ADT 2006 Annual Report Download - page 75

Increased demands on our management team as a result of the Proposed Separation could distract
management’s attention from operating the business.
Management expects to file Registration Statements in connection with the Proposed Separation
during the second quarter of 2007. The complexity of the transaction will require a substantial amount
of management and operational resources, as well as the use of several cross-functional project teams.
Our business or results of operations may be adversely affected during the transition period.
Each of the independent companies resulting from the completion of the Proposed Separation may be
unable to achieve some or all of the benefits that we expect will be achieved from the separation
transactions.
Each of the independent companies may not be able to achieve the full strategic and financial
benefits we expect will result from the separation of two of Tyco’s segments into independent
companies or such benefits may be delayed or may not occur at all. For example, there can be no
assurance that analysts and investors will regard the corporate structures of each of the independent
companies as more clear and simple than the current Tyco corporate structure or place a greater value
on the sum of each of the independent companies as compared to Tyco.
If certain internal restructuring transactions and the distribution relating to the Proposed Separation are
determined to be taxable for U.S. federal income tax purposes, we and our shareholders that are
subject to U.S. federal income tax could incur significant U.S. federal income tax liabilities.
We anticipate that certain internal restructuring transactions will be undertaken in preparation for
the Proposed Separation. These transactions are complex and could cause us to incur significant tax
liabilities. We have an initial private letter ruling regarding these transactions and the distribution from
the IRS noting that they qualify for favorable tax treatment. We have also requested or may request
supplemental rulings regarding these transactions and, in addition, we expect to obtain an opinion of
tax counsel confirming the favorable tax treatment of these transactions. The ruling and the opinion
rely or will rely on certain facts, assumptions, representations and undertakings, from us regarding the
past and future conduct of our businesses and other matters. If any of these are incorrect or not
otherwise satisfied, then we and our shareholders may not be able to rely on the ruling or the opinion
and could be subject to significant tax liabilities. Notwithstanding the ruling and the opinion, the IRS
could determine on audit that the distribution or the internal restructuring transactions should be
treated as taxable transactions if it determines that any of these facts, assumptions, representations or
undertakings are not correct or have been violated, or if the distributions should become taxable for
other reasons, including as a result of significant changes in stock ownership after the distribution.
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, former Chief Financial 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.
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
2006 Financials 13