Siemens 2009 Annual Report Download - page 191

103
We may face operational failures and quality problems in
our value chain processes: Our value chain comprises all
steps, from research and development to production, market-
ing, sales and services. Operational failures in our value chain
processes could result in quality problems or potential prod-
uct, labor safety, regulatory or environmental risks. Such risks
are particularly present in relation to our production facilities,
which are located all over the world and have a high degree of
organizational and technological complexity. From time to
time, some of the products we sell might have quality issues
resulting from the design or manufacture of such products or
from the software integrated into them. Such operational fail-
ures or quality issues could have a material adverse effect on
our financial condition or results of operations.
We are dependent upon hiring and retaining highly quali-
fied management and technical personnel: Competition for
highly qualified management and technical personnel re-
mains intense in the industries and regions in which our
Sectors and Cross-Sector Businesses operate. In many of our
business areas, we intend to extend our business activities, for
which we will need highly skilled employees. Our future suc-
cess depends in part on our continued ability to hire, assimi-
late and retain engineers and other qualified personnel. There
can be no assurance that we will continue to be successful in
attracting and retaining highly qualified employees and key
personnel in the future, and any inability to do so could have a
material adverse effect on our business.
FINANCIAL RISKS
We are exposed to currency risks and interest rate risks: We
are exposed to fluctuations in exchange rates, especially be-
tween the U.S. dollar and the euro, because a high percentage
of our business volume is conducted in the U.S. and as exports
from Europe. As a result, a strong euro in relation to the U.S.
dollar and other currencies can have a material impact on our
other revenues and results. Certain currency risks as well as
interest rate risks are hedged on a Company-wide basis using
derivative financial instruments. Depending on the develop-
ment of foreign currency exchange rates, our hedging activi-
ties can have significant effects on our cash flow. Our Sectors
and Cross-Sector Businesses engage in currency hedging ac-
tivities which sometimes do not qualify for hedge accounting.
In addition, our Corporate Treasury has interest rate hedging
activities which also do not qualify for hedge accounting, and
are subject to changes in interest rates. Accordingly, exchange
rate and interest rate fluctuations may influence our financial
results and lead to earnings volatility. A strengthening of the
euro (particularly against the U.S. dollar) may also change our
competitive position, as many of our competitors may benefit
from having a substantial portion of their costs based in
weaker currencies, enabling them to offer their products at
lower prices. For more information regarding currency risks,
interest rate risks, hedging activities and other market risks,
please see “Notes to Consolidated Financial Statements.”
We are exposed to volatile credit spreads: Regarding our
Corporate Treasury activities, widening credit spreads due to
uncertainty and risk aversion in the financial markets might
lead to changing fair market values of our existing trade re-
ceivables and derivative financial instruments. In addition, we
also see a risk of increasing refinancing costs if the recent sta-
bilization and improvement in the global financial markets
does not persist. Furthermore, costs for buying protection on
credit default risks could increase due to a potential increase of
counterparty risks.
Our future financing via Corporate Treasury may be af-
fected by the uncertainties of economic conditions and the
development of capital and bank markets: Our Corporate
Treasury is responsible for the financing of the Company and
our Sectors and Cross-Sector Businesses. A negative develop-
ment in the capital markets could increase our cost of debt
capital. The developments in the subprime mortgage market
in the U.S. and the worldwide financial market crisis have had
a global impact on the capital markets with subsequent losses
and worsening liquidity of many financial institutions. The de-
cision of several governments to pump fresh liquidity into the
market and to support the banking sector results in immense
available liquidity in the capital markets. But this liquidity
 Managing Board statements, Independent auditors’ report, Additional information
95 Net assets position 97 Report on post-balance sheet date events
98 Risk report
108 Information required pursuant to
§315 (4) HGB of the German Commercial
Code and explanatory report
114 Compensation report
114 Report on expected developments