Edgar Filing: SIEMENS AKTIENGESELLSCHAFT

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FORM 6-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For May 6, 2004

Commission File Number: 1-15174

Siemens Aktiengesellschaft

(Translation of registrant’s name into English)

Wittelsbacherplatz 2
D-80333 Munich
Federal Republic of Germany
(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.


Form 20-F x		Form 40-F o

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):


Yes o		No x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):


Yes o		No x

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.


Yes o		No x

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

This report is incorporated by reference into the prospectuses contained in
Registration Statements Nos. 333-13428 and 333-14294 on Form S-8
filed by the registrant under the Securities Act of 1933.

INTRODUCTION

We prepare the Interim Report as an update of our Annual Report, with a focus on the current reporting period. As such, the Interim Report should be read in conjunction with the Annual Report, which includes detailed analysis of our operations and activities.

TABLE OF CONTENTS


Key figures	2
Management’s discussion and analysis	3
Consolidated financial statements	17
Notes	24
Quarterly summary	39
Supervisory Board and Managing Board changes	40
Financial calendar	41

Key figures

2nd quarter⁽¹⁾

first six months⁽²⁾

2004

2003

2004

2003

Net income

(in millions of euros)

1,210

568

1,936

1,089

Earnings per share ⁽³⁾

(in euros)

1.36

0.64

2.17

1.22

Net cash from operating and investing activities

3,565

1,398

2,374

261

(in millions of euros)

therein: Net cash (used in) provided by operating activities

2,175

1,957

1,578

1,272

Net cash (used in) provided by investing activities

1,390

(559

)

796

(1,011

)

Supplemental contributions to pension trusts

—

(1,255

)

(442

)

(included in net cash from operating activities)

Net proceeds from the sale of Infineon shares

1,794

—

1,794

—

(included in net cash from investing activities)

New orders

(in millions of euros)

19,716

19,084

40,206

39,229

Sales

(in millions of euros)

17,794

18,230

36,123

37,075


	March 31, 2004		September 30, 2003
Employees (in thousands)		415		417
Germany		167		170
International		248		247

(1)		January 1 — March 31, 2004 and 2003, respectively
(2)		October 1, 2003 and 2002 — March 31, 2004 and 2003, respectively
(3)		Earnings per share — basic

MANAGEMENTS’ DISCUSSION AND ANALYSIS

OVERVIEW OF FINANCIAL RESULTS FOR THE SECOND QUARTER OF FISCAL 2004

•

Net income was €1.210 billion, up strongly from €568 million in the second fiscal quarter a year ago.

•

Net income was influenced by a pre-tax gain of €590 million on the sale of shares of Infineon Technologies AG, a goodwill impairment of €433 million related to Siemens Dematic (SD), and a reversal of €246 million in deferred tax liabilities arising as a consequence of the Infineon share sale. Excluding these effects, net income was €807 million, up 42% year-over-year, despite significant charges at Transportation Systems (TS) in its rolling stock business.

•

Orders of €19.716 billion were up 3% and sales of €17.794 billion were down 2% compared to the second quarter a year earlier. Excluding currency translation effects and the net effect of acquisitions and dispositions, orders increased 5% and sales rose 2%.

•

Net cash from operating and investing activities rose to €3.565 billion, including €1.794 billion in net proceeds from the sale of Infineon shares.

For the second quarter ended March 31, 2004, Siemens reported net income of €1.210 billion and basic earnings per share of €1.36, compared to €568 million and €0.64 in the second quarter a year earlier. A number of factors influenced net income in the current period. A pre-tax gain of €590 million on the sale of Infineon shares was partly offset by a goodwill impairment of €433 million related to Siemens’ 2001 acquisition of businesses from Atecs Mannesmann (Atecs), which were merged into Siemens Dematic. In addition, net income also included a reversal of €246 million in deferred tax liabilities arising as a consequence of the Infineon share sale.

In Operations, a majority of Siemens’ Groups achieved both double-digit profit growth and higher earnings margins compared to the prior-year period. The leading earnings contributors for the quarter included Power Generation (PG), Automation and Drives (A&D), Medical Solutions (Med), Siemens VDO Automotive (SV) and Osram. In contrast, TS recorded a Group profit of a negative €289 million primarily due to charges in its rolling stock business.

Second-quarter orders of €19.716 billion were up 3% from €19.084 billion in the second quarter a year earlier. Sales of €17.794 billion were down 2% from €18.230 billion in the prior-year quarter. Excluding currency translation effects and the net effect of acquisitions and dispositions (i.e., on a comparable basis), orders increased 5% and sales rose 2% year-over-year.

Net cash from operating and investing activities in the second quarter was €3.565 billion, including net proceeds of €1.794 billion from the sale of Infineon shares. Excluding this effect, net cash was still up sharply compared to €1.398 billion in the second quarter a year ago.

RESULTS OF SIEMENS WORLDWIDE

Results of Siemens worldwide — Second quarter of fiscal 2004 compared to second quarter of fiscal 2003

Orders in the second quarter of fiscal 2004 were €19.716 billion compared to €19.084 billion a year earlier, and sales were €17.794 billion compared to €18.230 billion. Excluding currency translation effects and the net effect of acquisitions and dispositions, orders rose 5% and sales were up 2% year-over-year.

Gross profit as a percentage of sales in the second quarter of fiscal 2004 increased to 28.6% from 28.3% in the prior year, driven by higher margins at a majority of Siemens’ Groups, particularly at PG. Significant charges resulted in a negative gross profit margin at TS.

Research and development (R&D) expense decreased from €1.278 billion to €1.246 billion compared to the prior-year quarter. R&D spending as a percentage of sales was 7.0%, level with the prior-year quarter. Marketing, selling and general administration expenses were €3.213 billion, or 18.1% of sales, compared to €3.232 billion, or 17.7% in the same period a year earlier.

Other operating income (expense), net was a negative €423 million, compared to a positive €69 million in the prior-year period. The current period includes a €433 million goodwill impairment related to the airport logistics and distribution and industry activities acquired from Atecs, while the prior-year period benefited from net gains from project cancellations at PG. Income (loss) from investments in other companies, net was €777 million compared to €24 million in the second quarter a year earlier. The current period included the pre-tax gain of €590 million from the sale of Infineon shares and higher equity earnings at BSH Bosch und Siemens Hausgeräte GmbH. The prior-year period included a negative €127 million from Siemens’ equity share of Infineon’s quarterly net loss.

The effective tax rate on income in the second quarter of fiscal 2004 was a positive 7%, impacted by a €246 million reversal in deferred tax liabilities arising as a consequence of the Infineon share sale, compared to an income tax expense rate of 27% in the second quarter a year ago.

Net income in the second quarter was €1.210 billion, compared to €568 million last year. Net income in the current period was influenced by the pre-tax gain on the sale of Infineon shares, the goodwill impairment and the reversal in deferred tax liabilities, mentioned above. Basic and diluted earnings per share were €1.36 and €1.30, respectively, for the second quarter of fiscal 2004. Basic and diluted earnings per share were €0.64 in the same quarter of fiscal 2003.

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

Orders for the first six months of fiscal 2004 were €40.206 billion, up 2% from €39.229 billion, and sales fell 3% to €36.123 billion from €37.075 billion a year earlier. Excluding currency translation effects and the net effect of acquisitions and dispositions, orders and sales were 6% and 2% higher, respectively. Sales in Germany for the first half of fiscal 2004 were €8.555 billion, up 3% compared to the first half a year earlier, while orders in Germany decreased 1% year-over-year, to €8.605 billion. International sales decreased 4% year-over-year, to €27.568 billion and international orders increased 4%, to €31.601 billion. On a comparable basis, international sales for the first half rose 2% and international orders climbed 8%.

Within international results, sales for the first half of fiscal 2004 in the U.S. of €6.182 billion were 22% lower compared to the same period a year earlier, due primarily to the end of the gas turbine boom in the U.S. Orders of €6.597 billion were 13% lower year-over-year. Excluding currency translation effects, U.S. sales were 9% lower and U.S. orders were up 2% year-over-year. Sales in Asia-Pacific for the first six months remained stable year-over-year, at €4.307 billion, and orders decreased 2%, to €4.819 billion. Excluding currency translation effects, sales in the Asia-Pacific region rose 7% and orders rose 5%. Sales in China were €1.311 billion, 3% below the prior-year level, while orders reached €1.524 billion, up 16%. Excluding currency translation effects, sales rose 6% and orders climbed 27%.

Gross profit as a percentage of sales in the first half of fiscal 2004 increased to 29.2% from 28.2% in the prior-year period. The improvement resulted from higher margins in the current six months at a majority of Siemens’ Groups. TS reported a significant lower margin compared to the prior year. The prior-year period included higher allowances on inventory, particularly at PG, related in part to project cancellations.

Other operating income (expense), net was a negative €324 million compared to a positive €284 million in the first half of fiscal 2003, which included significant net gains from project cancellations at PG. The current period primarily includes the €433 million goodwill impairment in the second quarter and gains from portfolio activities, particularly related to the sale of Med’s Life Support Systems (LSS) business. Income (loss) from investments in other companies, net was a positive €882 million compared to a positive €28 million in the first half of the prior year. The current year included the pre-tax gain of €590 million from the sale of Infineon shares. In addition, the first half of fiscal 2004 includes higher equity earnings, particularly at BSH Bosch und Siemens Hausgeräte GmbH and Infineon, in which Siemens’ equity share of Infineon’s results turned positive compared to a negative €144 million in the prior-year period.

The effective tax rate in the first half of fiscal 2004 was approximately 10%, positively impacted by the second quarter reversal in deferred tax liabilities and the sale of LSS by Med, compared to 32% in the same period a year ago.

Net income for the first six months of fiscal 2004 increased to €1.936 billion, up from €1.089 billion a year earlier. The current period improvement was primarily influenced by the factors noted above. Basic and diluted earnings per share were €2.17 and €2.08, respectively, for the first six months of this year. Basic and diluted earnings per share in the same period a year ago were €1.22.

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

DISPOSITION

In the first quarter of fiscal 2004, Med realized €116 million in gains from portfolio transactions. Included in this amount was a pre-tax gain of €100 million in connection with Med’s sale of its LSS business to Getinge AB, Sweden. Net proceeds from the sale totaled €171 million as of March 31, 2004. As stipulated by the contribution agreement for the joint venture Draeger Medical AG & Co. KGaA (Draeger), Siemens contributed to Draeger these net proceeds less expected taxes on the sale.

SEGMENT INFORMATION ANALYSIS

Operations

Information and Communications

Information and Communication Networks (ICN)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		37			(147	)								88			(298	)
Group profit margin		2.3	%		(8.8	)%								2.7	%		(8.6	)%

Sales		1,618			1,679			(4	)%		(1	)%		3,318			3,483			(5	)%		(2	)%
New orders		1,773			1,689			5	%		7	%		3,622			3,629			0	%		3	%

*		Excluding currency translation effects of (3)% on sales and currency translation effects of (3)% and portfolio effects of 1% on orders.
**		Excluding currency translation effects of (3)% on sales and currency translation effects of (4)% and portfolio effects of 1% on orders.

ICN posted another sharply improved quarter year-over-year, reflecting the positive impact of previous restructuring efforts. The earnings turn-around was most evident in ICN’s Carrier Networks and Services business, which recorded a €5 million profit on sales of €753 million compared to a loss of €180 million on sales of €797 million in the second quarter a year earlier. The Enterprise Networks division earned €46 million on sales of €867 million compared to €49 million on sales of €887 million in the prior-year quarter. For ICN overall, second-quarter sales were nearly level with the prior year on a comparable basis. Orders rose year-over-year, particularly at the Carrier Networks division.

In the first half of fiscal 2004, ICN recorded Group profit of €88 million as the Carrier Networks and Services business was profitable and Enterprise Networks remained solidly in the black. The prior-year period loss of €298 million included significant charges for severance and asset write-downs. First-half sales were somewhat lower year-over-year and orders rose slightly compared to the same period a year earlier.

Information and Communication Mobile (ICM)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		109			55			98	%					232			114			104	%
Group profit margin		4.1	%		2.4	%								4.1	%		2.2	%

Sales		2,661			2,329			14	%		17	%		5,618			5,185			8	%		11	%
New orders		2,713			2,300			18	%		20	%		5,735			4,809			19	%		22	%

Excluding currency translation effects.

ICM nearly doubled its second-quarter Group profit year-over-year, to €109 million, combining double-digit sales growth with higher earnings margins. The Mobile Networks division led the way with €76 million in profits on sales of €1.163 billion, compared to €44 million on sales of €1.067 billion a year earlier. The Mobile Phones division increased sales 26%, to €1.243 billion, and profits rose to €13 million from €2 million, despite a lower average selling price per unit compared to the prior-year quarter. Handset volume rose to 12.8 million units from 8.0 million in the same period a year earlier. Average selling price remained stable compared to the first quarter of this fiscal year (the seasonally strong Christmas quarter), when handset volume was 15.2 million units. For ICM as a whole, second-quarter sales rose 14% to €2.661 billion, and second-quarter orders climbed 18% to €2.713 billion.

In the first half of fiscal 2004, ICM more than doubled Group profit to €232 million from €114 million in the same period of fiscal 2003. The Mobile Networks division contributed the major portion of the increase, with earnings of €102 million compared to €20 million in the first half a year earlier, which included a net positive effect relating primarily to a reduction in customer financing exposure. The Mobile Phones division also improved first-half earnings year-over-year, to €77 million from €54 million. The division sold 28.0 million handsets in the first half compared to 19.0 million in the prior-year period, resulting in a 19% increase in sales, to €2.729 billion. For ICM overall, first-half sales rose 8% to €5.618 billion and orders rose 19%, to €5.735 billion, as the Group kept pace in an expanding market for wireless communications.

Siemens Business Services (SBS)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		26			25			4	%					70			37			89	%
Group profit margin		2.3	%		1.9	%								3.0	%		1.4	%

Sales		1,121			1,338			(16	)%		(15	)%		2,331			2,605			(11	)%		(9	)%
New orders		1,334			1,291			3	%		5	%		2,733			2,685			2	%		4	%

Excluding currency translation effects.

Group profit of €26 million at SBS rose 4% compared to the second quarter a year earlier, as the Group countered volume-driven pressure on earnings with cost-reduction measures. Sales declined year-over-year, to €1.121 billion, while orders rose to €1.334 billion on the strength of large new contracts in Europe.

SBS improved its Group profit for the first six months to €70 million from €37 million a year earlier. While sales were lower than in the prior-year period, first-half orders rose 2% year-over-year on the strength of large new contracts in Europe.

Automation & Control

Automation and Drives (A&D)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		235			184			28	%					456			363			26	%
Group profit margin		11.2	%		9.0	%								11.0	%		9.0	%

Sales		2,102			2,034			3	%		5	%		4,152			4,016			3	%		6	%
New orders		2,180			2,155			1	%		3	%		4,380			4,389			0	%		3	%

*		Excluding currency translation effects of (3)% and portfolio effects of 1%.
**		Excluding currency translation effects of (4)% and portfolio effects of 1%.

A&D continued to increase its operating leverage in the second quarter, achieving a 28% increase in Group profit, to €235 million, on a 3% rise in sales. As in recent quarters, higher productivity and a streamlined cost structure enabled A&D to increase earnings in a difficult market environment. The Industrial Automation Systems and Motion Control Systems divisions were leading contributors to Group profit, and improving profitability in the U.S. also contributed to A&D’s earnings growth. Sales rose to €2.102 billion and orders were also up year-over-year, at €2.180 billion.

In the first half of fiscal 2004, A&D increased Group profit 26%, to €456 million, compared to the same period a year earlier. First-half sales rose 3% to €4.152 billion and orders were level year-over-year, at €4.380 billion. Excluding currency translation and portfolio effects, sales were up 6% and orders rose 3% for the first half-year.

Industrial Solutions and Services (I&S)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		26			4									41			(29	)
Group profit margin		2.6	%		0.4	%								2.1	%		(1.5	)%

Sales		983			990			(1	)%		2	%		1,980			1,919			3	%		6	%
New orders		1,085			1,018			7	%		10	%		2,214			2,085			6	%		10	%

Excluding currency translation effects.

I&S posted €26 million in Group profit in the second quarter, as the Group benefited from higher productivity resulting from previous restructuring efforts. Sales were level with the second quarter a year earlier, while orders rose 10% year-over-year on a comparable basis, benefiting from major new orders in China. I&S continues to streamline its business portfolio.

Group profit for the first six months was a positive €41 million compared to a negative €29 million a year earlier, which included €35 million in charges primarily for severance payments. First-half sales rose 3%, to €1.980 billion, and first-half orders increased 6% year-over-year, to €2.214 billion.

Siemens Dematic (SD)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		(30	)		12									(67	)		24
Group profit margin		(6.0	)%		1.8	%								(6.4	)%		1.9	%

Sales		503			658			(24	)%		(20	)%		1,045			1,280			(18	)%		(13	)%
New orders		761			614			24	%		35	%		1,622			1,226			32	%		40	%

*		Excluding currency translation effects of (5)% and (12)% on sales and orders, respectively, and portfolio effects of 1% on sales and orders.
**		Excluding currency translation effects of (6)% and (10)% on sales and orders, respectively, and portfolio effects of 1% and 2% on sales and orders, respectively.

Group profit at SD was a negative €30 million in the second quarter, despite higher earnings on stronger sales at the Electronics Assembly division. Overall results for SD were driven by a combination of factors including excess capacity and project cost overruns. Following an extensive internal review of the outlook for the SD’s airport logistics activities and distribution and industry activities, management concluded that goodwill related to SD was impaired. Because these businesses were acquired at the corporate level as part of Siemens’ Atecs Mannesmann transaction, the resulting goodwill impairment was taken centrally. For additional information see Corporate items, pensions and eliminations. Sales of €503 million for SD were substantially lower than in the same period a year earlier, while a major new contract with the U.S. Postal Service increased orders by 35% year-over-year on a comparable basis.

SD posted a loss of €67 million, reflecting significant charges during the first six months of the current year, primarily related to major projects. Group profit was a positive €24 million in the first half a year earlier. Sales fell to €1.045 billion, primarily due to the Airport Logistics and the Distribution & Industry Logistics divisions. First-half orders increased substantially year-over-year, to €1.622 billion, benefiting from a large order in each of the two quarters of the current year.

Siemens Building Technologies (SBT)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		16			2									55			45			22	%
Group profit margin		1.6	%		0.2	%								2.7	%		1.8	%

Sales		996			1,228			(19	)%		(8	)%		2,036			2,434			(16	)%		(4	)%
New orders		1,030			1,238			(17	)%		(5	)%		2,135			2,492			(14	)%		(2	)%

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

In the second quarter, SBT posted higher Group profit on lower sales year-over-year, reflecting the streamlining of its business portfolio between the periods under review. Sales and orders, at €996 million and €1.030 billion, respectively, were lower in comparison to the prior year primarily due to first-quarter divestiture of SBT’s facility management activities, coupled with currency translation effects and a weak construction market in Europe.

Group profit for the first six months rose to €55 million from €45 million in the same period a year earlier, which included charges for severance and associated asset write-downs. Reflecting generally weak market conditions, negative currency translation effects, and the divestiture of businesses between the two periods under review, SBT’s first-half sales fell to €2.036 billion and first-half orders decreased to €2.135 billion.

Power

Power Generation (PG)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		274			262			5	%					519			671			(23	)%
Group profit margin		16.0	%		15.5	%								14.4	%		19.3	%

Sales		1,713			1,691			1	%		(7	)%		3,615			3,476			4	%		(4	)%
New orders		2,414			2,213			9	%		(8	)%		5,090			4,483			14	%		1	%

*		Excluding currency translation effects of (5)% on sales and orders and portfolio effects of 13% and 22% on sales and orders, respectively.
**		Excluding currency translation effects of (5)% on sales and orders and portfolio effects of 13% and 18% on sales and orders, respectively.

PG was the top earnings performer among Siemens Groups in the second quarter, posting Group profit of €274 million. Earnings rose 5% even though the prior-year period benefited from substantial cancellation gains. PG’s service business continued to increase its earnings contribution year-over-year. The industrial turbine business acquired from Alstom between the periods under review also contributed to PG’s positive earnings development. Higher sales for PG overall, €1.713 billion, reflect the new volume from Alstom partly offset by negative currency translation effects. The same factors influenced orders of €2.414 billion.

PG’s Group profit for the first half of fiscal 2004 was €519 million compared to €671 million a year earlier. The difference is primarily due to substantial gains from project cancellations in the prior year. First-half sales rose 4% to €3.615 billion and orders climbed 14% year-over-year, to €5.090 billion, reflecting the volume contribution from the Alstom acquisition partly offset by negative currency translation effects.

Power Transmission and Distribution (PTD)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		63			50			26	%					114			90			27	%
Group profit margin		7.9	%		5.9	%								7.1	%		5.5	%

Sales		793			846			(6	)%		(3	)%		1,613			1,648			(2	)%		3	%
New orders		907			811			12	%		18	%		1,927			1,920			0	%		7	%

Excluding currency translation effects.

PTD increased Group profit to €63 million in the second quarter, up 26% year-over-year, and improved its earnings margin by two full points compared to the prior-year quarter. The High Voltage division was a key earnings contributor. Sales were €793 million compared to €846 million in the prior-year quarter, while double-digit order growth year-over-year included new contracts in the Middle East, Africa and Asia-Pacific.

For the first six months, PTD increased Group profit 27% to €114 million. The High Voltage division drove the improvement, almost doubling its first-half earnings year-over-year. Sales of €1.613 billion and orders of €1.927 billion in the first six months reflect negative currency translation effects. Excluding these effects, sales rose 3% and orders increased 7%.

Transportation

Transportation Systems (TS)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		(289	)		64									(257	)		132
Group profit margin		(28.4	)%		5.8	%								(12.4	)%		6.1	%

Sales		1,017			1,101			(8	)%		(6	)%		2,066			2,181			(5	)%		(3	)%
New orders		1,121			1,424			(21	)%		(20	)%		2,141			2,524			(15	)%		(13	)%

Excluding currency translation effects.

In the second quarter, TS reported a loss of €289 million, primarily due to €364 million in charges. Within this total, the Mass Transit division accounted for €296 million of the charges, primarily in its light rail business (low-floor light rail vehicles marketed under the name Combino), while the Trains division accounted for the remaining €68 million. Sales of €1.017 billion were below the prior-year level due in part to delays in project completion. The decline in orders year-over-year reflects a number of factors, including multiple large orders in the prior-year period, a market slow-down, and a focus at TS on resolving technical issues in its rolling stock business. Depending on the outcome of the ongoing technical evaluation of the programs related to the body design of the Combino light rail vehicle and the resulting formulation of technical solutions, further charges may occur in future periods.

For the first half of fiscal 2004, TS had a loss of €257 million compared to Group profit of €132 million in first half of the prior year. The change year-over-year is due to the charges mentioned above combined with lower sales, which were €2.066 billion compared to €2.181 billion in the prior-year first half. Orders were €2.141 billion for the first six months compared to €2.524 billion a year earlier, when first-half orders included major new contracts in both Europe and Asia-Pacific.

Siemens VDO Automotive (SV)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		128			119			8	%					228			192			19	%
Group profit margin		5.9	%		5.4	%								5.4	%		4.4	%

Sales		2,162			2,185			(1	)%		8	%		4,201			4,318			(3	)%		8	%
New orders		2,160			2,185			(1	)%		8	%		4,199			4,318			(3	)%		8	%

*		Excluding currency translation effects of (3)% and portfolio effects of (6)%.
**		Excluding currency translation effects of (4)% and portfolio effects of (7)%.

SV recorded second-quarter Group profit of €128 million, up 8% year-over-year, on the strength of higher profitability at the Interior and Infotainment division. Second-quarter sales and orders of €2.162 billion and €2.160 billion, respectively, were nearly level year-over-year. Excluding currency translation effects and primarily the divestiture of SV’s cockpit module business between the periods under review, second-quarter sales and orders rose 8% year-over-year. After the close of the second quarter, Siemens completed its acquisition of certain U.S. automotive electronics manufacturing activities of DaimlerChrysler AG located in Huntsville, Alabama, and will consolidate them into Siemens worldwide as of April 1, 2004.

SV increased its first-half Group profit 19% year-over-year, to €228 million, as cost-reduction and productivity improvement programs strengthened the Group’s earnings margins and operating leverage, primarily evident at the Interior and Infotainment division. Sales and orders for the first six months were €4.201 billion and €4.199 billion, respectively, reflecting the divestiture mentioned above and negative currency translation effects. On a comparable basis, sales and orders rose 8% for the first half year-over-year.

Medical

Medical Solutions (Med)


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable**
Group profit		228			255			(11	)%					555			500			11	%
Group profit margin		13.3	%		13.9	%								16.5	%		13.7	%

Sales		1,708			1,830			(7	)%		5	%		3,356			3,661			(8	)%		5	%
New orders		1,736			1,845			(6	)%		6	%		3,627			3,803			(5	)%		9	%

*		Excluding currency translation effects of (7)% and portfolio effects of (5)%.
**		Excluding currency translation effects of (8)% and (9)% on sales and orders, respectively, and portfolio effects of (5)%.

Med was once again a leading earnings contributor, with €228 million in Group profit for the second quarter. Med’s core diagnostics imaging businesses held their own in a competitive market, maintaining their earnings levels and driving the Group’s sales and orders higher year-over-year on a comparable basis. Second-quarter sales of €1.708 billion and orders of €1.736 billion reflect currency translation effects, as well as the sale of Med’s Life Support Systems business and the transfer of a portion of its electromedical systems business into a joint venture between the periods under review.

For the first six months, Med posted Group profit of €555 million, benefiting from €116 million in gains in the first quarter of fiscal 2004 from the portfolio transactions mentioned above. Portfolio transactions, combined with currency translation effects, explained Med’s first-half sales and orders compared to the prior-year period, of €3.356 billion and €3.627 billion, respectively. Excluding the portfolio and currency translation effects, sales rose 5% and orders climbed 9%.

Lighting

Osram


	Second quarter ended March 31,												Six months ended March 31,
							% Change												% Change
(€ in millions)	2004			2003			Actual			Comparable*			2004			2003			Actual			Comparable*
Group profit		116			101			15	%					225			207			9	%
Group profit margin		10.7	%		9.5	%								10.4	%		9.5	%

Sales		1,088			1,063			2	%		10	%		2,161			2,186			(1	)%		7	%
New orders		1,088			1,063			2	%		10	%		2,161			2,186			(1	)%		7	%

Excluding currency translation effects.

Osram achieved a 15% increase in second-quarter Group profit, to €116 million, on the strength of higher profitability combined with higher sales at the Automotive Lighting and Opto Semiconductors divisions. At €1.088 billion, sales and orders were up 10% year-over-year excluding currency translation effects. Top-line growth was well balanced geographically on a currency-adjusted basis, highlighted by strengthening demand in Eastern Europe and Asia-Pacific.

Osram’s Group profit for the first six months was €225 million, up 9% from the same period a year earlier, as most divisions improved its earnings. Sales and orders were €2.161 billion for the first half-year, reflecting negative currency translation effects. Excluding these effects, sales and orders for the first six months rose 7% year-over-year.

Other operations

Other operations consist of centrally held equity investments and other operating businesses not related to a Group. These activities resulted in €137 million in Group profit in the second quarter, up from €87 million in the same period a year earlier. The improvement was driven by higher equity earnings in the current quarter, mostly from BSH Bosch und Siemens Hausgeräte GmbH. These equity earnings and positive results from investments in associated companies drove the increase for the first six months, to €178 million in Group profit compared to €122 million in the same period a year earlier.

Corporate items, pensions and eliminations

Corporate items, pensions and eliminations were a negative €108 million in the second quarter, compared to a negative €386 million in the same period a year earlier. In the prior-year period, Corporate items included a negative €127 million representing Siemens’ equity share of Infineon’s net loss for the quarter. In the second quarter of fiscal 2004, the Company reduced its ownership in Infineon to 18.9% and, accordingly, ceased accounting for its equity interest in Infineon under the equity method. For further information, see Note 3 to Consolidated Financial Statements. The current period includes a pre-tax gain of €590 million on the sale of Infineon shares, partly offset by the €433 million goodwill impairment related to the airport logistics and distribution and industry activities of SD. Because these businesses were acquired at the corporate level as part of Siemens’ Atecs Mannesmann transaction, this goodwill impairment was taken centrally. For further information, see Note 8 to Consolidated Financial Statements. Centrally carried pension expense was €183 million in the second quarter compared to €187 million in the same period a year ago.

The improvement in the Corporate items, pensions and eliminations from a negative €879 million in the first half of fiscal 2003 to a negative €465 million in the first half of fiscal 2004 resulted primarily from the factors noted above. The current six-month period does not include domestic pension service costs, which were included in centrally carried pension expense in the prior year but have been allocated to the Groups effective with the beginning of fiscal 2004.

Financing and Real Estate

Siemens Financial Services (SFS)


	Second quarter ended March 31,										Six months ended March 31,
					% Change										% Change
(€ in millions)	2004		2003		Actual			Comparable*			2004		2003		Actual			Comparable*
Income before income taxes		66		58		14	%					123		142		(13	)%

Sales		145		139		4	%		8	%		277		275		1	%		6	%

Excluding currency translation effects.

Income before income taxes at SFS was €66 million compared to €58 million in the second quarter a year earlier.

For the first six months, income before income taxes declined year-over-year due to higher provisions for receivables at the Equipment and Sales Financing division and lower income at the Equity division.

Siemens Real Estate (SRE)


	Second quarter ended March 31,										Six months ended March 31,
					% Change										% Change
(€ in millions)	2004		2003		Actual			Comparable*			2004		2003		Actual			Comparable*
Income before income taxes		45		55		(18	)%					99		110		(10	)%

Sales		399		395		1	%		2	%		784		791		(1	)%		0	%

Excluding currency translation effects.

Income before income taxes at SRE was €45 million in the second quarter compared to €55 million in the same period a year earlier, due primarily to a weaker market for sales of commercial real estate. The same conditions resulted in lower income before income tax on a consecutive-quarter basis. SRE has put a property development project in Frankfurt, Germany on hold pending an updated analysis of prevailing market conditions.

First-half income before income taxes at SRE declined compared to the same period a year earlier, due to market weakness.

Eliminations, Reclassifications and Corporate Treasury

Income before income taxes from Eliminations, reclassifications and Corporate Treasury was €128 million, in the second quarter of fiscal 2004 compared to €28 million in the same period a year ago. The difference is primarily the result of positive mark-to-market effects at Corporate Treasury from interest rate derivative contracts not qualifying for hedge accounting, and higher interest income.

For the first six months, Income before income taxes from Eliminations, reclassifications and Corporate Treasury was €126 million, compared to €101 million in the same period a year ago. The current period includes primarily higher interest income as the negative mark-to-market effects from interest rate derivative contracts not qualifying for hedge accounting in the first quarter of fiscal 2004 were more than offset by the positive effects in the second quarter described above.

LIQUIDITY AND CAPITAL RESOURCES

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

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

Net cash provided by operating activities of the Operations component for the first six months of fiscal 2004 was €230 million compared to €469 million in the prior year. Both periods in fiscal 2004 and 2003 included supplemental pension contributions, totaling €1.255 billion and €442 million, respectively. Changes in net working capital (current assets less current liabilities) within Operations used cash of €1.037 billion in the first six months of fiscal 2004, down from cash used of €1.749 billion in the same period of fiscal 2003. The current six months reflect an increase in net inventories, particularly at TS, ICN and ICM. Furthermore, the current year was impacted by a decrease in other current liabilities, but at a lower level than the prior year. The prior year reflects a significant reduction in advance payments from orders in the U.S. at PG.

Net cash provided by investing activities within Operations was €996 million, compared to net cash used of €850 million a year earlier. The current period was positively influenced by €1.794 billion in net proceeds from the sale of Infineon shares.

Net cash provided by operating activities within the Financing and Real Estate component was €683 million for the first six months of fiscal 2004 compared to €195 million in the same period a year ago. The current fiscal year was positively influenced by €247 million in repayment of notes receivable at SFS, while the prior year was impacted by a decrease in other current liabilities.

Net cash used in investing activities within the Financing and Real Estate component was €23 million, compared to €142 million in the same period a year ago, primarily due to lower equipment and sales financing in the current year.

Net cash provided by operating activities of Siemens worldwide was €1.578 billion for the first six months of fiscal 2004 compared to €1.272 billion for the same period in the prior year.

Net cash provided by investing activities of Siemens worldwide totaled €796 million in fiscal 2004, compared to net cash used of €1.011 billion for fiscal 2003.

Net cash used in financing activities for Siemens worldwide was €1.201 billion compared to net cash used of €2.077 billion in the prior-year period, which included the buyback of a notional €500 million of a bond exchangeable into shares of Infineon. During the current six-month period, €978 million in dividends were paid to shareholders. In the prior six-month period, €888 million in dividends were paid to shareholders.

Capital Resources and Capital Requirements

Equity

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

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

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

Long-term Corporate Credit Rating

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

Customer Financing

Siemens’ approved and contractually committed customer financing requiring approval of Siemens’ Corporate Executive Committee of the Managing Board at March 31, 2004, amounted to €1.594 billion compared to €1.378 billion at September 30, 2003. The approved and contractually committed financing includes utilized and unutilized credits to suppliers or guarantees from Siemens to banks in support of loans to Siemens’ customers. The increase is primarily due to a new commitment relating to PG for a new order in Finland.

Pension Plan Funding

At the end of the first six months of fiscal 2004, the combined funding status of Siemens’ principal pension plans showed an underfunding of €3.1 billion, compared to an underfunding of €5.0 billion at the end of fiscal 2003. The improvement was due primarily to supplemental contributions and higher than expected investment returns.

The fair value of plan assets of Siemens’ principal funded pension plans on March 31, 2004 was €18.1 billion, compared to €15.9 billion on September 30, 2003.

In the first six months of fiscal 2004, the supplemental cash contribution of €1.255 billion included €700 million to the Siemens German Pension Trust and €555 million to the pension plan in the U.S. In fiscal 2003, supplemental contributions included €1.192 billion in cash (thereof €442 million during the first six months of fiscal 2003) and €377 million in real estate (during the first six months of fiscal 2003). Beginning in fiscal 2004, regular funding is based generally on the level of service costs incurred, taking into account minimum funding requirements abroad. For the first six months of fiscal 2004, regular employer contributions amounted to €307 million.

During the first six months of fiscal 2004, the total actual return on plan assets of Siemens’ principal funded pension plans worldwide amounted to €1.012 billion, representing a 12.0% return on an annualized basis, well above the expected annual return of 6.7%.

The estimated projected benefit obligation (PBO), which considers future compensation increases, for Siemens’ principal pension plans amounted to €21.2 billion on March 31, 2004, an increase of approximately €300 million compared to the PBO of €20.9 billion on September 30, 2003, due to the net of pension service and interest costs less benefits paid during the six-month period.

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

EVA PERFORMANCE

Economic Value Added (EVA) for Siemens worldwide improved significantly in the first half compared to the positive EVA in the first half of the prior year. The improvement in EVA was driven by higher earnings, and excludes the goodwill impairment related to the former Atecs businesses and fiscal 2004 effects related to Infineon.

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 Operating Groups and income before income taxes for the Financing and Real estate businesses as a base) against the additional cost of capital used to run a business, (using net capital employed for the Operating Groups and risk-adjusted equity for the Financing and Real estate businesses as a base). A positive EVA means that a business has earned more than its cost of capital, and is therefore defined as value-creating. A negative EVA means that a business is earning less than its cost of capital and is therefore defined as value-destroying. Other organizations that use EVA may define and calculate EVA differently.

LEGAL PROCEEDING

As previously reported, an Italian prosecutor is conducting an investigation regarding allegations that certain companies, including Siemens, provided improper benefits to former employees of Enel in connection with the awarding of Enel contracts. On April 28, 2004, an Italian investigating magistrate announced a preliminary injunction in this matter. The preliminary injunction, as subsequently modified on May 5, 2004, imposes a one year ban prohibiting Siemens AG (but not its subsidiaries) from entering into delivery contracts for gas turbines with the Italian public administration. We intend to appeal the magistrate’s ruling.

This Interim Report contains forward-looking statements based on beliefs of Siemens’ management. We use the words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “should,” “plan” and “project” to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to risks and uncertainties. Many factors could cause the actual results to be materially different, including, among others, changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products, lack of acceptance of new products or services and changes in business strategy. Actual results may vary materially from those projected here. Please refer to the discussion of Siemens’ risk factors in our Form 20-F. Siemens does not intend or assume any obligation to update these forward-looking statements. It is our policy to disclose material information on an open, nonselective basis.

SIEMENS AG

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the three months ended March 31, 2004 and 2003
(in millions of €, per share amounts in €)


							Eliminations,
							reclassifications and												Financing and Real
	Siemens worldwide						Corporate Treasury						Operations						Estate
	2004			2003			2004			2003			2004			2003			2004			2003
Net sales		17,794			18,230			(365	)		(415	)		17,618			18,113			541			532
Cost of sales		(12,705	)		(13,062	)		365			415			(12,637	)		(13,079	)		(433	)		(398	)

Gross profit on sales		5,089			5,168			—			—			4,981			5,034			108			134
Research and development expenses		(1,246	)		(1,278	)		—			—			(1,246	)		(1,278	)		—			—
Marketing, selling and general administrative expenses		(3,213	)		(3,232	)		—			1			(3,151	)		(3,157	)		(62	)		(76	)
Other operating income (expense), net		(423	)		69			(17	)		(21	)		(426	)		69			20			21
Income (loss) from investments in other companies, net		777			24			—			—			762			3			15			21
Income (expense) from financial assets and marketable securities, net		113			10			79			11			43			8			(9	)		(9	)
Interest income (expense) of Operations, net		5			8			—			—			5			8			—			—
Other interest income (expense), net		72			35			66			37			(33	)		(24	)		39			22

Income before income taxes		1,174			804			128			28			935			663			111			113
Income taxes		84			(216	)		(14	)		(5	)		88			(182	)		10			(29	)
Minority interest		(48	)		(20	)		—			—			(48	)		(20	)		—			—

Net income		1,210			568			114			23			975			461			121			84

Basic earnings per share		1.36			0.64
Diluted earnings per share		1.30			0.64

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

SIEMENS AG

CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the six months ended March 31, 2004 and 2003
(in millions of €, per share amounts in €)


							Eliminations,
							reclassifications and												Financing and Real
	Siemens worldwide						Corporate Treasury						Operations						Estate
	2004			2003			2004			2003			2004			2003			2004			2003
Net sales		36,123			37,075			(751	)		(786	)		35,818			36,801			1,056			1,060
Cost of sales		(25,576	)		(26,625	)		751			787			(25,498	)		(26,614	)		(829	)		(798	)

Gross profit on sales		10,547			10,450			—			1			10,320			10,187			227			262
Research and development expenses		(2,492	)		(2,573	)		—			—			(2,492	)		(2,573	)		—			—
Marketing, selling and general administrative expenses		(6,563	)		(6,740	)		(1	)		—			(6,436	)		(6,593	)		(126	)		(147	)
Other operating income (expense), net		(324	)		284			(35	)		(37	)		(337	)		266			48			55
Income (loss) from investments in other companies, net		882			28			—			—			854			(15	)		28			43
Income (expense) from financial assets and marketable securities, net		75			37			37			42			59			(2	)		(21	)		(3	)
Interest income (expense) of Operations, net		4			21			—			—			4			21			—			—
Other interest income (expense), net		124			111			125			95			(67	)		(26	)		66			42

Income before income taxes		2,253			1,618			126			101			1,905			1,265			222			252
Income taxes⁽¹⁾		(236	)		(518	)		(13	)		(32	)		(200	)		(405	)		(23	)		(81	)
Minority interest		(81	)		(47	)		—			—			(81	)		(47	)		—			—

Income before cumulative effect of change in accounting principle		1,936			1,053			113			69			1,624			813			199			171
Cumulative effect of change in accounting principle, net of income taxes		—			36			—			—			—			39			—			(3	)

Net income		1,936			1,089			113			69			1,624			852			199			168

Basic earnings per share
Income before cumulative effect of change in accounting principle		2.17			1.18
Cumulative effect of change in accounting principle, net of income taxes		—			0.04

Net income		2.17			1.22

Diluted earnings per share
Income before cumulative effect of change in accounting principle		2.08			1.18
Cumulative effect of change in accounting principle, net of income taxes		—			0.04

Net income		2.08			1.22

(1)

The income taxes of Eliminations, reclassifications and Corporate Treasury, Operations, and Financing and Real Estate are based on the consolidated effective corporate tax rate applied to income before income taxes.

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

SIEMENS AG

CONSOLIDATED BALANCE SHEETS (unaudited)
As of March 31, 2004 and September 30, 2003
(in millions of €)


							Eliminations,
							reclassifications and										Financing and Real
	Siemens worldwide						Corporate Treasury						Operations				Estate
	3/31/04			9/30/03			3/31/04			9/30/03			3/31/04		9/30/03		3/31/04		9/30/03
ASSETS
Current assets
Cash and cash equivalents		13,233			12,149			12,603			11,345			593		725		37		79
Marketable securities		2,233			650			21			101			2,193		529		19		20
Accounts receivable, net		14,053			14,511			(5	)		(9	)		10,626		10,894		3,432		3,626
Intracompany receivables		—			—			(10,980	)		(10,777	)		10,948		10,742		32		35
Inventories, net		10,979			10,366			(4	)		(4	)		10,915		10,284		68		86
Deferred income taxes		1,147			1,063			93			77			971		909		83		77
Other current assets		4,515			4,750			614			736			2,870		3,143		1,031		871

Total current assets		46,160			43,489			2,342			1,469			39,116		37,226		4,702		4,794

Long-term investments		4,283			5,992			19			19			3,945		5,636		319		337
Goodwill		6,078			6,501			—			—			5,994		6,421		84		80
Other intangible assets, net		2,192			2,358			—			—			2,175		2,338		17		20
Property, plant and equipment, net		10,306			10,756			1			1			6,738		7,114		3,567		3,641
Deferred income taxes		4,256			4,359			1,120			1,127			3,071		3,165		65		67
Other assets		4,068			4,150			69			131			1,430		1,371		2,569		2,648
Other intracompany receivables		—			—			(1,183	)		(1,204	)		1,183		1,204		—		—

Total assets		77,343			77,605			2,368			1,543			63,652		64,475		11,323		11,587

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term debt and current maturities of long-term debt		1,645			1,745			918			977			619		646		108		122
Accounts payable		8,469			8,404			(7	)		4			8,281		8,216		195		184
Intracompany liabilities		—			—			(6,563	)		(7,426	)		1,202		1,771		5,361		5,655
Accrued liabilities		8,876			8,884			5			6			8,666		8,748		205		130
Deferred income taxes		939			870			(272	)		(271	)		926		877		285		264
Other current liabilities		11,564			12,125			328			284			10,932		11,578		304		263

Total current liabilities		31,493			32,028			(5,591	)		(6,426	)		30,626		31,836		6,458		6,618

Long-term debt		11,298			11,433			10,131			10,176			692		748		475		509
Pension plans and similar commitments		4,769			5,843			—			—			4,738		5,813		31		30
Deferred income taxes		497			534			171			182			222		250		104		102
Other accruals and provisions		3,694			3,418			26			21			3,352		3,101		316		296
Other intracompany liabilities		—			—			(2,369	)		(2,410	)		365		378		2,004		2,032

		51,751			53,256			2,368			1,543			39,995		42,126		9,388		9,587

Minority interests		635			634			—			—			635		634		—		—
Shareholders’ equity
Common stock, no par value
Authorized: 1,113,237,881 and 1,129,742,969 shares, respectively Issued: 891,027,881 and 890,866,301 shares, respectively		2,673			2,673
Additional paid-in capital		5,085			5,073
Retained earnings		23,978			23,020
Accumulated other comprehensive income (loss)		(6,779	)		(7,051	)
Treasury stock, at cost 27 and 1,184 shares, respectively		—			—

Total shareholders’ equity		24,957			23,715			—			—			23,022		21,715		1,935		2,000

Total liabilities and shareholders’ equity		77,343			77,605			2,368			1,543			63,652		64,475		11,323		11,587

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

SIEMENS AG

CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited)
For the six months ended March 31, 2004 and 2003
(in millions of €)


							Eliminations,
							reclassifications and												Financing and Real
	Siemens worldwide						Corporate Treasury						Operations						Estate
	2004			2003			2004			2003			2004			2003			2004			2003
Cash flows from operating activities
Net income (loss)		1,936			1,089			113			69			1,624			852			199			168
Adjustments to reconcile net income to cash provided
Minority interest		81			47			—			—			81			47			—			—
Amortization, depreciation and impairments		1,843			1,550			—			—			1,644			1,344			199			206
Deferred taxes		(158	)		64			(9	)		3			(133	)		55			(16	)		6
Gains on sales and disposals of businesses and property, plant and equipment, net, and gain from issuance of subsidiary and associated company stock		(121	)		(61	)		—			—			(104	)		(40	)		(17	)		(21	)
Losses (gains) on sales of investments, net		(592	)		3			—			—			(592	)		3			—			—
Losses (gains) on sales and impairments of marketable securities, net		(39	)		21			(10	)		9			(28	)		11			(1	)		1
Loss (income) from equity investees, net of dividends received		(259	)		(53	)		—			—			(274	)		(19	)		15			(34	)
Change in current assets and liabilities
(Increase) decrease in inventories, net		(783	)		(721	)		—			—			(800	)		(731	)		17			10
(Increase) decrease in accounts receivable, net		332			1,027			164			60			179			968			(11	)		(1	)
Increase (decrease) in outstanding balance of receivables sold		19			(537	)		17			(259	)		2			(278	)		—			—
(Increase) decrease in other current assets		551			316			279			152			23			187			249			(23	)
Increase (decrease) in accounts payable		101			(581	)		(13	)		(9	)		103			(585	)		11			13
Increase (decrease) in accrued liabilities		20			148			—			—			20			159			—			(11	)
Increase (decrease) in other current liabilities		(552	)		(1,211	)		(27	)		388			(564	)		(1,469	)		39			(130	)
Supplemental contributions to pension trusts		(1,255	)		(442	)		—			—			(1,255	)		(442	)		—			—
Change in other assets and liabilities		454			613			151			195			304			407			(1	)		11

Net cash provided by (used in) operating activities		1,578			1,272			665			608			230			469			683			195
Cash flows from investing activities
Additions to intangible assets and property, plant and equipment		(1,111	)		(1,210	)		—			—			(893	)		(1,067	)		(218	)		(143	)
Acquisitions, net of cash acquired		(93	)		(32	)		—			—			(88	)		(32	)		(5	)		—
Purchases of investments		(234	)		(92	)		—			—			(230	)		(87	)		(4	)		(5	)
Purchases of marketable securities		(32	)		(15	)		(10	)		(11	)		(22	)		(2	)		—			(2	)
Increase (decrease) in receivables from financing activities		(174	)		(121	)		(243	)		(283	)		—			—			69			162
Increase (decrease) in outstanding balance of receivables sold by SFS		—			—			(17	)		259			—			—			17			(259	)
Proceeds from sales of long-term investments, intangibles and property, plant and equipment		2,078			366			—			—			1,980			262			98			104
Proceeds from sales and dispositions of businesses		224			59			—			—			205			59			19			—
Proceeds from sales of marketable securities		138			34			93			16			44			17			1			1

Net cash provided by (used in) investing activities		796			(1,011	)		(177	)		(19	)		996			(850	)		(23	)		(142	)
Cash flows from financing activities
Proceeds from issuance of common stock		3			—			—			—			3			—			—			—
Proceeds from issuance of treasury shares		—			4			—			—			—			4			—			—
Proceeds from issuance of debt		—			202			—			202			—			—			—			—
Repayment of debt		(265	)		(727	)		(265	)		(727	)		—			—			—			—
Change in short-term debt		101			(594	)		213			(334	)		(82	)		(201	)		(30	)		(59	)
Dividends paid		(978	)		(888	)		—			—			(978	)		(888	)		—			—
Dividends paid to minority shareholders		(62	)		(74	)		—			—			(62	)		(74	)		—			—
Intracompany financing		—			—			899			(1,496	)		(228	)		1,508			(671	)		(12	)

Net cash provided by (used in) financing activities		(1,201	)		(2,077	)		847			(2,355	)		(1,347	)		349			(701	)		(71	)
Effect of exchange rates on cash and cash equivalents		(89	)		(210	)		(77	)		(160	)		(11	)		(49	)		(1	)		(1	)
Net increase (decrease) in cash and cash equivalents		1,084			(2,026	)		1,258			(1,926	)		(132	)		(81	)		(42	)		(19	)
Cash and cash equivalents at beginning of period		12,149			11,196			11,345			10,269			725			873			79			54

Cash and cash equivalents at end of period		13,233			9,170			12,603			8,343			593			792			37			35

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

SIEMENS AG

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (unaudited)
For the six months ended March 31, 2004 and the year ended September 30, 2003
(in millions of €)


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

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

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

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

Net income		—		—		1,936			—			—			—			—			—			1,936
Change in currency translation adjustment		—		—		—			(216	)		—			—			—			—			(216	)
Change in unrealized gains and losses		—		—		—			—			493			(3	)		(2	)		—			488

Total comprehensive income		—		—		1,936			(216	)		493			(3	)		(2	)		—			2,208
Dividends paid		—		—		(978	)		—			—			—			—			—			(978	)
Issuance of common stock		—		12		—			—			—			—			—			—			12
Purchase of common stock		—		—		—			—			—			—			—			(106	)		(106	)
Re-issuance of treasury stock		—		—		—			—			—			—			—			106			106

Balance at March 31, 2004		2,673		5,085		23,978			(1,043	)		576			80			(6,392	)		—			24,957

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

SIEMENS AG

SEGMENT INFORMATION (unaudited)
As of and for the three months ended March 31, 2004 and 2003 and as of September 30, 2003
(in millions of €)


														Intersegment
				New orders						External sales				sales						Total sales						Group profit⁽¹⁾

				2004			2003			2004		2003		2004			2003			2004			2003			2004			2003

Operations Groups
	Information and Communication Networks (ICN)				1,773			1,689			1,467		1,587		151			92			1,618			1,679			37			(147	)
	Information and Communication Mobile (ICM)				2,713			2,300			2,620		2,287		41			42			2,661			2,329			109			55
	Siemens Business Services (SBS)				1,334			1,291			858		1,015		263			323			1,121			1,338			26			25
	Automation and Drives (A&D)				2,180			2,155			1,794		1,735		308			299			2,102			2,034			235			184
	Industrial Solutions and Services (I&S)				1,085			1,018			706		685		277			305			983			990			26			4
	Siemens Dematic (SD)				761			614			469		617		34			41			503			658			(30	)		12
	Siemens Building Technologies (SBT)				1,030			1,238			979		1,158		17			70			996			1,228			16			2
	Power Generation (PG)				2,414			2,213			1,709		1,691		4			—			1,713			1,691			274			262
	Power Transmission and Distribution (PTD)				907			811			721		790		72			56			793			846			63			50
	Transportation Systems (TS)				1,121			1,424			1,010		1,095		7			6			1,017			1,101			(289	)		64
	Siemens VDO Automotive (SV)				2,160			2,185			2,154		2,183		8			2			2,162			2,185			128			119
	Medical Solutions (Med)				1,736			1,845			1,678		1,817		30			13			1,708			1,830			228			255
	Osram				1,088			1,063			1,064		1,056		24			7			1,088			1,063			116			101
	Other operations⁽⁵⁾				528			383			307		294		171			129			478			423			137			87

			Total Operations Groups		20,830			20,229			17,536		18,010		1,407			1,385			18,943			19,395			1,076			1,073
Reconciliation to financial statements
	Corporate items, pensions and eliminations				(1,658	)		(1,679	)		58		56		(1,383	)		(1,338	)		(1,325	)		(1,282	)		(108	)		(386	)
	Other interest expense				—			—			—		—		—			—			—			—			(33	)		(24	)
	Other assets related reconciling items				—			—			—		—		—			—			—			—			—			—

		Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)			19,172			18,550			17,594		18,066		24			47			17,618			18,113			935			663

																										Income before
																										income taxes

Financing and Real Estate Groups
	Siemens Financial Services (SFS)				145			139			124		105		21			34			145			139			66			58
	Siemens Real Estate (SRE)				399			395			76		59		323			336			399			395			45			55
	Eliminations				—			—			—		—		(3	)		(2	)		(3	)		(2	)		—			—

			Total Financing and Real Estate		544			534			200		164		341			368			541			532			111			113

Eliminations, reclassifications and Corporate Treasury					—			—			—		—		(365	)		(415	)		(365	)		(415	)		128			28

Siemens worldwide					19,716			19,084			17,794		18,230		—			—			17,794			18,230			1,174			804

[Additional columns below]

[Continued from above table, first column(s) repeated]


										Net cash from											Amortization,
				Net capital						operating and						Capital					depreciation and
				employed⁽²⁾						investing activities						spending⁽³⁾					impairments⁽⁴⁾

				3/31/04			9/30/03			2004			2003			2004			2003		2004		2003

Operations Groups
	Information and Communication Networks (ICN)				1,105			722			19			19			58			53		71		125
	Information and Communication Mobile (ICM)				1,269			1,367			89			279			46			73		73		66
	Siemens Business Services (SBS)				645			294			(129	)		(67	)		55			27		51		64
	Automation and Drives (A&D)				1,913			1,925			194			275			70			65		67		51
	Industrial Solutions and Services (I&S)				197			167			34			(10	)		5			9		9		12
	Siemens Dematic (SD)				498			877			(43	)		(149	)		10			14		8		13
	Siemens Building Technologies (SBT)				1,393			1,447			112			212			21			24		31		39
	Power Generation (PG)				1,829			1,712			287			117			40			29		45		34
	Power Transmission and Distribution (PTD)				818			798			44			60			25			17		15		16
	Transportation Systems (TS)				(126	)		(252	)		(139	)		(245	)		13			22		17		14
	Siemens VDO Automotive (SV)				3,712			3,949			346			81			97			75		93		106
	Medical Solutions (Med)				3,162			3,128			278			214			57			66		45		48
	Osram				1,935			2,074			136			169			52			51		64		64
	Other operations⁽⁵⁾				1,883			1,515			(20	)		1			17			15		16		14

			Total Operations Groups		20,233			19,723			1,208			956			566			540		605		666
Reconciliation to financial statements
	Corporate items, pensions and eliminations				(3,456	)		(3,781	)		1,511	⁽⁶⁾		(100	)⁽⁶⁾		(3	)		17		438		(6	)
	Other interest expense				—			—			—			—			—			—		—		—
	Other assets related reconciling items				46,875			48,533			—			—			—			—		—		—

		Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)			63,652			64,475			2,719			856			563			557		1,043		660

				Total assets

Financing and Real Estate Groups
	Siemens Financial Services (SFS)				8,428			8,445			688			150			106			39		49		54
	Siemens Real Estate (SRE)				3,515			3,607			112			84			27			39		52		50
	Eliminations				(620	)		(465	)		(17	)⁽⁶⁾		(24	)⁽⁶⁾		—			—		—		—

			Total Financing and Real Estate		11,323			11,587			783			210			133			78		101		104

Eliminations, reclassifications and Corporate Treasury					2,368			1,543			63	⁽⁶⁾		332	⁽⁶⁾		—			—		—		—

Siemens worldwide					77,343			77,605			3,565			1,398			696			635		1,144		764

(1)		Group profit of the Operations Groups is earnings before financing interest, certain pension costs and income taxes.
(2)		Net capital employed of the Operations Groups represents total assets less tax assets, certain accruals and non-interest bearing liabilities other than tax liabilities.
(3)		Intangible assets, property, plant and equipment, acquisitions, and investments.
(4)		Includes amortization and impairments of intangible assets, depreciation of property, plant and equipment, and write-downs of investments.
(5)		Other operations primarily refer to certain centrally-held equity investments and other operating activities not associated with a Group.
(6)		Includes (for Eliminations within Financing and Real Estate consists of) cash paid for income taxes according to the allocation of income taxes to Operations, Financing and Real Estate, and Eliminations, reclassifications and Corporate Treasury in the Consolidated Statements of Income.

SIEMENS AG

SEGMENT INFORMATION (unaudited)
As of and for the six months ended March 31, 2004 and 2003 and as of September 30, 2003
(in millions of €)


														Intersegment
				New orders						External sales				sales						Total sales						Group profit⁽¹⁾

				2004			2003			2004		2003		2004			2003			2004			2003			2004			2003

Operations Groups
	Information and Communication Networks (ICN)				3,622			3,629			3,037		3,301		281			182			3,318			3,483			88			(298	)
	Information and Communication Mobile (ICM)				5,735			4,809			5,536		5,115		82			70			5,618			5,185			232			114
	Siemens Business Services (SBS)				2,733			2,685			1,804		1,989		527			616			2,331			2,605			70			37
	Automation and Drives (A&D)				4,380			4,389			3,526		3,418		626			598			4,152			4,016			456			363
	Industrial Solutions and Services (I&S)				2,214			2,085			1,452		1,414		528			505			1,980			1,919			41			(29	)
	Siemens Dematic (SD)				1,622			1,226			981		1,206		64			74			1,045			1,280			(67	)		24
	Siemens Building Technologies (SBT)				2,135			2,492			2,004		2,313		32			121			2,036			2,434			55			45
	Power Generation (PG)				5,090			4,483			3,609		3,458		6			18			3,615			3,476			519			671
	Power Transmission and Distribution (PTD)				1,927			1,920			1,471		1,547		142			101			1,613			1,648			114			90
	Transportation Systems (TS)				2,141			2,524			2,053		2,171		13			10			2,066			2,181			(257	)		132
	Siemens VDO Automotive (SV)				4,199			4,318			4,191		4,313		10			5			4,201			4,318			228			192
	Medical Solutions (Med)				3,627			3,803			3,300		3,632		56			29			3,356			3,661			555			500
	Osram				2,161			2,186			2,116		2,174		45			12			2,161			2,186			225			207
	Other operations⁽⁵⁾				968			922			585		596		325			316			910			912			178			122

			Total Operations Groups		42,554			41,471			35,665		36,647		2,737			2,657			38,402			39,304			2,437			2,170
Reconciliation to financial statements
	Corporate items, pensions and eliminations				(3,409	)		(3,309	)		95		89		(2,679	)		(2,592	)		(2,584	)		(2,503	)		(465	)		(879	)
	Other interest expense				—			—			—		—		—			—			—			—			(67	)		(26	)
	Other assets related reconciling items				—			—			—		—		—			—			—			—			—			—

		Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)			39,145			38,162			35,760		36,736		58			65			35,818			36,801			1,905			1,265

																										Income before
																										income taxes

Financing and Real Estate Groups
	Siemens Financial Services (SFS)				277			275			230		214		47			61			277			275			123			142
	Siemens Real Estate (SRE)				784			791			133		124		651			667			784			791			99			110
	Eliminations				—			—			—		—		(5	)		(6	)		(5	)		(6	)		—			—

			Total Financing and Real Estate		1,061			1,066			363		338		693			722			1,056			1,060			222			252

Eliminations, reclassifications and Corporate Treasury					—			1			—		1		(751	)		(787	)		(751	)		(786	)		126			101

Siemens worldwide					40,206			39,229			36,123		37,075		—			—			36,123			37,075			2,253			1,618

[Additional columns below]

[Continued from above table, first column(s) repeated]


										Net cash from												Amortization,
				Net capital						operating and						Capital						depreciation and
				employed⁽²⁾						investing activities						spending⁽³⁾						impairments⁽⁴⁾

				3/31/04			9/30/03			2004			2003			2004			2003			2004		2003

Operations Groups
	Information and Communication Networks (ICN)				1,105			722			(123	)		52			94			88			132		236
	Information and Communication Mobile (ICM)				1,269			1,367			325			167			85			146			155		138
	Siemens Business Services (SBS)				645			294			(260	)		(168	)		90			64			106		125
	Automation and Drives (A&D)				1,913			1,925			407			438			123			104			116		106
	Industrial Solutions and Services (I&S)				197			167			2			(53	)		40			21			18		24
	Siemens Dematic (SD)				498			877			(148	)		(238	)		16			23			20		28
	Siemens Building Technologies (SBT)				1,393			1,447			138			176			35			47			63		74
	Power Generation (PG)				1,829			1,712			327			71			80			85			88		66
	Power Transmission and Distribution (PTD)				818			798			103			118			37			29			30		32
	Transportation Systems (TS)				(126	)		(252	)		(187	)		(406	)		24			50			30		29
	Siemens VDO Automotive (SV)				3,712			3,949			442			(3	)		190			255			186		195
	Medical Solutions (Med)				3,162			3,128			294			194			282			140			90		98
	Osram				1,935			2,074			319			314			99			118			127		133
	Other operations⁽⁵⁾				1,883			1,515			(79	)		(56	)		29			23			33		28

			Total Operations Groups		20,233			19,723			1,560			606			1,224			1,193			1,194		1,312
Reconciliation to financial statements
	Corporate items, pensions and eliminations				(3,456	)		(3,781	)		(334	)⁽⁶⁾		(987	)⁽⁶⁾		(13	)		(7	)		450		32
	Other interest expense				—			—			—			—			—			—			—		—
	Other assets related reconciling items				46,875			48,533			—			—			—			—			—		—

		Total Operations (for columns Group profit/Net capital employed, i.e. Income before income taxes/Total assets)			63,652			64,475			1,226			(381	)		1,211			1,186			1,644		1,344

				Total assets

Financing and Real Estate Groups
	Siemens Financial Services (SFS)				8,428			8,445			526			(7	)		164			81			98		108
	Siemens Real Estate (SRE)				3,515			3,607			173			134			63			67			101		98
	Eliminations				(620	)		(465	)		(39	)⁽⁶⁾		(74	)⁽⁶⁾		—			—			—		—

			Total Financing and Real Estate		11,323			11,587			660			53			227			148			199		206

Eliminations, reclassifications and Corporate Treasury					2,368			1,543			488	⁽⁶⁾		589	⁽⁶⁾		—			—			—		—

Siemens worldwide					77,343			77,605			2,374			261			1,438			1,334			1,843		1,550

(1)		Group profit of the Operations Groups is earnings before financing interest, certain pension costs and income taxes.
(2)		Net capital employed of the Operations Groups represents total assets less tax assets, certain accruals and non-interest bearing liabilities other than tax liabilities.
(3)		Intangible assets, property, plant and equipment, acquisitions, and investments.
(4)		Includes amortization and impairments of intangible assets, depreciation of property, plant and equipment, and write-downs of investments.
(5)		Other operations primarily refer to certain centrally-held equity investments and other operating activities not associated with a Group.
(6)		Includes (for Eliminations within Financing and Real Estate consists of) cash paid for income taxes according to the allocation of income taxes to Operations, Financing and Real Estate, and Eliminations, reclassifications and Corporate Treasury in the Consolidated Statements of Income.

SIEMENS AG

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Basis of presentation

The accompanying Consolidated Financial Statements present the operations of Siemens AG and its subsidiaries, (the Company or Siemens). The Consolidated Financial Statements have been prepared in accordance with United States Generally Accepted Accounting Principles (U.S. GAAP). Siemens has prepared and reported its Consolidated Financial Statements in euros (€).

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

Interim financial statements—The accompanying Consolidated Balance Sheet as of March 31, 2004, the Consolidated Statements of Income for the three months and six months ended March 31, 2004 and 2003, the Consolidated Statements of Cash Flow for the six months ended March 31, 2004 and 2003, the Consolidated Statements of Changes in Shareholders’ Equity for the six months ended March 31, 2004 and the Notes to the Consolidated Financial Statements are unaudited and have been prepared for interim financial information. The interim financial statements are based on the accounting principles and practices applied in the preparation of the financial statements for the last fiscal year except as indicated below. In the opinion of management, these unaudited Consolidated Financial Statements include all adjustments of a normal and recurring nature and necessary for a fair presentation of results for the interim periods. These interim financial statements should be read in connection with the Consolidated Financial Statements included in the Company’s 2003 Annual Report. Results for the three months and six months ended March 31, 2004 are not necessarily indicative of future results.

Financial statement presentation—The presentation of the Company’s worldwide financial data (Siemens worldwide) is enhanced by a component model presentation that shows the worldwide financial position, results of operations and cash flows for the operating business (Operations) separately from that for the financing and real estate activities (Financing and Real Estate), the Corporate Treasury and certain elimination and reclassification effects (Eliminations, reclassifications and Corporate Treasury). These components contain the Company’s reportable segments (also referred to as “Groups”). The financial data presented for these components are not intended to present the financial position, results of operations and cash flows as if they were separate entities under U.S. GAAP (see also Note 16). The information disclosed in these Notes relates to Siemens worldwide unless otherwise stated.

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

Use of estimates—The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent amounts at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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

SIEMENS AG

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

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


	Three months ended						Six months ended
	March 31,						March 31,
	2004			2003			2004			2003
Net income
As reported		1,210			568			1,936			1,089
Plus: Stock-based employee compensation expense included in reported net income, net of taxes		5			—			41			28
Less: Stock-based employee compensation expense determined under fair value based accounting method, net of taxes		(22	)		(30	)		(70	)		(87	)

Pro forma		1,193			538			1,907			1,030

Basic earnings per share
As reported		1.36			0.64			2.17			1.22
Pro forma		1.34			0.61			2.14			1.16
Diluted earnings per share
As reported		1.30			0.64			2.08			1.22
Pro forma		1.28			0.61			2.05			1.16

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

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

SIEMENS AG

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

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

Disposition

In the first quarter of fiscal 2004, Med realized €116 in gains from portfolio transactions. Included in this amount was a pre-tax gain of €100 in connection with Med’s sale of its Life Support Systems business to Getinge AB, Sweden. Net proceeds from the sale totaled €171 as of March 31, 2004. As stipulated by the contribution agreement for the joint venture Draeger Medical AG & Co. KGaA (Draeger), Siemens contributed to Draeger these net proceeds less expected taxes on the sale.

Infineon transaction

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

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


	March 31, 2004					September 30, 2003
				shares in					shares in
				thousands					thousands
Siemens’ ownership interest		18.2	%		136,292		39.7	%		286,292
Less: Non-voting trust’s interest		18.2	%		136,292					200,000

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

Based upon total Infineon shares outstanding at March 31, 2004 and September 30, 2003, respectively, less 136.3 million shares and 200 million shares, respectively, in the non-voting trust. As of March 31, 2004, the Company has no active voting interests based on the total shares outstanding. As of September 30, 2003, the Company’s total voting interest was 12.0% based on the total shares outstanding.

In the second quarter of fiscal 2004, the Company relinquished its ability to exercise significant influence over the operating and financial policies of Infineon. Consequently, the Company ceased accounting for its interest in Infineon under the equity method and began accounting for its interest as an available-for-sale marketable security at fair market value. The excess of the fair market value over the prior carrying value of the investment is recorded as a separate component of Accumulated Other Comprehensive Income as an unrealized gain. As of March 31, 2004, the cost, fair value and unrealized gain for the Company’s investment in Infineon totaled €1,094, €1,622 and €528, respectively.

SIEMENS AG

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

Other operating income (expense), net


	Three months ended					Six months ended
	March 31,					March 31,
	2004			2003		2004			2003
Impairment of goodwill		(433	)		—		(433	)		—
Gain (loss) on sales and disposals of businesses, net		(8	)		5		94			21
Gain on sales of property, plant and equipment, net		16			29		27			40
Other, net		2			35		(12	)		223

		(423	)		69		(324	)		284

During the second quarter of fiscal 2004, the Company recorded an Impairment of goodwill of €433 (see Note 8). Gain on sales and disposals of businesses, net for the six months ended March 31, 2004 includes a pre-tax gain of €100 from the Company’s sale of its Life Support Systems business to Getinge AB, Sweden (see Note 2). The decrease in line item Other, net is primarily due to the cancellation of orders at PG resulting in net gains of €258 recognized in the six months ended March 31, 2003.

Interest income, net


	Three months ended						Six months ended
	March 31,						March 31,
	2004			2003			2004			2003
Interest income (expense) of Operations, net		5			8			4			21
Other interest (expense) income, net		72			35			124			111

Total interest income, net		77			43			128			132

Thereof: Interest and similar income		181			183			352			392
Thereof: Interest and similar expense		(104	)		(140	)		(224	)		(260	)

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

SIEMENS AG

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

Inventories, net


	March 31, 2004			September 30, 2003
Raw materials and supplies		2,216			2,118
Work in process		2,246			2,066
Costs and earnings in excess of billings on uncompleted contracts		6,480			5,787
Finished goods and products held for resale		2,785			2,770
Advances to suppliers		747			795

		14,474			13,536
Advance payments received		(3,495	)		(3,170	)

		10,979			10,366

Long-term investments


	March 31, 2004		September 30, 2003
Investments in associated companies		2,934		4,834
Miscellaneous investments		1,349		1,158

		4,283		5,992

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

Goodwill

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


	March 31,		September 30,
	2004		2003
Operations
Information and Communication Networks (ICN)		254		249
Information and Communication Mobile (ICM)		95		96
Siemens Business Services (SBS)		274		281
Automation and Drives (A&D)		344		328
Industrial Solutions and Services (I&S)		84		67
Siemens Dematic (SD)		123		564
Siemens Building Technologies (SBT)		414		429
Power Generation (PG)		1,021		943
Power Transmission and Distribution (PTD)		147		141
Transportation Systems (TS)		111		115
Siemens VDO Automotive (SV)		1,524		1,524
Medical Solutions (Med)		1,524		1,602
Osram		79		82
Financing and Real Estate
Siemens Financial Services (SFS)		84		80
Siemens Real Estate (SRE)		—		—

Siemens worldwide		6,078		6,501

Goodwill decreased by €423 which was mainly attributable to impairment charges to businesses acquired by the Company (see below). The strength of the euro particularly against the U.S.$ resulted in a further decrease of goodwill, resulting in foreign currency translation and other adjustments of €(97) primarily to the Company’s businesses in the U.S. Med’s sale of its Life Support Systems business and a smaller disposition at SBT additionally reduced goodwill by €(40). Acquisitions and purchase accounting adjustments resulted in a total increase in goodwill of €147 which were attributable to PG, A&D, I&S, Med and ICN.

SIEMENS AG

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

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

In the six months ended March 31, 2003, Goodwill increased by €97 from minor acquisitions primarily at SBS, PG and Med, and decreased by €285 from currency translation effects and by €20 from minor dispositions primarily at SD. No goodwill was impaired or written-off in the six months ended March 31, 2003.

Other intangible assets, net


	March 31,			September 30,
	2004			2003
Software		1,772			1,659
Less: accumulated amortization		(844	)		(664	)

Software, net		928			995

Patents, licenses and similar rights		2,400			2,523
Less: accumulated amortization		(1,136	)		(1,160	)

Patents, licenses and similar rights, net		1,264			1,363

Other intangible assets, net		2,192			2,358

Amortization expense for the three months ended March 31, 2004 and 2003 amounted to €154 and €142, respectively, and €309 and €283 for the six months ended March 31, 2004 and 2003, respectively.

SIEMENS AG

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

10.

Accrued liabilities


	March 31, 2004		September 30, 2003
Employee related costs		2,362		2,366
Product warranties		1,816		1,830
Income and other taxes		1,276		1,234
Accrued losses on uncompleted contracts		1,078		987
Other		2,344		2,467

		8,876		8,884

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


	Six months ended
	March 31,
	2004			2003
Accrual as of the beginning of the period		2,353			2,094
Amount charged to expense in the current period (additions)		248			295
Reduction due to payments in cash or in kind (usage)		(308	)		(250	)
Foreign exchange translation adjustment		(16	)		(51	)
Other changes related to existing warranties		232			66

Accrual as of the end of the period		2,509			2,154

SIEMENS AG

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

11. Pension plans and similar commitments

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


	Three months ended									Three months ended
	March 31, 2004									March 31, 2003
	Total			Domestic			Foreign			Total			Domestic			Foreign
Service cost		119			53			66			117			53			64
Interest cost		276			186			90			278			192			86
Expected return on plan assets		(289	)		(203	)		(86	)		(274	)		(203	)		(71	)
Amortization of:
Unrecognized prior service cost		2			—			2			3			—			3
Unrecognized net losses		156			130			26			112			98			14
Unrecognized net transition asset		(1	)		—			(1	)		—			—			—
Loss due to settlements and curtailments		—			—			—			6			—			6

Net periodic pension cost		263			166			97			242			140			102

Siemens German Pension Trust		166									140
U.S.		52									56
U.K.		34									29
Other		11									17


	Six months ended March 31, 2004									Six months ended March 31, 2003
	Total			Domestic			Foreign			Total			Domestic			Foreign
Service cost		235			106			129			247			106			141
Interest cost		551			372			179			567			384			183
Expected return on plan assets		(577	)		(406	)		(171	)		(559	)		(407	)		(152	)
Amortization of:
Unrecognized prior service cost		5			—			5			6			—			6
Unrecognized net losses		311			260			51			227			196			31
Unrecognized net transition asset		(1	)		—			(1	)		—			—			—
Loss due to settlements and curtailments		—			—			—			6			—			6

Net periodic pension cost		524			332			192			494			279			215

Siemens German Pension Trust		332									279
U.S.		106									127
U.K.		65									57
Other		21									31

SIEMENS AG

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

Other postretirement benefits: Components of net periodic benefit cost:


	Three months ended									Three months ended
	March 31, 2004									March 31, 2003
	Total			Domestic			Foreign			Total			Domestic			Foreign
Service cost		11			4			7			9			4			5
Interest cost		16			7			9			15			7			8
Amortization of:
Unrecognized prior service cost		(1	)		—			(1	)		(1	)		—			(1	)
Unrecognized net (gains) losses		(2	)		(3	)		1			(3	)		(1	)		(2	)
Gain due to settlements and curtailments		—			—			—			(27	)		—			(27	)

Net periodic benefit cost		24			8			16			(7	)		10			(17	)


	Six months ended March 31, 2004									Six months ended March 31, 2003
	Total			Domestic			Foreign			Total			Domestic			Foreign
Service cost		22			8			14			21			9			12
Interest cost		30			13			17			34			15			19
Amortization of:
Unrecognized prior service cost		(2	)		—			(2	)		(3	)		—			(3	)
Unrecognized net (gains) losses		(5	)		(6	)		1			(6	)		(3	)		(3	)
Gain due to settlements and curtailments		—			—			—			(27	)		—			(27	)

Net periodic benefit cost		45			15			30			19			21			(2	)

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was issued in the U.S. In accordance with FASB Staff Position (FSP) FAS 106-1, any measure of the Accumulated Postretirement Benefit Obligation (APBO) or net periodic postretirement benefit cost in the financial statements or accompanying notes do not reflect the effects of the Act on the plan. Specific authoritative guidance on the accounting for the federal subsidy prescribed by the Act is pending and that guidance, when issued, could require the sponsor to change previously reported information.

12. Shareholders’ equity

Common stock and Additional paid-in capital

The following table provides a summary of outstanding capital and the changes in authorized and conditional capital for the six months ended March 31, 2004 and fiscal year 2003:


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

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

Stock options		157		52		—			—			(157	)		(52	)
Settlement to former SNI shareholders		328		110		—			—			(328	)		(110	)
New approved capital		—		—		600,000			200,000			733,528			244,509
Expired capital		—		—		(650,000	)		(216,667	)		(267,000	)		(89,000	)

As of March 31, 2004		2,673,084		891,028		666,630			222,210			925,659			308,553

SIEMENS AG

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

Capital increases

In the six months ended March 31, 2004, common stock increased by €157 thousand through the issuance of 52,200 shares from the conditional capital to fund the exercise of stock options granted under the 1999 Siemens Stock Option Plan (Conditional Capital 1999).

In the six months ended March 31, 2004, common stock increased by €328 thousand through the issuance of approximately 110 thousand shares from the conditional capital as settlement to former shareholders of SNI AG.

Treasury stock

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

In the six months ended March 31, 2004, Siemens repurchased a total of 1,700,228 shares at an average price of €62.24 per share for the purpose of issuing them to employees at preferential prices. The Company issued 1,701,385 shares to employees in the six months ended March 31, 2004 at a preferential price of €40.90 per share. Compensation expense of €35, measured in accordance with the fair value provisions of SFAS 123, was recorded under the compensatory employee stock purchase plan in the six months ended March 31, 2004.

Authorized and conditional capital

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

By resolution of the Annual Shareholders’ Meeting on January 22, 2004, Conditional Capital 2003 of €267 (representing 89 million shares) was terminated. The Company’s shareholders authorized the Managing Board to issue bonds in an aggregate principal amount of up to €11,250 with conversion rights (convertible bonds) or with warrants entitling the holders to subscribe to up to 200 million new shares of Siemens AG, representing a pro rata amount of up to €600 of the capital stock. Since the Conditional Capital 2003 has partly been utilized, the new Conditional Capital 2004 permits the issuance of shares under the new authorization and the issuance of shares to service bonds issued under the old authorization. Therefore, total Conditional Capital 2004 allows the issuance of up to €734 representing 245 million shares of Siemens AG. The authorization will expire on January 21, 2009.

SIEMENS AG

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

13. Commitments and contingencies

Guarantees and other commitments

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


	March 31,		September 30,
	2004		2003
Discounted bills of exchange		36		61
Guarantees:
Credit guarantees		440		515
Guarantees of third-party performance		415		559
Other guarantees		834		704

		1,689		1,778

Credit guarantees cover 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 to five years. Except for statutory recourse provisions against the primary debtor, credit guarantees are generally not subject to additional contractual recourse provisions. As of March 31, 2004 and September 30, 2003, the Company has accrued €102 and €125, respectively, relating to credit guarantees.

Furthermore, Siemens issues Guarantees of third-party performance, which include performance guarantees and guarantees of advanced payments in cases where Siemens is the general or subsidiary partner in a consortium. In the event of non-fulfillment of contractual obligations by the consortium partner(s), 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.

Other guarantees include 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 March 31, 2004 and September 30, 2003, the total accruals for Other guarantees amounted to €163 and €196, respectively.

14. Stock-based compensation

In November 2003, the Supervisory Board and the Managing Board granted options to 5,625 key executives for 8,678,752 shares with an exercise price of €73.25 of which options for 262,500 shares were granted to the Managing Board. The options were granted under the 2001 Siemens Stock Option Plan. The exercise price of €73.25 is equal to 120% of the average opening market price of Siemens AG during the five trading days preceding the date of the stock option grant. The options are subject to a two-year vesting period, after which they may be exercised for a period of up to three years.

SIEMENS AG

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

Details on option activity and weighted average exercise prices for the six months ended March 31, 2004 and 2003, are as follows:


	Six months ended March 31, 2004					Six months ended March 31, 2003
				Weighted Average					Weighted Average
	Options			Exercise Price		Options			Exercise Price
Outstanding, beginning of the period		20,410,876		€	69.82		11,648,767		€	82.85
Granted		8,678,752		€	73.25		9,397,005		€	53.70
Options exercised		(52,200	)	€	57.73		—			—
Options forfeited		(493,310	)	€	72.77		(287,648	)	€	66.49

Outstanding, end of period		28,544,118		€	70.83		20,758,124		€	69.88

Exercisable, end of period		11,005,406		€	82.88		4,652,896		€	76.38

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

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

15. Earnings per share


	Three months ended March 31,				Six months ended March 31,
	2004		2003		2004		2003
	(shares in thousands)				(shares in thousands)
Net income		1,210		568		1,936		1,089
Plus: interest on dilutive convertible debt securities		5		—		10		—

Net income plus effect of assumed conversions		1,215		568		1,946		1,089
Weighted average shares outstanding—basic		890,242		889,049		890,357		889,425
Effect of dilutive convertible debt securities and stock options		45,865		—		45,756		—

Weighted average shares outstanding—diluted		936,107		889,049		936,113		889,425
Basic earnings per share		1.36		0.64		2.17		1.22
Diluted earnings per share		1.30		0.64		2.08		1.22

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

16. Segment information

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

SIEMENS AG

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

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

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

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

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

Operations

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

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

Similarly, decision-making regarding essential pension items is done centrally. As a consequence, Group profit includes only amounts related to the service cost of pension plans, while all other pension related costs (including charges for the German pension insurance association and plan administration costs) are included in the line item Corporate items, pensions and eliminations. Until September 30, 2003, only service costs of foreign pension plans were allocated to the Groups. Beginning October 1, 2003, management decided to also allocate directly attributable service costs of domestic pension plans to the Groups. Group profit of the Operations Groups and Income before income taxes of Financing and Real Estate as well as the line item Corporate items, pensions and eliminations would have amounted to €1,115, €112, and €(148), respectively, had the corresponding €40 service costs of domestic pension plans not been allocated to the Groups in the three months ended March 31, 2004. In the six months ended March 31, 2004, Group profit of the Operations Groups and Income before income taxes of Financing and Real Estate as well as the line item Corporate items, pensions and eliminations would have amounted to €2,522, €224 and €(552), respectively, had the corresponding €87 service costs of domestic pension plans not been allocated to the Groups.

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

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

SIEMENS AG

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

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

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

Reconciliation to financial statements

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

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

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


	Six months ended March 31,
	2004			2003
Corporate items		(89	)		(484	)
Pensions		(364	)		(404	)
Eliminations		(12	)		9

		(465	)		(879	)

In the six months ended March 31, 2004 and 2003, Corporate items include a pre-tax gain of €590 and €—, respectively from the sale of Infineon shares (see Note 3), €14 and €(144), respectively, representing the Company’s at-equity share in the net income (loss) generated by Infineon, and impairment charges to businesses acquired by SD of €433 and €—, respectively (see Note 8).

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

SIEMENS AG

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

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


	March 31,			September 30,
	2004			2003
Total assets of Operations		63,652			64,475

Asset-based adjustments
Intracompany financing receivables and investments		(12,115	)		(11,931	)
Tax related assets		(4,304	)		(4,373	)
Liability-based adjustments
Pension plans and similar commitments		(4,738	)		(5,813	)
Accruals		(5,968	)		(6,022	)
Liabilities to third parties		(19,750	)		(20,394	)

Total adjustments (line item Other assets related reconciling items within the Segment Information table)		(46,875	)		(48,533	)
Net capital employed of Corporate items, pensions and eliminations		3,456			3,781

Net capital employed of Operations Groups		20,233			19,723

Financing and Real Estate

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

For the three months ended March 31, 2004 and 2003, Income before income taxes at SFS includes interest revenue of €109 and €114, respectively, and interest expense of €54 and €70, respectively. For the six months ended March 31, 2004 and 2003, Income before income taxes at SFS includes interest revenue of €216 and €233, respectively, and interest expense of €111 and €141, respectively.

For the three months ended March 31, 2004 and 2003, Income before income taxes at SRE includes interest revenue of €2 and €1, respectively, and interest expense of €18 and €23, respectively. For the six months ended March 31, 2004 and 2003, Income before income taxes at SRE includes interest revenue of €4 and €4, respectively, and interest expense of €43 and €54, respectively.

Eliminations, reclassifications and Corporate Treasury

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

Quarterly Summary
(in € unless otherwise indicated)


	Fiscal 2004					Fiscal 2003
	2nd Quarter		1st Quarter			4th Quarter		3rd Quarter		2nd Quarter		1st Quarter
Net sales (in millions of €)		17,794		18,329			19,778		17,380		18,230		18,845
Net income (in millions of €)		1,210		726			724		632		568		521
Net cash from operating and investing activities (in millions of €)		3,565		(1,191	)		1,246		266		1,398		(1,137	)

Key capital market data
Basic earnings per share		1.36		0.82			0.81		0.71		0.64		0.59
Diluted earnings per share		1.30		0.78			0.81		0.71		0.64		0.59
Siemens stock price ⁽¹⁾
High		68.30		64.85			58.32		46.15		45.04		51.37
Low		57.30		52.02			41.35		37.80		32.55		32.05
Period-end		60.07		63.50			51.14		42.72		37.80		40.50
Siemens stock performance on a quarterly basis (in percentage points)
Compared to DAX^® index		–2.22		+2.96			+19.15		–19.17		+10.15		+15.36
Compared to Dow Jones STOXX^® index		–8.75		+13.59			+17.81		–2.75		+5.85		+16.00
Number of shares (in millions)		891		891			891		890		890		890
Market capitalization at period-end (in millions of €)		53,524		56,575			45,559		38,041		33,656		36,060
Credit rating of long-term debt
Standard & Poor’s	AA–		AA–			AA–		AA–		AA–		AA–
Moody’s	Aa3		Aa3			Aa3		Aa3		Aa3		Aa3

(1)

XETRA closing prices, Frankfurt.

Supervisory Board Changes

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

Managing Board Change

Effective January 1, 2004, Dr. Klaus Kleinfeld was elected to the Corporate Executive Committee of Siemens’s Managing Board. This election was approved on November 12, 2003 at the meeting of the Supervisory Board.

SIEMENS FINANCIAL CALENDAR*


Third-quarter financial report		July 29, 2004
Preliminary figures for fiscal year/Press conference		Nov. 11, 2004
Annual Shareholders’ Meeting for fiscal 2004		Jan. 27, 2005

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

Information resources


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

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

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


	SIGNATURES

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


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


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