Siemens 2007 Annual Report Download - page 179

Management’s discussion and analysis 179
Management’s discussion and analysis
Legal
We are subject to numerous risks relating to legal proceedings to which we are
currently a party or that could develop in the future. In the ordinary course of our
business, we become party to lawsuits, including suits involving allegations of
improper delivery of goods or services, product liability, product defects, quality
problems and intellectual property infringement. For additional information with
respect to legal proceedings, see “Notes to Consolidated Financial Statements.”
There can be no assurance that the results of these or other legal proceedings will
not materially harm our business, reputation or brand. We record a provision for
litigation risks when (i) a present obligation as a result of a past event exists; (ii) it
is probable that an outfl ow of resources embodying economic benefi ts will be
required to settle the obligation; and (iii) a reliable estimate can be made of the
amount of the obligation. We maintain liability insurance for certain legal risks at
levels our management believes are appropriate and consistent with industry
practice. We may incur losses relating to litigation beyond the limits, or outside
the coverage, of such insurance and such losses may have a material adverse
effect on the results of our operations or fi nancial condition and our provisions
for litigation related losses may not be suffi cient to cover our ultimate loss or
expenditure.
Regulatory
Changes in regulatory requirements, tariffs and other trade barriers and price or
exchange controls could impact our sales and profi tability and make the repatri-
ation of profi ts diffi cult. In addition, the uncertainty of the legal environment in
some regions could limit our ability to enforce our rights. We expect that sales to
emerging markets will continue to be an increasing portion of total sales, as our
business naturally evolves and as developing nations and regions around the
world increase their demand for our offerings. Emerging market operations pres-
ent several risks, including civil disturbances, health concern, cultural differ-
ences such as employment and business practices, volatility in gross domestic
product, economic and governmental instability, the potential for nationalization
of private assets, and the imposition of exchange controls. In particular, the Asian
markets are important for our long-term growth strategy and our sizeable opera-
tions in China are infl uenced by a legal system that is still developing and is sub-
ject to change. Our growth strategy could be limited by governments supporting
local industries. The demand for many of the products of our business Groups,
particularly those that derive their revenue from large projects, can be affected by
expectations of future demand, prices and gross domestic product in the markets
in which those Groups operate. If any of these risks or similar risks associated
with our international operations were to materialize, it could have a material
adverse effect on our results of operations and fi nancial condition.