ADT 2006 Annual Report Download - page 137

Item 9A. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to provide reasonable assurance
that information required to be disclosed in our Exchange Act reports is recorded, processed,
summarized and reported within the time periods specified in the Securities and Exchange
Commission’s rules and forms, and that such information is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of
our disclosure controls and procedures, as defined under Exchange Act Rule 13a-15(e). Based on this
evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that, as of
September 29, 2006, our disclosure controls and procedures were effective.
To ensure that our internal control over financial reporting continues to operate effectively and
efficiently, we proactively identify opportunities for control improvements. During the fourth quarter of
2006, the Company initiated an internal review of its historical stock option grant practices to
determine whether the Company’s stock option award actions were appropriately governed and were
accurately reflected in the Company’s financial statements. The review was conducted by our Internal
Audit staff under the direct supervision of our Audit Committee. The results of the Internal Audit
review were subject to the same controls and quality reviews associated with their normal recurring
activities and were reviewed regularly with the Audit Committee. The review identified controls that
were not properly designed in prior years and, as described in Note 1 to the Consolidated Financial
Statements, resulted in a restatement of our 2000 through 2005 Consolidated Financial Statements.
While the Company had instituted a number of control improvements in recent years, including the
implementation of a grant nomination tool, other procedural enhancements and periodic audit reviews
by Internal Audit, we consider the previously discussed special review performed by Internal Audit to
be a further enhancement to our equity-based compensation controls.
We also have ongoing initiatives to standardize and upgrade various financial operating systems
and eliminate many of the manual and redundant tasks previously performed under older systems or
processes. These changes will be implemented in stages over the next several years. We continued to
enhance the internal controls relating to income tax accounting including further strengthening the
coordination between the tax and controllership functions, incorporating enhanced monitoring controls
and implementing additional process level controls. Additionally, in preparation of our previously
announced separation into three separate public companies, we have begun the process of designing
the necessary controls to allow the two new entities to properly function as independent public
companies. As we execute the steps necessary to effectuate the separation, we will begin migrating
certain processes, applications and functions previously performed by us to these two entities. We
believe that these initiatives further strengthen our internal control over financial reporting, as well as
automate a number of our processes and activities. We believe that the necessary procedures are in
place to maintain effective internal control over financial reporting as these initiatives continue.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting, as defined under Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control
over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America. Internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of
2006 Financials 75