Siemens 2009 Annual Report Download - page 194

6
 Reports Supervisory Board /
Managing Board  Corporate Governance  Management’s discussion and analysis  Consolidated Financial Statements
44 Business and operating environment 63 Fiscal 2009 – Financial summary 66 Results of operations 84 Financial position
their results or the reactions of third parties thereto may have
on our business. Future developments in these investigations,
responding to the requests of governmental authorities and
cooperating with them, especially if we are not able to resolve
the investigations in a timely manner, could divert manage-
ment’s attention and resources from other issues facing our
business. Management has implemented a remediation plan
to address corruption and compliance risk in our business. If
this remediation plan is unsuccessful, we would continue to
be exposed to the risks described above.
We are subject to regulatory risks associated with our inter-
national operations: Protectionist trade policies and changes
in the political and regulatory environment in the markets in
which we operate such as foreign exchange import and export
controls, tariffs and other trade barriers and price or exchange
controls could affect our business in several national markets,
impact our sales and profitability and make the repatriation of
profits difficult, and could lead to penalties, sanctions and rep-
utational damages if we are not compliant with those regula-
tions. In addition, the uncertainty of the legal environment in
some regions could limit our ability to enforce our rights. Fur-
thermore, as a globally operating organization, we also con-
duct business with customers in countries subject to export
controls, embargos or other forms of trade restrictions im-
posed by U.S., the European Union or other countries or orga-
nizations. Future interpretations or developments of sanctions
regimes could lead to a curtailment of existing and/or planned
business activities and the possibility of reputational harm. We
expect that sales to emerging markets will continue to account
for an increasing portion of our total sales, as our business
naturally evolves and as developing nations and regions
around the world increase their demand for our offering.
Emerging market operations present several risks, including
civil disturbances, health concerns, cultural differences such
as employment and business practices, volatility in gross do-
mestic product, economic and governmental instability, the
potential for nationalization of private assets and the imposi-
tion of exchange controls. In particular, the Asian markets are
important for our long-term growth strategy, and our sizeable
operations in China are influenced by a legal system that is still
developing and is subject to change. Our growth strategy
could be limited by governments supporting local industries.
The demand for many of the products of our Sectors and Cross-
Sector Businesses, 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 Sectors and Cross-Sector Businesses operate. If
any of these risks or similar risks associated with our interna-
tional operations were to materialize, our results of operations
and financial condition could be materially adversely affected.
Our business could suffer as a result of current or future liti-
gation: We are subject to numerous risks relating to legal,
governmental and regulatory proceedings to which we are
currently a party or to which we may become a party in the fu-
ture. We routinely become subject to legal, governmental and
regulatory investigations and proceedings involving, among
other things, allegations of improper delivery of goods or ser-
vices, product liability, product defects, quality problems, in-
tellectual property infringement, non-compliance with tax
regulations and/or alleged or suspected violations of applica-
ble laws. In addition, we may face claims in connection with
the circumstances that led to the corruption proceedings de-
scribed above. For additional information with respect to spe-
cific proceedings, see “Notes to Consolidated Financial State-
ments.” There can be no assurance that the results of these or
any other proceedings will not materially harm our business,
reputation or brand. Moreover, even if we ultimately prevail on
the merits in any such proceedings, we may have to incur sub-
stantial legal fees and other costs defending ourselves against
the underlying allegations. We record a provision for legal risks
when (1) we have a present obligation as a result of a past
event; (2) it is probable that an outflow of resources embody-
ing economic benefits will be required to settle the obligation;
and (3) a reliable estimate can be made of the amount of the
obligation. In addition, we maintain liability insurance for cer-
tain legal risks at levels our management believes are appro-
priate and consistent with industry practice. Our insurance
policy, however, does not protect us against reputational dam-
age. Moreover, we may incur losses relating to legal proceed-
ings beyond the limits, or outside the coverage, of such insur-
ance. Finally, there can be no assurance that we will be able to
maintain adequate insurance coverage on commercially rea-
sonable terms in the future. Each of these risks may have a
material adverse effect on our results of operations or financial