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Table of contents

Key figures

Interim group management report

Condensed Interim Consolidated Financial Statements

Notes

Supervisory Board and Managing Board

Review report

Quarterly summary

Siemens financial calendar

 

 

 

 

 

Introduction

     Siemens AG’s Interim Report for the Siemens Group complies with the applicable legal requirements of the German Securities Trading Act (Wertpapierhandelsgesetz — WpHG) regarding quarterly financial reports, and comprises Condensed Interim Consolidated Financial Statements and an Interim group management report in accordance with § 37x (3) WpHG. The Condensed Interim Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU). The Condensed Interim Consolidated Financial Statements also comply with IFRS as issued by the IASB. This Interim Report should be read in conjunction with our Annual Report for fiscal 2009, which includes detailed analysis of our operations and activities.

     Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.

Key figures(1)		Q1 2010(2)

(unaudited; in millions of €, except where otherwise stated)

(1)		New orders and order backlog; adjusted or organic growth rates of Revenue and new orders; book-to-bill ratio; ROE, ROCE; Free cash flow; cash conversion rate; EBITDA (adjusted); net debt and adjusted industrial net debt are or may be non-GAAP financial measures. A definition of these supplemental financial measures, a reconciliation to the most directly comparable IFRS financial measures and information regarding the usefulness and limitations of these supplemental financial measures are available on our Investor Relations website under www.siemens.com/nonGAAP.
(2)		October 1, 2009 — December 31, 2009.
(3)		Adjusted for portfolio and currency translation effects.
(4)		During the second quarter of fiscal 2009 Electronics Assembly Systems was reclassified to Centrally managed portfolio activities. The presentation of certain prior-year information was reclassified accordingly.
(5)		Earnings per share — attributable to shareholders of Siemens AG. For fiscal 2010 and 2009 weighted average shares outstanding (basic) (in thousands) for the first quarter amounted to 866,838 and 862,005 respectively.
(6)		Discontinued operations consist of Siemens VDO Automotive activities as well as of carrier networks, enterprise networks and mobile devices activities.
(7)		Continuing and discontinued operations.
(8)		Profit margin including PPA effects for Healthcare is 18.5% and for Diagnostics 14.7%.
(9)		Return on equity is calculated as annualized Income before income taxes of Q1 divided by average allocated equity for the first quarter of fiscal 2010 (€ 1.466 billion).

Interim group management report

Overview of financial results for the first quarter of fiscal 2010
(Three months ended December 31, 2009)

	•		First-quarter revenue of €17.352 billion was down 12% compared to the prior-year period, yet exceptional execution and a favorable revenue mix helped lift Total Sectors profit 11%, to €2.255 billion.
	•		Orders of €18.976 billion came in 15% lower compared to the prior-year period, including expected contraction in industrial and energy infrastructure markets that typically lag macroeconomic cycles.
	•		The book-to-bill ratio was 1.09 and the backlog for the Sectors was €83 billion.
	•		Income from continuing operations rose 21%, to €1.526 billion, and net income increased 24%, to €1.531 billion. Basic EPS was €1.70 for both.
	•		Free cash flow from continuing operations was a positive €725 million compared to a negative €1.574 billion in the first quarter a year ago.

     Management’s perspective on first-quarter results and the economic environment. In the view of the management of Siemens, earnings for the first quarter provide a gratifying snapshot of the current situation. The actions taken by Siemens at an early stage of the financial crisis and global recession are now cushioning Siemens from the ongoing repercussions, including continued contraction in some markets we serve and stabilization of demand at a lower level in others. Siemens continues to tackle all challenges decisively and in a responsible manner.

     Shorter-cycle demand stabilizing, some energy and industrial markets still contracting. As expected, market development was mixed in the first quarter. While some short-cycle businesses saw signs that demand is stabilizing at a lower level, some industrial and energy infrastructure businesses experienced further market contraction. Thus orders came in 15% below the prior-year period but rose on a consecutive-quarter basis. The decline in revenue year-over-year was smaller, at 12%, in part because Divisions with strong order backlogs were able to convert prior orders to current business. The Sectors’ combined book-to-bill ratio came in at 1.09, and their total order backlog rose on a consecutive-quarter basis, to €83 billion. On an organic basis, excluding currency translation and portfolio effects, revenue declined 8% and orders decreased 11%.

     Order declines continue at Energy and Industry. Orders came in lower for all Sectors compared to the prior-year period. Order intake declined 19% in Energy due primarily to market contraction and increased pricing pressure. Orders increased strongly at Renewable Energy, including a high volume from large orders. Orders fell 16% in Industry, due mainly to lower demand at Industry Solutions and Drive Technologies. Healthcare orders came in 1% below the prior-year level, and increased on an organic basis. On a geographic basis, orders declined in all regions, including substantially lower volume from large fossil power generation contracts in the region comprising Europe, Commonwealth of Independent States (C.I.S.), Africa, Middle East.

     Revenue lower in all Sectors and regions. The Industry Sector was the primary factor in lower revenue year-over-year, reporting a 13% decline in the first quarter on lower sales at Drive Technologies, Industry Solutions, Building Technologies and Industry Automation. Energy reported a revenue decline of 10% on lower volume in all Divisions. Healthcare revenue declined modestly compared to the prior-year period, and rose on an organic basis. First-quarter revenue declined year-over-year in all three regions. The sharpest decline came in the Americas, including strong negative currency translation effects from the U.S. Within the decline in Asia, Australia, both India and China posted higher revenue compared to the first quarter a year ago.

     Healthcare and Energy take Total Sectors profit higher. Total Sectors profit for the first quarter climbed 11% year-over-year, to €2.255 billion, despite the 12% decline in revenue mentioned above. A favorable revenue mix and cost situation lifted the Sectors’ combined gross margin, and functional costs were significantly lower, particularly for Marketing, selling and general administrative (SG&A) expenses. Total Sectors profit also included a €45 million gain on the sale of a business. Healthcare was the primary driver of the increase in Total Sectors profit, with a double-digit profit increase in its imaging business and a profit rebound in the solutions business compared to the first quarter a year earlier. Energy’s contribution to the increase in Total Sectors profit came primarily from its fossil power generation business. While Industry accounted for the largest share of Total Sectors profit, its first-quarter result was lower than a year earlier.

     Total Sectors profit lifts income from continuing operations. Income from continuing operations rose 21% year-over-year, to €1.526 billion, and basic EPS on a continuing basis rose to €1.70 from €1.43 a year earlier. A major factor in the increase was higher Total Sectors profit. In addition, Corporate Treasury results rose on lower interest expense and higher results from interest rate derivatives not qualifying for hedge accounting.

     Net income driven by continuing operations. Net income in both periods under review was generated almost entirely by income from continuing operations. Net income in the current quarter was €1.531 billion, up 24% from €1.230 billion in the same period a year earlier. Corresponding basic EPS for the current quarter was €1.70 compared to €1.40 for the prior-year period.

     Strong Free cash flow. Free cash flow at the Sector level climbed to €1.615 billion compared to €387 million in the same quarter a year earlier. The current period benefited from improved net working capital management and tight control of capital expenditures. Free cash flow from continuing operations was a positive €725 million compared to a negative €1.574 billion in the first quarter a year ago.

That prior-year quarter included €1.008 billion in cash outflows associated with the settlement of legal proceedings. An additional €0.2 billion in outflows stemmed from charges related to project reviews and structural initiatives as well as to SG&A reduction; the current period includes a similar amount in outflows related to severance charges. The cash conversion rate for the first quarter was 0.47, well above the prior-year level.

     ROCE rises on higher income. On a continuing basis, ROCE for the first quarter of fiscal 2010 increased by 3 percentage points year-over-year to 15.9%. The difference was mainly due to higher income from continuing operations. To a lesser extent, ROCE also benefited from a decline in average capital employed.

     Pension underfunding increases. The estimated underfunding of Siemens’ principal pension plans as of December 31, 2009, amounted to approximately €4.2 billion, compared to an underfunding of approximately €4.0 billion at the end of fiscal 2009. A positive return on plan assets was more than offset by an increase in the defined benefit obligation (DBO). While the change in funded status in general does not affect earnings for the current fiscal year, it impacts equity on the Consolidated Statements of Financial Position.

     The following discussion presents selected information for Siemens for the first quarter of fiscal 2010:

     Orders and revenue

     As expected, market development was mixed in the first quarter of fiscal 2010. While some short-cycle businesses saw signs that demand is stabilizing at a lower level, some industrial and energy infrastructure businesses experienced further market contraction. Thus first-quarter orders came in 15% below the prior-year period but rose on a consecutive-quarter basis. The decline in revenue year-over-year was smaller, at 12%, in part because Divisions with strong order backlogs were able to convert prior orders to current business. With orders exceeding revenue in all three Sectors, our book-to-bill ratio came in at 1.09 and the combined order backlog for the Sectors rose on a consecutive-quarter basis, to €83 billion. Out of the current backlog, orders of €32 billion are expected to be converted into revenue during fiscal 2010. On an organic basis, excluding the net effect of currency translation and portfolio transactions, revenue declined 8% and orders decreased 11% compared to the same period a year earlier.

		New Orders (location of customer)
		First three months
		of fiscal								% Change								therein
(in millions of € )		2010				2009(1)				Actual				Adjusted(2)				Currency				Portfolio
Europe, C.I.S.(3), Africa, Middle East			10,823				13,365				(19	)%			(17	)%			(1	)%			(1	)%
therein Germany			2,906				3,930				(26	)%			(26	)%			0	%			0	%
Americas			5,134				5,498				(7	)%			0	%			(7	)%			0	%
therein U.S.			3,798				4,258				(11	)%			(1	)%			(10	)%			0	%
Asia, Australia			3,019				3,357				(10	)%			(7	)%			(3	)%			0	%
therein China			1,160				1,176				(1	)%			5	%			(6	)%			0	%
therein India			467				585				(20	)%			(12	)%			(8	)%			0	%
Siemens			18,976				22,220				(15	)%			(11	)%			(3	)%			(1	)%

     Orders related to external customers decreased 15% in the first quarter of fiscal 2010, including declines in all three Sectors. Order intake declined strongest in Energy due primarily to market contraction, particularly at Fossil Power Generation, and increased pricing pressure. Within the Energy Sector, only Renewable Energy posted order growth compared to the same period a year ago, on a higher volume from major orders. The Industry Sector – our largest Sector – saw orders decline 16% compared to the prior-year period, due mainly to lower demand at Industry Solutions and Drive Technologies. At both Divisions, the long-cycle businesses experienced adverse effects from the recession and contraction in their respective markets. Healthcare orders came in 1% below the prior-year level, and increased on an organic basis.

     In the region Europe, C.I.S., Africa, Middle East – our largest reporting region – orders declined 19% on decreases in all Sectors. The decline was most pronounced in the Energy Sector, where a 30% drop in order intake was due primarily to a significantly lower volume from large orders at Fossil Power Generation. The Industry Sector also recorded a double-digit order decline in the region, despite two large rolling stock orders from Russia at the Mobility Division. For comparison, a major contract win in the first quarter of fiscal 2009 at Mobility was a major factor for the overall 26% order decline in Germany year-over-year. Healthcare orders declined 4% in the region comprising Europe, C.I.S., Africa and the Middle East. Siemens has decided that, as a general rule, it will not enter into new contracts with customers in Iran. However, legally binding bids submitted in the past and existing agreements will be honored. The 7% order decline in the Americas was driven by strong negative currency translation effects from the U.S. On an organic basis, orders came in level in the Americas and decreased only modestly in the U.S. Industry posted a decline of 19% in the Americas region, including decreases in all Divisions. Organic order growth in the Healthcare Sector was more than offset by currency translation effects. A number of major contract wins at Renewable Energy contributed to order growth of 9% in Energy in the region, offsetting lower order intake in other Divisions in the Sector. In Asia, Australia orders declined 10% year-over-year due to decreases in Industry and Energy, driven by a lower volume from large orders at Industry Solutions and Fossil Power Generation, respectively.

The Healthcare Sector posted a 24% order increase in the region. The order decline of 20% in India was largely due to a major contract win in the prior-year period at Industry Solutions and to negative currency translation effects.

		Revenue (location of customer)
		First three months
		of fiscal								% Change								therein
(in millions of € )		2010				2009(1)				Actual				Adjusted(2)				Currency				Portfolio
Europe, C.I.S.(3), Africa, Middle East			9,970				11,240				(11	)%			(8	)%			(2	)%			(1	)%
therein Germany			2,681				3,165				(15	)%			(15	)%			0	%			(1	)%
Americas			4,376				5,370				(19	)%			(13	)%			(6	)%			0	%
therein U.S.			3,167				4,063				(22	)%			(14	)%			(8	)%			0	%
Asia, Australia			3,005				3,024				(1	)%			1	%			(2	)%			0	%
therein China			1,231				1,200				3	%			8	%			(5	)%			0	%
therein India			399				361				10	%			15	%			(5	)%			0	%
Siemens			17,352				19,634				(12	)%			(8	)%			(3	)%			(1	)%

     Revenue related to external customers declined 12% compared to the prior-year quarter, including decreases in all Sectors. The Industry Sector was the primary factor in lower revenue year-over-year, reporting a 13% decline in the first quarter on lower sales at Drive Technologies, Industry Solutions, Building Technologies and Industry Automation. The Energy Sector reported a revenue decline of 10% on lower volume in all Divisions, particularly including a sharp, short-term revenue drop at Renewable Energy. Due primarily to negative currency translation effects, Healthcare revenue declined modestly compared to the prior-year period.

     In Europe, C.I.S., Africa, Middle East, first-quarter revenue decreased 11% year-over-year due largely to lower sales in the Industry Sector. Within the Sector, only OSRAM recorded higher revenue compared to the prior-year period, and the Drive Technologies Division posted the sharpest decline. Drive Technologies was also the major factor in the overall 15% revenue decrease in Germany. Revenues in Energy and Healthcare decreased only slightly in the Europe, C.I.S., Africa, Middle East region. In the Americas, revenue fell 19% compared to the prior-year period on double-digit declines in all Sectors, influenced by strong negative currency translation effects from the U.S. In the Asia, Australia region, increases in Healthcare and Industry were more than offset by a double-digit decline in the Energy Sector. As a result, revenue declined 1% overall, despite higher sales in India and China.

		First three months
		of fiscal
(in millions of € )		2010				2009				% Change
Gross profit on revenue			5,294				5,640				(6	)%
as percentage of revenue			30.5	%			28.7	%

     Gross profit for the first quarter decreased 6% compared to the same period a year earlier, due primarily to a volume-driven, double-digit drop in the Industry Sector including significant gross profit declines at Drive Technologies and Industry Automation. Due mainly to the Sectors Healthcare and Energy, our overall gross profit margin rose compared to the prior-year period, driven by a favorable revenue mix and cost position, including a significant swing in the effects from commodity hedging that was most notable in the Sectors Industry and Energy. While both Energy and Healthcare recorded gross profit growth year-over-year due to the higher gross profit margins, the increase in Healthcare was also due to prior-year charges at Workflow & Solutions. In combination, these factors resulted in a gross profit margin of 30.5% for Siemens overall, up from 28.7% in the first quarter a year earlier.

		First three months
		of fiscal
(in millions of € )		2010				2009				% Change
Research and development expenses			(822	)			(914	)			(10	)%
as percentage of revenue			4.7	%			4.7	%			—
Marketing, selling and general administrative expenses			(2,543	)			(2,868	)			(11	)%
as percentage of revenue			14.7	%			14.6	%			—
Other operating income			169				185				(9	)%
Other operating expense			(56	)			(117	)			(52	)%
Income from investments accounted for using the equity method, net			115				117				(2	)%
Interest income			517				577				(10	)%
Interest expense			(466	)			(629	)			(26	)%
Other financial income (expense), net			(14	)			(256	)			(95	)%

     Research and development (R&D) expenses decreased to €822 million from €914 million in the prior-year period, due to lower outlays in Industry and Healthcare. R&D expenses as a percentage of revenue remained at the prior-year level of 4.7%. SG&A expenses declined to €2.543 billion, from €2.868 billion in the prior-year period, including lower expenses in all Sectors. As revenue fell even more than SG&A expenses in the current quarter, the SG&A expense ratio rose slightly to 14.7% compared to 14.6% a year earlier.

     Other operating income decreased to €169 million in the first quarter, compared to €185 million in the same period a year earlier. The current quarter included a gain on the sale of the Mobility Division’s airfield lighting business as well as higher gains from sales of real estate. For comparison, the prior-year period included income related to legal and regulatory matters. Other operating expense was €56 million, down from €117 million in the first quarter a year earlier. In the current period we incurred no expenses for outside advisors engaged in connection with investigations into alleged violations of anti-corruption laws and related matters as well as remediation activities. These expenses amounted to €49 million in the first quarter a year earlier.

     Interest income decreased to €517 million in the first quarter, compared to €577 million in the same period a year earlier. Interest expense was €466 million, down from €629 million in the first quarter a year earlier. The decline in both interest income and interest expense was driven by substantially lower interest rates compared to the prior-year period.

     Other financial income (expense), net was a negative €14 million in the first quarter, compared to a negative €256 million in the same period a year earlier. The prior-year period included higher expenses related to the interest component from measuring provisions, as well as negative results of hedging activities not qualifying for hedge accounting and higher expenses as a result of allowances and write offs of finance receivables.

		First three months
		of fiscal
(in millions of € )		2010				2009				% Change
Income from continuing operations before income taxes			2,194				1,735				26	%
Income taxes			(668	)			(475	)			41	%
as percentage of income from continuing operations before income taxes			30	%			27	%			—
Income from continuing operations			1,526				1,260				21	%
Income (loss) from discontinued operations, net of income taxes			5				(30	)			—
Net income			1,531				1,230				24	%
Net income attributable to non-controlling interests			54				27				—
Net income attributable to shareholders of Siemens AG			1,477				1,203				23	%

     Income from continuing operations before income taxes was €2.194 billion in the first quarter, compared to €1.735 billion in the same period a year earlier. The change year-over-year was due to the factors mentioned above, primarily including a favorable revenue mix and cost position, which increased our gross profit margin and limited the volume-driven decline in gross profit on an absolute basis, a reduction in SG&A and R&D expenses, and an improved financial result. The effective tax rate on income from continuing operations was 30%. The effective tax rate of 27% in the prior-year period benefited from positive tax effects, including effects related to the divestment of a business. As a result, Income from continuing operations after taxes was €1.526 billion in the first quarter of fiscal 2010, up from €1.260 billion in the prior-year period.

     Discontinued operations primarily include former Com activities, comprising the enterprise networks business, 51% of which was divested during the fourth quarter of fiscal 2008; telecommunications carrier activities transferred into Nokia Siemens Networks B.V. (NSN) in the third quarter of fiscal 2007; and the mobile devices business sold to BenQ Corporation in fiscal 2005. Income from discontinued operations in the current quarter was a positive €5 million, compared to a loss of €30 million in the prior-year period. For additional information regarding discontinued operations, see “Notes to Condensed Interim Consolidated Financial Statements” within this Interim Report.

     Net income for Siemens in the first quarter was €1.531 billion compared to €1.230 billion in the same period a year earlier. Net income attributable to shareholders of Siemens AG was €1.477 billion, up from €1.203 billion in the first quarter of fiscal 2009.

     At the beginning of November 2009, Siemens completed the acquisition of 100% of Solel Solar Systems Ltd. (Solel), a solar thermal power technology company. Solel, which was consolidated as of November 2009, will be integrated into the Energy Sector’s Renewable Energy Division. The aggregate consideration provisionally determined, amounts to approximately €279 million (including cash acquired).

     At the beginning of November 2009, Siemens sold its airfield lighting business, which was part of the Industry Sector’s Mobility Division.

     At the end of December 2009, Siemens sold its 25% minority stake in Dräger Medical AG & Co. KG to the majority shareholder Drägerwerk AG & Co. KGaA. The investment was accounted for using the equity method in the Healthcare Sector.

     We completed certain other portfolio transactions during the first quarter of fiscal 2010, which did not have a significant effect on our Interim Consolidated Financial Statements. For further information on acquisitions and dispositions, see “Notes to Condensed Interim Consolidated Financial Statements.”

Segment information analysis

Sectors

Industry

Sector		First three months
		of fiscal								% Change								therein
(in millions of €)		2010				2009				Actual				Adjusted(1)				Currency				Portfolio
Profit			911				934				(2	)%
Profit margin			11.3	%			10.1	%
New orders			8,249				9,776				(16	)%			(14	)%			(2	)%			0	%
Revenue			8,070				9,288				(13	)%			(11	)%			(2	)%			0	%

     Industry continued to face market challenges especially in the process and construction industries. Conditions in manufacturing markets remained difficult, but showed signs of stabilizing. The Sector partly offset the effects of lower revenue with capacity adjustment measures and exceptional cost management, and OSRAM and Mobility reported higher profits compared to the first quarter a year earlier, including a €45 million gain at Mobility on the sale of a business. As a result, the Sector reported first-quarter profit of €911 million, a 2% decline year-over-year.

     First-quarter revenue for Industry fell 13% compared to the prior-year period, including double-digit revenue declines at Drive Technologies, Industry Solutions, Building Technologies and Industry Automation. First-quarter orders came in 16% lower year-over-year. On an organic basis, excluding currency translation and portfolio effects, revenue and orders declined 11% and 14%, respectively. Revenue rose slightly in Asia, Australia but fell in the Americas and the Europe, C.I.S., Africa, Middle East region. Orders were lower in all three regions. The Sector’s book-to-bill ratio was 1.02, taking its order backlog to €28 billion. Industry initiated restructuring measures in fiscal 2009 and plans to continue them to the necessary extent in fiscal 2010. Effective with the first quarter of fiscal 2010, Industry’s low-voltage switchgear business was transferred from Industry Automation to Building Technologies to achieve synergies in technology, production and marketing. In addition, a production site was transferred from Industry Automation into Drive Technologies. Results for the affected Divisions are shown on a retrospective basis.

Divisions		New Orders
		First three months
		of fiscal								% Change								therein
(in millions of €)		2010				2009				Actual				Adjusted(1)				Currency				Portfolio
Industry Automation(2)(3)			1,406				1,600				(12	)%			(9	)%			(3	)%			0	%
Drive Technologies			1,575				2,086				(25	)%			(23	)%			(2	)%			0	%
Building Technologies(2)			1,611				1,839				(12	)%			(9	)%			(3	)%			0	%
OSRAM			1,130				1,097				3	%			6	%			(4	)%			2	%
Industry Solutions			1,233				1,916				(36	)%			(34	)%			(2	)%			0	%
Mobility			1,887				1,924				(2	)%			0	%			(2	)%			0	%

Divisions		Revenue
		First three months
		of fiscal								% Change								therein
(in millions of €)		2010				2009				Actual				Adjusted(1)				Currency				Portfolio
Industry Automation(2)(3)			1,397				1,609				(13	)%			(10	)%			(3	)%			0	%
Drive Technologies			1,510				2,060				(27	)%			(25	)%			(2	)%			0	%
Building Technologies(2)			1,560				1,833				(15	)%			(12	)%			(3	)%			0	%
OSRAM			1,130				1,097				3	%			6	%			(4	)%			2	%
Industry Solutions			1,437				1,796				(20	)%			(18	)%			(2	)%			0	%
Mobility			1,582				1,564				1	%			3	%			(1	)%			(1	)%

Divisions		Profit												Profit margin
		First three months												First three months
		of fiscal												of fiscal
(in millions of €)		2010				2009				% Change				2010				2009
Industry Automation(1)			234				268				(13	)%			16.8	%			16.7	%
Drive Technologies			166				260				(36	)%			11.0	%			12.6	%
Building Technologies(1)			107				111				(4	)%			6.9	%			6.1	%
OSRAM			152				92				65	%			13.5	%			8.4	%
Industry Solutions			81				119				(32	)%			5.6	%			6.6	%
Mobility			165				85				94	%			10.4	%			5.4	%

     First-quarter revenue at Industry Automation fell 13% year-over-year. Restocking by customers slowed the decline and also resulted in a favorable revenue mix. Combined with exceptional cost management, this enabled the Division to post a profit of €234 million. First-quarter orders were down 12% but rose compared to the three previous quarters. Purchase price accounting (PPA) effects related to the purchase of UGS Corp. in fiscal 2007 were €32 million in the current quarter and €35 million in the prior-year period.

     Revenue and orders at Drive Technologies came in well below the prior-year levels, as repercussions from the recession adversely affected markets for its long-cycle businesses. Volume declined again year-over-year, and fell most sharply in the Americas region as well as in the Europe, C.I.S., Africa, Middle East region. Falling revenue and declining capacity utilization took first-quarter profit down 36% year-over-year, to €166 million. In connection with an upcoming change in technology at the Divisions’ low voltage motors business, plans call for reorganizing the production structure at this business. Due to an ongoing slump in volume in the key mechanical engineering market, an adjustment of the Division’s production capacity is also planned. As a result, the Division plans to reduce the workforce and expects to incur charges in the coming quarters.

     Construction activity in the U.S. and the Europe, C.I.S., Africa, Middle East region continued to decelerate, adversely affecting Building Technologies. The Division posted a 15% decrease in revenue and a 12% decline in orders compared to the first quarter a year ago. The low-voltage switchgear business was dilutive to profit margin but it contributed a positive profit swing year-over-year, limiting the decline in profit for Building Technologies overall to 4%.

     OSRAM generated double-digit revenue growth in emerging markets, more than offsetting market weakness in developed countries. Both revenue and orders for the first quarter rose 3% year-over-year, to €1.130 billion, including strong demand for LEDs. On an organic basis, first-quarter volume rose 6% year-over-year, helping increase profit to €152 million for the quarter. Profitability surged on higher capacity utilization, an improved product mix and lower expenses.

     Market conditions remained structurally difficult for Industry Solutions, resulting in a broad-based volume decline compared to the first quarter a year ago. Lower revenue and declining capacity utilization took profit down 32%, to €81 million. First-quarter orders declined 36% year-over-year. Along with a steep drop in demand in its metals technologies unit, the Division saw double-digit order declines in the Americas region and the Europe, C.I.S., Africa, Middle East region, particularly in the U.S. and Germany, respectively, and in the Asia, Australia region. Due to declining market volume, the Division plans to reduce its workforce. As a result, Industry Solutions expects to incur charges in the coming quarters.

     First-quarter profit at Mobility increased substantially year-over-year, to €165 million, benefiting from a gain of €45 million on the sale of the Division’s airfield lighting business. Revenue for the current period rose 1% year-over-year, due in part to selective order intake in prior periods. Controlled order intake continued in the current period, and orders came in 2% below the prior-year quarter. Both periods included major orders in the Europe, C.I.S., Africa, Middle East region.

Sector		First three months
		of fiscal								% Change								therein
(in millions of €)		2010				2009				Actual				Adjusted(1)				Currency				Portfolio
Profit			821				756				9	%
Profit margin			14.6	%			12.1	%
New orders			6,918				8,534				(19	)%			(16	)%			(3	)%			0	%
Revenue			5,616				6,232				(10	)%			(7	)%			(3	)%			0	%

     The Energy Sector executed well in the first quarter, increasing Sector profit 9% year-over-year to €821 million despite a decline in revenue. Fossil Power Generation was the primary driver of profit growth, more than offsetting a short-term drop in profit at Renewable Energy driven largely by lower revenue. Revenue overall fell 10%, including declines in all Divisions and all regions. Market conditions remained challenging, as utilities and industrial customers continued to postpone infrastructure projects and market contraction led to increased pricing pressure. In this environment, first-quarter orders for Energy came in 19% lower year-over-year. Only Renewable Energy posted higher orders compared to the same period a year ago, on a higher volume from large orders. While orders declined in the regions Europe, C.I.S., Africa, Middle East and Asia, Australia, they increased in the Americas region due primarily to large contract wins at Renewable Energy. The Sector’s book-to-bill ratio was strong at 1.23, taking its order backlog to €49 billion.

Divisions		New Orders
		First three months
		of fiscal								% Change								therein
(in millions of €)		2010				2009				Actual				Adjusted(1)				Currency				Portfolio
Fossil Power Generation			2,040				3,997				(49	)%			(46	)%			(3	)%			0	%
Renewable Energy			1,576				648				143	%			158	%			(14	)%			0	%
Oil & Gas			1,030				1,360				(24	)%			(23	)%			(1	)%			0	%
Power Transmission			1,712				1,915				(11	)%			(8	)%			(3	)%			0	%
Power Distribution			727				857				(15	)%			(13	)%			(3	)%			0	%

Divisions		Revenue
		First three months
		of fiscal								% Change								therein
(in millions of €)		2010				2009				Actual				Adjusted(1)				Currency				Portfolio
Fossil Power Generation			2,257				2,373				(5	)%			(2	)%			(3	)%			0	%
Renewable Energy			480				713				(33	)%			(33	)%			(4	)%			4	%
Oil & Gas			997				1,048				(5	)%			(3	)%			(2	)%			0	%
Power Transmission			1,319				1,500				(12	)%			(8	)%			(4	)%			0	%
Power Distribution			695				805				(14	)%			(11	)%			(3	)%			0	%

Divisions		Profit												Profit margin
		First three months												First three months
		of fiscal												of fiscal
(in millions of €)		2010				2009				% Change				2010				2009
Fossil Power Generation			401				289				39	%			17.8	%			12.2	%
Renewable Energy			29				101				(71	)%			6.1	%			14.2	%
Oil & Gas			126				106				19	%			12.6	%			10.1	%
Power Transmission			170				152				12	%			12.9	%			10.1	%
Power Distribution			96				107				(10	)%			13.9	%			13.3	%

     Fossil Power Generation posted outstanding bottom-line results in the first quarter, combining strong project execution and a favorable revenue mix, including a peak profit contribution from the service business. As a result, the Division generated profit of €401 million compared to €289 million in the prior-year period, and its profit margin surged well above the level expected for the full fiscal year. In contrast, topline development was heavily influenced by market contraction. This resulted in the Division’s fourth consecutive quarter-over-quarter decline in orders, and the current period also included significantly lower volume from large orders compared to the prior-year period. Fossil Power Generation’s strong order backlog cushioned the effect of market conditions on revenue, which came in 5% below the prior-year quarter.

     The wind energy market continued to grow unevenly due to factors including the economic downturn and the magnitude of large wind-farm orders. In this dynamic environment, Renewable Energy more than doubled first-quarter orders year-over-year, but saw revenue drop by a third compared to the prior-year period due to selective order intake a year earlier and the long lead times of large off-shore projects booked between the periods under review. Consolidation of the solar company Solel occasioned €15 million in transaction and integration costs. Combined with lower revenue, this reduced profit to €29 million from €101 million in the prior-year period. Renewable Energy expects that revenue and earnings conversion will rebound in the second half of the fiscal year and that its backlog will continue to expand.

     The Oil & Gas Division increased first-quarter profit to €126 million from €106 million a year earlier, due in part to improved profitability in the service business. Uncertain market conditions undercut demand, and orders fell 24% from the prior-year level. Conversion of past orders in the Division’s backlog held the decline in revenue to 5%.

     Profit rose to €170 million at Power Transmission, including positive effects from commodity hedging. First-quarter revenue was lower year-over-year due partly to a generally declining order trend in fiscal 2009. First-quarter orders also declined year-over-year. Power Distribution contributed first-quarter profit of €96 million, down from the prior-year level due primarily to lower revenue. Orders also came in lower than a year earlier. The book-to-bill ratio for both Power Transmission and Power Distribution was above 1 for the quarter.

Sector		First three months
		of fiscal								% Change								therein
(in millions of €)		2010				2009				Actual				Adjusted(1)				Currency				Portfolio
Profit			523				342				53	%
Profit margin			18.5	%			11.6	%
New orders			2,869				2,896				(1	)%			4	%			(4	)%			0	%
Revenue			2,831				2,936				(4	)%			1	%			(4	)%			0	%

     In a challenging market environment the Healthcare Sector delivered substantially higher first-quarter profit even though organic revenue remained level year-over-year. The healthcare environment remained difficult due to restricted markets for equipment financing, uncertainty related to healthcare reform in the U.S., and concerns regarding the effect of budget deficits on public spending in developed economies.

     Profit reached €523 million in the quarter. For comparison, profit of €342 million in the prior-year period was burdened by €41 million in charges in the Workflow & Solutions Division. Strong execution in the current period resulted in a favorable revenue mix, lower SG&A including structural cost savings, and a profitable quarter at Workflow & Solutions.

Compared to the prior-year quarter, Sector profit benefited from a positive effect related to currency hedging. In addition, Healthcare recorded lower profit impacts from costs associated with past acquisitions, including previously announced costs associated with the next phase of integration activities at Diagnostics. PPA effects of €41 million were equivalent to approximately 1.4 percentage points (pp) of profit margin. A year earlier, PPA effects and integration costs in the first quarter totaled €66 million, equivalent to approximately 2.2 pp of profit margin. During the current period, Healthcare consummated the disposal of its stake in Draeger Medical AG & Co. KG.

     Orders came within 1% of the prior-year level, including stable orders at Imaging & IT and Workflow & Solutions and lower orders at Diagnostics. Double-digit order growth in the region Asia, Australia nearly offset declines in other regions. First-quarter revenue was 4% below the level a year earlier, including a double-digit decline in the U.S. Excluding negative currency translation effects, orders rose 4% and revenue increased 1%. Healthcare’s book-to-bill ratio was 1.01 in the first quarter, taking its order backlog to €6 billion.

Divisions		New Orders
		First three months
		of fiscal								% Change								therein
(in millions of €)		2010				2009				Actual				Adjusted(1)				Currency				Portfolio
Imaging & IT			1,768				1,769				0	%			5	%			(5	)%			0	%
Workflow & Solutions			330				335				(1	)%			2	%			(3	)%			0	%
Diagnostics			832				864				(4	)%			1	%			(4	)%			0	%

Divisions		Revenue
		First three months
		of fiscal								% Change								therein
(in millions of €)		2010				2009				Actual				Adjusted(1)				Currency				Portfolio
Imaging & IT			1,695				1,769				(4	)%			0	%			(4	)%			0	%
Workflow & Solutions			368				373				(1	)%			1	%			(3	)%			0	%
Diagnostics			830				872				(5	)%			(1	)%			(4	)%			0	%

Divisions		Profit												Profit margin
		First three months												First three months
		of fiscal												of fiscal
(in millions of €)		2010				2009				% Change				2010				2009
Imaging & IT			357				262				36	%			21.0	%			14.8	%
Workflow & Solutions			44				(6	)			—				12.0	%			(1.6	)%
Diagnostics			122				83				47	%			14.7	%			9.5	%

     Imaging & IT increased first-quarter profit to €357 million from €262 million in the prior-year period. Along with a favorable product mix and exceptional cost management, the Division’s profitability benefited from the positive currency hedge effect mentioned above. The medical imaging market in the U.S. remained challenging, with demand limited by tight credit markets and uncertainty regarding future reimbursements. In contrast, Imaging & IT achieved strong growth in revenue and orders in the region Asia, Australia, including increased volume in Japan. Overall, orders remained flat and revenue declined 4% compared to the first quarter a year earlier. On an organic basis, orders rose 5% and revenue was level with the prior-year period.

     Workflow & Solutions generated €44 million in profit compared to a loss of €6 million in the first quarter a year earlier. That prior-year period included the €41 million in charges mentioned above, partly offset by €11 million in divestment gains.

     First-quarter revenue and orders for the Diagnostics Division declined 5% and 4%, respectively, compared to the prior-year period. While revenue declined more modestly on an organic basis, the Division lost ground in its large markets in the regions Europe, C.I.S., Africa, Middle East and the Americas.

Diagnostics was able to increase first-quarter profit to €122 million due mainly to a favorable product mix, exceptional cost management and lower PPA effects and integration costs. In the first quarter a year earlier, these impacts were €46 million and €20 million, respectively, cutting more than 7.6 pp from the Division’s profit margin. In the current period, PPA effects of €41 million reduced profit margin by approximately 4.9 pp, and the Division also recorded €10 million in costs for the next phase of integration activities.

     Equity Investments includes investments accounted for using the equity method or at cost and available-for-sale financial assets not allocated to a Sector or Cross-Sector Business for strategic reasons. Major components of Equity Investments include our stakes in NSN, BSH Bosch und Siemens Hausgeräte GmbH (BSH), Enterprise Networks Holdings B.V. (EN) and Krauss-Maffei Wegmann GmbH & Co. KG (KMW). First-quarter profit for Equity Investments was €76 million compared to €85 million in the prior-year period. In the current quarter, the result related to Siemens’ stake in NSN was an equity investment loss of €42 million, compared to a loss of €7 million in the prior-year period. NSN reported to Siemens that it took charges and integration costs totaling €90 million in the current quarter, down from a total of €286 million in same period a year earlier. Siemens’ income from Equity Investments is expected to be volatile in coming quarters.

		First three months
		of fiscal								% Change								therein
(in millions of €)		2010				2009				Actual				Adjusted(1)				Currency				Portfolio
Profit			17				46				(63	)%
Profit margin			1.7	%			3.6	%
New orders			1,143				1,231				(7	)%			(4	)%			(2	)%			(1	)%
Revenue			1,029				1,289				(20	)%			(17	)%			(2	)%			(1	)%

     Revenue and orders declined at Siemens IT Solutions and Services due to challenging external markets and streamlined internal business within Siemens. Profit fell on lower volume, to €17 million from €46 million in the first quarter a year earlier.

     The Company has begun preparations to transform Siemens IT Solutions and Services into a separate legal entity within Siemens on July 1, 2010, in order to address the special requirements of the IT market by strengthening Siemens IT Solutions and Services’ entrepreneurial freedom and sharpening its IT service provider profile.

Siemens Financial Services (SFS)

		First three months
		of fiscal
(in millions of €)		2010				2009				% Change
Profit			100				66				52	%
		Dec. 31,				Sept. 30,
		2009				2009
Total assets			11,533				11,704				(1	)%

     SFS raised its first-quarter profit (defined as income before income taxes) to €100 million, including higher results in the commercial financing business. The same period a year earlier was affected by significantly higher loss reserves. Earnings in the equity business remained stable year-over-year on a high level. Total assets decreased slightly, to €11.533 billion.

     Reconciliation to Consolidated Financial Statements includes Centrally managed portfolio activities, Siemens Real Estate (SRE) and various categories of items which are not allocated to the Sectors and Cross-Sector Businesses because Management has determined that such items are not indicative of the Sectors’ and Cross-Sector Businesses’ respective performance.

     Siemens completed the streamlining of Other Operations in the fourth quarter of fiscal 2009. Beginning with the first quarter of fiscal 2010, Segment Information includes a new line item for centrally managed activities intended for divestment or closure, which at present primarily include the electronics assembly systems business and activities remaining from the divestment of the former Communications (Com) business. Results for the new line item, Centrally managed portfolio activities, are stated on a retrospective basis.

     Centrally managed portfolio activities posted a loss of €15 million in the first quarter compared to a loss of €38 million in the same period a year earlier. The change year-over-year was due primarily to the electronics assembly systems business, which reduced its loss to €14 million from €27 million in the prior-year period. Divestment of this business is expected to result in a substantial loss.

     Income before income taxes at SRE was €60 million in the first quarter, up from €45 million in the same period a year earlier. The increase is due partly to higher gains from sales of real estate. Assets with a book value of €254 million were transferred to SRE during the quarter as part of Siemens’ program to bundle its real estate assets into SRE. Siemens Real Estate anticipates significant costs associated with this program in coming quarters, and expects to continue with real estate disposals depending on market conditions.

     Corporate items and pensions totaled a negative €288 million in the first quarter compared to a negative €238 million in the same period a year earlier. The main factor in the change was Corporate items, which were a negative €228 million compared to a negative €168 million in the first quarter a year earlier. That prior-year period benefited from an interest-related net gain associated with a major asset retirement obligation, and from a positive effect related to shifting an employment bonus program from cash-based to share-based payment. While the current period included higher expenses associated with streamlining IT costs for Siemens as a whole, there were no expenses for outside advisors engaged in connection with investigations into alleged violations of anti-corruption laws and related matters as well as remediation activities. These compliance expenses amounted to €49 million in the first quarter a year ago.

     Income before income taxes from Eliminations, Corporate Treasury and other reconciling items was a negative €11 million in the first quarter, compared to a negative €263 million in the same period a year earlier. The improvement was due mainly to Corporate Treasury, where income rose on changes in fair market value from interest rate derivatives not qualifying for hedge accounting and on a decline in other interest expense due to lower interest rates.

     

Reconciliation to EBITDA (continuing operations)

The following table gives additional information on topics included in Profit and Income before income taxes and provides a reconciliation to EBITDA (adjusted):

For the first three months of fiscal 2010 and 2009 ended December 31, 2009 and 2008 (in millions of €)

										Income (loss)																																Depreciation
										from investments																																and impairments
										accounted for																																of property, plant
										using the equity								Financial income								EBIT																and equipment								EBITDA
		Profit(1)								method, net(2)								(expense), net(3)								(adjusted)(4)								Amortization(5)								and goodwill(6)								(adjusted)
		2010				2009				2010				2009				2010				2009				2010				2009				2010				2009				2010				2009				2010				2009
Sectors and Divisions
Industry Sector			911				934				1				—				(5	)			(10	)			916				944				85				90				153				160				1,154				1,194
Industry Automation			234				268				(1	)			(1	)			—				—				235				269				43				46				20				22				298				337
Drive Technologies			166				260				(1	)			1				(1	)			(1	)			167				260				11				11				34				34				213				305
Building Technologies			107				111				1				1				—				(3	)			106				113				18				17				22				21				146				151
OSRAM			152				92				1				1				—				(1	)			151				92				5				6				52				54				208				152
Industry Solutions			81				119				1				—				(3	)			—				83				119				6				8				14				16				103				143
Mobility			165				85				—				(1	)			(2	)			(5	)			166				91				3				1				10				13				179				105
Energy Sector			821				756				15				16				(6	)			(9	)			812				749				21				17				75				68				908				834
Fossil Power Generation			401				289				(4	)			6				(4	)			(8	)			410				291				3				4				25				22				438				317
Renewable Energy			29				101				10				1				(1	)			1				20				99				5				2				10				8				36				109
Oil & Gas			126				106				—				—				—				—				126				106				7				7				13				14				146				127
Power Transmission			170				152				8				8				1				—				161				144				3				2				18				16				181				162
Power Distribution			96				107				—				—				(1	)			—				97				107				3				2				8				7				108				116
Healthcare Sector			523				342				8				15				3				—				512				327				67				72				83				86				662				485
Imaging & IT			357				262				3				2				1				1				354				259				23				26				19				20				396				305
Workflow & Solutions			44				(6	)			—				11				1				(2	)			44				(15	)			1				1				5				6				50				(8	)
Diagnostics			122				83				—				—				2				1				120				82				43				45				57				59				220				186
Total Sectors			2,255				2,032				23				31				(9	)			(19	)			2,240				2,020				174				179				311				314				2,725				2,513
Equity Investments			76				85				61				53				11				19				3				13				—				—				—				—				3				13
Cross-Sector Businesses
Siemens IT Solutions and Services			17				46				5				7				—				—				12				39				10				10				23				33				45				82
Siemens Financial Services (SFS)			100				66				22				53				68				(4	)			10				17				1				1				76				78				87				96
Reconciliation to Consolidated Financial Statements
Centrally managed portfolio activities			(15	)			(38	)			—				—				1				(2	)			(15	)			(36	)			—				—				1				4				(14	)			(32	)
Siemens Real Estate (SRE)			60				45				—				—				(12	)			(12	)			72				57				—				—				49				37				121				94
Corporate items and pensions			(288	)			(238	)			—				—				(38	)			(84	)			(250	)			(154	)			4				7				13				16				(234	)			(131	)
Eliminations, Corporate Treasury and other reconciling items			(11	)			(263	)			3				(27	)			17				(206	)			(31	)			(30	)			—				2				(15	)			(17	)			(46	)			(45	)
Siemens			2,194				1,735				115				117				37				(308	)			2,041				1,926				189				199				457				465				2,687				2,590

     The following discussion presents an analysis of our cash flows for the first three months of fiscal 2010 and 2009 for both continuing and discontinued operations.

     We report Free cash flow as a performance measure, which is defined as “Net cash provided by (used in) operating activities” less cash used for “Additions to intangible assets and property, plant and equipment.” We believe this measure is helpful to our investors as an indicator of our long-term ability to generate cash flows from operations and to pay for discretionary and non-discretionary expenditures not included in the measure, such as dividends, debt repayment or acquisitions. We also use Free cash flow to compare cash generation among the segments of our business. Free cash flow should not be considered in isolation or as an alternative to measures of cash flow calculated in accordance with IFRS. For further information about this measure, refer to “Notes to Condensed Interim Consolidated Financial Statements — Segment information” and to the end of this Interim group management report.

																						Continuing and
Free cash flow						Continuing operations								Discontinued operations								discontinued operations
						Three months ended December 31,
(in millions of €)						2009				2008				2009				2008				2009				2008
Net cash provided by (used in):(1)
Operating activities			A				1,121				(1,061	)			(28	)			(77	)			1,093				(1,138	)
Investing activities							(478	)			(1,628	)			(24	)			(196	)			(502	)			(1,824	)
Herein: Additions to intangible assets and property, plant and equipment			B				(396	)			(513	)			—				—				(396	)			(513	)
Free cash flow(1)(2)			A+B				725				(1,574	)			(28	)			(77	)			697				(1,651	)

     Operating activities provided net cash of €1.093 billion in the first three months of fiscal 2010, compared to net cash used of €1.138 billion in the prior-year period. These results include both continuing and discontinued operations. Within the total, continuing operations provided net cash of €1.121 billion, compared to net cash used of €1.061 billion in the same period a year earlier. Cash flow from operating activities benefited in all Sectors from lower cash outflows from changes in current assets and liabilities due to an improved net working capital management including a substantial decrease in trade and other receivables, compared to an increase in the prior-year period as well as reduced build-up in inventories. These positive factors more than offset €0.2 billion in payments arising from severance programs initiated in prior periods. For comparison, the prior-year quarter included €1.008 billion in cash outflows associated with the settlement of legal proceedings as well as €0.2 billion in outflows for charges related to project reviews, structural initiatives and the global SG&A reduction program.

     Discontinued operations improved to net cash used of €28 million in the first three months of fiscal 2010, compared to net cash used of €77 million in the prior-year period.

     Investing activities in continuing and discontinued operations used net cash of €502 million in the first three months, compared to net cash used of €1.824 billion in the prior-year period. Within the total, net cash used in investing activities for continuing operations amounted to €478 million in the current first quarter and €1.628 billion in the prior-year period. Within continuing operations acquisitions, net of cash acquired were €417 million including cash outflows of €0.3 billion for the acquisition of Solel Solar Systems, a solar thermal power technology company. Reduced new business and higher repayments relating to financing activities at SFS resulted in cash inflows relating to receivables from financing activities of €196 million, compared to cash outflows of €545 million in the prior-year period. In the prior-year period, additional cash outflows for investing activities related to a drawdown request by NSN in relation to a Shareholder Loan Agreement between Siemens and NSN of €0.5 billion.

     Discontinued operations in the first three months of fiscal 2010 used net cash of € 24 million. In the prior-year period discontinued operations used net cash of €196 million, including €300 million related to a settlement with the insolvency administrator of BenQ Mobile GmbH & Co. OHG.

     Free cash flow from continuing and discontinued operations amounted to a positive € 697 million in the first three months of fiscal 2010, compared to a negative €1.651 billion in the prior-year period. Within the total, Free cash flow from continuing operations in the current period amounted to a positive €725 million, compared to a negative €1.574 billion a year earlier. The change year-over-year was due primarily to the increase in net cash provided by operating activities as discussed above. Cash used for additions to intangible assets and property, plant and equipment decreased to an exceptionally low amount of €396 million from €513 million in the same period a year earlier. The cash conversion rate for continuing operations, calculated as Free cash flow from continuing operations divided by income from continuing operations, was a positive 0.47 for the three months of fiscal 2010, compared to a negative 1.25 in the prior-year period.

     On a sequential basis Free cash flow during fiscal 2009 and the first quarter of fiscal 2010 were as follows:

     Financing activities from continuing and discontinued operations used net cash of €342 million in the first three months of fiscal 2010, compared to a net cash inflow of €2.110 billion in the prior-year period. In the first three months of fiscal 2010 changes in short-term debt and other financing activities used net cash of €187 million, compared to cash inflows of € 2.457 billion in the prior-year period, which mainly resulted from the issuance of commercial paper.

     Our capital resources consist of a variety of short- and long-term financial instruments including loans from financial institutions, commercial paper, medium-term notes and bonds. In addition, other capital resources consist of liquid resources such as cash and cash equivalents, future cash flows from operating activities and current available-for-sale financial assets.

     Our capital requirements include, among others, scheduled debt service, regular capital spending, ongoing cash requirements from operating and SFS financing activities, dividend payments, pension plan funding, portfolio activities and capital requirements for our share buyback plan, if continued in fiscal 2010. Other expected capital requirements include cash outflows in connection with restructuring measures.

     For further information see “Financial position - Capital resources and requirements” and “Notes to Consolidated Financial Statements” in our Annual Report for fiscal 2009.

     Total debt comprises our notes and bonds, loans from banks, obligations under finance leases and other financial indebtedness such as commercial paper. Total debt comprises short-term debt and current maturities of long-term debt as well as long-term debt, as stated on the Consolidated Statements of Financial Position. Total liquidity refers to the liquid financial assets we had available at the respective balance sheet dates to fund our business operations and pay for near-term obligations. Total liquidity comprises Cash and cash equivalents as well as current Available-for-sale financial assets, as stated on the Consolidated Statements of Financial Position. Net debt results from total debt less total liquidity. Management uses the Net debt measure for internal corporate finance management, as well as for external communication with rating agencies, and accordingly we believe that presentation of Net debt is useful for investors. Net debt should not, however, be considered in isolation or as an alternative to short-term debt and long-term debt as presented in accordance with IFRS. For further information to Net debt, please refer to the end of this Interim group management report.

Net debt

		December 31,				September 30,
(in millions of €)		2009				2009
Short-term debt and current maturities of long-term debt			423				698
Long-term debt			18,776				18,940
Total debt			19,199				19,638
Cash and cash equivalents			10,446				10,159
Available-for-sale financial assets (current)			178				170
Total liquidity			10,624				10,329
Net debt(1)			8,575				9,309

     Net debt was €8.575 billion as of December 31, 2009, compared to €9.309 billion as of September 30, 2009. Within net debt, short-term debt and current maturities of long-term debt decreased by €275 million compared to the end of the prior fiscal year, mainly due to a lower amount of outstanding commercial paper. Our long-term debt decreased by €164 million compared to the end of the prior fiscal year, primarily due to a fair value hedge accounting adjustment. For further information regarding the increase in cash and cash equivalents please refer to “Cash flow — First quarter of fiscal 2010 compared to first quarter of fiscal 2009” above. For further information on fair value hedges see “Notes to Consolidated Financial Statements” in our Annual Report for fiscal 2009.

     At the end of the first quarter of fiscal 2010, the combined funded status of Siemens’ principal pension plans showed an underfunding of €4.2 billion, compared to an underfunding of € 4.0 billion at the end of fiscal 2009. The decline in funded status was due to an increase in Siemens’ estimated defined benefit obligation (DBO), which was only partly offset by an increase in plan assets. Fair value of plan assets increased due to a positive investment return and employer contributions. The DBO rose with accrued service and interest cost as well as changes in actuarial assumptions as of December 31, 2009. The actual return on plan assets in the first quarter of fiscal 2010, resulting mainly from equity investments, amounted to €320 million, compared to the expected return for the first three months of €330 million, which represents a 6.5% expected annual return.

     The fair value of plan assets of Siemens’ principal funded pension plans as of December 31, 2009, was €21.6 billion, compared to €21.1 billion on September 30, 2009. Employer contributions amounted to €219 million in the first quarter, compared to €28 million in the same period a year earlier. The increase in plan assets was due primarily to the positive actual return on plan assets and to employer contributions, and, to a lesser extent, currency translation effects. These effects more than offset the benefits paid during the first quarter.

     The DBO for Siemens’ principal pension plans amounted to €25.8 billion as of December 31, 2009, compared to €25.1 billion as of September 30, 2009. The increase was due to changes in the actuarial assumptions as of December 31, 2009, and, to a lesser extent, currency translation effects and the net of service and interest cost less benefits paid during the first quarter.

     For more information on our pension plans, see “Notes to Condensed Interim Consolidated Financial Statements.”

     Within the scope of its entrepreneurial activities and the variety of its operations, Siemens encounters numerous risks and opportunities which could negatively or positively affect business development. For the early recognition and successful management of relevant risks and opportunities we employ a number of coordinated risk management and control systems. Risk management facilitates the sustainable protection of our future corporate success and is an integral part of all our decisions and business processes.

     In our Annual Report for fiscal 2009 we described certain risks which could have a material adverse effect on our financial condition or results of operations and the design of our risk management system.

     During the first three months of fiscal 2010 we identified no further significant risks and opportunities besides those presented in our Annual Report for fiscal 2009 and in the sections of this Interim Report entitled “Overview of financial results for the first quarter of fiscal 2010 (Three months ended December 31, 2009),” “Segment information analysis,” and “Legal proceedings.” Additional risks not known to us or that we currently consider immaterial could also impair our business operations. We do not expect to incur any risks that alone or in combination would appear to jeopardize the continuity of our business.

     For information concerning forward-looking statements and additional information, please also refer to the “Disclaimer” at the end of the “Interim group management report.”

     For information on legal proceedings, see “Notes to Condensed Interim Consolidated Financial Statements.”

     Since December 31, 2009, no events of special significance have occurred that are expected to have a material impact on the financial position or results of operations of Siemens.

     Siemens anticipates that conditions in the manufacturing sector and world financial markets will remain challenging in fiscal 2010. Following a double-digit decline in orders in fiscal 2009, we expect only a mid-single-digit percentage decline in organic revenue in fiscal 2010 due to the stabilizing effect of our strong order backlog. We expect Total Sectors profit between € 6.0 and €6.5 billion in fiscal 2010, and an increase of approximately 20% in income from continuing operations, compared to €2.457 billion in the prior year. This outlook is conditional on no material deterioration in our pricing power during the fiscal year and on improving market conditions in the second half, particularly for our shorter-cycle businesses. Furthermore this outlook excludes major impacts that may arise during the fiscal year from restructuring, portfolio transactions, impairments, and legal and regulatory matters.

     New orders and order backlog; adjusted or organic growth rates of Revenue and new orders; book-to-bill ratio; return on equity, or ROE; return on capital employed, or ROCE; Free cash flow; cash conversion rate, or CCR; EBITDA (adjusted); EBIT (adjusted); earnings effect from purchase price allocation (PPA effects) and integration costs; net debt and adjusted industrial net debt are or may be non-GAAP financial measures. These supplemental financial measures should not be viewed in isolation as alternatives to measures of Siemens’ financial condition, results of operations or cash flows as presented in accordance with IFRS in its Consolidated Financial Statements. Other companies that report or describe similarly titled financial measures may calculate them differently. A definition of these supplemental financial measures, a reconciliation to the most directly comparable IFRS financial measures and information regarding the usefulness and limitations of these supplemental financial measures can be found on Siemens’ Investor Relations website at www.siemens.com/nonGAAP.

     This document contains forward-looking statements and information — that is, statements related to future, not past, events. These statements may be identified by words such as “expects,” “looks forward to,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will,” “project” or words of similar meaning. Such statements are based on the current expectations and certain assumptions of Siemens’ management, and are, therefore, subject to certain risks and uncertainties. A variety of factors, many of which are beyond Siemens’ control, affect Siemens’ operations, performance, business strategy and results and could cause the actual results, performance or achievements of Siemens to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. For Siemens, particular uncertainties arise, among others, from changes in general economic and business conditions (including margin developments in major business areas and recessionary trends); the possibility that customers may delay the conversion of booked orders into revenue or that prices will decline as a result of continued adverse market conditions to a greater extent than currently anticipated by Siemens’ management; developments in the financial markets, including fluctuations in interest and exchange rates, commodity and equity prices, debt prices (credit spreads) and financial assets generally; continued volatility and a further deterioration of the capital markets; a worsening in the conditions of the credit business and, in particular, additional uncertainties arising out of the subprime, financial market and liquidity crises; future financial performance of major industries that Siemens serves, including, without limitation, the Sectors Industry, Energy and Healthcare; the challenges of integrating major acquisitions and implementing joint ventures and other significant portfolio measures; the introduction of competing products or technologies by other companies; a lack of acceptance of new products or services by customers targeted by Siemens; changes in business strategy; the outcome of pending investigations and legal proceedings and actions resulting from the findings of these investigations; the potential impact of such investigations and proceedings on Siemens’ ongoing business including its relationships with governments and other customers; the potential impact of such matters on Siemens’ financial statements; as well as various other factors. More detailed information about certain of the risk factors affecting Siemens is contained throughout this report and in Siemens’ other filings with the SEC, which are available on the Siemens website, www.siemens.com, and on the SEC’s website, www.sec.gov. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in the relevant forward-looking statement as expected, anticipated, intended, planned, believed, sought, estimated or projected. Siemens does not intend or assume any obligation to update or revise these forward-looking statements in light of developments which differ from those anticipated.

		Note				2010				2009
Revenue							17,352				19,634
Cost of goods sold and services rendered							(12,058	)			(13,994	)
Gross profit							5,294				5,640
Research and development expenses							(822	)			(914	)
Marketing, selling and general administrative expenses							(2,543	)			(2,868	)
Other operating income			3				169				185
Other operating expense			4				(56	)			(117	)
Income (loss) from investments accounted for using the equity method, net							115				117
Interest income			5				517				577
Interest expense			5				(466	)			(629	)
Other financial income (expense), net			5				(14	)			(256	)
Income from continuing operations before income taxes							2,194				1,735
Income taxes							(668	)			(475	)
Income from continuing operations							1,526				1,260
Income (loss) from discontinued operations, net of income taxes			2				5				(30	)
Net income							1,531				1,230
Attributable to:
Non-controlling interests							54				27
Shareholders of Siemens AG							1,477				1,203
Basic earnings per share			13
Income from continuing operations							1.70				1.43
Income (loss) from discontinued operations							—				(0.03	)
Net income							1.70				1.40
Diluted earnings per share			13
Income from continuing operations							1.68				1.42
Income (loss) from discontinued operations							—				(0.03	)
Net income							1.68				1.39