Siemens 2012 Annual Report Download - page 244

1 A. To our Shareholders 49 C. Combined Management Report 21 B. Corporate Governance
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Likewise, whenever property, plant and equipment, other in-
tangible assets and investments accounted for using the equi-
ty method are tested for impairment, the determination of the
assets’ recoverable amount involves the use of estimates by
management and can have a material impact on the respective
values and ultimately the amount of any impairment.
The equity method requires an analysis of triggering events
for impairment or reversal of impairment. Whether future im-
pairments or a reversal of the impairment of our investment in
Nokia Siemens Networks B.V. (NSN) will be required is depen-
dent on its ability to grow and (or) otherwise return to increas-
ing profitability.
Non-current assets and disposal groups classified as
held for disposal – Assets held for disposal and disposal
groups are measured at the lower of their carrying amount
and their fair value less costs to sell. The determination of the
fair value less costs to sell includes the use of management es-
timates and assumptions that tend to be uncertain.
In the fourth quarter of fiscal , Siemens decided to sell its
solar business consisting of the Business Units Solar Thermal
Energy and Photovoltaics. As of the end of fiscal  Siemens
classified each business unit as held for disposal and discon-
tinued operation as a sale within one year is considered highly
probable by the management.
In June , Siemens classified OSRAM as held for disposal
and discontinued operations as a listing via spin-off within one
year was considered highly probable. This expectation is based
on management’s judgment considering the obligatory share-
holder approval based on past experience with other capital
matters suggested for approval at the general shareholders’
meeting, feedback from the financial market and the economic
rationale of the decision from a shareholder perspective.
In fiscal , the disposal group Siemens IT Solutions and Ser-
vices was measured at fair value less costs to sell upon classifi-
cation as held for disposal and discontinued operation. The fair
value was assumed to be represented by the purchase price as
negotiated between Siemens and Atos S.A. (AtoS) including
the consideration that AtoS committed itself to pay for the
transfer of Siemens IT Solutions and Services less commit-
ments entered into by Siemens. The valuation of these com-
mitments involves subjective judgment by management on
the probability, timing and amount of these obligations. These
management estimates had an effect on the amount of impair-
ment losses recognized during fiscal  and on the deconsol-
idation result recognized in the fourth quarter of fiscal  as
well as on the subsequent measurement of the obligations in
fiscal . These estimates are subject to change and thus any
variation to the estimates could influence the amount of the
total loss on the disposal of Siemens IT Solutions and Services
presented within discontinued operations beyond fiscal .
Employee benefit accounting – Pension plans and similar
commitments – Obligations for pension and other post-em-
ployment benefits and related net periodic benefit costs are
determined in accordance with actuarial valuations. These val-
uations rely on key assumptions including discount rates,
expected return on plan assets, expected salary increases,
mortality rates and health care trend rates. The discount rate
assumptions are determined by reference to yields on high-
quality corporate bonds of appropriate duration and currency
at the end of the reporting period. In case such yields are not
available discount rates are based on government bonds
yields. Expected returns on plan assets assumptions are deter-
mined on a uniform methodology, considering long-term his-
torical returns and asset allocations. Due to changing market
and economic conditions the underlying key assumptions may
differ from actual developments and may lead to significant
changes in pension and other post-employment benefit obli-
gations. Such differences are recognized in full directly in
equity in the period in which they occur without affecting
profit or loss. For a sensitivity analysis, see  , 
   .
Provisions – Significant estimates are involved in the deter-
mination of provisions related to onerous contracts, warranty
costs, asset retirement obligations and legal proceedings. A
significant portion of the business of certain operating divi-
sions is performed pursuant to long-term contracts, often for
large projects, in Germany and abroad, awarded on a competi-
tive 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 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 & Logistics Division, Indus-
try Automation Division, at Healthcare, in the Fossil Power
Generation Division and in the Power Transmission Division
as well as estimates involving warranty costs and estimates
regarding project delays including the assessment of respon-
sibility splits between the contract partners for these delays.
Significant estimates and assumptions are also involved in
the determination of provisions related to major asset retire-
ment obligations. Uncertainties surrounding the amount to
be recognized include, for example, the estimated costs of