Siemens 2011 Annual Report Download - page 229

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)

exposed to the risk of delays and interruptions of the supply
chain as a consequence of natural disasters, such as those
which occurred in Japan in fiscal , in case we are unable
to identify alternative sources of supply in a timely manner or
at all. A general shortage of materials, components or sub-
components as a result of natural disasters also bears the risk
of unforeseeable fluctuations in prices and demand, which
might adversely affect our results of operations.
Our Sectors purchase raw materials including so-called rare-
earth metals, copper, steel, aluminum and oil, which exposes
them to fluctuations in energy and raw material prices. In re-
cent times, commodities have been subject to volatile mar-
kets, and such volatility is expected to continue. If we are not
able to compensate for our increased costs or pass them on to
customers, price increases could have a material adverse im-
pact on our financial results. In contrast, in times of falling
commodity prices, we may not fully profit from such price de-
creases as we attempt to reduce the risk of rising commodity
prices by several means, such as long-term contracting or
physical and financial hedging. In addition to price pressure
that we may face from our customers expecting to benefit
from falling commodity prices or adverse market conditions,
this could also adversely affect our business, financial condi-
tion and results of operations.
Our business, financial condition and results of opera-
tions may be adversely affected by cost overruns or addi-
tional payment obligations related to the management of
our long-term, fixed price or turnkey projects: We perform
a portion of our business, especially large projects, under
long-term contracts that are awarded on a competitive bid-
ding basis. Some of these contracts are inherently risky be-
cause we may assume substantially all of the risks associated
with completing the project and the post-completion warran-
ty obligations. For example, we face the risk that we must sat-
isfy technical requirements of a project even though we may
not have gained experience with those requirements before
we win the project. The profit margins realized on fixed-priced
contracts may vary from original estimates as a result of
changes in costs and productivity over their term. We some-
times bear the risk of unanticipated project modifications,
shortage of key personnel, quality problems, financial difficul-
ties of our customers, cost overruns or contractual penalties
caused by unexpected technological problems, unforeseen
developments at the project sites, performance problems
with our suppliers, subcontractors and consortium partners
or other logistical difficulties. Certain of our multi-year con-
tracts also contain demanding installation and maintenance
requirements, in addition to other performance criteria relat-
ing to timing, unit cost requirements and compliance with
government regulations, which, if not satisfied, could subject
us to substantial contractual penalties, damages, non-pay-
ment and contract termination. There can be no assurance
that contracts and projects, in particular those with long-term
duration and fixed-price calculation, can be completed profit-
ably. For additional information, see D. Notes to Consoli-
dated Financial Statements.
Increased IT security threats and higher levels of profes-
sionalism in computer crime could pose a risk to our sys-
tems, networks, products, solutions and services as well
as to those of our service providers: Our business portfolio
includes a broad array of systems, networks, products, solu-
tions and services across our Sectors that rely on digital tech-
nologies. We observe a global increase in IT security threats
and higher levels of professionalism in computer crime,
which pose a risk to the security of systems and networks and
the confidentiality, availability and integrity of data. We at-
tempt to mitigate these risks by employing a number of mea-
sures, including employee training, comprehensive monitor-
ing of our networks and systems, and maintenance of backup
and protective systems such as firewalls and virus scanners.
To the extent we employ service providers, such as in the area
of IT infrastructure, we have contractual arrangements in
place in order to ensure that these risks are reduced in a simi-
lar manner. Nonetheless, our systems, networks, products,
solutions and services, as well as those of our service provid-
ers remain potentially vulnerable to attacks. Depending on
their nature and scope, such attacks could potentially lead to
the leakage of confidential information, improper use of our
systems and networks, manipulation and destruction of data,
defective products, production downtimes and supply short-
ages, which in turn could adversely affect our reputation,
competitiveness, business, financial condition and results of
operations.
C... FINANCIAL RISKS
We are exposed to currency risks and interest rate risks:
We are exposed to fluctuations in exchange rates, especially
between the U.S. dollar and the euro, because a high percent-
age of our business volume is conducted in the U.S. and as ex-
ports from Europe. In addition, we are exposed to currency ef-
fects involving the currencies of emerging markets such as
China, India and Brazil. As a result, a strong euro in relation to