Siemens 2015 Annual Report Download - page 32

Combined Management Report
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assets, in particular concerning our derivative financial instru-
ments. Negative developments could also further increase
the costs for buying protection against credit risks due to a
potential increase of counterparty risks. Through diversifica-
tion into different funding instruments, currencies, markets
and investor groups, Siemens reduces funding risks. Liquidity
risks are mitigated by depositing cash into different categories
of instruments and with a range of counterparties of invest-
ment grade credit quality, at which counterparty risks are cen-
trally and closely monitored (including risks resulting from
derivatives).
Credit Risks: We provide our customers with various forms of
direct and indirect financing of orders and projects. Particularly
SFS bears credit risks out of its financing activities. In part, we
take a security interest in the assets we finance or we receive
additional collateral. Our business, financial condition and re-
sults of operations may be adversely affected if the credit qual-
ity of our customers deteriorates or if they default on their pay-
ment obligation to us, if the value of the assets in which we
have taken a security interest or additional collateral declines
or if the projects in which we invest are unsuccessful. Positive
market values from derivatives and deposits with banks induce
credit risk against these banks. We monitor these market value
developments very closely. A default of a major trading partner
may have negative impact on our financial position and the
results of financial operations.
Risks from pension obligations: The funded status of our
pension plans may be affected by change in actuarial assump-
tions, including the discount rate, as well as movements in
financial markets or a change in the portfolio mix of invested
assets. A significant increase in the underfunding may have a
negative effect on our capital structure and rating and thus
may tighten refinancing options and increase costs. In order to
comply with local pension regulations in selected foreign coun-
tries, we may face a risk of increasing cash outflows to reduce
an underfunding of our pension plans in these countries.
Examinations by tax authorities and changes in tax regula-
tions: We operate in nearly all countries of the world and there-
fore are subject to many different tax regulations. Changes in
tax law in any of these jurisdictions could result in higher tax
expense and payments. Furthermore, legislative changes could
impact our tax receivables and liabilities as well as deferred tax
assets and deferred tax liabilities. In addition, the uncertain tax
environment in some regions could limit our ability to enforce
our rights. As a globally operating organization, we conduct
business in countries subject to complex tax rules, which may
be interpreted in different ways. Future interpretations or de-
velopments of tax regimes may affect our business, financial
condition and results of operations. We are regularly examined
by tax authorities in various jurisdictions and we continuously
identify and assess resulting risks.
For further information on post-employment benefits, deriva-
tive financial instruments, hedging activities, financial risk
management and measurements, see NOTE 16, 23 AND 24 in
B.6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
A.8.3.4 COMPLIANCE RISKS
Regulatory risks and potential sanctions: Protectionist trade
policies and changes in the political and regulatory environ-
ment in the markets in which we operate, such as import and
export controls, tariffs and other trade barriers including de-
barment from certain markets and price or exchange controls,
could affect our business in several national markets, impact
our business, financial position and results of operations, and
may expose us to penalties, other 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 increasing costs related to appropriate compliance
programs.
As a globally operating organization, we conduct business with
customers in countries which are subject to export control reg-
ulations, embargoes, economic sanctions or other forms of
trade restrictions (hereafter referred to as “sanctions”) imposed
by the U. S., the European Union or other countries or organiza-
tions. New or expanded sanctions in countries in which we do
business may result in a curtailment of our existing business in
such countries or indirectly in other countries. We are also
aware of initiatives by institutional investors, such as pension
funds or other companies, to adopt or consider adopting poli-
cies prohibiting investment in and transactions with, or requir-
ing divestment of interests in entities doing business with,
countries identified as state sponsors of terrorism by the U. S.
Secretary of State. It is possible that such initiatives may result
in us being unable to gain or retain investors, customers or sup-
pliers. In addition, the termination of our activities in sanc-
tioned 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. Due to
the political agreement based on the Joint Comprehensive Plan
of Action (JCPOA) regarding the Iranian nuclear program,
Siemens has revised its internal guidelines in October 
which stated that apart from certain limited exceptions no new
business activities with customers in Iran are permitted. New
business activities with customers or end customers in Iran
that are not designated on the EU or U. S. sanctions lists are
now allowed, provided that these activities do not breach the
EU sanctions regulations or the U. S. Secondary Sanctions (if
applicable). Siemens has issued group-wide policies establish-
ing the details of its general decision.