Siemens 2013 Annual Report Download - page 236

92 A. To our Shareholders
117 B. Corporate Governance 155 C. Combined Management Report
156 C. Business and economic environment
173 C. Financial performance system
179 C. Results of operations
192 C. Financial position
204 C. Net assets position
207 C. Overall assessment of the economic position
209 C. Subsequent events
210 C. Sustainability
227 C. Report on expected developments and
associated material opportunities and risks
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any of the businesses we acquire can be integrated success-
fully and as timely as originally planned or that they will per-
form as anticipated once integrated. In addition, we may incur
significant acquisition, administrative and other costs in con-
nection with these transactions, including costs related to
integration of acquired businesses. For example, we are cur-
rently engaged in integration activities within the Infrastruc-
ture & Cities Sector’s Mobility and Logistics Division concerning
the recently acquired rail automation business of Invensys
plc., U.K., and within the Industry Sector’s Industry Automa-
tion Division concerning the acquisition of LMS International
NV, Belgium, a leading provider of mechatronic simulation
solutions. Furthermore, portfolio measures may result in addi-
tional financing needs and adversely affect our financial lever-
age and our debt-to-equity ratio. Acquisitions may also lead to
substantial increases in intangible assets, including goodwill.
Our Statements of Financial Position reflect 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 Systems Divi-
sion of the Healthcare Sector, and the Industry Automation
Division of the Industry Sector. If we were to encounter con-
tinuing adverse business developments including negative
effects on our revenues, profits or 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 other-
wise to perform worse than expected at acquisition activities,
then these intangible assets, including goodwill, might have
to be written off, which could materially and adversely affect
our business, financial condition and results of operations.
The likelihood of such adverse business developments increas-
es in times of difficult or uncertain macroeconomic conditions.
Our business, financial condition and results of operations
may be adversely affected by our equity interests, other
investments and strategic alliances, particularly in our
segment Equity Investments: Our strategy includes strength-
ening our business interests through joint ventures, associat-
ed companies and strategic alliances. Certain of our invest-
ments are accounted for using the equity method, including,
among others, BSH and EN (renamed to Unify after fiscal year
end). Furthermore we hold other investments, for example
Atos S.A. and OSRAM Licht AG. Any factors negatively influenc-
ing the profitability of our equity and other investments, in-
cluding negative effects on revenues, profits or cash, could
have an adverse effect on our equity pick-up related to these
equity interests or may result in a write-off of these invest-
ments. In addition, our business, financial condition and re-
sults of operations could also be adversely affected in connec-
tion with loans, guarantees or non-compliance with financial
covenants related to these equity and other investments.
Furthermore, such investments are inherently risky as we may
not be able to sufficiently influence corporate governance pro-
cesses or business decisions taken by our equity investments,
other investments and strategic alliances that may have a neg-
ative effect on our business. In addition, joint ventures bear
the risk of difficulties that may arise when integrating people,
operations, technologies and products. Strategic alliances may
also pose risks for us because we compete in some business
areas with companies with which we have strategic alliances.
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 ex-
isting products and services, and invest in, and develop new
technologies. Introducing new products and technologies re-
quires a significant commitment to research and development,
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 man-
ner, in particular, compared to our competitors, or become
obsolete. We constantly apply for new patents and actively
manage our intellectual property portfolio to secure our tech-
nological position. However, our patents and other intellectual
property may not prevent competitors from independently
developing or selling products and services similar to or dupli-
cate of ours. There can be no assurance that the resources
invested by us to protect our intellectual property will be suffi-
cient or that our intellectual property portfolio will adequately
deter misappropriation or improper use of our technology.
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 problems. Our operating re-
sults 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 existing products. Among
recent technology trends, we carefully estimate the potential
and relevance of cloud computing. We believe that the poten-
tial and usage scenarios of this technology vary among our
products, solutions and services depending on the degree of
information technology utilized. However, we also believe that
this trend needs to be monitored closely, because it might bear
the potential to change the competitive landscape. Any inabili-
ty to adapt to the aforementioned factors could have a material
adverse effect on our business, financial condition and results
of operations.