ADT 2007 Annual Report Download - page 145

contracting revenue in North America. Fire Protection Services experienced continued growth in
electronic and mechanical contracting. Foreign currency exchange rates positively affected 2007 by
$586 million while the net impact of acquisitions and divestitures negatively affected 2007 by
$48 million.
Operating income decreased $3.1 billion for 2007. Operating income was primarily impacted by the
class action settlement charge, net of $2.862 billion. Revenue growth in all segments was partially offset
by lower margins in Electrical and Metal Products primarily due to unfavorable spreads on both steel
and copper products. Additionally, operating income was impacted by costs incurred relating to the
Separation and the restructuring program announced in November 2006. Separation related costs
impacted operating income by $105 million for 2007 and $49 million for 2006. Restructuring and asset
impairment charges, net impacted operating income by $217 million for 2007. Also impacting operating
income was a goodwill impairment charge of $46 million due to the reorganization into our new
management and segment reporting structure. Divestiture charges impacted 2007 by $4 million.
Restructuring, asset impairment and divestiture charges, net were $15 million for 2006.
Net revenue increased $671 million, or 4.0%, for 2006 as compared to 2005 as a result of growth
in four of our segments. The increase in net revenue was largely driven by Flow Control as a result of
volume growth from strength in most industrial end markets. In addition, revenue growth was favorably
impacted by increased selling prices of armored cable products due to higher costs of copper within
Electrical and Metal Products during 2006. Foreign currency exchange rates negatively affected 2006 by
$85 million while the net impact of acquisitions and divestitures negatively affected the period by
$118 million.
Operating income increased $179 million, or 15.0%, for 2006 while operating margin increased
0.8 percentage points to 7.9%. The increase in operating income was driven by growth in three of our
segments as well as reduced operating expenses in corporate, partially offset by lower margins in ADT
Worldwide and Safety Products. Operating income for 2006 was unfavorably affected by a $100 million
charge relating to a pre-existing voluntary replacement program for certain sprinkler heads, incremental
stock option charges of $84 million as required under SFAS No. 123R, ‘‘Share-Based Payments,’’
Separation related costs of $49 million and net restructuring, asset impairment and divestiture charges
of $15 million. Operating income for 2006 also included $72 million of income related to the
extinguishment of certain payment obligations under a split dollar life insurance policy and rabbi trust
pursuant to a settlement with Mr. Kozlowski, former Chief Executive Officer, and $48 million of
income resulting from a reduction in our estimated workers’ compensation liabilities primarily due to
favorable claims experience. Operating income during 2005 was negatively affected by net restructuring,
asset impairment and divestiture charges of $40 million. In addition, 2005 was unfavorably affected by a
charge of $50 million related to an SEC enforcement action and a $70 million charge for estimated
contingencies related to contested legal proceedings seeking to enforce retention agreements for five
former executives.
2007 Financials 53