Dear Shareholders,
In addition to very successful business operations, fiscal 2007 was characterized by major changes and extraordinary events at the Company. These developments also affected the composition and work of the Supervisory Board and the topics with which it dealt.
In fiscal 2007, the Supervisory Board performed the duties assigned to it by law, the Siemens Articles of Association and the Bylaws for the Supervisory Board. We regularly advised the Managing Board on the management of the Company and monitored the Managing Board’s activities. We were directly involved in all major decisions regarding the Company. In written and oral reports, the Managing Board regularly provided us with timely and comprehensive information on Company planning and business operations as well as on the strategic development and current state of the Company. Actual deviations from business plans were explained to us in detail. Together with the Managing Board, we determined the Company’s strategic orientation. On the basis of reports submitted by the Managing Board, we discussed in detail all business transactions of major significance to the Company. The proposals made by the Managing Board were approved after detailed examination and discussion. We held a total of six regular and two extraordinary meetings. Where necessary, we recorded our decisions in writing.
During our respective terms of office, both Professor Dr. Heinrich v. Pierer – who was Chairman until April 25, 2007 – and I were in regular contact with the Managing Board between Supervsory Board meetings. We were kept up-to-date on the Company's current business situation and key business transactions. At separate strategy meetings, the Chairman of the Supervisory Board discussed with the Managing Board the perspectives and future orientation of the Company's individual businesses.
Intensive work in the Supervisory Board committees
To enhance the efficiency of its work, the Supervisory Board has set up a total of six committees, which prepare the resolutions of the Supervisory Board as well as the issues to be dealt with at the Board’s plenary meetings. Where legally permissible, the decision-making powers of the Supervisory Board are delegated to these committees. The composition of the individual Supervisory Board committees and the number of committee meetings and decisions are shown at Supervisory Board and Managing Board.
The Chairman’s Committee met eight times in fiscal 2007. Between meetings, the Chairman of the Supervisory Board also discussed topics of particular importance to the Company with the members of the Chairman’s Committee. In fiscal 2007, these discussions were concerned primarily with the Managing Board’s proposal to focus the Company’s business operations on three Sectors and with the future structure of Siemens’ matrix organization. The Chairman’s Committee also dealt with the implementation of the Company’s corporate governance principles and with various personnel topics – in particular, with the appointment of members of the Managing Board, with matters relating to Managing Board contracts and with Managing Board remuneration.
In fiscal 2007, the Mediation Committee again had no occasion to meet. The Ownership Rights Committee voted on six resolutions using a notational, or written, voting process. The chairman of the committee notified the Supervisory Board of the outcome at subsequent meetings. In fiscal 2007, a Nominating Committee was established to prepare for the election of the Supervisory Board’s shareholder representatives by the Annual Shareholders’ Meeting of Siemens AG on January 24, 2008. The committee took up its duties after the end of fiscal 2007.
The Audit Committee met seven times. Together with the independent auditors, the President and Chief Executive Officer, and the Chief Financial Officer, the Audit Committee discussed the Annual Financial Statements and management’s discussion and analysis (MD&A) of Siemens AG and the Consolidated Financial Statements and consolidated MD&A of Siemens worldwide, the proposal for the appropriation of net income and the Annual Report on Form 20-F for the U.S. Securities and Exchange Commission (SEC). The effects of compliance-related matters on the financial statements were also discussed. In addition, the committee gave in-depth consideration to the Company’s quarterly reports, the Semiannual Report, the appointment of the independent auditors, oversight of the auditors’ independence and qualification, and their fee. The Audit Committee dealt intensively with the Company’s risk management system and with the authorization and findings of the internal financial audit and the reports concerning legal and regulatory risks. The Audit Committee also concentrated on Company compliance with the provisions of Section 404 of the Sarbanes-Oxley Act (SOA) and measures for eliminating the weak points in the internal control system (Remediation Plan).
At its meeting on December 11, 2006, the Audit Committee – in connection with the legal proceedings relating to allegations of embezzlement, bribery and tax evasion on the part of former and current employees – retained the law firm Debevoise & Plimpton LLP to:
- clarify the circumstances relating to allegations of criminal activity at the Communications Group (Com), which has since been dissolved
- analyze the implications of current findings for the efficiency of the Company’s compliance system and its internal control system and
- investigate whether similar situations have arisen at any other Siemens Group.
Debevoise & Plimpton LLP has also commissioned the independent auditors Deloitte Touche Tohmatsu to support it in the examination of Siemens’ control systems by providing forensic accounting experts. At the suggestion of the Corporate Executive Committee, the Audit Committee appointed the internationally recognized expert Michael J. Hershman as Siemens’ compliance advisor.
On April 25, 2007, the Supervisory Board decided to transfer responsibility for compliance-related matters from the Audit Committee to the newly created Compliance Committee. For the remainder of the current internal investigations, the Compliance Committee will deal with the following matters on behalf of the Supervisory Board: overseeing the ongoing compliance-related investigations, processing reports by the law firm Debevoise & Plimpton LLP on its independent investigation and review of Siemens’ internal compliance and control systems, and monitoring compliance with legal and regulatory requirements and Company guidelines.
The committee chairmen reported on the work of their committees on a regular basis at the plenary meetings.
Main topics at the plenary meetings
Regular topics of discussion at the Supervisory Board’s plenary meetings were revenue, income and employment development at Siemens AG, at the Groups and at Siemens worldwide as well as the Company’s main investment and divestment projects. The Managing Board reported regularly and comprehensively on Company planning and the strategic development, business operations and current state of the Company. Compliance-related measures and the future structure of business operations at Siemens AG were discussed at several meetings. Decisions were also made regarding the composition of the Managing Board.
At our meeting on November 8, 2006, we received a report on business development in fiscal 2006 and approved the dividend proposal for 2007. At our meeting on December 11, 2006, we primarily discussed the financial statements and MD&A of Siemens AG and Siemens worldwide as of September 30, 2006 as well as Company planning for fiscal 2007. In light of recent developments, we also discussed in detail the background and status of the investigations relating to allegations of embezzlement, bribery and tax evasion on the part of former and current employees. In this connection, the Supervisory Board expressed its unconditional support for the measures introduced by the Audit Committee. At an executive session held during the December meeting, the efficiency of the Supervisory Board’s work was also evaluated by its members.
At our meeting on January 24, 2007 – one day before the Annual Shareholders’ Meeting – the Managing Board reported on the current state of the Company and on the status of the Company’s compliance and control systems. In addition, the Supervisory Board was informed for the first time of the Managing Board’s intention to sell stakes in the automotive supplier Siemens VDO Automotive through a public listing. The Supervisory Board took note of this intention. The Supervisory Board also agreed to the acquisition of UGS Corp. of Plano, Texas (U.S.). UGS is a world-leading supplier of product lifecycle management (PLM) software and services. PLM is an IT business platform that supports business innovation and growth through digital product design, manufacture, distribution, servicing and disposal.
At our meeting on January 25, 2007, we reviewed the points discussed at the just-concluded Annual Shareholders’ Meeting.
At the beginning of the Supervisory Board meeting on April 25, 2007, Professor Dr. Heinrich v. Pierer resigned as Chairman of the Supervisory Board of Siemens AG. The Supervisory Board then elected me, Dr. Gerhard Cromme, Chairman for the remainder of the current Supervisory Board’s term of office, which expires at the Annual Shareholders’ Meeting of Siemens AG on January 24, 2008. At the same meeting, Siemens President and CEO Dr. Klaus Kleinfeld informed the Supervisory Board that he would no longer be available for a renewal of his contract. Also discussed at this meeting were the state of the Company, the status of the compliance-related investigations and the topic of D&O insurance. In addition, the Managing Board reported in detail on the new Company program Fit4 2010.
At an extraordinary meeting on May 20, 2007, which convened without the Managing Board in attendance, the Supervisory Board approved a proposal of the Chairman’s Committee to appoint Peter Löscher a full member of the Managing Board and successor to Dr. Klaus Kleinfeld as President and CEO of Siemens AG, effective July 1, 2007. The Supervisory Board also approved a proposal of the Chairman’s Committee to appoint Dr. Heinrich Hiesinger, Group President of Siemens Building Technologies (SBT), to the Managing Board of Siemens AG. Dr. Hiesinger was appointed a full member of the Managing Board, effective June 1, 2007. The Supervisory Board also approved the Managing Board’s decision to elect Dr. Hiesinger to the Corporate Executive Committee.
Our meeting on July 25, 2007 dealt with the status of compliance-related measures, a report on the compliance environment, the legal situation and the Company’s business and financial position. The Supervisory Board also approved the Managing Board’s proposal to sell Siemens VDO Automotive AG to Continental AG and the planned acquisition of Dade Behring Inc. of Deerfield, Illinois (U.S.). The purchase of this U.S. healthcare diagnostics company has brought Siemens a step closer to becoming the first integrated diagnostics company in the world.
The Supervisory Board decided at its meeting on September 19, 2007 to appoint Peter Y. Solmssen a full member of the Managing Board and approved his election to the Corporate Executive Committee. Mr. Solmssen assumed the new Managing Board position for legal and compliance matters, which was established by the Chairman’s Committee of the Supervisory Board as of October 1, 2007. Previously Executive Vice President and General Counsel of GE Healthcare in Chalfont St. Giles (UK), Mr. Solmssen is a highly qualified and internationally recognized expert in legal and compliance-related matters. At the same meeting, the Managing Board reported on the integration of major acquisitions at the Automation and Drives Group and the Medical Solutions Group. We also received an overview of the current status of the Company’s pension system and of the anticipated further development of its pension fund assets.
Compliance with corporate governance standards
The Supervisory Board continuously monitored the further development of the Company’s corporate governance standards. Information on corporate governance at the Company and a detailed report on the level and structure of the remuneration paid to the members of the Supervisory and Managing Boards is provided here. At their meetings on November 23 and 28, the Managing and Supervisory Boards issued an unconditional Declaration of Conformity pursuant to § 161 of the German Stock Corporation Act (Aktiengesetz) and made it available to shareholders on the Company’s website. Siemens AG complies with all the recommendations of the current version of the German Corporate Governance Code and will continue to comply with these recommendations in the future.
Detailed discussion of the financial statements
Our independent auditors, KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft (KPMG), Berlin, audited the Annual Financial Statements of Siemens AG and the related MD&A as well as the Consolidated Financial Statements and consolidated MD&A for the year ended September 30, 2007, in accordance with the requirements of the German Commercial Code (HGB) and approved them without qualification. The Consolidated Financial Statements and the consolidated MD&A were prepared in accordance with § 315a of the HGB using the international accounting standards IFRS, as required in the European Union. KPMG’s audit was conducted in accordance with generally accepted German standards for the audit of financial statements promulgated by the Institut der Wirtschaftsprüfer in Deutschland e.V. (IDW) and the International Standards on Auditing (ISA).
The above-mentioned documents as well as the Managing Board’s proposal for the appropriation of net income were submitted to us by the Managing Board in a timely manner. The Audit Committee discussed these documents in detail on November 27, 2007. The KPMG audit reports were presented to all members of the Supervisory Board, and we reviewed them comprehensively at our meeting on November 28, 2007, in the presence of the independent auditors, who reported on the main findings of their audit. At this meeting, the Managing Board explained the Annual and Consolidated Financial Statements as well as the Company’s risk management system. It also provided a report on the scope, focal points and costs of the audit.
As a result of the definitive findings of the examination by the Audit Committee and the full Supervisory Board, we raised no objections. In view of our approval, the financial statements are accepted as submitted. We endorse the Managing Board’s proposal that the net income available for distribution be used to pay out a dividend of €1.60 per share entitled to a dividend. In addition, we approve the proposal that the amount attributable to treasury stock be carried forward.
Changes in the composition of the Supervisory and Managing Boards
At the conclusion of the Annual Shareholders’ Meeting on January 25, 2007, Wolfgang Müller left the Supervisory Board. Dieter Scheitor was appointed by court resolution to replace him. Effective April 1, 2007, Bettina Haller, previously a substitute member of the Supervisory Board, succeeded Georg Nassauer as a member of the Supervisory Board. The Supervisory Board would like to thank Mr. Müller and Mr. Nassauer for their constructive and informed contributions and many years of loyal support.
Professor Dr. Heinrich v. Pierer resigned as a member and Chairman of the Supervisory Board at the beginning of the Supervisory Board meeting on April 25, 2007. The Board elected me, Dr. Gerhard Cromme, Chairman for the remainder of the current Supervisory Board’s term of office, which expires at the Annual Shareholders’ Meeting of Siemens AG on January 24, 2008. Professor Dr. Michael Mirow, who had been elected a substitute member of the Board, succeeded Professor Dr. Heinrich v. Pierer as a member of the Supervisory Board. The Supervisory Board of Siemens AG is deeply indebted to Professor Dr. Heinrich v. Pierer for his many years of service as President and CEO of Siemens AG and for his work as Chairman of the Supervisory Board.
Effective June 1, 2007, the Supervisory Board appointed Dr. Heinrich Hiesinger a full member of the Managing Board and approved his election to the Corporate Executive Committee. Dr. Klaus Kleinfeld resigned as a member of the Managing Board and President and CEO of Siemens AG, effective June 30, 2007. We would like to thank Dr. Kleinfeld for his work. Peter Löscher was appointed a full member of the Managing Board and President and CEO of Siemens AG, effective July 1, 2007. The term of office of Professor Johannes Feldmayer expired on September 30, 2007, and was not extended. Professor Feldmayer had held a variety of positions at the Company since 1979 and had served as a member of the Managing Board and Corporate Executive Committee since May 2003. We would like to thank Professor Feldmayer for his many years of successful work. His duties have been assumed by Dr. Heinrich Hiesinger. Effective October 1, 2007, the Supervisory Board appointed Peter Y. Solmssen a full member of the Managing Board and approved his election to the Corporate Executive Committee. As General Counsel to the Company, Mr. Solmssen also occupies the newly created Managing Board position for legal and compliance matters.
The Supervisory Board would like to thank the members of the Managing Board as well as the employees and employee representatives of all Siemens companies for their work. Together, they made fiscal 2007 another very successful year for Siemens’ business.
For the Supervisory Board
Dr. Gerhard Cromme
Chairman
Berlin and Munich, November 28, 2007