Siemens 2011 Annual Report Download - page 227

153 D. Consolidated Financial Statements
273 E. Additional information
143 C. Additional information for supplemental
financial measures
145 C. Siemens AG (Discussion on basis of
German Commercial Code)
151 C. Notes and forward-looking statements
140 C. Information required pursuant to Section  ()
and Section  () no.  of the German Commer-
cial Code (HGB) and explanatory report
142 C. Compensation report and Corporate Governance
statement pursuant to Section a of the German
Commercial Code (HGB)

development of global demand for energy and is considerably
affected by regulations related to energy and environmental
policies. Our Healthcare Sector, in turn, is dependent on de-
velopments and regulations in healthcare systems around the
world, particularly in the important U.S. healthcare market.
Our Industry Sector is vulnerable to unfavorable market con-
ditions in certain segments of the automotive, manufacturing
and construction industries. Our new Infrastructure & Cities
Sector focuses mainly on business with public authorities
around the world and is thus vulnerable to restrictions in pub-
lic budgets.
Our businesses must keep pace with technological chang-
es and develop new products and services to remain com-
petitive: The markets in which our businesses operate experi-
ence rapid and significant changes due to the introduction of
innovative technologies. To meet our customers’ needs in
these areas, we must continuously design new, and update
existing products and services, and invest in, and develop
new technologies. Introducing new products and technolo-
gies requires a significant commitment to research and devel-
opment, which in return requires expenditure of considerable
financial resources that may not always result in success. Our
sales and profitability may suffer if we invest in technologies
that do not operate, or may not be integrated, as expected or
that are not accepted in the marketplace as anticipated, or if
our products or systems are not introduced to the market in a
timely manner, in particular, compared to our competitors, or
become obsolete. Furthermore, in some of our markets, the
need to develop and introduce new products rapidly in order
to capture available opportunities may lead to quality prob-
lems. Our operating results depend to a significant extent on
our ability to anticipate and adapt to changes in markets and
to reduce the costs of producing high-quality, new and exist-
ing products. Any inability to do so could have a material ad-
verse effect on our business, financial condition and results of
operations.
Our business, financial condition and results of opera-
tions may be adversely affected by continued strategic re-
orientations and cost-cutting initiatives: We are in a contin-
uous process of strategic reorientation and constantly engage
in cost-cutting initiatives, including in connection with ongo-
ing capacity adjustment measures and structural initiatives.
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 business, finan-
cial condition and results of operations. Any future contribu-
tion of these measures to our profitability will be influenced
by the actual savings achieved and by our ability to sustain
these ongoing efforts.
Our business, financial condition and results of opera-
tions may be adversely affected by portfolio measures:
Our strategy includes divesting activities in some business ar-
eas and strengthening others through portfolio measures, in-
cluding 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 business, finan-
cial condition, results of operations and, potentially, our repu-
tation. For example, after having previously announced plans
to list our subsidiary OSRAM AG in the fall of , we an-
nounced in September  that, in view of the highly volatile
environment on the capital markets and possible effects on
the industry, OSRAM AG is to be listed at a later date.
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 success-
fully and as timely as originally planned or that they will per-
form well once integrated. In addition, we may incur signifi-
cant acquisition, 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
Diagnostics Division and the Imaging & Therapy Division of
the Healthcare Sector, and the Industry Automation Division
of the Industry Sector. In fiscal , the annual test for im-
pairment of goodwill of the Diagnostics Division within the
Healthcare Sector was performed as of September , .
As a result, in the Diagnostics Division of the Healthcare Sec-
tor an impairment of €, million was recognized to reduce
the carrying amount of goodwill. For further information see
D. Notes to Consolidated Financial Statements. 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 if we were otherwise to perform worse than expected at