Siemens 2007 Annual Report Download - page 157

Management’s discussion and analysis 157
Management’s discussion and analysis
Subsequent Events
At the beginning of November 2007, Siemens completed the acquisition of Dade
Behring which will be integrated into Med’s Diagnostics division. For additional
information, see “Notes to Consolidated Financial Statements.”
On November 7, 2007, the Company also announced a share buyback program
with a total volume of up to €10 billion by 2010.
Critical Accounting Estimates
We have prepared our consolidated fi nancial statements in accordance with IFRS,
as described in “Notes to Consolidated Financial Statements”. Our signifi cant
accounting policies, as described in “Notes to Consolidated Financial Statements,”
are essential to understanding our reported results of operations and fi nancial
condition. Certain of these accounting policies require critical accounting esti-
mates that involve complex and subjective 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 period to period
and have a material impact on fi nancial 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. Manage-
ment cautions that future events often vary from forecasts and that estimates rou-
tinely require adjustment.
Revenue Recognition on Construction Contracts – The Company’s Groups,
particularly PG, TS, I&S, PTD and SBT, conduct a signifi cant portion of their busi-
ness under construction contracts with customers. The Company generally
accounts for 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
signifi cant estimates include total contract costs, remaining costs to completion,
total contract revenues, contract risks and other judgments. Management of the
operating Groups continually reviews all estimates involved in such construction
contracts and adjusts them as necessary. The Company also uses the percentage-
of-completion method for projects fi nanced 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 Siemens Financial Services (SFS), which performs
such reviews in support of the Company’s Corporate Executive Committee. At a
minimum, a customer’s credit rating must be single B from external rating agen-
cies, or an equivalent SFS-determined rating. In cases where the credit quality
does not meet such standards, the Company recognizes revenue for construction
contracts and fi nanced projects based on the lower of cash if irrevocably received,
or contract completion. The Company believes the credit factors used provide a
reasonable basis for assessing credit quality.