ADT 2008 Annual Report Download - page 118

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.
Failure to retain or attract qualified personnel could adversely affect our business.
The Company’s culture and guiding principles focus on continuously training, motivating and
developing employees, and in particular it strives to attract, motivate and retain qualified managers to
handle the day-to-day operations of a highly diversified organization. If we fail to retain and attract
qualified personnel, the Company’s operations could be adversely affected. In addition, excessive
turnover in personnel could cause manufacturing inefficiencies in certain of our businesses. The
demand for experienced management in certain geographic areas also makes it difficult to retain
qualified production employees. High turnover could result in additional training and inefficiencies that
could adversely impact the Company’s operating results.
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 and market
capitalization declines may result in additional charges for goodwill and other asset impairments.
During the annual goodwill impairment testing for the fiscal year ended September 26, 2008, the
carrying amount of goodwill in the Latin America Fire Protection business, part of our Fire Protection
Services segment, exceeded the implied fair value of goodwill. As a result, the Company recognized a
goodwill impairment of $9 million in the fourth quarter of 2008. The Company believes that its
goodwill balance at September 26, 2008 is recoverable. However, fair value determinations require
considerable judgment and are sensitive to changes in the factors described above. In light of current
economic conditions, additional impairments to one or more of our reporting units could occur in
future periods whether or not connected to the annual impairment analysis. The Company has certain
reporting units which have limited excess of fair value over carrying value. The goodwill balance for
reporting units with less than a ten percent excess of fair value over carrying value in the aggregate was
approximately $2.4 billion at September 26, 2008. Future impairment charges could materially affect
our reported earnings in the periods of such charges and could adversely affect our financial condition
and results of operations.
Risks Related to Legal, Regulatory and Compliance Matters
We are named as a defendant in a variety of litigation in the course of our business that could cause a
material adverse effect on our financial condition, results of operations or cash flows.
In the ordinary course of business, we are named as a defendant in a significant amount of
litigation, including claims for damages arising out of the use or installation of our products, litigation
2008 Financials 15