Siemens 2005 Annual Report Download - page 120

120
Subsequent events
L&A has been dissolved as of October 1, 2005. As of this date, Postal Automation and Airport
Logistics have been integrated into I&S and Electronic Assembly Systems became part of A&D.
After the close of fiscal 2005, Siemens sold its remaining 22.8 million shares of Juniper for net
proceeds of €465 million. The share sale is expected to result in a pre-tax gain of €356 million.
Critical accounting estimates
We have prepared our consolidated financial statements in accordance with U.S. GAAP. Our signif-
icant accounting policies, as described in “Notes to Consolidated Financial Statements,” are
essential to understanding our reported results of operations and financial condition. Certain of
these accounting policies require critical accounting estimates that involve complex and subjec-
tive judgments and the use of assumptions, some of which may be for matters that are inherently
uncertain and susceptible to change. Such critical accounting estimates could change from peri-
od to period and have a material impact on financial condition or results of operations. Critical
accounting estimates could also involve estimates where management reasonably could have
used a different estimate in the current accounting period. Management cautions that future
events often vary from forecasts and that estimates routinely require adjustment.
Revenue recognition on long-term construction contracts – Our Groups, particularly Com,
I&S, L&A, PG, PTD and TS, conduct a significant portion of their business under long-term con-
struction contracts with customers. We generally account for long-term construction projects
using the percentage-of-completion method, recognizing revenue as performance on a contract
progresses. This method places considerable importance on accurate estimates of the extent of
progress towards completion. Depending on the methodology to determine contract progress,
the significant estimates include total contract costs, remaining costs to completion, total con-
tract revenues, contract risks and other judgments. The managements of the operating Groups
continually review all estimates involved in such long-term contracts and adjust them as neces-
sary. We also use the percentage-of-completion method for projects financed directly or indirectly
by Siemens. In order to qualify for such accounting, the credit quality of the customer must meet
certain minimum parameters as evidenced by the customer's credit rating or by a credit analysis
performed by SFS, which performs such reviews in support of the Corporate Executive Commit-
tee. At a minimum, a customer’s credit rating must be single B from the rating agencies, or an
equivalent SFS-determined rating. In cases where the credit quality does not meet such stand-
ards, we recognize revenue for long-term contracts and financed projects based on the lower of
cash if irrevocably received, or contract completion. We believe the credit factors that we use pro-
vide a reasonable basis for assessing credit quality.
Management’s discussion and analysis
Subsequent events
Critical accounting estimates