Siemens 2007 Annual Report Download - page 180

180 Management’s discussion and analysis
Some of the industries in which we operate in are highly regulated. Current
and future environmental and other government regulations, or changes thereto,
may result in signifi cant increases in our operating or product costs. We could
also face liability for damage or remediation for environmental contamination at
the facilities we design or operate. We accrue for environmental risks when (i) a
present obligation as a result of a past event exists; (ii) it is probable that an out-
fl ow of resources embodying economic benefi ts will be required to settle the obli-
gation; and (iii) a reliable estimate can be made of the amount of the obligation.
With regard to certain environmental risks, we maintain liability insurance at
levels that our management believes are appropriate and consistent with industry
practice. We may incur environmental losses beyond the limits, or outside the cov-
erage, 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 environ-
mental remediation may not be suffi cient to cover the ultimate losses or expendi-
tures.
We operate in approximately 190 countries and therefore are subject to differ-
ent tax regulations. Changes in tax regulation could result in higher tax expenses
and payments. Furthermore, changes in tax regulation could impact our tax lia-
bilities as well as deferred tax assets.
Financial risks
Credit risk
The Company is exposed to credit risk in connection with its signifi cant project
business in the fi elds of public infrastructure and transport, healthcare, utilities
and IT where direct or indirect fi nancing in various forms may be provided to cus-
tomers. In limited cases, the Company may also take an equity interest as part of
the project fi nancing.
The Company is also exposed to credit risk via its leasing activities, primarily
related to medical engineering, data processing equipment and industrial and
consumer products of third party manufacturers. Siemens’ credit risk regarding
such activities presents additional risks as the volume of such transactions is
higher, customers tend to be smaller for which transparent credit histories are
often not available.
Credit risk is defi ned as an unexpected loss in cash and earnings if the cus-
tomer is unable to pay its obligations in due time, if the value of property that
serves as collateral declines, or if the projects Siemens has invested in are not
successful. The effective monitoring and controlling of credit risk is a core compe-
tency of our risk management system. Corporate Treasury has implemented a
group-wide binding credit policy. Hence, credit evaluations and ratings are per-
formed on all customers with an exposure or requiring credit beyond a centrally
defi ned limit.