ADT 2003 Annual Report Download - page 59

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Continued scrutiny resulting from ongoing investigations may
have an adverse effect on our business. 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 administrators of certain
of our benefit plans. In addition, while we believe we have
adequately responded to a GSA action questioning whether
Tyco lacked the present responsibility to be a government con-
tractor 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 are also subject to ongo-
ing audits by the Internal Revenue Service and various State tax
authorities. We cannot predict when these investigations will be
completed, nor can we predict what the results of these investi-
gations 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 instrumental-
ities (which in turn 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. We
cannot assure you that the effects and results of these or other
investigations will not be material and adverse to our business,
financial condition, results of operations and liquidity.
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 deficien-
cies. 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 contin-
gencies that management has assessed as probable and
estimable have been accrued through the income tax provision.
We believe, but we cannot assure you, that the ultimate resolu-
tion of these tax deficiencies and contingencies will not have a
material adverse effect on our financial condition, annual
results of operations and liquidity.
An ongoing SEC investigation may require us to further amend or
restate our public disclosures. We are subject to an investigation
by the SEC’s Division of Enforcement. We cannot assure you
the resolution of the Division of Enforcement’s investigation
will not necessitate further amendments or restatements to our
previously filed periodic reports or lead to some enforcement
proceedings against Tyco. The SEC Division of Enforcement
has not completed its review of prior management’s actions
and our accounting, including the matters covered by the
Company’s Form 8-K filed on December 30, 2002.
Further instances of breakdowns in our internal controls and pro-
cedures could have an adverse effect on us. New management has
determined that, in the past, Tyco in general suffered from: poor
documentation; inadequate policies and procedures to prevent
the misconduct of senior corporate executives; inadequate
procedures for proper corporate authorizations; inadequate
approval procedures and documentation; a lack of oversight by
senior management at the corporate level; a pattern of using
aggressive accounting that, even when in accordance with GAAP,
was intended to increase reported earnings above what they
would have been if more conservative accounting had been
employed; pressure on, and inducements to, segment and unit
managers to increase current earnings, including by decisions
as to what accounting treatment to employ; and a lack of a
stated and demonstrable commitment by former senior corpo-
rate management to set high standards of ethics, integrity,
accounting, and corporate governance. While we have imple-
mented new procedures, we cannot assure you that we will not
discover that there have been further instances of breakdowns
in our internal controls and procedures.
Material adverse legal judgments, fines, penalties or settlements
could adversely affect our financial health and prevent us from
fulfilling our obligations under our outstanding indebtedness. We
estimate that our available cash and our cash flow from opera-
tions will be adequate to fund our operations and service our
debt for the foreseeable future. In making this estimate, we have
not assumed the need to make any material payments in con-
nection with our pending litigation and have assumed that we
will be able to renegotiate our bank credit facilities prior to its
expiration in January 2004. Any material adverse legal judg-
ments, fines, penalties or settlements arising from our pending
TYCO INTERNATIONAL LTD.