ADT 2005 Annual Report Download - page 195

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. Commitments and Contingencies (Continued)
named as defendants in some or all of these matters to the extent required by Bermuda law. In
addition, the Company’s insurance carriers may decline coverage, or the Company’s coverage may be
insufficient to cover its expenses and liability, in some or all of these matters. The Company is unable
at this time to estimate what its ultimate liability in these matters may be, and it is possible that the
Company 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 its financial
position, results of operations or cash flows. At this time, it is not possible to estimate the amount of
loss or probable losses, if any, that might result from an adverse resolution of these matters.
Investigation
The Company and others have received various subpoenas and requests from the SEC’s Division
of Enforcement, the District Attorney of New York County, the United States Department of Labor,
the General Service Administration and others seeking the production of voluminous documents in
connection with various investigations into the Company’s governance, management, operations,
accounting and related controls. Certain current and former employees in Fire and Security received
subpoenas from the SEC’s Division of Enforcement seeking testimony related to past accounting
practices regarding the ADT dealer connect fees. As previously reported in the Company’s periodic
filings, these practices have been discontinued. The Department of Labor is investigating Tyco and the
administrators of certain of its benefit plans. The Company cannot predict when these investigations
will be completed, nor can the Company predict what the results of these investigations may be. It is
possible that the Company will be required to pay material fines, consent to injunctions on future
conduct, lose the ability to conduct business with government instrumentalities (which in turn could
negatively impact the Company’s business with non-governmental customers) or suffer other penalties,
each of which could have a material adverse effect on the Company’s business. It is not possible to
estimate the amount of loss, or range of possible loss, if any, that might result from an adverse
resolution of the matters raised in the investigations by the District Attorney or Department of Labor.
In 2005, the Company recorded a charge of $50 million, which represents the Company’s best
estimate of the amount in fines and penalties management believes the Company will likely pay to
resolve the matters raised in the SEC’s investigation. The Company is engaged in discussions with the
SEC’s Division of Enforcement to resolve the matters raised in the SEC’s investigation. Final
resolution of these matters is subject to a number of uncertainties, including finalizing the terms of a
settlement that the Enforcement Staff will agree to recommend to the Commission, the Company’s
submission of an offer of settlement approved by the Tyco Board of Directors, and the Commission’s
approval of the settlement offer. Until such events have occurred, the charge is subject to change.
Intellectual Property and Antitrust Litigation
The Company is a party to a number of patent infringement and antitrust actions that may require
the Company to pay damage awards. Tyco has assessed the status of these matters and has recorded
liabilities related to certain of these matters where appropriate.
Mallinckrodt, Inc. (‘‘Mallinckrodt’’) and Nellcor Puritan Bennett, Inc. (‘‘Nellcor’’), plaintiffs/counter-
defendants v. Masimo Corporation (‘‘Masimo’’) et al., defendants/counter-claimants, is a consolidated
patent infringement action filed on June 19, 2000 in the United States District Court for the Central
District of California. Nellcor is a subsidiary of Tyco. Nellcor alleges that Masimo infringed one Nellcor
patent related to pulse oximeters, which are medical devices used to measure blood oxygen levels in
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