ADT 2005 Annual Report Download - page 88

Item 1A. 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 Actions of Tyco’s Former Senior Corporate Management
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, current and former members of our Board of Directors and
our current Chief Executive Officer, Special Advisor to the Chairman and Chief Executive Officer and
current General Counsel are named defendants in a number of purported class actions alleging
violations of certain disclosure provisions of the federal securities laws. Tyco, certain of our current and
former employees, some members of our former senior corporate management and some former
members of the Board of Directors of Tyco International (US), Inc. also are named as defendants in
several ERISA class 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 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 securities class actions and ERISA class actions pending against Tyco. We are
generally obligated 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 required 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 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.
Continued scrutiny resulting from ongoing governmental 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 United States Department of Labor and others seeking the
production of voluminous documents in connection with various investigations into our 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
our periodic filings, these practices have been discontinued. The Department of Labor is investigating
Tyco and the administrators of certain of our benefit plans. At this time, we cannot predict when these
investigations 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 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 provide assurance that the effects and results of
these or other investigations will not be material and adverse to our business, financial condition,
results of operations or cash flows.
12 2005 Financials