ADT 2007 Annual Report Download - page 110

• compliance with a variety of foreign laws and regulations;
• changes in the general political and economic conditions in the countries where we operate,
particularly in emerging markets;
• the threat of nationalization and expropriation;
• increased costs and risks of doing business in a number of foreign jurisdictions;
• changes in enacted tax laws;
• limitations on repatriation of earnings; and
• fluctuations in equity and revenues due to changes in foreign currency exchange rates.
Changes in the political or economic environments in the countries in which we operate could
have a material adverse effect on our financial condition, results of operations or cash flows.
Volatility in currency exchange rates, commodity prices and interest rates may adversely affect our
financial condition, result of operations or cash flows.
We are exposed to a variety of market risks, including the effects of changes in 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 2007 was 53% 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 currencies of the
foreign countries where we sell our products, our U.S. dollar reported revenue and income will
decrease. Changes in the relative values of currencies occur regularly and in some instances, may 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 metals and other commodities, including gas, the prices of which have
fluctuated significantly in recent years. Volatility in the prices of these commodities could increase the
costs of manufacturing our products and providing our services. We may not be able to pass on these
costs to our customers and this could have a material adverse effect on our financial condition, results
of operations or cash flows.
We monitor these exposures as an integral part of our overall risk management program. In some
cases, we purchase hedges or enter into contracts to insulate our results of operations from these
fluctuations. Nevertheless, changes in currency exchange rates, commodity prices and interest rates may
have a material adverse effect on our financial condition, results of operations or cash flows.
If we cannot obtain sufficient quantities of materials, components and equipment required for our
manufacturing activities at competitive prices and quality and on a timely basis, or if our
manufacturing capacity does not meet demand, our financial condition, results of operations or cash
flows may suffer.
We purchase materials, components and equipment from third parties for use in our
manufacturing operations. If we cannot obtain sufficient quantities of these items at competitive prices
and quality and on a timely basis, we may not be able to produce sufficient quantities of product to
satisfy market demand, product shipments may be delayed or our material or manufacturing costs may
increase. In addition, because we cannot always immediately adapt our cost structures to changing
market conditions, our manufacturing capacity may at times exceed or fall short of our production
requirements. Any of these problems could result in the loss of customers, provide an opportunity for
competing products to gain market acceptance and otherwise adversely affect our financial condition,
results of operations or cash flows.
18 2007 Financials