Risk factors
RISKS RELATING TO TAX LIABILITIES
experience lower sales, which may have a material adverse
effect on our financial position, results of operations and
liquidity.
For additional information on our liquidity and leverage risk,
see "Management's discussion analysis - Liquidity and
capital resources" and Note 26 to our consolidated financial
statements included in this annual report.
Downgrading of our credit ratings could adversely
impact our ability to finance our business.
Relating to the events in early 2003, Moody's Investors
Services ("Moody's") and Standard Poor's Ratings
Services ("S&P") downgraded our credit ratings to below
investment grade ratings. As part of our strategy to restore
our financial health, we are focused on working towards
meeting the applicable investment grade ratings criteria.
During 2004 and 2005, both Moody's and S&P upgraded
our credit ratings, but such credit ratings remain below
investment grade. While none of our material credit facilities
or other debt instruments contain direct events of default
that are triggered by credit rating downgrades, a downgrade
of our long-term debt rating by either Moody's or S&P could
raise liquidity concerns, reduce our flexibility in accessing
a broad array of funding sources and increase our costs of
borrowing, which could result in our inability to secure new
financing or affect our ability to make payments on
outstanding debt instruments and comply with other existing
obligations, any of which could have a material adverse
effect on our financial position, results of operations and
liquidity. In addition, we cannot assure you that we will be
able to meet the applicable investment grade rating criteria,
particularly if our operating strategy and objectives are not
successful. For a further discussion of our credit ratings, see
"Management's discussion analysis-Liquidity and capital
resources" and Note 26 to our consolidated financial
statements included in this annual report.
Our current insurance coverage may not be adequate, and
insurance premiums and letters of credit and cash collateral
requirements for third-party coverage may increase, and we
may not be able to obtain insurance or maintain our existing
insurance at acceptable rates, or at all.
The third-party insurance companies that provide the
fronting insurance that is part of our self-insurance
programs as described later in this annual report require
us to provide cash collateral or letters of credit. In some
circumstances, we are required to replace our self-insurance
programs with high deductible programs from third-party
insurers at a high cost. Although we currently are able to
provide sufficient letters of credit for our insurance
requirements, our future letter of credit requirements for
our insurance and other cash collateral needs may increase
significantly. In this event, we will need to obtain additional
financing sources and any cash collateral we provide will not
be available to fund our liquidity needs. It is possible that
we may not be able to maintain adequate insurance
coverage against liabilities that we incur in our business
through our self-insurance and high deductible programs
or, if necessary, purchase commercial insurance to replace
these programs. Our insurance premiums to third-party
insurers may also increase in the future and we may not
be able to obtain similar levels of insurance on reasonable
terms or at all. The inadequacy or loss of our insurance
coverage, or the continued payment of higher premiums,
could have a material adverse effect on our financial
position, results of operations and liquidity.
For additional information regarding our self-insurance
coverage, see "Management's discussion analysis -
Off-balance sheet arrangements - Contingent liabilities"
and Note 25 to our consolidated financial statements
included in this annual report.
We may face tax liabilities in the future, including as
a result of audits of our tax returns.
Because we operate in a number of countries in Europe and
in the U.S., our operating income is subject to taxation in
differing jurisdictions and at differing tax rates. We seek to
organize our affairs in a tax efficient and balanced manner,
taking into account the applicable regulations of the
jurisdictions in which we operate. As a result of our multi-
jurisdictional operations, we are exposed to a number of
different tax risks, including tax risks related to: income tax,
value added tax, payroll tax, social security tax, customs and
excise duties, sales and use tax, franchise tax, ad valorem
tax, U.S. state tax, withholding tax requirements, tax treaty
interpretation, tax credits, permanent establishments,
transfer pricing on internal deliveries of goods and services
(including benefit tests and requirements to prove the arm's
length character of internal transactions), loss carryforwards,
multi-jurisdictional double taxation, acquisitions,
dispositions, reorganizations, internal restructurings, and
real and personal property transfer taxes.
The tax authorities in the jurisdictions in which we operate
may audit our tax returns and may disagree with the
positions taken in those returns. An adverse outcome
resulting from any settlement or future examination of our
tax returns may subject us to additional tax liabilities and
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