##### Table of Contents



As filed with the Securities and Exchange
Commission on December 5, 2003








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,
2003. 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, 2003:
890,866,301 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                                                              
|                           | 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 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                             
|                           | ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
|                           | ITEM 15: CONTROLS AND PROCEDURES                                                     
|                           | ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT                                           
|                           | ITEM 16B: CODE OF ETHICS                                                             
|                           | ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES                                     
|PART III                  
|                           | ITEM 18: FINANCIAL STATEMENTS                                                        
|                           | Item 19: Exhibits                                                                    
|SIGNATURES                
|Exhibit 1.1               
|Exhibit 8.1               
|Exhibit 12.1              
|Exhibit 12.2              
|Exhibit 13.1              
|Exhibit 13.2              
|Exhibit 14.1              



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TABLE OF CONTENTS

|          |  |                                                                                  |  |      |       | 
|--------- |  | -------------------------------------------------------------------------------- |  | ---- | ----- | 
|          |  |                                                                                  |  | Page
|          |  |                                                                                  |  |     
|Item 1:   |  | Identity of Directors, Senior Management and
    Advisers                        |  |      | 1     | 
|Item 2:   |  | Offer Statistics and Expected Timetable                                          |  |      | 1     | 
|Item 3:   |  | Key Information                                                                  |  |      | 1     | 
|Item 4:   |  | Information on the Company                                                       |  |      | 7     | 
|Item 5:   |  | Operating and Financial Review and Prospects                                     |  |      | 52    | 
|Item 6:   |  | Directors, Senior Management and Employees                                       |  |      | 106   | 
|Item 7:   |  | Major Shareholders and Related Party Transactions                                |  |      | 115   | 
|Item 8:   |  | Financial Information                                                            |  |      | 116   | 
|Item 9:   |  | The Offer and Listing                                                            |  |      | 116   | 
|Item 10:  |  | Additional Information                                                           |  |      | 118   | 
|Item 11:  |  | Quantitative and Qualitative Disclosure About
    Market Risk                    |  |      | 133   | 
|Item 12:  |  | Description of Securities Other than Equity
    Securities                       |  |      | 138   | 
|Item 13:  |  | Defaults, Dividend Arrearages and Delinquencies                                  |  |      | 138   | 
|Item 14:  |  | Material Modifications to the Rights of Security
    Holders and Use of Proceeds |  |      | 138   | 
|Item 15:  |  | Controls and Procedures                                                          |  |      | 138   | 
|Item 16A: |  | Audit Committee Financial Experts                                                |  |      | 139   | 
|Item 16B: |  | Code of Ethics                                                                   |  |      | 139   | 
|Item 16C: |  | Principal Accountant Fees and Services                                           |  |      | 139   | 
|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.

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ii



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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 United States Generally Accepted Accounting
Principles (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, 2003 should be read in conjunction
with, and are qualified in their entirety by reference to, the
consolidated financial statements and the Notes thereto
presented elsewhere in this document.

INCOME STATEMENT DATA

|                           |  |                                        |        |      |  |      |        |      |  |      |        |     |  |  |        |     |  |  |        | 
|-------------------------- |  | -------------------------------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ | --- |  |  | ------ | --- |  |  | ------ | 
|                           |  |                                       
|                           |  | Year ended September 30,              
|                           |  |                                       
|                           |  | 2003                                   |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                           |  |                                        |        |      |  |      |        |      |  |     
|                           |  |                                       
|                           |  | ( in millions, except per share data)
|Net sales                  |  |                                        | 74,233 |      |  |      | 84,016 |      |  |      | 87,000 |     |  |  | 77,484 |     |  |  | 68,069 | 
|Income before income taxes |  |                                        | 3,372  |      |  |      | 3,475  | (1)  |  |      | 2,678  | (1) |  |  | 12,239 | (1) |  |  | 2,118  | 
|Net income                 |  |                                        | 2,445  |      |  |      | 2,597  | (1)  |  |      | 2,088  | (1) |  |  | 8,860  | (1) |  |  | 1,209  | 
|Basic earnings per share   |  |                                        | 2.75   | (2)  |  |      | 2.92   | (1)  |  |      | 2.36   | (1) |  |  | 9.97   | (1) |  |  | 1.36   | 
|Diluted earnings per share |  |                                        | 2.75   | (2)  |  |      | 2.92   | (1)  |  |      | 2.36   | (1) |  |  | 9.97   | (1) |  |  | 1.36   | 






|    |                                                                                                                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes gains on sales of significant business
    interests.                                                                                                                                                                                                                                                                                   
|   
|(2) | In fiscal 2003, earnings per share amounts are
    reported after cumulative effects of a change in an accounting
    principle. Earnings per share amounts before cumulative effects
    of a change in an accounting principle amount to
    2.71 and
    2.71 for basic
    earnings per share and diluted earnings per share, respectively.

BALANCE SHEET DATA

|                     |  |                  |        |      |  |      |        |      |  |      |        |  |  |  |        |  |  |  |        | 
|-------------------- |  | ---------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  |  | ------ |  |  |  | ------ | 
|                     |  |                 
|                     |  | At September 30,
|                     |  |                 
|                     |  | 2003             |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                     |  |                  |        |      |  |      |        |      |  |     
|                     |  |                 
|                     |  | ( in millions) 
|Total assets         |  |                  | 77,605 |      |  |      | 77,939 |      |  |      | 90,118 |  |  |  | 81,654 |  |  |  | 71,720 | 
|Long-term debt       |  |                  | 11,433 |      |  |      | 10,243 |      |  |      | 9,973  |  |  |  | 6,734  |  |  |  | 4,753  | 
|Shareholders equity |  |                  | 23,715 |      |  |      | 23,521 |      |  |      | 23,812 |  |  |  | 28,480 |  |  |  | 19,138 | 
|Capital stock        |  |                  | 2,673  |      |  |      | 2,671  |      |  |      | 2,665  |  |  |  | 1,505  |  |  |  | 1,521  | 

The number of shares outstanding at
September 30, 2003, 2002, 2001, 2000 and 1999 was
890,866,301, 890,374,001, 888,230,245, 882,930,900 and
892,186,410, respectively, after stock split.

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DIVIDENDS

The following table sets forth in euros and in
dollars the dividend paid per share for the years ended
September 30, 1999, 2000, 2001, 2002 and the proposed
dividend per share for the year ended September 30, 2003.
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
|                         |  |               |      |       
|1999                     |  |               | 0.67 | (3)    |  |  | 0.66 | (3)   
|2000                     |  |               | 1.60 | (1)(3) |  |  | 1.41 | (1)(3)
|2001                     |  |               | 1.00 |        |  |  | 1.14 |       
|2002                     |  |               | 1.00 |        |  |  | 1.08 |       
|2003                     |  |               | 1.10 | (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 22, 2004.
|   
|(3) | Adjusted for stock split.                                                                                                                                    

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 Notes to the consolidated financial statements for further
information.

EXCHANGE RATE INFORMATION

We publish our consolidated financial statements
in euros (euro or
).
Deutsche Mark, DEM or DM
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. 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 euro or Deutsche Mark, expressed in U.S. dollar per
euro or Deutsche Mark, 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.

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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
|                                |  |        
|1999                            |  |         | 1.0955 | 
|2000                            |  |         | 0.9549 | 
|2001                            |  |         | 0.8886 | 
|2002                            |  |         | 0.9208 | 
|2003                            |  |         | 1.0919 | 

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

|          |  |      |        |     |  |  |        | 
|--------- |  | ---- | ------ | --- |  |  | ------ | 
|          |  | High |        | Low
|          |  |      |        |    
|June 2003 |  |      | 1.1870 |     |  |  | 1.1423 | 
|July      |  |      | 1.1580 |     |  |  | 1.1164 | 
|August    |  |      | 1.1390 |     |  |  | 1.0871 | 
|September |  |      | 1.1650 |     |  |  | 1.0845 | 
|October   |  |      | 1.1833 |     |  |  | 1.1596 | 
|November  |  |      | 1.1995 |     |  |  | 1.1417 | 

On November 28, 2003, the noon buying rate
was U.S.$1.1995 per
1.00.

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 a prolonged economic downturn. The
business environment is influenced by numerous political
uncertainties, including the situations in the Middle East 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 2003, the
prevailing weak economic conditions negatively affected a number
of our business Groups, especially Information and Communication
Networks (ICN) and Siemens Dematic (SD), each incurring 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

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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 2003, we continued prior years cost-cutting
initiatives across our business Groups. These include adjusting
existing capacities through consolidation of manufacturing
facilities, streamlining product portfolios and reducing
headcount. The resulting impact of these cost-reduction measures
on our profitability will be influenced by the actual amount of
cost savings achieved and by our ability to sustain these
ongoing efforts.

We operate in highly competitive markets,
which are subject to price pressure and rapid
changes:The worldwide markets for
our products are highly competitive in terms of pricing, product
and service quality, development and introduction time, customer
service and financing terms. We face strong competitors, some of
which are larger and may have greater resources in a given
business area. Siemens faces downward price pressure especially
in ICN, ICM, SBS, Automation & Drives (A&D) and Medical
Solutions (Med) and is exposed to market downturns or slower
growth, particularly in the highly volatile mobile
communications market of ICM and the automotive supplier market
of Siemens VDO Automotive (SV). 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 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.

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, Industrial
Solutions & Services (I&S), SD, PG, Power
Transmission & Distribution (PTD) and Transportation
Systems (TS), perform a significant portion of their business,
especially large projects, under long-term contracts that are
awarded on a competitive bidding basis. The profit margins
realized on such fixed-priced

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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 as exports from Europe. Our currency risksas
well as interest rate risksare hedged on a company-wide
basis using derivative financial instruments. Depending on the
development of foreign currency exchange rates, our hedging
activities can have significant effects on our cash flow. 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.
Exchange rate fluctuations particularly have an effect on ICN,
ICM, A&D, SD, PG, SV, PTD, Med 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. Financing of GSM or UMTS wireless network equipment for ICM
customers who lack established credit histories may cause
special credit risks for us. We also finance a large number of
smaller customer orders, through for example, the leasing of
telephone systems and medical equipment, in part through,
Siemens Financial Services (SFS). SFS additionally incurs credit
risk by financing third-party equipment. For additional
information on customer financing see Item 5:
Operating and Financial Review and
ProspectsLiquidity and Capital ResourcesCapital
Resources and Capital RequirementsOff-balance sheet
arrangementsCustomer financing. We also sometimes
take a security interest in the projects we finance. We may lose
money if any of our customers are not able to pay us, if the
value of the property that we have taken a security interest in
declines, if interest rates or foreign exchange rates fluctuate,
or if the projects in which we invest are unsuccessful. Siemens
evaluates such financing requirements on a very selective basis
and has forgone, and will continue to forgo, new business
contracts if the financing risks are not justifiable.

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

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

We are subject to regulatory and similar
risks associated with our international
operations:Changes in regulatory
requirements, tariffs and other trade barriers and price or
exchange controls could 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. For additional information with respect to legal
proceedings see Item 4: Information on the
CompanyLegal Proceedings. There can be no assurance
that the results of these or other legal proceedings will not
materially harm our business, reputation or brand. We maintain
liability insurance for legal risks at levels our management
believes are appropriate and in accordance with industry
practice. We accrue for litigation risks when it is probable
that an obligation has been incurred and the amount can be
reasonably estimated. There can be no assurance that (i) we
will not incur losses relating to litigation beyond the limits,
or outside the coverage, of

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such insurance or that any such losses would not
have a material adverse effect on the results of our operations
or financial condition or (ii) our provisions for
litigation related losses will be sufficient to cover our
ultimate loss or expenditure.





ITEM 4:      INFORMATION
ON THE COMPANY

OVERVIEW

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

During fiscal 2003, Siemens employed an average
of 419,300 people in approximately 190 countries worldwide. In
fiscal 2003, we had net sales of
74.233 billion.
Our balanced business portfolio is based on leadership in
electronics and electrical engineering. We have combined this
expertise with a commitment to original research and development
to build strong global market positions in equipment for
telecommunications and networking, industrial automation, power
generation and medical diagnostics. We are also a major world
competitor in rail transportation systems, automotive
electronics and lighting. Our businesses operate under a range
of regional and economic conditions. In internationally oriented
long-cycle industries, for example, customers have multi-year
planning and implementation horizons that tend to be independent
of short-term economic trends. Our activities in 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.

In a difficult economic environment in fiscal
2003, we vigorously pursued a strategy we call Operation 2003,
aimed at bolstering profit margins, cutting costs, improving
asset management and generating further strong cash flows while
solidifying our revenue base after several years of significant
changes to our business portfolio. These portfolio changes were
integral to the precursor of Operation 2003, known as the
Ten-Point Plan. These portfolio activities, along with the
Ten-Point Plan included listing our shares on the New York Stock
Exchange, converting our accounting to U.S. GAAP, divesting
our semiconductor unit Infineon, and other measures aimed at
increasing shareholder value and the transparency of our
financial reporting.

In the remainder of this section, we detail the
Operation 2003 strategy; highlight portfolio optimization
activities in recent years; and describe the long-term,
broad-based management strategies that span all of our
businesses and will guide our growth in the years ahead.

OPERATION 2003

The overriding purpose of Operation 2003 is to
increase profitability through a set of strategic programs and
initiatives aimed at achieving specific earnings margin targets
for our business Groups and generating cash during a period of
slow macroeconomic growth.

During fiscal 2003, Group profit from operations
increased to
4.295 billion
compared to
3.756 billion
in fiscal 2002. Group profit margins rose at 10 of the 13 Groups
in our Operations component and at Siemens Financial Services
(SFS). For a definition of our Operations component see
Item 5: Operating and Financial Review and
ProspectsBasis of Presentation.

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

PORTFOLIO ACTIVITIES

Since fiscal 2001, we have completed the
following significant transactions aimed at realigning our
businesses in order to achieve sustainable growth in
profitability:

Dispositions



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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 Notes to the
    consolidated financial statements;                                                                                                                                                                                                                                                                          
|
| |  | Transfer of our nuclear power business into a
    joint venture with Framatome;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Divestiture of businesses and assets related to
    the acquisition of Atecs Mannesmann AG;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Divestiture of Unisphere Networks, Inc.;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Divesture of several business activities to
    Kohlberg Kravis Roberts & Co. L.P. (KKR),
    including units that we acquired as part of our acquisition of
    the Atecs Mannesmann group, the Metering division of our Power
    Transmission and Distribution Group, the Ceramics division of
    our PG Group and a regional service business belonging to
    our Information & Communication Networks (ICN) Group;                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Contribution of the Patient Care System and
    Electro Cardiography System businesses of our Medical business
    Group into a joint venture with Drägerwerk AG in
    exchange for a 35% interest in the joint venture Dräger
    Medical AG & Co. KGaA (Dräger Medical),
    headquartered in Lubeck, Germany, in June 2003. The contribution
    agreement obligates Siemens to contribute to Dräger Medical
    the net proceeds from the sales of its Life Support Systems
    business. By consenting to this sale, Siemens and
    Drägerwerk AG received approval of the joint venture
    transaction by antitrust authorities. In August 2003, Siemens
    signed a contract toward the sale of its Life Support Systems
    business to Getinge AB, Sweden. The transaction closed in
    October 2003.

Acquisitions



| |   |                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquisition of Acuson Corporation, a medical
    ultrasound producer by our Medical business Group;                                                                                                                                                                                                                                                            
|
| |  | Acquisition of Efficient Networks Inc., a DSL
    equipment provider in the United States by ICN;                                                                                                                                                                                                                                                              
|
| |  | Acquisition of Atecs Mannesmann AG (Atecs), a
    large German automotive and automation technology group;                                                                                                                                                                                                                                                     
|
| |  | Acquisition of the industrial turbine business of
    Alstom S.A. (Alstom), Paris, which was structured in two
    transactions; in the first transaction in April 2003, PG
    acquired the small gas turbine business of Alstom; and in the
    second transaction in July 2003, PG acquired the medium-sized
    gas and steam turbine businesses of Alstom.

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

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ECONOMIC VALUE ADDED (EVA)

A core element of our strategy has been an
emphasis on EVA as a measurement of the success of each of our
business Groups and of our Company as a whole. Economic value
added 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.

SIEMENS MANAGEMENT SYSTEM

In addition to implementing Operation 2003, we
also conducted a thorough review of our management system, in
order to make it clearer and easier to understand. We expanded
our top+ business excellence program at the start of fiscal
2004, integrating it into a reorganized Siemens Management
System consisting of three programs:

Innovationhas
been a hallmark of Siemens since its inception, and our
commitment to innovation remains strong, with a total
5.067 billion
of research and development (R&D) expenses and approximately
7% of sales invested in R&D in fiscal 2003. Innovation
cycles are increasingly shorter. The role of management is to
identify opportunities to bring innovation to market as rapidly
and profitably as possible, and to execute on those
opportunities as productively as possible. Our focus will be on
common technology platforms to leverage our resources across our
Groups.

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

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

CORPORATE STRUCTURE

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

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

Another component of our Company is made up of
two Groups, involved in non-manufacturing activities such as
financing, leasing, and real estate.

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

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

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

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Groups and take advantage of cross-marketing
opportunities. Our corporate departments also support the
business Groups with financial resources, human resources,
planning and development and information and communications
infrastructures.


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

DESCRIPTION OF BUSINESS

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

OPERATIONS-FINANCIAL SERVICES GROUPS

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INFORMATION AND COMMUNICATIONS

Information and Communication Networks (ICN)

|                     |                                                   |               |                |       | 
|-------------------- | ------------------------------------------------- | ------------- | -------------- | ----- | 
|                     |                                                   | Year ended   
|                     |                                                   | September 30,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 7.122 billion |      
|                     | External sales as percentage of Siemens net sales |               |                | 8.88% | 
|Group profit         |                                                   |               | (366) million |      
|Net capital employed |                                                   |               | 722 million   |      
|Employees            |                                                   |               | 33 thousand    |      

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

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

In order to make our cost structure more
efficient and to focus our sales and product development efforts
in the carrier business on comprehensive solutions, in fiscal
2003, we streamlined our carrier organization by combining the
product offerings of the former Wireline Networks,
Optical Networks and Access Solutions divisions
into a new Carrier Networks division. The separate
service offerings of the three former divisions were also merged
and organized in a new division Carrier Service. As a
result, our Group now comprises these two new divisions,
together with the existing Enterprise Networks division.

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

Our product portfolio addresses each of the
following three segments of telecommunication networks access,
transport and control. For network access, we provide products
and solutions that upgrade the part of a telephone network
between a home or a business and the first network switching
system (the last mile) to carry not only voice but
data requiring very high bandwidth. We also offer broadband
equipment for homes and businesses, including modems for
high-speed internet access. For network transport, we offer
transport solutions for optical networks, which use light waves
to transmit communications signals through fiber optic cables.
Our transport solutions combine hardware and software designed
to deliver higher transmission rates between network elements.
For network control, we provide solutions which switch and
direct voice, data and video signals from one part of a network
to another. Our portfolio includes products for voice switching
in traditional networks and for voice and data switching in IP
converged networks as well as interfaces between these
narrowband and broadband networks. All our carrier products are
offered under the common brand, SURPASS®.

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For multimedia applications, we provide open
application programming interfaces to members of our SURPASS
partner program, weSURPASS®. This allows
weSURPASS partners to develop features and
applications that enhance the value of SURPASS for its users.

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

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

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

To strengthen our activities in real-time
communications software and to drive the development of our
global HiPath IP communications architecture, we acquired a
majority holding in Cycos AG, a software company specializing in
Unified Messaging products and solutions. This technology
enables the reception, output and administration of various
types of electronic messages, such as voice mail, e-mail, fax
and short-message service (SMS) on different devices.

Enterprise Networks serves its customers with
systems installation, systems integration, maintenance,
consulting and training services worldwide through local Siemens
companies and independent distributors.

Based on its strategy to address the next
generation of networks, ICN recently introduced its
LifeWorks® concept as its vision for the future of
telecommunications worldwide. LifeWorks is a unified
communications platform that uses our SURPASS carrier technology
and our HiPath enterprise technology in order to integrate the
technologies, devices and applications of enterprises and
carriers and to produce a single, homogeneous communications
environment where information can be accessed at any time and
from any remote point.

ICN operates its own sales force in Germany and
uses dedicated personnel in Siemens worldwide network of
regional sales units. Our global presence and our expertise in
voice and IP communication allow us to deliver ready-for-use
network solutions on a wide scale and of varied complexity
throughout the world. Some of our more significant carrier
customers include Deutsche Telekom, SBC, France Telecom, Telecom
Italia and China Telecom, while our more significant enterprise
customers include DaimlerChrysler, Ford Motor Company, Deutsche
Bank, RWE, EON and governmental institutions, including certain
departments of the United States federal government. 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 no customer who contributed more than 5% of total
sales in fiscal 2003.

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

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We derive approximately two thirds of our sales
from Europe, with 33% from Germany, and a smaller but
significant amount from the Americas, mainly the U.S.

In line with our strategy to concentrate our
manufacturing plants worldwide, we reduced the number of
manufacturing plants with majority shareholding from 13 as of
the end of fiscal 2002 to four as of the end of fiscal 2003.

In fiscal 2003, we spent
839 million,
or 11.8% of ICN total sales, on research and development,
compared to
1.154 billion,
or 12% of total sales, in fiscal 2002. We are focused on
improving the efficiency of our research and development
activities, which includes reducing and transferring development
sites to low-cost countries as well as directing research and
development efforts on targeted projects in order to decrease
overhead costs and development time.

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. In addition, we enter into strategic
alliances in order to achieve a leading position in the market
for real-time communications. A typical example is our strategic
alliances with leading enterprise IT companies, such as IBM,
Microsoft and SAP.

ICNs market continues to be characterized
by:



| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Growth in the amount and speed of data
    communications traffic due to the increased availability of
    broadband access, multimedia applications, such as messaging and
    games, and real-time communications;
|
| |  | Continued convergence of voice, data and video
    communications and increasing volatility of such converged
    digital traffic within networks; and                                                              
|
| |  | Lower levels of capital expenditures by carriers
    and enterprises in established voice infrastructure.                                                                                                           

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

For ICN, market conditions remained difficult in
fiscal 2003 largely due to the ongoing downturn in capital
expenditures among telecommunications operators. The enterprise
market suffered from a weak world-economy and reduced IT
spending, particularly in the United States and Germany. Given
these market conditions, ICNs orders declined by
approximately 19% in fiscal 2003.

In response to the decline of ICNs volume
and changes in the competitive landscape, we have undertaken
comprehensive adjustments to our cost structure and business
portfolio and intensified our 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 improving portfolio management. During fiscal
2003, we also reduced our employees by approximately 6,000, thus
completing the total headcount reduction announced since we
initiated the PACT Program, from 54,000 to 33,000. For
additional information with respect to severance charges see
Item 5: Operating and Financial Review and
ProspectsSegment Information
AnalysisOperationsInformation and
CommunicationsInformation and Communication Networks.

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.

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Information and Communication Mobile (ICM)

|                     |                                                   |               |                |        | 
|-------------------- | ------------------------------------------------- | ------------- | -------------- | ------ | 
|                     |                                                   | Year ended   
|                     |                                                   | September 30,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 9.964 billion |       
|                     | External sales as percentage of Siemens net sales |               |                | 13.22% | 
|Group profit         |                                                   |               | 180 million   |       
|Net capital employed |                                                   |               | 1.367 billion |       
|Employees            |                                                   |               | 27 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.

In fiscal 2003, our Group comprised five
divisions: Mobile Phones, Cordless Products,
Wireless Modules, Mobile Networks and
Solutions. As part of a Group-wide realignment of
products, services and sales, our Solutions division was
integrated into the Mobile Networks division as of
October 1, 2003.

Mobile Phones.We
offer digital mobile phones for all customer segments based on
the widely distributed mobile phone GSM standard as well as on
the GPRS extension of GSM technology, which allows faster data
transmission rates. We build our major mobile phone products
from common platforms to reduce production costs while allowing
us to readily tailor features for different market segments. To
broaden our mobile phone line, we continue to introduce high-end
products, such as smart phones, with multimedia
capabilities. The core of our sales come from medium-and
lower-priced phones designed for the consumer market.

During fiscal 2003, we launched a variety of new
products, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the SL55 phone with a distinctive design which
    allows it to slide open to reveal its keypad and a high level of
    miniaturization;                                                                                                                                                                                                                                     
|
| |  | business phones, such as S55 and ST55, with bar
    design and features such as multimedia messaging (MMS),
    Bluetooth technology, an attachable or fully integrated
    camera, and high resolution color display;                                                                                                                                                      
|
| |  | fun phones, such as M55, MC60 and C60, with
    fashionable design and features such as MMS, JAVA
    technology, colorful displays, entertaining and easy to use
    menus, integrated or attached camera, polyphonic ringer,
    external light indicators that can change the color and
    intensity of their light, color display, and replaceable
    (CLIPit) covers;
|
| |  | market entry phones, including the A55, designed
    to appeal to first-time users or price sensitive customers;                                                                                                                                                                                                                                                             
|
| |  | a third generation, 3G, phone, the U10, which is
    based on our technical collaboration with Motorola and has a
    large variety of multimedia features, including video and MP3
    player; and                                                                                                                                                                          
|
| |  | a new line of fashion accessory phones under the
    Xelibri brand, featuring cutting edge handset design.                                                                                                                                                                                                                                                                   

During fiscal 2003, we introduced or delivered to
the market several phones tailored for the United States market,
including the A56, C56, CT56, S56, M56, SL56 and SX56 in order
to take advantage of the shift to GSM wireless networks in the
United States. Some are marketed exclusively through AT&T
and others we designed for Cingular Wireless. In addition,
Siemens and AT&T are co-branding the SX56, which is a
combination phone and pocket personal computer already available
in the United States. For Asian markets we offer the CL50
clamshell phone tailored to regional specific needs.

Currently, we rely on Infineon and Intel as
significant suppliers of semiconductors and other components for
mobile handsets. As common in our industry, we use electronic
manufacturing services (EMS) providers, who

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supply us with manufacturing capacity. We also
use original design manufacturing (ODM) suppliers, who supply us
with certain product design and technology features which we use
to serve market specific needs.


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 2003, we replaced the fourth generation
of the Gigaset product family with the next generation of
Gigaset DECT Phones, which have been launched in the European
market. We also launched the W-LAN 802.11b and g product
family for the consumer market in Europe, which enable home
wireless networks using the Wi-Fi standard.
Furthermore, we started to serve the low-priced segments of the
market by introducing products under a separate brand. Cordless
Products is also playing a leading role in the introduction of
standardized MMS protocols for the fixed network in Europe.

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

Our communication modules are based on the GSM
and GPRS standards. In fiscal 2003, our MC 45 module was the
first tri-band 900/1800/1900 MHz GPRS class 10 module to be
introduced in the market and our TC45 was the first dual-band
900/1800 MHz GPRS module with integrated JAVATM technology to be
introduced in the market. The TC45 allows easy integration of
application-specific software.

Mobile Networks.The
Mobile Networks division provides wireless network operators
with a complete range of products for building, expanding, and
enhancing GSM, GSM-Railway, GPRS, EDGE and UMTS (W-CDMA) 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 industry estimates of
market share, our Mobile Networks division is among the leading
global providers of GSM and W-CDMA networks and prepaid services.

The universal mobile telecommunications system
(UMTS) standard used in 3G networks offers faster and more
reliable transmission of voice, data and multimedia
communications over mobile 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 have already been awarded 25
commercial contracts for 3G network projects. Despite the
uncertainty surrounding the timing of the build-out and
deployment of UMTS networks, we believe we are well positioned
in the European UMTS market at this still early stage. We are
currently working on a number of rollouts of W-CDMA
infrastructure in Europe and Asia. Through a new joint venture
with Huawei discussed below, we intend to further the progress
we have made in the development of TD-SCDMA (a Chinese standard
for 3G networks) in cooperation with the China Academy of
Telecommunications and Technology.

Solutions.This
division offers its customers the integration and hosting of
mobile applications and content packages. The Solutions division
focuses on customized solutions in the areas of multimedia
services, messaging services and location-dependent services,
which use the Mobile Networks divisions platforms as well
as third-party technology platforms to provide applications and
content tailored to customer needs. The division provides these
solutions in conjunction with a comprehensive partner program.
In addition, we offer first-class messaging solutions together
with strategic partners. 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.

In fiscal 2003, our Siemens Mobile Acceleration
GmbH continued to make strategic investments in start-up
companies in the mobile business field.

In fiscal 2003, our Mobile Networks division
entered a strategic alliance with Cisco to develop mobile IP
products. The Mobile Networks division also signed a memorandum
of understanding to participate as a 51%

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owner in a joint venture with Huawei Technologies
to develop, manufacture and market TD-SCDMA technology. We
expect to make a significant investment in the joint venture in
order to be able to utilize the spectrum allocated by the
Chinese government to TD-SCDMA in October 2002. Our other
divisions also continue to be actively involved in collaborative
ventures. For example, Mobile Phones participates in Symbian, a
joint venture involving wireless industry leaders, including
Nokia, Ericsson, Matsushita, Psion and Sony Ericsson, for the
development of open standard operating systems, to promote smart
phones based on Symbian operating systems.


ICM is also a member of OMA, the Open Mobile
Alliance, which is a standardization body for mobile
applications. OMA has approximately 320 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.

In fiscal 2003, we spent
1.123 billion,
or 11.3% of ICMs total sales, on research and development,
compared to
1.231 billion,
or 11.1% of total sales, in fiscal 2002. The Mobile Phones
division is developing the first products based on the Symbian
OS/Series 60 operating system that feature multimedia
capabilities such as audio and video streaming. Cordless
Products is a leading technology and innovation driver for the
new fixed-line MMS standard in Europe. In addition to Mobile
Networks significant long-term development efforts in
UMTS, it has focused development efforts on GPRS and EDGE (which
is a further enhancement of GPRS data transmission speeds)
technology. With other leading industry participants, such as
Ericsson, Huawei, NEC and Nortel, Mobile Networks also launched
the Common Platform Radio Interface (CPRI) initiative. The
CPRI focuses on a 3G radio base station design that
divides the radio base station into a radio and a control part,
by establishing one new public interface as the sole connecting
point between the two parts. This is intended to allow each of
the two parts to better benefit from technology advancements in
its respective area.

The 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 operators, distribution
companies and consumer retailers. Our Cordless Products division
also sells cordless and corded telecommunications equipment to
ICN for resale to business customers as part of complete
telecommunications solutions. Customers of our Wireless Modules
division primarily include information and communication device
manufacturers, car manufacturers, IT vendors and other
businesses. Customers of our Mobile 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 2003, we made further progress in
building our North American customer base as network providers
in the United States continue to shift to GSM technology. AWS
(AT&T Wireless) and Cingular are among Mobile Phones
major customers. In South America, we are taking advantage of
the shift from TDMA to GSM technology and the build-out of GSM
in general to grow our handset business.

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

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

We derive over half of our sales from Europe and
a smaller but significant amount from the Asia Pacific region.

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 especially for wireless network products have
continued to suffer, particularly in Europe. Since fiscal 2001,
demand for mobile phones was impacted by unfavorable economic
conditions, and the industry

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suffered from excess inventories, oversupply and
significantly reduced market prices for mobile handsets.
Following the significant decline in fiscal 2002, the wireless
network market has declined at an even greater rate in fiscal
2003. 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 uncertain, in
part due to the development of worldwide economic conditions and
the severe financial constraints to which many wireless network
providers are subject.


Given the sustained weakness of the market, ICM
has continued its productivity programs, which were initiated in
fiscal 2001. During the course of fiscal 2003, the total number
of ICM employees was reduced by approximately 6%. In July 2003,
we announced our intention to further increase our productivity
by an additional
1 billion
in cost reduction throughout the entire Group, including an
additional planned reduction of 2,300 jobs, through fiscal 2004.
For additional information with respect to severance charges see
Item 5: Operating and Financial Review and
ProspectsSegment Information
AnalysisOperationsInformation and
CommunicationsInformation and Communication Mobile.

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 the
sales to the end-consumer historically occurring around the
Christmas holidays. Due to generally short product life cycles
in our mobile handset business, to remain competitive we must be
able to design and successfully bring new products to market
quickly and in sufficient amounts to meet customer demand.

We compete with both large, established mobile
handset and network telecommunications manufacturers with a
broad focus as well as smaller start-up companies concentrating
on particular market niches. In addition, we experience new
competitors with strong regional focus, for example China, who
build on their low cost structures and ability to integrate
third-party modules and components to produce their own mobile
phones. Although competition differs by type of product,
consolidation in this industry is likely to occur as companies
adjust to address the increasing convergence of voice, data and
multimedia communications. Some of our most significant
competitors include Nokia, Motorola, Nortel, Ericsson,
Sony-Ericsson and Samsung in mobile phones and mobile networks
and Matsushita, Atlinks, Panasonic and VTech in other digital
communications products. Additional competitive pressure in
mobile phones is coming from network operators who are beginning
to sell phones under their own brand (white label phones).
Forward integrating chip or EMS manufacturers could also enter
our markets, as they are able to build more and more of the
phone functions directly into their chips or possess the
necessary manufacturing know-how. Additionally, Nokia and
Microsoft are licensing their open standard operating systems to
other handset manufacturers that compete with us. In Mobile
Networks, we are facing both low-cost competitors as Huawei and
traditional IT firms such as Cisco, who are strengthening their
market positions. In Wireless Modules, we are facing competition
mainly from Wavecom and semiconductor companies such as Intel,
Infineon and Texas Instruments. Solutions is confronted with
intensifying competition from telecommunications suppliers such
as Ericsson and IT integrators such as Cap Gemini. 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. However, as consumer choices in the handset
market are increasingly driven by lifestyle considerations,
product design and marketing are gaining in importance.

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.

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Several recent or proposed governmental actions
may have an impact on our sales and costs. These include the
European Union (EU) directives concerning the disposal of used
electronic equipment and the reduction of hazardous waste, and
the possible establishment in the EU and other major markets of
limits on the Specific Absorption Rate (SAR, a measure of the
rate at which radio frequency energy is absorbed by the body)
for hand-held phones and other devices. See
Environmental Matters. We are already running
pilot projects intended to assure our compliance by the
applicable dates. The impact which these environmental
regulations might have on our sales or profitability would
depend in part on how they are implemented through national
legislation and enforced.

Siemens Business Services (SBS)

|                     |                                                   |               |                |       | 
|-------------------- | ------------------------------------------------- | ------------- | -------------- | ----- | 
|                     |                                                   | Year ended   
|                     |                                                   | September 30,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 5.205 billion |      
|                     | External sales as percentage of Siemens net sales |               |                | 5.34% | 
|Group profit         |                                                   |               | 13 million    |      
|Net capital employed |                                                   |               | 294 million   |      
|Employees            |                                                   |               | 35 thousand    |      

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

Since its establishment in 1995, 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 76% 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. SBS creates these solutions for customers by
drawing on our management consulting resources to redesign
customer processes, on our professional services to integrate,
upgrade, build and install information technology systems, and
on our operational capabilities to run these systems on an
ongoing basis. In fiscal 2003, we generated approximately 28% of
our total sales from our solutions business, 47% from
operations-related services and 25% from product-related
services.

SBS has three divisions which reflect the types
of services we offer. The Solution Business division
offers project-oriented consulting, design and implementation
services. These include selecting, adapting and introducing new
solutions to support business processes as well as integration
of systems and enterprise applications. Many of our solutions
are based on software platforms from our partners, such as SAP.
The Operation-Related Services division provides
outsourcing services (operation of an entire business process)
and outtasking services (performing one or more discrete tasks
that are part of such business process), with a focus on
full-scale IT operations spanning hosting, call center, network
and desktop services. The Product-Related Services
division offers infrastructure maintenance, including hardware
and software maintenance and infrastructure service solutions,
including security services and concepts designed to minimize
business process interruption caused by failures in the IT
infrastructure.

This divisional structure is 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
    businesses in aligning their organizations to better serve the
    needs and requirements of their customers; in this area, SBS
    offers solutions for integrated management of all sales,
    marketing and customer care activities, including operation of
    call centers and the supply of sales control systems that allow
    businesses to follow and maintain their customer relationships
    by gathering and analyzing sales information;

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | business information management to improve our
    customers business processes, by electronically
    structuring, processing, analyzing and evaluating data and
    information, and making it available around the clock; our
    portfolio in this area includes services and solutions for
    business information, document and product data management;                                                                                                                                                                                                                                                                        
|
| |  | supply chain management to facilitate the
    efficient interplay of all of a business operational
    processes with those of its suppliers, from receipt of orders
    through production and shipment, enabling optimization of
    delivery times, capacities, inventories and production processes
    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 our consulting and design services relate
to information technology and communications systems that we
also build or operate. SBS can design and build systems and
provide services using the software of many companies with which
it has established relationships, such as SAP, Microsoft,
Siebel, i2 Technologies, Oracle and Computer Associates. We also
provide technical support and maintenance of existing
information and communication systems. As part of our
outsourcing services, we provide the operation of an entire
information technology system or only one or more discrete
services, from data storage and processing to billing. Going
forward, SBS will continue to focus such outsourcing activities
on its IT core competencies. In a continuation of this strategy,
we acquired in fiscal 2003 a majority stake in Sinius, which
specializes in outsourcing IT services for financial service
providers in Germany.

Currently, the Group is in particular focusing
its efforts on the manufacturing industry, the public sector and
financial services. Among our larger customers are
Wincor-Nixdorf, Fujitsu Siemens Computers, Deutsche Bank and
National Savings & Investment. 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 the majority of the Siemens
business Groups. Although we compete with external service
providers for all Siemens contracts and each Siemens business
Group determines on an arms length basis whether to do
business with SBS, we remain the largest supplier of information
technology and communications services to Siemens.

SBS is active worldwide in more than 40
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
markets, such as Asia Pacific and South America.

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 adaptation of capacity, primarily through
work-hour reductions and limitations on third-party contractors,
personnel outsourcing, as well as several programs intended to
enhance our operational efficiency.

Our most significant competitors vary by region
and type of service. A few are global, full-service IT providers
such as IBMs Global Services division and EDS. Our
competitors that focus more narrowly on specific regions or
customers include T-Systems, a unit of Deutsche Telekom, in
Germany and Capita in the United Kingdom. Those focusing on a
particular service include Accenture in consulting, Cap Gemini/
E&Y in systems

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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 as well as
the long-term frame contracts with our largest customers
occasionally expose us to technical performance, customer or
country-related risks. In the past, we have suffered significant
losses in connection with such risks. Risks associated with
long-term outsourcing contracts also remain a management focus
at SBS. See Long-Term Contracts and Contract
Losses.

AUTOMATION AND CONTROL

Automation and Drives (A&D)

|                     |                                                   |               |                |       | 
|-------------------- | ------------------------------------------------- | ------------- | -------------- | ----- | 
|                     |                                                   | Year ended   
|                     |                                                   | September 30,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 8.375 billion |      
|                     | External sales as percentage of Siemens net sales |               |                | 9.64% | 
|Group profit         |                                                   |               | 806 million   |      
|Net capital employed |                                                   |               | 1.925 billion |      
|Employees            |                                                   |               | 50 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 links products and systems together
and further links these to building automation systems. The
bus systems are used principally in residential
buildings and large commercial facilities such as plants and
office buildings. In this area, we increasingly combine systems
designed to optimize power distribution and management, which we
market under the name totally integrated power, with
factory automation systems, which we market under the name
totally integrated automation.

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

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

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

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

To offer our customers a broad portfolio of
products and systems as a one stop shop supplier, we
are strengthening our market position through acquisitions and
joint ventures in the field of process instruments and drive
systems. In September 2003, we enhanced the product and
technology portfolio of our process automation business by
acquiring the Flow Division of Danfoss, a leading manufacturer
of electronic devices for the flow measurement of liquids and
gases. The business employed about 450 people at two production
sites and achieved annual sales of approximately
60 million
in 2002. The acquisition complements our existing product
offering and gives us access to important customers in Europe
and Asia.

We sell our products primarily through our own
sales force in Germany and through dedicated personnel in
Siemens worldwide network of regional sales units. We also
sell a significant proportion of our products to original
equipment manufacturers and third-party distributors for resale
to end users. The majority of our sales to third parties goes to
industrial customers in the mechanical and electrical machines
industries. A significant portion is also made to distributors,
system and software houses and engineering 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
standardized products tailored to specific industry segments,
thus increasing efficiency in the planning, construction and
commissioning of plants. A&D serves a wide group of
customers, but 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 14.5% of our total sales in fiscal 2003. 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.

We derive nearly three quarters of our sales from
Europe, with 42% from Germany, and a smaller but significant
amount from the Americas, mainly the U.S.

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 2003, we spent
515 million,
or 6.2% of A&Ds total sales, on research and
development, compared to
511 million,
or 5.9% of total sales, in fiscal 2002. 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.

Weak capital spending in machinery and equipment
caused by difficult worldwide economic conditions characterized
the market for all our products throughout fiscal 2003. This
development continued to negatively

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affect our sales and orders across all our
geographic markets, with the exception of China. Our business
activities in the United States continued to be impacted by the
weakness in the North American automotive and machinery sectors
where a large number of our customers is concentrated, but was
partly offset by improvements in the residential construction
market.


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. In fiscal 2003, we have undertaken a re-allocation of
business activities among our various divisions with the aim to
increase internal efficiencies. We have continued to improve our
portfolio through disposal of several small non-core operations
during fiscal 2003. For example, we sold our stake in Siemens
Telecom Power Supply Ltd., Shanghai, a joint venture for the
supply of telecom power supply products and services to the
Chinese market because the telecom industry no longer fits our
industry focus.

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, which has compelled some competitors to
divest parts of their businesses. Most recently, for example,
ABB and Invensys sold or announced plans to sell significant
parts of their operations.

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 2003 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,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 4.012 billion |      
|                     | External sales as percentage of Siemens net sales |               |                | 3.92% | 
|Group profit         |                                                   |               | (41) million  |      
|Net capital employed |                                                   |               | 167 million   |      
|Employees            |                                                   |               | 26 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;

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

In fiscal 2003, we realigned the solutions and
services we provide into the following four divisions:

Industrial Plantsuses industry-specific expertise to design, engineer and deliver
solutions tailored to the needs of customers in various industry
sectors. Increasingly, we focus on offering complete solutions
rather than solutions that only serve a specific function. For
metal and paper-processing industries we provide automation and
process control systems, drive systems and electrical equipment
used in plants that make, roll and process steel and in mills
producing pulp and paper. For the open-pit mining industry we
offer solutions including electrical power, drive and automation
systems for bulk material handling and processing. We also
provide solutions for off- and onshore operations of the oil and
gas industry, including power and integrated drive systems,
automation and process control. Our solutions and services in
the oil and gas segment address both upstream exploration as
well as midstream transportation and pipeline activities. In the
water/ wastewater sectors, our offerings range from
industry-specific solution packages (such as process simulation)
to supplying the entire spectrum of automation, process control,
drive systems and electrical equipment for plants. We also
deliver propulsion drives and integrated electrical systems for
ships as well as drive systems, fuel cells and automation
systems for submarines.

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 airfield technologies business
provides systems and solutions for the accurate monitoring,
navigation and control of aircraft ground movement, as well as a
variety of lighting systems for the visual guidance of traffic
on the airfield.

Industrial Servicesis our largest division, typically accounting for approximately
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 are active globally on a local
basis through a network of about 200 service locations in more
than 50 countries with nearly 14,000 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.

Together with the reorganization of our divisions
in fiscal 2003, we continued efforts to rationalize our
organization in order to improve profitability and
competitiveness. Our goal is to focus I&S on its core
competencies and higher margin businesses. We are in the process
of adjusting our business portfolio by discontinuing low-end
activities, primarily within our Industrial Services division,
which are considered to lack

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the size and potential to be restored to target
profitability in the near term, such as conventional
installation services and basic engineering. These activities
and other non-core businesses have been transferred into a
temporary division. In addition, we have transferred some of our
non-core businesses to other Siemens Groups where we believe
they will present a better fit with the Groups existing
business portfolios. We have also proceeded with the
implementation of productivity improvement and cost-reduction
programs, including a decrease in headcount in fiscal 2003. Our
rationalization program will continue in fiscal 2004. For
additional information with respect to severance charges see
Item 5: Operating and Financial Review and
ProspectsSegment Information
AnalysisOperationsAutomation and
ControlIndustrial Solutions and Services.


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

Our Industrial Plants division derives its sales
revenues primarily from projects awarded on the basis of
internationally solicited tenders. These projects tend to be
performed under long-term, high-value contracts with a
relatively limited number of customers. Intelligent Traffic
Systems works predominantly with state and municipal customers
under long-term fixed-price contracts. Our Industrial Services
and IT Plant Solutions divisions provide services to numerous
customers across a variety of industries, as well as to our
Industrial Plants division and other Siemens Groups, principally
A&D, Power Generation, PTD and Transportation Systems. While
transactions with Siemens traditionally comprise the most
significant portion of these divisions total sales,
accounting for approximately 34% for the Industrial Services
division and 54% for the IT Plant Solutions division of their
sales in fiscal 2003, our goal is to expand the portion of
business we conduct with 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
2003, we generated almost three quarters of total sales from
projects and services performed in Europe, with 47% in Germany.
In Europe, our primary goal is to increase our business outside
of Germany. We are also seeking to continue our growth in
selected markets in the Americas and Asia.

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 2003, we spent
35 million,
or 0.87% of I&S total sales, on research and
development, compared to
44 million,
or 0.98% of total sales, in fiscal 2002. 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 to take advantage of the growing demand for outsourced
maintenance and support services in a variety of industries,
including those for which Siemens does not provide products or
systems and irrespective of the manufacturer of the original
system or facility. We believe that our competitive advantage is
our unique combination of competence in the industry sector,
information technology and technical services fields.

The large size of the projects performed by our
Industrial Plants division occasionally exposes us to risks
related to our technical performance, to a customer or to a
country. For 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.

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Siemens Dematic (SD)

|                     |                                                   |               |                |       | 
|-------------------- | ------------------------------------------------- | ------------- | -------------- | ----- | 
|                     |                                                   | Year ended   
|                     |                                                   | September 30,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 2.600 billion |      
|                     | External sales as percentage of Siemens net sales |               |                | 3.29% | 
|Group profit         |                                                   |               | (218) million |      
|Net capital employed |                                                   |               | 877 million   |      
|Employees            |                                                   |               | 10 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,
principally in the chemical, pharmaceutical, food and beverage,
and automotive sectors, 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 and airports. In this division, we focus on globally
standardized product and systems development, planning,
information technology, material handling automation
architecture and consulting in support of our systems sales.
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; mail security solutions; and postal
services such as product-related after-sales services and
general contracting. Key customers for this business are the
traditional post and parcel services, including the German and
U.S. postal services. The U.S. Postal Service is our
largest customer in this division, accounting for more than 5%
of Siemens Dematics sales in fiscal 2003. Our potential
customers include private parcel and package carriers, of whom
FedEx, UPS and DHL 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 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. Despite this adverse
environment, the Material Handling Automation division was able
to secure important orders in fiscal 2003, such as the
installation of baggage handling systems at Denver Airport,
automated tray handling systems for the U.S. Postal Service
and a parcel sorting system for the UPS distribution center at
the Cologne/Bonn airport. Additionally, in conjunction with
Boeing, the division completed the initial phase of a project
for the U.S. Transportation Security Administration for the
implementation of baggage screening and explosive detection
systems at several hundred U.S. airports.

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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 opportunities to increase our
customer base. In addition, as formerly government-owned postal
and airport authorities are deregulated and privatized, we
believe that competition in the markets in which they operate
will continue to increase. We expect that companies attempting
to compete effectively will increase their investment in
integrated, automated systems and technologies in order to
improve their productivity and speed, creating an opportunity
for us. Furthermore, due to our large installed base of postal,
logistics and production automation systems, we aim to generate
sales over the coming years through value-added upgrading and
servicing of this equipment base.

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.

Throughout most of fiscal 2003, this business has
continued to experience an on-going weakness in the electronics
industry market caused primarily by the decline in technology
investment in the U.S. and the downturn in the global
telecommunications industry, which had a negative impact on the
level of sales and new orders and profitability in this
division. We are shifting business focus to the Asia-Pacific
region, where many of our customers have moved their
manufacturing locations. We are also penetrating new market
segments for our placement systems through the introduction of
products designed for mid-range companies with low to medium
volume production requirements, variable batch sizes and
frequent product changes.

In fiscal 2003, we sold our Assembly and Plastics
Technology business to Rohwedder AG because the nature of this
business, engineering and building unique equipment for
customers, does not fit our overall strategy of offering
standardized solutions. As part of a goal to focus on our core
placement systems business, we also transferred the rights to
our wafer identification technology, which allows semiconductor
manufacturers to identify and trace wafers and therefore quickly
recognize and correct problems, to Cognex Corporation.

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

We derive the majority of our sales from Europe
and the U.S.

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

In fiscal 2003, we spent
134 million
or 5.2% of SDs total sales on research and development,
compared to
153 million,
or 5.1% of total sales, in fiscal 2002. Main areas of focus in
the Electronics Assembly business, include a new high
performance SMT placement product as well as the development of
standardized modules which can be used across our various
placement machine platforms. In the 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.

To address the challenging market environment, we
continued to focus in fiscal 2003 on improving profitability,
including decreasing costs by reducing headcount and
consolidating our production facilities. In fiscal 2004, we will
further enhance our productivity improvement program. 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

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Assembly Systems, from Europe and the Americas to
the Asia-Pacific region. We have recently expanded our presence
in China and are exploring the possibility of establishing
manufacturing locations in 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.


Our main competitors in our Material Handling
Automation and Postal Automation businesses are FKI Logistex
(including the former Crisplant), Daifuku, Swisslog, Northrop
Grumman (including Solystic), Lockheed Martin, Elsag, NEC,
Toshiba, Pitney-Bowes and Bell & Howell. Other competitors
operate within niche markets or market specialized technologies
to their customers; these include Vanderlande, Schaeffer-Noell
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 are strengthening their
presence in 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 Panasonic Factory
Solutions, Fuji Machine, Universal Instruments, a subsidiary of
the Dover Group, and Assembleon. Panasonic Factory Solutions has
recently introduced a product which directly competes with our
key high speed electronic assembly system HS-50. In our recently
entered market segment for mid-range placement machines we
compete with Yamaha and Juki.

The large size and complexity of some projects
performed by our Postal Automation and Material Handling
Automation divisions exposes us to risks related to technical
performance. For further information on such risks, see
Long-term Contracts and Contract Losses and
Item 5: Operating and Financial Review and
ProspectsSegment Information
AnalysisOperationsAutomation and
ControlSiemens Dematic.

Siemens Building Technologies (SBT)

|                     |                                                   |               |                |       | 
|-------------------- | ------------------------------------------------- | ------------- | -------------- | ----- | 
|                     |                                                   | Year ended   
|                     |                                                   | September 30,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 4.990 billion |      
|                     | External sales as percentage of Siemens net sales |               |                | 6.34% | 
|Group profit         |                                                   |               | 101 million   |      
|Net capital employed |                                                   |               | 1.447 billion |      
|Employees            |                                                   |               | 33 thousand    |      

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

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

Fire & Security
Productsmanufactures and sells
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

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products and systems to small electrical
installers, value-added partners who implement such products and
systems in their own solutions and to original equipment
manufacturers (OEMs).


Building Automationoffers solutions to the non-residential markets for automating
and regulating heating, ventilation and air conditioning (HVAC),
electricity and lighting including computerized building
automation systems that integrate and manage all of these
functions for an entire building. In addition, the division
offers maintenance and training services for its systems.
Building Automation also provides energy 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 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 the products and systems 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, OEM 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
5.7% of SBTs total sales in fiscal 2003. 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.

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 local sales, project execution and
services branch offices in more than 40 countries. In order
to improve cost synergies with Siemens regional companies,
we are integrating SBTs local organizations with the
Siemens regional companies. For some markets, we also distribute
our products and systems through a network of independent field
offices and distributors. Our services businesses and sales
network have 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 and Switzerland.

We derive approximately two thirds of our sales
from Europe, with 32% from Germany, and nearly one third from
the U.S.

We have 14 manufacturing and assembly
facilities worldwide, including ten in Europe, of which three
are located in Germany. In fiscal 2003, we took measures to
scale back our production capacity and initiated the closure of
two production plants in Staefa (Switzerland) and Redditch
(United Kingdom). We plan to relocate most operations at those
locations to our existing sites in Switzerland and Germany by
the end of 2004.

In fiscal 2003, we spent
163 million,
or 3.3% of SBTs total sales, on research and development,
compared to
171 million,
or 3% of total sales, in fiscal 2002. We are working to develop
open system platforms and systems with backward and
forward compatibility that will enhance product flexibility and
protect a customers investment by allowing our customers
to create linked systems with products from different suppliers.
In fiscal

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2003, we introduced a new open
platform, which is compatible with all current standards used in
the building management systems market and allows us to
incorporate the latest technology into our present building
automation systems. 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. In 2003, we
launched in the United States a new fire detection and building
communications system, which features a user interface with
graphic maps and symbols to assist firefighters in quickly
locating fires and obtaining information about affected
properties. In addition, we introduced a new intrusion detection
system with wireless detectors.


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.
We continue our efforts in developing and offering building
management solutions, which use a common technological platform
and can therefore integrate various building management
features. 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.

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

Our focus is on improved profitability. To
enhance profitability, we will continue to dispose of non-core
activities, such as our non-core facility management business
when market opportunities arise. We have strengthened our
productivity improvement initiatives, which include process
improvements, enhanced purchasing coordination, reduction of our
product portfolio, reducing sales of low-margin segments and
headcount reductions. For additional information with respect to
severance charges see Item 5: Operating and Financial
Review and ProspectsSegment Information
AnalysisOperationsAutomation and
ControlSiemens Building Technologies. We also
consolidated our manufacturing capacity in order to improve
productivity. As described above, we have initiated closures of
plants in Staefa (Switzerland), where SBT had a research and
development facility and HVAC Products maintained a production
facility, and Redditch (United Kingdom), where HVAC Products
manufactured control for boilers.

SBT has a leading position in the worldwide
markets for Fire Safety and Building Automation. Three of our
divisions, Fire Safety, Building Automation and HVAC Products,
which account for 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 HVAC
Products they are Honeywell, Invensys and Danfoss, while for
Building Automation Johnson Controls and Honeywell are the
largest competitors. In the building automation field, we face
additional competition from niche competitors who offer
web-based solutions and from new entrants, such as utility
companies and consulting firms, who exploit an increased demand
for energy cost management.

The security solutions and products markets are
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 solutions and products market, Tyco is a market leader.
Despite the traditional fragmentation, consolidation is
beginning to occur in certain areas. For example, General
Electric, through a number of acquisitions, has also become an
active competitor in the security products market. Recently,
United Technologies has entered the security solutions business
through its acquisition of Chubb, a U.K.-based provider

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of security and fire protection products and
systems. The markets are still very fragmented, however, with
the top five companies comprising only about 15% of the
solutions market and 25% of the products market. Many of our
competitors focus on a particular product, system or service, or
have a regional orientation. We plan to continue to expand our
customized solutions business, where we can build close
relationships with our end-user customers by providing high
value-added services. We will further focus on providing
security solutions integrated with Fire Safety and/or Building
Automation systems.


POWER

Power Generation (PG)

|                     |                                                   |               |                |       | 
|-------------------- | ------------------------------------------------- | ------------- | -------------- | ----- | 
|                     |                                                   | Year ended   
|                     |                                                   | September 30,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 6.967 billion |      
|                     | External sales as percentage of Siemens net sales |               |                | 9.36% | 
|Group profit         |                                                   |               | 1.171 billion |      
|Net capital employed |                                                   |               | 1.712 billion |      
|Employees            |                                                   |               | 30 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
also customize gas and steam turbines in the smaller output
range, which can be used as drives for compressors or large
pumps, to meet specific project needs. We offer a broad range of
power plant technology, with activities that include:
development and manufacture of key components, equipment, and
systems; planning, engineering and construction of new power
plants; and comprehensive servicing, retrofitting and
modernizing of existing facilities.

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
77% of total sales in fiscal 2003.

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

A power plants function is the efficient
conversion of primary energy, such as coal or gas, into
electricity. In a fossil fuel plant, the power generation
process begins with working media such as water, steam or
compressed air, which are initially transferred to high pressure
states by heating in boilers or combustion sections of gas
turbines. Thereafter, steam and gas turbines convert this energy
into mechanical energy, which in turn is converted into
electricity by generators. In so-called combined cycle plants, a
combination of gas and steam 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 more than 500 gigawatts provides us with a good opportunity
to grow our service business.

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

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Our product line in this area has expanded in
fiscal 2003 through the acquisition of the small gas turbine
(3-15 megawatts) business of Alstom S.A., Paris (Alstom), which
was completed in April 2003, and Alstoms medium gas
turbine (15-50 megawatts) and industrial steam turbine
businesses, which was completed in July 2003. We see the
products and services of Alstom as complementing the existing
portfolio of our Industrial Applications division, in which the
purchased activities are being integrated. The acquisition
furthers our efforts to provide a complete range of products and
services from one source to our customers and gives PG a leading
position worldwide in the marketplace for industrial power and
compressor solutions. With an installed base of approximately
3,500 gas turbines and 4,100 steam turbines, the acquisition
also creates new opportunities to grow our service business.

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

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

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

Although we aim to expand primarily through
internal growth, we will continue to make acquisitions and form
alliances where appropriate to increase market penetration,
share costs or technologies and adapt to market changes. We have
formed several initiatives, such as our joint venture with
Chromalloy, to enhance our service activities. As described
above, in August 2003, we completed the acquisition of the
industrial turbine business of Alstom.

Power Generations principal customers are
large power utilities and independent power producers as well as
construction engineering firms and developers. Because certain
areas of our business, such as power plant construction, involve
working on medium- or longer-term projects for customers who may
not require our services again in the short term, our most
significant customers may vary significantly from year to year.
Shuweihat CMS International in the United Arab Emirates and
Calpine Corporation and Tractebel in the United States are among
our largest customers. We also generate an increasing portion of
sales from industrial customers, who represent an important
market for smaller power plants, turbines and compressor
solutions.

Our business activities vary widely in size from
component delivery and comparatively small projects to turnkey
contracts for new power plant construction with contract values
of 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.

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

We derive approximately one third of our sales
from Europe and approximately one third from the U.S.

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

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

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spent
257 million,
or 3.7% of its total sales, on research and development,
compared to
309 million,
or 3.3% of total sales, in fiscal 2002.


We operate in a difficult environment. Demand for
gas turbines in the United States has continued to suffer in
fiscal 2003 due to excess capacity built up during the recent
gas turbine power plant boom as well as due to our
customers difficulties in securing financing for power
plant projects, and general economic conditions. Project
cancellations have created mainly in the U.S., a market for
turbines which have been already manufactured but are not in
operation. This trend has had a further negative effect on
overall demand, although it has not significantly affected
demand for our product line thus far. As a consequence of these
developments, the worldwide aggregate sales in the power plant
markets declined in fiscal 2003 with a resulting decrease in
sales and orders of our products.

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

To address the challenging conditions, we have
made adjustments to our worldwide manufacturing, engineering,
project execution and sales and marketing capacities. For
example, in fiscal 2003, we closed down a manufacturing plant in
Wesel (Germany). At our North American operations, we reduced
our workforce by approximately 1,200 employees. We have
implemented a cost containment program by further headcount
reductions, process improvement efforts and optimization of our
manufacturing network. We also intend to increase our share of
sales coming from higher-margin businesses and are working to
further boost operating efficiency and performance of our
service activities.

Our industry is one in which a relatively small
number of companies, some with very strong positions in their
domestic markets, play a key role. Our principal competitors
vary by business, but primarily include General Electric, Alstom
Power, and Mitsubishi Heavy Industries in fossil power
generation. Within industrial applications, we face competition
from General Electric, Solar, MAN Turbo and Dresser Rand. In
instrumentation and controls, where the market is more
fragmented, ABB is our main competitor. The decreased demand in
our markets has intensified competition. Potential new
competitors face significant barriers, including high capital
investments in engineering and production capacity, the high
cost of research and development and of developing a customer
base, the need for broad systems know-how and global economies
of scale.

Power Transmission and Distribution (PTD)

|                     |                                                   |               |                |       | 
|-------------------- | ------------------------------------------------- | ------------- | -------------- | ----- | 
|                     |                                                   | Year ended   
|                     |                                                   | September 30,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 3.399 billion |      
|                     | External sales as percentage of Siemens net sales |               |                | 4.29% | 
|Group profit         |                                                   |               | 207 million   |      
|Net capital employed |                                                   |               | 798 million   |      
|Employees            |                                                   |               | 16 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.

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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;
|
| |  | 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 planning, design and
optimization of power transmission and distribution networks;
information technology services and solutions to support
customer management and energy trading; training programs; and
metering services for electric, gas and heat. We also provide
analytical and consulting services, as well as equipment and
systems in the power quality field that are designed to improve
the availability and reliability of power transmitted by
analyzing and reducing the causes of power fluctuations and
failures. Power quality systems and services have become
increasingly important with the growing use of sensitive
computerized, electronic and other equipment requiring
continuous power with very little fluctuation in voltage or
frequency. Our growing PTD Services division aims specifically
at responding to our customers increasing demands for
these services.

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.

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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,
components and services. A relatively small portion of our
project business involves construction of large power networks
and other projects with values of more than
10 million.
Most of our business is generated from smaller projects and
sales of systems and components to a variety of smaller
customers. In fiscal 2003, State Power Corporation of China was
our largest customer, contributing more than 5% 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 Asia, especially China and India, and the Americas.

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. New orders to replace old equipment have also been
driven by changing requirements due to environmental regulation.
In addition to responding to these new sources of demand, we
continue to seek new markets for expansion, in particular in the
United States and Asia, and to develop innovative new products
and systems to respond to ongoing pricing pressures in our
markets.

We derive approximately forty percent of our
sales from Europe. We generate a significant portion of our
total sales in developing countries in South America and more
than one quarter of total sales in fiscal 2003 in 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. Our largest projects in the developing world
currently include two developments in the Peoples Republic
of China: the Three Gorges Dam project and the construction and
equipping of converter stations for a new high-voltage
direct-current transmission line for the transportation of 3,000
megawatts of electricity across 940 kilometers. In fiscal 2003,
as part of a consortium with Pirelli, we were selected to supply
two converter stations for the planned submarine cable link
across the Bass Strait between Tasmania and the state of
Victoria on the Australian mainland. As a consortium leader of
the project, we will supply and install the high-voltage
direct-current equipment which allows transmission of electrical
power with low energy losses over long distances.

The large size of some of our projects
occasionally exposes us to risks 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 33 significant
manufacturing and assembly facilities worldwide, including 7 in
the Americas, 9 in Asia, and 16 in Europe, of which seven are
located in Germany.

In fiscal 2003, we spent
106 million,
or 3.1% of PTDs total sales, on research and development,
compared to
102 million,
or 2.4% of total sales, in fiscal 2002. 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

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certain niches. Globally, our most significant
competitors include ABB, Alstom, and VATech, as well as General
Electric and Japanese competitors. There is also a trend toward
increased cooperation among competitors through formation of
joint ventures to focus on specific projects or market
opportunities. After Toshiba and Mitsubishi combined their power
transmission and distribution businesses, a new joint venture
named Japan AE Power Systems was also formed by Hitachi, Fuji
and Meidensha, mainly to strengthen their export business in the
Near and Middle East and South America. 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 2003, we
continued initiatives to improve productivity and contain costs.


TRANSPORTATION

Transportation Systems (TS)

|                     |                                                   |               |                |       | 
|-------------------- | ------------------------------------------------- | ------------- | -------------- | ----- | 
|                     |                                                   | Year ended   
|                     |                                                   | September 30,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 4.697 billion |      
|                     | External sales as percentage of Siemens net sales |               |                | 6.29% | 
|Group profit         |                                                   |               | 284 million   |      
|Net capital employed |                                                   |               | (252) million |      
|Employees            |                                                   |               | 18 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 global positioning system (GPS)-based service and diagnostic
concepts, among others. We combine rolling stock with automation
and power product offerings in our turnkey systems business, and
combine service and maintenance activities in our integrated
services unit. Rolling stock refers to all major components of
rail vehicles, including locomotives, railway cars, subway cars
and streetcars.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Heavy RailOur products include subway and
    suburban rapid transit trains, subway cars, as well as their
    subsystems and components. As of October 1, 2003, the
    running gear business was transferred into an independent
    subdivision which will directly report to the Managing Board of
    TS.                                                            
|
| |  | LocomotiveOur products include electric and
    European standard diesel-electrical locomotives for passenger or
    freight rail. In addition to our manufacturing operations, we
    also refurbish and maintain locomotives and locomotive pools and
    provide locomotive leasing services tailored to meet the
    requirements of deregulated local rail operators.
|
| |  | Light RailOur products include streetcars,
    light rail vehicles and their components.                                                                                                                                                                                                                                                                                  
|
| |  | TrainsOur products comprise rail vehicles
    with traction equipment integrated into the running gear and
    distributed over the entire train, including high speed trains,
    tilting trains, regional and rapid transit units and passenger
    coaches, as well as subsystems and components.                                                                      

Our Rolling Stock business was our largest in
terms of sales in fiscal 2003. As part of a wider realignment of
products in Rolling Stock to strengthen our market position, we
merged Light Rail and Heavy Rail into a new division Mass
Transit as of October 1, 2003.

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

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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 2003.

In our Turnkey Systems, 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.
Among our projects during fiscal 2003 were the Transrapid
project in China (an electromagnetically elevated and propelled
high-speed train), the construction of the new Kaohshiung subway
system in Taiwan, and a new light rail transit system in the
Venezuelan city of Maracaibo. We also assist our customers with
arranging financing in cooperation with Siemens Financial
Services. Our Turnkey Systems business was our smallest in terms
of sales in fiscal 2003.

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
is a significant customer of TS. We distribute our products
through our own sales force in Germany and through dedicated
personnel in the local Siemens companies worldwide.

Germany and other European countries have
traditionally been our most important regional markets. We
believe the most important regional growth markets are in the
Americas and the Asia-Pacific region. Demand in the German
market for railway transportation products has declined modestly
in recent years and we expect that trend to continue for the
foreseeable future. We derive approximately three quarters of
our sales from Europe and a smaller but significant amount from
the Asia Pacific region.

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

In fiscal 2003, TS spent
149 million,
or 3.2% of our total sales, on research and development,
compared to
139 million,
or 3.2% of total sales, in fiscal 2002.

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. Price
pressure is further influenced by budget constraints faced by
many state operators, requiring innovative financing solutions.
In fiscal 2003, our industry also experienced an increasing
price pressure for some key components since there are only a
limited number of suppliers, partly as a result of consolidation
in the industry. There is a growing trend towards the
outsourcing of servicing and maintenance of systems and
equipment.

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



| |   |                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rolling StockFocus on innovation in design
    and engineering; and to enter new geographic markets, in part by
    expanding our partnerships worldwide and tailoring them
    case-by-case to meet both project needs and local content
    requirements.

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| |   |                                                                                                                                                                                                                                                                                                                                  
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Automation and PowerCapitalize on and
    expand our existing international presence, experience and
    technological leadership to become a global supplier of products
    and systems platforms, particularly in the area of traffic
    automation solutions.                                                              
|
| |  | Integrated ServicesExpand through strategic
    alliances in service enterprises; emphasize our System
    plus Service segment, which offers a complete package of
    new products plus service and maintenance; enter the market for
    third-party maintenance and improve our market penetration
    through e-business.

Our priority remains improving our profitability.
In fiscal 2003, we launched our top+ program
TSwins as the third step of the TS Initiative; the latter
resulted in a significant increase in profitability for fiscal
2002. TSwins aims at sustainable and higher productivity
through product standardization and modularization, higher
quality and standardization of all TS processes (procurement,
engineering, manufacturing, project management, and sales), and
instilling leadership and higher skills in our employees.

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,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 8.375 billion |       
|                     | External sales as percentage of Siemens net sales |               |                | 11.27% | 
|Group profit         |                                                   |               | 418 million   |       
|Net capital employed |                                                   |               | 3.949 billion |       
|Employees            |                                                   |               | 44 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 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.

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Powertrain,
    including components, modules and systems for use in diesel and
    gasoline fuel injection handling, drive train transmission
    management and air intake systems, fuel pumps, supply units, as
    well as engine actuators and emissions controls and sensors;                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Chassis &
    Carbody, including active and passive
    electronic safety systems, such as crash and occupant sensors
    for controlling airbags and seatbelts and for monitoring air
    pressure in tires; chassis electronics used in steering and
    braking; electric motor drives for use in antilock brakes,
    heating, ventilation and engine cooling systems and power
    windows and sunroofs; drive systems for electric and hybrid
    vehicles; access control and security systems with electric door
    and seat controls and radio receivers within the vehicle;
    intelligent switching units and climate control units;

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| |   |                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Interior &
    Infotainment, including complete
    cockpit systems, drivers workplace systems in commercial
    vehicles, instrument clusters, tachographs, human-machine
    interface displays, heads-up displays for passenger and
    commercial vehicles; car audio, navigation and telematics and
    complex multimedia systems; and
|
| |  | Service & Special
    Solutions, which offers spare parts
    and accessories for passenger and commercial vehicles, fleet
    management systems and hardware and software products for car
    audio, navigation, and telematics.                                                                                                          

Some of our recent product innovations and
developments include:



| |   |                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | common-rail injection systems with
    piezo-electronic actuators, resulting in quieter and lower
    emission diesel engines;                              
|
| |  | innovative gas sensors such as our NOx sensor and
    our Ozone sensor, which help car manufacturers comply with ever
    more stringent emission standards;
|
| |  | integrated powertrain management, allowing
    significant savings in fuel consumption;                                                                     
|
| |  | a color heads-up display that projects
    information about driving conditions and navigation instructions
    onto the windshield;                        
|
| |  | a voice-controlled car communication computer for
    passenger cars, which includes a multimedia system as well as
    climate and speed control function; 
|
| |  | a digital tachograph that collects important data
    concerning the operation of vehicles, allowing more
    sophisticated management of fleets;           
|
| |  | contactless and modular fuel level sensors for
    long-life, high-performance fuel supply systems;                                                         
|
| |  | tire pressure monitoring system;                                                                                                                            
|
| |  | advanced weight sensing (AWS), which adjusts the
    safety settings on seat belts and airbags depending on the
    passengers weight;                     
|
| |  | 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, including four of the worlds five largest
automobile manufacturers. We also sell components to suppliers
of complete automotive systems and modules. Our car manufacturer
customers frequently contract for a supplier to provide a system
or set of components for the production run of a particular car
model or engine line. In fiscal 2003, our ten largest customers
together accounted for more than two-thirds 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, with
31% in Germany, and a smaller but significant amount from the
Americas, mainly in the United States, with an increasing share
in Asia-Pacific. In fiscal 2003, we launched a sales initiative
aiming to more than double our sales in China, Japan, Korea and
other Asian countries by fiscal 2007. The Japanese market is
still served mostly by local and in-house suppliers.

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We have approximately 46 manufacturing and
assembly facilities, including 13 in the Americas and 23 in
Europe. Of these, 10 are located in Germany.

In fiscal 2003, we spent
692 million,
or 8.3% of SVs total sales, on research and development,
compared to
778 million,
or 9.1% of total sales, in fiscal 2002. To secure
competitiveness in markets with ongoing price pressure, we must
continue to make productivity gains and develop innovative
products. Investment in new technologies has also grown in
importance due to the increasing use of electronics and related
software in automobiles, and as more manufacturers offer former
options such as theft protection and safety devices as standard
features in an effort to increase margins. Additionally,
environmental concerns have increased demand for direct
injection and other new engine technologies offering improved
efficiency, as well as for fuel cells and other possible
alternatives to the internal combustion engine. In addition to
continuing to invest in research and development, we must also
continue to attract and retain skilled engineers and other
technically proficient employees to remain technologically
competitive.

We disposed of several non-core businesses in
fiscal 2003, including our business in assembling tank systems
for fuel handling. We also contributed our assemblies for
cockpit modules and systems to our existing joint venture with
Faurecia.

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
2003, Hitachi acquired Unisia Jecs, Johnson Controls announced
its acquisition of Borg and TI Automotive acquired
Pierburgs fuel pump business. 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 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. Recent examples of such combinations have been
Beckers acquisition of Temics voice-recognition
business and TRWs acquisition of sensor manufacturer
Autocruise. Other recent examples of joint ventures and
partnerships include Bosch and Denso in navigation and
multimedia components, Bosch and Weifu in diesel systems, Valeo
and Raytheon in radar technology, and Kostal and Hella in
advanced driver assistant systems (ADAS).

In fiscal 2003, 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. The Asia-Pacific region,
with a growing market in China, did not fully offset this
worldwide trend. 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 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 production
and assembly facilities. In fiscal 2003, we continued to shift
production facilities to locations where we can reduce our
manufacturing costs or be closer to our customers.

The VDO merger strengthened our market position
as a first-tier supplier to automobile manufacturers in North
America, South America and Asia. Our most significant
competitors are generalists with a broad product

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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.
However, additional competitive pressure could result from a
vertical integration between semiconductor suppliers and
traditional automotive suppliers, such as in the case of NEC and
Nestec or Infineon and Sensonor. Competition from low-cost
suppliers from Asia and Eastern Europe is increasing in
commodity products, such as electrical motors.


MEDICAL

Medical Solutions (Med)

|                     |                                                             |               |                |  | 
|-------------------- | ----------------------------------------------------------- | ------------- | -------------- |  | 
|                     |                                                             | Year ended   
|                     |                                                             | September 30,
|                     |                                                             | 2003         
|                     |                                                             |              
|Total sales          |                                                             |               | 7.422 billion | 
|                     | External sales as percentage of Siemens net
    sales 9.89% |               |                |  | 
|Group profit         |                                                             |               | 1.118 billion | 
|Net capital employed |                                                             |               | 3.128 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 minimally-invasive procedures. We focus on technically
    innovative products, examples of which are our computed
    tomography scanner Somatom Sensation 16 and 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, in fiscal
    2003 we combined the patient monitoring systems segment of our
    electromedical systems business with the activities of
    Dräger Medical in a new joint venture and divested our Life
    Support Systems business to Getinge AB in October 2003.                                                                                                                                                                                                                            
|
| |  | 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 66% of total sales in
fiscal 2003. 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,
which focuses on

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information technology systems, represents the
second largest part of our business. This business grew out of
our acquisition of Shared Medical Systems in 2000, a company
headquartered in the United States.


In June 2003, we contributed our Patient Care
System and Electro Cardiography System businesses to form a
joint venture with Dräger Medical of Lübeck, Germany,
a leading manufacturer of medical equipment for critical care.
The joint venture, in which we hold a 35% stake, will provide
electromedical systems and services for the entire patient care
process. These systems are used primarily in critical care
situations and surgery for the purpose of patient transport,
monitoring vital functions via body sensors, supporting
breathing and administering anesthetic agents. The offering
further includes respiratory machines designed for home care and
systems for intensive neonatal care. We agreed to sell our Life
Support Systems division, which provided anesthesiology and
ventilation equipment, in order to obtain approval of European
antitrust authorities for the joint venture. The contribution
agreement obligates us to contribute to Dräger Medical the
net proceeds from the sale of this division. The disposition was
effected in October 2003 to Getinge AB, a Swedish medical
technology group. The division generated approximately
200 million
in annual sales and employed about 720 people in fiscal 2003.

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 47%
of our total sales in fiscal 2003. In addition, we derive
approximately one third of our sales from Europe.

Our worldwide business is reflected in our
regional organization. The headquarters for our oncology care
systems business and, in the medical imaging field, our
Ultrasound and Nuclear Medicine divisions, as well as our Health
Services division, are located in the United States. The other
divisions are headquartered in Germany. Following the
establishment of the joint venture with Dräger, we have
transferred most of the remaining Swedish activities to our
existing locations in Germany and Spain. Not including the joint
venture with Dräger, we have approximately 18 significant
manufacturing and assembly facilities worldwide, including six
in North America and five in Europe. Of these, three are located
in Germany.

We have research and development and OEM
cooperation agreements with various companies, including with
Bruker in the field of magnetic resonance imaging, Toshiba in
the field of ultrasound and magnetic resonance imaging, Philips
in computed tomography systems and Matsushita for low- and
mid-range ultrasound systems. We also have joint ventures with
Oxford Instruments to develop and manufacture magnets for
magnetic resonance imaging, with CTI Molecular Imaging, Inc. to
develop and manufacture Positron Emission Tomography systems
which are new scanning systems able to show the chemical
functioning of an organ or tissue, and with Philips and Thales
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 and the United States. In fiscal
2003, we spent
674 million,
or 9.1 % of Meds total sales on research and development,
compared to
615 million,
or 8.1% of total sales, in fiscal 2002. Approximately two-thirds
of our research and development expenditure is typically spent
on medical imaging systems. Over the last five years, we have
consistently spent between 8 and 9% 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,

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designed to optimize information-based processes
throughout the entire cycle of a patients hospitalization,
including administration, diagnosis, clinic, care, therapy and
dismissal. The first applications of this new workflow
management system have been introduced during fiscal 2003.


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 addition, we are
intensifying our activities in molecular medicine. We seek to
make selective investments in innovative businesses to
strengthen our product portfolio. In 2003, we purchased minority
interests in a several companies. These include a company which
invented the first interventional robotic guidance system for
navigation of medical devices, such as catheters, to designated
targets in the heart, and a company which is developing novel
molecular probes for optical imaging. Further, we acquired the
radiation therapy business of MRC Systems GmbH, of Heidelberg,
Germany, with reported 2003 sales of about
4 million.

Our principal competitors in medical imaging are
General Electric, which recently acquired Instrumentarium, a
leading supplier of critical care and patient monitoring systems
and solutions, and in October 2003 announced its intent to
acquire Amersham, a leading provider of imaging enhancing agents
and systems for disease research and drug developments; Hitachi;
Philips, which took over Marconi in 2001, and Toshiba. Other
competitors include McKesson HBOC, Resound, Starkey, Tyco,
Hologic, Elekta, Cerner, IDX, Widex, William Demant/ Oticon and
Varian Medical Systems. We expect further consolidation in the
medical equipment industry to be driven by combinations of
medical technology companies with life science companies,
reflecting the growing importance of molecular medicine for
diagnosis and therapy.

LIGHTING

Osram

|                     |                                                   |               |                |       | 
|-------------------- | ------------------------------------------------- | ------------- | -------------- | ----- | 
|                     |                                                   | Year ended   
|                     |                                                   | September 30,
|                     |                                                   | 2003         
|                     |                                                   |              
|Total sales          |                                                   |               | 4.172 billion |      
|                     | External sales as percentage of Siemens net sales |               |                | 5.54% | 
|Group profit         |                                                   |               | 410 million   |      
|Net capital employed |                                                   |               | 2.074 billion |      
|Employees            |                                                   |               | 36 thousand    |      

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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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,
    organic light emitting diodes, or OLEDs, 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 54 significant manufacturing and assembly facilities
worldwide, including 26 in the Americas, 8 in Asia and 20 in
Europe. Of these, 13 are located in Germany.

In all our divisions, we focus on innovative
products to sustain and improve our level of profitability.
Although incandescent lighting continues to be widely used in
general lighting, compact fluorescent, high intensity discharge
and other newer technologies have been growing more rapidly
because they save energy and are longer-lasting. Newer
technologies also offer additional features and smaller lamp
sizes. In our consumer luminaires business in selected markets
we offer models that demonstrate applications of some of these
newer technologies. Opto-semiconductors is introducing new
applications for LED products as it becomes possible to achieve
greater brightness and more colors. We continue to increase the
brightness of light emitting diodes through the use of an
advanced thin-film technology, thus opening up a wide variety of
new applications, for example in automotive exterior lighting.
Recently, we have made progress in solving the physical problems
of implementing thin-film technology for red, green and blue
LEDs. In the coming years, we expect electronics to become
increasingly important across all areas of the lighting industry
and that electronic ballasts, electronically-driven lighting
systems and opto-semiconductors will account for an increasing
portion of Osrams sales. By increasing opto-semiconductor
production capacity through the recent opening of a modern
opto-chip factory in Regensburg (Germany), we have positioned
ourselves to take advantage of this trend.

In fiscal 2003, we spent
206 million,
or 4.9% of Osrams total sales, on research and
development, compared to
224 million,
or 5.1% of total sales, in fiscal 2002. 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 focusing on organic light emitting diodes, which are able to
display a broad range of colors. OLEDs are self-luminous plastic
films which allow the design of clearly legible, extremely flat
and bright displays with a wide viewing angle, low power
consumption and minimum weight. OLEDs are typically used in
products such as mobile phones, digital video cameras as well as
various medical equipment. In fiscal 2003, we began production
of OLEDs at our facility in Malaysia. We are party to several
patent license agreements in the opto-semiconductors field.

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

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 2003, Osram
generated approximately 88% of its total sales outside of
Germany, with most of its sales in Europe, North America and
Asia-Pacific. Sales in the Americas, primarily relating to the
U.S., accounted for approximately 45% of the total sales in
fiscal 2003. In North America we market most of our lighting
products under the brand name Sylvania. We currently intend to
expand our sales in Eastern Europe, United States and Asia.

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As a result of acquisitions and consolidations
over the last decade, General Electric, Philips and Osram
together represent almost two-thirds of the world lighting
market. Osram holds a number one or number two position
worldwide in most of its product markets, such as lamps,
electronic ballasts, automotive lamps and opto-semiconductors,
competing principally with Philips and General Electric. We are
the largest lighting manufacturer in Germany and have the
second-largest market share in North America after General
Electric. General Electric is 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 with 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 or expanded 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. In September 2003, we signed an agreement to
acquire a 90% stake in SVET, a Russian manufacturer of
fluorescent tubes located in Smolensk. We have also initiated
numerous projects aimed at reducing manufacturing and
distribution costs and are implementing a global purchasing
model with focus on increasing the portion of supplies we obtain
from low cost countries. 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.

FINANCING AND REAL ESTATE

Siemens Financial Services (SFS)

|                           |                                                   |               |               |       | 
|-------------------------- | ------------------------------------------------- | ------------- | ------------- | ----- | 
|                           |                                                   | Year ended   
|                           |                                                   | September 30,
|                           |                                                   | 2003         
|                           |                                                   |              
|Total sales                |                                                   |               | 532 million   |      
|                           | External sales as percentage of Siemens net sales |               |               | 0.58% | 
|Income before income-taxes |                                                   |               | 269 million   |      
|Total assets               |                                                   |               | 8.445 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 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 2003, our total assets declined, from
8.681 billion
at September 30, 2002 to
8.445 billion
at September 30, 2003. Our principal assets are lease
receivables and equipment leased under operating leases

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(together accounting for 58% of our assets) and
purchased trade receivables (accounting for 35% 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.


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



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Midmarket Financeour principal product is
    equipment lease financing, where we typically purchase equipment
    supplied by various Siemens Groups or third-party manufacturers
    and lease it to the customer for a specified term, generally
    with an option for the customer to purchase the equipment or
    renew the lease at the end of the term. Capital leases account
    for the largest portion of our leasing business (more than 80%
    of the book value of the leased assets). We also offer our
    clients services complementary to our leasing business,
    including services relating to the management of their leased
    equipment base and product upgrade services. In fiscal 2003, we
    further developed our vendor financing program, in which
    third-party manufacturers offer us the opportunity to provide
    financing to their customers.
|
| |  | Credit Portfolio Managementwe purchase,
    without recourse, receivables from other Siemens Groups, as well
    as from third parties. The selling companies remain responsible
    for collection and documentation. Our portfolio consists
    primarily of trade receivables. Centralizing a portion of the
    Siemens Groups receivables risk allows Siemens to manage its
    overall receivables exposure more effectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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 manufacturers unrelated to Siemens.
Third-party products are primarily computers and other IT
equipment.

Equity.This
division participates in infrastructure projects as a project
developer and equity investor, predominantly in projects for
which Siemens provides capital goods. At September 30,
2003, the equity investment in these projects amounted to
approximately 4% of the total assets of SFS and 0.4% 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.

Structured Finance.This division advises other Siemens
Groups on project and sales financing transactions. We have a
global network of established contacts with international
project and export finance lenders, such as 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.

In fiscal 2003, SFS discontinued for the time
being the use of the Asset Securitization and Placement program
through SieFunds, a non-consolidated asset-securitization
vehicle.

Treasury and Financing
Services.This 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
any 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
treasury activities to third-party customers.

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

Insurance.This
division acts as a broker and provides other Siemens Groups with
liability, property, marine and project insurance brokerage
coverage via third party insurers. We provide these services not
only to 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,
|                           |                                                   | 2003         
|                           |                                                   |              
|Total sales                |                                                   |               | 1.592 billion |      
|                           | External sales as percentage of Siemens net sales |               |                | 0.36% | 
|Income before income taxes |                                                   |               | 206 million   |      
|Total assets               |                                                   |               | 3.607 billion |      
|Employees                  |                                                   |               | 2 thousand     |      

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

Our three divisions are Portfolio
Management, Development & Sales, and Property
Management & Services (Germany/ International).

Portfolio Managementis responsible for the active management of Siemens real
estate portfolio. It formulates the general strategy for our
real estate business and gives support for real estate related
decision making by providing portfolio analysis, economic
analysis, development of financing alternatives, market
research, risk analysis and valuation and similar services,
including recommendations for divestiture as well as regarding
rental rates.

Development &
Salesis 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 of Siemens owned properties. In this context, it is
currently developing and seeking building permits for several
existing Siemens sites in German cities prior to their disposal.

Property Management &
Serviceshas two principal activities.
First, it provides pure property management and leasing services
to Siemens units and to a limited extent to third-party lessees.
These services include billing and collecting lease payments and
related charges such as utilities and providing other general
services of a landlord. Second, it arranges facilities services
to our business units and external tenants on an arms
length contract basis. The services we arrange include cleaning,
maintenance, security, catering and a variety of other services.
We generally subcontract these services with third-party
suppliers, thereby leveraging the purchasing power of the entire
Siemens group.

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The book value of Siemens worldwide real estate
assets at September 30, 2003 amounted to approximately
4.830 billion,
of which approximately
3.075 billion
in book value was managed by SRE. The following table sets forth
the key balance sheet and statistical data for SRE:

SRE Balance Sheet and Statistical
Data

|                                               |  |                  |       |      |  |  |       | 
|---------------------------------------------- |  | ---------------- | ----- | ---- |  |  | ----- | 
|                                               |  |                 
|                                               |  | At September 30,
|                                               |  |                 
|                                               |  | 2003             |       | 2002
|                                               |  |                  |       |     
|                                               |  |                 
|                                               |  | ( and          
|                                               |  | square meters   
|                                               |  | in millions)    
|Total assets (in euros)                        |  |                  | 3,607 |      |  |  | 4,090 | 
|Real estate assets under management (in euros) |  |                  | 3,075 |      |  |  | 3,419 | 
|Total site area (in square meters)             |  |                  | 21.4  |      |  |  | 23.5  | 
|Total building area (in square meters)         |  |                  | 11.4  |      |  |  | 11.7  | 

Total sales of the International segment of
Property Management & Services division were slightly down
in fiscal 2003. SREs international operations now
encompass more than twenty-five companies and management units
in leading real estate markets around the world. In fiscal 2003,
we established a number of new management units, including in
Hungary.

Our internal and external revenues are derived
primarily from our lease administration and services operations,
since gains on dispositions are not recorded as sales but as
other income. Approximately half of our overall earnings reflect
gains from the development and sale of real estate assets.

The real estate markets in which we operate have
become more difficult as rental rates are falling, vacancy rates
are rising, and construction activity is declining. At the same
time, operational adjustments by some Siemens units
resulted in additional challenges for SRE. In response to these
developments, SRE is actively consolidating Siemens locations,
optimizing the use of space owned by SRE by internal and
external tenants, continuing the divestment of surplus property
and pursuing all avenues to lower the operating cost of
buildings and thereby the rental cost for its tenants. In fiscal
year 2003, we also initiated a profitability program to improve
SREs own cost structure.

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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,
|                                       |  |                 
|                                       |  | 2003             |     | 2002 |  | 2001
|                                       |  |                  |     |      |  |     
|                                       |  |                 
|                                       |  | (in thousands)  
|Information and Communication Networks |  |                  | 33  |      |  |      | 39  |  |  |  | 51  | 
|Information and Communication Mobile   |  |                  | 27  |      |  |      | 29  |  |  |  | 30  | 
|Siemens Business Services              |  |                  | 35  |      |  |      | 34  |  |  |  | 36  | 
|Automation and Drives                  |  |                  | 50  |      |  |      | 51  |  |  |  | 54  | 
|Industrial Solutions and Services      |  |                  | 26  |      |  |      | 29  |  |  |  | 30  | 
|Siemens Dematic                        |  |                  | 10  |      |  |      | 12  |  |  |  | 12  | 
|Siemens Building Technologies          |  |                  | 33  |      |  |      | 36  |  |  |  | 37  | 
|Power Generation                       |  |                  | 30  |      |  |      | 26  |  |  |  | 26  | 
|Power Transmission and Distribution    |  |                  | 16  |      |  |      | 17  |  |  |  | 21  | 
|Transportation Systems                 |  |                  | 18  |      |  |      | 17  |  |  |  | 14  | 
|Siemens VDO Automotive                 |  |                  | 44  |      |  |      | 43  |  |  |  | 44  | 
|Medical Solutions                      |  |                  | 31  |      |  |      | 31  |  |  |  | 30  | 
|Lighting/Osram                         |  |                  | 36  |      |  |      | 35  |  |  |  | 35  | 
|Siemens Financial Services             |  |                  | 1   |      |  |      | 1   |  |  |  | 1   | 
|Siemens Real Estate                    |  |                  | 2   |      |  |      | 2   |  |  |  | 2   | 
|Other(1)                               |  |                  | 25  |      |  |      | 24  |  |  |  | 27  | 
|                                       |  |                  |     |      |  |      |     |  |  |  |     | 
|Total                                  |  |                  | 417 |      |  |      | 426 |  |  |  | 450 | 
|                                       |  |                  |     |      |  |      |     |  |  |  |     | 
|Infineon Technologies(2)               |  |                  |    |      |  |      |    |  |  |  | 34  | 






|    |                                                                                                                   
|--- | ------------------------------------------------------------------------------------------------------------------
|(1) | Includes employees in corporate functions and
    services and business units not allocated to any business Group.
|   
|(2) | As of December 5, 2001, Siemens
    deconsolidated Infineon.                                                      

EMPLOYEES BY GEOGRAPHIC REGION

|                            |  |                  |     |      |  |      |     |  |  |  |     | 
|--------------------------- |  | ---------------- | --- | ---- |  | ---- | --- |  |  |  | --- | 
|                            |  |                 
|                            |  | At September 30,
|                            |  |                 
|                            |  | 2003             |     | 2002 |  | 2001
|                            |  |                  |     |      |  |     
|                            |  |                 
|                            |  | (in thousands)  
|Germany                     |  |                  | 170 |      |  |      | 175 |  |  |  | 199 | 
|Europe (other than Germany) |  |                  | 108 |      |  |      | 106 |  |  |  | 118 | 
|The Americas                |  |                  | 87  |      |  |      | 93  |  |  |  | 107 | 
|Asia-Pacific                |  |                  | 44  |      |  |      | 45  |  |  |  | 53  | 
|Africa, Middle East, CIS    |  |                  | 8   |      |  |      | 7   |  |  |  | 7   | 
|                            |  |                  |     |      |  |      |     |  |  |  |     | 
|Total                       |  |                  | 417 |      |  |      | 426 |  |  |  | 484 | 
|                            |  |                  |     |      |  |      |     |  |  |  |     | 

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.

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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 2009, and we will be responsible for storing
the material until the government-developed storage facility is
available. The ultimate costs of this project will depend on
where the government-developed storage facility is located and
when it becomes available. We have an accrual of
543 million
at September 30, 2003 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 February 2003, two new European Commission
directives entered into effect. The Waste Electrical and
Electronic Equipment directive, or WEEE, regulates the
collection, reuse and recycling of waste from many electrical
and electronic products, and the Restrictions of Hazardous
Substances directive, or RoHS, bans the use of certain hazardous
materials, such as lead, cadmium, mercury, chromium, brominated
biphenyls and diphenylethers, in electric and electrical
equipment. Member states must implement these directives into
their national laws by August 13, 2004. The collection of
electrical and electronic waste from end users under the WEEE
directive is expected to begin in August, 2005. Siemens has been
working together with national trade and environmental
associations to establish collection systems for electronic
scrap in time. Starting August 13, 2004, producers will be
obliged to finance the collection systems for electronic scrap.
Because the specific legal requirements have not been finalized,
we are at present unable to determine the amount of any accruals
which may be necessary in order to comply with the directive.
With respect to the RoHS directive, a transition period until
July 1, 2006 has been established to allow manufacturers to
make necessary production adjustments. Siemens has identified
its products which will be affected by the new law and
formulated strategies to help ensure a timely transition from
lead to lead-free soldering technology. The first lead-free
products 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 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.

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LONG-TERM CONTRACTS AND CONTRACT LOSSES

A significant portion of the business of certain
of our operations Groups, including the Information and
Communications Groups, I&S, SD, the Power Groups and
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. In addition to provisions for losses, losses
on contracts can include write-offs of inventories and other
charges.

As of September 30, 2003, provisions for
contract losses totaled approximately
1.2 billion.
Accrued contract losses relate primarily to the groups PG
(276 million),
ICM
(179 million),
TS
(171 million),
ICN
(143 million),
SD
(129 million)
and SBS
(106 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 ICM, TS and ICN losses related to numerous
contracts, none of which was individually significant. Examples
of significant contracts that have given rise to losses include:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
    46 million
    at September 30, 2003.
|
| |  | In fiscal 2001, SBS established contract loss
    provisions of
    192 million
    related to two long-term outsourcing contracts in the United
    Kingdom. 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                                                                                                                                                                                                                                                             

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| |  |                                                                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | result, both systems and staff costs on the
    project will significantly exceed original estimates. In fiscal
    2003, SBS recorded
    77 million
    in charges associated with this contract.



| |                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | SBS management continues to focus on risks
    associated with long-term business process outsourcing
    contracts. However, there can be no assurance that additional
    losses will not be incurred in connection with these contracts.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | In fiscal 2003, SD recorded contract loss
    provisions and charges totalling
    149 million
    related to a contract for the design and implementation of a
    complete logistical infrastructure for a postal sorting center
    in the U.K. The contract awarded by Royal Mail involved a
    comprehensive postal automation and software solution, the first
    of its kind, which is intended to combine eight existing postal
    sorting centers into one for all in- and outgoing international
    mail traffic. The project involves the automatic sorting of
    letters and parcels, including hand-written addresses. As the
    project progressed, it became evident, that additional costs for
    software development and project-specific implementation were
    necessary. This also resulted in unforeseen project delays. SD
    is working closely with the customer on a revised project
    specification, a new completion date and redesigned software and
    automation solutions. Management of SD continues to focus on
    project risk mitigation, however, there can be no assurance that
    additional losses will not be incurred in connection with such
    contracts.

PROPERTY

Siemens and its consolidated subsidiaries have,
as of September 30, 2003, approximately 215 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 65 in Germany, and
approximately 65 are located in the Americas, with approximately
45 in the United States. We also have 20 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 Description of
Business. Siemens also has many thousands of trademark
registrations worldwide. However, neither the Company, nor any
of our business Groups, is dependent on any single patent,
license or trademark or any group of related patents, licenses
or trademarks.

LEGAL PROCEEDINGS

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

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rights insulated it from antitrust liability. The
jurys verdict and the dismissal of the antitrust claims
are currently on appeal before the United States Circuit Court
of Appeals for the 11th Circuit.


In 1992, shareholders of Siemens Nixdorf
Informationssysteme AG, Paderborn, brought a valuation
proceeding (Spruchstellenverfahren) against us in
connection with the integration of the company into Siemens AG.
The petitioners alleged that our mandatory offer to exchange
their shares into Siemens shares at a ratio of six Siemens
Nixdorf shares for one Siemens common share (or fifteen Siemens
common 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 DM156.50
(80.02) per
share was insufficient. In January 2003 the Oberlandesgericht
Düsseldorf as the court of second instance rendered a
decision setting the exchange rate at three (or forty-five after
adjustment for share splits that have occurred since 1992)
Siemens common shares plus dividends since 1992 per thirteen
Siemens Nixdorf shares, and the cash settlement at DM150.41
(76.90), plus
interest since 1992, per Siemens Nixdorf share. This decision is
final. The decision will not have a material effect on our
consolidated financial position.

The Atomic Energy Organization of Iran, in a
dispute involving the construction of two nuclear power plants
in Bushehr, claimed unspecified damages alleging breach of a
1976 contract by Siemens. In July 2003, an arbitral decision
awarded Siemens approximately
13.3 million
plus interest and awarded the Atomic Energy Organization of Iran
a claim against Siemens of approximately
16.6 million,
plus interest. This award is final.

We have requested arbitration against the
Republic of Argentina before the International Center for
Settlement of Investment Disputes (ICSID) of the World Bank. We
claim that Argentina unlawfully terminated our contract for the
development and operation of a system for the production of
identity cards, boarder control, collection of data and
voters registers and thereby violated the Bilateral
Investment Protection Treaty between Argentina and Germany
(BIT). We are demanding damages for breach of contract of
approximately $500 million. Argentina disputes jurisdiction
of the ICSID arbitration tribunal and argues in favor of
jurisdiction of the Argentine administrative courts. A hearing
on the issue will be held in January 2004.

A prosecutor in Milan, Italy, is conducting an
investigation against former employees of the Enel group. The
prosecutor alleges that these employees may have requested and
received improper benefits in connection with the awarding of
Enel contracts. We have learned that Siemens is one of several
companies that prosecutors believe may have provided such
benefits. Siemens has independently initiated an internal
investigation by outside counsel with respect to certain
contracts with Enel; this investigation is ongoing. We are
taking, together with Enel, appropriate measures, consistent
with Italian law, to mitigate potential adverse consequences on
our long-standing business relationship with Enel that might
result from the investigation. We have remedied, without
acknowledging any wrongdoing, provisions of our existing
agreements with Enel and its affiliates that were under dispute.
Such remedies have been presented to an Italian court as a basis
for rendering sanctions unnecessary. The remedies consist of a
range of elements, running over a certain period of time. On
December 3, 2003, an administrative hearing on this matter
was held in Milan. A decision is awaited, however, a firm date
has not been set.

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

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ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

INTRODUCTION

This Annual Report contains forward-looking
statements based on beliefs of Siemens management. We use
words such as 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               |                                               |      | 54  |   
|Fiscal 2003 Compared to Fiscal 2002 |                                               |      | 56  |   
|                                    | Consolidated Operations of Siemens Worldwide  |      |     | 56 | 
|                                    | Acquisitions and Dispositions                 |      |     | 59 | 
|                                    | Segment Information Analysis                  |      |     | 60 | 
|                                    | Component InformationStatements of Income    |      |     | 71 | 
|Fiscal 2002 Compared to Fiscal 2001 |                                               |      | 74  |   
|                                    | Consolidated Operations of Siemens Worldwide  |      |     | 74 | 
|                                    | Acquisitions and Dispositions                 |      |     | 76 | 
|                                    | Segment Information Analysis                  |      |     | 79 | 
|                                    | Component InformationStatements of Income    |      |     | 92 | 
|Liquidity and Capital Resources     |                                               |      | 95  |   
|                                    | Cash FlowFiscal 2003 Compared to Fiscal 2002 |      |     | 95 | 
|                                    | Cash FlowFiscal 2002 Compared to Fiscal 2001 |      |     | 96 | 
|                                    | Capital Resources and Capital Requirements    |      |     | 97 | 
|Critical Accounting Estimates       |                                               |      | 103 |   
|Recent Accounting Pronouncements    |                                               |      | 105 |   
|Outlook                             |                                               |      | 106 |   

The following discussion of our financial
condition and results of operations should be read in
conjunction with our consolidated financial statements and the
related Notes prepared in accordance with U.S. Generally
Accepted Accounting Principles (U.S. GAAP) as of, and for
the years ended, September 30, 2003, 2002 and 2001.

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 was referred to as EBIT in
fiscal 2002. After March 28, 2003, as a result of the
implementation of the new rule Conditions for Use of
Non-GAAP Financial Measures of the U.S. Securities
and Exchange Commission (SEC), Siemens renamed the performance
measure for its Operations Groups from EBIT to Group profit.
Group profit measures operating profit before certain centrally
managed items, such as tax, financing and certain pension costs.
Beginning in fiscal 2002, EBITA assets, our asset measure for
our Operations Groups, were reported as Net capital employed.
Net capital employed is defined as total asset, less tax related
assets, less accruals and less non-interest bearing liabilities,
other than tax-related liabilities. Net capital employed equals
EBITA assets less accumulated amortization of goodwill and
purchased in-process R&D expenses. The earnings and asset
measures for our reported segments (Groups) are more fully
described below.

The comparability of our consolidated financial
statements for different periods is affected by currency
translation effects resulting from our international operations.
In fiscal 2003, 2002 and 2001, foreign currency translation
effects had significant effects on our results arising from the
comparison of the euro, in which our

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consolidated financial statements are
denominated, to other currencies, most notably the
U.S. dollar and to a lesser extent the Swiss franc, the
British pound and the Japanese yen. All of our business Groups
are subject to foreign currency translation effects; however,
the business Groups 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 Notes
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 Acquisitions and Dispositions. 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 2003, 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

To help shareholders understand and follow our
progress, we present our results both in aggregate and in three
separate components that match the structure of our business.
The sum of results for the three components equals the result
for Siemens worldwide.

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

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

Eliminations, reclassifications and Corporate
Treasury:Our Corporate Treasury
department provides various financial services to the
Operations and Financing and Real Estate
components of our business, and businesses in those two
components also conduct business with each other. To give
shareholders a clear view of our external performance as a
company, we separate out these internal transactions when
presenting our results for Siemens as a whole. These
eliminations, reclassifications, and treasury activities
comprise a third component called Eliminations,
reclassifications and Corporate Treasury. This third
component is designed primarily to ensure that results for the
Company as a whole and for its two main components are both
transparent and meaningful for investors.

In our consolidated statements of income and cash
flows, and on our consolidated balance sheets, we show aggregate
results for the whole Company, reported as Siemens worldwide.
Then, we break out the results for each of the three components
described above. We follow a similar approach in our narrative
analysis of the years results.

The Operating and Financial Review and Prospects
that follows begins with the results of Siemens worldwide for
the year, including acquisitions and dispositions. We then
discuss results for the Groups comprising the Operations
and Financing and Real Estate components for fiscal 2003,
2002 and 2001. Thereafter we address economic value added (EVA),
and discuss topics including liquidity and capital resources,
critical accounting estimates and risk management. The
discussion concludes with our outlook for the fiscal year ahead
and a summary of material events that occurred subsequent to the
close of the fiscal year.

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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 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 (for
further information, see Notes to the Consolidated Financial
Statements). The consolidated statements of income and cash
flows of Infineon for the first two months of fiscal 2002,
(before this change occurred) are included in Eliminations,
reclassifications and Corporate Treasury.

We measure the profitability of our
Operations Groups by Group profit. Group profit is the
measure used by our Managing Board as the chief operating
decision maker for the Company in assessing performance. Group
profit is also the basis for calculating 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.

Our Managing Board uses Group profit because it
measures operating profit before certain centrally managed
items, such as tax, financing and certain pension costs.
Financing interest is any interest income other than interest
income related to receivables from customers, from cash
allocated to the Groups and interest expense on payables. We
believe the exclusion of tax and financing expense from Group
profit is particularly appropriate for two reasons. First,
because the majority of our Groups are not organized as single
legal units but rather are made up of local operations in
numerous countries whose taxation is dependent on that of
Siemens operations in those countries as a whole, the
Companys tax expense is not directly attributable to
particular Groups. Likewise, the financing income or expenses of
the Company depend on its overall credit rating and cost of
capital and not on that of its individual Groups or components.
Second, tax planning and financing management are performed
centrally and regionally for the entire Company rather than by
Group management. We further believe that the exclusion of
certain pension costs is appropriate for Group profit to the
extent Group management is not involved in the funding or
allocation of pension plan assets.

We therefore believe that by excluding the effect
of the items mentioned above, Group profit allows investors to
compare operating profitability among our Groups which operate
across jurisdictions with varying levels of taxation and in
businesses with different capital investment needs. We also
believe that Group profit further enhances investors
understanding of our Group performance because it allows them to
see our results through the eyes of our management. Other
companies that use Group profit may calculate it differently,
and their figures may not be comparable to ours.

In contrast, we assess the profitability of our
Financing and Real Estate Groups by income before income
taxes since interest income and expense is an important source
of revenue and expense for these Groups.

Our Managing Board also determined Net capital
employed as the asset measure used to assess the capital
intensity of the Operations Groups. Its definition
corresponds with the Group profit measure. Net capital employed
is based on total assets excluding intracompany financing
receivables and intracompany investments as well as tax-related
assets. The remaining assets are reduced by non-interest bearing
liabilities other than tax-related liabilities (e.g. accounts
payable) and certain accruals to derive Net capital employed.
Our Managing Board also determined total assets as the asset
measure used to assess the capital intensity of the Financing
and Real Estate Groups. For further information regarding
Net capital employed, see the Notes to the Consolidated
Financial Statements.

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LOGO

FISCAL 2003 COMPARED TO FISCAL 2002

CONSOLIDATED OPERATIONS OF SIEMENS WORLDWIDE

Results of Siemens Worldwide

Below is a discussion of selected information for
Siemens worldwide. Additional details relating to the
Consolidated Statements of Income for the three components of
Siemens worldwide: Operations, Financing and Real Estate and
Eliminations, reclassifications and Corporate Treasury are
discussed under Component
InformationStatements of Income.

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The following table presents selected information
for Siemens worldwide:

|                                                                             |                                                 |                 |         |        |    |  |         |        |   
|---------------------------------------------------------------------------- | ----------------------------------------------- | --------------- | ------- | ------ | -- |  | ------- | ------ | --
|                                                                             |                                                 |                
|                                                                             |                                                 | Year ended     
|                                                                             |                                                 | September 30,  
|                                                                             |                                                 |                
|                                                                             |                                                 | 2003            |         | 2002  
|                                                                             |                                                 |                 |         |       
|                                                                             |                                                 |                
|                                                                             |                                                 | ( in millions)
|New orders                                                                   |                                                 |                 | 75,056  |        |    |  | 86,214  |       
|                                                                             | New orders in Germany                           |                 |         | 16,796 |    |  |         | 17,812 |   
|                                                                             | International orders                            |                 |         | 58,260 |    |  |         | 68,402 |   
|Sales                                                                        |                                                 |                 | 74,233  |        |    |  | 84,016  |       
|                                                                             | Sales in Germany                                |                 |         | 17,100 |    |  |         | 18,102 |   
|                                                                             | International sales                             |                 |         | 57,133 |    |  |         | 65,914 |   
|Gross profit on sales                                                        |                                                 |                 | 20,883  |        |    |  | 23,206  |       
|                                                                             | as percentage of sales                          |                 |         | 28.1   | %  |  |         | 27.6   | % 
|Research and development expenses                                            |                                                 |                 | (5,067  | )      |    |  | (5,819  | )     
|                                                                             | as percentage of sales                          |                 |         | (6.8   | )% |  |         | (6.9   | )%
|Marketing, selling and general administrative
    expenses                   |                                                 |                 | (13,534 | )      |    |  | (15,455 | )     
|                                                                             | as percentage of sales                          |                 |         | (18.2  | )% |  |         | (18.4  | )%
|Other operating income, net                                                  |                                                 |                 | 642     |        |    |  | 1,321   |       
|Income (loss) from investments in other
    companies, net                   |                                                 |                 | 142     |        |    |  | (114    | )     
|Income from financial assets and marketable
    securities, net              |                                                 |                 | 61      |        |    |  | 18      |       
|Interest income (expense) of Operations, net                                 |                                                 |                 | 31      |        |    |  | 94      |       
|Other interest income, net                                                   |                                                 |                 | 214     |        |    |  | 224     |       
|                                                                             |                                                 |                 |         |        |    |  |         |       
|Income before income taxes                                                   |                                                 |                 | 3,372   |        |    |  | 3,475   |       
|Income taxes                                                                 |                                                 |                 | (867    | )      |    |  | (849    | )     
|                                                                             | as percentage of income before income
    taxes |                 |         | 26     | %  |  |         | 24     | % 
|Minority interest                                                            |                                                 |                 | (96     | )      |    |  | (29     | )     
|                                                                             |                                                 |                 |         |        |    |  |         |       
|Income before cumulative effect of change in
    accounting principle        |                                                 |                 | 2,409   |        |    |  | 2,597   |       
|Cumulative effect of change in accounting
    principle, net of income taxes |                                                 |                 | 36      |        |    |  |        |       
|                                                                             |                                                 |                 |         |        |    |  |         |       
|Net income                                                                   |                                                 |                 | 2,445   |        |    |  | 2,597   |       
|                                                                             |                                                 |                 |         |        |    |  |         |       
|Net cash provided from operating activities                                  |                                                 |                 | 5,712   |        |    |  | 5,564   |       
|Net cash used in investing activities                                        |                                                 |                 | (3,939  | )      |    |  | (810    | )     
|Net cash from operating and investing activities                             |                                                 |                 | 1,773   |        |    |  | 4,754   |       
|                                                                             |                                                 |                 |         |        |    |  |         |       

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

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

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

Research and development (R&D) expenses were
5.067 billion
compared to
5.819 billion
in the prior year. R&D spending represented 6.8% of sales,
compared to 6.9% in fiscal year 2002. For additional information
with respect to R&D at our Groups, see Item 4:
Information on the CompanyDescription of
Business.

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

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

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

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

Group profit from Operations increased to
4.295 billion
in fiscal 2003 from
3.756 billion
in fiscal 2002. The majority of Siemens Groups reported higher
earnings and margins year-over-year.

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

Siemens Managing and Supervisory Boards
propose a dividend of
1.10 per share.
The prior year dividend per share was
1.00.

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

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ACQUISITIONS AND DISPOSITIONS

Alstom

In July 2003, Siemens completed the acquisition
of the industrial turbine business of Alstom, which was
structured in two transactions. In the first transaction in
April 2003, effective April 30, PG acquired the small gas
turbine business of Alstom. In the second transaction in July
2003, PG acquired Alstoms medium-sized gas and steam
turbine businesses. The two transactions resulted in an
aggregate net purchase price of
929 million,
net of cash acquired. The Company has not finalized the purchase
price allocation for these acquisitions. Based on the
preliminary purchase price allocation, approximately
195 million
was allocated to intellectual property rights,
129 million
to customer relationships, and
393 million
to goodwill.

Dräger Medical

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

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SEGMENT INFORMATION ANALYSIS

Key Performance Data by Business Group

|                                                                                                                        |                                                                       |                         |        |                |        |                 |        |             |        |      |        |        |        |      |        |        |        |  |       |        |       |  |       |        |       |  |        |        |        |  |        |        |        | 
|----------------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------- | ------ | -------------- | ------ | --------------- | ------ | ----------- | ------ | ---- | ------ | ------ | ------ | ---- | ------ | ------ | ------ |  | ----- | ------ | ----- |  | ----- | ------ | ----- |  | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                                                                                                        |                                                                       |                         |        |                |        |                 |        |             |        |      |        |       
|                                                                                                                        |                                                                       | New orders(1)           |        |                |        |                 |        | Net capital
|                                                                                                                        |                                                                       | (Unaudited)             |        | Total sales(2) |        | Group profit(3) |        | employed   
|                                                                                                                        |                                                                       |                         |        |                |        |                 |        |            
|                                                                                                                        |                                                                       | 2003                    |        | 2002           |        | 2003            |        | 2002        |        | 2003 |        | 2002   |        | 2003 |        | 2002  
|                                                                                                                        |                                                                       |                         |        |                |        |                 |        |             |        |      |        |        |        |      |        |       
|                                                                                                                        |                                                                       |                        
|                                                                                                                        |                                                                       | ( in millions)        
|Operations Groups                                                                                                       |                                                                       |                         |        |                |        |                 |        |             |        |      |        |        |        |      |        |        |        |  |       |        |       |  |       |        |       |  |        |        |        |  |        |       
|                                                                                                                        | Information and Communication Networks (ICN)                          |                         |        | 7,070          |        |                 |        | 8,697       |        |      |        | 7,122  |        |      |        | 9,647  |        |  |       | (366   | )     |  |       | (691   | )     |  |        | 722    |        |  |        | 1,100  |       
|                                                                                                                        | Information and Communication Mobile (ICM)                            |                         |        | 9,960          |        |                 |        | 11,538      |        |      |        | 9,964  |        |      |        | 11,045 |        |  |       | 180    |       |  |       | 96     |       |  |        | 1,367  |        |  |        | 1,973  |       
|                                                                                                                        | Siemens Business Services (SBS)                                       |                         |        | 5,226          |        |                 |        | 6,256       |        |      |        | 5,205  |        |      |        | 5,773  |        |  |       | 13     |       |  |       | 101    |       |  |        | 294    |        |  |        | 264    |       
|                                                                                                                        | Automation and Drives (A&D)                                           |                         |        | 8,476          |        |                 |        | 8,728       |        |      |        | 8,375  |        |      |        | 8,635  |        |  |       | 806    |       |  |       | 723    |       |  |        | 1,925  |        |  |        | 2,197  |       
|                                                                                                                        | Industrial Solutions and Services (I&S)                               |                         |        | 3,955          |        |                 |        | 4,120       |        |      |        | 4,012  |        |      |        | 4,480  |        |  |       | (41    | )     |  |       | (198   | )     |  |        | 167    |        |  |        | 315    |       
|                                                                                                                        | Siemens Dematic (SD)                                                  |                         |        | 2,599          |        |                 |        | 2,810       |        |      |        | 2,600  |        |      |        | 2,995  |        |  |       | (218   | )     |  |       | 45     |       |  |        | 877    |        |  |        | 975    |       
|                                                                                                                        | Siemens Building Technologies (SBT)                                   |                         |        | 4,775          |        |                 |        | 5,601       |        |      |        | 4,990  |        |      |        | 5,619  |        |  |       | 101    |       |  |       | 195    |       |  |        | 1,447  |        |  |        | 1,778  |       
|                                                                                                                        | Power Generation (PG)                                                 |                         |        | 7,302          |        |                 |        | 10,586      |        |      |        | 6,967  |        |      |        | 9,446  |        |  |       | 1,171  |       |  |       | 1,582  |       |  |        | 1,712  |        |  |        | (144   | )     
|                                                                                                                        | Power Transmission and Distribution (PTD)                             |                         |        | 3,586          |        |                 |        | 4,429       |        |      |        | 3,399  |        |      |        | 4,199  |        |  |       | 207    |       |  |       | 109    |       |  |        | 798    |        |  |        | 928    |       
|                                                                                                                        | Transportation Systems (TS)                                           |                         |        | 4,674          |        |                 |        | 5,247       |        |      |        | 4,697  |        |      |        | 4,367  |        |  |       | 284    |       |  |       | 247    |       |  |        | (252   | )      |  |        | (741   | )     
|                                                                                                                        | Siemens VDO Automotive (SV)                                           |                         |        | 8,375          |        |                 |        | 8,515       |        |      |        | 8,375  |        |      |        | 8,515  |        |  |       | 418    |       |  |       | 65     |       |  |        | 3,949  |        |  |        | 3,746  |       
|                                                                                                                        | Medical Solutions (Med)                                               |                         |        | 7,835          |        |                 |        | 8,425       |        |      |        | 7,422  |        |      |        | 7,623  |        |  |       | 1,118  |       |  |       | 1,018  |       |  |        | 3,128  |        |  |        | 3,414  |       
|                                                                                                                        | Osram                                                                 |                         |        | 4,172          |        |                 |        | 4,363       |        |      |        | 4,172  |        |      |        | 4,363  |        |  |       | 410    |       |  |       | 365    |       |  |        | 2,074  |        |  |        | 2,436  |       
|                                                                                                                        | Other Operations                                                      |                         |        | 1,840          |        |                 |        | 1,895       |        |      |        | 1,857  |        |      |        | 2,023  |        |  |       | 212    |       |  |       | 99     |       |  |        | 1,515  |        |  |        | 535    |       
|                                                                                                                        |                                                                       |                         |        |                |        |                 |        |             |        |      |        |        |        |      |        |        |        |  |       |        |       |  |       |        |       |  |        |        |        |  |        |       
|                                                                                                                        |                                                                       | Total Operations Groups |        |                | 79,845 |                 |        |             | 91,210 |      |        |        | 79,157 |      |        |        | 88,730 |  |       |        | 4,295 |  |       |        | 3,756 |  |        |        | 19,723 |  |        |        | 18,776 | 
|Reconciliation to financial statements                                                                                  |                                                                       |                         |        |                |        |                 |        |             |        |      |        |        |        |      |        |        |        |  |       |        |       |  |       |        |       |  |        |        |        |  |        |       
|                                                                                                                        | Corporate items, pensions and eliminations                            |                         |        | (6,916         | )      |                 |        | (7,688      | )      |      |        | (5,413 | )      |      |        | (5,603 | )      |  |       | (1,576 | )     |  |       | (1,282 | )     |  |        | (3,781 | )      |  |        | (3,021 | )     
|                                                                                                                        | Other interest expense                                                |                         |        |               |        |                 |        |            |        |      |        |       |        |      |        |       |        |  |       | (88    | )     |  |       | (96    | )     |  |        |       |        |  |        |       |       
|                                                                                                                        | Gains on sales and dispositions of significant
    business interests |                         |        |               |        |                 |        |            |        |      |        |       |        |      |        |       |        |  |       |       |       |  |       | 936    |       |  |        |       |        |  |        |       |       
|                                                                                                                        | Other assets related reconciling items                                |                         |        |               |        |                 |        |            |        |      |        |       |        |      |        |       |        |  |       |       |       |  |       |       |       |  |        | 48,533 |        |  |        | 51,944 |       
|                                                                                                                        |                                                                       |                         |        |                |        |                 |        |             |        |      |        |        |        |      |        |        |        |  |       |        |       |  |       |        |       |  |        |        |        |  |        |       
|Total Operations (for columns Group profit/Net
    capital employed, i.e. Income before income taxes/ Total
    assets) |                                                                       |                         | 72,929 |                |        |                 | 83,522 |             |        |      | 73,744 |        |        |      | 83,127 |        |        |  | 2,631 |        |       |  | 3,314 |        |       |  | 64,475 |        |        |  | 67,699 |       
|                                                                                                                        |                                                                       |                         |        |                |        |                 |        |             |        |      |        |        |        |      |        |        |        |  |       |        |       |  |       |        |       |  |        |        |        |  |        |       

|                                 |                                  |                                 |  |                |       |               |  |              |       |      |  |       |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |       |        | 
|-------------------------------- | -------------------------------- | ------------------------------- |  | -------------- | ----- | ------------- |  | ------------ | ----- | ---- |  | ----- | ----- | ---- |  | ----- | ----- |  |  | --- | --- |  |  | --- | --- |  |  | ----- | ------ |  |  | ----- | ------ | 
|                                 |                                  |                                 |  |                |       |               |  |              |       |      |  |      
|                                 |                                  | New orders(1)                   |  |                |       | Income before |  |             
|                                 |                                  | (Unaudited)                     |  | Total sales(2) |       | Income taxes  |  | Total assets
|                                 |                                  |                                 |  |                |       |               |  |             
|                                 |                                  | 2003                            |  | 2002           |       | 2003          |  | 2002         |       | 2003 |  | 2002  |       | 2003 |  | 2002 
|                                 |                                  |                                 |  |                |       |               |  |              |       |      |  |       |       |      |  |      
|                                 |                                  |                                
|                                 |                                  | ( in millions)                
|Financial and Real Estate Groups |                                  |                                 |  |                |       |               |  |              |       |      |  |       |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |      
|                                 | Siemens Financial Services (SFS) |                                 |  | 532            |       |               |  | 582          |       |      |  | 532   |       |      |  | 582   |       |  |  | 269 |     |  |  | 216 |     |  |  | 8,445 |        |  |  | 8,681 |       
|                                 | Siemens Real Estate (SRE)        |                                 |  | 1,592          |       |               |  | 1,612        |       |      |  | 1,592 |       |      |  | 1,612 |       |  |  | 206 |     |  |  | 229 |     |  |  | 3,607 |        |  |  | 4,090 |       
|                                 | Eliminations                     |                                 |  |               |       |               |  |             |       |      |  | (12   | )     |      |  | (8    | )     |  |  |    |     |  |  |    |     |  |  | (465  | )      |  |  | (561  | )     
|                                 |                                  |                                 |  |                |       |               |  |              |       |      |  |       |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |      
|                                 |                                  | Total Financing and Real Estate |  |                | 2,124 |               |  |              | 2,194 |      |  |       | 2,112 |      |  |       | 2,186 |  |  |     | 475 |  |  |     | 445 |  |  |       | 11,587 |  |  |       | 12,210 | 
|                                 |                                  |                                 |  |                |       |               |  |              |       |      |  |       |       |      |  |       |       |  |  |     |     |  |  |     |     |  |  |       |        |  |  |      






|    |                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(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) | Group profit is measured as earnings before
    financing interest, income taxes and certain pension costs.
    Group profit differs from our Income before income taxes and you
    should not consider it to be the same. Other companies that use
    Group profit may calculate it differently, and their figures may
    not be comparable to ours.

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##### Table of Contents



Operations

Information and
Communications

Information and Communication Networks
(ICN)

|                                                 |  |        |     |                 |  |      |       |    |  |  |       |   
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | -- |  |  | ----- | --
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2003            |  | 2002
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | 47  | %               |  |      | (366  | )  |  |  | (691  | ) 
|Group profit margin                              |  |        |     |                 |  |      | (5.1  | )% |  |  | (7.2  | )%
|Total sales                                      |  |        | (26 | )%              |  |      | 7,122 |    |  |  | 9,647 |   
|New orders                                       |  |        | (19 | )%              |  |      | 7,070 |    |  |  | 8,697 |   
|Net cash from operating and investing activities |  |        |     |                 |  |      | 106   |    |  |  | 711   |   

|                         |  |  |     |               |  |      |       |  |  |  |  | 
|------------------------ |  |  | --- | ------------- |  | ---- | ----- |  |  |  |  | 
|                         |  |  |     |              
|                         |  |  |     | September 30,
|                         |  |  |     |              
|                         |  |  |     | 2003          |  | 2002
|                         |  |  |     |               |  |     
|Net capital employed     |  |  | 722 |               |  |      | 1,100 | 
|Employees (in thousands) |  |  | 33  |               |  |      | 39    | 

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

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

Net capital employed as of September 30,
2003 decreased to
722 million
from
1.100 billion
at the end of the prior fiscal year, due to lower expenditures
for property, plant and equipment and improved asset management.
Cash flow from operating and investing activities in fiscal 2003
was again positive, totaling
106 million.
Net cash in fiscal 2002 benefited from proceeds from the sales
of businesses. Payments for severance and capacity adjustments
of
218 million
in fiscal 2003 were significantly lower than in the prior year.
Lower Net capital employed, combined with a substantially better
Group profit performance compared to fiscal 2002, significantly
improved ICNs negative EVA.

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##### Table of Contents



Information and Communication Mobile
(ICM)

|                                                 |  |        |     |                 |  |      |       |   |  |  |        |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ------ | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2003            |  | 2002
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | 88  | %               |  |      | 180   |   |  |  | 96     |  
|Group profit margin                              |  |        |     |                 |  |      | 1.8   | % |  |  | 0.9    | %
|Total sales                                      |  |        | (10 | )%              |  |      | 9,964 |   |  |  | 11,045 |  
|New orders                                       |  |        | (14 | )%              |  |      | 9,960 |   |  |  | 11,538 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | 692   |   |  |  | 594    |  

|                         |  |  |       |               |  |      |       |  |  |  |  | 
|------------------------ |  |  | ----- | ------------- |  | ---- | ----- |  |  |  |  | 
|                         |  |  |       |              
|                         |  |  |       | September 30,
|                         |  |  |       |              
|                         |  |  |       | 2003          |  | 2002
|                         |  |  |       |               |  |     
|Net capital employed     |  |  | 1,367 |               |  |      | 1,973 | 
|Employees (in thousands) |  |  | 27    |               |  |      | 29    | 

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

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

Net capital employed at September 30, 2003
was
1.367 billion,
compared to
1.973 billion
at the end of the prior fiscal year. Continuing asset management
improvements resulted in net cash from operating and investing
activities of
692 million,
and included payments for severance of
58 million
in fiscal 2003. Cash flow will be impacted in future periods due
to payments related to anticipated headcount reduction
activities. EVA improved substantially year-over-year, but
remained negative.

Siemens Business Services (SBS)

|                                                 |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2003            |  | 2002
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | (87 | )%              |  |      | 13    |   |  |  | 101   |  
|Group profit margin                              |  |        |     |                 |  |      | 0.2   | % |  |  | 1.7   | %
|Total sales                                      |  |        | (10 | )%              |  |      | 5,205 |   |  |  | 5,773 |  
|New orders                                       |  |        | (16 | )%              |  |      | 5,226 |   |  |  | 6,256 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | (62   | ) |  |  | 173   |  

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|                         |  |  |     |               |  |      |     |  |  |  |  | 
|------------------------ |  |  | --- | ------------- |  | ---- | --- |  |  |  |  | 
|                         |  |  |     |              
|                         |  |  |     | September 30,
|                         |  |  |     |              
|                         |  |  |     | 2003          |  | 2002
|                         |  |  |     |               |  |     
|Net capital employed     |  |  | 294 |               |  |      | 264 | 
|Employees (in thousands) |  |  | 35  |               |  |      | 34  | 

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

Net capital employed at September 30, 2003
was
294 million
compared to
264 million
at the end of the prior fiscal year. Net cash from operating and
investing activities was a negative
62 million
compared to a positive
173 million
a year earlier, due largely to a decrease in accounts payable.
This development, combined with lower Group profit, turned EVA
negative for SBS.

Automation and Control

Automation and Drives (A&D)

|                                                 |  |        |    |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |    |                
|                                                 |  |        |    | Year ended     
|                                                 |  |        |    | September 30,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2003            |  | 2002
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        | 11 | %               |  |      | 806   |   |  |  | 723   |  
|Group profit margin                              |  |        |    |                 |  |      | 9.6   | % |  |  | 8.4   | %
|Total sales                                      |  |        | (3 | )%              |  |      | 8,375 |   |  |  | 8,635 |  
|New orders                                       |  |        | (3 | )%              |  |      | 8,476 |   |  |  | 8,728 |  
|Net cash from operating and investing activities |  |        |    |                 |  |      | 1,060 |   |  |  | 1,019 |  

|                         |  |  |       |               |  |      |       |  |  |  |  | 
|------------------------ |  |  | ----- | ------------- |  | ---- | ----- |  |  |  |  | 
|                         |  |  |       |              
|                         |  |  |       | September 30,
|                         |  |  |       |              
|                         |  |  |       | 2003          |  | 2002
|                         |  |  |       |               |  |     
|Net capital employed     |  |  | 1,925 |               |  |      | 2,197 | 
|Employees (in thousands) |  |  | 50    |               |  |      | 51    | 

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

Net capital employed at September 30, 2003
decreased to
1.925 billion,
down from
2.197 billion
at the end of the prior fiscal year. Net cash from operating and
investing activities increased to
1.060 billion.
Together with increased Group profit, these developments
combined to produce a substantial increase in EVA.

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##### Table of Contents



Industrial Solutions and Services
(I&S)

|                                                 |  |        |     |                 |  |      |       |    |  |  |       |   
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | -- |  |  | ----- | --
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2003            |  | 2002
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | 79  | %               |  |      | (41   | )  |  |  | (198  | ) 
|Group profit margin                              |  |        |     |                 |  |      | (1.0  | )% |  |  | (4.4  | )%
|Total sales                                      |  |        | (10 | )%              |  |      | 4,012 |    |  |  | 4,480 |   
|New orders                                       |  |        | (4  | )%              |  |      | 3,955 |    |  |  | 4,120 |   
|Net cash from operating and investing activities |  |        |     |                 |  |      | 54    |    |  |  | (107  | ) 

|                         |  |  |     |               |  |      |     |  |  |  |  | 
|------------------------ |  |  | --- | ------------- |  | ---- | --- |  |  |  |  | 
|                         |  |  |     |              
|                         |  |  |     | September 30,
|                         |  |  |     |              
|                         |  |  |     | 2003          |  | 2002
|                         |  |  |     |               |  |     
|Net capital employed     |  |  | 167 |               |  |      | 315 | 
|Employees (in thousands) |  |  | 26  |               |  |      | 29  | 

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

Net capital employed at September 30, 2003
decreased to
167 million
from
315 million
at the end of the prior fiscal year, due to reductions in
accounts receivable and inventories. Net cash from operating and
investing activities improved significantly, turning positive at
54 million
compared to a negative
107 million
a year earlier, despite cash outlays of
77 million
for severance, up from
35 million
a year earlier. While EVA at I&S remained negative, these
developments combined with better earnings performance improved
EVA significantly year-over-year.

Siemens Dematic (SD)

|                                                 |  |        |     |                 |  |      |       |    |  |  |       |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | -- |  |  | ----- | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2003            |  | 2002
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        |     |                 |  |      | (218  | )  |  |  | 45    |  
|Group profit margin                              |  |        |     |                 |  |      | (8.4  | )% |  |  | 1.5   | %
|Total sales                                      |  |        | (13 | )%              |  |      | 2,600 |    |  |  | 2,995 |  
|New orders                                       |  |        | (8  | )%              |  |      | 2,599 |    |  |  | 2,810 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | (170  | )  |  |  | (70   | )

|                         |  |  |     |               |  |      |     |  |  |  |  | 
|------------------------ |  |  | --- | ------------- |  | ---- | --- |  |  |  |  | 
|                         |  |  |     |              
|                         |  |  |     | September 30,
|                         |  |  |     |              
|                         |  |  |     | 2003          |  | 2002
|                         |  |  |     |               |  |     
|Net capital employed     |  |  | 877 |               |  |      | 975 | 
|Employees (in thousands) |  |  | 10  |               |  |      | 12  | 

SD posted a Group loss of
218 million
for the year, compared to Group profit of
45 million
in fiscal 2002. A substantial increase in loss provisions and
charges, in an aggregate of
209 million
related to two large contracts in Europe was the key factor in
this result, together with other charges. The majority of the
loss provisions occurred at the Material Handling Automation
division. The charges are related primarily to a contract for
the design and installation of a complete logistical
infrastructure for a postal sorting center in the U.K. The
Postal Automation Division increased its profit and earnings
margin and won large orders from the U.S. Postal

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Service, while the Electronics Assembly Systems
Division narrowed its loss year-over-year and restored sales
growth in its large pick-and-place equipment business on a
breakeven basis.


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

Net capital employed at September 30, 2003
was
877 million,
down from
975 million
at the end of the prior fiscal year. Net cash from operating and
investing activities was a negative
170 million
compared to a negative
70 million
a year earlier, reflecting in part reduced earnings. Cash flow
will be negatively affected in future periods due to the
contract losses noted above. The Groups EVA decreased and
remained negative.

Siemens Building Technologies (SBT)

|                                                 |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2003            |  | 2002
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | (48 | )%              |  |      | 101   |   |  |  | 195   |  
|Group profit margin                              |  |        |     |                 |  |      | 2.0   | % |  |  | 3.5   | %
|Total sales                                      |  |        | (11 | )%              |  |      | 4,990 |   |  |  | 5,619 |  
|New orders                                       |  |        | (15 | )%              |  |      | 4,775 |   |  |  | 5,601 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | 375   |   |  |  | 295   |  

|                         |  |  |       |               |  |      |       |  |  |  |  | 
|------------------------ |  |  | ----- | ------------- |  | ---- | ----- |  |  |  |  | 
|                         |  |  |       |              
|                         |  |  |       | September 30,
|                         |  |  |       |              
|                         |  |  |       | 2003          |  | 2002
|                         |  |  |       |               |  |     
|Net capital employed     |  |  | 1,447 |               |  |      | 1,778 | 
|Employees (in thousands) |  |  | 33    |               |  |      | 36    | 

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

Net capital employed at September 30, 2003
was
1.447 billion,
down from
1.778 billion
at the end of the prior fiscal year, as lower inventories and
accounts receivable improved Net working capital. Net cash from
operating and investing activities improved year-over-year to
375 million
from
295 million
a year earlier, primarily due to lower investments in property,
plant and equipment and the working capital improvements noted
above. Payments for severance in fiscal 2003 were
72 million.
Due to lower earnings for the year, the Groups EVA
decreased and remained negative.

Power

Power Generation (PG)

|                                                 |  |        |     |                 |  |      |       |   |  |  |        |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ------ | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2003            |  | 2002
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | (26 | )%              |  |      | 1,171 |   |  |  | 1,582  |  
|Group profit margin                              |  |        |     |                 |  |      | 16.8  | % |  |  | 16.7   | %
|Total sales                                      |  |        | (26 | )%              |  |      | 6,967 |   |  |  | 9,446  |  
|New orders                                       |  |        | (31 | )%              |  |      | 7,302 |   |  |  | 10,586 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | (448  | ) |  |  | 662    |  

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|                         |  |  |       |               |  |      |      |   |  |  |  | 
|------------------------ |  |  | ----- | ------------- |  | ---- | ---- | - |  |  |  | 
|                         |  |  |       |              
|                         |  |  |       | September 30,
|                         |  |  |       |              
|                         |  |  |       | 2003          |  | 2002
|                         |  |  |       |               |  |     
|Net capital employed     |  |  | 1,712 |               |  |      | (144 | )
|Employees (in thousands) |  |  | 30    |               |  |      | 26   |  

PG led all Siemens Groups with
1.171 billion
in Group profit and a Group profit margin of 16.8%. In fiscal
2003, PG increased the percentage of its revenues and profits
coming from services, acquired the industrial turbine businesses
of Alstom to complement its existing large turbine business, and
further diversified its business base with significant orders in
Asia, Europe and the Middle East. The negative demand trend in
the U.S. market continues to affect comparison of PGs
sales and orders with prior periods, resulting in 26% lower
sales for PG overall, or
6.967 billion
in fiscal 2003 compared to
9.446 billion
in fiscal 2002, and orders of
7.302 billion,
down from
10.586 billion.
Currency translation effects accounted for seven and four
percentage points of the decline in sales and orders,
respectively.

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

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

Net capital employed at September 30, 2003
increased to
1.712 billion,
compared to a negative
144 million
at the end of the prior fiscal year, as PG acquired the
industrial turbine business of Alstom and used advance payments
for project inventories. This is also reflected in net cash from
operating and investing activities, which was a negative
448 million
compared to a positive
662 million
a year earlier. These developments and lower Group profit
resulted in a decrease in PGs EVA, which nevertheless
remained strong and led all Groups.

Power Transmission and Distribution
(PTD)

|                                                 |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2003            |  | 2002
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | 90  | %               |  |      | 207   |   |  |  | 109   |  
|Group profit margin                              |  |        |     |                 |  |      | 6.1   | % |  |  | 2.6   | %
|Total sales                                      |  |        | (19 | )%              |  |      | 3,399 |   |  |  | 4,199 |  
|New orders                                       |  |        | (19 | )%              |  |      | 3,586 |   |  |  | 4,429 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | 387   |   |  |  | 149   |  

|                         |  |  |     |               |  |      |     |  |  |  |  | 
|------------------------ |  |  | --- | ------------- |  | ---- | --- |  |  |  |  | 
|                         |  |  |     |              
|                         |  |  |     | September 30,
|                         |  |  |     |              
|                         |  |  |     | 2003          |  | 2002
|                         |  |  |     |               |  |     
|Net capital employed     |  |  | 798 |               |  |      | 928 | 
|Employees (in thousands) |  |  | 16  |               |  |      | 17  | 

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

Net capital employed decreased to
798 million
from
928 million
due to improvements in Net working capital driven by higher
customer prepayments. Net working capital improvements also
positively impacted net

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cash from operating and investing activities,
which increased by
238 million
to
387 million.
These factors contributed to PTDs EVA turning positive in
fiscal 2003.


Transportation

Transportation Systems (TS)

|                                                 |  |        |     |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2003            |  | 2002
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | 15% |                 |  |      | 284   |   |  |  | 247   |  
|Group profit margin                              |  |        |     |                 |  |      | 6.0   | % |  |  | 5.7   | %
|Total sales                                      |  |        | 8%  |                 |  |      | 4,697 |   |  |  | 4,367 |  
|New orders                                       |  |        | (11 | )%              |  |      | 4,674 |   |  |  | 5,247 |  
|Net cash from operating and investing activities |  |        |     |                 |  |      | (217  | ) |  |  | 95    |  

|                         |  |  |      |               |  |      |      |   |  |  |  | 
|------------------------ |  |  | ---- | ------------- |  | ---- | ---- | - |  |  |  | 
|                         |  |  |      |              
|                         |  |  |      | September 30,
|                         |  |  |      |              
|                         |  |  |      | 2003          |  | 2002
|                         |  |  |      |               |  |     
|Net capital employed     |  |  | (252 | )             |  |      | (741 | )
|Employees (in thousands) |  |  | 18   |               |  |      | 17   |  

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

Net capital employed increased from a negative
741 million
to a negative
252 million
as TS used advance payments for project inventories. Higher
inventories were also reflected in net cash from operating and
investing activities, which decreased from
95 million
a year ago to negative
217 million
in fiscal 2003. The rate at which TS receives advance payments
for customer projects will have an impact on its cash flow in
the future. Despite higher earnings, the effects of increased
Net capital employed led to a decrease in EVA.

Siemens VDO Automotive (SV)

|                                                 |  |        |    |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |    |                
|                                                 |  |        |    | Year ended     
|                                                 |  |        |    | September 30,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2003            |  | 2002
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        |    |                 |  |      | 418   |   |  |  | 65    |  
|Group profit margin                              |  |        |    |                 |  |      | 5.0   | % |  |  | 0.8   | %
|Total sales                                      |  |        | (2 | )%              |  |      | 8,375 |   |  |  | 8,515 |  
|New orders                                       |  |        | (2 | )%              |  |      | 8,375 |   |  |  | 8,515 |  
|Net cash from operating and investing activities |  |        |    |                 |  |      | 184   |   |  |  | 224   |  

|                         |  |  |       |               |  |      |       |  |  |  |  | 
|------------------------ |  |  | ----- | ------------- |  | ---- | ----- |  |  |  |  | 
|                         |  |  |       |              
|                         |  |  |       | September 30,
|                         |  |  |       |              
|                         |  |  |       | 2003          |  | 2002
|                         |  |  |       |               |  |     
|Net capital employed     |  |  | 3,949 |               |  |      | 3,746 | 
|Employees (in thousands) |  |  | 44    |               |  |      | 43    | 

SV increased Group profit to
418 million
for the year compared to
65 million
a year earlier, which included a
56 million
gain from the sale of the Hydraulik-Ring business, partly offset
by write-downs of certain intangible assets. The Groups
innovative diesel injection and onboard infotainment systems
were major factors in the earnings improvement. SVs
profitability improvement program also contributed to earnings
growth, as the

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Group cut material costs, streamlined its R&D
and production processes, and tightened administrative and IT
spending. As a result, SV increased its Group profit margin from
0.8% in fiscal 2002 to 5.0% in fiscal 2003, though it still fell
short of earning its cost of capital. Earnings improved
primarily at the Groups Powertrain, Chassis & Carbody,
and Interior & Infotainment divisions after multi-year
investments in innovative technologies.


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

Net capital employed in fiscal 2003 increased
from
3.746 billion
to
3.949 billion.
Net cash from operating and investing activities was lower than
in fiscal 2002, which included proceeds from the sale of
Hydraulik-Ring. EVA improved significantly on higher Group
profit, but remained negative.

Medical

Medical Solutions (Med)

|                                                 |  |        |    |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |    |                
|                                                 |  |        |    | Year ended     
|                                                 |  |        |    | September 30,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2003            |  | 2002
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        | 10 | %               |  |      | 1,118 |   |  |  | 1,018 |  
|Group profit margin                              |  |        |    |                 |  |      | 15.1  | % |  |  | 13.4  | %
|Total sales                                      |  |        | (3 | )%              |  |      | 7,422 |   |  |  | 7,623 |  
|New orders                                       |  |        | (7 | )%              |  |      | 7,835 |   |  |  | 8,425 |  
|Net cash from operating and investing activities |  |        |    |                 |  |      | 845   |   |  |  | 1,124 |  

|                         |  |  |       |               |  |      |       |  |  |  |  | 
|------------------------ |  |  | ----- | ------------- |  | ---- | ----- |  |  |  |  | 
|                         |  |  |       |              
|                         |  |  |       | September 30,
|                         |  |  |       |              
|                         |  |  |       | 2003          |  | 2002
|                         |  |  |       |               |  |     
|Net capital employed     |  |  | 3,128 |               |  |      | 3,414 | 
|Employees (in thousands) |  |  | 31    |               |  |      | 31    | 

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

Net capital employed decreased to
3.128 billion
from
3.414 billion
primarily due to currency translation effects relating to
Meds large U.S. business. Net cash from operating and
investing activities was
845 million
in fiscal 2003 compared to
1.124 billion
a year earlier, in part due to higher accounts receivable in the
current year. The combination of higher Group profit and lower
Net capital employed increased Meds positive EVA.

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##### Table of Contents



Lighting

Osram

|                                                 |  |        |    |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |    |                
|                                                 |  |        |    | Year ended     
|                                                 |  |        |    | September 30,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2003            |  | 2002
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        | 12 | %               |  |      | 410   |   |  |  | 365   |  
|Group profit margin                              |  |        |    |                 |  |      | 9.8   | % |  |  | 8.4   | %
|Total sales                                      |  |        | (4 | )%              |  |      | 4,172 |   |  |  | 4,363 |  
|New orders                                       |  |        | (4 | )%              |  |      | 4,172 |   |  |  | 4,363 |  
|Net cash from operating and investing activities |  |        |    |                 |  |      | 528   |   |  |  | 284   |  

|                         |  |  |       |               |  |      |       |  |  |  |  | 
|------------------------ |  |  | ----- | ------------- |  | ---- | ----- |  |  |  |  | 
|                         |  |  |       |              
|                         |  |  |       | September 30,
|                         |  |  |       |              
|                         |  |  |       | 2003          |  | 2002
|                         |  |  |       |               |  |     
|Net capital employed     |  |  | 2,074 |               |  |      | 2,436 | 
|Employees (in thousands) |  |  | 36    |               |  |      | 35    | 

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

Net capital employed in fiscal 2003 decreased to
2.074 billion
compared to
2.436 billion
due to an improvement in Net working capital, particularly
accounts receivable and due to negative currency translation
effects. Net cash from operating and investing activities
increased from
284 million
to
528 million,
primarily due to higher Group profit, reduced accounts
receivable and lower capital spending. Higher Group profit on
lower Net capital employed significantly improved Osrams
positive EVA.

Other Operations and Reconciliation to
Financial Statements

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

Other Operations

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

Reconciliation to Financial
Statements

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

Corporate items, pensions and eliminations:
Corporate itemsincludes corporate
charges such as personnel costs for corporate headquarters, the
results of corporate-related derivative activities as well as
corporate projects and non-operating investments including the
Companys share of earnings (losses) from the equity
investment in Infineon. Pensions include the
Companys pension related income (expenses) not allocated
to the Groups and consists of all pension related costs, other
than amounts related to the service cost of foreign pension
plans.

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Eliminations represent the consolidation of transactions within the
Operations component. Corporate items, pensions and
eliminations was a negative
1.576 billion
in fiscal 2003, compared to a negative
1.282 billion
in the same period a year earlier. Corporate items was a
negative
747 million,
down from a negative
947 million
in the prior year, the difference due primarily to a lower loss
in fiscal 2003 related to Siemens equity interest in
Infineon and the positive resolution of an arbitration
proceeding as well as reduced corporate costs in fiscal 2003.
Siemens equity share of Infineons loss was
170 million
in fiscal 2003, compared to
338 million
a year earlier. Pensions was
828 million
in fiscal 2003 compared to
250 million
a year earlier, with the change due to lower return assumptions
on lower net asset values in our pension trusts, and increased
amortization expense related to the underfunding of our pension
trusts.


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

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

Financing and Real Estate

Siemens Financial Services
(SFS)

|                                                 |  |        |    |                 |  |      |      |   |  |  |     | 
|------------------------------------------------ |  | ------ | -- | --------------- |  | ---- | ---- | - |  |  | --- | 
|                                                 |  |        |    |                
|                                                 |  |        |    | Year ended     
|                                                 |  |        |    | September 30,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2003            |  | 2002
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Income before income taxes                       |  |        | 25 | %               |  |      | 269  |   |  |  | 216 | 
|Total sales                                      |  |        |    |                 |  |      | 532  |   |  |  | 582 | 
|Net cash from operating and investing activities |  |        |    |                 |  |      | (312 | ) |  |  | 282 | 

|                         |  |  |       |               |  |      |       |  |  |  |  | 
|------------------------ |  |  | ----- | ------------- |  | ---- | ----- |  |  |  |  | 
|                         |  |  |       |              
|                         |  |  |       | September 30,
|                         |  |  |       |              
|                         |  |  |       | 2003          |  | 2002
|                         |  |  |       |               |  |     
|Total assets             |  |  | 8,445 |               |  |      | 8,681 | 
|Employees (in thousands) |  |  | 1     |               |  |      | 1     | 

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

Total assets decreased to
8.445 billion,
compared to
8.681 billion,
primarily due to negative currency translation effects. Net cash
from operating and investing activities decreased significantly
from a positive
282 million
in fiscal 2002 to negative
312 million
due to higher receivables. EVA improved due to the increase in
earnings.

Siemens Real Estate (SRE)

|                                                 |  |        |     |                 |  |      |       |  |  |  |       | 
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- |  |  |  | ----- | 
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2003            |  | 2002
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Income before income taxes                       |  |        | (10 | )%              |  |      | 206   |  |  |  | 229   | 
|Total sales                                      |  |        | (1  | )%              |  |      | 1,592 |  |  |  | 1,612 | 
|Net cash from operating and investing activities |  |        |     |                 |  |      | 351   |  |  |  | 309   | 

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|                         |  |               |       |      |  |  |       | 
|------------------------ |  | ------------- | ----- | ---- |  |  | ----- | 
|                         |  |              
|                         |  | September 30,
|                         |  |              
|                         |  | 2003          |       | 2002
|                         |  |               |       |     
|Total assets             |  |               | 3,607 |      |  |  | 4,090 | 
|Employees (in thousands) |  |               | 2     |      |  |  | 2     | 

SRE earned
206 million
before income taxes compared to
229 million
a year earlier, as lower interest costs were more than offset by
the effects of lower occupancy rates. Sales edged down 1% to
1.592 billion
compared to
1.612 billion
in fiscal 2002. Total assets decreased to
3.607 billion
in fiscal 2003 from
4.090 billion
in fiscal 2002 due to sales of real estate holdings. Net cash
from operating and investing activities increased from
309 million
in fiscal 2002 to
351 million
in fiscal 2003. EVA decreased, but remained positive.

Eliminations, reclassifications and Corporate Treasury

Income before income taxes from Eliminations,
reclassifications and Corporate Treasury was
266 million,
up from a loss of
284 million
in the prior year, which included the significant negative
results of Infineon until it was deconsolidated in December
2001. Furthermore, the improvement in the current year results
include positive effects from Corporate Treasury, due primarily
to lower short-term interest rates as well as positive effects
relating to hedges, not qualifying for hedge accounting, against
interest rate developments. Corporate Treasury earnings also
included a gain on the buyback of a nominal
1.440 billion
of a bond exchangeable into shares of Infineon. For further
information, see Eliminations, reclassifications and
Corporate Treasury.

COMPONENT INFORMATIONSTATEMENTS OF INCOME

The following discussion adheres to our component
model of reporting. We first provide an analysis of the income
statement for our Operations and Financing and Real Estate
components, which together include the 15 Siemens Groups that
comprise our reportable segments under U.S. GAAP. We then
provide an income statement analysis for the Eliminations,
reclassifications and Corporate Treasury component.

Operations

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

|                                                                          |                        |                 |         |       |    |  |         |       |   
|------------------------------------------------------------------------- | ---------------------- | --------------- | ------- | ----- | -- |  | ------- | ----- | --
|                                                                          |                        |                
|                                                                          |                        | Year ended     
|                                                                          |                        | September 30,  
|                                                                          |                        |                
|                                                                          |                        | 2003            |         | 2002 
|                                                                          |                        |                 |         |      
|                                                                          |                        |                
|                                                                          |                        | ( in millions)
|Net sales from Operations                                                 |                        |                 | 73,744  |       |    |  | 83,127  |      
|Gross profit on sales                                                     |                        |                 | 20,446  |       |    |  | 22,805  |      
|                                                                          | as percentage of sales |                 |         | 27.7  | %  |  |         | 27.4  | % 
|Research and development expenses                                         |                        |                 | (5,067  | )     |    |  | (5,650  | )    
|                                                                          | as percentage of sales |                 |         | (6.9  | )% |  |         | (6.8  | )%
|Marketing, selling and general administrative
    expenses                |                        |                 | (13,243 | )     |    |  | (15,083 | )    
|                                                                          | as percentage of sales |                 |         | (18.0 | )% |  |         | (18.1 | )%
|Other operating income (expense), net                                     |                        |                 | 555     |       |    |  | 326     |      
|Income (loss) from investments in other
    companies, net                |                        |                 | 66      |       |    |  | (142    | )    
|Income (expense) from financial assets and
    marketable securities, net |                        |                 | (69     | )     |    |  | 124     |      
|Interest income of Operations, net                                        |                        |                 | 31      |       |    |  | 94      |      
|Other interest income (expense), net                                      |                        |                 | (88     | )     |    |  | (96     | )    
|Gains on sales and dispositions of significant
    business interests     |                        |                 |        |       |    |  | 936     |      
|                                                                          |                        |                 |         |       |    |  |         |      
|Income before income taxes                                                |                        |                 | 2,631   |       |    |  | 3,314   |      
|                                                                          |                        |                 |         |       |    |  |         |      

Net sales from Operations were
73.744 billion
compared to
83.127 billion
a year earlier. The majority of the difference resulted from
currency translation effects, primarily reflecting the strength
of the euro versus the

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U.S. dollar. Together with the net effect of
acquisitions and dispositions, these impacts reduced sales by
7%. Excluding these effects, sales rose year over year at
A&D, Med, Osram, SV and TS.


Gross profit as a percentage of sales increased
to 27.7% from 27.4% in the prior year. Most of the Groups
increased their gross margins, led by SV, ICN, PTD, and Med.
ICNs improvement reflects the results of its PACT
cost-cutting program, and PTD and SV made significant
improvements in reducing materials costs and other productivity
measures. Osram, A&D and TS maintained their gross margins
levels. Partly offsetting these results were gross margin
declines at SD and SBS, as these Groups took charges relating to
long-term contracts during fiscal 2003. ICMs gross margin
decreased less sharply, in part due to lower average earnings
per mobile phone sold. See Segment Information
Analysis for further comments on the individual Groups.

Research and development expenses (R&D) were
5.067 billion
in fiscal 2003, or 6.9% of sales, representing a slight increase
compared to the prior fiscal year. Among the Groups, Med
increased its R&D spending and ICN and ICM maintained stable
R&D expenditures relative to declining sales.

Marketing, selling and general administrative
expenses decreased 12% to
13.243 billion
compared to the prior year, and declined as a percentage of
sales from 18.1% to 18.0%. Cost cutting and productivity
programs at ICN, ICM, I&S, SV and Osram contributed to
this result, as did lower provisions for accounts and loans
receivable, partially resulting from revised estimates, in
particular at ICM.

Other operating income (expense), net was a
positive
555 million
compared to a positive
326 million
last year. The current period includes
359 million
of net gains related to cancellation of orders at PG, which are
partly offset by inventory allowances recorded in cost of sales.
Also included in fiscal 2003 was a
63 million
gain from Meds contribution of assets to a joint venture
with Dräger. The prior year included a
421 million
gain on the sale of Unisphere Networks by ICN, a
60 million
gain at ICN, a
56 million
gain on the sale of Hydraulik-Ring by SV, a
21 million
gain from the sale of a portfolio of business activities to KKR,
and significantly lower contract cancellation gains at PG.
Partly offsetting these gains in fiscal 2002 was a
378 million
impairment at ICN.

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

Income (expense) from financial assets and
marketable securities, net was a negative
69 million
compared to a positive
124 million
in fiscal 2002. The current year included losses related to
financial instrument contracts not qualifying for hedge
accounting, whereas the prior year included gains associated
with such contracts.

Interest income (expense) of Operations, net was
31 million
compared to
94 million
a year earlier, primarily due to lower interest rates and lower
income in fiscal 2003.

Other interest expense for fiscal 2003 was
88 million,
compared to
96 million
in fiscal 2002. Lower interest expense in the current period
reflects lower interest rates.

There were no gains on sales and dispositions of
significant business interests in fiscal 2003. The prior year
included tax-free gains of
936 million
resulting from the sale of 23.1 million Infineon shares in
the first quarter and 40 million shares in the second
quarter. Both transactions took place on the open market.

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Financing and Real Estate

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

|                                                                          |  |                 |       |      |  |  |       |  
|------------------------------------------------------------------------- |  | --------------- | ----- | ---- |  |  | ----- | -
|                                                                          |  |                
|                                                                          |  | Year ended     
|                                                                          |  | September 30,  
|                                                                          |  |                
|                                                                          |  | 2003            |       | 2002
|                                                                          |  |                 |       |     
|                                                                          |  |                
|                                                                          |  | ( in millions)
|Sales                                                                     |  |                 | 2,112 |      |  |  | 2,186 |  
|Gross profit on sales                                                     |  |                 | 435   |      |  |  | 476   |  
|Marketing, selling and general administrative
    expenses                |  |                 | (291  | )    |  |  | (282  | )
|Other operating income (expense), net                                     |  |                 | 164   |      |  |  | 151   |  
|Income (loss) from investments in other
    companies, net                |  |                 | 76    |      |  |  | 44    |  
|Income (expense) from financial assets and
    marketable securities, net |  |                 | (5    | )    |  |  | (25   | )
|Other interest income (expense), net                                      |  |                 | 96    |      |  |  | 81    |  
|                                                                          |  |                 |       |      |  |  |       |  
|Income before income taxes                                                |  |                 | 475   |      |  |  | 445   |  
|                                                                          |  |                 |       |      |  |  |       |  

Sales from Financing and Real Estate for the
fiscal year 2003 were stable at
2.112 billion
compared to
2.186 billion
in the prior fiscal year. Marketing, selling and general
administrative expenses increased
9 million
to
291 million.
Other operating income, net was
164 million
compared to
151 million
last year, primarily reflecting gains on sales of land and
buildings. Income from investments in other companies, net
increased from
44 million
to
76 million
in fiscal 2003, driven by strong investment earnings at
SFS Equity division, in particular related to an
investment in a power generation project in Indonesia. Income
(expense) from financial assets and marketable securities, net
was a negative
5 million
compared to a negative
25 million
in the prior year. For fiscal 2003, other interest income
(expense), net was
96 million
compared to
81 million
in fiscal 2002. As a result, income before income taxes for
fiscal year 2003 increased to
475 million
compared to
445 million
in fiscal 2002.

Eliminations, reclassifications and Corporate Treasury

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

Corporate Treasury in fiscal 2003 includes net
gains from financial instrument transactions not qualifying for
hedge accounting and a
35 million
gain from the buyback of a nominal
1.440 billion
of a bond exchangeable into shares of Infineon.
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.

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.

Economic Value Added

Siemens ties a portion of its executive incentive
compensation to achieving economic value added (EVA) targets.
EVA measures the profitability of a business (using Group profit
for the operations Groups and income before income taxes for the
Financing and Real Estate businesses as a base) against the
additional cost of capital used to run a business (using Net
capital employed for the operations Groups and risk-adjusted
equity for the Financing and Real Estate businesses as a base).
A positive EVA means that a business has earned more than its
cost of capital, and is therefore defined as value-creating. A
negative EVA means that a business is earning less

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than its cost of capital and is therefore defined
as value-destroying. Other companies that use EVA may define and
calculate EVA differently.


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
Transportation 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 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).

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

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 under
Component InformationStatements of
Income.

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The following table presents selected information
for 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 (expense) 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   |       
|                                                                          |                                                 |                 |         |        |    |  |         |       
|Net cash provided from operating activities                               |                                                 |                 | 5,564   |        |    |  | 7,016   |       
|Net cash used in investing activities                                     |                                                 |                 | (810    | )      |    |  | (5,886  | )     
|                                                                          |                                                 |                 |         |        |    |  |         |       
|Net cash from operating and investing activities                          |                                                 |                 | 4,754   |        |    |  | 1,130   |       
|                                                                          |                                                 |                 |         |        |    |  |         |       

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%.
Sales in Germany decreased 5% to
18.102 billion,
while international sales decreased 3% to
65.914 billion.
Orders in Germany decreased 6% to
17.812 billion,
while international orders decreased 7% to
68.402 billion
in this year. International business account 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%.

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. Gross profit in
fiscal 2001 also included an effect of the
258 million
write-down related to Argentina.

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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,
primarily due to reduced outlays for marketing at ICN, ICM and
A&D 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, a
421 million
gain on the sale of Unisphere Networks by ICN, a
60 million
one-time 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 the Siemens
German Pension Trust, the
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 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.

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 million
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.

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.

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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.

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 Groups where
the sold businesses had previously resided. As a result,
Information and Communication Networks (ICN), and Power
Generation (PG) were allocated gains of

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153 million
and
68 million
respectively, while Power Transmission and Distribution (PTD)
was allocated a loss of
54 million.


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.

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SEGMENT INFORMATION ANALYSIS

Key Performance Data by Groups

|                                       |                                                                       |                  |   |                |        |              |   |             |        |      |   |        |        |      |   |        |        |  |   |        |       |  |   |        |       |  |        |        |        |  |        |        |        | 
|-------------------------------------- | --------------------------------------------------------------------- | ---------------- | - | -------------- | ------ | ------------ | - | ----------- | ------ | ---- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ----- |  | - | ------ | ----- |  | ------ | ------ | ------ |  | ------ | ------ | ------ | 
|                                       |                                                                       |                  |   |                |        |              |   |             |        |     
|                                       |                                                                       | New orders(1)    |   |                |        | Group        |   | Net capital
|                                       |                                                                       | (Unaudited)      |   | Total sales(2) |        | profit(3)(4) |   | 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               |                  |   |               |        |              |   |            |        |      |   |       |        |      |   |       |        |  |   | 3,314  |       |  |   | 3,240  |       |  |        | 67,699 |        |  |        | 69,200 |       
|                                       |                                                                       |                  |   |                |        |              |   |             |        |      |   |        |        |      |   |        |        |  |   |        |       |  |   |        |       |  |        |        |        |  |        |       

|                                 |                                                              |  |   |   |  |  |       |   |  |                 |   |             |  |      |       |      |  |  |   |   |  |  |        |        |   |  |   |   |  |  |       |       | 
|-------------------------------- | ------------------------------------------------------------ |  | - | - |  |  | ----- | - |  | --------------- | - | ----------- |  | ---- | ----- | ---- |  |  | - | - |  |  | ------ | ------ | - |  | - | - |  |  | ----- | ----- | 
|                                 |                                                              |  |   |   |  |  |       |   |  |                 |   |             |  |     
|                                 |                                                              |  |   |   |  |  |       |   |  |                 |   | Net capital
|                                 |                                                              |  |   |   |  |  |       |   |  | EBIT(3)(4)      |   | employed   
|                                 |                                                              |  |   |   |  |  |       |   |  |                 |   |            
|                                 |                                                              |  |   |   |  |  |       |   |  | 2002            |   | 2001        |  | 2002 |       | 2001
|                                 |                                                              |  |   |   |  |  |       |   |  |                 |   |             |  |      |       |     
|                                 |                                                              |  |   |   |  |  |       |   |  |                
|                                 |                                                              |  |   |   |  |  |       |   |  | ( in millions)
|                                 |                                                              |  |   |   |  |  |       |   |  |                
|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 | 
|                                 |                                                              |  |   |   |  |  |       |   |  |                 |   |             |  |      |       |      |  |  |   |   |  |  |        |        |   |  |   |   |  |  |       |      

|                                |                                      |               |       |                |  |               |       |              |  |      |       |       |   |                 |       |       |   |  |     |     |  |  |     |     |  |  |        |       |   |  |        |       |  
|------------------------------- | ------------------------------------ | ------------- | ----- | -------------- |  | ------------- | ----- | ------------ |  | ---- | ----- | ----- | - | --------------- | ----- | ----- | - |  | --- | --- |  |  | --- | --- |  |  | ------ | ----- | - |  | ------ | ----- | -
|                                |                                      |               |       |                |  |               |       |              |  |      |       |      
|                                |                                      | New orders(1) |       |                |  | Income before |       |             
|                                |                                      | (Unaudited)   |       | Total sales(2) |  | Income taxes  |       | Total assets
|                                |                                      |               |       |                |  |               |       |             
|                                |                                      | 2002          |       | 2001           |  | 2002          |       | 2001         |  | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   
|(3) | Group profit is measured as earnings before
    financing interest, income taxes and certain pension costs.
    Infineon EBIT is measured as earnings before interest, taxes and
    minority interest. Group profit and Infineon EBIT differs from
    our Income before income taxes and you should not consider it to
    be the same. Other companies that use Group profit or EBIT may
    calculate it differently, and their figures may not be
    comparable to ours.
|   
|(4) | Group profit or EBIT for Infineon should not be
    considered by investors as an alternative to operating income or
    other measures of operating performance, or as an alternative to
    cash flow from operating activities, each as determined in
    accordance with GAAP.                                                                                                                                                                                            

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Operations

Information and
Communications

Information and Communication Networks
(ICN)

|                                                 |  |        |     |                 |  |      |       |    |  |  |        |   
|------------------------------------------------ |  | ------ | --- | --------------- |  | ---- | ----- | -- |  |  | ------ | --
|                                                 |  |        |     |                
|                                                 |  |        |     | Year ended     
|                                                 |  |        |     | September 30,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | 20% |                 |  |      | (691  | )  |  |  | (861   | ) 
|Group profit 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 Group profit 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 Group profit 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
Group profit 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.

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

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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,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        |    |                 |  |      | 96     |   |  |  | (307   | ) 
|Group profit 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
Group profit 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, contributed
82 million
to Group profit 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 contributed
5 million
to Group profit 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. Group profit 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.

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.

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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 Liquidity and Capital
ResourcesCapital Resources and Capital
RequirementsOff-balance sheet arrangements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,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        |    |                 |  |      | 101   |   |  |  | (259  | ) 
|Group profit 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  | 

Group profit 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. Group profit 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,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | (26 | )%              |  |      | 723   |   |  |  | 981   |  
|Group profit 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 Group profit and an 8.4% Group profit margin. Despite
declining sales, A&Ds largest division, Industrial
Automation Systems, was able to maintain a strong Group profit
margin. The Large Drives division achieved higher volume and
Group profit as it translated large orders into sales and
benefited from productivity measures initiated in fiscal 2001.
Group profit 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, Group profit a
year earlier was
981 million.
Group profit 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,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        |     |                 |  |      | (198  | )  |  |  | 97    |  
|Group profit 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 Group profit 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

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resulted in a sharp decline in volume at the
Metals, Mining and Paper Technologies division as well as at the
Infrastructure and Marine Solutions division. These declines
resulted in negative Group profit, 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,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        |    |                 |  |      | 45    |   |  |  | (59   | ) 
|Group profit 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 Group profit 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, Group profit 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. Group profit 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,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        | 48 | %               |  |      | 195   |   |  |  | 132   |  
|Group profit 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 Group profit 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. Group profit 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,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | 150 | %               |  |      | 1,582  |   |  |  | 634    |  
|Group profit 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 Group profit and Group profit margin of 16.7%, compared to
634 million
in Group profit and a 7.4% margin a year earlier. Group profit
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 cancellations of orders, which were
partially offset by charges related to planned

85



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consolidation of manufacturing capacity. Further
consolidation-related charges may be incurred in fiscal 2003
depending on market developments.


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,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        | 14 | %               |  |      | 109   |   |  |  | 96    |  
|Group profit 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 Group profit 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. Group
profit 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. Group profit 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.

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Transportation

Transportation Systems (TS)

|                                                 |  |        |    |                 |  |      |       |   |  |  |       |  
|------------------------------------------------ |  | ------ | -- | --------------- |  | ---- | ----- | - |  |  | ----- | -
|                                                 |  |        |    |                
|                                                 |  |        |    | Year ended     
|                                                 |  |        |    | September 30,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        | 33 | %               |  |      | 247   |   |  |  | 186   |  
|Group profit 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 Group profit 33% to
247 million
compared to
186 million
a year earlier. Group profit 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,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        |    |                 |  |      | 65    |   |  |  | (261  | ) 
|Group profit 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 Group profit
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 Group profit 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

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the divestment of the 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,  
|                                                 |  |        |    |                
|                                                 |  | Change |    | 2002            |  | 2001
|                                                 |  |        |    |                 |  |     
|                                                 |  |        |    |                
|                                                 |  |        |    | ( in millions)
|Group profit                                     |  |        | 26 | %               |  |      | 1,018 |   |  |  | 808   |  
|Group profit margin                              |  |        |    |                 |  |      | 13.4  | % |  |  | 11.2  | %
|Total sales                                      |  |        | 6  | %               |  |      | 7,623 |   |  |  | 7,219 |  
|New orders                                       |  |        |    |                 |  |      | 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 Group
profit 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. Group
profit 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
resulted 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,  
|                                                 |  |        |     |                
|                                                 |  | Change |     | 2002            |  | 2001
|                                                 |  |        |     |                 |  |     
|                                                 |  |        |     |                
|                                                 |  |        |     | ( in millions)
|Group profit                                     |  |        | (21 | )%              |  |      | 365   |   |  |  | 462   |  
|Group profit 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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##### Table of Contents



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

Osram generated
365 million
in Group profit compared to
462 million
a year earlier, a period that included
54 million
in non-operating gains. Group profit 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 Group
profit 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
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 Group profit.

We believe that this presentation provides a more
meaningful comparison between the periods under review because
it eliminates one-time 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
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 herein.

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. Group profit 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 KKR and
charges of
70 million
relating to the write-off of centrally held investments. Fiscal
2001 included

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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, including 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,  
|                                                 |  |        |    |                
|                                                 |  | 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,  
|                                                 |  |        |   |                
|                                                 |  | 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.

Operations

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

|                                                                              |                        |                 |         |       |    |  |         |       |   
|----------------------------------------------------------------------------- | ---------------------- | --------------- | ------- | ----- | -- |  | ------- | ----- | --
|                                                                              |                        |                
|                                                                              |                        | 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     | )    
|Other interest (expense) income, net                                          |                        |                 | (96     | )     |    |  | (304    | )    
|Goodwill amortization and purchased in-process
    R&D expenses of Operations |                        |                 |        |       |    |  | (665    | )    
|Gains on sales and dispositions of significant
    business interests         |                        |                 | 936     |       |    |  | 4,065   |      
|Other special items                                                           |                        |                 |        |       |    |  | (1,185  | )    
|                                                                              |                        |                 |         |       |    |  |         |      
|Income before income taxes                                                    |                        |                 | 3,314   |       |    |  | 3,240   |      
|                                                                              |                        |                 |         |       |    |  |         |      

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

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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.


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
goodwill 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.

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 Milltronics, 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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Financing and Real Estate

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

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

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Economic Value Added

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

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWFISCAL 2003 COMPARED TO FISCAL 2002

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

Net cash used in investing activities within
Operations was
3.655 billion.
Expenditures for intangible assets and property, plant and
equipment were
2.468 billion,
681 million
lower than in the previous fiscal year. Cash outflows for
acquisitions in fiscal 2003 include
929 million
for the purchase of the industrial turbine businesses of Alstom.
Purchases of investments and marketable securities include an
aggregate
599 million
for the acquisition of various debt and fund securities. Total
outlays within Operations for investments and marketable
securities were
841 million.
Net cash used in investing activities within Operations in
fiscal 2002 was
250 million.
Cash used for acquisitions in fiscal 2002 was
3.787 billion
which included a
3.657 billion
payment to complete the Atecs-Mannesmann acquisition initiated
in fiscal 2001. Proceeds from sales and dispositions in fiscal
2002 totaled
6.097 billion,
including sales of businesses related to Atecs including Rexroth
AG and Mannesmann Sachs AG, as well as the sale of a portfolio
of businesses to Kohlberg Kravis Roberts & Co. L.P. Other
dispositions included the sale of Unisphere Networks, Inc. and
the Hydraulik-Ring business of SV. Fiscal 2002 also included
proceeds of
1.522 billion
related to sales of shares of Infineon.

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

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

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

Net cash used in investing activities of Siemens
worldwide was
3.939 billion
in fiscal 2003 compared to
810 million
in fiscal 2002, a period which included approximately
2.8 billion
in net proceeds from portfolio activities described above. The
current period included cash outflows of
929 million
for the acquisition of the industrial turbine businesses of
Alstom and
957 million
for purchases of investments and marketable securities. For
further information regarding net cash from operating and
investing activities of the Groups, see Segment
Information Analysis above.

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

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

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 Networks. 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

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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.

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.

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

Moodys Investor Service rates our long-term
corporate credit Aa3 (negative outlook). The rating
classification of Aa is the second highest rating within the
agencys debt ratings category. The numerical modifier 3
indicates that our long-term debt ranks in the lower end of the
Aa category. The Moodys rating outlook is an opinion
regarding the likely direction of an issuers rating over
the medium-term. Rating outlooks fall into the following six
categories: Positive, Negative, Stable, Developing, Ratings
Under Review and No Outlook. Our outlook was changed from stable
to negative in December 2002.

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

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

Siemens has no further agreements with nationally
recognized statistical rating organizations to provide a
long-term and short-term credit rating for our Company.

The rating agencies have focused more
specifically on an assessment of liquidity risk. Moodys
most recent liquidity risk assessment for Siemens as of
October 23, 2003, 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, 2003
included
12.149 billion
in cash and cash equivalents held in various currencies.
Corporate Treasury generally manages cash and cash equivalents
for the entire Company, except in countries where local capital
controls require otherwise. At September 30, 2003,
Corporate Treasury managed approximately 93% of Siemens
worldwide cash and cash equivalents. Corporate Treasury
carefully manages investments of cash and cash equivalents
subject to strict credit requirements and counterparty limits.
Another
650 million
is held in available-for-sale marketable securities, including
shares in Epcos AG. Furthermore, our remaining shares in
Infineon had a market value of approximately
3.2 billion
based on the share price at September 30, 2003. 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 receivables directly to banks. Due to our ample capital
resources, we have phased-out for the time being the use of the
SieFunds structure. Siemens continues to place a high priority
on improving 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
1.7 billion
of debt including
385 million
of commercial paper is scheduled to become due in fiscal 2004.
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 approximate current depreciation
expense of approximately
2.5 billion
for fiscal 2003.

Our shareholders equity at
September 30, 2003 was
23.715 billion,
an increase of
194 million
since September 30, 2002. See also the discussion of
pension plan funding below as well as the consolidated
statements of changes in shareholders equity. We have
authorization from our shareholders to repurchase up to 10% of
our outstanding shares at any time until July 22, 2004.
Such stock may be (i) retired with the approval of the
Supervisory Board, (ii) used to satisfy the Companys
obligations under the 1999 Siemens Stock Option Plan and the
2001 Siemens Stock Option Plan or (iii) offered for sale to
employees within the employee share program.

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Principal Sources of Liquidity

Our principal source of Company financing is cash
flow from operating and investing activities, totaling
1.773 billion
in fiscal 2003 after supplemental cash contributions of
1.192 billion
to Siemens pension trusts. 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
3.7 billion
in unused committed lines of credit. We also have two commercial
paper programs, under which we typically issue instruments with
a maturity of less than 90 days, for an aggregate
U.S. $3.0 billion in the U.S. domestic market and
an aggregate
3.0 billion
in the euro market. The amount outstanding under all commercial
paper programs was
385 million
at September 30, 2003. In addition, the Company has a
medium-term note program under which we may issue up to
5.0 billion
in medium-term notes. The amount outstanding under this program
was
1.368 billion
at September 30, 2003.

In addition to our existing cash and cash
equivalents, and current cash flows, 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. During the third quarter of fiscal 2003, the Company
terminated its
1 billion
revolving loan facility, which was to expire in February 2004,
and entered into a new revolving loan facility with a domestic
bank for an aggregate amount of
750 million
expiring in June 2008. In addition, we have a
400 million
revolving loan facility expiring in July 2006 also provided by a
domestic bank. None of our backstop facilities contain a
material adverse change clause of the type typically included in
low-risk backstop facility agreements.

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 June 2003, the Company issued
2.5 billion
of convertible notes through its wholly owned Dutch subsidiary,
Siemens Finance B.V., which are fully and unconditionally
guaranteed by Siemens AG. The convertible notes have a 1.375%
coupon and are convertible into approximately 44.5 million
shares of Siemens AG at a conversion price of
56.1681 per
share, which is subject to change under certain circumstances.
The conversion right is contingently exercisable by the holders
upon the occurrence of one of several conditions, including,
upon the Companys share price having exceeded 110% of the
conversion price on at least 20 trading days in a period of 30
consecutive trading days ending on the last trading day of any
calendar quarter. The Company may, at any time from
June 18, 2007, redeem the notes outstanding at their
principal amount together with interest accrued thereon, if
Siemens share price exceeds 130% of the conversion price
on any 15 of 30 consecutive trading days before notice of early
redemption. Unless previously redeemed, converted or repurchased
and cancelled, the notes mature on June 4, 2010.

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.

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.
Following is a detailed discussion of these contractual
obligations and commercial commitments.

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The following table summarizes contractual
obligations for future cash outflows as of September 30,
2003:

|                                   |  |                        |        |           |  |           |       |           |  |         |       |  |  |  |       |  |  |  |       | 
|---------------------------------- |  | ---------------------- | ------ | --------- |  | --------- | ----- | --------- |  | ------- | ----- |  |  |  | ----- |  |  |  | ----- | 
|                                   |  |                       
|                                   |  | Payments due by period
|                                   |  |                       
|                                   |  |                        |        | Less than |  |           |       | After    
|Contractual Obligations            |  | Total                  |        | 1 year    |  | 1-3 years |       | 4-5 years |  | 5 years
|                                   |  |                        |        |           |  |           |       |           |  |        
|                                   |  |                       
|                                   |  | ( in millions)       
|Debt                               |  |                        | 13,178 |           |  |           | 1,745 |           |  |         | 3,552 |  |  |  | 2,558 |  |  |  | 5,323 | 
|Operating leases                   |  |                        | 2,834  |           |  |           | 473   |           |  |         | 820   |  |  |  | 596   |  |  |  | 945   | 
|                                   |  |                        |        |           |  |           |       |           |  |         |       |  |  |  |       |  |  |  |       | 
|Total contractual cash obligations |  |                        | 16,012 |           |  |           | 2,218 |           |  |         | 4,372 |  |  |  | 3,154 |  |  |  | 6,268 | 
|                                   |  |                        |        |           |  |           |       |           |  |         |       |  |  |  |       |  |  |  |       | 

DebtAt
September 30, 2003, Siemens worldwide had
13.178 billion
of short- and long-term debt, of which
1.745 billion
will become due within the next 12 months. Included in
short-term debt is
385 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, 2003, the weighted average maturity of our
bonds and notes due after one year was 4.9 years. At
September 30, 2002, total debt was
12.346 billion.
Further information about the components of debt is given in the
Notes to the Consolidated Financial Statements.

Debt for Siemens worldwide at September 30,
2003 consisted of the following:

|                                 |  |                 |       |           |  |       |        |  |  |  |        | 
|-------------------------------- |  | --------------- | ----- | --------- |  | ----- | ------ |  |  |  | ------ | 
|                                 |  | Short-Term      |       | Long-Term |  | Total
|                                 |  |                 |       |           |  |      
|                                 |  |                
|                                 |  | ( in millions)
|Notes and bonds                  |  |                 | 436   |           |  |       | 9,997  |  |  |  | 10,433 | 
|Loans from banks                 |  |                 | 777   |           |  |       | 287    |  |  |  | 1,064  | 
|Other financial indebtedness     |  |                 | 494   |           |  |       | 904    |  |  |  | 1,398  | 
|Obligations under capital leases |  |                 | 38    |           |  |       | 245    |  |  |  | 283    | 
|                                 |  |                 |       |           |  |       |        |  |  |  |        | 
|Total debt                       |  |                 | 1,745 |           |  |       | 11,433 |  |  |  | 13,178 | 
|                                 |  |                 |       |           |  |       |        |  |  |  |        | 

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, 2003,
7.659 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, 2003, the Financing
and Real Estate component additionally held
122 million
in short-term and
509 million
in long-term debt from external sources.

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

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The capital structure of the Financing and Real
Estate component at September 30, 2003 and 2002 consisted
of the following:

|                     |                                    |                 |       |               |  |     |       |       |  |  |       |       |  |  |       |       | 
|-------------------- | ---------------------------------- | --------------- | ----- | ------------- |  | --- | ----- | ----- |  |  | ----- | ----- |  |  | ----- | ----- | 
|                     |                                    |                 |       |              
|                     |                                    | September 30,   |       | September 30,
|                     |                                    | 2003            |       | 2002         
|                     |                                    |                 |       |              
|                     |                                    | SFS             |       | SRE           |  | SFS |       | SRE  
|                     |                                    |                 |       |               |  |     |       |      
|                     |                                    |                
|                     |                                    | ( in millions)
|Assets               |                                    |                 | 8,445 |               |  |     | 3,607 |       |  |  | 8,681 |       |  |  | 4,090 |      
|Allocated equity     |                                    |                 | 1,080 |               |  |     | 920   |       |  |  | 930   |       |  |  | 920   |      
|Total debt           |                                    |                 | 6,821 |               |  |     | 1,469 |       |  |  | 6,730 |       |  |  | 1,751 |      
|                     | Therein intracompany financing     |                 |       | 6,571         |  |     |       | 1,088 |  |  |       | 6,469 |  |  |       | 1,402 | 
|                     | Therein debt from external sources |                 |       | 250           |  |     |       | 381   |  |  |       | 261   |  |  |       | 349   | 
|Debt to equity ratio |                                    |                 | 6.32  |               |  |     | 1.60  |       |  |  | 7.24  |       |  |  | 1.90  |      

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.

Operating
leasesAt September 30,
2003, the Company had a total of
2.834 billion
in total future payment obligations under non-cancellable
operating leases.

Off-balance sheet
arrangements

The following table summarizes contingent
commercial commitments as of September 30, 2003:

|                             |  |                                            |       |           |  |           |       |           |  |         |       |  |  |  |     |  |  |  |     | 
|---------------------------- |  | ------------------------------------------ | ----- | --------- |  | --------- | ----- | --------- |  | ------- | ----- |  |  |  | --- |  |  |  | --- | 
|                             |  |                                           
|                             |  | 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              |  |                                            | 111   |           |  |           | 88    |           |  |         | 8     |  |  |  |    |  |  |  | 15  | 
|Guarantees                   |  |                                            | 1,778 |           |  |           | 856   |           |  |         | 792   |  |  |  | 47  |  |  |  | 83  | 
|Other commercial commitments |  |                                            | 949   |           |  |           | 426   |           |  |         | 362   |  |  |  | 77  |  |  |  | 84  | 
|                             |  |                                            |       |           |  |           |       |           |  |         |       |  |  |  |     |  |  |  |     | 
|Total commercial commitments |  |                                            | 2,838 |           |  |           | 1,370 |           |  |         | 1,162 |  |  |  | 124 |  |  |  | 182 | 
|                             |  |                                            |       |           |  |           |       |           |  |         |       |  |  |  |     |  |  |  |     | 

Lines of
creditAt September 30,
2003, Siemens provided lines of credit totaling
111 million
which primarily related to asset based lending transactions of
SFS where SFS provides a line of credit and in return receives
assets as collateral.

GuaranteesGuarantees
are principally represented by credit guarantees and guarantees
of third-party performance. Credit guarantees cover the
financial obligation of third-parties in cases where Siemens is
the vendor and/or contractual partner. See also Customer
financing below. In addition, Siemens provides credit line
guarantees with variable utilization to associated and related
companies. Performance bonds and guarantees of advanced payments
guarantee the fulfillment of contractual commitments of partners
in a consortium where Siemens may be the general or subsidiary
partner. In the event of non-performance under the contract by
the consortium partner(s), Siemens will be required to pay up to
an agreed-upon maximum amount. Furthermore, the Company has
provided indemnifications in connection with dispositions of
business entities, which protect the buyer from tax, legal, and
other risks related to the purchased business entity. The
1.778 billion
total in the table above includes
206 million
in customer financing guarantees. In the event that it becomes
probable that Siemens will be required to satisfy these
guarantees, provisions are established. Such provisions are
established in addition

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to the liabilities recognized for the
non-contingent component of the guarantees. Most of the
guarantees have fixed or scheduled expiration dates, and in
practice such guarantees are rarely drawn. For additional
information with respect to our guarantees, see Notes to the
Consolidated Financial Statements.


Other commercial
commitmentsThe Company has
commitments related to customer financing arrangements
represented by approved but unutilized loans and guarantees of
approximately
622 million
at September 30, 2003. See Customer financing
below. Siemens also has commitments to make capital
contributions of
57 million
through Siemens Project Ventures (SPV) in connection with
investments whose primary goal is the development of
infrastructure projects. At September 30, 2003, Siemens has
a small portfolio of ten infrastructure projects, eight in the
power business and two in the telecommunications business. The
largest of such commitments 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, 2003, the net equity investment in these
projects totaled approximately
328 million.
Other than capital contributions, Siemens has no other
commercial commitments related to these projects.

We also have commitments to make capital
contributions totaling
199 million
to certain project companies and to venture capital investments.
Other commercial commitments also include
61 million
in discounted bills of exchange and
10 million
in collaterals for third-party liabilities.

Customer
financingSiemens
strong financial profile enables us to selectively provide
customers with financing. We also selectively assist customers
in arranging financing from various third-party sources,
including export credit agencies. This has historically been an
important competitive advantage in such long-cycle businesses as
power generation, transportation, and telecommunications. We
also provide direct vendor financing and grant guarantees to
banks in support of loans to Siemens customers and we may enter
into a combination of the above arrangements. Financing
requirements are entered into on a very selective basis; we have
forgone, and will continue to forgo, new business contracts if
the financing risks are not justifiable relative to the rewards.
Due to significantly lower levels of capital spending at most
major telecommunications operators, however, requests for such
financing have decreased. As a result, customer financing
commitments requiring the approval of Siemens Corporate
Executive Committee of the Managing Board have decreased
significantly. The total loans and guarantees relating to such
customer financing as of September 30, 2003 amounted to
1.378 billion
including loans and guarantees of
756 million
for approved and utilized commitments and
622 million
for approved but not utilized commitments. As of
September 30, 2002, total loans and guarantees relating to
this customer financing amounted to
2.526 billion
including loans and guarantees of
1.590 billion
for approved and utilized commitments and
936 million
for approved but not utilized commitments.

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

Provisions

In the ordinary course of business Siemens
establishes various types of provisions. As of
September 30, 2003, provisions for contract losses totaled
approximately
1.2 billion.
Accrued contract losses relate primarily to the Groups PG
(276 million),
ICM
(179 million),
TS
(171 million),
ICN
(143 million),
SD
(129 million)
and SBS
(106 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 predominantly over the
next two fiscal years. In addition to provisions for losses,
losses on contracts can include write-offs of inventories and
other charges. For additional information with respect to
long-term contracts and contract losses, see Item 4:
Information on the CompanyLong-Term Contracts and
Contract Losses.

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Pension Plan Funding

Siemens projected benefit obligation (PBO),
which considers future compensation increases, amounted to
20.9 billion
on September 30, 2003, compared to
19.5 billion
on September 30, 2002. This increase is due primarily to a
reduction in the average discount rate from 6.0% to 5.4%, which
reflects the worldwide decline in interest rates in financial
markets. The fair value of plan assets as of September 30,
2003 was
15.9 billion,
compared to
14.5 billion
on September 30, 2002. Over the last twelve months, the
actual return on plan assets amounted to 7.4%. Because the
measurement date for the valuation of certain Siemens pension
funds, particularly our large funds in the U.S. and U.K.,
does not coincide with the end of our fiscal year, we are not
able to fully recognize this return for fiscal year 2003. On
September 30, 2003, the combined funding status of all
Siemens pension plans showed an underfunding of
5.0 billion,
unchanged from the end of fiscal 2002.

Siemens was one of the first German companies to
transfer its pension obligations to a pension trust with
segregated assets to cover pension obligations. The principal
funded pension plans outside Germany had already been
established in this manner. The assets allocated to these
pension trusts serve solely to cover future pension obligations
and are not available for other purposes. At the time we
established our German pension trust, it was fully funded based
on the fair value of its assets. However, substantial declines
in equity valuations due to stock market trends over the past
three years have led to lower fair values for plan assets, which
in turn has resulted in underfunding of pension plans.

The Company constantly reviews the design and the
asset allocation of its pension plans, in order to detect and
analyze trends and events that may affect asset values and
initiate appropriate counter-measures at a very early stage.
These efforts are part of the Companys overall program of
sound financial management of its pension funds, including
adjustments to the asset allocation and supplemental
contributions to pension plans. In fiscal 2003, these
supplemental contributions included
1.192 billion
in cash and
377 million
in real estate. In fiscal 2002, supplemental contributions
totaled
1.782 billion
in cash.

In fiscal 2003, we decided to change the design
of the German pension plan from a defined benefit plan into
effectively a defined contribution plan. This change in approach
will enable the Company to better control future benefit
obligations. Under the new system (BSAV), previously earned
benefits are not affected. From October 1, 2004 onward, all
employees of Siemens AG and domestic affiliates will receive
pension benefits in line with the new system only. We expect to
continue to review the need for defined contribution plans also
outside Germany in the coming years.

For more information on Siemens pension plans,
see Notes to the consolidated financial statements.

CRITICAL ACCOUNTING ESTIMATES

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

REVENUE RECOGNITION ON LONG-TERM 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 projects using the percentage-of-completion method,
recognizing revenue as performance on a contract progresses.
This method places considerable importance on accurate estimates
of the extent of progress towards completion. Depending on the
methodology to determine contract progress, the significant
estimates include total contract costs, remaining costs to
completion, total contract revenues, contract risks and other
judgments. The managements of the operating Groups continually
review all estimates involved in such long-term contracts and
adjust them as necessary. We also use the
percentage-of-completion method for projects financed directly
or indirectly by Siemens. In order to qualify for such
accounting, the credit quality of the customer must meet certain
minimum parameters as evidenced by the customers credit
rating or by a credit analysis performed by SFS, which performs
such reviews

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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
information from external rating agencies. Regarding the
determination of the valuation allowance derived from a
portfolio-based analysis of historical bad debts, a decline of
receivables in volume results in a corresponding reduction of
such provisions. As of September 30, 2003 and 2002, Siemens
recorded a total valuation allowance for accounts receivable of
1.122 billion
and
1.585 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 provides direct vendor
financing and grants guarantees to banks in support of loans to
Siemens customers when necessary and deemed appropriate. Due to
the previous high levels of capital spending and associated debt
at most major telecommunications operators, however, requests
for such financing continued to decrease.

GOODWILL

SFAS 142 requires that goodwill be tested
for impairment at least annually using a two-step approach at
the division level. In the first step, the fair value of the
division is compared to its carrying amount including goodwill.
In order to determine the fair value of the division,
significant management judgment is applied in order to estimate
the underlying discounted future free cash flows. In the case
that the fair value of the division is less than its carrying
amount, a second step is performed which compares the fair value
of the divisions goodwill to the carrying amount of its
goodwill. The fair value of goodwill is determined based upon
the difference between the fair value of the division and the
net of the fair values of the identifiable assets and
liabilities of the division. If the fair value of goodwill is
less than the carrying amount, the difference is recorded as an
impairment. As of September 30, 2003 and 2002, Siemens had
total goodwill of
6.501 billion
and
6.459 billion,
respectively. 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, an
additional minimum liability is recorded net of deferred tax
assets in other comprehensive income. Our postretirement benefit
costs and credits are determined in accordance with actuarial
valuations, which rely on key assumptions including discount
rates, and increase or decrease in health care trend rates. The
discount rate assumptions reflect the rates available on
high-quality fixed-income investments of appropriate duration at
the measurement dates of each plan. The expected return on plan
assets assumption is determined on a uniform basis, considering
long-term historical returns, asset allocation, and future
estimates of long-term investment returns. Other key assumptions
for our pension and postretirement benefit costs and credits are
based in part on current market conditions. Pension and related
postretirement benefit costs or credits could change due to
variations in these underlying key assumptions.

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The assumptions used for the calculation of net
periodic pension cost in fiscal 2004 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
360
(310) million.
If more than one of these assumptions were changed
simultaneously, the impact would not necessarily be the same as
if only one assumption was changed in isolation. For a
discussion of our current funding status and the impact of these
critical assumptions, see Notes to 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 also requires significant judgment relating
to achieving certain performance standards, particularly in our
Power business, and estimates involving warranty costs.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2002, the Financial Accounting
Standards Board (FASB) issued SFAS 148, Accounting
for Stock-Based CompensationTransition and Disclosure,
which amends SFAS 123, Accounting for Stock-Based
Compensation. SFAS 148 provides alternative methods of
transition for a voluntary change to the fair value based method
of accounting for stock-based employee compensation. In
addition, this statement amends the disclosure requirements of
SFAS 123 to require prominent disclosures in both annual
and interim financial statements about the method of accounting
for stock-based employee compensation and the effect of the
method used on reported results. The transition provisions are
effective for financial statements for fiscal years ending after
December 15, 2002. The enhanced disclosure requirements are
effective for periods beginning after December 15, 2002.
Siemens has elected to apply Accounting Principles Board
Opinion 25, Accounting for Stock Issued to
Employees, and related Interpretations as its method in
accounting for stock-based compensation plans. Effective
October 1, 2003, Siemens adopted the fair value recognition
provisions of SFAS 123 prospectively to all awards granted
after this date. The impact on the Companys financial
statements will not be material.

In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities, which
interprets Accounting Research Bulletin (ARB) 51,
Consolidated Financial Statements. FIN 46 clarifies
the application of ARB 51 with respect to the consolidation of
certain entities (variable interest
entitiesVIEs) to which the usual
condition for consolidation described in ARB 51 does not
apply because the controlling financial interest in VIEs
may be achieved through arrangements that do not involve voting
interests. In addition, FIN 46 requires the primary
beneficiary of VIEs and the holder of a significant
variable interest in VIEs to disclose certain information
relating to their involvement with the VIEs. The
provisions of FIN 46 apply immediately to VIEs
created after January 31, 2003, and to VIEs in which
an enterprise obtains an interest after that date. On
October 9, 2003, the FASB issued FASB Staff Position (FSP)
FIN 46-6, Effective Date of FASBs Interpretation
No. 46, Consolidation of Variable Interest Entities,
which defers the effective date for initial application of
FIN 46 for VIEs created before February 1, 2003
to December 31, 2003. Following FSP FIN 46-6, the
Company decided to adopt FIN 46 as of December 31,
2003 for those VIEs created before February 1, 2003.
The Company holds variable interests in various VIEs which
are not significant either individually or in the aggregate. The
impact of consolidating certain of these VIEs on the
Companys financial statements will not be material. For
additional information see Notes to the consolidated financial
statements

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OUTLOOK

Following the volume declines of the past year,
which were substantially driven by currency translation, our
goal in fiscal 2004 is to achieve further growth in
profitability and win market share. As a number of our Groups
have demonstrated, we are well positioned for this effort, with
our clear customer focus, strength in innovation, global
competitiveness, and sound financial condition. These qualities
should also create the basis for double-digit percentage growth
in net income for fiscal 2004, assuming generally stable
economic conditions.

SUBSEQUENT EVENTS

After the close of fiscal 2003, in October 2003,
Med completed the sale of its life support systems business to
Getinge AB, of Sweden. Also in October 2003, Siemens made
additional supplemental cash contributions to its U.S. and
German pension trusts of
1.255 billion.




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
the employees who elected them with a majority of three-quarters
of the votes cast.

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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
|
| |  | 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 current Supervisory Board members
representing Company shareholders were elected at the Annual
Shareholders Meeting on January 23, 2003, and the
Supervisory Board members representing Company employees were
elected on December 5, 2002. 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, 2003.

|                         |  |         |            |         |  |                      |           |                               |  |                                                                                            |  |                                                                                            
|------------------------ |  | ------- | ---------- | ------- |  | -------------------- | --------- | ----------------------------- |  | ------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------
|                         |  |         |            |         |  |                      |           | Companies at which           
|                         |  | Date of |            | Term    |  | Board position and   |           | Supervisory Board and similar
|Name                     |  | birth   |            | expires |  | principal occupation |           | positions were held          
|                         |  |         |            |         |  |                      |           |                              
|Dr. Karl-Hermann Baumann |  |         | 07/22/1935 |         |  |                      | 1/24/2008 |                               |  | Chairman of the Supervisory Board                                                          |  | Deutsche Bank AG; E.ON AG; Linde AG; Schering AG;
    ThyssenKrupp AG; Wilhelm von Finck AG
|                        
|Ralf Heckmann*           |  |         | 07/19/1949 |         |  |                      | 1/24/2008 |                               |  | First Deputy Chairman; Chairman of the Central
    Works Council, Siemens AG               |  |                                                                                           
|                        
|Dr. Josef Ackermann      |  |         | 02/07/1948 |         |  |                      | 1/24/2008 |                               |  | Second Deputy Chairman; Spokesman of the Board of
    Managing Directors, Deutsche Bank AG |  | Bayer AG; Linde AG; Deutsche Lufthansa AG                                                  
|                        
|Lothar Adler*            |  |         | 02/22/1949 |         |  |                      | 1/24/2008 |                               |  | Member; Deputy Chairman of the Central Works
    Council, Siemens AG                       |  |                                                                                           
|                        
|Gerhard Bieletzki*       |  |         | 05/16/1947 |         |  |                      | 1/24/2008 |                               |  | Member; Member of the Combined Works Council,
    Siemens AG                               |  |                                                                                           

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|                           |  |         |            |         |  |                      |           |                               |  |                                                                                                                                   |  |                                                                                                                                                         
|-------------------------- |  | ------- | ---------- | ------- |  | -------------------- | --------- | ----------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------
|                           |  |         |            |         |  |                      |           | Companies at which           
|                           |  | Date of |            | Term    |  | Board position and   |           | Supervisory Board and similar
|Name                       |  | birth   |            | expires |  | principal occupation |           | positions were held          
|                           |  |         |            |         |  |                      |           |                              
|                          
|John David Coombe          |  |         | 03/17/1945 |         |  |                      | 1/24/2008 |                               |  | Member; Chief Financial Officer, GlaxoSmithKline
    plc                                                                          |  |                                                                                                                                                        
|                          
|Dr. Gerhard Cromme         |  |         | 02/25/1943 |         |  |                      | 1/24/2008 |                               |  | Member; Chairman of the Supervisory Board,
    ThyssenKrupp AG                                                                    |  | Allianz AG; Axel Springer Verlag AG; E.ON AG;
    Deutsche Lufthansa AG; Ruhrgas AG; Volkswagen AG; BNP Paribas
    S.A.; SUEZ S.A.                     
|                          
|Rolf Dittmar*              |  |         | 10/25/1943 |         |  |                      | 1/24/2008 |                               |  | Member; Chairman of the Works Council,
    München Perlach facility, Siemens AG                                                   |  |                                                                                                                                                        
|                          
|Bertin Eichler*            |  |         | 08/27/1952 |         |  |                      | 1/24/2008 |                               |  | Member; Executive Member of the Managing Board,
    IG Metall                                                                     |  | Allgemeine Deutsche Direktbank AG; BGAG
    Beteiligungsgesellschaft der Gewerkschaften AG; BauBeCon Holding
    AG; BHW Holding AG                     
|                          
|Birgit Grube*              |  |         | 08/21/1945 |         |  |                      | 1/24/2008 |                               |  | Member; Office clerk                                                                                                              |  |                                                                                                                                                        
|Heinz Hawreliuk*           |  |         | 03/23/1947 |         |  |                      | 1/24/2008 |                               |  | 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
|                          
|Prof. Dr. Walter Kröll     |  |         | 05/30/1938 |         |  |                      | 1/24/2008 |                               |  | Member; President of the Helmholtz-Gemeinschaft
    Deutscher Forschungszentren e.V. (Association of German Research
    Centers) |  | MTU Aero Engines GmbH                                                                                                                                   
|                          
|Wolfgang Müller*           |  |         | 01/14/1948 |         |  |                      | 1/24/2008 |                               |  | Member; Head of the Siemens team, IG Metall                                                                                       |  | Infineon Technologies AG                                                                                                                                
|                          
|Georg Nassauer*            |  |         | 03/08/1948 |         |  |                      | 1/24/2008 |                               |  | Member; Steel casting constructor                                                                                                 |  |                                                                                                                                                        
|                          
|Dr. Albrecht Schmidt       |  |         | 03/13/1938 |         |  |                      | 1/24/2008 |                               |  | Member; Chairman of the Supervisory Board,
    Bayerische Hypo- und Vereinsbank AG                                                |  | HVB Real Estate Bank AG; Münchener
    Rückversicherungs Gesellschaft AG                                                                                
|                          
|Dr. Henning Schulte-Noelle |  |         | 08/26/1942 |         |  |                      | 1/24/2008 |                               |  | Member; Chairman of the Supervisory Board,
    Allianz AG                                                                         |  | E.ON AG; ThyssenKrupp AG                                                                                                                                
|                          
|Peter von Siemens          |  |         | 08/10/1937 |         |  |                      | 1/24/2008 |                               |  | Member; Industrial manager                                                                                                        |  | Münchener Tierpark Hellabrunn AG                                                                                                                        
|                          
|Jerry I. Speyer**          |  |         | 06/23/1940 |         |  |                      | 1/24/2008 |                               |  | Member; President, TishmanSpeyer Properties                                                                                       |  |                                                                                                                                                        
|                          
|Sir Iain Vallance          |  |         | 05/20/1943 |         |  |                      | 1/24/2008 |                               |  | Member; Vice Chairman, The Royal Bank of Scotland
    Group                                                                       |  |                                                                                                                                                        

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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          
|              |  |         |            |         |  |                      |           |                              
|             
|Klaus Wigand* |  |         | 11/19/1945 |         |  |                      | 1/24/2008 |                               |  | Member; Industrial manager |  | 






|   |                                                                                                                                                                         
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*  | Elected by employees.                                                                                                                                                   
|  
|** | Dr. Hans-Dieter Wiedig who was elected on
    January 23, 2003 ceased to be a member of the Supervisory
    Board on July 12, 2003. He was succeeded by Jerry I. Speyer.

The following persons were members of the
Supervisory Board until January 23, 2003: Dr. Rolf-E.
Breuer, Helmut Cors, Jean Gandois, Robert M. Kimmitt,
Dr. Heinz Kriwet, Prof. Dr. Hubert Markl, Werner
Mönius, Georg Seubert, Dr. Daniel L. Vasella and Erwin
Zahl.

There are four Supervisory Board committees: the
Chairmans 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                                                                                                                                                                
|                     |  |                                                                                                                                                                                
|Chairmans Committee |  | Chairman Dr. Karl-Hermann Baumann, First
    Deputy Chairman Ralf Heckmann*, Second Deputy Chairman
    Dr. Josef Ackermann**                                                  
|Audit Committee      |  | Chairman Dr. Karl-Hermann Baumann, First
    Deputy Chairman Ralf Heckmann*, Second Deputy Chairman
    Dr. Josef Ackermann**, Heinz Hawreliuk*; Dr. Henning
    Schulte-Noelle
|Investment Committee |  | Chairman Dr. Karl-Hermann Baumann, Second
    Deputy Chairman Dr. Josef Ackermann**, Dr. Albrecht
    Schmidt                                                                  
|Mediation Committee  |  | Chairman Dr. Karl-Hermann Baumann, Deputy
    Chairman Ralf Heckmann*, Second Deputy Chairman Dr. Josef
    Ackermann**, Heinz Hawreliuk*                                      






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



|   |                                                                             
|-- | ----------------------------------------------------------------------------
|** | Dr. Josef Ackermann is a member of the
    committee since January 23, 2003.

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

MANAGING BOARD

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



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

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

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of the Managing Board who heads Corporate Human
Resources (Corporate Personnel Department) all be members of the
Corporate Executive Committee. Appointments of the remaining
unspecified members of the Corporate Executive Committee require
the approval of the Supervisory Board. Our current Corporate
Executive Committee consists of President and Chief Executive
Officer Heinrich von Pierer, Executive Vice-President and Chief
Financial Officer Heinz-Joachim Neubürger, as well as
Executive Vice-Presidents Johannes Feldmayer, Edward G.
Krubasik, Jürgen Radomski, Uriel J. Sharef and Klaus
Wucherer. The Supervisory Board appointed Klaus Kleinfeld to the
Corporate Executive Committee effective January 1, 2004.


Other committees of our Managing Board are
authorized to make certain decisions without seeking the
approval of the full Managing Board. The Managing Boards
committees include an Equity Committee responsible for certain
capital measures. The members of this committee are President
and 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 has also established a committee
responsible for the issuance of employee stock, including the
determination of the terms of such issuance. 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 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.

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The following table sets forth the names of the
members of our Managing Board, their dates of birth, the
expiration of their respective terms, their current positions
and their principal outside directorships at September 30,
2003.*

|                             |  |               |            |              |  |                  |           |                               |  |                                  |  |                                                                                      
|---------------------------- |  | ------------- | ---------- | ------------ |  | ---------------- | --------- | ----------------------------- |  | -------------------------------- |  | -------------------------------------------------------------------------------------
|                             |  |               |            |              |  |                  |           | Companies at which           
|                             |  |               |            |              |  |                  |           | Supervisory Board and similar
|Name                         |  | Date of birth |            | Term expires |  | Current position |           | positions were held          
|                             |  |               |            |              |  |                  |           |                              
|Dr. Heinrich v. Pierer       |  |               | 01/26/1941 |              |  |                  | 9/30/2004 |                               |  | President and CEO                |  | Bayer AG; Hochtief AG; Münchener
    Rückversicherungs-Gesellschaft AG; Volkswagen AG
|Johannes Feldmayer**         |  |               | 10/16/1956 |              |  |                  | 9/30/2007 |                               |  | Executive Vice-President         |  |                                                                                     
|Thomas Ganswindt**           |  |               | 11/18/1960 |              |  |                  | 9/30/2007 |                               |  | Senior Vice-President            |  |                                                                                     
|Dr. Volker Jung              |  |               | 08/28/1939 |              |  |                  | 9/30/2003 |                               |  | Executive Vice-President         |  | DAB bank AG; MAN AG (Chairman)                                                       
|Dr. Klaus Kleinfeld**        |  |               | 11/06/1957 |              |  |                  | 9/30/2007 |                               |  | Senior Vice-President            |  | Alcoa Inc. (effective November 14,
    2003); The Turner Corporation                 
|Prof. Dr. Edward G. Krubasik |  |               | 01/19/1944 |              |  |                  | 9/30/2006 |                               |  | Executive Vice-President         |  | Dresdner Bank AG; STINNES AG                                                         
|Rudi Lamprecht               |  |               | 10/12/1948 |              |  |                  | 9/30/2004 |                               |  | Senior Vice-President            |  |                                                                                     
|Heinz-Joachim Neubürger      |  |               | 01/11/1953 |              |  |                  | 9/30/2007 |                               |  | Executive Vice-President and CFO |  | Allianz Versicherungs-AG; Bayerische Börse
    AG; Merrill Lynch & Co., Inc.         
|Jürgen Radomski              |  |               | 10/26/1941 |              |  |                  | 9/30/2006 |                               |  | Executive Vice-President         |  | Deutsche Krankenversicherung AG; Dräger
    Medical AG                               
|Prof. Dr. Erich R. Reinhardt |  |               | 10/03/1946 |              |  |                  | 9/30/2006 |                               |  | Senior Vice-President            |  | Bio M AG; Dräger Medical AG                                                          
|Dr. Uriel J. Sharef          |  |               | 08/19/1944 |              |  |                  | 9/30/2004 |                               |  | Executive Vice-President         |  |                                                                                     
|Prof. Dr. Claus Weyrich      |  |               | 01/06/1944 |              |  |                  | 9/30/2006 |                               |  | Senior Vice-President            |  | HERAEUS Holding GmbH                                                                 
|Dr. Klaus Wucherer           |  |               | 07/09/1944 |              |  |                  | 3/31/2008 |                               |  | Executive Vice-President         |  | Deutsche Messe AG; Infineon Technologies AG                                          






|  |                                                                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Prof. Peter Pribilla and Dr. Volker Jung
    ceased to be members of the Managing Board. Prof. Pribilla
    passed away on August 9, 2003; Dr. Jung has retired on
    September 30, 2003.



|   |                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | Johannes Feldmayer is a member of the Managing
    Board since May 1, 2003; Thomas Ganswindt and
    Dr. Klaus Kleinfeld are members of the Managing Board since
    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

MANAGING BOARD

The Chairmans Committee of the Supervisory
Board is responsible for determining the remuneration of members
of the Managing Board. The Committee comprises
Dr. Karl-Hermann Baumann (Chairman of the Supervisory
Board), and Dr. Josef Ackermann and Ralf Heckmann (both
Deputy Chairmen of the Supervisory Board). For further details
see Management above.

Structure of Managing Board Compensation

The remuneration of members of the Managing Board
of Siemens AG takes into account the Companys size and
global presence, its economic and financial position, and the
level and structure of managing board compensation at peer group
companies in and outside Germany. In addition, the compensation
for each Board member reflects his or her responsibilities and
performance.

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Managing Board remuneration is
performance-related and has three components: a fixed salary, a
variable bonus, and stock-based compensation. The fixed
compensation and the bonus are based on a target
compensation that is reviewed regularly every two to three
years on the basis of an analysis of the compensation paid by
international peer companies to members of their top management.
The last review was conducted on April 1, 2003.

In fiscal 2003, the target compensation was
divided into a fixed compensation component of 40 percent
and a variable component of 60 percent. The fixed
compensation (base salary) is paid as a monthly
salary. Additionally, members of the Corporate Executive
Committee receive a bonus based on the Companys attainment
of certain financial goals that were set at the start of the
fiscal year. These goals are primarily oriented on performance
as measured by economic value added (EVA). In fiscal 2003, the
goals also included the achievement of a target for net cash
from operating and investing activities. One-half of the bonus
is paid as an annual bonus, which is contingent upon achieving
the company-wide EVA target established for the fiscal year. The
other half is granted as a long-term bonus whose amount depends
on the average attainment of EVA targets over a three-year
period. One-third of the long-term bonus is granted as deferred
income in the form of restricted stock. The bonus, which cannot
exceed 250 percent of the members base salary, has a
guaranteed minimum.

As of October 1, 2003, minor changes were
made to the structure of Managing Board compensation. In the
future, the target compensation will comprise 50 percent
fixed and 50 percent variable compensation. The guaranteed
minimum for the variable component has been dropped.

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

In addition, our Managing Board members receive
other fixed compensation such as non-cash benefits for company
cars, social welfare contributions subsidies and remunerations
for memberships in Supervisory Boards of affiliated companies.

The third component of Managing Board
remuneration is stock-based compensation. In fiscal 2003 and in
the preceding three years, members of the Managing Board
received stock options on shares of Siemens AG with a value of
approximately 20 percent of the target compensation.
Beginning in fiscal 2004, stock-based compensation will comprise
stock options and restricted stock.

Managing Board Remuneration in Fiscal 2003 and 2002

Managing Board members cash compensation
and other benefits for the fiscal year ended September 30,
2003 amounted to
28.2 million,
compared with
18.5 million
in the prior year, and comprised the following:

|                         |            |                    |      |      |  |  |      |     | 
|------------------------ | ---------- | ------------------ | ---- | ---- |  |  | ---- | --- | 
|                         |            | 2003               |      | 2002
|                         |            |                    |      |     
|                         |            |                   
|                         |            | (in millions of )
|Base salary              |            |                    | 6.5  |      |  |  | 4.9  |    
|Annual bonus             |            |                    | 12.6 |      |  |  | 9.8  |    
|Long-term bonus          |            |                    | 7.9  |      |  |  | 3.0  |    
|Other fixed compensation |            |                    | 1.2  |      |  |  | 0.8  |    
|                         |            |                    |      |      |  |  |      |    
|Total cash compensation  |            |                    | 28.2 |      |  |  | 18.5 |    
|                         |            |                    |      |      |  |  |      |    
|                         | per capita |                    |      | 2.2  |  |  |      | 1.7 | 

In addition, the members of the Managing Board
received a total of 345,000 stock options on shares of Siemens
AG in fiscal 2003 (151,000 in fiscal 2002). Based on an
estimated fair value at grant date of
9.80 per option
(23.36 in fiscal
2002), the total value of stock options issued to members of the
Managing Board amounted to
3.4 million
in fiscal 2003
(3.5 million
in fiscal 2002). The options are exercisable within the three
years following a holding period of two years and expire on
November 21, 2007. In accordance with the terms and
conditions of the 2001 Plan, the exercise price is equal to
53.70, which
corresponds to 120 percent of the average opening market
price of the Siemens share during the five trading days
preceding the date of stock option issue. For further details
see Stock Option Plan.

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Total remuneration paid to Managing Board members
was as follows:

|                         |            |                    |      |      |  |  |      |     | 
|------------------------ | ---------- | ------------------ | ---- | ---- |  |  | ---- | --- | 
|                         |            | 2003               |      | 2002
|                         |            |                    |      |     
|                         |            |                   
|                         |            | (in millions of )
|Cash compensation        |            |                    | 28.2 |      |  |  | 18.5 |    
|Stock-based compensation |            |                    | 3.4  |      |  |  | 3.5  |    
|                         |            |                    |      |      |  |  |      |    
|Total remuneration       |            |                    | 31.6 |      |  |  | 22.0 |    
|                         |            |                    |      |      |  |  |      |    
|                         | per capita |                    |      | 2.4  |  |  |      | 2.0 | 

At September 30, 2003, the total amount
accrued by us to provide pension payments to members of our
Managing Board was
42.3 million.

During the last two fiscal years, no loans from
the Company were provided to members of the Managing Board.

SUPERVISORY BOARD

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

The remuneration of members of the Supervisory
Board is based on the Companys size, the assignments and
responsibilities of Supervisory Board members, and the
Companys overall business position and performance. The
remuneration includes a large dividend-related component which
is contingent on the Companys progress. The chairman, the
deputy chairmen as well as the chairman and members of the Audit
Committee receive additional compensation.

The current remuneration policies for the
Supervisory Board were authorized at the Annual
Shareholders Meeting of February 18, 1999.
Compensation policies for service on a committee were set at the
Annual Shareholders Meeting of January 23, 2003.
Details are set out Section 17 of our Articles of
Association.

The compensation of Supervisory Board members
incorporates three components:



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

In accordance with these remuneration policies,
the fixed compensation of each Supervisory Board member is
6,000. As
dividend-dependent compensation, each member of the Supervisory
Board receives
3,500 for each
0.05 dividend
per share in excess of
0.20. The
chairman of the Supervisory Board receives twice the standard
compensation rate of an ordinary member and each deputy chairman
receives 1.5 times the standard compensation rate. The chairman
of the Audit Committee receives twice and each remaining member
of the Audit Committee receives 1.5 times of the standard
compensation rate. The names of the members of the Audit
Committee are listed in the table above under 
Supervisory Board.

The members of the Supervisory Board are
reimbursed for any out-of-pocket expenses incurred in connection
with their duties and for any sales taxes paid. 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. von Siemens
reimbursement of expenses incurred by him in connection with
these activities. In addition, Mr. von Siemens is entitled
to a company car, an office and secretarial services. After the
Annual Shareholders Meeting 2003, the Company renewed the
contract.

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

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Based on the proposed dividend rate of
1.10 per share,
the Supervisory Boards total cash compensation for its
members services during the fiscal year just ended
(including reimbursement of out-of-pocket expenses) will amount
to
1.9 million.

For fiscal year 2003, the following cash
compensation was paid:



| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 207,000
    to the Chairman of the Supervisory Board, who also chairs the
    Audit Committee;                                                                                                                                                                                 
|
| |  | 138,000
    to each of the Deputy Chairmen, who are also members of the
    Audit Committee, of which
    104,000 was paid
    to the Deputy Chairman elected to the Supervisory Board on
    January 23, 2003;                                                               
|
| |  | 104,000
    to each of the remaining members of the Audit Committee;                                                                                                                                                                                                           
|
| |  | 69,000
    to each of the remaining members of the Supervisory Board, of
    which 52,000 was
    paid on a pro rata basis to each of the members elected on
    January 23, 2003 and
    17,000 to the
    member whose appointment was approved by the courts in July 2003;
|
| |  | 23,000
    on average to each of the members who left the Supervisory Board
    on January 23, 2003.                                                                                                                                                                           

In addition, each member of the Supervisory Board
received 1,500 SARs for the fiscal year 2003 which had a
fair value of approximately
14,000 on the
date of grant. The newly elected members of the Supervisory
Board received 1,125 SARs, and the members who left the
Board received 500 SARs. The total fair value of SARs
issued to members of the Supervisory Board for the fiscal year
ended September 30, 2003 was
302,000.

During the last two fiscal years, no loans from
the Company were provided to members of the Supervisory Board.

STOCK OPTION PLAN

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

Under our 2001 Stock Option Plan, the Supervisory
Board decides annually after the end of each fiscal year how
many options to grant to the Managing Board and the Managing
Board decides annually how many options to grant to executive
officers and eligible employees. As of November 20, 2003,
we had outstanding options exercisable for 28,958,637 shares
under our option plans, including 8,416,252 options granted to
our executive officers and eligible employees on
November 14, 2003. 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 2004, 2003 and 2002:

|                               |  |                    |                   |                    |  |                    |                   |  |  |  |                   | 
|------------------------------ |  | ------------------ | ----------------- | ------------------ |  | ------------------ | ----------------- |  |  |  | ----------------- | 
|                               |  | With respect to    |                   | With respect to    |  | With respect to   
|                               |  | options granted in |                   | options granted in |  | options granted in
|                               |  | fiscal 2004        |                   | fiscal 2003        |  | fiscal 2002       
|                               |  |                    |                   |                    |  |                   
|Number of shares upon exercise |  |                    | 262,500           |                    |  |                    | 345,000           |  |  |  | 151,000           | 
|Exercise price                 |  |                    | 73.25            |                    |  |                    | 53.70            |  |  |  | 87.19            | 
|Expiration date                |  |                    | November 21, 2008 |                    |  |                    | November 21, 2007 |  |  |  | December 20, 2006 | 

The exercise price for options that have been
issued under our 1999 Stock Option Plan, which was replaced by
our 2001 Stock Option Plan, is equal to the average market price
of the Siemens stock during the five trading days preceding the
day of grant of the options. Holders of options under the 1999
Plan may exercise them during

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fixed time periods after the publication of our
quarterly, half-year or yearly results within a five-year period
following a holding period of two years. In addition, these
options may be exercised only if the trading price of our shares
on the Frankfurt Stock Exchange has reached an exercise
threshold, which is based on the Dow Jones Stoxx-Index, at least
once during the five-year term of the options. See Notes to the
consolidated financial statements, for further information about
the terms of these options.


The exercise price for options under the 2001
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 the 2001 Plan may exercise
them during fixed time periods after the publication of our
quarterly, half-year or yearly results within a three-year
period following a holding period of two years plus one week. In
addition, options under the 2001 Plan may be exercised only if
the trading price of our shares on the Frankfurt Stock Exchange
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 capitals
reserved for this purpose, in treasury stock or in cash. The
alternatives available to optionees are determined by the
Managing Board, in each case as approved by the Supervisory
Board.

SHARE OWNERSHIP

At October 25, 2003, members of the Managing
Board serving during fiscal year 2003 held 690,229 shares and
stock options representing 0.077 percent of our total
shares outstanding.

Members of the Supervisory Board held
13,998 shares and stock options representing
0.002 percent of our total shares outstanding. This figure
does not include 16,736,966 shares, or approximately 2% of
our total shares outstanding, that are held by the von
Siemens-Vermögensverwaltung GmbH (vSV), a German limited
liability entity that functions much like a trust. In addition,
the vSV has voting control over 38,877,285 shares, or
approximately 4% of the capital stock, under a power of
attorney. Mr. Peter von Siemens is authorized to vote these
shares as a representative of the founders family. The vSV
is described in more detail under Item 7: Major
Shareholders and Related Party Transactions Major
Shareholders.

Pursuant to Section 15a of the German
Securities Trading Act, members of the Managing and Supervisory
Boards are required to disclose significant purchases or sales
of shares of Siemens AG. In the fiscal year just ended, no such
transactions have been reported.




ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS

MAJOR SHAREHOLDERS

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

As of November 14, 2003, we had
approximately 1.0 million shareholders. Approximately
53,300 were U.S. holders, of which approximately 270 were
record holders. Based on our share register, U.S. holders
held approximately 10% of our ordinary shares as of
September 30, 2003.

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RELATED PARTY TRANSACTIONS

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

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

We have a number of significant joint ventures
and other equity investments in large companies 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 BSH
Bosch und 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 are our investments in
Juniper Networks, Inc. and 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. In September 2003, we applied for a delisting of our
shares from the Paris Stock Exchange. We anticipate that the
delisting will be effective by December 31, 2003. 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.

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. 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

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discussion under Item 3: Key
InformationExchange Rate Information, for
information with respect to rates of exchange between the
U.S. dollar and the euro applicable during the periods set
forth below.


|                         |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|------------------------ |  | ------------------ | ------ | --- |  | ------- | ----- | ------------ |  | --------- | ------- |  |  |  | ------- |  |  |  | ----- | 
|                         |  |                    |        |     |  |         |       |             
|                         |  | Price per ordinary |        |     |  | Average
|                         |  | share              |        | DAX |  | daily  
|                         |  |                    |        |     |  | trading
|                         |  | High               |        | Low |  | High    |       | Low          |  | volume(1)
|                         |  |                    |        |     |  |         |       |              |  |          
|                         |  |                    |        |     |  |         |       | (millions of
|                         |  | ()                |        |     |  |         |       | shares)     
|Annual highs and lows    |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|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                     |  |                    | 78.52  |     |  |         | 32.05 |              |  |           | 5,462.6 |  |  |  | 2,597.9 |  |  |  | 6.226 | 
|2003(2)                  |  |                    | 63.02  |     |  |         | 32.55 |              |  |           | 3,797.4 |  |  |  | 2,203.0 |  |  |  | 6.374 | 
|Quarterly highs and lows |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|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           |  |                    | 73.30  |     |  |         | 55.26 |              |  |           | 5,397.3 |  |  |  | 4,099.1 |  |  |  | 5.616 | 
|Third quarter            |  |                    | 63.00  |     |  |         | 34.00 |              |  |           | 4,483.0 |  |  |  | 2,769.0 |  |  |  | 6.399 | 
|Fourth quarter           |  |                    | 51.37  |     |  |         | 32.05 |              |  |           | 3,380.2 |  |  |  | 2,597.9 |  |  |  | 6.462 | 
|2003                     |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|First quarter            |  |                    | 45.04  |     |  |         | 32.55 |              |  |           | 3,157.3 |  |  |  | 2,203.0 |  |  |  | 6.982 | 
|Second quarter           |  |                    | 46.15  |     |  |         | 37.80 |              |  |           | 3,304.2 |  |  |  | 2,450.2 |  |  |  | 6.655 | 
|Third quarter            |  |                    | 58.32  |     |  |         | 41.35 |              |  |           | 3,668.7 |  |  |  | 3,146.6 |  |  |  | 6.179 | 
|Fourth quarter(2)        |  |                    | 63.02  |     |  |         | 52.02 |              |  |           | 3,797.4 |  |  |  | 3,276.6 |  |  |  | 5.376 | 
|Monthly highs and lows   |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|2003                     |  |                    |        |     |  |         |       |              |  |           |         |  |  |  |         |  |  |  |       | 
|June                     |  |                    | 43.76  |     |  |         | 40.30 |              |  |           | 3,304.2 |  |  |  | 2,982.7 |  |  |  | 6.328 | 
|July                     |  |                    | 50.30  |     |  |         | 41.35 |              |  |           | 3,487.9 |  |  |  | 3,146.6 |  |  |  | 6.810 | 
|August                   |  |                    | 56.64  |     |  |         | 49.18 |              |  |           | 3,565.5 |  |  |  | 3,331.9 |  |  |  | 5.278 | 
|September                |  |                    | 58.32  |     |  |         | 51.14 |              |  |           | 3,668.7 |  |  |  | 3,256.8 |  |  |  | 6.379 | 
|October                  |  |                    | 57.19  |     |  |         | 52.02 |              |  |           | 3,656.0 |  |  |  | 3,276.6 |  |  |  | 4.850 | 
|November(2)              |  |                    | 63.02  |     |  |         | 58.00 |              |  |           | 3,797.4 |  |  |  | 3,638.0 |  |  |  | 5.882 | 






|    |                                       
|--- | --------------------------------------
|(1) | Data from Datastream International.   
|   
|(2) | Up to and including November 28, 2003.

On November 28, 2003, the closing sale price
per Siemens AG ordinary share on Xetra was
60.86, which was
equivalent to $73.00 per ordinary share, translated at the noon
buying rate for euros on such date.

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.

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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    |  |               |       |     |  |  |       | 
|2002                     |  |               | 70.45 |     |  |  | 30.85 | 
|2003(1)                  |  |               | 73.49 |     |  |  | 36.61 | 
|Quarterly highs and lows |  |               |       |     |  |  |       | 
|2002                     |  |               |       |     |  |  |       | 
|First quarter            |  |               | 70.45 |     |  |  | 54.76 | 
|Second quarter           |  |               | 67.00 |     |  |  | 55.19 | 
|Third quarter            |  |               | 60.70 |     |  |  | 33.61 | 
|Fourth quarter           |  |               | 51.04 |     |  |  | 30.85 | 
|2003                     |  |               |       |     |  |  |       | 
|First quarter            |  |               | 47.12 |     |  |  | 36.61 | 
|Second quarter           |  |               | 52.55 |     |  |  | 41.20 | 
|Third quarter            |  |               | 64.79 |     |  |  | 48.65 | 
|Fourth quarter(1)        |  |               | 73.49 |     |  |  | 61.15 | 
|Monthly highs and lows   |  |               |       |     |  |  |       | 
|2003                     |  |               |       |     |  |  |       | 
|June                     |  |               | 51.20 |     |  |  | 47.58 | 
|July                     |  |               | 57.21 |     |  |  | 48.65 | 
|August                   |  |               | 62.28 |     |  |  | 55.67 | 
|September                |  |               | 64.79 |     |  |  | 59.07 | 
|October                  |  |               | 67.31 |     |  |  | 61.15 | 
|November(1)              |  |               | 73.49 |     |  |  | 67.31 | 






|    |                                       
|--- | --------------------------------------
|(1) | Up to and including November 28, 2003.

On November 28, 2003, 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
$73.06.




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. You can find both of them also on our
website www.siemens.com/corporate governance.
Information on our website is not incorporated by reference into
this annual report.

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CORPORATE GOVERNANCE

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

Good corporate governance has traditionally been
a high priority at Siemens. We welcome the recent corporate
governance initiatives in and outside Germany.

In 2002, an independent commission established by
the German government issued the first German Corporate
Governance Code. The Code was expanded in July 2003. Siemens
complies with this expanded version in all but two respects: we
do not publish the individual compensation of our Managing Board
members, and our directors and officers liability insurance
(D&O) policy does not include a deductible.

In July 2002, the U.S. Congress passed the
Sarbanes-Oxley Act (SOA), which aims to strengthen investor
protections and restore confidence in the capital markets. The
SOA, together with the related rules adopted by the
U.S. Securities and Exchange Commission, introduced
numerous changes in corporate governance regulations for all
companies listed on U.S. stock exchanges. Some of these
regulations have not yet come into effect.

In implementing the provisions of the SOA, we
have, among other things, established a Disclosure Committee
that is responsible for reviewing and approving all financial
and finance-related information before we make it public. We
have also introduced a procedure that enables the managements of
our Groups and subsidiaries to certify their compliance with our
internal control system, the financial figures they submit, as
well as the efficiency of their own internal financial control
systems. On the basis of this procedure, the chief executive
officer (CEO) and the chief financial officer (CFO) of Siemens
AG certify the appropriateness of our financial statements to
the SEC, as required by the SOA. Siemens has aligned the rules
for the Audit Committee of its Supervisory Board, as well as for
its relationship to the Companys independent auditors,
with the requirements of the SOA and introduced a Code of Ethics
for financial matters.

MANAGEMENT AND CONTROL STRUCTURETHE SUPERVISORY
BOARD

Because its registered offices are located in
Berlin and Munich, Siemens is subject to German corporate law.
Consequently, the Company has a two-part management and
oversight structure comprising a Managing Board and a
Supervisory Board. The Supervisory Board has twenty members. As
stipulated by the German Codetermination Act
(Mitbestimmungsgesetz), half of the Boards members
represent Company shareholders, and half represent Company
employees. The shareholder representatives are elected by the
Annual Shareholders Meeting. The employee representatives
are elected by an assembly representing Siemens employees in
Germany. Seven of the employee representatives must be Siemens
employees, and three must be external representatives nominated
by the unions. As stipulated in the Bylaws for the Supervisory
Board, the shareholder representatives are independent.

Some Supervisory Board and Managing Board members
hold or held, in the past year, high-ranking positions at other
companies. Siemens maintains normal business relationships with
almost all of these companies. Our sales of products and
services to them have the status of third-party transactions.
However, the volume of these sales is very small in relation to
the companies total sales. Consequently, these
transactions do not affect the independence of Supervisory Board
members.

The Supervisory Board is elected for five years.
It normally meets five times a year and, at regular intervals,
convenes in executive session without the Managing Board in
attendance. The duties, procedures and committees of the
Supervisory Board are specified in its bylaws. These bylaws,
which are posted on our website, contain rules regarding, among
other things, the independence, experience and knowledge
required of Supervisory Board Members and regarding conflicts of
interest and insider trading.

The Supervisory Board oversees and advises the
Managing Board in its management of Company business. At regular
intervals, it discusses business development, planning, strategy
and implementation. It also reviews Siemens quarterly
reports and approves the annual financial statements of the
Company as well as its consolidated financial statements, taking
into account both the audit reports provided by the independent
auditors

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and the results of the review conducted by the
Audit Committee. In addition, the Supervisory Board appoints the
members of the Managing Board, determines their remuneration and
allocates their responsibilities. Important Managing Board
decisionssuch as major acquisitions, divestments and
financial measuresrequire Supervisory Board approval.


The Supervisory Board has established four
committees, whose duties, responsibilities and processes are set
out in separate bylaws, fulfill the requirements of the German
Corporate Governance Code, and take into account the SOA
requirements and, to the greatest extent possible, the rules of
the New York Stock Exchange. The committee bylaws are posted on
our website.

The Chairmans Committee, comprising
two shareholder representatives and one employee representative,
performs the tasks of a nominating, compensation and corporate
governance committee. It meets at least four times a year
without the Managing Board in attendance. The Chairmans
Committee determines the conditions of employment of Managing
Board members and the level and structure of their remuneration.
It also decideson an annual basiswhich portion 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 Chairmans Committee makes
proposals regarding the appointment of Managing Board members.
Finally, it reviews and ensures the further development of
Siemens corporate governance principles.

The Audit Committee, comprising three
shareholder representatives and two employee representatives,
meets at least five times a year. The SOA requires that all
members of the Audit Committee be independent. The shareholder
representatives fulfill this requirement. The SECs
regulations implementing the SOA permit the employee
representatives, who have been elected in accordance with the
German Codetermination Act and who, due to their employment by
the Company, are not independent, to serve on the Audit
Committee. The Audit Committee oversees the Companys
external and internal accounting processes. On the basis of the
reports provided by the independent auditors, it reviews the
Companys quarterly and annual financial statements, and
informs the Supervisory Boards decision whether or not to
approve the annual financial statements.

In addition, the Audit Committee oversees the
Companys internal control system and the procedures for
assessing, monitoring and managing risk. It also receives
reports regarding compliance with all relevant statutory and
regulatory requirements. The Companys internal Corporate
Audit Department reports regularly to the Audit Committee, which
determines the scope and focal points of its audit. The Audit
Committee is responsible for liaising between the Company and
the independent auditors. In particular, it awards the audit
contract to the independent auditors elected by the Annual
Shareholders Meeting and determines the focal points of
their audit as well as their fee. In addition, the Audit
Committee monitors the auditors independence.

In accordance with the requirements of the SOA,
the Supervisory Board has designated the following members of
the Audit Committee as the Committees financial experts:
Dr. Karl-Heinz Bauman (Chairman of the Committee),
Dr. Josef Ackermann and Dr. Henning Schulte-Noelle.

The Mediation Committee, comprising 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, which currently
has twelve members, is the Companys top management body.
It is obligated to promote the interests of the Company at all
times and to drive sustainable growth in company value. The
Managing Boards executive committee, the Corporate
Executive Committee, currently has seven members and, effective
January 1, 2004, an additional individual has been
appointed to the Committee. The Chairman of the Managing Board
defines overall Company policies in cooperation with the
Corporate Executive Committee. The Managing Boards
responsibilities include determining the Companys
strategic orientation, planning and finalizing the Company
budget, allocating resources and monitoring the executive
management of

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each Group. Furthermore, the Managing Board
directs the preparation of the Companys quarterly reports,
the annual financial statements of Siemens and the
Companys consolidated financial statements. It also
selects personnel to fill key Company positions.


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

SHAREHOLDER RELATIONS

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

An ordinary Annual Shareholders Meeting
normally takes place within the first four months of each fiscal
year. Each common 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in particular, the Internetand
enables shareholders who are unable to attend to exercise their
voting rights by communicating instructions directly to their
representatives. 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, in particular, voting on disposition of net income,
ratification of the acts of the Managing and Supervisory Boards,
and the election of the independent auditors. Amendments to the
Articles of Association and measures which change the
Companys capital stock are approved exclusively at the
Annual Shareholders Meeting and implemented by the
Managing Board with the approval of the Supervisory Board.
Shareholders may make counterproposals to the proposals of the
Managing and Supervisory Boards and contest decisions of the
Annual Shareholders Meeting. Shareholders owning Siemens
common shares with a market value of
1 million
or more may also demand a special judicial review of a
particular decision.

As part of our investor relations activities, the
CEO, the CFO and individual members of the managements of our
individual Groups meet regularly with analysts and institutional
investors. We hold a conference for analysts once a year as well
as telephone conferences with analysts on the publication of our
quarterly results.

RISK MANAGEMENT

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

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

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FINANCIAL ACCOUNTING

The consolidated financial statements of the
Company are prepared in accordance with the United States
Generally Accepted Accounting Principles. The Managing Board
directs the preparation of the financial statements. The
existing internal control system and the company-wide use of
uniform guidelines help ensure the accuracy of our financial
statements.

In addition, we have established a system of
internal certification in which the executive managements of our
Groups and subsidiaries certify the financial data they submit
and the effectiveness of their own internal financial control
processes. This system is the basis for the statement of
certifications, which must be signed by the CEO and the CFO and
filed with the SEC with the annual report on Form 20-F, in
accordance with SOA requirements. In these statements, the CEO
and the CFO certify that the annual report submitted to the SEC
is accurate, that an effective system of internal controls is in
place, and that the Managing Board has reviewed this system
before the publication of the annual report.

Additional SOA requirements, which will come into
effect in fiscal 2005, stipulate that the CEO and the CFO must
explicitly affirm that they have reviewed the effectiveness of
all internal processes that bear on the quality of financial
reporting. They also stipulate that the independent auditors
must confirm the results of this review. In anticipation of
these additional requirements, we further developed our internal
control system for financial reporting in the past year with the
goal to potentially request such confirmation from our
independent auditors, already in 2004.

BUSINESS CONDUCT GUIDELINES AND CODE OF ETHICS

Siemens aims to conduct its business responsibly
and in compliance with all relevant statutory and regulatory
requirements. The Managing Board has established guidelines to
ensure that this goal is achieved. The Business Conduct
Guidelines comprise rules regarding compliance with applicable
laws, conflicts of interest, the use of Company facilities and
insider trading. These rules are binding for all Siemens
employees, the Managing Board and the Supervisory Board. The
Guidelines also specify a procedure for dealing with complaints.
A Compliance Officer, who reports to the Audit Committee, has
been appointed to process all complaints, including those
submitted anonymously.

In addition, the Managing Board and the
Supervisory Board have approved a Code of Ethics for financial
matters, as required by SOA rules. Both the Business Conduct
Guidelines and the Code of Ethics are available on our website.
See also Item 16B: Code of Ethics for further
information about the Code of Ethics for financial matters.
Further information on Managing Board and Supervisory Board
remuneration is provided in Item 6: Directors, Senior
Management and EmployeesCompensation.

DECLARATION OF CONFORMITY WITH REGARD TO THE GERMAN CORPORATE
GOVERNANCE CODE

At their meetings on November 11 and 12,
2003, respectively, the Managing Board and the Supervisory Board
approved the following Declaration of Conformity pursuant to
§ 161 of the German Stock Corporation Act
(Aktiengesetz):

Siemens AG complies with the recommendations of
the German Corporate Governance Codein the version of
July 4, 2003with the following exceptions:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Managing Board compensation (Code
    Section 4.2.4, sentence 2) is not reported on an
    individualized basis. It is broken down into fixed,
    performance-related and long-term incentive components.                                                                                                                                                                                                                                                       
|
| |  | Our D&O (directors and officers liability
    insurance) policy includes no deductible for Managing Board and
    Supervisory Board members (Code Section 3.8,
    paragraph 2). 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.

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Subsequent to the Declaration of Conformity of
December 2002, Siemens AG complied with the recommendations of
the November 26, 2002 version of the German Corporate
Governance Code, with the following exceptions:



| |   |                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Our D&O policy included no deductible for
    Managing and Supervisory Board members (Code Section 3.8,
    paragraph 2).                                                                                                                                                                                                                                                                    
|
| |  | The stated exception to the provision of Code
    Section 5.4.5, paragraph 1, sentence 3 regarding
    the remuneration of committee chairmen was eliminated by an
    amendment to our Articles of Association approved through the
    Annual Shareholders Meeting of January 23, 2003. For
    this reason, the Declaration of Conformity of December 2002 was
    amended in March 2003.

Consequently, Siemens AG complied with all but
one of the recommendations of the November 26, 2002 version
of the German Corporate Governance Code.

OBJECTS AND PURPOSES

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



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

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

DIRECTORS

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

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

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

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

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RIGHTS, PREFERENCES AND RESTRICTIONS ATTACHING TO OUR
SHARES

VOTING RIGHTS

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

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

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

At our shareholders meetings, each share
carries one vote. In certain cases, a shareholder can be
prevented from exercising his or her voting rights. This rule
applies, for example, if we discharge one of our shareholders
from liability or assert claims against one of our shareholders.
Resolutions are generally passed with a simple majority of the
votes cast at the meeting. Resolutions that require a capital
majority are passed with a simple majority of the issued capital
present at the meeting, unless statutory law or our Articles of
Association require otherwise. Under the German Stock
Corporation Act, a number of significant resolutions must be
passed by a 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.
Accordingly, holders of a minority of our shares could control
the outcome of actions not requiring a specified majority of our
outstanding share capital.

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

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DIVIDEND RIGHTS

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

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

LIQUIDATION RIGHTS

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

PREEMPTIVE RIGHTS

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



| |   |                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | to the extent that we have an obligation to grant
    new shares to holders of warrants or convertible bonds that we
    or any of our subsidiaries have issued;                                                                                                                                    
|
| |  | if the newly issued shares represent 10% or less
    of our existing share capital at the time we register the
    authorized capital or issue the new shares, and the issue price
    of the new shares is not substantially less than the stock
    exchange price as defined under German law; or

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| |   |                                                                                                                                                 
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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. Additionally, our shareholders have
waived their preemptive rights in certain cases with respect to
the issuance of bonds with conversion rights or warrants:



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

DISCLOSURE REQUIREMENT

Our Articles of Association do not require our
shareholders to advise us when their holdings exceed specified
thresholds. Under the German Securities Trading Act
(Wertpapierhandelsgesetz), however, holders of the voting
securities of German corporations admitted to organized markets
on a stock exchange within the European Union or the European
Economic Area are required to notify promptly and in writing the
company in which they hold the securities and the German Federal
Financial Supervisory Authority (Bundesanstalt für
Finanzdienstleistungsaufsicht) of the level of their
holdings whenever such holdings reach, exceed or fall below
certain thresholds. These thresholds are set at 5%, 10%, 25%,
50% or 75% of our outstanding voting rights. If a shareholder
fails to notify the company or the German Federal Financial
Supervisory Authority as required, he or she cannot exercise any
rights associated with the shares for as long as the default
continues. Additionally, the German Takeover Act
(Wertpapiererwerbs- und Übernahmegesetz) requires
the publication of the acquisition of control, which
is defined as holding of at least 30% of the voting rights in a
target company, within seven days.

The German Securities Trading Act 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.

The German Stock Corporation Act generally limits
share repurchases to 10% of our share capital. In addition, any
shareholders resolution that authorizes us to repurchase
shares may not be in effect for a period of longer than
18 months. The resolution presently in effect is valid
until July 22, 2004. Shares that are repurchased may be
(i) retired with the approval of the Supervisory Board;
(ii) used to satisfy our obligations under the 1999 Siemens
Stock Option Plan and the 2001 Siemens Stock Options Plan; or
(iii) offered for sale to employees within the employee
share program.

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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 Trust on
December 5, 2001. As a result of its merger with First
Union Trust, Wachovia Trust Company, N.A. has succeeded First
Union Trust as the trustee under the trust agreement.

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 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. We have notified the trustee that the trust
will terminate in accordance with the terms of the trust
agreement on November 28, 2004. Upon termination, any
shares held by the trustee 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

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excess of
3 million
must report annually to the German Central Bank any stake of 10%
or more in the company held by an individual or a corporation
located outside Germany.


TAXATION

GERMAN TAXATION

The following discussion is a summary of the
material German tax consequences for beneficial owners of our
shares or ADSs (i) who are not German residents for German
income tax purposes (i.e., persons whose residence, habitual
abode, statutory seat or place of effective management and
control is not located in Germany) and (ii) whose shares 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 were
applicable to Siemens with respect to its fiscal year beginning
October 1, 2002. The following discussion does not purport
to be a comprehensive discussion of all German tax consequences
that may be relevant for Non-German Holders. You should consult
your tax advisor regarding the German federal, state and local
tax consequences of the purchase, ownership and disposition of
our shares or ADSs and the procedures to follow 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. As a result of Act, the
German corporate income tax rate will increase from 25% to 26.5%
for the fiscal year 2003 only.

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 received a dividend were 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

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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. A 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 refund must be filed with
the German Federal Tax Office (Bundesamt für Finanzen,
Friedhofstrasse 1, D53221 Bonn, Germany;
http://www.bff-online.de/). The relevant forms can be obtained
from the German Federal Tax Office or from German embassies and
consulates.

Special Tax Rules for U.S. Shareholders

Under the U.S.German Income Tax Treaty (the
Treaty), the withholding tax rate is reduced to 15%
of the gross amount of the dividends. 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.

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For dividend distributions made by Siemens
attributable to fiscal 2002 and subsequent years, the dividends
are, in the absence of the Treaty, subject to a 20% withholding
tax plus a solidarity surcharge of 5.5% on the withholding tax,
resulting in an aggregate withholding of 21.1% of the declared
dividend. Eligible U.S. holders (as defined below under
U.S. Taxation) are entitled to receive a
payment from the German tax authorities equal to 6.1% of the
declared dividend. Accordingly, for a declared dividend of 100,
an eligible U.S. holder initially will receive 78.9 (100
minus the 21.1% withholding tax). The eligible U.S. holder
is then entitled to a refund from the German tax authorities of
6.1 and will, as a result, effectively receive a total of 85
(i.e., 85% of the declared dividend). Thus, the eligible
U.S. holder will be deemed to have received a dividend of
100, subject to German withholding tax of 15.

Refund Procedure for U.S. Shareholders

For shares and ADSs kept in custody with The
Depository Trust Company in New York or one of its participating
banks, the German tax authorities have introduced a collective
procedure for the refund of German dividend withholding tax and
the solidarity surcharge thereon on a trial basis. Under this
procedure, The Depository Trust Company may submit claims for
refunds payable to eligible U.S. holders under the Treaty
collectively to the German tax authorities on behalf of these
eligible U.S. holders. The German Federal Tax Office will
pay the refund amounts on a preliminary basis to The Depository
Trust Company, which will redistribute these amounts to the
eligible U.S. holders according to the regulations
governing the procedure. The German Federal Tax Office may
review whether the refund was made in accordance with the law
within four years after making the payment to The Depository
Trust Company. Details of this collective procedure are
available from The Depository Trust Company.

Individual claims for refunds may be made on a
special German form which must be filed with the German Federal
Tax Office at the address noted above. Copies of this form may
be obtained from the German Federal Tax Office at the same
address or from the Embassy of the Federal Republic of Germany,
4645 Reservoir Road, N.W., Washington, D.C.
200071998. Claims must be filed within a four-year period
from the end of the calendar year in which the dividend was
received.

As part of the individual refund claim, an
eligible U.S. holder must submit to the German tax
authorities the original bank voucher (or a certified copy
thereof) issued by the paying agent documenting the tax
withheld, and an official certification on IRS Form 6166 of
its last United States federal income tax return. IRS
Form 6166 may be obtained by filing a request with the
Internal Revenue Service Center in Philadelphia, Pennsylvania,
Foreign Certification Request, P.O. Box 16347,
Philadelphia, PA 191140447. Requests for certification
must include the eligible U.S. holders name, Social
Security or Employer Identification Number, tax return form
number, and tax period for which the certification is requested.
Requests for certifications can include a request to the
Internal Revenue Service to send the certification directly to
the German tax authorities. If no such request is made, the
Internal Revenue Service will send a certification on IRS
Form 6166 to the eligible U.S. holder, who then must
submit this document with his refund claim.

Capital Gains

Under German domestic tax law as currently in
effect, capital gains derived by a Non-German Holder from the
sale or other disposition of shares or ADSs are subject to tax
in Germany only if such Non-German Holder has held, directly or
indirectly, shares or ADSs representing 1% or more of the
registered share capital of the company at any time during the
five-year period immediately preceding the disposition. In
computing the relevant size of a Non-German Holders
shareholding, shareholdings existing prior to the effective date
of the German Tax Reform are also be taken into account. In
general, pursuant to the German Tax Reform, corporate Non-German
Holders will be fully exempt from German tax on capital gains
derived on or after January 1, 2002 from the sale or other
disposition of shares or ADSs.

U.S. holders that qualify for benefits under
the Treaty are exempt from taxation in Germany on capital gains
derived from the sale or disposition of shares or ADSs.

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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.

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 are a U.S. holder (as defined
below) and 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.

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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

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. Under
recently enacted legislation, dividends received by noncorporate
U.S. holders on shares or ADSs may be subject to United
States federal income tax at lower rates than other types of
ordinary income if certain conditions are met. You should
consult your own tax advisor regarding the implications of the
new legislation in your particular circumstances. 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 will be the U.S. dollar value of the euro
payments made, determined at the spot euro/U.S. dollar rate
on the date the dividend distribution is includable in your
income, regardless of whether the payment is in fact converted
into U.S. dollars. Generally, any gain or loss resulting
from currency exchange fluctuations during the period from the
date you include the dividend payment in income to the date you
convert the payment into U.S. dollars will be treated as
ordinary income or loss. The gain or loss generally will be
income or loss from sources within the United States for foreign
tax credit limitation purposes.

Subject to certain limitations, the German tax
withheld in accordance with German law or the Treaty and paid
over to Germany will be creditable against your United States
federal income tax liability. To the extent a refund of the tax
withheld is available to you under German law or under the
Treaty, the amount of tax withheld that is refundable will not
be eligible for credit against your United States income tax
liability. See the description under German
TaxationRefund Procedure for U.S. Shareholders,
above for the procedures for obtaining a tax refund.

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 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.

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Passive Foreign Investment Company Rules

We believe that we were not a passive
foreign investment company (PFIC) for United States
federal income tax purposes for our 2002 taxable year. However,
since PFIC status depends upon the composition of our income and
assets and the market value of our assets (including, among
others, less than 25% owned equity investments) from time to
time, there can be no assurance that we will not be considered a
PFIC for any taxable year. If we were treated as a PFIC for any
taxable year during which you held an ADS or an ordinary share,
certain adverse consequences could apply.

DOCUMENTS ON DISPLAY

We are subject to the informational requirements
of the Securities Exchange Act of 1934, as amended. In
accordance with these requirements, we file reports and other
information with the Securities and Exchange Commission. These
materials, including this annual report and the exhibits
thereto, may be inspected and copied at the Commissions
Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of the materials may be
obtained from the Public Reference Room of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The public may obtain information on the
operation of the Commissions Public Reference Room by
calling the Commission in the United States at 1-800-SEC-0330.
Our filings, including this annual report, are also available on
the commissions website at www.sec.gov. In addition,
material filed by us can be inspected at the offices of the New
York Stock Exchange at 20 Broad Street, New York, New York
10005.




ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK

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.

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 market exposures, after the
application of our market risk management approach, are:



| |   |                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | equity price risk from our publicly traded equity
    securities;                                                                                                                                
|
| |  | 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 3 to 6 month
    euro LIBOR.

Siemens has no material commodity price risk
resulting from derivative instruments.

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SFS holds a minor foreign exchange trading
portfolio which is subject to tight limits and which, as of
September 30, 2003, had a value-at-risk close to zero.
Assets of the Companys pension plans (equity investments
and interest bearing securities) are not included in this
quantitative and qualitative disclosure. For additional
information, see Notes to the Consolidated Financial Statements.

We use the sensitivity analysis
method to measure our market risk. This method is further
described below. Based on our sensitivity analyses, our primary
market risk exposures as of September 30, 2003, with
comparative data from September 30, 2002, are summarized by
risk type category in the following table:

Market Risk Exposures

As of September 30, 2003 and
September 30, 2002


(Sensitivity Analysis method)


(
in millions)


|                              |  |               |      |      |  |  |      |  
|----------------------------- |  | ------------- | ---- | ---- |  |  | ---- | -
|                              |  |              
|                              |  | As of        
|                              |  | September 30,
|                              |  |              
|                              |  | 2003          |      | 2002
|                              |  |               |      |     
|Equity price risk             |  |               | (824 | )    |  |  | (450 | )
|Foreign exchange rate risk    |  |               | (8   | )    |  |  | (79  | )
|Interest rate riskfair value |  |               | (22  | )    |  |  | (4   | )
|Interest rate riskcash flow  |  |               | (85  | )    |  |  | (67  | )

In the unlikely event that all risk factors were
to move simultaneously in an unfavorable manner, Siemens could
potentially suffer a combined loss of
939 million
as of September 30, 2003 in comparison to a similarly
calculated value of
600 million
as of September 30, 2002.

Sensitivity analysis is a widely used risk
measurement tool that allows management to make judgments
regarding the risk positioning of the Company as a whole.
Sensitivity analysis provides an approximate answer to the
question of how much could be lost if certain specified
parameters were to be met under a specific set of 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 publicly traded equity securities,                       
|
| |  | A simultaneous, parallel foreign exchange rates
    shift in which the euro appreciates against all currencies by
    10%, and
|
| |  | A parallel shift of 100 basis points of the
    interest rate yield curves in all currencies.                                 

We use our business experience, market
information and additional analytics to manage our risk exposure
and mitigate the limitations of our sensitivity analysis. 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, it
allows our management after becoming aware of the impact of
immediate and substantial changes to take the necessary steps to
address such risks.

Sensitivity analysis is subject to certain
limitations, such as the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The risk-mitigating effects caused by correlation
    and diversification among different currencies, interest rate
    areas and equity prices or between 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 such that further detailed analyses

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| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   | 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 provide an answer to
    the question of how long a sharp rise or fall of
    market rates will continue. Accordingly 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. Compared to last
fiscal year, there have not been any changes that have resulted
in a material alteration of the risk estimates provided. The
differences between periods principally reflect changes in our
exposures and the market rates and prices only.

FINANCIAL MARKET RISK MANAGEMENT ORGANIZATION AND
RESPONSIBILITIES

The management of financial market risk is part
of Siemens overall risk management system, which at the
highest level involves our Managing Board, and its oversight
over all of our operations. Our Chief Financial Officer is a
member of the Managing Board and has specific responsibility for
our financial market risk management. The Managing Board retains
ultimate accountability but for practical business purposes
delegates responsibilities to central functions and to the
business Groups. Specialist departments (at the corporate level
and within the operating units) and the Corporate Risk
Management department support the operating units 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 conducted at the
operational level within the operating units in accordance with
policies and procedures established by the specialist
departments and the Corporate Risk Management. In addition,
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 upon such
opportunities in these local markets for goods and services as
well as for sources and uses of funds. We therefore entrust the
management of our various operating units with a certain degree
of flexibility in their process, within clearly defined limits,
regarding interest rate and foreign exchange risk positions. For
example, each operating unit has implemented 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 operating units and
Siemens Financial Services. Also, the transactions of the
business Groups are regularly audited to ensure compliance with
the risk management policies and other standard business
controls.

FINANCIAL MARKET RISK MANAGEMENT STRATEGIES AND
INSTRUMENTS

EQUITY PRICE RISK

We have direct and indirect investments in
publicly traded companies, which are held for purposes other
than trading. The market value of these investments as of
September 30, 2003 was
4.121 billion,
with our 39.7% interest in Infineon Technologies AG, our 12.5%
interest in EPCOS AG and our 9.7% interest in Juniper Networks
representing a large share. An adverse move in equity prices of
20% would reduce the value of these investments by negative
824 million.
In fiscal 2002, an adverse move in equity prices of 20% would
have

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reduced the value of these investments by
450 million.
The difference between the fiscal years is primarily due to an
increase in Infineons and Juniper Networks share
prices during fiscal 2003.


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
operating units. 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
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 acting on behalf of Corporate Finance Treasury, hereinafter
referred to as Treasury enters into financial instruments with
third party financial institutions to offset all pooled
exposures using a value at risk model. A description of these
instruments and their characteristics is provided below.
Treasury has established functional and organizational
separation of duties between transaction initiation, processing,
risk controlling and accounting. Unless prohibited by local
restrictions, mainly foreign exchange controls or to mitigate
political risk, operating units are required to invest their
excess liquidity or to cover their financial needs with
Treasury. Treasurys global coverage of investments and
borrowings of operating units represents approximately about 90%.

Our business and financing activities involve
common financial instruments principally including accounts
receivable, accounts payable, loans, debt obligations, and
marketable securities. In addition, for our hedging activities
we use 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, asset 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 are
used to transform liquidity invested on a short term basis into
the intended asset allocation. Neither our operating units nor
Treasury are permitted to buy or sell unusual 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 then
reviewed by several departments prior to the initiation of its
use. The implementation process include these departments:
Treasury and finance; back office; accounting and controlling;
risk management, credit, tax and legal.

FOREIGN CURRENCY EXPOSURE

As a company doing business around the world,
Siemens is exposed to foreign currency cash flows from the sale
of products and services which may not be denominated in the
functional currency of the respective Siemens unit. The
operative foreign currency exposure arising from our operating
units are partly offset through our production facilities
abroad, as well as through procurement activities conducted in
foreign currencies. In addition, a financial foreign currency
exposure arises from investments and financing activities of
Siemens as a whole in foreign currencies.

We define foreign currency exposure as balance
sheet items, firm commitments and foreign currency denominated
cash in-flows and cash out-flows from anticipated transactions
for the next three months. This foreign currency exposure is
determined based on the respective functional currencies of the
exposed Siemens entity. Operating units are prohibited
from borrowing or investing in foreign currencies on a
speculative basis and intercompany financing or investments of
operating units are preferably done in their functional currency
or on a hedged basis.

Our group-wide guidelines require each entity to
monitor their foreign currency exposure. Based on a guideline
developed by our Corporate Finance department, the entities are
required to hedge at least 75% of their total foreign currency
exposure. Exceptions require special permission from and
additional supervision by Corporate Finance regarding the
related foreign currency exposure. Entities enter into foreign
exchange contracts with Treasury. The unhedged balances from
foreign currency exposure and the financial foreign currency

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exposure are reported to the Corporate Finance
department, which monitors the overall net foreign exchange
exposure of the Company. Approximately 60% of the overall
foreign currency exposure is related to operative cash flows
while the remaining 40% arise from financial cash flows. In the
U.S. dollar, approximately 50% of the exposure is related
to operative cash flow and the remainder arises from financial
intercompany needs. These financial cash flows mainly accrue
from our financial debt issued in euro fulfilling our financing
requirements in North America. The values presented in the
foreign exchange risk disclosures made in this document are the
unhedged positions multiplied by the assumed 10% appreciation of
the euro against all currencies. As shown in the tables below,
we economically hedged most of our total foreign currency
exposure at September 30, 2003 and 2002. In determining our
foreign exchange sensitivity, we aggregate the net foreign
exchange risk exposure of the operating units and Treasury.


Because our foreign currency inflows exceed our
outflows, an appreciation of the euro against foreign
currencies, particularly the U.S. dollar, would have a
negative financial impact to the extent that future sales are
not already hedged. Future changes in the foreign exchange rates
can impact sales prices and may lead to margin impacts, the
extent of which is determined by the matching of foreign
currency revenues and expenses. In order to optimize cost of
capital, the decision about the funding currency is independent
from the currency needs for capital requirements. Exchange rate
risk arising out of this approach is hedged. For the reasons
outlined, changes in foreign currency exchange rates do not
necessarily result in an impact on the profit of our Groups, but
may impact cash flow.

At September 30, 2003, a parallel 10%
alteration of euro against all foreign currencies would have
resulted in a decline in future cash flows of
8 million
compared to
79 million
at September 30, 2002. 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) denominated in euro.

Foreign Exchange Market Risk Exposures By
Currency

As of September 30, 2003


(Sensitivity Analysis method)


(
in millions)


|                                                                                                                  |  |     |        |     |  |     |        |       |  |       |        |   |  |  |        |   |  |  |         |  
|----------------------------------------------------------------------------------------------------------------- |  | --- | ------ | --- |  | --- | ------ | ----- |  | ----- | ------ | - |  |  | ------ | - |  |  | ------- | -
|                                                                                                                  |  | USD |        | GBP |  | CHF |        | Other |  | Total
|                                                                                                                  |  |     |        |     |  |     |        |       |  |      
|Total expected future foreign currency inflows                                                                    |  |     | 16,652 |     |  |     | 3,334  |       |  |       | 949    |   |  |  | 5,407  |   |  |  | 26,342  |  
|Total expected future foreign currency outflows                                                                   |  |     | (7,367 | )   |  |     | (1,282 | )     |  |       | (1,292 | ) |  |  | (4,829 | ) |  |  | (14,770 | )
|Net foreign currency transaction exposure                                                                         |  |     | 9,285  |     |  |     | 2,052  |       |  |       | (343   | ) |  |  | 578    |   |  |  | 11,572  |  
|Economically hedged exposure                                                                                      |  |     | (8,703 | )   |  |     | (1,966 | )     |  |       | 286    |   |  |  | (1,108 | ) |  |  | (11,491 | )
|Value in future cash flows resulting from a 10%
    appreciation of the euro after netting and hedging activities |  |     | (58    | )   |  |     | (9     | )     |  |       | 6      |   |  |  | 53     |   |  |  | (8      | )

Foreign Exchange Market Risk Exposures By
Currency

As of September 30, 2002


(Sensitivity Analysis method)


(
in millions)


|                                                                                                                  |  |     |        |     |  |     |        |       |  |       |        |   |  |  |        |   |  |  |         |  
|----------------------------------------------------------------------------------------------------------------- |  | --- | ------ | --- |  | --- | ------ | ----- |  | ----- | ------ | - |  |  | ------ | - |  |  | ------- | -
|                                                                                                                  |  | USD |        | GBP |  | CHF |        | Other |  | Total
|                                                                                                                  |  |     |        |     |  |     |        |       |  |      
|Total expected future foreign currency inflows                                                                    |  |     | 17,540 |     |  |     | 3,729  |       |  |       | 1,227  |   |  |  | 5,333  |   |  |  | 27,829  |  
|Total expected future 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 | )
|Value in future cash flows resulting from a 10%
    appreciation of the euro after netting and hedging activities |  |     | (35    | )   |  |     | (16    | )     |  |       | (5     | ) |  |  | (23    | ) |  |  | (79     | )

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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 made, we
incorporate the value of this transaction risk into our
sensitivity analyses. Effects from currency fluctuations on the
translation of foreign currency denominated 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 and interest
bearing investments. We seek to limit this risk through the use
of derivative instruments which allow us to hedge fair value
changes by swapping fixed rates of interest into variable rates
of interest. Assuming a 100-basis point increase in interest
rates, this risk was
22 million
at September 30, 2003. At September 30, 2002, assuming
a 100-basis point decrease in interest rates, this risk was
4 million.
This change in position was mainly due to transforming liquidity
invested on a short term basis into intended maturity.

Our cash flow interest rate risk on our variable
rate portfolio was
85 million
at September 30, 2003 and
67 million
at September 30, 2002 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.




PART II




ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND
DELINQUENCIES

Not applicable.






|         |                                                                                   
|-------- | ----------------------------------------------------------------------------------
|ITEM 14: | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY 
     HOLDERS AND USE OF PROCEEDS

Not applicable.




ITEM 15: CONTROLS AND PROCEDURES

For its fiscal year 2003, Siemens performed an
evaluation of the effectiveness of the design and operation of
its disclosure controls and procedures. Disclosure controls and
procedures are designed to ensure that the material financial
and non-financial information required to be disclosed in
Form 20-F and filed with the U.S. Securities and
Exchange Commission is recorded, processed, summarized and
reported timely. The evaluation was performed with the
participation of our key corporate senior management, senior
management of each business

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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 judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Based on the
foregoing, the Companys management, including the CEO and
CFO, concluded that Siemens disclosure controls and
procedures were effective as of September 30, 2003.


In addition, there have been no changes in the
Companys internal control over financial reporting that
occurred during fiscal year 2003, which have materially affected
or are reasonably likely to materially affect the Companys
internal control over financial reporting.




ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT

Our Supervisory Board has determined that the
Companys audit committee currently includes three audit
committee financial experts: Dr. Josef Ackermann,
Dr. Karl-Hermann Baumann and Dr. Henning
Schulte-Noelle.




ITEM 16B: CODE OF ETHICS

The Company has adopted a code of ethics for
financial matters that applies to the Chief Executive Officer,
the Chief Financial Officer and the Head of its Financial
Reporting and Controlling Department, as well as to all of the
Companys employees performing similar functions in and
outside Germany and to all other senior financial personnel. The
code of ethics for financial matters is available on the
Companys website at
www.siemens.com/corporategovernance.




ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES

In January 2003, the U.S. Securities and
Exchange Commission adopted rules requiring disclosure of fees
billed by a public companys accountants in each of the
companys two most recent fiscal years. Although these
rules do not apply to us until fiscal year 2004, we are
voluntarily presenting the information regarding the fees billed
to us by our auditors in fiscal year 2003.

Fees billed to the Company for professional
services by its principal accountant, KPMG, during the fiscal
year 2003 were as follows:

|                   |  |                 |      | 
|------------------ |  | --------------- | ---- | 
|                   |  | For fiscal     
|                   |  | year ended     
|                   |  | September 30,  
|Type of Fees       |  | 2003           
|                   |  |                
|                   |  | ( in millions)
|Audit Fees         |  |                 | 38.9 | 
|Audit-Related Fees |  |                 | 5.3  | 
|Tax Fees           |  |                 | 5.4  | 
|All Other Fees     |  |                 | 1.2  | 
|                   |  |                 |      | 
|Total              |  |                 | 50.8 | 
|                   |  |                 |      | 

In the above table, audit fees are
the aggregate fees billed by KPMG for professional services in
connection with the audit of the Companys consolidated
annual financial statements, reviews of interim financial
statements, as well as audits of statutory financial statements
of Siemens AG and its affiliates. Also included in audit
fees are amounts billed for attestation services in
relation to regulatory filings and other compliance
requirements. Audit-related fees are fees billed by
KPMG for accounting advice on actual or contemplated
transactions, due diligence engagements related to acquisitions
or divestments, attestation regarding compliance with certain
agreements, employee benefit plan audits and other agreed-upon
procedures. Tax fees are fees for tax advice on
actual or contemplated transactions, expatriate employee tax
services and transfer pricing studies.

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AUDIT COMMITTEE PRE-APPROVAL POLICIES

In accordance with German law, Siemens
independent auditors are appointed by the Annual
Shareholders Meeting based on a recommendation of our
Supervisory Board. The audit committee of the Supervisory Board
prepares the boards recommendation on the selection of the
independent auditors. Subsequent to the auditors
appointment, the audit committee awards the contract and in its
sole authority approves the terms and scope of the audit and all
audit engagement fees as well as monitors the auditors
independence. On January 23, 2003, the Annual
Shareholders Meeting appointed KPMG Deutsche
Treuhand-Gesellschaft Aktiengesellschaft
Wirtschaftsprüfungsgesellschaft to serve as the
Companys independent auditors for the 2003 fiscal year.

In order to assure the integrity of independent
audits, in November 2002, Siemens audit committee
established a policy to approve all audit and permissible
non-audit services provided by our independent auditors prior to
the auditors engagement. As part of this approval process,
the audit committee adopted pre-approval policies and procedures
pursuant to which the audit committee annually pre-approves
certain types of services to be performed by Siemens
independent auditors. Under the policies, the Companys
independent auditors are not allowed to perform any non-audit
services which may impair the auditors independence under
the rules of the U.S. Securities and Exchange Commission.
Furthermore, the audit committee has limited the aggregate
amount of non-audit fees payable to KPMG during a fiscal year to
a maximum of 50% of all fees.

In fiscal 2003, the audit committee pre-approved
the performance by KPMG of the following categories of audit and
permitted non-audit services:

AUDIT SERVICES



| |   |                                                                                                                                                       
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Annual U.S. GAAP audit of Siemens
    consolidated financial statements                                                                              
|
| |  | Quarterly review of Siemens interim
    financial statements                                                                                         
|
| |  | Statutory audits of financial statements of
    Siemens AG and of its subsidiaries under the rules of their
    respective countries                  
|
| |  | Attestation of internal controls, such as SAS 70
    reports, as part of the external audit                                                           
|
| |  | Attestation of regulatory filing and other
    compliance requirements, including regulatory advice, such as
    carve out reports and comfort letters

AUDIT-RELATED SERVICES



| |   |                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------
| |  | Accounting advice relating to actual transactions
    or events                                               
|
| |  | Due diligence relating to carve outs, including
    consultation in accounting matters and post closing audits
|
| |  | Due diligence relating to contemplated
    acquisitions                                                       
|
| |  | Accounting advice relating to contemplated
    transactions or events                                         
|
| |  | Attestation of compliance with provisions or
    calculations required by agreements                          
|
| |  | Employee benefit plan audits                                                                                  
|
| |  | Agreed-upon procedures engagements, such as
    mathematical recalculation and comparison of documents        

TAX SERVICES



| |   |                                                               
| | - | --------------------------------------------------------------
| |  | Tax advice relating to actual transactions or
    events      
|
| |  | Tax advice relating to contemplated transactions
    or events

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| |   |                                 
| | - | --------------------------------
| |  | Expatriate employee tax services
|
| |  | Transfer pricing studies        

ALL OTHER SERVICES



| |   |                  
| | - | -----------------
| |  | Forensic services

All contingent fee arrangements are prohibited
for tax services.

Services that are not included in one of the
categories listed above require specific pre-approval of the
audit committees chairman. An approval may not be granted
if the service falls into a category of services not permitted
by current law or if it is inconsistent with maintaining auditor
independence, as expressed in the three principles promulgated
by the U.S. Securities and Exchange Commission: An auditor
may not function in the role of management; an auditor may not
audit his or her own work; and an auditor may not serve in an
advocacy role for his or her client.

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PART III




ITEM 18:      FINANCIAL
STATEMENTS

Siemens AG

Index to Consolidated Financial Statements

|                                                                                                                                                                |  |      |     | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | 
|                                                                                                                                                                |  | Page
|                                                                                                                                                                |  |     
|Independent Auditors Report                                                                                                                                    |  |      | F-2 | 
|Consolidated Financial Statements                                                                                                                               |  |      |     | 
|Consolidated Statements of Income for the fiscal
    years ended September 30, 2003, September 30, 2002 and
    September 30, 2001                              |  |      | F-3 | 
|Consolidated Balance Sheets as of
    September 30, 2003 and September 30, 2002                                                                                 |  |      | F-4 | 
|Consolidated Statements of Cash Flow for the
    fiscal years ended September 30, 2003, September 30,
    2002 and September 30, 2001                           |  |      | F-5 | 
|Consolidated Statements of Changes in
    Shareholders Equity for the fiscal years ended
    September 30, 2003, September 30, 2002 and
    September 30, 2001 |  |      | F-6 | 
|Notes to the Consolidated Financial Statements                                                                                                                  |  |      |     | 
|Segment Information for the fiscal years ended
    September 30, 2003, September 30, 2002 and
    September 30, 2001                                            |  |      | F-7 | 
|Notes to the Consolidated Financial Statements                                                                                                                  |  |      | F-9 | 

F-1



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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, 2003 and 2002, 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, 2003. 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, 2003 and 2002, and the results of their
operations and their cash flows for each of the years in the
three-year period ended September 30, 2003 in conformity
with accounting principles generally accepted in the United
States of America.

As discussed in Note 2 to the consolidated
financial statements, Siemens AG adopted Statement of Financial
Accounting Standards No. 143, Accounting for Asset
Retirement Obligations effective October 1, 2002 and
Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets effective
October 1, 2001.



| |                                    
| | -----------------------------------
| | KPMG Deutsche Treuhand-Gesellschaft
| | Aktiengesellschaft                 
| | Wirtschaftsprüfungsgesellschaft    

Munich, Germany

November 21, 2003


F-2



---



##### Table of Contents



SIEMENS AG

CONSOLIDATED STATEMENTS OF INCOME

For the fiscal years ended September 30,
2003, 2002 and 2001


(in millions of
, per share
amounts in
)


|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |   |     | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | ---------------------------------------------------------------------------- | --- | ----------------- |  | --------------------- | ------- | ---------- | ----- | ------------- | ------- | ------------- | ----- | ---- | ------- | ---- | ----- | ---- | ------ | ---- | --- | ---- | ------ | ---- | ---- | ---- | ------ | ---- | -- |  | ------- | - | ----- |  | ------- | - | ----- |  | ------- | - | ----- |  | ------ | - | ------ | - | ------ | - | --- |  | ------ | - | --- |  | ------ | - | --- | 
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |     
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       | Eliminations, |         |               |       |      |         |      |       |      |        |     
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  | reclassifications and |         |            |       |               |         | Financing and
|                                                                                                                                                               |                                                                              |                                                                              |     | Siemens worldwide |  | Corporate Treasury(2) |         | Operations |       | Infineon(2)   |         | Real Estate  
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |              
|                                                                                                                                                               |                                                                              | Note                                                                         |     | 2003              |  | 2002                  |         | 2001       |       | 2003          |         | 2002          |       | 2001 |         | 2003 |       | 2002 |        | 2001 |     | 2001 |        | 2003 |      | 2002 |        | 2001
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |     
|Net sales                                                                                                                                                      |                                                                              |                                                                              |     |                   |  |                       | 74,233  |            |       |               | 84,016  |               |       |      | 87,000  |      |       |      | (1,623 | )    |     |      | (1,297 | )    |      |      | (3,114 | )    |    |  | 73,744  |   |       |  | 83,127  |   |       |  | 82,427  |   |       |  | 5,671  |   |        |   | 2,112  |   |     |  | 2,186  |   |     |  | 2,016  |  
|Cost of sales                                                                                                                                                  |                                                                              |                                                                              |     |                   |  |                       | (53,350 | )          |       |               | (60,810 | )             |       |      | (63,895 | )    |       |      | 1,625  |      |     |      | 1,222  |      |      |      | 2,899  |      |    |  | (53,298 | ) |       |  | (60,322 | ) |       |  | (60,192 | ) |       |  | (5,021 | ) |        |   | (1,677 | ) |     |  | (1,710 | ) |     |  | (1,581 | )
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |  
|Gross profit on sales                                                                                                                                          |                                                                              |                                                                              |     |                   |  |                       | 20,883  |            |       |               | 23,206  |               |       |      | 23,105  |      |       |      | 2      |      |     |      | (75    | )    |      |      | (215   | )    |    |  | 20,446  |   |       |  | 22,805  |   |       |  | 22,235  |   |       |  | 650    |   |        |   | 435    |   |     |  | 476    |   |     |  | 435    |  
|Research and development expenses                                                                                                                              |                                                                              |                                                                              |     |                   |  |                       | (5,067  | )          |       |               | (5,819  | )             |       |      | (6,782  | )    |       |      |       |      |     |      | (169   | )    |      |      | (166   | )    |    |  | (5,067  | ) |       |  | (5,650  | ) |       |  | (5,427  | ) |       |  | (1,189 | ) |        |   |       |   |     |  |       |   |     |  |       |  
|Marketing, selling and general administrative
    expenses                                                                                                     |                                                                              |                                                                              |     |                   |  |                       | (13,534 | )          |       |               | (15,455 | )             |       |      | (16,640 | )    |       |      |       |      |     |      | (90    | )    |      |      | 2      |      |    |  | (13,243 | ) |       |  | (15,083 | ) |       |  | (15,559 | ) |       |  | (786   | ) |        |   | (291   | ) |     |  | (282   | ) |     |  | (297   | )
|Other operating income (expense), net (therein
    gain on issuance of subsidiary and associated company stock
    3,
    37 and
    617,
    respectively) |                                                                              |                                                                              | 3,4 |                   |  |                       | 642     |            |       |               | 1,321   |               |       |      | 2,762   |      |       |      | (77    | )    |     |      | 844    |      |      |      | 2,537  |      |    |  | 555     |   |       |  | 326     |   |       |  | (118    | ) |       |  | 200    |   |        |   | 164    |   |     |  | 151    |   |     |  | 143    |  
|Income (loss) from investments in other
    companies, net                                                                                                     |                                                                              |                                                                              | 5   |                   |  |                       | 142     |            |       |               | (114    | )             |       |      | 49      |      |       |      |       |      |     |      | (16    | )    |      |      |       |      |    |  | 66      |   |       |  | (142    | ) |       |  | (24     | ) |       |  | 36     |   |        |   | 76     |   |     |  | 44     |   |     |  | 37     |  
|Income (expense) from financial assets and
    marketable securities, net                                                                                      |                                                                              |                                                                              | 6   |                   |  |                       | 61      |            |       |               | 18      |               |       |      | 173     |      |       |      | 135    |      |     |      | (81    | )    |      |      | (140   | )    |    |  | (69     | ) |       |  | 124     |   |       |  | 263     |   |       |  | 65     |   |        |   | (5     | ) |     |  | (25    | ) |     |  | (15    | )
|Interest income (expense) of Operations, net                                                                                                                   |                                                                              |                                                                              | 7   |                   |  |                       | 31      |            |       |               | 94      |               |       |      | (32     | )    |       |      |       |      |     |      |       |      |      |      | 9      |      |    |  | 31      |   |       |  | 94      |   |       |  | (41     | ) |       |  |       |   |        |   |       |   |     |  |       |   |     |  |       |  
|Other interest income (expense), net                                                                                                                           |                                                                              |                                                                              | 7   |                   |  |                       | 214     |            |       |               | 224     |               |       |      | 43      |      |       |      | 206    |      |     |      | 239    |      |      |      | 280    |      |    |  | (88     | ) |       |  | (96     | ) |       |  | (304    | ) |       |  | (1     | ) |        |   | 96     |   |     |  | 81     |   |     |  | 68     |  
|Goodwill amortization and purchased in-process
    R&D expenses of Operations                                                                                  |                                                                              |                                                                              |     |                   |  |                       |        |            |       |               |        |               |       |      |        |      |       |      |       |      |     |      |       |      |      |      | 665    |      |    |  |        |   |       |  |        |   |       |  | (665    | ) |       |  |       |   |        |   |       |   |     |  |       |   |     |  |       |  
|Gains on sales and dispositions of significant
    business interests                                                                                          |                                                                              |                                                                              |     |                   |  |                       |        |            |       |               |        |               |       |      |        |      |       |      |       |      |     |      | (936   | )    |      |      | (4,065 | )    |    |  |        |   |       |  | 936     |   |       |  | 4,065   |   |       |  |       |   |        |   |       |   |     |  |       |   |     |  |       |  
|Other special items                                                                                                                                            |                                                                              |                                                                              |     |                   |  |                       |        |            |       |               |        |               |       |      |        |      |       |      |       |      |     |      |       |      |      |      | 1,185  |      |    |  |        |   |       |  |        |   |       |  | (1,185  | ) |       |  |       |   |        |   |       |   |     |  |       |   |     |  |       |  
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                               |                                                                              | Income (loss) before income taxes                                            |     |                   |  |                       |         |            | 3,372 |               |         |               | 3,475 |      |         |      | 2,678 |      |        |      | 266 |      |        |      | (284 | )    |        |      | 92 |  |         |   | 2,631 |  |         |   | 3,314 |  |         |   | 3,240 |  |        |   | (1,025 | ) |        |   | 475 |  |        |   | 445 |  |        |   | 371 | 
|Income taxes(1)                                                                                                                                                |                                                                              |                                                                              | 8   |                   |  |                       | (867    | )          |       |               | (849    | )             |       |      | (781    | )    |       |      | (68    | )    |     |      | 69     |      |      |      | (30    | )    |    |  | (677    | ) |       |  | (809    | ) |       |  | (1,058  | ) |       |  | 428    |   |        |   | (122   | ) |     |  | (109   | ) |     |  | (121   | )
|Minority interest                                                                                                                                              |                                                                              |                                                                              |     |                   |  |                       | (96     | )          |       |               | (29     | )             |       |      | 191     |      |       |      |       |      |     |      | 2      |      |      |      |       |      |    |  | (96     | ) |       |  | (31     | ) |       |  | 185     |   |       |  | 6      |   |        |   |       |   |     |  |       |   |     |  |       |  
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                               |                                                                              | Income (loss) before cumulative effect of change
    in accounting principle |     |                   |  |                       |         |            | 2,409 |               |         |               | 2,597 |      |         |      | 2,088 |      |        |      | 198 |      |        |      | (213 | )    |        |      | 62 |  |         |   | 1,858 |  |         |   | 2,474 |  |         |   | 2,367 |  |        |   | (591   | ) |        |   | 353 |  |        |   | 336 |  |        |   | 250 | 
|Cumulative effect of change in accounting
    principle, net of income taxes                                                                                   |                                                                              |                                                                              |     |                   |  |                       | 36      |            |       |               |        |               |       |      |        |      |       |      |       |      |     |      |       |      |      |      |       |      |    |  | 39      |   |       |  |        |   |       |  |        |   |       |  |       |   |        |   | (3     | ) |     |  |       |   |     |  |       |  
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                               |                                                                              | Net income (loss)                                                            |     |                   |  |                       |         |            | 2,445 |               |         |               | 2,597 |      |         |      | 2,088 |      |        |      | 198 |      |        |      | (213 | )    |        |      | 62 |  |         |   | 1,897 |  |         |   | 2,474 |  |         |   | 2,367 |  |        |   | (591   | ) |        |   | 350 |  |        |   | 336 |  |        |   | 250 | 
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |  
|Basic earnings per share                                                                                                                                       |                                                                              |                                                                              | 30  |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                               | Income before cumulative effect of change in
    accounting principle        |                                                                              |     |                   |  |                       |         | 2.71       |       |               |         | 2.92          |       |      |         | 2.36 |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                               | Cumulative effect of change in accounting
    principle, net of income taxes |                                                                              |     |                   |  |                       |         | 0.04       |       |               |         |              |       |      |         |     |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                               | Net income                                                                   |                                                                              |     |                   |  |                       |         | 2.75       |       |               |         | 2.92          |       |      |         | 2.36 |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |  
|Diluted earnings per share                                                                                                                                     |                                                                              |                                                                              | 30  |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                               | Income before cumulative effect of change in
    accounting principle        |                                                                              |     |                   |  |                       |         | 2.71       |       |               |         | 2.92          |       |      |         | 2.36 |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                               | Cumulative effect of change in accounting
    principle, net of income taxes |                                                                              |     |                   |  |                       |         | 0.04       |       |               |         |              |       |      |         |     |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |  
|                                                                                                                                                               | Net income                                                                   |                                                                              |     |                   |  |                       |         | 2.75       |       |               |         | 2.92          |       |      |         | 2.36 |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |   |    
|                                                                                                                                                               |                                                                              |                                                                              |     |                   |  |                       |         |            |       |               |         |               |       |      |         |      |       |      |        |      |     |      |        |      |      |      |        |      |    |  |         |   |       |  |         |   |       |  |         |   |       |  |        |   |        |   |        |   |     |  |        |   |     |  |        |  






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

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

F-3



---



##### Table of Contents



SIEMENS AG

CONSOLIDATED BALANCE SHEETS

As of September 30, 2003 and
2002


(in millions of
)


|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |       |        | 
|---------------------------------------- | ------------------------------------------------------------------ | -------------------------------------------------------------------- | -- | --------- |  | ----------------- | ------ | ------------- | ------ | ------------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | ------- | ------ | - | ------ | ------ | ------ |  | ------ | ------ | ------ |  | ----- | ----- | ------ |  | ------ | ----- | ------ | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |        
|                                         |                                                                    |                                                                      |    |           |  |                   |        | Eliminations, |        |               |        |         |        |         |        |        
|                                         |                                                                    |                                                                      |    |           |  | reclassifications |        |               |        |               |        |        
|                                         |                                                                    |                                                                      |    | Siemens   |  | and Corporate     |        |               |        | Financing and
|                                         |                                                                    |                                                                      |    | worldwide |  | Treasury          |        | Operations    |        | Real Estate  
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |              
|                                         |                                                                    | Note                                                                 |    | 9/30/03   |  | 9/30/02           |        | 9/30/03       |        | 9/30/02       |        | 9/30/03 |        | 9/30/02 |        | 9/30/03 |        | 9/30/02
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |        
|ASSETS                                   |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|Current assets                           |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|                                         | Cash and cash equivalents                                          |                                                                      |    |           |  |                   |        | 12,149        |        |               |        | 11,196  |        |         |        | 11,345  |        |         |        | 10,269  |        |   |        | 725    |        |  |        | 873    |        |  |       | 79    |        |  |        | 54    |       
|                                         | Marketable securities                                              |                                                                      |    | 9         |  |                   |        | 650           |        |               |        | 399     |        |         |        | 101     |        |         |        | 25      |        |   |        | 529    |        |  |        | 356    |        |  |       | 20    |        |  |        | 18    |       
|                                         | Accounts receivable, net                                           |                                                                      |    | 10        |  |                   |        | 14,511        |        |               |        | 15,230  |        |         |        | (9      | )      |         |        | (7      | )      |   |        | 10,894 |        |  |        | 12,058 |        |  |       | 3,626 |        |  |        | 3,179 |       
|                                         | Intracompany receivables                                           |                                                                      |    |           |  |                   |        |              |        |               |        |        |        |         |        | (10,777 | )      |         |        | (13,284 | )      |   |        | 10,742 |        |  |        | 13,209 |        |  |       | 35    |        |  |        | 75    |       
|                                         | Inventories, net                                                   |                                                                      |    | 11        |  |                   |        | 10,366        |        |               |        | 10,672  |        |         |        | (4      | )      |         |        | (5      | )      |   |        | 10,284 |        |  |        | 10,592 |        |  |       | 86    |        |  |        | 85    |       
|                                         | Deferred income taxes                                              |                                                                      |    | 8         |  |                   |        | 1,063         |        |               |        | 1,212   |        |         |        | 77      |        |         |        | 64      |        |   |        | 909    |        |  |        | 1,143  |        |  |       | 77    |        |  |        | 5     |       
|                                         | Other current assets                                               |                                                                      |    | 12        |  |                   |        | 4,750         |        |               |        | 5,353   |        |         |        | 736     |        |         |        | 1,028   |        |   |        | 3,143  |        |  |        | 3,306  |        |  |       | 871   |        |  |        | 1,019 |       
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|                                         |                                                                    | Total current assets                                                 |    |           |  |                   |        |               | 43,489 |               |        |         | 44,062 |         |        |         | 1,469  |         |        |         | (1,910 | ) |        |        | 37,226 |  |        |        | 41,537 |  |       |       | 4,794  |  |        |       | 4,435  | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|Long-term investments                    |                                                                    |                                                                      | 13 |           |  |                   | 5,992  |               |        |               | 5,092  |         |        |         | 19     |         |        |         | 2      |         |        |   | 5,636  |        |        |  | 4,797  |        |        |  | 337   |       |        |  | 293    |      
|Goodwill                                 |                                                                    |                                                                      | 14 |           |  |                   | 6,501  |               |        |               | 6,459  |         |        |         |       |         |        |         |       |         |        |   | 6,421  |        |        |  | 6,369  |        |        |  | 80    |       |        |  | 90     |      
|Other intangible assets, net             |                                                                    |                                                                      | 15 |           |  |                   | 2,358  |               |        |               | 2,384  |         |        |         |       |         |        |         |       |         |        |   | 2,338  |        |        |  | 2,362  |        |        |  | 20    |       |        |  | 22     |      
|Property, plant and equipment, net       |                                                                    |                                                                      | 16 |           |  |                   | 10,756 |               |        |               | 11,742 |         |        |         | 1      |         |        |         | 2      |         |        |   | 7,114  |        |        |  | 7,628  |        |        |  | 3,641 |       |        |  | 4,112  |      
|Deferred income taxes                    |                                                                    |                                                                      | 8  |           |  |                   | 4,359  |               |        |               | 3,686  |         |        |         | 1,127  |         |        |         | 764    |         |        |   | 3,165  |        |        |  | 2,771  |        |        |  | 67    |       |        |  | 151    |      
|Other assets                             |                                                                    |                                                                      | 17 |           |  |                   | 4,150  |               |        |               | 4,514  |         |        |         | 131    |         |        |         | 103    |         |        |   | 1,371  |        |        |  | 1,304  |        |        |  | 2,648 |       |        |  | 3,107  |      
|Other intracompany receivables           |                                                                    |                                                                      |    |           |  |                   |       |               |        |               |       |         |        |         | (1,204 | )       |        |         | (931   | )       |        |   | 1,204  |        |        |  | 931    |        |        |  |      |       |        |  |       |      
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|                                         |                                                                    | Total assets                                                         |    |           |  |                   |        |               | 77,605 |               |        |         | 77,939 |         |        |         | 1,543  |         |        |         | (1,970 | ) |        |        | 64,475 |  |        |        | 67,699 |  |       |       | 11,587 |  |        |       | 12,210 | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|LIABILITIES AND SHAREHOLDERS
    EQUITY |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|Current liabilities                      |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|                                         | Short-term debt and current maturities of
    long-term debt       |                                                                      |    | 20        |  |                   |        | 1,745         |        |               |        | 2,103   |        |         |        | 977     |        |         |        | 1,143   |        |   |        | 646    |        |  |        | 785    |        |  |       | 122   |        |  |        | 175   |       
|                                         | Accounts payable                                                   |                                                                      |    |           |  |                   |        | 8,404         |        |               |        | 8,649   |        |         |        | 4       |        |         |        | 6       |        |   |        | 8,216  |        |  |        | 8,453  |        |  |       | 184   |        |  |        | 190   |       
|                                         | Intracompany liabilities                                           |                                                                      |    |           |  |                   |        |              |        |               |        |        |        |         |        | (7,426  | )      |         |        | (7,776  | )      |   |        | 1,771  |        |  |        | 1,799  |        |  |       | 5,655 |        |  |        | 5,977 |       
|                                         | Accrued liabilities                                                |                                                                      |    | 18        |  |                   |        | 8,884         |        |               |        | 9,608   |        |         |        | 6       |        |         |        | 18      |        |   |        | 8,748  |        |  |        | 9,445  |        |  |       | 130   |        |  |        | 145   |       
|                                         | Deferred income taxes                                              |                                                                      |    | 8         |  |                   |        | 870           |        |               |        | 661     |        |         |        | (271    | )      |         |        | (206    | )      |   |        | 877    |        |  |        | 647    |        |  |       | 264   |        |  |        | 220   |       
|                                         | Other current liabilities                                          |                                                                      |    | 19        |  |                   |        | 12,125        |        |               |        | 13,691  |        |         |        | 284     |        |         |        | 375     |        |   |        | 11,578 |        |  |        | 12,853 |        |  |       | 263   |        |  |        | 463   |       
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|                                         |                                                                    | Total current liabilities                                            |    |           |  |                   |        |               | 32,028 |               |        |         | 34,712 |         |        |         | (6,426 | )       |        |         | (6,440 | ) |        |        | 31,836 |  |        |        | 33,982 |  |       |       | 6,618  |  |        |       | 7,170  | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|Long-term debt                           |                                                                    |                                                                      | 20 |           |  |                   | 11,433 |               |        |               | 10,243 |         |        |         | 10,176 |         |        |         | 6,833  |         |        |   | 748    |        |        |  | 2,974  |        |        |  | 509   |       |        |  | 436    |      
|Pension plans and similar commitments    |                                                                    |                                                                      | 21 |           |  |                   | 5,843  |               |        |               | 5,326  |         |        |         |       |         |        |         |       |         |        |   | 5,813  |        |        |  | 5,299  |        |        |  | 30    |       |        |  | 27     |      
|Deferred income taxes                    |                                                                    |                                                                      | 8  |           |  |                   | 534    |               |        |               | 195    |         |        |         | 182    |         |        |         | (50    | )       |        |   | 250    |        |        |  | 119    |        |        |  | 102   |       |        |  | 126    |      
|Other accruals and provisions            |                                                                    |                                                                      | 22 |           |  |                   | 3,418  |               |        |               | 3,401  |         |        |         | 21     |         |        |         | 28     |         |        |   | 3,101  |        |        |  | 3,068  |        |        |  | 296   |       |        |  | 305    |      
|Other intracompany liabilities           |                                                                    |                                                                      |    |           |  |                   |       |               |        |               |       |         |        |         | (2,410 | )       |        |         | (2,341 | )       |        |   | 378    |        |        |  | 45     |        |        |  | 2,032 |       |        |  | 2,296  |      
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|                                         |                                                                    |                                                                      |    |           |  |                   | 53,256 |               |        |               | 53,877 |         |        |         | 1,543  |         |        |         | (1,970 | )       |        |   | 42,126 |        |        |  | 45,487 |        |        |  | 9,587 |       |        |  | 10,360 |      
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|Minority interests                       |                                                                    |                                                                      |    |           |  |                   | 634    |               |        |               | 541    |         |        |         |       |         |        |         |       |         |        |   | 634    |        |        |  | 541    |        |        |  |      |       |        |  |       |      
|Shareholders equity                     |                                                                    |                                                                      | 23 |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|                                         | Common stock, no par value                                         |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |       |       
|                                         |                                                                    | Authorized: 1,129,742,969 and 1,145,917,335
    shares, respectively |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |       |        | 
|                                         |                                                                    | Issued: 890,866,301 and 890,374,001 shares,
    respectively         |    |           |  |                   |        |               | 2,673  |               |        |         | 2,671  |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |       |        | 
|                                         | Additional paid-in capital                                         |                                                                      |    |           |  |                   |        | 5,073         |        |               |        | 5,053   |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |       |       
|                                         | Retained earnings                                                  |                                                                      |    |           |  |                   |        | 23,020        |        |               |        | 21,471  |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |       |       
|                                         | Accumulated other comprehensive income (loss)                      |                                                                      |    |           |  |                   |        | (7,051        | )      |               |        | (5,670  | )      |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |       |       
|                                         | Treasury stock, at cost. 1,184 and 49,864 shares,
    respectively |                                                                      |    |           |  |                   |        |              |        |               |        | (4      | )      |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |       |       
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|                                         |                                                                    | Total shareholders equity                                           |    |           |  |                   |        |               | 23,715 |               |        |         | 23,521 |         |        |         |       |         |        |         |       |   |        |        | 21,715 |  |        |        | 21,671 |  |       |       | 2,000  |  |        |       | 1,850  | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      
|                                         |                                                                    | Total liabilities and shareholders equity                           |    |           |  |                   |        |               | 77,605 |               |        |         | 77,939 |         |        |         | 1,543  |         |        |         | (1,970 | ) |        |        | 64,475 |  |        |        | 67,699 |  |       |       | 11,587 |  |        |       | 12,210 | 
|                                         |                                                                    |                                                                      |    |           |  |                   |        |               |        |               |        |         |        |         |        |         |        |         |        |         |        |   |        |        |        |  |        |        |        |  |       |       |        |  |        |      

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

F-4



---



##### Table of Contents



SIEMENS AG

CONSOLIDATED STATEMENTS OF CASH FLOW

For the fiscal years ended September 30,
2003, 2002 and 2001


(in millions of
)


|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |        |      |      |      |  
|---------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------ | ------------------------------------------------------- | ------ | ---------- | ------ | ------------- | ------ | ------------- | ----- | ------ | ------ | ------ | ------ | ------ | --- | ---- | ------ | ----- | ---- | ---- | ----- | ------ | ------ | ---- | ----- | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ------ | ----- | ------ | ------ | ----- | ---- | ------ | ---- | --- | ---- | ---- | ---- | --- | --- | ---- | ------ | ---- | ---- | ---- | -
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        | Eliminations, |        |               |       |        |        |        |        |        |     |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | reclassifications and                                   |        |            |        |               |        | Financing and
|                                                                       |                                                                                                 | Siemens worldwide                                                                                                                                            |                                                                    | Corporate Treasury                                      |        | Operations |        | Infineon      |        | Real Estate  
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |              
|                                                                       |                                                                                                 | 2003                                                                                                                                                         |                                                                    | 2002                                                    |        | 2001       |        | 2003          |        | 2002          |       | 2001   |        | 2003   |        | 2002   |     | 2001 |        | 2001  |      | 2003 |       | 2002   |        | 2001
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |     
|Cash flows from operating activities                                   |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |       
|                                                                       | Net income (loss)                                                                               |                                                                                                                                                              |                                                                    | 2,445                                                   |        |            |        | 2,597         |        |               |       | 2,088  |        |        |        | 198    |     |      |        | (213  | )    |      |       | 62     |        |      |       | 1,897  |        |       |        | 2,474  |        |       |        | 2,367  |        |       |        | (591   | )     |      |        | 350  |     |      |      | 336  |     |     |      | 250    |     
|                                                                       | Adjustments to reconcile net income to cash
    provided                                        |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |        |     
|                                                                       |                                                                                                 | Minority interest                                                                                                                                            |                                                                    |                                                         | 96     |            |        |               | 29     |               |       |        | (191   | )      |        |        |    |      |        |       | (2   | )    |       |        |       |      |       |        | 96     |       |        |        | 31     |       |        |        | (185   | )     |        |        | (6    | )    |        |      |    |      |      |      |    |     |      |        |     |     
|                                                                       |                                                                                                 | Amortization, depreciation and impairments                                                                                                                   |                                                                    |                                                         | 3,334  |            |        |               | 4,126  |               |       |        | 6,264  |        |        |        |    |      |        |       | 209  |      |       |        |       |      |       |        | 2,894  |       |        |        | 3,440  |       |        |        | 4,684  |       |        |        | 1,122 |      |        |      | 440 |      |      |      | 477 |     |      |        | 458  |     
|                                                                       |                                                                                                 | Deferred taxes                                                                                                                                               |                                                                    |                                                         | 262    |            |        |               | (191   | )             |       |        | 36     |        |        |        | 20  |      |        |       | (185 | )    |       |        | 13     |      |       |        | 206    |       |        |        | 18     |       |        |        | 463    |       |        |        | (494  | )    |        |      | 36  |      |      |      | (24 | )   |      |        | 54   |     
|                                                                       |                                                                                                 | Gains on sales and disposals of businesses and
    property, plant and equipment, net, and gain from issuance of
    subsidiary and associated company stock |                                                                    |                                                         | (232   | )          |        |               | (1,610 | )             |       |        | (4,429 | )      |        |        |    |      |        |       | (936 | )    |       |        | (4,065 | )    |       |        | (145   | )     |        |        | (588   | )     |        |        | (7     | )     |        |        | (246  | )    |        |      | (87 | )    |      |      | (86 | )   |      |        | (111 | )   
|                                                                       |                                                                                                 | Losses (gains) on sales of investments, net                                                                                                                  |                                                                    |                                                         | 2      |            |        |               | (177   | )             |       |        | 141    |        |        |        |    |      |        |       | 7    |      |       |        |       |      |       |        | 2      |       |        |        | (172   | )     |        |        | 174    |       |        |        |      |      |        |      |    |      |      |      | (12 | )   |      |        | (33  | )   
|                                                                       |                                                                                                 | Gains on sales and dispositions of significant
    business interests                                                                                        |                                                                    |                                                         |       |            |        |               |       |               |       |        |       |        |        |        |    |      |        |       | 936  |      |       |        | 4,065  |      |       |        |       |       |        |        | (936   | )     |        |        | (4,065 | )     |        |        |      |      |        |      |    |      |      |      |    |     |      |        |     |     
|                                                                       |                                                                                                 | Losses (gains) on sales and impairments of
    marketable securities, net                                                                                    |                                                                    |                                                         | 23     |            |        |               | 4      |               |       |        | (209   | )      |        |        | 9   |      |        |       | (2   | )    |       |        |       |      |       |        | 13     |       |        |        | 3      |       |        |        | (203   | )     |        |        | (1    | )    |        |      | 1   |      |      |      | 3   |     |      |        | (5   | )   
|                                                                       |                                                                                                 | Loss (income) from equity investees, net of
    dividends received                                                                                           |                                                                    |                                                         | 10     |            |        |               | 298    |               |       |        | 27     |        |        |        |    |      |        |       | 17   |      |       |        | 1      |      |       |        | 70     |       |        |        | 322    |       |        |        | 56     |       |        |        | (25   | )    |        |      | (60 | )    |      |      | (41 | )   |      |        | (5   | )   
|                                                                       |                                                                                                 | Write-off of acquired in-process research and
    development                                                                                                |                                                                    |                                                         |       |            |        |               |       |               |       |        | 195    |        |        |        |    |      |        |       |     |      |       |        |       |      |       |        |       |       |        |        |       |       |        |        | 126    |       |        |        | 69    |      |        |      |    |      |      |      |    |     |      |        |     |     
|                                                                       |                                                                                                 | Change in current assets and liabilities                                                                                                                     |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |        |      |     
|                                                                       |                                                                                                 |                                                                                                                                                              | (Increase) decrease in inventories, net                            |                                                         |        | 8          |        |               |        | 1,349         |       |        |        | (716   | )      |        |     |     |        |       |      | 86   |       |        |        |     |       |        |        | 14    |        |        |        | 1,234 |        |        |        | (746  | )      |        |       | (36  | )      |      |     | (6   | )    |      |     | 29  |      |        |      | 66   |     
|                                                                       |                                                                                                 |                                                                                                                                                              | (Increase) decrease in accounts receivable, net                    |                                                         |        | 623        |        |               |        | 1,763         |       |        |        | 1,797  |        |        |     | (527 | )      |       |      | 844  |       |        |        | (38  | )     |        |        | 1,141 |        |        |        | 871   |        |        |        | 1,021 |        |        |       | 755  |        |      |     | 9    |      |      |     | 48  |      |        |      | 59   |     
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in outstanding balance of
    receivables sold |                                                         |        | (291       | )      |               |        | (503          | )     |        |        | 866    |        |        |     | (21  | )      |       |      | (607 | )     |        |        | 866  |       |        |        | (270  | )      |        |        | 104   |        |        |        |      |        |        |       |     |        |      |     |     |      |      |     |    |      |        |      |     |     
|                                                                       |                                                                                                 |                                                                                                                                                              | (Increase) decrease in other current assets                        |                                                         |        | 1,416      |        |               |        | 1,213         |       |        |        | (1,397 | )      |        |     | 835  |        |       |      | 459  |       |        |        | (229 | )     |        |        | 561   |        |        |        | 833   |        |        |        | (848  | )      |        |       | (139 | )      |      |     | 20   |      |      |     | (79 | )    |        |      | (181 | )   
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in accounts payable                            |                                                         |        | (396       | )      |               |        | (899          | )     |        |        | 467    |        |        |     | 3    |        |       |      | (254 | )     |        |        | (43  | )     |        |        | (396  | )      |        |        | (595  | )      |        |        | 428   |        |        |       | 58   |        |      |     | (3   | )    |      |     | (50 | )    |        |      | 24   |     
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in accrued liabilities                         |                                                         |        | (621       | )      |               |        | (575          | )     |        |        | 629    |        |        |     |     |        |       |      | 30   |       |        |        | 23   |       |        |        | (571  | )      |        |        | (577  | )      |        |        | 974   |        |        |       | (322 | )      |      |     | (50  | )    |      |     | (28 | )    |        |      | (46  | )   
|                                                                       |                                                                                                 |                                                                                                                                                              | Increase (decrease) in other current liabilities                   |                                                         |        | (668       | )      |               |        | (1,025        | )     |        |        | 2,682  |        |        |     | 466  |        |       |      | (99  | )     |        |        | (100 | )     |        |        | (961  | )      |        |        | (851  | )      |        |        | 2,694 |        |        |       | 27   |        |      |     | (173 | )    |      |     | (75 | )    |        |      | 61   |     
|                                                                       |                                                                                                 | Supplemental contributions to pension trusts                                                                                                                 |                                                                    |                                                         | (1,192 | )          |        |               | (1,782 | )             |       |        |       |        |        |        |    |      |        |       |     |      |       |        |       |      |       |        | (1,192 | )     |        |        | (1,782 | )     |        |        |       |       |        |        |      |      |        |      |    |      |      |      |    |     |      |        |     |     
|                                                                       |                                                                                                 | Change in other assets and liabilities                                                                                                                       |                                                                    |                                                         | 893    |            |        |               | 947    |               |       |        | (1,234 | )      |        |        | 137 |      |        |       | 439  |      |       |        | (289   | )    |       |        | 764    |       |        |        | 448    |       |        |        | (1,048 | )     |        |        | 40    |      |        |      | (8  | )    |      |      | 60  |     |      |        | 63   |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | Net cash provided by operating activities               |        |            | 5,712  |               |        |               | 5,564 |        |        |        | 7,016  |        |     |      | 1,120  |       |      |      | 729   |        |        |      | 266   |        |        |       | 4,123  |        |        |       | 4,277  |        |        |       | 5,885  |        |       |      | 211    |      |     |      | 469  |      |     |     | 558  |        |      |      | 654  |  
|Cash flows from investing activities                                   |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |       
|                                                                       | Additions to intangible assets and property,
    plant and equipment                            |                                                                                                                                                              |                                                                    | (2,852                                                  | )      |            |        | (3,894        | )      |               |       | (7,048 | )      |        |        |       |     |      |        | (149  | )    |      |       |       |        |      |       | (2,468 | )      |       |        | (3,149 | )      |       |        | (4,044 | )      |       |        | (2,364 | )     |      |        | (384 | )   |      |      | (596 | )   |     |      | (640   | )   
|                                                                       | Acquisitions, net of cash acquired                                                              |                                                                                                                                                              |                                                                    | (1,055                                                  | )      |            |        | (3,787        | )      |               |       | (3,898 | )      |        |        |       |     |      |        |      |      |      |       |       |        |      |       | (1,055 | )      |       |        | (3,787 | )      |       |        | (3,898 | )      |       |        |       |       |      |        |     |     |      |      |     |     |     |      |       |     
|                                                                       | Purchases of investments                                                                        |                                                                                                                                                              |                                                                    | (736                                                    | )      |            |        | (332          | )      |               |       | (710   | )      |        |        |       |     |      |        | (65   | )    |      |       |       |        |      |       | (714   | )      |       |        | (263   | )      |       |        | (419   | )      |       |        | (214   | )     |      |        | (22  | )   |      |      | (4   | )   |     |      | (77    | )   
|                                                                       | Purchases of marketable securities                                                              |                                                                                                                                                              |                                                                    | (221                                                    | )      |            |        | (338          | )      |               |       | (436   | )      |        |        | (92    | )   |      |        | (306  | )    |      |       | (11    | )      |      |       | (127   | )      |       |        | (27    | )      |       |        | (329   | )      |       |        | (82    | )     |      |        | (2   | )   |      |      | (5   | )   |     |      | (14    | )   
|                                                                       | Increase in receivables from financing activities                                               |                                                                                                                                                              |                                                                    | (94                                                     | )      |            |        | (172          | )      |               |       | (619   | )      |        |        | 276    |     |      |        | (864  | )    |      |       | 714    |        |      |       |       |        |       |        |       |        |       |        |       |        |       |        |       |       |      |        | (370 | )   |      |      | 692  |     |     |      | (1,333 | )   
|                                                                       | Increase (decrease) in outstanding balance of
    receivables sold by SFS                       |                                                                                                                                                              |                                                                    |                                                        |        |            |        |              |        |               |       |       |        |        |        | 21     |     |      |        | 607   |      |      |       | (866   | )      |      |       |       |        |       |        |       |        |       |        |       |        |       |        |       |       |      |        | (21  | )   |      |      | (607 | )   |     |      | 866    |     
|                                                                       | Proceeds from sales of long-term investments,
    intangibles and property, plant and equipment |                                                                                                                                                              |                                                                    | 839                                                     |        |            |        | 1,218         |        |               |       | 3,804  |        |        |        |       |     |      |        |      |      |      |       | 4      |        |      |       | 556    |        |       |        | 801    |        |       |        | 3,454  |        |       |        | 27     |       |      |        | 283  |     |      |      | 417  |     |     |      | 319    |     
|                                                                       | Proceeds from sales and dispositions of businesses                                              |                                                                                                                                                              |                                                                    | 119                                                     |        |            |        | 6,097         |        |               |       | 1,878  |        |        |        |       |     |      |        |      |      |      |       | 1,475  |        |      |       | 119    |        |       |        | 6,097  |        |       |        | 57     |        |       |        | 346    |       |      |        |     |     |      |      |     |     |     |      |       |     
|                                                                       | Proceeds from sales of marketable securities                                                    |                                                                                                                                                              |                                                                    | 61                                                      |        |            |        | 398           |        |               |       | 1,143  |        |        |        | 26     |     |      |        | 317   |      |      |       |       |        |      |       | 34     |        |       |        | 78     |        |       |        | 660    |        |       |        | 474    |       |      |        | 1    |     |      |      | 3    |     |     |      | 9      |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | Net cash (used in) provided by investing
    activities |        |            | (3,939 | )             |        |               | (810  | )      |        |        | (5,886 | )      |     |      | 231    |       |      |      | (460  | )      |        |      | 1,316 |        |        |       | (3,655 | )      |        |       | (250   | )      |        |       | (4,519 | )      |       |      | (1,813 | )    |     |      | (515 | )    |     |     | (100 | )      |      |      | (870 | )
|Cash flows from financing activities                                   |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |       
|                                                                       | Proceeds from issuance of common stock                                                          |                                                                                                                                                              |                                                                    |                                                        |        |            |        | 156           |        |               |       | 514    |        |        |        |       |     |      |        |      |      |      |       | (1,495 | )      |      |       |       |        |       |        | 156    |        |       |        | 514    |        |       |        | 1,495  |       |      |        |     |     |      |      |     |     |     |      |       |     
|                                                                       | Purchase of common stock of Company                                                             |                                                                                                                                                              |                                                                    |                                                        |        |            |        | (152          | )      |               |       | (514   | )      |        |        |       |     |      |        |      |      |      |       |       |        |      |       |       |        |       |        | (152   | )      |       |        | (514   | )      |       |        |       |       |      |        |     |     |      |      |     |     |     |      |       |     
|                                                                       | Proceeds from issuance of treasury shares                                                       |                                                                                                                                                              |                                                                    | 4                                                       |        |            |        | 81            |        |               |       | 233    |        |        |        |       |     |      |        |      |      |      |       |       |        |      |       | 4      |        |       |        | 81     |        |       |        | 233    |        |       |        |       |       |      |        |     |     |      |      |     |     |     |      |       |     
|                                                                       | Proceeds from issuance of debt                                                                  |                                                                                                                                                              |                                                                    | 2,702                                                   |        |            |        | 384           |        |               |       | 4,141  |        |        |        | 2,702  |     |      |        | 384   |      |      |       | 4,141  |        |      |       |       |        |       |        |       |        |       |        |       |        |       |        |       |       |      |        |     |     |      |      |     |     |     |      |       |     
|                                                                       | Repayment of debt                                                                               |                                                                                                                                                              |                                                                    | (1,742                                                  | )      |            |        | (847          | )      |               |       | (976   | )      |        |        | (1,700 | )   |      |        | (809  | )    |      |       | (921   | )      |      |       | (12    | )      |       |        | (15    | )      |       |        | 2      |        |       |        | (20    | )     |      |        | (30  | )   |      |      | (23  | )   |     |      | (37    | )   
|                                                                       | Change in short-term debt                                                                       |                                                                                                                                                              |                                                                    | (445                                                    | )      |            |        | 512           |        |               |       | (1,828 | )      |        |        | (106   | )   |      |        | 843   |      |      |       | 281    |        |      |       | (323   | )      |       |        | (481   | )      |       |        | (2,354 | )      |       |        | 114    |       |      |        | (16  | )   |      |      | 150  |     |     |      | 131    |     
|                                                                       | Change in restricted cash                                                                       |                                                                                                                                                              |                                                                    |                                                        |        |            |        | (2            | )      |               |       | 45     |        |        |        |       |     |      |        | (2    | )    |      |       |       |        |      |       |       |        |       |        |       |        |       |        |       |        |       |        | 45     |       |      |        |     |     |      |      |     |     |     |      |       |     
|                                                                       | Dividends paid                                                                                  |                                                                                                                                                              |                                                                    | (896                                                    | )      |            |        | (888          | )      |               |       | (1,412 | )      |        |        |       |     |      |        |      |      |      |       | 407    |        |      |       | (896   | )      |       |        | (888   | )      |       |        | (1,412 | )      |       |        | (407   | )     |      |        |     |     |      |      |     |     |     |      |       |     
|                                                                       | Dividends paid to minority shareholders                                                         |                                                                                                                                                              |                                                                    | (110                                                    | )      |            |        | (103          | )      |               |       | (298   | )      |        |        |       |     |      |        |      |      |      |       | (119   | )      |      |       | (110   | )      |       |        | (103   | )      |       |        | (179   | )      |       |        |       |       |      |        |     |     |      |      |     |     |     |      |       |     
|                                                                       | Intracompany financing                                                                          |                                                                                                                                                              |                                                                    |                                                        |        |            |        |              |        |               |       |       |        |        |        | (907   | )   |      |        | 3,178 |      |      |       | (2,865 | )      |      |       | 787    |        |       |        | (2,615 | )      |       |        | 2,122  |        |       |        | 619    |       |      |        | 120  |     |      |      | (563 | )   |     |      | 124    |     
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    | Net cash (used in) provided by financing
    activities |        |            | (487   | )             |        |               | (859  | )      |        |        | (95    | )      |     |      | (11    | )     |      |      | 3,594 |        |        |      | (571  | )      |        |       | (550   | )      |        |       | (4,017 | )      |        |       | (1,588 | )      |       |      | 1,846  |      |     |      | 74   |      |     |     | (436 | )      |      |      | 218  |  
|Effect of deconsolidation of Infineon on cash and
    cash equivalents |                                                                                                 |                                                                                                                                                              |                                                                   |                                                         |        |            | (383   | )             |        |               |      |        |        |        |       |        |     |      | (383   | )     |      |      |      |        |        |      |      |        |        |       |       |        |        |       |       |        |        |       |       |        |       |      |       |      |     |      |     |      |     |     |     |       
|Effect of exchange rates on cash and cash
    equivalents              |                                                                                                 |                                                                                                                                                              | (333                                                               | )                                                       |        |            | (118   | )             |        |               | (95   | )      |        |        | (264   | )      |     |      | (71    | )     |      |      | (13   | )      |        |      | (66   | )      |        |       | (44    | )      |        |       | (82    | )      |        |       | 2      |        |       |      | (3     | )    |     |      | (3   | )    |     |     | (2   | )     
|Net increase (decrease) in cash and cash
    equivalents               |                                                                                                 |                                                                                                                                                              | 953                                                                |                                                         |        |            | 3,394  |               |        |               | 940   |        |        |        | 1,076  |        |     |      | 3,409  |       |      |      | 998   |        |        |      | (148  | )      |        |       | (34    | )      |        |       | (304   | )      |        |       | 246    |        |       |      | 25     |      |     |      | 19   |      |     |     |     |       
|Cash and cash equivalents at beginning of period                       |                                                                                                 |                                                                                                                                                              | 11,196                                                             |                                                         |        |            | 7,802  |               |        |               | 6,862 |        |        |        | 10,269 |        |     |      | 6,860  |       |      |      | 5,105 |        |        |      | 873   |        |        |       | 907    |        |        |       | 1,211  |        |        |       | 511    |        |       |      | 54     |      |     |      | 35   |      |     |     | 35   |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |       
|Cash and cash equivalents at end of period                             |                                                                                                 |                                                                                                                                                              | 12,149                                                             |                                                         |        |            | 11,196 |               |        |               | 7,802 |        |        |        | 11,345 |        |     |      | 10,269 |       |      |      | 6,103 |        |        |      | 725   |        |        |       | 873    |        |        |       | 907    |        |        |       | 757    |        |       |      | 79     |      |     |      | 54   |      |     |     | 35   |       
|                                                                       |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |       
|Supplemental disclosure of cash paid for:                              |                                                                                                 |                                                                                                                                                              |                                                                    |                                                         |        |            |        |               |        |               |       |        |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |       
|                                                                       | Interest                                                                                        |                                                                                                                                                              |                                                                    | 545                                                     |        |            |        | 794           |        |               |       | 779    |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |        |     
|                                                                       | Income taxes                                                                                    |                                                                                                                                                              |                                                                    | 795                                                     |        |            |        | 389           |        |               |       | 1,098  |        |        |        |        |     |      |        |       |      |      |       |        |        |      |       |        |        |       |        |        |        |       |        |        |        |       |        |        |       |      |        |      |     |      |      |      |     |     |      |        |     

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

F-5



---



##### Table of Contents



SIEMENS AG

CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS EQUITY

For the fiscal years ended September 30,
2003, 2002 and 2001


(in millions of
)


|                                          |                            |        |       |            |  |          |        |                             |  |            |        |             |  |           |      |          |   |       |        |        |   |  |     |    |  |  |        |        |   |  |      |   |  |  |        |        |  
|----------------------------------------- | -------------------------- | ------ | ----- | ---------- |  | -------- | ------ | --------------------------- |  | ---------- | ------ | ----------- |  | --------- | ---- | -------- | - | ----- | ------ | ------ | - |  | --- | -- |  |  | ------ | ------ | - |  | ---- | - |  |  | ------ | ------ | -
|                                          |                            |        |       |            |  |          |        |                             |  |            |        |            
|                                          |                            |        |       |            |  |          |        | Accumulated other           |  |            |        |            
|                                          |                            |        |       |            |  |          |        | comprehensive income (loss) |  |            |        |            
|                                          |                            |        |       |            |  |          |        |                             |  |            |        |            
|                                          |                            |        |       | Additional |  |          |        | Cumulative                  |  | Available- |        |             |  | Minimum   |      | Treasury |   |      
|                                          |                            | Common |       | paid-in    |  | Retained |        | translation                 |  | for-sale   |        | Derivative  |  | pension   |      | shares   |   |      
|                                          |                            | stock  |       | capital    |  | earnings |        | adjustment                  |  | securities |        | instruments |  | liability |      | at cost  |   | Total
|                                          |                            |        |       |            |  |          |        |                             |  |            |        |             |  |           |      |          |   |      
|Balance at October 1, 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 common stock                  |                            |        | 10    |            |  |          | 504    |                             |  |            |       |             |  |           |     |          |   |       |       |        |   |  |    |    |  |  |       |        |   |  |     |   |  |  | 514    |       
|Purchase of common 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 common stock                  |                            |        | 6     |            |  |          | 152    |                             |  |            |       |             |  |           |     |          |   |       |       |        |   |  |    |    |  |  |       |        |   |  |     |   |  |  | 158    |       
|Purchase of common stock                  |                            |        |      |            |  |          |       |                             |  |            |       |             |  |           |     |          |   |       |       |        |   |  |    |    |  |  |       |        |   |  | (167 | ) |  |  | (167   | )     
|Re-issuance of treasury stock             |                            |        |      |            |  |          |       |                             |  |            |       |             |  |           |     |          |   |       |       |        |   |  |    |    |  |  |       |        |   |  | 163  |   |  |  | 163    |       
|                                          |                            |        |       |            |  |          |        |                             |  |            |        |             |  |           |      |          |   |       |        |        |   |  |     |    |  |  |        |        |   |  |      |   |  |  |        |       
|Balance at September 30, 2002             |                            |        | 2,671 |            |  |          | 5,053  |                             |  |            | 21,471 |             |  |           | (132 | )        |   |       | (185   | )      |   |  | 59  |    |  |  | (5,412 | )      |   |  | (4   | ) |  |  | 23,521 |       
|                                          |                            |        |       |            |  |          |        |                             |  |            |        |             |  |           |      |          |   |       |        |        |   |  |     |    |  |  |        |        |   |  |      |   |  |  |        |       
|Net income                                |                            |        |      |            |  |          |       |                             |  |            | 2,445  |             |  |           |     |          |   |       |       |        |   |  |    |    |  |  |       |        |   |  |     |   |  |  | 2,445  |       
|Change in currency translation adjustment |                            |        |      |            |  |          |       |                             |  |            |       |             |  |           | (695 | )        |   |       |       |        |   |  |    |    |  |  |       |        |   |  |     |   |  |  | (695   | )     
|Change in unrealized gains and losses     |                            |        |      |            |  |          |       |                             |  |            |       |             |  |           |     |          |   |       | 268    |        |   |  | 24  |    |  |  | (978   | )      |   |  |     |   |  |  | (686   | )     
|                                          |                            |        |       |            |  |          |        |                             |  |            |        |             |  |           |      |          |   |       |        |        |   |  |     |    |  |  |        |        |   |  |      |   |  |  |        |       
|                                          | Total comprehensive income |        |       |           |  |          |        |                            |  |            |        | 2,445       |  |           |      | (695     | ) |       |        | 268    |   |  |     | 24 |  |  |        | (978   | ) |  |      |  |  |  |        | 1,064  |  
|Dividends paid                            |                            |        |      |            |  |          |       |                             |  |            | (896   | )           |  |           |     |          |   |       |       |        |   |  |    |    |  |  |       |        |   |  |     |   |  |  | (896   | )     
|Issuance of common stock                  |                            |        | 2     |            |  |          | 20     |                             |  |            |       |             |  |           |     |          |   |       |       |        |   |  |    |    |  |  |       |        |   |  |     |   |  |  | 22     |       
|Purchase of common stock                  |                            |        |      |            |  |          |       |                             |  |            |       |             |  |           |     |          |   |       |       |        |   |  |    |    |  |  |       |        |   |  | (127 | ) |  |  | (127   | )     
|Re-issuance of treasury stock             |                            |        |      |            |  |          |       |                             |  |            |       |             |  |           |     |          |   |       |       |        |   |  |    |    |  |  |       |        |   |  | 131  |   |  |  | 131    |       
|                                          |                            |        |       |            |  |          |        |                             |  |            |        |             |  |           |      |          |   |       |        |        |   |  |     |    |  |  |        |        |   |  |      |   |  |  |        |       
|Balance at September 30, 2003             |                            |        | 2,673 |            |  |          | 5,073  |                             |  |            | 23,020 |             |  |           | (827 | )        |   |       | 83     |        |   |  | 83  |    |  |  | (6,390 | )      |   |  |     |   |  |  | 23,715 |       
|                                          |                            |        |       |            |  |          |        |                             |  |            |        |             |  |           |      |          |   |       |        |        |   |  |     |    |  |  |        |        |   |  |      |   |  |  |        |       

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

F-6



---



##### Table of Contents



SIEMENS AG

SEGMENT INFORMATION

As of and for the fiscal years ended
September 30, 2003, 2002 and 2001


(in millions of
)


|                                       |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |        |        |  |   |        |       |  |   |        |       |  |     |        |       |  |   |        |        |  |   |        |        |  |       |        |        | 
|-------------------------------------- | --------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | - | -------------- | ------ | ------------------ | - | ----------- | ------ | ---- | ----- | ------ | ------ | ---- | - | ------ | ------ | ---- | - | ------ | ------ | ---- | ----- | ------ | ------ |  | - | ------ | ----- |  | - | ------ | ----- |  | --- | ------ | ----- |  | - | ------ | ------ |  | - | ------ | ------ |  | ----- | ------ | ------ | 
|                                       |                                                                       |                                                                                                                         |   |                |        |                    |   |            
|                                       |                                                                       | New orders (unaudited)                                                                                                  |   | External sales |        | Intersegment sales |   | Total sales
|                                       |                                                                       |                                                                                                                         |   |                |        |                    |   |            
|                                       |                                                                       | 2003                                                                                                                    |   | 2002           |        | 2001               |   | 2003        |        | 2002 |       | 2001   |        | 2003 |   | 2002   |        | 2001 |   | 2003   |        | 2002 |       | 2001  
|                                       |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |       
|Operations Groups                      |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |        |        |  |   |        |       |  |   |        |       |  |     |        |       |  |   |        |        |  |   |        |        |  |       |       
|                                       | Information and Communication Networks (ICN)                          |                                                                                                                         |   | 7,070          |        |                    |   | 8,697       |        |      |       | 12,639 |        |      |   | 6,592  |        |      |   | 9,169  |        |      |       | 12,189 |        |  |   | 530    |       |  |   | 478    |       |  |     | 693    |       |  |   | 7,122  |        |  |   | 9,647  |        |  |       | 12,882 |       
|                                       | Information and Communication Mobile (ICM)                            |                                                                                                                         |   | 9,960          |        |                    |   | 11,538      |        |      |       | 11,866 |        |      |   | 9,811  |        |      |   | 10,910 |        |      |       | 11,151 |        |  |   | 153    |       |  |   | 135    |       |  |     | 148    |       |  |   | 9,964  |        |  |   | 11,045 |        |  |       | 11,299 |       
|                                       | Siemens Business Services (SBS)                                       |                                                                                                                         |   | 5,226          |        |                    |   | 6,256       |        |      |       | 6,303  |        |      |   | 3,964  |        |      |   | 4,212  |        |      |       | 4,261  |        |  |   | 1,241  |       |  |   | 1,561  |       |  |     | 1,773  |       |  |   | 5,205  |        |  |   | 5,773  |        |  |       | 6,034  |       
|                                       | Automation and Drives (A&D)                                           |                                                                                                                         |   | 8,476          |        |                    |   | 8,728       |        |      |       | 9,065  |        |      |   | 7,159  |        |      |   | 7,430  |        |      |       | 7,843  |        |  |   | 1,216  |       |  |   | 1,205  |       |  |     | 1,104  |       |  |   | 8,375  |        |  |   | 8,635  |        |  |       | 8,947  |       
|                                       | Industrial Solutions and Services (I&S)                               |                                                                                                                         |   | 3,955          |        |                    |   | 4,120       |        |      |       | 4,881  |        |      |   | 2,907  |        |      |   | 3,378  |        |      |       | 3,398  |        |  |   | 1,105  |       |  |   | 1,102  |       |  |     | 1,165  |       |  |   | 4,012  |        |  |   | 4,480  |        |  |       | 4,563  |       
|                                       | Siemens Dematic (SD)                                                  |                                                                                                                         |   | 2,599          |        |                    |   | 2,810       |        |      |       | 2,281  |        |      |   | 2,444  |        |      |   | 2,894  |        |      |       | 2,381  |        |  |   | 156    |       |  |   | 101    |       |  |     | 139    |       |  |   | 2,600  |        |  |   | 2,995  |        |  |       | 2,520  |       
|                                       | Siemens Building Technologies (SBT)                                   |                                                                                                                         |   | 4,775          |        |                    |   | 5,601       |        |      |       | 5,549  |        |      |   | 4,706  |        |      |   | 5,291  |        |      |       | 5,094  |        |  |   | 284    |       |  |   | 328    |       |  |     | 424    |       |  |   | 4,990  |        |  |   | 5,619  |        |  |       | 5,518  |       
|                                       | Power Generation (PG)                                                 |                                                                                                                         |   | 7,302          |        |                    |   | 10,586      |        |      |       | 12,219 |        |      |   | 6,949  |        |      |   | 9,398  |        |      |       | 8,487  |        |  |   | 18     |       |  |   | 48     |       |  |     | 76     |       |  |   | 6,967  |        |  |   | 9,446  |        |  |       | 8,563  |       
|                                       | Power Transmission and Distribution (PTD)                             |                                                                                                                         |   | 3,586          |        |                    |   | 4,429       |        |      |       | 3,887  |        |      |   | 3,188  |        |      |   | 3,928  |        |      |       | 3,818  |        |  |   | 211    |       |  |   | 271    |       |  |     | 235    |       |  |   | 3,399  |        |  |   | 4,199  |        |  |       | 4,053  |       
|                                       | Transportation Systems (TS)                                           |                                                                                                                         |   | 4,674          |        |                    |   | 5,247       |        |      |       | 5,647  |        |      |   | 4,668  |        |      |   | 4,349  |        |      |       | 4,000  |        |  |   | 29     |       |  |   | 18     |       |  |     | 21     |       |  |   | 4,697  |        |  |   | 4,367  |        |  |       | 4,021  |       
|                                       | Siemens VDO Automotive (SV)                                           |                                                                                                                         |   | 8,375          |        |                    |   | 8,515       |        |      |       | 5,702  |        |      |   | 8,365  |        |      |   | 8,491  |        |      |       | 5,694  |        |  |   | 10     |       |  |   | 24     |       |  |     | 8      |       |  |   | 8,375  |        |  |   | 8,515  |        |  |       | 5,702  |       
|                                       | Medical Solutions (Med)                                               |                                                                                                                         |   | 7,835          |        |                    |   | 8,425       |        |      |       | 8,444  |        |      |   | 7,345  |        |      |   | 7,604  |        |      |       | 7,199  |        |  |   | 77     |       |  |   | 19     |       |  |     | 20     |       |  |   | 7,422  |        |  |   | 7,623  |        |  |       | 7,219  |       
|                                       | Osram                                                                 |                                                                                                                         |   | 4,172          |        |                    |   | 4,363       |        |      |       | 4,522  |        |      |   | 4,113  |        |      |   | 4,308  |        |      |       | 4,200  |        |  |   | 59     |       |  |   | 55     |       |  |     | 322    |       |  |   | 4,172  |        |  |   | 4,363  |        |  |       | 4,522  |       
|                                       | Other operations(6)                                                   |                                                                                                                         |   | 1,840          |        |                    |   | 1,895       |        |      |       | 2,144  |        |      |   | 1,129  |        |      |   | 1,238  |        |      |       | 1,676  |        |  |   | 728    |       |  |   | 785    |       |  |     | 478    |       |  |   | 1,857  |        |  |   | 2,023  |        |  |       | 2,154  |       
|                                       |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |        |        |  |   |        |       |  |   |        |       |  |     |        |       |  |   |        |        |  |   |        |        |  |       |       
|                                       |                                                                       | Total Operations Groups                                                                                                 |   |                | 79,845 |                    |   |             | 91,210 |      |       |        | 95,149 |      |   |        | 73,340 |      |   |        | 82,600 |      |       |        | 81,391 |  |   |        | 5,817 |  |   |        | 6,130 |  |     |        | 6,606 |  |   |        | 79,157 |  |   |        | 88,730 |  |       |        | 87,997 | 
|Reconciliation to financial statements |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |        |        |  |   |        |       |  |   |        |       |  |     |        |       |  |   |        |        |  |   |        |        |  |       |       
|                                       | Corporate items, pensions and eliminations                            |                                                                                                                         |   | (6,916         | )      |                    |   | (7,688      | )      |      |       | (9,034 | )      |      |   | 192    |        |      |   | 244    |        |      |       | 269    |        |  |   | (5,605 | )     |  |   | (5,847 | )     |  |     | (5,839 | )     |  |   | (5,413 | )      |  |   | (5,603 | )      |  |       | (5,570 | )     
|                                       | Other interest expense                                                |                                                                                                                         |   |               |        |                    |   |            |        |      |       |       |        |      |   |       |        |      |   |       |        |      |       |       |        |  |   |       |       |  |   |       |       |  |     |       |       |  |   |       |        |  |   |       |        |  |       |       |       
|                                       | Goodwill amortization and purchased in-process
    R&D expenses       |                                                                                                                         |   |               |        |                    |   |            |        |      |       |       |        |      |   |       |        |      |   |       |        |      |       |       |        |  |   |       |       |  |   |       |       |  |     |       |       |  |   |       |        |  |   |       |        |  |       |       |       
|                                       | Gains on sales and dispositions of significant
    business interests |                                                                                                                         |   |               |        |                    |   |            |        |      |       |       |        |      |   |       |        |      |   |       |        |      |       |       |        |  |   |       |       |  |   |       |       |  |     |       |       |  |   |       |        |  |   |       |        |  |       |       |       
|                                       | Other special items                                                   |                                                                                                                         |   |               |        |                    |   |            |        |      |       |       |        |      |   |       |        |      |   |       |        |      |       |       |        |  |   |       |       |  |   |       |       |  |     |       |       |  |   |       |        |  |   |       |        |  |       |       |       
|                                       | Other assets related reconciling items                                |                                                                                                                         |   |               |        |                    |   |            |        |      |       |       |        |      |   |       |        |      |   |       |        |      |       |       |        |  |   |       |       |  |   |       |       |  |     |       |       |  |   |       |        |  |   |       |        |  |       |       |       
|                                       |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |        |        |  |   |        |       |  |   |        |       |  |     |        |       |  |   |        |        |  |   |        |        |  |       |       
|                                       |                                                                       | Total Operations (for columns Group profit/Net
    capital employed, i.e. Income before income taxes/ Total
    assets) |   |                | 72,929 |                    |   |             | 83,522 |      |       |        | 86,115 |      |   |        | 73,532 |      |   |        | 82,844 |      |       |        | 81,660 |  |   |        | 212   |  |   |        | 283   |  |     |        | 767   |  |   |        | 73,744 |  |   |        | 83,127 |  |       |        | 82,427 | 
|                                       |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |        |        |  |   |        |       |  |   |        |       |  |     |        |       |  |   |        |        |  |   |        |        |  |       |       
|                                      
|Infineon Technologies (Infineon)       |                                                                       |                                                                                                                         |  |                |        |                    |  |             |        |      | 4,390 |        |        |      |  |        |        |      |  |        |        |      | 4,744 |        |        |  |  |        |       |  |  |        |       |  | 927 |        |       |  |  |        |        |  |  |        |        |  | 5,671 |       
|                                       | Reconciliation to financial statements                                |                                                                                                                         |   |               |        |                    |   |            |        |      |       |       |        |      |   |       |        |      |   |       |        |      |       |       |        |  |   |       |       |  |   |       |       |  |     |       |       |  |   |       |        |  |   |       |        |  |       |       |       
|                                       |                                                                       | Infineon income (loss) before income taxes/
    Total assets                                                            |   |                |       |                    |   |             |       |      |       |        |       |      |   |        |       |      |   |        |       |      |       |        |       |  |   |        |      |  |   |        |      |  |     |        |      |  |   |        |       |  |   |        |       |  |       |        |       | 
|                                      
|Financing and Real Estate Groups       |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |        |        |  |   |        |       |  |   |        |       |  |     |        |       |  |   |        |        |  |   |        |        |  |       |       
|                                       | Siemens Financial Services (SFS)                                      |                                                                                                                         |   | 532            |        |                    |   | 582         |        |      |       | 481    |        |      |   | 433    |        |      |   | 436    |        |      |       | 373    |        |  |   | 99     |       |  |   | 146    |       |  |     | 108    |       |  |   | 532    |        |  |   | 582    |        |  |       | 481    |       
|                                       | Siemens Real Estate (SRE)                                             |                                                                                                                         |   | 1,592          |        |                    |   | 1,612       |        |      |       | 1,542  |        |      |   | 265    |        |      |   | 243    |        |      |       | 223    |        |  |   | 1,327  |       |  |   | 1,369  |       |  |     | 1,319  |       |  |   | 1,592  |        |  |   | 1,612  |        |  |       | 1,542  |       
|                                       | Eliminations                                                          |                                                                                                                         |   |               |        |                    |   |            |        |      |       |       |        |      |   |       |        |      |   |       |        |      |       |       |        |  |   | (12    | )     |  |   | (8     | )     |  |     | (7     | )     |  |   | (12    | )      |  |   | (8     | )      |  |       | (7     | )     
|                                       |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |        |        |  |   |        |       |  |   |        |       |  |     |        |       |  |   |        |        |  |   |        |        |  |       |       
|                                       |                                                                       | Total Financing and Real Estate                                                                                         |   |                | 2,124  |                    |   |             | 2,194  |      |       |        | 2,023  |      |   |        | 698    |      |   |        | 679    |      |       |        | 596    |  |   |        | 1,414 |  |   |        | 1,507 |  |     |        | 1,420 |  |   |        | 2,112  |  |   |        | 2,186  |  |       |        | 2,016  | 
|                                       |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |        |        |  |   |        |       |  |   |        |       |  |     |        |       |  |   |        |        |  |   |        |        |  |       |       
|                                       | Eliminations, reclassifications and Corporate
    Treasury            |                                                                                                                         |   | 3              |        |                    |   | 498         |        |      |       |       |        |      |   | 3      |        |      |   | 493    |        |      |       |       |        |  |   | (1,626 | )     |  |   | (1,790 | )     |  |     | (3,114 | )     |  |   | (1,623 | )      |  |   | (1,297 | )      |  |       | (3,114 | )     
|                                       |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |        |        |  |   |        |       |  |   |        |       |  |     |        |       |  |   |        |        |  |   |        |        |  |       |       
|                                       | Siemens worldwide                                                     |                                                                                                                         |   | 75,056         |        |                    |   | 86,214      |        |      |       | 92,528 |        |      |   | 74,233 |        |      |   | 84,016 |        |      |       | 87,000 |        |  |   |       |       |  |   |       |       |  |     |       |       |  |   | 74,233 |        |  |   | 84,016 |        |  |       | 87,000 |       
|                                       |                                                                       |                                                                                                                         |   |                |        |                    |   |             |        |      |       |        |        |      |   |        |        |      |   |        |        |      |       |        |        |  |   |        |       |  |   |        |       |  |     |        |       |  |   |        |        |  |   |        |        |  |       |       

F-7



---



##### Table of Contents



SIEMENS AG

SEGMENT INFORMATION(Continued)

As of and for the fiscal years ended
September 30, 2003, 2002 and 2001


(in millions of
)


|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |       |    |       |   |       |       |       |       |        |       |       |   |       |     |       |   |       |     |       |       |       |       |       | 
|-------------------------------- | ---------------------------------------------------------- | --------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------- | ----------------------- | ------ | ------------------------ | - | ------------------- | ------ | ----------------- | ------ | ------- | ------ | ------ | - | ------ | ------ | ------ | - | ------ | ------ | ------------- | ----- | ------ | ------ | ------ | - | ----- | ------ | ----- | - | ----- | ------ | ----- | ------ | ------ | ----- | ----- | - | ----- | -- | ----- | - | ----- | ----- | ----- | ----- | ------ | ----- | ----- | - | ----- | --- | ----- | - | ----- | --- | ----- | ----- | ----- | ----- | ----- | 
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|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        | Amortization,
|                                 |                                                            |                                                                       |                                                                                                                         |                         |        | Net cash from operating  |   |                     |        | depreciation and 
|                                 |                                                            | Group profit(1)                                                       |                                                                                                                         | Net capital employed(2) |        | and investing activities |   | Capital spending(3) |        | impairments(4)(5)
|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                  
|                                 |                                                            | 2003                                                                  |                                                                                                                         | 2002                    |        | 2001                     |   | 9/30/03             |        | 9/30/02           |        | 9/30/01 |        | 2003   |   | 2002   |        | 2001   |   | 2003   |        | 2002          |       | 2001   |        | 2003   |   | 2002  |        | 2001 
|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |      
|Operations Groups                |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |       |    |       |   |       |       |       |       |        |       |       |   |       |     |       |   |       |     |       |       |      
|                                 | Information and Communication Networks (ICN)               |                                                                       |                                                                                                                         | (366                    | )      |                          |   | (691                | )      |                   |        | (861    | )      |        |   | 722    |        |        |   | 1,100  |        |               |       | 3,039  |        |        |   | 106   |        |       |   | 711   |        |       |        | (2,350 | )     |       |   | 219   |    |       |   | 415   |       |       |       | 2,291  |       |       |   | 447   |     |       |   | 850   |     |       |       | 435   |      
|                                 | Information and Communication Mobile (ICM)                 |                                                                       |                                                                                                                         | 180                     |        |                          |   | 96                  |        |                   |        | (307    | )      |        |   | 1,367  |        |        |   | 1,973  |        |               |       | 2,607  |        |        |   | 692   |        |       |   | 594   |        |       |        | 14     |       |       |   | 347   |    |       |   | 453   |       |       |       | 543    |       |       |   | 326   |     |       |   | 368   |     |       |       | 400   |      
|                                 | Siemens Business Services (SBS)                            |                                                                       |                                                                                                                         | 13                      |        |                          |   | 101                 |        |                   |        | (259    | )      |        |   | 294    |        |        |   | 264    |        |               |       | 492    |        |        |   | (62   | )      |       |   | 173   |        |       |        | 339    |       |       |   | 193   |    |       |   | 222   |       |       |       | 484    |       |       |   | 255   |     |       |   | 282   |     |       |       | 342   |      
|                                 | Automation and Drives (A&D)                                |                                                                       |                                                                                                                         | 806                     |        |                          |   | 723                 |        |                   |        | 981     |        |        |   | 1,925  |        |        |   | 2,197  |        |               |       | 2,619  |        |        |   | 1,060 |        |       |   | 1,019 |        |       |        | 533    |       |       |   | 281   |    |       |   | 248   |       |       |       | 429    |       |       |   | 231   |     |       |   | 240   |     |       |       | 242   |      
|                                 | Industrial Solutions and Services (I&S)                    |                                                                       |                                                                                                                         | (41                     | )      |                          |   | (198                | )      |                   |        | 97      |        |        |   | 167    |        |        |   | 315    |        |               |       | 487    |        |        |   | 54    |        |       |   | (107  | )      |       |        | (39    | )     |       |   | 45    |    |       |   | 60    |       |       |       | 115    |       |       |   | 52    |     |       |   | 56    |     |       |       | 53    |      
|                                 | Siemens Dematic (SD)                                       |                                                                       |                                                                                                                         | (218                    | )      |                          |   | 45                  |        |                   |        | (59     | )      |        |   | 877    |        |        |   | 975    |        |               |       | 957    |        |        |   | (170  | )      |       |   | (70   | )      |       |        | 261    |       |       |   | 42    |    |       |   | 71    |       |       |       | 78     |       |       |   | 55    |     |       |   | 62    |     |       |       | 63    |      
|                                 | Siemens Building Technologies (SBT)                        |                                                                       |                                                                                                                         | 101                     |        |                          |   | 195                 |        |                   |        | 132     |        |        |   | 1,447  |        |        |   | 1,778  |        |               |       | 2,241  |        |        |   | 375   |        |       |   | 295   |        |       |        | 49     |       |       |   | 82    |    |       |   | 133   |       |       |       | 326    |       |       |   | 144   |     |       |   | 155   |     |       |       | 163   |      
|                                 | Power Generation (PG)                                      |                                                                       |                                                                                                                         | 1,171                   |        |                          |   | 1,582               |        |                   |        | 634     |        |        |   | 1,712  |        |        |   | (144   | )      |               |       | (1,020 | )      |        |   | (448  | )      |       |   | 662   |        |       |        | 2,045  |       |       |   | 1,120 |    |       |   | 300   |       |       |       | 351    |       |       |   | 163   |     |       |   | 184   |     |       |       | 211   |      
|                                 | Power Transmission and Distribution (PTD)                  |                                                                       |                                                                                                                         | 207                     |        |                          |   | 109                 |        |                   |        | 96      |        |        |   | 798    |        |        |   | 928    |        |               |       | 994    |        |        |   | 387   |        |       |   | 149   |        |       |        | (331   | )     |       |   | 65    |    |       |   | 92    |       |       |       | 215    |       |       |   | 65    |     |       |   | 75    |     |       |       | 78    |      
|                                 | Transportation Systems (TS)                                |                                                                       |                                                                                                                         | 284                     |        |                          |   | 247                 |        |                   |        | 186     |        |        |   | (252   | )      |        |   | (741   | )      |               |       | (932   | )      |        |   | (217  | )      |       |   | 95    |        |       |        | 752    |       |       |   | 120   |    |       |   | 135   |       |       |       | 164    |       |       |   | 65    |     |       |   | 64    |     |       |       | 55    |      
|                                 | Siemens VDO Automotive (SV)                                |                                                                       |                                                                                                                         | 418                     |        |                          |   | 65                  |        |                   |        | (261    | )      |        |   | 3,949  |        |        |   | 3,746  |        |               |       | 3,605  |        |        |   | 184   |        |       |   | 224   |        |       |        | (89    | )     |       |   | 569   |    |       |   | 534   |       |       |       | 447    |       |       |   | 400   |     |       |   | 435   |     |       |       | 339   |      
|                                 | Medical Solutions (Med)                                    |                                                                       |                                                                                                                         | 1,118                   |        |                          |   | 1,018               |        |                   |        | 808     |        |        |   | 3,128  |        |        |   | 3,414  |        |               |       | 3,844  |        |        |   | 845   |        |       |   | 1,124 |        |       |        | 86     |       |       |   | 321   |    |       |   | 321   |       |       |       | 1,034  |       |       |   | 227   |     |       |   | 206   |     |       |       | 203   |      
|                                 | Osram                                                      |                                                                       |                                                                                                                         | 410                     |        |                          |   | 365                 |        |                   |        | 462     |        |        |   | 2,074  |        |        |   | 2,436  |        |               |       | 2,485  |        |        |   | 528   |        |       |   | 284   |        |       |        | 349    |       |       |   | 280   |    |       |   | 330   |       |       |       | 416    |       |       |   | 268   |     |       |   | 289   |     |       |       | 283   |      
|                                 | Other operations(6)                                        |                                                                       |                                                                                                                         | 212                     |        |                          |   | 99                  |        |                   |        | 168     |        |        |   | 1,515  |        |        |   | 535    |        |               |       | 638    |        |        |   | (362  | )      |       |   | 89    |        |       |        | 132    |       |       |   | 520   |    |       |   | 50    |       |       |       | 88     |       |       |   | 64    |     |       |   | 51    |     |       |       | 46    |      
|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |       |    |       |   |       |       |       |       |        |       |       |   |       |     |       |   |       |     |       |       |      
|                                 |                                                            |                                                                       | Total Operations Groups                                                                                                 |                         |        | 4,295                    |   |                     |        | 3,756             |        |         |        | 1,817  |   |        |        | 19,723 |   |        |        | 18,776        |       |        |        | 22,056 |   |       |        | 2,972 |   |       |        | 5,242 |        |        |       | 1,751 |   |       |    | 4,204 |   |       |       | 3,364 |       |        |       | 6,981 |   |       |     | 2,762 |   |       |     | 3,317 |       |       |       | 2,913 | 
|                                 | Reconciliation to financial statements                     |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |       |    |       |   |       |       |       |       |        |       |       |   |       |     |       |   |       |     |       |       |       |      
|                                 |                                                            | Corporate items, pensions and eliminations                            |                                                                                                                         |                         | (1,576 | )                        |   |                     | (1,282 | )                 |        |         | (488   | )      |   |        | (3,781 | )      |   |        | (3,021 | )             |       |        | (3,443 | )      |   |       | (2,504 | ) (7) |   |       | (1,215 | ) (7) |        |        | (385  | ) (7) |   |       | 33 |       |   |       | 3,835 |       |       |        | 1,380 |       |   |       | 132 |       |   |       | 123 |       |       |       | 219   |      
|                                 |                                                            | Other interest expense                                                |                                                                                                                         |                         | (88    | )                        |   |                     | (96    | )                 |        |         | (304   | )      |   |        |       |        |   |        |       |               |       |        |       |        |   |       |       |       |   |       |       |       |        |        |      |       |   |       |   |       |   |       |      |       |       |        |      |       |   |       |    |       |   |       |    |       |       |       |      |      
|                                 |                                                            | Goodwill amortization and purchased in-process
    R&D expenses       |                                                                                                                         |                         |       |                          |   |                     |       |                   |        |         | (665   | )      |   |        |       |        |   |        |       |               |       |        |       |        |   |       |       |       |   |       |       |       |        |        |      |       |   |       |   |       |   |       |      |       |       |        |      |       |   |       |    |       |   |       |    |       |       |       | 539   | (8)  
|                                 |                                                            | Gains on sales and dispositions of significant
    business interests |                                                                                                                         |                         |       |                          |   |                     | 936    |                   |        |         | 4,065  |        |   |        |       |        |   |        |       |               |       |        |       |        |   |       |       |       |   |       |       |       |        |        |      |       |   |       |   |       |   |       |      |       |       |        |      |       |   |       |    |       |   |       |    |       |       |       |      |      
|                                 |                                                            | Other special items                                                   |                                                                                                                         |                         |       |                          |   |                     |       |                   |        |         | (1,185 | )      |   |        |       |        |   |        |       |               |       |        |       |        |   |       |       |       |   |       |       |       |        |        |      |       |   |       |   |       |   |       |      |       |       |        |      |       |   |       |    |       |   |       |    |       |       |       | 1,013 |      
|                                 |                                                            | Other assets related reconciling items                                |                                                                                                                         |                         |       |                          |   |                     |       |                   |        |         |       |        |   |        | 48,533 |        |   |        | 51,944 |               |       |        | 50,587 |        |   |       |       |       |   |       |       |       |        |        |      |       |   |       |   |       |   |       |      |       |       |        |      |       |   |       |    |       |   |       |    |       |       |       |      |      
|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |       |    |       |   |       |       |       |       |        |       |       |   |       |     |       |   |       |     |       |       |      
|                                 |                                                            |                                                                       | Total Operations (for columns Group profit/Net
    capital employed, i.e. Income before income taxes/ Total
    assets) |                         |        | 2,631                    |   |                     |        | 3,314             |        |         |        | 3,240  |   |        |        | 64,475 |   |        |        | 67,699        |       |        |        | 69,200 |   |       |        | 468   |   |       |        | 4,027 |        |        |       | 1,366 |   |       |    | 4,237 |   |       |       | 7,199 |       |        |       | 8,361 |   |       |     | 2,894 |   |       |     | 3,440 |       |       |       | 4,684 | 
|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |       |    |       |   |       |       |       |       |        |       |       |   |       |     |       |   |       |     |       |       |      
|Infineon Technologies (Infineon) |                                                            |                                                                       |                                                                                                                        |                         |        |                          |  |                     |        |                   | (1,024 | )       |        |        |  |        |        |        |  |        |        |               | 6,471 |        |        |        |  |       |        |       |  |       |        |       | (1,602 | ) (7)  |       |       |  |       |    |       |  |       |       |       | 2,578 |        |       |       |  |       |     |       |  |       |     |       | 1,122 |      
|                                 | 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            |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |      
|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |      
|Financing and Real Estate Groups |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |       |    |       |   |       |       |       |       |        |       |       |   |       |     |       |   |       |     |       |       |      
|                                 | Siemens Financial Services (SFS)                           |                                                                       |                                                                                                                         | 269                     |        |                          |   | 216                 |        |                   |        | 158     |        |        |   | 8,445  |        |        |   | 8,681  |        |               |       | 9,501  |        |        |   | (312  | )      |       |   | 282   |        |       |        | (496   | )     |       |   | 237   |    |       |   | 283   |       |       |       | 514    |       |       |   | 220   |     |       |   | 271   |     |       |       | 257   |      
|                                 | Siemens Real Estate (SRE)                                  |                                                                       |                                                                                                                         | 206                     |        |                          |   | 229                 |        |                   |        | 213     |        |        |   | 3,607  |        |        |   | 4,090  |        |               |       | 3,791  |        |        |   | 351   |        |       |   | 309   |        |       |        | 393    |       |       |   | 169   |    |       |   | 317   |       |       |       | 203    |       |       |   | 220   |     |       |   | 206   |     |       |       | 201   |      
|                                 | Eliminations                                               |                                                                       |                                                                                                                         |                        |        |                          |   |                    |        |                   |        |        |        |        |   | (465   | )      |        |   | (561   | )      |               |       | (525   | )      |        |   | (85   | ) (7)  |       |   | (133  | ) (7)  |       |        | (113   | ) (7) |       |   |      |    |       |   |      |       |       |       |       |       |       |   |      |     |       |   |      |     |       |       |      |      
|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |       |    |       |   |       |       |       |       |        |       |       |   |       |     |       |   |       |     |       |       |      
|                                 |                                                            |                                                                       | Total Financing and Real Estate                                                                                         |                         |        | 475                      |   |                     |        | 445               |        |         |        | 371    |   |        |        | 11,587 |   |        |        | 12,210        |       |        |        | 12,767 |   |       |        | (46   | ) |       |        | 458   |        |        |       | (216  | ) |       |    | 406   |   |       |       | 600   |       |        |       | 717   |   |       |     | 440   |   |       |     | 477   |       |       |       | 458   | 
|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |       |    |       |   |       |       |       |       |        |       |       |   |       |     |       |   |       |     |       |       |      
|                                 | Eliminations, reclassifications and Corporate
    Treasury |                                                                       |                                                                                                                         | 266                     |        |                          |   | (284                | )      |                   |        | 92      |        |        |   | 1,543  |        |        |   | (1,970 | )      |               |       | (1,592 | )      |        |   | 1,351 | (7)    |       |   | 269   | (7)    |       |        | 1,582  | (7)   |       |   |      |    |       |   | 214   |       |       |       |       |       |       |   |      |     |       |   | 209   |     |       |       |      |      
|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |       |    |       |   |       |       |       |       |        |       |       |   |       |     |       |   |       |     |       |       |      
|                                 | Siemens worldwide                                          |                                                                       |                                                                                                                         | 3,372                   |        |                          |   | 3,475               |        |                   |        | 2,678   |        |        |   | 77,605 |        |        |   | 77,939 |        |               |       | 90,118 |        |        |   | 1,773 |        |       |   | 4,754 |        |       |        | 1,130  |       |       |   | 4,643 |    |       |   | 8,013 |       |       |       | 11,656 |       |       |   | 3,334 |     |       |   | 4,126 |     |       |       | 6,264 |      
|                                 |                                                            |                                                                       |                                                                                                                         |                         |        |                          |   |                     |        |                   |        |         |        |        |   |        |        |        |   |        |        |               |       |        |        |        |   |       |        |       |   |       |        |       |        |        |       |       |   |       |    |       |   |       |       |       |       |        |       |       |   |       |     |       |   |       |     |       |       |      




|    |                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Group profit of the Operations Groups is earnings
    before financing interest, certain pension costs and income
    taxes.                                                                                                                                                                                  
|(2) | Net capital employed of the Operations Groups
    represents total assets less tax assets, certain accruals and
    non-interest bearing liabilities other than tax liabilities.                                                                                                                              
|(3) | Intangible assets, property, plant and equipment,
    acquisitions, and investments.                                                                                                                                                                                                                          
|(4) | Includes amortization and impairments of
    intangible assets, depreciation of property, plant and
    equipment, and write-downs of investments.                                                                                                                                                            
|(5) | For Operations Groups, in fiscal 2001 excluding
    goodwill amortization.                                                                                                                                                                                                                                    
|(6) | Other operationsprimarily refer to certain centrally-held equity investments and
    other operating activities not associated with a Group.                                                                                                                                                                  
|(7) | 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.
|(8) | Represents only goodwill amortization.                                                                                                                                                                                                                                                                        

F-8



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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
().

Siemens is a German based multinational
corporation with a balanced business portfolio of activities
predominantly in the field of electronics and electrical
engineering (for further information see Note 31).

Financial statement presentation

The presentation of the Companys worldwide
financial data is accompanied by a component model presentation
breaking down Siemens financial position, results of
operations and cash flows into three components (see below).
These components contain the Companys reportable segments
(also referred to as Groups).



| |   |                                                                                                                                                                                                                                                                                                                    
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Siemens
    worldwideRepresents the
    Consolidated Financial Statements of the Company.                                                                                                                                                                                                                         
|
| |  | OperationsDefined
    as Siemens thirteen operating Groups including certain
    operating activities not associated with these Groups and
    centrally managed items including corporate headquarters, but
    excluding the activities of the Financing and Real Estate
    Groups and the Corporate Treasury.
|
| |  | Financing and Real
    EstateSiemens Financing
    and Real Estate Groups are responsible for the
    Companys international leasing, finance, credit and real
    estate management activities.                                                                                                                
|
| |  | Eliminations, reclassifications and Corporate
    TreasuryCaptures separately the
    consolidation of transactions among Operations and
    Financing and Real Estate, as well as certain
    reclassifications. This component also includes the
    Companys Corporate Treasury activities.                   

The Companys presentation of
Operations, Financing and Real 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 which takes
into consideration 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.

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 information disclosed in these Notes relates
to Siemens worldwide unless otherwise stated.

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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)


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
has the ability to exercise significant influence over operating
and financial policies (generally through direct or indirect
ownership of 20% to 50% of the voting rights)are recorded
in the Consolidated Financial Statements using the equity method
of accounting.

Foreign currency
translationThe assets and
liabilities of foreign subsidiaries, where the functional
currency is other than the euro, are translated using period-end
exchange rates, while the statements of operations are
translated using average exchange rates during the period.
Differences arising from such translations are included as a
separate component of shareholders equity.

The exchange rates of the significant currencies
of non-euro countries used in the preparation of the
Consolidated Financial Statements were as follows:

|              |  |          |     |                            |  |                                      |       |      |  |      |       |      |  |  |       |  |  |  |       |  |  |  |       | 
|------------- |  | -------- | --- | -------------------------- |  | ------------------------------------ | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- |  |  |  | ----- |  |  |  | ----- | 
|              |  |          |     |                            |  |                                     
|              |  |          |     | Year-end exchange rate     |  | Annual average rate                 
|              |  |          |     | 1  quoted into currencies |  | 1  quoted into currencies specified
|              |  |          |     | specified below            |  | below                               
|              |  |          |     | September 30,              |  | Fiscal year                         
|              |  |          |     |                            |  |                                     
|Currency      |  | ISO Code |     | 2003                       |  | 2002                                 |       | 2003 |  | 2002 |       | 2001
|              |  |          |     |                            |  |                                      |       |      |  |      |       |     
|Swiss francs  |  |          | CHF |                            |  |                                      | 1.538 |      |  |      | 1.461 |      |  |  | 1.498 |  |  |  | 1.469 |  |  |  | 1.501 | 
|British pound |  |          | GBP |                            |  |                                      | 0.699 |      |  |      | 0.630 |      |  |  | 0.676 |  |  |  | 0.624 |  |  |  | 0.622 | 
|U.S. dollar   |  |          | USD |                            |  |                                      | 1.169 |      |  |      | 0.985 |      |  |  | 1.085 |  |  |  | 0.922 |  |  |  | 0.903 | 

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
provided those sales do not qualify for multiple deliverable
accounting as set forth in Emerging Issues Task Force (EITF)
Issue 00-21, Revenue Arrangements with Multiple
Deliverables (see Accounting changes below). If a
contract or arrangement involves the provision of multiple
elements, the Company applies the guidance in EITF 00-21 to
determine if the contract or arrangement contains more than one
unit of accounting and, if applicable, the allocation of
arrangement consideration to such units of accounting. The
appropriate revenue recognition convention is then applied to
each separate unit of accounting. 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 recorded in
cost of sales at the time the related sale is recognized, and
are established on an individual basis except for consumer
products, which are accrued for on an aggregate basis. The
estimates reflect historic trends of warranty costs as well as
information regarding product failure experienced during
construction, installation or testing of products. In the case
of new products, expert opinions and industry data are also
taken into consideration in estimating product warranty
accruals. Research and development costs are expensed as

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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)


incurred. Contract loss provisions are
established in the period when the current estimate of total
contract costs exceeds contract revenue.

Earnings per
shareBasic earnings per share is
computed by dividing net income by the weighted average shares
outstanding during the year. Diluted earnings per share is
calculated by adjusting outstanding shares assuming conversion
or exercise of all potentially dilutive securities or stock
options. 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. 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. In fiscal 2003, the Company did not
enter into securitization transactions.

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.

Goodwill and Other 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. Estimated useful lives for software, patents,
licenses and other similar rights generally range from three to
five years, except for intangible assets with finite useful
lives acquired in business combinations. Goodwill and

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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 carrying amount including goodwill.
In the case that the fair value of the division is less than its
carrying amount, a second step is performed which compares the
fair value of the divisions goodwill to the carrying
amount of its goodwill. The fair value of goodwill is determined
based upon the difference between the fair value of the division
and the net of the fair values of the identifiable assets and
liabilities of the division. If the fair value of goodwill is
less than the carrying amount, the difference is recorded as an
impairment. See Note 14 and 15 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 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 amount 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 (see below Accounting changes
for information regarding the adoption of SFAS 144).

Derivative instruments and hedging
activitiesIn accordance with
SFAS 133, Accounting for Derivative Instruments and Hedging
Activities, as amended, derivative instruments, such as
interest rate swap contracts and foreign-currency exchange
contracts, are recognized in the financial statements and
measured at fair value regardless of the purpose or intent for
holding them. Changes in the fair value of derivative financial
instruments are recognized periodically either in income or, in
the case of a cash flow hedge, in shareholders equity (as
a component of other comprehensive income). Certain derivative
instruments embedded in host contracts are also

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


accounted for separately as derivatives. See
Note 25, Derivative instruments and hedging
activities, for a description of the Companys risk
management strategies and the effect these strategies have on
the Consolidated Financial Statements.

TaxesThe
Company applies SFAS 109, Accounting for Income Taxes.
Under the asset and liability method of SFAS 109, deferred tax
assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. The effect on deferred tax
assets and liabilities of a change in tax laws is recognized in
the results of operations in the period the new laws are
enacted. A valuation allowance is recorded to reduce the
carrying amounts of deferred tax assets unless it is more likely
than not that such assets will be realized.

Asset retirement
obligationsOn October 1,
2002, Siemens adopted SFAS 143, Accounting for Asset
Retirement Obligations, (see Accounting changes
below). Legal obligations associated with the retirement
of long-lived assets that result from the acquisition,
construction, development or normal use of the asset are
recognized at fair value in the period in which the liability is
incurred if a reasonable estimate of fair value can be made.
Such estimates are generally determined based upon estimated
future cash flows discounted using a credit-adjusted risk-free
interest rate. The fair value of the liability is added to the
carrying amount of the associated asset. The additional carrying
amount is depreciated over the life of the asset. The liability
is accreted at the end of each period through charges to
operating expense. If the obligation is settled for other than
the carrying amount of the liability, the Company will recognize
a gain or loss on settlement.

Issuance of shares by subsidiaries or
associated companiesGains or
losses arising from the issuances of shares by subsidiaries or
associated companies, due to changes in the Companys
proportionate share of the value of the issuers equity,
are recorded as income or expense pursuant to
U.S. Securities and Exchange Commission Staff Accounting
Bulletin Topic 5H, Accounting for Sales of Stock by a
Subsidiary.

Stock-based
compensationPursuant to SFAS
123, Siemens has elected to apply Accounting Principles Board
(APB) Opinion 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its
stock-based compensation plans (see Note 27). The following
table illustrates recorded compensation expense and the effect
on net income and earnings per share if the Company had adopted
the fair value based accounting method prescribed by SFAS 123:

|                                                                                                                      |             |                          |       |      |  |      |       |      |  |  |       |      | 
|--------------------------------------------------------------------------------------------------------------------- | ----------- | ------------------------ | ----- | ---- |  | ---- | ----- | ---- |  |  | ----- | ---- | 
|                                                                                                                      |             |                         
|                                                                                                                      |             | Year ended September 30,
|                                                                                                                      |             |                         
|                                                                                                                      |             | 2003                     |       | 2002 |  | 2001
|                                                                                                                      |             |                          |       |      |  |     
|Net income                                                                                                            |             |                          |       |      |  |      |       |      |  |  |       |     
|As reported                                                                                                           |             |                          | 2,445 |      |  |      | 2,597 |      |  |  | 2,088 |     
|Plus: Stock-based employee compensation expense
    included in reported net income, net of taxes                     |             |                          | 28    |      |  |      | 46    |      |  |  | 19    |     
|Less: Stock-based employee compensation expense
    determined under fair value based accounting method, net of taxes |             |                          | (147  | )    |  |      | (144  | )    |  |  | (73   | )   
|                                                                                                                      |             |                          |       |      |  |      |       |      |  |  |       |     
|Pro forma                                                                                                             |             |                          | 2,326 |      |  |      | 2,499 |      |  |  | 2,034 |     
|                                                                                                                      |             |                          |       |      |  |      |       |      |  |  |       |     
|Basic earnings per share                                                                                              |             |                          |       |      |  |      |       |      |  |  |       |     
|                                                                                                                      | As reported |                          |       | 2.75 |  |      |       | 2.92 |  |  |       | 2.36 | 
|                                                                                                                      | Pro forma   |                          |       | 2.61 |  |      |       | 2.81 |  |  |       | 2.30 | 
|Diluted earnings per share                                                                                            |             |                          |       |      |  |      |       |      |  |  |       |     
|                                                                                                                      | As reported |                          |       | 2.75 |  |      |       | 2.92 |  |  |       | 2.36 | 
|                                                                                                                      | Pro forma   |                          |       | 2.61 |  |      |       | 2.81 |  |  |       | 2.30 | 

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

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


date of the financial statements and reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

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

Accounting
changesOn October 1, 2002,
Siemens adopted SFAS 143, Accounting for Asset Retirement
Obligations, as described above (see Asset retirement
obligations). As a result of adopting SFAS 143, income of
59
(36 net of
income taxes) has been recorded as a cumulative effect of a
change in accounting principle, primarily in connection with
the Companys remediation and environmental accrual related
to the decommissioning of the facilities for the production of
uranium and mixed-oxide fuel elements in Hanau, Germany (Hanau
facilities) as well as the facilities in Karlstein, Germany
(Karlstein facilities). See Note 22 for further information.

On October 1, 2002, the Company adopted SFAS
144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which supersedes SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, and the accounting and reporting provisions of
APB Opinion 30, Reporting the Results of
OperationsReporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions, for the disposal of a
segment of a business. This statement establishes a single
accounting model based on SFAS 121 for long-lived assets to be
disposed of by sale, including discontinued operations. Major
changes include additional criteria for long-lived assets to
qualify as held for sale and the requirement that
long-lived assets to be disposed of other than by sale be
classified as held and used until the disposal transaction
occurs. SFAS 144 retains the current requirement to separately
report discontinued operations but expands that reporting to
include a component of an entity (rather than only a segment of
a business) that either has been disposed of or is classified as
held for sale. SFAS 144 requires long-lived assets to be
disposed of by sale to be recorded at the lower of carrying
amount or fair value less costs to sell and to cease
depreciation. Siemens applied the provisions of SFAS 144
prospectively and the adoption of SFAS 144 did not have a
material impact on the Companys financial statements.

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

In November 2002, the FASB issued FASB
Interpretation (FIN) 45, Guarantors Accounting and
Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others, which addresses the
disclosure to be made by a guarantor in its interim and annual
financial statements about its obligation under guarantees.
FIN 45 also requires the guarantor to recognize a liability
for the non-contingent component of the guarantee, that is, the
obligation to stand ready to perform in the event that specified
triggering events or conditions occur. The initial measurement
of this liability is the fair value of the guarantee at
inception. The Company has adopted the disclosure requirements
of FIN 45 (see Note 24 for information about
guarantees and for information related to product warranties,
see above Product-related expenses and contract loss
provisions and Note 18) and has applied the recognition
and measurement provisions for all guarantees entered into or
modified after December 31, 2002.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


In November 2002, the EITF reached a final
consensus on EITF Issue 00-21, Revenue Arrangements with
Multiple Deliverables. This Issue addresses certain aspects
of the accounting by a vendor for arrangements under which it
will perform multiple revenue-generating activities,
specifically how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting.
The Issue also addresses how arrangement consideration should be
measured and allocated to the separate units of accounting in
the arrangement. This issue is effective for revenue
arrangements entered into in fiscal periods beginning after
June 15, 2003. The adoption of EITF Issue 00-21 did
not have a material impact on the Companys financial
statements.

In January 2003, the FASB issued FIN 46,
Consolidation of Variable Interest Entities, which
interprets Accounting Research Bulletin (ARB) 51,
Consolidated Financial Statements. FIN 46 clarifies
the application of ARB 51 with respect to the consolidation
of certain entities (variable interest
entitiesVIEs) to which the usual
condition for consolidation described in ARB 51 does not
apply because the controlling financial interest in VIEs
may be achieved through arrangements that do not involve voting
interests. In addition, FIN 46 requires the primary
beneficiary of VIEs and the holder of a significant
variable interest in VIEs to disclose certain information
relating to their involvement with the VIEs. The
provisions of FIN 46 apply immediately to VIEs
created after January 31, 2003, and to VIEs in which
an enterprise obtains an interest after that date. On
October 9, 2003, the FASB issued FASB Staff Position (FSP)
FIN 46-6, Effective Date of FASBs Interpretation
No. 46, Consolidation of Variable Interest Entities,
which defers the effective date for initial application of
FIN 46 for VIEs created before February 1, 2003
to December 31, 2003. Following FSP FIN 46-6, the
Company decided to adopt FIN 46 as of December 31,
2003 for those VIEs created before February 1, 2003.
The Company holds variable interests in various VIEs which
are not significant either individually or in the aggregate. The
impact of consolidating certain of these VIEs on the
Companys financial statements will not be material.

3.   Acquisitions and
dispositions

Acquisitions

During the years ended September 30, 2003,
2002 and 2001, 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 November 2000, Medical Solutions (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 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. Siemens was granted an 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

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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)


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.

In July 2003, Siemens completed the acquisition
of the industrial turbine business of Alstom S.A., Paris
(Alstom), which was structured in two transactions. In the first
transaction in April 2003, Power Generation (PG) acquired the
small gas turbine business of Alstom. In the second transaction
in July 2003, PG acquired the medium-sized gas and steam turbine
businesses of Alstom. Both transactions resulted in an aggregate
net purchase price of
929, net of cash
acquired. The Company has not finalized the purchase price
allocation for these acquisitions. Based on the preliminary
purchase price allocation, approximately
195 was
allocated to intellectual property rights,
129 to customer
relationships and
393 to goodwill.

The Company made certain other acquisitions
during the years ended September 30, 2003, 2002 and 2001,
accounted for by the purchase method of accounting, which did
not have a significant effect on the Consolidated Financial
Statements.

Dispositions

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.

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.

On November 20, 2001, the Company sold
Mannesmann Sachs AG 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.

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.

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

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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)


shares received was
208. The sale
transaction resulted in a pretax gain of
421. Included in
the gain calculation is
179,
representing the carrying amount of Unispheres goodwill
(see Note 14). As a result of the transaction Siemens
received 9.7% of Juniper 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
(see Note 13 for further information regarding the
Companys investment in Juniper shares).

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, and Siemens
received net cash proceeds of approximately
1.0 billion.
The transaction resulted in a pretax gain of
21. Siemens will
use cost accounting for its 19% interest in Demag Holding. The
governing structure of Demag Holding provides for KKR to have
absolute control over virtually all operating, financial, and
other management decisions, while Siemens ownership is
proportionate to the investment and only passive in nature.

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

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.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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. We
have notified the trustee that the trust will terminate in
accordance with the terms of the trust agreement on
November 28, 2004. Upon termination, any shares held by the
trustee would revert to the Company and the Company would be
again entitled to vote these shares. Certain provisions of the
trust agreement, including those relating to voting and transfer
of the shares held in trust, may not be amended without the
approval of Infineons shareholders.

Under the terms of a related standstill
agreement, the Company has agreed with the trustee that it will
not, and it will not permit its affiliates to, directly or
indirectly, acquire or offer to acquire ownership of Infineon
shares, or securities convertible into Infineon shares, or any
other Infineon voting securities or securities convertible into
Infineon voting securities. The Company has also agreed that
neither it nor any of its affiliates will procure for itself any
third partys voting rights in respect of Infineon shares.
These provisions terminate on the termination of the trust
agreement.

The Companys irrevocable transfer of
Infineon shares to the non-voting trust on December 5,
2001, reduced the Companys voting interest in Infineon by
an amount corresponding to the number of shares transferred.
Accordingly, while the Companys ownership interest at
December 31, 2001 was 47.1%, its voting interest based on
total outstanding shares of Infineon was 18.2%. Such voting
interest, when combined with the voting interest in Infineon
shares of 13.2% held by the Companys domestic pension
trust, represented a combined voting interest of 31.4% as of
December 31, 2001. Since shareholders of Infineon other
than the Company and the pension trust owned approximately 39.7%
of Infineons share capital as of December 31, 2001,
they 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).

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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 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.

|                                                                      |  |               |         |  
|--------------------------------------------------------------------- |  | ------------- | ------- | -
|                                                                      |  | 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 and its
ownership interest in Infineon decreased to approximately 39.7%
(see Note 13).

Siemens net income for the fiscal years
ended September 30, 2003, 2002 and 2001, includes the
Companys share of the loss of Infineon of
(170),
(453) and
(263),
respectively.

4.   Other operating income
(expense), net

|                                                         |  |                          |     |      |  |      |       |   |  |  |        |  
|-------------------------------------------------------- |  | ------------------------ | --- | ---- |  | ---- | ----- | - |  |  | ------ | -
|                                                         |  |                         
|                                                         |  | Year ended September 30,
|                                                         |  |                         
|                                                         |  | 2003                     |     | 2002 |  | 2001
|                                                         |  |                          |     |      |  |     
|Gains on sales and disposals of businesses, net          |  |                          | 101 |      |  |      | 1,455 |   |  |  | 4,278  |  
|Gains on sales of property, plant and equipment,
    net |  |                          | 131 |      |  |      | 155   |   |  |  | 151    |  
|Impairment and amortization of goodwill                  |  |                          |    |      |  |      | (378  | ) |  |  | (1,489 | )
|Other                                                    |  |                          | 410 |      |  |      | 89    |   |  |  | (178   | )
|                                                         |  |                          |     |      |  |      |       |   |  |  |        |  
|                                                         |  |                          | 642 |      |  |      | 1,321 |   |  |  | 2,762  |  
|                                                         |  |                          |     |      |  |      |       |   |  |  |        |  

For a description of significant items included
in Gains on sales and disposals of businesses, net, see
Note 3.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


As described in Note 2, the Company ceased
to amortize goodwill at the beginning of fiscal 2002 due to the
adoption of SFAS 142. Impairment and amortization 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).

The line item Other includes net gains
recognized in connection with the cancellation of orders at PG
amounting to
 359 for
the fiscal year ended September 30, 2003.

5.   Income (loss) from
investments in other companies, net

|                                                          |  |                          |      |      |  |      |      |   |  |  |      |  
|--------------------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                                          |  |                         
|                                                          |  | Year ended September 30,
|                                                          |  |                         
|                                                          |  | 2003                     |      | 2002 |  | 2001
|                                                          |  |                          |      |      |  |     
|Income from investments                                   |  |                          | 42   |      |  |      | 61   |   |  |  | 166  |  
|Share in earnings (losses) from equity investees,
    net |  |                          | 236  |      |  |      | (158 | ) |  |  | 213  |  
|Gains on sales of investments                             |  |                          | 21   |      |  |      | 209  |   |  |  | 138  |  
|Losses on sales of investments                            |  |                          | (23  | )    |  |      | (32  | ) |  |  | (279 | )
|Write-downs on investments                                |  |                          | (159 | )    |  |      | (193 | ) |  |  | (231 | )
|Other                                                     |  |                          | 25   |      |  |      | (1   | ) |  |  | 42   |  
|                                                          |  |                          |      |      |  |      |      |   |  |  |      |  
|                                                          |  |                          | 142  |      |  |      | (114 | ) |  |  | 49   |  
|                                                          |  |                          |      |      |  |      |      |   |  |  |      |  

Share in earnings (losses) from equity
investees, netfor fiscal 2003
includes negative
170,
representing Siemens share in the net loss of Infineon.
For fiscal 2002, the equity share of Infineons net loss
following the deconsolidation of Infineon in December 2001 was a
negative 338.
The Companys total share of losses in Infineon amounted to
453 and
263 for fiscal
2002 and 2001. 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.

6.   Income from financial
assets and marketable securities, net

|                                                                  |  |                          |    |      |  |      |    |   |  |  |      |  
|----------------------------------------------------------------- |  | ------------------------ | -- | ---- |  | ---- | -- | - |  |  | ---- | -
|                                                                  |  |                         
|                                                                  |  | Year ended September 30,
|                                                                  |  |                         
|                                                                  |  | 2003                     |    | 2002 |  | 2001
|                                                                  |  |                          |    |      |  |     
|Gains (losses) on sales of available-for-sale
    securities, net |  |                          | (6 | )    |  |      | 20 |   |  |  | 426  |  
|Other financial gains (losses), net                               |  |                          | 67 |      |  |      | (2 | ) |  |  | (253 | )
|                                                                  |  |                          |    |      |  |      |    |   |  |  |      |  
|                                                                  |  |                          | 61 |      |  |      | 18 |   |  |  | 173  |  
|                                                                  |  |                          |    |      |  |      |    |   |  |  |      |  

In fiscal 2003, 2002 and 2001, included in
Other financial gains (losses), net are impairments of
certain marketable securities totaling
17,
24 and
217,
respectively, where the decline in value was determined to be
other than temporary.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


7.   Interest income,
net

|                                             |                                       |                          |     |      |   |      |     |       |   |  |     |      |  
|-------------------------------------------- | ------------------------------------- | ------------------------ | --- | ---- | - | ---- | --- | ----- | - |  | --- | ---- | -
|                                             |                                       |                         
|                                             |                                       | Year ended September 30,
|                                             |                                       |                         
|                                             |                                       | 2003                     |     | 2002 |   | 2001
|                                             |                                       |                          |     |      |   |     
|Interest income (expense) of Operations, net |                                       |                          | 31  |      |   |      | 94  |       |   |  | (32 | )   
|Other interest (expense) income, net         |                                       |                          | 214 |      |   |      | 224 |       |   |  | 43  |     
|                                             |                                       |                          |     |      |   |      |     |       |   |  |     |     
|Total interest income, net                   |                                       |                          | 245 |      |   |      | 318 |       |   |  | 11  |     
|                                             |                                       |                          |     |      |   |      |     |       |   |  |     |     
|                                             | Thereof: Interest and similar income  |                          |     | 789  |   |      |     | 1,061 |   |  |     | 964  |  
|                                             | Thereof: Interest and similar expense |                          |     | (544 | ) |      |     | (743  | ) |  |     | (953 | )

Interest income (expense) of Operations,
netincludes interest income and
expense related to receivables from customers and payables to
suppliers, interest on advances from customers and advanced
financing of customer contracts. Other interest (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.

8.   Income taxes

Income (loss) before income taxes is attributable
to the following geographic regions:

|        |  |                          |       |      |  |      |        |   |  |  |       | 
|------- |  | ------------------------ | ----- | ---- |  | ---- | ------ | - |  |  | ----- | 
|        |  |                         
|        |  | Year ended September 30,
|        |  |                         
|        |  | 2003                     |       | 2002 |  | 2001
|        |  |                          |       |      |  |     
|Germany |  |                          | 477   |      |  |      | (1,033 | ) |  |  | 1,446 | 
|Foreign |  |                          | 2,895 |      |  |      | 4,508  |   |  |  | 1,232 | 
|        |  |                          |       |      |  |      |        |   |  |  |       | 
|        |  |                          | 3,372 |      |  |      | 3,475  |   |  |  | 2,678 | 
|        |  |                          |       |      |  |      |        |   |  |  |       | 

Income tax expense (benefit) consists of the
following:

|                        |                                    |                          |     |      |  |      |       |      |   |  |     |      |  
|----------------------- | ---------------------------------- | ------------------------ | --- | ---- |  | ---- | ----- | ---- | - |  | --- | ---- | -
|                        |                                    |                         
|                        |                                    | Year ended September 30,
|                        |                                    |                         
|                        |                                    | 2003                     |     | 2002 |  | 2001
|                        |                                    |                          |     |      |  |     
|Current:                |                                    |                          |     |      |  |      |       |      |   |  |     |     
|                        | German corporation and trade taxes |                          |     | 149  |  |      |       | 105  |   |  |     | 228  |  
|                        | Foreign income taxes               |                          |     | 457  |  |      |       | 935  |   |  |     | 517  |  
|                        |                                    |                          |     |      |  |      |       |      |   |  |     |     
|                        |                                    |                          | 606 |      |  |      | 1,040 |      |   |  | 745 |     
|                        |                                    |                          |     |      |  |      |       |      |   |  |     |     
|Deferred:               |                                    |                          |     |      |  |      |       |      |   |  |     |     
|                        | Germany                            |                          |     | 16   |  |      |       | (454 | ) |  |     | (131 | )
|                        | Foreign                            |                          |     | 245  |  |      |       | 263  |   |  |     | 167  |  
|                        |                                    |                          |     |      |  |      |       |      |   |  |     |     
|                        |                                    |                          | 261 |      |  |      | (191  | )    |   |  | 36  |     
|                        |                                    |                          |     |      |  |      |       |      |   |  |     |     
|Income tax expense, net |                                    |                          | 867 |      |  |      | 849   |      |   |  | 781 |     
|                        |                                    |                          |     |      |  |      |       |      |   |  |     |     

For the fiscal year ended September 30,
2003, the Company is subject to German federal corporation
income tax at a base rate of 26.5% plus a solidarity surcharge
of 5.5% on federal corporation taxes payable. As a result, the
statutory rate for the year ended September 30, 2003
consists of the federal corporate tax rate, including solidarity
surcharge, of 28% and trade tax net of federal benefit of 13%
for a combined rate of 41%.

For the fiscal year ended September 30,
2002, the Company was subject to German federal corporation tax
at a base rate of 25% plus solidarity surcharge of 5.5% on
federal corporation taxes payable. As a result, the statutory
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%.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


In preceding years, German tax law applied a
split rate imputation credit system to the income taxation of
corporations and their shareholders. In accordance with the law
in effect for fiscal 2001, retained corporation income was
initially subject to a federal corporation tax rate of 40%, plus
a solidarity surcharge of 5.5% on federal taxes payable. The
statutory rate for the year ended September 30, 2001,
consisted of a federal corporate 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. Another
significant tax law change, which became effective on
October 1, 2002, was the exemption from taxation of certain
gains and losses on the sale of shares of affiliated and
unaffiliated companies. 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.

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 (41%, 39% and 52% for
September 2003, 2002 and 2001, respectively) as follows:

|                            |                                                         |                                                               |       |      |      |      |       |  |      |   |       |  |      |  
|--------------------------- | ------------------------------------------------------- | ------------------------------------------------------------- | ----- | ---- | ---- | ---- | ----- |  | ---- | - | ----- |  | ---- | -
|                            |                                                         |                                                              
|                            |                                                         | Year ended September 30,                                     
|                            |                                                         |                                                              
|                            |                                                         | 2003                                                          |       | 2002 |      | 2001
|                            |                                                         |                                                               |       |      |      |     
|Expected income tax expense |                                                         |                                                               | 1,383 |      |      |      | 1,355 |  |      |   | 1,393 | 
|                            | Increase (decrease) in income taxes resulting
    from: |                                                               |       |      |      |      |       |  |      |   |       |  |     
|                            |                                                         | Non-deductible losses and expenses                            |       |      | 88   |      |       |  | 164  |   |       |  | 144  |  
|                            |                                                         | Goodwill and acquired in-process research and
    development |       |      | 26   |      |       |  | 162  |   |       |  | 853  |  
|                            |                                                         | Tax-free income                                               |       |      | (158 | )    |       |  | (18  | ) |       |  | (43  | )
|                            |                                                         | Change in tax base of investments                             |       |      | 148  |      |       |  |     |   |       |  |     |  
|                            |                                                         | Gains from sales of business interests                        |       |      | (66  | )    |       |  | (586 | ) |       |  | (859 | )
|                            |                                                         | Effect of change in German tax rates                          |       |      |     |      |       |  | (7   | ) |       |  | 145  |  
|                            |                                                         | Foreign tax rate differential                                 |       |      | (419 | )    |       |  | (171 | ) |       |  | (768 | )
|                            |                                                         | Tax effect of equity method investments                       |       |      | (153 | )    |       |  | (72  | ) |       |  | (111 | )
|                            |                                                         | Other                                                         |       |      | 18   |      |       |  | 22   |   |       |  | 27   |  
|                            |                                                         |                                                               |       |      |      |      |       |  |      |   |       | 
|Actual income tax expense   |                                                         |                                                               | 867   |      |      |      | 849   |  |      |   | 781   | 
|                            |                                                         |                                                               |       |      |      |      |       |  |      |   |       | 

F-22



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Deferred income tax assets and liabilities on a
gross basis are summarized as follows:

|                               |                                      |                                                                        |       |       |       |   |       |       |       |  
|------------------------------ | ------------------------------------ | ---------------------------------------------------------------------- | ----- | ----- | ----- | - | ----- | ----- | ----- | -
|                               |                                      |                                                                       
|                               |                                      | September 30,                                                         
|                               |                                      |                                                                       
|                               |                                      | 2003                                                                   |       | 2002 
|                               |                                      |                                                                        |       |      
|Current assets:                |                                      |                                                                        |       |       |       |   |       |      
|                               | Inventories                          |                                                                        |       | 505   |       |   |       | 227   |      
|                               | Receivables                          |                                                                        |       | 256   |       |   |       | 623   |      
|                               | Accrued liabilities                  |                                                                        |       | 682   |       |   |       | 899   |      
|                               | Liabilities                          |                                                                        |       | 324   |       |   |       | 218   |      
|                               | Tax loss and credit carryforward     |                                                                        |       | 615   |       |   |       | 632   |      
|                               | Other                                |                                                                        |       | 406   |       |   |       | 533   |      
|                               |                                      |                                                                        |       |       |       |   |       |      
|                               |                                      | Total current deferred tax assets, before
    valuation allowances     |       |       | 2,788 |   |       |       | 3,132 |  
|                               |                                      | Valuation allowances                                                   |       |       | (82   | ) |       |       | (158  | )
|                               |                                      |                                                                        |       |       |       |   |       |      
|                               |                                      | Current deferred tax assets                                            |       |       | 2,706 |   |       |       | 2,974 |  
|                               |                                      |                                                                        |       |       |       |   |       |      
|Current liabilities:           |                                      |                                                                        |       |       |       |   |       |      
|                               | Inventories                          |                                                                        |       | 1,482 |       |   |       | 1,343 |      
|                               | Receivables                          |                                                                        |       | 281   |       |   |       | 102   |      
|                               | Accrued liabilities                  |                                                                        |       | 423   |       |   |       | 403   |      
|                               | Liabilities                          |                                                                        |       | 156   |       |   |       | 392   |      
|                               | Other                                |                                                                        |       | 171   |       |   |       | 183   |      
|                               |                                      |                                                                        |       |       |       |   |       |      
|                               |                                      | Current deferred tax liabilities                                       |       |       | 2,513 |   |       |       | 2,423 |  
|                               |                                      |                                                                        |       |       |       |   |       |      
|                               | Current deferred tax assets, net     |                                                                        |       | 193   |       |   |       | 551   |      
|                               |                                      |                                                                        |       |       |       |   |       |      
|Non-current assets:            |                                      |                                                                        |       |       |       |   |       |      
|                               | Intangibles                          |                                                                        |       | 269   |       |   |       | 40    |      
|                               | Property, plant and equipment        |                                                                        |       | 140   |       |   |       | 232   |      
|                               | Retirement plans                     |                                                                        |       | 1,993 |       |   |       | 1,511 |      
|                               | Accrued liabilities                  |                                                                        |       | 576   |       |   |       | 671   |      
|                               | Liabilities                          |                                                                        |       | 363   |       |   |       | 262   |      
|                               | Tax loss and credit carryforward     |                                                                        |       | 1,605 |       |   |       | 1,563 |      
|                               | Other                                |                                                                        |       | 881   |       |   |       | 972   |      
|                               |                                      |                                                                        |       |       |       |   |       |      
|                               |                                      | Total non-current deferred tax assets, before
    valuation allowances |       |       | 5,827 |   |       |       | 5,251 |  
|                               |                                      | Valuation allowances                                                   |       |       | (559  | ) |       |       | (389  | )
|                               |                                      |                                                                        |       |       |       |   |       |      
|                               |                                      | Non-current deferred tax assets                                        |       |       | 5,268 |   |       |       | 4,862 |  
|                               |                                      |                                                                        |       |       |       |   |       |      
|Non-current liabilities:       |                                      |                                                                        |       |       |       |   |       |      
|                               | Intangibles                          |                                                                        |       | 252   |       |   |       | 364   |      
|                               | Property, plant and equipment        |                                                                        |       | 572   |       |   |       | 380   |      
|                               | Accrued liabilities                  |                                                                        |       | 259   |       |   |       | 305   |      
|                               | Liabilities                          |                                                                        |       | 21    |       |   |       | 273   |      
|                               | Other                                |                                                                        |       | 339   |       |   |       | 49    |      
|                               |                                      |                                                                        |       |       |       |   |       |      
|                               |                                      | Non-current deferred tax liabilities                                   |       |       | 1,443 |   |       |       | 1,371 |  
|                               |                                      |                                                                        |       |       |       |   |       |      
|                               | Non-current deferred tax assets, net |                                                                        |       | 3,825 |       |   |       | 3,491 |      
|                               |                                      |                                                                        |       |       |       |   |       |      
|Total deferred tax assets, net |                                      |                                                                        | 4,018 |       |       |   | 4,042 |      
|                               |                                      |                                                                        |       |       |       |   |       |      

F-23



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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, 2003 the Company had
approximately
5,132 of gross
tax loss carryforwards. Of the total,
4,210 tax loss
carryforwards have unlimited carryforward periods and
922 expire over
the periods to 2021.

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 years ended September 30, 2003 and 2002, the
Company provided for
44 and
17,
respectively, of deferred tax liabilities associated with
declared, but unpaid, foreign dividends. Income taxes on
cumulative earnings of
5,397 of foreign
subsidiaries have not been provided for because such earnings
will either not be subject to any such taxes or are intended to
be indefinitely reinvested in those operations. It is not
practicable to estimate the amount of the unrecognized deferred
tax liabilities for these undistributed foreign earnings.

Including the items charged or credited directly
to related components of accumulated other comprehensive loss
and the benefit from changes in accounting principles, the
provision (benefit) for income taxes consists of the following:

|                                                        |  |                          |      |      |  |      |        |   |  |  |        |  
|------------------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                        |  |                         
|                                                        |  | Year ended September 30,
|                                                        |  |                         
|                                                        |  | 2003                     |      | 2002 |  | 2001
|                                                        |  |                          |      |      |  |     
|Provision for income taxes                              |  |                          | 867  |      |  |      | 849    |   |  |  | 781    |  
|Cumulative effect of change in accounting
    principle |  |                          | 23   |      |  |      |       |   |  |  |       |  
|Shareholders equity for other comprehensive
    income |  |                          | (394 | )    |  |      | (1,008 | ) |  |  | (3,326 | )
|                                                        |  |                          |      |      |  |      |        |   |  |  |        |  
|                                                        |  |                          | 496  |      |  |      | (159   | ) |  |  | (2,545 | )
|                                                        |  |                          |      |      |  |      |        |   |  |  |        |  

9.   Marketable
securities

As of September 30, 2003 and 2002, the
Companys portfolio of marketable securities consisted
solely of securities classified as available-for-sale.

The following tables summarize the current
portion of the Companys investment in available-for-sale
securities (for information regarding the non-current
available-for-sale securities, see Note 13):

|                  |  |                    |     |            |  |      |     |      |  |  |    |  |  |  |   | 
|----------------- |  | ------------------ | --- | ---------- |  | ---- | --- | ---- |  |  | -- |  |  |  | - | 
|                  |  |                   
|                  |  | September 30, 2003
|                  |  |                   
|                  |  |                    |     |           
|                  |  |                    |     | Unrealized
|                  |  |                    |     |           
|                  |  | Cost               |     | Fair value |  | Gain |     | Loss
|                  |  |                    |     |            |  |      |     |     
|Equity securities |  |                    | 118 |            |  |      | 194 |      |  |  | 78 |  |  |  | 2 | 
|Debt securities   |  |                    | 424 |            |  |      | 436 |      |  |  | 12 |  |  |  |  | 
|Fund securities   |  |                    | 20  |            |  |      | 20  |      |  |  | 1  |  |  |  | 1 | 
|                  |  |                    |     |            |  |      |     |      |  |  |    |  |  |  |   | 
|                  |  |                    | 562 |            |  |      | 650 |      |  |  | 91 |  |  |  | 3 | 
|                  |  |                    |     |            |  |      |     |      |  |  |    |  |  |  |   | 

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)


|                  |  |                    |     |            |  |      |     |      |  |  |    |  |  |  |    | 
|----------------- |  | ------------------ | --- | ---------- |  | ---- | --- | ---- |  |  | -- |  |  |  | -- | 
|                  |  |                   
|                  |  | 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 | 
|                  |  |                    |     |            |  |      |     |      |  |  |    |  |  |  |    | 

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,
|                                      |  | 2003         
|                                      |  |              
|Due within one year                   |  |               | 27  | 
|Due after one year through five years |  |               | 292 | 
|Thereafter                            |  |               | 117 | 

Actual maturities may differ from contractual
maturities because borrowers have the right to call or prepay
certain obligations.

Proceeds from sales of available-for-sale
securities for the years ended September 30, 2003, 2002 and
2001 were 61,
398 and
1,143,
respectively. Gross realized gains on sales of
available-for-sale securities for the years ended
September 30, 2003, 2002 and 2001 were
8,
29 and
426,
respectively. Gross realized losses on sales of
available-for-sale securities for the years ended
September 30, 2003, 2002 and 2001 were
14,
9 and

respectively.

10. Accounts receivable, net

|                                                               |  |               |        |      |  |  |        | 
|-------------------------------------------------------------- |  | ------------- | ------ | ---- |  |  | ------ | 
|                                                               |  |              
|                                                               |  | September 30,
|                                                               |  |              
|                                                               |  | 2003          |        | 2002
|                                                               |  |               |        |     
|Trade receivables from the sale of goods and
    services, net |  |               | 13,094 |      |  |  | 13,882 | 
|Receivables from sales and finance leases, net                 |  |               | 1,289  |      |  |  | 1,146  | 
|Receivables from associated and related
    companies, net     |  |               | 128    |      |  |  | 202    | 
|                                                               |  |               |        |      |  |  |        | 
|                                                               |  |               | 14,511 |      |  |  | 15,230 | 
|                                                               |  |               |        |      |  |  |        | 

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.

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)


The valuation allowance for accounts receivable
developed as follows:

|                                                                                                       |  |                          |       |      |  |      |       |   |  |  |       |  
|------------------------------------------------------------------------------------------------------ |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  |  | ----- | -
|                                                                                                       |  |                         
|                                                                                                       |  | Year ended September 30,
|                                                                                                       |  |                         
|                                                                                                       |  | 2003                     |       | 2002 |  | 2001
|                                                                                                       |  |                          |       |      |  |     
|Valuation allowance as of beginning of fiscal year                                                     |  |                          | 1,585 |      |  |      | 1,785 |   |  |  | 1,610 |  
|Increase (decrease) in valuation allowances
    recorded in the income statement in the current period |  |                          | (50   | )    |  |      | 215   |   |  |  | 505   |  
|Write-offs charged against the allowance                                                               |  |                          | (383  | )    |  |      | (385  | ) |  |  | (383  | )
|Recoveries of amounts previously written-off                                                           |  |                          | 23    |      |  |      | 37    |   |  |  | 45    |  
|Foreign exchange translation adjustment                                                                |  |                          | (53   | )    |  |      | (67   | ) |  |  | 8     |  
|                                                                                                       |  |                          |       |      |  |      |       |   |  |  |       |  
|Valuation allowance at fiscal year-end                                                                 |  |                          | 1,122 |      |  |      | 1,585 |   |  |  | 1,785 |  
|                                                                                                       |  |                          |       |      |  |      |       |   |  |  |       |  

Receivables from sales and finance leases

|                                                   |  |               |        |  
|-------------------------------------------------- |  | ------------- | ------ | -
|                                                   |  | September 30,
|                                                   |  | 2003         
|                                                   |  |              
|2004                                               |  |               | 1,424  |  
|2005                                               |  |               | 998    |  
|2006                                               |  |               | 670    |  
|2007                                               |  |               | 410    |  
|2008                                               |  |               | 229    |  
|Thereafter                                         |  |               | 195    |  
|                                                   |  |               |        |  
|Minimum future lease payments                      |  |               | 3,926  |  
|Less: Unearned income                              |  |               | (517   | )
|Less: Allowance for doubtful accounts              |  |               | (126   | )
|Plus: Unguaranteed residual values                 |  |               | 162    |  
|                                                   |  |               |        |  
|Net investment in lease receivables                |  |               | 3,445  |  
|Less: Long-term portion                            |  |               | (2,156 | )
|                                                   |  |               |        |  
|Receivables from sales and finance leases, current |  |               | 1,289  |  
|                                                   |  |               |        |  

Investments in direct financing and sales-type
leases primarily relates to equipment for information and
communication products, data processing and medical engineering
equipment. Investments in direct financing leases also include
leases of industrial and consumer products of third party
manufacturers. Actual cash flows will vary from contractual
maturities due to future sales of finance receivables,
prepayments and write-offs.

Securitization of trade receivables

During fiscal 2002 and 2001, the Company sold a
total of 4,553
and 1,848,
respectively, in short-term trade receivable securitizations and
retained interests in all trade receivables sold through the
SieFunds structure, which are subordinated to the interests of
the investors. The value of retained interests was subject to
credit, prepayment, and interest rate risks of the trade
receivables sold. As of September 30, 2002 and 2001, the
fair value of retained interests in trade receivables sold
amounted to 50
and 65,
respectively, based on the following key assumptions used:
average days outstanding of 37 and 64, discount rates of 3.0%
and 4.0% per annum and credit risks of 0.5% and 0.7% per annum.
At the time securitizations were completed, those key
assumptions were assessed at: average days outstanding of 43 and
61, discount rates of 3.0% and 4.6% per annum and credit risks
of 0.4% and 0.6% per annum, for the fiscal years 2002 and 2001.
In addition, the Company has provided letters of credit to cover
up to an additional 17% of credit losses on receivables
originated by the Company. As of September 30, 2002 and
2001, the letters of credit covered
40 and
127,
respectively, of receivables originated

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)


by the Company. There were no further recourses
to the Companys other assets and liabilities for failure
of debtors to pay when due.

In fiscal years 2002 and 2001, the Company
recognized pretax losses on securitization transactions of
22 and
13,
respectively. Cash received from securitization trusts totaled
approximately
4,156 and
1,673, in fiscal
years 2002 and 2001. Cash flows resulting from retained
interests amounted to
365 and
95, in fiscal
periods ended September 30, 2002 and 2001.

11. Inventories, net

|                                                                      |                           |               |        |        |   |  |        |        |  
|--------------------------------------------------------------------- | ------------------------- | ------------- | ------ | ------ | - |  | ------ | ------ | -
|                                                                      |                           |              
|                                                                      |                           | September 30,
|                                                                      |                           |              
|                                                                      |                           | 2003          |        | 2002  
|                                                                      |                           |               |        |       
|Raw materials and supplies                                            |                           |               | 2,118  |        |   |  | 2,430  |       
|Work in process                                                       |                           |               | 2,066  |        |   |  | 1,674  |       
|Costs and earnings in excess of billings on
    uncompleted contracts |                           |               | 5,787  |        |   |  | 5,572  |       
|Finished goods and products held for resale                           |                           |               | 2,770  |        |   |  | 3,385  |       
|Advances to suppliers                                                 |                           |               | 795    |        |   |  | 544    |       
|                                                                      |                           |               |        |        |   |  |        |       
|                                                                      |                           |               | 13,536 |        |   |  | 13,605 |       
|                                                                      | Advance payments received |               |        | (3,170 | ) |  |        | (2,933 | )
|                                                                      |                           |               |        |        |   |  |        |       
|                                                                      |                           |               | 10,366 |        |   |  | 10,672 |       
|                                                                      |                           |               |        |        |   |  |        |       

12. Other current assets

|                                                            |  |               |       |      |  |  |       | 
|----------------------------------------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                                                            |  |              
|                                                            |  | September 30,
|                                                            |  |              
|                                                            |  | 2003          |       | 2002
|                                                            |  |               |       |     
|Taxes receivable                                            |  |               | 1,100 |      |  |  | 1,320 | 
|Loans receivable                                            |  |               | 707   |      |  |  | 905   | 
|Other receivables from associated and related
    companies |  |               | 337   |      |  |  | 466   | 
|Other                                                       |  |               | 2,606 |      |  |  | 2,662 | 
|                                                            |  |               |       |      |  |  |       | 
|                                                            |  |               | 4,750 |      |  |  | 5,353 | 
|                                                            |  |               |       |      |  |  |       | 

13. Long-term investments

|                                   |  |               |       |      |  |  |       | 
|---------------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                                   |  |              
|                                   |  | September 30,
|                                   |  |              
|                                   |  | 2003          |       | 2002
|                                   |  |               |       |     
|Investment in associated companies |  |               | 4,834 |      |  |  | 4,120 | 
|Miscellaneous investments          |  |               | 1,158 |      |  |  | 972   | 
|                                   |  |               |       |      |  |  |       | 
|                                   |  |               | 5,992 |      |  |  | 5,092 | 
|                                   |  |               |       |      |  |  |       | 

Investments in associated
companiesgenerally represent
non-controlling interests in entities of 20% to 50% accounted
for using the equity method of accounting. During fiscal 2003,
Investments in associated companies increased mainly due
to the Companys investment in various equity and debt
security funds. As of September 30, 2003 and 2002, this
line item included
2,249 and
2,441,
respectively, 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, 2003 and 2002, was
3,212 and
1,606,
respectively. Until December 2001, Infineon was included in the
Consolidated Financial Statements of Siemens AG. The Company
entered into transactions as described in Note 3 under
Deconsolidation of Infineon, the effect of which is that

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)


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 was
39.7% and 33.3%, respectively, as of September 30, 2002. As
a result of the Siemens German Pension Trusts sale of its
remaining Infineon shares during the first half of fiscal 2003,
Siemens voting interest in Infineon decreased to 16.6% as of
September 30, 2003 (see table below).

|                                                   |  |               |      |           |  |  |         |           |  |  |      |    |  |  |         | 
|-------------------------------------------------- |  | ------------- | ---- | --------- |  |  | ------- | --------- |  |  | ---- | -- |  |  | ------- | 
|                                                   |  |              
|                                                   |  | September 30,
|                                                   |  |              
|                                                   |  |               |      |          
|                                                   |  | 2003          |      | 2002     
|                                                   |  |               |      |          
|                                                   |  |               |      | shares in |  |  |         | shares in
|                                                   |  |               |      | thousands |  |  |         | thousands
|                                                   |  |               |      |           |  |  |         |          
|Siemens ownership interest                        |  |               | 39.7 | %         |  |  | 286,292 |           |  |  | 39.7 | %  |  |  | 286,292 | 
|Less: Non-voting trusts interest                  |  |               |      |           |  |  | 200,000 |           |  |  |      |    |  |  | 200,000 | 
|                                                   |  |               |      |           |  |  |         |           |  |  |      |    |  |  |         | 
|Siemens voting interest                           |  |               | 16.6 | %*        |  |  | 86,292  |           |  |  | 16.6 | %* |  |  | 86,292  | 
|Siemens German Pension Trusts voting
    interest |  |               |     |           |  |  |        |           |  |  | 16.7 | %* |  |  | 87,053  | 
|                                                   |  |               |      |           |  |  |         |           |  |  |      |    |  |  |         | 
|Siemens total voting interest                     |  |               | 16.6 | %*        |  |  | 86,292  |           |  |  | 33.3 | %* |  |  | 173,345 | 






|  |                                                                                                                                                                                                                                                                                                                                    
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Based upon total Infineon shares outstanding at
    September 30, 2003 and 2002, respectively, less
    200 million shares contributed to the non-voting trust (see
    Note 3). As of September 30, 2003 and 2002,
    Siemens total voting interest is 12.0% and 24.0%,
    respectively, based on the total shares outstanding.

Summarized financial information for Infineon is
provided by the table below:

|                        |  |               |        |      |  |  |        | 
|----------------------- |  | ------------- | ------ | ---- |  |  | ------ | 
|                        |  |              
|                        |  | September 30,
|                        |  |              
|                        |  | 2003          |        | 2002
|                        |  |               |        |     
|Current assets          |  |               | 5,306  |      |  |  | 4,191  | 
|Non-current assets      |  |               | 5,499  |      |  |  | 6,727  | 
|Total assets            |  |               | 10,805 |      |  |  | 10,918 | 
|Current liabilities     |  |               | 2,134  |      |  |  | 2,383  | 
|Non-current liabilities |  |               | 3,005  |      |  |  | 2,377  | 
|Shareholders equity    |  |               | 5,666  |      |  |  | 6,158  | 

|                         |  |               |       |      |  |  |        |  
|------------------------ |  | ------------- | ----- | ---- |  |  | ------ | -
|                         |  |              
|                         |  | Year ended   
|                         |  | September 30,
|                         |  |              
|                         |  | 2003          |       | 2002
|                         |  |               |       |     
|Net sales                |  |               | 6,152 |      |  |  | 4,890  |  
|Gross profit on sales    |  |               | 1,538 |      |  |  | 601    |  
|Loss before income taxes |  |               | (351  | )    |  |  | (1,160 | )
|Net loss                 |  |               | (435  | )    |  |  | (1,021 | )

Miscellaneous
investmentsgenerally include
interests in other companies for which there is no readily
determinable market value and which are recorded at the lower of
cost or net realizable value. As of September 30, 2003, in
this line item Siemens reported
308 of the fair
value related to its investment in Juniper representing the
Companys total non-current portion of available-for-sale
securities (cost amounted to
104 and
unrealized gains to
204).

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)


14. Goodwill

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

|                          |                                              |         |       |             |  |              |      |              |   |         |     |     |  |  |    |    |  |  |       |       | 
|------------------------- | -------------------------------------------- | ------- | ----- | ----------- |  | ------------ | ---- | ------------ | - | ------- | --- | --- |  |  | -- | -- |  |  | ----- | ----- | 
|                          |                                              |         |       | Translation |  |              |      |              |   |        
|                          |                                              |         |       | adjustment  |  |              |      |              |   |        
|                          |                                              | 10/1/02 |       | and other   |  | Acquisitions |      | Dispositions |   | 9/30/03
|                          |                                              |         |       |             |  |              |      |              |   |        
|Operations                |                                              |         |       |             |  |              |      |              |   |         |     |     |  |  |    |    |  |  |       |      
|                          | Information and Communication Networks (ICN) |         |       | 265         |  |              |      | (2           | ) |         |     | 4   |  |  |    | 18 |  |  |       | 249   | 
|                          | Information and Communication Mobile (ICM)   |         |       | 93          |  |              |      |             |   |         |     | 3   |  |  |    |   |  |  |       | 96    | 
|                          | Siemens Business Services (SBS)              |         |       | 230         |  |              |      | (23          | ) |         |     | 74  |  |  |    |   |  |  |       | 281   | 
|                          | Automation and Drives (A&D)                  |         |       | 281         |  |              |      | (1           | ) |         |     | 49  |  |  |    | 1  |  |  |       | 328   | 
|                          | Industrial Solutions and Services (I&S)      |         |       | 92          |  |              |      | (26          | ) |         |     | 1   |  |  |    |   |  |  |       | 67    | 
|                          | Siemens Dematic (SD)                         |         |       | 581         |  |              |      | (2           | ) |         |     |    |  |  |    | 15 |  |  |       | 564   | 
|                          | Siemens Building Technologies (SBT)          |         |       | 442         |  |              |      | (13          | ) |         |     | 1   |  |  |    | 1  |  |  |       | 429   | 
|                          | Power Generation (PG)                        |         |       | 598         |  |              |      | (64          | ) |         |     | 409 |  |  |    |   |  |  |       | 943   | 
|                          | Power Transmission and Distribution (PTD)    |         |       | 148         |  |              |      | (10          | ) |         |     | 3   |  |  |    |   |  |  |       | 141   | 
|                          | Transportation Systems (TS)                  |         |       | 115         |  |              |      |             |   |         |     |    |  |  |    |   |  |  |       | 115   | 
|                          | Siemens VDO Automotive (SV)                  |         |       | 1,528       |  |              |      | (1           | ) |         |     | 2   |  |  |    | 5  |  |  |       | 1,524 | 
|                          | Medical Solutions (Med)                      |         |       | 1,898       |  |              |      | (284         | ) |         |     | 19  |  |  |    | 31 |  |  |       | 1,602 | 
|                          | Osram                                        |         |       | 98          |  |              |      | (16          | ) |         |     |    |  |  |    |   |  |  |       | 82    | 
|Financing and Real Estate |                                              |         |       |             |  |              |      |              |   |         |     |     |  |  |    |    |  |  |       |      
|                          | Siemens Financial Services (SFS)             |         |       | 90          |  |              |      | (10          | ) |         |     |    |  |  |    |   |  |  |       | 80    | 
|                          | Siemens Real Estate (SRE)                    |         |       |            |  |              |      |             |   |         |     |    |  |  |    |   |  |  |       |      | 
|                          |                                              |         |       |             |  |              |      |              |   |         |     |     |  |  |    |    |  |  |       |      
|Siemens worldwide         |                                              |         | 6,459 |             |  |              | (452 | )            |   |         | 565 |     |  |  | 71 |    |  |  | 6,501 |      
|                          |                                              |         |       |             |  |              |      |              |   |         |     |     |  |  |    |    |  |  |       |      

In fiscal 2002, 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 Other intangible assets, net 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 amounting to
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.

F-29



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The following table presents adjusted net income
and earnings per share excluding goodwill amortization expense
(net of tax):

|                           |                                     |                          |       |       |  |      |       |       |  |  |       |       | 
|-------------------------- | ----------------------------------- | ------------------------ | ----- | ----- |  | ---- | ----- | ----- |  |  | ----- | ----- | 
|                           |                                     |                         
|                           |                                     | Year ended September 30,
|                           |                                     |                         
|                           |                                     | 2003                     |       | 2002  |  | 2001
|                           |                                     |                          |       |       |  |     
|Net income                 |                                     |                          |       |       |  |      |       |       |  |  |       |      
|                           | Reported net income                 |                          |       | 2,445 |  |      |       | 2,597 |  |  |       | 2,088 | 
|                           | Goodwill amortization               |                          |       |      |  |      |       |      |  |  |       | 562   | 
|                           |                                     |                          |       |       |  |      |       |       |  |  |       |      
|Adjusted net income        |                                     |                          | 2,445 |       |  |      | 2,597 |       |  |  | 2,650 |      
|Basic earnings per share   |                                     |                          |       |       |  |      |       |       |  |  |       |      
|                           | Reported basic earnings per share   |                          |       | 2.75  |  |      |       | 2.92  |  |  |       | 2.36  | 
|                           | Goodwill amortization               |                          |       |      |  |      |       |      |  |  |       | 0.63  | 
|                           |                                     |                          |       |       |  |      |       |       |  |  |       |      
|                           | Adjusted earnings per share         |                          |       | 2.75  |  |      |       | 2.92  |  |  |       | 2.99  | 
|Diluted earnings per share |                                     |                          |       |       |  |      |       |       |  |  |       |      
|                           | Reported diluted earnings per share |                          |       | 2.75  |  |      |       | 2.92  |  |  |       | 2.36  | 
|                           | Goodwill amortization               |                          |       |      |  |      |       |      |  |  |       | 0.63  | 
|                           |                                     |                          |       |       |  |      |       |       |  |  |       |      
|                           | Adjusted earnings per share         |                          |       | 2.75  |  |      |       | 2.92  |  |  |       | 2.99  | 

15. Other intangible assets,
net

|                                     |  |         |       |             |  |           |      |             |  |         |     |              |  |         |     |              |  |         |       |               |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       |  |  |  |     | 
|------------------------------------ |  | ------- | ----- | ----------- |  | --------- | ---- | ----------- |  | ------- | --- | ------------ |  | ------- | --- | ------------ |  | ------- | ----- | ------------- |  |  | ----- |  |  |  | ----- |  |  |  | ----- |  |  |  | ----- |  |  |  | --- | 
|                                     |  |         |       |             |  |           |      |             |  |         |     |              |  | Net     |     |              |  | Net     |       |              
|                                     |  |         |       |             |  |           |      |             |  |         |     |              |  | book    |     |              |  | book    |       |              
|                                     |  |         |       |             |  |           |      |             |  |         |     |              |  | value   |     | Accumulated  |  | value   |       | Amortization 
|                                     |  |         |       | Translation |  |           |      |             |  |         |     | Accumulated  |  | as of   |     | amortization |  | as of   |       | during fiscal
|                                     |  | 10/1/02 |       | adjustment  |  | Additions |      | Retirements |  | 9/30/03 |     | amortization |  | 9/30/03 |     | 10/1/02      |  | 10/1/02 |       | year 2003    
|                                     |  |         |       |             |  |           |      |             |  |         |     |              |  |         |     |              |  |         |       |              
|Software                             |  |         | 1,453 |             |  |           | (104 | )           |  |         | 444 |              |  |         | 134 |              |  |         | 1,659 |               |  |  | 664   |  |  |  | 995   |  |  |  | 444   |  |  |  | 1,009 |  |  |  | 354 | 
|Patents, licenses and similar rights |  |         | 2,485 |             |  |           | (160 | )           |  |         | 441 |              |  |         | 243 |              |  |         | 2,523 |               |  |  | 1,160 |  |  |  | 1,363 |  |  |  | 1,110 |  |  |  | 1,375 |  |  |  | 334 | 
|                                     |  |         |       |             |  |           |      |             |  |         |     |              |  |         |     |              |  |         |       |               |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       |  |  |  |     | 
|Other intangible assets              |  |         | 3,938 |             |  |           | (264 | )           |  |         | 885 |              |  |         | 377 |              |  |         | 4,182 |               |  |  | 1,824 |  |  |  | 2,358 |  |  |  | 1,554 |  |  |  | 2,384 |  |  |  | 688 | 
|                                     |  |         |       |             |  |           |      |             |  |         |     |              |  |         |     |              |  |         |       |               |  |  |       |  |  |  |       |  |  |  |       |  |  |  |       |  |  |  |     | 

Amortization expense for the years ended
September 30, 2002 and 2001 was
618 and
660,
respectively.

The estimated amortization expense of Other
intangible assets for the next five fiscal years is as
follows:

|            |  |  |     | 
|----------- |  |  | --- | 
|Fiscal year |  | 
|            |  | 
|2004        |  |  | 573 | 
|2005        |  |  | 419 | 
|2006        |  |  | 270 | 
|2007        |  |  | 219 | 
|2008        |  |  | 165 | 

F-30



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


16. Property, plant and equipment,
net

|                                                   |  |         |        |             |  |           |        |           |  |             |       |         |  |              |      |         |  |              |       |         |  |               |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 
|-------------------------------------------------- |  | ------- | ------ | ----------- |  | --------- | ------ | --------- |  | ----------- | ----- | ------- |  | ------------ | ---- | ------- |  | ------------ | ----- | ------- |  | ------------- | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ------ |  |  |  | ----- | 
|                                                   |  |         |        |             |  |           |        |           |  |             |       |         |  |              |      | Net     |  |              |       | Net     |  |              
|                                                   |  |         |        |             |  |           |        |           |  |             |       |         |  |              |      | book    |  |              |       | book    |  |              
|                                                   |  |         |        |             |  |           |        |           |  |             |       |         |  |              |      | value   |  | Accumulated  |       | value   |  | Depreciation 
|                                                   |  |         |        | Translation |  |           |        | Reclassi- |  |             |       |         |  | Accumulated  |      | as of   |  | depreciation |       | as of   |  | during fiscal
|                                                   |  | 10/1/02 |        | adjustment  |  | Additions |        | fications |  | Retirements |       | 9/30/03 |  | depreciation |      | 9/30/03 |  | 10/1/02      |       | 10/1/02 |  | year         
|                                                   |  |         |        |             |  |           |        |           |  |             |       |         |  |              |      |         |  |              |       |         |  |              
|Land and buildings                                 |  |         | 9,476  |             |  |           | (305   | )         |  |             | 888   |         |  |              | 177  |         |  |              | 820   |         |  |               | 9,416  |  |  |  | 4,586  |  |  |  | 4,830  |  |  |  | 4,522  |  |  |  | 4,954  |  |  |  | 300   | 
|Technical machinery and equipment                  |  |         | 8,578  |             |  |           | (410   | )         |  |             | 786   |         |  |              | 231  |         |  |              | 736   |         |  |               | 8,449  |  |  |  | 5,930  |  |  |  | 2,519  |  |  |  | 6,061  |  |  |  | 2,517  |  |  |  | 612   | 
|Furniture and office equipment                     |  |         | 10,294 |             |  |           | (364   | )         |  |             | 1,045 |         |  |              | 139  |         |  |              | 1,492 |         |  |               | 9,622  |  |  |  | 7,544  |  |  |  | 2,078  |  |  |  | 7,762  |  |  |  | 2,532  |  |  |  | 1,323 | 
|Equipment leased to others                         |  |         | 1,701  |             |  |           | (95    | )         |  |             | 226   |         |  |              | (5   | )       |  |              | 174   |         |  |               | 1,653  |  |  |  | 945    |  |  |  | 708    |  |  |  | 862    |  |  |  | 839    |  |  |  | 250   | 
|Advances to suppliers and construction in progress |  |         | 912    |             |  |           | (42    | )         |  |             | 438   |         |  |              | (542 | )       |  |              | 143   |         |  |               | 623    |  |  |  | 2      |  |  |  | 621    |  |  |  | 12     |  |  |  | 900    |  |  |  |      | 
|                                                   |  |         |        |             |  |           |        |           |  |             |       |         |  |              |      |         |  |              |       |         |  |               |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 
|Property, plant and equipment                      |  |         | 30,961 |             |  |           | (1,216 | )         |  |             | 3,383 |         |  |              |     |         |  |              | 3,365 |         |  |               | 29,763 |  |  |  | 19,007 |  |  |  | 10,756 |  |  |  | 19,219 |  |  |  | 11,742 |  |  |  | 2,485 | 
|                                                   |  |         |        |             |  |           |        |           |  |             |       |         |  |              |      |         |  |              |       |         |  |               |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |        |  |  |  |       | 

17. Other assets

|                                                                                 |  |               |       |      |  |  |       | 
|-------------------------------------------------------------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                                                                                 |  |              
|                                                                                 |  | September 30,
|                                                                                 |  |              
|                                                                                 |  | 2003          |       | 2002
|                                                                                 |  |               |       |     
|Long-term portion of receivables from sales and
    finance leases (see Note 10) |  |               | 2,156 |      |  |  | 2,320 | 
|Prepaid pension assets                                                           |  |               | 52    |      |  |  | 197   | 
|Long-term loans receivable                                                       |  |               | 531   |      |  |  | 557   | 
|Other                                                                            |  |               | 1,411 |      |  |  | 1,440 | 
|                                                                                 |  |               |       |      |  |  |       | 
|                                                                                 |  |               | 4,150 |      |  |  | 4,514 | 
|                                                                                 |  |               |       |      |  |  |       | 

18. Accrued liabilities

|                                        |  |               |       |      |  |  |       | 
|--------------------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                                        |  |              
|                                        |  | September 30,
|                                        |  |              
|                                        |  | 2003          |       | 2002
|                                        |  |               |       |     
|Employee related costs                  |  |               | 2,366 |      |  |  | 2,637 | 
|Income and other taxes                  |  |               | 1,234 |      |  |  | 1,574 | 
|Product warranties                      |  |               | 1,830 |      |  |  | 1,634 | 
|Accrued losses on uncompleted contracts |  |               | 987   |      |  |  | 864   | 
|Other                                   |  |               | 2,467 |      |  |  | 2,899 | 
|                                        |  |               |       |      |  |  |       | 
|                                        |  |               | 8,884 |      |  |  | 9,608 | 
|                                        |  |               |       |      |  |  |       | 

Employee related
costsprimarily include accruals for
vacation pay, bonuses, accrued overtime and service anniversary
awards and the current portion of accruals for pension plans and
similar commitments, as well as provisions for severance
payments.

F-31



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The current and non-current accruals for product
warranties developed as follows:

|                                                            |  |               |       |  
|----------------------------------------------------------- |  | ------------- | ----- | -
|                                                            |  | Year ended   
|                                                            |  | September 30,
|                                                            |  | 2003         
|                                                            |  |              
|Accrual as of beginning of period                           |  |               | 2,094 |  
|Amount charged to expense in current period
    (additions) |  |               | 1,159 |  
|Reduction due to payments in cash or in kind
    (usage)    |  |               | (605  | )
|Foreign exchange translation adjustment                     |  |               | (77   | )
|Other changes related to existing warranties                |  |               | (218  | )
|                                                            |  |               |       |  
|Accrual as of end of period                                 |  |               | 2,353 |  
|                                                            |  |               |       |  

19. Other current liabilities

|                                                                                                     |  |               |        |      |  |  |        | 
|---------------------------------------------------------------------------------------------------- |  | ------------- | ------ | ---- |  |  | ------ | 
|                                                                                                     |  |              
|                                                                                                     |  | September 30,
|                                                                                                     |  |              
|                                                                                                     |  | 2003          |        | 2002
|                                                                                                     |  |               |        |     
|Billings in excess of costs and estimated
    earnings on uncompleted contracts and related advances |  |               | 4,755  |      |  |  | 6,054  | 
|Payroll and social security taxes                                                                    |  |               | 2,493  |      |  |  | 2,305  | 
|Sales and other taxes                                                                                |  |               | 944    |      |  |  | 941    | 
|Bonus obligations                                                                                    |  |               | 1,099  |      |  |  | 1,073  | 
|Liabilities to associated and related companies                                                      |  |               | 428    |      |  |  | 372    | 
|Deferred income                                                                                      |  |               | 633    |      |  |  | 786    | 
|Accrued interest                                                                                     |  |               | 140    |      |  |  | 151    | 
|Other liabilities                                                                                    |  |               | 1,633  |      |  |  | 2,009  | 
|                                                                                                     |  |               |        |      |  |  |        | 
|                                                                                                     |  |               | 12,125 |      |  |  | 13,691 | 
|                                                                                                     |  |               |        |      |  |  |        | 

20. Debt

|           |                                                   |                                                              |        |       |        |  |        |       |        | 
|---------- | ------------------------------------------------- | ------------------------------------------------------------ | ------ | ----- | ------ |  | ------ | ----- | ------ | 
|           |                                                   |                                                             
|           |                                                   | September 30,                                               
|           |                                                   |                                                             
|           |                                                   | 2003                                                         |        | 2002 
|           |                                                   |                                                              |        |      
|Short-term |                                                   |                                                              |        |       |        |  |        |      
|           | Notes and bonds                                   |                                                              |        | 436   |        |  |        | 322   |       
|           | Loans from banks                                  |                                                              |        | 777   |        |  |        | 1,461 |       
|           | Other financial indebtedness                      |                                                              |        | 494   |        |  |        | 280   |       
|           | Obligations under capital leases                  |                                                              |        | 38    |        |  |        | 40    |       
|           |                                                   |                                                              |        |       |        |  |        |      
|           |                                                   | Short-term debt and current maturities of
    long-term debt |        |       | 1,745  |  |        |       | 2,103  | 
|Long-term  |                                                   |                                                              |        |       |        |  |        |      
|           | Notes and bonds (maturing 2004-2011)              |                                                              |        | 9,997 |        |  |        | 9,315 |       
|           | Loans from banks (maturing 2004-2011)             |                                                              |        | 287   |        |  |        | 152   |       
|           | Other financial indebtedness (maturing 2004-2015) |                                                              |        | 904   |        |  |        | 527   |       
|           | Obligations under capital leases                  |                                                              |        | 245   |        |  |        | 249   |       
|           |                                                   |                                                              |        |       |        |  |        |      
|           |                                                   | Long-term debt                                               |        |       | 11,433 |  |        |       | 10,243 | 
|           |                                                   |                                                              |        |       |        |  |        |      
|           |                                                   |                                                              | 13,178 |       |        |  | 12,346 |      
|           |                                                   |                                                              |        |       |        |  |        |      

As of September 30, 2003, weighted average
interest rates for loans from banks, other financial
indebtedness and obligations under capital leases were 4.5%
(2002: 4.3%), 2.9% (2002: 3.4%) and 6.3%
(2002: 6.9%),

F-32



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


respectively. In some countries, the Company has
pledged securities and executed promissory notes to secure
borrowings in conformity with local practice.

The Company has agreements with financial
institutions under which it may issue up to
3 billion
of commercial paper and U.S.$3.0 billion
(2.6 billion)
of commercial paper. As of September 30, 2003 and 2002,
outstanding commercial paper totaled
385 (interest
rates from 1.0% to 1.04%) and
94 (interest
rates from 1.67% to 1.72%), 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, 2003 and 2002,
approximately
1.4 billion
and
1.6 billion,
respectively, was outstanding under this program.

The Company maintains three global backstop
facilities of U.S.$3.0 billion
(2.6 billion),
0.75 billion
and
0.4 billion.
As of September 30, 2003, the full amounts of these lines
of credit remain unused. Commitment fees for the years ended
September 30, 2003, 2002 and 2001 totaled approximately
3,
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 and the
0.75 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.

Other financial
indebtednessincludes
603 and
222, as of
September 30, 2003 and 2002, respectively, for
Siemens continuing involvement in certain real estate
assets sold or transferred in which Siemens has retained
significant risks and rewards of ownership, mainly through
assumption of construction risks and obligations or through
circumstances in which Siemens participates directly or
indirectly in the change in market value of the property.
Therefore, these transactions have been accounted for as
financing obligations. The real estate properties are carried on
the Companys Consolidated Balance Sheets and no sale and
profit has been recognized.

As of September 30, 2003, the minimum lease
payments under capital leases for the next five years and
thereafter are as follows:

|                                   |  |  |     |  
|---------------------------------- |  |  | --- | -
|Fiscal year                        |  | 
|                                   |  | 
|2004                               |  |  | 48  |  
|2005                               |  |  | 38  |  
|2006                               |  |  | 39  |  
|2007                               |  |  | 39  |  
|2008                               |  |  | 35  |  
|Thereafter                         |  |  | 124 |  
|                                   |  |  |     |  
|Minimum lease payment obligation   |  |  | 323 |  
|Less: unamortized interest expense |  |  | (40 | )
|                                   |  |  |     |  
|Obligations under capital leases   |  |  | 283 |  
|Less: current portion              |  |  | (38 | )
|                                   |  |  |     |  
|                                   |  |  | 245 |  
|                                   |  |  |     |  

F-33



---



##### 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, 2003, the aggregate
amounts of indebtedness maturing during the next five years and
thereafter are as follows (excluding capital leases which are
disclosed separately):

|            |  |  |        | 
|----------- |  |  | ------ | 
|Fiscal year |  | 
|            |  | 
|2004        |  |  | 1,707  | 
|2005        |  |  | 1,222  | 
|2006        |  |  | 2,269  | 
|2007        |  |  | 1,494  | 
|2008        |  |  | 998    | 
|Thereafter  |  |  | 5,205  | 
|            |  |  |        | 
|            |  |  | 12,895 | 
|            |  |  |        | 

Details of the Companys medium-term notes
and bonds are as follows:

|                                             |  |                    |     |                    |  |                   |       |    |  |  |        |  |  |  |     |  |  |  |       |  |  |  |       | 
|-------------------------------------------- |  | ------------------ | --- | ------------------ |  | ----------------- | ----- | -- |  |  | ------ |  |  |  | --- |  |  |  | ----- |  |  |  | ----- | 
|                                             |  |                    |     |                   
|                                             |  | September 30, 2003 |     | September 30, 2002
|                                             |  |                    |     |                   
|                                             |  |                    |     |                   
|                                             |  | Currency           |     | Currency          
|                                             |  |                    |     |                   
|                                             |  |                    |     |                    |  |                   |       |   
|                                             |  | (notional amount)  |     | *                 |  | (notional amount) |       | *
|                                             |  |                    |     |                    |  |                   |       |   
|                                             |  |                    |     |                    |  |                   |       |    |  |  |        | 
|3.25% 1997/2002 Swiss franc notes            |  |                    |     |                    |  |                   |       |    |  |  |        |  |  |  | CHF |  |  |  | 350   |  |  |  | 240   | 
|2.75% 1993/2003 Swiss franc bonds            |  |                    |     |                    |  |                   |       |    |  |  |        |  |  |  | CHF |  |  |  | 100   |  |  |  | 68    | 
|7.5% 1998/2003 Greek drachma
     notes     |  |                    |     |                    |  |                   |       |    |  |  |        |  |  |  | GRD |  |  |  | 5,000 |  |  |  | 14    | 
|1.11% 2002/2003 U.S.$ LIBOR linked notes     |  |                    | USD |                    |  |                   | 200   |    |  |  | 171    |  |  |  |     |  |  |  |       |  |  |  |       | 
|1.22% 2002/2003 U.S.$ LIBOR linked notes     |  |                    | USD |                    |  |                   | 50    |    |  |  | 43     |  |  |  | USD |  |  |  | 50    |  |  |  | 51    | 
|1.15% 2002/2004 U.S.$ LIBOR linked bonds     |  |                    | USD |                    |  |                   | 125   |    |  |  | 107    |  |  |  | USD |  |  |  | 125   |  |  |  | 127   | 
|3% 1994/2004 Swiss franc bonds               |  |                    | CHF |                    |  |                   | 178   |    |  |  | 115    |  |  |  | CHF |  |  |  | 178   |  |  |  | 122   | 
|1.0% 2000/2005 EUR exchangeable notes        |  |                    | EUR |                    |  |                   | 1,060 |    |  |  | 1,094  |  |  |  | EUR |  |  |  | 2,500 |  |  |  | 2,554 | 
|5.0%
    2001/2006 
    bonds               |  |                    | EUR |                    |  |                   | 2,000 |    |  |  | 2,109  |  |  |  | EUR |  |  |  | 2,000 |  |  |  | 2,078 | 
|2.5% 2001/2007 Swiss franc bonds             |  |                    | CHF |                    |  |                   | 250   |    |  |  | 168    |  |  |  | CHF |  |  |  | 250   |  |  |  | 174   | 
|5.5%
    1997/2007 
    bonds               |  |                    | EUR |                    |  |                   | 991   |    |  |  | 1,025  |  |  |  | EUR |  |  |  | 991   |  |  |  | 1,016 | 
|6% 1998/2008 U.S.$ notes                     |  |                    | USD |                    |  |                   | 970   |    |  |  | 945    |  |  |  | USD |  |  |  | 970   |  |  |  | 1,110 | 
|1.375%
    2003/2010 
    convertible notes |  |                    | EUR |                    |  |                   | 2,500 |    |  |  | 2,500  |  |  |  |     |  |  |  |       |  |  |  |       | 
|5.75%
    2001/2011 
    bonds              |  |                    | EUR |                    |  |                   | 2,000 |    |  |  | 2,156  |  |  |  | EUR |  |  |  | 2,000 |  |  |  | 2,083 | 
|                                             |  |                    |     |                    |  |                   |       |    |  |  |        |  |  |  |     |  |  |  |       |  |  |  |       | 
|                                             |  |                    |     |                    |  |                   |       |    |  |  | 10,433 |  |  |  |     |  |  |  |       |  |  |  | 9,637 | 
|                                             |  |                    |     |                    |  |                   |       |    |  |  |        |  |  |  |     |  |  |  |       |  |  |  |       | 






|  |                                                          
|- | ---------------------------------------------------------
|* | Includes adjustments for fair value hedge
    accounting.

In June 2003, the Company issued
2.5 billion
of convertible notes through its wholly owned Dutch subsidiary,
Siemens Finance B.V., which are fully and unconditionally
guaranteed by Siemens AG. The convertible notes have a 1.375%
coupon and are convertible into approximately 44.5 million
shares of Siemens AG at a conversion price of
56.1681 per
share, which is subject to change under certain circumstances.
The conversion right is contingently exercisable by the holders
upon the occurrence of one of several conditions, including,
upon the Companys share price having exceeded 110% of the
conversion price on at least 20 trading days in a period of 30
consecutive trading days ending on the last trading day of any
calendar quarter. The Company may, at any time from
June 18, 2007, redeem the notes outstanding at their
principal amount together with interest accrued thereon, if
Siemens share price exceeds 130% of the conversion price
on any 15 of 30 consecutive trading days before notice of early
redemption. Unless previously redeemed, converted or repurchased
and cancelled, the notes mature on June 4, 2010.

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)


During fiscal 2003, Siemens repurchased and
retired 1,440 of
the 2,500
Siemens Nederland N.V. 1.0% exchangeable notes into shares of
Infineon Technologies AG and recognized a gain of
35.

21. Pension plans and similar
commitments

Pension benefits provided by Siemens are
currently organized primarily through defined benefit pension
plans which cover virtually all of the Companys domestic
employees and many of the Companys foreign employees. In
order to fund Siemens obligations under the defined
benefit plans, the Companys major pension plans are funded
with assets in segregated pension entities. Furthermore, there
are other postretirement benefits, which primarily comprise
transition payments to German employees after retirement as well
as postretirement health care and life insurance benefits to
U.S. employees. These predominantly unfunded other
postretirement benefit plans are qualified as defined benefit
plans under U.S. GAAP.

In addition to the above, the Company has foreign
defined contribution plans for pensions and other postretirement
benefits. The recognition of a liability is not required because
the obligation of the Company is limited to the payment of the
contributions into these plans.

Accounting for defined benefit
plans

Consolidated
Balance Sheets

Defined benefit plans determine the entitlements
of their beneficiaries. The net present value of the total fixed
benefits for service already rendered is represented by the
actuarially calculated accumulated benefit obligation
(ABO).

An employees final benefit entitlement at
regular retirement age may be higher than the fixed benefits at
the measurement date due to future compensation or benefits
increases. The net present value of this ultimate future benefit
entitlement for service already rendered is represented by the
projected benefit obligation (PBO), which is actuarially
calculated with consideration for future compensation increases.

The accrued benefit cost is equal to the PBO when
the assumptions used to calculate the PBO such as discount rate,
compensation increase rate and pension progression rate are
achieved. In the case of funded plans, the market value of the
external assets is offset against the benefit obligations. The
net liability or asset recorded on the balance sheet is equal to
the under- or overfunding of the PBO in this case, when the
expected return on plan assets is subsequently realized.

Differences between actual experience and
assumptions made for the discount rate, compensation increase
rate and pension progression rate, as well as the differences
between actual and expected returns on plan assets, result in
the asset or liability related to pension plans being different
than the under-or overfunding of the PBO. Such a difference also
occurs when the assumptions used to value the PBO are adjusted
at the measurement date. If the difference is so significant
that the current benefit obligation represented by the ABO (or
the amount thereof not funded by plan assets) exceeds the
liability recorded on the balance sheet, such liability must be
increased. The unfunded portion of the ABO is referred to as the
Minimum Liability. This increase of the liability, however, is
not recognized as an expense in the income statement, because
this U.S. GAAP regulation only serves as a basis to improve
the transparency of the financial statements. The required
increase in the liability is referred to as the additional
minimum liability (AML), and its offsetting adjustment results
in the recognition of either an intangible asset or as a
separate component of shareholders equity (accumulated
other comprehensive income). The treatment as a separate
component of shareholders equity is recorded, net of tax,
as a reduction of shareholders equity.

Funded pension plans can result in a prepaid
pension asset despite an underfunded ABO as in the case of
the Siemens German Pension Trust. In the case of an underfunded
ABO, the prepaid pension asset is no longer

F-35



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


considered recoverable and must be eliminated
through the recognition of a liability. The AML is recorded and
the prepaid pension asset that is no longer considered
recoverable is eliminated with an offsetting adjustment recorded
as described above. This will result in a pension liability
totaling the amount of the underfunded ABO.

The Consolidated Balance Sheets include
the following significant components related to pension plans
and similar commitments based upon the situation at:

|                                                                |  |               |         |               |  |  |        |  
|--------------------------------------------------------------- |  | ------------- | ------- | ------------- |  |  | ------ | -
|                                                                |  | September 30, |         | September 30,
|                                                                |  | 2003          |         | 2002         
|                                                                |  |               |         |              
|Accumulated other comprehensive income                          |  |               | (10,340 | )             |  |  | (8,863 | )
|thereof principal pension benefit
    plans                     |  |               | (10,192 | )             |  |  | (8,829 | )
|Less income tax effect                                          |  |               | 3,950   |               |  |  | 3,451  |  
|thereof principal pension benefit
    plans                     |  |               | 3,901   |               |  |  | 3,443  |  
|                                                                |  |               |         |               |  |  |        |  
|Accumulated other comprehensive income, net of
    income taxes |  |               | (6,390  | )             |  |  | (5,412 | )
|thereof principal pension benefit
    plans                     |  |               | (6,291  | )             |  |  | (5,386 | )
|Accruals for pension plans and similar commitments              |  |               | 5,843   |               |  |  | 5,326  |  
|thereof principal pension benefit
    plans                     |  |               | 3,935   |               |  |  | 3,557  |  
|thereof principal other postretirement benefit
    plans        |  |               | 1,303   |               |  |  | 1,431  |  
|thereof other                                                   |  |               | 605     |               |  |  | 338    |  

Consolidated
Statements of Income

The recognized expense related to pension plans
and similar commitments in the Consolidated Statements of Income
is referred to as net periodic pension cost (NPPC) and
consists of several separately calculated and presented
components. The related minimum expense is the service
cost, which is the actuarial net present value of the part
of the PBO for the service rendered in the respective fiscal
year; the interest cost for the expense derived from the
addition of accrued interest on the PBO at the end of the
preceding fiscal year on the basis of the identified discount
rate; and the expected return on plan assets in the
case of funded benefit plans.

The presentation on the balance sheet is
derived from the sum of: the recognized historical service cost
plus interest cost, and in the case of funded pension plans,
additionally the expected return on plan assets and the
contributions the latter of which does not affect net
income. A prepaid pension asset, as in the case of the German
Siemens Pension Trust, results on the basis of this principle
when the sum of the recognized expected return on plan assets,
plus the contributions, is greater than the sum of the
recognized expense of service cost and interest cost.

The balance sheet item is equal to the PBO or,
respectively, the funded status, as far as the assumptions used
to calculate the PBO such as discount rate, compensation
increase rate and pension progression rate as well as the
expected return on plan assets are realized (as described
above). Changes in the selected assumptions and deviations
between the actual experience and the assumptions for discount
rate, compensation increase rate and pension progression rate as
well as an actual return different from the expected return lead
to changes of the PBO and the fair value of plan assets which
have not yet been previously recognized in the income statement
and thus are not part of the recorded balance sheet item. These
differences termed unrecognized gains and
losses are calculated and recorded separately without
an immediate impact on the net income. However, U.S. GAAP
provides a corridor of 10% of the higher of PBO or plan assets,
whereby an amortization over the average remaining service
period of the active employees is required as a separate
component of the NPPC for the amounts exceeding the 10% corridor.

In the Consolidated Statements of Income, NPPC is
allocated among functional costs (cost of sales, research and
development, marketing, selling and general administrative
expense), according to the function of the employee groups
accruing benefits.

F-36



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


In the Consolidated Statements of Income, results
for the Companys principal pension and other
postretirement benefits was a loss before income taxes in fiscal
2003 of 1,032
compared to 570
in the previous fiscal year.

Consolidated
Statements of Cash Flow

The Company makes payments directly to the
participants in the case of unfunded benefit plans and the
payments are included in net cash provided by (used in)
operating activities. For funded pension plans, the participants
are paid by the external pension fund and accordingly these
payments are cash neutral to the Company. In this case, the
Companys regular funding (service cost) and supplemental
cash contributions result in a net cash use in operating
activities.

In the Consolidated Statements of Cash Flow,
results for the Companys principal pension and other
postretirement benefits was a net cash use in operating
activities of
1,453 compared
to 2,085 in the
previous fiscal year. The separately reported supplemental cash
contributions to pension trusts in fiscal 2003 and 2002 of
1,192 and
1,782,
respectively, were included in these amounts.

Principal pension benefits

The principal pension benefit plans cover
approximately 498,000 participants, including 246,000 active
employees, 86,000 former employees with vested benefits and
166,000 retirees and surviving dependants. Individual benefits
are generally based on eligible compensation levels and/or
ranking within the Company hierarchy and years of service.
Retirement benefits under these plans vary depending on legal,
fiscal and economic requirements in each country.

The Companys principal pension benefit
plans are explicitly explained in the subsequent sections with
regard to:



| |   |                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------
| |  | Pension obligations and funded status
    (page F-38),                                                     
| |  | Recognition of an additional minimum liability
    (AML) (page F-40),                                      
| |  | Components of NPPC (page F-42),                                                                            
| |  | Assumptions for the calculation of the PBO and
    NPPC (page F-43),                                       
| |  | Sensitivity analysis (page F-44),                                                                          
| |  | Additional information concerning changes of the
    AML and the actual returns on plan assets (page F-45),
| |  | Plan assets (page F-46),                                                                                   
| |  | Pension plan funding (page F-46), and                                                                      
| |  | Pension benefit payments (page F-47).                                                                      

F-37



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Pension benefits: Pension obligations and
funded status

A reconciliation of the funded status of the
principal pension benefit plans to the amounts recognized in the
Consolidated Balance Sheets is as follows:

|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |      |  
|--------------------------------------------------------------------- | ------------------------------------ | ------------------ | ------ | ------------------ | - | ------- | ------ | ------ | - | -------- | ------ | ------- | - |  | ------ | ------ | - |  | ------ | ------ | - |  | ------ | ---- | -
|                                                                      |                                      |                    |        |                   
|                                                                      |                                      | September 30, 2003 |        | September 30, 2002
|                                                                      |                                      |                    |        |                   
|                                                                      |                                      | Total              |        | Domestic           |   | Foreign |        | Total  |   | Domestic |        | Foreign
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |        
|Fair value of plan assets                                             |                                      |                    | 15,899 |                    |   |         | 11,016 |        |   |          | 4,883  |         |   |  | 14,531 |        |   |  | 9,676  |        |   |  | 4,855  |     
|Projected benefit obligation (PBO)                                    |                                      |                    | 20,878 |                    |   |         | 14,156 |        |   |          | 6,722  |         |   |  | 19,492 |        |   |  | 13,331 |        |   |  | 6,161  |     
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |     
|Funded status(1)                                                      |                                      |                    | (4,979 | )                  |   |         | (3,140 | )      |   |          | (1,839 | )       |   |  | (4,961 | )      |   |  | (3,655 | )      |   |  | (1,306 | )   
|                                                                      | Siemens German Pension Trust         |                    |        | (3,140             | ) |         |        |        |   |          |        |         |   |  |        | (3,655 | ) |  |        |        |   |  |        |      |  
|                                                                      | U.S.                                 |                    |        | (1,061             | ) |         |        |        |   |          |        |         |   |  |        | (746   | ) |  |        |        |   |  |        |      |  
|                                                                      | U.K.                                 |                    |        | (458               | ) |         |        |        |   |          |        |         |   |  |        | (299   | ) |  |        |        |   |  |        |      |  
|                                                                      | Other                                |                    |        | (320               | ) |         |        |        |   |          |        |         |   |  |        | (261   | ) |  |        |        |   |  |        |      |  
|Unrecognized net losses(2)                                            |                                      |                    | 11,295 |                    |   |         | 9,313  |        |   |          | 1,982  |         |   |  | 10,424 |        |   |  | 8,969  |        |   |  | 1,455  |     
|Unrecognized prior service cost                                       |                                      |                    | 83     |                    |   |         |       |        |   |          | 83     |         |   |  | 119    |        |   |  |       |        |   |  | 119    |     
|Unrecognized net transition asset                                     |                                      |                    | (1     | )                  |   |         |       |        |   |          | (1     | )       |   |  | (3     | )      |   |  |       |        |   |  | (3     | )   
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |     
|Net amount recognized                                                 |                                      |                    | 6,398  |                    |   |         | 6,173  |        |   |          | 225    |         |   |  | 5,579  |        |   |  | 5,314  |        |   |  | 265    |     
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |     
|Amounts recognized in the Consolidated Balance
    Sheets consist of: |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |     
|                                                                      | Prepaid pension assets               |                    |        | 52                 |   |         |        |       |   |          |        | 52      |   |  |        | 197    |   |  |        |       |   |  |        | 197  |  
|                                                                      | Accrued pension liability            |                    |        | (3,935             | ) |         |        | (2,702 | ) |          |        | (1,233  | ) |  |        | (3,557 | ) |  |        | (3,063 | ) |  |        | (494 | )
|                                                                      | Intangible assets                    |                    |        | 89                 |   |         |        |       |   |          |        | 89      |   |  |        | 110    |   |  |        |       |   |  |        | 110  |  
|                                                                      | Accumulated other comprehensive loss |                    |        | 10,192             |   |         |        | 8,875  |   |          |        | 1,317   |   |  |        | 8,829  |   |  |        | 8,377  |   |  |        | 452  |  
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |     
|Net amount recognized                                                 |                                      |                    | 6,398  |                    |   |         | 6,173  |        |   |          | 225    |         |   |  | 5,579  |        |   |  | 5,314  |        |   |  | 265    |     
|                                                                      |                                      |                    |        |                    |   |         |        |        |   |          |        |         |   |  |        |        |   |  |        |        |   |  |        |     






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Funded status: The funded status shows the
    coverage of the PBO by the plan assets as of the measurement
    date, and, where applicable, fundings between the measurement
    date and the balance sheet date. The PBO is calculated based on
    the projected unit credit method and reflects the net present
    value as of the measurement date of the accumulated pension
    entitlements of active employees, former employees with vested
    rights and of retirees and their surviving dependents with
    consideration of future compensation and pension increases. The
    funded status of the Companys principal pension plans,
    amounting to approximately
    5 billion,
    did not change significantly compared to the previous year. Two
    offsetting factors contributed to this effect. First, the
    Company contributed
    1,192 in cash to
    the pension trusts, as well as
    377 in real
    estate as additional supplemental contributions. These
    supplemental contributions occurred in the first and fourth
    quarters of fiscal 2003. Offsetting this effect was an increase
    in the PBO of the plans as a result of a reduction in the
    discount rates used in measuring the PBO from a weighted average
    of 6.0% to 5.4% consistent with the general decline in interest
    rates worldwide. This increased the PBO by
    1.4 billion.
|   
|(2) | Unrecognized net losses: The NPPC is determined
    at the beginning of the relevant measurement period based on
    assumptions for the discount rate, compensation increase rate
    and pension progression rate as well as the long-term rate of
    return on plan assets. The effect of differences between the
    actual experience and the assumed assumptions and changes in the
    assumptions are disclosed in the line item Unrecognized net
    losses. The unrecognized net losses amounting to
    11,295 are
    particularly due to the negative development in international
    capital markets in the years 2001 and 2002. During these two
    years, an actual loss of
    6,444 has been
    realized while assuming an expected return on pension assets of
    the principal pension benefit plans of
    3,030, thus
    increasing the unrecognized net losses by
    9,474.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

The measurement date for the PBO and fair value
of plan assets of the Companys domestic pension benefit
plans is September 30, and either September 30 or
June 30 for the majority of its foreign plans. For such
plans with a measurement date of June 30, the actual
investment return of the plan assets relate to the period from
July 1, of the prior fiscal year, until June 30 of the
current fiscal year, and not the year ended September 30.

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)


A detailed reconciliation of the changes in the
PBO for fiscal 2003 and 2002 and some additional detail
information concerning pension plans is provided in the
following table:

|                                            |                                                   |                                        |        |                    |        |         |        |        |      |          |       |         |      |   |        |        |        |   |        |        |      |   |       |       |      |  
|------------------------------------------- | ------------------------------------------------- | -------------------------------------- | ------ | ------------------ | ------ | ------- | ------ | ------ | ---- | -------- | ----- | ------- | ---- | - | ------ | ------ | ------ | - | ------ | ------ | ---- | - | ----- | ----- | ---- | -
|                                            |                                                   |                                        |        |                   
|                                            |                                                   | September 30, 2003                     |        | September 30, 2002
|                                            |                                                   |                                        |        |                   
|                                            |                                                   | Total                                  |        | Domestic           |        | Foreign |        | Total  |      | Domestic |       | Foreign
|                                            |                                                   |                                        |        |                    |        |         |        |        |      |          |       |        
|Change in projected benefit obligations:    |                                                   |                                        |        |                    |        |         |        |        |      |          |       |         |      |   |        |        |        |   |        |        |      |   |       |      
|                                            | Projected benefit obligation at beginning of year |                                        |        | 19,492             |        |         |        | 13,331 |      |          |       | 6,161   |      |   |        | 18,544 |        |   |        | 13,077 |      |   |       | 5,467 |     
|                                            |                                                   | Foreign currency exchange rate changes |        |                    | (739   | )       |        |        |     |          |       |         | (739 | ) |        |        | (265   | ) |        |        |     |   |       |       | (265 | )
|                                            |                                                   | Service cost                           |        |                    | 484    |         |        |        | 212  |          |       |         | 272  |   |        |        | 487    |   |        |        | 206  |   |       |       | 281  |  
|                                            |                                                   | Interest cost                          |        |                    | 1,121  |         |        |        | 767  |          |       |         | 354  |   |        |        | 1,151  |   |        |        | 772  |   |       |       | 379  |  
|                                            |                                                   | Settlements and curtailments           |        |                    | (2     | )       |        |        |     |          |       |         | (2   | ) |        |        |       |   |        |        |     |   |       |       |     |  
|                                            |                                                   | Plan participants contributions       |        |                    | 32     |         |        |        |     |          |       |         | 32   |   |        |        | 32     |   |        |        |     |   |       |       | 32   |  
|                                            |                                                   | Amendments and other                   |        |                    | 476    |         |        |        | (34  | )        |       |         | 510  |   |        |        | (53    | ) |        |        | (197 | ) |       |       | 144  |  
|                                            |                                                   | Actuarial losses                       |        |                    | 1,000  |         |        |        | 563  |          |       |         | 437  |   |        |        | 697    |   |        |        | 301  |   |       |       | 396  |  
|                                            |                                                   | Acquisitions                           |        |                    | 44     |         |        |        | 10   |          |       |         | 34   |   |        |        | 84     |   |        |        | 13   |   |       |       | 71   |  
|                                            |                                                   | Divestments                            |        |                    | (83    | )       |        |        | (7   | )        |       |         | (76  | ) |        |        | (255   | ) |        |        | (221 | ) |       |       | (34  | )
|                                            |                                                   | Benefits paid                          |        |                    | (947   | )       |        |        | (686 | )        |       |         | (261 | ) |        |        | (930   | ) |        |        | (620 | ) |       |       | (310 | )
|                                            |                                                   |                                        |        |                    |        |         |        |        |      |          |       |         |      |   |        |        |        |   |        |        |      |   |       |      
|Projected benefit obligation at end of year |                                                   |                                        | 20,878 |                    |        |         | 14,156 |        |      |          | 6,722 |         |      |   | 19,492 |        |        |   | 13,331 |        |      |   | 6,161 |      
|                                            |                                                   |                                        |        |                    |        |         |        |        |      |          |       |         |      |   |        |        |        |   |        |        |      |   |       |      
|                                            |                                                   | Siemens German Pension Trust           |        |                    | 14,156 |         |        |        |      |          |       |         |      |   |        |        | 13,331 |   |        |        |      |   |       |       |      |  
|                                            |                                                   | U.S.                                   |        |                    | 3,031  |         |        |        |      |          |       |         |      |   |        |        | 3,095  |   |        |        |      |   |       |       |      |  
|                                            |                                                   | U.K.                                   |        |                    | 1,919  |         |        |        |      |          |       |         |      |   |        |        | 1,742  |   |        |        |      |   |       |       |      |  
|                                            |                                                   | Other                                  |        |                    | 1,772  |         |        |        |      |          |       |         |      |   |        |        | 1,324  |   |        |        |      |   |       |       |      |  

The total projected benefit obligation at the end
of the fiscal year includes approximately
8,600 for active
employees, 2,200
for former employees with vested benefits and
10,100 for
retirees and surviving dependants.

F-39



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The following table shows the change in plan
assets for fiscal year 2003 and 2002 and some additional detail
information concerning pension plans:

|                                         |                                                |                                        |        |                    |        |         |        |       |       |          |       |         |      |   |        |        |        |   |       |       |       |   |       |       |      |  
|---------------------------------------- | ---------------------------------------------- | -------------------------------------- | ------ | ------------------ | ------ | ------- | ------ | ----- | ----- | -------- | ----- | ------- | ---- | - | ------ | ------ | ------ | - | ----- | ----- | ----- | - | ----- | ----- | ---- | -
|                                         |                                                |                                        |        |                   
|                                         |                                                | September 30, 2003                     |        | September 30, 2002
|                                         |                                                |                                        |        |                   
|                                         |                                                | Total                                  |        | Domestic           |        | Foreign |        | Total |       | Domestic |       | Foreign
|                                         |                                                |                                        |        |                    |        |         |        |       |       |          |       |        
|Change in plan assets:                   |                                                |                                        |        |                    |        |         |        |       |       |          |       |         |      |   |        |        |        |   |       |       |       |   |       |      
|                                         | Fair value of plan assets at beginning of year |                                        |        | 14,531             |        |         |        | 9,676 |       |          |       | 4,855   |      |   |        | 14,761 |        |   |       | 9,682 |       |   |       | 5,079 |     
|                                         |                                                | Foreign currency exchange rate changes |        |                    | (546   | )       |        |       |      |          |       |         | (546 | ) |        |        | (166   | ) |       |       |      |   |       |       | (166 | )
|                                         |                                                | Actual return on plan assets           |        |                    | 648    |         |        |       | 641   |          |       |         | 7    |   |        |        | (1,187 | ) |       |       | (713  | ) |       |       | (474 | )
|                                         |                                                | Acquisitions and other                 |        |                    | 413    |         |        |       |      |          |       |         | 413  |   |        |        | 171    |   |       |       |      |   |       |       | 171  |  
|                                         |                                                | Divestments and other                  |        |                    | (20    | )       |        |       |      |          |       |         | (20  | ) |        |        | (173   | ) |       |       | (173  | ) |       |       |     |  
|                                         |                                                | Employer contributions (supplemental)  |        |                    | 1,569  |         |        |       | 1,385 |          |       |         | 184  |   |        |        | 1,782  |   |       |       | 1,500 |   |       |       | 282  |  
|                                         |                                                | Employer contributions (regular)       |        |                    | 219    |         |        |       |      |          |       |         | 219  |   |        |        | 241    |   |       |       |      |   |       |       | 241  |  
|                                         |                                                | Plan participants contributions       |        |                    | 32     |         |        |       |      |          |       |         | 32   |   |        |        | 32     |   |       |       |      |   |       |       | 32   |  
|                                         |                                                | Benefits paid                          |        |                    | (947   | )       |        |       | (686  | )        |       |         | (261 | ) |        |        | (930   | ) |       |       | (620  | ) |       |       | (310 | )
|                                         |                                                |                                        |        |                    |        |         |        |       |       |          |       |         |      |   |        |        |        |   |       |       |       |   |       |      
|Fair value of plan assets at end of year |                                                |                                        | 15,899 |                    |        |         | 11,016 |       |       |          | 4,883 |         |      |   | 14,531 |        |        |   | 9,676 |       |       |   | 4,855 |      
|                                         |                                                |                                        |        |                    |        |         |        |       |       |          |       |         |      |   |        |        |        |   |       |       |       |   |       |      
|                                         |                                                | Siemens German Pension Trust           |        |                    | 11,016 |         |        |       |       |          |       |         |      |   |        |        | 9,676  |   |       |       |       |   |       |       |      |  
|                                         |                                                | U.S.                                   |        |                    | 1,970  |         |        |       |       |          |       |         |      |   |        |        | 2,349  |   |       |       |       |   |       |       |      |  
|                                         |                                                | U.K.                                   |        |                    | 1,461  |         |        |       |       |          |       |         |      |   |        |        | 1,443  |   |       |       |       |   |       |       |      |  
|                                         |                                                | Other                                  |        |                    | 1,452  |         |        |       |       |          |       |         |      |   |        |        | 1,063  |   |       |       |       |   |       |       |      |  

Pension benefits: Recognition of an
Additional Minimum Liability (AML)

The total accumulated benefit obligation (ABO) of
the principal pension benefit plans amounted to
19,779 and
17,842, as of
September 30, 2003 and 2002, respectively.

F-40



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


For fiscal 2003 and 2002, the PBO, ABO and fair
value of plan assets for the principal pension benefit plans
whose ABO exceeded the fair value of plan assets at the
measurement date were as follows:

|                                               |                              |                    |        |                    |   |         |        |       |  |          |        |         |  |  |        |        |   |  |        |   |  |  |       |   | 
|---------------------------------------------- | ---------------------------- | ------------------ | ------ | ------------------ | - | ------- | ------ | ----- |  | -------- | ------ | ------- |  |  | ------ | ------ | - |  | ------ | - |  |  | ----- | - | 
|                                               |                              |                    |        |                   
|                                               |                              | September 30, 2003 |        | September 30, 2002
|                                               |                              |                    |        |                   
|                                               |                              | Total              |        | Domestic           |   | Foreign |        | Total |  | Domestic |        | Foreign
|                                               |                              |                    |        |                    |   |         |        |       |  |          |        |        
|Projected benefit obligation                   |                              |                    | 20,701 |                    |   |         | 14,156 |       |  |          | 6,545  |         |  |  | 16,940 |        |   |  | 13,331 |   |  |  | 3,609 |  
|                                               | Siemens German Pension Trust |                    |        | 14,156             |   |         |        |       |  |          |        |         |  |  |        | 13,331 |   |  |        |   |  |  |       |   | 
|                                               | U.S.                         |                    |        | 3,031              |   |         |        |       |  |          |        |         |  |  |        | 3,095  |   |  |        |   |  |  |       |   | 
|                                               | U.K.                         |                    |        | 1,919              |   |         |        |       |  |          |        |         |  |  |        |       |   |  |        |   |  |  |       |   | 
|                                               | Other                        |                    |        | 1,595              |   |         |        |       |  |          |        |         |  |  |        | 514    |   |  |        |   |  |  |       |   | 
|Accumulated benefit obligation                 |                              |                    | 19,642 |                    |   |         | 13,718 |       |  |          | 5,924  |         |  |  | 15,825 |        |   |  | 12,739 |   |  |  | 3,086 |  
|                                               | Siemens German Pension Trust |                    |        | 13,718             |   |         |        |       |  |          |        |         |  |  |        | 12,739 |   |  |        |   |  |  |       |   | 
|                                               | U.S.                         |                    |        | 2,746              |   |         |        |       |  |          |        |         |  |  |        | 2,659  |   |  |        |   |  |  |       |   | 
|                                               | U.K.                         |                    |        | 1,749              |   |         |        |       |  |          |        |         |  |  |        |       |   |  |        |   |  |  |       |   | 
|                                               | Other                        |                    |        | 1,429              |   |         |        |       |  |          |        |         |  |  |        | 427    |   |  |        |   |  |  |       |   | 
|Fair value of plan assets                      |                              |                    | 15,744 |                    |   |         | 11,016 |       |  |          | 4,728  |         |  |  | 12,149 |        |   |  | 9,676  |   |  |  | 2,473 |  
|                                               | Siemens German Pension Trust |                    |        | 11,016             |   |         |        |       |  |          |        |         |  |  |        | 9,676  |   |  |        |   |  |  |       |   | 
|                                               | U.S.                         |                    |        | 1,970              |   |         |        |       |  |          |        |         |  |  |        | 2,105  |   |  |        |   |  |  |       |   | 
|                                               | U.K.                         |                    |        | 1,450              |   |         |        |       |  |          |        |         |  |  |        |       |   |  |        |   |  |  |       |   | 
|                                               | Other                        |                    |        | 1,308              |   |         |        |       |  |          |        |         |  |  |        | 368    |   |  |        |   |  |  |       |   | 
|                                               |                              |                    |        |                    |   |         |        |       |  |          |        |         |  |  |        |        |   |  |        |   |  |  |       |  
|Underfunding of accumulated benefit obligation |                              |                    | (3,898 | )                  |   |         | (2,702 | )     |  |          | (1,196 | )       |  |  | (3,676 | )      |   |  | (3,063 | ) |  |  | (613  | )
|                                               |                              |                    |        |                    |   |         |        |       |  |          |        |         |  |  |        |        |   |  |        |   |  |  |       |  
|                                               | Siemens German Pension Trust |                    |        | (2,702             | ) |         |        |       |  |          |        |         |  |  |        | (3,063 | ) |  |        |   |  |  |       |   | 
|                                               | U.S.                         |                    |        | (776               | ) |         |        |       |  |          |        |         |  |  |        | (554   | ) |  |        |   |  |  |       |   | 
|                                               | U.K.                         |                    |        | (299               | ) |         |        |       |  |          |        |         |  |  |        |       |   |  |        |   |  |  |       |   | 
|                                               | Other                        |                    |        | (121               | ) |         |        |       |  |          |        |         |  |  |        | (59    | ) |  |        |   |  |  |       |   | 

The underfunded ABO of
3,898 (the
Minimum Liability) was recorded as an accrued pension liability.
Including a pension liability of
37 for principal
pension benefit plans whose ABO was not underfunded at their
measurement date, the total pension liability for the principal
pension benefit plans as of September 30, 2003 totaled
3,935.

Excluding the AML adjustment, the Company has a
net prepaid pension asset of
6,383, primarily
related to the transfer of Infineon shares to the Siemens German
Pension Trust in fiscal 2001 and from the supplemental funding
of the Siemens German Pension Trust in fiscal 2003 and 2002.
This amount together with the underfunded ABO of
3,898, resulted
in an AML adjustment of
10,281. Of this
amount, 10,192
(6,291 net of
tax) was recorded in accumulated other comprehensive income as a
separate component of shareholders equity and
89 was recorded
as an intangible asset.

F-41



---



##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Pension benefits: Components of
NPPC

The components of the NPPC for the fiscal years
ended September 30, 2003, 2002 and 2001 were as follows:

|                                         |                                                |                    |        |                    |  |                    |      |       |  |          |      |         |  |       |        |          |  |         |        |     |  |  |      |    |   |  |        |     |   |  |        |   |  |  |      |    |  
|---------------------------------------- | ---------------------------------------------- | ------------------ | ------ | ------------------ |  | ------------------ | ---- | ----- |  | -------- | ---- | ------- |  | ----- | ------ | -------- |  | ------- | ------ | --- |  |  | ---- | -- | - |  | ------ | --- | - |  | ------ | - |  |  | ---- | -- | -
|                                         |                                                |                    |        |                    |  |                   
|                                         |                                                | Year ended         |        | Year ended         |  | Year ended        
|                                         |                                                | September 30, 2003 |        | September 30, 2002 |  | September 30, 2001
|                                         |                                                |                    |        |                    |  |                   
|                                         |                                                | Total              |        | Domestic           |  | Foreign            |      | Total |  | Domestic |      | Foreign |  | Total |        | Domestic |  | Foreign
|                                         |                                                |                    |        |                    |  |                    |      |       |  |          |      |         |  |       |        |          |  |        
|Service cost                             |                                                |                    | 484    |                    |  |                    | 212  |       |  |          | 272  |         |  |       | 487    |          |  |         | 206    |     |  |  | 281  |    |   |  | 464    |     |   |  | 195    |   |  |  | 269  |   
|Interest cost                            |                                                |                    | 1,121  |                    |  |                    | 767  |       |  |          | 354  |         |  |       | 1,151  |          |  |         | 772    |     |  |  | 379  |    |   |  | 1,091  |     |   |  | 749    |   |  |  | 342  |   
|Expected return on plan assets           |                                                |                    | (1,107 | )                  |  |                    | (814 | )     |  |          | (293 | )       |  |       | (1,421 | )        |  |         | (1,007 | )   |  |  | (414 | )  |   |  | (1,609 | )   |   |  | (1,203 | ) |  |  | (406 | ) 
|Amortization of:                         |                                                |                    |        |                    |  |                    |      |       |  |          |      |         |  |       |        |          |  |         |        |     |  |  |      |    |   |  |        |     |   |  |       |   |  |  |      |   
|                                         | Unrecognized prior service cost                |                    |        | 12                 |  |                    |      |      |  |          |      | 12      |  |       |        | 14       |  |         |        |    |  |  |      | 14 |   |  |        | 8   |   |  |        |  |  |  |      | 8  |  
|                                         | Unrecognized net losses (gains)                |                    |        | 451                |  |                    |      | 392   |  |          |      | 59      |  |       |        | 208      |  |         |        | 212 |  |  |      | (4 | ) |  |        | (1  | ) |  |        |  |  |  |      | (1 | )
|                                         | Unrecognized net transition obligation (asset) |                    |        |                   |  |                    |      |      |  |          |      |        |  |       |        | 8        |  |         |        |    |  |  |      | 8  |   |  |        | (4  | ) |  |        |   |  |  |      | (4 | )
|Loss due to settlements and curtailments |                                                |                    | 8      |                    |  |                    |     |       |  |          | 8    |         |  |       |       |          |  |         |       |     |  |  |     |    |   |  |       |     |   |  |       |   |  |  |     |   
|                                         |                                                |                    |        |                    |  |                    |      |       |  |          |      |         |  |       |        |          |  |         |        |     |  |  |      |    |   |  |        |     |   |  |        |   |  |  |      |   
|Net periodic pension cost                |                                                |                    | 969    |                    |  |                    | 557  |       |  |          | 412  |         |  |       | 447    |          |  |         | 183    |     |  |  | 264  |    |   |  | (51    | )   |   |  | (259   | ) |  |  | 208  |   
|                                         |                                                |                    |        |                    |  |                    |      |       |  |          |      |         |  |       |        |          |  |         |        |     |  |  |      |    |   |  |        |     |   |  |        |   |  |  |      |   
|Siemens German Pension Trust             |                                                |                    | 557    |                    |  |                    |      |       |  |          |      |         |  |       | 183    |          |  |         |        |     |  |  |      |    |   |  | (261   | )   |   |  |        |   |  |  |      |   
|                                         | U.S.                                           |                    |        | 240                |  |                    |      |       |  |          |      |         |  |       |        | 164      |  |         |        |     |  |  |      |    |   |  |        | 122 |   |  |        |   |  |  |      |    |  
|                                         | U.K.                                           |                    |        | 111                |  |                    |      |       |  |          |      |         |  |       |        | 58       |  |         |        |     |  |  |      |    |   |  |        | 49  |   |  |        |   |  |  |      |    |  
|                                         | Other                                          |                    |        | 61                 |  |                    |      |       |  |          |      |         |  |       |        | 42       |  |         |        |     |  |  |      |    |   |  |        | 39  |   |  |        |   |  |  |      |    |  

For the Siemens German Pension Trust, the
determination of the expected return on plan assets 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.
This market-related value was
11,111 as of
September 30, 2003,
95 above the
fair value of the plan assets of the German Pension Trust. For
all other plans, the market-related value of plan assets is
equal to the fair value of plan assets as of the measurement
date. If any significant supplemental contributions are made
after the measurement date, these contributions will be
considered on a pro-rata basis when determining the total
expected return on plan assets for the respective fiscal year.

Net unrecognized gains or losses in excess of 10%
of the greater of the projected benefit obligation or the
market-related value of plan assets are amortized over the
average remaining service period of active participants
(generally 15 years). Prior service costs are amortized on
a straight-line basis over the average remaining service period
of active participants to whom such costs relate.

The increase in NPPC compared to fiscal 2002
results from two important factors. First, the Company adjusted
the expected rate of return on plan assets for the most
important pension benefit plans as a result of a revised asset
allocation and in expectation of lower market returns. This
change resulted in an increase in the NPPC of
220. Secondly,
NPPC increased in fiscal 2003 as a result of higher amortization
of unrealized losses. These unrealized losses arose largely from
negative developments in the international capital markets
during fiscal years 2002 and 2001, as well as the effect of
reductions in the discount rate assumption used to calculate the
PBO. The service cost and amortization of prior service cost
components of NPPC for fiscal 2003 is
496, about the
same amount as in fiscal 2002
(501). The
service cost component for the Siemens German Pension Trust,
212 in fiscal
2003, is currently reported in the Segment Information table
centrally under Corporate items, pensions and
eliminations, whereas the service cost and amortization of
prior service cost components for the foreign pension plans,
284 in fiscal
2003, are allocated to the Operations Groups. All other
components of NPPC are reported centrally under Corporate
items, pensions and eliminations for both the Siemens German
Pension Trust and the foreign pension plans.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Based on the established assumptions, the Company
expects that NPPC will increase slightly in fiscal 2004,
primarily due to a further increase in the amortization of
unrecognized losses. Such increase is due to increases in total
unrecognized losses resulting primarily from the reduction in
the weighted-average discount rate from 6.0% to 5.4%. The effect
on NPPC was partly offset by higher expected absolute returns on
plan assets resulting from the supplemental contributions.

Pension benefits: Assumptions for the
calculation of the PBO and NPPC

Assumed discount rates, compensation increase
rates and pension progression rates used in calculating the PBO
together with long-term rates of return on plan assets vary
according to the economic conditions of the country in which the
retirement plans are situated as well as capital market
expectations.

The weighted-average assumptions used for the
actuarial valuation of the PBO as of the respective measurement
date (June 30 or September 30), were as follows:

|                              |                              |                               |     |                               |   |         |      |       |  |          |     |         |  |  |     |      |   |  |      |   |  |  |     |   | 
|----------------------------- | ---------------------------- | ----------------------------- | --- | ----------------------------- | - | ------- | ---- | ----- |  | -------- | --- | ------- |  |  | --- | ---- | - |  | ---- | - |  |  | --- | - | 
|                              |                              |                               |     |                              
|                              |                              | Year ended September 30, 2003 |     | Year ended September 30, 2002
|                              |                              |                               |     |                              
|                              |                              | Total                         |     | Domestic                      |   | Foreign |      | Total |  | Domestic |     | Foreign
|                              |                              |                               |     |                               |   |         |      |       |  |          |     |        
|Discount rate                 |                              |                               | 5.4 | %                             |   |         | 5.25 | %     |  |          | 5.6 | %       |  |  | 6.0 | %    |   |  | 5.75 | % |  |  | 6.4 | %
|                              | Siemens German Pension Trust |                               |     | 5.25                          | % |         |      |       |  |          |     |         |  |  |     | 5.75 | % |  |      |   |  |  |     |   | 
|                              | U.S.                         |                               |     | 6.25                          | % |         |      |       |  |          |     |         |  |  |     | 7.25 | % |  |      |   |  |  |     |   | 
|                              | U.K.                         |                               |     | 5.4                           | % |         |      |       |  |          |     |         |  |  |     | 5.7  | % |  |      |   |  |  |     |   | 
|Rate of compensation increase |                              |                               | 2.5 | %                             |   |         | 2.25 | %     |  |          | 2.9 | %       |  |  | 3.1 | %    |   |  | 2.75 | % |  |  | 3.9 | %
|                              | Siemens German Pension Trust |                               |     | 2.25                          | % |         |      |       |  |          |     |         |  |  |     | 2.75 | % |  |      |   |  |  |     |   | 
|                              | U.S.                         |                               |     | 3.0                           | % |         |      |       |  |          |     |         |  |  |     | 4.25 | % |  |      |   |  |  |     |   | 
|                              | U.K.                         |                               |     | 3.6                           | % |         |      |       |  |          |     |         |  |  |     | 4.1  | % |  |      |   |  |  |     |   | 
|Rate of pension progression   |                              |                               | 1.4 | %                             |   |         | 1.25 | %     |  |          | 2.1 | %       |  |  | 1.4 | %    |   |  | 1.25 | % |  |  | 2.3 | %
|                              | Siemens German Pension Trust |                               |     | 1.25                          | % |         |      |       |  |          |     |         |  |  |     | 1.25 | % |  |      |   |  |  |     |   | 
|                              | U.K.                         |                               |     | 2.6                           | % |         |      |       |  |          |     |         |  |  |     | 2.5  | % |  |      |   |  |  |     |   | 

The assumptions used for the calculation of the
PBO as of measurement date (June 30 or September 30),
of the preceding fiscal year are also valid for the calculation
of interest cost and service cost of the following year.
Therefore, the assumptions used for the calculation of the NPPC
for fiscal 2004 are already determined except for the expected
return on plan assets. Regarding the assumption of the expected
rate of return on plan assets, the Company decided to maintain
the same fiscal 2003 return for fiscal 2004. Accordingly, the
total expected return for fiscal 2004 will be based on such
expected rate of return multiplied by the market-related value
of plan assets at the fiscal 2003 measurement date.

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 weighted-average assumptions used for
determining the NPPC for the fiscal years ended
September 30, 2004, 2003, 2002 and 2001 are shown in the
following table:

|                               |                              |                    |     |                    |   |                    |      |                    |  |          |     |         |  |       |     |          |   |         |      |       |  |          |     |         |  |  |     |      |   |  |      |   |  |  |     |   |  |  |     |      |   |  |     |   |  |  |     |   | 
|------------------------------ | ---------------------------- | ------------------ | --- | ------------------ | - | ------------------ | ---- | ------------------ |  | -------- | --- | ------- |  | ----- | --- | -------- | - | ------- | ---- | ----- |  | -------- | --- | ------- |  |  | --- | ---- | - |  | ---- | - |  |  | --- | - |  |  | --- | ---- | - |  | --- | - |  |  | --- | - | 
|                               |                              |                    |     |                    |   |                    |      |                   
|                               |                              | Year ended         |     | Year ended         |   | Year ended         |      | Year ended        
|                               |                              | September 30, 2004 |     | September 30, 2003 |   | September 30, 2002 |      | September 30, 2001
|                               |                              |                    |     |                    |   |                    |      |                   
|                               |                              | Total              |     | Domestic           |   | Foreign            |      | Total              |  | Domestic |     | Foreign |  | Total |     | Domestic |   | Foreign |      | Total |  | Domestic |     | Foreign
|                               |                              |                    |     |                    |   |                    |      |                    |  |          |     |         |  |       |     |          |   |         |      |       |  |          |     |        
|Discount rate                  |                              |                    | 5.4 | %                  |   |                    | 5.25 | %                  |  |          | 5.6 | %       |  |       | 6.0 | %        |   |         | 5.75 | %     |  |          | 6.4 | %       |  |  | 6.2 | %    |   |  | 6.0  | % |  |  | 6.7 | % |  |  | 6.7 | %    |   |  | 6.5 | % |  |  | 7.3 | %
|                               | Siemens German Pension Trust |                    |     | 5.25               | % |                    |      |                    |  |          |     |         |  |       |     | 5.75     | % |         |      |       |  |          |     |         |  |  |     | 6.0  | % |  |      |   |  |  |     |   |  |  |     | 6.5  | % |  |     |   |  |  |     |   | 
|                               | U.S.                         |                    |     | 6.25               | % |                    |      |                    |  |          |     |         |  |       |     | 7.25     | % |         |      |       |  |          |     |         |  |  |     | 7.5  | % |  |      |   |  |  |     |   |  |  |     | 7.75 | % |  |     |   |  |  |     |   | 
|                               | U.K.                         |                    |     | 5.4                | % |                    |      |                    |  |          |     |         |  |       |     | 5.7      | % |         |      |       |  |          |     |         |  |  |     | 6.2  | % |  |      |   |  |  |     |   |  |  |     | 6.4  | % |  |     |   |  |  |     |   | 
|Expected return on plan assets |                              |                    | 6.7 | %                  |   |                    | 6.75 | %                  |  |          | 6.6 | %       |  |       | 6.7 | %        |   |         | 6.75 | %     |  |          | 6.7 | %       |  |  | 8.0 | %    |   |  | 8.25 | % |  |  | 7.9 | % |  |  | 8.8 | %    |   |  | 9.3 | % |  |  | 7.8 | %
|                               | Siemens German Pension Trust |                    |     | 6.75               | % |                    |      |                    |  |          |     |         |  |       |     | 6.75     | % |         |      |       |  |          |     |         |  |  |     | 8.25 | % |  |      |   |  |  |     |   |  |  |     | 9.5  | % |  |     |   |  |  |     |   | 
|                               | U.S.                         |                    |     | 6.95               | % |                    |      |                    |  |          |     |         |  |       |     | 6.95     | % |         |      |       |  |          |     |         |  |  |     | 9.0  | % |  |      |   |  |  |     |   |  |  |     | 8.75 | % |  |     |   |  |  |     |   | 
|                               | U.K.                         |                    |     | 6.85               | % |                    |      |                    |  |          |     |         |  |       |     | 6.85     | % |         |      |       |  |          |     |         |  |  |     | 7.2  | % |  |      |   |  |  |     |   |  |  |     | 7.4  | % |  |     |   |  |  |     |   | 
|Rate of compensation increase  |                              |                    | 2.5 | %                  |   |                    | 2.25 | %                  |  |          | 2.9 | %       |  |       | 3.1 | %        |   |         | 2.75 | %     |  |          | 3.9 | %       |  |  | 3.3 | %    |   |  | 3.0  | % |  |  | 4.1 | % |  |  | 3.9 | %    |   |  | 3.5 | % |  |  | 4.8 | %
|                               | Siemens German Pension Trust |                    |     | 2.25               | % |                    |      |                    |  |          |     |         |  |       |     | 2.75     | % |         |      |       |  |          |     |         |  |  |     | 3.0  | % |  |      |   |  |  |     |   |  |  |     | 3.5  | % |  |     |   |  |  |     |   | 
|                               | U.S.                         |                    |     | 3.0                | % |                    |      |                    |  |          |     |         |  |       |     | 4.25     | % |         |      |       |  |          |     |         |  |  |     | 4.5  | % |  |      |   |  |  |     |   |  |  |     | 5.1  | % |  |     |   |  |  |     |   | 
|                               | U.K.                         |                    |     | 3.6                | % |                    |      |                    |  |          |     |         |  |       |     | 4.1      | % |         |      |       |  |          |     |         |  |  |     | 4.1  | % |  |      |   |  |  |     |   |  |  |     | 4.3  | % |  |     |   |  |  |     |   | 
|Rate of pension progression    |                              |                    | 1.4 | %                  |   |                    | 1.25 | %                  |  |          | 2.1 | %       |  |       | 1.4 | %        |   |         | 1.25 | %     |  |          | 2.3 | %       |  |  | 1.6 | %    |   |  | 1.5  | % |  |  | 2.3 | % |  |  | 1.7 | %    |   |  | 1.5 | % |  |  | 2.9 | %
|                               | Siemens German Pension Trust |                    |     | 1.25               | % |                    |      |                    |  |          |     |         |  |       |     | 1.25     | % |         |      |       |  |          |     |         |  |  |     | 1.5  | % |  |      |   |  |  |     |   |  |  |     | 1.5  | % |  |     |   |  |  |     |   | 
|                               | U.K.                         |                    |     | 2.6                | % |                    |      |                    |  |          |     |         |  |       |     | 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 is determined on a uniform basis,
considering long-term historical returns, asset allocation, and
future estimates of long-term investment returns. As of
October 1, 2002, Siemens reduced the expected return on
plan assets for its German Pension Trust and for its principal
foreign pension plans in order to represent expected investment
performance and future asset allocations. Actuarial assumptions
not shown in the table above, such as employee turnover,
mortality, disability etc., remained primarily unchanged in 2003.

Pension benefits: Sensitivity
Analysis

A one-percentage-point change of the established
assumptions mentioned above, used for the calculation of the
NPPC for fiscal 2004, and a change of the market-related value
of plan assets of
500 as of
balance sheet date September 30, 2003, would result in the
following impact on the fiscal 2004 NPPC:

|                                    |  |                              |      |                 |  |  |      |  
|----------------------------------- |  | ---------------------------- | ---- | --------------- |  |  | ---- | -
|                                    |  |                             
|                                    |  | Effect on NPPC 2004 due to a
|                                    |  |                             
|                                    |  | one-percentage-              |      | one-percentage-
|                                    |  | point/500                   |      | point/500     
|                                    |  | increase                     |      | decrease       
|                                    |  |                              |      |                
|Discount rate                       |  |                              | 160  |                 |  |  | (200 | )
|Expected return on plan assets      |  |                              | 172  |                 |  |  | (172 | )
|Rate of compensation increase       |  |                              | (90  | )               |  |  | 80   |  
|Rate of pension progression         |  |                              | (270 | )               |  |  | 230  |  
|Market-related value of plan assets |  |                              | 70   |                 |  |  | (70  | )

Increases and decreases in the discount rate,
rate of compensation increase and rate of pension progression
which are used in determining the PBO do not have a symmetrical
effect on NPPC primarily due to the

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)


compound interest effect created when determining
the present value of the future pension benefit. If more than
one of the assumptions were changed simultaneously, the impact
would not necessarily be the same as if only one assumption was
changed in isolation.

Pension benefits: Additional information
concerning changes of the AML and actual returns on plan
assets

|                                                                                        |  |                    |       |                    |  |                    |     |       |  |          |     |         |  |       |       |          |  |         |       |  |  |  |     |  |  |  |       |  |  |  |       |  |  |  |    | 
|--------------------------------------------------------------------------------------- |  | ------------------ | ----- | ------------------ |  | ------------------ | --- | ----- |  | -------- | --- | ------- |  | ----- | ----- | -------- |  | ------- | ----- |  |  |  | --- |  |  |  | ----- |  |  |  | ----- |  |  |  | -- | 
|                                                                                        |  |                    |       |                    |  |                   
|                                                                                        |  | Year ended         |       | Year ended         |  | Year ended        
|                                                                                        |  | September 30, 2003 |       | September 30, 2002 |  | September 30, 2001
|                                                                                        |  |                    |       |                    |  |                   
|                                                                                        |  | Total              |       | Domestic           |  | Foreign            |     | Total |  | Domestic |     | Foreign |  | Total |       | Domestic |  | Foreign
|                                                                                        |  |                    |       |                    |  |                    |     |       |  |          |     |         |  |       |       |          |  |        
|Increase of the minimum liability within the
    accumulated other comprehensive income |  |                    | 1,363 |                    |  |                    | 498 |       |  |          | 865 |         |  |       | 2,300 |          |  |         | 1,935 |  |  |  | 365 |  |  |  | 6,519 |  |  |  | 6,442 |  |  |  | 77 | 

The reduction of shareholders equity caused
by the underfunded ABO increased by
1,363. This
reduction of shareholders equity has no effect on income
and was primarily caused by the increase in the ABO amounting to
approximately
1.2 billion,
as a result of the decline in the weighted-average discount rate
from 6.0% to 5.4%. The contributions to plan assets had no
effect on the AML. In fact, the contributions resulted in a
lower difference between the ABO and the fair value of plan
assets and at the same time prepaid pension assets before AML
adjustments increased by the same amount.

|                             |  |                    |     |                    |  |                    |     |       |  |          |   |         |  |       |        |          |  |         |      |   |  |  |      |   |  |  |        |   |  |  |        |   |  |  |      |  
|---------------------------- |  | ------------------ | --- | ------------------ |  | ------------------ | --- | ----- |  | -------- | - | ------- |  | ----- | ------ | -------- |  | ------- | ---- | - |  |  | ---- | - |  |  | ------ | - |  |  | ------ | - |  |  | ---- | -
|                             |  |                    |     |                    |  |                   
|                             |  | Year ended         |     | Year ended         |  | Year ended        
|                             |  | September 30, 2003 |     | September 30, 2002 |  | September 30, 2001
|                             |  |                    |     |                    |  |                   
|                             |  | Total              |     | Domestic           |  | Foreign            |     | Total |  | Domestic |   | Foreign |  | Total |        | Domestic |  | Foreign
|                             |  |                    |     |                    |  |                    |     |       |  |          |   |         |  |       |        |          |  |        
|Actual return on plan assets |  |                    | 648 |                    |  |                    | 641 |       |  |          | 7 |         |  |       | (1,187 | )        |  |         | (713 | ) |  |  | (474 | ) |  |  | (5,257 | ) |  |  | (4,952 | ) |  |  | (305 | )

Actual investment returns for the Siemens German
Pension Trust from October 1 to September 30, 2003
amounted to
641 million
or 5.3%. This was less than the
814 or 6.75%
that was included in the NPPC. The expected return on plan
assets is based on the market-related value of plan assets at
the measurement date of the respective plan considering
significant supplemental contributions after the measurement
date. The most significant principal foreign pension benefit
plans have a measurement date of June 30. Accordingly, the
expected return of our principal foreign pension benefit plans
of 293 relates
to the period from July 1, 2002 to June 30, 2003,
during which the actual return was
7 or 0.1%, as
compared to the expected return of 6.7%. Included in this actual
return of 7 are
losses totaling
551 incurred
during the period from June 30, 2002 to September 30,
2002 by the principal foreign pension benefit plans with
measurement dates of June 30. For the period from
October 1, 2002 to September 30, 2003, the actual
return on plan assets of our principal foreign pension benefit
plans was 618 or
12.3%, and the investment return of the worldwide plan assets
was 1,259 or
7.4%. Included in this amount is
60 or 5.7%, on
an annualized basis of actual returns earned during the period
from June 30, 2003 to September 30, 2003 on assets of
the principal foreign pension benefit plans with a measurement
date of June 30. Such returns are relevant only for fiscal
2004.

F-45



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Pension benefits: Plan Assets

The asset allocation of the plan assets of the
principal pension benefit plans as of the measurement date for
fiscal 2003 and 2002 as well as the target asset allocation for
fiscal year 2004, are as follows:

|             |  |               |       |                                             |  |                    |     |         |  |       |     |          |  |         |     |   |  |  |     |   |  |  |     |   |  |  |     |  
|------------ |  | ------------- | ----- | ------------------------------------------- |  | ------------------ | --- | ------- |  | ----- | --- | -------- |  | ------- | --- | - |  |  | --- | - |  |  | --- | - |  |  | --- | -
|             |  |               |       |                                            
|             |  |               |       | Asset allocation as of the measurement date
|             |  |               |       |                                            
|             |  | Target asset  |       |                                             |  |                   
|             |  | allocation    |       | September 30, 2003                          |  | September 30, 2002
|             |  | September 30, |       |                                             |  |                   
|Asset class  |  | 2004          |       | Total                                       |  | Domestic           |     | Foreign |  | Total |     | Domestic |  | Foreign
|             |  |               |       |                                             |  |                    |     |         |  |       |     |          |  |        
|Equity       |  |               | 30-60 | %                                           |  |                    | 31  | %       |  |       | 26  | %        |  |         | 41  | % |  |  | 33  | % |  |  | 20  | % |  |  | 60  | %
|Fixed income |  |               | 30-60 | %                                           |  |                    | 50  | %       |  |       | 54  | %        |  |         | 39  | % |  |  | 46  | % |  |  | 58  | % |  |  | 22  | %
|Real estate  |  |               | 5-15  | %                                           |  |                    | 10  | %       |  |       | 10  | %        |  |         | 11  | % |  |  | 8   | % |  |  | 7   | % |  |  | 9   | %
|Cash         |  |               | 5-15  | %                                           |  |                    | 9   | %       |  |       | 10  | %        |  |         | 9   | % |  |  | 13  | % |  |  | 15  | % |  |  | 9   | %
|             |  |               |       |                                             |  |                    |     |         |  |       |     |          |  |         |     |   |  |  |     |   |  |  |     |   |  |  |     |  
|             |  |               |       |                                             |  |                    | 100 | %       |  |       | 100 | %        |  |         | 100 | % |  |  | 100 | % |  |  | 100 | % |  |  | 100 | %
|             |  |               |       |                                             |  |                    |     |         |  |       |     |          |  |         |     |   |  |  |     |   |  |  |     |   |  |  |     |  

As of September 30, 2002, the Siemens German
Pension Trust held 87.1 million shares in Infineon from the
transfer which occurred in April 2001. During the first six
months of fiscal 2003, the remaining holdings of the Siemens
German Pension Trust in shares in Infineon were sold. While
United States pension plans subject to the Employee Retirement
Income Security Act (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.

Current asset allocation is biased towards high
quality government and selected corporate bonds. As of
September 30, 2003, the equity-portion of the pension
assets of the principal pension benefit plans approximates the
prior year level, despite a significant reduction during the
year. The target asset allocation is based on pension asset and
liability studies and is regularly reviewed with respect to
market movements and also timely-adjusted based on market
conditions, when necessary.

Pension benefits: Pension Plan
Funding

Contributions made by the Company to its
principal pension benefit plans in fiscal 2003 and 2002, as well
as those planned in fiscal 2004, are as follows:

|                           |             |                               |       |                    |  |                    |     |       |  |          |     |         |  |       |       |          |  |         |       |       |  |  |     |     |  |  |       |       |  |  |       |       |  |  |     |     | 
|-------------------------- | ----------- | ----------------------------- | ----- | ------------------ |  | ------------------ | --- | ----- |  | -------- | --- | ------- |  | ----- | ----- | -------- |  | ------- | ----- | ----- |  |  | --- | --- |  |  | ----- | ----- |  |  | ----- | ----- |  |  | --- | --- | 
|                           |             |                               |       |                    |  |                   
|                           |             | Year ended                    |       | Year ended         |  | Year ended        
|                           |             | September 30, 2004 (expected) |       | September 30, 2003 |  | September 30, 2002
|                           |             |                               |       |                    |  |                   
|                           |             | Total                         |       | Domestic           |  | Foreign            |     | Total |  | Domestic |     | Foreign |  | Total |       | Domestic |  | Foreign
|                           |             |                               |       |                    |  |                    |     |       |  |          |     |         |  |       |       |          |  |        
|Regular funding            |             |                               | 499   |                    |  |                    | 230 |       |  |          | 269 |         |  |       | 219   |          |  |         |      |       |  |  | 219 |     |  |  | 241   |       |  |  |      |       |  |  | 241 |    
|Supplemental contributions |             |                               |       |                    |  |                    |     |       |  |          |     |         |  |       |       |          |  |         |       |       |  |  |     |     |  |  |       |       |  |  |       |       |  |  |     |    
|                           | Cash        |                               |       | 1,255              |  |                    |     | 700   |  |          |     | 555     |  |       |       | 1,192    |  |         |       | 1,008 |  |  |     | 184 |  |  |       | 1,782 |  |  |       | 1,500 |  |  |     | 282 | 
|                           | Real estate |                               |       |                   |  |                    |     |      |  |          |     |        |  |       |       | 377      |  |         |       | 377   |  |  |     |    |  |  |       |      |  |  |       |      |  |  |     |    | 
|                           |             |                               |       |                    |  |                    |     |       |  |          |     |         |  |       |       |          |  |         |       |       |  |  |     |     |  |  |       |       |  |  |       |       |  |  |     |    
|Total                      |             |                               | 1,754 |                    |  |                    | 930 |       |  |          | 824 |         |  |       | 1,788 |          |  |         | 1,385 |       |  |  | 403 |     |  |  | 2,023 |       |  |  | 1,500 |       |  |  | 523 |    
|                           |             |                               |       |                    |  |                    |     |       |  |          |     |         |  |       |       |          |  |         |       |       |  |  |     |     |  |  |       |       |  |  |       |       |  |  |     |    

In September 2002, the Company made a
supplemental cash contribution to the Siemens German Pension
Trust as well as to the pension plans in the U.S. and the
U.K., totaling
1,782. In
addition, another supplemental funding of the Siemens German
Pension Trust totaling
635, including
377 in real
estate and 258
in cash was made in October 2002. Also in October 2002, Siemens
made another supplemental cash contribution to the pension plan
in the U.K. amounting to
184. In
September 2003, Siemens made a supplemental cash contribution of
750 to the
German Pension Trust. In October 2003,
1,255 in cash
was contributed as follows:
700 to the
Siemens German Pension Trust and
555 to the
pension plan in the U.S.

F-46



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Beginning in fiscal 2004, regular funding will be
based generally on the level of service costs incurred. With
regards to the Siemens German Pension Trust, this funding in the
amount of 230
has already been contributed in October 2003. The contributions
abroad will be allocated on a pro-rata basis during the fiscal
year. Future funding decisions for the Companys pension
plans will be made with due consideration of developments
affecting plan assets and pension liabilities, taking into
account minimum funding requirements abroad and local tax
deductibility.

Pension benefits: Pension benefit
payments

The following overview comprises pension benefits
paid out of the principal pension benefit plans during the years
ended September 30, 2003 and 2002, and expected pension
payments for the next five years (undiscounted):

|                          |  |       |       |          |  |         |     |  |  |  |     | 
|------------------------- |  | ----- | ----- | -------- |  | ------- | --- |  |  |  | --- | 
|                          |  | Total |       | Domestic |  | Foreign
|                          |  |       |       |          |  |        
|Pension benefits paid     |  |       |       |          |  |         |     |  |  |  |     | 
|2002                      |  |       | 930   |          |  |         | 620 |  |  |  | 310 | 
|2003                      |  |       | 947   |          |  |         | 686 |  |  |  | 261 | 
|Expected pension payments |  |       |       |          |  |         |     |  |  |  |     | 
|2004                      |  |       | 1,002 |          |  |         | 713 |  |  |  | 289 | 
|2005                      |  |       | 1,044 |          |  |         | 746 |  |  |  | 298 | 
|2006                      |  |       | 1,083 |          |  |         | 776 |  |  |  | 307 | 
|2007                      |  |       | 1,101 |          |  |         | 781 |  |  |  | 320 | 
|2008                      |  |       | 1,121 |          |  |         | 786 |  |  |  | 335 | 

As pension benefit payments for our principal
funded pension benefit plans reduce the PBO and plan assets by
the same amount, there is no impact on the funded status of such
plans.

Other postretirement benefits

In Germany, employees who entered into the
Companys employment on or before September 30, 1983,
are entitled to transition payments for the first six months
after retirement equal to the difference between their final
compensation and the retirement benefits payable under the
corporate pension plan. Certain foreign companies, primarily in
the U.S., provide other postretirement benefits in the form of
medical, dental and life insurance. The amount of obligations
for other postretirement benefits in the form of medical and
dental benefits specifically depends on the expected cost trend
in the health care sector. To be entitled to such healthcare
benefits participants must contribute to the insurance premiums.
Participant contributions are based on specific regulations of
cost sharing which are defined in the benefit plans. The Company
has the right to adjust the cost allocation at any time,
generally this is done on an annual basis. Premiums for life
insurance benefits are paid solely by the Company.

Other postretirement benefits are illustrated in
detail in the subsequent sections with regard to:



| |   |                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | Obligations and funded status (page F-48),                                                                                             
|
| |  | Plan assets (page F-49),                                                                                                               
|
| |  | Components of net periodic benefit cost for other
    postretirement benefits (page F-49)                                              
|
| |  | Assumptions for the calculation of the PBO and
    the net periodic benefit cost for other postretirement benefits
    (page F-49), and
|
| |  | Benefit payments (page F-50).                                                                                                          

F-47



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Other postretirement benefits: Obligations
and funded status

The funded status of plan assets and a
reconciliation of the funded status to the amounts recognized in
the Consolidated Balance Sheets is as follows:

|                                                                      |  |                    |        |                    |  |         |      |       |  |          |      |         |  |  |        |   |  |  |      |   |  |  |      |  
|--------------------------------------------------------------------- |  | ------------------ | ------ | ------------------ |  | ------- | ---- | ----- |  | -------- | ---- | ------- |  |  | ------ | - |  |  | ---- | - |  |  | ---- | -
|                                                                      |  |                    |        |                   
|                                                                      |  | September 30, 2003 |        | September 30, 2002
|                                                                      |  |                    |        |                   
|                                                                      |  | Total              |        | Domestic           |  | Foreign |      | Total |  | Domestic |      | Foreign
|                                                                      |  |                    |        |                    |  |         |      |       |  |          |      |        
|Fair value of plan assets                                             |  |                    | 3      |                    |  |         |     |       |  |          | 3    |         |  |  | 13     |   |  |  |     |   |  |  | 13   |  
|Projected benefit obligations                                         |  |                    | 1,088  |                    |  |         | 482  |       |  |          | 606  |         |  |  | 1,150  |   |  |  | 534  |   |  |  | 616  |  
|                                                                      |  |                    |        |                    |  |         |      |       |  |          |      |         |  |  |        |   |  |  |      |   |  |  |      |  
|Funded status (plan assets less other
    postretirement obligations) |  |                    | (1,085 | )                  |  |         | (482 | )     |  |          | (603 | )       |  |  | (1,137 | ) |  |  | (534 | ) |  |  | (603 | )
|Unrecognized net loss                                                 |  |                    | (211   | )                  |  |         | (221 | )     |  |          | 10   |         |  |  | (300   | ) |  |  | (166 | ) |  |  | (134 | )
|Unrecognized prior service cost                                       |  |                    | (8     | )                  |  |         |     |       |  |          | (8   | )       |  |  | 5      |   |  |  |     |   |  |  | 5    |  
|Unrecognized net transition asset                                     |  |                    | 1      |                    |  |         |     |       |  |          | 1    |         |  |  | 1      |   |  |  |     |   |  |  | 1    |  
|                                                                      |  |                    |        |                    |  |         |      |       |  |          |      |         |  |  |        |   |  |  |      |   |  |  |      |  
|Net amount recognized                                                 |  |                    | (1,303 | )                  |  |         | (703 | )     |  |          | (600 | )       |  |  | (1,431 | ) |  |  | (700 | ) |  |  | (731 | )
|                                                                      |  |                    |        |                    |  |         |      |       |  |          |      |         |  |  |        |   |  |  |      |   |  |  |      |  

The following table shows a detailed
reconciliation of the changes in the projected benefit
obligation for other postretirement benefits for the years ended
September 30, 2003 and 2002:

|                                            |                                                   |                                        |       |                    |      |         |     |       |     |          |     |         |      |   |       |       |     |   |     |     |     |   |     |     |     |  
|------------------------------------------- | ------------------------------------------------- | -------------------------------------- | ----- | ------------------ | ---- | ------- | --- | ----- | --- | -------- | --- | ------- | ---- | - | ----- | ----- | --- | - | --- | --- | --- | - | --- | --- | --- | -
|                                            |                                                   |                                        |       |                   
|                                            |                                                   | September 30, 2003                     |       | September 30, 2002
|                                            |                                                   |                                        |       |                   
|                                            |                                                   | Total                                  |       | Domestic           |      | Foreign |     | Total |     | Domestic |     | Foreign
|                                            |                                                   |                                        |       |                    |      |         |     |       |     |          |     |        
|Change in projected benefit obligations:    |                                                   |                                        |       |                    |      |         |     |       |     |          |     |         |      |   |       |       |     |   |     |     |     |   |     |    
|                                            | Projected benefit obligation at beginning of year |                                        |       | 1,150              |      |         |     | 534   |     |          |     | 616     |      |   |       | 1,170 |     |   |     | 587 |     |   |     | 583 |    
|                                            |                                                   | Foreign currency exchange rate changes |       |                    | (104 | )       |     |       |    |          |     |         | (104 | ) |       |       | (46 | ) |     |     |    |   |     |     | (46 | )
|                                            |                                                   | Service cost                           |       |                    | 42   |         |     |       | 19  |          |     |         | 23   |   |       |       | 52  |   |     |     | 21  |   |     |     | 31  |  
|                                            |                                                   | Interest cost                          |       |                    | 66   |         |     |       | 30  |          |     |         | 36   |   |       |       | 80  |   |     |     | 33  |   |     |     | 47  |  
|                                            |                                                   | Settlements and curtailments           |       |                    | (29  | )       |     |       |    |          |     |         | (29  | ) |       |       |    |   |     |     |    |   |     |     |    |  
|                                            |                                                   | Plan participants contributions       |       |                    | 1    |         |     |       |    |          |     |         | 1    |   |       |       |    |   |     |     |    |   |     |     |    |  
|                                            |                                                   | Plan amendments                        |       |                    | (19  | )       |     |       |    |          |     |         | (19  | ) |       |       |    |   |     |     |    |   |     |     |    |  
|                                            |                                                   | Actuarial (gains) losses               |       |                    | 58   |         |     |       | (62 | )        |     |         | 120  |   |       |       | (59 | ) |     |     | (81 | ) |     |     | 22  |  
|                                            |                                                   | Acquisitions                           |       |                    |     |         |     |       |    |          |     |         |     |   |       |       | 61  |   |     |     | 17  |   |     |     | 44  |  
|                                            |                                                   | Divestments                            |       |                    | (24  | )       |     |       | (22 | )        |     |         | (2   | ) |       |       | (49 | ) |     |     | (22 | ) |     |     | (27 | )
|                                            |                                                   | Benefits paid                          |       |                    | (53  | )       |     |       | (17 | )        |     |         | (36  | ) |       |       | (59 | ) |     |     | (21 | ) |     |     | (38 | )
|                                            |                                                   |                                        |       |                    |      |         |     |       |     |          |     |         |      |   |       |       |     |   |     |     |     |   |     |    
|Projected benefit obligation at end of year |                                                   |                                        | 1,088 |                    |      |         | 482 |       |     |          | 606 |         |      |   | 1,150 |       |     |   | 534 |     |     |   | 616 |    
|                                            |                                                   |                                        |       |                    |      |         |     |       |     |          |     |         |      |   |       |       |     |   |     |     |     |   |     |    

F-48



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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Other postretirement benefits: Plan
assets

The following table shows the change in plan
assets for fiscal 2003 and 2002:

|                                      |                                                |                                        |   |                    |     |         |   |       |   |          |   |         |     |   |    |    |     |   |   |    |     |   |    |    |     |  
|------------------------------------- | ---------------------------------------------- | -------------------------------------- | - | ------------------ | --- | ------- | - | ----- | - | -------- | - | ------- | --- | - | -- | -- | --- | - | - | -- | --- | - | -- | -- | --- | -
|                                      |                                                |                                        |   |                   
|                                      |                                                | September 30, 2003                     |   | September 30, 2002
|                                      |                                                |                                        |   |                   
|                                      |                                                | Total                                  |   | Domestic           |     | Foreign |   | Total |   | Domestic |   | Foreign
|                                      |                                                |                                        |   |                    |     |         |   |       |   |          |   |        
|Change in plan assets                 |                                                |                                        |   |                    |     |         |   |       |   |          |   |         |     |   |    |    |     |   |   |    |     |   |    |   
|                                      | Fair value of plan assets at beginning of year |                                        |   | 13                 |     |         |   |      |   |          |   | 13      |     |   |    | 28 |     |   |   | 17 |     |   |    | 11 |    
|                                      |                                                | Foreign currency exchange rate changes |   |                    |    |         |   |       |  |          |   |         |    |   |    |    | (1  | ) |   |    |    |   |    |    | (1  | )
|                                      |                                                | Divestments and other                  |   |                    |    |         |   |       |  |          |   |         |    |   |    |    | (17 | ) |   |    | (17 | ) |    |    |    |  
|                                      |                                                | Employer contributions                 |   |                    | 25  |         |   |       |  |          |   |         | 25  |   |    |    | 41  |   |   |    |    |   |    |    | 41  |  
|                                      |                                                | Plan participants contributions       |   |                    | 1   |         |   |       |  |          |   |         | 1   |   |    |    |    |   |   |    |    |   |    |    |    |  
|                                      |                                                | Benefits paid                          |   |                    | (36 | )       |   |       |  |          |   |         | (36 | ) |    |    | (38 | ) |   |    |    |   |    |    | (38 | )
|                                      |                                                |                                        |   |                    |     |         |   |       |   |          |   |         |     |   |    |    |     |   |   |    |     |   |    |   
|Fair value of plan assets at year end |                                                |                                        | 3 |                    |     |         |  |       |   |          | 3 |         |     |   | 13 |    |     |   |  |    |     |   | 13 |   
|                                      |                                                |                                        |   |                    |     |         |   |       |   |          |   |         |     |   |    |    |     |   |   |    |     |   |    |   

Other postretirement benefits: Components
of net periodic benefit cost

The components of the net periodic benefit cost
for other postretirement benefits for the years ended
September 30, 2003, 2002 and 2001 are as follows:

|                                             |                                 |                    |     |                    |   |                    |    |       |   |          |     |         |   |       |     |          |   |         |    |   |  |  |    |    |   |  |     |     |   |  |    |   |  |  |    |     |  
|-------------------------------------------- | ------------------------------- | ------------------ | --- | ------------------ | - | ------------------ | -- | ----- | - | -------- | --- | ------- | - | ----- | --- | -------- | - | ------- | -- | - |  |  | -- | -- | - |  | --- | --- | - |  | -- | - |  |  | -- | --- | -
|                                             |                                 |                    |     |                    |   |                   
|                                             |                                 | Year ended         |     | Year ended         |   | Year ended        
|                                             |                                 | September 30, 2003 |     | September 30, 2002 |   | September 30, 2001
|                                             |                                 |                    |     |                    |   |                   
|                                             |                                 | Total              |     | Domestic           |   | Foreign            |    | Total |   | Domestic |     | Foreign |   | Total |     | Domestic |   | Foreign
|                                             |                                 |                    |     |                    |   |                    |    |       |   |          |     |         |   |       |     |          |   |        
|Service cost                                 |                                 |                    | 42  |                    |   |                    | 19 |       |   |          | 23  |         |   |       | 52  |          |   |         | 21 |   |  |  | 31 |    |   |  | 47  |     |   |  | 23 |   |  |  | 24 |    
|Interest cost                                |                                 |                    | 66  |                    |   |                    | 30 |       |   |          | 36  |         |   |       | 80  |          |   |         | 33 |   |  |  | 47 |    |   |  | 79  |     |   |  | 40 |   |  |  | 39 |    
|Expected return on plan assets               |                                 |                    |    |                    |   |                    |   |       |   |          |    |         |   |       |    |          |   |         |   |   |  |  |   |    |   |  | (2  | )   |   |  | (2 | ) |  |  |   |    
|Amortization of:                             |                                 |                    |     |                    |   |                    |    |       |   |          |     |         |   |       |     |          |   |         |    |   |  |  |    |    |   |  |     |     |   |  |    |   |  |  |    |    
|                                             | Unrecognized prior service cost |                    |     | (5                 | ) |                    |    |      |   |          |     | (5      | ) |       |     |         |   |         |    |  |  |  |    |   |   |  |     | (1  | ) |  |    |  |  |  |    | (1  | )
|                                             | Unrecognized net gains          |                    |     | (13                | ) |                    |    | (7    | ) |          |     | (6      | ) |       |     | (9       | ) |         |    |  |  |  |    | (9 | ) |  |     | (20 | ) |  |    |  |  |  |    | (20 | )
|Net gain due to settlements and curtailments |                                 |                    | (27 | )                  |   |                    |   |       |   |          | (27 | )       |   |       |    |          |   |         |   |   |  |  |   |    |   |  |    |     |   |  |   |   |  |  |   |    
|                                             |                                 |                    |     |                    |   |                    |    |       |   |          |     |         |   |       |     |          |   |         |    |   |  |  |    |    |   |  |     |     |   |  |    |   |  |  |    |    
|Net periodic benefit cost                    |                                 |                    | 63  |                    |   |                    | 42 |       |   |          | 21  |         |   |       | 123 |          |   |         | 54 |   |  |  | 69 |    |   |  | 103 |     |   |  | 61 |   |  |  | 42 |    
|                                             |                                 |                    |     |                    |   |                    |    |       |   |          |     |         |   |       |     |          |   |         |    |   |  |  |    |    |   |  |     |     |   |  |    |   |  |  |    |    

Other postretirement benefits: Assumptions
used in the calculation of the PBO and net
periodic benefit cost

Discount rates and other key assumptions used for
transition payments in Germany are the same as those utilized
for domestic pension benefit plans.

The weighted-average assumptions used in
calculating the actuarial values for the postretirement
healthcare and life insurance benefits, primarily in the U.S.,
are as follows:

|                                             |                            |                    |            |                    |  |                    |            |               |  |  |            |             | 
|-------------------------------------------- | -------------------------- | ------------------ | ---------- | ------------------ |  | ------------------ | ---------- | ------------- |  |  | ---------- | ----------- | 
|                                             |                            | Year ended         |            | Year ended         |  | Year ended        
|                                             |                            | September 30, 2003 |            | September 30, 2002 |  | September 30, 2001
|                                             |                            |                    |            |                    |  |                   
|Discount rate                                |                            |                    | 6.25%      |                    |  |                    | 7.25%      |               |  |  | 7.5%       |            
|Medical trend rates (initial/ultimate/year): |                            |                    |            |                    |  |                    |            |               |  |  |            |            
|                                             | Medicare ineligible pre-65 |                    |            | 8.33%/5%/2007      |  |                    |            | 9.17%/5%/2007 |  |  |            | 10%/5%/2007 | 
|                                             | Medicare eligible post-65  |                    |            | 8.33%/5%/2007      |  |                    |            | 9.17%/5%/2007 |  |  |            | 10%/5%/2007 | 
|Fixed dollar benefit                         |                            |                    | 6%         |                    |  |                    | 6%         |               |  |  | 5.8%       |            
|Dental trend rates (initial/ultimate/year)   |                            |                    | 6%/5%/2021 |                    |  |                    | 6%/5%/2021 |               |  |  | 6%/5%/2021 |            

F-49



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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 health care assumptions may be significantly
influenced by the expected progression in health care expense. A
one-percentage-point change in the healthcare trend rates would
have the following effects on the accumulated postretirement
benefit obligation and the service and interest cost as of and
for the year ended September 30, 2003:

|                                                            |  |                      |    |          |  |  |     |  
|----------------------------------------------------------- |  | -------------------- | -- | -------- |  |  | --- | -
|                                                            |  |                     
|                                                            |  | September 30, 2003  
|                                                            |  | One-percentage-point
|                                                            |  |                     
|                                                            |  | increase             |    | decrease
|                                                            |  |                      |    |         
|Effect on accumulated postretirement benefit
    obligation |  |                      | 57 |          |  |  | (47 | )
|Effect on total of service and interest cost
    components |  |                      | 8  |          |  |  | (7  | )

Other postretirement benefits: Benefit
payments

Benefit payments for other postretirement
benefits for fiscal year 2003 were
53 (including
17 for domestic
plans) compared to
59 in the
preceding fiscal year (including
21 for domestic
plans). For fiscal 2004, the Company expects benefit payments to
be approximately the same as the fiscal 2003 level. Since the
benefit obligations for other postretirement benefits are
generally not funded, such payments will impact the current
operating cash flow of the Company.

22. Other accruals and
provisions

|                             |  |               |       |      |  |  |       | 
|---------------------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                             |  |              
|                             |  | September 30,
|                             |  |              
|                             |  | 2003          |       | 2002
|                             |  |               |       |     
|Asset retirement obligations |  |               | 495   |      |  |  | 599   | 
|Deferred income              |  |               | 288   |      |  |  | 281   | 
|Product warranties           |  |               | 523   |      |  |  | 460   | 
|Other long-term accruals     |  |               | 2,112 |      |  |  | 2,061 | 
|                             |  |               |       |      |  |  |       | 
|                             |  |               | 3,418 |      |  |  | 3,401 | 
|                             |  |               |       |      |  |  |       | 

The Company is subject to asset retirement
obligations related to certain tangible long-lived assets. Such
asset retirement obligations are primarily attributable to
environmental clean-up costs
(543 as of
September 30, 2003; thereof non-current portion of
460) and to
costs associated with the removal of leasehold improvements at
the end of the lease term
(49 as of
September 30, 2003; thereof non-current portion of
35).

Environmental clean-up costs are mainly related
to remediation and environmental protection liabilities which
have been accrued for the estimated costs of decommissioning
facilities for the production of uranium and mixed-oxide fuel
elements in Hanau, Germany (Hanau facilities) as well as in
Karlstein, Germany (Karlstein facilities). According to the
German Atomic Energy Act, when such a facility is closed, the
resulting radioactive waste must be collected and delivered to a
government-developed final storage facility. In this regard, the
Company has developed a plan to decommission the Hanau and
Karlstein facilities in the following steps: clean-out,
decontamination and disassembly of equipment and installations,
decontamination of the facilities and buildings, sorting of
radioactive materials, and intermediate and final storage of the
radioactive waste. This process will be supported by continuing
engineering studies and radioactive sampling under the
supervision of German federal and state authorities. The
decontamination, disassembly and sorting activities are planned
to continue in Hanau until 2007 and in Karlstein until 2009;
thereafter, the Company is responsible for intermediate storage
of the radioactive materials until a final storage facility is
available. The final location is not expected to be available
before approximately 2030. The ultimate costs of the remediation
are contingent on the decision of the federal government on the
location of the final storage facility and the date of its
availability. Consequently, the accrual is based on a number of
significant estimates and assumptions. The Company does not
expect any

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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)


recoveries from third parties and did not reduce
the accruals for such recoveries. The Company believes that it
has adequately provided for this exposure. The previously
recorded liabilities for such obligations were based on
estimated future cash flows discounted using a risk-free rate.
Therefore, the impact of the adoption of SFAS 143
principally relates to the application of current
credit-adjusted risk-free interest rates. The interest rates for
the environmental liabilities relating to the decommissioning of
the Hanau and Karlstein facilities, previously ranging from
approximately 4% to 5%, have been adjusted to a range from
approximately 3% to 6%. The rates are determined based on the
differing durations of the steps of decommissioning. As of
September 30, 2003 and 2002, the accrual totals
543 and
641,
respectively, and are recorded net of a present value discount
of 1,438 and
1,429,
respectively. The total expected payments for each of the next
five fiscal years and the total thereafter are
46,
48,
51,
54,
12 and
1,770 (includes
1,680 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, 2003, 2002 and 2001
the Company recognized
22,
32 and
33,
respectively, in accretion expense in Other operating income
(expense), net.

The cumulative effect of initially applying
SFAS 143 amounted to a positive
36 (net of
income taxes). Had SFAS 143 been applied as of
September 30, 2002 and 2001 and as of October 1, 2000
the impact on the liability recorded, net income and earnings
per share would not have been material.

The current and non-current portion of asset
retirement obligations developed as follows:

|                                                                                                     |  |               |     |  
|---------------------------------------------------------------------------------------------------- |  | ------------- | --- | -
|                                                                                                     |  | Year ended   
|                                                                                                     |  | September 30,
|                                                                                                     |  | 2003         
|                                                                                                     |  |              
|Aggregate carrying amount as of the beginning of
    the period (thereof current portion of
    93) |  |               | 692 |  
|Effect of adopting SFAS 143, before income taxes                                                     |  |               | (59 | )
|Liabilities incurred in the current period                                                           |  |               | 10  |  
|Liabilities settled in the current period                                                            |  |               | (93 | )
|Accretion Expense                                                                                    |  |               | 25  |  
|Revision in estimated cash flows                                                                     |  |               | 17  |  
|                                                                                                     |  |               |     |  
|Aggregate carrying amount at the end of the
    period (thereof current portion of
    97)          |  |               | 592 |  
|                                                                                                     |  |               |     |  

23. Shareholders equity

Common stock and Additional paid-in
capital

As of September 30, 2003, the Companys
common stock totaled
2,673 divided
into 890,866,301 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, 2002 and 2001, the
Companys common stock totaled
2,671 and
2,665
representing 888,374,001 shares and 888,230,245 shares,
respectively.

F-51



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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 2003, 2002 and 2001:

|                         |                                                          |                         |           |                    |  |                     |         |          |  |           |         |          |   |  |         |          |   |  |         |         |   |  |         |        |  
|------------------------ | -------------------------------------------------------- | ----------------------- | --------- | ------------------ |  | ------------------- | ------- | -------- |  | --------- | ------- | -------- | - |  | ------- | -------- | - |  | ------- | ------- | - |  | ------- | ------ | -
|                         |                                                          |                         |           |                    |  |                    
|                         |                                                          | Common stock            |           | Authorized capital |  | Conditional capital
|                         |                                                          | (authorized and issued) |           | (not issued)       |  | (not issued)       
|                         |                                                          |                         |           |                    |  |                    
|                         |                                                          | in                      |           | in                 |  | in                  |         | in       |  | in        |         | in      
|                         |                                                          | thousands               |           | thousand           |  | thousands           |         | thousand |  | thousands |         | thousand
|                         |                                                          | of                     |           | shares*            |  | of                 |         | shares*  |  | of       |         | shares* 
|                         |                                                          |                         |           |                    |  |                     |         |          |  |           |         |         
|As of October 1, 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  |       
|                         |                                                          |                         |           |                    |  |                     |         |          |  |           |         |          |   |  |         |          |   |  |         |         |   |  |         |       
|                         | Settlement to former SNI shareholders                    |                         |           | 1,477              |  |                     |         | 492      |  |           |         |         |   |  |         |         |   |  |         | (1,477  | ) |  |         | (492   | )
|                         | New approved capital                                     |                         |           |                   |  |                     |         |         |  |           |         | 250,000  |   |  |         | 83,334   |   |  |         | 267,000 |   |  |         | 89,000 |  
|                         | Expired capital                                          |                         |           |                   |  |                     |         |         |  |           |         | (300,000 | ) |  |         | (100,000 | ) |  |         |        |   |  |         |       |  
|                         |                                                          |                         |           |                    |  |                     |         |          |  |           |         |          |   |  |         |          |   |  |         |         |   |  |         |       
|As of September 30, 2003 |                                                          |                         | 2,672,599 |                    |  |                     | 890,866 |          |  |           | 716,630 |          |   |  | 238,877 |          |   |  | 459,616 |         |   |  | 153,206 |       
|                         |                                                          |                         |           |                    |  |                     |         |          |  |           |         |          |   |  |         |          |   |  |         |         |   |  |         |       






|  |                                                                                                                                                                                                                                                                                           
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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, 2000, shares of common
    stock after stock split totaled 882,931.

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 the Companys employee share program (see also
Treasury stockbelow).

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.

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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 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.

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, common 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 2003, 2002 and 2001, common stock
increased by
1,477 thousand,
19 thousand
and
20 thousand,
respectively, through the issuance of 492,300 shares, 6,180
shares and 9,345 shares (7 thousand shares before the stock
split), respectively, from the conditional capital as settlement
to former shareholders of SNI AG.

Authorized and conditional capital

On September 30, 2003, the authorized but
unissued capital of the Company totaled
717 or
238,876,668 common shares.

On September 30, 2002 and 2001, the
authorized but unissued capital of the Company totaled
767 and
773 or
255,543,334 and 257,543,334 common shares, respectively.

Authorized Capital 1998 of
90 and
Authorized Capital 1999 of
210 were
replaced by resolution of the Annual Shareholders Meeting
on January 23, 2003. The Companys shareholders
authorized the Managing Board with the approval of the
Supervisory Board to increase the common stock by up to
250 through the
issuance of up to 83,333,334 shares for which the
shareholders pre-emptive rights are excluded since these
shares will be issued against contribution in kind (Authorized
Capital 2003). The Authorized Capital 2003 will expire on
January 22, 2008.

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 common stock by up to
400 through the
issuance of up to 133,333,334 shares for offer to existing
shareholders until February 1, 2006 (Authorized Capital
2001/I). The Managing Board, with the approval of the
Supervisory Board, is authorized to increase the common stock by
up to 75 through
the issuance of up to 25,000,000 shares until February 1,
2006. The shareholders preemptive rights 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.

By resolution of the Annual Shareholders
Meeting on January 23, 2003, the Managing Board is
authorized to issue bonds in an aggregate principal amount of up
to
5 billion
with conversion rights (convertible bonds) or with warrants
entitling the holders to subscribe to new shares of Siemens AG.
The authorization will expire on December 31, 2007. The
shareholders also approved conditional share capital of
267 for the
issuance of up to 89,000,000 shares to service the exercise of
the conversion or option rights of holders of these convertible
bonds or warrants attached to these bonds (Conditional Capital
2003).

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).

F-53



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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)


Conditional capital of
1 provides for
the settlement offered to former shareholders of SNI AG who had
not tendered their SNI share certificates.

Treasury stock

On January 23, 2003, the Companys
shareholders authorized the Company to repurchase up to 10% of
the 2,671 common
stock.

In fiscal 2003, Siemens repurchased a total of
2,903,150 shares (representing
9 or 0.3% of
common stock) at an average price of
43.84 per share
in addition to the 49,864 shares of treasury stock held at
beginning of the fiscal year. Of these shares, 2,951,830
(representing 9
or 0.3% of common stock) were sold to employees. The majority of
these shares was sold to employees at a preferential price of
29 per share
during the second quarter of fiscal 2003. As of
September 30, 2003, 1,184 shares of stock remained in
treasury with a carrying amount of
52 thousand.

In fiscal 2002, Siemens repurchased 2,297,574
shares, including the 2,000,000 shares relating to the capital
increase from Authorized Capital 2001/II and (representing
7 or 0.3% of
common stock), at an average price of
72.86 per share
in addition to the 1,116 shares of treasury stock held at the
beginning of the fiscal year. Of these shares 2,248,826 were
sold to employees, a majority of which was offered for sale to
employees at a preferential price of
40.39 per share.
As of September 30, 2002, 49,864 shares of stock remained
in treasury with a carrying amount of
4.

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
common 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.

During the years ended September 30, 2003,
2002 and 2001, the Company incurred compensation expense (before
income taxes) of
46,
73 and
65,
respectively, related to the sale of repurchased shares to
employees.

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##### Table of Contents



SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


Other comprehensive income
(loss)

The changes in the components of other
comprehensive income are as follows:

|                                                                             |  |                          |        |        |  |      |     |        |  |        |        |     |  |        |        |        |  |     |       |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  
|---------------------------------------------------------------------------- |  | ------------------------ | ------ | ------ |  | ---- | --- | ------ |  | ------ | ------ | --- |  | ------ | ------ | ------ |  | --- | ----- | - |  |  | ------ | - |  |  | ------ | - |  |  | ----- | - |  |  | ------ | -
|                                                                             |  |                         
|                                                                             |  | Year ended September 30,
|                                                                             |  |                         
|                                                                             |  |                          |        |        |  |     
|                                                                             |  | 2003                     |        | 2002   |  | 2001
|                                                                             |  |                          |        |        |  |     
|                                                                             |  |                          |        | 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                             |  |                          | 334    |        |  |      | (87 | )      |  |        | 247    |     |  |        | (368   | )      |  |     | 128   |   |  |  | (240   | ) |  |  | (1,821 | ) |  |  | 744   |   |  |  | (1,077 | )
|Reclassification adjustments for (gains) losses
    included in net income   |  |                          | 25     |        |  |      | (4  | )      |  |        | 21     |     |  |        | 4      |        |  |     | (3    | ) |  |  | 1      |   |  |  | (209   | ) |  |  | 87    |   |  |  | (122   | )
|                                                                             |  |                          |        |        |  |      |     |        |  |        |        |     |  |        |        |        |  |     |       |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  
|Net unrealized gains (losses) on
    available-for-sale securities           |  |                          | 359    |        |  |      | (91 | )      |  |        | 268    |     |  |        | (364   | )      |  |     | 125   |   |  |  | (239   | ) |  |  | (2,030 | ) |  |  | 831   |   |  |  | (1,199 | )
|Changes in unrealized gains (losses) on
    derivative financial instruments |  |                          |        |        |  |      |     |        |  |        |        |     |  |        |        |        |  |     |       |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  
|Unrealized gains (losses) on derivative financial
    instruments            |  |                          | 179    |        |  |      | (68 | )      |  |        | 111    |     |  |        | 110    |        |  |     | (43   | ) |  |  | 67     |   |  |  | 87     |   |  |  | (41   | ) |  |  | 46     |  
|Reclassification adjustments for (gains) losses
    included in net income   |  |                          | (141   | )      |  |      | 54  |        |  |        | (87    | )   |  |        | (51    | )      |  |     | 20    |   |  |  | (31    | ) |  |  | 12     |   |  |  | (5    | ) |  |  | 7      |  
|                                                                             |  |                          |        |        |  |      |     |        |  |        |        |     |  |        |        |        |  |     |       |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  
|Net unrealized gains (losses) on derivative
    financial instruments        |  |                          | 38     |        |  |      | (14 | )      |  |        | 24     |     |  |        | 59     |        |  |     | (23   | ) |  |  | 36     |   |  |  | 99     |   |  |  | (46   | ) |  |  | 53     |  
|Minimum pension liability                                                    |  |                          | (1,477 | )      |  |      | 499 |        |  |        | (978   | )   |  |        | (2,324 | )      |  |     | 906   |   |  |  | (1,418 | ) |  |  | (6,529 | ) |  |  | 2,541 |   |  |  | (3,988 | )
|Foreign-currency translation adjustment                                      |  |                          | (695   | )      |  |      |    |        |  |        | (695   | )   |  |        | (533   | )      |  |     |      |   |  |  | (533   | ) |  |  | (532   | ) |  |  |      |   |  |  | (532   | )
|                                                                             |  |                          |        |        |  |      |     |        |  |        |        |     |  |        |        |        |  |     |       |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  
|                                                                             |  |                          | (1,775 | )      |  |      | 394 |        |  |        | (1,381 | )   |  |        | (3,162 | )      |  |     | 1,008 |   |  |  | (2,154 | ) |  |  | (8,992 | ) |  |  | 3,326 |   |  |  | (5,666 | )
|                                                                             |  |                          |        |        |  |      |     |        |  |        |        |     |  |        |        |        |  |     |       |   |  |  |        |   |  |  |        |   |  |  |       |   |  |  |        |  

Miscellaneous

Under the German Stock Corporation Act, the
amount of dividends available for distribution to shareholders
is based upon the earnings of Siemens AG as reported in its
statutory financial statements determined in accordance with the
German Commercial Code (Handelsgesetzbuch). During the
fiscal year ended September 30, 2003, Siemens AG management
distributed an ordinary dividend of
888
(1.00 per share)
of the 2002 earnings of Siemens AG as a dividend to the
shareholders. During the years ended September 30, 2002 and
2001, Siemens AG management distributed
888
(1.00 per share)
of the 2001 earnings and
1,412
(1.60 per share)
of the 2000 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.

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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)


24. Commitments and
contingencies

Guarantees and other
commitments

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

|                                       |                                       |               |       |      |  |  |       |       | 
|-------------------------------------- | ------------------------------------- | ------------- | ----- | ---- |  |  | ----- | ----- | 
|                                       |                                       |              
|                                       |                                       | September 30,
|                                       |                                       |              
|                                       |                                       | 2003          |       | 2002
|                                       |                                       |               |       |     
|Discounted bills of exchange           |                                       |               | 61    |      |  |  | 51    |      
|Guarantees                             |                                       |               |       |      |  |  |       |      
|                                       | Credit guarantees                     |               |       | 515  |  |  |       | 945   | 
|                                       | Guarantees of third-party performance |               |       | 559  |  |  |       | 1,678 | 
|                                       | Other guarantees                      |               |       | 704  |  |  |       | 1,960 | 
|                                       |                                       |               |       |      |  |  |       |      
|                                       |                                       |               | 1,778 |      |  |  | 4,583 |      
|                                       |                                       |               |       |      |  |  |       |      
|Collateral for third party liabilities |                                       |               | 10    |      |  |  | 17    |      

Credit guaranteescover the financial obligations of third parties in cases where
Siemens is the vendor and/or contractual partner. These
guarantees generally provide that in the event of default or
non-payment by the primary debtor, Siemens will be required to
pay such financial obligations. In addition, Siemens provides
credit guarantees generally as credit-line guarantees with
variable utilization to associated and related companies. The
maximum amount of these guarantees is subject to the outstanding
balance of the credit or, in case where a credit line is subject
to variable utilization, the nominal amount of the credit line.
These guarantees usually have terms of between one year and five
years. Except for statutory recourse provisions against the
primary debtor, credit guarantees are generally not subject to
additional contractual recourse provisions. In connection with
the formation of Infineon as a separate legal entity, Siemens
had guarantees relating to business obligations of Infineon that
could not be transferred to Infineon for legal, technical or
practical reasons. With respect to such guarantees, as of
September 30, 2002, Credit guarantees include
61 (that expired
in fiscal 2003), for which Siemens had guaranteed the
indebtedness of ProMOS, a subsidiary of Infineon. As of
September 30, 2003, the Company has accrued
125 relating to
credit guarantees compared to
191 at
September 30, 2002.

Furthermore, Siemens issues Guarantees of
third-party performance, which include performance bonds and
guarantees of advanced payments in cases where Siemens is the
general or subsidiary partner in a consortium. In the event of
non-fulfillment of contractual obligations by the consortium
partner(s), Siemens will be required to pay up to an agreed-upon
maximum amount. These agreements span the term of the contract,
typically ranging from three months to five years. Generally,
consortium agreements provide for fallback guarantees as a
recourse provision among the consortium partners. In actual
practice, such guarantees are rarely drawn and therefore no
significant liability has been recognized in connection with
these guarantees. As of September 30, 2002, Guarantees
of third-party performance also include a guarantee of
767 (which
expired in fiscal 2003) related to commitments of Siemens
formerly owned defense electronics business, which was sold in
1998.

Other guaranteesinclude indemnifications issued in connection with dispositions
of business entities. Such indemnifications protect the buyer
from tax, legal and other risks related to the purchased
business entity. As of September 30, 2002, Other
guarantees also include a guarantee for Infineon totaling
313 (which
expired in fiscal 2003) with respect to contingent liabilities
for government grants previously received. As of
September 30, 2003 and September 30, 2002, the total
accruals for Other guarantees amounted to
196 and
284,
respectively.

As of September 30, 2003, the amount
recognized for the non-contingent component of guarantees
entered into after December 31, 2002 (see Note 2) was
not significant.

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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, 2003, future payment
obligations under non-cancellable operating leases are as
follows:

|           |  |  |     | 
|---------- |  |  | --- | 
|2004       |  |  | 473 | 
|2005       |  |  | 427 | 
|2006       |  |  | 393 | 
|2007       |  |  | 319 | 
|2008       |  |  | 277 | 
|Thereafter |  |  | 945 | 

The total operating rental expense for the years
ended September 30, 2003, 2002 and 2001 was
530,
328 and
279,
respectively.

As of September 30, 2003, the Company has
commitments to make capital contributions of
256 to other
companies.

The Company is jointly and severally liable and
has capital contribution obligations as a partner in companies
formed under the German Civil Code (BGB), through which it has
executed profit-and-loss transfer agreements with other
companies as a partner in commercial partnerships and in a
European Economic Interest Grouping (EEIG) and as a participant
in various consortiums.

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

25. Derivative instruments and hedging
activities

As part of the Companys risk management
program, a variety of derivative financial instruments are used
to reduce risks resulting primarily from fluctuations in
foreign-currency exchange rates and interest rates as well as to
reduce credit risks. The following is a summary of Siemens
risk management strategies and the effect of these strategies on
the Consolidated Financial Statements.

Foreign currency exchange risk
management

Siemens significant international
operations expose the Company to significant foreign-currency
exchange risks in the ordinary course of business. The Company
employs various strategies discussed below involving the use of
derivative financial instruments to mitigate or eliminate
certain of those exposures.

Derivative financial instruments not
designated as hedges

The Company manages its risks associated with
fluctuations in foreign-currency-denominated receivables,
payables, debt, firm commitments and anticipated transactions
primarily through a Company-wide portfolio approach. This
approach concentrates the associated Company-wide risks
centrally, and various derivative financial instruments,
primarily foreign exchange contracts and, to a lesser extent,
interest rate and cross-currency interest rate swaps and
options, are utilized to minimize such risks. Such a strategy
does not qualify for hedge

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


accounting treatment under SFAS 133.
Accordingly, all such derivative financial instruments are
recorded at fair value on the Consolidated Balance Sheets as
either an Other current 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 Consolidated Statements of Income.

Hedging activities

The Companys operating units applied hedge
accounting for certain significant anticipated transactions and
firm commitments denominated in foreign currencies.
Specifically, the Company entered into foreign exchange
contracts to reduce the risk of variability of future cash flows
resulting from forecasted sales and purchases and firm
commitments resulting from its business units entering into
long-term contracts (project business) which are denominated
primarily in U.S. dollars.

Cash flow
hedgesChanges in fair value of
forward exchange contracts that were designated as
foreign-currency cash flow hedges are recorded in Accumulated
other comprehensive income (loss) as a separate component of
shareholders equity. During the years ended
September 30, 2003, 2002 and 2001, net gains (losses) of
40,
 and
(1),
respectively, were reclassified from accumulated other
comprehensive income (loss) into cost of sales because the
occurrence of the related hedged forecasted transaction was no
longer probable. During the years ended September 30, 2003,
2002 and 2001, net gains (losses) of
5,
(3) and
(2),
respectively, were recognized in cost of sales representing
hedge ineffectiveness of derivative contracts.

It is expected that
89 of net
deferred gains in Accumulated other comprehensive income
(loss) will be reclassified into earnings during the year
ended September 30, 2004 when the hedged forecasted
foreign-currency denominated sales and purchases occur.

As of September 30, 2003, the maximum length
of time over which the Company is hedging its future cash flows
associated with foreign-currency forecasted transactions is
65 months.

Fair value
hedgesAs of September 30,
2003, the Company hedged firm commitments using forward exchange
contracts that were designated as foreign-currency fair value
hedges of future sales related primarily to the Companys
project business and, to a lesser extent, purchases. The hedging
transactions resulted in the recognition of an Other current
asset of 21
(2002: 13) and
Other current liability of
25 (2002:
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 year ended September 30, 2003, a net loss of
13 was
recognized in cost of sales because the hedged firm commitment
no longer qualified as a fair value hedge (no such gains or
losses were recorded in fiscal 2002 and 2001). During the years
ended September 30, 2003, 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, options and, to a lesser extent,
cross-currency interest rate swaps and interest rate futures.

Interest rate swap agreements are used to adjust
the proportion of total debt, and to a lesser extent
interest-bearing investments, that are subject to variable and
fixed interest rates. Under an interest rate swap agreement, the
Company either agrees to pay an amount equal to a specified
variable rate of interest times a notional

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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.

Fair value hedges of fixed-rate debt
obligations

Under the interest rate swap agreements
outstanding during the years ended September 30, 2003 and
2002, the Company agrees to pay a variable rate of interest
multiplied by a notional principle amount, and receive in return
an amount equal to a specified fixed rate of interest multiplied
by the same notional principal amount. These interest rate swap
agreements offset an impact of future changes in interest rates
on the fair value of the underlying fixed-rate debt obligations.
The interest rate swap contracts are reflected at fair value in
the Companys Consolidated Balance Sheet and the related
portion of fixed-rate debt being hedged is reflected at an
amount equal to the sum of its carrying amount plus an
adjustment representing the change in fair value of the debt
obligations attributable to the interest rate risk being hedged.
Changes in the fair value of interest rates swap contracts, and
the offsetting changes in the adjusted carrying amount of the
related portion of fixed-rate debt being hedged, are recognized
as adjustments to the line item Income 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 2.3% and 3.3% as
of September 30, 2003 and 2002, respectively) and receive
fixed rates of interest (average rate of 4.9% and 5.1% as of
September 30, 2003 and 2002, respectively). The notional
amount of indebtedness hedged as of September 30, 2003 and
2002 was 5,153
and 6,146,
respectively. This resulted in 52% and 66% of the Companys
underlying notes and bonds being subject to variable interest
rates as of September 30, 2003 and 2002, 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, 2003 and 2002 was
309 and
305,
respectively. During the years ended September 30, 2003,
2002 and 2001, net gains of
13,
2 and
,
respectively, on the interest rate swaps was recognized in
Income from financial assets and marketable securities,
net 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.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


26. Fair value of financial
instruments

The fair value of a financial instrument
represents the amount at which the instrument could be exchanged
in a current transaction between willing parties, other than in
a forced sale or liquidation. In determining the fair values of
the derivative financial instruments, certain compensating
effects from underlying transactions (e.g., firm commitments and
anticipated transactions) are not taken into consideration.

Derivative financial
instruments

The Company enters into derivative financial
instruments with various counterparties, principally financial
institutions with investment grade credit ratings.

Derivative interest rate
contractsThe fair values of
derivative interest rate contracts (e.g., interest rate swap
agreements) are estimated by discounting expected future cash
flows using current market interest rates and yield curve over
the remaining term of the instrument. Interest rate options are
valued on the basis of quoted market prices or on estimates
based on option pricing models.

Derivative currency
contractsThe fair value of
forward foreign exchange contracts is based on forward exchange
rates. Currency options are valued on the basis of quoted market
prices or on estimates based on option pricing models.

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, 2003, the Companys
derivative financial instruments had a net fair value of
757 (2002:
398) and were
recorded on the Consolidated Balance Sheets as Other current
assets of
1,020 (2002:
623) and
Other current liabilities of
263 (2002:
225).

Non-derivative financial
instruments

The fair values for non-derivative financial
instruments are determined as follows: Fair value of cash and
cash equivalents, short-term receivables, accounts payable,
additional liabilities and commercial paper and borrowings under
revolving credit facilities approximate their carrying amount
due to the short-term maturities of these instruments.

Financial assets and
securities

Fair values for marketable securities and
publicly traded long-term equity investments are derived from
quoted market prices. It is not practicable to estimate the fair
value of the Companys long-term investments which are not
publicly traded, as there are no readily available market
prices. The following table presents the fair value (if readily
available) and carrying amount of long-term investments:

|                |  |               |       |      |  |  |       | 
|--------------- |  | ------------- | ----- | ---- |  |  | ----- | 
|                |  |              
|                |  | September 30,
|                |  |              
|                |  | 2003          |       | 2002
|                |  |               |       |     
|Fair value      |  |               | 7,049 |      |  |  | 4,238 | 
|Carrying amount |  |               | 5,992 |      |  |  | 5,092 | 

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

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


losses of these receivables. As such, as of
September 30, 2003 and 2002, 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, 2003 and 2002, the fair value and carrying
amount of debt is as follows:

|                |  |               |        |      |  |  |        | 
|--------------- |  | ------------- | ------ | ---- |  |  | ------ | 
|                |  |              
|                |  | September 30,
|                |  |              
|                |  | 2003          |        | 2002
|                |  |               |        |     
|Fair value      |  |               | 13,533 |      |  |  | 12,284 | 
|Carrying amount |  |               | 13,178 |      |  |  | 12,346 | 

27. 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.

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.

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

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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.

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.

Additionally, Supervisory Board members receive
stock appreciation rights under the same conditions as the
Siemens Stock Option Plans (for further information see
Note 29).

Details on option activity and weighted average
exercise prices are as follows. On November 24, 2000, the
Supervisory Board and the Managing Board granted options
exercisable to 1,513 key executives under the 1999 Plan for
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 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. On November 14, 2002, the Supervisory Board
and Managing Board granted options to 5,814 key executives for
9,397,005 shares with an exercise price of
53.70 of which
options for 345,000 shares were granted to the Managing Board.

The options and exercise prices below have been
restated to reflect the stock split:

|                                 |  |                          |            |                  |  |         |        |                  |  |         |            |                  |  |  |        |  |  |  |           |   |  |  |        | 
|-------------------------------- |  | ------------------------ | ---------- | ---------------- |  | ------- | ------ | ---------------- |  | ------- | ---------- | ---------------- |  |  | ------ |  |  |  | --------- | - |  |  | ------ | 
|                                 |  |                         
|                                 |  | Year ended September 30,
|                                 |  |                         
|                                 |  |                          |            |                  |  |        
|                                 |  | 2003                     |            | 2002             |  | 2001   
|                                 |  |                          |            |                  |  |        
|                                 |  |                          |            | Weighted average |  |         |        | Weighted average |  |         |            | Weighted average
|                                 |  | Options                  |            | exercise price   |  | Options |        | exercise price   |  | Options |            | exercise price  
|                                 |  |                          |            |                  |  |         |        |                  |  |         |            |                 
|Outstanding, beginning of period |  |                          | 11,648,767 |                  |  |         | 82.85 |                  |  |         | 4,963,672  |                  |  |  | 76.01 |  |  |  | 1,826,276 |   |  |  | 57.73 | 
|Granted                          |  |                          | 9,397,005  |                  |  |         | 53.70 |                  |  |         | 7,357,139  |                  |  |  | 87.19 |  |  |  | 3,260,391 |   |  |  | 86.23 | 
|Options exercised                |  |                          |           |                  |  |         |      |                  |  |         | (139,826   | )                |  |  | 57.73 |  |  |  |          |   |  |  |       | 
|Options forfeited                |  |                          | (634,896   | )                |  |         | 70.28 |                  |  |         | (532,218   | )                |  |  | 85.77 |  |  |  | (122,995  | ) |  |  | 76.01 | 
|                                 |  |                          |            |                  |  |         |        |                  |  |         |            |                  |  |  |        |  |  |  |           |   |  |  |        | 
|Outstanding, end of period       |  |                          | 20,410,876 |                  |  |         | 69.82 |                  |  |         | 11,648,767 |                  |  |  | 82.85 |  |  |  | 4,963,672 |   |  |  | 76.01 | 
|                                 |  |                          |            |                  |  |         |        |                  |  |         |            |                  |  |  |        |  |  |  |           |   |  |  |        | 
|Exercisable, end of period       |  |                          | 4,573,058  |                  |  |         | 76.36 |                  |  |         | 1,617,899  |                  |  |  | 57.73 |  |  |  |          |   |  |  |       | 

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The following table summarizes information on
stock options outstanding and exercisable at September 30,
2003:

|                    |        |                     |  |                |           |                  |  |             |   |                  |  |  |        |  |  |  |           |  |  |  |        | 
|------------------- | ------ | ------------------- |  | -------------- | --------- | ---------------- |  | ----------- | - | ---------------- |  |  | ------ |  |  |  | --------- |  |  |  | ------ | 
|                    |        |                    
|Options outstanding |        | Options exercisable
|                    |        |                    
|                    |        | Weighted average    |  |                |           |                 
|                    |        | Options             |  | remaining life |           | Weighted average |  | Number      |   | Weighted average
|Exercise prices     |        | outstanding         |  | (years)        |           | exercise price   |  | exercisable |   | exercise price  
|                    |        |                     |  |                |           |                  |  |             |   |                 
|                    | 53.70 |                     |  |                | 9,108,875 |                  |  |             | 4 |                  |  |  | 53.70 |  |  |  |          |  |  |  |       | 
|                    | 57.73 |                     |  |                | 1,583,674 |                  |  |             | 3 |                  |  |  | 57.73 |  |  |  | 1,583,674 |  |  |  | 57.73 | 
|                    | 86.23 |                     |  |                | 2,989,384 |                  |  |             | 4 |                  |  |  | 86.23 |  |  |  | 2,989,384 |  |  |  | 86.23 | 
|                    | 87.19 |                     |  |                | 6,728,943 |                  |  |             | 3 |                  |  |  | 87.19 |  |  |  |          |  |  |  |       | 

Fair value information

The Companys determination of the fair
value of grants is based on the Black-Scholes option pricing
model. The fair value prior to the stock split for the second
tranche of the 1999 Plan in November 2000 was
38.11. The fair
value of grants made during the years ended September 30,
2003, 2002 and 2001, restated for the stock split are as follows:

|                                                           |  |                           |        |      |  |      |        |   |  |  |        |  
|---------------------------------------------------------- |  | ------------------------- | ------ | ---- |  | ---- | ------ | - |  |  | ------ | -
|                                                           |  |                          
|                                                           |  | Assumptions at grant date
|                                                           |  |                          
|                                                           |  | 2003                      |        | 2002 |  | 2001
|                                                           |  |                           |        |      |  |     
|Risk-free interest rate                                    |  |                           | 3.31   | %    |  |      | 4.12   | % |  |  | 5.0    | %
|Expected dividend yield                                    |  |                           | 2.23   | %    |  |      | 1.41   | % |  |  | 2.59   | %
|Expected volatility                                        |  |                           | 53.49  | %    |  |      | 62.55  | % |  |  | 50.00  | %
|Expected option life                                       |  |                           | 3 yrs. |      |  |      | 4 yrs. |   |  |  | 4 yrs. |  
|Estimated weighted average fair value per option           |  |                           | 9.80  |      |  |      | 23.36 |   |  |  | 25.41 |  
|Fair value of total options granted during fiscal
    year |  |                           | 92    |      |  |      | 172   |   |  |  | 83    |  

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.

28. Personnel costs

|                                                                                      |  |                          |        |      |  |      |        |  |  |  |        | 
|------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                                                                                      |  |                         
|                                                                                      |  | Year ended September 30,
|                                                                                      |  |                         
|                                                                                      |  | 2003                     |        | 2002 |  | 2001
|                                                                                      |  |                          |        |      |  |     
|Wages and salaries                                                                    |  |                          | 20,740 |      |  |      | 22,639 |  |  |  | 23,028 | 
|Statutory social welfare contributions and
    expenses for optional support payments |  |                          | 3,573  |      |  |      | 3,592  |  |  |  | 3,673  | 
|Expenses relating to pension plans and employee
    benefits                          |  |                          | 1,439  |      |  |      | 964    |  |  |  | 401    | 
|                                                                                      |  |                          |        |      |  |      |        |  |  |  |        | 
|                                                                                      |  |                          | 25,752 |      |  |      | 27,195 |  |  |  | 27,102 | 
|                                                                                      |  |                          |        |      |  |      |        |  |  |  |        | 

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


The average number of employees in fiscal year
2003 and 2002 was 419,300 and 445,100, 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:

|                                    |  |               |         |      |  |  |         | 
|----------------------------------- |  | ------------- | ------- | ---- |  |  | ------- | 
|                                    |  |              
|                                    |  | September 30,
|                                    |  |              
|                                    |  | 2003          |         | 2002
|                                    |  |               |         |     
|Manufacturing                       |  |               | 184,900 |      |  |  | 183,400 | 
|Sales and marketing                 |  |               | 132,100 |      |  |  | 146,700 | 
|Research and development            |  |               | 45,700  |      |  |  | 55,700  | 
|Administration and general services |  |               | 56,600  |      |  |  | 59,300  | 
|                                    |  |               |         |      |  |  |         | 
|                                    |  |               | 419,300 |      |  |  | 445,100 | 
|                                    |  |               |         |      |  |  |         | 

29. Additional information relating to
Board members

Supervisory Board

The remuneration of members of the Supervisory
Board is established by the Annual Shareholders Meeting
upon the proposal of the Managing and Supervisory Boards.
Details are set forth in Section 17 of the Articles of
Association of Siemens AG. The remuneration includes a fixed and
a dividend-related component. The chairman of the Supervisory
Board receives twice and each deputy chairman receives
1.5 times the annual compensation rates of a simple member.
On the basis of the authorization by the Annual
Shareholders Meeting on January 23, 2003, members of
the Audit Committee receive an additional 50 percent while
the chairman of the Audit Committee receives an additional
100 percent of the compensation rate of a simple member. In
addition, each member of the Supervisory Board receives annually
1,500 stock appreciation rights (SARs) granted on the same
terms as options issued under the Siemens Stock Option Plan in
effect at the time.

The remuneration of the members of the
Supervisory Board amounts to
1.8,
1.3 and
1.3 for the
years ended September 30, 2003, 2002 and 2001, respectively.

In addition, each member of the Supervisory Board
received 1,500 stock appreciation rights (SAR)s 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 2003 (in November 2002), fiscal 2002 and 2001 of
0.3,
0.7 and
0.8,
respectively. For each member of the Supervisory Board, the fair
value of these SARs was
15 thousand,
35 thousand and
38 thousand,
respectively (see Note 27).

Remuneration of the members of the Supervisory
Board including stock appreciation rights at fair value as of
the grant date amounts to
2.1,
2.0 and
2.1 for the
years ended September 30, 2003, 2002 and 2001, respectively.

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

After the Annual Shareholders Meeting 2003,
the Company renewed a contract with Mr. Peter von Siemens,
whereas Mr. Peter von Siemens, as a representative of the
founders family, represents the Company at home as well as
abroad and in various associations. The contract grants him a
reimbursement of his expenses and he is entitled to a company
car and secretarial services.

Managing Board

The Chairmans Committee of the Supervisory
Board is responsible for determining the remuneration of members
of the Managing Board. The remuneration takes into consideration
the Companys size and global presence, its economic and
financial position, and the level and structure of managing
board compensation at peer

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


group companies in Germany and abroad.
Furthermore, the remuneration is performance related and has
three components: a fixed salary, a variable bonus, and a
stock-based compensation. A significant portion of the goals for
the members of the Corporate Executive Committee is tied to
Company-wide economic value added (EVA) performance while for
the remaining members of the Managing Board their financial
goals depend primarily on the performance of the Group led by
them. For fiscal 2003, an additional achievement of an ambitious
target for net cash from operating and investing activities had
been set. One-half of the variable bonus is paid as an annual
bonus while the other half is granted as a long-term bonus. The
annual bonus is contingent upon achieving the EVA target
established for the fiscal year. The long-term bonus depends on
the average attainment of EVA targets over a three-year period.
As stock-based compensation, members of the Managing Board
receive stock options under the Siemens Stock Option Plans
authorized by the Annual Shareholders Meeting. The number
of share granted for each member of the Managing Board is
performance-related and determined annually. For more
information relating to the conditions of the Siemens Stock
Option Plans, see Note 27.

The remuneration of the members of the Managing
Board comprised the following:

|                                                                   |  |                          |      |      |  |      |      |  |  |  |      | 
|------------------------------------------------------------------ |  | ------------------------ | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|                                                                   |  |                         
|                                                                   |  | Year ended September 30,
|                                                                   |  |                         
|                                                                   |  | 2003                     |      | 2002 |  | 2001
|                                                                   |  |                          |      |      |  |     
|Base salary                                                        |  |                          | 6.5  |      |  |      | 4.9  |  |  |  | 4.9  | 
|Other fixed compensation                                           |  |                          | 1.2  |      |  |      | 0.7  |  |  |  | 0.8  | 
|Annual bonus                                                       |  |                          | 12.6 |      |  |      | 9.8  |  |  |  | 2.9  | 
|Long-term bonus                                                    |  |                          | 7.9  |      |  |      | 3.0  |  |  |  | 2.8  | 
|Additional payment for the acquisition of shares
    of Siemens AG |  |                          |     |      |  |      | 0.1  |  |  |  | 1.5  | 
|                                                                   |  |                          |      |      |  |      |      |  |  |  |      | 
|Total cash compensation                                            |  |                          | 28.2 |      |  |      | 18.5 |  |  |  | 12.9 | 
|Fair value of total options received at grant date                 |  |                          | 3.4  |      |  |      | 3.5  |  |  |  | 4.1  | 
|                                                                   |  |                          |      |      |  |      |      |  |  |  |      | 
|Total remuneration                                                 |  |                          | 31.6 |      |  |      | 22.0 |  |  |  | 17.0 | 
|                                                                   |  |                          |      |      |  |      |      |  |  |  |      | 

Other fixed
compensationrelates to non-cash
benefits for company cars, accommodation allowances, social
welfare contributions subsidies (or for corresponding direct
insurances of the Company) and remunerations for memberships in
Supervisory Boards of affiliated companies. Additional payment
for the acquisition of shares of Siemens AG for the years ended
September 30, 2002 and 2001 relates to the remaining amount
of fiscal 2001 remuneration component 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 until the
holder leaves the Managing Board.

Also, in fiscal 2003, 2002 and 2001, the members
of the Managing Board received 345,000, 151,000 and 160,500,
respectively, of stock options under the 1999 and 2001 Siemens
Stock Option Plan. The fair value per option at grant date was
9.80,
23.36 and
25.41,
respectively. Accordingly, the total value of stock options
granted to members of the Managing Board amounted to
3.4,
3.5 and
4.1,
respectively (for more information relating to the conditions of
the Siemens Stock Option Plans, see Note 27).

Pension commitments to current members of the
Managing Board are covered by Siemens AG. As of
September 30, 2003 and 2002, accruals of
42.3 and
37.0,
respectively, have been recorded. Such amounts are included in
the amounts disclosed in Note 21.

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

Former members of the Managing Board and their
surviving dependents received pensions and transitional payments
of 12.5,
11.2 and
13.2 for the
years ended September 30, 2003, 2002 and 2001,
respectively. Members of the Managing Board, which were
appointed to the Managing Board before October 1, 2002,
have the

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


contractually accorded right to receive
transitional payments after leaving the Managing Board. The
transitional payments generally amount to the fixed salary of
the year of resignation and the average of bonus paid for the
last three fiscal years before resignation. In single cases, the
transitional payments equal a one-year target
compensation. If a member of the Managing Board resigns
early from office, the member has the right to receive a
severance payment which amounts to the target
compensation for the remaining period of service.

Pension commitments to former members of the
Managing Board and their surviving dependents are also covered
by Siemens AG. As of September 30, 2003 and 2002, accruals
of 106.4 and
106.2,
respectively, have been recorded. Such amounts are included in
the amounts disclosed in Note 21.

Share ownership

As of October 25, 2003, the fiscal 2003
members of the Managing and Supervisory Boards hold 690,229 and
13,998, respectively, shares and options representing 0.077% and
0.002%, respectively, of Siemens total shares outstanding.
These amounts do not include 16,736,966 shares representing 2%
of outstanding share capital that is held by the von
Siemens-Vermögensverwaltung GmbH (vsV), and the 38,877,285
shares representing approximately 4% 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.

According to §15a WpHG, members of the
Supervisory and Managing Boards have to disclose acquisitions
and sales of shares of Siemens AG or of rights with respect
to these shares, if shares or rights are not part of the
compensation and provided the transactions exceed the threshold
set forth in the WpHG. In fiscal 2003, none of those
transactions were reported.

Directors and officers (D&O) liability
insurance

The Company provides a D&O insurance policy
for all members of the Supervisory and Managing Boards of
Siemens AG as well as for all board members of its subsidiaries.
This worldwide group insurance policy is renewed annually and
expires September 30, 2004. The insurance covers the
personal liability of the insured in the case of a financial
loss associated to employment functions. There is no deductible
for Managing Board and Supervisory Board member in terms of Code
Section 3.8, paragraph 2 of the German Corporate
Governance Code. It is not considered appropriate to
differentiate between board members and other high-level
personnel. Furthermore, such a deductible is not common outside
Germany.

Related party transactions

Certain of the board members of Siemens AG hold
or in the last fiscal year have held positions of significant
responsibility with other entities. The Company has
relationships with almost all of these entities in the ordinary
course of business, whereby it buys and sells a wide variety of
products and services at arms length. Significant are the
relationships with Deutsche Bank AG. Dr. Josef Ackermann is
the Spokesman of the Managing Board of Deutsche Bank AG. The
Companys transactions with Deutsche Bank AG include
securities underwritings, other investment banking services, and
credit, money market and foreign exchange business.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


30. Earnings per share

|                                            |                                  |                          |         |      |  |      |         |    |  |  |         |     | 
|------------------------------------------- | -------------------------------- | ------------------------ | ------- | ---- |  | ---- | ------- | -- |  |  | ------- | --- | 
|                                            |                                  |                         
|                                            |                                  | Year ended September 30,
|                                            |                                  |                         
|                                            |                                  | 2003                     |         | 2002 |  | 2001
|                                            |                                  |                          |         |      |  |     
|                                            |                                  |                         
|                                            |                                  | (shares in thousands)   
|Net income                                  |                                  |                          | 2,445   |      |  |      | 2,597   |    |  |  | 2,088   |    
|Weighted average shares outstandingbasic   |                                  |                          | 889,988 |      |  |      | 889,539 |    |  |  | 885,658 |    
|                                            | Effect of dilutive stock options |                          |         |     |  |      |         | 92 |  |  |         | 270 | 
|                                            |                                  |                          |         |      |  |      |         |    |  |  |         |    
|Weighted average shares outstandingdiluted |                                  |                          | 889,988 |      |  |      | 889,631 |    |  |  | 885,928 |    
|Basic earnings per share                    |                                  |                          | 2.75    |      |  |      | 2.92    |    |  |  | 2.36    |    
|Diluted earnings per share                  |                                  |                          | 2.75    |      |  |      | 2.92    |    |  |  | 2.36    |    

Fiscal 2003 earnings per share amounts are
reported after cumulative effects of a change in accounting
principles. Basic earnings per share and diluted earnings per
share before cumulative effects of a change in accounting
principle amounted to
2.71 and
2.71,
respectively, for the year ended September 30, 2003.

31. Segment information

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

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

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

The results of operations of Infineon for the
first two months of the fiscal year 2002 are included in
Eliminations, reclassifications and Corporate Treasury.
Siemens at-equity share in Infineons results is
shown under Operations (see below Reconciliation to
financial statements).

The accounting policies of these components, as
well as the Groups included, are generally the same as those
used for Siemens worldwide and are described in the
Summary of significant accounting policies (Note 2).
Corporate overhead is generally not allocated to segments.
Intersegment transactions are generally based on market prices.

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

Operations

The Managing Board is responsible for assessing
the performance of the Operations Groups. The
Companys profitability measure for its Operations
Groups is earnings before financing interest, certain pension
costs, and income taxes (Group profit) as determined by the
Managing Board as the chief operating decision maker (see
discussion below). The previously used term EBIT was
retitled, however the definition remained

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


unchanged. In fiscal year 2001, goodwill
amortization of
539 and
IPR&D of 126
was excluded from Group profit. In fiscal 2003 and 2002, the
Company did not incur IPR&D expenses.

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

Similarly, decision-making regarding essential
pension items is done centrally. As a consequence, Group profit
includes only amounts related to the service cost of foreign
pension plans, while all other pension related costs (including
charges for the German pension insurance association and plan
administration costs) are included in the line item Corporate
items, pensions and eliminations. Until March 31, 2001,
the service cost component of domestic net periodic pension cost
was included in the measure of Group profitability. Beginning
April 2001, management decided to discontinue the allocation of
the service cost component of domestic pension costs to the
Operations Groups. 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. Group profit
of the operating Groups for fiscal year 2003 and 2002 would have
been 235 and
78,
respectively, lower if net periodic pension costs were allocated
in the same manner as in fiscal 2001.

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

Earnings (losses) from equity investees included
in Group profit for the years ended September 30, 2003,
2002 and 2001 of Operations Groups were
16,
37 and
1, respectively,
at ICN; 2,
(20) and
6, respectively,
at ICM; 84,
44 and
33,
respectively, at PG; and
21,
29 and
28,
respectively, in the other Operations Groups.

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

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

Other operationsprimarily refers to operating activities not associated with a
Group and certain centrally-held equity investments (such as BSH
Bosch und Siemens Hausgeräte GmbH), but excluding the
equity investment in Infineon, which is not considered under an
operating perspective since Siemens intends to divest its
remaining interest in Infineon over time.

Reconciliation to financial
statements

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

Corporate itemsincludes corporate charges such as personnel costs for corporate
headquarters, the results of corporate-related derivative
activities as well as corporate projects and non-operating
investments including the Companys share of earnings
(losses) from the equity investment in Infineon. Pensions
include the Companys pension related income (expenses) not
allocated to the Groups and consists of all pension related
costs, other than

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


amounts related to the service cost of foreign
pension plans. Eliminations represent the consolidation
of transactions within the Operations component.

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

|                |  |                          |        |      |  |      |        |   |  |  |      |  
|--------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ | - |  |  | ---- | -
|                |  |                         
|                |  | Year ended September 30,
|                |  |                         
|                |  | 2003                     |        | 2002 |  | 2001
|                |  |                          |        |      |  |     
|Corporate items |  |                          | (747   | )    |  |      | (947   | ) |  |  | (566 | )
|Pensions        |  |                          | (828   | )    |  |      | (250   | ) |  |  | 279  |  
|Eliminations    |  |                          | (1     | )    |  |      | (85    | ) |  |  | (201 | )
|                |  |                          |        |      |  |      |        |   |  |  |      |  
|                |  |                          | (1,576 | )    |  |      | (1,282 | ) |  |  | (488 | )
|                |  |                          |        |      |  |      |        |   |  |  |      |  

In fiscal 2003, Corporate items include
170,
representing Siemens at-equity share in the net loss
incurred by Infineon. Fiscal 2003 also includes the positive
resolution of an arbitration proceeding as well as reduced
corporate costs. Corporate items for the fiscal year
ended September 30, 2002, includes negative
338 related to
the Companys share in the net loss of Infineon and the
gain on the sale of two centrally-held investments totaling
133 and charges
of 146 related
to the sale of a portfolio of businesses to KKR (see
Note 3). The transaction in the fourth quarter of 2002 was
effected as a sale of a portfolio of businesses that resulted in
a net gain of
21. However,
separate results were allocated to the operating segments where
the sold businesses had previously resided. As a result, ICN and
PG were allocated gains of
153 and
68,
respectively, while PTD was allocated a loss of
54. The
allocated values are based on amounts stated in the sales
contracts and are not necessarily indicative of their actual
fair values. In addition, Corporate items for fiscal 2002
includes charges of
70 relating to
the write-off of centrally held investments. For the year ended
September 30, 2001, Corporate items includes the
loss on the sale of a domestic equity and debt security fund of
209, as well as
gains on sales of available-for-sale securities of
227. In
addition, fiscal 2001 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. Also included is a gain of
114 related to
currency effects and the treatment of derivative contracts not
qualifying for hedge accounting as well as a positive resolution
of certain asset disposal contingencies of
162.

Pensionsfor fiscal
2003 and 2002 were negatively affected by changes in pension
trust net asset values and lower return assumptions. In
addition, fiscal 2003 was impacted by increased amortization
expense primarily related to the underfunding of the
Companys pension trusts. For more information related to
the Companys pension plans, see Note 21.

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

Under Goodwill amortization and purchased
in-process R&D expenses only amounts are shown which
were not included in Group profit of fiscal 2001.

For fiscal 2002, Gains on sales and
dispositions of significant business interests 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.

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. This
contract was originally entered into by SBS.

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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

|                                                                                                              |  |               |         |      |  |  |         |  
|------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | ---- |  |  | ------- | -
|                                                                                                              |  |              
|                                                                                                              |  | September 30,
|                                                                                                              |  |              
|                                                                                                              |  | 2003          |         | 2002
|                                                                                                              |  |               |         |     
|Total assets of Operations                                                                                    |  |               | 64,475  |      |  |  | 67,699  |  
|Asset-based adjustments                                                                                       |  |               |         |      |  |  |         |  
|Intracompany financing receivables and investments                                                            |  |               | (11,931 | )    |  |  | (14,127 | )
|Tax related assets                                                                                            |  |               | (4,373  | )    |  |  | (4,350  | )
|Liability-based adjustments                                                                                   |  |               |         |      |  |  |         |  
|Pension plans and similar commitments                                                                         |  |               | (5,813  | )    |  |  | (5,299  | )
|Accruals                                                                                                      |  |               | (6,022  | )    |  |  | (6,690  | )
|Liabilities to third parties                                                                                  |  |               | (20,394 | )    |  |  | (21,478 | )
|Total adjustments (line item Other assets related
    reconciling items within the Segment Information table) |  |               | (48,533 | )    |  |  | (51,944 | )
|Net capital employed of Corporate items, pensions
    and eliminations                                        |  |               | 3,781   |      |  |  | 3,021   |  
|                                                                                                              |  |               |         |      |  |  |         |  
|Net capital employed of Operations Groups                                                                     |  |               | 19,723  |      |  |  | 18,776  |  
|                                                                                                              |  |               |         |      |  |  |         |  

Infineon

Earnings from equity investees included in EBIT
at Infineon were
32 for the year
ended September 30, 2001.

Financing and Real Estate

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

For the years ended September 30, 2003, 2002
and 2001, Income before income taxes at SFS includes
interest revenue of
445,
510 and
603,
respectively, and interest expense of
253,
310 and
404,
respectively. In addition, Income before income taxes
includes earnings from equity investees for the years ended
September 30, 2003, 2002 and 2001 of
60,
41 and
5, respectively.

For the years ended September 30, 2003, 2002
and 2001, Income before income taxes at SRE includes
interest revenue of
9,
13 and
19,
respectively, and interest expense of
105,
132 and
150,
respectively.

Eliminations, reclassifications and Corporate
Treasury

Income before income
taxesconsists primarily of interest
income due to cash management activities, corporate finance, and
certain currency and interest rate derivative instruments. For
the fiscal year ended September 30, 2003, Income before
income taxes also includes a gain of
35 from the
repurchase and the retirement of
1,440 notional
amount of the Siemens Nederland N.V. 1% exchangeable notes. For
the fiscal year ended September 30, 2002, the results of
operations from Infineon for the first two months of the fiscal
year 2002 are included.

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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 business segments

The Operations Groups 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 supplies logistics and
factory automation equipment. It designs, engineers,
manufactures and supplies turnkey facilities and the associated
components, systems and services for electronic assembly
systems, logistics and factory automation equipment as well as
postal automation systems. SD was formed in May 2001, following
the merger of the former Group Siemens Production and Logistics
Systems and Mannesmann Dematic Systems.

Siemens Building Technologies
(SBT)SBT provides products,
systems and services for monitoring and regulating the
temperature, safety, electricity, lighting and security of
commercial and industrial property. In addition, it provides
full technical facility management services within selected
markets.

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

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


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 computed tomography, magnetic resonance imagers, ultrasound
and radiology devices, and hearing instruments as well as
information technology systems for clinical and administrative
purposes. It provides technical maintenance, professional and
consulting services.

OsramOsram
designs, manufactures and sells a full spectrum of lighting
products for a variety of applications such as general lighting
and automotive, photo-optic and opto-semiconductor lighting.

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 Groups are
comprised of the following two businesses:

Siemens Financial Services
(SFS)SFS, the Companys
international financial services segment, provides a variety of
customized financial solutions both to third parties and to
other Siemens business groups and their customers.

Siemens Real Estate
(SRE)SRE owns and manages a
substantial part of Siemens real estate portfolio and
offers service portfolio specializing in real estate development
projects, real estate disposals, asset management, and lease and
service management.

32. Geographic information

The following table presents data by geographic
region as of and for the years ended September 30, 2003,
2002 and 2001.

|                            |  |                               |        |                                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 
|--------------------------- |  | ----------------------------- | ------ | ------------------------------ |  | ---- | ------ | ---- |  | ---- | ------ | ---- |  |  | ------ |  |  |  | ------ |  |  |  | ------ | 
|                            |  |                               |        |                               
|                            |  | Sales by location of customer |        | Sales by location of companies
|                            |  |                               |        |                               
|                            |  | 2003                          |        | 2002                           |  | 2001 |        | 2003 |  | 2002 |        | 2001
|                            |  |                               |        |                                |  |      |        |      |  |      |        |     
|Germany                     |  |                               | 17,100 |                                |  |      | 18,102 |      |  |      | 19,144 |      |  |  | 27,123 |  |  |  | 28,845 |  |  |  | 30,547 | 
|Europe (other than Germany) |  |                               | 25,327 |                                |  |      | 26,597 |      |  |      | 26,196 |      |  |  | 22,196 |  |  |  | 23,326 |  |  |  | 23,024 | 
|U.S.                        |  |                               | 15,357 |                                |  |      | 20,288 |      |  |      | 21,103 |      |  |  | 15,293 |  |  |  | 21,078 |  |  |  | 21,102 | 
|Americas other than U.S.    |  |                               | 3,206  |                                |  |      | 4,389  |      |  |      | 4,893  |      |  |  | 2,683  |  |  |  | 3,229  |  |  |  | 3,928  | 
|Asia-Pacific                |  |                               | 8,728  |                                |  |      | 9,668  |      |  |      | 11,081 |      |  |  | 5,560  |  |  |  | 6,153  |  |  |  | 7,228  | 
|Other countries             |  |                               | 4,515  |                                |  |      | 4,972  |      |  |      | 4,583  |      |  |  | 1,378  |  |  |  | 1,385  |  |  |  | 1,171  | 
|                            |  |                               |        |                                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 
|Siemens worldwide           |  |                               | 74,233 |                                |  |      | 84,016 |      |  |      | 87,000 |      |  |  | 74,233 |  |  |  | 84,016 |  |  |  | 87,000 | 
|                            |  |                               |        |                                |  |      |        |      |  |      |        |      |  |  |        |  |  |  |        |  |  |  |        | 

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SIEMENS AG


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(Continued)

(in millions of
, except where
otherwise stated and per share amounts)


|                            |  |                   |        |      |  |      |        |  |  |  |        | 
|--------------------------- |  | ----------------- | ------ | ---- |  | ---- | ------ |  |  |  | ------ | 
|                            |  |                  
|                            |  | Long-lived assets
|                            |  |                  
|                            |  | 2003              |        | 2002 |  | 2001
|                            |  |                   |        |      |  |     
|Germany                     |  |                   | 4,340  |      |  |      | 4,447  |  |  |  | 7,368  | 
|Europe (other than Germany) |  |                   | 3,036  |      |  |      | 3,198  |  |  |  | 3,991  | 
|U.S.                        |  |                   | 2,174  |      |  |      | 2,735  |  |  |  | 4,486  | 
|Americas other than U.S.    |  |                   | 447    |      |  |      | 477    |  |  |  | 633    | 
|Asia-Pacific                |  |                   | 718    |      |  |      | 842    |  |  |  | 1,197  | 
|Other countries             |  |                   | 41     |      |  |      | 43     |  |  |  | 128    | 
|                            |  |                   |        |      |  |      |        |  |  |  |        | 
|Siemens worldwide           |  |                   | 10,756 |      |  |      | 11,742 |  |  |  | 17,803 | 
|                            |  |                   |        |      |  |      |        |  |  |  |        | 

Long-lived assets consist of property, plant and
equipment.

33. Subsequent events

In October 2003, Med completed the sale of its
Life Support Systems business to Getinge AB, of Sweden. Also in
October 2003, Siemens made additional supplemental cash
contributions to its pension trusts of
1,255.

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##### Table of Contents



PART III, Continued




Item 19: Exhibits

|        |  |                                                                                                                                                                                                                  
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                  
|Number  |  | Description of Exhibit                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                  
|1.1     |  | English translation of Articles of Association of
    Siemens Aktiengesellschaft updated as of October 2003.                                                                                                     
|3.1     |  | Irrevocable Trust Agreement, by and among Siemens
    Aktiengesellschaft and First Union Trust Company, National
    Association (now Wachovia Trust Company, National Association),
    dated December 5, 2001.*
|3.2     |  | Standstill Agreement, between Siemens
    Aktiengesellschaft and First Union Trust Company, National
    Association (now Wachovia Trust Company, National Association),
    dated December 5, 2001.*            
|8.1     |  | List of Significant Subsidiaries.                                                                                                                                                                                
|12.1    |  | Certification of Chief Executive Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                          
|12.2    |  | Certification of Chief Financial Officer pursuant
    to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                          
|13.1    |  | Certification Chief Executive Officer pursuant to
    18. U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                         
|13.2    |  | Certification Chief Financial Officer pursuant to
    18. U.S.C. Section 1350, as adopted pursuant to
    Section 906 of the Sarbanes-Oxley Act of 2002.                                                         
|14.1    |  | Consent of KPMG Deutsche Treuhand-Gesellschaft AG.                                                                                                                                                               






|  |                                                                                                                                            
|- | -------------------------------------------------------------------------------------------------------------------------------------------
|* | The exhibit is incorporated by reference to the
    Exhibits filed with the Companys Annual Report on
    Form 20-F dated January 7, 2002.

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##### 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 5, 2003



| |                                        
| | ---------------------------------------
| | SIEMENS AKTIENGESELLSCHAFT             
|
| | /s/ HEINZ-JOACHIM NEUBÜRGER            
| |                                        
| | Heinz-Joachim Neubürger                
| | Chief Financial Officer                
|
| | /s/ DR. KLAUS PATZAK                   
| |                                        
| | Dr. Klaus Patzak                       
| | Vice President and Corporate Controller

III-2