Siemens 2005 Annual Report Download - page 151

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Asset retirement obligations – On October 1, 2002, Siemens adopted SFAS 143, Accounting
for Asset Retirement Obligations. Legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development or normal use of the asset are
recognized at fair value in the period in which the liability is incurred if a reasonable estimate of
fair value can be made. Such estimates are generally determined based upon estimated future
cash flows discounted using a credit-adjusted risk-free interest rate. The fair value of the liability
is added to the carrying amount of the associated asset. The additional carrying amount is depre-
ciated over the life of the asset. The liability is accreted each period through charges to operating
expense. If the obligation is settled for other than the carrying amount of the liability, the Compa-
ny will recognize a gain or loss on settlement.
Use of estimates – The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclo-
sure of contingent amounts at the date of the financial statements and reported amounts of rev-
enues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassification – The presentation of certain prior year information has been reclassified to
conform to the current year presentation. See Note 3 for a description of discontinued operations.
Accounting changes – Standards implemented – As of October 1, 2003, the Company adopted
the fair value recognition provisions of SFAS 123, Accounting for Stock-Based Compensation
using the prospective method set forth in SFAS 148, Accounting for Stock-Based Compensation –
Transition and Disclosure for all awards granted, modified or settled on or after October 1, 2003.
Stock-based compensation cost is measured at the grant date at the fair value of the award based
on a Black-Scholes option pricing model and is recognized as expense over the vesting period.
Awards granted before October 1, 2003, continue to be accounted for under the intrinsic value
based recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. Under APB Opinion No. 25, compensation cost,
if any, is measured based on the excess of the quoted market price at grant date over the amount
an employee must pay to acquire the stock. The following table illustrates the effect on net income
and earnings per share if the fair value based method of SFAS 123 had been applied to all awards:
See Note 27 for further information on stock-based compensation.
Notes to Consolidated Financial Statements
Consolidated Financial Statements Notes to Consolidated Financial Statements
(in millions of €, except where otherwise stated
and per share amounts)
Year ended
September 30,
2005 2004
Net income
As reported 2,248 3,405
Plus: Stock-based employee compensation expense
included in reported net income, net of taxes 60 63
Less: Stock-based employee compensation expense determined
under fair value based accounting method, net of taxes (59) (115)
Pro forma 2,249 3,353
Basic earnings per share
As reported 2.52 3.82
Pro forma 2.52 3.76
Diluted earnings per share
As reported 2.42 3.66
Pro forma 2.42 3.60