Siemens 2012 Annual Report Download - page 211

135 D. Consolidated Financial Statements
239 E. Additional Information
130 C. Siemens AG (Discussion on basis of
German Commercial Code)
134 C. Notes and forward-looking statements
129 C. Compensation Report, Corporate Governance
statement pursuant to Section a of the
German Commercial Code, Takeover-relevant
information and explanatory report

We are subject to changes of regulations, laws and poli-
cies concerning our products: As a diversified company
with global businesses we are exposed to various product re-
lated regulations, laws and policies influencing our processes.
Recently, some jurisdictions around the world have adapted
certain regulations, laws and policies requiring us to extend
our recycling efforts, limit the sourcing and usage of certain
raw materials and request additional due diligences and dis-
closures on sourcing and usage of the regulated raw materials.
In particular, there is new U.S. legislation to improve transpar-
ency and accountability concerning the sourcing of “conflict
minerals” from mines located in the conflict zones of the Dem-
ocratic Republic of Congo (DRC) and its adjoining countries.
The term “conflict minerals” currently encompasses tantalum,
tin, tungsten (or their ores) and gold. Conflict minerals can be
found in a vast array of products. This U.S. legislation requires
manufacturers, such as us, to investigate and disclose their
use of any conflict minerals originating in the DRC or adjoining
countries. It also implements guidelines to assist the manufac-
turer in preventing, by way of performing due diligence in its
supply chain, any such sourcing from potentially financing or
benefitting armed groups in this area. We are currently evalu-
ating the potential impact of, and developing an implementa-
tion strategy for, the above-referenced legislation. As we are
operating within highly complex value chains, we may be re-
quired to undertake a significant due diligence process requir-
ing considerable investments of human resources and financ-
es in order to comply with the conflict minerals due diligence
and disclosure requirements. If our (sub) suppliers are unable
or unwilling to provide us with requested information and to
take other steps to ensure that no conflict minerals, financing
or benefitting armed groups in the DRC, are included in miner-
als or components supplied to us, we may be forced to disclose
in our SEC filings about the use of conflict minerals in our sup-
ply chain, which may expose us to reputational risks. In addi-
tion, since the applicability of the new conflict minerals legis-
lation is limited to companies publicly listed in the U.S., not all
of our competitors need to comply with this legislation or un-
dertake similar efforts to disclose the usage of conflict miner-
als. If we are unable to achieve sufficient confidence along our
supply chain, or if any of these risks or similar risks associated
with such kinds of regulations, laws and policies were to mate-
rialize, our reputation, business, financial condition and re-
sults of operations could be materially adversely affected.
...  
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 per-
form a portion of our business, especially large projects, under
long-term contracts that are awarded on a competitive bidding
basis. Some of these contracts are inherently risky because we
may assume substantially all of the risks associated with com-
pleting the project and the post-completion warranty obliga-
tions. For example, we face the risk that we must satisfy techni-
cal 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 sometimes bear the risk of
unanticipated project modifications, shortage of key personnel,
quality problems, financial difficulties of our customers, cost
overruns or contractual penalties caused by unexpected tech-
nological problems, unforeseen developments at the project
sites, unforeseen changes or difficulties in the regulatory or po-
litical environment, performance problems with our suppliers,
subcontractors and consortium partners or other logistical dif-
ficulties. Certain of our multi-year contracts also contain de-
manding installation and maintenance requirements in addi-
tion to other performance criteria relating to timing, unit cost
and compliance with government regulations requirements,
which, if not satisfied, could subject us to substantial contrac-
tual penalties, damages, non-payment and contract termina-
tion. There can be no assurance that contracts and projects, in
particular those with long-term duration and fixed-price calcu-
lation, can be completed profitably.
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 attempt to
mitigate these risks by employing a number of measures, in-
cluding employee training, comprehensive monitoring of our
networks and systems, and maintenance of backup and protec-
tive systems such as firewalls and virus scanners. To the extent
we employ service providers, such as in the area of IT infra-
structure, we have contractual arrangements in place in order
to ensure that these risks are reduced in a similar manner.
Nonetheless, our systems, networks, products, solutions and
services, as well as those of our service providers remain poten-
tially vulnerable to attacks. Depending on their nature and
scope, such attacks could potentially lead to the leakage of con-
fidential information, improper use of our systems and net-
works, manipulation and destruction of data, defective prod-
ucts, production downtimes and supply shortages, which in
turn could adversely affect our reputation, competitiveness,
business, financial condition and results of operations.