ADT 2006 Annual Report Download - page 76

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, the United States Department
of Labor, the General Service Administration 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 United States 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.
Examinations and audits by tax authorities, including the IRS, could result in additional tax payments
for prior periods.
The Company and its subsidiaries’ income tax returns are periodically examined by various tax
authorities. In connection with such examinations, tax authorities, including the United States IRS, have
raised issues and proposed tax adjustments. We are reviewing and contesting certain of the proposed
tax adjustments. Amounts related to these tax adjustments and other tax contingencies that
management has assessed as probable and estimable have been recorded through the income tax
provision, equity or goodwill, as appropriate. The calculation of our tax liabilities involves dealing with
uncertainties in the application of complex tax regulations in a multitude of jurisdictions across our
global operations. We recognize potential liabilities and record tax liabilities for anticipated tax audit
issues in the United States and other tax jurisdictions based on our estimate of whether, and the extent
to which, additional income taxes will be due. These tax liabilities are reflected net of related tax loss
carryforwards. We adjust these liabilities in light of changing facts and circumstances; however, due to
the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is
materially different from our current estimate of the tax liabilities.
In connection with the IRS audits for the years 1997 through 2000, the Company submitted to the
IRS proposed adjustments to its 1997 through 2000 U.S. federal income tax returns. During 2006, the
IRS accepted substantially all of the proposed adjustments. These adjustments did not have a material
impact on the financial condition, results of operations or cash flows of the Company.
During 2006, the Company has developed amendments to U.S. federal income tax returns for
additional periods. On the basis of previously accepted amendments, the Company has determined that
14 2006 Financials