Siemens 2014 Annual Report Download - page 233

247 D. Consolidated Financial Statements
337 E. Additional Information
213 C. Overall assessment of the economic position
214 C. Subsequent events
215 C. Sustainability and citizenship
225 C. Report on expected developments and
associated material opportunities and risks
242 C. Compensation Report and legal disclosures
242 C. Siemens AG (Discussion on basis
of German Commercial Code)

the former Diagnostics Division and the former Imaging &
Therapy Systems Division of Healthcare, and the former Indus-
try Automation Division of the former Industry Sector. If we
were to encounter continuing 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 otherwise to perform worse than expected at acqui-
sition activities, then these intangible assets, including good-
will, might have to be written off, which could adversely affect
our business, financial condition and results of operations. The
likelihood of such adverse business developments increases 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: Our strategy includes
strengthening our business interests through joint ventures,
associated companies and strategic alliances. Certain of our
investments, particularly in our former segment Equity Invest-
ments, are accounted for using the equity method, including,
among others, Unify (formerly EN) and, after contractual clos-
ing of the transaction, our Metals Technologies joint venture
with Mitsubishi Heavy Industries. Furthermore, we hold other
investments, for example Atos SE and OSRAM Licht AG. Any
factors negatively influencing the profitability of our equity and
other investments, including 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 investments. In addition, our business, financial
condition and results of operations could also be adversely
affected in connection with loans, guarantees or non-compli-
ance 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 processes or business decisions taken by our
equity investments, other investments and strategic alliances
that may have a negative 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 com-
pete in some business areas with companies with which we
have strategic alliances.
We are subject to changes of regulations, laws and policies
concerning our products: As a diversified company with global
businesses we are exposed to various product-related regula-
tions, laws and policies influencing our processes. Recently,
some jurisdictions around the world have adopted certain reg-
ulations, laws and policies requiring us to extend our recycling
efforts, limit the sourcing and usage of certain raw materials,
and request that suppliers provide additional due diligence and
disclosures on sourcing and usage of the regulated raw materi-
als. In particular, there is U.S. legislation concerning the sourc-
ing of “conflict minerals” from mines located in the conflict
zones of the Democratic Republic of Congo (DRC) and its
adjoining countries. This U.S. legislation requires manufactur-
ers listed on U.S. stock exchanges to investigate and disclose
their use of any conflict minerals originating in the DRC or ad-
joining countries. Many of our customers fall into this category.
If their (sub-)suppliers do not provide them with requested in-
formation and do not take other steps to ensure that no such
conflict minerals are included in minerals or components sup-
plied to them, they may be forced to disclose information about
the use of conflict minerals in their supply chain in filings with
the SEC. Thus, our customers pass on these transparency obli-
gations within their supply chain in which we are also involved.
We exercise our duty within the supply chain, as our customers
request transparency in the supply chain and as the obligation
to do so already forms an element of customer contracts. 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 policies were to
materialize, our business, financial condition, results of opera-
tions and reputation could be adversely 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 por-
tion 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 complet-
ing a project and the post-completion warranty obligations. For
example, we face the risk that we must satisfy technical re-
quirements 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 pro-
ductivity over their term. We sometimes bear the risk of unan-
ticipated 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
political environment, performance problems with our suppli-
ers, subcontractors and consortium partners or other logistical
difficulties. Certain of our multi-year contracts also contain
demanding installation and maintenance requirements in
addition to other performance criteria relating to timing, unit
cost and compliance with government regulations require-
ments, which, if not satisfied, could subject us to substantial