Siemens 2011 Annual Report Download - page 275

153 D. Consolidated Financial Statements 273 E. Additional information
158 D. Consolidated Statements of Changes in Equity
160 D. Notes to Consolidated Financial Statements
266 D. Supervisory Board and Managing Board
154 D. Consolidated Statements of Income
155 D. Consolidated Statements of Comprehensive Income
156 D. Consolidated Statements of Financial Position
157 D. Consolidated Statements of Cash Flow

Provisions – Significant estimates are involved in the deter-
mination of provisions related to onerous contracts, warranty
costs, asset retirement obligations and legal proceedings. A sig-
nificant
portion of the business of certain operating divisions
is performed pursuant 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 ex-
ceed expected contract revenue. Such estimates are subject to
change based on new information as projects progress to-
ward completion. Onerous sales contracts are identified by
monitoring the progress of the project and updating the esti-
mate of total contract costs which also requires significant
judgment relating to achieving certain performance stan-
dards, for example in the Mobility Division, Industry Solutions
Division, at Healthcare, in the Fossil Power Generation Divi-
sion and in the Power Transmission Division as well as esti-
mates involving warranty costs and estimates regarding proj-
ect delays including the assessment of responsibility splits
between the contract partners for these delays. Significant es-
timates and assumptions are also involved in the determina-
tion of provisions related to major asset retirement obliga-
tions. Uncertainties surrounding the amount to be recognized
include, for example, the estimated costs of decommissioning
because of the long time frame over which future cash out-
flows are expected to occur including the respective interest
accretion. Amongst others, the estimated cash outflows could
alter significantly if, and when, political developments affect
the government’s plans to develop the final storage. See
Note 25 Provisions for further information on major asset
retirement obligations.
Siemens is subject to legal and regulatory proceedings in vari-
ous jurisdictions. Such proceedings may result in criminal or
civil sanctions, penalties or disgorgements against the Com-
pany. If it is more likely than not that an obligation of the
Company exists and will result in an outflow 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 is-
sues and are subject to substantial uncertainties. Accordingly,
management exercises considerable judgment in determin-
ing whether there is a present obligation as a result of a past
event at the end of the reporting period, whether it is more
likely than not that such a proceeding will result in an outflow
of resources and whether the amount of the obligation can be
reliably estimated. The Company periodically reviews the sta-
tus of these proceedings with both inside and outside coun-
sel. These judgments are subject to change as new informa-
tion 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 significantly im-
pact future net income. Upon resolution, Siemens may incur
charges in excess of the recorded provisions for such matters.
It cannot be excluded, that the financial position or results of
operations of Siemens will be materially affected by an unfa-
vorable outcome of legal or regulatory proceedings or govern-
ment investigations. See
Note 30 Legal proceedings for fur-
ther information.
Income taxes – Siemens operates in various tax jurisdictions
and therefore has to determine tax positions under respective
local tax laws and tax authorities’ views which can be com-
plex and subject to different interpretations of taxpayers and
local tax authorities. Deferred tax assets are recognized if suf-
ficient future taxable profit is available, including income
from forecasted operating earnings, the reversal of existing
taxable temporary differences and established tax planning
opportunities. As of each period-end, management evaluates
the recoverability of deferred tax assets, based on projected
future taxable profits. As future developments are uncertain
and partly beyond management’s control, assumptions are
necessary to estimate future taxable profits as well as the pe-
riod in which deferred tax assets will recover. Estimates are
revised in the period in which there is sufficient evidence to
revise the assumption. If management considers it probable
that all or a portion of a deferred tax asset cannot be realized,
a corresponding valuation allowance is taken into account.
 – Acquisitions, dispositions
and discontinued operations
A) ACQUISITIONS
In fiscal  and , the Company completed a number of
acquisitions. These acquisitions have been accounted for un-
der the acquisition method and have been included in the
Company ’s Consolidated Financial Statements since the date
of acquisition.