Siemens 2013 Annual Report Download - page 237

253 D. Consolidated Financial Statements
357 E. Additional Information
245 C. Compensation Report, Corporate Governance
statement pursuant to Section a of the
German Commercial Code, Takeover-relevant
information and explanatory report
246 C. Siemens AG ( Discussion on basis of
German Commercial Code)
250 C. Notes and forward-looking statements

We are subject to changes of regulations, laws and policies
concerning our products: As a diversified company with glob-
al businesses we are exposed to various product related regu-
lations, laws and policies influencing our processes. Recently,
some jurisdictions around the world have adapted certain reg-
ulations, 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 disclosures on
sourcing and usage of the regulated raw materials. In particu-
lar, we must comply with 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 work-
ing on an implementation strategy for the above-referenced
legislation. Since we operate within highly complex value
chains, we are required to undertake a significant due dili-
gence process requiring considerable investments of human
resources and finances 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 re-
quested information and to take other steps to ensure that no
conflict minerals, financing or benefitting armed groups in the
DRC, are included in minerals or components supplied to us,
we may be forced to disclose information about the use of con-
flict minerals in our supply chain in filings with the SEC. In ad-
dition, since the applicability of the new conflict minerals leg-
islation is limited to companies publicly listed in the U.S., not
all of our competitors are required to comply with this legisla-
tion or engage in similar efforts to disclose the usage of con-
flict minerals. If we are unable to achieve sufficient confidence
throughout our supply chain, or if any of these risks or similar
risks associated with these kinds of regulations, laws and poli-
cies were to materialize, our business, financial condition, re-
sults of operations and reputation could be materially adverse-
ly affected.
C... OPERATIONAL RISKS
Our business, financial condition and results of operations
may be adversely affected by cost overruns or additional
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 bidding
basis. Some of these contracts are inherently risky because we
may assume substantially all of the risks associated with com-
pleting a project and the post-completion warranty obliga-
tions. For example, we face the risk that we must satisfy tech-
nical 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 cus-
tomers, cost overruns or contractual penalties caused by unex-
pected technological problems, unforeseen developments at
the project sites, unforeseen changes or difficulties in the reg-
ulatory or political environment, performance problems with
our suppliers, subcontractors and consortium partners or oth-
er logistical difficulties. Certain of our multi-year contracts also
contain demanding installation and maintenance require-
ments in addition to other performance criteria relating to tim-
ing, unit cost and compliance with government regulations
requirements, which, if not satisfied, could subject us to sub-
stantial contractual penalties, damages, non-payment 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 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 in-
cludes a broad array of systems, networks, products, solutions
and services across our businesses that rely on digital technol-
ogies. 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
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 similar man-
ner. Nonetheless, our systems, networks, products, solutions
and services, as well as those of our service providers 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 shortages, which