Siemens 2010 Annual Report Download - page 187

113 Report on post-balance sheet date events
114 Report on expected developments and associated
material opportunities and risks
128 Information required pursuant to § () and
§ () HGB and explanatory report
133 Information required pursuant to § () and
§ () no.  HGB and explanatory report
135 Compensation and declaration pursuant to §a HGB
135 Additional information for supplemental
financial measures
138 Siemens AG (Discussion on basis of HGB)
147 Consolidated Financial Statements
261 Additional information

have a material adverse effect on our financial condition and
results of operations.
Our financial condition and results of operations may be
adversely affected by continued strategic reorientations
and cost-cutting initiatives: We are in a continuous process of
strategic reorientation and constantly engage in cost-cutting
initiatives, including in connection with ongoing capacity ad-
justment measures and structural initiatives, for example, in
the Cross-Sector Business Siemens IT Solutions and Services.
Capacity adjustments through consolidation of business ac-
tivities and manufacturing facilities, and the streamlining of
product portfolios are also part of these cost reduction efforts.
These measures may negatively impact our financial condition
and results of operations. Any future contribution of these
measures to our profitability will be influenced by the actual
savings achieved and by our ability to sustain these ongoing
efforts.
Our financial condition and results of operations may be
adversely affected by portfolio measures: Our strategy in-
cludes divesting our interests in some business areas and
strengthening others through portfolio measures, including
mergers and acquisitions.
With respect to dispositions, we may not be able to divest some
of our activities as planned, and the divestitures we do carry
out could have a negative impact on our financial condition,
results of operations and, potentially, our reputation.
Mergers and acquisitions are inherently risky because of diffi-
culties that may arise when integrating people, operations,
technologies and products. There can be no assurance that any
of the businesses we acquire can be integrated successfully
and as timely as originally planned or that they will perform
well once integrated. In addition, we may incur significant ac-
quisition, administrative and other costs in connection with
these transactions, including costs related to integration of
acquired businesses. Furthermore, portfolio measures may
result in additional financing needs and adversely affect our
financial leverage and our debt-to-equity ratio. Acquisitions
may also lead to substantial increases in intangible assets, in-
cluding goodwill. Our balance sheet reflects a significant
amount of intangible assets, including goodwill. Among our
businesses, the largest amount of goodwill is allocated to the
Divisions Diagnostics and Imaging & IT of the Healthcare Sec-
tor, and Industry Automation of the Industry Sector. If we were
to encounter continuing adverse business developments in-
cluding negative effects on our revenues, profits or on cash, or
adverse effects from an increase in the weighted average cost
of capital (WACC) or from foreign exchange rate developments
or otherwise perform worse than expected at acquisition, then
these intangible assets, including goodwill, e.g., at the Diag-
nostics Division, might have to be written down further and
could materially and adversely affect our results of operations.
The likelihood of such adverse business developments in-
creases in times of difficult or uncertain macroeconomic condi-
tions. For example, as a result of a strategic review which was
finalized in the fourth quarter of fiscal , the Diagnostics
Division’s medium-term growth prospects and the long-term
market development in laboratory diagnostics have been reas-
sessed and the Division’s business planning has been adjusted
accordingly to reflect expected lower growth prospects. The
adjusted business plan was the basis for the annual goodwill
impairment test in the fourth quarter of fiscal , which re-
sulted in a goodwill impairment of €. billion with respect
to the goodwill allocated to the Diagnostics Division.
We may be adversely affected by our equity interests and
strategic alliances: Our strategy includes strengthening our
business interests through joint ventures, associated compa-
nies and strategic alliances. Certain of our investments are
accounted for using the equity method, including, among oth-
ers, NSN, EN, BSH and KMW. Any factors negatively influencing
the profitability of our equity investments, including negative
effects on revenues, profits or on cash, could have an adverse
effect on our equity pick-up related to these equity interests or
may result in a write-down of these investments. In addition,
our financial condition and results of operations could also be
adversely affected in connection with loans, guarantees or
non-compliance with financial covenants related to these eq-
uity investments. Furthermore, such investments are inher-
ently risky as we may not be able to sufficiently influence cor-
porate governance processes or business decisions taken by
our equity investments and strategic alliances that may have a
negative effect on our business. In addition, joint ventures
bear the risk of difficulties that may arise when integrating
people, operations, technologies and products. Strategic alli-
ances may also pose risks for us because we compete in some
business areas with companies with which we have strategic
alliances.
Operations risks
We are dependent upon hiring and retaining highly quali-
fied management and technical personnel: Competition for
highly qualified management and technical personnel remains
intense in the industries and regions in which our Sectors and
Cross-Sector Businesses operate, in particular, in times of eco-