| COMMERCIAL METALS CO ITEM 1A RISK FACTORS Before making an investment in our company, you should be aware of various risks, including those described below |
| You should carefully consider these risk factors together with all of the other information included in this annual report on Form 10-K The risks described below are not the only risks facing us |
| Additional risks and uncertainties not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our business, financial condition, results of operations or cash flows |
| If any of these risks actually occur, our business, financial condition, results of operations or cash flows could be materially adversely affected and you may lose all or part of your investment |
| RISKS RELATED TO OUR INDUSTRY A SIGNIFICANT REDUCTION IN CHINA’S STEEL CONSUMPTION OR INCREASED CHINESE STEEL PRODUCTION SUBSTANTIALLY EXCEEDING LOCAL DEMAND MAY RESULT IN CHINA BECOMING A LARGE EXPORTER OF STEEL AND DISRUPTION TO WORLD STEEL MARKETS Chinese economic expansion has affected the availability and heightened the volatility of many commodities that we market and use in our manufacturing process, including steel |
| It is reported that in calendar year 2005 China became a net exporter of steel, albeit only by 600cmam000 tons out of a total estimated production capacity of 349 million tons |
| China now accounts for approximately one third of the world’s raw steel production and one third of the world’s steel consumption |
| Expansions and contractions in China’s economy can have major effects on the pricing of not only the price of our finished steel products but also many commodities that affect us such as secondary metals, energy, marine freight rates, steel making supplies such as ferroalloys and graphite electrodes and materials we market such as iron ore and coke |
| Should Chinese demand weaken or Chinese steel production be allowed to expand unchecked to the point that it significantly exceeds the country’s consumption, prices for many of the products that we both sell to and export from China may fall causing erosion in our gross margins and subjecting us to possible renegotiation of contracts or increases in bad debts |
| Significant exports from China of steel in the product lines we manufacture in the United States would cause selling prices in the United States to decline and negatively impact our gross margins |
| RAPID AND SIGNIFICANT CHANGES IN THE PRICE OF METALS COULD NEGATIVELY IMPACT OUR INDUSTRY Prices for most metals in which we deal have experienced large increases and increased volatility in recent years |
| With a few exceptions, our markets have been able to adapt to this changing pricing environment |
| However, should metals prices experience 10 _________________________________________________________________ [63]Table of Contents further unanticipated and even more substantial rapid increases or be subjected to sudden substantial decreases it would impact us in several ways |
| Some of our operations, the domestic fabrication segment for example, may benefit from rapidly decreasing steel prices as their material cost decline while others, such as our domestic mill and CMCZ segments, would likely experience reduced margins until prices stabilized |
| Overall we believe that rapid substantial price changes, should they occur, will not be to our industry’s benefit |
| Our customer and supplier base would be impacted due to uncertainty as to future prices |
| A reluctance to purchase inventory in the face of extreme price decreases or sell quickly during a period of rapid price increases would likely reduce our volume of business |
| Marginal industry participants or speculators may attempt to participate to an unhealthy extent during a period of rapid price escalation with a substantial risk of contract default should prices suddenly reverse |
| EXCESS CAPACITY IN OUR INDUSTRY COULD INCREASE THE LEVEL OF STEEL IMPORTS INTO THE US RESULTING IN LOWER DOMESTIC PRICES WHICH WOULD ADVERSELY AFFECT OUR SALES, MARGINS AND PROFITABILITY Steel-making capacity exceeds demand for steel products in some countries |
| Rather than reducing employment by rationalizing capacity with consumption, steel manufacturers in these countries (often with local government assistance or subsidies in various forms) have traditionally periodically exported steel at prices that are significantly below their home market prices and which may not reflect their costs of production or capital |
| This supply of imports can decrease the sensitivity of domestic steel prices to increases in demand or our ability to recover increased manufacturing costs |
| OUR INDUSTRY IS AFFECTED BY CYCLICAL AND REGIONAL ECONOMIC FACTORS INCLUDING THE RISK OF A SLOW DOWN IN ECONOMIC ACTIVITY OR RECESSION Many of our products are commodities subject to cyclical fluctuations in supply and demand in metal consuming industries |
| Metals industries have historically been vulnerable to significant declines in consumption and product pricing during prolong periods of economic downturn |
| A recession in either the United States or the European Union or the public perception that a slowdown or recession may occur, could decrease the demand for our products and adversely affect our business |
| Our overall financial results will be dependent substantially upon the extent to which economic conditions in both the United States and the European Union remain strong |
| Overall economic activity has historically been susceptible to declines following periods of rapidly increased energy costs or interest rates |
| A slower expansion or recession will adversely affect our financial results |
| Our geographic concentration in the southern and southwestern United States as well as Central Europe, Australia and China exposes us to the local market conditions in these regions |
| Economic downturns in these areas or decisions by governments that have an impact on the level and pace of overall economic activity could adversely affect our sales and profitability |
| Our business supports cyclical industries such as commercial construction, energy, service center, petrochemical and original equipment manufacturing |
| These industries may experience significant fluctuations in demand for our products based on economic conditions, energy prices, consumer demand and decisions by governments to fund infrastructure projects such as highways, schools, energy plants and airports |
| As a result of the volatility in the industries we serve, we may have difficulty increasing or maintaining our level of sales or profitability |
| If the industries we serve suffer a prolonged downturn, then our business may be adversely affected |
| Our industry is characterized by low backlogs, which means that our results of operations are promptly affected by short-term economic fluctuations |
| COMPLIANCE WITH AND CHANGES IN ENVIRONMENTAL AND REMEDIATION REQUIREMENTS COULD RESULT IN SUSTANTIALLY INCREASED CAPITAL REQUIREMENTS AND OPERATING COSTS Existing laws or regulations, as currently interpreted or reinterpreted in the future, or future laws or regulations, may have a material adverse effect on our results of operations and financial condition |
| Compliance with environmental laws and regulations is a significant factor in our business |
| We are subject to local, state, federal and international environmental laws and regulations concerning, among other matters, waste disposal, air emissions, waste and storm water effluent and disposal and employee health |
| Our manufacturing and recycling operations produce significant amounts of by-products, some of which are handled as industrial waste or 11 _________________________________________________________________ [64]Table of Contents hazardous waste |
| For example, our minimills generate electric arc furnace dust (EAF dust), which the EPA, and other regulatory authorities classify as hazardous waste |
| EAF dust requires special handling, recycling or disposal |
| In addition, the primary feed materials for the shredders operated by our scrap metal recycling facilities are automobile hulks and obsolete household appliances |
| Approximately 20prca of the weight of an automobile hulk consists of unrecyclable material known as shredder fluff |
| After the segregation of ferrous and saleable non-ferrous metals, shredder fluff remains |
| We, along with others in the recycling industry, interpret Federal regulations to require shredder fluff to meet certain criteria and pass a toxic leaching test to avoid classification as a hazardous waste |
| We also endeavor to remove hazardous contaminants from the feed material prior to shredding |
| As a result, we believe the shredder fluff we generate is not normally considered or properly classified as hazardous waste |
| If the laws, regulations or testing methods change with regard to EAF dust or shredder fluff, we may incur additional significant expenditures |
| Although we believe that we are in substantial compliance with all applicable laws and regulations, legal requirements are changing frequently and are subject to interpretation |
| New laws, regulations and changing interpretations by regulatory authorities, together with uncertainty regarding adequate pollution control levels, testing and sampling procedures, new pollution control technology and cost benefit analysis based on market conditions are all factors that may increase our future expenditures to comply with environmental requirements |
| Accordingly, we are unable to predict the ultimate cost of future compliance with these requirements or their effect on our operations |
| We cannot predict whether such costs can be passed on to customers through product price increases |
| Competitors in various regions or countries where environmental regulation might not be so restrictive, subject to different interpretation or generally not enforced may enjoy a competitive advantage |
| We may also be required to conduct additional clean up at sites where we have already participated in remediation efforts or to take remediation action with regard to sites formerly used in connection with our operations |
| We may be required to pay for a portion of the costs of clean up or remediation at sites we never owned or on which we never operated if we are found to have arranged for treatment or disposal of hazardous substances on the sites |
| In particular major changes in the rate of exchange of China’s Renminbi or substantial increases in the value of the Euro to the US Dollar could negatively impact our business |
| A strong US dollar makes imported metal products less expensive, resulting in more imports of steel products into the US by our foreign competitors |
| Past economic difficulties in Eastern Europe, Asia and Latin America have resulted in lower local demand for steel products and have encouraged greater steel exports to the US at depressed prices |
| As a result, our products which are made in the US, may become relatively more expensive as compared to imported steel, which has had and in the future could have a negative impact on our sales, revenues and profitability |
| A strong US dollar hampers our international marketing and distribution business |
| Weak local currencies limit the amount of US dollar denominated products that we can import for our international operations and limits our ability to be competitive against local producers selling in local currencies |
| OPERATING INTERNATIONALLY CARRIES RISKS AND UNCERTANTIES WHICH COULD NEGATIVELY EFFECT OUR RESULTS OF OPERATIONS We have our heaviest concentration of manufacturing operations in the United States but also have significant facilities in Europe and Australia |
| Our marketing and trading offices are located in most major markets of the world with our suppliers and our customers located throughout the world |
| Our marketing and distribution segment relies on substantial international shipments of materials and products in the ordinary course of its business |
| Our stability, growth and profitability are subject to a number of risks inherent in doing business internationally in addition to the currency exchange risk discussed above, including: • Political, military, terrorist or major pandemic events; • Legal and regulatory requirements or limitations imposed by foreign governments (particularly those with significant steel consumption or steel related production including China, Brazil, Russia and India) including quotas, tariffs or other protectionist trade barriers, adverse tax law changes, nationalization or currency restrictions; 12 _________________________________________________________________ [65]Table of Contents • Disruptions or delays in shipments caused by customs compliance or government agencies; and • Potential difficulties in staffing and managing local operations |
| WE RELY ON THE AVAILABILITY OF LARGE AMOUNTS OF ELECTRICITY AND NATURAL GAS FOR OUR MINIMILL OPERATIONS DISRUPTIONS IN DELIVERY OR SUBSTANTIAL INCREASES IN ENERGY COSTS, INCLUDING CRUDE OIL PRICES, COULD ADVERSLY EFFECT ON OUR FINANCIAL PERFORMANCE Minimills melt steel scrap in electric arc furnaces and use natural gas to heat steel billets for rolling into finished products |
| As large consumers of electricity and gas, often the largest in the geographic area where our minimills are located, we must have dependable delivery of electricity and natural gas in order to operate |
| Accordingly, we are at risk in the event of an energy disruption |
| Prolonged black-outs or brown-outs or disruptions caused by natural disasters such as hurricanes would substantially disrupt our production |
| While we have not suffered prolonged production delays due to our inability to access electricity or natural gas several of our competitors have experienced such occurrences |
| Prolonged substantial increases in energy costs would have an adverse effect on the costs of operating our minimills and would negatively impact our gross margins unless we were able to fully pass through the additional expense |
| Our finished steel products are typically delivered by truck |
| Rapid increases in the price of fuel attributable to increases in crude oil prices will have a negative impact on our costs and many of our customers financial results which could result in reduced margins and declining demand for our products |
| Rapid increases in fuel costs may also negatively impact our ability to charter ships for international deliveries at anticipated freight rates thereby decreasing our margins on those transactions or causing our customers to look for alternative sources |
| IF WE LOSE THE SERVICES OF KEY EMPLOYEES WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE OUR OPERATIONS AND MEET OUR STRATEGIC OBJECTIVES Our future success depends, in large part, on the continued service of our officers and other key employees and our ability to continue to attract and retain additional highly qualified personnel |
| These employees are integral to our success based on their expertise and knowledge of our business and products |
| We compete for such personnel with other companies including public and private company competitors who may periodically offer more favorable terms of employment |
| While we have an employment agreement with our Chief Executive Officer, we typically do not have employment agreements with other key employees |
| The loss or interruption of the services of a number of our key employees would reduce our ability to effectively manage our operations due to the fact that we may not be able to find in a timely manner, appropriate replacement personnel should the need arise |
| WE HAVE INITIATED IMPLEMENTATION OF AN ENTERPRISE RESOURCE PLANNING SYSTEM WHICH, IF NOT EFFECTIVELY MANAGED AND CONTROLLED, COULD THREATEN THE ACHIEVEMENT OF OPERATION AND FINANCIAL GOALS Planning and design of a new enterprise resource planning system commenced in 2006 and will continue through 2007 with phased implementation scheduled commencing in 2008 |
| There are risks that this effort may not result in a successful implementation resulting in resources being inappropriately diverted, untimely completion and substantial cost overruns |
| WE MAY HAVE DIFFICULTY COMPETING WITH COMPANIES THAT HAVE A LOWER COST STRUCTURE THAN OURS We compete with regional, national and foreign manufacturers and traders |
| Some of these competitors are larger, have greater financial resources and more diverse businesses than us |
| Some of our foreign competitors may be able to pursue business opportunities without regard for the laws and regulations with which we must comply, such as environmental regulations |
| These companies may have a lower cost structure, more operating flexibility and consequently they may be able to offer better prices and more services than we can |
| We cannot assure you that we will be able to compete successfully with these companies |
| Furthermore, over the past several years, many integrated domestic steel producers and scrap metal recyclers have entered bankruptcy proceedings |
| The companies that reorganize and emerge from bankruptcy may have a more competitive capital cost structures |
| In addition, asset sales by these companies during the reorganization process tended to be at depressed prices, enabling some purchasers to acquire greater capacity at a lower cost |
| OUR STEEL MINIMILL BUSINESS REQUIRES CONTINUOUS CAPITAL INVESTMENTS THAT WE MAY NOT BE ABLE TO SUSTAIN We must make regular substantial capital investments in our steel minimills to lower production costs and remain competitive |
| We cannot be certain that we will have sufficient internally generated cash or acceptable external financing to make necessary substantial capital expenditures in the future |
| The availability of external financing depends on many factors outside of our control, including capital market conditions and the overall performance of the economy |
| If funding is insufficient, we may be unable to develop or enhance our minimills, take advantage of business opportunities and respond to competitive pressures |
| 13 _________________________________________________________________ [66]Table of Contents SCRAP AND OTHER SUPPLIES FOR OUR BUSINESSES ARE SUBJECT TO SIGNIFICANT PRICE FLUCTUATIONS, WHICH MAY ADVERSELY AFFECT OUR BUSINESS We depend on ferrous scrap, the primary feedstock for our steel minimills and other supplies such as graphite electrodes and ferroalloys for our steel minimill operations |
| Although we believe that the supply of scrap is adequate to meet future needs, the price of scrap and other supplies have historically been subject to significant fluctuation |
| Our future profitability will be adversely affected if we are unable to pass on to our customers increased raw material and supplies costs |
| We may not be able to adjust our product prices to recover the costs of rapid increases in material prices, especially over the short-term and in our domestic fabrication segment’s fixed price fabrication contracts |
| The raw material used in manufacturing copper tubing is copper scrap, supplemented occasionally by virgin copper ingot |
| Copper scrap has generally been readily available, and a small portion of our copper scrap comes from our metal recycling yards |
| However, copper scrap is subject to rapid price fluctuations related to the price and supply of virgin copper |
| Price increases for high quality copper scrap could adversely affect our business |
| Finally, our Arkansas mill does not have melting capacity, so it is dependent on an adequate supply of competitively priced used rail |
| The availability of used rail fluctuates with the pace of railroad abandonments, rail replacement by railroads in the United States and abroad and demand for used rail from other domestic and foreign rail rerolling mills |
| Price increases for used rail could adversely affect our business |
| UNEXPECTED EQUIPMENT FAILURES MAY LEAD TO PRODUCTION CURTAILMENTS OR SHUTDOWNS Interruptions in our production capabilities will adversely affect our production costs, steel available for sales and earnings for the affected period |
| In addition to equipment failures, our facilities are also subject to the risk of catastrophic loss due to unanticipated events such as fires, explosions or violent weather conditions |
| Our manufacturing processes are dependent upon critical pieces of steel-making equipment, such as our furnaces, continuous casters and rolling equipment, as well as electrical equipment, such as transformers, and this equipment may, on occasion, be out of service as a result of unanticipated failures |
| We have experienced and may in the future experience material plant shutdowns or periods of reduced production as a result of such equipment failures |
| HEDGING TRANSACTIONS MAY LIMIT OUR POTENTIAL GAINS OR EXPOSE US TO LOSS Our product lines and worldwide operations expose us to risks associated with fluctuations in foreign currency exchange, commodity prices and interest rates |
| As part of our risk management program, we use financial instruments, including commodity futures or forwards, foreign currency exchange forward contracts and interest rate swaps |
| While intended to reduce the effects of the fluctuations, these transactions may limit our potential gains or expose us to loss |
| Should our counterparties to such transactions or the sponsors of the exchanges through which these transactions are offered, such as the London Metal Exchange, fail to honor their obligations due to financial distress we would be exposed to potential losses or the inability to recover anticipated gains from these transactions |
| We enter into the foreign currency exchange forwards as economic hedges of trade commitments or anticipated commitments denominated in currencies other than the functional currency to mitigate the effects of changes in currency rates |
| Although we do not enter into these instruments for trading purposes or speculation, and although our management believes all of these instruments are economically effective as hedges of underlying physical transactions, these foreign exchange commitments are dependent on timely performance by our counterparties |
| Their failure to perform could result in our having to close these hedges without the anticipated underlying transaction and could result in losses if foreign currency exchange rates have changed |
| WE ARE INVOLVED AND MAY IN THE FUTURE BECOME INVOLVED IN VARIOUS ENVIRONMENTAL MATTERS THAT MAY RESULT IN FINES, PENALTIES OR JUDGMENTS BEING ASSESSED AGAINST US OR LIABILITY IMPOSED UPON US WHICH WE CANNOT PRESENTLY ESTIMATE OR REASONABLY FORESEE AND WHICH MAY HAVE A MATERIAL IMPACT ON OUR EARNINGS AND CASH FLOWS Under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, called CERCLA, or similar state statutes, we may have obligations to conduct investigation and remediation activities associated with alleged releases of hazardous substances or to reimburse the EPA (or state agencies as applicable) for such activities and to pay for natural resource damages associated with alleged releases |
| We have been named a potentially responsible party at several federal and state Superfund sites because the EPA or an equivalent state agency contends that we and other potentially responsible scrap metal suppliers are liable for the cleanup of those sites as a result of having sold scrap metal to unrelated manufacturers for recycling as a raw material in the manufacture of new products |
| We are involved in litigation or administrative proceedings with regard to several of these sites in which 14 _________________________________________________________________ [67]Table of Contents we are contesting, or at the appropriate time may contest, our liability at the sites |
| In addition, we have received information requests with regard to other sites which may be under consideration by the EPA as potential CERCLA sites |
| Although we are unable to estimate precisely the ultimate dollar amount of exposure to loss in connection with various environmental matters or the effect on our consolidated financial position, we make accruals as warranted |
| Due to inherent uncertainties, including evolving remediation technology, changing regulations, possible third-party contributions, the inherent shortcomings of the estimation process, the uncertainties involved in litigation and other factors, the amounts we accrue could vary significantly from the amounts we ultimately are required to pay |
| AN INABILITY TO FULLY AND EFFECTIVELY INTEGRATE FUTURE ACQUISITIONS COULD RESULT IN INCREASED COSTS WHILE DIVERTING MANAGEMENT’S ATTENTION FROM OUR CORE OPERATIONS, AND WE CANNOT ASSURE YOU THAT WE WILL REALIZE THEIR FULL BENEFITS OR SUCCESSFULLY MANAGE OUR COMBINED COMPANY, AND FUTURE ACQUISITIONS MAY RESULT IN DILUTIVE EQUITY ISSUANCES OR INCREASES IN DEBT As part of our ongoing business strategy we regularly evaluate and may pursue acquisitions of and investments in complementary companies |
| We cannot assure you that we will be able to fully or successfully integrate recent or future acquisitions in a timely manner or at all |
| If we are unable to successfully integrate acquisitions, we may incur costs and delays or other operational, technical or financial problems, any of which could adversely affect our business |
| In addition, management’s attention may be diverted from core operations which could harm our ability to timely meet the needs of our customers and damage our relationships with those customers |
| To finance future acquisitions, we may need to raise funds either by issuing equity securities or incurring or assuming debt |
| If we incur additional debt, the related interest expense may significantly reduce our profitability |
| WE ARE SUBJECT TO LITIGATION WHICH COULD ADVERSELY AFFECT OUR PROFITABILITY We are involved in various litigation matters, including regulatory proceedings, administrative proceedings, governmental investigations, environmental matters and construction contract disputes |
| The nature of our operations also expose us to possible litigation claims in the future |
| Although we make every effort to avoid litigation, these matters are not totally within our control |
| We will contest these matters vigorously and have made insurance claims where appropriate, but because of the uncertain nature of litigation and coverage decisions, we cannot predict the outcome of these matters |
| These matters could have a material adverse effect on our financial condition and profitability |
| Litigation is very costly, and the costs associated with prosecuting and defending litigation matters could have a material adverse effect on our financial condition and profitability |
| Although we are unable to estimate precisely the ultimate dollar amount of exposure to loss in connection with litigation matters, we make accruals as warranted |
| However, the amounts that we accrue could vary significantly from the amounts we actually pay, due to inherent uncertainties and the inherent shortcomings of the estimation process, the uncertainties involved in litigation and other factors |
| SOME OF OUR CUSTOMERS MAY DEFAULT ON THE DEBTS THEY OWE TO US Economic conditions are not consistent in all the markets we serve |
| Some areas are still weak, and our customers may struggle to meet their obligations, especially if a significant customer of theirs defaults |
| We regularly maintain a substantial amount of accounts receivable – at year end over dlra1dtta1 billion |
| We charged off accounts receivable net of recoveries of dlra3dtta8 million during the past fiscal year and at year end our allowance for collection losses was dlra16 million |
| Other factors such as management and accounting irregularities have forced some companies into bankruptcy |
| A weakening of the general economy and corporate failures could result in higher bad debt costs |
| In certain markets we have experienced a consolidation among those entities to whom we sell |
| This consolidation, along with substantially higher metals and other commodity prices, has resulted in an increased credit risk spread among fewer customers without a corresponding strengthening of their financial status |
| Although we have expanded our use of credit insurance for accounts receivable in our marketing and distribution segment and require letters of credit from reputable financial institutions in many international sales transactions, the majority of our receivables in our other segments are considered to be open account uninsured accounts receivable |
| CREDIT RATINGS AFFECT OUR ABILITY TO OBTAIN FINANCING AND THE COST OF SUCH FINANCING Credit ratings affect our ability to obtain financing and the cost of such financing |
| Our commercial paper program is ranked in the second highest category by Moody’s Investors Service (P-2) and Standard & Poor’s Corporation (A-2) |
| Our senior unsecured debt is investment grade rated by Standard & Poor’s Corporation (BBB) and Moody’s Investors Service (Baa2) |
| In determining our credit ratings, the rating agencies consider a number of both quantitative and qualitative factors |
| These factors include earnings, fixed charges such as interest, cash flows, total debt outstanding, off balance sheet obligations and other commitments, total capitalization 15 _________________________________________________________________ [68]Table of Contents and various ratios calculated from these factors |
| The rating agencies also consider predictability of cash flows, business strategy and diversity, industry conditions and contingencies |
| Lower ratings on our commercial paper program or our senior unsecured debt could impair our ability to obtain additional financing and will increase the cost of the financing that we do obtain |
| THE AGREEMENTS GOVERNING THE NOTES AND OUR OTHER DEBT CONTAIN FINANCIAL COVENANTS AND IMPOSE RESTRICTIONS ON OUR BUSINESS The indenture governing our 6dtta80prca notes due 2007, 6dtta75prca notes due 2009 and 5dtta625prca notes due 2013 contains restrictions on our ability to create liens, sell assets, enter into sale and leaseback transactions and consolidate or merge |
| In addition, our credit facility contains covenants that place restrictions on our ability to, among other things: — create liens; — enter into transactions with affiliates; — sell assets; — in the case of some of our subsidiaries, guarantee debt; and — consolidate or merge |
| Our credit facility also requires that we meet certain financial tests and maintain certain financial ratios, including a maximum debt to capitalization and interest coverage ratios |
| Although the debt owed by CMCZ under a five-year term note is without recourse to Commercial Metals Company, our Swiss subsidiary that owns the CMCZ shares or any other of our subsidiaries, the note does contain certain covenants including minimum debt to EBITDA, debt to equity and tangible net worth requirements (as defined only by reference to CMCZ’s financial statements) |
| Other agreements that we may enter into in the future may contain covenants imposing significant restrictions on our business that are similar to, or in addition to, the covenants under our existing agreements |
| These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise |
| Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions |
| The breach of any of these restrictions could result in a default under the indenture governing the notes or under our other debt agreements |
| An event of default under our debt agreements would permit some of our lenders to declare all amounts borrowed from them to be due and payable, together with accrued and unpaid interest |
| If we were unable to repay debt to our secured lenders if we incur secured debt in the future, these lenders could proceed against the collateral securing that debt |
| In addition, acceleration of our other indebtedness may cause us to be unable to make interest payments on the notes |
| OUR SYSTEM OF INTERNAL CONTROLS MUST BE AUDITED ANNUALLY AND THE OCCURRENCE OF A MATERIAL WEAKNESS MAY NEGATIVELY IMPACT OUR BUSINESS REPUTATION, CREDIT RATINGS AND PARTICIPATION IN CAPITAL MARKETS Under the Sarbanes-Oxley Act management must now assess the design and functioning of our system of financial internal control |
| Discovery and disclosure of a material weakness, by definition, may have a material adverse impact on our financial statements |
| This may in turn negatively affect our ability to access public debt or equity markets for capital |