Table of Contents

Key figures ⁽¹⁾

Note: “Group profit from Operations” is reconciled to “Income before income taxes” of Operations under “Reconciliation to financial statements” on the table “Segment information” included in this release.

		Earnings Release

Siemens in the second quarter 2006 (January 1 to March 31)

“Results for the second quarter demonstrate that our Fit4More program is making a significant difference after just one year,” said Siemens CEO Klaus Kleinfeld. “Our evolving portfolio is positioning Siemens strongly in its growth markets, resulting in double-digit increases in sales and orders in the second quarter. We also earned higher profits at the majority of our operating Groups, and despite significantly higher charges at our I&C Groups we achieved an increase in net income as well.”

“Looking ahead, we anticipate that volume growth will even out somewhat compared to the rapid pace of the first half, and that severance programs already in place in the I&C Groups will result in further charges in the second half. Overall, we continue to focus all our efforts on achieving our 2007 targets.”

For the second quarter of fiscal 2006, ended March 31, 2006, Siemens reported net income of €887 million, up 14% compared to €781 million in the same period a year earlier. Basic and diluted earnings per share rose to €1.00 and €0.95, respectively, from €0.88 and €0.84 in the same quarter a year earlier.

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Discontinued operations lost €14 million in the quarter, compared to a loss of €79 million in the prior-year period. Income from continuing operations in the second quarter was €901 million, and corresponding basic and diluted earnings per share were €1.01 and €0.97, respectively. A year earlier, income from continuing operations in the second quarter was €860 million, and corresponding basic and diluted earnings per share were €0.96 and €0.92, respectively.

Group profit from Operations in the second quarter was €1.325 billion, up 8% from €1.225 billion in the same period a year earlier. Most Groups within Operations increased their earnings year-over-year, with major earnings contributions from Automation and Drives (A&D), Medical Solutions (Med), Siemens VDO Automotive (SV) and Osram. Severance charges at Communications (Com) and Siemens Business Services (SBS) totaled €178 million, approximately double the level in the prior-year period.

Net income in the second quarter benefited from a gain on the sale of an investment and a positive effect related to the settlement of an arbitration proceeding, both within corporate items. In contrast, earnings from Financing and Real Estate activities in the second quarter declined to €77 million from €123 million in the prior-year period, which included a special dividend related to an investment.

Second-quarter orders of €24.413 billion, including large orders at Power Generation (PG) and Transportation Systems (TS), were up 22% compared to the second quarter a year earlier. Sales increased 21% year-over-year, to €21.510 billion. While sales and orders rose modestly in Germany, all other regions reported double-digit growth in both sales and orders for the quarter. Excluding currency translation and portfolio effects, second-quarter orders rose 9% and sales were up 8% year-over-year.

On a continuing basis, net cash from operating and investing activities within Operations in the second quarter was €173 million compared to a negative €153 million in the prior-year period. While the current period included significantly higher payouts from severance programs compared to the prior-year period, it also included higher proceeds from sales of investments. In both periods under review, Operations used significant cash for net working capital and capital expenditures associated with business growth. Within Financing and Real Estate and Corporate Treasury activities, net cash from operating and investing activities in the second quarter was €228 million compared to €295 million a year earlier.

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For Siemens on a continuing basis, operating and investing activities in the second quarter provided net cash of €401 million compared to net cash provided of €142 million a year earlier.

Operations in the second quarter of fiscal 2006

Information and Communications

Communications (Com)

Com’s second-quarter sales and orders were €3.383 billion and €3.562 billion, respectively. Group profit of €27 million in the second quarter included a positive effect related to a contract renegotiation. Both the current and prior-year period included modest severance charges, which are expected to increase in the second half of the current year. Com’s Carrier Networks business delivered most of the Group’s sales growth year-over-year, as pricing pressure and shifts in sales mix resulted in flat sales in the Enterprise Networks business and a decline in sales in the Devices business.

Siemens Business Services (SBS)

SBS recorded higher second-quarter sales of €1.393 billion. Orders came in at €1.360 billion, lower than in the prior-year period due to more selective order intake and a smaller number of major orders compared to the second quarter a year earlier.

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The Group’s loss of €194 million included higher severance charges, which totaled €155 million compared to €63 million in the second quarter a year earlier. SBS expects severance charges in the second half of the fiscal year to come in below the level of the first half. After the end of the second quarter, SBS closed the sale of its Product Related Services (PRS) business to Fujitsu Siemens Computers (Holding) BV.

Automation and Control

Automation and Drives (A&D)

A&D increased Group profit to a record €371 million in the second quarter, up 33% compared to the same period a year earlier. The increase was broad-based, including positive contributions from acquisitions between the periods under review. A&D boosted second-quarter sales 32% year-over-year, to €3.155 billion, benefiting from both acquisitions and organic growth. Orders increased even faster, rising 40% to €3.471 billion on strong demand in Asia-Pacific and Europe.

Industrial Solutions and Services (I&S)

Second-quarter orders at I&S increased to €2.447 billion, largely due to Siemens’ acquisition of VA Technologie AG (VA Tech) between the periods under review. The VA Tech activities allocated to I&S more than offset lower orders in the Group’s Postal Automation and Airport Logistics divisions compared to the prior-year period.

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The VA Tech acquisition also made a significant contribution to the increase in sales at I&S. Group profit rose to €74 million from €59 million a year earlier, primarily due to higher sales.

Siemens Building Technologies (SBT)

Group profit at SBT was €52 million in the second quarter, up from €22 million in the same period a year earlier. The increase resulted from higher capacity utilization combined with higher sales, which rose to €1.169 billion. Orders climbed to €1.318 billion, on higher demand for SBT’s building automation and fire safety solutions.

Power

Power Generation (PG)

Second-quarter orders at PG climbed 30% year-over-year, to €3.259 billion, fueled by a number of major orders including a very large power generation contract in the Middle East. Sales rose 21%, to €2.453 billion, spanning the Group’s power generation, industrial turbine and wind power businesses. Group profit was €247 million in the second quarter compared to €257 million in the same period a year earlier, due in part to lower equity earnings from a joint venture. The decline in the Group’s earnings margin year-over-year reflects its changing sales mix as well as market-driven shifts in pricing for gas turbine systems.

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Power Transmission and Distribution (PTD)

PTD’s sales surged 68% year-over-year, to €1.496 billion, and orders climbed 46%, to €1.797 billion, on a combination of organic growth and additional volume from the VA Tech acquisition between the periods under review. While PTD’s second-quarter Group profit rose to €81 million from €61 million a year earlier, the Group’s earnings margin showed the effects of integrating its VA Tech activities.

Transportation

Transportation Systems (TS)

Group profit was €21 million at TS in the second quarter. The period included a large number of major new contracts in Europe, the Middle East and Africa. As a result, orders came in 78% higher than a year earlier, at €1.803 billion. Sales rose 7% year-over-year, to €1.005 billion.

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Siemens VDO Automotive (SV)

SV’s second-quarter Group profit of €177 million benefited from a gain on the sale of an investment, which largely offset significantly higher research and development expenses compared to the prior-year period. Sales and orders rose 11% year-over-year, to €2.615 billion and €2.612 billion, respectively.

Medical

Medical Solutions (Med)

Second-quarter Group profit at Med was up 18% year-over-year, climbing to €258 million. Diagnostics imaging solutions continued their strong contribution to both earnings and volume growth. Sales and orders rose to €2.047 billion and €2.096 billion, respectively, highlighted by fast-growing demand in Asia-Pacific.

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Lighting

Osram

Osram boosted second-quarter Group profit 13%, to €132 million. Demand was particularly strong in the U.S. and China, sending sales and orders up to €1.206 billion from €1.057 billion in the second quarter a year earlier.

Other Operations

Other Operations consist of centrally held operating businesses not related to a Group. These businesses include joint ventures, equity investments, a portion of the VA Tech acquisition, and the Dematic businesses carved out of the former Logistics and Assembly Systems Group. In the second quarter, Group profit from Other Operations was €79 million compared to €70 million a year earlier. Earnings from joint ventures in the second quarter were somewhat higher than in the same quarter a year earlier. The Dematic businesses posted losses in both periods, and anticipate restructuring and other measures in the second half of the fiscal year. The VA Tech acquisition contributed to the increase in sales year-over-year, to €890 million from €660 million a year earlier.

Corporate items, pensions and eliminations

Corporate items, pensions and eliminations totaled a negative €184 million in the second quarter, compared to a negative €289 million in the same period a year earlier. The improvement is due to a gain of €95 million on the sale of an investment and a positive effect related to the settlement of an arbitration proceeding. Centrally carried pension expense increased slightly due to a reduction in the discount rate assumption at September 30, 2005.

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Financing and Real Estate

Siemens Financial Services (SFS)

Income before income taxes at SFS was €44 million in the second quarter. The difference year-over-year is due primarily to a one-time benefit in the prior-year period, when an investment held by the Equity division paid a special dividend. Total assets at the end of the second quarter were nearly unchanged compared to the end of fiscal 2005.

Siemens Real Estate (SRE)

In the second quarter, SRE recorded income before income taxes of €33 million, level with the prior-year period. The Group offset lower rental earnings with higher income from sales of real property.

Eliminations, reclassifications and Corporate Treasury

Income before income taxes from Eliminations, reclassifications and Corporate Treasury was €99 million in the second quarter, compared to €77 million a year earlier. The difference was due mainly to increased interest income at Corporate Treasury from intra-company financing.

Income statement highlights in the second quarter
Net income for Siemens in the second quarter was €887 million, up 14% from €781 million in the second quarter a year earlier. Income from continuing operations was €901 million compared to €860 million in the prior-year period.

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Gross profit increased by 14%, as a majority of the Groups in Operations increased their earnings year-over-year. Gross profit margin for the second quarter came in lower, at 27.8% compared to 29.6% a year earlier, notably due to SBS, PTD, Com and PG. Second-quarter R&D expenses increased to €1.420 billion from €1.231 billion a year earlier, including significantly higher outlays at Med, SV and A&D. Due to a significant increase in sales, however, R&D declined as a percent of sales to 6.6% from 6.9% in the prior-year quarter. Marketing, selling and general administrative expenses as a percent of sales also declined year-over-year, to 17.7% from 18.1%. Other operating income of €106 million benefited from a positive effect related to the settlement of an arbitration proceeding. A year earlier, other operating income was a negative €23 million. A gain on the sale of a centrally held investment was the major factor in higher income from investments, which increased to €297 million from €212 million in the prior-year period.

Income and earnings per share in the first six months
Net income for Siemens in the first six months of fiscal 2006 was €1.700 billion, compared to €1.782 billion in the first half a year earlier. Group profit from Operations of €2.727 billion came in lower than €2.790 billion in the prior-year period, due primarily to substantially higher severance charges at Com and SBS, totaling €530 million compared to €106 million in the first six months a year earlier. The increase in severance charges year-over-year was partially offset by higher gains from sales of Juniper shares, which were €356 million compared to €208 million in the prior-year period, and from higher gains on sales of investments. Basic and diluted earnings per share for the first two quarters were €1.91 and €1.82 respectively. In the prior-year period, basic and diluted earnings per share were €2.00 and €1.91, respectively. Income from continuing operations was €1.716 billion in the first half, down from €1.943 billion in the same period a year earlier due primarily to higher losses at SBS. On a continuing basis, basic and diluted earnings per share were €1.93 and €1.84, respectively, compared to €2.18 and €2.08 in the same period a year earlier.

Sales and order trends for the first six months
Sales in the first six months of fiscal 2006 were €42.229 billion, a 22% increase from €34.756 billion in the prior-year period. Orders of €51.201 billion were up 27% from €40.431 billion a year earlier. Excluding currency translation effects and the net effect of acquisitions and dispositions, sales rose 8% and orders climbed 11%. Major orders were numerous and well-distributed, and international markets were the growth engines for the first half. In Germany, sales were up 4%, at €8.036 billion, and orders increased 6%, to €8.850 billion, primarily due to acquisitions between the periods under review.

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Meanwhile international sales for the first two quarters rose 27% compared to the prior-year period, to €34.193 billion, and orders climbed 32% year-over-year, to €42.351 billion.

Within international growth, Asia-Pacific posted sales of €6.034 billion, a 38% increase year-over-year, and orders of €8.269 billion, a 42% jump. Within Asia-Pacific, first-half sales in China surged 66%, to €2.075 billion, while first-half orders in China climbed 43%, to just below €3.0 billion. Growth in the Americas was also robust, with the region as a whole generating sales and order growth of 28% and 27%, respectively. Within this trend, the U.S. posted sales of €8.208 billion and orders of €8.922 billion, both 22% higher than in the first half a year earlier including beneficial currency translation effects. In Europe outside Germany, sales for the first six months were 17% higher year-over-year, at €13.418 billion, and orders increased 20%, to €15.915 billion.

Liquidity for the first six months
In the first six months, on a continuing basis, operating and investing activities used net cash of €419 million compared to net cash used of €1.864 billion in the prior-year period. Discontinued operations used net cash of €230 million in the first half-year, compared to net cash used of €634 million in the same period a year earlier.

Within Operations, operating activities provided net cash of €267 million in the first six months of fiscal 2006, despite substantial cash outflows for severance payouts. In the prior-year period, operating activities used net cash of €852 million, including €1.496 billion in supplemental contributions to Siemens pension plans. Both periods included significant build-ups of net working capital associated with business growth. Investing activities also showed the effects of overall business growth in both periods, particularly including significant cash outflows for capital expenditures.

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Net cash used in investing activities was €1.024 billion in the first half of the current year, compared to €1.299 billion a year earlier. The difference between the two periods is due largely to higher proceeds from sales of investments and marketable securities in the current period.

The other two components of Siemens, which include Financing and Real Estate and Corporate Treasury activities, provided net cash from operating and investing activities of €338 million in the first half of fiscal 2006. In the same period a year earlier, these components provided net cash of €287 million from operating and investing activities.

Funding status of pension plans
Siemens reduced the under-funding of its principal pension plans as of March 31, 2006 to approximately €2.9 billion from approximately €3.5 billion at September 30, 2005. The improvement includes a return on plan assets in the first six months of €864 million, or 8.6% on an annualized basis, which is above the expected annual return of 6.7%.

Economic Value Added
Economic Value Added (EVA) in the first half of fiscal 2006 was positive and level with the same period a year earlier.

Subsequent events
After the close of the quarter, Siemens sold its remaining shares in Infineon Technologies AG for net proceeds of approximately €1.1 billion and a gain of €33 million. Also after the close of the quarter, Siemens announced an agreement to sell its VA Tech hydropower activities to Andritz AG of Austria. The sale, which requires regulatory approval, is expected to close in the third quarter.

Starting today at 10:00 a.m. CET, we will provide a live video webcast on the internet of the semi-annual press conference with CEO Dr. Klaus Kleinfeld and CFO Heinz-Joachim Neubürger. You can access the webcast at www.siemens.com/pressconference. You will also be able to download the presentation. Starting at 3:00 p.m. CET, Siemens CEO Dr. Klaus Kleinfeld and CFO Heinz-Joachim Neubürger will hold a conference call with analysts and investors. You can follow the conference call live on the internet by going to www.siemens.com/analystcall.

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This document contains forward-looking statements and information — that is, statements related to future, not past, events. These statements may be identified by words as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “will” or words of similar meaning. Such statements are based on our current expectations and certain assumptions, and are, therefore, subject to certain risks and uncertainties. A variety of factors, many of which are beyond Siemens’ control, affect its operations, performance, business strategy and results and could cause the actual results, performance or achievements of Siemens worldwide to be materially different from any future results, performance or achievements that may be expressed or implied by such forward-looking statements. For us, particular uncertainties arise, among others, from changes in general economic and business conditions, changes in currency exchange rates and interest rates, introduction of competing products or technologies by other companies, lack of acceptance of new products or services by customers targeted by Siemens worldwide, changes in business strategy and various other factors. More detailed information about certain of these factors is contained in Siemens’ 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.

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SIEMENS AG
SEGMENT INFORMATION (continuing operations — unaudited)
As of and for the three months ended March 31, 2006 and 2005 and as of September 30, 2005
(in millions of €)

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

SIEMENS AG
SEGMENT INFORMATION (continuing operations — unaudited)
As of and for six months ended March 31, 2006 and 2005 and as of September 30, 2005
(in millions of €)