Siemens 2010 Annual Report Download - page 190

6 To our shareholders 21 Corporate Governance 49 Combined management’s discussion and analysis
50 Business and operating environment
78 Fiscal  – Financial summary
81 Results of operations
98 Financial position
110 Net assets position
113 Overall assessment of the economic position

ing third-party equipment or by taking direct or indirect par-
ticipations in financings, such as syndicated loans. In part, we
take a security interest in the assets we finance or we receive
additional collateral. We may lose money if the credit quality of
our customers deteriorates or if they default on their payment
obligation to us, if the value of the assets in which we have
taken a security interest or additional collateral declines, if in-
terest rates or foreign exchange rates fluctuate, or if the proj-
ects in which we invest are unsuccessful. Potential adverse
changes in economic conditions could cause a further decline
in the fair market values of financial assets and customer de-
fault rates to increase substantially and asset and collateral
values to decline, resulting in losses which could have a nega-
tive effect on our financial condition and results of operations.
Our financial condition and results of operations may be
adversely affected by several parameters influencing the
funded status of our pension benefit plans: The funded sta-
tus of our pension plans may be affected by an increase or de-
crease in the defined benefit obligation (“DBO”), as well as by
an increase or decrease in the value of plan assets. Pensions
are accounted for in accordance with actuarial valuations,
which rely on statistical and other factors in order to anticipate
future events. These factors include key pension plan valua-
tion assumptions such as the discount rate, expected rate of
return on plan assets, rate of future compensation increases
and pension progression. Actual developments may differ from
assumptions due to changing market and economic condi-
tions, thereby resulting in an increase or decrease in the DBO.
Significant movements in financial markets or a change in the
portfolio mix of invested assets can result in corresponding
increases or decreases in the value of plan assets, particularly
equity securities, or in a change of the expected rate of return
on plan assets. Also, changes in pension plan assumptions can
affect net periodic pension cost. For example, a change in
discount rates or in the expected return on plan assets assump-
tions may result in changes in the net periodic benefit cost in
the following financial year. In order to comply with local pen-
sion regulations in selected foreign countries, we may face a
risk of increasing cash outflows to reduce an underfunding of
our pension plans in these countries, if any. At the end of fiscal
, the combined funded status of Siemens’ principal pen-
sion benefit plans showed an underfunding of €. billion,
compared to an underfunding of €. billion at the end of fis-
cal . Further, the combined funded status of Siemens’
principal other post-employment benefit plans showed an
underfunding of €. billion at the end of fiscal , com-
pared to an underfunding of €. billion at the end of the prior
fiscal year. Other liabilities for pension plans and similar com-
mitments amounted to €. billion at the end of fiscal ,
compared to €. billion at the end of the prior fiscal year. For
further information, see “Notes to Consolidated Financial
Statements.”
For further information with regard to financial risks and finan-
cial risk management, see “Notes to Consolidated Financial
Statements.”
Compliance risks
We are subject to regulatory risks associated with our inter-
national operations: Protectionist trade policies and changes
in the political and regulatory environment in the markets in
which we operate such as foreign exchange import and export
controls, tariffs and other trade barriers and price or exchange
controls could affect our business in several national markets,
impact our sales and profitability and make the repatriation of
profits difficult, and may expose us to penalties, sanctions and
reputational damage. In addition, the uncertainty of the legal
environment in some regions could limit our ability to enforce
our rights. For example, as a globally operating organization,
we conduct business with customers in countries that are
subject to export control regulations, embargos, sanctions or
other forms of trade restrictions imposed by the U.S., the Eu-
ropean Union or other countries or organizations. Business
with customers in Iran has recently become subject to signifi-
cant further regulation under Resolution  () of the
Security Council of the United Nations, the U.S. Comprehen-
sive Iran Sanctions, Accountability, and Divestment Act of 
enacted on July ,  as well as the Council Regulation (EU)
No. / of October ,  on restrictive measures
against Iran and repealing Regulation (EC) No. /. Even
though we have decided, as a general rule, as described in
more detail in the section “Results of operations – Results of
Siemens,” not to enter into new contracts with customers in
Iran, we may still conduct certain business activities and pro-
vide products and services to customers in Iran under limited
circumstances in accordance with the detailed policies imple-
menting this general rule. New or tightened export control
regulations, sanctions, embargos or other forms of trade re-
strictions imposed on Iran or on other sanctioned countries in
which we do business may result in a curtailment of our exist-
ing business in such countries and in an adaptation of our
policies. In addition, the termination of our activities in Iran or
other sanctioned countries may expose us to customer claims
and other actions. We are currently in the process of evaluating
the potential impact, if any, of the Iran legislation referenced
above on, among other things, pre-existing contractual obliga-
tions in our Energy Sector’s business in Iran.