ADT 2011 Annual Report Download - page 115

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 Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.
Our net revenue derived from sales in non-U.S. markets for 2011 was 52% of our total net
revenue, and we expect revenue from non-U.S. markets to continue to represent a significant portion of
our total net revenue. Therefore, if the U.S. dollar has strengthened in relation to the principle foreign
currencies where we derive revenue as compared to a prior period, our U.S. dollar reported revenue
and income will decrease, and vice-versa. 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 translation of items denominated in non-U.S. currencies to U.S. dollars, our
functional currency (using year-end exchange rates for balance sheet data and average exchange rates
for statement of operations data).
In addition, we are a large buyer of metals and other commodities, including fossil fuels for our
manufacturing operations and our vehicle fleet, the prices of which have fluctuated significantly in
recent years. Increases in the prices of some 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 or otherwise effectively manage price volatility and this could have a material adverse
effect on our financial condition, results of operations or cash flows. Further, in a declining price
environment, our operating margins may contract because we account for inventory using the first-in,
first-out method.
We monitor these exposures as an integral part of our overall risk management program. In some
cases, we enter into hedge contracts to insulate our results of operations from these fluctuations. These
hedges are subject to the risk that our counterparty may not perform. As a result, 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.
Failure to maintain the security of our information and technology networks, including personally
identifiable and other information, non-compliance with our contractual or other legal obligations regarding
such information, or a violation of the Company’s privacy and security policies with respect to such
information, could adversely affect us.
We are dependent on information technology networks and systems, including the Internet, to
process, transmit and store electronic information, and, in the normal course of our business, we collect
and retain significant volumes of certain types of personally identifiable and other information
pertaining to our customers, stockholders and employees. The legal, regulatory and contractual
environment surrounding information security and privacy is constantly evolving and companies that
collect and retain such information are under increasing attack by cyber-criminals around the world. A
significant actual or potential theft, loss, fraudulent use or misuse of customer, stockholder, employee
or our data by cybercrime or otherwise, non-compliance with our contractual or other legal obligations
regarding such data or a violation of our privacy and security policies with respect to such data could
adversely impact our reputation and could result in significant costs, fines, litigation or regulatory
action against us. In addition, we depend on our information technology infrastructure for
business-to-business and business-to-consumer electronic commerce. Security breaches of this
infrastructure can create system disruptions and shutdowns that could result in disruptions to our
12 2011 Financials