MUNICH -- Effective with the first quarter of fiscal 2007, Siemens prepares its primary financial reporting according to International Financial Reporting Standards (IFRS) on a retroactive basis.

“In terms of the underlying performance of our business, the first quarter got the fiscal year off to a strong start,” said Siemens CEO Klaus Kleinfeld. “Order growth was particularly satisfying, considering that the prior-year basis of comparison was already quite high. We also brought more of our revenue growth to the bottom line, with a substantial increase in Group profit from Operations. While it is disappointing to see our net income growth reversed by an impact from events in the past, we are moving on with our operations tremendously improved year-over-year. This shows that Fit4More is delivering a more profitable and growth-oriented portfolio for Siemens, and we are continuing in that direction by closing the deals we announced last year and initiating new ones. We look forward to maintaining this momentum.”

In the first quarter of fiscal 2007, ending December 31, 2006, Siemens reported net income of €788 million, a decrease of 16% compared to €939 million in the prior-year period. Basic earnings per share were €0.83 and diluted earnings per share were €0.80. In the first quarter a year earlier, both basic and diluted earnings per share were €0.99. Discontinued operations, primarily the businesses formerly reported as the Communications (Com) segment, contributed €74 million to net income in the first quarter. In the same period a year earlier, earnings of discontinued operations of €332 million included a €356 million gain on the sale of Juniper shares only partially offset by €142 million in severance charges. Excluding discontinued operations, income from continuing operations was €714 million in the first quarter, an increase of 18% compared to €607 million in the same period a year earlier. On a continuing basis, basic earnings per share were €0.75 and diluted earnings per share were €0.73. In the first quarter of the prior year, both basic and diluted earnings per share were €0.64.

The primary driver of growth in net income and income from continuing operations was Group profit from Operations, which rose 51% year-over-year, to €1.631 billion. All Groups within Operations reported positive results, and the majority increased both Group profit and profit margin compared to the first quarter a year ago. Automation and Drives (A&D) led all Groups with €450 million in Group profit, followed by Medical Solutions (Med), Power Generation (PG) and Siemens VDO Automotive (SV). Siemens Business Services (SBS) posted a profit compared to a substantial loss in the first quarter a year earlier.

Net income in the first quarter included a penalty of €423 million arising from a previously disclosed European Commission antitrust investigation, involving providers of certain gas-isolated switchgear in the power transmission and distribution industry between 1988 and 2004. The penalty, which is not tax-deductible, was taken within Corporate items. Net income was positively influenced by Corporate Treasury earnings, which under IFRS swung from a negative €312 million in the first quarter a year ago to a positive €46 million in the current quarter. The prior-year period included a €315 million negative effect related to a cash settlement option on a convertible bond. Earnings from Financing and Real Estate activities were €152 million compared to €182 million in the first quarter a year earlier.

First-quarter revenue increased 6% year-over-year, to €19.068 billion. Orders of €24.582 billion were 4% higher compared to the strong first quarter a year earlier. Excluding currency translation and portfolio effects, first-quarter revenue rose 10% and orders climbed 8% year-over-year. Revenue growth was balanced regionally, while order growth was concentrated in the Americas, the Middle East, and Europe including Germany. Double-digit contributions to revenue growth came from PG, PTD, A&D and Siemens Building Technologies (SBT), while order growth was driven by double-digit increases at PTD, PG and Industrial Solutions and Services (I&S).

For Siemens on a continuing basis, net cash used in operating and investing activities was €1.160 billion compared to €724 million in the first quarter a year earlier. The difference is due primarily to the first payment for the acquisition of the diagnostics division of Bayer AG.

Operations in the first quarter fiscal 2007

Income statement highlights in the first quarter 2007

Siemens reported first-quarter net income of €788 million compared to €939 million a year earlier. Income from continuing operations was €714 million compared to €607 million in the first quarter a year earlier. Gross profit increased 6% year-over-year, in line with 6% growth in revenue compared to the prior-year period. Gross profit margin remained stable at 25.2%. Research and development expenses were 4.1% of revenue, down from 4.4% in the first quarter a year earlier. Marketing, selling and general administrative expenses also declined as a percent of revenue, to 14.9% from 16.7% in the prior-year period, primarily due to an improved cost position at SBS. Other operating expense of €499 million included the €423 million penalty mentioned earlier. In the prior-year quarter, other operating expense was €34 million. Financial income was a negative €5 million compared to a negative €262 million in the first quarter a year earlier, which included the convertible bond effect at Corporate Treasury mentioned above.

Discontinued operations consist primarily of the telecommunications carrier and enterprise network activities of the former Communications Group. These businesses are included in discontinued operations on a retroactive basis, to provide a meaningful basis of comparison with prior periods. Income from discontinued operations, net of income taxes, was €74 million in the first quarter, down from €332 million in the same period a year earlier. The prior-year period included a pretax gain of €356 million on sales of shares in Juniper Networks, Inc. (Juniper), more than offsetting €142 million in pretax severance charges. In the telecommunications carrier business, earnings rose on stable revenue. The enterprise business narrowed its loss on lower revenue year-over-year.