Siemens 2007 Annual Report Download - page 309

Notes to Consolidated Financial Statements 309
(in millions of €, except where otherwise stated and per share amounts)
Notes to Consolidated Financial Statements
The Financing and Real Estate component includes the Groups SFS and SRE.
The Eliminations, reclassifi cations and Corporate Treasury component sepa-
rately reports the consolidation of transactions among Operations and Financing
and Real Estate, as well as certain reclassifi cations and the activities of the Com-
pany’s Corporate Treasury.
The accounting policies of these components, as well as the Groups included,
are generally the same as those used for Siemens and are described in Note 2,
Summary of signifi cant accounting policies. Corporate overhead is generally not
allocated to segments. Intersegment transactions are generally based on market
prices.
New orders are determined principally as the estimated revenue of accepted
purchase orders and order value changes and adjustments, excluding letters of
intent.
Operations
The Managing Board is responsible for assessing the performance of the Opera-
tions Groups. The Company’s profi tability measure for its Operations Groups is
earnings before fi nancing interest, certain pension costs, and income taxes
(Group profi t) as determined by the Managing Board as the chief operating deci-
sion maker (see discussion below). Group profi t excludes various categories of
items which are not allocated to the Groups since the Managing Board does not
regard such items as indicative of the Groups’ performance. Group profi t repre-
sents a performance measure focused on operational success excluding the effects
of capital market fi nancing issues. The major categories of items excluded from
Group profi t are presented below.
Financing interest is any interest income or expense other than interest
income related to receivables from customers, from cash allocated to the Groups
and interest expense on payables to suppliers. Financing interest is excluded from
Group profi t because decision-making regarding fi nancing is typically made cen-
trally by Corporate Treasury.
Similarly, decision-making regarding essential pension items is done cen-
trally. As a consequence, Group profi t includes only amounts related to the service
cost of pension plans, while all other pension related costs (including charges for
the German pension insurance association and plan administration costs) are
included in the line item Corporate items, pensions and eliminations.
Furthermore, income taxes are excluded from Group profi t since tax expense is
subject to legal structures which typically do not correspond to the structure of
the Operations Groups.
The effect of certain litigation and compliance issues is also not included in
Group profi t when the Company concludes that such items are not indicative of the
Groups’ performance since the results of operations of the Groups may be dis-
torted by the amount and the irregular nature of such events. This may also be the
case for items that refer to more than one Group or have a corporate or central
character.