 10,420 |  

|             |  |  |      |                  |  |      |       |  |  |  |       | 
|------------ |  |  | ---- | ---------------- |  | ---- | ----- |  |  |  | ----- | 
|             |  |  |      |                 
|             |  |  |      | At September 30,
|             |  |  |      |                 
|             |  |  |      | 2001             |  | 2000
|             |  |  |      |                  |  |     
|EBITA assets |  |  | (8.8 | %)               |  |      | 2,623 |  |  |  | 2,876 | 

In fiscal 2001, demand for mobile phones was also
impacted by worsening economic conditions and saturation,
particularly in Western Europe, which led to a sharp decline in
market growth that resulted in excess inventories, oversupply
and significantly reduced market prices for mobile handsets. The
GSM network market was also adversely affected by slowing
growth. Near-term prospects for both the mobile phone and GSM
network markets could be affected by the timing of investment in
and consumer acceptance of third-generation UMTS infrastructure
and products.

ICM increased profitability in its infrastructure
business and addressed sharply slower market growth in its
mobile phone business in fiscal 2001 with a rapid realignment
through cost cutting measures in its Mobile Phone division in
the second half of the fiscal year, and initiated plans for the
elimination of approximately 2,000 positions in its Mobile
Networks division expected in fiscal 2002. EBITA of negative
307 million
includes asset write-downs of
441 million,
which were largely confined to the Mobile Phones division in the
third quarter. Excluding the write-downs, EBITA was a positive
134 million
compared to
718 million
a year earlier. The largest item within the
441 million
was an inventory write-off of
213 million
due to significantly reduced market prices for handsets. Other
asset write-downs totaled
228 million,
including a
69 million
write-down of ICMs investment in the German mobile
commerce software company, Brokat AG and a
71 million
write-down incurred in connection with the closing of ICMs
U.S. Opuswave operation.

The Mobile Networks division strongly increased
its EBITA contribution to
435 million
for the year, and increased sales by 52% despite a slowing
market. The Mobile Phones division had EBITA of negative

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540 million
approximately half of which relates to asset write-down charges
compared to positive EBITA of
632 million
a year earlier. The division sold more than 28.7 million
units compared to 23.9 million units in the previous fiscal
year. Rigorous cost-cutting initiated in the third quarter
helped the division reduce its loss to
22 million
in the fourth quarter. ICMs Fujitsu Siemens joint venture
contributed a modest profit and thus reversed its loss in fiscal
2000. Sales for ICM in the fiscal year grew 27%, to
11.299 billion.
Orders of
11.866 billion
were 14% higher than fiscal 2000. EBITA assets decreased from
2.876 billion
to
2.623 billion,
despite significant sales growth principally due to successful
asset management initiatives which led to a reduction in working
capital. Due to negative earnings, however, EVA was negative for
the year. Negative EBITA contributed to a decrease in cash flow
during the year. Cash flow will be negatively affected in future
periods due to the planned headcount reduction activities noted
above and due to commitments to extend customer financing. For
additional information on customer financing see
Customer Financing.


Siemens Business Services (SBS)

|                      |  |        |     |                 |  |      |       |    |  |  |       |  
|--------------------- |  | ------ | --- | --------------- |  | ---- | ----- | -- |  |  | ----- | -
|                      |  |        |     |                
|                      |  |        |     | Year ended     
|                      |  |        |     | September 30,  
|                      |  |        |     |                
|SBS Performance Data: |  | Change |     | 2001            |  | 2000
|                      |  |        |     |                 |  |     
|                      |  |        |     |                
|                      |  |        |     | ( in millions)
|EBITA                 |  |        |     |                 |  |      | (259  | )  |  |  | 70    |  
|EBITA margin          |  |        |     |                 |  |      | (4.3  | %) |  |  | 1.2   | %
|Total sales           |  |        | 2.6 | %               |  |      | 6,034 |    |  |  | 5,882 |  
|New orders            |  |        | 7.6 | %               |  |      | 6,303 |    |  |  | 5,857 |  

|             |  |  |       |                  |  |      |     |  |  |  |       | 
|------------ |  |  | ----- | ---------------- |  | ---- | --- |  |  |  | ----- | 
|             |  |  |       |                 
|             |  |  |       | At September 30,
|             |  |  |       |                 
|             |  |  |       | 2001             |  | 2000
|             |  |  |       |                  |  |     
|EBITA assets |  |  | (62.9 | %)               |  |      | 518 |  |  |  | 1,396 | 

EBITA at SBS was a negative
259 million
including fourth-quarter charges for severance and asset
write-downs totaling
242 million.
Excluding these effects, EBITA was a negative
17 million
compared to a positive
70 million
a year earlier. In response to difficult conditions in the IT
services market and in the e-business arena in particular, SBS
is concentrating on improving its profitability through
cost-cutting measures, including personnel reductions. Charges
totaling
196 million
in employee severance costs arose from the elimination of 2,200
positions primarily in Europe, as part of a program to address
deteriorating economic conditions in the region. The group
expects to pay out substantially all of this charge in fiscal
2002. Asset write-downs of
46 million
related to accounts receivable and venture capital investments.
Fiscal 2001 EBITA includes loss provisions relating to two
significant business process outsourcing contracts totaling
192 million.
See Item 4: Information on the CompanyLong-Term
Contracts and Contract Losses. Results in fiscal 2001 and
2000 include gains on investments of
44 million
and
54 million,
respectively. Results at SBS in fiscal 2001 do not include a
write-off of assets related to a contract in Argentina as
described under Corporate, elimination (Operations)
and Reconciliation to Financial Statements. As also
discussed in Corporate, eliminations (Operations)
and Reconciliation to Financial Statements, results in
fiscal 2000 do not include losses related to the canceled
contract in Argentina.

EBITA margin at SBS was a negative 4.3%.
Excluding the severance charges and asset write-downs noted
above, EBITA margin was a negative 0.3%. As a result, EVA was
negative. Sales for the fiscal year edged up 3%, to
6.034 billion,
while new orders rose more quickly, to
6.303 billion.
Asset write-downs and contract loss provisions, together with
effective working capital management, resulted in a decline in
EBITA assets from
1.396 billion
at the end of fiscal 2000 to
518 million
at the close of fiscal 2001. The personnel reductions noted
above will negatively affect cash flow in future periods.

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Automation and Control

Automation and Drives (A&D)

|                      |  |        |      |                 |  |      |       |   |  |  |       |  
|--------------------- |  | ------ | ---- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                      |  |        |      |                
|                      |  |        |      | Year ended     
|                      |  |        |      | September 30,  
|                      |  |        |      |                
|A&D Performance Data: |  | Change |      | 2001            |  | 2000
|                      |  |        |      |                 |  |     
|                      |  |        |      |                
|                      |  |        |      | ( in millions)
|EBITA                 |  |        | 13.4 | %               |  |      | 981   |   |  |  | 865   |  
|EBITA margin          |  |        |      |                 |  |      | 11.0  | % |  |  | 10.9  | %
|Total sales           |  |        | 12.6 | %               |  |      | 8,947 |   |  |  | 7,943 |  
|New orders            |  |        | 11.0 | %               |  |      | 9,065 |   |  |  | 8,163 |  

|             |  |  |     |                  |  |      |       |  |  |  |       | 
|------------ |  |  | --- | ---------------- |  | ---- | ----- |  |  |  | ----- | 
|             |  |  |     |                 
|             |  |  |     | At September 30,
|             |  |  |     |                 
|             |  |  |     | 2001             |  | 2000
|             |  |  |     |                  |  |     
|EBITA assets |  |  | 0.8 | %                |  |      | 2,653 |  |  |  | 2,632 | 

A&D delivered strong double-digit growth in
earnings, sales, and orders, based on excellent performance by
the groups three largest divisions: Industrial Automation
Systems, Low Voltage Controls and Distribution, and Motion
Control Systems. EBITA increased to
981 million,
116 million
higher than in fiscal 2000, and EBITA margin reached 11%.
Acquisitions and higher business volume in existing businesses
pushed EBITA assets up slightly, but the faster growth in
earnings enabled A&D to further increase its positive EVA.
The groups results do not include impairment of goodwill
associated with the acquisition of Milltronics, discussed under
Corporate, Eliminations (Operations) and
Reconciliation to Financial StatementsReconciliation to
Financial Statements. In fiscal 2001, sales rose 13% to
8.947 billion
and orders climbed 11% to
9.065 billion,
compared to
7.943 billion
and
8.163 billion
in fiscal 2000. Slowing market demand began having an effect in
the fourth quarter, as new orders slid 5% compared to the
comparable quarter of fiscal 2000.

Industrial Solutions & Services
(I&S)

|                      |  |        |       |                 |  |      |       |   |  |  |       |  
|--------------------- |  | ------ | ----- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                      |  |        |       |                
|                      |  |        |       | Year ended     
|                      |  |        |       | September 30,  
|                      |  |        |       |                
|I&S Performance Data: |  | Change |       | 2001            |  | 2000
|                      |  |        |       |                 |  |     
|                      |  |        |       |                
|                      |  |        |       | ( in millions)
|EBITA                 |  |        | (12.6 | %)              |  |      | 97    |   |  |  | 111   |  
|EBITA margin          |  |        |       |                 |  |      | 2.1   | % |  |  | 2.6   | %
|Total sales           |  |        | 8.0   | %               |  |      | 4,563 |   |  |  | 4,226 |  
|New orders            |  |        | 10.9  | %               |  |      | 4,881 |   |  |  | 4,401 |  

|             |  |  |      |                  |  |      |     |  |  |  |     | 
|------------ |  |  | ---- | ---------------- |  | ---- | --- |  |  |  | --- | 
|             |  |  |      |                 
|             |  |  |      | At September 30,
|             |  |  |      |                 
|             |  |  |      | 2001             |  | 2000
|             |  |  |      |                  |  |     
|EBITA assets |  |  | 31.5 | %                |  |      | 493 |  |  |  | 375 | 

EBITA at I&S fell to
97 million
from
111 million
in fiscal 2001. EBITA margin declined slightly to 2.1%. Although
the group posted an 8% increase in sales to
4.563 billion
from
4.226 billion
a year earlier, primarily in the Industrial Service division,
significantly lower margins in its petrochemical business and
its industrial services business contributed to a lower EBITA
than in the prior year. Mid-year weakness in the groups
project-related divisions also contributed to the decreasing
profitability. Orders rose 11% to
4.881 billion
from
4.401 billion.
EBITA assets increased by
118 million,
due to higher receivable and contract inventories, to
493 million.
Coupled with reduced earnings, this resulted in a lower EVA.

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Siemens Dematic (SD)

|                     |  |        |        |                 |  |      |       |    |  |  |       |  
|-------------------- |  | ------ | ------ | --------------- |  | ---- | ----- | -- |  |  | ----- | -
|                     |  |        |        |                
|                     |  |        |        | Year ended     
|                     |  |        |        | September 30,  
|                     |  |        |        |                
|SD Performance Data: |  | Change |        | 2001            |  | 2000
|                     |  |        |        |                 |  |     
|                     |  |        |        |                
|                     |  |        |        | ( in millions)
|EBITA                |  |        | (130.1 | %)              |  |      | (59   | )  |  |  | 196   |  
|EBITA margin         |  |        |        |                 |  |      | (2.3  | %) |  |  | 11.0  | %
|Total sales          |  |        | 41.1   | %               |  |      | 2,520 |    |  |  | 1,786 |  
|New orders           |  |        | 19.2   | %               |  |      | 2,281 |    |  |  | 1,913 |  

|             |  |  |      |                  |  |      |     |  |  |  |     | 
|------------ |  |  | ---- | ---------------- |  | ---- | --- |  |  |  | --- | 
|             |  |  |      |                 
|             |  |  |      | At September 30,
|             |  |  |      |                 
|             |  |  |      | 2001             |  | 2000
|             |  |  |      |                  |  |     
|EBITA assets |  |  | 75.7 | %                |  |      | 984 |  |  |  | 560 | 

SD was formed during the year via a third-quarter
merger of the existing businesses of Siemens Production and
Logistics Systems (PL) and Dematic AG (part of the Atecs
acquisition). EBITA was a negative
59 million
compared to a positive
196 million
for PL in fiscal 2000. Profitability at the Electronics Assembly
Systems division was reduced by a sharp slow-down in the
telecommunications and other electronics manufacturing
industries. Negative results at the Postal Automation division
and contract loss provisions of
66 million
primarily at the Material Handling Automation division combined
with
29 million
in integration and other costs to further reduce EBITA. EBITA
margin moved from 11% for PL in fiscal 2000 to a negative 2.3%
for SD in fiscal 2001.

Sales rose 41% to
2.520 billion
and orders rose 19% to
2.281 billion
compared to fiscal 2000, driven by Dematic AGs
contribution of
822 million
in sales and
983 million
in orders. Both sales and orders declined year-over-year on a
comparable basis, principally due to postponement of major
projects by customers, including the U.S. Postal Service,
at the Postal Automation division. EBITA assets rose 76% as a
result of the merger, from
560 million
to
984 million.
Coupled with negative earnings for the year, this resulted in a
negative EVA.

Siemens Building Technologies (SBT)

|                      |  |        |        |                 |  |      |       |   |  |  |       |  
|--------------------- |  | ------ | ------ | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                      |  |        |        |                
|                      |  |        |        | Year ended     
|                      |  |        |        | September 30,  
|                      |  |        |        |                
|SBT Performance Data: |  | Change |        | 2001            |  | 2000
|                      |  |        |        |                 |  |     
|                      |  |        |        |                
|                      |  |        |        | ( in millions)
|EBITA                 |  |        | (55.6% | )               |  |      | 132   |   |  |  | 297   |  
|EBITA margin          |  |        |        |                 |  |      | 2.4   | % |  |  | 6.0   | %
|Total sales           |  |        | 11.9%  |                 |  |      | 5,518 |   |  |  | 4,932 |  
|New orders            |  |        | 9.5%   |                 |  |      | 5,549 |   |  |  | 5,066 |  

|             |  |  |      |                  |  |      |       |  |  |  |       | 
|------------ |  |  | ---- | ---------------- |  | ---- | ----- |  |  |  | ----- | 
|             |  |  |      |                 
|             |  |  |      | At September 30,
|             |  |  |      |                 
|             |  |  |      | 2001             |  | 2000
|             |  |  |      |                  |  |     
|EBITA assets |  |  | 2.2% |                  |  |      | 2,276 |  |  |  | 2,226 | 

SBT recorded EBITA of
132 million,
compared to
297 million
in fiscal 2000. EBITA margin fell to 2.4%, and the groups
EVA turned negative. Margin erosion and certain one-time charges
primarily at the Fire and Safety division in the United States,
together with costs associated with the closure of certain
facilities and related headcount reduction at the Building
Automation and Fire and Safety divisions, combined to reduce the
groups profitability. The prior year benefited from a gain
of
22 million
from asset disposals. Acquisitions in Europe, the United States,
and Brazil helped increase sales and orders by 12% and 10%,
respectively, to
5.518 billion
and
5.549 billion.
However, SBTs EBITA assets remained flat at
2.276 billion.

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Power

Power Generation (PG)

|                     |  |        |       |                 |  |      |        |   |  |  |       |  
|-------------------- |  | ------ | ----- | --------------- |  | ---- | ------ | - |  |  | ----- | -
|                     |  |        |       |                
|                     |  |        |       | Year ended     
|                     |  |        |       | September 30,  
|                     |  |        |       |                
|PG Performance Data: |  | Change |       | 2001            |  | 2000
|                     |  |        |       |                 |  |     
|                     |  |        |       |                
|                     |  |        |       | ( in millions)
|EBITA                |  |        |       |                 |  |      | 634    |   |  |  | 66    |  
|EBITA margin         |  |        |       |                 |  |      | 7.4    | % |  |  | 0.9   | %
|Total sales          |  |        | 10.4% |                 |  |      | 8,563  |   |  |  | 7,757 |  
|New orders           |  |        | 29.9% |                 |  |      | 12,219 |   |  |  | 9,409 |  

|             |  |  |  |                  |  |      |        |   |  |  |     | 
|------------ |  |  |  | ---------------- |  | ---- | ------ | - |  |  | --- | 
|             |  |  |  |                 
|             |  |  |  | At September 30,
|             |  |  |  |                 
|             |  |  |  | 2001             |  | 2000
|             |  |  |  |                  |  |     
|EBITA assets |  |  |  |                  |  |      | (1,003 | ) |  |  | 178 | 

EBITA at PG surged from
66 million
in fiscal 2000 to
634 million
in fiscal 2001. EBITA margin rose 6.5 points, to 7.4%, and
the groups positive EVA increased substantially. The
Fossil Power Generation division drove the groups
profitability, primarily on strong demand for its gas turbines
in the United States. Sales grew 10% to
8.563 billion
and orders jumped 30% to
12.219 billion,
reflecting the strong demand for gas turbines in the United
States. In the second quarter, the groups nuclear power
business was contributed to a joint venture with Framatome in
exchange for a 34% interest in the venture. This interest is
accounted for using the equity method. In the third quarter, PG
acquired Demag Delaval as part of the Atecs acquisition. On a
comparable basis, sales grew 24% compared to fiscal 2000,
including a positive currency translation effect of 4%, and
orders grew 40%. The groups order backlog reached
26 billion
at year-end including
11 billion
of reservations. Higher customer prepayments enabled the group
to reduce its EBITA assets to a negative
1.003 billion,
compared to a positive
178 million
at the end of fiscal 2000. The higher prepayments primarily
related to the gas turbine business in the U.S. resulting
from the increased orders discussed above and higher
profitability positively impacted cash flow.

Power Transmission and Distribution
(PTD)

|                      |  |        |       |                 |  |      |       |   |  |  |       |  
|--------------------- |  | ------ | ----- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                      |  |        |       |                
|                      |  |        |       | Year ended     
|                      |  |        |       | September 30,  
|                      |  |        |       |                
|PTD Performance Data: |  | Change |       | 2001            |  | 2000
|                      |  |        |       |                 |  |     
|                      |  |        |       |                
|                      |  |        |       | ( in millions)
|EBITA                 |  |        | 113.3 | %               |  |      | 96    |   |  |  | 45    |  
|EBITA margin          |  |        |       |                 |  |      | 2.4   | % |  |  | 1.4   | %
|Total sales           |  |        | 28.6  | %               |  |      | 4,053 |   |  |  | 3,151 |  
|New orders            |  |        | 9.0   | %               |  |      | 3,887 |   |  |  | 3,566 |  

|             |  |  |      |                  |  |      |       |  |  |  |     | 
|------------ |  |  | ---- | ---------------- |  | ---- | ----- |  |  |  | --- | 
|             |  |  |      |                 
|             |  |  |      | At September 30,
|             |  |  |      |                 
|             |  |  |      | 2001             |  | 2000
|             |  |  |      |                  |  |     
|EBITA assets |  |  | 28.1 | %                |  |      | 1,004 |  |  |  | 784 | 

PTD improved its EBITA to
96 million,
including restructuring charges and capacity adjustments of
31 million.
Excluding these effects, EBITA was
127 million
compared to
45 million
a year earlier. EBITA margin was 2.4%, and EVA moved closer to
positive territory. Excluding the restructuring charges and
capacity adjustments, EBITA margin was 3.1%. The High Voltage
division drove the groups earnings improvement. The
31 million
in charges were split between the Medium Voltage division and
Metering division. Major projects helped push sales up 29%, to
4.053 billion
for the fiscal year, while customers postponement of major
projects in the Energy Management division held order growth to
9%, or
3.887 billion.
EBITA assets increased 28%, to
1.004 billion,
due in part to acquisitions and lower advances received from
customers with a corresponding negative effect on cash flow.

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Transportation

Transportation Systems (TS)

|                     |  |        |       |                 |  |      |       |   |  |  |       |  
|-------------------- |  | ------ | ----- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                     |  |        |       |                
|                     |  |        |       | Year ended     
|                     |  |        |       | September 30,  
|                     |  |        |       |                
|TS Performance Data: |  | Change |       | 2001            |  | 2000
|                     |  |        |       |                 |  |     
|                     |  |        |       |                
|                     |  |        |       | ( in millions)
|EBITA                |  |        | 148.0 | %               |  |      | 186   |   |  |  | 75    |  
|EBITA margin         |  |        |       |                 |  |      | 4.6   | % |  |  | 2.0   | %
|Total sales          |  |        | 8.4   | %               |  |      | 4,021 |   |  |  | 3,710 |  
|New orders           |  |        | 51.7  | %               |  |      | 5,647 |   |  |  | 3,722 |  

|             |  |  |       |                  |  |      |      |   |  |  |      |  
|------------ |  |  | ----- | ---------------- |  | ---- | ---- | - |  |  | ---- | -
|             |  |  |       |                 
|             |  |  |       | At September 30,
|             |  |  |       |                 
|             |  |  |       | 2001             |  | 2000
|             |  |  |       |                  |  |     
|EBITA assets |  |  | 171.8 | %                |  |      | (916 | ) |  |  | (337 | )

TS more than doubled its earnings compared to the
previous year, with EBITA of
186 million.
EBITA margin also more than doubled, from 2.0% to 4.6%,
improving the groups already positive EVA. Effective
implementation of a group-wide productivity initiative enabled
TS to achieve its strong earnings performance on comparatively
modest sales growth of 8%, to
4.021 billion
compared to
3.710 billion
a year earlier. The group also excelled in winning new business,
with orders growing 52% to
5.647 billion.
New orders during the year included 1,200 new passenger railcars
and related maintenance in the United Kingdom, and a
super-high-speed train for the city of Shanghai. These and other
successful bids pushed the groups order backlog toward
11 billion
at the end of the fiscal year. TS further reduced its already
negative EBITA assets to a negative
916 million
through ongoing asset management programs and higher customer
prepayments, which positively impacted cash flow.

Siemens VDO Automotive (SV)

|                     |  |        |      |                 |  |      |       |    |  |  |       |  
|-------------------- |  | ------ | ---- | --------------- |  | ---- | ----- | -- |  |  | ----- | -
|                     |  |        |      |                
|                     |  |        |      | Year ended     
|                     |  |        |      | September 30,  
|                     |  |        |      |                
|SV Performance Data: |  | Change |      | 2001            |  | 2000
|                     |  |        |      |                 |  |     
|                     |  |        |      |                
|                     |  |        |      | ( in millions)
|EBITA                |  |        |      |                 |  |      | (261  | )  |  |  | 89    |  
|EBITA margin         |  |        |      |                 |  |      | (4.6  | %) |  |  | 2.3   | %
|Total sales          |  |        | 48.8 | %               |  |      | 5,702 |    |  |  | 3,833 |  
|New orders           |  |        | 48.5 | %               |  |      | 5,702 |    |  |  | 3,839 |  

|             |  |  |  |                  |  |      |       |  |  |  |     | 
|------------ |  |  |  | ---------------- |  | ---- | ----- |  |  |  | --- | 
|             |  |  |  |                 
|             |  |  |  | At September 30,
|             |  |  |  |                 
|             |  |  |  | 2001             |  | 2000
|             |  |  |  |                  |  |     
|EBITA assets |  |  |  |                  |  |      | 3,691 |  |  |  | 937 | 

SV is the new name of Siemens automotive
businesses, which merged with the VDO automotive operations of
Atecs in the third quarter. SV recorded an EBITA of negative
261 million
including
90 million
in asset write-downs split between losses on the divestment of
the groups wiring harness business and write-downs of
investments. EBITA excluding these charges was a negative
171 million
compared to a positive
89 million
a year earlier due to pricing pressures, and continued
significant development costs for innovative new technologies
including advanced diesel injection systems as well as
communications and multimedia systems. Margins at SV have come
under increasing pressure as electronic component prices and
allocation costs have risen, largely as a result of the falling
value of the euro in relation to the currencies of many
countries in which SV buys components. Sales and orders rose
49%, to
5.702 billion,
compared to fiscal 2000, primarily due to the merger. The VDO
Automotive businesses contributed
1.686 billion
to both sales and orders for the year, while sales and orders
grew slowly for the former Siemens Automotive businesses.
Positive effects of the acquisition on volume were partially
offset by weakened demand in fiscal 2001 in the automobile
industry particularly in North

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America. However, demand in Germany remained
stable, due to a strong export business. EBITA assets, which
include goodwill from the VDO acquisition, jumped to
3.691 billion
from
937 million
at the end of fiscal 2000, pushing EVA further into negative
territory.


Medical

Medical Solutions (Med)

|                       |  |        |       |                 |  |      |       |   |  |  |       |  
|---------------------- |  | ------ | ----- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                       |  |        |       |                
|                       |  |        |       | Year ended     
|                       |  |        |       | September 30,  
|                       |  |        |       |                
|Med. Performance Data: |  | Change |       | 2001            |  | 2000
|                       |  |        |       |                 |  |     
|                       |  |        |       |                
|                       |  |        |       | ( in millions)
|EBITA                  |  |        | 74.5% |                 |  |      | 808   |   |  |  | 463   |  
|EBITA margin           |  |        |       |                 |  |      | 11.2  | % |  |  | 9.4   | %
|Total sales            |  |        | 46.6% |                 |  |      | 7,219 |   |  |  | 4,924 |  
|New orders             |  |        | 60.7% |                 |  |      | 8,444 |   |  |  | 5,253 |  

|             |  |  |       |                  |  |      |       |  |  |  |       | 
|------------ |  |  | ----- | ---------------- |  | ---- | ----- |  |  |  | ----- | 
|             |  |  |       |                 
|             |  |  |       | At September 30,
|             |  |  |       |                 
|             |  |  |       | 2001             |  | 2000
|             |  |  |       |                  |  |     
|EBITA assets |  |  | 23.9% |                  |  |      | 4,099 |  |  |  | 3,308 | 

Med turned in excellent performance, achieving
record levels in earnings, sales, and orders due in large part
to successful integration of Acuson, acquired in fiscal 2001,
and Shared Medical Systems Corp. (SMS), acquired in late fiscal
2000. EBITA of
808 million
was 75% higher than in fiscal 2000. EBITA margin increased to
11.2%. Imaging systems remained the primary engine of Meds
profitable growth. Sales increased by 47% to
7.219 billion,
and orders grew 61% to
8.444 billion.
Currency translation effects contributed five percentage points
of sales growth. The acquisition of Acuson was the main factor
in the groups higher EBITA assets, which stood at
4.099 billion
at the end of the fiscal year. The effect of acquisitions on
EBITA assets resulted in a lower EVA than the prior year. The
acquisition of Acuson also negatively affected cash flow.

Lighting

Osram

|                        |  |        |       |                 |  |      |       |   |  |  |       |  
|----------------------- |  | ------ | ----- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                        |  |        |       |                
|                        |  |        |       | Year ended     
|                        |  |        |       | September 30,  
|                        |  |        |       |                
|Osram Performance Data: |  | Change |       | 2001            |  | 2000
|                        |  |        |       |                 |  |     
|                        |  |        |       |                
|                        |  |        |       | ( in millions)
|EBITA                   |  |        | 19.1% |                 |  |      | 462   |   |  |  | 388   |  
|EBITA margin            |  |        |       |                 |  |      | 10.2  | % |  |  | 9.0   | %
|Total sales             |  |        | 4.5%  |                 |  |      | 4,522 |   |  |  | 4,326 |  
|New orders              |  |        | 4.5%  |                 |  |      | 4,522 |   |  |  | 4,327 |  

|             |  |  |       |                  |  |      |       |  |  |  |       | 
|------------ |  |  | ----- | ---------------- |  | ---- | ----- |  |  |  | ----- | 
|             |  |  |       |                 
|             |  |  |       | At September 30,
|             |  |  |       |                 
|             |  |  |       | 2001             |  | 2000
|             |  |  |       |                  |  |     
|EBITA assets |  |  | (1.1% | )                |  |      | 2,505 |  |  |  | 2,533 | 

Despite a significantly more difficult economic
environment, particularly in the United States, Osram increased
its EBITA to
462 million
in fiscal 2001 from
388 million
a year earlier. EBITA margin climbed to 10.2%, and EVA was
positive. EBITA benefited from
54 million
in nonrecurring gains, including
31 million
related to the successful resolution of a patent rights issue in
the fourth quarter and
23 million
from an earn-out payment received in the first quarter related
to the groups interest in a joint venture. Excluding these
effects, Osram continued to maintain a 9% EBITA margin despite
deteriorating economic conditions in its large U.S. market.
Sales grew 5% compared to fiscal 2000, to
4.522 billion,
primarily due to positive currency

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translation effects. EBITA assets decreased
slightly, to
2.505 billion,
from
2.533 billion
at the end of fiscal 2000.


Corporate, Eliminations (Operations) and
Reconciliation to Financial Statements

The Managing Board is responsible for assessing
the performance of the groups. Corporate, eliminations
(Operations) and Reconciliation to financial statements include
various categories of items which are not allocated to the
groups since the Managing Board has determined that such items
are not indicative of group performance. These include
non-recurring, one-time charges or gains and results from
centrally managed projects. In addition, Corporate, eliminations
(Operations) includes corporate charges such as personnel as
well as domestic pension related income or expense, certain
corporate-related derivative activities, centrally held equity
investments, business units, and corporate projects.
Reconciliation to financial statements includes various items
excluded from EBITA in our Operations segments and Financing and
Real Estate segment. Group EBITA is used to determine bonus
payments in accordance with our management incentive program.

We believe that this presentation provides a more
meaningful comparison between the periods under review because
it eliminates one-time or non-recurring gains or losses that
management does not believe are indicative of the underlying
performance of our business. This presentation reflects the
assessment of our chief operating decision maker with respect to
the performance of our components. However, you should be aware
that different one-time or non-recurring items may occur in
every period. While management believes that excluding special
items in this way assists in understanding the underlying
performance of our business in the periods under review, you
should assess our performance on the basis of all the
information presented in this Item 5: Operating and
Financial Review and Prospects.

Corporate, Eliminations (Operations)

Corporate, eliminations (Operations) consists of
four main components: corporate items, consisting primarily of
corporate expenses; investments earnings (losses), which include
our share of earnings (losses) from equity investments held
centrally; non-allocated pension-related income (expense); and
eliminations, other. EBIT for Corporate,
eliminations (Operations) as a whole was a negative
320 million
compared to a negative
1.270 billion
a year ago.

Corporate items were
838 million
in fiscal 2001 compared to
831 million
in 2000, reflecting an increase of
252 million
relating to activities in various central projects, particularly
the Companys e-business initiatives, partly offset by a
decline in central personnel related expenses associated with
the Companys employee stock purchase program.

Investment earnings were
253 million
compared to
76 million
a year earlier reflecting the continuing disposal of a portion
of the centrally managed equities portfolio, higher earnings
from centrally held equity investments, partially offset by a
209 million
loss on the sale of a centrally held investment.

Non-allocated pension-related income (expense)
was a positive
279 million
compared to a negative
239 million
in the prior year. In March 2000, the Company established a
domestic pension trust and assets were contributed at that date.
As a result, expected return on plan assets were included in the
determination of net periodic pension benefit (expense) for the
entire year in fiscal 2001. Prior to the establishment of the
pension trust, the return on trading securities designated as
pension assets was recorded as income from marketable securities.

Eliminations, other was negative
14 million
in fiscal 2001 compared to negative
276 million
in the prior year. Fiscal 2001 included
78 million
in expenses on centrally managed litigation issues,
74 million
in corporate interest expense in part related to the Atecs
acquisition and
63 million
in severance charges. Fiscal 2001 also included a gain of
114 million
related to currency effects and the treatment of derivative
contracts not qualifying for hedge accounting, and positive
resolution of certain asset disposal contingencies of
162 million.

In fiscal 2000, eliminations, other
included the following: higher charges related to currency
effects and the treatment of derivative contracts not qualifying
for hedge accounting of
212 million,
losses on asset dispositions totaling
210 million,
178 million
in employee severance and contract termination costs and

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68 million
related to the centrally managed outsourcing contract in
Argentina originally entered into by SBS. The
178 million
in employee severance and contract termination costs relate to
the groups primarily as follows: PG
60 million,
SBT
46 million,
SBS
35 million
and TS
10 million.
Fiscal 2000 also included
692 million
in income from marketable securities classified as trading.


EBITA assets in the prior year included an
initial deposit of
2.1 billion
related to the Atecs acquisition, which closed in fiscal 2001.
As a result of the closing, the assets of the acquired and
consolidated Atecs activities were assigned to their respective
operating groups (SD, SV and PG) in fiscal 2001. EBITA assets
were reduced in fiscal 2001 by the recognition of a minimum
pension liability of
2.7 billion,
offset in part by assets from the Atecs acquisition that are
classified as held for sale.

Reconciliation to Financial
Statements

Other interest
expense:Other interest expense
increased in fiscal 2001 as a result of higher borrowings to
fund Operations. Goodwill amortization and IPR&D expenses
increased as a result of acquisitions in fiscal 2000 and 2001,
primarily Atecs and SMS. Gains on sales and dispositions of
significant business interests and other special items are
discussed below.

Goodwill amortization and purchased IPR&D
expenses:Goodwill amortization and
purchased IPR&D expense of Operations totaled
665 million
in fiscal 2001 compared to
253 million
in fiscal 2000. The increase reflects the goodwill amortization
and IPR&D expenses relating to Acuson, acquired in November
2000, and Atecs and Efficient, acquired in April 2001.

Gains on sales and dispositions of significant
business interests:Included in gains
on sales and dispositions of significant business interests in
fiscal 2001 was a
3.459 billion
pre-tax gain as a result of the irrevocable transfer of
93,825,225 shares of Infineon to the Siemens German Pension
Trust. We also recorded a
484 million
gain resulting from an additional capital offering by Infineon,
achieved through the sale of 60 million of its shares in
the fourth quarter. Following an earlier capital increase at
Infineon, achieved through acquisitions, we recorded an
aggregate gain of
122 million.
Siemens did not participate in these capital increases or
receive any proceeds from them. Taken together, these
transactions had the effect of reducing Siemens ownership
interest in Infineon from approximately 71% as of the end of
last fiscal year to 50.4% as of September 30, 2001.

The
3.459 billion
pre-tax gain on the contribution of the Infineon shares in April
2001 to the Siemens German Pension Trust was a non-cash item;
the total amount recorded was based upon the market price of
Infineon shares at the date of the transfer. The business
purpose of the contribution of the Infineon shares to this
pension trust was to shore up an already existing under-funded
position in the pension trust, ahead of substantial new pension
obligations arising from our third quarter acquisition of Atecs.
As part of the purchase price, Siemens assumed Atecs
unfunded pension obligations. In addition, the transfer of
Infineon shares represented a further step towards meeting our
long-stated goal of disposing of our interest in Infineon over
time. While U.S. pension plans subject to the
U.S. Employment Retirement Income Security Act of 1974
(ERISA) are restricted in the amount of securities they are
permitted to own in the employer or its affiliates to 10% of
plan assets, the Siemens German Pension Trust is not subject to
such ERISA provisions. At September 30, 2001, Infineon
shares represented approximately 13% of the assets of the
Siemens German Pension Trust.

Gains on sales of dispositions in fiscal 2000
included
7.826 billion
from pretax gains on sales of significant business interests,
principally including
4.615 billion
in gains relating to the initial public offering of Infineon, as
well as exceptional gains from certain marketable securities.
Also included in the total are gains from: the initial public
offering of Epcos AG of
638 million,
the sale of the Companys Electromechanical Components
business of
525 million,
the sale of Nixdorf Retail and Banking Systems of
538 million,
the sale of Vacuumschmelze GmbH of
93 million,
the sale of substantially all of our fiber-optic cable and
optical fiber business of
584 million
and the sale of our Swiss-based television cable business of
774 million.

Other special items:Other special items in fiscal 2001
included charges totaling
927 million
taken for impairment of goodwill relating to acquisitions made
by ICN and A&D. These charges are not included in EBIT from
Operations. They include a charge of
746 million
resulting from the impairment of goodwill associated

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with the acquisition by ICN of Efficient
Networks, Inc, a provider of DSL equipment in the United States.
Shortly after the acquisition of Efficient, worldwide demand for
DSL products contracted sharply. Additionally, the total charges
include
181 million
for impairment of goodwill primarily associated with the
acquisition by A&D of Milltronics, Ltd. For more information
see Note 14 to the consolidated financial statements.


Also included in other special items in fiscal
2001 is a write-down of
258 million
of inventories and other assets in connection with a long-term,
centrally managed production and outsourcing contract for a
border control system in Argentina. This contract, originally
entered into by SBS, was canceled by government decree.

Lower tax rates enacted by the tax reform passed
in Germany in October 2000, and the consequent adjustment of
Siemens deferred tax balances at October 1, 2000,
resulted in a one-time reduction of
222 million
in income tax expense in fiscal 2001.

Other special items in fiscal 2000 include
exceptional charges related to contract losses, certain
restructuring costs, the write-down of goodwill, a one-time
bonus for employees, and a provision related to a loan. These
other special items totaled a negative
280 million
for fiscal 2000. For more information see Note 29 to the
consolidated financial statements.

Infineon

Infineon Technologies
(Infineon)

|                           |  |        |        |                 |  |      |        |    |  |  |       |  
|-------------------------- |  | ------ | ------ | --------------- |  | ---- | ------ | -- |  |  | ----- | -
|                           |  |        |        |                
|                           |  |        |        | Year ended     
|                           |  |        |        | September 30,  
|                           |  |        |        |                
|Infineon Performance Data: |  | Change |        | 2001            |  | 2000
|                           |  |        |        |                 |  |     
|                           |  |        |        |                
|                           |  |        |        | ( in millions)
|EBIT                       |  |        |        |                 |  |      | (1,024 | )  |  |  | 1,670 |  
|EBIT margin                |  |        |        |                 |  |      | (18.1  | %) |  |  | 22.9  | %
|Total sales                |  |        | (22.1% | )               |  |      | 5,671  |    |  |  | 7,283 |  
|New orders                 |  |        | (50.3% | )               |  |      | 4,390  |    |  |  | 8,837 |  

|                     |  |  |       |                  |  |      |       |  |  |  |       | 
|-------------------- |  |  | ----- | ---------------- |  | ---- | ----- |  |  |  | ----- | 
|                     |  |  |       |                 
|                     |  |  |       | At September 30,
|                     |  |  |       |                 
|                     |  |  |       | 2001             |  | 2000
|                     |  |  |       |                  |  |     
|Net capital employed |  |  | 13.3% |                  |  |      | 6,471 |  |  |  | 5,709 | 

As of September 30, 2001 Siemens held a
50.4% economic interest in Infineon and we continued to
consolidate it in our consolidated financial statements.
Infineons EBIT (earnings before interest and taxes)
decreased to a loss of
1.024 billion
down from a positive EBIT of
1.670 billion
in fiscal year 2000. Earnings were negatively affected by strong
price erosion, especially for memory products, and costs of
carrying currently unused capacity in most non-memory segments.
EBIT declined in all of Infineons divisions, with the
exception of Automotive and Industrial. Especially affected by
strong price erosion was the Memory Products division which
recorded a loss of
931 million
for fiscal 2001 compared to net income of
1.337 billion
in the prior year.

The groups loss includes charges of
358 million
in connection with inventory write-downs, acquisition related
expenses of
111 million,
restructuring charges of
117 million,
impairment charges of
25 million
and gains from the sale of non-core businesses of
235 million.
Excluding these write-downs, expenses, charges and gains EBIT
amounted to a loss of
648 million.
The restructuring charge is part of an overall plan to eliminate
approximately 5,000 positions by September 30, 2002. This
plan is part of a cost savings program intended to streamline
the groups procurement and logistics processes, as well as
reduce information technology, research and development,
overhead and manufacturing costs.

Sales for the fiscal year decreased 22% to
5.671 billion
from
7.283 billion
in the prior year as a result of a sharp decline in the overall
semiconductor market, particularly affecting market conditions
for memory and mobile communication products. Net capital
employed increased to
6.471 billion
from
5.709 billion
primarily due to increased capital expenditures. These increased
expenditures, together with decreased profitability, negatively
impacted cash flow in the current year.

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Financing and Real Estate

Siemens Financial Services
(SFS)

|                           |  |        |       |                 |  |      |     |  |  |  |     | 
|-------------------------- |  | ------ | ----- | --------------- |  | ---- | --- |  |  |  | --- | 
|                           |  |        |       |                
|                           |  |        |       | Year ended     
|                           |  |        |       | September 30,  
|                           |  |        |       |                
|SFS Performance Data:      |  | Change |       | 2001            |  | 2000
|                           |  |        |       |                 |  |     
|                           |  |        |       |                
|                           |  |        |       | ( in millions)
|Income before income taxes |  |        | 102.6 | %               |  |      | 158 |  |  |  | 78  | 
|Total sales                |  |        | 35.9  | %               |  |      | 481 |  |  |  | 354 | 

|             |  |  |     |                  |  |      |       |  |  |  |       | 
|------------ |  |  | --- | ---------------- |  | ---- | ----- |  |  |  | ----- | 
|             |  |  |     |                 
|             |  |  |     | At September 30,
|             |  |  |     |                 
|             |  |  |     | 2001             |  | 2000
|             |  |  |     |                  |  |     
|Total assets |  |  | 9.7 | %                |  |      | 9,363 |  |  |  | 8,532 | 

SFS increased its income before income taxes
80 million
year-over-year, to
158 million.
Gains on the sale of equity stakes held by Siemens Project
Ventures in India and USA contributed
45 million
of the increase. These gains helped further improve the
groups positive EVA. Higher interest income from the
factoring of receivables and the groups growing leasing
business was offset by higher loan provisions and increased
administrative expense, resulting in part from the acquisition
of Schroder Leasing Ltd. in the prior year. Sales climbed to
481 million,
36% higher than in fiscal 2000. Sales primarily represent lease
revenues from operating leases, and do not reflect the bulk of
the groups business in capital leases and other financing
activities. Total assets increased to
9.363 billion,
10% higher than at the end of fiscal 2000, due to increased
receivables in the leasing business of the Equipment Sales
Financing division. Cash flow in the current year included
proceeds from the sale of accounts receivable, while cash flow
in the prior year included no such corresponding sales.

Siemens Real Estate (SRE)

|                           |  |        |     |                 |  |      |       |  |  |  |       | 
|-------------------------- |  | ------ | --- | --------------- |  | ---- | ----- |  |  |  | ----- | 
|                           |  |        |     |                
|                           |  |        |     | Year ended     
|                           |  |        |     | September 30,  
|                           |  |        |     |                
|SRE Performance Data:      |  | Change |     | 2001            |  | 2000
|                           |  |        |     |                 |  |     
|                           |  |        |     |                
|                           |  |        |     | ( in millions)
|Income before income taxes |  |        | 6.0 | %               |  |      | 213   |  |  |  | 201   | 
|Total sales                |  |        | 8.6 | %               |  |      | 1,542 |  |  |  | 1,420 | 

|             |  |  |      |                  |  |      |       |  |  |  |       | 
|------------ |  |  | ---- | ---------------- |  | ---- | ----- |  |  |  | ----- | 
|             |  |  |      |                 
|             |  |  |      | At September 30,
|             |  |  |      |                 
|             |  |  |      | 2001             |  | 2000
|             |  |  |      |                  |  |     
|Total assets |  |  | (3.4 | %)               |  |      | 3,469 |  |  |  | 3,590 | 

Income before income taxes at SRE increased 6% to
213 million.
As in fiscal 2000, a significant part of the earnings resulted
from gains on the dispositions of real estate assets, amounting
to
117 million
as compared to
111 million
in fiscal 2000. The group generated most of its remaining pretax
earnings from rental income related to its real estate
management and lease administration activities. Of the total
sales of
1.542 billion
in fiscal 2001, more than 75% relates to rental income, with the
balance composed primarily of sales from facilities services.
The 9% increase in total sales results in part from increased
rentals following SREs assumption of control over
additional Siemens real estate and increased demand. Total
assets declined 3%.

COMPONENT INFORMATIONSTATEMENTS OF
INCOME

The following discussion adheres to our component
model of reporting and includes an analysis of the income
statement organized by component: Operations, Financing and Real
Estate, and Eliminations, reclassifications and Corporate
Treasury followed by a summary of Siemens worldwide.

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Operations

The following table presents selected income
statement information for the Operations component:

|                                                                                                                                                                                        |                        |                 |         |       |    |  |         |       |   
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | --------------- | ------- | ----- | -- |  | ------- | ----- | --
|                                                                                                                                                                                        |                        |                
|                                                                                                                                                                                        |                        | Year ended     
|                                                                                                                                                                                        |                        | September 30,  
|                                                                                                                                                                                        |                        |                
|                                                                                                                                                                                        |                        | 2001            |         | 2000 
|                                                                                                                                                                                        |                        |                 |         |      
|                                                                                                                                                                                        |                        |                
|                                                                                                                                                                                        |                        | ( in millions)
|Net sales                                                                                                                                                                               |                        |                 | 82,427  |       |    |  | 71,603  |      
|Gross profit on sales                                                                                                                                                                   |                        |                 | 22,235  |       |    |  | 19,657  |      
|                                                                                                                                                                                        | as percentage of sales |                 |         | 27.0  | %  |  |         | 27.5  | % 
|Research and development expenses                                                                                                                                                       |                        |                 | (5,427  | )     |    |  | (4,619  | )    
|                                                                                                                                                                                        | as percentage of sales |                 |         | (6.6  | )% |  |         | (6.5  | )%
|Marketing, selling and general administrative
    expenses                                                                                                                              |                        |                 | (15,559 | )     |    |  | (13,333 | )    
|                                                                                                                                                                                        | as percentage of sales |                 |         | (18.9 | )% |  |         | (18.6 | )%
|Other operating income (expense), net                                                                                                                                                   |                        |                 | (118    | )     |    |  | (13     | )    
|Income from investments in other companies, net                                                                                                                                         |                        |                 | (24     | )     |    |  | 310     |      
|Income from financial assets and marketable
    securities, net                                                                                                                         |                        |                 | 263     |       |    |  | 832     |      
|Interest income (expense) of Operations, net                                                                                                                                            |                        |                 | (41     | )     |    |  | (35     | )    
|                                                                                                                                                                                        |                        |                 |         |       |    |  |         |      
|EBITA                                                                                                                                                                                   |                        |                 | 1,329   |       |    |  | 2,799   |      
|                                                                                                                                                                                        | as percentage of sales |                 |         | 1.6   | %  |  |         | 3.9   | % 
|Other interest (expense) income, net                                                                                                                                                    |                        |                 | (304    | )     |    |  | (220    | )    
|Goodwill amortization and purchased in-process
    R&D expenses of Operations                                                                                                           |                        |                 | (665    | )     |    |  | (253    | )    
|Gains on sales and dispositions of significant
    business interests (therein gain on issuance of subsidiary and
    associated company stock
    617 and
    534,
    respectively) |                        |                 | 4,065   |       |    |  | 7,826   |      
|Other special items                                                                                                                                                                     |                        |                 | (1,185  | )     |    |  | (280    | )    
|                                                                                                                                                                                        |                        |                 |         |       |    |  |         |      
|Income (loss) before income taxes                                                                                                                                                       |                        |                 | 3,240   |       |    |  | 9,872   |      
|                                                                                                                                                                                        |                        |                 |         |       |    |  |         |      

Net sales in fiscal 2001 totaled
82.427 billion,
an increase of 15% compared to fiscal 2000. The acquisitions of
Shared Medical Systems Corp. (SMS), Acuson, Efficient Networks
and Atecs Mannesmann AG and other acquired businesses
contributed approximately
3.5 billion
in additional sales. Every business area contributed to the
positive sales trend, with ICN, ICM, A&D and PG leading the
group contributions. Revenues were also affected positively by
foreign currency effects of 1%.

As a percentage of revenue, gross profit on sales
decreased slightly from 27.5% to 27.0%. Higher margins at PG, TS
and Med were offset by restructuring charges and asset
write-downs including severance charges and inventory
write-downs as well as by contract loss accruals primarily at
ICN, ICM, SBS and SD, and margin erosion at ICN and ICM. See the
analysis above for further comments on the individual groups.

Research and development expenses for the
Operations component exclude purchased IPR&D. These expenses
are reported together with goodwill amortization as a line item
below EBITA from Operations. R&D increased 17.5% to
5.427 billion
in fiscal 2001. R&D spending represented 6.6% of sales,
0.1 percentage points more than in the prior fiscal year.
The increase reflects our ongoing R&D efforts in a wide
variety of areas, including higher spending on the development
of network products for UMTS wireless technologies at our ICM
group and continued spending on IP convergence products at ICN.
Expansion of research and development programs at SV and Med
also contributed to the increase.

Marketing, selling and general administrative
expenses increased 16.7% to
15.559 billion
compared to fiscal 2000. This figure represents 18.9% of sales,
an increase of 0.3 percentage points over the prior year.
The majority of the increase was contributed by ICN and ICM,
reflecting higher accounts receivable provisions, including
those related to Winstar Communications, as well as increased
advertising costs at ICM.

Other operating income (expense), net from
operations decreased to a negative
118 million
compared to a negative
13 million
in fiscal 2000. The current period includes higher amortization
expense of intangibles primarily related to the Atecs
acquisition and losses on the divestment of a business
at SV.

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Income from investments in other companies, net
decreased by
334 million
to an expense of
24 million,
due primarily to a
209 million
loss on the sale of a centrally managed investment. Also
included in fiscal 2001 are additional charges and expenses
resulting from the write-down of venture capital and equity
investments at ICN and SV. In contrast, fiscal 2000 includes
161 million
in gains on the sale of investments at ICN.

Income from financial assets and marketable
securities, net in fiscal 2001 was a positive
263 million.
This includes principally
420 million
in gains on sales of available for sale securities offset by
184 million
of write-downs of marketable securities, particularly Brokat AG,
that suffered a material decline in value which we have
determined to be other than temporary. Income from financial
assets and marketable securities in fiscal 2000 was a positive
832 million.
This includes principally
692 million
in income on marketable securities classified as trading and
174 million
of gains on sales of available for sale securities. Subsequent
to the contribution in March 2000 of the trading portfolio to
the domestic pension trust, the Company no longer maintains a
trading portfolio.

EBITA from Operations in fiscal 2001 decreased to
1.329 billion
from
2.799 billion
in fiscal 2000 reflecting the factors noted above. As a result,
EBITA margin decreased to 1.6% compared to 3.9% in fiscal 2000.

Other interest income (expense), net increased to
an expense of
304 million
compared to an expense of
220 million
in fiscal 2000, due primarily to interest on a liability
relating to our acquisition of Atecs and interest on other
financial indebtedness.

Goodwill amortization and purchased IPR&D
expenses of Operations totaled
665 million
in fiscal 2001 compared to
253 million
in fiscal 2000. The increase reflects the goodwill amortization
and IPR&D expenses relating to Acuson, acquired in November
2000, and Atecs and Efficient, acquired in April 2001.

Gains on sales and dispositions of significant
business interests include the gain resulting from the
irrevocable transfer of Infineon shares into the Siemens German
Pension Trust, as well as a gain from an additional capital
offering by Infineon as described below in Siemens
Worldwide. Other special items include goodwill
impairments related to Efficient and Milltronics, and the
write-down of inventories and assets associated with the
contract cancellation in Argentina discussed in
Segment Information AnalysisCorporate,
Eliminations (Operations) and Reconciliation to Financial
Statements.

Infineon

The following table presents selected income
statement information for the Infineon component:

|                                                                |                        |                 |        |       |    |  |        |       |   
|--------------------------------------------------------------- | ---------------------- | --------------- | ------ | ----- | -- |  | ------ | ----- | --
|                                                                |                        |                
|                                                                |                        | Year ended     
|                                                                |                        | September 30,  
|                                                                |                        |                
|                                                                |                        | 2001            |        | 2000 
|                                                                |                        |                 |        |      
|                                                                |                        |                
|                                                                |                        | ( in millions)
|Net sales                                                       |                        |                 | 5,671  |       |    |  | 7,283  |      
|Gross profit on sales                                           |                        |                 | 650    |       |    |  | 3,172  |      
|                                                                | as percentage of sales |                 |        | 11.5  | %  |  |        | 43.6  | % 
|Research and development expenses                               |                        |                 | (1,189 | )     |    |  | (1,025 | )    
|                                                                | as percentage of sales |                 |        | (21.0 | )% |  |        | (14.1 | )%
|Marketing, selling and general administrative
    expenses      |                        |                 | (786   | )     |    |  | (670   | )    
|                                                                | as percentage of sales |                 |        | (13.9 | )% |  |        | (9.2  | )%
|Other operating income (expense), net                           |                        |                 | 200    |       |    |  | 2      |      
|Income from investments in other companies, net                 |                        |                 | 36     |       |    |  | 154    |      
|Income from financial assets and marketable
    securities, net |                        |                 | 65     |       |    |  | 37     |      
|                                                                |                        |                 |        |       |    |  |        |      
|EBIT                                                            |                        |                 | (1,024 | )     |    |  | 1,670  |      
|                                                                | as percentage of sales |                 |        | (18.1 | )% |  |        | 22.9  | % 
|Other interest (expense) income, net                            |                        |                 | (1     | )     |    |  | 74     |      
|                                                                |                        |                 |        |       |    |  |        |      
|Income (loss) before income taxes                               |                        |                 | (1,025 | )     |    |  | 1,744  |      
|                                                                |                        |                 |        |       |    |  |        |      

Infineons net sales decreased to
5.671 billion
in fiscal 2001 from
7.283 billion
in fiscal 2000, a decrease of approximately 22%, due primarily
to a sharp decline in the overall semiconductor market.

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As a percentage of revenue, gross profit on sales
decreased from 43.6% in fiscal 2000 to 11.5% in the current year
due to significantly reduced prices and under-utilization of
certain production facilities as well as write-downs of
inventory of approximately
358 million.

Infineons research and development expenses
increased by 16.0% to
1.189 billion
in fiscal 2001 from
1.025 billion
in fiscal 2000. R&D spending represented 21.0% of sales,
6.9% percentage points more than in the prior fiscal year.
Included in R&D expenses are IPR&D charges of
69 million
in fiscal 2001, compared to
26 million
in fiscal 2000. R&D expenses in fiscal 2001 were focused
mainly on the development of next generation products including
DRAM, mobile phone and fixed line technologies.

Marketing, selling and general administrative
expenses increased to
786 million,
a 17.3% increase compared to fiscal 2000. This figure represents
13.9% of sales, an increase of 4.7 percentage points over
the prior year. The increase as a percentage of net sales
reflected primarily the decline in sales volume, but was also
partially due to the expansion of Infineons sales
infrastructure, particularly outside Europe.

Infineons other operating income (expense),
net increased to
200 million
in fiscal 2001 from
2 million
in fiscal 2000, reflecting a gain on the disposition of
Infineons image and video and infrared components
businesses.

Reflecting the above factors, Infineons
EBIT was a negative
1.024 billion
in fiscal 2001 compared to a positive
1.670 billion
last year.

Other interest (expense) income, net decreased
from a positive
74 million
in fiscal 2000 to an expense of
1 million
in fiscal 2001 reflecting higher interest expense on debt and
lower interest income.

Financing and Real Estate

The following table presents selected income
statement information for the Financing and Real Estate
component:

|                                                                |  |                 |       |      |  |  |       |  
|--------------------------------------------------------------- |  | --------------- | ----- | ---- |  |  | ----- | -
|                                                                |  |                
|                                                                |  | Year ended     
|                                                                |  | September 30,  
|                                                                |  |                
|                                                                |  | 2001            |       | 2000
|                                                                |  |                 |       |     
|                                                                |  |                
|                                                                |  | ( in millions)
|Net sales                                                       |  |                 | 2,016 |      |  |  | 1,774 |  
|Gross profit on sales                                           |  |                 | 435   |      |  |  | 226   |  
|Marketing, selling and general administrative
    expenses      |  |                 | (297  | )    |  |  | (201  | )
|Other operating income (expense), net                           |  |                 | 143   |      |  |  | 245   |  
|Income from investments in other companies, net                 |  |                 | 37    |      |  |  | 10    |  
|Income from financial assets and marketable
    securities, net |  |                 | (15   | )    |  |  | (4    | )
|Other interest income (expense), net                            |  |                 | 68    |      |  |  | 3     |  
|                                                                |  |                 |       |      |  |  |       |  
|Income before income taxes                                      |  |                 | 371   |      |  |  | 279   |  
|                                                                |  |                 |       |      |  |  |       |  

Sales from Financing and Real Estate increased
14% to
2.016 billion
compared to fiscal 2000. The increase is predominantly
attributable to the Equipment Sales Financing division at SFS
and additional real estate property leases at SRE.

Other operating income (expense), net was
143 million
in fiscal 2001 compared to
245 million
in 2000. Both years included gains on the disposal of real
estate. For fiscal 2001, interest income was
68 million,
which represents an increase of
65 million
as compared to 2000. This increase resulted from higher volumes
in equipment leasing and from sales of receivables. As a result,
income before income taxes increased to
371 million
compared to
279 million
in fiscal 2000.

Eliminations, Reclassifications and Corporate
Treasury

This component of Siemens worldwide includes
eliminations of activity conducted between the other three
components: Operations, Infineon, and Financing and Real Estate.
In practical terms, these eliminations primarily

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concern transactions between the Operations and
Financing and Real Estate components. To the extent that
Infineon provides products or services to Operations, that
activity is eliminated here as well.


This component also includes reclassification of
financial items, which are associated with Operations but not
included in EBITA of Operations. We make these reclassifications
in our Consolidated Statements of Income to enable increased
transparency in reporting results for Operations. Examples of
such reclassifications in fiscal 2001 include
258 million
into cost of goods sold related to a write-down of assets
associated with a centrally managed project in Argentina,
126 million
in IPR&D related to the acquisitions of Acuson, Atecs and
Efficient, reclassified as research and development expenses for
Siemens worldwide, and
927 million
in goodwill impairments primarily related to the acquisitions of
Efficient and Milltronics reclassified as other operating
expense for Siemens worldwide.

Finally, this component also reflects the results
of intra-Siemens activity by our Corporate Treasury, which
provides corporate finance and treasury management services to
our Operations component (excluding Infineon Technologies AG)
and to our Financing and Real Estate component.

Siemens Worldwide (Including
Infineon)

In connection with our component model of
reporting, below is a discussion of the Consolidated Statements
of Income for Siemens worldwide. Additional details relating to
the other components of Siemens worldwide: Operations, Infineon,
Financing and Real Estate and Eliminations, reclassifications
and Corporate Treasury are discussed above.

The following table presents selected information
for Siemens worldwide:

|                                                                         |                        |                 |         |       |    |  |         |       |   
|------------------------------------------------------------------------ | ---------------------- | --------------- | ------- | ----- | -- |  | ------- | ----- | --
|                                                                         |                        |                
|                                                                         |                        | Year ended     
|                                                                         |                        | September 30,  
|                                                                         |                        |                
|                                                                         |                        | 2001            |         | 2000 
|                                                                         |                        |                 |         |      
|                                                                         |                        |                
|                                                                         |                        | ( in millions)
|New Orders                                                               |                        |                 | 92,528  |       |    |  | 83,426  |      
|Sales                                                                    |                        |                 | 87,000  |       |    |  | 77,484  |      
|Gross profit on sales                                                    |                        |                 | 23,105  |       |    |  | 21,535  |      
|                                                                         | as percentage of sales |                 |         | 26.6  | %  |  |         | 27.8  | % 
|Research and development expenses                                        |                        |                 | (6,782  | )     |    |  | (5,848  | )    
|                                                                         | as percentage of sales |                 |         | (7.8  | )% |  |         | (7.5  | )%
|Marketing, selling and general administrative
    expenses               |                        |                 | (16,640 | )     |    |  | (14,173 | )    
|                                                                         | as percentage of sales |                 |         | (19.1 | )% |  |         | (18.3 | )%
|Other operating income (expense), net                                    |                        |                 | (1,476  | )     |    |  | (277    | )    
|Income from investments in other companies, net                          |                        |                 | 49      |       |    |  | 299     |      
|Income from financial assets and marketable
    securities, net          |                        |                 | 173     |       |    |  | 2,732   |      
|Interest income (expense) of Operations, net                             |                        |                 | (32     | )     |    |  | (35     | )    
|Other interest (expense) income, net                                     |                        |                 | 43      |       |    |  | 180     |      
|Gains on sales and dispositions of significant
    business interests(1) |                        |                 | 4,238   |       |    |  | 7,826   |      
|                                                                         |                        |                 |         |       |    |  |         |      
|Income before income taxes                                               |                        |                 | 2,678   |       |    |  | 12,239  |      
|Income taxes                                                             |                        |                 | (781    | )     |    |  | (3,017  | )    
|Minority interest                                                        |                        |                 | 191     |       |    |  | (362    | )    
|                                                                         |                        |                 |         |       |    |  |         |      
|Net income                                                               |                        |                 | 2,088   |       |    |  | 8,860   |      
|                                                                         |                        |                 |         |       |    |  |         |      



---



|    |                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In fiscal 2001 and fiscal 2000, gains on sales
    and dispositions of significant business interests were
    presented as a separate line item within Siemens worldwide. In
    the fiscal 2002 consolidated financial statements, these gains
    are presented under other operating income (expense), net.

New orders in fiscal 2001 rose to
92.528 billion,
11% or
9.102 billion
higher than in fiscal 2000. Orders in Germany increased 5% to
18.921 billion
from
18.043 billion
in fiscal 2000. International orders rose faster,

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from
65.383 billion
a year ago to
73.607 billion
in fiscal 2001, an increase of 13%. Sales for the fiscal year
climbed 12% to
87.000 billion.
Sales in Germany increased by 1% to
19.144 billion,
while international sales rose 16% to
67.856 billion.
International business now accounts for almost 80% of
Siemens total volume. Orders in the U.S. for the year
climbed 28% to
24.751 billion
and sales rose 24% to
21.103 billion.
In Asia-Pacific, orders decreased 4% to
10.933 billion
and sales increased 11% to
11.081 billion.
China continued to account for the largest share of sales in the
region, contributing
3.916 billion.
In Europe outside Germany, orders rose 7% and sales increased
9%. For more detailed information on geographic sales for our
business groups see Item 4: Information on the
Company.


Gross profit decreased by 1.2 percentage
points to 26.6% in fiscal 2001. Higher gross margins at PG, TS
and Med were more than offset by restructuring charges and asset
write-downs including severance charges and inventory
write-downs as well as by contract loss accruals primarily at
ICN, ICM, SBS and SD, and margin erosion at ICN and ICM. Gross
profit in fiscal 2001 also includes the effect from the
write-down of
258 million
of inventories and other assets in connection with a long-term,
production and outsourcing contract for a border control system
in Argentina which is under the direct oversight of the Managing
Board. In addition, gross profit for Siemens worldwide was
negatively affected by the significant decrease in gross profit
at Infineon.

Research and development expense was
6.782 billion
in fiscal 2001 compared to
5.848 billion
in the prior year period. R&D spending represented 7.8% of
sales, compared to 7.5% last year. Included in R&D expenses
are IPR&D charges of
126 million
related to Operations and
69 million
from Infineon-related transactions in fiscal 2001. IPR&D in
Operations in the prior fiscal year was
139 million,
and an additional
26 million
related to Infineon.

Marketing, selling and general administrative
expenses were
16.640 billion
compared to
14.173 billion
in fiscal 2000. This figure represents 19.1% of sales, compared
to 18.3% of sales last year. The majority of the increase was
contributed in Operations by ICN and ICM, reflecting higher
provisions on trade and financing receivables, including those
related to Winstar Communications, as well as increased
advertising costs at ICM.

Other operating income (expense), net was a
negative
1.476 billion
compared to a negative
277 million
in fiscal 2000. The increase in fiscal 2001 is primarily due to
927 million
in impairment charges related to ICN and A&D. See the
discussion under Segment Information
AnalysisCorporate, Eliminations (Operations) and
Reconciliation to Financial StatementsReconciliation to
Financial Statements. Goodwill amortization of Operations
in fiscal 2001 includes additional amortization relating to
Acuson, acquired in November 2000, and Atecs and Efficient,
acquired in April 2001.

Income from investments in other companies, net
was
49 million,
compared to
299 million
last year, due primarily to a
209 million
loss on the sale of centrally managed investments in Operations
in fiscal 2001. In contrast, fiscal 2000 includes
161 million
in gains on the sale of venture capital related investments at
ICN. Infineons other operating income increased to
200 million
in fiscal 2001 from
2 million
in fiscal 2000, reflecting a gain on the disposition of
Infineons image and video and infrared components
businesses.

Income from financial assets and marketable
securities, net in fiscal 2001 was
173 million
compared to
2.732 billion
last year. The prior year included exceptional gains from
certain marketable securities. See the discussion under
Segment Information AnalysisCorporate,
Eliminations (Operations) and Reconciliation to Financial
StatementsCorporate Eliminations (Operations). In
fiscal 2001,
426 million
in gains on sales of available-for-sale securities were offset
by
217 million
of write-downs of marketable securities. Income from financial
assets and marketable securities in fiscal 2000 of Operations
includes
692 million
in income on marketable securities classified as trading and
174 million
of gains on sales of available for sale securities.

Other interest (expense) income, net was a
positive
43 million
compared to
180 million
in fiscal 2000, which included higher interest income from
Corporate Treasury. The current year included higher interest
expense on debt relating to our acquisition of Atecs.

Gains on sales and dispositions of significant
business interests for the fiscal year were
4.238 billion.
Included in this amount was a
3.459 billion
pre-tax gain as a result of the irrevocable transfer of
93,825,225 shares of Infineon to the Siemens German Pension
Trust. We also recorded a
484 million
gain resulting from Infineons sale of 60 million of
its shares in a capital increase in the fourth quarter. In
addition,

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Infineon increased its capital in connection with
acquisitions which resulted in a gain of
122 million.
Siemens did not participate in these capital increases. Taken
together these transactions had the effect of reducing
Siemens ownership interest in Infineon from approximately
71% as of the end of last fiscal year to 50.4% as of
September 30, 2001.


As described in Liquidity and Capital
Resources below, with the worldwide decline in equity
markets, Siemens worldwide pension plans experienced a
significant change in their funding status in fiscal 2001.
Primarily as a result of the decline in funding status, net
periodic pension cost in fiscal 2002 increased.

The effective tax rate on income for fiscal 2001
was 29%, which was positively impacted by the tax-free sale of a
part of our interest in Infineon. In fiscal 2001, lower tax
rates mandated by the tax reform passed in Germany in October
2000 resulted in a one-time reduction of
222 million
in income tax expense after adjustment of Siemens deferred
tax balances at October 1, 2000.

LIQUIDITY AND CAPITAL
RESOURCES

CASH FLOWFISCAL 2002 COMPARED TO FISCAL
2001

The following discussion adheres to our component
model of reporting and includes an analysis of cash flow and
related balance sheet effects in our Operations and Financing
and Real Estate components.

Net cash provided by the operating activities of
the Operations component for the fiscal year 2002 totaled
4.277 billion
compared to
5.885 billion
in fiscal 2001. Cash flow from operating activities for fiscal
2002 included
1.782 billion
in supplemental cash contributions to Siemens pension
trusts. Before the contribution, cash provided from operating
activities of Operations in fiscal 2002 was
6.059 billion.
Changes in net working capital (current assets less current
liabilities) provided
1.019 billion
in the current fiscal year compared to cash provided of
3.523 billion
in fiscal 2001. The current year period reflects positive cash
flows from the reduction of inventories, particularly at ICN,
ICM and PG, while the prior year experienced an increase in
inventories. Accounts receivable were reduced at ICN, ICM,
A&D, TS and Med and accounts payable decreased, following a
significant increase in fiscal 2001. Cash flow from customer
prepayments at PG and TS within other liabilities declined
significantly compared to an increase in the prior year and are
expected to decrease further in fiscal 2003. Severance programs
initiated in fiscal 2001 and expanded in fiscal 2002 will
negatively impact cash flow from operating activities over
approximately the next two years.

Net cash used in investing activities within
Operations was
250 million,
compared to net cash used of
4.519 billion
in fiscal 2001. Capital expenditures excluding acquisitions were
3.412 billion,
1.051 billion
lower than in previous fiscal year. Cash used for acquisitions
was
3.787 billion
compared to
3.898 billion
in the prior year. The current fiscal year included a
3.657 billion
payment to complete the Atecs-Mannesmann transaction initiated
in fiscal 2001. Cash used in acquisitions in the prior year
included a
1 billion
initial deposit for Atecs and
2.38 billion
for the acquisitions of Acuson and Efficient. Proceeds from the
sales and dispositions of businesses in fiscal 2002 totaled
6.097 billion,
including sales of Rexroth, Sachs, the portfolio of businesses
sold to KKR, Unisphere, Hydraulik-Ring and
1.522 billion
related to Infineon. Proceeds from sales of long-term
investments, intangibles and property plant and equipment
totaled
801 million
compared to
3.454 billion
in the prior year, a period which included
2.555 billion
in proceeds from the sale of a domestic equity and debt security
fund.

Net cash provided by operating activities within
the Financing and Real Estate component for the fiscal year 2002
was
558 million
compared to
654 million
in fiscal 2001. Higher net income was offset by a net increase
in working capital.

Net cash used by investing activities in
Financing and Real Estate was
100 million
compared to net cash used of
870 million
a year earlier. This development was driven by decreases of
finance receivables, primarily related to leasing, compared to a
significant increase in the prior year. Fiscal 2001 included
higher proceeds, net of collections, from the sale of accounts
receivable by SFS, including asset securitization using SieFunds
amounting to
866 million.
During fiscal 2002, collections on previously sold accounts
receivable outpaced new sales by
607 million.

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Net cash provided by operating activities of
Siemens worldwide totaled
5.564 billion
in fiscal 2002 compared to
7.016 billion
for fiscal 2001. Cash provided by operating activities for
fiscal 2002 included
1.782 billion
in supplemental cash contributions to Siemens pension
trusts. Changes in net working capital provided
1.323 billion
of cash in fiscal 2002 compared to
4.328 billion
in fiscal 2001. This decrease was due primarily to the effect of
receivable sales and lower liabilities in fiscal 2002.

Net cash used in investing activities of Siemens
worldwide was
810 million
in fiscal 2002 compared to net cash used of
5.886 billion
last year. Capital expenditures including the purchase of
investments and excluding acquisitions were
4.226 billion,
down
3.532 billion
compared to
7.758 billion
a year earlier, a period which included
2.578 billion
in capital expenditures at Infineon.

Net cash provided by operating and investing
activities of Siemens worldwide was
4.754 billion
compared to net cash provided of
1.130 billion
a year earlier.

Net cash used by financing activities for Siemens
worldwide was
859 million
compared to net cash used of
95 million
in fiscal 2001. The current period included the payment of
dividends of
888 million
and
847 million
for repayment of debt. The prior year period included the
proceeds received through the issuance of two bonds with a total
volume of
4 billion
shown in Corporate Treasury, partially offset by dividends of
1.412 billion,
which included a bonus dividend and repayments of debt amounting
to
976 million.

For Siemens worldwide, total net cash provided by
operating activities of
5.564 billion,
less net cash used in investing and financing activities of
1.669 billion
as well as the deconsolidation of Infineon and currency
translation effects, resulted in
3.394 billion
increase in cash and cash equivalents, to
11.196 billion.

CASH FLOWFISCAL 2001 COMPARED TO FISCAL
2000

The following discussion adheres to our component
model of reporting and includes an analysis of cash flow and
related balance sheet effects in our Operations and Financing
and Real Estate components.

Net cash provided by the operating activities of
the Operations component for fiscal 2001 totaled
5.885 billion
compared to
4.555 billion
for fiscal 2000. Significant improvements in asset management,
particularly management of receivables and other working capital
elements especially in the fourth quarter, increased cash flow
despite the decrease in net income, particularly at ICN, ICM and
SBS. Some of this decrease is related to restructuring
activities initiated at these groups during fiscal 2001 that
will continue to negatively impact cash flow from operating
activities over approximately the next two years. Net income in
both years includes gains on sales and dispositions of
significant business interests, described above. These gains,
along with the proceeds of the sales, are eliminated from net
cash provided by operating activities and included in net cash
provided by investing activities. The increase in depreciation
and amortization reflects primarily the goodwill impairments
described above. The prior year includes adjustments for
non-cash gains on trading securities. The increase in
inventories was significantly lower than in the prior year,
while accounts receivable decreased more than in fiscal 2000 and
accounts payable increased. In addition, other current
liabilities increased significantly as a result of higher
billings in excess of costs and related advances, particularly
at PG and TS.

Net cash used in investing activities within
Operations was
4.519 billion,
compared to net cash provided of
1.670 billion
in fiscal 2000. The prior year included proceeds from sales and
dispositions of significant business interests totaling
9.562 billion.
Cash used in acquisitions in the current year includes a
repayment of approximately
1 billion
to Robert Bosch GmbH as a result of the revised acquisition
structure for Atecs,
1.6 billion
for the acquisition of Efficient Networks, and
780 million
for the acquisition of Acuson. Investments in property, plant
and equipment also increased. The prior year includes
2.449 billion
used in the purchase of investments, primarily the initial
payment for the acquisition of Atecs. The prior year includes
cash used in acquisitions for the purchase of SMS. Cash was
provided in the current year from the sale of marketable
securities as well as the sale of an investment in a domestic
equity and debt security fund, the latter of which generated
proceeds of approximately
2.6 billion.

Net cash provided by the operating activities of
Infineon was
211 million,
compared to
2.080 billion
in the prior year, primarily due to the net loss of
591 million
in fiscal 2001 compared to net income of
1.126 billion
in the prior year. Net cash used in investing activities of
Infineon was
1.813 billion,
compared to
2.327 billion
in

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fiscal 2000 reflecting an increase in investments
in property, plant and equipment relating primarily to the
extension of the Dresden, Villach and Richmond facilities offset
by sales of investments and marketable securities in the current
year. Net cash provided by financing activities totaled
1.846 billion,
compared to
719 million
in fiscal 2000, primarily due to the proceeds from
Infineons follow-on offering in July 2001.


Net cash provided by the operating activities of
our Financing and Real Estate component was
654 million
compared to
1.155 billion
in fiscal 2000. This reflects a net increase in working capital,
primarily due to an increase in other current assets.

Net cash used in investing activities in
Financing and Real Estate was
870 million
compared to
2.367 billion
in the prior year, reflecting reduced incremental sales of
receivables to SFS by Operations. Net proceeds from the sale of
trade receivables of
866 million
includes the sale of approximately
750 million
in accounts receivable via the issuance of asset-backed
commercial paper in a market standard transaction to third party
financial market participants under our SieFunds program
(discussed below under Asset Securitization and
Sales of Receivables). This transaction further enhances
SFSs ability to manage its overall funding position. These
sales of receivables were largely offset by an increase of
619 million
in third party financing receivables at SFS. For Siemens
worldwide, proceeds from the sale of trade receivables are
reclassified from investing activities to operating activities.
Proceeds generated from the sale of accounts receivable to SFS
by our Operating groups are eliminated for Siemens worldwide
under (increase) decrease in accounts receivable.

Net cash provided by operating activities of
Siemens worldwide totaled
7.016 billion
compared to
6.154 billion
for fiscal 2000. Net working capital (defined as the change in
current assets and liabilities) provided
4.490 billion
in fiscal 2001 compared to
1.868 billion
in fiscal 2000. This increase was driven primarily by a
reduction in accounts receivable and the sale of trade
receivables.

Net cash used in investing activities of Siemens
worldwide reflects
1.475 billion
in proceeds from the issuance of Infineon shares in July 2001.
This issuance additionally resulted in a decrease in
Siemens ownership percentage in Infineon.

Net cash used in financing activities for Siemens
worldwide was
95 million
compared to net cash used of
1.174 billion
in fiscal 2000. The decrease in cash used was driven by the
June, 2001 issuance of two bonds with a total volume of
4.0 billion
shown in Corporate Treasury primarily associated with
refinancing in the Financing and Real Estate businesses. This
was partially offset by repayment of short-term debt of
976 million
and the payment of dividends of
1.412 billion,
which included an amount of
823 million
in regular dividends and an amount of
589 million
as a bonus dividend. For more information on the bond issuance
see the discussion in Capital Resources and Capital
Requirements below.

For Siemens worldwide, total net cash provided by
operating activities of
7.016 billion,
less net cash used in investing and financing activities of
5.981 billion,
plus currency translation effects, resulted in a
940 million
increase in cash and cash equivalents, to
7.802 billion.

CAPITAL RESOURCES AND CAPITAL
REQUIREMENTS

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

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

|                |  |                   |     |            |  |  |      | 
|--------------- |  | ----------------- | --- | ---------- |  |  | ---- | 
|                |  | Moodys Investors |     | Standard &
|                |  | 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. 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
corporate credit ranks in the lower end of the Aa category.

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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-. 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 corporate credit
ranks in the lower end of the AA category. Our short-term
corporate credit 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 further agreements with nationally
recognized statistical rating organizations to provide a
long-term and short-term rating for our Company.

Recently, the rating agencies have focused more
specifically on an assessment of liquidity risk. Moodys
most recent liquidity risk assessment for Siemens as of
June 20, 2002, 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 at September 30, 2002
included
11.2 billion
in cash and cash equivalents. Corporate Treasury generally
manages cash and cash equivalents for the entire Company, except
in countries where local capital controls require otherwise. At
September 30, 2002, Corporate Treasury managed
approximately 90% of Siemens worldwide cash and cash
equivalents. Corporate Treasury carefully manages placement of
cash and cash equivalents subject to strict credit requirements
and counterparty limits. Another
399 million
is held in available-for-sale marketable securities, including
shares in Epcos AG and a portion of our interest in Juniper
Networks, Inc. In addition, our remaining shares in Infineon had
a market value of approximately
1.6 billion
based on the share price at September 30, 2002. In addition
to these capital resources, SFS has established structures for
raising funds through the sale of accounts receivable, either by
issuing asset-backed securities under our SieFunds program or by
selling portfolios of receivables directly to banks. Siemens
continues to place a high priority on managing cash flows from
operating and investing activities.

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
2.1 billion
of debt including
94 million
of commercial paper is scheduled to become due in fiscal 2003.
Capital spending programs have been reduced in line with more
difficult market conditions. In addition, the deconsolidation of
Infineon at the end of the first quarter of fiscal 2002, which
had accounted for a substantial percentage of overall capital
expenditures of Siemens worldwide, has resulted in considerably
lower capital expenditures compared with previous periods. We
plan capital expenditures for property, plant and equipment for
the coming fiscal year to be slightly above current depreciation
expense of approximately
2.9 billion
for fiscal 2002. Our shareholders equity at
September 30, 2002 was
23.521 billion,
a decrease of
291 million
since September 30, 2001. See also the discussion of
pension plan funding below. We have authorization from our
shareholders to repurchase up to 10% of our outstanding shares
at any time until July 16, 2003. We have no plans to
exercise this authorization except to provide shares to be
offered to employees as stock options.

Principal Sources of Liquidity

Our principal source of liquidity is cash flow
from operating and investing activities, totaling
4.754 billion
in fiscal 2002 after supplemental contributions of
1.782 billion
to Siemens pension funds. Strong cash flows are
complemented by the substantial capital resources noted above.
We further strengthened our financial flexibility through a set
of backstop facilities, commercial paper programs, and a
medium-term note program. The backstop facilities consist of
4.4 billion
in unused committed lines of credit. We recently raised the
limits for our commercial paper programs, under which we
typically issue instruments with a maturity of less than
90 days, to U.S.$3.0 billion in the U.S. domestic
market and
3.0 billion
in the euro market. The amount outstanding under

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all commercial paper programs was
94 million
at September 30, 2002. We recently raised the limits for
our euro market medium-term note program to
5.0 billion.
The amount outstanding under this program was
1.624 billion
at September 30, 2002.


Our unused backstop facilities 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, an aggregate of
1 billion
revolving loan facility expiring February 2004 provided by two
domestic banks, and a
400 million
revolving loan facility expiring in July 2006 provided by a
domestic bank. The U.S. $3.0 billion backstop facility was
established during the third quarter of fiscal 2002 and replaced
a U.S.$2.0 billion facility. Each of the backstop
facilities denominated in euros contains a standard Material
Adverse Change clause of the type typically included in low-risk
backstop facility agreements, whereas the new backstop facility
denominated in U.S. dollars does not contain such a clause.

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.

Financing and Real Estate is also a key component
in managing the financial affairs of the Company. As noted
above, SFS has raised funds either by issuing asset-backed
securities under our SieFunds program, or by selling portfolios
of receivables directly to banks. In fiscal 2002, the Company
limited the amount of outstanding accounts receivable under both
alternatives to about
1.0 billion.
Due to our ample capital resources we do not anticipate further
use of this funding option in the near term. A full discussion
of receivable securitization activities is provided below under
Asset Securitization and Sale of Receivables.

Contractual Obligations and Commercial
Commitments

In the ordinary course of business, Siemens
primary contractual obligations regarding cash involve debt
service as well as operating lease commitments. Other commercial
commitments, including primarily guarantees of credit of third
parties, are contingent upon the occurrence of specific events.
Commercial commitments also include guarantees involving
customer financing arrangements and our SieFunds program.
Following is a detailed discussion of these contractual
obligations and commercial commitments.

The following table summarizes contractual
obligations for future cash outflows as of September 30,
2002:

|                                   |  |                        |        |           |  |           |       |           |  |         |       |  |  |  |       |  |  |  |       | 
|---------------------------------- |  | ---------------------- | ------ | --------- |  | --------- | ----- | --------- |  | ------- | ----- |  |  |  | ----- |  |  |  | ----- | 
|                                   |  |                       
|                                   |  | Payments due by period
|                                   |  |                       
|                                   |  |                        |        | Less than |  |           |       | After    
|Contractual Obligations            |  | Total                  |        | 1 year    |  | 1-3 years |       | 4-5 years |  | 5 years
|                                   |  |                        |        |           |  |           |       |           |  |        
|                                   |  |                       
|                                   |  | ( in millions)       
|Debt                               |  |                        | 12,346 |           |  |           | 2,103 |           |  |         | 3,173 |  |  |  | 3,729 |  |  |  | 3,341 | 
|Operating leases                   |  |                        | 2,496  |           |  |           | 400   |           |  |         | 753   |  |  |  | 517   |  |  |  | 826   | 
|                                   |  |                        |        |           |  |           |       |           |  |         |       |  |  |  |       |  |  |  |       | 
|Total contractual cash obligations |  |                        | 14,842 |           |  |           | 2,503 |           |  |         | 3,926 |  |  |  | 4,246 |  |  |  | 4,167 | 
|                                   |  |                        |        |           |  |           |       |           |  |         |       |  |  |  |       |  |  |  |       | 

DebtAt
September 30, 2002, Siemens worldwide had
12.346 billion
of short- and long-term debt, of which
2.103 billion
will become due within the next 12 months. Included in
short-term debt is
94 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, 2002, the weighted average maturity of our
bonds and notes due after one year was 4.8 years. At
September 30, 2001, total debt was
12.610 billion.
Further information about the components of debt is given in the
Notes to the consolidated financial statements.

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Debt for Siemens worldwide at September 30,
2002 consisted of the following:

|                                 |  |                 |       |           |  |  |        | 
|-------------------------------- |  | --------------- | ----- | --------- |  |  | ------ | 
|                                 |  | Short-Term      |       | Long-Term
|                                 |  |                 |       |          
|                                 |  |                
|                                 |  | ( in millions)
|Notes and bonds                  |  |                 | 330   |           |  |  | 9,307  | 
|Loans from banks                 |  |                 | 1,461 |           |  |  | 152    | 
|Other financial indebtedness     |  |                 | 272   |           |  |  | 535    | 
|Obligations under capital leases |  |                 | 40    |           |  |  | 249    | 
|                                 |  |                 |       |           |  |  |        | 
|Subtotal                         |  |                 | 2,103 |           |  |  | 10,243 | 
|                                 |  |                 |       |           |  |  |        | 
|Total debt                       |  |                 |       |           |  |  | 12,346 | 
|                                 |  |                 |       |           |  |  |        | 

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, 2002,
7.871 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, 2002 the Financing
and Real Estate component additionally held
175 million
and
436 million
in short-term and long-term debt, respectively, from external
sources.

In fiscal 2000, Siemens Nederland N.V., as the
owner of the underlying shares of stock of Infineon Technologies
AG, issued
2.5 billion
of 1% exchangeable notes due in 2005. For fiscal years 2001 and
2002 this debt was recorded under Corporate, eliminations
(Operations). Beginning fiscal 2003 this debt is recorded under
Corporate Treasury.

The capital structure of the Financing and Real
Estate component at September 30, 2002 consisted of the
following:

|                     |                                    |                 |       |               |  |     |       |       |  |  |       |       |  |  |       |       | 
|-------------------- | ---------------------------------- | --------------- | ----- | ------------- |  | --- | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                     |                                    |                 |       |              
|                     |                                    | September 30,   |       | September 30,
|                     |                                    | 2002            |       | 2001         
|                     |                                    |                 |       |              
|                     |                                    | SFS             |       | SRE           |  | SFS |       | SRE  
|                     |                                    |                 |       |               |  |     |       |      
|                     |                                    |                
|                     |                                    | ( in millions)
|Assets               |                                    |                 | 8,681 |               |  |     | 4,090 |       |  |  | 9,501 |       |  |  | 3,791 |      
|Allocated Equity     |                                    |                 | 930   |               |  |     | 920   |       |  |  | 870   |       |  |  | 920   |      
|Total debt           |                                    |                 | 6,730 |               |  |     | 1,751 |       |  |  | 7,419 |       |  |  | 1,347 |      
|                     | Therein intracompany financing     |                 |       | 6,469         |  |     |       | 1,402 |  |  |       | 7,099 |  |  |       | 1,128 | 
|                     | Therein debt from external sources |                 |       | 261           |  |     |       | 349   |  |  |       | 320   |  |  |       | 219   | 
|Debt to equity ratio |                                    |                 | 7.24  |               |  |     | 1.90  |       |  |  | 8.53  |       |  |  | 1.46  |      

Both Moodys and Standard & Poors
view Siemens Financial Services 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.

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Operating
leasesAt September 30,
2002, the Company had a total of
2.496 billion
in total future payment obligations under non-cancellable
operating leases.

The following table summarizes contingent
commercial commitments as of September 30, 2002:

|                             |  |                                            |       |           |  |           |       |           |  |         |     |  |  |  |     |  |  |  |     | 
|---------------------------- |  | ------------------------------------------ | ----- | --------- |  | --------- | ----- | --------- |  | ------- | --- |  |  |  | --- |  |  |  | --- | 
|                             |  |                                           
|                             |  | Amount of commitment expiration per period
|                             |  |                                           
|                             |  | Total amounts                              |       | Less than |  |           |       | After    
|Other commercial commitments |  | committed                                  |       | 1 year    |  | 1-3 years |       | 4-5 years |  | 5 years
|                             |  |                                            |       |           |  |           |       |           |  |        
|                             |  |                                           
|                             |  | ( in millions)                           
|Lines of credit              |  |                                            | 222   |           |  |           | 222   |           |  |         |     |  |  |  |     |  |  |  |     | 
|Guarantees                   |  |                                            | 3,138 |           |  |           | 2,648 |           |  |         | 250 |  |  |  | 19  |  |  |  | 221 | 
|Other commercial commitments |  |                                            | 1,387 |           |  |           | 571   |           |  |         | 350 |  |  |  | 207 |  |  |  | 259 | 
|                             |  |                                            |       |           |  |           |       |           |  |         |     |  |  |  |     |  |  |  |     | 
|Total commercial commitments |  |                                            | 4,747 |           |  |           | 3,441 |           |  |         | 600 |  |  |  | 226 |  |  |  | 480 | 
|                             |  |                                            |       |           |  |           |       |           |  |         |     |  |  |  |     |  |  |  |     | 

Lines of
creditAt September 30,
2002, Siemens provided SieFunds with a liquidity line of
222 million
in support of SFS asset securitization activities.
SieFunds has additional arrangements for liquidity lines from
third parties independent of Siemens.

GuaranteesGuarantees
are principally represented by performance bonds, guarantees of
advances received related to long-term contracts and those
issued in connection with long-term vendor financing
arrangements. See also Customer Financing
below. In our project businesses, we will also selectively
provide credit or performance guarantees related to projects
involving third-party participants. The
3.138 billion
total in the table above includes
455 million
in customer financing guarantees and
137 million
in guarantees related to our SieFunds program. In the event that
it becomes probable that Siemens will be required to satisfy
these guarantees, provisions are established. Most of the
guarantees have fixed or scheduled expiration dates, and in
actual practice such guarantees are rarely drawn. Guarantees
also include an amount of
767 million
at September 30, 2002 related to the sale of our defense
electronics business in 1998, reduced from
1.5 billion
at September 30, 2001.

Other commercial
commitmentsThe Company has
commitments related to customer financing arrangements
represented by approved but unutilized loans and guarantees of
approximately
936 million
at September 30, 2002. See Customer
Financing below. Siemens also has commitments to make
capital contributions of
112 million
through Siemens Project Ventures (SPV) in connection with
investments whose primary goal is the development of
infrastructure projects. At September 30, 2002, Siemens had
a small portfolio of nine infrastructure projects, seven in the
power business and two in the telecommunications business. The
largest of such commitment relates to Jawa Power, a power
generation project in Indonesia. In connection with such
projects, Siemens purchases insurance that covers certain
specific project risks, particularly political risks. At
September 30, 2002, the net equity investment in these
projects totaled approximately
250 million.
Other than capital contributions, Siemens has no other
commercial commitments related to these projects.

We also have commitments to make capital
contributions totaling
251 million
to certain project companies and to venture capital investments.
Other commercial commitments also include
51 million
in discounted bills of exchange and
37 million
in collaterals and other commitments.

ProvisionsIn
the ordinary course of business Siemens establishes various
types of provisions. As of September 30, 2002, provisions
for contract losses totaled approximately
1.0 billion.
Accrued contract losses relate primarily to the groups PG
(290 million),
TS
(130 million),
ICN
(116 million),
SBS
(80 million),
ICM
(73 million)
and SD
(71 million).
For all accrued contract losses, we anticipate that the cash
outflows for labor, materials, contract penalties and related
costs on such contract losses will occur predominately over the
next two fiscal years. For a description of our significant
contract losses, see Item 4: Information on the
CompanyLong-Term Contracts and Contract Losses.

Asset Securitization and Sale of
Receivables

Although not a principal source of liquidity for
Siemens, asset securitization, together with limited direct
sales of receivables to banks, are a supplemental enhancement to
our financing strategy and demonstrate an

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aspect of our flexible funding approach. The
Company limited the amount of outstanding accounts receivable
under both alternatives to about
1.0 billion.
Due to our ample capital resources we do not anticipate further
use of this funding option in the near term.


Asset securitization involves the repackaging of
accounts receivable into securities that are sold in the
commercial paper market. This involves the separation of the
credit risk of the accounts receivable from the credit risk of
the originator (i.e., Siemens) through the sale of the accounts
receivable to a non-consolidated special purpose entity. To fund
the purchase price payable to the originator, the special
purpose entity issues commercial paper. The commercial paper is
secured by and repaid with the future cash flows generated by
the accounts receivable. To increase investor confidence in the
securitization, the originator (seller) of the accounts
receivable generally retains a subordinated interest in the
receivables equivalent to estimates of potential loss exposure.
Such subordinated interests also enhance the credit rating of
the commercial paper issued. For accounts receivable originated
by Siemens, this interest amounts to approximately
50 million
at September 30, 2002, compared to
65 million
at September 30, 2001. Retained interests are collected by
Siemens after the underlying receivables are settled.

Additionally, Siemens provides a
transaction-specific letter of credit to SieFunds for possible
losses exceeding the amount of the retained interests in
receivables originated by Siemens and third parties.
Furthermore, Siemens also provides a program-wide letter of
credit which covers additional contingent liabilities. At
September 30, 2002, these letters of credit amounted to
137 million
compared to
243 million
at September 30, 2001. We believe the likelihood is remote
that these letters of credit would be accessed. Both letters of
credit are included in the total amount of guarantees appearing
in the table above.

Finally, Siemens provides liquidity lines to
SieFunds. In the unlikely event that SieFunds could not obtain
refinancing in the commercial paper market, Siemens has agreed
to lend SieFunds an amount covering this liquidity risk
exceeding the amount of the transaction-specific letter of
credit noted above and liquidity support provided by third
parties. These liquidity lines amounted to
222 million
at September 30, 2002 compared to
849 million
at September 30, 2001. We believe, however, based on
historical experience that the likelihood that SieFunds would
draw down these liquidity lines is remote.

The SieFunds structure includes two types of
special purpose entities. The first entity purchases the
accounts receivable and meets the accounting criteria for a
qualifying special purpose entity (QSPE). A qualifying
entitys activities must be restricted to passive
investment in financial assets and issuance of beneficial
interests in those assets. The second SieFunds entity is a
multi-seller commercial paper conduit which purchases beneficial
interests in the accounts receivable of the QSPE and finances
these purchases by issuing commercial paper. This second entity
is not a QSPE. SFS is the administrator of both the commercial
paper conduit and the QSPE. Under current U.S. GAAP,
neither of these special purpose entities are consolidated in
Siemens consolidated financial statements. Proposals
currently under consideration by the Financial Accounting
Standards Board (FASB) would change the criteria for
consolidation of such entities by their administrator and/or the
seller of the receivables. As Siemens currently assumes both of
these roles for SieFunds, such changes if adopted by the FASB,
would require Siemens to consolidate SieFunds in its current
structure in the future.

At September 30, 2002, SieFunds held
accounts receivable originated by Siemens of
249 million
compared to
815 million
at September 30, 2001. The commercial paper issued by
SieFunds have always received the highest available ratings from
Standard & Poors and Moodys of A-1+ and P-1,
respectively.

Pension Plan Funding

Pension benefits provided by Siemens are
currently organized primarily through defined benefit pension
plans which cover virtually all of our domestic employees and
many of our foreign employees. In order to fund Siemens
obligations under the defined benefit plans, our major pension
plans are funded with assets in segregated pension trusts. These
assets are managed by specialized asset managers. In general,
the asset allocation is based on pension asset and liability
studies and is reviewed on a regular basis. Siemens has
established consistent reporting standards for the respective
pension plans.

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Funding
statusAt September 30,
2002, the overall funding status shows an under-funding of
5.0 billion,
as the projected benefit obligation (PBO) of
19.5 billion
exceeded the fair value of plan assets which totals
14.5 billion.
The further increase in underfunding compared to
September 30, 2001, is due primarily to a negative actual
return on plan assets of
1.2 billion,
including a negative actual return on plan assets related to the
Siemens German Pension Trust of
0.7 billion,
as a result mainly of the negative performance of international
equities markets in the second half of fiscal 2002 which more
than offset the positive development earlier in fiscal 2002. To
reduce the funding gap, the Company made voluntary contributions
in cash of
1.8 billion
to the pension trusts in Germany, the U.S. and the U.K. in
September 2002. In October 2002, Siemens made additional
supplemental contributions of
0.8 billion,
thereof
0.4 billion
in cash and
0.4 billion
in real estate, resulting in an overall supplemental funding of
2.6 billion.

Further
fundingFunding decisions for the
groups pensions plans are made based upon due
consideration of developments affecting plan assets and pension
liabilities as well as minimum funding requirements and local
tax deductibility.

Taking into account an existing prepaid pension
asset, the underfunding led to the recognition of an additional
minimum liability adjustment as of September 30, 2002 of
8.973 billion.
Of this amount,
8.863 billion
(5.412 billion
net of tax) was recorded in accumulated other comprehensive
income as a separate component of shareholders equity and
110 million
was recorded as an intangible asset.

Asset
allocationAs of
September 30, 2002, 46% of the worldwide plan assets were
invested in fixed income securities compared to 31% as of
September 30, 2001, and 33% in equities compared to 61% as
of September 30, 2001. Only 3% of the worldwide plan assets
(5% of domestic plan assets) were invested in approximately
87 million shares of Infineon Technologies AG. As of
September 30, 2002 and 2001, 13% and 2%, respectively, of
the worldwide pension plan assets were held in cash and 8% and
6%, respectively, in real estate assets.

In addition to the reduced valuation levels of
equities, the reduced level of worldwide plan assets invested in
equities was mainly driven by the Siemens German Pension Trust,
which changed its asset allocation during fiscal 2002 in light
of the adverse developments in the international equity markets.
The percentage of domestic plan assets invested in equities was
reduced from 58% at the beginning of fiscal 2002 to 20% at the
end of fiscal 2002, whereas the percentage of domestic plan
assets invested in fixed income securities was increased from
36% at the beginning of fiscal 2002 to 58% at the end of
fiscal 2002.

Net periodic pension
costIn fiscal 2002, total net
periodic pension cost including service cost was
447 million
(including
183 million
for the domestic pension plans) compared to total net periodic
pension income of
51 million
(including
259 million
net periodic pension income for the domestic pension plans) in
the prior fiscal year. The increase in net periodic pension cost
is mainly attributable to the domestic pension plans. As of
September 30, 2001, unrecognized losses of the domestic
pension plans exceeded the 10% corridor limitation. These losses
are amortized into expense over 15 years, resulting in
212 million
in expense for fiscal 2002. Additionally, we adjusted the
expected return on plan assets for the Siemens German Pension
Trust from 9.5% in fiscal 2001 to 8.25% in fiscal 2002 in order
to reflect an expected decline in future long-term investment
performance as well as to allow for the reduced investment in
equities. In combination with a decreased asset base, this had a
negative effect on net periodic pension expenses of
184 million.

Based on the determined actuarial assumptions,
net periodic pension expense in fiscal 2003 will increase by
approximately
550 million.
The negative development of pension costs is due primarily to a
further decline in the expected rate of return on plan assets
for the most significant pension benefit plans as a result of
adjustments in the overall asset allocation in combination with
lower market expectations. The weighted-average expected rate of
return decreases from 8.0% in fiscal 2002 to 6.8% in fiscal 2003
(for the Siemens German Pension Trust, the decrease was from
8.25% to 6.75%).

For further information regarding pension and
postretirement benefits, see Notes to the consolidated financial
statements.

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CUSTOMER FINANCING

The following table presents customer
financing commitments requiring approval of Siemens
Corporate Executive Committee of the Managing Board at
September 30, 2002 and September 30, 2001:

|                              |              |                            |     |               |  |               |     |               |  |               |     |               |  |  |     |     |  |  |     |     |  |  |     |     | 
|----------------------------- | ------------ | -------------------------- | --- | ------------- |  | ------------- | --- | ------------- |  | ------------- | --- | ------------- |  |  | --- | --- |  |  | --- | --- |  |  | --- | --- | 
|                              |              |                            |     |              
|                              |              | Total loans and guarantees |     | Thereof      
|                              |              |                            |     |              
|                              |              |                            |     |               |  |              
|                              |              |                            |     | Loans         |  | Guarantees   
|                              |              |                            |     |               |  |              
|                              |              | September 30,              |     | September 30, |  | September 30, |     | September 30, |  | September 30, |     | September 30,
|                              |              | 2002                       |     | 2001          |  | 2002          |     | 2001          |  | 2002          |     | 2001         
|                              |              |                            |     |               |  |               |     |               |  |               |     |              
|                              |              |                           
|                              |              | (in  billions)           
|Approved commitments          |              |                            | 2.5 |               |  |               | 2.5 |               |  |               | 1.9 |               |  |  | 1.6 |     |  |  | 0.6 |     |  |  | 0.9 |    
|                              | Utilized     |                            |     | 1.6           |  |               |     | 1.7           |  |               |     | 1.1           |  |  |     | 1.0 |  |  |     | 0.5 |  |  |     | 0.7 | 
|                              | Not utilized |                            |     | 0.9           |  |               |     | 0.8           |  |               |     | 0.8           |  |  |     | 0.6 |  |  |     | 0.1 |  |  |     | 0.2 | 
|Commitments under negotiation |              |                            |    |               |  |               | 0.8 |               |  |               |    |               |  |  | 0.8 |     |  |  |    |     |  |  |    |    
|                              |              |                            |     |               |  |               |     |               |  |               |     |               |  |  |     |     |  |  |     |     |  |  |     |    
|Total                         |              |                            | 2.5 |               |  |               | 3.3 |               |  |               | 1.9 |               |  |  | 2.4 |     |  |  | 0.6 |     |  |  | 0.9 |    
|                              |              |                            |     |               |  |               |     |               |  |               |     |               |  |  |     |     |  |  |     |     |  |  |     |    

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. We evaluate such financing requirements 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 significantly lower levels of
capital spending at most major telecommunications operators,
however, requests for such financing have decreased.

According to our credit approval process, the
Corporate Executive Committee of the Managing Board must approve
all customer financing projects of the Operations groups that
exceed
25 million
for customers with an investment-grade financing risk and
12.5 million
for customers with a non-investment financing risk. In reviewing
requests for such financings, which generally carry a
substantially higher risk element than is incurred in the
ordinary course of our business, we take into account various
business aspects as well as financial risk factors. The
financial risk factors are analyzed under a comprehensive
standard risk assessment model comparable to those used by
international banks. Such models are primarily driven by the
rating of the customer. Absent a rating, we internally assess
the credit-worthiness of the customer and the feasibility of the
particular project, provided the cash flow of the project will
be the primary source for the debt service. SFS conducts this
risk assessment independent of the Operations groups, in support
of the decision-making role of the Corporate Executive
Committee. The Operations groups retain overall business
responsibility for such financing arrangements, which impact Net
capital employed.

At September 30, 2002, approved and
contractually committed financing totaled approximately
2.5 billion
relating primarily to projects at ICN and ICM. This amount was
unchanged from September 30, 2001. For comparison, current
net accounts receivable were
15.2 billion
and
17.7 billion
and net current and non-current loans and other accounts
receivable were
5.2 billion
and
6.0 billion
at September 30, 2002 and September 30, 2001,
respectively. Of the total
2.5 billion
approved and contractually committed financing,
1.6 billion
has been utilized either by providing supplier credits
(approximately
1.1 billion)
or in the form of guarantees extended by Siemens to banks in
support of their loans to Siemens customers (approximately
455 million).
The largest exposures before taking provisions into account are
financings to Telecom Asia Corp. Public Company Ltd., Thailand
(270 million),
which was rescheduled in 1999, and Is Tim GSM, Turkey
(133 million).
Exposure related to a financing to Orascom, Telecel group in
various African countries
(130 million)
is partly covered by the export credit agency of the government
of Belgium.

Also included in the
2.5 billion
total is approximately
936 million
which has been approved for customer financing but has not yet
been utilized. The amount at September 30, 2001 was
approximately
800 million.
Included in the current period total are commitments to provide
financing for three UMTS wireless network

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projects including a new financing for H3G S.p.A.
in Italy
(295 million),
and two projects shared with NEC Corp. of Japan including
Retevisión Móviles S.A. (Amena) in Spain
(152 million)
and Hutchison 3G Limited in Great Britain (approximately
121 million).
Also included is a commitment related to Cell C in South Africa
(101 million)
and BTS Tanayong in Thailand
(135 million).


As of September 30, 2002, we were not in
negotiation on any customer financing commitments requiring
approval of the Executive Committee of the Managing Board. We
had
818 million
in such financing commitments under negotiation at
September 30, 2001.

Revenue and income for projects financed directly
or indirectly by Siemens are recognized if the credit quality as
evidenced by the customers rating or by the credit
analysis performed by SFS (in support of the Executive
Committee) meets certain parameters. Such parameters are
equivalent to a minimum of single B rating category as awarded
by rating agencies or based upon the ability to sell the
financing without recourse to Siemens in the financial markets.
Provisions are also established on an individual basis taking
into account the credit-worthiness of the customer and the
characteristics of the project being financed. Additionally,
provisions are established considering the specific credit risks
of certain countries. The provision levels are regularly
reviewed. As a result of such review activity, we believe we
have established appropriate provisions for the above financings.

CRITICAL ACCOUNTING POLICIES

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 result of our
operations. The following of our accounting policies are
significantly impacted by such management judgment and estimates.

Revenue Recognition on Long-Term
Contracts

Our ICN, ICM, SBS, I&S, SD, PG, PTD and
TS groups conduct a significant portion of their business under
long-term contracts with customers. We generally account for
long-term construction projects and certain long-term service
contracts 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.

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 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, 2002 and September 30, 2001, Siemens
recorded a total valuation allowance for accounts receivable of
1.585 billion
and
1.785 billion,
respectively. Additionally, Siemens 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 have significantly decreased. The related credit
approval process is described in detail above under
Customer Financing.


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 book value 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 book value, a
second step is performed which compares the fair value of the
divisions goodwill to the book value 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 book
value, the difference is recorded as an impairment. In fiscal
2002, we took an impairment of
378 million
at the Access Solutions division of ICN related to Efficient,
and had total goodwill at September 30, 2002 of
6.459 billion.
For more information, see Notes to the 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 Siemens German Pension Trust 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, the
additional minimum liability is recorded net of deferred tax
assets in other comprehensive income. Our postretirement benefit
costs and credits are developed 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 2003 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
160
(200) million. A
one percentage point change in the assumption for expected
return on plan assets would result in a decrease (increase) of
172 million.
A one percentage point increase (decrease) in the rates of
compensation increase and pension progression would result in a
combined increase (decrease) of
320
(280) million.
If more than one of these assumptions were changed, the impact
would not necessarily be the same as if only one assumption were
changed in isolation. For a discussion of our current funding
status and the impact of these critical assumptions, see Notes
to the 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

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also requires significant judgment relating to
achieving certain performance standards, particularly in our
Power business, and estimates involving warranty costs.


RECENT ACCOUNTING
PRONOUNCEMENTS

In June 2001, the FASB issued SFAS 143,
Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. The standard applies to
legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction,
development or normal use of the asset. SFAS 143 requires that
the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a
reasonable estimate of fair value can be made. The fair value of
the liability is added to the carrying amount of the associated
asset and this additional carrying amount is depreciated over
the life of the asset. The liability is accreted at the end of
each period through charges to operating expense. If the
obligation is settled for other than the carrying amount of the
liability, the Company will recognize a gain or loss on
settlement. SFAS 143 is required to be adopted for the fiscal
year beginning October 1, 2002. The adoption of SFAS 143
will have no material impact on the Companys financial
statements.

In October 2001, the FASB issued SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, which supersedes SFAS 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and the accounting and reporting provisions
of Accounting Principles Board Opinion 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. The new rules require 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. Therefore, discontinued operations are no longer
measured at net realizable value, as a result, expected future
operating losses are no longer recognized before they are
actually incurred. The Company is required to adopt SFAS 144
prospectively for the fiscal year beginning October 1,
2002. The adoption of SFAS 144 may lead to more disposals
being presented as discontinued operations, but is not otherwise
expected to 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 supersedes Emerging Issues Task Force
(EITF) Issue 94-3, Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring). SFAS 146
requires that a liability for costs associated with exit or
disposal activities first be recognized when the liability is
irrevocably incurred rather than at the date of
managements commitment to an exit or disposal plan.
Examples of costs covered by the standard include certain
employee severance costs, contract termination costs and costs
to consolidate or close facilities or relocate employees. In
addition, SFAS 146 stipulates that the liability be measured at
fair value and adjusted for changes in estimated cash flows. The
provisions of the new standard are effective prospectively for
exit or disposal activities initiated after December 31,
2002, with earlier application encouraged. The Company does not
anticipate that the adoption of SFAS 146 will materially affect
its financial statements.

In November 2002, the FASB issued Interpretation
No. 45 (FIN 45), Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. FIN 45 requires a
guarantor to recognize a liability measured at fair value at the
inception of a guarantee for obligations undertaken, including
its ongoing obligation to stand ready to perform over the term
of the guarantee. The initial recognition and measurement
provisions are applicable prospectively to guarantees issued or
modified after December 31, 2002. As of the date of filing
this Form 20-F, the Company is not in a position to
determine the impact that FIN 45 will have on its future
financial statements. FIN 45 also clarifies and expands the
disclosure

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requirements related to guarantees and product
warranties. The disclosure requirements of FIN 45 are
applicable for all interim and annual financial statements
ending after December 15, 2002.


OUTLOOK

We expect that the next fiscal year will be one
of challenges. The economic climate will continue to be affected
particularly by political uncertainties related to the Middle
East, South America and other regions. These uncertainties will
also have corresponding effects on the international capital
markets. Therefore, we expect that this will lead to persistent
weak investment sentiment in our important industries and
regional markets, especially telecommunications and power.

As we do not expect significant improvement in
overall economic conditions, and having made major disposals of
businesses in the last fiscal year, we anticipate declining
business volume for Siemens in the coming year. The groups
should continue to improve their margins toward the goals of
Operation 2003. On the other hand, net income will be affected
by the relative absence of portfolio gains and considerably
higher pension-related expense.

We will continue to work towards reaching the
2003 earnings targets set for our fourteen business groups even
though these targets were established in December 2000 when the
economic outlook was decidedly more positive. We expect that all
of the groups will approach, meet or exceed their respective
earnings targets. SD, whose Electronics Assembly Systems
division is affected by the crisis in the telecommunications
market, and I&S which has undertaken a reorganization plan
should, along with the I&C groups, reach their earnings
targets in fiscal 2004. We will continue to focus on generating
positive net cash from Operations, though further progress will
be more difficult, since we have already made significant
improvements during the last two years.

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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, members of both the
Managing Board and Supervisory Board must exercise the standard
of care of a prudent and diligent businessman, and they are
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 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 has the right to claim
damages from members of either board. 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.

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
those employees who 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. 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

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| |   |                                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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, 2002.

|                         |  |         |           |         |  |                      |           |                               |  |                                                                                                                                          |  |                                                                                                                                                                                                                                                                                                            
|------------------------ |  | ------- | --------- | ------- |  | -------------------- | --------- | ----------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                         |  |         |           |         |  |                      |           | 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 |  |         | 7/22/1935 |         |  |                      | 1/23/2003 |                               |  | Chairman                                                                                                                                 |  | Deutsche Bank AG; E.ON AG; Linde AG; mg
    technologies ag; Schering AG; ThyssenKrupp AG; Wilhelm von Finck
    AG                                                                                                                                                                                        
|                        
|Ralf Heckmann*           |  |         | 7/19/1949 |         |  |                      | 1/23/2003 |                               |  | First Deputy Chairman (since March 1, 2002);
    Chairman of the Siemens Combined Works Council (since
    March 1, 2002)                |  |                                                                                                                                                                                                                                                                                                           
|                        
|Dr. Rolf-E. Breuer       |  |         | 11/3/1937 |         |  |                      | 1/23/2003 |                               |  | Second Deputy Chairman; Chairman of the
    Supervisory Board (until May 22, 2002 Spokesman of the
    Managing Board), Deutsche Bank AG |  | Bertelsmann AG; Deutsche Bank AG (Chairman);
    Deutsche Börse AG (Chairman); Compagnie de Saint-Gobain
    S.A.; Deutsche Lufthansa AG; E.ON AG; Kreditanstalt für
    Wiederaufbau; Landwirtschaftliche Rentenbank; Münchener
    Rückversicherungs- Gesellschaft AG; Compagnie de
    Saint-Gobain S.A.
|                        
|Helmut Cors*             |  |         | 12/2/1946 |         |  |                      | 1/23/2003 |                               |  | Member; Head of Industrial Services and
    Production, Vereinte Dienstleistungsgewerkschaft (ver.di)                                    |  | Framatome ANP GmbH                                                                                                                                                                                                                                                                                         
|                        
|Bertin Eichler*          |  |         | 8/27/1952 |         |  |                      | 1/23/2003 |                               |  | Member; Executive Member of the Managing Board,
    IG Metall                                                                            |  | Allgemeine Deutsche Direktbank AG; BGAG
    Beteiligungsgesellschaft der Gewerkschaften AG (Chairman);
    BauBeCon Holding AG, BHW Holding AG                                                                                                                                                             
|                        
|Jean Gandois             |  |         | 5/7/1930  |         |  |                      | 1/23/2003 |                               |  | Member; Member of the Supervisory Board, Suez
    Lyonnaise des Eaux S.A.                                                                |  | Air Liquide Espagne S.A.; Air Liquide Italie
    S.p.A.; Danone S.A.; Eurazéo; Société
    Générale de Belgique S.A.; Suez Lyonnaise des Eaux S.A.                                                                                                                                                         
|                        
|Birgit Grube*            |  |         | 8/21/1945 |         |  |                      | 1/23/2003 |                               |  | Member; Office clerk                                                                                                                     |  |                                                                                                                                                                                                                                                                                                           

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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          
|                           |  |         |            |         |  |                      |           |                              
|                          
|Heinz Hawreliuk*           |  |         | 3/23/1947  |         |  |                      | 1/23/2003 |                               |  | Member; Head of the Company Codetermination
    Department, IG Metall                                       |  | Astrium GmbH; DaimlerChrysler Aerospace AG;
    DaimlerChrysler Luft und Raumfahrt Holding AG; Eurocopter
    Deutschland GmbH; Infineon Technologies AG                       
|                          
|Robert M. Kimmitt          |  |         | 12/19/1947 |         |  |                      | 1/23/2003 |                               |  | Member; Executive Vice President of AOL Time
    Warner, Inc.                                               |  | Allianz Life Insurance Co.; Commerce One, Inc.;
    United Defense Industries, Inc.; Xign Corporation                                                                          
|                          
|Dr. Heinz Kriwet           |  |         | 11/2/1931  |         |  |                      | 1/23/2003 |                               |  | Member; Member of the Supervisory Board,
    ThyssenKrupp AG                                                |  | Allianz Lebensversicherungs-AG; Dresdner Bank AG;
    Thyssen Krupp AG                                                                                                         
|                          
|Prof. Dr. Hubert Markl     |  |         | 8/17/1938  |         |  |                      | 1/23/2003 |                               |  | Member; President, Max- Planck Gesellschaft zur
    Förderung der Wissenschaften e.V.                       |  | Aventis S.A.; Bayerische Motoren Werke AG; Royal
    Dutch Petroleum Company                                                                                                   
|                          
|Werner Mönius**            |  |         | 5/16/1954  |         |  |                      | 1/23/2003 |                               |  | Member; Chairman of the European Works Council of
    Siemens, Chairman of the Works Council of Siemens Med |  |                                                                                                                                                                               
|                          
|Georg Nassauer*            |  |         | 3/8/1948   |         |  |                      | 1/23/2003 |                               |  | Member; Steel casting constructor                                                                           |  |                                                                                                                                                                               
|                          
|Dr. Albrecht Schmidt       |  |         | 3/13/1938  |         |  |                      | 1/23/2003 |                               |  | Member; Spokesman of the Managing Board,
    Bayerische Hypo-und Vereinsbank AG                             |  | Allianz AG; Bayerische Börse AG; (Chairman);
    Münchener Rückversicherungs-Gesellschaft AG; Bank
    Austria (Chairman)                                                      
|                          
|Dr. Henning Schulte-Noelle |  |         | 8/26/1942  |         |  |                      | 1/23/2003 |                               |  | Member; Chairman of the Managing Board, Allianz AG                                                          |  | Assurance Générales de France S.A.;
    BASF AG; E.ON AG; Linde AG; Münchener
    Rückversicherungs- Gesellschaft AG; Riunione Adriatice di
    Sicurtà S.p.A.; ThyssenKrupp AG
|                          
|Georg Seubert*             |  |         | 7/27/1941  |         |  |                      | 1/23/2003 |                               |  | Member; Fitter                                                                                              |  |                                                                                                                                                                               
|                          
|Peter von Siemens          |  |         | 8/10/1937  |         |  |                      | 1/23/2003 |                               |  | Member; Industrial manager                                                                                  |  | Münchener Tierpark Hellabrunn AG                                                                                                                                               
|                          
|Dr. Daniel L. Vasella      |  |         | 8/15/1953  |         |  |                      | 1/23/2003 |                               |  | Member; Member and President of the Executive
    Committee of Novartis AG                                  |  | Credit Suisse Group; PepsiCo, Inc.                                                                                                                                             
|                          
|Klaus Wigand*              |  |         | 11/19/1945 |         |  |                      | 1/23/2003 |                               |  | Member; Industrial manager                                                                                  |  |                                                                                                                                                                               
|Erwin Zahl*                |  |         | 11/18/1939 |         |  |                      | 1/23/2003 |                               |  | Member; Maintenance technician                                                                              |  |                                                                                                                                                                               






|   |                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Elected by employees.                                                                                                                                                                                                                                                                                                                                                             
|  
|** | Mr. Alfons Graf, who was elected by
    employees and served simultaneously as First Deputy Chairman of
    the Central Works Council, ceased to be a member of the
    Supervisory Board on February 28, 2002. He was replaced by
    Mr. Werner Mönius, who was also elected by
    Siemens employees. Mr. Mönius is a member of the
    Supervisory Board since March 1, 2002.

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There are four Supervisory Board committees: the
Executive Committee, the Audit Committee, 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                                                                                                                                                         
|                     |  |                                                                                                                                                                         
|Executive Committee  |  | Chairman Dr. Karl-Hermann Baumann, First Deputy
    Chairman Ralf Heckmann*, Second Deputy Chairman Dr. Rolf-E.
    Breuer                                              
|Audit Committee      |  | Chairman Dr. Karl-Hermann Baumann, First Deputy
    Chairman Ralf Heckmann*, Second Deputy Chairman Dr. Rolf-E.
    Breuer, Dr. Henning Schulte-Noelle, Heinz Hawreliuk*
|Investment Committee |  | Chairman Dr. Karl-Hermann Baumann, Second Deputy
    Chairman Dr. Rolf-E. Breuer, Dr. Albrecht Schmidt                                                                  
|Mediation Committee  |  | Chairman Dr. Karl-Hermann Baumann, Deputy
    Chairman Ralf Heckmann*, Second Deputy Chairman Dr. Rolf-E.
    Breuer, 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 13
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.    

Various committees of our Managing Board are
authorized to make certain other decisions without seeking the
approval of the full Managing Board. The Managing Boards
committees include an Equity (Eigenkapital) Committee
responsible for certain capital measures. The members of this
committee are President and Chief Executive Officer Heinrich von
Pierer, Executive Vice President and Chief Financial Officer
Heinz-Joachim Neubürger and Executive Vice-President
Jürgen Radomski. The Managing Board established a committee
responsible for the issuance of employee stock that determines
the terms of the issuance of stock to Siemens employees
and related matters. The members of this committee are President
and Chief Executive Officer Heinrich von Pierer, Executive Vice
President and Chief Financial Officer Heinz-Joachim
Neubürger and Executive Vice-President Peter Pribilla.

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 limit the maximum number of
Corporate Executive Committee members to nine and require that
the Chief Executive Officer and his deputies, the Chief
Financial Officer and the member of the Managing Board who heads
Corporate Human Resources (Corporate 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
Chief Executive Officer Heinrich von Pierer, Executive
Vice-President and Chief

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Financial Officer Heinz-Joachim Neubürger,
as well as Executive Vice-Presidents Edward G. Krubasik,
Volker Jung, Peter Pribilla, Jürgen Radomski, Uriel J.
Sharef and Klaus Wucherer.


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 the law requires a
larger majority. In practice, the Managing Board reaches its
decisions by consensus.

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,
2002.

|                              |  |               |            |              |  |                  |           |                               |  |                                  |  |                                                                                                      
|----------------------------- |  | ------------- | ---------- | ------------ |  | ---------------- | --------- | ----------------------------- |  | -------------------------------- |  | -----------------------------------------------------------------------------------------------------
|                              |  |               |            |              |  |                  |           | Companies at which           
|                              |  |               |            |              |  |                  |           | Supervisory Board and similar
|Name                          |  | Date of birth |            | Term expires |  | Current position |           | positions were held          
|                              |  |               |            |              |  |                  |           |                              
|Dr. Heinrich v. Pierer        |  |               | 1/26/1941  |              |  |                  | 9/30/2004 |                               |  | President and CEO                |  | Bayer AG; Hochtief AG; Münchener
    Rückversicherungs-Gesellschaft AG; Volkswagen AG                
|Dr. Volker Jung               |  |               | 8/28/1939  |              |  |                  | 9/30/2003 |                               |  | Executive Vice-President         |  | DAB bank AG; MAN AG (Chairman)                                                                       
|Prof. Dr. Edward G. Krubasik  |  |               | 1/19/1944  |              |  |                  | 9/30/2006 |                               |  | Executive Vice-President         |  | Covisint LLC; Dresdner Bank AG; STINNES AG                                                           
|Rudi Lamprecht                |  |               | 10/12/1948 |              |  |                  | 9/30/2004 |                               |  | Senior Vice-President            |  |                                                                                                     
|Heinz-Joachim Neubürger       |  |               | 1/11/1953  |              |  |                  | 9/30/2007 |                               |  | Executive Vice-President and CFO |  | Allianz Versicherungs-AG; Bayerische Börse
    AG; HVB Real Estate Bank AG; Merrill Lynch & Co., Inc.
|Prof. Peter Pribilla          |  |               | 6/11/1941  |              |  |                  | 9/30/2003 |                               |  | Executive Vice-President         |  | Deutsche Krankenversicherung AG                                                                      
|Jürgen Radomski               |  |               | 10/26/1941 |              |  |                  | 9/30/2003 |                               |  | Executive Vice-President         |  |                                                                                                     
|Prof. Dr. Erich R. Reinhardt* |  |               | 10/3/1946  |              |  |                  | 9/30/2006 |                               |  | Senior Vice-President            |  | Bio M AG                                                                                             
|Dr. Uriel J. Sharef           |  |               | 8/19/1944  |              |  |                  | 9/30/2004 |                               |  | Executive Vice President         |  |                                                                                                     
|Prof. Dr. Claus Weyrich       |  |               | 1/6/1944   |              |  |                  | 9/30/2006 |                               |  | Senior Vice-President            |  | HERAEUS Holding GmbH                                                                                 
|Dr. Klaus Wucherer            |  |               | 7/9/1944   |              |  |                  | 9/30/2003 |                               |  | Executive Vice-President         |  | Deutsche Messe AG; Infineon Technologies AG                                                          






|  |                                                                                           
|- | ------------------------------------------------------------------------------------------
|* | Prof. Dr. Erich R. Reinhardt is a member of
    the Managing Board since December 1, 2001.

In addition to the above, on November 13,
2002, the Supervisory Board appointed Thomas Ganswindt and
Dr. Klaus-Christian Kleinfeld to our Managing Board,
effective December 1, 2002.

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

Compensation

Supervisory Board

For the fiscal year 2002, the aggregate
remuneration of the members of our Supervisory Board was
1.3 million
excluding stock appreciation rights. Under our Articles of
Association, each member of our Supervisory Board, as a general
rule, is entitled to receive reimbursement of actual
out-of-pocket expenses and an annual payment of
6,000 plus a
bonus. The bonus equals to
3,500 for each
0.05 dividend
per share in excess of
0.20, if such
dividend is approved at the Annual Shareholders Meeting.

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Moreover, under our Articles of Association, the
chairman receives twice the annual compensation. Any vice
chairman is entitled to 1.5 times the annual compensation of
other members of the Supervisory Board. In fiscal 2002, Mr.
Alfons Graf, who left the Board at the end of February 2002, and
his successor, Mr. Werner Mönius, each received a pro
rata portion of this amount. In addition, the other members of
the Audit Committee of our Supervisory Board, which was
established in April 2002, will receive pro rata compensation of
1.5 times the amount for their service in a committee not
required to be established by law. Their names are listed in the
table above under Supervisory Board.

In addition, our Articles of Association provide
that each member of the Supervisory Board shall receive annually
1,500 stock appreciation rights granted and exercisable on the
same terms as options issued under the stock option plan in
effect at that time. The stock appreciation rights granted to
the members of the Supervisory Board in fiscal 2002 had a total
fair value of
0.7 million
as determined by us on the grant date.

Because Mr. Peter von Siemens, as a
representative of the founders family, is not only a
member of our Supervisory Board but also represents our company
in Germany as well as abroad and in various associations, we
entered into a representation contract which grants Mr. v.
Siemens reimbursement of expenses incurred by him in connection
with these activities. In addition, Mr. v. Siemens is entitled
to a company car, an office and secretarial services. The term
of the contract expires at the Annual Shareholders Meeting
in 2003.

Managing Board

For the fiscal year 2002, the aggregate
remuneration of the members of our Managing Board was
18.5 million.
The compensation consists of fixed and variable components:

The total amount of fixed compensation of our
Managing Board was
5.6 million.

The members of our Managing Board received an
aggregate of
9.8 million
in variable annual bonus payments. The members of the Managing
Board were also granted a long-term bonus of
3.0 million.
The bonuses are driven by the development of the economic value
added (EVA) during the fiscal year for the annual bonus and
a three-year period for the long-term bonus.

In addition, in January 2002, Managing Board
members were awarded a discretionary conditional payment in an
aggregate amount of
0.1 million
for the acquisition of up to 775 shares of Siemens AG. The award
was subject to the condition that the Managing Board members
purchase the shares promptly, purchase a matching number of
Siemens AG shares with their own funds within the next
18 months, acquire all the shares for their own account and
pay any taxes and other levies associated with the award. None
of the shares purchased may be sold until the holder leaves the
Managing Board or for three years from the date of receipt of
the award, whichever is longer.

As a further component of their remuneration,
during fiscal 2002, members of our Managing Board received a
total of 151,000 stock options under our 2001 Stock Option Plan,
with an aggregate fair value of
3.5 million
as determined by us on grant date. For further details see
Stock Option Plan.

At September 30, 2002, the total amount
accrued by us to provide pension payments to members of our
Managing Board was
37 million.

During the last two fiscal years, there have been
no outstanding loans to members of the Managing Board.

Stock Option Plan

We have a stock option plan for members of our
Managing Board, executive officers and other eligible employees.
On February 22, 2001, our shareholders authorized our 2001
Stock Option Plan, which replaced our 1999 Stock Option Plan.
Non-transferable options exercisable for up to an aggregate of
55 million of our shares may be issued under the 2001 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. Our shareholders approved
an increase in our conditional capital in an amount not to
exceed
147 million
to cover the

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shares to be issued upon exercise of these
options. They also approved resolutions allowing an additional
45 million
of conditional capital previously authorized for the old option
plan to be used to cover options granted under the new option
plan.


Under the 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. We have outstanding options exercisable
for 20,984,994 shares under our option plans as of
November 30, 2002, including 345,000 options granted to our
Managing Board on November 14, 2002 and 9,052,005 options
granted to our executive officers and eligible employees on
November 14, 2002. 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 2002 and 2001:

|                               |  |                        |                   |                        |  |  |                   | 
|------------------------------ |  | ---------------------- | ----------------- | ---------------------- |  |  | ----------------- | 
|                               |  | With respect to        |                   | With respect to       
|                               |  | options granted in     |                   | options granted in    
|                               |  | fiscal 2002 in respect |                   | fiscal 2001 in respect
|                               |  | of fiscal 2001         |                   | of fiscal 2000        
|                               |  |                        |                   |                       
|Number of shares upon exercise |  |                        | 151,000           |                        |  |  | 160,500           | 
|Exercise price                 |  |                        | 87.19            |                        |  |  | 86.23            | 
|Expiration date                |  |                        | December 13, 2006 |                        |  |  | November 24, 2007 | 

The exercise price for options that have been
issued under our old 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 our old plan may exercise them within fixed time periods
following 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. See Note 25 to the consolidated financial
statements for further information about the terms of these
options.

The exercise price for options under our new plan
is 120% of the average opening price of our shares on Xetra
during the five trading days preceding the day of grant of the
options. Holders of options under our new plan may exercise them
within fixed time periods following 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 our new plan may be exercised only if
the trading price of our shares on the Frankfurt Stock Exchange
equals 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.

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

Share Ownership

Our Supervisory Board members and Managing Board
members hold shares and options representing less than 1% of our
total shares outstanding. At October 31, 2002, members of the
Managing Board held shares and options at an aggregate of 0.051%
of all shares outstanding and members of the Supervisory Board
held shares and options at an aggregate of 0.001%. For this
calculation, we have not included the aggregate of 2.0% of our
outstanding share capital that is held by the von
Siemens-Vermögensverwaltung GmbH, a German limited
liability entity that functions much like a trust (vSV), or the
4.5% as to which the vSV has voting power under a power of
attorney. Mr. Peter von Siemens, as a representative of the
founders family, has voting control over

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these shares. The vSV is described in more detail
under Item 7: Major Shareholders and Related Party
TransactionsMajor Shareholders.





Item 7: Major Shareholders and
Related Party Transactions

Major Shareholders

The vSV holds 2.0% of our outstanding shares in
trust for, and has a power of attorney allowing it to vote an
additional 4.5% 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, there is no other single
person that may be considered a beneficial owner of 5% or more
of our outstanding shares and who would be subject to disclosure
requirements under German law.

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 at arms length terms. We have significant
relationships with Deutsche Bank AG, Bayerische Hypo- und
Vereinsbank AG and Allianz AG. Dr. Rolf-E. Breuer was the
Spokesman of the Managing Board of Deutsche Bank AG until
May 22, 2002 and is now the Chairman of the Supervisory
Board of Deutsche Bank AG. Dr. Albrecht Schmidt is the
Spokesman of the Managing Board of Bayerische Hypo-und
Vereinsbank AG. Our ongoing banking relations with these banking
institutions include securities underwritings, other investment
banking services, and credit, money market and foreign exchange
business. Dr. Henning Schulte-Noelle is Chairman of the
Managing Board of Allianz AG, which directly and indirectly
provides us insurance coverage, as well as banking services
through its majority-owned subsidiary, Dresdner Bank AG, in the
ordinary course of our 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 that we account
for under the equity method and as marketable securities. 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 investment is Infineon Technologies AG. Also
significant are our relationships with our joint ventures Bosch
Siemens Hausgeräte GmbH, Fujitsu Siemens Computers and
Framatome Advanced Nuclear Power. We also have investments
accounted for as available-for-sale marketable securities, the
most significant of which is our investment in Epcos AG.




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, Bremen, Düsseldorf,
Hamburg, Hannover, Munich and Stuttgart and on other European
stock exchanges in London and Paris and on the Swiss Stock
Exchange. Options on the shares are traded on the German-Swiss
options exchange (Eurex), which is jointly owned and operated by
Deutsche Börse AG and the Swiss Stock Exchange. The ADSs of
Siemens AG, each representing one share, trade on the New York
Stock Exchange under the symbol SI.

126



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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 Xetra. Since January 4, 1999, the first
official trading day of 1999, the prices of shares traded on
German stock exchanges, including the ordinary shares of Siemens
AG, have been quoted in euros. In order to achieve comparability
with the sales prices quoted in Deutsche marks during the
relevant period in 1998, the sales prices indicated for those
period have been converted into euros at the official conversion
rate of DM1.95583 =
1.00. The table
also shows, for the periods indicated, the closing highs and
lows of the DAX 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 Deutsche mark (translated into euros at the
official conversion rate of DM1.95583 =
1.00) and 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    |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|1998                     |  |                    | 47.21  |     |  |         | 26.93 |              |  |           | 6,171.4 |  |  |  | 3,896.1 |  |  |  | 2.762 | 
|1999                     |  |                    | 84.67  |     |  |         | 35.57 |              |  |           | 6,958.1 |  |  |  | 4,678.7 |  |  |  | 2.656 | 
|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(2)                  |  |                    | 78.52  |     |  |         | 32.05 |              |  |           | 5,462.6 |  |  |  | 2,597.9 |  |  |  | 6.288 | 
|Quarterly highs and lows |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|2000                     |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|First quarter            |  |                    | 127.67 |     |  |         | 75.40 |              |  |           | 8,065.0 |  |  |  | 6,474.9 |  |  |  | 5.012 | 
|Second quarter           |  |                    | 113.33 |     |  |         | 88.99 |              |  |           | 7,555.9 |  |  |  | 6,834.9 |  |  |  | 3.339 | 
|Third quarter            |  |                    | 126.13 |     |  |         | 97.33 |              |  |           | 7,480.1 |  |  |  | 6,682.9 |  |  |  | 3.208 | 
|Fourth quarter           |  |                    | 103.33 |     |  |         | 84.33 |              |  |           | 7,136.3 |  |  |  | 6,200.7 |  |  |  | 4.586 | 
|2001                     |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|First quarter            |  |                    | 105.77 |     |  |         | 70.27 |              |  |           | 6,795.1 |  |  |  | 5,388.0 |  |  |  | 5.839 | 
|Second quarter           |  |                    | 91.15  |     |  |         | 69.44 |              |  |           | 6,278.9 |  |  |  | 5,553.5 |  |  |  | 4.912 | 
|Third quarter            |  |                    | 73.28  |     |  |         | 37.50 |              |  |           | 6,109.5 |  |  |  | 3,787.2 |  |  |  | 5.395 | 
|Fourth quarter           |  |                    | 74.35  |     |  |         | 41.40 |              |  |           | 5,271.3 |  |  |  | 4,240.0 |  |  |  | 6.963 | 
|2002                     |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|First quarter            |  |                    | 78.52  |     |  |         | 61.82 |              |  |           | 5,462.6 |  |  |  | 4,745.6 |  |  |  | 6.428 | 
|Second quarter           |  |                    | 76.00  |     |  |         | 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(2)        |  |                    | 51.35  |     |  |         | 32.05 |              |  |           | 3,360.8 |  |  |  | 2,597.9 |  |  |  | 6.885 | 
|Monthly highs and lows   |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|2002                     |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|June                     |  |                    | 66.00  |     |  |         | 55.26 |              |  |           | 4,818.3 |  |  |  | 4,099.1 |  |  |  | 6.753 | 
|July                     |  |                    | 63.00  |     |  |         | 47.65 |              |  |           | 4,483.0 |  |  |  | 3,515.8 |  |  |  | 7.166 | 
|August                   |  |                    | 53.00  |     |  |         | 41.65 |              |  |           | 3,906.6 |  |  |  | 3,332.7 |  |  |  | 5.322 | 
|September                |  |                    | 48.06  |     |  |         | 34.00 |              |  |           | 3,712.9 |  |  |  | 2,769.0 |  |  |  | 6.688 | 
|October                  |  |                    | 47.79  |     |  |         | 32.05 |              |  |           | 3,282.7 |  |  |  | 2,597.9 |  |  |  | 7.275 | 
|November                 |  |                    | 51.35  |     |  |         | 43.19 |              |  |           | 3,360.8 |  |  |  | 3,042.1 |  |  |  | 6.457 | 






|    |                                       
|--- | --------------------------------------
|(1) | Data from Datastream International.   
|   
|(2) | Up to and including November 29, 2002.

On November 29, 2002, the closing sale price
per Siemens AG ordinary share on Xetra was
49.37, which was
equivalent to $49.03 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
ADSs 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 ADS 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(1)                  |  |               | 70.45 |     |  |  | 30.85 | 
|Quarterly highs and lows |  |               |       |     |  |  |       | 
|2001                     |  |               |       |     |  |  |       | 
|First quarter            |  |               | 74.57 |     |  |  | 64.30 | 
|Second quarter           |  |               | 79.31 |     |  |  | 59.65 | 
|Third quarter            |  |               | 62.32 |     |  |  | 34.39 | 
|Fourth quarter           |  |               | 65.72 |     |  |  | 38.10 | 
|2002                     |  |               |       |     |  |  |       | 
|First quarter            |  |               | 70.45 |     |  |  | 54.76 | 
|Second quarter           |  |               | 67.00 |     |  |  | 55.19 | 
|Third quarter            |  |               | 60.70 |     |  |  | 33.61 | 
|Fourth quarter(1)        |  |               | 50.36 |     |  |  | 30.85 | 
|Monthly highs and lows   |  |               |       |     |  |  |       | 
|2002                     |  |               |       |     |  |  |       | 
|June                     |  |               | 61.60 |     |  |  | 55.19 | 
|July                     |  |               | 60.70 |     |  |  | 48.30 | 
|August                   |  |               | 51.65 |     |  |  | 40.61 | 
|September                |  |               | 46.89 |     |  |  | 33.61 | 
|October                  |  |               | 46.98 |     |  |  | 30.85 | 
|November                 |  |               | 50.36 |     |  |  | 43.40 | 






|    |                                       
|--- | --------------------------------------
|(1) | Up to and including November 29, 2002.

On November 29, 2002, 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
$49.28.




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.

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.

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Corporate Governance

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

Responsible and transparent company management
and monitoring structuresfocused on achieving sustainable
growth in company valueare indispensable for earning and
maintaining trust in Siemens and its business policies. That is
why all our decision-making and monitoring processes, as well as
our cooperation with shareholders, are based on the principles
of good corporate governance.

As a global company headquartered in Germany,
Siemens must ensure that its internal management and monitoring
structures comply with German laws governing stock corporations,
codetermination and the capital markets; with our own Articles
of Association; and with our company-specific implementation of
the recently issued German Corporate Governance Code.

When the German Corporate Governance Code went
into effect, we took the opportunity to review andin a
very few casesamend our internal regulations and
procedures regarding our Supervisory Board, Managing Board and
Annual Shareholders Meeting as well as Company
transparency and our financial reporting and auditing.

We consider the Code to be a key step in the
further development of statutory provisions for, and the
practical implementation of, corporate governance in Germany.
The regulatory framework is a suitable tool for providing
foreign investors with a concise overview of the countrys
corporate governance model. We welcome the Codes
introduction and the willingness to bring it further into line
with international standards.

As a result of our U.S. listing, we are also
subject to the licensing requirements of the New York Stock
Exchange and U.S. capital market legislationincluding the
SarbanesOxley Act of July 2002and the rules and
regulations of the Securities and Exchange Commission (SEC). We
cannot comply with all provisions of the SarbanesOxley
Act, since some conflict with German law (examples are given
below). We will further develop our corporate governance
principles as soon as the SEC rules are available in their
entirety.

Management and Company Structure

Because its registered offices are located in
Berlin and Munich, Siemens is subject to the German Stock
Corporation Act. Consequently, the Company has a two-part
management and oversight structure (two-tier model) comprising a
Managing Board and a Supervisory Board. The Annual
Shareholders Meeting, the assembly of shareholders, is our
third Company body. All three bodies are obligated to serve the
interests of both the shareholders and the Company.

All Siemens businesses are part of a matrix
organization that combines a centralized strategic orientation
with decentralized business and regional responsibilities. The
Corporate Executive Committee of the Managing Board is
responsible for coordinating the matrix.

As global entrepreneurs, Siemens operating
groups are individually responsible for their worldwide
businesses. Each group has its own Executive Management, which
is responsible for running group business in accordance with
Company policies defined by the Managing Board of Siemens AG.
The operating groups determine how their resources will be used.
They develop their own strategies, manage their own assets and
generate earnings in their respective market segments.

The groups international activities are
conducted via regional units which are responsible for
group-related business and earnings in a particular country or
countries. The regional units, in their capacity as regional
entrepreneurs, implement target agreements which they have
concluded with the groups.

The Supervisory Board

The Supervisory Board has 20 members. As
stipulated by the German Codetermination Act, half of the
members represent Company shareholders, and half represent
Company employees. The shareholders representatives are
elected by the Annual Shareholders Meeting. The employee
representatives are elected by a

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conference of employee delegates. The Chair of
the Supervisory Board has the deciding vote when the Supervisory
Board is unable to reach a decision after two separate rounds of
voting. The Supervisory Board is elected for five years. As a
rule, members may not be older than 70.


The Supervisory Board oversees and advises the
Managing Board in its management of Company business. The
Supervisory Board meets at regular intervals to discuss
financial results, planning, strategy and implementation. It
reviews Siemens quarterly reports and approves the
financial statements of the parent company, Siemens AG, and the
consolidated financial statements of Siemens worldwide in light
of the audit reports of the independent auditors. In addition,
the Supervisory Board appoints the members of the Managing Board
and determines their responsibilities. Key Managing Board
decisionssuch as major acquisitions, divestments and
financial measuresrequire Supervisory Board approval.

There are four Supervisory Board committees. A
list of their respective memberstogether with the names of
all Supervisory Board membersis provided under
Item 6: Directors, Senior Management and
EmployeesSupervisory Board. The responsibilities of
these committees are as follows:

The Executive Committee of the Supervisory Board,
comprising two shareholder representatives and one employee
representative, deals with fundamental issues regarding business
policy and management, and performs the tasks of a compensation
and nominating committee.

In particular, the Executive Committee of the
Supervisory Board determines the conditions of employment and
the remuneration of Managing Board members and decideson
an annual basiswhich share of the Managing Boards
compensation will be variable and how much of this variable
portion will take the form of stock options. In addition, the
Executive Committee makes proposals regarding the appointment of
Managing Board members and nominates shareholder representatives
for the Supervisory Board, who are elected by the Annual
Shareholders Meeting. Finally, it reviews and ensures the
further development of Siemens corporate governance
principles.

The Audit Committee, comprising three shareholder
representatives and two employee representatives, prepares the
Supervisory Boards review of the annual financial
statements of parent company Siemens AG as well as the
consolidated financial statements of Siemens worldwide. The
Committee also reviews the quarterly reports, awards the audit
contract to the independent auditors elected by the Annual
Shareholders Meeting and determines focal points of the
audit as well as the fee to be paid to the auditors. In
addition, the Audit Committee monitors the auditors
independence and cooperates closely with the Companys
internal Financial Audit department.

Of the two employee representatives required by
the German Codetermination Act, two Committee members are
employee representatives. One of these is currently on the
Siemens payroll. This is an area of potential conflict with the
SarbanesOxley legislation, under which compensated
employees of a company are not considered
independent.

The Mediation Committee comprises 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 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 13 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. The Managing
Boards executive committee, the Corporate Executive
Committee, currently has eight members. The Chairman of the
Managing Board defines the Companys strategic direction in
cooperation with the Corporate Executive Committee.

The Managing Boards responsibilities
include developing the Companys strategic orientation,
planning and finalizing the annual budget, allocating resources,
and monitoring the Executive Management of each

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operating group. Furthermore, the Managing Board
is responsible for preparing the Companys quarterly,
annual consolidated financial statements and selects personnel
to fill key Company positions.


The Managing Board cooperates closely with the
Supervisory Board. It informs the Supervisory Board regularly,
promptly and comprehensively concerning all Company-related
issues regarding strategy and implementation, planning,
financial results, financial condition, results of operations
and emerging risks. As noted above, major decisions of the
Managing Board require Supervisory Board approval.

Further information regarding the members of the
Managing Board is available under Item 6: Directors,
Senior Management and EmployeesManaging Board.

The Annual Shareholders
Meeting

The Annual Shareholders Meeting is the
decision-making body of our shareholders. It enables the
Companys owners to take part in basic decisions affecting
Siemens.

An ordinary Annual Shareholders Meeting
usually takes place within the first four months of every fiscal
year. Each share carries 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,
and enables shareholders who are unable to attend to vote by
proxy. The meeting is directed by the Chairman of the
Supervisory Board.

The Annual Shareholders Meeting makes
decisions on all matters assigned to it by law. These decisions
are binding on all shareholders and on the Company. They include
voting on 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 by the Annual Shareholders
Meeting and implemented by the Managing Board with the approval
of the Supervisory Board. Shareholders may make counterproposals
to the proposals of the Managing and Supervisory Boards and
contest decisions of the Annual Shareholders Meeting.
Shareholders owning Siemens stock with a market value of
1 million
or more may also demand a special judicial review of a
particular decision.

Financial Statements and the Independent
Audit

The consolidated financial statements of Siemens
worldwide are prepared in accordance with the United
States Generally Accepted Accounting Principles (U.S.
GAAP). The financial statements of the parent company, Siemens
AG, are prepared in accordance with the German Commercial Code
(HGB).

The consolidated financial statements are audited
by an independent auditor in accordance with the United
States Generally Accepted Auditing Standards (U.S. GAAS).
Quarterly financial statements are reviewed. As required by the
German Stock Corporation Act, the independent auditors are
appointed by the Annual Shareholders Meeting. This is
another area of conflict with the SarbanesOxley Act, which
requires that independent auditors be appointed by a Supervisory
Boards Audit Committee. Subsequent to the auditors
appointment by the Annual Shareholders Meeting, the Audit
Committee of Siemens Supervisory Board awards the audit
contract, determines the focal points of the audit and the fee
to be paid to the auditors and monitors the auditors
independence.

Monitoring and Risk Management

The Corporate Executive Committee is responsible
for worldwide internal control risk management at Siemens and
for assessing the systems effectiveness.

The risk management principles, guidelines and
processes we have defined are intended to ensure accurate and
prompt accounting for all business transactions, to ensure early
risk identification, to continuously provide reliable
information about the Companys financial situation for
internal and external use, and to enable us to achieve our
business goals. However, these mechanisms do not eliminate risk
entirely, and thus cannot prevent

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loss or fraud in all cases. We adjust the
monitoring procedures of all acquired entities to conform to
Siemens standards.


Our internal control and risk management system
comprises the following elements:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | bylaws for the Managing Board and the Corporate
    Executive Committee, which are issued by the Supervisory Board
    and allocate specific responsibilities to Managing Board members;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | bylaws for the Executive Management of each
    operating group, which are issued by the Managing Board and
    define the groups entrepreneurial responsibilities;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | internal principles, rules and standards
    pertaining to finance, accounting, taxes, monitoring, legal
    matters, corporate audit, financial audit, personnel and real
    estate, which are defined and monitored by Siemens
    corporate departments;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | the annual budget approved by the Supervisory
    Board, which is based on the groups annual budgets and
    supplemented by strategic plans approved by the Corporate
    Executive Committee;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | monthly reporting to the Corporate Executive
    Committee regarding the financial condition and results of
    operations of Siemens businesses, and joint quarterly
    reviews by the Corporate Executive Committee and the group
    Presidents;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | mandatory detailed internal reporting and
    disclosure processes to ensure the early identification and
    efficient monitoring and control of major risks. These risks are
    reported to the Corporate Executive Committee, the Supervisory
    Board and the Audit Committee, and explained as part of the
    external accounting process;                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | principles and rules for conducting business,
    issued by the Managing Board in the form of Business
    Conduct Guidelines and applied company-wide. These rules
    cover business transactions as well as socially, ethically and
    environmentally responsible behavior. They also specify
    appropriate monitoring procedures;                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | an internal audit function, which is divided
    between two corporate departments: Corporate Audit and Financial
    Audit. These two departments supervise and monitor internal
    compliance with the Companys principles and regulatory
    frameworks. The Corporate Audit department focuses on strategic,
    structural and operational issues. The Financial Audit
    department reviews the rules and processes regarding correct
    reporting of all business transactions and the appropriateness
    of the valuations in our financial statements. Financial Audit
    reports to the Audit Committee of the Supervisory Board and to
    the head of Corporate Finance. Corporate Audit reports to the
    Chairman of the Managing Board;
|
| |  | an assessment, conducted by the Corporate
    Executive Committee and based on a Financial Audit review, of
    the effectiveness of the internal control system. The results of
    this assessment are reported to the Audit Committee. Regular
    reports by the internal Financial Audit department and the
    external independent auditor are key monitoring tools. The
    Executive Management of each group and each Regional Company is
    required to certify annually that its reports and financial
    statements are complete and provide a fair presentation of its
    business situation, and that it has effective internal control
    and risk management systems in place.                                                          

Financial Reporting

Transparency is of great importance for us. We
communicate with our shareholders, all participants in the
capital market, financial analysts, shareholder associations,
the media and the interested public through regular, open and
prompt reporting on the condition of the Company and material
changes in Company business. We adhere to the fair disclosure
principle to ensure that all Siemens stakeholder groups
receive timely and comprehensive information on an equal basis.

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Reports on the Companys status and results
are issued at regular intervals in the form of:



| |   |                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | quarterly reports, which are published as press
    releases;                                                                                                              
|
| |  | the Siemens Annual Report;                                                                                                                                                 
|
| |  | an annual report (under Form 20-F) and
    quarterly reports (under Form 6-K), which are filed with
    the U.S. Securities and Exchange Commission;                       
|
| |  | semiannual press and analysts conferences;                                                                                                                                 
|
| |  | scheduled telephone conferences with analysts on
    the publication of quarterly and full-year results as well as
    numerous meetings with financial analysts worldwide.

We also provide event-related information in the
form of:



| |   |                                                                                               
| | - | ----------------------------------------------------------------------------------------------
| |  | ad hoc releases, when situations arise which
    could materially affect Siemens share price;
|
| |  | press releases.                                                                               

All the information we provide through financial
reports and press releases is published simultaneously on the
Internet.

Code of Ethics

Our Business Conduct Guidelines provide a code of
conduct for Managing Board and employee behavior in ethical and
legal matters. The Guidelines are a key element in our corporate
governance system and apply to every Siemens employee worldwide.
They also specify monitoring procedures.

Managing Board and Supervisory Board
Remuneration

Managing Board and Supervisory Board remuneration
in fiscal 2002 contains both fixed and variable components.

Managing Board remuneration comprises both cash
compensation and stock options. Forty percent of cash
compensation is fixed and paid in monthly installments, with the
remaining sixty percent dependent on Siemens meeting
specified financial goals.

Supervisory Board members receive fixed and
performance-related cash compensation as well as stock
appreciation rights granted under the terms of Siemens
stock option program.

Further information on Managing Board and
Supervisory Board remuneration is provided in Item 6:
Directors, Senior Management and
EmployeesCompensation.

Declaration of Conformity Regarding the German
Corporate Governance Code:

At their meetings on November 12 and
November 13, 2002, respectively, the Managing Board and
Supervisory Board adopted the recommendations of the Government
Commission on the German Corporate Governance Code, with the
exceptions indicated below, and to issue the following
Declaration of Conformity in accordance with section 161 of the
German Corporation Act (AktG):

Siemens AG complies with the
recommendations of the Government Commission on the German
Corporate Governance Code, with the following exceptions:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our directors and officers liability
    insurance policy (Code Section 3.8, paragraph 2)
    includes no deductible for 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.
|
| |  | All members of the Audit Committee currently
    receive the same level of remuneration (Code section 5.4.5,
    paragraph 1, third sentence). The Supervisory Board and
    Managing Board will propose to the next                                                                                                                                                                                                     

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| |  |                                                                                                                                                                
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Annual Shareholders Meeting an amendment to
    the Articles of Association of Siemens AG regarding remuneration
    for the Chairman of the Audit Committee.

Objects and Purposes

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



| |   |                                                                                                                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to manufacture and distribute industrial products
    in the fields of electrical engineering, mechanical engineering,
    precision mechanics and all related sectors of engineering, as
    well as research and development in these fields;
|
| |  | to develop, plan, design and distribute systems
    and component parts for the generation, transmission and
    processing of information and energy, and to use them in
    processes of all kinds; and                                      
|
| |  | to manufacture and distribute goods that, as
    accessories or auxiliary material, are useful in connection with
    the products manufactured and distributed.                                                                               

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.

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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 vote of at least 75% of the share capital present at
the meeting. This 75% majority requirement also applies 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.
This means that 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.

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Cash 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 were given notice in the Federal
Gazette in September 2001 to surrender these certificates prior
to January 11, 2002 to a financial institution of your
choice that maintains securities accounts. Upon doing so, you
were granted co-ownership interests in the global certificate
deposited with Clearstream Banking AG. If you hold physical
certificates and did not surrender them by January 11,
2002, they were canceled by the Company on January 15, 2002
by means of a published notice in the Federal Gazette. After
this cancellation, holders of physical certificates 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.

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 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 and with
respect to shares issued in exchange for an in-kind contribution
out of authorized capital.

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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 official trading
(Amtlicher Handel) on a stock exchange within the
European Union or the European Economic Area are required to
notify promptly and in writing the company in 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.

As a result of amendments to the Securities
Trading Act which became effective on January 1, 2002,
these disclosure requirements extend to voting securities traded
on any organized market, which in Germany includes also the
regulated market (geregelter Markt and the Neuer Markt).
Additionally, a new 30% ownership threshold has been established
by the German Takeover Act (Wertpapiererwerbs- und
Übernahmegesetz) which requires publication of the
acquisition of control within seven days.

Since July 2002, the German Securities Trading
Act requires the reporting of certain directors dealings.
Members of the managing and supervisory boards of an issuer
whose securities are admitted to be traded on a domestic
exchange, or of a company which controls the issuer, have to
notify both the issuer and the German Federal Financial
Supervisory Authority about acquisitions and sales of shares of
the issuer or of rights with respect to the shares. There is no
notification obligation for transactions where the value of
shares acquired over a 30-day period does not exceed
25,000 or if the
acquisition was made under an employment contract or as part of
the directors remuneration. Certain family members of
directors, for example spouses and children, are under the same
obligation. The issuer is obliged to publish on its website all
notifications it has received.

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. 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 expires on July 16, 2003.
The German Stock Corporation Act generally limits share
repurchases to 10% of our share capital. Any resale of
repurchased shares has to be effected via a stock exchange in a
manner that treats all shareholders equally or in accordance
with the rules that apply to preemptive rights relating to a
capital increase. Shares that are repurchased may be reissued
without preemptive rights and without shareholder approval as
long as they are used for the acquisition of a business or
participations in a business.

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,
which Siemens entered into with First Union on December 5,
2001.

Under the terms of the trust agreement, the
trustee has legal title to the shares held in trust and Siemens
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. Siemens 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 Siemens promptly upon receipt. The trustee is
not entitled to sell or

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encumber the shares held in trust except at
Siemens direction, but Siemens has agreed not to direct
the sale of any such shares to itself, any affiliate, any
vehicle established by Siemens or any of its affiliates, or to
Infineon. The trustee has agreed to pay to Siemens 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 Siemens
as trustor and third party shareholders of Infineon. The trust
agreement will terminate only 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. Upon termination, any shares held by the
trustee would revert to Siemens and Siemens would again be
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, Siemens 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. Siemens 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.

Exchange Controls

At present, Germany does not restrict the
movement of capital between Germany and other countries or
individuals except Iraq, certain persons and entities associated
with Osama bin Laden, the Al-Qaida network and the Taliban and
certain other countries and individuals 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 shares
or ADSs who are (i) 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 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 German Tax Reduction
Act (which we refer to as the German Tax Reform)
enacted into law in October 2000 as well as the Flood Victim
Solidarity Act which was enacted in September 2002. Most changes
resulting from the German Tax Reform became applicable to
Siemens in its fiscal year beginning October 1, 2001. The
changes resulting from the Flood Victim Solidarity Act will be
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

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the purchase, ownership and disposition of shares
or ADSs and the procedures to follow for the refund of German
taxes withheld from dividends.


Taxation of the Company in
Germany

Before the effective date for the German Tax
Reform, German corporations, in general, were subject to
corporate income tax at a rate of 40% on retained earnings and
30% on distributed earnings. In addition, a solidarity surcharge
was levied at a rate of 5.5% on the net assessed corporate
income tax charge. Corporate income tax and the solidarity
surcharge, in the aggregate, amounted to 42.2% for retained
earnings and 31.65% for distributed earnings.

As a result of the German Tax Reform, German
corporations became 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 26.375%. The corporate income tax rate was increased
by the Flood Victim Solidarity Act enacted in September 2002. As
a result of the new law, the German corporate income tax rate
will increase from 25% to 26.5% for the fiscal year 2003 only,
and will be applicable to Siemens for its fiscal year beginning
October 2002.

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.

Taxation of Dividends

Under the corporate income tax credit system in
effect prior to changes enacted under the German Tax Reform,
German taxpayers (i.e., individual and corporate shareholders
resident in Germany and shareholders whose shares or ADSs form
part of the business property of a permanent establishment or
fixed base in Germany) who receive a dividend are entitled to a
tax credit for the underlying German corporate income taxes paid
by the distributing German corporation. This credit is not
available to Non-German Holders.

One major change resulting from the German Tax
Reform was the abolition of the corporate income tax credit
system. Dividend distributions paid by Siemens attributable to
its fiscal year ending September 30, 2001 or earlier years,
however, remain subject to the corporate income tax credit
system. The new system applies to dividend distributions paid by
Siemens attributable to its fiscal year ending
September 30, 2002 and subsequent years. Under the new
system, a tax credit is no longer available to German tax payers
with respect to such dividends. To avoid multiple levels of
taxation in a corporate chain, the new 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. German
resident individuals must recognize 50% of the dividends
received as taxable income. Certain transition rules apply in
connection with the change from the corporate income tax credit
system to the new system.

Imposition of Withholding Tax

Dividend distributions made by a German
corporation prior to the German Tax Reform effective date were
subject to a 25% withholding tax. In addition, a solidarity
surcharge at a rate of 5.5% on the withholding tax was levied
such that the aggregate withholding from dividends was 26.375%
of the declared dividend.

For dividend distributions made by Siemens
attributable to fiscal years beginning on or after
October 1, 2001, the withholding tax is reduced to 20% as a
result of the German Tax Reform. The solidarity surcharge of
5.5% on the withholding tax has been retained, resulting in a
total withholding 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 may 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

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refund must be filed with the German Federal Tax
Office (Bundesamt für Finanzen, Friedhofstrasse 1,
D53221 Bonn, Germany). 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. As long as the corporate
income tax credit system was applicable to dividends paid by
Siemens to individual German shareholders, eligible
U.S. holders, as defined below under United States
Taxation, were entitled to an additional reduction in
German dividend withholding tax equal to 5% of the declared
dividend. The corporate income tax credit system applied to
German shareholders for dividends paid in respect of fiscal
2001. Therefore, dividend payments to an eligible
U.S. holder made in 2002 by Siemens attributable to its
fiscal year ended September 30, 2001 were subject to the
additional 5% withholding tax reduction, dividends paid
attributable to fiscal 2002 and subsequent years will be subject
to a 15% general withholding tax rate under the Treaty.

For dividend distributions made by Siemens in
2002 attributable to its fiscal year ended September 30,
2001 or prior years, the following procedure applies. The
dividend was subject to a 25% withholding tax plus a solidarity
surcharge of 5.5% on the withholding tax, resulting in an
aggregate withholding of 26.375% of the declared dividend. Under
the Treaty, an eligible U.S. holder is entitled to receive
a payment from the German tax authorities equal to 16.375% of
the declared dividend. A portion of this payment, 11.375% of the
declared dividend, is treated for U.S. tax purposes as a
reduction in German withholding tax to the generally applicable
treaty rate of 15%. The remainder of the payment, 5% of the
declared dividend, represents the net amount of an additional
dividend of 5.88% that has been subject to a 15% German
withholding tax. Accordingly, if Siemens declared a dividend of
100, an eligible U.S. holder would initially receive 73.625
(100 minus the 26.375% withholding tax). The eligible
U.S. holder would then claim a refund from the German tax
authorities of 16.375 thereby receiving a total of 90. The
eligible U.S. holders deemed gross dividend for
United States Federal income tax purposes would be 105.88,
consisting of the declared dividend of 100 plus the additional
deemed dividend of 5.88 associated with the Treaty refund.
Withholding of 15% on the gross dividend of 105.88 results in a
net cash dividend of 90.

For dividend distributions made by Siemens
attributable to fiscal 2002 and subsequent years, the dividend
will be 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 will be 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 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

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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. Holders who are entitled to a
refund in excess of DM300 for the calendar year generally must
file their refund claims on an individual basis. However, the
custodian bank may be in a position to make refund claims on
behalf of such holders.


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 of shares or ADSs by a
Non-German Holder 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).

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.

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U.S. Taxation

This section describes the material United States
federal income tax consequences of owning shares or ADSs. It
applies to you only if you hold your shares or ADSs as capital
assets for tax purposes. This section does not address all
material 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;                                                          
|
| |  | 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
regulations, and published rulings and court decisions, as
currently in effect, as well as on the Treaty. 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 ADRs evidencing 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.

You are a U.S. holder if you are
a beneficial owner of shares or ADSs and you are:



| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a citizen or resident of the United States;                                                                                                                                                                             
|
| |  | a domestic corporation;                                                                                                                                                                                                 
|
| |  | an estate whose income is subject to United
    States federal income tax regardless of its source;                                                                                                                     
|
| |  | or a trust if a United States court can exercise
    primary supervision over the trusts administration and one
    or more United States persons are authorized to control all
    substantial decisions of the trust.

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 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.

Taxation of Dividends

If you are a U.S. holder, you must include
in your gross income the gross amount 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. You must include any German tax withheld from the
dividend payment and any additional dividend associated with the
Treaty refund in this gross amount even though you do not in
fact receive it. 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. 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 as a U.S. holder will
be the U.S. dollar

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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. Distributions in excess of our current or
accumulated earnings and profits, as determined for United
States federal income tax purposes, will be treated as a return
of capital to the extent of your basis in the shares or ADSs and
as capital gain thereafter.


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.

Dividends constitute income from sources outside
the United States, and generally will be passive
income or financial services income which are
treated separately from other types of income for purposes of
computing the foreign tax credit allowable to you.

Taxation of Capital Gains

If you are a U.S. holder and 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
gain of a noncorporate U.S. holder is generally taxed at
lower rates for property 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.

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 and at the Commissions
regional offices at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661, and 233 Broadway,
New York, New York 10279. 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. 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

Market Risk Management Objective

Prudent financial market risk management is a key
priority for Siemens. Our international operations, financing
activities and investments expose us to financial market risks
in the ordinary course of our business. We define market
risk as a potential loss due to an adverse move in market
rates. We define potential loss for equity price
risk as a decline in fair values due to an adverse move in
market prices. For foreign exchange risk, a potential
loss is defined as a decline in future cash flows due to
an adverse move in market rates. For interest rate risk, we
consider potential loss to mean, for fixed rate
instruments, a decline in fair values, and, for variable rate
instruments, a decline in future cash flows. The application of
these definitions is explained towards the end of this item.

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Our objective for managing such risks is to
capitalize on the opportunities available in the global markets
for our products and services while proactively managing the
associated financial market risks.

Siemens Financial Services uses credit default
swaps to protect against credit risks stemming from its
receivables purchase business. Credit default swaps are excluded
from this market risk analysis, since risk categories like
credit risk, liquidity risk and operational risk are not
analyzed in this disclosure.

Market Risk Exposures

Our primary financial market risk exposures,
after the application of our market risk management approach,
are:



| |   |                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | equity price risk from our investments in
    marketable securities and asset swaps;                                                                                                                    
|
| |  | foreign exchange rate risk, particularly to the
    United States dollar, the United Kingdom pound, and the Swiss
    franc;                                                                            
|
| |  | interest rate risk resulting from long-term fixed
    rate debt obligations denominated principally in the Euro, and
    also long-term interest rate swaps based on three- to six-month
    Euro LIBOR.

Siemens has no material commodity price risk out
of derivative instruments.

SFS holds a minor foreign exchange trading
portfolio which is subject to tight limits and which, as of
September 30, 2002, had a value-at-risk close to zero.

Assets from the groups pension plans
(equity investments and interest bearing securities) are not
included in this quantitative and qualitative disclosure.
Further discussion is provided in Note 19 to the
consolidated financial statements.

We use the sensitivity analysis
method to measure our financial market risk. This method is
described below. Based on our sensitivity analyses, our primary
market risk exposures as of September 30, 2002, with
comparative data from September 30, 2001, are summarized by
risk type category in the following table:

Market Risk Exposures

As of September 30, 2002 and
September 30, 2001


(Sensitivity analysis method)


(
in millions)


|                              |  |               |      |      |  |  |      |  
|----------------------------- |  | ------------- | ---- | ---- |  |  | ---- | -
|                              |  |              
|                              |  | As of        
|                              |  | September 30,
|                              |  |              
|                              |  | 2002          |      | 2001
|                              |  |               |      |     
|Equity price risk             |  |               | (129 | )    |  |  | (96  | )
|Foreign exchange rate risk    |  |               | (79  | )    |  |  | (107 | )
|Interest rate riskfair value |  |               | (4   | )    |  |  | (222 | )
|Interest rate riskcash flow  |  |               | (67  | )    |  |  | (37  | )

In the unlikely occurrence that all risk factors
were to move simultaneously against us, Siemens could
potentially suffer a combined loss of
279 million
as of September 30, 2002 in comparison to a similarly
calculated value of
462 million
as of September 30, 2001. The prior year data excludes
Infineon in order to provide comparable amounts. Beginning
December 2001, Infineon is no longer consolidated. The decrease
from the prior year is principally due to further hedge of our
fixed-rate debt.

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 analyses approximate an answer to the question of
how much could be lost if certain specified parameters were to
be met under a specific set of

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assumptions. We use sensitivity analysis because
it provides reasonable risk estimates using straightforward
assumptions (for example, a drop in equity prices). The risk
estimates provided here assume:




| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | a 20% decrease in the equity prices of all of our
    investments in marketable securities and asset swaps;          
|
| |  | a simultaneous, parallel foreign exchange rates
    shift in which all currencies weaken against the euro by 10%; and
|
| |  | a parallel shift of 100 basis points of the
    interest rate yield curves in all currencies.                        

We have found sensitivity analysis to be a useful
tool in achieving some of our specific risk management
objectives. Sensitivity analysis offers an easy-to-understand
risk exposure estimate that allows our managers, shareholders,
employees, suppliers and customers to appreciate an
approximation of the effect changing market conditions could
have on our business. Additionally, our managers, seeing what
impacts a sudden and substantial change can have, are able to
take steps to manage such risks.

Sensitivity analysis has known limitations. We
use our business experience, market information and additional
analytics to manage our risk exposure and mitigate the
limitations of our sensitivity analysis. The limitations of
sensitivity analyses include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The risk-mitigating effects caused by correlation
    and diversification among different currencies, interest rate
    areas and equity prices or among these different risk exposures
    are not taken into account. This leads to an overestimation of
    risk, since a simultaneous adverse shift in all currencies,
    yield curves and share prices is highly unlikely.                                                                                                                                                                                                    
|
| |  | Unlike other more complex risk-modeling concepts,
    it applies only two shifts (up or down) in each risk category
    with the direction causing the adverse outcome chosen. While it
    is possible to apply more sophisticated risk measurement
    techniques, it is our view that sensitivity analysis gives
    decision makers in our non-financial businesses a sufficient
    warning of potential losses that further detailed analyses using
    the specific facts of a given situation may be applied to
    determine if appropriate corrective actions are needed. 
|
| |  | Sensitivity analyses offer a
    snap-shot of exposures at and between specific dates
    in time. However, there is continuous change in the Other Than
    Trading Portfolio. For example, positions are continually being
    opened and closed, assets and liabilities mature or new interest
    rates take effect. We accept this limitation and whenever more
    current information is required, produce either updated
    sensitivity analyses or utilize other management reporting
    options to understand in detail the effects of changing market
    conditions.
|
| |  | Sensitivity analyses do not answer the question
    how long a sharp rise or fall of market rates will
    continue and we do not require it to do so. Instead, we develop
    our own market direction projections and obtain other
    professional predictions that we then use in our financial
    planning and in modeling earnings impacts.                                                                                                                                                                                                                                

We continually refine our risk measurement and
reporting procedures including a periodic re-examination of the
underlying assumptions and parameters utilized. Since the last
reporting period there have not been any such changes that have
resulted in a material alteration of the risk estimates provided
here from the prior periodthat is, the differences between
periods principally reflect changes in our exposures and the
market rates and prices.

Market Risk Management Organization and
Responsibilities

Our approach to managing financial market risk is
part of Siemens overall risk management system and begins
with our Managing Board, which has oversight over all of our
operations. Our Chief Financial Officer sits on this board and
has specific responsibility for our financial market risk
management organization. The Managing Board retains ultimate
accountability but for practical business purposes delegates
responsibilities to central functions and to the business
groups. Specialist departments (at the corporate level and
within the Operations groups) support the business groups and
have responsibility for risk policy setting, risk oversight and
developing tools and standards for risk management. Day-to-day
risk management activities are generally

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conducted at the operational level within the
business groups in accordance with policies and procedures
established by the specialist departments. Internal Audit
regularly reviews the adequacy and efficiency of our risk
management and control systems.


We recognize that our local managers often have
access to timelier business and capital markets intelligence
relevant to their respective regional marketplaces. This
understanding permits them to identify and rapidly act on
opportunities in the local markets for our goods and services as
well as in local markets for sources and uses of funds. We
therefore entrust the management of our various business groups
with a certain degree of decision-making flexibility, within
clearly defined limits, regarding interest rate and foreign
exchange risk positions. For example, each business group has in
place carefully structured foreign exchange risk origination and
hedging guidelines that conform to a model policy developed by
our Corporate Finance department. These policies apply equally
to all of our business groups including both operations groups
and Siemens Financial Services. The actions of the business
groups are regularly audited to ensure compliance with the risk
management policies and other standard business controls.

Market Risk Management Strategies and
Instruments

Equity Price Risk

We have investments in publicly traded companies,
which are held for purposes other than trading. The market value
of these investments as of September 30, 2002 was
346 million,
with our 9.7% interest in Juniper Networks and our 12.5%
interest in EPCOS AG representing a large share. We also have an
equity underlying in asset swaps (as described below) of
297 million.
An adverse move in equity prices of 20% would reduce the value
of these investments by
129 million.

Common Features of Our Foreign Currency and
Interest Rate Risk Management

Our risk management approach is to pool and
analyze interest rate and currency risk exposures of the
business groups. Exceptions to this approach are made in the
case of country-specific restrictions and similar
considerations. The pooled exposures are recorded on a real-time
basis in a treasury management system maintained by our Treasury
and Financing Services (TFS) division of SFS. This system allows
us to perform an ongoing mark-to-market valuation of interest
rate and currency risks of all pooled transactions, as well as a
measure of credit exposure to individual financial institutions.
TFS acts as our platform, on an internal service basis, to
provide a centralized link for all of the operating groups to
the third-party financial institutions in our financial risk
management activities. TFS enters into derivative financial
instruments with third-party financial institutions to offset
all pooled exposures using a value at risk model. A description
of these derivative instruments and their characteristics is
provided below. At TFS, functional and organizational separation
of duties between transaction initiation, processing, risk
controlling and accounting is in place.

Our business and financing activities lead us to
use common financial instruments principally including accounts
receivable, accounts payable, loans, debt obligations, and
marketable securities. In addition, for our hedging activities
we make use of derivatives which are financial instruments whose
value is derived, usually from other financial
instruments or market indices. The derivative instruments used
are readily marketable, liquid and priced on a daily basis. They
include forward exchange contracts, interest rate swaps,
cross-currency swaps, forward contracts and options. We are an
end-user of derivative products. Derivatives are used to manage
our foreign currency and interest rate exposures, as well as
less frequently for specific hedging strategies related to our
equity holdings. To a limited extent, interest rate swaps and
asset swaps are used to transform liquidity invested on a short
term basis into the intended asset allocation. Neither our
operating groups nor TFS are permitted to buy or sell exotic or
illiquid instruments or enter into such transactions. We have a
clearly defined approval process for new hedging products. Each
new proposal to use a new hedging product must be prepared and
reviewed by several departments prior to the initiation of its
use. The implementation process includes these departments:
Treasury and finance, back office, accounting and controlling,
risk management, credit, tax and legal.

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Foreign Currency Exposure

Our foreign currency transactions arise from our
business groups as well as from investments and financing
activities of Siemens as a whole. Foreign exchange risks are
partly offset through our production facilities abroad, as well
as through procurement and financing activities conducted in
foreign currencies.

We define foreign currency exposure as foreign
currency denominated cash in-flows and cash out-flows from
anticipated transactions for the next three months, firm
commitments and balance sheet items. The foreign currency
exposure is determined from the point of view of the respective
functional currencies of the Siemens entity where the
exposure exists.

Our group-wide guidelines require each entity to
enter into foreign exchange contracts with TFS to cover at least
75% of their foreign currency exposure. The unhedged balances
are reported to the Corporate Finance department, which monitors
the overall net foreign exchange exposure of the Company. The
values presented in the foreign exchange risk disclosures made
in this document are the unhedged positions multiplied by the
assumed 10% weakening of the currencies against the euro. As
shown in the tables below, we economically hedged more of our
total foreign currency exposure at September 30, 2002 and
September 30, 2001 than the 75% required by Company policy.

In determining our foreign exchange sensitivity,
we aggregate the net foreign exchange risk exposure of the
Operations groups and TFS. Because our foreign currency inflows
exceed our outflows, a weakening of foreign currencies against
the euro would have a negative financial impact. For example, at
September 30, 2002, we had a net long U.S. dollar
exposure, so if the dollar weakened against the euro, we would
have been able to convert it into fewer euros.

At September 30, 2002, a parallel 10%
alteration of foreign currencies would have resulted in a
foreign currency risk of
79 million
compared to 107
at September 30, 2001. The prior year data excludes
Infineon in order to provide comparable amounts. Beginning
December 2001, Infineon is no longer consolidated. The tables
below provide additional details on how we arrive at our foreign
currency risk and show the relevant values for the United States
dollar (USD), the British pound (GBP),
and the Swiss franc (CHF).

Foreign Exchange Market Risk Exposures By
Currency

As of September 30, 2002


(Sensitivity analysis method)


(
in millions)


|                                                                                                        |  |     |        |     |  |     |        |       |  |       |        |   |  |  |        |   |  |  |         |  
|------------------------------------------------------------------------------------------------------- |  | --- | ------ | --- |  | --- | ------ | ----- |  | ----- | ------ | - |  |  | ------ | - |  |  | ------- | -
|                                                                                                        |  | USD |        | GBP |  | CHF |        | Other |  | Total
|                                                                                                        |  |     |        |     |  |     |        |       |  |      
|Total anticipated foreign currency inflows                                                              |  |     | 17,540 |     |  |     | 3,729  |       |  |       | 1,227  |   |  |  | 5,333  |   |  |  | 27,829  |  
|Total anticipated foreign currency outflows                                                             |  |     | (7,982 | )   |  |     | (1,365 | )     |  |       | (1,810 | ) |  |  | (3,516 | ) |  |  | (14,673 | )
|Net foreign currency transaction exposure                                                               |  |     | 9,558  |     |  |     | 2,364  |       |  |       | (583   | ) |  |  | 1,817  |   |  |  | 13,156  |  
|Economically hedged exposure                                                                            |  |     | (9,204 | )   |  |     | (2,209 | )     |  |       | 628    |   |  |  | (1,579 | ) |  |  | (12,364 | )
|Decline in future cash flows resulting from a 10%
    appreciation of the euro after hedging activities |  |     | (35    | )   |  |     | (16    | )     |  |       | (5     | ) |  |  | (23    | ) |  |  | (79     | )

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Foreign Exchange Market Risk Exposures By
Currency

As of September 30, 2001


(Sensitivity analysis method)


(
in millions)


|                                                                                                        |  |     |         |     |  |     |        |       |  |       |        |   |  |  |        |   |  |  |         |  
|------------------------------------------------------------------------------------------------------- |  | --- | ------- | --- |  | --- | ------ | ----- |  | ----- | ------ | - |  |  | ------ | - |  |  | ------- | -
|                                                                                                        |  | USD |         | GBP |  | CHF |        | Other |  | Total
|                                                                                                        |  |     |         |     |  |     |        |       |  |      
|Total anticipated foreign currency inflows                                                              |  |     | 19,690  |     |  |     | 4,173  |       |  |       | 1,422  |   |  |  | 3,612  |   |  |  | 28,897  |  
|Total anticipated foreign currency outflows                                                             |  |     | (7,584  | )   |  |     | (1,398 | )     |  |       | (1,945 | ) |  |  | (1,954 | ) |  |  | (12,881 | )
|Net foreign currency transaction exposure                                                               |  |     | 12,106  |     |  |     | 2,775  |       |  |       | (523   | ) |  |  | 1,658  |   |  |  | 16,016  |  
|Economically hedged exposure                                                                            |  |     | (11,047 | )   |  |     | (2,625 | )     |  |       | 461    |   |  |  | (1,732 | ) |  |  | (14,943 | )
|Decline in future cash flows resulting from a 10%
    appreciation of the euro after hedging activities |  |     | (106    | )   |  |     | (15    | )     |  |       | 6      |   |  |  | 8      |   |  |  | (107    | )

To address the effects of foreign exchange
translation risk in 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 contemplated or
made, we incorporate the approximate value into 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 are generated by aggregating the sensitivities of
the exposure denominated in various currencies.

Our fair value interest risk results primarily
from our long-term fixed rate debt obligations. 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
4 million
and
222 million
at September 30, 2002 and 2001, respectively. The
significant decrease from the prior year is primarily due to
further swapping of fixed versus floating interest rates of our
debt.

Our cash flow interest rate risk on our variable
rate portfolio was
67 million
at September 30, 2002 and
37 million
at September 30, 2001 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.




Item 12: Description of Securities
Other than Equity Securities

Not applicable.

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PART II






Item 15: Controls and
Procedures


Within 90 days prior to the date of this
report, Siemens performed an evaluation of the effectiveness of
the design and operation of our 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 Form 20-F and filed with the
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 Chief Executive Officer (CEO), Heinrich v.
Pierer, and our Chief Financial Officer (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 judgement 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.
There have been no significant changes in the Companys
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of the
evaluation. Therefore, no corrective actions were taken.

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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, 2002, September 30, 2001 and
    September 30, 2000                              |  |      | F-3  | 
|Supplemental Schedule of Consolidated Statements
    of Income for the fiscal years ended September 30, 2002,
    September 30, 2001 and September 30, 2000     |  |      | F-4  | 
|Consolidated Balance Sheets as of
    September 30, 2002 and September 30, 2001                                                                                 |  |      | F-5  | 
|Consolidated Statements of Cash Flow for the
    fiscal years ended September 30, 2002, September 30,
    2001 and September 30, 2000                           |  |      | F-6  | 
|Consolidated Statements of Changes in
    Shareholders Equity for the fiscal years ended
    September 30, 2002, September 30, 2001 and
    September 30, 2000 |  |      | F-7  | 
|Segment Information for the fiscal years ended
    September 30, 2002, September 30, 2001 and
    September 30, 2000                                            |  |      | F-8  | 
|Notes to the Consolidated Financial Statements                                                                                                                  |  |      | F-10 | 

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##### 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, 2002 and 2001, 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, 2002. 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
auditing standards generally accepted in the United States of
America. 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, 2002 and 2001, and the results of their
operations and their cash flows for each of the years in the
three-year period ended September 30, 2002 in conformity
with accounting principles generally accepted in the United
States of America.

As discussed in Note 2 to the consolidated
financial statements, effective October 1, 2001, Siemens AG
adopted Statement of Financial Accounting Standards
No. 142, Goodwill and Other Intangible Assets.



| |                                    
| | -----------------------------------
| | KPMG Deutsche Treuhand-Gesellschaft
| | Aktiengesellschaft                 
| | Wirtschaftsprüfungsgesellschaft    

Munich, Germany

November 28, 2002


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##### Table of Contents



SIEMENS AG

CONSOLIDATED STATEMENTS OF INCOME

For the fiscal years ended September 30,
2002, 2001 and 2000


(in millions of
, per share
amounts in
)


|                                                                                                                                                                 |                            |      |      |                   |  |      |         |       |  |  |         |       |  |  |         |        | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ---- | ---- | ----------------- |  | ---- | ------- | ----- |  |  | ------- | ----- |  |  | ------- | ------ | 
|                                                                                                                                                                 |                            |      |      |                  
|                                                                                                                                                                 |                            |      |      | Siemens worldwide
|                                                                                                                                                                 |                            |      |      |                  
|                                                                                                                                                                 |                            | Note |      | 2002              |  | 2001 |         | 2000 
|                                                                                                                                                                 |                            |      |      |                   |  |      |         |      
|Net sales                                                                                                                                                        |                            |      |      |                   |  |      | 84,016  |       |  |  | 87,000  |       |  |  | 77,484  |       
|Cost of sales                                                                                                                                                    |                            |      |      |                   |  |      | (60,810 | )     |  |  | (63,895 | )     |  |  | (55,949 | )     
|                                                                                                                                                                 |                            |      |      |                   |  |      |         |       |  |  |         |       |  |  |         |       
|Gross profit on sales                                                                                                                                            |                            |      |      |                   |  |      | 23,206  |       |  |  | 23,105  |       |  |  | 21,535  |       
|Research and development expenses                                                                                                                                |                            |      |      |                   |  |      | (5,819  | )     |  |  | (6,782  | )     |  |  | (5,848  | )     
|Marketing, selling and general administrative
    expenses                                                                                                       |                            |      |      |                   |  |      | (15,455 | )     |  |  | (16,640 | )     |  |  | (14,173 | )     
|Other operating income (expense), net (therein
    gain on issuance of subsidiary and associated company stock
    37,
    617 and
    534,
    respectively) |                            |      | 3, 4 |                   |  |      | 1,321   |       |  |  | 2,762   |       |  |  | 7,549   |       
|Income (loss) from investments in other
    companies, net                                                                                                       |                            |      | 5    |                   |  |      | (114    | )     |  |  | 49      |       |  |  | 299     |       
|Income from financial assets and marketable
    securities, net                                                                                                  |                            |      | 6    |                   |  |      | 18      |       |  |  | 173     |       |  |  | 2,732   |       
|Interest income, net                                                                                                                                             |                            |      | 7    |                   |  |      | 318     |       |  |  | 11      |       |  |  | 145     |       
|                                                                                                                                                                 |                            |      |      |                   |  |      |         |       |  |  |         |       |  |  |         |       
|                                                                                                                                                                 | Income before income taxes |      |      |                   |  |      |         | 3,475 |  |  |         | 2,678 |  |  |         | 12,239 | 
|Income taxes                                                                                                                                                     |                            |      | 8    |                   |  |      | (849    | )     |  |  | (781    | )     |  |  | (3,017  | )     
|Minority interest                                                                                                                                                |                            |      |      |                   |  |      | (29     | )     |  |  | 191     |       |  |  | (362    | )     
|                                                                                                                                                                 |                            |      |      |                   |  |      |         |       |  |  |         |       |  |  |         |       
|                                                                                                                                                                 | Net income                 |      |      |                   |  |      |         | 2,597 |  |  |         | 2,088 |  |  |         | 8,860  | 
|                                                                                                                                                                 |                            |      |      |                   |  |      |         |       |  |  |         |       |  |  |         |       
|Basic earnings per share                                                                                                                                         |                            |      | 28   |                   |  |      | 2.92    |       |  |  | 2.36    |       |  |  | 9.97    |       
|Diluted earnings per share                                                                                                                                       |                            |      | 28   |                   |  |      | 2.92    |       |  |  | 2.36    |       |  |  | 9.96    |       

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

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##### Table of Contents



SIEMENS AG

SUPPLEMENTAL SCHEDULE OF CONSOLIDATED
STATEMENTS OF INCOME

For the fiscal years ended September 30,
2002, 2001 and 2000


(in millions of
, per share
amounts in
)


|                                                                                                                                                                 |                                      |      |      |                   |  |                       |         |            |  |               |         |               |  |      |         |        |  |      |        |      |   |      |        |      |  |      |        |      |  |      |         |       |  |  |         |       |  |  |         |       |  |  |        |        |   |  |        |       |  |  |        |     |  |  |        |     |  |  |        |     | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ---- | ---- | ----------------- |  | --------------------- | ------- | ---------- |  | ------------- | ------- | ------------- |  | ---- | ------- | ------ |  | ---- | ------ | ---- | - | ---- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------- | ----- |  |  | ------- | ----- |  |  | ------- | ----- |  |  | ------ | ------ | - |  | ------ | ----- |  |  | ------ | --- |  |  | ------ | --- |  |  | ------ | --- | 
|                                                                                                                                                                 |                                      |      |      |                   |  |                       |         |            |  |               |         |               |  |      |         |        |  |      |        |      |   |      |        |      |  |     
|                                                                                                                                                                 |                                      |      |      |                   |  |                       |         |            |  | Eliminations, |         |               |  |      |         |        |  |      |        |      |   |     
|                                                                                                                                                                 |                                      |      |      |                   |  | reclassifications and |         |            |  |               |         | Financing and
|                                                                                                                                                                 |                                      |      |      | Siemens worldwide |  | Corporate Treasury    |         | Operations |  | Infineon(3)   |         | Real Estate  
|                                                                                                                                                                 |                                      |      |      |                   |  |                       |         |            |  |               |         |              
|                                                                                                                                                                 |                                      | Note |      | 2002              |  | 2001                  |         | 2000       |  | 2002          |         | 2001          |  | 2000 |         | 2002   |  | 2001 |        | 2000 |   | 2001 |        | 2000 |  | 2002 |        | 2001 |  | 2000
|                                                                                                                                                                 |                                      |      |      |                   |  |                       |         |            |  |               |         |               |  |      |         |        |  |      |        |      |   |      |        |      |  |      |        |      |  |     
|Net sales                                                                                                                                                        |                                      |      |      |                   |  |                       | 84,016  |            |  |               | 87,000  |               |  |      | 77,484  |        |  |      | (1,297 | )    |   |      | (3,114 | )    |  |      | (3,176 | )    |  |      | 83,127  |       |  |  | 82,427  |       |  |  | 71,603  |       |  |  | 5,671  |        |   |  | 7,283  |       |  |  | 2,186  |     |  |  | 2,016  |     |  |  | 1,774  |    
|Cost of sales                                                                                                                                                    |                                      |      |      |                   |  |                       | (60,810 | )          |  |               | (63,895 | )             |  |      | (55,949 | )      |  |      | 1,222  |      |   |      | 2,899  |      |  |      | 1,656  |      |  |      | (60,322 | )     |  |  | (60,192 | )     |  |  | (51,946 | )     |  |  | (5,021 | )      |   |  | (4,111 | )     |  |  | (1,710 | )   |  |  | (1,581 | )   |  |  | (1,548 | )  
|                                                                                                                                                                 |                                      |      |      |                   |  |                       |         |            |  |               |         |               |  |      |         |        |  |      |        |      |   |      |        |      |  |      |        |      |  |      |         |       |  |  |         |       |  |  |         |       |  |  |        |        |   |  |        |       |  |  |        |     |  |  |        |     |  |  |        |    
|Gross profit on sales                                                                                                                                            |                                      |      |      |                   |  |                       | 23,206  |            |  |               | 23,105  |               |  |      | 21,535  |        |  |      | (75    | )    |   |      | (215   | )    |  |      | (1,520 | )    |  |      | 22,805  |       |  |  | 22,235  |       |  |  | 19,657  |       |  |  | 650    |        |   |  | 3,172  |       |  |  | 476    |     |  |  | 435    |     |  |  | 226    |    
|Research and development expenses                                                                                                                                |                                      |      |      |                   |  |                       | (5,819  | )          |  |               | (6,782  | )             |  |      | (5,848  | )      |  |      | (169   | )    |   |      | (166   | )    |  |      | (204   | )    |  |      | (5,650  | )     |  |  | (5,427  | )     |  |  | (4,619  | )     |  |  | (1,189 | )      |   |  | (1,025 | )     |  |  |       |     |  |  |       |     |  |  |       |    
|Marketing, selling and general administrative
    expenses                                                                                                       |                                      |      |      |                   |  |                       | (15,455 | )          |  |               | (16,640 | )             |  |      | (14,173 | )      |  |      | (90    | )    |   |      | 2      |      |  |      | 31     |      |  |      | (15,083 | )     |  |  | (15,559 | )     |  |  | (13,333 | )     |  |  | (786   | )      |   |  | (670   | )     |  |  | (282   | )   |  |  | (297   | )   |  |  | (201   | )  
|Other operating income (expense), net (therein
    gain on issuance of subsidiary and associated company stock
    37,
    617 and
    534,
    respectively) |                                      |      | 3, 4 |                   |  |                       | 1,321   |            |  |               | 2,762   |               |  |      | 7,549   |        |  |      | 844    |      |   |      | 2,537  |      |  |      | 7,315  |      |  |      | 326     |       |  |  | (118    | )     |  |  | (13     | )     |  |  | 200    |        |   |  | 2      |       |  |  | 151    |     |  |  | 143    |     |  |  | 245    |    
|Income (loss) from investments in other
    companies, net                                                                                                       |                                      |      | 5    |                   |  |                       | (114    | )          |  |               | 49      |               |  |      | 299     |        |  |      | (16    | )    |   |      |       |      |  |      | (175   | )    |  |      | (142    | )     |  |  | (24     | )     |  |  | 310     |       |  |  | 36     |        |   |  | 154    |       |  |  | 44     |     |  |  | 37     |     |  |  | 10     |    
|Income (expense) from financial assets and
    marketable securities, net                                                                                        |                                      |      | 6    |                   |  |                       | 18      |            |  |               | 173     |               |  |      | 2,732   |        |  |      | (81    | )    |   |      | (140   | )    |  |      | 1,867  |      |  |      | 124     |       |  |  | 263     |       |  |  | 832     |       |  |  | 65     |        |   |  | 37     |       |  |  | (25    | )   |  |  | (15    | )   |  |  | (4     | )  
|Interest income (expense) of Operations, net                                                                                                                     |                                      |      | 7    |                   |  |                       | 94      |            |  |               | (32     | )             |  |      | (35     | )      |  |      |       |      |   |      | 9      |      |  |      |       |      |  |      | 94      |       |  |  | (41     | )     |  |  | (35     | )     |  |  |       |        |   |  |       |       |  |  |       |     |  |  |       |     |  |  |       |    
|                                                                                                                                                                 |                                      |      |      |                   |  |                       |         |            |  |               |         |               |  |      |         |        |  |      |        |      |   |      |        |      |  |      |        |      |  |      |         |       |  |  |         |       |  |  |         |       |  |  |        |        |   |  |        |       |  |  |        |     |  |  |        |     |  |  |        |    
|                                                                                                                                                                 | EBIT(1)from Operations/EBIT Infineon |      |      |                   |  |                       |         |           |  |               |         |              |  |      |         |       |  |      |        |     |   |      |        |     |  |      |        |     |  |      |         | 2,474 |  |  |         | 1,329 |  |  |         | 2,799 |  |  |        | (1,024 | ) |  |        | 1,670 |  |  |        |    |  |  |        |    |  |  |        |    | 
|Other interest income (expense), net                                                                                                                             |                                      |      | 7    |                   |  |                       | 224     |            |  |               | 43      |               |  |      | 180     |        |  |      | 239    |      |   |      | 280    |      |  |      | 323    |      |  |      | (96     | )     |  |  | (304    | )     |  |  | (220    | )     |  |  | (1     | )      |   |  | 74     |       |  |  | 81     |     |  |  | 68     |     |  |  | 3      |    
|Goodwill amortization and purchased in- process
    R&D expenses of Operations                                                                                   |                                      |      |      |                   |  |                       |        |            |  |               |        |               |  |      |        |        |  |      |       |      |   |      | 665    |      |  |      | 253    |      |  |      |        |       |  |  | (665    | )     |  |  | (253    | )     |  |  |       |        |   |  |       |       |  |  |       |     |  |  |       |     |  |  |       |    
|Gains on sales and dispositions of significant
    business interests                                                                                            |                                      |      |      |                   |  |                       |        |            |  |               |        |               |  |      |        |        |  |      | (936   | )    |   |      | (4,065 | )    |  |      | (7,826 | )    |  |      | 936     |       |  |  | 4,065   |       |  |  | 7,826   |       |  |  |       |        |   |  |       |       |  |  |       |     |  |  |       |     |  |  |       |    
|Other special items                                                                                                                                              |                                      |      |      |                   |  |                       |        |            |  |               |        |               |  |      |        |        |  |      |       |      |   |      | 1,185  |      |  |      | 280    |      |  |      |        |       |  |  | (1,185  | )     |  |  | (280    | )     |  |  |       |        |   |  |       |       |  |  |       |     |  |  |       |     |  |  |       |    
|                                                                                                                                                                 |                                      |      |      |                   |  |                       |         |            |  |               |         |               |  |      |         |        |  |      |        |      |   |      |        |      |  |      |        |      |  |      |         |       |  |  |         |       |  |  |         |       |  |  |        |        |   |  |        |       |  |  |        |     |  |  |        |     |  |  |        |    
|                                                                                                                                                                 | Income (loss) before income taxes    |      |      |                   |  |                       |         | 3,475      |  |               |         | 2,678         |  |      |         | 12,239 |  |      |        | (284 | ) |      |        | 92   |  |      |        | 344  |  |      |         | 3,314 |  |  |         | 3,240 |  |  |         | 9,872 |  |  |        | (1,025 | ) |  |        | 1,744 |  |  |        | 445 |  |  |        | 371 |  |  |        | 279 | 
|Income taxes(2)                                                                                                                                                  |                                      |      | 8    |                   |  |                       | (849    | )          |  |               | (781    | )             |  |      | (3,017  | )      |  |      | 69     |      |   |      | (30    | )    |  |      | (79    | )    |  |      | (809    | )     |  |  | (1,058  | )     |  |  | (2,262  | )     |  |  | 428    |        |   |  | (612   | )     |  |  | (109   | )   |  |  | (121   | )   |  |  | (64    | )  
|Minority interest                                                                                                                                                |                                      |      |      |                   |  |                       | (29     | )          |  |               | 191     |               |  |      | (362    | )      |  |      | 2      |      |   |      |       |      |  |      |       |      |  |      | (31     | )     |  |  | 185     |       |  |  | (356    | )     |  |  | 6      |        |   |  | (6     | )     |  |  |       |     |  |  |       |     |  |  |       |    
|                                                                                                                                                                 |                                      |      |      |                   |  |                       |         |            |  |               |         |               |  |      |         |        |  |      |        |      |   |      |        |      |  |      |        |      |  |      |         |       |  |  |         |       |  |  |         |       |  |  |        |        |   |  |        |       |  |  |        |     |  |  |        |     |  |  |        |    
|                                                                                                                                                                 | Net income (loss)                    |      |      |                   |  |                       |         | 2,597      |  |               |         | 2,088         |  |      |         | 8,860  |  |      |        | (213 | ) |      |        | 62   |  |      |        | 265  |  |      |         | 2,474 |  |  |         | 2,367 |  |  |         | 7,254 |  |  |        | (591   | ) |  |        | 1,126 |  |  |        | 336 |  |  |        | 250 |  |  |        | 215 | 
|                                                                                                                                                                 |                                      |      |      |                   |  |                       |         |            |  |               |         |               |  |      |         |        |  |      |        |      |   |      |        |      |  |      |        |      |  |      |         |       |  |  |         |       |  |  |         |       |  |  |        |        |   |  |        |       |  |  |        |     |  |  |        |     |  |  |        |    
|Basic earnings per share                                                                                                                                         |                                      |      | 28   |                   |  |                       | 2.92    |            |  |               | 2.36    |               |  |      | 9.97    |        |  |      |        |      |   |      |        |      |  |      |        |      |  |      |         |       |  |  |         |       |  |  |         |       |  |  |        |        |   |  |        |       |  |  |        |     |  |  |        |     |  |  |        |    
|Diluted earnings per share                                                                                                                                       |                                      |      | 28   |                   |  |                       | 2.92    |            |  |               | 2.36    |               |  |      | 9.96    |        |  |      |        |      |   |      |        |      |  |      |        |      |  |      |         |       |  |  |         |       |  |  |         |       |  |  |        |        |   |  |        |       |  |  |        |     |  |  |        |     |  |  |        |    






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | EBIT is measured as earnings before financing
    interest, income taxes and certain one-time items. In fiscal
    2001 and 2000, EBIT excluded the amortization of goodwill and
    purchased in-process research and development expenses.
    Beginning October 1, 2001, Siemens adopted the provisions
    of SFAS 142 and no longer amortizes goodwill. Interest income
    related to receivables from customers, cash allocated to the
    segments and interest expense on payables to suppliers are part
    of EBIT. EBIT differs from income before income taxes and should
    not be considered to be the same. Other companies that use EBIT
    may calculate it differently, and their figures may not be
    comparable to ours.
|(2) | The income taxes of Eliminations,
    reclassifications and Corporate Treasury, Operations, and
    Financing and Real Estate are based on the consolidated
    effective corporate tax rate applied to income before income
    taxes. The corresponding figures for fiscal year 2001 and 2000
    are calculated based on the consolidated effective corporate tax
    rate excluding Infineon.                                                                                                                                                                                                                                                                                                                                                
|(3) | 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 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-4



---



##### Table of Contents



SIEMENS AG

CONSOLIDATED BALANCE SHEETS

As of September 30, 2002 and
2001


(in millions of
)


|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |       |        | 
|---------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------------------------- | -- | --------- |  | ----------------- | ------ | ------------- | ------ | -------- | ------ | ------------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | - | ------ | ------ | ------ |  | ------ | ------ | ------ |  | ----- | ----- | ----- |  | ------ | ----- | ------ |  | ------ | ----- | ------ | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |        
|                                         |                                                                    |                                                                      |    |           |  |                   |        | Eliminations, |        |          |        |               |        |         |        |         |        |        
|                                         |                                                                    |                                                                      |    |           |  | reclassifications |        |               |        |          |        |               |        |        
|                                         |                                                                    |                                                                      |    | Siemens   |  | and Corporate     |        |               |        |          |        | Financing and
|                                         |                                                                    |                                                                      |    | worldwide |  | Treasury          |        | Operations    |        | Infineon |        | Real Estate  
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |              
|                                         |                                                                    | Note                                                                 |    | 9/30/02   |  | 9/30/01           |        | 9/30/02       |        | 9/30/01  |        | 9/30/02       |        | 9/30/01 |        | 9/30/01 |        | 9/30/02 |        | 9/30/01
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |        
|ASSETS                                   |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|Current assets                           |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|                                         | Cash and cash equivalents                                          |                                                                      |    |           |  |                   |        | 11,196        |        |          |        | 7,802         |        |         |        | 10,269  |        |         |        | 6,103   |        |   |        | 873    |        |  |        | 907    |        |  |       | 757   |       |  |        | 54    |        |  |        | 35    |       
|                                         | Marketable securities                                              |                                                                      |    | 9         |  |                   |        | 399           |        |          |        | 791           |        |         |        | 25      |        |         |        | 36      |        |   |        | 356    |        |  |        | 638    |        |  |       | 93    |       |  |        | 18    |        |  |        | 24    |       
|                                         | Accounts receivable, net                                           |                                                                      |    | 10        |  |                   |        | 15,230        |        |          |        | 17,734        |        |         |        | (7      | )      |         |        | (248    | )      |   |        | 12,058 |        |  |        | 13,850 |        |  |       | 719   |       |  |        | 3,179 |        |  |        | 3,413 |       
|                                         | Intracompany receivables                                           |                                                                      |    |           |  |                   |        |              |        |          |        |              |        |         |        | (13,284 | )      |         |        | (8,989  | )      |   |        | 13,209 |        |  |        | 8,343  |        |  |       | 208   |       |  |        | 75    |        |  |        | 438   |       
|                                         | Inventories, net                                                   |                                                                      |    | 11        |  |                   |        | 10,672        |        |          |        | 13,406        |        |         |        | (5      | )      |         |        | (74     | )      |   |        | 10,592 |        |  |        | 12,485 |        |  |       | 882   |       |  |        | 85    |        |  |        | 113   |       
|                                         | Deferred income taxes                                              |                                                                      |    | 8         |  |                   |        | 1,212         |        |          |        | 1,113         |        |         |        | 64      |        |         |        |        |        |   |        | 1,143  |        |  |        | 971    |        |  |       | 39    |       |  |        | 5     |        |  |        | 103   |       
|                                         | Other current assets                                               |                                                                      |    | 12        |  |                   |        | 5,353         |        |          |        | 10,167        |        |         |        | 1,028   |        |         |        | 1,781   |        |   |        | 3,306  |        |  |        | 7,428  |        |  |       | 178   |       |  |        | 1,019 |        |  |        | 780   |       
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|                                         |                                                                    | Total current assets                                                 |    |           |  |                   |        |               | 44,062 |          |        |               | 51,013 |         |        |         | (1,910 | )       |        |         | (1,391 | ) |        |        | 41,537 |  |        |        | 44,622 |  |       |       | 2,876 |  |        |       | 4,435  |  |        |       | 4,906  | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|Long-term investments                    |                                                                    |                                                                      | 13 |           |  |                   | 5,092  |               |        |          | 3,314  |               |        |         | 2      |         |        |         | 6      |         |        |   | 4,797  |        |        |  | 2,348  |        |        |  | 655   |       |       |  | 293    |       |        |  | 305    |      
|Intangible assets, net                   |                                                                    |                                                                      | 14 |           |  |                   | 8,843  |               |        |          | 9,771  |               |        |         |       |         |        |         | (1     | )       |        |   | 8,731  |        |        |  | 9,223  |        |        |  | 437   |       |       |  | 112    |       |        |  | 112    |      
|Property, plant and equipment, net       |                                                                    |                                                                      | 14 |           |  |                   | 11,742 |               |        |          | 17,803 |               |        |         | 2      |         |        |         | 2      |         |        |   | 7,628  |        |        |  | 8,547  |        |        |  | 5,233 |       |       |  | 4,112  |       |        |  | 4,021  |      
|Deferred income taxes                    |                                                                    |                                                                      | 8  |           |  |                   | 3,686  |               |        |          | 3,684  |               |        |         | 764    |         |        |         |       |         |        |   | 2,771  |        |        |  | 3,071  |        |        |  | 412   |       |       |  | 151    |       |        |  | 201    |      
|Other assets                             |                                                                    |                                                                      | 15 |           |  |                   | 4,514  |               |        |          | 4,533  |               |        |         | 103    |         |        |         | (56    | )       |        |   | 1,304  |        |        |  | 1,240  |        |        |  | 130   |       |       |  | 3,107  |       |        |  | 3,219  |      
|Other intracompany receivables           |                                                                    |                                                                      |    |           |  |                   |       |               |        |          |       |               |        |         | (931   | )       |        |         | (152   | )       |        |   | 931    |        |        |  | 149    |        |        |  |      |       |       |  |       |       |        |  | 3      |      
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|                                         |                                                                    | Total assets                                                         |    |           |  |                   |        |               | 77,939 |          |        |               | 90,118 |         |        |         | (1,970 | )       |        |         | (1,592 | ) |        |        | 67,699 |  |        |        | 69,200 |  |       |       | 9,743 |  |        |       | 12,210 |  |        |       | 12,767 | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|LIABILITIES AND SHAREHOLDERS
    EQUITY |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|Current liabilities                      |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|                                         | Short-term debt and current maturities of
    long-term debt       |                                                                      |    | 18        |  |                   |        | 2,103         |        |          |        | 2,637         |        |         |        | 1,143   |        |         |        | 1,499   |        |   |        | 785    |        |  |        | 878    |        |  |       | 119   |       |  |        | 175   |        |  |        | 141   |       
|                                         | Accounts payable                                                   |                                                                      |    |           |  |                   |        | 8,649         |        |          |        | 10,798        |        |         |        | 6       |        |         |        | 180     |        |   |        | 8,453  |        |  |        | 9,330  |        |  |       | 1,050 |       |  |        | 190   |        |  |        | 238   |       
|                                         | Intracompany liabilities                                           |                                                                      |    |           |  |                   |        |              |        |          |        |              |        |         |        | (7,776  | )      |         |        | (7,068  | )      |   |        | 1,799  |        |  |        | 1,215  |        |  |       | 239   |       |  |        | 5,977 |        |  |        | 5,614 |       
|                                         | Accrued liabilities                                                |                                                                      |    | 16        |  |                   |        | 9,608         |        |          |        | 10,864        |        |         |        | 18      |        |         |        | 148     |        |   |        | 9,445  |        |  |        | 10,126 |        |  |       | 426   |       |  |        | 145   |        |  |        | 164   |       
|                                         | Deferred income taxes                                              |                                                                      |    | 8         |  |                   |        | 661           |        |          |        | 754           |        |         |        | (206    | )      |         |        | 1       |        |   |        | 647    |        |  |        | 631    |        |  |       | 19    |       |  |        | 220   |        |  |        | 103   |       
|                                         | Other current liabilities                                          |                                                                      |    | 17        |  |                   |        | 13,691        |        |          |        | 19,471        |        |         |        | 375     |        |         |        | 1,230   |        |   |        | 12,853 |        |  |        | 17,271 |        |  |       | 351   |       |  |        | 463   |        |  |        | 619   |       
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|                                         |                                                                    | Total current liabilities                                            |    |           |  |                   |        |               | 34,712 |          |        |               | 44,524 |         |        |         | (6,440 | )       |        |         | (4,010 | ) |        |        | 33,982 |  |        |        | 39,451 |  |       |       | 2,204 |  |        |       | 7,170  |  |        |       | 6,879  | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|Long-term debt                           |                                                                    |                                                                      | 18 |           |  |                   | 10,243 |               |        |          | 9,973  |               |        |         | 6,833  |         |        |         | 6,205  |         |        |   | 2,974  |        |        |  | 3,121  |        |        |  | 249   |       |       |  | 436    |       |        |  | 398    |      
|Pension plans and similar commitments    |                                                                    |                                                                      | 19 |           |  |                   | 5,326  |               |        |          | 4,721  |               |        |         |       |         |        |         | 45     |         |        |   | 5,299  |        |        |  | 4,653  |        |        |  |      |       |       |  | 27     |       |        |  | 23     |      
|Deferred income taxes                    |                                                                    |                                                                      | 8  |           |  |                   | 195    |               |        |          | 111    |               |        |         | (50    | )       |        |         |       |         |        |   | 119    |        |        |  | 43     |        |        |  | 53    |       |       |  | 126    |       |        |  | 15     |      
|Other accruals and provisions            |                                                                    |                                                                      | 20 |           |  |                   | 3,401  |               |        |          | 2,957  |               |        |         | 28     |         |        |         | (414   | )       |        |   | 3,068  |        |        |  | 2,653  |        |        |  | 319   |       |       |  | 305    |       |        |  | 399    |      
|Other intracompany liabilities           |                                                                    |                                                                      |    |           |  |                   |       |               |        |          |       |               |        |         | (2,341 | )       |        |         | (3,418 | )       |        |   | 45     |        |        |  | 155    |        |        |  |      |       |       |  | 2,296  |       |        |  | 3,263  |      
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|                                         |                                                                    |                                                                      |    |           |  |                   | 53,877 |               |        |          | 62,286 |               |        |         | (1,970 | )       |        |         | (1,592 | )       |        |   | 45,487 |        |        |  | 50,076 |        |        |  | 2,825 |       |       |  | 10,360 |       |        |  | 10,977 |      
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|Minority interests                       |                                                                    |                                                                      |    |           |  |                   | 541    |               |        |          | 4,020  |               |        |         |       |         |        |         |       |         |        |   | 541    |        |        |  | 4,002  |        |        |  | 18    |       |       |  |       |       |        |  |       |      
|Shareholders equity                     |                                                                    |                                                                      | 21 |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|                                         | Common stock, no par value                                         |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |       |       
|                                         |                                                                    | Authorized: 1,145,917,335 and 1,145,773,579
    shares, respectively |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |       |        | 
|                                         |                                                                    | Issued: 890,374,001 and 888,230,245 shares,
    respectively         |    |           |  |                   |        |               | 2,671  |          |        |               | 2,665  |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |       |        | 
|                                         | Additional paid-in capital                                         |                                                                      |    |           |  |                   |        | 5,053         |        |          |        | 4,901         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |       |       
|                                         | Retained earnings                                                  |                                                                      |    |           |  |                   |        | 21,471        |        |          |        | 19,762        |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |       |       
|                                         | Accumulated other comprehensive income (loss)                      |                                                                      |    |           |  |                   |        | (5,670        | )      |          |        | (3,516        | )      |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |       |       
|                                         | Treasury stock, at cost. 49,864 and 1,116 shares,
    respectively |                                                                      |    |           |  |                   |        | (4            | )      |          |        |              |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |       |       
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|                                         |                                                                    | Total shareholders equity                                           |    |           |  |                   |        |               | 23,521 |          |        |               | 23,812 |         |        |         |       |         |        |         |       |   |        |        | 21,671 |  |        |        | 15,122 |  |       |       | 6,900 |  |        |       | 1,850  |  |        |       | 1,790  | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      
|                                         |                                                                    | Total liabilities and shareholders equity                           |    |           |  |                   |        |               | 77,939 |          |        |               | 90,118 |         |        |         | (1,970 | )       |        |         | (1,592 | ) |        |        | 67,699 |  |        |        | 69,200 |  |       |       | 9,743 |  |        |       | 12,210 |  |        |       | 12,767 | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |          |        |               |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |       |  |        |       |        |  |        |      

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

F-5



---



##### Table of Contents



SIEMENS AG

CONSOLIDATED STATEMENTS OF CASH FLOW

For the fiscal years ended September 30,
2002, 2001 and 2000


(in millions of
)


|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |        |      |     |        |  
|---------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------ | ------------------------------------------------------- | ------ | ---------- | ----- | ------------- | ------ | ------------- | ------ | ------ | ------ | ------ | ------ | ----- | ---- | ---- | ----- | ------ | ------ | ---- | ----- | ----- | ------ | ------ | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ----- | ---- | ------ | ------ | ---- | ---- | ------ | ---- | --- | --- | ---- | ------ | ---- | ---- | ---- | ------ | ---- | --- | ------ | -
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |      
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       | Eliminations, |        |               |        |        |        |        |        |       |      |      |       |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | reclassifications and                                   |        |            |       |               |        | Financing and
|                                                                       |                                                                                                 | Siemens worldwide                                                                                                                                            |                                                                    | Corporate Treasury                                      |        | Operations |       | Infineon      |        | Real Estate  
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |              
|                                                                       |                                                                                                 | 2002                                                                                                                                                         |                                                                    | 2001                                                    |        | 2000       |       | 2002          |        | 2001          |        | 2000   |        | 2002   |        | 2001  |      | 2000 |       | 2001   |        | 2000 |       | 2002  |        | 2001   |        | 2000  
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |       
|Cash flows from operating activities                                   |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |       
|                                                                       | Net income                                                                                      |                                                                                                                                                              |                                                                    | 2,597                                                   |        |            |       | 2,088         |        |               |        | 8,860  |        |        |        | (213  | )    |      |       | 62     |        |      |       | 265   |        |        |        | 2,474  |        |       |        | 2,367  |        |       |        | 7,254  |        |       |        | (591   | )     |      |        | 1,126  |      |      |        | 336  |     |     |      | 250    |      |      |      | 215    |     
|                                                                       | Adjustments to reconcile net income to cash
    provided                                        |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |        |     
|                                                                       |                                                                                                 | Minority interest                                                                                                                                            |                                                                    |                                                         | 29     |            |       |               | (191   | )             |        |        | 362    |        |        |       | (2   | )    |       |        |       |      |       |       |       |        |        |        | 31     |       |        |        | (185   | )     |        |        | 356    |       |        |        | (6    | )    |        |        | 6    |      |        |      |    |     |      |        |     |      |      |        |     |    
|                                                                       |                                                                                                 | Amortization, depreciation and impairments                                                                                                                   |                                                                    |                                                         | 4,126  |            |       |               | 6,264  |               |        |        | 4,652  |        |        |       | 209  |      |       |        |       |      |       |       |       |        |        |        | 3,440  |       |        |        | 4,684  |       |        |        | 3,428  |       |        |        | 1,122 |      |        |        | 834  |      |        |      | 477 |     |      |        | 458  |      |      |        | 390  |    
|                                                                       |                                                                                                 | Deferred taxes                                                                                                                                               |                                                                    |                                                         | (191   | )          |       |               | 36     |               |        |        | 585    |        |        |       | (185 | )    |       |        | 13     |      |       |       | 16     |        |        |        | 18     |       |        |        | 463    |       |        |        | 464    |       |        |        | (494  | )    |        |        | 91   |      |        |      | (24 | )   |      |        | 54   |      |      |        | 14   |    
|                                                                       |                                                                                                 | Gains on sales and disposals of businesses and
    property, plant and equipment, net, and gain from issuance of
    subsidiary and associated company stock |                                                                    |                                                         | (1,610 | )          |       |               | (4,429 | )             |        |        | (7,942 | )      |        |       | (936 | )    |       |        | (4,065 | )    |       |       | (7,826 | )      |        |        | (588   | )     |        |        | (7     | )     |        |        | (3     | )     |        |        | (246  | )    |        |        | (2   | )    |        |      | (86 | )   |      |        | (111 | )    |      |        | (111 | )  
|                                                                       |                                                                                                 | (Gains) losses on sales of investments, net                                                                                                                  |                                                                    |                                                         | (177   | )          |       |               | 141    |               |        |        | (288   | )      |        |       | 7    |      |       |        |       |      |       |       |       |        |        |        | (172   | )     |        |        | 174    |       |        |        | (288   | )     |        |        |      |      |        |        |     |      |        |      | (12 | )   |      |        | (33  | )    |      |        |     |    
|                                                                       |                                                                                                 | Gains on sales and dispositions of significant
    business interests                                                                                        |                                                                    |                                                         |       |            |       |               |       |               |        |        |       |        |        |       | 936  |      |       |        | 4,065  |      |       |       | 7,826  |        |        |        | (936   | )     |        |        | (4,065 | )     |        |        | (7,826 | )     |        |        |      |      |        |        |     |      |        |      |    |     |      |        |     |      |      |        |     |    
|                                                                       |                                                                                                 | Losses (gains) on sales and impairments of
    marketable securities, net                                                                                    |                                                                    |                                                         | 4      |            |       |               | (209   | )             |        |        | (280   | )      |        |       | (2   | )    |       |        |       |      |       |       |       |        |        |        | 3      |       |        |        | (203   | )     |        |        | (260   | )     |        |        | (1    | )    |        |        | (20  | )    |        |      | 3   |     |      |        | (5   | )    |      |        |     |    
|                                                                       |                                                                                                 | Loss (income) from equity investees, net of
    dividends received                                                                                           |                                                                    |                                                         | 298    |            |       |               | 27     |               |        |        | 51     |        |        |       | 17   |      |       |        | 1      |      |       |       |       |        |        |        | 322    |       |        |        | 56     |       |        |        | 152    |       |        |        | (25   | )    |        |        | (101 | )    |        |      | (41 | )   |      |        | (5   | )    |      |        |     |    
|                                                                       |                                                                                                 | Write-off of acquired in-process research and
    development                                                                                                |                                                                    |                                                         |       |            |       |               | 195    |               |        |        | 165    |        |        |       |     |      |       |        |       |      |       |       |       |        |        |        |       |       |        |        | 126    |       |        |        | 139    |       |        |        | 69    |      |        |        | 26   |      |        |      |    |     |      |        |     |      |      |        |     |    
|                                                                       |                                                                                                 | Change in trading securities                                                                                                                                 |                                                                    |                                                         |       |            |       |               |       |               |        |        | (2,175 | )      |        |       |     |      |       |        |       |      |       |       |       |        |        |        |       |       |        |        |       |       |        |        | (2,175 | )     |        |        |      |      |        |        |     |      |        |      |    |     |      |        |     |      |      |        |     |    
|                                                                       |                                                                                                 | Change in current assets and liabilities                                                                                                                     |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |        |      |    
|                                                                       |                                                                                                 |                                                                                                                                                              | (Increase) decrease in inventories, net                            |                                                         |        | 1,349      |       |               |        | (716          | )      |        |        | (984   | )      |       |      | 86   |       |        |        |     |       |       |        |       |        |        |        | 1,234 |        |        |        | (746  | )      |        |        | (900  | )      |        |       | (36  | )      |        |      | (108 | )      |      |     | 29  |      |        |      | 66   |      |        |      | 24  |       
|                                                                       |                                                                                                 |                                                                                                                                                              | (Increase) decrease in accounts receivable, net                    |                                                         |        | 1,763      |       |               |        | 1,797         |        |        |        | (1,374 | )      |       |      | 844  |       |        |        | (38  | )     |       |        | (1,475 | )      |        |        | 871   |        |        |        | 1,021 |        |        |        | 550   |        |        |       | 755  |        |        |      | (683 | )      |      |     | 48  |      |        |      | 59   |      |        |      | 234 |       
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in outstanding balance of
    receivables sold |                                                         |        | (503       | )     |               |        | 866           |        |        |        |       |        |       |      | (607 | )     |        |        | 866  |       |       |        |       |        |        |        | 104   |        |        |        |      |        |        |        |      |        |        |       |     |        |        |      |     |        |      |     |    |      |        |      |     |      |        |      |    |       
|                                                                       |                                                                                                 |                                                                                                                                                              | (Increase) decrease in other current assets                        |                                                         |        | 1,213      |       |               |        | (1,397        | )      |        |        | 503    |        |       |      | 459  |       |        |        | (229 | )     |       |        | (100   | )      |        |        | 833   |        |        |        | (848  | )      |        |        | 398   |        |        |       | (139 | )      |        |      | (13  | )      |      |     | (79 | )    |        |      | (181 | )    |        |      | 218 |       
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in accounts payable                            |                                                         |        | (899       | )     |               |        | 467           |        |        |        | 1,760  |        |       |      | (254 | )     |        |        | (43  | )     |       |        | (59    | )      |        |        | (595  | )      |        |        | 428   |        |        |        | 1,364 |        |        |       | 58   |        |        |      | 469  |        |      |     | (50 | )    |        |      | 24   |      |        |      | (14 | )     
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in accrued liabilities                         |                                                         |        | (575       | )     |               |        | 629           |        |        |        | 957    |        |       |      | 30   |       |        |        | 23   |       |       |        | 5      |        |        |        | (577  | )      |        |        | 974   |        |        |        | 441   |        |        |       | (322 | )      |        |      | 467  |        |      |     | (28 | )    |        |      | (46  | )    |        |      | 44  |       
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in other current liabilities                   |                                                         |        | (1,025     | )     |               |        | 2,682         |        |        |        | 1,006  |        |       |      | (99  | )     |        |        | (100 | )     |       |        | (125   | )      |        |        | (851  | )      |        |        | 2,694 |        |        |        | 1,095 |        |        |       | 27   |        |        |      | 103  |        |      |     | (75 | )    |        |      | 61   |      |        |      | (67 | )     
|                                                                       |                                                                                                 | Supplemental contributions to pension trusts                                                                                                                 |                                                                    |                                                         | (1,782 | )          |       |               |       |               |        |        |       |        |        |       |     |      |       |        |       |      |       |       |       |        |        |        | (1,782 | )     |        |        |       |       |        |        |       |       |        |        |      |      |        |        |     |      |        |      |    |     |      |        |     |      |      |        |     |    
|                                                                       |                                                                                                 | Change in other assets and liabilities                                                                                                                       |                                                                    |                                                         | 947    |            |       |               | (1,234 | )             |        |        | 296    |        |        |       | 439  |      |       |        | (289   | )    |       |       | (163   | )      |        |        | 448    |       |        |        | (1,048 | )     |        |        | 366    |       |        |        | 40    |      |        |        | (115 | )    |        |      | 60  |     |      |        | 63   |      |      |        | 208  |    
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | Net cash provided by (used in) operating
    activities |        |            | 5,564 |               |        |               | 7,016  |        |        |        | 6,154  |       |      |      | 729   |        |        |      | 266   |       |        |        | (1,636 | )      |        |       | 4,277  |        |        |       | 5,885  |        |        |       | 4,555  |        |       |      | 211    |        |      |      | 2,080  |      |     |     | 558  |        |      |      | 654  |        |      |     | 1,155  |  
|Cash flows from investing activities                                   |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |       
|                                                                       | Additions to intangible assets and property,
    plant and equipment                            |                                                                                                                                                              |                                                                    | (3,894                                                  | )      |            |       | (7,048        | )      |               |        | (5,544 | )      |        |        | (149  | )    |      |       |       |        |      |       |      |        |        |        | (3,149 | )      |       |        | (4,044 | )      |       |        | (3,375 | )      |       |        | (2,364 | )     |      |        | (1,614 | )    |      |        | (596 | )   |     |      | (640   | )    |      |      | (555   | )   
|                                                                       | Acquisitions, net of cash acquired                                                              |                                                                                                                                                              |                                                                    | (3,787                                                  | )      |            |       | (3,898        | )      |               |        | (3,299 | )      |        |        |      |      |      |       |       |        |      |       |      |        |        |        | (3,787 | )      |       |        | (3,898 | )      |       |        | (3,299 | )      |       |        |       |       |      |        |       |      |      |        |     |     |     |      |       |      |      |      |       |     
|                                                                       | Purchases of investments                                                                        |                                                                                                                                                              |                                                                    | (332                                                    | )      |            |       | (710          | )      |               |        | (2,901 | )      |        |        | (65   | )    |      |       |       |        |      |       |      |        |        |        | (263   | )      |       |        | (419   | )      |       |        | (2,449 | )      |       |        | (214   | )     |      |        | (302   | )    |      |        | (4   | )   |     |      | (77    | )    |      |      | (150   | )   
|                                                                       | Purchases of marketable securities (other than
    trading)                                     |                                                                                                                                                              |                                                                    | (338                                                    | )      |            |       | (436          | )      |               |        | (491   | )      |        |        | (306  | )    |      |       | (11    | )      |      |       |      |        |        |        | (27    | )      |       |        | (329   | )      |       |        | (39    | )      |       |        | (82    | )     |      |        | (452   | )    |      |        | (5   | )   |     |      | (14    | )    |      |      |       |     
|                                                                       | Increase in receivables from financing activities                                               |                                                                                                                                                              |                                                                    | (172                                                    | )      |            |       | (619          | )      |               |        | (258   | )      |        |        | (864  | )    |      |       | 714    |        |      |       | 1,762 |        |        |        |       |        |       |        |       |        |       |        |       |        |       |        |       |       |      |        |       |      |      |        | 692  |     |     |      | (1,333 | )    |      |      | (2,020 | )   
|                                                                       | Increase (decrease) in outstanding balance of
    receivables sold by SFS                       |                                                                                                                                                              |                                                                    |                                                        |        |            |       |              |        |               |        |       |        |        |        | 607   |      |      |       | (866   | )      |      |       |      |        |        |        |       |        |       |        |       |        |       |        |       |        |       |        |       |       |      |        |       |      |      |        | (607 | )   |     |      | 866    |      |      |      |       |     
|                                                                       | Proceeds from sales of long-term investments,
    intangibles and property, plant and equipment |                                                                                                                                                              |                                                                    | 1,218                                                   |        |            |       | 3,804         |        |               |        | 1,287  |        |        |        |      |      |      |       | 4      |        |      |       | 4     |        |        |        | 801    |        |       |        | 3,454  |        |       |        | 885    |        |       |        | 27     |       |      |        | 41     |      |      |        | 417  |     |     |      | 319    |      |      |      | 357    |     
|                                                                       | Proceeds from sales and dispositions of businesses                                              |                                                                                                                                                              |                                                                    | 6,097                                                   |        |            |       | 1,878         |        |               |        | 10,383 |        |        |        |      |      |      |       | 1,475  |        |      |       | 821   |        |        |        | 6,097  |        |       |        | 57     |        |       |        | 9,562  |        |       |        | 346    |       |      |        |       |      |      |        |     |     |     |      |       |      |      |      |       |     
|                                                                       | Proceeds from sales of marketable securities
    (other than trading)                           |                                                                                                                                                              |                                                                    | 398                                                     |        |            |       | 1,143         |        |               |        | 388    |        |        |        | 317   |      |      |       |       |        |      |       | 2     |        |        |        | 78     |        |       |        | 660    |        |       |        | 385    |        |       |        | 474    |       |      |        |       |      |      |        | 3    |     |     |      | 9      |      |      |      | 1      |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | Net cash (used in) provided by investing
    activities |        |            | (810  | )             |        |               | (5,886 | )      |        |        | (435   | )     |      |      | (460  | )      |        |      | 1,316 |       |        |        | 2,589  |        |        |       | (250   | )      |        |       | (4,519 | )      |        |       | 1,670  |        |       |      | (1,813 | )      |      |      | (2,327 | )    |     |     | (100 | )      |      |      | (870 | )      |      |     | (2,367 | )
|Cash flows from financing activities                                   |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |       
|                                                                       | Proceeds from issuance of capital stock                                                         |                                                                                                                                                              |                                                                    | 156                                                     |        |            |       | 514           |        |               |        |       |        |        |        |      |      |      |       | (1,495 | )      |      |       | (821  | )      |        |        | 156    |        |       |        | 514    |        |       |        |       |        |       |        | 1,495  |       |      |        | 821    |      |      |        |     |     |     |      |       |      |      |      |       |     
|                                                                       | Purchase of common stock of Company                                                             |                                                                                                                                                              |                                                                    | (152                                                    | )      |            |       | (514          | )      |               |        | (1,001 | )      |        |        |      |      |      |       |       |        |      |       |      |        |        |        | (152   | )      |       |        | (514   | )      |       |        | (1,001 | )      |       |        |       |       |      |        |       |      |      |        |     |     |     |      |       |      |      |      |       |     
|                                                                       | Proceeds from issuance of treasury shares                                                       |                                                                                                                                                              |                                                                    | 81                                                      |        |            |       | 233           |        |               |        |       |        |        |        |      |      |      |       |       |        |      |       |      |        |        |        | 81     |        |       |        | 233    |        |       |        |       |        |       |        |       |       |      |        |       |      |      |        |     |     |     |      |       |      |      |      |       |     
|                                                                       | Proceeds from issuance of debt                                                                  |                                                                                                                                                              |                                                                    | 384                                                     |        |            |       | 4,141         |        |               |        | 2,600  |        |        |        | 384   |      |      |       | 4,141  |        |      |       | 100   |        |        |        |       |        |       |        |       |        |       |        | 2,500  |        |       |        |       |       |      |        |       |      |      |        |     |     |     |      |       |      |      |      |       |     
|                                                                       | Repayment of debt                                                                               |                                                                                                                                                              |                                                                    | (847                                                    | )      |            |       | (976          | )      |               |        | (1,156 | )      |        |        | (809  | )    |      |       | (921   | )      |      |       | (320  | )      |        |        | (15    | )      |       |        | 2      |        |       |        | (733   | )      |       |        | (20    | )     |      |        | (78    | )    |      |        | (23  | )   |     |      | (37    | )    |      |      | (25    | )   
|                                                                       | Change in short-term debt                                                                       |                                                                                                                                                              |                                                                    | 512                                                     |        |            |       | (1,828        | )      |               |        | (1,057 | )      |        |        | 843   |      |      |       | 281    |        |      |       | (139  | )      |        |        | (481   | )      |       |        | (2,354 | )      |       |        | (1,005 | )      |       |        | 114    |       |      |        | 73     |      |      |        | 150  |     |     |      | 131    |      |      |      | 14     |     
|                                                                       | Proceeds from issuance of redeemable interest in
    associated companies                       |                                                                                                                                                              |                                                                    |                                                        |        |            |       |              |        |               |        | 169    |        |        |        |      |      |      |       |       |        |      |       |      |        |        |        |       |        |       |        |       |        |       |        |       |        |       |        |       |       |      |        | 169    |      |      |        |     |     |     |      |       |      |      |      |       |     
|                                                                       | Change in restricted cash                                                                       |                                                                                                                                                              |                                                                    | (2                                                      | )      |            |       | 45            |        |               |        | (67    | )      |        |        | (2    | )    |      |       |       |        |      |       |      |        |        |        |       |        |       |        |       |        |       |        |       |        |       |        | 45     |       |      |        | (67    | )    |      |        |     |     |     |      |       |      |      |      |       |     
|                                                                       | Dividends paid                                                                                  |                                                                                                                                                              |                                                                    | (888                                                    | )      |            |       | (1,412        | )      |               |        | (593   | )      |        |        |      |      |      |       | 407    |        |      |       |      |        |        |        | (888   | )      |       |        | (1,412 | )      |       |        | (593   | )      |       |        | (407   | )     |      |        |       |      |      |        |     |     |     |      |       |      |      |      |       |     
|                                                                       | Dividends paid to minority shareholders                                                         |                                                                                                                                                              |                                                                    | (103                                                    | )      |            |       | (298          | )      |               |        | (69    | )      |        |        |      |      |      |       | (119   | )      |      |       |      |        |        |        | (103   | )      |       |        | (179   | )      |       |        | (69    | )      |       |        |       |       |      |        |       |      |      |        |     |     |     |      |       |      |      |      |       |     
|                                                                       | Intercompany financing                                                                          |                                                                                                                                                              |                                                                    |                                                        |        |            |       |              |        |               |        |       |        |        |        | 3,178 |      |      |       | (2,865 | )      |      |       | 4,717 |        |        |        | (2,615 | )      |       |        | 2,122  |        |       |        | (5,728 | )      |       |        | 619    |       |      |        | (199   | )    |      |        | (563 | )   |     |      | 124    |      |      |      | 1,210  |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | Net cash (used in) provided by financing
    activities |        |            | (859  | )             |        |               | (95    | )      |        |        | (1,174 | )     |      |      | 3,594 |        |        |      | (571  | )     |        |        | 3,537  |        |        |       | (4,017 | )      |        |       | (1,588 | )      |        |       | (6,629 | )      |       |      | 1,846  |        |      |      | 719    |      |     |     | (436 | )      |      |      | 218  |        |      |     | 1,199  |  
|Effect of deconsolidation of Infineon on cash and
    cash equivalents |                                                                                                 |                                                                                                                                                              | (383                                                               | )                                                       |        |            |      |               |        |               |       |        |        |        | (383   | )     |      |      |      |        |        |      |      |       |        |        |       |        |        |       |       |        |        |       |       |        |        |       |       |        |       |      |       |        |      |      |       |      |     |     |     |        |      |      |     |       
|Effect of exchange rates on cash and cash
    equivalents              |                                                                                                 |                                                                                                                                                              | (118                                                               | )                                                       |        |            | (95   | )             |        |               | 180    |        |        |        | (71    | )     |      |      | (13   | )      |        |      | 36    |       |        |        | (44    | )      |        |       | (82    | )      |        |       | 129    |        |        |       | 2      |        |       |      | 9      |        |      |      | (3     | )    |     |     | (2   | )      |      |      | 6    |       
|Net increase (decrease) in cash and cash
    equivalents               |                                                                                                 |                                                                                                                                                              | 3,394                                                              |                                                         |        |            | 940   |               |        |               | 4,725  |        |        |        | 3,409  |       |      |      | 998   |        |        |      | 4,526 |       |        |        | (34    | )      |        |       | (304   | )      |        |       | (275   | )      |        |       | 246    |        |       |      | 481    |        |      |      | 19     |      |     |     |     |        |      |      | (7   | )     
|Cash and cash equivalents at beginning of period                       |                                                                                                 |                                                                                                                                                              | 7,802                                                              |                                                         |        |            | 6,862 |               |        |               | 2,137  |        |        |        | 6,860  |       |      |      | 5,105 |        |        |      | 579   |       |        |        | 907    |        |        |       | 1,211  |        |        |       | 1,486  |        |        |       | 511    |        |       |      | 30     |        |      |      | 35     |      |     |     | 35   |        |      |      | 42   |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |       
|Cash and cash equivalents at end of period                             |                                                                                                 |                                                                                                                                                              | 11,196                                                             |                                                         |        |            | 7,802 |               |        |               | 6,862  |        |        |        | 10,269 |       |      |      | 6,103 |        |        |      | 5,105 |       |        |        | 873    |        |        |       | 907    |        |        |       | 1,211  |        |        |       | 757    |        |       |      | 511    |        |      |      | 54     |      |     |     | 35   |        |      |      | 35   |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |       
|Supplemental disclosure of cash paid for:                              |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |       |               |        |               |        |        |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |       
|                                                                       | Interest                                                                                        |                                                                                                                                                              |                                                                    | 794                                                     |        |            |       | 779           |        |               |        | 901    |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |        |     
|                                                                       | Income taxes                                                                                    |                                                                                                                                                              |                                                                    | 389                                                     |        |            |       | 1,098         |        |               |        | 1,910  |        |        |        |       |      |      |       |        |        |      |       |       |        |        |        |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |        |      |      |        |      |     |     |      |        |      |      |      |        |     

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

F-6



---



##### Table of Contents



SIEMENS AG

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

For the fiscal years ended September 30,
2002, 2001 and 2000


(in millions of
)


|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |       |        |        |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |        |  
|----------------------------------------- | -------------------------- | ------- | ----- | ---------- |  | -------- | ------ | --------------------------- |  | ---------- | ------ | ----------- |  | --------- | ----- | -------- | - | ----- | ------ | ------ | - |  | --- | --- | - |  | ------ | ------ | - |  | ---- | - |  |  | ------ | ------ | -
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |            
|                                          |                            |         |       |            |  |          |        | Accumulated Other           |  |            |        |            
|                                          |                            |         |       |            |  |          |        | Comprehensive Income (Loss) |  |            |        |            
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |            
|                                          |                            |         |       | Additional |  |          |        | Cumulative                  |  | Available- |        |             |  | Minimum   |       | Treasury |   |      
|                                          |                            | Capital |       | Paid-in    |  | Retained |        | Translation                 |  | for-sale   |        | Derivative  |  | Pension   |       | Shares   |   |      
|                                          |                            | Stock   |       | Capital    |  | Earnings |        | Adjustment                  |  | Securities |        | Instruments |  | Liability |       | at Cost  |   | Total
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |      
|Balance at October 1, 1999                |                            |         | 1,521 |            |  |          | 5,605  |                             |  |            | 11,887 |             |  |           | (126  | )        |   |       | 251    |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 19,138 |       
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |       |        |        |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |       
|Net income                                |                            |         |      |            |  |          |       |                             |  |            | 8,860  |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 8,860  |       
|Change in currency translation adjustment |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           | 1,059 |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 1,059  |       
|Change in unrealized gains and losses     |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           |      |          |   |       | 1,002  |        |   |  | (30 | )   |   |  | (6     | )      |   |  |     |   |  |  | 966    |       
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |       |        |        |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |       
|                                          | Total comprehensive income |         |       |           |  |          |        |                            |  |            |        | 8,860       |  |           |       | 1,059    |   |       |        | 1,002  |   |  |     | (30 | ) |  |        | (6     | ) |  |      |  |  |  |        | 10,885 |  
|Dividends paid                            |                            |         |      |            |  |          |       |                             |  |            | (593   | )           |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | (593   | )     
|Purchase of capital stock                 |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  | (224 | ) |  |  | (224   | )     
|Re-issuance of treasury stock             |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  | 222  |   |  |  | 222    |       
|Other changes                             |                            |         |      |            |  |          |       |                             |  |            | 51     |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 51     |       
|Purchase and retirement of capital stock  |                            |         | (16   | )          |  |          | (58    | )                           |  |            | (925   | )           |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | (999   | )     
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |       |        |        |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |       
|Balance at September 30, 2000             |                            |         | 1,505 |            |  |          | 5,547  |                             |  |            | 19,280 |             |  |           | 933   |          |   |       | 1,253  |        |   |  | (30 | )   |   |  | (6     | )      |   |  | (2   | ) |  |  | 28,480 |       
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |       |        |        |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |       
|Net income                                |                            |         |      |            |  |          |       |                             |  |            | 2,088  |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 2,088  |       
|Change in currency translation adjustment |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           | (532  | )        |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | (532   | )     
|Change in unrealized gains and losses     |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           |      |          |   |       | (1,199 | )      |   |  | 53  |     |   |  | (3,988 | )      |   |  |     |   |  |  | (5,134 | )     
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |       |        |        |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |       
|                                          | Total comprehensive income |         |       |           |  |          |        |                            |  |            |        | 2,088       |  |           |       | (532     | ) |       |        | (1,199 | ) |  |     | 53  |   |  |        | (3,988 | ) |  |      |  |  |  |        | (3,578 | )
|Dividends paid                            |                            |         |      |            |  |          |       |                             |  |            | (1,412 | )           |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | (1,412 | )     
|Issuance of capital stock                 |                            |         | 10    |            |  |          | 504    |                             |  |            |       |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 514    |       
|Purchase of capital stock                 |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  | (514 | ) |  |  | (514   | )     
|Re-issuance of treasury stock             |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  | 516  |   |  |  | 516    |       
|Recapitalization and stock split          |                            |         | 1,150 |            |  |          | (1,150 | )                           |  |            |       |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  |       |       
|Other changes                             |                            |         |      |            |  |          |       |                             |  |            | (194   | )           |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | (194   | )     
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |       |        |        |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |       
|Balance at September 30, 2001             |                            |         | 2,665 |            |  |          | 4,901  |                             |  |            | 19,762 |             |  |           | 401   |          |   |       | 54     |        |   |  | 23  |     |   |  | (3,994 | )      |   |  |     |   |  |  | 23,812 |       
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |       |        |        |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |       
|Net income                                |                            |         |      |            |  |          |       |                             |  |            | 2,597  |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 2,597  |       
|Change in currency translation adjustment |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           | (533  | )        |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | (533   | )     
|Change in unrealized gains and losses     |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           |      |          |   |       | (239   | )      |   |  | 36  |     |   |  | (1,418 | )      |   |  |     |   |  |  | (1,621 | )     
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |       |        |        |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |       
|                                          | Total comprehensive income |         |       |           |  |          |        |                            |  |            |        | 2,597       |  |           |       | (533     | ) |       |        | (239   | ) |  |     | 36  |   |  |        | (1,418 | ) |  |      |  |  |  |        | 443    |  
|Dividends paid                            |                            |         |      |            |  |          |       |                             |  |            | (888   | )           |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | (888   | )     
|Issuance of capital stock                 |                            |         | 6     |            |  |          | 152    |                             |  |            |       |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  |     |   |  |  | 158    |       
|Purchase of capital stock                 |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  | (167 | ) |  |  | (167   | )     
|Re-issuance of treasury stock             |                            |         |      |            |  |          |       |                             |  |            |       |             |  |           |      |          |   |       |       |        |   |  |    |     |   |  |       |        |   |  | 163  |   |  |  | 163    |       
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |       |        |        |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |       
|Balance at September 30, 2002             |                            |         | 2,671 |            |  |          | 5,053  |                             |  |            | 21,471 |             |  |           | (132  | )        |   |       | (185   | )      |   |  | 59  |     |   |  | (5,412 | )      |   |  | (4   | ) |  |  | 23,521 |       
|                                          |                            |         |       |            |  |          |        |                             |  |            |        |             |  |           |       |          |   |       |        |        |   |  |     |     |   |  |        |        |   |  |      |   |  |  |        |       

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

F-7



---



##### Table of Contents



SIEMENS AG

SEGMENT INFORMATION

As of and for the fiscal years ended
September 30, 2002, 2001 and 2000


(in millions of
)


|                                 |                                                            |                                                                       |                                                                                                             |                |   |                    |       |             |   |        |       |        |   |        |   |        |   |        |       |        |   |        |       |        |   |        |   |        |   |       |     |        |   |       |       |        |   |       |   |        |   |        |       |        |   |        |       |        |   |        | 
|-------------------------------- | ---------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | -------------- | - | ------------------ | ----- | ----------- | - | ------ | ----- | ------ | - | ------ | - | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | - | ------ | - | ------ | - | ----- | --- | ------ | - | ----- | ----- | ------ | - | ----- | - | ------ | - | ------ | ----- | ------ | - | ------ | ----- | ------ | - | ------ | 
|                                 |                                                            |                                                                       |                                                                                                             |                |   |                    |       |            
|                                 |                                                            | New orders (unaudited)                                                |                                                                                                             | External sales |   | Intersegment sales |       | Total sales
|                                 |                                                            |                                                                       |                                                                                                             |                |   |                    |       |            
|                                 |                                                            | 2002                                                                  |                                                                                                             | 2001           |   | 2000               |       | 2002        |   | 2001   |       | 2000   |   | 2002   |   | 2001   |   | 2000   |       | 2002   |   | 2001   |       | 2000  
|                                 |                                                            |                                                                       |                                                                                                             |                |   |                    |       |             |   |        |       |        |   |        |   |        |   |        |       |        |   |        |       |       
|Operations                       |                                                            |                                                                       |                                                                                                             |                |   |                    |       |             |   |        |       |        |   |        |   |        |   |        |       |        |   |        |       |        |   |        |   |        |   |       |     |        |   |       |       |        |   |       |   |        |   |        |       |        |   |        |       |       
|                                 | Information and Communication Networks (ICN)               |                                                                       |                                                                                                             | 8,697          |   |                    |       | 12,639      |   |        |       | 11,648 |   |        |   | 9,169  |   |        |       | 12,189 |   |        |       | 11,129 |   |        |   | 478    |   |       |     | 693    |   |       |       | 194    |   |       |   | 9,647  |   |        |       | 12,882 |   |        |       | 11,323 |  
|                                 | Information and Communication Mobile (ICM)                 |                                                                       |                                                                                                             | 11,538         |   |                    |       | 11,866      |   |        |       | 10,420 |   |        |   | 10,910 |   |        |       | 11,151 |   |        |       | 8,790  |   |        |   | 135    |   |       |     | 148    |   |       |       | 120    |   |       |   | 11,045 |   |        |       | 11,299 |   |        |       | 8,910  |  
|                                 | Siemens Business Services (SBS)                            |                                                                       |                                                                                                             | 6,256          |   |                    |       | 6,303       |   |        |       | 5,857  |   |        |   | 4,212  |   |        |       | 4,261  |   |        |       | 4,390  |   |        |   | 1,561  |   |       |     | 1,773  |   |       |       | 1,492  |   |       |   | 5,773  |   |        |       | 6,034  |   |        |       | 5,882  |  
|                                 | Automation and Drives (A&D)                                |                                                                       |                                                                                                             | 8,728          |   |                    |       | 9,065       |   |        |       | 8,163  |   |        |   | 7,430  |   |        |       | 7,843  |   |        |       | 6,889  |   |        |   | 1,205  |   |       |     | 1,104  |   |       |       | 1,054  |   |       |   | 8,635  |   |        |       | 8,947  |   |        |       | 7,943  |  
|                                 | Industrial Solutions and Services (I&S)                    |                                                                       |                                                                                                             | 4,120          |   |                    |       | 4,881       |   |        |       | 4,401  |   |        |   | 3,378  |   |        |       | 3,398  |   |        |       | 3,173  |   |        |   | 1,102  |   |       |     | 1,165  |   |       |       | 1,053  |   |       |   | 4,480  |   |        |       | 4,563  |   |        |       | 4,226  |  
|                                 | Siemens Dematic (SD)                                       |                                                                       |                                                                                                             | 2,810          |   |                    |       | 2,281       |   |        |       | 1,913  |   |        |   | 2,894  |   |        |       | 2,381  |   |        |       | 1,589  |   |        |   | 101    |   |       |     | 139    |   |       |       | 197    |   |       |   | 2,995  |   |        |       | 2,520  |   |        |       | 1,786  |  
|                                 | Siemens Building Technologies (SBT)                        |                                                                       |                                                                                                             | 5,601          |   |                    |       | 5,549       |   |        |       | 5,066  |   |        |   | 5,291  |   |        |       | 5,094  |   |        |       | 4,504  |   |        |   | 328    |   |       |     | 424    |   |       |       | 428    |   |       |   | 5,619  |   |        |       | 5,518  |   |        |       | 4,932  |  
|                                 | Power Generation (PG)                                      |                                                                       |                                                                                                             | 10,586         |   |                    |       | 12,219      |   |        |       | 9,409  |   |        |   | 9,398  |   |        |       | 8,487  |   |        |       | 7,726  |   |        |   | 48     |   |       |     | 76     |   |       |       | 31     |   |       |   | 9,446  |   |        |       | 8,563  |   |        |       | 7,757  |  
|                                 | Power Transmission and Distribution (PTD)                  |                                                                       |                                                                                                             | 4,429          |   |                    |       | 3,887       |   |        |       | 3,566  |   |        |   | 3,928  |   |        |       | 3,818  |   |        |       | 2,969  |   |        |   | 271    |   |       |     | 235    |   |       |       | 182    |   |       |   | 4,199  |   |        |       | 4,053  |   |        |       | 3,151  |  
|                                 | Transportation Systems (TS)                                |                                                                       |                                                                                                             | 5,247          |   |                    |       | 5,647       |   |        |       | 3,722  |   |        |   | 4,349  |   |        |       | 4,000  |   |        |       | 3,706  |   |        |   | 18     |   |       |     | 21     |   |       |       | 4      |   |       |   | 4,367  |   |        |       | 4,021  |   |        |       | 3,710  |  
|                                 | Siemens VDO Automotive (SV)                                |                                                                       |                                                                                                             | 8,515          |   |                    |       | 5,702       |   |        |       | 3,839  |   |        |   | 8,491  |   |        |       | 5,694  |   |        |       | 3,828  |   |        |   | 24     |   |       |     | 8      |   |       |       | 5      |   |       |   | 8,515  |   |        |       | 5,702  |   |        |       | 3,833  |  
|                                 | Medical Solutions (Med)                                    |                                                                       |                                                                                                             | 8,425          |   |                    |       | 8,444       |   |        |       | 5,253  |   |        |   | 7,604  |   |        |       | 7,199  |   |        |       | 4,901  |   |        |   | 19     |   |       |     | 20     |   |       |       | 23     |   |       |   | 7,623  |   |        |       | 7,219  |   |        |       | 4,924  |  
|                                 | Osram                                                      |                                                                       |                                                                                                             | 4,363          |   |                    |       | 4,522       |   |        |       | 4,327  |   |        |   | 4,308  |   |        |       | 4,200  |   |        |       | 4,038  |   |        |   | 55     |   |       |     | 322    |   |       |       | 288    |   |       |   | 4,363  |   |        |       | 4,522  |   |        |       | 4,326  |  
|                                 | Corporate, eliminations                                    |                                                                       |                                                                                                             | (5,793         | ) |                    |       | (6,890      | ) |        |       | (4,759 | ) |        |   | 1,482  |   |        |       | 1,945  |   |        |       | 3,229  |   |        |   | (5,062 | ) |       |     | (5,361 | ) |       |       | (4,329 | ) |       |   | (3,580 | ) |        |       | (3,416 | ) |        |       | (1,100 | )
|                                 |                                                            |                                                                       |                                                                                                             |                |   |                    |       |             |   |        |       |        |   |        |   |        |   |        |       |        |   |        |       |        |   |        |   |        |   |       |     |        |   |       |       |        |   |       |   |        |   |        |       |        |   |        |       |       
|                                 |                                                            |                                                                       | Total Operations                                                                                            |                |   | 83,522             |       |             |   | 86,115 |       |        |   | 72,825 |   |        |   | 82,844 |       |        |   | 81,660 |       |        |   | 70,861 |   |        |   | 283   |     |        |   | 767   |       |        |   | 742   |   |        |   | 83,127 |       |        |   | 82,427 |       |        |   | 71,603 | 
|                                 | Reconciliation to financial statements                     |                                                                       |                                                                                                             |               |   |                    |       |            |   |        |       |       |   |        |   |       |   |        |       |       |   |        |       |       |   |        |   |       |   |       |     |       |   |       |       |       |   |       |   |       |   |        |       |       |   |        |       |       |  
|                                 |                                                            | Other interest expense                                                |                                                                                                             |                |  |                    |       |             |  |        |       |        |  |        |   |        |  |        |       |        |  |        |       |        |  |        |   |        |  |       |     |        |  |       |       |        |  |       |   |        |  |        |       |        |  |        |       |        |  |       
|                                 |                                                            | Goodwill amortization and purchased in-process
    R&D expenses       |                                                                                                             |                |  |                    |       |             |  |        |       |        |  |        |   |        |  |        |       |        |  |        |       |        |  |        |   |        |  |       |     |        |  |       |       |        |  |       |   |        |  |        |       |        |  |        |       |        |  |       
|                                 |                                                            | Gains on sales and dispositions of significant
    business interests |                                                                                                             |                |  |                    |       |             |  |        |       |        |  |        |   |        |  |        |       |        |  |        |       |        |  |        |   |        |  |       |     |        |  |       |       |        |  |       |   |        |  |        |       |        |  |        |       |        |  |       
|                                 |                                                            | Other special items                                                   |                                                                                                             |                |  |                    |       |             |  |        |       |        |  |        |   |        |  |        |       |        |  |        |       |        |  |        |   |        |  |       |     |        |  |       |       |        |  |       |   |        |  |        |       |        |  |        |       |        |  |       
|                                 |                                                            |                                                                       | Operations income before income taxes/total
    assets/total amortization, depreciation and
    impairments |                |   |                   |       |             |   |       |       |        |   |       |   |        |   |       |       |        |   |       |       |        |   |       |   |        |   |      |     |        |   |      |       |        |   |      |   |        |   |       |       |        |   |       |       |        |   |       | 
|Infineon Technologies (Infineon) |                                                            |                                                                       |                                                                                                            |                |   |                    | 4,390 |             |   |        | 8,837 |        |   |        |  |        |   |        | 4,744 |        |   |        | 6,200 |        |   |        |  |        |   |       | 927 |        |   |       | 1,083 |        |   |       |  |        |   |        | 5,671 |        |   |        | 7,283 |       
|                                 | Reconciliation to financial statements                     |                                                                       |                                                                                                             |               |   |                    |       |            |   |        |       |       |   |        |   |       |   |        |       |       |   |        |       |       |   |        |   |       |   |       |     |       |   |       |       |       |   |       |   |       |   |        |       |       |   |        |       |       |  
|                                 |                                                            |                                                                       | Infineon income (loss) before income
    taxes/total assets                                                 |                |   |                   |       |             |   |       |       |        |   |       |   |        |   |       |       |        |   |       |       |        |   |       |   |        |   |      |     |        |   |      |       |        |   |      |   |        |   |       |       |        |   |       |       |        |   |       | 
|Financing and Real Estate        |                                                            |                                                                       |                                                                                                             |                |   |                    |       |             |   |        |       |        |   |        |   |        |   |        |       |        |   |        |       |        |   |        |   |        |   |       |     |        |   |       |       |        |   |       |   |        |   |        |       |        |   |        |       |       
|                                 | Siemens Financial Services (SFS)                           |                                                                       |                                                                                                             | 582            |   |                    |       | 481         |   |        |       | 354    |   |        |   | 436    |   |        |       | 373    |   |        |       | 242    |   |        |   | 146    |   |       |     | 108    |   |       |       | 112    |   |       |   | 582    |   |        |       | 481    |   |        |       | 354    |  
|                                 | Siemens Real Estate (SRE)                                  |                                                                       |                                                                                                             | 1,612          |   |                    |       | 1,542       |   |        |       | 1,410  |   |        |   | 243    |   |        |       | 223    |   |        |       | 181    |   |        |   | 1,369  |   |       |     | 1,319  |   |       |       | 1,239  |   |       |   | 1,612  |   |        |       | 1,542  |   |        |       | 1,420  |  
|                                 | Eliminations                                               |                                                                       |                                                                                                             |               |   |                    |       |            |   |        |       |       |   |        |   |       |   |        |       |       |   |        |       |       |   |        |   | (8     | ) |       |     | (7     | ) |       |       |       |   |       |   | (8     | ) |        |       | (7     | ) |        |       |       |  
|                                 |                                                            |                                                                       |                                                                                                             |                |   |                    |       |             |   |        |       |        |   |        |   |        |   |        |       |        |   |        |       |        |   |        |   |        |   |       |     |        |   |       |       |        |   |       |   |        |   |        |       |        |   |        |       |       
|                                 |                                                            |                                                                       | Total Financing and Real Estate                                                                             |                |   | 2,194              |       |             |   | 2,023  |       |        |   | 1,764  |   |        |   | 679    |       |        |   | 596    |       |        |   | 423    |   |        |   | 1,507 |     |        |   | 1,420 |       |        |   | 1,351 |   |        |   | 2,186  |       |        |   | 2,016  |       |        |   | 1,774  | 
|                                 |                                                            |                                                                       |                                                                                                             |                |   |                    |       |             |   |        |       |        |   |        |   |        |   |        |       |        |   |        |       |        |   |        |   |        |   |       |     |        |   |       |       |        |   |       |   |        |   |        |       |        |   |        |       |       
|                                 | Eliminations, reclassifications and Corporate
    Treasury |                                                                       |                                                                                                             | 498            |   |                    |       |            |   |        |       |       |   |        |   | 493    |   |        |       |       |   |        |       |       |   |        |   | (1,790 | ) |       |     | (3,114 | ) |       |       | (3,176 | ) |       |   | (1,297 | ) |        |       | (3,114 | ) |        |       | (3,176 | )
|                                 |                                                            |                                                                       |                                                                                                             |                |   |                    |       |             |   |        |       |        |   |        |   |        |   |        |       |        |   |        |       |        |   |        |   |        |   |       |     |        |   |       |       |        |   |       |   |        |   |        |       |        |   |        |       |       
|                                 | Siemens worldwide                                          |                                                                       |                                                                                                             | 86,214         |   |                    |       | 92,528      |   |        |       | 83,426 |   |        |   | 84,016 |   |        |       | 87,000 |   |        |       | 77,484 |   |        |   |       |   |       |     |       |   |       |       |       |   |       |   | 84,016 |   |        |       | 87,000 |   |        |       | 77,484 |  
|                                 |                                                            |                                                                       |                                                                                                             |                |   |                    |       |             |   |        |       |        |   |        |   |        |   |        |       |        |   |        |       |        |   |        |   |        |   |       |     |        |   |       |       |        |   |       |   |        |   |        |       |        |   |        |       |       

F-8



---



##### Table of Contents



SIEMENS AG

SEGMENT INFORMATION(Continued)

As of and for the fiscal years ended
September 30, 2002, 2001 and 2000


(in millions of
)


|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |       |     |       | 
|-------------------------------- | ---------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------- | -------------------- | --- | ------------------------ | ------ | ------------------- | ------ | ----------------- | ----- | ------- | ----- | ----- | - | ------ | - | ------ | ----- | ------ | - | ------------- | ----- | ------ | - | ------ | - | ------ | ----- | ----- | ------ | ------ | ----- | ----- | ---- | ------ | ----- | ------ | - | ----- | --- | ----- | ----- | ------ | - | ----- | ----- | ------ | - | ----- | - | ----- | - | ----- | ----- | ----- | ----- | ----- | --- | ----- | --- | ----- | 
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |       
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   | Amortization,
|                                 |                                                            |                                                                       |                                                                                                             |                      |     | Net cash from operating  |        |                     |        | depreciation and 
|                                 |                                                            | EBIT                                                                  |                                                                                                             | Net capital employed |     | and investing activities |        | Capital spending(1) |        | impairments(2)(3)
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                  
|                                 |                                                            | 2002                                                                  |                                                                                                             | 2001                 |     | 2000                     |        | 9/30/02             |        | 9/30/01           |       | 9/30/00 |       | 2002  |   | 2001   |   | 2000   |       | 2002   |   | 2001          |       | 2000   |   | 2002   |   | 2001   |       | 2000 
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |      
|Operations                       |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |      
|                                 | Information and Communication Networks (ICN)               |                                                                       |                                                                                                             | (691                 | )   |                          |        | (861                | )      |                   |       | 686     |       |       |   | 1,100  |   |        |       | 3,039  |   |               |       | 4,341  |   |        |   | 711    |       |       |        | (2,350 | )     |       |      | 1,522  |       |        |   | 415   |     |       |       | 2,291  |   |       |       | 604    |   |       |   | 850   |   |       |       | 435   |       |       |     | 355   |    
|                                 | Information and Communication Mobile (ICM)                 |                                                                       |                                                                                                             | 96                   |     |                          |        | (307                | )      |                   |       | 718     |       |       |   | 1,973  |   |        |       | 2,607  |   |               |       | 2,857  |   |        |   | 594    |       |       |        | 14     |       |       |      | 813    |       |        |   | 453   |     |       |       | 543    |   |       |       | 618    |   |       |   | 368   |   |       |       | 400   |       |       |     | 254   |    
|                                 | Siemens Business Services (SBS)                            |                                                                       |                                                                                                             | 101                  |     |                          |        | (259                | )      |                   |       | 70      |       |       |   | 264    |   |        |       | 492    |   |               |       | 1,387  |   |        |   | 173    |       |       |        | 339    |       |       |      | (140   | )     |        |   | 222   |     |       |       | 484    |   |       |       | 559    |   |       |   | 282   |   |       |       | 342   |       |       |     | 268   |    
|                                 | Automation and Drives (A&D)                                |                                                                       |                                                                                                             | 723                  |     |                          |        | 981                 |        |                   |       | 865     |       |       |   | 2,197  |   |        |       | 2,619  |   |               |       | 2,611  |   |        |   | 1,019  |       |       |        | 533    |       |       |      | 588    |       |        |   | 248   |     |       |       | 429    |   |       |       | 766    |   |       |   | 240   |   |       |       | 242   |       |       |     | 218   |    
|                                 | Industrial Solutions and Services (I&S)                    |                                                                       |                                                                                                             | (198                 | )   |                          |        | 97                  |        |                   |       | 111     |       |       |   | 315    |   |        |       | 487    |   |               |       | 373    |   |        |   | (107   | )     |       |        | (39    | )     |       |      | 59     |       |        |   | 60    |     |       |       | 115    |   |       |       | 77     |   |       |   | 56    |   |       |       | 53    |       |       |     | 54    |    
|                                 | Siemens Dematic (SD)                                       |                                                                       |                                                                                                             | 45                   |     |                          |        | (59                 | )      |                   |       | 196     |       |       |   | 975    |   |        |       | 957    |   |               |       | 549    |   |        |   | (70    | )     |       |        | 261    |       |       |      | 154    |       |        |   | 71    |     |       |       | 78     |   |       |       | 56     |   |       |   | 62    |   |       |       | 63    |       |       |     | 51    |    
|                                 | Siemens Building Technologies (SBT)                        |                                                                       |                                                                                                             | 195                  |     |                          |        | 132                 |        |                   |       | 297     |       |       |   | 1,778  |   |        |       | 2,241  |   |               |       | 2,212  |   |        |   | 295    |       |       |        | 49     |       |       |      | 240    |       |        |   | 133   |     |       |       | 326    |   |       |       | 217    |   |       |   | 155   |   |       |       | 163   |       |       |     | 144   |    
|                                 | Power Generation (PG)                                      |                                                                       |                                                                                                             | 1,582                |     |                          |        | 634                 |        |                   |       | 66      |       |       |   | (144   | ) |        |       | (1,020 | ) |               |       | 169    |   |        |   | 662    |       |       |        | 2,045  |       |       |      | 1,386  |       |        |   | 300   |     |       |       | 351    |   |       |       | 262    |   |       |   | 184   |   |       |       | 211   |       |       |     | 182   |    
|                                 | Power Transmission and Distribution (PTD)                  |                                                                       |                                                                                                             | 109                  |     |                          |        | 96                  |        |                   |       | 45      |       |       |   | 928    |   |        |       | 994    |   |               |       | 781    |   |        |   | 149    |       |       |        | (331   | )     |       |      | 90     |       |        |   | 92    |     |       |       | 215    |   |       |       | 141    |   |       |   | 75    |   |       |       | 78    |       |       |     | 72    |    
|                                 | Transportation Systems (TS)                                |                                                                       |                                                                                                             | 247                  |     |                          |        | 186                 |        |                   |       | 75      |       |       |   | (741   | ) |        |       | (932   | ) |               |       | (345   | ) |        |   | 95     |       |       |        | 752    |       |       |      | 256    |       |        |   | 135   |     |       |       | 164    |   |       |       | 74     |   |       |   | 64    |   |       |       | 55    |       |       |     | 42    |    
|                                 | Siemens VDO Automotive (SV)                                |                                                                       |                                                                                                             | 65                   |     |                          |        | (261                | )      |                   |       | 89      |       |       |   | 3,746  |   |        |       | 3,605  |   |               |       | 934    |   |        |   | 224    |       |       |        | (89    | )     |       |      | 62     |       |        |   | 534   |     |       |       | 447    |   |       |       | 345    |   |       |   | 435   |   |       |       | 339   |       |       |     | 162   |    
|                                 | Medical Solutions (Med)                                    |                                                                       |                                                                                                             | 1,018                |     |                          |        | 808                 |        |                   |       | 463     |       |       |   | 3,414  |   |        |       | 3,844  |   |               |       | 3,204  |   |        |   | 1,124  |       |       |        | 86     |       |       |      | (1,391 | )     |        |   | 321   |     |       |       | 1,034  |   |       |       | 2,294  |   |       |   | 206   |   |       |       | 203   |       |       |     | 94    |    
|                                 | Osram                                                      |                                                                       |                                                                                                             | 365                  |     |                          |        | 462                 |        |                   |       | 388     |       |       |   | 2,436  |   |        |       | 2,485  |   |               |       | 2,524  |   |        |   | 284    |       |       |        | 349    |       |       |      | 341    |       |        |   | 330   |     |       |       | 416    |   |       |       | 465    |   |       |   | 289   |   |       |       | 283   |       |       |     | 260   |    
|                                 | Corporate, eliminations                                    |                                                                       |                                                                                                             | (1,183               | )   |                          |        | (320                | )      |                   |       | (1,270  | )     |       |   | (2,486 | ) |        |       | (2,805 | ) |               |       | 2,076  |   |        |   | (1,126 | ) (4) |       |        | (253   | ) (4) |       |      | 2,245  | (4)   |        |   | 3,885 | (5) |       |       | 1,468  |   |       |       | 2,645  |   |       |   | 174   |   |       |       | 265   |       |       |     | 649   |    
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |      
|                                 |                                                            |                                                                       | Total Operations                                                                                            |                      |     | 2,474                    |        |                     |        | 1,329             |       |         |       | 2,799 |   |        |   | 15,755 |       |        |   | 18,613        |       |        |   | 23,673 |   |        |       | 4,027 |        |        |       | 1,366 |      |        |       | 6,225  |   |       |     | 7,199 |       |        |   | 8,361 |       |        |   | 9,123 |   |       |   | 3,440 |       |       |       | 3,132 |     |       |     | 2,805 | 
|                                 | Reconciliation to financial statements                     |                                                                       |                                                                                                             |                     |     |                          |        |                    |        |                   |       |        |       |       |   | 51,944 |   |        |       | 50,587 |   |               |       | 45,436 |   |        |   |       |       |       |        |       |       |       |      |       |       |        |   |      |     |       |       |       |   |       |       |       |   |       |   |      |   |       |       |      |       |       |     |      |    
|                                 |                                                            | Other interest expense                                                |                                                                                                             |                      | (96 | )                        |        |                     | (304   | )                 |       |         | (220  | )     |   |        |  |        |       |        |  |               |       |        |  |        |   |        |      |       |        |        |      |       |      |        |      |        |   |       |    |       |       |        |  |       |       |        |  |       |   |       |  |       |       |       |      |       |     |       |    |      
|                                 |                                                            | Goodwill amortization and purchased in-process
    R&D expenses       |                                                                                                             |                      |    |                          |        |                     | (665   | )                 |       |         | (253  | )     |   |        |  |        |       |        |  |               |       |        |  |        |   |        |      |       |        |        |      |       |      |        |      |        |   |       |    |       |       |        |  |       |       |        |  |       |   |       |  |       |       |       | 539   | (6)   |     |       | 253 | (6)  
|                                 |                                                            | Gains on sales and dispositions of significant
    business interests |                                                                                                             |                      | 936 |                          |        |                     | 4,065  |                   |       |         | 7,826 |       |   |        |  |        |       |        |  |               |       |        |  |        |   |        |      |       |        |        |      |       |      |        |      |        |   |       |    |       |       |        |  |       |       |        |  |       |   |       |  |       |       |       |      |       |     |       |    |      
|                                 |                                                            | Other special items                                                   |                                                                                                             |                      |    |                          |        |                     | (1,185 | )                 |       |         | (280  | )     |   |        |  |        |       |        |  |               |       |        |  |        |   |        |      |       |        |        |      |       |      |        |      |        |   |       |    |       |       |        |  |       |       |        |  |       |   |       |  |       |       |       | 1,013 |       |     |       | 370 |      
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |      
|                                 |                                                            |                                                                       | Operations income before income taxes/total
    assets/total amortization, depreciation and
    impairments |                      |     | 3,314                    |        |                     |        | 3,240             |       |         |       | 9,872 |   |        |   | 67,699 |       |        |   | 69,200        |       |        |   | 69,109 |   |        |       |      |        |        |       |      |      |        |       |       |   |       |     |      |       |        |   |      |       |        |   |      |   |       |   | 3,440 |       |       |       | 4,684 |     |       |     | 3,428 | 
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |      
|Infineon Technologies (Infineon) |                                                            |                                                                       |                                                                                                            |                      |     |                          | (1,024 | )                   |        |                   | 1,670 |         |       |       |  |        |   |        | 6,471 |        |   |               | 5,709 |        |   |        |  |        |       |       | (1,602 | ) (4)  |       |       | (247 | ) (4)  |       |        |  |       |     |       | 2,578 |        |   |       | 1,916 |        |   |       |  |       |   |       | 1,122 |       |       |       | 834 |      
|                                 | Reconciliation to financial statements                     |                                                                       |                                                                                                             |                     |     |                          |        | (1                  | )      |                   |       | 74      |       |       |   |       |   |        |       | 3,272  |   |               |       | 3,144  |   |        |   |       |       |       |        |       |       |       |      |       |       |        |   |      |     |       |       |       |   |       |       |       |   |       |   |      |   |       |       |      |       |       |     |      |    
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |      
|                                 |                                                            |                                                                       | Infineon income (loss) before income
    taxes/total assets                                                 |                      |     |                         |        |                     |        | (1,025            | )     |         |       | 1,744 |   |        |   |       |       |        |   | 9,743         |       |        |   | 8,853  |   |        |       |      |        |        |       |      |      |        |       |       |   |       |     |      |       |        |   |      |       |        |   |      |   |       |   |      |       |       |       |      |     |       |     |      | 
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |      
|                                 |                                                            | Income before
    income taxes                                        |                                                                                                             | Total assets         |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |      
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |      
|Financing and Real Estate        |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |      
|                                 | Siemens Financial Services (SFS)                           |                                                                       |                                                                                                             | 216                  |     |                          |        | 158                 |        |                   |       | 78      |       |       |   | 8,681  |   |        |       | 9,501  |   |               |       | 8,532  |   |        |   | 282    |       |       |        | (496   | )     |       |      | (1,905 | )     |        |   | 283   |     |       |       | 514    |   |       |       | 531    |   |       |   | 271   |   |       |       | 257   |       |       |     | 202   |    
|                                 | Siemens Real Estate (SRE)                                  |                                                                       |                                                                                                             | 229                  |     |                          |        | 213                 |        |                   |       | 201     |       |       |   | 4,090  |   |        |       | 3,791  |   |               |       | 3,590  |   |        |   | 309    |       |       |        | 393    |       |       |      | 743    |       |        |   | 317   |     |       |       | 203    |   |       |       | 174    |   |       |   | 206   |   |       |       | 201   |       |       |     | 188   |    
|                                 | Eliminations                                               |                                                                       |                                                                                                             |                     |     |                          |        |                    |        |                   |       |        |       |       |   | (561   | ) |        |       | (525   | ) |               |       | (508   | ) |        |   | (133   | ) (4) |       |        | (113   | ) (4) |       |      | (50    | ) (4) |        |   |      |     |       |       |       |   |       |       |       |   |       |   |      |   |       |       |      |       |       |     |      |    
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |      
|                                 |                                                            |                                                                       | Total Financing and Real Estate                                                                             |                      |     | 445                      |        |                     |        | 371               |       |         |       | 279   |   |        |   | 12,210 |       |        |   | 12,767        |       |        |   | 11,614 |   |        |       | 458   |        |        |       | (216  | )    |        |       | (1,212 | ) |       |     | 600   |       |        |   | 717   |       |        |   | 705   |   |       |   | 477   |       |       |       | 458   |     |       |     | 390   | 
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |      
|                                 | Eliminations, reclassifications and Corporate
    Treasury |                                                                       |                                                                                                             | (284                 | )   |                          |        | 92                  |        |                   |       | 344     |       |       |   | (1,970 | ) |        |       | (1,592 | ) |               |       | (7,922 | ) |        |   | 269    | (4)   |       |        | 1,582  | (4)   |       |      | 953    | (4)   |        |   | 214   |     |       |       |       |   |       |       |       |   |       |   | 209   |   |       |       |      |       |       |     |      |    
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |      
|                                 | Siemens worldwide                                          |                                                                       |                                                                                                             | 3,475                |     |                          |        | 2,678               |        |                   |       | 12,239  |       |       |   | 77,939 |   |        |       | 90,118 |   |               |       | 81,654 |   |        |   | 4,754  |       |       |        | 1,130  |       |       |      | 5,719  |       |        |   | 8,013 |     |       |       | 11,656 |   |       |       | 11,744 |   |       |   | 4,126 |   |       |       | 6,264 |       |       |     | 4,652 |    
|                                 |                                                            |                                                                       |                                                                                                             |                      |     |                          |        |                     |        |                   |       |         |       |       |   |        |   |        |       |        |   |               |       |        |   |        |   |        |       |       |        |        |       |       |      |        |       |        |   |       |     |       |       |        |   |       |       |        |   |       |   |       |   |       |       |       |       |       |     |      




|    |                                                                                                                                                                                                                                                                                                                 
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Intangible assets, property, plant and equipment,
    acquisitions, and investments.                                                                                                                                                                                                                            
|(2) | Includes amortization and impairments of
    intangible assets, depreciation of property, plant and
    equipment, and write-downs of investments.                                                                                                                                                              
|(3) | For Operations, in fiscal 2001 and 2000 excluding
    goodwill amortization.                                                                                                                                                                                                                                    
|(4) | 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.
|(5) | Includes approximately
    3.7 billion
    referring to the purchase of Vodafone AGs remaining
    interest in Atecs Mannesmann AG.                                                                                                                                                                           
|(6) | Represents only goodwill amortization.                                                                                                                                                                                                                                                                          

F-9



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##### Table of Contents



SIEMENS AG

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(in millions of
, except where
otherwise stated and per share amounts)


1.   Basis of
presentation

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

Financial statement
presentation

The financial data of the Company is presented in
the following components:



| |   |                                                                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Siemens
    worldwideRepresents the
    consolidated financial statements of the Company.                                                                                                                                                                                                             
|
| |  | OperationsOperations
    are defined as Siemens Operating segments including
    corporate headquarters and excluding the activities of the
    Financing and Real Estate segments and Corporate Treasury.                                                                                           
|
| |  | Financing and Real
    EstateSiemens Financing
    and Real Estate segments are responsible for the Companys
    international leasing, finance, credit and real estate
    management activities.                                                                                                  
|
| |  | Eliminations, reclassifications and Corporate
    TreasuryThis component combines
    the consolidation of transactions among Operations and Financing
    and Real Estate with certain worldwide reclassifications. This
    component also includes the Companys Corporate Treasury
    activities.

Effective December 2001, Infineon is no longer
consolidated but instead accounted for as an investment using
the equity method. Accordingly, the Companys net
investment in Infineon is included within Long-term
investments in 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,
net in the consolidated statements of income (see
Notes 3 and 13). The consolidated results of
operations and cash flows of Infineon for the two months ended
November 2001 are included in Eliminations,
reclassifications and Corporate Treasury.

The Companys presentation of Operations,
Financing and Real Estate and Corporate Treasury reflects 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 and
valuation 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
Estate business based on a management approach oriented towards
the inherent risk evident in the underlying assets. The
remaining amount of total shareholders equity is shown
under Operations. The financial data presented for the
Operations and Financing and Real Estate components 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 all
subsidiaries which are directly or indirectly controlled.
Results of associated companiescompanies in which Siemens,
directly or indirectly, has 20% to 50% of the voting rights and
the ability to exercise significant influence over operating and
financial policiesare recorded in the consolidated
financial statements using the equity method of accounting.

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

F-10



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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)


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 ()
|                 |  |          |     | September 30, |  | Fiscal year            
|                 |  |          |     |               |  |                        
|Currency         |  | ISO Code |     | 2002          |  | 2001                    |       | 2002 |  | 2001 |       | 2000
|                 |  |          |     |               |  |                         |       |      |  |      |       |     
|100 Swiss francs |  |          | CHF |               |  |                         | 68.45 |      |  |      | 67.70 |      |  |  | 68.09 |  |  |  | 66.61 |  |  |  | 63.35 | 
|1 British pound  |  |          | GBP |               |  |                         | 1.59  |      |  |      | 1.60  |      |  |  | 1.60  |  |  |  | 1.61  |  |  |  | 1.63  | 
|1 U.S. dollar    |  |          | USD |               |  |                         | 1.02  |      |  |      | 1.09  |      |  |  | 1.08  |  |  |  | 1.11  |  |  |  | 1.05  | 

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. For product sales which require the Company
to install the product at the customer location, and for which
installation is essential to the functionality of the product
being installed, revenue is recognized when the equipment has
been delivered to and installed at the customer location.
Revenues from service transactions are recognized based on
service performance. For long-term service contracts, revenues
are generally recognized on a straight-line basis over the term
of the contract. Revenues under certain fixed-price long-term
IT-related contracts and 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. Operating lease income
for the rental of equipment is recognized on a straight-line
basis over the lease term. Interest income from capital leases
is recognized using the interest method.

Product-related expenses and contract loss
provisionsProvisions for
estimated costs related to product warranties are made at the
time the related sale is recorded. 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
of all potentially dilutive stock options. Share and per share
data for all periods presented reflect the Companys
3-for-2 stock split in fiscal 2001 and are based on the new
number of shares (except where otherwise stated).

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, net of applicable deferred taxes. Realized
gains and losses are accounted for using the specific
identification method.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The Companys trading securities consist of
marketable securities and money market instruments. Gains and
losses, both realized and unrealized, as well as other income
earned from these assets such as dividends and interest are
included in Income from financial assets and marketable
securities, net. 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.

Securitization
transactionsWhen the Company
sells trade receivables in securitizations, it retains a
deferred payment account and servicing obligations, all of which
are retained interests in the securitized receivables. Servicing
responsibilities for these transactions remain with the Company,
for which it receives an adequate servicing fee. The gain or
loss on the sale of receivables is determined based upon the
difference between the total proceeds received on the sale and
the allocated carrying amount of the sold receivables. The
allocated carrying amount is determined based upon the relative
fair value of the receivables sold and the retained interest.
Fair values are based upon quoted market prices whenever
available. As such information is generally not available for
retained interests, estimates of fair values are based on the
present value of future expected cash flows determined using
managements best estimate of key assumptions including
credit risk and discount rates commensurate with the risks
involved. In subsequent periods following securitization,
retained interests in securitized receivables are carried at
fair value. Changes in fair value of retained interests are
recognized in earnings.

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. The determination of
the market value involves valuation allowances derived from
consumption trends.

Intangible
assetsIntangible assets consist
of goodwill and patents, software, licenses and similar rights.
In July 2001, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) 141,
Business Combinations, and SFAS 142, Goodwill and
Other Intangible Assets. Since October 1, 2001, the
Company amortizes, consistent with these statements, intangible
assets with finite useful lives on a straight-line basis over
their respective estimated useful lives to their estimated
residual values. 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. In connection with the adoption of SFAS 142, the
Company was required to reassess the lives of its intangible
assets and determined that none of its intangible assets have
indefinite useful lives. The Company evaluates the
recoverability of goodwill using a two-step impairment test
approach at the division level. In the first step, the fair
value of the division is compared to its book value including
goodwill. In the case that the fair value of the division is
less than its book value, a second step is performed which
compares the fair value of the divisions goodwill to the
book value 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 book value, the difference is recorded
as an impairment. See Note 14 for further information.

Before October 1, 2001, intangible assets
other than goodwill were amortized on a straight-line basis over
the shorter of their contractual rights or estimated useful
lives. Except for goodwill acquired in a business combination
for which the acquisition date was after June 30, 2001,
goodwill was amortized over its estimated period of benefit on a
straight-line basis not exceeding 40 years. The Company
evaluated the recoverability of goodwill when events or
circumstances warranted revised estimates of useful lives or
indicated that an

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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)


impairment existed, based on projected future
cash flows discounted at a risk-adjusted rate. If the carrying
amount of the net assets, including goodwill, exceeded the sum
of the discounted cash flows, an impairment was recorded. Such
impairment charges were recorded in the amount of the excess of
the carrying value of the net tangible and identifiable
intangible assets and goodwill over the discounted cash flows of
the business evaluated. In the determination of projected future
cash flows, the Company considered current and projected levels
of profitability, business and technological trends and economic
and other developments.

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 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 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.

Derivative instruments and hedging
activitiesEffective
October 1, 1999, the Company adopted SFAS 133,
Accounting for Derivative Instruments and Hedging
Activities, as amended, which requires all derivative
instruments, such as interest rate swap contracts and
foreign-currency exchange contracts, be 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). SFAS 133 also requires that certain
derivative instruments embedded in host contracts be accounted
for separately as derivatives. In accordance with the provisions
of SFAS 133, the Company has chosen January 1, 1999,
as its transition date for embedded derivatives. Accordingly,
only those derivatives embedded in host contracts issued,
acquired or substantially modified on or after January 1,
1999, are accounted for separately as derivatives in the
financial statements of the Company.

See Note 23, 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.

Environmental clean-up
costsThe Company charges to
expense environmental clean-up costs related to existing
conditions resulting from past or current operations from which
no current or future benefit is

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


discernible. Liabilities for these expenditures
are recorded on a site-by-site basis at the time when they are
probable and can be reasonably estimated. Expenditures which
extend the life of the related property or mitigate or prevent
future environmental contamination are capitalized.
Environmental liabilities are discounted when the associated
payments are deemed to be fixed or reliably determinable.

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.

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.

Recent accounting
pronouncementsIn June 2001, the
FASB issued SFAS 143, Accounting for Asset Retirement
Obligations, which addresses financial accounting and
reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement
costs. The standard applies to legal obligations associated with
the retirement of long-lived assets that result from the
acquisition, construction, development or normal use of the
asset. SFAS 143 requires that the fair value of a liability for
an asset retirement obligation be recognized in the period in
which it is incurred if a reasonable estimate of fair value can
be made. The fair value of the liability is added to the
carrying amount of the associated asset and this additional
carrying amount is depreciated over the life of the asset. The
liability is accreted at the end of each period through charges
to operating expense. If the obligation is settled for other
than the carrying amount of the liability, the Company will
recognize a gain or loss on settlement. SFAS 143 is required to
be adopted for the fiscal year beginning October 1, 2002.
The adoption of SFAS 143 will have no material impact on the
Companys financial statements.

In October 2001, the FASB issued SFAS 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, which supersedes SFAS 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, and the accounting and reporting provisions
of Accounting Principles Board Opinion 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. The new rules
require 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. Therefore, discontinued
operations are no longer measured at net realizable value, as a
result expected future operating losses are no longer recognized
before they are actually incurred. The Company is required to
adopt SFAS 144 prospectively for the fiscal year beginning
October 1, 2002. The adoption of SFAS 144 may lead to
more disposals being presented as discontinued operations, but
is not otherwise expected to have a material impact on the
Companys financial statements.

In July 2002, the FASB issued SFAS 146,
Accounting for Costs Associated with Exit or Disposal
Activities, which nullifies Emerging Issues Task Force
(EITF) Issue 94-3, Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a
Restructuring).

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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, with earlier application encouraged. The Company does not
anticipate that the adoption of SFAS 146 will materially affect
its financial statements.

3.   Acquisitions and
dispositions

Acquisitions

During the years ended September 30, 2002,
2001 and 2000, 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 acquisitions.

In February 2000, Automation and Drives (A&D)
acquired Moore Products, Inc. for a purchase price of
approximately
180. This
acquisition resulted in the capitalization of approximately
47 of goodwill,
which, until September 30, 2001, was being amortized on a
straight-line basis over 20 years.

In March 2000, A&D acquired Milltronics Ltd.
for 242, which
resulted in the capitalization of approximately
177 of goodwill,
which, until September 30, 2001, was being amortized on a
straight-line basis over 20 years (see Note 14).

In April 2000, Siemens Business Services (SBS)
acquired Entex Information Services, Inc., an information
services provider in the U.S. The purchase price was
approximately
294. In
connection with this acquisition, approximately
248 was
capitalized as goodwill and, until September 30, 2001, was
being amortized on a straight-line basis over 20 years.

In May 2000, Information and Communication Mobile
(ICM) acquired the mobile telecommunications development
operations of Robert Bosch GmbH (Bosch) for a purchase price of
approximately
172. In
connection with this acquisition, approximately
55 of IPR&D
was charged to expense as research and development cost, and
approximately 7
was capitalized as goodwill and, until September 30, 2001,
was being amortized on a straight-line basis over 4 years.

In June 2000, Siemens Financial Services (SFS)
acquired Schroder Leasing plc of the U.K. for a purchase price
of approximately
142. In
connection with this acquisition, approximately
95 was
capitalized as goodwill and, until September 30, 2001, was
being amortized on a straight-line basis over 20 years.

In July 2000, Medical Solutions (Med) completed
its acquisition of Shared Medical Systems Corp. (SMS) of the
U.S. for a purchase price of approximately
2.1 billion.
In connection with this acquisition,
84 of IPR&D
was charged to expense as research and development cost, and
approximately
1.6 billion
was capitalized as goodwill and, until September 30, 2001,
was being amortized on a straight-line basis over 20 years.

In November 2000, Med acquired Acuson
Corporation. The aggregate purchase price was approximately
780. In
connection with this acquisition, approximately
345 was
capitalized as goodwill and, until September 30, 2001, was
being amortized on a straight-line basis over 20 years.
Approximately 47
of IPR&D was charged to expense as research and development
cost.

In January 2001, the merger of the nuclear power
businesses of Siemens and Framatome S.A. was completed. The
Company holds a 34% minority interest in the company, called
Framatome ANP. This investment is accounted for using the equity
method.

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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 April 2001, Siemens Information and
Communication Networks group (ICN) completed the acquisition of
Efficient Networks, Inc. The purchase price was approximately
1.6 billion,
plus the assumption of
457 of debt. In
connection with this acquisition, approximately
1.2 billion
has been recorded as goodwill and, until September 30,
2001, was being amortized on a straight-line basis over
5 years. IPR&D of approximately
17 was charged
to expense as research and development cost (see Note 14).

In April 2001, Siemens completed the acquisition
of a controlling interest of 50% plus two shares in Atecs
Mannesmann AG (Atecs), an automotive and automation technology
company. In accordance with the purchase agreement, prior to
closing, Siemens paid
3.1 billion
to Mannesmann AG. As of the date of closing, Siemens made a
capital contribution to Atecs. The purchase agreement also
provided Siemens the option to acquire Mannesmann AGs
remaining interest in Atecs, either at the option of Mannesmann
during the period from the date of closing through
September 30, 2002, or at the option of Siemens during the
period from April 1, 2002 through December 31, 2003.
The Company has accounted for the Atecs transaction as the
purchase of a 100% interest using the purchase method of
accounting. The purchase price for 100% of Atecs of
9.6 billion,
including the assumption of
2.8 billion
of financial debt and pension liabilities, was allocated to the
assets acquired and liabilities assumed based on estimated fair
values. In connection with the acquisition,
62 of IPR&D
was charged to expense. The excess of
1.9 billion
in the purchase price over the fair value of the net
identifiable assets acquired and IPR&D has been recorded as
goodwill and, until September 30, 2001, was being amortized
on a straight-line basis over 40 years.

In connection with the Atecs transaction, Siemens
entered into a put option contract giving Siemens the right to
sell Rexroth AG (Rexroth), a wholly owned subsidiary of Atecs,
to Robert Bosch GmbH (Bosch) for an adjusted equity value of
2.7 billion.
The put option was exercisable from January 2002 through
December 31, 2002 (see below under
Dispositions).

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 (see
Note 17).

The Company made certain other acquisitions
during the years ended September 30, 2002, 2001 and 2000,
accounted for by the purchase method of accounting, which did
not have a significant effect on the consolidated financial
statements.

Dispositions

In October 1999, in connection with an initial
public offering (IPO) of Epcos AG (Epcos), the Company sold a
portion of its ownership interest in Epcos for net proceeds of
767, which
resulted in a pretax gain of
638. The Company
continues to hold a 12.5% plus one share ownership interest in
Epcos.

In November 1999, the Companys
Electromechanical Components business was sold to Tyco
International, Ltd. for net proceeds of
874. The
resulting pretax gain was
525.

In December 1999, the Company sold Nixdorf Retail
and Banking Systems to a consortium of investors for net
proceeds of 698
with a resulting pretax gain of
538.

In December 1999, the Company disposed of
Vacuumschmelze GmbH through a sale to Morgan Crucible Company,
plc. This disposition resulted in net proceeds of
180 with a
resulting pretax gain of
93.

During 2000, the Company sold substantially all
of its fiber-optic cable and optical fiber business to Corning
Inc. for net proceeds of
1,107. The
pretax gain from this transaction was
584.

In March 2000, the Company sold its Swiss-based
television cable business to NTL, Inc. for net proceeds of
839. The pretax
gain on this disposition was
774.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


In March 2000, the Company successfully completed
the IPO of Infineon. Prior to the offering, Siemens held
100 percent of the outstanding shares of Infineon. A total
of 173.5 million shares of Infineon stock were sold in the
IPO and a further 7.6 million shares were sold through a
concurrent private placement, so that 181.1 million shares
in total were sold. The average offering price was
35 per share.
The Company sold 156.8 million shares for net proceeds of
5,284 resulting
in a tax-free gain of
4,135. In
addition, Infineon sold 24.3 million shares of newly issued
stock for net proceeds of
820. A pretax
gain of 461
(after-tax gain of
330) arose as a
result of the issuance of shares directly by Infineon.

In April 2000, Infineon issued an additional
1.2 million shares of new stock in connection with the
acquisition of Savan Communications, Ltd. As a result of this
transaction, the Company realized a pretax gain of
20 (after-tax
gain of 14). The
acquisition of Savan Communications, Ltd. was accounted for
using the purchase method of accounting with a purchase price of
131 resulting in
goodwill of 18
and a charge for acquired in-process research and development of
26.

In December 2000, Infineon sold its Image &
Video business unit. After giving effect to the minority
interest ownership of Infineon, the gain increased the
Companys pretax income by
143.

On November 20, 2001, the Company sold
Mannesmann Sachs AG (Sachs) to ZF Friedrichshafen AG. The
disposition resulted in net proceeds of
716. This
business had been accounted for as an asset held-for-sale and no
gain or loss was recorded in connection with the disposition
(see Note 12).

On December 5, 2001, Siemens entered into a
transaction as described below under Deconsolidation
of Infineon, 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 accounts for its interest in Infineon using the
equity method.

In January 2002, Siemens exercised its option to
sell its remaining interest in Rexroth, a wholly-owned
subsidiary of Atecs classified as held-for-sale, to Bosch for an
adjusted equity value of
2.7 billion
less proceeds from businesses already sold to Bosch. This
business had been accounted for as an asset held-for-sale and no
gain or loss was recorded in connection with the disposition
(see Note 12).

On July 1, 2002, Siemens completed the sale
of Unisphere Networks, Inc. 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 pretax gain of
421. Included in
the gain calculation is
179,
representing the book value of Unispheres goodwill (see
Note 14). As a result of the transaction Siemens held 9.7%
of Juniper 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 of Juniper
common shares each quarter thereafter. Accordingly,
15 million Juniper common shares were shown as securities
available-for-sale as of September 30, 2002, the remainder
being included under Investments.

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 Gottwald. As part of the package, Siemens also
sold the metering business of its Power Transmission and
Distribution group, the Ceramics division of its Power
Generation group, and Network Systems, a regional service
business belonging to its Information and Communication Networks
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 million,
and Siemens received net cash proceeds of approximately
1.0 billion.
The transaction resulted in a pretax gain of
21 million.
Siemens will use cost accounting for its 19%

F-17



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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)


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.

Deconsolidation of Infineon

As of December 5, 2001, Siemens
deconsolidated Infineon. The deconsolidation followed a series
of other transactions pursuant to which the Company reduced its
ownership interest in Infineon from approximately 71% at the
beginning of fiscal 2001 to 47.1% at December 31, 2001.

In April 2001, Siemens irrevocably transferred
93,825,225 Infineon shares to its domestic pension trust. A
pretax gain of
3,459 (after-tax
gain of 2,519)
was realized on the non-cash contribution of these shares based
upon the market price of Infineon shares at the date of
transfer. The business purpose of the contribution of Infineon
shares to this pension trust was to shore up an already existing
under-funded position in the pension trust that was to increase
substantially during the third quarter of fiscal 2001 following
the Companys acquisition of Atecs. As a result of the
transfer, the Company reduced its ownership interest in Infineon
by approximately 15% of Infineons then outstanding share
capital.

In July 2001, Infineon completed a capital
increase by way of a public offering of 60 million of its
shares for which Siemens realized a pretax gain of
484.

In August 2001, Infineon issued an additional
6.4 million shares of new stock in connection with the
acquisition of Catamaran Communications Inc. As a result of this
transaction, the Company realized a pretax gain of
83. The
acquisition of Catamaran Communications Inc. was accounted for
using the purchase method of accounting with a purchase price of
252 resulting in
goodwill of 179
and a charge for acquired IPR&D of
57.

As a result of Siemens irrevocable transfer
of Infineon shares into the domestic pension trust, the
follow-on offering of 60 million shares by Infineon and
additional dilution resulting from acquisitions made by Infineon
using its shares, Siemens ownership interest in Infineon
decreased to approximately 50.4% as of September 30, 2001.

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. The trustee is not related to the
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.
Upon termination, any shares held by the trustee would revert to
the Company and the Company would be again entitled to vote
these shares. Certain provisions of 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)


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 control 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).

As the Company no longer has a majority voting
interest in Infineon, it has from December 5, 2001 no
longer included the assets and liabilities and results of
operations of Infineon in its consolidated financial statements
and instead accounts for its ownership interest in Infineon
using the equity method. Under the equity method of accounting,
the Companys net investment in Infineon is included within
Long-term investments in 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, net in the consolidated statements of
income. The following summary financial information presents the
consolidated financial position as of September 30, 2001
and the consolidated results of operations for the year ended
September 30, 2001 of the Company as if its investment in
Infineon had been accounted for under the equity method of
accounting.

|                                   |  |               |        | 
|---------------------------------- |  | ------------- | ------ | 
|                                   |  | September 30,
|                                   |  | 2001         
|                                   |  |              
|                                   |  | (Unaudited)  
|Cash and cash equivalents          |  |               | 7,045  | 
|Total current assets               |  |               | 48,376 | 
|Long-term investments              |  |               | 6,138  | 
|Property, plant and equipment, net |  |               | 12,570 | 
|Other non-current assets           |  |               | 17,009 | 
|Total assets                       |  |               | 84,093 | 
|                                  
|Total current liabilities          |  |               | 42,560 | 
|Non-current liabilities            |  |               | 17,141 | 
|Minority interests                 |  |               | 580    | 
|Shareholders equity               |  |               | 23,812 | 

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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)


|                                                                      |  |               |         |  
|--------------------------------------------------------------------- |  | ------------- | ------- | -
|                                                                      |  | Year ended   
|                                                                      |  | September 30,
|                                                                      |  | 2001         
|                                                                      |  |              
|                                                                      |  | (Unaudited)  
|Net sales                                                             |  |               | 82,673  |  
|Cost of sales                                                         |  |               | (60,218 | )
|Gross profit on sales                                                 |  |               | 22,455  |  
|Research and development expenses                                     |  |               | (5,593  | )
|Marketing, selling and general administrative
    expenses            |  |               | (15,854 | )
|Income from investments in other companies, net                       |  |               | (250    | )
|Gains on sales and dispositions of significant
    business interests |  |               | 4,227   |  
|Other                                                                 |  |               | (1,545  | )
|Income before income taxes                                            |  |               | 3,440   |  
|Income taxes                                                          |  |               | (1,209  | )
|Minority interest                                                     |  |               | (143    | )
|Net income                                                            |  |               | 2,088   |  
|                                                                     
|Cash flow from operating activities                                   |  |               | 7,019   |  
|Cash flow from investing activities                                   |  |               | (6,113  | )
|Cash flow from financing activities                                   |  |               | (115    | )

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.
Siemens ownership interest in Infineon decreased to
approximately 39.7% as of September 30, 2002 (see
Note 13).

Siemens net income for the fiscal years
ended September 30, 2002, 2001 and 2000, includes the
Companys share of the income (loss) of Infineon of
(453),
(263) and
880,
respectively.

4.   Other operating income
(expense), net

|                                                                  |  |                          |       |      |  |      |        |   |  |  |       |  
|----------------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ------ | - |  |  | ----- | -
|                                                                  |  |                         
|                                                                  |  | Year ended September 30,
|                                                                  |  |                         
|                                                                  |  | 2002                     |       | 2001 |  | 2000
|                                                                  |  |                          |       |      |  |     
|Gains on sales and disposals of businesses                        |  |                          | 1,455 |      |  |      | 4,278  |   |  |  | 7,826 |  
|Gains (losses) on sales of property, plant and
    equipment, net |  |                          | 155   |      |  |      | 151    |   |  |  | 116   |  
|Amortization and impairment of goodwill                           |  |                          | (378  | )    |  |      | (1,489 | ) |  |  | (448  | )
|Other                                                             |  |                          | 89    |      |  |      | (178   | ) |  |  | 55    |  
|                                                                  |  |                          |       |      |  |      |        |   |  |  |       |  
|                                                                  |  |                          | 1,321 |      |  |      | 2,762  |   |  |  | 7,549 |  
|                                                                  |  |                          |       |      |  |      |        |   |  |  |       |  

For a description of significant items included
in Gains on sales and disposals of businesses, see
Note 3.

As described in Note 2, the Company ceased
to amortize goodwill at the beginning of fiscal 2002 due to the
adoption of SFAS 142. Amortization and impairment of
goodwill in fiscal 2002 relates to the Access Solutions
division of ICN. In fiscal 2001, included in this line item are
impairments relating to Efficient Networks Inc. and Milltronics
Ltd. (see Note 14). Other includes amortization
of other intangibles.

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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)


5.   Income (loss) from
investments in other companies, net

|                                                          |  |                          |      |      |  |      |      |   |  |  |      |  
|--------------------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                          |  |                         
|                                                          |  | Year ended September 30,
|                                                          |  |                         
|                                                          |  | 2002                     |      | 2001 |  | 2000
|                                                          |  |                          |      |      |  |     
|Income from investments                                   |  |                          | 61   |      |  |      | 166  |   |  |  | 135  |  
|Share in earnings (losses) from equity investees,
    net |  |                          | (158 | )    |  |      | 213  |   |  |  | 149  |  
|Gains on sales of investments                             |  |                          | 209  |      |  |      | 138  |   |  |  | 314  |  
|Losses on sales of investments                            |  |                          | (32  | )    |  |      | (279 | ) |  |  | (26  | )
|Write-downs on investments                                |  |                          | (193 | )    |  |      | (231 | ) |  |  | (52  | )
|Other                                                     |  |                          | (1   | )    |  |      | 42   |   |  |  | (221 | )
|                                                          |  |                          |      |      |  |      |      |   |  |  |      |  
|                                                          |  |                          | (114 | )    |  |      | 49   |   |  |  | 299  |  
|                                                          |  |                          |      |      |  |      |      |   |  |  |      |  

Share in earnings (losses) from equity
investees for fiscal 2002 includes negative
338,
representing Siemens share in the net loss of Infineon
since the deconsolidation of Infineon in December 2001. The
Companys total share in the loss of Infineon for fiscal
2002 amounts to
453. Gains
on sales of investments for fiscal 2002 includes the gains
on the sale of two centrally held investments totaling
133. Included in
Losses on sales of investments for the year ended
September 30, 2001 is a
209 loss on the
sale of an investment in a domestic equity and debt security
fund. Included in Other for the year ended
September 30, 2000 is a
175 provision
related to a loan associated with the investment in a joint
venture.

6.   Income from financial
assets and marketable securities, net

|                                                         |  |                          |    |      |  |      |      |   |  |  |       |  
|-------------------------------------------------------- |  | ------------------------ | -- | ---- |  | ---- | ---- | - |  |  | ----- | -
|                                                         |  |                         
|                                                         |  | Year ended September 30,
|                                                         |  |                         
|                                                         |  | 2002                     |    | 2001 |  | 2000
|                                                         |  |                          |    |      |  |     
|Gains on sales of available-for-sale securities,
    net |  |                          | 20 |      |  |      | 426  |   |  |  | 280   |  
|Income from trading securities                           |  |                          |   |      |  |      |     |   |  |  | 2,512 |  
|Other financial losses, net                              |  |                          | (2 | )    |  |      | (253 | ) |  |  | (60   | )
|                                                         |  |                          |    |      |  |      |      |   |  |  |       |  
|                                                         |  |                          | 18 |      |  |      | 173  |   |  |  | 2,732 |  
|                                                         |  |                          |    |      |  |      |      |   |  |  |       |  

In fiscal 2002 and 2001, included in Other
financial losses, net, are impairments of certain
marketable securities totaling
24 and
217,
respectively, where the decline in value was determined to be
other than temporary.

7.   Interest income,
net

|                                             |                                       |                          |     |       |   |      |     |      |   |  |     |       |  
|-------------------------------------------- | ------------------------------------- | ------------------------ | --- | ----- | - | ---- | --- | ---- | - |  | --- | ----- | -
|                                             |                                       |                         
|                                             |                                       | Year ended September 30,
|                                             |                                       |                         
|                                             |                                       | 2002                     |     | 2001  |   | 2000
|                                             |                                       |                          |     |       |   |     
|Interest income (expense) of Operations, net |                                       |                          | 94  |       |   |      | (32 | )    |   |  | (35 | )    
|Other interest (expense) income, net         |                                       |                          | 224 |       |   |      | 43  |      |   |  | 180 |      
|                                             |                                       |                          |     |       |   |      |     |      |   |  |     |      
|Total net interest income                    |                                       |                          | 318 |       |   |      | 11  |      |   |  | 145 |      
|                                             |                                       |                          |     |       |   |      |     |      |   |  |     |      
|                                             | Thereof: Interest and similar income  |                          |     | 1,061 |   |      |     | 964  |   |  |     | 1,039 |  
|                                             | Thereof: Interest and similar expense |                          |     | (743  | ) |      |     | (953 | ) |  |     | (894  | )

Interest income (expense) of Operations,
net includes interest income and expense related to
receivables from customers and payables to suppliers, interest
on advances from customers and advanced financing of customer
contracts. Other interest (expense) 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.

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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)


8.   Income taxes

Income (loss) before income taxes and minority
interests is attributable to the following geographic regions:

|        |  |                          |        |      |  |      |       |  |  |  |        | 
|------- |  | ------------------------ | ------ | ---- |  | ---- | ----- |  |  |  | ------ | 
|        |  |                         
|        |  | Year ended September 30,
|        |  |                         
|        |  | 2002                     |        | 2001 |  | 2000
|        |  |                          |        |      |  |     
|Germany |  |                          | (1,033 | )    |  |      | 1,446 |  |  |  | 5,112  | 
|Foreign |  |                          | 4,508  |      |  |      | 1,232 |  |  |  | 7,127  | 
|        |  |                          |        |      |  |      |       |  |  |  |        | 
|        |  |                          | 3,475  |      |  |      | 2,678 |  |  |  | 12,239 | 
|        |  |                          |        |      |  |      |       |  |  |  |        | 

Income tax expense (benefit) consists of the
following:

|                       |                                    |                          |       |      |   |      |     |      |   |  |       |       |  
|---------------------- | ---------------------------------- | ------------------------ | ----- | ---- | - | ---- | --- | ---- | - |  | ----- | ----- | -
|                       |                                    |                         
|                       |                                    | Year ended September 30,
|                       |                                    |                         
|                       |                                    | 2002                     |       | 2001 |   | 2000
|                       |                                    |                          |       |      |   |     
|Current:               |                                    |                          |       |      |   |      |     |      |   |  |       |      
|                       | German corporation and trade taxes |                          |       | 105  |   |      |     | 228  |   |  |       | 1,371 |  
|                       | Foreign income taxes               |                          |       | 935  |   |      |     | 517  |   |  |       | 1,061 |  
|                       |                                    |                          |       |      |   |      |     |      |   |  |       |      
|                       |                                    |                          | 1,040 |      |   |      | 745 |      |   |  | 2,432 |      
|                       |                                    |                          |       |      |   |      |     |      |   |  |       |      
|Deferred:              |                                    |                          |       |      |   |      |     |      |   |  |       |      
|                       | Germany                            |                          |       | (454 | ) |      |     | (131 | ) |  |       | 656   |  
|                       | Foreign                            |                          |       | 263  |   |      |     | 167  |   |  |       | (71   | )
|                       |                                    |                          |       |      |   |      |     |      |   |  |       |      
|                       |                                    |                          | (191  | )    |   |      | 36  |      |   |  | 585   |      
|                       |                                    |                          |       |      |   |      |     |      |   |  |       |      
|Net income tax expense |                                    |                          | 849   |      |   |      | 781 |      |   |  | 3,017 |      
|                       |                                    |                          |       |      |   |      |     |      |   |  |       |      

For the fiscal year ended September 30,
2002, under the provisions applicable as a result of German Tax
Reform, the Company is subject to German federal corporation
income tax at a base rate of 25% plus a solidarity surcharge of
5.5% on federal corporation taxes payable; as a result the
statutory rate for the year ended September 30, 2002
consists 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 years ended September 30, 2001 and
2000, German corporation tax law applied a split rate imputation
credit system to the income taxation of corporations and their
shareholders, as a result in accordance with the tax law in
effect for fiscal 2001 and 2000, retained corporation income was
initially subject to a federal corporation tax rate of 40%, plus
a solidarity surcharge of 5.5% for each year on federal
corporate taxes payable. The statutory rate for the years ended
September 30, 2001 and 2000, consisted of the federal
corporate tax rate, including solidarity surcharge, of 42.2% and
trade tax net of federal benefit of 9.8% for a combined rate of
52%. Upon distribution of retained earnings to shareholders, the
corporation income tax rate on such distributed earnings was
adjusted to 30%, plus solidarity surcharge of 5.5% for a total
of 31.65%. This reduction was effected by means of a refund for
taxes previously paid, and was referred to as the dividend tax
credit.

In October 2000, the German government enacted
new tax legislation which, among other changes, reduced the
Companys statutory tax rate in Germany from 40% on
retained earnings and 30% on distributed earnings to a
uniform 25% effective for the Companys year ending
September 30, 2002, as referred to above. In September
2002, the German government enacted the Flood Victim Solidarity
Law. Under this legislation, for the Companys fiscal year
ending September 30, 2003 only, the base rate of German
federal corporation taxation is increased from 25% to 26.5%.
Included in the 2002 financial statements is a deferred tax
benefit of 7
reflecting the net tax impact of items which are expected to
reverse in fiscal year 2003 at a differentiated rate for 2003.

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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 differs from the amounts
computed by applying the German federal corporation income tax
rate, including the solidarity surcharge, plus the after-federal
tax benefit rate for trade taxes on income (39% for fiscal year
2002 and 52% for fiscal years 2001 and 2000, respectively) as
follows:

|                            |                                                         |                                                               |                                                                |      |      |      |       |     |      |      |       |       |        |   | 
|--------------------------- | ------------------------------------------------------- | ------------------------------------------------------------- | -------------------------------------------------------------- | ---- | ---- | ---- | ----- | --- | ---- | ---- | ----- | ----- | ------ | - | 
|                            |                                                         |                                                              
|                            |                                                         | Year ended September 30,                                     
|                            |                                                         |                                                              
|                            |                                                         | 2002                                                          |                                                                | 2001 |      | 2000
|                            |                                                         |                                                               |                                                                |      |      |     
|Expected income tax expense |                                                         |                                                               | 1,355                                                          |      |      |      | 1,393 |     |      |      | 6,364 |      
|                            | Increase (decrease) in income taxes resulting
    from: |                                                               |                                                                |      |      |      |       |     |      |      |       |       |       
|                            |                                                         | Nondeductible losses and expenses                             |                                                                |      | 164  |      |       |     | 144  |      |       |       | 108    |  
|                            |                                                         | Goodwill and acquired in-process research and
    development |                                                                |      | 162  |      |       |     | 853  |      |       |       | 225    |  
|                            |                                                         | Tax-free income                                               |                                                                |      | (18  | )    |       |     | (43  | )    |       |       | (27    | )
|                            |                                                         | Dividend distribution credit                                  |                                                                |      |     |      |       |     |     |      |       |       | (208   | )
|                            |                                                         | Gains from sales of business interests                        |                                                                |      | (586 | )    |       |     | (859 | )    |       |       | (2,972 | )
|                            |                                                         | Effect of change in German tax rates:                         |                                                                |      |      |      |       |     |      |      |       |       |        |  
|                            |                                                         |                                                               | Effect of change on deferred taxes at date of
    enactment    |      |      | (7   | )     |     |      | (222 | )     |       |        |  | 
|                            |                                                         |                                                               | Effect of change on deferred taxes arising during
    the year |      |      |     |       |     |      | 367  |       |       |        |  | 
|                            |                                                         | Foreign tax rate differential                                 |                                                                |      | (171 | )    |       |     | (768 | )    |       |       | (440   | )
|                            |                                                         | Tax effect of equity method investments                       |                                                                |      | (72  | )    |       |     | (111 | )    |       |       | (77    | )
|                            |                                                         | Other                                                         |                                                                |      | 22   |      |       |     | 27   |      |       |       | 44     |  
|                            |                                                         |                                                               |                                                                |      |      |      |       |     |      |      |       |      
|                            | Actual income tax expense                               |                                                               |                                                                | 849  |      |      |       | 781 |      |      |       | 3,017 |       
|                            |                                                         |                                                               |                                                                |      |      |      |       |     |      |      |       |      

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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 are
summarized as follows:

|                                  |                                                            |               |       |       |  |  |       |       | 
|--------------------------------- | ---------------------------------------------------------- | ------------- | ----- | ----- |  |  | ----- | ----- | 
|                                  |                                                            |              
|                                  |                                                            | September 30,
|                                  |                                                            |              
|                                  |                                                            | 2002          |       | 2001 
|                                  |                                                            |               |       |      
|Intangibles                       |                                                            |               | 232   |       |  |  | 339   |      
|Property, plant and equipment     |                                                            |               | 419   |       |  |  | 434   |      
|Inventories                       |                                                            |               | 290   |       |  |  | 605   |      
|Receivables                       |                                                            |               | 524   |       |  |  | 413   |      
|Retirement plans                  |                                                            |               | 620   |       |  |  | 74    |      
|Other accrued liabilities         |                                                            |               | 1,499 |       |  |  | 1,356 |      
|Other liabilities                 |                                                            |               | 3,495 |       |  |  | 3,092 |      
|Deferred income                   |                                                            |               | 195   |       |  |  | 223   |      
|Tax loss and credit carryforwards |                                                            |               | 2,195 |       |  |  | 1,767 |      
|Other                             |                                                            |               | 450   |       |  |  | 272   |      
|                                  |                                                            |               |       |       |  |  |       |      
|                                  | Total deferred tax assets, before valuation
    allowances |               |       | 9,919 |  |  |       | 8,575 | 
|Valuation allowances              |                                                            |               | (547  | )     |  |  | (551  | )    
|                                  |                                                            |               |       |       |  |  |       |      
|Deferred tax assets               |                                                            |               | 9,372 |       |  |  | 8,024 |      
|                                  |                                                            |               |       |       |  |  |       |      
|Intangibles                       |                                                            |               | 556   |       |  |  | 373   |      
|Property, plant and equipment     |                                                            |               | 567   |       |  |  | 732   |      
|Inventories                       |                                                            |               | 1,406 |       |  |  | 750   |      
|Receivables                       |                                                            |               | 940   |       |  |  | 1,106 |      
|Other accrued liabilities         |                                                            |               | 637   |       |  |  | 123   |      
|Other liabilities                 |                                                            |               | 481   |       |  |  | 211   |      
|Investments                       |                                                            |               |      |       |  |  | 118   |      
|Other                             |                                                            |               | 743   |       |  |  | 679   |      
|                                  |                                                            |               |       |       |  |  |       |      
|                                  | Total deferred tax liabilities                             |               |       | 5,330 |  |  |       | 4,092 | 
|                                  |                                                            |               |       |       |  |  |       |      
|Deferred tax assets, net          |                                                            |               | 4,042 |       |  |  | 3,932 |      
|                                  |                                                            |               |       |       |  |  |       |      

As of September 30, 2002, the Company has
approximately
5,831 of gross
tax loss carryforwards. Of the total,
4,881 tax loss
carryforwards have unlimited carryforward periods and
950 expire over
the period to 2020.

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, 2002, the Company
provided for 17
of deferred tax liabilities associated with declared, but
unpaid, foreign dividends. Income taxes on cumulative earnings
of 5,301 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.

F-24



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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)


Including the items charged or credited directly
to related components of shareholders equity, the
provision (benefit) for income taxes consists of the following:

|                                                        |  |                          |        |      |  |      |        |   |  |  |       | 
|------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  |  | ----- | 
|                                                        |  |                         
|                                                        |  | Year ended September 30,
|                                                        |  |                         
|                                                        |  | 2002                     |        | 2001 |  | 2000
|                                                        |  |                          |        |      |  |     
|Provision for income taxes                              |  |                          | 849    |      |  |      | 781    |   |  |  | 3,017 | 
|Shareholders equity for other comprehensive
    income |  |                          | (1,008 | )    |  |      | (3,326 | ) |  |  | 806   | 
|                                                        |  |                          |        |      |  |      |        |   |  |  |       | 
|                                                        |  |                          | (159   | )    |  |      | (2,545 | ) |  |  | 3,823 | 
|                                                        |  |                          |        |      |  |      |        |   |  |  |       | 

9.   Marketable
securities

As of September 30, 2002 and 2001, the
Companys portfolio of marketable securities consisted
solely of securities classified as available-for-sale.

The following tables summarizes the
Companys investment in available-for-sale securities:

|                  |  |                    |     |            |  |      |     |      |  |  |    |  |  |  |    | 
|----------------- |  | ------------------ | --- | ---------- |  | ---- | --- | ---- |  |  | -- |  |  |  | -- | 
|                  |  |                   
|                  |  | September 30, 2002
|                  |  |                   
|                  |  |                    |     |           
|                  |  |                    |     | Unrealized
|                  |  |                    |     |           
|                  |  | Cost               |     | Fair Value |  | Gain |     | Loss
|                  |  |                    |     |            |  |      |     |     
|Equity securities |  |                    | 238 |            |  |      | 199 |      |  |  | 9  |  |  |  | 48 | 
|Debt securities   |  |                    | 52  |            |  |      | 53  |      |  |  | 1  |  |  |  |   | 
|Fund securities   |  |                    | 158 |            |  |      | 147 |      |  |  | 1  |  |  |  | 12 | 
|                  |  |                    |     |            |  |      |     |      |  |  |    |  |  |  |    | 
|                  |  |                    | 448 |            |  |      | 399 |      |  |  | 11 |  |  |  | 60 | 
|                  |  |                    |     |            |  |      |     |      |  |  |    |  |  |  |    | 

|                  |  |                    |     |            |  |      |     |      |  |  |     |  |  |  |    | 
|----------------- |  | ------------------ | --- | ---------- |  | ---- | --- | ---- |  |  | --- |  |  |  | -- | 
|                  |  |                   
|                  |  | September 30, 2001
|                  |  |                   
|                  |  |                    |     |           
|                  |  |                    |     | Unrealized
|                  |  |                    |     |           
|                  |  | Cost               |     | Fair Value |  | Gain |     | Loss
|                  |  |                    |     |            |  |      |     |     
|Equity securities |  |                    | 244 |            |  |      | 480 |      |  |  | 291 |  |  |  | 55 | 
|Debt securities   |  |                    | 126 |            |  |      | 124 |      |  |  |    |  |  |  | 2  | 
|Fund securities   |  |                    | 190 |            |  |      | 187 |      |  |  | 4   |  |  |  | 7  | 
|                  |  |                    |     |            |  |      |     |      |  |  |     |  |  |  |    | 
|                  |  |                    | 560 |            |  |      | 791 |      |  |  | 295 |  |  |  | 64 | 
|                  |  |                    |     |            |  |      |     |      |  |  |     |  |  |  |    | 

Unrealized gains (losses) on available-for-sale
securities included in accumulated other comprehensive income
(loss) (AOCI) are 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 the German tax law
enacted in October 2000. Those tax effects amounted to
134 and will
remain in AOCI until such time as the entire portfolio of
available-for-sale securities in Germany is liquidated.

The estimated fair values of investments in debt
securities by contractual maturity were as follows:

|                                      |  |               |    | 
|------------------------------------- |  | ------------- | -- | 
|                                      |  | September 30,
|                                      |  | 2002         
|                                      |  |              
|Due within one year                   |  |               | 25 | 
|Due after one year through five years |  |               | 27 | 
|Thereafter                            |  |               | 1  | 

Actual maturities may differ from contractual
maturity because borrowers have the right to call or prepay
certain obligations.

F-25



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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)


Proceeds from sale of available-for-sale
securities for the years ended September 30, 2002, 2001 and
2000 were 398,
1,143 and
388,
respectively. Gross realized gains on sales of
available-for-sale securities for the years ended
September 30, 2002, 2001 and 2000 were
29,
426 and
280,
respectively. Gross realized losses on sales of
available-for-sale securities for the year ended
September 30, 2002, were
9.

10. Accounts receivable, net

|                                                               |  |               |        |      |  |  |        | 
|-------------------------------------------------------------- |  | ------------- | ------ | ---- |  |  | ------ | 
|                                                               |  |              
|                                                               |  | September 30,
|                                                               |  |              
|                                                               |  | 2002          |        | 2001
|                                                               |  |               |        |     
|Trade receivables from the sale of goods and
    services, net |  |               | 13,882 |      |  |  | 16,115 | 
|Receivables from sales and finance leases, net                 |  |               | 1,146  |      |  |  | 1,220  | 
|Receivables from associated and related
    companies, net     |  |               | 202    |      |  |  | 399    | 
|                                                               |  |               |        |      |  |  |        | 
|                                                               |  |               | 15,230 |      |  |  | 17,734 | 
|                                                               |  |               |        |      |  |  |        | 

Related companies are those in which Siemens has
an ownership interest of less than 20% and no significant
influence over their operating and financial policies.

The valuation allowance for accounts receivable
developed as follows:

|                                                   |  |                          |       |      |  |      |       |   |  |  |       |  
|-------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                   |  |                         
|                                                   |  | Year ended September 30,
|                                                   |  |                         
|                                                   |  | 2002                     |       | 2001 |  | 2000
|                                                   |  |                          |       |      |  |     
|Valuation allowance as of beginning of fiscal year |  |                          | 1,785 |      |  |      | 1,610 |   |  |  | 1,710 |  
|Amount charged to expense in current period        |  |                          | 215   |      |  |      | 505   |   |  |  | 219   |  
|Write-offs charged against the allowance           |  |                          | (385  | )    |  |      | (383  | ) |  |  | (417  | )
|Recoveries of amounts previously written-off       |  |                          | 37    |      |  |      | 45    |   |  |  | 18    |  
|Foreign exchange translation adjustment            |  |                          | (67   | )    |  |      | 8     |   |  |  | 80    |  
|                                                   |  |                          |       |      |  |      |       |   |  |  |       |  
|Valuation allowance as of September 30             |  |                          | 1,585 |      |  |      | 1,785 |   |  |  | 1,610 |  
|                                                   |  |                          |       |      |  |      |       |   |  |  |       |  

Receivables from sales and finance
leases

|                                                   |  |               |        |  
|-------------------------------------------------- |  | ------------- | ------ | -
|                                                   |  | September 30,
|                                                   |  | 2002         
|                                                   |  |              
|2003                                               |  |               | 1,203  |  
|2004                                               |  |               | 1,200  |  
|2005                                               |  |               | 810    |  
|2006                                               |  |               | 469    |  
|2007                                               |  |               | 211    |  
|Thereafter                                         |  |               | 145    |  
|                                                   |  |               |        |  
|Minimum future lease payments                      |  |               | 4,038  |  
|Less: Unearned income                              |  |               | (549   | )
|Less: Allowance for doubtful accounts              |  |               | (153   | )
|Plus: Unguaranteed residual values                 |  |               | 130    |  
|                                                   |  |               |        |  
|Net investment in lease receivables                |  |               | 3,466  |  
|Less: Long-term portion                            |  |               | (2,320 | )
|                                                   |  |               |        |  
|Receivables from sales and finance leases, current |  |               | 1,146  |  
|                                                   |  |               |        |  

F-26



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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)


Investment 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

The following table presents quantitative
information about delinquencies and net credit losses for total
short-term trade receivables, excluding allowances, and the
securitization of such receivables through the SieFunds
structure, as of and for the years ended September 30, 2002
and 2001:

|                                   |  |               |        |               |  |                |        |      |  |      |       |      |  |  |       |   |  |  |     |  |  |  |     | 
|---------------------------------- |  | ------------- | ------ | ------------- |  | -------------- | ------ | ---- |  | ---- | ----- | ---- |  |  | ----- | - |  |  | --- |  |  |  | --- | 
|                                   |  |               |        |               |  |                |        |      |  |     
|                                   |  |               |        |               |  | Net credit    
|                                   |  | Outstanding   |        | Delinquencies |  | losses during 
|                                   |  | balance       |        | > 60 days     |  | the year ended
|                                   |  | September 30, |        | September 30, |  | September 30, 
|                                   |  |               |        |               |  |               
|                                   |  | 2002          |        | 2001          |  | 2002           |        | 2001 |  | 2002 |       | 2001
|                                   |  |               |        |               |  |                |        |      |  |      |       |     
|Total short-term trade receivables |  |               | 15,728 |               |  |                | 18,769 |      |  |      | 1,759 |      |  |  | 2,061 |   |  |  | 189 |  |  |  | 412 | 
|Less: receivables sold             |  |               | (249   | )             |  |                | (815   | )    |  |      | (47   | )    |  |  | (73   | ) |  |  |    |  |  |  |    | 
|                                   |  |               |        |               |  |                |        |      |  |      |       |      |  |  |       |   |  |  |     |  |  |  |     | 
|Receivables held in portfolio      |  |               | 15,479 |               |  |                | 17,954 |      |  |      | 1,712 |      |  |  | 1,988 |   |  |  | 189 |  |  |  | 412 | 
|                                   |  |               |        |               |  |                |        |      |  |      |       |      |  |  |       |   |  |  |     |  |  |  |     | 

During fiscal 2002 and 2001, the Company sold a
total of 4,553
and 1,848,
respectively, in short-term trade receivable securitizations.
The Company has retained interests in all trade receivables sold
through SieFunds, which are subordinated to the interests of the
investors. In addition, the Company has provided letters of
credit to cover up to an additional 17% of credit losses on such
trade receivables. As of September 30, 2002 and 2001, these
letters of credit cover
40 and
127 of
receivables originated by the Company. Except for such
subordinated retained interests and letters of credit, the
investors and securitization trusts have no recourse to the
Companys other assets and liabilities for failure of
debtors to pay when due.

The value of retained interests is subject to
credit, prepayment, and interest rate risks of the trade
receivables sold. The weighted average key assumptions used in
measuring the retained interests at the time of securitization
resulting from securitizations completed during the years ended
September 30, 2002 and 2001, were as follows: average days
outstanding were 43 and 61, discount rate was 3.0% and 4.6% per
annum and credit risk was 0.4% and 0.6% per annum, respectively.

For the years ended September 30, 2002 and
2001, the Company recognized pretax losses of
22 and
13,
respectively, on the securitizations of trade receivables
through SieFunds and received cash from new securitizations
totaling approximately
4,156 and
1,673,
respectively, from securitization trusts. The Company also
received cash flows of
365 and
95,
respectively, from retained interests.

As of September 30, 2002 and 2001, the
Companys retained interests in trade receivables sold had
a fair value of
50 and
65,
respectively. The key economic assumptions used in measuring
these retained interests were as follows: average days
outstanding were 37 and 64, discount rate was 3.0% and 4.0% per
annum and credit risk was 0.5% and 0.7% per annum, respectively.

F-27



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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,
|                                                                      |                           |              
|                                                                      |                           | 2002          |        | 2001  
|                                                                      |                           |               |        |       
|Raw materials and supplies                                            |                           |               | 2,430  |        |   |  | 2,387  |       
|Work in process                                                       |                           |               | 1,674  |        |   |  | 3,564  |       
|Costs and earnings in excess of billings on
    uncompleted contracts |                           |               | 5,572  |        |   |  | 6,263  |       
|Finished goods and products held for resale                           |                           |               | 3,385  |        |   |  | 4,004  |       
|Advances to suppliers                                                 |                           |               | 544    |        |   |  | 609    |       
|                                                                      |                           |               |        |        |   |  |        |       
|                                                                      | Subtotal                  |               |        | 13,605 |   |  |        | 16,827 |  
|                                                                      | Advance payments received |               |        | (2,933 | ) |  |        | (3,421 | )
|                                                                      |                           |               |        |        |   |  |        |       
|                                                                      |                           |               | 10,672 |        |   |  | 13,406 |       
|                                                                      |                           |               |        |        |   |  |        |       

12. Other current assets

|                                                            |  |               |       |      |  |  |        | 
|----------------------------------------------------------- |  | ------------- | ----- | ---- |  |  | ------ | 
|                                                            |  |              
|                                                            |  | September 30,
|                                                            |  |              
|                                                            |  | 2002          |       | 2001
|                                                            |  |               |       |     
|Taxes receivable                                            |  |               | 1,320 |      |  |  | 1,277  | 
|Loans receivable                                            |  |               | 905   |      |  |  | 761    | 
|Other receivables from associated and related
    companies |  |               | 466   |      |  |  | 1,194  | 
|Other                                                       |  |               | 2,662 |      |  |  | 6,935  | 
|                                                            |  |               |       |      |  |  |        | 
|                                                            |  |               | 5,353 |      |  |  | 10,167 | 
|                                                            |  |               |       |      |  |  |        | 

Included in Other for fiscal 2001 are
4.3 billion
assets-held-for-sale in connection with Siemens intention
to dispose certain of the businesses of Atecs within one year of
its acquisition of Atecs and which were originally accounted for
in accordance with EITF 87-11, Allocation of Purchase Price
to Assets to Be Sold. Sachs and Rexroth were sold in
November 2001 and January 2002, respectively, for combined net
proceeds of
3.1 billion.
The excess of the recorded amounts over the net proceeds of
these two businesses sold of
4 have been
recorded as adjustments to goodwill. The remaining Atecs
businesses were sold in the fourth quarter of fiscal 2002,
principally as part of the sale to KKR (see Note 3). Upon
expiration of the one year holding period since the acquisition
of Atecs, the Company began including the earnings or losses of
these businesses in the consolidated statements of income, which
from the period from expiration of the holding period to final
disposition were not material.

13. Long-term investments

|                                   |  |              |       |      |  |  |       | 
|---------------------------------- |  | ------------ | ----- | ---- |  |  | ----- | 
|                                   |  |             
|                                   |  | September 30
|                                   |  |             
|                                   |  | 2002         |       | 2001
|                                   |  |              |       |     
|Investment in associated companies |  |              | 4,120 |      |  |  | 2,354 | 
|Miscellaneous investments          |  |              | 972   |      |  |  | 960   | 
|                                   |  |              |       |      |  |  |       | 
|                                   |  |              | 5,092 |      |  |  | 3,314 | 
|                                   |  |              |       |      |  |  |       | 

Investments in associated companies
represent non-controlling interests in entities of 20% to 50%
accounted for using the equity method of accounting. As of
September 30, 2002, this line item includes
2,441 related to
the Companys equity investment in Infineon. The market
value of the Companys investment in Infineon (based upon
the Infineon share price) at the end of September 30, 2002,
was 1,606. Until
December

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)


2001, Infineon was included in the consolidated
financial statements of Siemens AG. The Company entered into
transactions as described in Note 3
Deconsolidation of Infineon, the effect of
which is that Siemens no longer has majority voting interest and
therefore, as of December 5, 2001, the assets and
liabilities and results of operations of Infineon are no longer
included in its consolidated financial statements but the
Company instead accounts for its interest in Infineon using the
equity method. In January 2002, the Company sold an additional
40 million shares in open market transactions. As a result
of these series of transactions and additional dilution
resulting from acquisitions made by Infineon using its shares,
Siemens ownership interest and voting interest in Infineon
decreased to 39.7% and 33.3%, respectively, as of
September 30, 2002 (see table below).

|                                                   |  |               |      |           |  |  |         |           |  |  |      |   |  |  |         | 
|-------------------------------------------------- |  | ------------- | ---- | --------- |  |  | ------- | --------- |  |  | ---- | - |  |  | ------- | 
|                                                   |  |              
|                                                   |  | September 30,
|                                                   |  |              
|                                                   |  |               |      |          
|                                                   |  | 2002          |      | 2001     
|                                                   |  |               |      |          
|                                                   |  |               |      | shares in |  |  |         | shares in
|                                                   |  |               |      | thousands |  |  |         | thousands
|                                                   |  |               |      |           |  |  |         |          
|Siemens ownership interest                        |  |               | 39.7 | %         |  |  | 286,292 |           |  |  | 50.4 | % |  |  | 349,400 | 
|Less: Non-voting trusts interest                  |  |               |      |           |  |  | 200,000 |           |  |  |      |   |  |  |         | 
|                                                   |  |               |      |           |  |  |         |           |  |  |      |   |  |  |         | 
|Siemens voting interest                           |  |               | 16.6 | %*        |  |  | 86,292  |           |  |  | 50.4 | % |  |  | 349,400 | 
|Siemens German Pension Trusts voting
    interest |  |               | 16.7 | %*        |  |  | 87,053  |           |  |  | 13.6 | % |  |  | 93,825  | 
|                                                   |  |               |      |           |  |  |         |           |  |  |      |   |  |  |         | 
|Siemens total voting interest                     |  |               | 33.3 | %*        |  |  | 173,345 |           |  |  | 64.0 | % |  |  | 443,225 | 






|  |                                                                                                                                                                                                                            
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Based upon total Infineon shares outstanding at
    September 30, 2002, less 200 million shares
    contributed to the Non-voting trust. Siemens total voting
    interest is 24.0% based on the total shares outstanding.

Summarized financial information for Infineon is
provided by the table below:

|                        |  |               |        | 
|----------------------- |  | ------------- | ------ | 
|                        |  | September 30,
|                        |  | 2002         
|                        |  |              
|Current assets          |  |               | 4,191  | 
|Non-current assets      |  |               | 6,727  | 
|Total assets            |  |               | 10,918 | 
|Current liabilities     |  |               | 2,383  | 
|Non-current liabilities |  |               | 2,377  | 
|Shareholders equity    |  |               | 6,158  | 

|                         |  |               |        |  
|------------------------ |  | ------------- | ------ | -
|                         |  | Year ended   
|                         |  | September 30,
|                         |  | 2002         
|                         |  |              
|Net sales                |  |               | 5,207  |  
|Gross profit on sales    |  |               | 601    |  
|Loss before income taxes |  |               | (1,160 | )
|Net loss                 |  |               | (1,021 | )

Miscellaneous investments 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.

F-29



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


14. Intangible assets and property, plant
and equipment, net

|                                                   |  |         |        |             |  |           |      |           |  |              |       |         |  |               |      |         |  |               |        |         |  |               |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 
|-------------------------------------------------- |  | ------- | ------ | ----------- |  | --------- | ---- | --------- |  | ------------ | ----- | ------- |  | ------------- | ---- | ------- |  | ------------- | ------ | ------- |  | ------------- | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ----- | 
|                                                   |  |         |        |             |  |           |      |           |  |              |       |         |  |               |      | Net     |  |               |        | Net     |  | Amortization/
|                                                   |  |         |        |             |  |           |      |           |  |              |       |         |  |               |      | Book    |  | Accumulated   |        | Book    |  | Depreciation/
|                                                   |  |         |        |             |  |           |      |           |  |              |       |         |  | Accumulated   |      | Value   |  | depreciation/ |        | Value   |  | Impairment   
|                                                   |  |         |        | Translation |  |           |      | Reclassi- |  | Impairments/ |       |         |  | depreciation/ |      | as of   |  | amortization  |        | as of   |  | during       
|                                                   |  | 10/1/01 |        | adjustment  |  | Additions |      | fications |  | Retirements  |       | 9/30/02 |  | amortization  |      | 9/30/02 |  | 10/1/01       |        | 10/1/01 |  | fiscal year  
|                                                   |  |         |        |             |  |           |      |           |  |              |       |         |  |               |      |         |  |               |        |         |  |              
|Goodwill*                                          |  |         | 6,963  |             |  |           | (288 | )         |  |              | 306   |         |  |               | 348  |         |  |               | 870    |         |  |               | 6,459  |  |  |  |        |  |  |  | 6,459  |  |  |  |        |  |  |  | 6,963  |  |  |  | 378   | 
|Patents, software, licenses and similar rights     |  |         | 4,378  |             |  |           | (138 | )         |  |              | 728   |         |  |               | (348 | )       |  |               | 682    |         |  |               | 3,938  |  |  |  | 1,554  |  |  |  | 2,384  |  |  |  | 1,570  |  |  |  | 2,808  |  |  |  | 618   | 
|                                                   |  |         |        |             |  |           |      |           |  |              |       |         |  |               |      |         |  |               |        |         |  |               |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 
|Intangible assets                                  |  |         | 11,341 |             |  |           | (426 | )         |  |              | 1,034 |         |  |               |     |         |  |               | 1,552  |         |  |               | 10,397 |  |  |  | 1,554  |  |  |  | 8,843  |  |  |  | 1,570  |  |  |  | 9,771  |  |  |  | 996   | 
|                                                   |  |         |        |             |  |           |      |           |  |              |       |         |  |               |      |         |  |               |        |         |  |               |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 
|Land and buildings                                 |  |         | 10,585 |             |  |           | (161 | )         |  |              | 247   |         |  |               | 90   |         |  |               | 1,285  |         |  |               | 9,476  |  |  |  | 4,522  |  |  |  | 4,954  |  |  |  | 4,769  |  |  |  | 5,816  |  |  |  | 288   | 
|Technical machinery and equipment                  |  |         | 14,207 |             |  |           | (235 | )         |  |              | 643   |         |  |               | 238  |         |  |               | 6,275  |         |  |               | 8,578  |  |  |  | 6,061  |  |  |  | 2,517  |  |  |  | 8,613  |  |  |  | 5,594  |  |  |  | 824   | 
|Furniture and office equipment                     |  |         | 12,748 |             |  |           | (299 | )         |  |              | 1,253 |         |  |               | 179  |         |  |               | 3,587  |         |  |               | 10,294 |  |  |  | 7,762  |  |  |  | 2,532  |  |  |  | 9,020  |  |  |  | 3,728  |  |  |  | 1,559 | 
|Equipment leased to Others                         |  |         | 2,163  |             |  |           | (158 | )         |  |              | 297   |         |  |               | (45  | )       |  |               | 556    |         |  |               | 1,701  |  |  |  | 862    |  |  |  | 839    |  |  |  | 1,099  |  |  |  | 1,064  |  |  |  | 263   | 
|Advances to suppliers and construction in progress |  |         | 1,601  |             |  |           | (46  | )         |  |              | 846   |         |  |               | (462 | )       |  |               | 1,027  |         |  |               | 912    |  |  |  | 12     |  |  |  | 900    |  |  |  |       |  |  |  | 1,601  |  |  |  | 3     | 
|                                                   |  |         |        |             |  |           |      |           |  |              |       |         |  |               |      |         |  |               |        |         |  |               |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 
|Property, plant and equipment                      |  |         | 41,304 |             |  |           | (899 | )         |  |              | 3,286 |         |  |               |     |         |  |               | 12,730 |         |  |               | 30,961 |  |  |  | 19,219 |  |  |  | 11,742 |  |  |  | 23,501 |  |  |  | 17,803 |  |  |  | 2,937 | 
|                                                   |  |         |        |             |  |           |      |           |  |              |       |         |  |               |      |         |  |               |        |         |  |               |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 






|  |                                                                                                                                       
|- | --------------------------------------------------------------------------------------------------------------------------------------
|* | Due to the adoption of SFAS 142, effective
    October 1, 2001, goodwill is no longer amortized but
    instead tested for impairment.

The Company capitalized interest of approximately
5,
27 and
4 during the
years ended September 30, 2002, 2001 and 2000, respectively.

As a result of the adoption of SFAS 142,
348 of net
intangibles relating to customer base
(287 at PG and
61 at Med) were
reclassified from Patents, software, licenses and similar
rights to Goodwill. In addition,
Goodwill increased by
306 resulting
from minor acquisitions and purchase price allocation
adjustments totaling
228 at ICN, SD,
PG, SV and Med primarily related to Atecs and Acuson.
Retirements totaled
492 mainly as a
consequence of the deconsolidation of Infineon and the
Companys sale of Unisphere Networks at ICN (see
Note 3). In connection with its annual goodwill impairment
tests required by SFAS 142, the Company determined that the
goodwill at its Access Solutions division of ICN, mainly
originating from the acquisition of Efficient, was impaired. As
a result of significant declines in demand in the
telecommunications equipment market, management recorded a
goodwill impairment charge of
378 in the
fourth quarter of 2002. Fair value was determined using a
traditional discounted cash flows approach.

During the fourth quarter of fiscal 2001, the
Company recorded impairments of goodwill for businesses acquired
by ICN and A&D totaling
746 and
181,
respectively. At ICN, the Company determined that due to the
rapid and significant deterioration in the market for
customer-premises equipment for high-speed digital subscriber
lines (xDSL) for broadband access in the U.S., the future cash
flows from Efficient will be materially lower than anticipated.
Also, at A&D, as a result of operational issues relating
primarily to the acquired business of Milltronics, the Company
determined that the future cash flows from these businesses will
be lower than previously anticipated.

Patents, software, licenses and similar
rights as of September 30, 2002 and 2001 includes
software of
1,453 and
996,
respectively. The accumulated amortization for software as of
September 30, 2002 and 2001 totaled
444 and
245,
respectively. During fiscal 2002 and 2001, the Company acquired
728 and
834,
respectively, in intangible assets, including
592 and
539,
respectively, for software and
136 and
295,
respectively, in patents, licenses and similar rights.
Intangible asset amortization expense excluding goodwill for

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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 years ended September 30, 2002, 2001 and
2000 was 618,
660 and
286,
respectively. The estimated intangible asset amortization
expense for the next five fiscal years is as follows:

|            |  |  |     |  |  | 
|----------- |  |  | --- |  |  | 
|Fiscal year |  |  |     | 
|            |  |  |     | 
|2003        |  |  | 442 | 
|2004        |  |  | 369 | 
|2005        |  |  | 293 | 
|2006        |  |  | 203 | 
|2007        |  |  | 168 | 

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

|                          |                                              |                    |       |       | 
|------------------------- | -------------------------------------------- | ------------------ | ----- | ----- | 
|                          |                                              | September 30, 2002
|                          |                                              |                   
|Operations                |                                              |                    |       |      
|                          | Information and Communication Networks (ICN) |                    |       | 254   | 
|                          | Information and Communication Mobile (ICM)   |                    |       | 109   | 
|                          | Siemens Business Services (SBS)              |                    |       | 230   | 
|                          | Automation and Drives (A&D)                  |                    |       | 283   | 
|                          | Industrial Solutions and Services (I&S)      |                    |       | 92    | 
|                          | Siemens Dematic (SD)                         |                    |       | 581   | 
|                          | Siemens Building Technologies (SBT)          |                    |       | 442   | 
|                          | Power Generation (PG)                        |                    |       | 598   | 
|                          | Power Transmission and Distribution (PTD)    |                    |       | 148   | 
|                          | Transportation Systems (TS)                  |                    |       | 108   | 
|                          | Siemens VDO Automotive (SV)                  |                    |       | 1,528 | 
|                          | Medical Solutions (Med)                      |                    |       | 1,898 | 
|                          | Osram                                        |                    |       | 98    | 
|Financing and Real Estate |                                              |                    |       |      
|                          | Siemens Financial Services (SFS)             |                    |       | 90    | 
|                          | Siemens Real Estate (SRE)                    |                    |       |      | 
|                          |                                              |                    |       |      
|                          |                                              |                    | 6,459 |      
|                          |                                              |                    |       |      

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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 presents adjusted net income
and earnings per share excluding goodwill amortization expense
(net of tax):

|                            |                                     |                          |       |       |  |      |       |       |  |  |       |       | 
|--------------------------- | ----------------------------------- | ------------------------ | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|                            |                                     |                         
|                            |                                     | Year ended September 30,
|                            |                                     |                         
|                            |                                     | 2002                     |       | 2001  |  | 2000
|                            |                                     |                          |       |       |  |     
|Net income                  |                                     |                          |       |       |  |      |       |       |  |  |       |      
|                            | Reported net income                 |                          |       | 2,597 |  |      |       | 2,088 |  |  |       | 8,860 | 
|                            | Goodwill amortization               |                          |       |      |  |      |       | 562   |  |  |       | 253   | 
|                            |                                     |                          |       |       |  |      |       |       |  |  |       |      
|Adjusted net income         |                                     |                          | 2,597 |       |  |      | 2,650 |       |  |  | 9,113 |      
|Basic earnings per share    |                                     |                          |       |       |  |      |       |       |  |  |       |      
|                            | Reported basic earnings per share   |                          |       | 2.92  |  |      |       | 2.36  |  |  |       | 9.97  | 
|                            | Goodwill amortization               |                          |       |      |  |      |       | 0.63  |  |  |       | 0.28  | 
|                            |                                     |                          |       |       |  |      |       |       |  |  |       |      
|Adjusted earnings per share |                                     |                          | 2.92  |       |  |      | 2.99  |       |  |  | 10.25 |      
|Diluted earnings per share  |                                     |                          |       |       |  |      |       |       |  |  |       |      
|                            | Reported diluted earnings per share |                          |       | 2.92  |  |      |       | 2.36  |  |  |       | 9.96  | 
|                            | Goodwill amortization               |                          |       |      |  |      |       | 0.63  |  |  |       | 0.28  | 
|                            |                                     |                          |       |       |  |      |       |       |  |  |       |      
|Adjusted earnings per share |                                     |                          | 2.92  |       |  |      | 2.99  |       |  |  | 10.24 |      

15. Other assets

|                                                                   |  |               |       |      |  |  |       | 
|------------------------------------------------------------------ |  | ------------- | ----- | ---- |  |  | ----- | 
|                                                                   |  |              
|                                                                   |  | September 30,
|                                                                   |  |              
|                                                                   |  | 2002          |       | 2001
|                                                                   |  |               |       |     
|Long-term portion of receivables from sales and
    finance leases |  |               | 2,320 |      |  |  | 2,309 | 
|Prepaid pension assets                                             |  |               | 197   |      |  |  | 179   | 
|Long-term loans receivable                                         |  |               | 557   |      |  |  | 543   | 
|Other                                                              |  |               | 1,440 |      |  |  | 1,502 | 
|                                                                   |  |               |       |      |  |  |       | 
|                                                                   |  |               | 4,514 |      |  |  | 4,533 | 
|                                                                   |  |               |       |      |  |  |       | 

As of September 30, 2002, Long-term
loans receivable includes total financing of
253 provided by
Siemens in connection with the sale of a portfolio of businesses
to KKR in the fourth quarter of fiscal 2002 (see Note 3).

16. Accrued liabilities

|                                        |  |               |       |      |  |  |        | 
|--------------------------------------- |  | ------------- | ----- | ---- |  |  | ------ | 
|                                        |  |              
|                                        |  | September 30,
|                                        |  |              
|                                        |  | 2002          |       | 2001
|                                        |  |               |       |     
|Employee related costs                  |  |               | 2,637 |      |  |  | 2,876  | 
|Income and other taxes                  |  |               | 1,574 |      |  |  | 1,827  | 
|Warranties                              |  |               | 1,664 |      |  |  | 1,555  | 
|Accrued losses on uncompleted contracts |  |               | 864   |      |  |  | 1,188  | 
|Other                                   |  |               | 2,869 |      |  |  | 3,418  | 
|                                        |  |               |       |      |  |  |        | 
|                                        |  |               | 9,608 |      |  |  | 10,864 | 
|                                        |  |               |       |      |  |  |        | 

Employee related costs primarily
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.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


During fiscal 2002 and 2001, in response to
slowing economic conditions globally, primarily in the
telecommunications and technology sectors, several of the
Companys operating segments established various programs
to reduce their overall workforces. The reduction in personnel
is expected to be achieved through attrition, early retirement,
and voluntary and involuntary terminations primarily for
employees engaged in manufacturing activities. Accruals for
one-time termination benefits have been recorded in cases where
established formal plans have been communicated to employees
and/or their representatives. As of September 30, 2002 and
2001, accrued liabilities in connection with these plans totaled
498 and
280,
respectively, and are included in Employee related
costs. These workforce reduction programs are generally
completed within one year. No significant adjustments were made
during fiscal 2002 to the amounts accrued as of
September 30, 2001.

17. Other current liabilities

|                                                                                                     |  |               |        |      |  |  |        | 
|---------------------------------------------------------------------------------------------------- |  | ------------- | ------ | ---- |  |  | ------ | 
|                                                                                                     |  |              
|                                                                                                     |  | September 30,
|                                                                                                     |  |              
|                                                                                                     |  | 2002          |        | 2001
|                                                                                                     |  |               |        |     
|Billings in excess of costs and estimated
    earnings on uncompleted contracts and related advances |  |               | 6,054  |      |  |  | 7,320  | 
|Payroll and social security taxes                                                                    |  |               | 2,305  |      |  |  | 2,431  | 
|Sales and other taxes                                                                                |  |               | 941    |      |  |  | 624    | 
|Bonus obligations                                                                                    |  |               | 1,073  |      |  |  | 1,137  | 
|Liabilities to associated and related companies                                                      |  |               | 372    |      |  |  | 575    | 
|Deferred income                                                                                      |  |               | 786    |      |  |  | 938    | 
|Accrued interest                                                                                     |  |               | 151    |      |  |  | 175    | 
|Other liabilities                                                                                    |  |               | 2,009  |      |  |  | 6,271  | 
|                                                                                                     |  |               |        |      |  |  |        | 
|                                                                                                     |  |               | 13,691 |      |  |  | 19,471 | 
|                                                                                                     |  |               |        |      |  |  |        | 

In the second quarter of fiscal 2002, Vodafone AG
exercised its option to sell its 50% minus two shares stake in
Atecs to Siemens. On March 1, 2002, the Company paid the
deferred purchase price of approximately
3.7 billion
which had been included in Other liabilities as of
September 30, 2001 (see Note 3).

18. Debt

|           |                                                       |                                                              |        |       |        |  |        |       |       | 
|---------- | ----------------------------------------------------- | ------------------------------------------------------------ | ------ | ----- | ------ |  | ------ | ----- | ----- | 
|           |                                                       |                                                             
|           |                                                       | September 30,                                               
|           |                                                       |                                                             
|           |                                                       | 2002                                                         |        | 2001 
|           |                                                       |                                                              |        |      
|Short-term |                                                       |                                                              |        |       |        |  |        |      
|           | Notes and bonds                                       |                                                              |        | 330   |        |  |        | 882   |      
|           | Loans from banks                                      |                                                              |        | 1,461 |        |  |        | 1,078 |      
|           | Other financial indebtedness                          |                                                              |        | 272   |        |  |        | 640   |      
|           | Obligations under capital leases                      |                                                              |        | 40    |        |  |        | 37    |      
|           |                                                       |                                                              |        |       |        |  |        |      
|           |                                                       | Short-term debt and current maturities of
    long-term debt |        |       | 2,103  |  |        |       | 2,637 | 
|           |                                                       |                                                              |        |       |        |  |        |      
|Long-term  |                                                       |                                                              |        |       |        |  |        |      
|           | Notes and bonds (maturing 20032011)                  |                                                              |        | 9,307 |        |  |        | 9,142 |      
|           | Loans from banks (maturing 20032008)                 |                                                              |        | 152   |        |  |        | 328   |      
|           | Other financial indebtedness (maturing
    20032031) |                                                              |        | 535   |        |  |        | 274   |      
|           | Obligations under capital leases                      |                                                              |        | 249   |        |  |        | 229   |      
|           |                                                       |                                                              |        |       |        |  |        |      
|           |                                                       | Long-term debt                                               |        |       | 10,243 |  |        |       | 9,973 | 
|           |                                                       |                                                              |        |       |        |  |        |      
|           |                                                       |                                                              | 12,346 |       |        |  | 12,610 |      
|           |                                                       |                                                              |        |       |        |  |        |      

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


As of September 30, 2002, weighted average
interest rates for loans from banks, other financial
indebtedness and obligations under capital leases were 4.3%
(2001: 5.0%), 3.4% (2001: 3.8%) and 6.9% (2001: 6.5%),
respectively. As of September 30, 2002, debt in the amount
12 is secured,
3 of which,
primarily outside Germany, is secured by mortgages. 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
(3.0 billion)
of commercial paper. As of September 30, 2002 and 2001,
outstanding commercial paper totaled
94 (interest
rates from 1.67% to 1.72%) and
214 (interest
rates from 2.45% to 4.16%), 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, 2002 and 2001,
approximately
1.6 billion
and
1.8 billion,
respectively, was outstanding under this program.

The Company maintains three global backstop
facilities of U.S.$3.0 billion
(3.0 billion),
1.0 billion
and
0.4 billion.
As of September 30, 2002 and 2001, the full amounts of
these lines of credit remain unused. Commitment fees for the
years ended September 30, 2002 and 2001 totaled
approximately 3
and 2,
respectively. Under the terms of the agreements, credit may be
used for general business purposes. Borrowings under these
credit facilities would bear interest of 0.225% (for the
U.S.$3.0 billion facility) and 0.16% (for the
1.0 billion
facility) 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. Borrowings under the
0.4 billion
facility would bear interest of 0.28% above EURIBOR.

As of September 30, 2002, the aggregate
amounts of indebtedness maturing during the next five years and
thereafter are as follows:

|            |  |  |       |  |        | 
|----------- |  |  | ----- |  | ------ | 
|Fiscal year |  |  |       | 
|            |  |  |       | 
|2003        |  |  | 2,063 | 
|2004        |  |  | 392   | 
|2005        |  |  | 2,718 | 
|2006        |  |  | 2,373 | 
|2007        |  |  | 1,293 | 
|Thereafter  |  |  | 3,218 | 
|            |  |  |       | 
|            |  |  |       |  | 12,057 | 
|            |  |  |       |  |        | 

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)


As of September 30, 2002, the minimum lease
payments under capital leases for the next five years and
thereafter are as follows:

|                                   |  |  |     |   |     | 
|---------------------------------- |  |  | --- | - | --- | 
|Fiscal year                        |  |  |     |  
|                                   |  |  |     |  
|2003                               |  |  | 42  |  
|2004                               |  |  | 40  |  
|2005                               |  |  | 39  |  
|2006                               |  |  | 38  |  
|2007                               |  |  | 38  |  
|Thereafter                         |  |  | 144 |  
|                                   |  |  |     |  
|Minimum lease payment obligation   |  |  | 341 |  
|Less: unamortized interest expense |  |  | (52 | )
|                                   |  |  |     |  
|Obligations under capital leases   |  |  | 289 |  
|Less: current portion              |  |  | (40 | )
|                                   |  |  |     |  
|                                   |  |  |     |   | 249 | 
|                                   |  |  |     |   |     | 

Details of the Companys medium-term notes
and bonds are as follows:

|                                         |  |                    |     |                    |  |                   |       |    |  |  |       |  |  |  |     |  |  |  |       |  |  |  |        | 
|---------------------------------------- |  | ------------------ | --- | ------------------ |  | ----------------- | ----- | -- |  |  | ----- |  |  |  | --- |  |  |  | ----- |  |  |  | ------ | 
|                                         |  |                    |     |                   
|                                         |  | September 30, 2002 |     | September 30, 2001
|                                         |  |                    |     |                   
|                                         |  |                    |     |                   
|                                         |  | Currency           |     | Currency          
|                                         |  |                    |     |                   
|                                         |  |                    |     |                    |  |                   |       |   
|                                         |  | (notional amount)  |     | *                 |  | (notional amount) |       | *
|                                         |  |                    |     |                    |  |                   |       |   
|                                         |  |                    |     |                    |  |                   |       |    |  |  |       | 
|5.75% 1998/2002 U.S.$ notes              |  |                    |     |                    |  |                   |       |    |  |  |       |  |  |  | USD |  |  |  | 200   |  |  |  | 223    | 
|7.75% 1992/2002 Swiss franc bonds        |  |                    |     |                    |  |                   |       |    |  |  |       |  |  |  | CHF |  |  |  | 28    |  |  |  | 20     | 
|8% 1992/2002 U.S.$ bonds                 |  |                    |     |                    |  |                   |       |    |  |  |       |  |  |  | USD |  |  |  | 573   |  |  |  | 639    | 
|3.25% 1997/2002 Swiss franc notes        |  |                    | CHF |                    |  |                   | 350   |    |  |  | 240   |  |  |  | CHF |  |  |  | 350   |  |  |  | 238    | 
|0.8% 2002/2003 U.S.$ LIBOR Linked        |  |                    | USD |                    |  |                   | 50    |    |  |  | 51    |  |  |  |     |  |  |  |       |  |  |  |        | 
|2.75% 1993/2003 Swiss franc bonds        |  |                    | CHF |                    |  |                   | 100   |    |  |  | 68    |  |  |  | CHF |  |  |  | 100   |  |  |  | 68     | 
|7.5% 1998/2003 Greek drachma
     notes |  |                    | GRD |                    |  |                   | 5,000 |    |  |  | 14    |  |  |  | GRD |  |  |  | 5,000 |  |  |  | 17     | 
|1.79% 2002/2004 U.S.$ bonds              |  |                    | USD |                    |  |                   | 125   |    |  |  | 127   |  |  |  |     |  |  |  |       |  |  |  |        | 
|3% 1994/2004 Swiss franc bonds           |  |                    | CHF |                    |  |                   | 178   |    |  |  | 122   |  |  |  | CHF |  |  |  | 178   |  |  |  | 121    | 
|1.0% 2000/2005 EUR exchangeable notes    |  |                    | EUR |                    |  |                   | 2,500 |    |  |  | 2,554 |  |  |  | EUR |  |  |  | 2,500 |  |  |  | 2,529  | 
|5.0%
    2001/2006 
    bonds           |  |                    | EUR |                    |  |                   | 2,000 |    |  |  | 2,078 |  |  |  | EUR |  |  |  | 1,900 |  |  |  | 1,941  | 
|2.5% 2001/2007 Swiss franc bonds         |  |                    | CHF |                    |  |                   | 250   |    |  |  | 174   |  |  |  | CHF |  |  |  | 250   |  |  |  | 163    | 
|5.5%
    1997/2007 
    bonds           |  |                    | EUR |                    |  |                   | 991   |    |  |  | 1,016 |  |  |  | EUR |  |  |  | 991   |  |  |  | 1,041  | 
|6% 1998/2008 U.S.$ notes                 |  |                    | USD |                    |  |                   | 970   |    |  |  | 1,110 |  |  |  | USD |  |  |  | 970   |  |  |  | 1,127  | 
|5.75%
    2001/2011 
    bonds          |  |                    | EUR |                    |  |                   | 2,000 |    |  |  | 2,083 |  |  |  | EUR |  |  |  | 1,900 |  |  |  | 1,897  | 
|                                         |  |                    |     |                    |  |                   |       |    |  |  |       |  |  |  |     |  |  |  |       |  |  |  |        | 
|                                         |  |                    |     |                    |  |                   |       |    |  |  | 9,637 |  |  |  |     |  |  |  |       |  |  |  | 10,024 | 
|                                         |  |                    |     |                    |  |                   |       |    |  |  |       |  |  |  |     |  |  |  |       |  |  |  |        | 






|  |                                                          
|- | ---------------------------------------------------------
|* | Includes adjustments for fair value hedge
    accounting.

In June 2001, the Company issued bonds with a
face value of
4 billion.
Net proceeds from the issuance were
3,988. The bonds
were issued in two tranches:
2 billion
5.00 per cent bond, which matures on July 4,
2006, and
2 billion
5.75 per cent bond, which matures on July 4,
2011. Interest on both tranches is payable on an annual basis on
July 4, beginning 2002. The bonds are redeemable prior to
maturity under limited circumstances at the option of the
Company, at a redemption price equal to their principal amount,
together with accrued interest thereon. During 2001, the Company
reacquired 100
notional amount of each tranche, which were reissued during
fiscal year 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)


19. Pension plans and similar
commitments

Liabilities for the Companys pension
benefit plans and principal other postretirement plans are
comprised of the following components:

|                                                            |  |               |       |      |  |  |       | 
|----------------------------------------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                                                            |  |              
|                                                            |  | September 30,
|                                                            |  |              
|                                                            |  | 2002          |       | 2001
|                                                            |  |               |       |     
|Principal pension benefit plans                             |  |               | 3,557 |      |  |  | 3,048 | 
|Principal other postretirement benefit plans                |  |               | 1,431 |      |  |  | 1,366 | 
|Other                                                       |  |               | 338   |      |  |  | 307   | 
|                                                            |  |               |       |      |  |  |       | 
|Total accrual for pension plans and similar
    commitments |  |               | 5,326 |      |  |  | 4,721 | 
|                                                            |  |               |       |      |  |  |       | 

Liabilities for principal pension benefit plans
of 3,557 consist
primarily of minimum liabilities resulting from underfunded
accumulated benefit obligations as described in more detail
below. Other consists of various insignificant
funded and unfunded pension benefit and other postretirement
plans which are not included in the detailed disclosures below.

Pension benefits

Virtually all of the Companys domestic
employees and many of its foreign employees are covered by
defined benefit pension plans. The most significant of these
pension plans cover approximately 517,000 participants,
including 264,000 employees, 82,000 former employees with vested
benefits and 171,000 retirees and beneficiaries. 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.

The Company constantly reviews the design of its
pension plans with regard to risk-control and labor-market
requirements. As a matter of principle it is currently
anticipated that future changes in plan design will result in a
greater number of cash-balance plans or defined contribution
plans versus pure defined benefit plans.

The Company has established the Siemens German
Pension Trust to provide for future pension benefit payments
relating to substantially all of its domestic defined benefit
pension plans (Siemens Pension Trust e.V.). As described in
Note 3, the Company contributed Infineon shares into the
Siemens German Pension Trust in April 2001. As of
September 30, 2002 and 2001, the Siemens German Pension
Trust held 87.1 million and 93.8 million shares,
respectively, in Infineon. While United States pension plans
subject to the Employee Retirement Income Security Act of 1974
(ERISA) are restricted in the amount of securities they are
permitted to own in the employer or its affiliates to 10% of the
plan assets, the Siemens German Pension Trust is not subject to
such ERISA provisions.

F-36



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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)


Information regarding the Companys
principal pension benefit plans is presented in the following
tables:

|                                         |                                                   |                                        |                         |                    |        |         |   |        |       |          |   |         |      |   |  |        |        |   |   |        |        |    |   |       |      |   | 
|---------------------------------------- | ------------------------------------------------- | -------------------------------------- | ----------------------- | ------------------ | ------ | ------- | - | ------ | ----- | -------- | - | ------- | ---- | - |  | ------ | ------ | - | - | ------ | ------ | -- | - | ----- | ---- | - | 
|                                         |                                                   |                                        |                         |                   
|                                         |                                                   | September 30, 2002                     |                         | September 30, 2001
|                                         |                                                   |                                        |                         |                   
|                                         |                                                   | Total                                  |                         | Domestic           |        | Foreign |   | Total  |       | Domestic |   | Foreign
|                                         |                                                   |                                        |                         |                    |        |         |   |        |       |          |   |        
|Change in projected benefit obligations: |                                                   |                                        |                         |                    |        |         |   |        |       |          |   |         |      |   |  |        |        |   |   |        |        |    |   |      
|                                         | Projected benefit obligation at beginning of year |                                        |                         | 18,544             |        |         |   | 13,077 |       |          |   | 5,467   |      |   |  | 15,930 |        |   |   | 11,339 |        |    |   | 4,591 |     
|                                         |                                                   | Foreign currency exchange rate changes |                         |                    | (265   | )       |   |        |      |          |   |         | (265 | ) |  |        | (244   | ) |   |        |       |    |   |       | (244 | )
|                                         |                                                   | Service cost                           |                         |                    | 487    |         |   |        | 206   |          |   |         | 281  |   |  |        | 464    |   |   |        | 195    |    |   |       | 269  |  
|                                         |                                                   | Interest cost                          |                         |                    | 1,151  |         |   |        | 772   |          |   |         | 379  |   |  |        | 1,091  |   |   |        | 749    |    |   |       | 342  |  
|                                         |                                                   | Plan participants contributions       |                         |                    | 32     |         |   |        |      |          |   |         | 32   |   |  |        | 32     |   |   |        |       |    |   |       | 32   |  
|                                         |                                                   | Amendments and other                   |                         |                    | (53    | )       |   |        | (197  | )        |   |         | 144  |   |  |        | 660    |   |   |        | 51     |    |   |       | 609  |  
|                                         |                                                   | Actuarial losses (gains)               |                         |                    | 697    |         |   |        | 301   |          |   |         | 396  |   |  |        | 703    |   |   |        | 728    |    |   |       | (25  | )
|                                         |                                                   | Acquisitions                           |                         |                    | 84     |         |   |        | 13    |          |   |         | 71   |   |  |        | 703    |   |   |        | 629    |    |   |       | 74   |  
|                                         |                                                   | Divestments                            |                         |                    | (255   | )       |   |        | (221  | )        |   |         | (34  | ) |  |        |       |   |   |        |       |    |   |       |     |  
|                                         |                                                   | Benefits paid                          |                         |                    | (930   | )       |   |        | (620  | )        |   |         | (310 | ) |  |        | (795   | ) |   |        | (614   | )  |   |       | (181 | )
|                                         |                                                   |                                        |                         |                    |        |         |   |        |       |          |   |         |      |   |  |        |        |   |   |        |        |    |   |      
|                                         | Projected benefit obligation at end of year       |                                        |                         | 19,492             |        |         |   | 13,331 |       |          |   | 6,161   |      |   |  | 18,544 |        |   |   | 13,077 |        |    |   | 5,467 |     
|                                         |                                                   |                                        |                         |                    |        |         |   |        |       |          |   |         |      |   |  |        |        |   |   |        |        |    |   |      
|                                         |                                                   | Siemens German Pension Trust           |                         |                    | 13,331 |         |   |        |       |          |   |         |      |   |  |        | 12,844 |   |   |        |        |    |   |       |      |  
|                                         |                                                   | U.S.                                   |                         |                    | 3,095  |         |   |        |       |          |   |         |      |   |  |        | 2,956  |   |   |        |        |    |   |       |      |  
|                                         |                                                   | U.K.                                   |                         |                    | 1,742  |         |   |        |       |          |   |         |      |   |  |        | 1,354  |   |   |        |        |    |   |       |      |  
|                                         |                                                   | Other                                  |                         |                    | 1,324  |         |   |        |       |          |   |         |      |   |  |        | 1.390  |   |   |        |        |    |   |       |      |  
|                                        
|Change in plan assets:                   |                                                   |                                        |                         |                    |        |         |   |        |       |          |   |         |      |   |  |        |        |   |   |        |        |    |   |      
|                                         | Fair value of plan assets at beginning of year    |                                        |                         | 14,761             |        |         |   | 9,682  |       |          |   | 5,079   |      |   |  | 15,785 |        |   |   | 10,872 |        |    |   | 4,913 |     
|                                         |                                                   | Foreign currency exchange rate changes |                         |                    | (166   | )       |   |        |      |          |   |         | (166 | ) |  |        | (210   | ) |   |        |       |    |   |       | (210 | )
|                                         |                                                   | Actual return on plan assets           |                         |                    | (1,187 | )       |   |        | (713  | )        |   |         | (474 | ) |  |        | (5,257 | ) |   |        | (4,952 | )  |   |       | (305 | )
|                                         |                                                   | Acquisitions                           |                         |                    | 171    |         |   |        |      |          |   |         | 171  |   |  |        | 551    |   |   |        |       |    |   |       | 551  |  
|                                         |                                                   | Divestments                            |                         |                    | (173   | )       |   |        | (173  | )        |   |         |     |   |  |        |       |   |   |        |       |    |   |       |     |  
|                                         |                                                   | Employer contributions                 |                         |                    | 2,023  |         |   |        | 1,500 |          |   |         | 523  |   |  |        | 4,655  |   |   |        | 4,376  |    |   |       | 279  |  
|                                         |                                                   | Plan participants contributions       |                         |                    | 32     |         |   |        |      |          |   |         | 32   |   |  |        | 32     |   |   |        |       |    |   |       | 32   |  
|                                         |                                                   | Benefits paid                          |                         |                    | (930   | )       |   |        | (620  | )        |   |         | (310 | ) |  |        | (795   | ) |   |        | (614   | )  |   |       | (181 | )
|                                         |                                                   |                                        |                         |                    |        |         |   |        |       |          |   |         |      |   |  |        |        |   |   |        |        |    |   |      
|                                         | Fair value of plan assets at end of year          |                                        |                         | 14,531             |        |         |   | 9,676  |       |          |   | 4,855   |      |   |  | 14,761 |        |   |   | 9,682  |        |    |   | 5,079 |     
|                                         |                                                   |                                        |                         |                    |        |         |   |        |       |          |   |         |      |   |  |        |        |   |   |        |        |    |   |      
|                                         |                                                   | Siemens German Pension Trust           |                         |                    | 9,676  |         |   |        |       |          |   |         |      |   |  |        | 9,503  |   |   |        |        |    |   |       |      |  
|                                         |                                                   | U.S.                                   |                         |                    | 2,349  |         |   |        |       |          |   |         |      |   |  |        | 2,543  |   |   |        |        |    |   |       |      |  
|                                         |                                                   | U.K.                                   |                         |                    | 1,443  |         |   |        |       |          |   |         |      |   |  |        | 1,492  |   |   |        |        |    |   |       |      |  
|                                         |                                                   | Other                                  |                         |                    | 1,063  |         |   |        |       |          |   |         |      |   |  |        | 1,223  |   |   |        |        |    |   |       |      |  
|                                        
|                                         | Asset allocation of total pension
    assets:     |                                        |                         |                    |        |         |   |        |       |          |   |         |      |   |  |        |        |   |   |        |        |    |   |       |     
|                                         |                                                   | Equity                                 |                         |                    | 33     | %       |   |        | 20    | %        |   |         | 60   | % |  |        | 61     | % |   |        | 58     | %  |   |       | 66   | %
|                                         |                                                   |                                        | therein Infineon shares |                    |        | 3       | % |        |       | 5        | % |         |      |  |  |        |        | 9 | % |        |        | 13 | % |       |      |  | 
|                                         |                                                   | Fixed income                           |                         |                    | 46     | %       |   |        | 58    | %        |   |         | 22   | % |  |        | 31     | % |   |        | 36     | %  |   |       | 23   | %
|                                         |                                                   | Real estate                            |                         |                    | 8      | %       |   |        | 7     | %        |   |         | 9    | % |  |        | 6      | % |   |        | 5      | %  |   |       | 9    | %
|                                         |                                                   | Cash                                   |                         |                    | 13     | %       |   |        | 15    | %        |   |         | 9    | % |  |        | 2      | % |   |        | 1      | %  |   |       | 2    | %

The measurement of plan assets for the domestic
pension plans is as of September 30, for the most
significant foreign pension plans as of June 30.

In view of current conditions in international
equities markets and in consideration of the changed asset
allocation, the Company decided to make supplemental cash
contributions to the pension trusts in Germany, 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)


U.S. and the U.K. amounting to
1.782 billion
in September 2002. In October 2002, the Company made additional
contributions of cash and real estate to its pension trusts in
Germany and the U.K. totaling
819. Further
funding decisions for the Companys pension plans will be
based upon due consideration of developments in funded status,
minimum funding requirements and tax deductibility in accordance
with the applicable local legal environment.

A reconciliation of the funded status to the
amounts recognized in the consolidated balance sheets is as
follows:

|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |      |      |  
|--------------------------------------------------------------------- | ------------------------------------ | ------------------ | ------ | ------------------ | - | ------- | ------ | ------ | - | -------- | ------ | ------- | - |  | ------ | ------ | - |  | ------ | ------ | - |  | ---- | ---- | -
|                                                                      |                                      |                    |        |                   
|                                                                      |                                      | September 30, 2002 |        | September 30, 2001
|                                                                      |                                      |                    |        |                   
|                                                                      |                                      | Total              |        | Domestic           |   | Foreign |        | Total  |   | Domestic |        | Foreign
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |        
|Funded status                                                         |                                      |                    | (4,961 | )                  |   |         | (3,655 | )      |   |          | (1,306 | )       |   |  | (3,783 | )      |   |  | (3,395 | )      |   |  | (388 | )   
|                                                                      | Siemens German Pension Trust         |                    |        | (3,655             | ) |         |        |        |   |          |        |         |   |  |        | (3,341 | ) |  |        |        |   |  |      |      |  
|                                                                      | U.S.                                 |                    |        | (746               | ) |         |        |        |   |          |        |         |   |  |        | (413   | ) |  |        |        |   |  |      |      |  
|                                                                      | U.K.                                 |                    |        | (299               | ) |         |        |        |   |          |        |         |   |  |        | 138    |   |  |        |        |   |  |      |      |  
|                                                                      | Other                                |                    |        | (261               | ) |         |        |        |   |          |        |         |   |  |        | (167   | ) |  |        |        |   |  |      |      |  
|Unrecognized net losses                                               |                                      |                    | 10,424 |                    |   |         | 8,969  |        |   |          | 1,455  |         |   |  | 7,354  |        |   |  | 7,143  |        |   |  | 211  |     
|Unrecognized prior service cost                                       |                                      |                    | 119    |                    |   |         |       |        |   |          | 119    |         |   |  | 113    |        |   |  |       |        |   |  | 113  |     
|Unrecognized net transition asset                                     |                                      |                    | (3     | )                  |   |         |       |        |   |          | (3     | )       |   |  | (7     | )      |   |  |       |        |   |  | (7   | )   
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |      |     
|Net amount recognized                                                 |                                      |                    | 5,579  |                    |   |         | 5,314  |        |   |          | 265    |         |   |  | 3,677  |        |   |  | 3,748  |        |   |  | (71  | )   
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |      |     
|Amounts recognized in the consolidated balance
    sheets consist of: |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |      |     
|                                                                      | Prepaid pension assets               |                    |        | 197                |   |         |        |       |   |          |        | 197     |   |  |        | 179    |   |  |        | 2      |   |  |      | 177  |  
|                                                                      | Accrued pension liability            |                    |        | (3,557             | ) |         |        | (3,063 | ) |          |        | (494    | ) |  |        | (3,048 | ) |  |        | (2,696 | ) |  |      | (352 | )
|                                                                      | Intangible assets                    |                    |        | 110                |   |         |        |       |   |          |        | 110     |   |  |        | 17     |   |  |        |       |   |  |      | 17   |  
|                                                                      | Accumulated other comprehensive loss |                    |        | 8,829              |   |         |        | 8,377  |   |          |        | 452     |   |  |        | 6,529  |   |  |        | 6,442  |   |  |      | 87   |  
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |      |     
|Net amount recognized                                                 |                                      |                    | 5,579  |                    |   |         | 5,314  |        |   |          | 265    |         |   |  | 3,677  |        |   |  | 3,748  |        |   |  | (71  | )   
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |      |     

F-38



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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 measurement dates for the Companys
domestic pension plans are September 30, and either
September 30 or June 30 for the majority of its
foreign plans. For fiscal 2002 and 2001, the projected benefit
obligation (PBO), accumulated benefit obligation (ABO) and fair
value of plan assets for defined benefit pension plans whose ABO
exceeded the fair value of plan assets at the measurement date
were as follows:

|                                                  |                              |                    |        |                    |   |         |        |       |  |          |       |         |  |  |        |        |   |  |        |   |  |  |      |   | 
|------------------------------------------------- | ---------------------------- | ------------------ | ------ | ------------------ | - | ------- | ------ | ----- |  | -------- | ----- | ------- |  |  | ------ | ------ | - |  | ------ | - |  |  | ---- | - | 
|                                                  |                              |                    |        |                   
|                                                  |                              | September 30, 2002 |        | September 30, 2001
|                                                  |                              |                    |        |                   
|                                                  |                              | Total              |        | Domestic           |   | Foreign |        | Total |  | Domestic |       | Foreign
|                                                  |                              |                    |        |                    |   |         |        |       |  |          |       |        
|Projected benefit obligation                      |                              |                    | 16,940 |                    |   |         | 13,331 |       |  |          | 3,609 |         |  |  | 13,668 |        |   |  | 13,077 |   |  |  | 591  |  
|                                                  | Siemens German Pension Trust |                    |        | 13,331             |   |         |        |       |  |          |       |         |  |  |        | 12,844 |   |  |        |   |  |  |      |   | 
|                                                  | U.S.                         |                    |        | 3,095              |   |         |        |       |  |          |       |         |  |  |        | 525    |   |  |        |   |  |  |      |   | 
|                                                  | Other                        |                    |        | 514                |   |         |        |       |  |          |       |         |  |  |        | 299    |   |  |        |   |  |  |      |   | 
|Accumulated benefit obligation                    |                              |                    | 15,825 |                    |   |         | 12,739 |       |  |          | 3,086 |         |  |  | 12,923 |        |   |  | 12,393 |   |  |  | 530  |  
|                                                  | Siemens German Pension Trust |                    |        | 12,739             |   |         |        |       |  |          |       |         |  |  |        | 12,192 |   |  |        |   |  |  |      |   | 
|                                                  | U.S.                         |                    |        | 2,659              |   |         |        |       |  |          |       |         |  |  |        | 483    |   |  |        |   |  |  |      |   | 
|                                                  | Other                        |                    |        | 427                |   |         |        |       |  |          |       |         |  |  |        | 248    |   |  |        |   |  |  |      |   | 
|Fair value of plan assets at the measurement date |                              |                    | 12,149 |                    |   |         | 9,676  |       |  |          | 2,473 |         |  |  | 10,089 |        |   |  | 9,682  |   |  |  | 407  |  
|                                                  | Siemens German Pension Trust |                    |        | 9,676              |   |         |        |       |  |          |       |         |  |  |        | 9,503  |   |  |        |   |  |  |      |   | 
|                                                  | U.S.                         |                    |        | 2,105              |   |         |        |       |  |          |       |         |  |  |        | 364    |   |  |        |   |  |  |      |   | 
|                                                  | Other                        |                    |        | 368                |   |         |        |       |  |          |       |         |  |  |        | 222    |   |  |        |   |  |  |      |   | 
|                                                  |                              |                    |        |                    |   |         |        |       |  |          |       |         |  |  |        |        |   |  |        |   |  |  |      |  
|Underfunding of accumulated benefit obligation    |                              |                    | (3,676 | )                  |   |         | (3,063 | )     |  |          | (613  | )       |  |  | (2,834 | )      |   |  | (2,711 | ) |  |  | (123 | )
|                                                  |                              |                    |        |                    |   |         |        |       |  |          |       |         |  |  |        |        |   |  |        |   |  |  |      |  
|                                                  | Siemens German Pension Trust |                    |        | (3,063             | ) |         |        |       |  |          |       |         |  |  |        | (2,689 | ) |  |        |   |  |  |      |   | 
|                                                  | U.S.                         |                    |        | (554               | ) |         |        |       |  |          |       |         |  |  |        | (119   | ) |  |        |   |  |  |      |   | 
|                                                  | Other                        |                    |        | (59                | ) |         |        |       |  |          |       |         |  |  |        | (26    | ) |  |        |   |  |  |      |   | 

The ABO represents the present value of the
future obligation without consideration of future salary
increases. The underfunded ABO of
3,676 (the
Minimum Liability) was recorded as an accrued pension liability
as of the measurement date. Subsequent to the measurement date,
the accrued pension liability was reduced by a supplemental cash
contribution in the U.S. of
244. Including
125 of accrued
liabilities relating to plans which were not underfunded as of
their measurement dates, the total accrued pension liability for
the principal pension plans was
3,557 at
September 30, 2002.

Prepaid pension assets and pension
liabilitiesexisting prior to this underfunding totaling a
net asset of
5,263, mainly
originating from the transfer of Infineon shares to the Siemens
German Pension Trust in the previous fiscal year and from the
supplemental funding of the Siemens German Pension Trust in the
current year, together with the underfunded ABOresulted in
an additional minimum liability adjustment of
8,939. Of this
amount 8,829
(5,386 net of
tax) was recorded in accumulated other comprehensive income as a
separate component of shareholders equity and
110 was recorded
as an intangible asset.

Assumed discount rates, rates of increase in
remuneration and increases in pension entitlements used in
calculating the projected benefit obligations 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. The weighted-average assumptions used in
calculating the actuarial values were as follows:

F-39



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


|                               |                              |                          |     |          |   |         |      |       |  |          |     |         |  |       |     |          |   |         |     |   |  |  |     |   |  |  |     |      |   |  |     |   |  |  |     |   | 
|------------------------------ | ---------------------------- | ------------------------ | --- | -------- | - | ------- | ---- | ----- |  | -------- | --- | ------- |  | ----- | --- | -------- | - | ------- | --- | - |  |  | --- | - |  |  | --- | ---- | - |  | --- | - |  |  | --- | - | 
|                               |                              |                         
|                               |                              | Year ended September 30,
|                               |                              |                         
|                               |                              |                          |     |          |   |        
|                               |                              | 2002                     |     | 2001     |   | 2000   
|                               |                              |                          |     |          |   |        
|                               |                              | Total                    |     | Domestic |   | Foreign |      | Total |  | Domestic |     | Foreign |  | Total |     | Domestic |   | Foreign
|                               |                              |                          |     |          |   |         |      |       |  |          |     |         |  |       |     |          |   |        
|Discount rate                  |                              |                          | 6.0 | %        |   |         | 5.75 | %     |  |          | 6.4 | %       |  |       | 6.2 | %        |   |         | 6.0 | % |  |  | 6.7 | % |  |  | 6.7 | %    |   |  | 6.5 | % |  |  | 7.3 | %
|                               | Siemens German Pension Trust |                          |     | 5.75     | % |         |      |       |  |          |     |         |  |       |     | 6.0      | % |         |     |   |  |  |     |   |  |  |     | 6.5  | % |  |     |   |  |  |     |   | 
|                               | U.S.                         |                          |     | 7.25     | % |         |      |       |  |          |     |         |  |       |     | 7.5      | % |         |     |   |  |  |     |   |  |  |     | 7.75 | % |  |     |   |  |  |     |   | 
|                               | U.K.                         |                          |     | 5.7      | % |         |      |       |  |          |     |         |  |       |     | 6.2      | % |         |     |   |  |  |     |   |  |  |     | 6.4  | % |  |     |   |  |  |     |   | 
|Expected return on plan assets |                              |                          | 8.0 | %        |   |         | 8.25 | %     |  |          | 7.9 | %       |  |       | 8.8 | %        |   |         | 9.3 | % |  |  | 7.8 | % |  |  | 8.9 | %    |   |  | 9.3 | % |  |  | 7.9 | %
|                               | Siemens German Pension Trust |                          |     | 8.25     | % |         |      |       |  |          |     |         |  |       |     | 9.5      | % |         |     |   |  |  |     |   |  |  |     | 9.5  | % |  |     |   |  |  |     |   | 
|                               | U.S.                         |                          |     | 9.0      | % |         |      |       |  |          |     |         |  |       |     | 8.75     | % |         |     |   |  |  |     |   |  |  |     | 8.5  | % |  |     |   |  |  |     |   | 
|                               | U.K.                         |                          |     | 7.2      | % |         |      |       |  |          |     |         |  |       |     | 7.4      | % |         |     |   |  |  |     |   |  |  |     | 7.25 | % |  |     |   |  |  |     |   | 
|Rate of compensation increase  |                              |                          | 3.1 | %        |   |         | 2.75 | %     |  |          | 3.9 | %       |  |       | 3.3 | %        |   |         | 3.0 | % |  |  | 4.1 | % |  |  | 3.9 | %    |   |  | 3.5 | % |  |  | 4.8 | %
|                               | Siemens German Pension Trust |                          |     | 2.75     | % |         |      |       |  |          |     |         |  |       |     | 3.0      | % |         |     |   |  |  |     |   |  |  |     | 3.5  | % |  |     |   |  |  |     |   | 
|                               | U.S.                         |                          |     | 4.25     | % |         |      |       |  |          |     |         |  |       |     | 4.5      | % |         |     |   |  |  |     |   |  |  |     | 5.1  | % |  |     |   |  |  |     |   | 
|                               | U.K.                         |                          |     | 4.1      | % |         |      |       |  |          |     |         |  |       |     | 4.1      | % |         |     |   |  |  |     |   |  |  |     | 4.3  | % |  |     |   |  |  |     |   | 
|Rate of pension progression    |                              |                          | 1.4 | %        |   |         | 1.25 | %     |  |          | 2.3 | %       |  |       | 1.6 | %        |   |         | 1.5 | % |  |  | 2.3 | % |  |  | 1.7 | %    |   |  | 1.5 | % |  |  | 2.9 | %
|                               | Siemens German Pension Trust |                          |     | 1.25     | % |         |      |       |  |          |     |         |  |       |     | 1.5      | % |         |     |   |  |  |     |   |  |  |     | 1.5  | % |  |     |   |  |  |     |   | 
|                               | U.K.                         |                          |     | 2.5      | % |         |      |       |  |          |     |         |  |       |     | 2.5      | % |         |     |   |  |  |     |   |  |  |     | 2.7  | % |  |     |   |  |  |     |   | 

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 actuarial assumption is
determined on an uniform basis, considering long-term historical
returns, asset allocation, and future estimates of long-term
investment returns. As of October 1, 2001, Siemens adjusted
the expected return on plan assets for its German Pension Trust
from 9.5% in 2001 to 8.25% in order to reflect an expected
decline in future investment performance as well as to allow for
the reduced investment in equities. Actuarial assumptions not
shown in the table above, like employee turnover, mortality,
disability etc., remained primarily unchanged in 2002.

The components of the net periodic pension cost
for the years ended September 30, 2002, 2001 and 2000 were
as follows:

|                                   |                                                |                              |        |          |     |         |        |       |  |          |      |         |   |       |        |          |      |         |        |   |  |  |      |    |   |  |      |    |     |  |      |   |  |  |      |    |   | 
|---------------------------------- | ---------------------------------------------- | ---------------------------- | ------ | -------- | --- | ------- | ------ | ----- |  | -------- | ---- | ------- | - | ----- | ------ | -------- | ---- | ------- | ------ | - |  |  | ---- | -- | - |  | ---- | -- | --- |  | ---- | - |  |  | ---- | -- | - | 
|                                   |                                                |                             
|                                   |                                                | Year ended September 30,    
|                                   |                                                |                             
|                                   |                                                |                              |        |          |     |        
|                                   |                                                | 2002                         |        | 2001     |     | 2000   
|                                   |                                                |                              |        |          |     |        
|                                   |                                                | Total                        |        | Domestic |     | Foreign |        | Total |  | Domestic |      | Foreign |   | Total |        | Domestic |      | Foreign
|                                   |                                                |                              |        |          |     |         |        |       |  |          |      |         |   |       |        |          |      |        
|Service cost                       |                                                |                              | 487    |          |     |         | 206    |       |  |          | 281  |         |   |       | 464    |          |      |         | 195    |   |  |  | 269  |    |   |  | 455  |    |     |  | 209  |   |  |  | 246  |   
|Interest cost                      |                                                |                              | 1,151  |          |     |         | 772    |       |  |          | 379  |         |   |       | 1,091  |          |      |         | 749    |   |  |  | 342  |    |   |  | 991  |    |     |  | 707  |   |  |  | 284  |   
|Expected return on plan assets     |                                                |                              | (1,421 | )        |     |         | (1,007 | )     |  |          | (414 | )       |   |       | (1,609 | )        |      |         | (1,203 | ) |  |  | (406 | )  |   |  | (872 | )  |     |  | (553 | ) |  |  | (319 | ) 
|Amortization of:                   |                                                |                              |        |          |     |         |        |       |  |          |      |         |   |       |        |          |      |         |        |   |  |  |      |    |   |  |      |    |     |  |      |   |  |  |      |   
|                                   | Unrecognized prior service cost                |                              |        | 14       |     |         |        |      |  |          |      | 14      |   |       |        | 8        |      |         |        |  |  |  |      | 8  |   |  |      | 4  |     |  |      |  |  |  |      | 4  |  
|                                   | Unrecognized net losses (gains)                |                              |        | 208      |     |         |        | 212   |  |          |      | (4      | ) |       |        | (1       | )    |         |        |  |  |  |      | (1 | ) |  |      | (9 | )   |  |      |  |  |  |      | (9 | )
|                                   | Unrecognized net transition obligation (asset) |                              |        | 8        |     |         |        |      |  |          |      | 8       |   |       |        | (4       | )    |         |        |  |  |  |      | (4 | ) |  |      | (4 | )   |  |      |  |  |  |      | (4 | )
|                                   | Gain due to settlements and curtailments       |                              |        |         |     |         |        |      |  |          |      |        |   |       |        |         |      |         |        |  |  |  |      |   |   |  |      | (1 | )   |  |      |  |  |  |      | (1 | )
|                                   |                                                |                              |        |          |     |         |        |       |  |          |      |         |   |       |        |          |      |         |        |   |  |  |      |    |   |  |      |    |     |  |      |   |  |  |      |   
|Net periodic pension cost (income) |                                                |                              | 447    |          |     |         | 183    |       |  |          | 264  |         |   |       | (51    | )        |      |         | (259   | ) |  |  | 208  |    |   |  | 564  |    |     |  | 363  |   |  |  | 201  |   
|                                   |                                                |                              |        |          |     |         |        |       |  |          |      |         |   |       |        |          |      |         |        |   |  |  |      |    |   |  |      |    |     |  |      |   |  |  |      |   
|                                   |                                                | Siemens German Pension Trust |        |          | 183 |         |        |       |  |          |      |         |   |       |        |          | (261 | )       |        |   |  |  |      |    |   |  |      |    | 352 |  |      |   |  |  |      |    |   | 
|                                   |                                                | U.S.                         |        |          | 164 |         |        |       |  |          |      |         |   |       |        |          | 122  |         |        |   |  |  |      |    |   |  |      |    | 111 |  |      |   |  |  |      |    |   | 
|                                   |                                                | U.K.                         |        |          | 58  |         |        |       |  |          |      |         |   |       |        |          | 49   |         |        |   |  |  |      |    |   |  |      |    | 64  |  |      |   |  |  |      |    |   | 
|                                   |                                                | Other                        |        |          | 42  |         |        |       |  |          |      |         |   |       |        |          | 39   |         |        |   |  |  |      |    |   |  |      |    | 37  |  |      |   |  |  |      |    |   | 

The interest and service costs components of net
periodic pension cost for each fiscal year were determined based
upon the PBO determined as of the measurement date in the
preceding fiscal year. The calculation of the expected return on
plan assets component of net periodic pension cost was based on
the rate provided for each respective year. For the Siemens
German Pension Trust, the determination of the expected return
on plan assets

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)


and the amortization of unrecognized losses are
based on a market-related value of plan assets calculated using
the average of historical market values of plan assets over four
quarters. For all other plans, the market-related value of plan
assets is equal to the fair value of plan assets as of the
measurement date. Net 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.

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 postretirement health care and life insurance
benefits to employees. The health care plans are contributory,
with participants contributions adjusted annually at the
Companys discretion. The basic life insurance plans are
noncontributory. The accounting for the health care plans
anticipates future cost sharing changes to the written plans
that are consistent with the Companys intent that retirees
share a fixed percentage of the overall costs of benefits each
year. The plans provide either defined medical, dental and life
insurance benefits or a defined Company contribution toward the
cost of such benefits.

Information regarding the Companys
principal other postretirement benefit plans is presented in the
following tables:

|                                         |                                                   |                                        |  |                    |     |         |  |       |     |          |  |         |     |   |  |       |     |   |  |     |     |   |  |     |     |  
|---------------------------------------- | ------------------------------------------------- | -------------------------------------- |  | ------------------ | --- | ------- |  | ----- | --- | -------- |  | ------- | --- | - |  | ----- | --- | - |  | --- | --- | - |  | --- | --- | -
|                                         |                                                   |                                        |  |                   
|                                         |                                                   | September 30, 2002                     |  | September 30, 2001
|                                         |                                                   |                                        |  |                   
|                                         |                                                   | Total                                  |  | Domestic           |     | Foreign |  | Total |     | Domestic |  | Foreign
|                                         |                                                   |                                        |  |                    |     |         |  |       |     |          |  |        
|Change in projected benefit obligations: |                                                   |                                        |  |                    |     |         |  |       |     |          |  |         |     |   |  |       |     |   |  |     |     |   |  |    
|                                         | Projected benefit obligation at beginning of year |                                        |  | 1,170              |     |         |  | 587   |     |          |  | 583     |     |   |  | 1,210 |     |   |  | 608 |     |   |  | 602 |    
|                                         |                                                   | Foreign currency exchange rate changes |  |                    | (46 | )       |  |       |    |          |  |         | (46 | ) |  |       | (25 | ) |  |     |    |   |  |     | (25 | )
|                                         |                                                   | Service cost                           |  |                    | 52  |         |  |       | 21  |          |  |         | 31  |   |  |       | 47  |   |  |     | 23  |   |  |     | 24  |  
|                                         |                                                   | Interest cost                          |  |                    | 80  |         |  |       | 33  |          |  |         | 47  |   |  |       | 79  |   |  |     | 40  |   |  |     | 39  |  
|                                         |                                                   | Plan participants contributions       |  |                    |    |         |  |       |    |          |  |         |    |   |  |       | 1   |   |  |     |    |   |  |     | 1   |  
|                                         |                                                   | Actuarial (gains) losses               |  |                    | (59 | )       |  |       | (81 | )        |  |         | 22  |   |  |       | (86 | ) |  |     | (52 | ) |  |     | (34 | )
|                                         |                                                   | Acquisitions                           |  |                    | 61  |         |  |       | 17  |          |  |         | 44  |   |  |       |    |   |  |     |    |   |  |     |    |  
|                                         |                                                   | Divestments                            |  |                    | (49 | )       |  |       | (22 | )        |  |         | (27 | ) |  |       | (18 | ) |  |     | (18 | ) |  |     |    |  
|                                         |                                                   | Benefits paid                          |  |                    | (59 | )       |  |       | (21 | )        |  |         | (38 | ) |  |       | (38 | ) |  |     | (14 | ) |  |     | (24 | )
|                                         |                                                   |                                        |  |                    |     |         |  |       |     |          |  |         |     |   |  |       |     |   |  |     |     |   |  |    
|                                         | Projected benefit obligation at end of year       |                                        |  | 1,150              |     |         |  | 534   |     |          |  | 616     |     |   |  | 1,170 |     |   |  | 587 |     |   |  | 583 |    
|                                         |                                                   |                                        |  |                    |     |         |  |       |     |          |  |         |     |   |  |       |     |   |  |     |     |   |  |    
|Change in plan assets:                   |                                                   |                                        |  |                    |     |         |  |       |     |          |  |         |     |   |  |       |     |   |  |     |     |   |  |    
|                                         | Fair value of plan assets at beginning of year    |                                        |  | 28                 |     |         |  | 17    |     |          |  | 11      |     |   |  | 32    |     |   |  | 23  |     |   |  | 9   |    
|                                         |                                                   | Foreign currency exchange rate changes |  |                    | (1  | )       |  |       |    |          |  |         | (1  | ) |  |       |    |   |  |     |    |   |  |     |    |  
|                                         |                                                   | Actual return on plan assets           |  |                    |    |         |  |       |    |          |  |         |    |   |  |       | (6  | ) |  |     | (6  | ) |  |     |    |  
|                                         |                                                   | Divestments                            |  |                    | (17 | )       |  |       | (17 | )        |  |         |    |   |  |       |    |   |  |     |    |   |  |     |    |  
|                                         |                                                   | Employer contributions                 |  |                    | 41  |         |  |       |    |          |  |         | 41  |   |  |       | 26  |   |  |     | 1   |   |  |     | 25  |  
|                                         |                                                   | Plan participants contributions       |  |                    |    |         |  |       |    |          |  |         |    |   |  |       | 1   |   |  |     |    |   |  |     | 1   |  
|                                         |                                                   | Benefits paid                          |  |                    | (38 | )       |  |       |    |          |  |         | (38 | ) |  |       | (25 | ) |  |     | (1  | ) |  |     | (24 | )
|                                         |                                                   |                                        |  |                    |     |         |  |       |     |          |  |         |     |   |  |       |     |   |  |     |     |   |  |    
|                                         | Fair value of plan assets at end of year          |                                        |  | 13                 |     |         |  |      |     |          |  | 13      |     |   |  | 28    |     |   |  | 17  |     |   |  | 11  |    
|                                         |                                                   |                                        |  |                    |     |         |  |       |     |          |  |         |     |   |  |       |     |   |  |     |     |   |  |    

F-41



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


A reconciliation of the funded status to the
amounts recognized in the consolidated balance sheets is as
follows:

|                                                                                                |  |                    |        |                    |  |         |      |       |  |          |      |         |  |  |        |   |  |  |      |   |  |  |      |  
|----------------------------------------------------------------------------------------------- |  | ------------------ | ------ | ------------------ |  | ------- | ---- | ----- |  | -------- | ---- | ------- |  |  | ------ | - |  |  | ---- | - |  |  | ---- | -
|                                                                                                |  |                    |        |                   
|                                                                                                |  | September 30, 2002 |        | September 30, 2001
|                                                                                                |  |                    |        |                   
|                                                                                                |  | Total              |        | Domestic           |  | Foreign |      | Total |  | Domestic |      | Foreign
|                                                                                                |  |                    |        |                    |  |         |      |       |  |          |      |        
|Funded status                                                                                   |  |                    | (1,137 | )                  |  |         | (534 | )     |  |          | (603 | )       |  |  | (1,142 | ) |  |  | (570 | ) |  |  | (572 | )
|Unrecognized net gains                                                                          |  |                    | (300   | )                  |  |         | (166 | )     |  |          | (134 | )       |  |  | (228   | ) |  |  | (57  | ) |  |  | (171 | )
|Unrecognized prior service cost                                                                 |  |                    | 5      |                    |  |         |     |       |  |          | 5    |         |  |  | 3      |   |  |  |     |   |  |  | 3    |  
|Unrecognized net transition obligation                                                          |  |                    | 1      |                    |  |         |     |       |  |          | 1    |         |  |  | 1      |   |  |  |     |   |  |  | 1    |  
|                                                                                                |  |                    |        |                    |  |         |      |       |  |          |      |         |  |  |        |   |  |  |      |   |  |  |      |  
|Net amount recognized (within accrued benefit
    liability in the consolidated balance sheets) |  |                    | (1,431 | )                  |  |         | (700 | )     |  |          | (731 | )       |  |  | (1,366 | ) |  |  | (627 | ) |  |  | (739 | )
|                                                                                                |  |                    |        |                    |  |         |      |       |  |          |      |         |  |  |        |   |  |  |      |   |  |  |      |  

Discount rates and other key assumptions used for
transition payments in Germany are the same as those used for
domestic pension benefit plans.

The weighted-average assumptions used in
calculating the actuarial values for the postretirement health
care and life insurance benefits in the U.S. were as
follows:

|                                             |                            |                          |            |               |  |      |            |             |  |  |            |                | 
|-------------------------------------------- | -------------------------- | ------------------------ | ---------- | ------------- |  | ---- | ---------- | ----------- |  |  | ---------- | -------------- | 
|                                             |                            |                         
|                                             |                            | Year ended September 30,
|                                             |                            |                         
|                                             |                            | 2002                     |            | 2001          |  | 2000
|                                             |                            |                          |            |               |  |     
|Discount rate                                |                            |                          | 7.25%      |               |  |      | 7.5%       |             |  |  | 7.75%      |               
|Medical trend rates (initial/ultimate/year): |                            |                          |            |               |  |      |            |             |  |  |            |               
|                                             | Medicare ineligible pre 65 |                          |            | 9.17%/5%/2007 |  |      |            | 10%/5%/2007 |  |  |            | 8.5%/5.4%/2021 | 
|                                             | Medicare eligible post 65  |                          |            | 9.17%/5%/2007 |  |      |            | 10%/5%/2007 |  |  |            | 6.9%/5.4%/2021 | 
|Fixed dollar benefit                         |                            |                          | 6%         |               |  |      | 5.8%       |             |  |  | 6%         |               
|Dental trend rates (initial/ultimate/year)   |                            |                          | 6%/5%/2021 |               |  |      | 6%/5%/2021 |             |  |  | 6%/5%/2021 |               

The health-care trend rate assumptions have a
significant effect on the amounts reported. A
one-percentage-point change in the health-care trend rates would
have the following effects on the accumulated postretirement
benefit obligation and service and interest cost as of and for
the year ended September 30, 2002:

|                                                            |  |                      |    |          |  |  |     |  
|----------------------------------------------------------- |  | -------------------- | -- | -------- |  |  | --- | -
|                                                            |  |                     
|                                                            |  | September 30, 2002  
|                                                            |  | One-percentage-point
|                                                            |  |                     
|                                                            |  | increase             |    | decrease
|                                                            |  |                      |    |         
|Effect on accumulated postretirement benefit
    obligation |  |                      | 44 |          |  |  | (29 | )
|Effect on total of service and interest cost
    components |  |                      | 7  |          |  |  | (5  | )

The components of the net periodic benefit cost
for the principal other postretirement benefit plans for the
years ended September 30, 2002, 2001 and 2000 were as
follows:

|                               |                                 |                          |     |          |   |         |    |       |  |          |    |         |   |       |     |          |   |         |    |   |  |  |    |     |   |  |     |    |   |  |    |   |  |  |    |    |  
|------------------------------ | ------------------------------- | ------------------------ | --- | -------- | - | ------- | -- | ----- |  | -------- | -- | ------- | - | ----- | --- | -------- | - | ------- | -- | - |  |  | -- | --- | - |  | --- | -- | - |  | -- | - |  |  | -- | -- | -
|                               |                                 |                         
|                               |                                 | Year ended September 30,
|                               |                                 |                         
|                               |                                 |                          |     |          |   |        
|                               |                                 | 2002                     |     | 2001     |   | 2000   
|                               |                                 |                          |     |          |   |        
|                               |                                 | Total                    |     | Domestic |   | Foreign |    | Total |  | Domestic |    | Foreign |   | Total |     | Domestic |   | Foreign
|                               |                                 |                          |     |          |   |         |    |       |  |          |    |         |   |       |     |          |   |        
|Service cost                   |                                 |                          | 52  |          |   |         | 21 |       |  |          | 31 |         |   |       | 47  |          |   |         | 23 |   |  |  | 24 |     |   |  | 44  |    |   |  | 23 |   |  |  | 21 |   
|Interest cost                  |                                 |                          | 80  |          |   |         | 33 |       |  |          | 47 |         |   |       | 79  |          |   |         | 40 |   |  |  | 39 |     |   |  | 74  |    |   |  | 38 |   |  |  | 36 |   
|Expected return on plan assets |                                 |                          |    |          |   |         |   |       |  |          |   |         |   |       | (2  | )        |   |         | (2 | ) |  |  |   |     |   |  |    |    |   |  |   |   |  |  |   |   
|Amortization of:               |                                 |                          |     |          |   |         |    |       |  |          |    |         |   |       |     |          |   |         |    |   |  |  |    |     |   |  |     |    |   |  |    |   |  |  |    |   
|                               | Unrecognized prior service cost |                          |     |         |   |         |    |      |  |          |    |        |   |       |     | (1       | ) |         |    |  |  |  |    | (1  | ) |  |     |   |   |  |    |  |  |  |    |   |  
|                               | Unrecognized net gains          |                          |     | (9       | ) |         |    |      |  |          |    | (9      | ) |       |     | (20      | ) |         |    |  |  |  |    | (20 | ) |  |     | (8 | ) |  |    |  |  |  |    | (8 | )
|                               |                                 |                          |     |          |   |         |    |       |  |          |    |         |   |       |     |          |   |         |    |   |  |  |    |     |   |  |     |    |   |  |    |   |  |  |    |   
|Net periodic benefit cost      |                                 |                          | 123 |          |   |         | 54 |       |  |          | 69 |         |   |       | 103 |          |   |         | 61 |   |  |  | 42 |     |   |  | 110 |    |   |  | 61 |   |  |  | 49 |   
|                               |                                 |                          |     |          |   |         |    |       |  |          |    |         |   |       |     |          |   |         |    |   |  |  |    |     |   |  |     |    |   |  |    |   |  |  |    |   

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)


20. Other accruals and
provisions

|                                       |  |               |       |      |  |  |       | 
|-------------------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                                       |  |              
|                                       |  | September 30,
|                                       |  |              
|                                       |  | 2002          |       | 2001
|                                       |  |               |       |     
|Remediation and environmental accruals |  |               | 705   |      |  |  | 728   | 
|Deferred income                        |  |               | 281   |      |  |  | 254   | 
|Other long-term accruals               |  |               | 2,415 |      |  |  | 1,975 | 
|                                       |  |               |       |      |  |  |       | 
|                                       |  |               | 3,401 |      |  |  | 2,957 | 
|                                       |  |               |       |      |  |  |       | 

Remediation and environmental protection
liabilities have been accrued primarily to account for 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). 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 until 2006; 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. As
of September 30, 2002 and 2001, the accrual totals
641 and
676,
respectively, and is recorded net of a present value discount of
1,429 and
1,460,
respectively, calculated using a range of rates from
approximately 4% to 5%. The rates are determined based on the
differing durations of the steps of decommissioning. The total
expected payments for each of the next five fiscal years and the
total thereafter are
70,
75,
79,
3,
3 and
1,840 (includes
1,663 for the
costs associated with final storage in 2033).

The Company recognizes the accretion of the
liability for the Hanau facility using the interest method.
During the years ended September 30, 2002, 2001 and 2000,
32,
33 and
33,
respectively, was recognized as interest expense related to such
accretion.

21. Shareholders equity

Capital Stock and Additional Paid-in
Capital

As of September 30, 2002, the Companys
capital stock totaled
2,671 divided
into 890,374,001 shares without par value with a notional value
of 3.00 per
share. Each share of common stock is entitled to one vote.

As of September 30, 2001 and 2000, the
Companys capital stock totaled
2,665 and
1,505 divided
into 888,230,245 shares and 882,930,900 shares, respectively.

F-43



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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 provides a summary of
outstanding capital and the changes in authorized and
conditional capital for fiscal years 2002, 2001 and 2000:

|                         |                                                          |                         |           |                    |   |                     |         |          |   |           |         |          |   |  |         |         |   |  |         |         |   |  |        |        |  
|------------------------ | -------------------------------------------------------- | ----------------------- | --------- | ------------------ | - | ------------------- | ------- | -------- | - | --------- | ------- | -------- | - |  | ------- | ------- | - |  | ------- | ------- | - |  | ------ | ------ | -
|                         |                                                          |                         |           |                    |   |                    
|                         |                                                          | Capital 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, 1999    |                                                          |                         | 1,520,559 |                    |   |                     | 594,791 |          |   |           | 499,021 |          |   |  | 195,200 |         |   |  | 27,047  |         |   |  | 10,580 |       
|                         | Settlement to former SNI shareholders                    |                         |           | 32                 |   |                     |         | 13       |   |           |         |         |   |  |         |        |   |  |         | (32     | ) |  |        | (13    | )
|                         | Retirement of capital stock                              |                         |           | (15,807            | ) |                     |         | (6,183   | ) |           |         |         |   |  |         |        |   |  |         |        |   |  |        |       |  
|                         |                                                          |                         |           |                    |   |                     |         |          |   |           |         |          |   |  |         |         |   |  |         |         |   |  |        |       
|As of September 30, 2000 |                                                          |                         | 1,504,784 |                    |   |                     | 588,621 |          |   |           | 499,021 |          |   |  | 195,200 |         |   |  | 27,015  |         |   |  | 10,567 |       
|                         | Settlement to former SNI shareholders                    |                         |           | 20                 |   |                     |         | 7        |   |           |         |         |   |  |         |        |   |  |         | (20     | ) |  |        | (7     | )
|                         | Capital increases                                        |                         |           | 10,039             |   |                     |         | 3,790    |   |           |         | (10,039  | ) |  |         | (3,790  | ) |  |         |        |   |  |        |       |  
|                         | Capital increases for stock split and notional
    value |                         |           | 1,149,847          |   |                     |         | 295,812  |   |           |         | 44,354   |   |  |         |        |   |  |         | 1,094   |   |  |        | 282    |  
|                         | New approved capital                                     |                         |           |                   |   |                     |         |         |   |           |         | 475,000  |   |  |         | 158,333 |   |  |         | 166,436 |   |  |        | 54,000 |  
|                         | Expired capital                                          |                         |           |                   |   |                     |         |         |   |           |         | (235,706 | ) |  |         | (92,200 | ) |  |         |        |   |  |        |       |  
|                         |                                                          |                         |           |                    |   |                     |         |          |   |           |         |          |   |  |         |         |   |  |         |         |   |  |        |       
|As of September 30, 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 |       
|                         |                                                          |                         |           |                    |   |                     |         |          |   |           |         |          |   |  |         |         |   |  |         |         |   |  |        |       






|  |                                                                                                                                                                                                                                                                                                                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Share amounts prior to stock split have not been
    restated. The total increase of shares with respect to the stock
    split is shown in Capital increases for stock split and
    notional value. As of October 1, 1999 and
    September 30, 2000, shares of capital stock after stock
    split totaled 892,186 and 882,931, respectively.

Capital increases

In January 2002,
6 or 2,000,000
shares from Authorized Capital 2001/II were issued to an
underwriter and subsequently offered for sale to employees with
respect to our employee share program (see also Treasury
stock below).

On February 22, 2001, the Companys
shareholders approved a capital increase of
262 through the
increase in the notional value per share to a round amount from
approximately
2.56 per share
to 3.00 per
share.

In addition, the Companys shareholders
approved a capital increase of
888 effected in
the form of a 3-for-2 stock split through increasing the number
of shares outstanding by 295,812,450. The stock split was
effective for trading purposes on April 30, 2001. All share
and per share data for periods prior to April 30, 2001 have
been restated to give effect to the 3-for-2 stock split.

The foregoing capital increases approved on
February 22, 2001, had the effect of decreasing additional
paid-in capital and increasing common stock by
1,150.

In December 2000,
8 or 3,000,000
shares (4,500,000 after stock split) from Authorized Capital
1996/II were issued to an underwriter, repurchased and
subsequently offered for sale to employees in Germany
principally with respect to a special employee share program.

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)


In June 2001,
2 or 790,000
shares from Authorized Capital 2001/II were issued to an
underwriter, repurchased and subsequently offered for sale to
employees in the U.S. with respect to a special employee
share program.

In fiscal 2002, capital stock increased by
413 thousand
through the issuance of 137,576 shares, from the conditional
capital to service the 1999 Siemens Stock Option Plan and the
2001 Siemens Stock Option Plan (Conditional Capital 1999).

In fiscal 2002, 2001 and 2000, capital stock
increased by 19
thousand, 20
thousand and 32
thousand, respectively, through the issuance of 6,180 shares,
9,345 shares and 18,990 shares, respectively, from the
conditional capital as settlement to former shareholders of SNI
AG who had not tendered their SNI share certificates by
September 30, 2001, 2000 and 1999.

Authorized and Conditional Capital

On September 30, 2002, the authorized but
unissued capital of the Company totaled
767 or
255,543,334 common shares.

On September 30, 2001 and 2000, the
authorized but unissued capital of the Company totaled
773 and
499 or
257,543,334 and 195,200,000 common shares, respectively.

Authorized Capital 1996/II, which was used for
the above-mentioned capital increase during fiscal 2001 of
3,000,000 shares, expired on February 1, 2001.

On February 22, 2001, the Companys
shareholders authorized the Managing Board with the approval of
the Supervisory Board to increase the capital 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, is authorized to increase the capital stock
by up to 75
through the issuance of up to 25,000,000 shares until
February 1, 2006. The shareholders preemptive rights
are excluded since these shares will be offered for sale to
employees (Authorized Capital 2001/II). As mentioned above,
790,000 shares from this authorized capital were issued during
fiscal 2001.

The authorization to issue
300 or
100,000,000 in new common shares for which the
shareholders preemptive rights are excluded because these
shares will be issued against contribution in kind will expire
on February 1, 2003 for the first tranche of
90 (Authorized
Capital 1998) and on February 1, 2004 for the second
tranche of 210
(Authorized Capital 1999).

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).

Conditional capital of
2.5 provides for
the settlement offered to former shareholders of SNI AG who had
not tendered their SNI share certificates by September 30,
2001.

Treasury stock

On January 17, 2002, the Companys
shareholders authorized the Company to repurchase up to 10% of
the 2,665
capital stock.

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
capital 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

F-45



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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.

In fiscal 2001, Siemens repurchased 6,063,920
shares, including the 4,500,000 (after stock split) from the
Authorized Capital 1996/II and (representing
18 or 1.2% of
capital stock), at an average price of
84.76 per share
in addition to the 23,100 shares of treasury stock held at the
beginning of the fiscal year. Of these shares, 6,085,904 were
sold to employees, a majority of which was related to a special
employee share program. The remainder of the shares were offered
for sale to employees at a preferential price of
58.77. As of
September 30, 2001, 1,116 shares of stock remained in
treasury with a carrying amount of
111 thousand.

In fiscal 2000, Siemens repurchased 2,718,486
shares (representing
5 or 0.2% of the
capital stock) at an average price of
82.55 per share
in addition to the 28 shares of treasury stock held at the
beginning of the fiscal year. Of these shares 2,695,414 were
sold to employees at a preferential price of
42.07 per share.
At fiscal year-end, 23,100 shares of stock remained in treasury.
The carrying amount of these shares, valued at
82.56 each, was
2.

During the years ended September 30, 2002,
2001 and 2000, the Company incurred compensation expense of
73,
65 and
109,
respectively, related to the sale of repurchased shares to
employees.

During fiscal 2000, the Company repurchased
during the months of May to August 2000 a total of 9,274,500 of
its outstanding shares at an average price of
107.71 per share
for a total of
999. The shares
were purchased on the open market and were subsequently retired.
As a result of these transactions, capital stock was reduced by
16 or 1%,
paid-in capital was reduced by
58 or 1%, while
retained earnings was charged with the purchase price difference
of 925.

Other Comprehensive Income
(Loss)

The changes in the components of other
comprehensive income are as follows:

|                                                                              |                                                                            |                          |        |        |   |      |       |        |   |        |        |      |   |        |        |        |   |     |       |     |   |  |        |        |   |  |       |       |   |  |      |      |   |  |       |       |  
|----------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------------ | ------ | ------ | - | ---- | ----- | ------ | - | ------ | ------ | ---- | - | ------ | ------ | ------ | - | --- | ----- | --- | - |  | ------ | ------ | - |  | ----- | ----- | - |  | ---- | ---- | - |  | ----- | ----- | -
|                                                                              |                                                                            |                         
|                                                                              |                                                                            | Year ended September 30,
|                                                                              |                                                                            |                         
|                                                                              |                                                                            |                          |        |        |   |     
|                                                                              |                                                                            | 2002                     |        | 2001   |   | 2000
|                                                                              |                                                                            |                          |        |        |   |     
|                                                                              |                                                                            |                          |        | 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                           |                          |        | (360   | ) |      |       | 122    |   |        |        | (238 | ) |        |        | (2,239 | ) |     |       | 918 |   |  |        | (1,321 | ) |  |       | 2,123 |   |  |      | (973 | ) |  |       | 1,150 |  
|                                                                              | Reclassification adjustments for gains (losses)
    included in net income |                          |        | (4     | ) |      |       | 3      |   |        |        | (1   | ) |        |        | 209    |   |     |       | (87 | ) |  |        | 122    |   |  |       | (280  | ) |  |      | 132  |   |  |       | (148  | )
|                                                                              |                                                                            |                          |        |        |   |      |       |        |   |        |        |      |   |        |        |        |   |     |       |     |   |  |        |        |   |  |       |       |   |  |      |      |   |  |       |      
|                                                                              | Net unrealized gains (losses) on
    available-for-sale securities         |                          |        | (364   | ) |      |       | 125    |   |        |        | (239 | ) |        |        | (2,030 | ) |     |       | 831 |   |  |        | (1,199 | ) |  |       | 1,843 |   |  |      | (841 | ) |  |       | 1,002 |  
|Changes in unrealized gains (losses) on
    derivative financial instruments: |                                                                            |                          |        |        |   |      |       |        |   |        |        |      |   |        |        |        |   |     |       |     |   |  |        |        |   |  |       |       |   |  |      |      |   |  |       |      
|                                                                              | Cumulative effect of change in accounting for
    derivative instruments   |                          |        |       |   |      |       |       |   |        |        |     |   |        |        |       |   |     |       |    |   |  |        |       |   |  |       | 8     |   |  |      | (3   | ) |  |       | 5     |  
|                                                                              | Unrealized gains (losses) on derivative financial
    instruments          |                          |        | 110    |   |      |       | (43    | ) |        |        | 67   |   |        |        | 87     |   |     |       | (41 | ) |  |        | 46     |   |  |       | (67   | ) |  |      | 33   |   |  |       | (34   | )
|                                                                              | Reclassification adjustments for (gains) losses
    included in net income |                          |        | (51    | ) |      |       | 20     |   |        |        | (31  | ) |        |        | 12     |   |     |       | (5  | ) |  |        | 7      |   |  |       | (2    | ) |  |      | 1    |   |  |       | (1    | )
|                                                                              |                                                                            |                          |        |        |   |      |       |        |   |        |        |      |   |        |        |        |   |     |       |     |   |  |        |        |   |  |       |       |   |  |      |      |   |  |       |      
|                                                                              | Net unrealized gains (losses) on derivative
    financial instruments      |                          |        | 59     |   |      |       | (23    | ) |        |        | 36   |   |        |        | 99     |   |     |       | (46 | ) |  |        | 53     |   |  |       | (61   | ) |  |      | 31   |   |  |       | (30   | )
|Minimum pension liability                                                     |                                                                            |                          | (2,324 | )      |   |      | 906   |        |   |        | (1,418 | )    |   |        | (6,529 | )      |   |     | 2,541 |     |   |  | (3,988 | )      |   |  | (10   | )     |   |  | 4    |      |   |  | (6    | )    
|Foreign-currency translation adjustment                                       |                                                                            |                          | (533   | )      |   |      |      |        |   |        | (533   | )    |   |        | (532   | )      |   |     |      |     |   |  | (532   | )      |   |  | 1,059 |       |   |  |     |      |   |  | 1,059 |      
|                                                                              |                                                                            |                          |        |        |   |      |       |        |   |        |        |      |   |        |        |        |   |     |       |     |   |  |        |        |   |  |       |       |   |  |      |      |   |  |       |      
|                                                                              |                                                                            |                          | (3,162 | )      |   |      | 1,008 |        |   |        | (2,154 | )    |   |        | (8,992 | )      |   |     | 3,326 |     |   |  | (5,666 | )      |   |  | 2,831 |       |   |  | (806 | )    |   |  | 2,025 |      
|                                                                              |                                                                            |                          |        |        |   |      |       |        |   |        |        |      |   |        |        |        |   |     |       |     |   |  |        |        |   |  |       |       |   |  |      |      |   |  |       |      

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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)


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
year ended September 30, 2002, Siemens AG management
distributed an ordinary dividend of
888
(1.00 per share)
of the 2001 earnings of Siemens AG as a dividend to the
shareholders. During the years ended September 30, 2001 and
2000, Siemens AG management distributed
1,412
(1.60 per share)
of the 2000 earnings and
593
(0.67 per share)
of the 1999 earnings of Siemens AG as a dividend to the
shareholders.

In August 2001, Infineon entered into an
agreement to sell its 49% share in the OSRAM Opto Semiconductors
GmbH & Co. OHG joint venture for approximately
565 to Osram.
The purchase price in excess of historic cost, net of tax, of
392 was
reflected as a capital transaction in the separate financial
statements of Infineon and Osram. Accordingly, in its
consolidated financial statements as of and for the fiscal year
2001, the Company recorded a decrease of
194 in its
retained earnings to reflect the minority interest holding of
Infineon.

22. Commitments and
contingencies

Guarantees and other
commitments

|                                       |                                         |               |       |        |   |  |       |        |  
|-------------------------------------- | --------------------------------------- | ------------- | ----- | ------ | - |  | ----- | ------ | -
|                                       |                                         |              
|                                       |                                         | September 30,
|                                       |                                         |              
|                                       |                                         | 2002          |       | 2001  
|                                       |                                         |               |       |       
|Discounted bills of exchange           |                                         |               | 51    |        |   |  | 121   |       
|Guarantees                             |                                         |               | 3,138 |        |   |  | 4,595 |       
|                                       | therein credit guarantees               |               |       | [659   | ] |  |       | [668   | ]
|                                       | therein performance bonds               |               |       | [1,328 | ] |  |       | [2,065 | ]
|                                       | therein guarantees of advanced payments |               |       | [135   | ] |  |       | [251   | ]
|Collateral for third party liabilities |                                         |               | 17    |        |   |  | 3     |       

Guarantees are principally
represented by performance bonds, guarantees of advances
received related to long-term contracts and those issued in
connection with long-term vendor financing arrangements. In its
project businesses, Siemens will also selectively provide credit
or performance guarantees related to projects involving third
party participants. The
3,138 total in
the table above includes
455 in customer
financing guarantees and
137 in
guarantees related to the Companys SieFunds program. In
the event that it becomes probable that Siemens will be required
to satisfy these guarantees, provisions are established. Most of
the guarantees have fixed or scheduled expiration dates, and in
actual practice such guarantees are rarely drawn. Guarantees
also include an amount of
767 at
September 30, 2002, related to the sale of Siemens
defense electronics business in 1998, reduced from
1.5 billion
at September 30, 2001.

As of September 30, 2002, future payment
obligations under noncancellable operating leases are as follows:

|           |  |  |     | 
|---------- |  |  | --- | 
|2003       |  |  | 400 | 
|2004       |  |  | 413 | 
|2005       |  |  | 340 | 
|2006       |  |  | 280 | 
|2007       |  |  | 237 | 
|Thereafter |  |  | 826 | 

The total operating rental expense for the years
ended September 30, 2002, 2001 and 2000 was
328,
279 and
283,
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)


As of September 30, 2002, the Company has
commitments to make capital contributions of
363 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.

The Company is a party to various lawsuits and
arbitration proceedings arising in the ordinary course of its
business, including matters involving allegations of improper
shipments and services, product liability, patent infringement
and claims for damages. Liabilities for litigation risks have
been accrued, which the Company believes represent reasonable
estimates of the probable liabilities associated with the cost
of related litigation and the estimated cost of an unfavorable
outcome of the disputes. Although the final resolution of any
such matters could have a material effect on Siemens
consolidated operating results for the particular reporting
period in which an adjustment of the estimated reserve is
recorded, Siemens believes that any resulting adjustment should
not materially affect its consolidated financial position.

23. 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
and also did not qualify for hedge accounting prior to SFAS 133.
Accordingly, all such derivative financial instruments are
recorded at fair value on the balance sheet as either an other
current asset or other current liability and 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 sales in
the statements of income.

Hedging activities

During the years ended September 30, 2002
and 2001, the Companys operating units applied hedge
accounting for certain significant anticipated transactions and
firm commitments denominated in foreign currencies.
Specifically, the Company has 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

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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)


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 accumulated
other comprehensive income as a separate component of
shareholders equity. During the year ended
September 30, 2001, a net loss of
1 was
reclassified from accumulated other comprehensive income into
cost of sales because the occurrence of the related hedged
forecasted transaction was no longer probable. During the year
ended September 30, 2002, a net loss of
3 (2001:
2) on the
derivative contracts was recognized in cost of sales
representing hedge ineffectiveness.

It is expected that
62 of net
deferred gains in accumulated other comprehensive income will be
reclassified into earnings during the year ended
September 30, 2003 when the hedged forecasted
foreign-currency denominated sales and purchases occur.

As of September 30, 2002, the maximum length
of time over which the Company is hedging its future cash flows
associated with foreign-currency forecasted transactions is
60 months.

Fair value
hedgesAs of September 30,
2002, 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. The hedging
transactions resulted in the recognition of an other current
asset of 13
(2001: 6) and
other current liability of
6 (2001:
6) 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 years ended September 30, 2002 and 2001, there was no
hedge ineffectiveness.

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 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 asset or other
current liability and changes in the fair values are charged to
earnings.

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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 hedges of fixed-rate debt
obligations

Under the interest rate swap agreements
outstanding during the years ended September 30, 2002 and
2001, 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 value 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 value of the related
portion of fixed-rate debt being hedged, are recognized as
adjustments to the line item Income from financial assets
and marketable securities, net in 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 3.3% and 3.9% as
of September 30, 2002 and 2001, respectively) and receive
fixed rates of interest (average rate of 5.1% and 5.3% as of
September 30, 2002 and 2001, respectively). The notional
amount of indebtedness hedged as of September 30, 2002 and
2001 was 6,146
and 5,212,
respectively. This resulted in 66% and 53% of the Companys
underlying notes and bonds being subject to variable interest
rates as of September 30, 2002 and 2001, 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, 2002 and 2001 was
305 and
103,
respectively. During the year ended September 30, 2002, a
net gain of 2
(2001: )
on the interest rate swaps was recognized in income from
financial assets and marketable securities representing 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
guarantees or as derivatives under SFAS 133.

24. 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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##### Table of Contents



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, 2002, the Companys
derivative financial instruments had a net fair value of
398 (2001:
263) and were
recorded on the consolidated balance sheets as other current
assets of 623
(2001: 463) and
other current liabilities of
225 (2001:
200).

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 value due to the
short-term maturities of these instruments.

Financial assets and
securities

Marketable securities are carried at fair value,
which is based on quoted market prices. It is not practicable to
estimate the fair value of the Companys other equity
investments in associated and related companies, as these
investments are not publicly traded, with the exception of
Infineon. The net investment in Infineon is accounted for under
the equity method. As of September 30, 2002, its carrying
value is 2,441
and its fair value is
1,606.
Comparative amounts of September 30, 2001 are not provided
as Infineon was consolidated at that time.

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 such, as of September 30,
2002 and 2001, 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, 2002 and 2001, the fair value and carrying
value of debt is as follows:

|               |  |               |        |      |  |  |        | 
|-------------- |  | ------------- | ------ | ---- |  |  | ------ | 
|               |  |              
|               |  | September 30,
|               |  |              
|               |  | 2002          |        | 2001
|               |  |               |        |     
|Fair value     |  |               | 12,284 |      |  |  | 12,333 | 
|Carrying value |  |               | 12,346 |      |  |  | 12,610 | 

25. Stock-based compensation

Pursuant to SFAS 123, Accounting for
Stock-Based Compensation, the Company has elected to apply
Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employees and related
Interpretations in accounting for its stock-based compensation
plan.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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. In connection with the
1999 Plan, the shareholders originally approved an increase in
conditional capital in an amount not to exceed
26, which has
been increased to up to
45 in fiscal
2001 (see Note 21).

Under the 1999 Plan, the Supervisory Board
decided annually after the end of each fiscal year how many
options to grant to the Managing Board, and the Managing Board
decided annually how many options to grant to executive officers
and other eligible employees. 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 options may be settled either in 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 will have no income
effect 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.
In connection with the 2001 Siemens Stock Option Plan, the
shareholders approved an increase in conditional capital in an
amount not to exceed
147 (see
Note 21).

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.

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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 on option activity and weighted average
exercise prices are as follows. On November 4, 1999, the
Supervisory Board and the Managing Board granted options
exercisable to approximately 500 key executives under the 1999
Plan for approximately 1,231,911 (1,847,867 after stock split)
shares with an exercise price of
86.60
(57.73 after
stock split) of which options exercisable for 114,000 (171,000
after stock split) shares were granted to the Managing Board.
Also, under the 1999 Plan, on November 24, 2000, the
Supervisory Board and the Managing Board granted options
exercisable to 1,513 key executives for approximately 2,173,594
(3,260,391 after stock split) shares with an exercise price of
129.35
(86.23 after
stock split) of which options exercisable for 107,000 (160,500
after stock split) shares were granted to the Managing Board. On
December 13, 2001, the Supervisory Board and the Managing
Board granted options exercisable to 5,413 key executives under
the 2001 Siemens Stock Option Plan for approximately 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.

The options and exercise prices below have been
restated to reflect the stock split:

|                                 |  |                          |            |          |  |         |        |          |  |         |           |          |  |  |        |  |  |  |           |   |  |  |        | 
|-------------------------------- |  | ------------------------ | ---------- | -------- |  | ------- | ------ | -------- |  | ------- | --------- | -------- |  |  | ------ |  |  |  | --------- | - |  |  | ------ | 
|                                 |  |                         
|                                 |  | Year ended September 30,
|                                 |  |                         
|                                 |  |                          |            |          |  |        
|                                 |  | 2002                     |            | 2001     |  | 2000   
|                                 |  |                          |            |          |  |        
|                                 |  |                          |            | Exercise |  |         |        | Exercise |  |         |           | Exercise
|                                 |  | Options                  |            | price    |  | Options |        | price    |  | Options |           | price   
|                                 |  |                          |            |          |  |         |        |          |  |         |           |         
|Outstanding, beginning of period |  |                          | 4,963,672  |          |  |         | 76.01 |          |  |         | 1,826,276 |          |  |  | 57.73 |  |  |  |          |   |  |  |       | 
|Granted                          |  |                          | 7,357,139  |          |  |         | 87.19 |          |  |         | 3,260,391 |          |  |  | 86.23 |  |  |  | 1,847,867 |   |  |  | 57.73 | 
|Options exercised                |  |                          | (139,826   | )        |  |         | 57.73 |          |  |         |          |          |  |  |       |  |  |  |          |   |  |  |       | 
|Options forfeited                |  |                          | (532,218   | )        |  |         | 85.77 |          |  |         | (122,995  | )        |  |  | 76.01 |  |  |  | (21,591   | ) |  |  | 57.73 | 
|                                 |  |                          |            |          |  |         |        |          |  |         |           |          |  |  |        |  |  |  |           |   |  |  |        | 
|Outstanding, end of period       |  |                          | 11,648,767 |          |  |         | 82.85 |          |  |         | 4,963,672 |          |  |  | 76.01 |  |  |  | 1,826,276 |   |  |  | 57.73 | 
|                                 |  |                          |            |          |  |         |        |          |  |         |           |          |  |  |        |  |  |  |           |   |  |  |        | 
|Exercisable, end of period       |  |                          | 1,617,899  |          |  |         | 57.73 |          |  |         |          |          |  |  |       |  |  |  |          |   |  |  |       | 

The following table summarizes information on
stock options outstanding and exercisable at September 30,
2002:

|                    |        |                     |  |                |           |                  |  |             |   |                  |  |   |       |  |  |  |           |  |  |   |       | 
|------------------- | ------ | ------------------- |  | -------------- | --------- | ---------------- |  | ----------- | - | ---------------- |  | - | ----- |  |  |  | --------- |  |  | - | ----- | 
|                    |        |                    
|Options outstanding |        | Options exercisable
|                    |        |                    
|                    |        | Weighted average    |  |                |           |                 
|                    |        | Options             |  | remaining life |           | Weighted average |  | Number      |   | Weighted average
|Exercise prices     |        | outstanding         |  | (years)        |           | exercise price   |  | exercisable |   | exercise price  
|                    |        |                     |  |                |           |                  |  |             |   |                 
|                    | 57.73 |                     |  |                | 1,617,899 |                  |  |             | 4 |                  |  |  | 57.73 |  |  |  | 1,617,899 |  |  |  | 57.73 | 
|                    | 86.23 |                     |  |                | 3,072,297 |                  |  |             | 5 |                  |  |  | 86.23 |  |  |  |          |  |  |   |      | 
|                    | 87.19 |                     |  |                | 6,958,571 |                  |  |             | 4 |                  |  |  | 87.19 |  |  |  |          |  |  |   |      | 

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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 information

The Company uses the Black-Scholes option pricing
model to determine the fair value of grants. The fair value
prior to the stock split for the first tranche of the 1999 Plan
in November 1999 was
22.52 and for
the second tranche in November 2000,
38.11. The fair
value of grants made during the years ended September 30,
2002, 2001 and 2000, restated for the stock split are as follows:

|                                                           |  |                           |        |      |  |      |        |  |  |  |        | 
|---------------------------------------------------------- |  | ------------------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                           |  |                          
|                                                           |  | Assumptions at grant date
|                                                           |  |                          
|                                                           |  | 2002                      |        | 2001 |  | 2000
|                                                           |  |                           |        |      |  |     
|Risk-free interest rate                                    |  |                           | 4.12%  |      |  |      | 5.0%   |  |  |  | 4.6%   | 
|Expected dividend yield                                    |  |                           | 1.41%  |      |  |      | 2.59%  |  |  |  | 0.94%  | 
|Expected volatility                                        |  |                           | 62.55% |      |  |      | 50.00% |  |  |  | 35.85% | 
|Expected option life                                       |  |                           | 4 yrs  |      |  |      | 4 yrs. |  |  |  | 4 yrs. | 
|Estimated weighted average fair value per option           |  |                           | 23.36 |      |  |      | 25.41 |  |  |  | 15.01 | 
|Fair value of total options granted during fiscal
    year |  |                           | 172   |      |  |      | 83    |  |  |  | 28    | 

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. Because the Companys
stock options may have characteristics that vary significantly
from traded options and because changes in subjective
assumptions can materially affect the fair value of the option,
it is managements opinion that existing models do not
necessarily provide a single reliable measure of fair value.

Pro forma information

If the Company had adopted the fair value based
accounting method prescribed by SFAS 123, the net income and
earnings per share would have been changed to the pro forma
amounts indicated below:

|                           |             |                          |  |       |  |      |  |       |  |  |  |       | 
|-------------------------- | ----------- | ------------------------ |  | ----- |  | ---- |  | ----- |  |  |  | ----- | 
|                           |             |                         
|                           |             | Year ended September 30,
|                           |             |                         
|                           |             | 2002                     |  | 2001  |  | 2000
|                           |             |                          |  |       |  |     
|Net income                 |             |                          |  |       |  |      |  |       |  |  |  |      
|                           | As reported |                          |  | 2,597 |  |      |  | 2,088 |  |  |  | 8,860 | 
|                           | Pro forma   |                          |  | 2,499 |  |      |  | 2,034 |  |  |  | 8,870 | 
|Basic earnings per share   |             |                          |  |       |  |      |  |       |  |  |  |      
|                           | As reported |                          |  | 2.92  |  |      |  | 2.36  |  |  |  | 9.97  | 
|                           | Pro forma   |                          |  | 2.81  |  |      |  | 2.30  |  |  |  | 9.98  | 
|Diluted earnings per share |             |                          |  |       |  |      |  |       |  |  |  |      
|                           | As reported |                          |  | 2.92  |  |      |  | 2.36  |  |  |  | 9.96  | 
|                           | Pro forma   |                          |  | 2.81  |  |      |  | 2.30  |  |  |  | 9.97  | 

During 2000, the Managing Board approved a
special one-time employee bonus award of
600 relating to
the Companys exceptional results in 2000. Individuals
employed by Siemens, other than employees of Osram GmbH and
Infineon Technologies AG, during the entire period
October 1, 1999 through September 30, 2000 were
entitled to participate in the bonus program, including former
employees that left the Company after September 30, 2000.
Approximately
300 of the
special bonus was allocated to domestic participants. Eligible
participants in Germany were offered a 50% discount towards the
purchase of a fixed number of the Companys shares in
November 2000 with an enrollment period of 21 days. Shares
issued to domestic participants under the bonus program
approximated 3.6 million shares and could not be sold for a
period of one year. In foreign countries, depending on the legal
environment, the bonus program has been administered either
through a similar program as in Germany or through a grant of
stock or cash.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


26. Personnel costs

|                                                                                      |  |                          |        |      |  |      |        |  |  |  |        | 
|------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                                                      |  |                         
|                                                                                      |  | Year ended September 30,
|                                                                                      |  |                         
|                                                                                      |  | 2002                     |        | 2001 |  | 2000
|                                                                                      |  |                          |        |      |  |     
|Wages and salaries                                                                    |  |                          | 22,639 |      |  |      | 23,028 |  |  |  | 21,264 | 
|Statutory social welfare contributions and
    expenses for optional support payments |  |                          | 3,592  |      |  |      | 3,673  |  |  |  | 3,305  | 
|Expenses relating to pension plans and employee
    benefits                          |  |                          | 964    |      |  |      | 401    |  |  |  | 2,032  | 
|                                                                                      |  |                          |        |      |  |      |        |  |  |  |        | 
|                                                                                      |  |                          | 27,195 |      |  |      | 27,102 |  |  |  | 26,601 | 
|                                                                                      |  |                          |        |      |  |      |        |  |  |  |        | 

The average number of employees in fiscal year
2002 and 2001 was 445,100 and 477,100, 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:

|                                    |  |      |         |      |  |  |         | 
|----------------------------------- |  | ---- | ------- | ---- |  |  | ------- | 
|                                    |  | 2002 |         | 2001
|                                    |  |      |         |     
|Manufacturing                       |  |      | 183,400 |      |  |  | 214,900 | 
|Sales and marketing                 |  |      | 146,700 |      |  |  | 142,000 | 
|Research and development            |  |      | 55,700  |      |  |  | 60,200  | 
|Administration and general services |  |      | 59,300  |      |  |  | 60,000  | 
|                                    |  |      |         |      |  |  |         | 
|                                    |  |      | 445,100 |      |  |  | 477,100 | 
|                                    |  |      |         |      |  |  |         | 

27. Additional information relating to
Board members

Supervisory Board

The remuneration of the members of the
Supervisory Board amounts to
1.3,
1.3 and
3.6 for the
years ended September 30, 2002, 2001 and 2000,
respectively. In addition, the members of the Supervisory Board
are entitled to receive reimbursement of their actual
out-of-pocket expenses.
0.1,
0.1 and
0.1,
respectively, of the remuneration relate to fixed compensation,
and 1.2,
1.2 and
3.5,
respectively, to variable compensation relating to a dividend
per share of
1.00. The
remuneration of the members of the Supervisory Board is set
forth in the Articles of Association of Siemens AG. The fixed
compensation of each Supervisory Board member is
6.0 thousand.
As variable compensation, each member of the Supervisory Board
receives 3.5
thousand for each
0.05 dividend
per share in excess of
0.20, if such
dividend is approved at the annual shareholders meeting.
Accordingly, the remuneration amounts to
62 thousand for
each member of the Supervisory Board. The chairman receives
twice and each vice chairman receives 1.5 times the annual
compensation rates mentioned above. Members which join or leave
the Supervisory Board during the fiscal year receive a pro rata
payment for the term served on the Board. The members of the
audit committee of the Supervisory Board, which was established
in April 2002, will receive a compensation of 1.5 times the
annual compensation rate of a Supervisory Board member for their
service in a committee not required to be established by law.

In addition, under the Articles of Association,
each member of the Supervisory Board received 1,500 stock
appreciations rights granted under the same conditions as under
the 1999 and 2001 Siemens Stock Option Plans, which had a fair
value as of the grant dates in fiscal 2002 and 2001 of
0.7 and
0.8,
respectively. For each member of the Supervisory Board, the fair
value of these stock appreciation rights was
35 thousand and
38 thousand,
respectively (see Note 25).

Remuneration of the members of the Supervisory
Board including stock appreciation rights at fair value as of
the grant date amounts to
2.0,
2.1 and
3.6 for the
years ended September 30, 2002, 2001 and 2000, respectively.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


During the last two fiscal years there have been
no loans outstanding to members of the Supervisory Board.

Due to the fact that Mr. Peter von Siemens
as a representative of the founders family is not only a
member of the Supervisory Board of Siemens AG but also
represents the Company at home as well as abroad and in various
associations, the Company concluded a representation contract
which grants him a reimbursement of his expenses. In addition,
Mr. Peter von Siemens is entitled to a company car, an
office and secretarial services. The term of the contract ends
at the Annual Shareholders Meeting 2003.

Managing Board

The remuneration of the members of the Managing
Board was 18.5,
12.9 and
19.1 for the
years ended September 30, 2002, 2001 and 2000,
respectively, of which
5.6,
5.7 and
4.7,
respectively, relate to a fixed salary including non-cash
benefits for company cars, social welfare contributions
subsidies and remunerations for memberships in Supervisory
Boards of affiliated companies. The variable compensation
consists of an annual bonus of
9.8,
2.9 and
7.2,
respectively, and a long-term bonus of
3.0,
2.8 and
7.2,
respectively. The amount of the bonuses is primarily dependent
on the development of the economic value added during the fiscal
year for the annual bonus and a three-year period for the
long-term bonus. In addition, the Managing Board received
0.1 and
1.5 in fiscal
2002 and 2001, respectively, for the immediate acquisition of a
total of 775 shares and 15,375 shares (after stock split),
respectively, 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 of three years from the date of
the award or until the holder leaves the Managing Board,
whichever is longer.

Also, in fiscal 2002, 2001 and 2000, the members
of the Managing Board received 151,000, 160,500 and 171,000,
respectively, of stock options under the 1999 and 2001 Siemens
Stock Option Plans. The fair value of these options at grant
date was 3.5,
4.1 and
2.6,
respectively (see Note 25).

Remuneration of the members of the Managing Board
including stock options at fair value as of the grant date
amounts to 22.0,
17.0 and
21.7 for the
years ended September 30, 2002, 2001 and 2000, respectively.

Former members of the Managing Board and their
surviving dependents received pensions and transitional payments
of 11.2,
13.2 and
12.2 for the
years ended September 30, 2002, 2001 and 2000, respectively.

Pension commitments to current members of the
Managing Board and former members and their surviving dependents
are covered by Siemens AG. Accruals have been recorded as of
September 30, 2002 and 2001, for current members of the
Managing Board of
37.0 and
33.4,
respectively, and for former members and their surviving
dependents of
106.2 and
95.8,
respectively. Such amounts are included in the amounts disclosed
in Note 19.

During the last two fiscal years, there have been
no loans outstanding to members of the Managing Board.

Share ownership

The Supervisory Board members and the Managing
Board members of Siemens AG hold shares and options representing
less than 1% of Siemens total shares outstanding. As of
October 31, 2002, the members of the Managing Board and the
Supervisory Board held shares and options representing 0.051%
and 0.001%, respectively, of the total shares outstanding. For
this calculation, Siemens has not included the aggregate of 2.0%
of outstanding share capital that is held by the von
Siemens-Vermögensverwaltung GmbH, a German limited
liability entity that functions much like a trust (vSV), or the
4.5% as to which the vSV has voting power under a power of
attorney. Mr. Peter von Siemens as a representative of the
founders family has voting control over these shares.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Related party transactions

Some of the board members of Siemens AG hold or
in the last 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, Bayerische Hypo- und
Vereinsbank AG and Allianz AG. Dr. Rolf-E. Breuer had been
the Spokesman of the Managing Board of Deutsche Bank AG until
May 22, 2002 and is now the Chairman of the Supervisory
Board of Deutsche Bank AG. Dr. Albrecht Schmidt is the
Spokesman of the Managing Board of Bayerische Hypo- und
Vereinsbank AG. The Companys ongoing banking relations
with these institutions include securities underwritings, other
investment banking services, and credit, money market and
foreign-exchange business. Dr. Henning Schulte-Noelle is
Chairman of the Managing Board of Allianz AG, which directly and
indirectly provides the Company insurance coverage, as well as
banking services through its majority-owned subsidiary, Dresdner
Bank AG, in the ordinary course of business.

28. Earnings per share

|                                            |                                  |                          |         |      |  |      |         |     |  |  |         |     | 
|------------------------------------------- | -------------------------------- | ------------------------ | ------- | ---- |  | ---- | ------- | --- |  |  | ------- | --- | 
|                                            |                                  |                         
|                                            |                                  | Year ended September 30,
|                                            |                                  |                         
|                                            |                                  | 2002                     |         | 2001 |  | 2000
|                                            |                                  |                          |         |      |  |     
|                                            |                                  |                         
|                                            |                                  | (shares in thousands)   
|Net income                                  |                                  |                          | 2,597   |      |  |      | 2,088   |     |  |  | 8,860   |    
|Weighted average shares outstandingbasic   |                                  |                          | 889,539 |      |  |      | 885,658 |     |  |  | 889,055 |    
|                                            | Effect of dilutive stock options |                          |         | 92   |  |      |         | 270 |  |  |         | 661 | 
|                                            |                                  |                          |         |      |  |      |         |     |  |  |         |    
|Weighted average shares outstandingdiluted |                                  |                          | 889,631 |      |  |      | 885,928 |     |  |  | 889,716 |    
|Basic earnings per share                    |                                  |                          | 2.92    |      |  |      | 2.36    |     |  |  | 9.97    |    
|Diluted earnings per share                  |                                  |                          | 2.92    |      |  |      | 2.36    |     |  |  | 9.96    |    

29. Segment information

The Companys segments are organized based
on the nature of products and services provided.

The segment information is subdivided on a
primary level into three components: Operations, Financing and
Real Estate, and Eliminations, reclassifications and Corporate
Treasury. As Siemens deconsolidated Infineon as of
December 5, 2001, only prior year figures for Infineon are
shown. The results of operations from Infineon for the first two
months of fiscal year 2002 are included in Eliminations,
reclassifications and Corporate Treasury. The accounting
policies of the components (and the segments included) are
generally the same as those used for Siemens worldwide and
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.

Operations

The Managing Board is responsible for assessing
the performance of the Operations segments. In fiscal 2001, the
Company changed the profitability measure for its Operations
segments to earnings before financing interest, certain pension
costs, income taxes, and amortization of goodwill and purchased
in-process R&D (IPR&D) and certain one-time items
(EBITA). Beginning October 1, 2001, Siemens adopted the
provisions of SFAS 142, Goodwill and Other Intangible
Assets, and no longer amortizes goodwill. Consistent with
this change, EBITA is now referred to as EBIT. As IPR&D
expenses now are included in EBIT, the Operations
profitability measure is earnings before financing interest,
certain pension costs, income taxes and certain one-time items
(discussed below). In fiscal year 2001 and 2000, goodwill
amortization of
539 and
253,
respectively, and

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


IPR&D of
126 was excluded
from EBITA. In fiscal 2002, the Company did not incur IPR&D
expenses. Relating to IPR&D, the prior-period segment
information has not been restated.

In fiscal 2002, all pension related costs
excluding service costs of foreign pension plans are included in
the line item Corporate, eliminations. Until
March 31, 2001, the service cost component of domestic net
periodic pension cost was included in the measure of segment
profitability. Beginning April 2001, management decided to
discontinue the allocation of the service cost component of
domestic pension costs to the Operations segments. Beginning
fiscal year 2002, interest costs, expected return on plan assets
and amortization of unrecognized gains and losses of foreign
funded pension plans are no longer included in the measure of
segment profitability. EBIT of the Operations segments for
fiscal year 2002 would have been
78 lower if net
periodic pension costs were allocated in the same manner as in
fiscal 2001. Interest related to accounts receivable to
customers, cash allocated to the segments, and accounts payable
to suppliers are part of EBIT.

Earnings (losses) from equity investees included
in EBIT for the years ended September 30, 2002, 2001 and
2000 of Operations segments were
(20),
6 and
(61),
respectively, at ICM;
37,
1 and
12,
respectively, at ICN;
44,
33 and
2, respectively,
at PG; and 29,
28 and
14,
respectively, in the other Operations segments.

Net capital employed is the asset measure used to
assess the performance for the Operations segments. It
represents total assets less tax related assets, less accruals
and less non-interest bearing liabilities other than tax related
liabilities. Due to the adoption of SFAS 142 and the related
changes in the definition of segment profitability discussed
above, Net capital employed (referred to as EBITA assets in
prior years) is no longer reduced for amortization of goodwill.
EBITA assets amounts for the Operations segments as of
September 30, 2001 and 2000, have been restated to reflect
this changes.

Corporate, eliminations and Reconciliation
to financial statements

Corporate, eliminations within
Operations and Reconciliation to financial
statements include various categories of items which are
not allocated to the segments since the Managing Board has
determined that such items are not indicative of the
segments performance. These include nonrecurring, one-time
charges or gains and the results of centrally managed projects.
In addition, Corporate, eliminations includes
corporate charges such as personnel costs, including certain
pension costs, certain corporate related derivative activities,
centrally-held equity investments, business units and corporate
projects, liquid assets unallocated to segments and corporate
items relating to foreign subsidiaries. Reconciliation to
financial statements consists of various items excluded by
definition from EBIT. Operations segments EBIT is the basis for
calculating Economic Value Added (EVA) for Operations, which in
turn is part of the determination of bonus payments in
accordance with Siemens management incentive program.

Corporate, eliminations

Corporate, eliminations in the column
EBIT consists of:

|                                               |  |                          |        |      |  |      |      |   |  |  |        |  
|---------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ---- | - |  |  | ------ | -
|                                               |  |                         
|                                               |  | Year ended September 30,
|                                               |  |                         
|                                               |  | 2002                     |        | 2001 |  | 2000
|                                               |  |                          |        |      |  |     
|Corporate items                                |  |                          | (671   | )    |  |      | (838 | ) |  |  | (831   | )
|Investment (losses) earnings                   |  |                          | (16    | )    |  |      | 253  |   |  |  | 76     |  
|Non-allocated pension related (expense) income |  |                          | (250   | )    |  |      | 279  |   |  |  | (239   | )
|Eliminations, other                            |  |                          | (246   | )    |  |      | (14  | ) |  |  | (276   | )
|                                               |  |                          |        |      |  |      |      |   |  |  |        |  
|                                               |  |                          | (1,183 | )    |  |      | (320 | ) |  |  | (1,270 | )
|                                               |  |                          |        |      |  |      |      |   |  |  |        |  

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


In fiscal 2002, Investment (losses)
earnings include
338,
representing Siemens at-equity share in the net loss
incurred by Infineon since the deconsolidation of Infineon in
December 2001 which offsets the earnings from other
centrally-held equity investees, and the gain on the sale of two
centrally-held investments totaling
133. Fiscal 2001
includes the loss on the sale of a domestic equity and debt
security fund of
209, which was
more than offset by gains on sales of available-for-sale
securities of
227. In fiscal
2000, gains on sales of available-for-sale securities amounts to
98.

Non-allocated pension related (expense)
income for fiscal 2002 was negatively affected by changes
in pension trust net asset values and lower return assumptions
as well as the change in the allocation methodology discussed
above.

Eliminations, other for the fiscal
year ended September 30, 2002, includes 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, Eliminations, other
includes charges of
70 relating to
the write-off of centrally held investments. For the year ended
September 30, 2001, Eliminations, other
includes 78 in
expenses related to centrally managed litigation issues,
74 in corporate
interest expense in part related to the Atecs acquisition, and
63 in severance
charges. Fiscal 2001 also included a gain of
114 related to
currency effects and the treatment of derivative contracts not
qualifying for hedge accounting, and positive resolution of
certain asset disposal contingencies of
162. For the
year ended September 30, 2000, Eliminations,
other includes higher charges related to currency effects
and to the treatment of derivative contracts not qualifying for
hedge accounting of
212 and losses
on asset dispositions totaling
210. Also
included are costs of
178 for employee
severance and contract termination associated with a portfolio
optimization program started in 1998. Furthermore,
Eliminations, other, consists of
68 related to
the centrally managed outsourcing contract in Argentina,
originally entered into by SBS. The most significant income item
for Eliminations, other in fiscal 2000, was
692 in income
from marketable securities classified as trading.

Reconciliation to financial
statements

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

Under Goodwill amortization and purchased
in-process R&D expenses, amounts are shown which were
not included in EBIT by prior years definition (see above).

Gains on sales and dispositions of
significant business interests are shown under
Reconciliation to financial statements. For fiscal 2002 this
amount include gains of
936 from the
sales of approximately 63.1 million Infineon shares in open
market transactions. For fiscal year 2001, such amount includes
a gain of 3,459
from the irrevocable transfer of approximately 93.8 million
Infineon shares into Siemens domestic pension trust as
well as a 484
gain from a follow-on offering by Infineon of approximately
60 million of its shares in the fourth quarter. In
addition, Infineon increased its capital in connection with two
acquisitions, which resulted in an aggregate gain of
122. Siemens did
not participate in these capital increases. Gains on sales and
dispositions of significant business interests for fiscal 2000
totaled 7,826,
resulting primarily from the IPO of Infineon and other
dispositions.

For fiscal 2001, Other special items
include goodwill impairments, primarily related to acquisitions
made by ICN and A&D of Efficient and Milltronics totaling
927, and the
write-down of inventories and assets associated with the
contract cancellation of a centrally managed contract by the
Argentine government of
258.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


This contract was originally entered into by SBS.
Other special items of the fiscal 2000 primarily
resulted from exceptional gains from certain marketable
securities, a one-time bonus for employees, certain
restructuring costs, a write-off of goodwill and exceptional
charges related to certain contract losses, as well as a
provision of 175
related to a loan associated with a joint venture and a
contribution to the German government-sponsored humanitarian
fund, called Remembrance, Responsibility and the
Future, and write-downs associated with centrally managed
assets.

For further details of Gains on sales and
dispositions of significant business interests and
Other special items, see below:

|                                                                    |                                                             |                              |     |      |   |      |       |      |        |   |       |       |      |  
|------------------------------------------------------------------- | ----------------------------------------------------------- | ---------------------------- | --- | ---- | - | ---- | ----- | ---- | ------ | - | ----- | ----- | ---- | -
|                                                                    |                                                             |                             
|                                                                    |                                                             | Year ended September 30,    
|                                                                    |                                                             |                             
|                                                                    |                                                             | 2002                         |     | 2001 |   | 2000
|                                                                    |                                                             |                              |     |      |   |     
|Gain on sale and dispositions of significant
    business interests |                                                             |                              | 936 |      |   |      | 4,065 |      |        |   | 7,826 |      
|                                                                    |                                                             |                              |     |      |   |      |       |      |        |   |       |      
|Other special items                                                 |                                                             |                              |     |      |   |      |       |      |        |   |       |      
|                                                                    | Income from marketable securities classified as
    trading |                              |     |     |   |      |       |     |        |   |       | 1,820 |     
|                                                                    | Personnel related expenses                                  |                              |     |     |   |      |       |     |        |   |       | (600  | )   
|                                                                    | Rationalization expenses                                    |                              |     |     |   |      |       |     |        |   |       | (193  | )   
|                                                                    | Impairment of goodwill                                      |                              |     |     |   |      |       | (927 | )      |   |       | (195  | )   
|                                                                    | Contract losses                                             |                              |     |     |   |      |       | (258 | )      |   |       | (450  | )   
|                                                                    | Other                                                       |                              |     |     |   |      |       |     |        |   |       | (662  | )   
|                                                                    |                                                             |                              |     |      |   |      |       |      |        |   |       |      
|                                                                    |                                                             | Total of other special items |     |      |  |      |       |      | (1,185 | ) |       |       | (280 | )
|                                                                    |                                                             |                              |     |      |   |      |       |      |        |   |       |      

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

|                                                   |  |               |         |      |  |  |         |  
|-------------------------------------------------- |  | ------------- | ------- | ---- |  |  | ------- | -
|                                                   |  |              
|                                                   |  | September 30,
|                                                   |  |              
|                                                   |  | 2002          |         | 2001
|                                                   |  |               |         |     
|Total assets                                       |  |               | 67,699  |      |  |  | 69,200  |  
|Intracompany financing receivables and investments |  |               | (14,127 | )    |  |  | (8,305  | )
|Tax related assets                                 |  |               | (4,350  | )    |  |  | (4,335  | )
|Pension plans and similar commitments              |  |               | (5,299  | )    |  |  | (4,653  | )
|Accruals                                           |  |               | (6,690  | )    |  |  | (6,977  | )
|Liabilities to third parties                       |  |               | (21,478 | )    |  |  | (26,317 | )
|                                                   |  |               |         |      |  |  |         |  
|Total reconciliation                               |  |               | (51,944 | )    |  |  | (50,587 | )
|                                                   |  |               |         |      |  |  |         |  
|Net capital employed                               |  |               | 15,755  |      |  |  | 18,613  |  
|                                                   |  |               |         |      |  |  |         |  

Infineon

Earnings (losses) from equity investees included
in EBIT at Infineon were
32 and
101 for the
years ended September 30, 2001 and 2000, respectively.

Financing and Real Estate

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

F-60



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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 the years ended September 30, 2002, 2001
and 2000, income before income taxes at SFS includes interest
revenue of 510,
603 and
418,
respectively, and interest expense of
310,
404 and
307,
respectively. In addition, income before income taxes includes
earnings from equity investees for the years ended
September 30, 2002, 2001 and 2000 of
41,
5 and
,
respectively.

For the years ended September 30, 2002, 2001
and 2000, income before income taxes at SRE includes interest
revenue of 13,
19 and
9, respectively,
and interest expense of
132,
150 and
117,
respectively.

Eliminations, reclassifications and Corporate
Treasury

Income before income taxes consists primarily of
interest income due to cash management activities, corporate
finance, and certain currency and interest rate derivative
instruments. 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 Operations segments are comprised of the
following businesses:

Information and Communication Networks
(ICN)ICN develops, manufactures
and sells public communication systems, private business
communication systems and related software, and provides a wide
variety of consulting, maintenance and other services. This
includes circuit switching and communication access equipment,
private branch exchange systems, voice and data public
telecommunication elements, and broadband network products for
carrying data over the Internet. It also provides Internet core
network switches, routers and related services.

Information and Communication Mobile
(ICM)ICM designs, manufactures
and sells a broad range of communication devices, applications
and interfaces, and mobile network products and systems
including mobile, cordless and corded fixed-line telephones and
radio base stations, base station controllers and switches for
mobile communications networks as well as mobile and intelligent
network systems.

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.

Siemens Dematic
(SD)SD designs, engineers,
manufactures and sells equipment, systems and solutions for
factory automation and logistics automation systems for postal
automation, electronics assembly systems; and internal transport
systems for on-site use. SD was formed by the merger in April
2001 of the former Siemens Production and Logistics Systems with
Atecs Mannesmann Dematic Systems Group.

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. It also provides planning,
management and technology-related electrical contracting
services in connection with building projects. In addition, it
operates and maintains entire building sites as an outsource
provider of technical facility management services.

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)


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 and 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. SV is the result of the merger in April 2001
of the former Siemens Automotive group with Mannesmann VDO.

Medical Solutions
(Med)Med develops, manufactures
and markets diagnostic and therapeutic systems and devices such
as CAT scanners, 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.

Infineon Technologies
(Infineon)Infineons
products include discrete and integrated semiconductor circuit
and systems for wireless communications, computer networks and
for use in automotive and industrial applications. Effective
December 2001, Infineon is no longer consolidated but instead
accounted for as an investment using the equity method.

The Financing and Real Estate Segments 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.

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)


30. Geographic information

The following table presents data by geographic
region as of and for the years ended September 30, 2002,
2001 and 2000.

|                            |  |                               |        |                                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 
|--------------------------- |  | ----------------------------- | ------ | ------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                            |  |                               |        |                               
|                            |  | Sales by location of customer |        | Sales by location of companies
|                            |  |                               |        |                               
|                            |  | 2002                          |        | 2001                           |  | 2000 |        | 2002 |  | 2001 |        | 2000
|                            |  |                               |        |                                |  |      |        |      |  |      |        |     
|Germany                     |  |                               | 18,102 |                                |  |      | 19,144 |      |  |      | 18,899 |      |  |  | 28,845 |  |  |  | 30,547 |  |  |  | 27,640 | 
|Europe (other than Germany) |  |                               | 26,597 |                                |  |      | 26,196 |      |  |      | 23,952 |      |  |  | 23,326 |  |  |  | 23,024 |  |  |  | 22,028 | 
|U.S.                        |  |                               | 20,288 |                                |  |      | 21,103 |      |  |      | 16,978 |      |  |  | 21,078 |  |  |  | 21,102 |  |  |  | 16,863 | 
|Americas other than U.S.    |  |                               | 4,389  |                                |  |      | 4,893  |      |  |      | 4,317  |      |  |  | 3,229  |  |  |  | 3,928  |  |  |  | 3,674  | 
|Asia-Pacific                |  |                               | 9,668  |                                |  |      | 11,081 |      |  |      | 9,984  |      |  |  | 6,153  |  |  |  | 7,228  |  |  |  | 6,369  | 
|Other countries             |  |                               | 4,972  |                                |  |      | 4,583  |      |  |      | 3,354  |      |  |  | 1,385  |  |  |  | 1,171  |  |  |  | 910    | 
|                            |  |                               |        |                                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 
|Siemens worldwide           |  |                               | 84,016 |                                |  |      | 87,000 |      |  |      | 77,484 |      |  |  | 84,016 |  |  |  | 87,000 |  |  |  | 77,484 | 
|                            |  |                               |        |                                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 

|                            |  |                   |        |      |  |      |        |  |  |  |        | 
|--------------------------- |  | ----------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                            |  |                  
|                            |  | Long-lived assets
|                            |  |                  
|                            |  | 2002              |        | 2001 |  | 2000
|                            |  |                   |        |      |  |     
|Germany                     |  |                   | 4,447  |      |  |      | 7,368  |  |  |  | 5,858  | 
|Europe (other than Germany) |  |                   | 3,198  |      |  |      | 3,991  |  |  |  | 3,850  | 
|U.S.                        |  |                   | 2,735  |      |  |      | 4,486  |  |  |  | 4,042  | 
|Americas other than U.S.    |  |                   | 477    |      |  |      | 633    |  |  |  | 711    | 
|Asia-Pacific                |  |                   | 842    |      |  |      | 1,197  |  |  |  | 1,189  | 
|Other countries             |  |                   | 43     |      |  |      | 128    |  |  |  | 70     | 
|                            |  |                   |        |      |  |      |        |  |  |  |        | 
|Siemens worldwide           |  |                   | 11,742 |      |  |      | 17,803 |  |  |  | 15,720 | 
|                            |  |                   |        |      |  |      |        |  |  |  |        | 

Long-lived assets consist of property, plant and
equipment and equipment leased to others.

F-63



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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 December 2002.                                             
|        | 2.1  |                        |  | Irrevocable Trust Agreement, by and among Siemens
    Aktiengesellschaft and First Union Trust Company, National
    Association, dated December 5, 2001.*
|        | 2.2  |                        |  | Standstill Agreement, between Siemens
    Aktiengesellschaft and First Union Trust Company, National
    Association, dated December 5, 2001.*            
|        | 8.1  |                        |  | List of Significant Subsidiaries.                                                                                                                         
|        | 10.1 |                        |  | Consent of KPMG Deutsche Treuhand-Gesellshaft 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: December 6, 2002



| |                                        
| | ---------------------------------------
| | SIEMENS AKTIENGESELLSCHAFT             
| | /s/ CHARLES HERLINGER                  
| |                                        
| | Charles Herlinger                      
| | Vice President and Corporate Controller
|
| | /s/ BERND VOGT                         
| |                                        
| | Bernd Vogt                             
| | Deputy Vice President                  

III-2



---



##### Table of Contents



CHIEF EXECUTIVE OFFICER
CERTIFICATION

I, Heinrich v. Pierer, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of Siemens Aktiengesellschaft;                                                                                                                                                                                                                                                          
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: December 6, 2002

| |                        
| | -----------------------
| | /s/ HEINRICH V. PIERER 
| |                        
| | Heinrich v. Pierer     
| | Chief Executive Officer

III-3



---



##### Table of Contents



CHIEF FINANCIAL OFFICER
CERTIFICATION

I, Heinz-Joachim Neubürger, certify that:



|   |                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. | I have reviewed this annual report on
    Form 20-F of Siemens Aktiengesellschaft;                                                                                                                                                                                                                                                          
|  
|2. | Based on my knowledge, this annual report does
    not contain any untrue statement of a material fact or omit to
    state a material fact necessary to make the statements made, in
    light of the circumstances under which such statements were
    made, not misleading with respect to the period covered by this
    annual report;
|  
|3. | Based on my knowledge, the financial statements,
    and other financial information included in this annual report,
    fairly present in all material respects the financial condition,
    results of operations and cash flows of the registrant as of,
    and for, the periods presented in this annual report;                       
|  
|4. | The registrants other certifying officer
    and I are responsible for establishing and maintaining
    disclosure controls and procedures (as defined in Exchange Act
    Rules 13a-14 and 15d-14) for the registrant and have:                                                                                                           



| |    |                                                                                                                                                                                                                                                                                                             
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | designed such disclosure controls and procedures
    to ensure that material information relating to the registrant,
    including its consolidated subsidiaries, is made known to us by
    others within those entities, particularly during the period in
    which this annual report is being prepared;
|
| | b) | evaluated the effectiveness of the
    registrants disclosure controls and procedures as of a
    date within 90 days prior to the filing date of this annual
    report (the Evaluation Date); and                                                                                                      
|
| | c) | presented in this annual report our conclusions
    about the effectiveness of the disclosure controls and
    procedures based on our evaluation as of the Evaluation Date;                                                                                                                                



|   |                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|5. | The registrants other certifying officer
    and I have disclosed, based on our most recent evaluation, to
    the registrants auditors and the audit committee of
    registrants board of directors (or persons performing the
    equivalent function):



| |    |                                                                                                                                                                                                                                                                                                                   
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a) | all significant deficiencies in the design or
    operation of internal controls which could adversely affect the
    registrants ability to record, process, summarize and
    report financial data and have identified for the
    registrants auditors any material weaknesses in internal
    controls; and
|
| | b) | any fraud, whether or not material, that involves
    management or other employees who have a significant role in the
    registrants internal controls; and                                                                                                                                                    



|   |                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|6. | The registrants other certifying officer
    and I have indicated in this annual report whether or not there
    were significant changes in internal controls or in other
    factors that could significantly affect internal controls
    subsequent to the date of our most recent evaluation, including
    any corrective actions with regard to significant deficiencies
    and material weaknesses.

Date: December 6, 2002

| |                            
| | ---------------------------
| | /s/ HEINZ-JOACHIM NEUBÜRGER
| |                            
| | Heinz-Joachim Neubürger    
| | Chief Financial Officer    

III-4