ADT 2008 Annual Report Download - page 113

material costs may have an adverse impact on costs and operating margins. In particular, our Electrical
and Metals segment is significantly affected by volatility in the price of copper and steel, with operating
margins contracting in a declining price environment and expanding when prices of these commodities
are rising. We enter into long-term supply contracts, using fixed or variable pricing to manage our
exposure to potential supply disruptions.
Governmental Regulation and Supervision
Our operations are subject to numerous federal, state and local consumer protection, licensing and
other laws and regulations, both within and outside the United States. For example, most U.S. states in
which we operate have licensing laws directed specifically toward the alarm and fire suppression
industries. Our ADT Worldwide business currently relies primarily upon the use of wireline telephone
service to communicate signals, and wireline telephone companies in the United States are regulated by
both the federal and state governments. Another example is our Flow Control business, which is subject
to strict regulations governing the import and export of goods and technologies across international
borders, particularly with respect to ‘‘dual use’’ products. In addition, government regulation of fire
safety codes can impact our Fire Protection Services business. These and other laws and regulations
impact the manner in which we conduct our business, and changes in legislation or government policies
can affect our worldwide operations, both positively and negatively. For a more detailed description of
the various laws and regulations that affect our business, see ‘‘Item 1A. Risk Factors—Risks Related to
Legal, Regulatory and Compliance Matters’’ and ‘‘Item 3. Legal Proceedings.’’
Environmental Matters
We are subject to numerous foreign, federal, state and local environmental protection and health
and safety laws governing, among other things, the generation, storage, use and transportation of
hazardous materials; emissions or discharges of substances into the environment; and the health and
safety of our employees.
Certain environmental laws assess liability on current or previous owners or operators of real
property for the cost of removal or remediation of hazardous substances at their properties or at
properties at which they have disposed of hazardous substances. In addition to cleanup actions brought
by governmental authorities, private parties could bring personal injury or other claims due to the
presence of, or exposure to, hazardous substances or pursuant to indemnifications provided by us in
connection with asset disposals. We have received notification from the U.S. Environmental Protection
Agency and from state environmental agencies that conditions at a number of sites where we and
others disposed of hazardous substances require cleanup and other possible remedial action and may
require that we reimburse the government or otherwise pay for the cost of cleanup of those sites and/or
for natural resource damages. We have projects underway at a number of current and former
manufacturing facilities to investigate and remediate environmental contamination resulting from past
operations.
Given uncertainties regarding the extent of the required cleanup, the interpretation of applicable
laws and regulations and alternative cleanup methods, the ultimate cost of cleanup at disposal sites and
manufacturing facilities is difficult to predict. Based upon our experience, current information regarding
known contingencies and applicable laws, we believe that it is probable that we would incur remedial
costs in the range of approximately $37 million to $76 million. As of September 26, 2008, we believe
that the best estimate within this range is approximately $43 million, of which $10 million is included in
accrued expenses and other current liabilities and $33 million is included in other liabilities on the
Consolidated Balance Sheet. In view of our financial position and reserves for environmental matters,
we believe that any potential payment of such estimated amounts will not have a material adverse
effect on our financial position, results of operations or cash flows.
10 2008 Financials