ADT 2003 Annual Report Download - page 58

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Risk Factors
You should carefully consider the risks described below before
investing in our publicly traded securities. The risks described
below are not the only ones facing us. Our business is also subject
to the risks that affect many other companies, such as competition,
technological obsolescence, labor relations, general economic
conditions, geopolitical events and international operations.
Additional risks not currently known to us or that we currently
believe are immaterial also may impair our business operations
and our liquidity.
RISKS RELATING TO RECENT DEVELOPMENTS AT TYCO
Continuing negative publicity may adversely affect our business.
As a result of actions taken by our former senior corporate
management, Tyco has been the subject of continuing negative
publicity focusing on former senior corporate management’s
actions. This negative publicity contributed to significant
declines in the prices of our publicly traded securities in 2002
and has brought increased regulatory scrutiny upon us. A
number of suppliers have requested letters of credit to support
our purchase orders. We also believe that many of our employ-
ees are operating under stressful conditions, which reduces
morale and could lead to increased employee turnover.
Continuing negative publicity could have a material adverse
effect on our results of operations and liquidity and the market
price of our publicly traded securities.
Pending litigation could have a material adverse effect on our
liquidity and financial condition. As a result of actions taken by
our former senior corporate management, Tyco, some members
of our former senior corporate 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 cur-
rent Board of Directors and management 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 addition, 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 gen-
erally 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. 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 settlements and incur expenses, in excess
of any insurance coverage, in aggregate amounts that would
have a material adverse effect on our financial condition, results
of operations and liquidity.
Our senior corporate management team is required to devote
significant attention to matters arising from actions of prior
management. We have replaced our senior corporate executives
with an entirely new team, and our entire Board of Directors
determined not to stand for reelection. A new Board of Direc-
tors was elected at our annual general meeting of shareholders
in March 2003. It will take some time for our new management
team and our new Board of Directors to learn about our various
businesses and to develop strong working relationships with
our cadre of operating managers at our various subsidiary
companies. Our new senior corporate management team’s
ability to complete this process has been and continues to be
hindered by their need to spend significant time and effort
dealing with internal and external investigations, developing
effective corporate governance procedures, strengthening
reporting lines and reviewing internal controls. During this
period and in order to complete this process, our new execu-
tives will depend in part on advisors, including certain former
directors. We cannot assure you that this major restructuring of
our Board of Directors and senior management team, and the
accompanying distractions, in this environment, will not
adversely affect our results of operations.
TYCO INTERNATIONAL LTD.
Management’s Discussion and Analysis of Financial Condition and Results of Operations