Siemens 2007 Annual Report Download - page 225

Notes to Consolidated Financial Statements 225
(in millions of €, except where otherwise stated and per share amounts)
Notes to Consolidated Financial Statements
and may lead to signifi cant changes in pension and other post-employment bene-
fi t obligations. Such differences are recognized in full directly in equity in the
period in which they occur without affecting profi t or loss. For a discussion of the
current funding status and a sensitivity analysis with respect to the impact of cer-
tain critical assumptions on the net periodic benefi t cost, see Note 23.
Provisions – Signifi cant estimates are involved in the determination of provi-
sions related to onerous contracts, warranty costs and legal proceedings. A signif-
icant portion of the business of certain of the operating Groups is performed pur-
suant to long-term contracts, often for large projects, in Germany and abroad,
awarded on a competitive bidding basis. Siemens records a provision for onerous
sales contracts when current estimates of total contract costs exceed expected
contract revenue. Such estimates are subject to change based on new information
as projects progress toward completion. Onerous sales contracts are identifi ed by
monitoring the progress of the project and updating the estimate of total contract
costs which also requires signifi cant judgment relating to achieving certain per-
formance standards, for example in the IT service business, and estimates involv-
ing warranty costs.
Siemens is subject to legal and regulatory proceedings and government inves-
tigations in various jurisdictions. These proceedings are, amongst others, related
to the area of competition law and to possible breaches of anticorruption legisla-
tion in Germany, the Foreign Corrupt Practices Act in the United States and simi-
lar legislation in other countries. Such proceedings may result in criminal or civil
sanctions, penalties or disgorgements against the Company. If it is more likely
than not that an obligation of the Company exists and will result in an outfl ow of
resources, a provision is recorded if the amount of the obligation can be reliably
estimated. Regulatory and legal proceedings as well as government investigations
often involve complex legal issues and are subject to substantial uncertainties.
Accordingly, management exercises considerable judgment in determining
whether it is more likely than not that such a proceeding will result in an outfl ow
of resources and whether the amount of the obligation can be reliably estimated.
The Company periodically reviews the status of these proceedings with both
inside and outside counsel. These judgments are subject to change as new infor-
mation becomes available. The required amount of a provision may change in the
future due to new developments in the particular matter. Revisions to estimates
may signifi cantly affect results of future operations. Upon resolution of any legal
or regulatory proceeding or government investigation, Siemens may incur
charges in excess of the recorded provisions for such matters. It can not be
excluded that the fi nancial condition or results of operations of Siemens will be
materially affected by an unfavorable outcome of legal or regulatory proceedings
or government investigations. See Note 29, “Legal Proceedings”, for additional
information.