ADT 2007 Annual Report Download - page 112

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, former members of our Board of Directors and our former
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
our Board of Directors also are named as defendants in several ERISA class actions. On May 14, 2007,
we entered into a proposed settlement with respect to most of the class actions and deposited
$2.975 billion into an escrow account pending final settlement of such class actions.
We generally are 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, we cannot estimate the amount of loss or probable losses, if any,
that might result from an adverse resolution of all of these matters or from a failure to consummate
the proposed settlement on the agreed terms.
Continued scrutiny resulting from ongoing governmental investigations may have an adverse effect on our
business.
We and others have received various subpoenas and requests from the SEC, the U.S. Department
of Labor, state departments 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
ADT Worldwide received subpoenas from the SEC’s Division of Enforcement seeking testimony
related to discontinued accounting practices regarding ADT dealer connect fees. The U.S. Department
of Labor is investigating Tyco and the administrators of certain of our benefit plans. Similarly, several
of our businesses periodically are the subject of state or local government wage and hour investigations.
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 governmental
instrumentalities, which in turn could negatively impact our business with non-governmental customers,
or suffer other penalties or adverse impacts, each of which could have a material adverse effect on our
business. We cannot predict whether the effects and results of these or other investigations will have a
material and adverse impact on our financial condition, results of operations or cash flows.
Examinations and audits by tax authorities, including the Internal Revenue Service, could result in
additional tax payments for prior periods.
The Company and its subsidiaries’ income tax returns periodically are examined by various tax
authorities. In connection with these examinations, tax authorities, including the 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 and related interest
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
20 2007 Financials