ADT 2009 Annual Report Download - page 101

Raw and Other Purchased Materials
We are a large buyer of metals and other commodities, including gasoline. Certain of the
components used in the Fire Protection Services business, principally certain valves and fittings, are
purchased for installation in fire protection systems or for distribution. Materials are purchased from a
large number of independent sources around the world. There have been no shortages in materials that
have had a material adverse effect on our businesses. However, significant changes in certain raw
material costs have had, and may in the future have, an adverse impact on costs and operating margins.
In particular, our Electrical and Metal Products segment is significantly affected by volatility in the
price of steel and copper, with operating margins generally 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, which are products that may have both civil
and military use. 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
2009 Financials 9