Siemens 2010 Annual Report Download - page 290

6 To our shareholders 21 Corporate Governance 49 Combined management’s discussion and analysis
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Credit risk is defined as an unexpected loss in cash and earn-
ings if the customer is unable to pay its obligations in due
time, if the value of property or equipment that serves as col-
lateral declines, or if the projects Siemens has invested in are
not successful. As a consequence of the worldwide financial
market crisis customer default rates may increase and collat-
eral values may decline. The effective monitoring and control-
ling of credit risk is a core competency of our risk management
system. Siemens has implemented a binding credit policy for
all entities. Hence, credit evaluations and ratings are per-
formed on all customers with an exposure or requiring credit
beyond a centrally defined limit.
Customer ratings, analyzed and defined by a designated SFS
department, and individual customer limits are based on gen-
erally accepted rating methodologies, the input from external
rating agencies and Siemens’ customer default experiences.
Such ratings are processed by internal risk assessment special-
ists. Ratings and credit limits are carefully considered in deter-
mining the conditions under which direct or indirect financing
will be offered to customers.
Credit risk is recorded and monitored on an ongoing basis ap-
plying different approaches dependent on the underlying
product. Central systems are used for ongoing monitoring of
counterparty risk. In addition, SFS uses own systems for its fi-
nancing activities. There are also a number of decentralized
tools used for management of individual credit risks within the
operating units. A central IT application processes data from
the operating units together with rating and default informa-
tion and calculates an estimate which may be used as a basis
for individual bad debt provisions. In addition to this auto-
mated process, qualitative information is considered, in par-
ticular to incorporate the latest developments.
To increase transparency on credit risk Corporate Treasury has
established in fiscal  a “Siemens Credit Warehouse.” Cer-
tain operating units from the Siemens Group transferred busi-
ness partner data as a basis for a centralized rating process to
the Siemens Credit Warehouse. In addition, certain operating
units in Europe and North America transferred in fiscal 
their current trade receivables along with the inherent credit
risk to the Siemens Credit Warehouse, but remain responsible
for servicing activities such as collections and receivables
management. The Siemens Credit Warehouse actively identi-
fies, quantifies and manages the credit risk in its portfolio,
such as by selling or hedging exposure to specific customers,
countries and industries. In addition to an increased transpar-
ency on credit risk, the Siemens Credit Warehouse may provide
Siemens with an additional source of liquidity and strengthens
Siemens' funding flexibility.
The maximum exposure to credit risk of financial assets, with-
out taking account of any collateral, is represented by their
carrying amount. Credit risks arising from credit guarantees
are described in Note . There were no significant concentra-
tions of credit risk as of September ,  and .
Concerning trade receivables and other receivables, as well as
other loans or receivables included in Other financial assets
that are neither impaired nor past due, there were no indica-
tions as of September , , that defaults in payment obli-
gations will occur. As of September ,  and , there
are no financial instruments that are past due but not impaired.
For further information regarding the concept for the determi-
nation of allowances on receivables see Note .
 – Share-based payment
Share-based payment awards at Siemens, including Stock
Awards, Stock Options, the Share Matching Program and its
underlying plans, the Monthly Investment Plan as well as the
Jubilee Share Program are predominately designed as equity-
settled plans and to a certain extent as cash-settled plans. Total
pre-tax expense for share-based payment recognized in net
income amounted to € and € for the years ended Sep-
tember ,  and , respectively, and refers primarily to
equity-settled awards, including the Company ’s employee
share purchase program.
I. Equity-settled awards
Stock awards
The Company grants stock awards and phantom stock as an-
other means for providing share-based compensation to mem-
bers of the Managing Board and other eligible employees.
Stock awards are subject to a four year vesting period for
awards granted up to fiscal  and a three year vesting pe-
riod for awards granted thereafter. Upon expiration of the
vesting period, the recipient receives Siemens shares without
payment of consideration. Stock awards are forfeited if the
grantee’s employment with the Company terminates prior to
the expiration of the vesting period. During the vesting period,
grantees are not entitled to dividends. Stock awards may not
be transferred, sold, pledged or otherwise encumbered. Stock
awards may be settled in newly issued shares of common stock
of Siemens AG, treasury stock or in cash. The settlement