Siemens 2013 Annual Report Download - page 273

253 D. Consolidated Financial Statements 357 E. Additional Information
254 D. Consolidated Statements of Income
255 D. Consolidated Statements of Comprehensive Income
256 D. Consolidated Statements of Financial Position
257 D. Consolidated Statements of Cash Flows
258 D. Consolidated Statements of Changes in Equity
260 D. Notes to Consolidated Financial Statements
348 D. Supervisory Board and Managing Board
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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 govern-
ment bonds yields. Due to changing market, economic and so-
cial conditions the underlying key assumptions may differ
from actual developments and may lead to significant changes
in pension and other post-employment benefit obligations.
Such differences are recognized in full through line item Other
comprehensive income, net of income taxes in the period in
which they occur without affecting profit or loss.
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-
wards 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 standards,
for example in the Fossil Power Generation Division, in the
Power Transmission Division, in the Mobility & Logistics Divi-
sion, in the Rail Systems Division and in the Healthcare Sector
as well as estimates involving warranty costs and estimates
regarding project delays including the assessment of responsi-
bility splits between the contract partners for these delays.
Significant estimates and assumptions are also involved in the
determination of provisions related to major asset retirement
obligations.
Uncertainties surrounding the amount to be recog-
nized include, for example, the estimated costs of decommis-
sioning because of the long time frame over which future cash
outflows 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.
Siemens is subject to legal and regulatory proceedings in vari-
ous jurisdictions. Such proceedings may result in criminal or
civil sanctions, penalties, damage claims and other claims, or
disgorgements against the Company. 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 le-
gal proceedings as well as government investigations often
involve complex legal issues and are subject to substantial un-
certainties. Accordingly, management exercises considerable
judgment in determining 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 periodi-
cally reviews the status of these proceedings with both inside
and outside counsel. These judgments are subject to change
as new information becomes available. The required amount
of a provision may change in the future due to new develop-
ments in the particular matter. Revisions to estimates may sig-
nificantly impact 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 unfavorable outcome of legal or regulatory proceedings
or government investigations.
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 complex
and subject to different interpretations of taxpayers and local
tax authorities. Deferred tax assets are recognized if sufficient
future taxable profit is available, including income from fore-
casted operating earnings, the reversal of existing taxable
temporary differences and established tax planning opportuni-
ties. As of each period-end, management evaluates the recov-
erability of deferred tax assets, based on projected future tax-
able profits. As future developments are uncertain and partly
beyond management’s control, assumptions are necessary to
estimate future taxable profits as well as the period in which
deferred tax assets will recover. Estimates are revised in the
period in which there is sufficient evidence to revise the as-
sumption. If management considers it probable that all or a
portion of a deferred tax asset cannot be realized, that portion
would not be recognized.
NOTE  Acquisitions, dispositions
and discontinued operations
A) ACQUISITIONS
In fiscal  and , the Company completed a number of
acquisitions, which are included in the Company ’s Consolidated
Financial Statements since the date of acquisition.
aa) Acquisitions in fiscal 
At the beginning of May , Siemens acquired all of the
shares of six entities constituting the rail automation business
of Invensys plc., U.K. (Invensys), which are being integrated in
the Infrastructure & Cities Sector’s Mobility and Logistics Divi-
sion. With the acquisition, Siemens expanded and comple-
mented the Infrastructure & Cities Sector’s rail automation