Siemens 2013 Annual Report Download - page 240

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

Our business, financial condition and results of operations
may be adversely affected by several parameters influenc-
ing the funded status of our pension benefit plans: The
funded status of our pension plans may be affected by an in-
crease or decrease in the defined benefit obligation (DBO), as
well as by an increase or decrease in the value of plan assets.
Pensions are accounted for in accordance with actuarial valua-
tions, which rely on statistical and other factors in order to an-
ticipate future events. These factors include key pension plan
valuation assumptions such as the discount rate, rate of future
compensation increases and pension progression. Actual de-
velopments may differ from assumptions due to changing
market and economic conditions, thereby resulting in an in-
crease or decrease in the DBO. Significant movements in finan-
cial markets or a change in the portfolio mix of invested assets
could result in corresponding increases or decreases in the
value of plan assets, particularly equity securities. Also, chang-
es in pension plan assumptions could affect net periodic pen-
sion cost. For example, a change in discount rates may result
in changes in the net periodic benefit cost in the following fis-
cal year. In order to comply with local pension regulations in
selected foreign countries, we may face a risk of increasing
cash outflows to reduce an underfunding of our pension plans
in these countries, if any.
For further information on financial risks and financial risk
management, see NOTE  in D. NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS.
C... COMPLIANCE RISKS
We are subject to regulatory risks associated with our
international operations: Protectionist trade policies and
changes in the political and regulatory environment in the
markets in which we operate, such as import and export con-
trols, tariffs and other trade barriers and price or exchange
controls, could affect our business in several national markets,
impact our sales and profitability and make the repatriation of
profits difficult, and may expose us to penalties, sanctions and
reputational damage. In addition, the uncertainty of the legal
environment in some regions could limit our ability to enforce
our rights and subject us to continually increasing costs relat-
ed to designing and implementing appropriate compliance
programs and protocols.
As a globally operating organization, we conduct business
with customers in countries, such as Iran, Syria and Cuba, that
are subject to increasingly expansive export control regula-
tions, embargoes, economic sanctions or other forms of trade
restrictions imposed by the U.S., the European Union or other
countries or organizations. New or expanded export control
regulations, economic sanctions, embargoes or other forms of
trade restrictions imposed on Iran, Syria or on other sanc-
tioned countries in which we do business may result in a cur-
tailment of our existing business in such countries and in
amendments to our policies. We are also aware of initiatives by
institutional investors, such as pension funds or other compa-
nies, to adopt or consider adopting policies prohibiting invest-
ment in and transactions with, or requiring divestment of in-
terests in entities doing business with Iran and other countries
identified as state sponsors of terrorism by the U.S. Secretary
of State. It is possible that such initiatives may result in us be-
ing unable to gain or retain investors, customers or suppliers.
In addition, the termination of our activities in sanctioned
countries may expose us to customer claims and other actions.
Our reputation could also suffer due to our activities with
counterparties in or affiliated with these countries. We have
included details of our Iran-related activities in C... OR-
DERS AND REVENUE, and are filing a related notice of disclosure
with the SEC. Under Section  of the Iran Threat Reduction
and Syria Human Rights Act of , upon receipt of the notice
of disclosure by the SEC, the SEC is required to notify the US
President and Congress of the filing. The President is then re-
quired to initiate an investigation into Iran-related activities
disclosed in such notice, and make a determination as to
whether sanctions should be imposed on the filing party.
There is no assurance as to the outcome of any such Presiden-
tial investigation. If the relevant authorities were to impose
penalties or sanctions on Siemens, such measures could have
a material adverse effect on our business, financial condition
and results of operations.
We expect that sales to emerging markets will continue to ac-
count for an increasing portion of our total revenue, as our
business naturally evolves and as developing nations and re-
gions around the world increase their demand for our offering.
Emerging market operations involve various risks, including
civil unrest, health concerns, cultural differences such as em-
ployment and business practices, volatility in gross domestic
product, economic and governmental instability, the potential
for nationalization of private assets and the imposition of ex-
change controls. The Asian markets, in particular, are import-
ant for our long-term growth strategy, and our sizeable opera-
tions in China are influenced by a legal system that is still de-
veloping and is subject to change. Our growth strategy could
be limited by governments supporting local industries. Our
Sectors, particularly those that derive their revenue from large
projects, could be adversely affected if future demand, prices
and gross domestic product in the markets in which those
Sectors operate do not develop as favorably as expected due to
such regulatory measures. If any of these risks or similar risks