ADT 2006 Annual Report Download - page 79

• oil spill equipment upgrades and replacement.
These projects involve both remediation expenses and capital improvements. In addition, we remain
responsible for certain environmental issues at manufacturing locations previously sold by us.
The ultimate cost of cleanup at disposal sites and manufacturing facilities is difficult to predict
given uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws
and regulations and alternative cleanup methods. Based upon our experience, current information and
applicable laws, we believe that it is probable that we would incur remedial costs (including asset
retirement obligations of $111 million) of approximately $295 million, of which $34 million is included
in accrued expenses and other current liabilities and $261 million is included in other long-term
liabilities on the Consolidated Balance Sheets. Environmental laws are complex, change frequently and
have tended to become more stringent over time. While we have budgeted for future capital and
operating expenditures to maintain compliance with such laws, we cannot provide assurance that our
costs of complying with current or future environmental protection and health and safety laws, or our
liabilities arising from past or future releases of, or exposures to, hazardous substances will not exceed
our estimates or adversely affect our financial condition and results of operations or that we will not be
subject to additional environmental claims for personal injury or cleanup in the future based on our
past, present or future business activities.
We may be required to recognize additional impairment charges.
Pursuant to accounting principles generally accepted in the United States, we are required to
periodically assess our goodwill, intangibles and other long-lived assets to determine if they are
impaired. Disruptions to our business, end market conditions and protracted economic weakness,
unexpected significant declines in operating results of reporting units, divestitures, the Proposed
Separation plan and market capitalization declines may result in additional charges for goodwill and
other asset impairments. Future impairment charges could substantially affect our reported earnings in
the periods of such charges. In addition, such charges would reduce our consolidated net worth and our
shareholders’ equity, increasing our debt-to-total-capitalization ratio. Such reduction in consolidated net
worth and increase in debt as a percentage of total capitalization could result in a default under our
credit facilities.
Foreign currency exchange rate, commodity price and interest rate fluctuations may adversely affect our
results.
We are exposed to a variety of market risks, including the effects of changes in foreign currency
exchange rates, commodity prices and interest rates. See Part II Item 7A. Quantitative and Qualitative
Disclosures About Market Risk.
Our net revenue derived from sales in non-U.S. markets for 2006 was 51.2% of our total net
revenue, and we expect revenue from non-U.S. markets to continue to represent a significant portion of
our net revenue. Therefore, when the U.S. Dollar strengthens in relation to the foreign currencies of
the countries where we sell our products, such as the Euro, our U.S. Dollar reported revenue and
income will decrease. Changes in the relative values of currencies occur from time to time and may, in
some instances, have a significant effect on our results of operations. Our financial statements reflect
recalculations of items denominated in non-U.S. currencies to U.S. Dollars, our functional currency.
We are a large buyer of steel in the United States. We are also a large buyer of other
commodities, including resin, copper, brass, gold, paper, pulp and cotton. Volatility in the prices of
these commodities could increase the costs of our products and services. We may not be able to pass
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