Siemens 2007 Annual Report Download - page 169

Management’s discussion and analysis 169
Management’s discussion and analysis
The Company requested arbitration against the Republic of Argentina before
the International Center for Settlement of Investment Disputes (ICSID) of the
World Bank. The Company claimed that Argentina unlawfully terminated the
Company’s contract for the development and operation of a system for the produc-
tion of identity cards, border control, collection of data and voters’ registers and
thereby violated the Bilateral Investment Protection Treaty between Argentina
and Germany (BIT). The Company sought damages for expropriation and violation
of the BIT of approximately $500 million. Argentina disputed jurisdiction of the
ICSID arbitration tribunal and argued in favor of jurisdiction of the Argentine
administrative courts. The arbitration tribunal rendered a decision on August 4,
2004, fi nding that it had jurisdiction over Siemens’ claims and that Siemens was
entitled to present its claims. A hearing on the merits of the case took place before
the ICSID arbitration tribunal in Washington in October 2005. A unanimous deci-
sion on the merits was rendered on February 6, 2007, awarding Siemens compen-
sation in the amount of $217.8 million on account of the value of its investment
and consequential damages, plus compound interest thereon at a rate of 2.66%
since May 18, 2001. The tribunal also ruled that Argentina is obligated to indem-
nify Siemens against any claims of subcontractors in relation to the project
(amounting to approximately $44 million) and, furthermore, that Argentina
would be obligated to pay Siemens the full amount of the contract performance
bond ($20 million) in the event this bond was not returned within the time period
set by the tribunal (which period subsequently elapsed without delivery). On June
4, 2007, Argentina fi led with the ICSID an application for the annulment and stay
of enforcement of the award, alleging serious procedural irregularities. An ad hoc
committee has been appointed to consider Argentina’s application. Siemens cur-
rently expects that the ad hoc committee will not render a decision before 2009.
Siemens AG and its subsidiaries have been named as defendants in various
other legal actions and proceedings arising in connection with their activities as a
global diversifi ed group. Some of these pending proceedings have been previously
disclosed. Some of the legal actions include claims for substantial compensatory
or punitive damages or claims for indeterminate amounts of damages. Siemens is
from time to time also involved in regulatory investigations beyond those
described above. Siemens is cooperating with the relevant authorities in several
jurisdictions and, where appropriate, conducts internal investigations regarding
potential wrongdoing with the assistance of in-house and external counsel. Given
the number of legal actions and other proceedings to which Siemens is subject,
some may result in adverse decisions. Siemens contests actions and proceedings
when it considers it appropriate. In view of the inherent diffi culty of predicting
the outcome of such matters, particularly in cases in which claimants seek sub-
stantial or indeterminate damages, Siemens often cannot predict what the even-
tual loss or range of loss related to such matters will be. Although the fi nal resolu-
tion of these matters could have a material effect on Siemens’ consolidated
operating results for any reporting period in which an adverse decision is ren-
dered, Siemens believes that its consolidated fi nancial position should not be
materially affected by the matters discussed in this paragraph.