ADT 2003 Annual Report Download - page 54

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maximum amount payable to the former shareholders of
Com-Net only after the construction and installation of a
communications system for the State of Florida is finished and
the State has approved the system based on the guidelines set
forth in the contract. The $80 million is not accrued at
September 30, 2003, as the outcome of this contingency cannot
be reasonably determined.
As a result of actions taken by our former senior corporate
management, Tyco, some members of our former senior corpo-
rate management, former members of our Board of Directors
and our current Chief Executive Officer are named defendants
in a number of purported class actions alleging violations of
the disclosure provisions of the federal securities laws, as well as
in a number of derivative actions. In the consolidated derivative
action, the plaintiffs have filed a motion which seeks to add
certain members of our current Board of Directors and man-
agement as defendants. Tyco, certain of our current and former
employees, some members of our former senior corporate
management and some former members of our Board of
Directors also are named as defendants in several Employee
Retirement Income Security Act (“ERISA”) actions. In addi-
tion, Tyco and some members of our former senior corporate
management are subject to an SEC inquiry, and some members
of our former senior corporate management are named as
defendants in criminal cases being prosecuted by the District
Attorney of New York County. The findings and outcomes of
the prosecutions and the SEC civil action may affect the course
of the purported class actions, derivative actions and ERISA
claims pending against Tyco. In May and July 2003, complaints
were filed against Tyco and our current Chairman and Chief
Executive Officer purporting to represent a class of purchasers
of Tyco securities alleging violations of the disclosure provisions
of the federal securities laws. We are generally obliged to
indemnify our directors and officers and our former directors
and officers who are also named as defendants in some or all
of these matters to the extent permitted by Bermuda law. In
addition, our insurance carriers may decline coverage, or our
coverage may be insufficient to cover our expenses and liability,
in some or all of these matters. See “Risk Factors” below and
“Legal Proceedings.” We are unable at this time to estimate
what our ultimate liability in these matters may be, and it is
possible that we will be required to pay judgments or settle-
ments and incur expenses in aggregate amounts that would
have a material adverse effect on our financial condition, results
of operations and liquidity. It is not possible to estimate the
amount of loss or probable losses, if any, that might result from
an adverse settlement of these matters.
We and others have received subpoenas and requests from
the SEC’s Division of Enforcement, the District Attorney of
New York County, the U.S. Attorney for the District of New
Hampshire, the Equal Opportunity Employment Commission
and others seeking the production of voluminous documents
in connection with various investigations into our governance,
management, operations, accounting and related controls. The
Department of Labor is investigating Tyco and the administra-
tors of certain of our benefit plans. In addition, while we believe
we have adequately responded to a Governmental Services
Administration (“GSA”) action questioning whether Tyco
lacked the present responsibility to be a government contractor
due to concerns the GSA has expressed as a result of the alleged
serious criminal misconduct of our former Chief Executive
Officer, Chief Financial Officer and General Counsel, the GSA
has reserved the right to take appropriate actions if additional
information warrants it. We cannot predict when these investi-
gations will be completed, nor can we predict what the results
of these investigations may be. It is possible that we will be
required to pay material fines, consent to injunctions on future
conduct, lose the ability to conduct business with government
instrumentalities (which in time could negatively impact our
business with non-governmental customers) or suffer other
penalties, each of which could have a material adverse effect on
our business. It is not possible to estimate the amount of loss,
or range of possible loss, if any, that might result from an adverse
settlement of these matters.
Tyco and our subsidiaries’ income tax returns are periodically
examined by various regulatory tax authorities. In connection
with such examinations, tax authorities, including the Internal
Revenue Service, have raised issues and proposed tax deficiencies.
We are reviewing the issues raised by the tax authorities and are
contesting certain of the proposed tax deficiencies. Amounts
related to these tax deficiencies and other tax contingencies that
management has assessed as probable and estimable have been
accrued through the income tax provision. Management
believes that the ultimate resolution of these tax deficiencies
and contingencies will not have a material adverse effect on the
Company’s financial condition, annual results of operations or
cash flows.
The Company is a defendant in a number of other pending
legal proceedings incidental to present and former operations,
acquisitions and dispositions. The Company does not expect
the outcome of these proceedings, either individually or in the
aggregate, to have a material adverse effect on its financial posi-
tion, annual results of operations or liquidity.
TYCO INTERNATIONAL LTD.
Management’s Discussion and Analysis of Financial Condition and Results of Operations