ADT 2007 Annual Report Download - page 113

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. Due to the
complexity of some of these uncertainties, however, the ultimate resolution may result in a payment
that is materially different from our current estimate of the tax liabilities.
In 2004, in connection with the IRS audit of the 1997 through 2000 years, the Company submitted
to the IRS proposed adjustments to these prior period U.S. federal income tax returns resulting in a
reduction in the taxable income previously filed. During 2006, the IRS accepted substantially all of the
proposed adjustments. Also during 2006, the Company developed proposed amendments to U.S.
federal income tax returns for additional periods through 2002. The Company has yet to complete
proposed amendments to its U.S. federal income tax returns for periods subsequent to 2002, which will
primarily reflect the roll forward through 2006 of the amendments for the periods 1997 to 2002. When
the Company’s tax return positions are updated additional adjustments may be identified and recorded
in the Consolidated Financial Statements. While the final adjustments cannot be determined until the
income tax return amendment process is completed, the Company believes that any resulting
adjustments will not have a material impact on its financial condition, results of operations or cash
flows.
Material adverse legal judgments, fines, penalties or settlements could adversely affect our financial health
and prevent us from fulfilling our obligations under our outstanding indebtedness.
We estimate that our available cash, our cash flow from operations and amounts available to us
under our revolving lines of credit will be adequate to fund our operations and service our debt for the
foreseeable future. In making this estimate, we have not assumed the need to make any material
payments in connection with pending litigation or investigations. Any material adverse legal judgments,
fines, penalties or settlements arising from our pending investigations and litigation could require
additional funding. If such developments require us to obtain additional funding, we cannot provide
assurance that we will be able to obtain the additional funding that we need on commercially
reasonable terms or at all, which could have a material adverse effect on our financial condition, results
of operations or cash flows.
Such an outcome could have important consequences to you. For example, it could:
• require us to dedicate a substantial portion of our cash flow from operations to payments on our
indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital
expenditures, research and development efforts and other general corporate purposes, including
debt reduction or dividend payments;
• increase our vulnerability to general adverse economic and industry conditions;
• limit our flexibility in planning for, or reacting to, changes in our businesses and the industries in
which we operate;
• restrict our ability to introduce new technologies or exploit business opportunities;
• make it more difficult for us to satisfy our payment obligations with respect to our outstanding
indebtedness; and
• increase the difficulty and/or cost to us of refinancing our indebtedness.
Additional negative publicity may adversely affect our business.
As a result of actions taken by our former senior corporate management, Tyco was the subject of
negative publicity focusing on these actions. This negative publicity contributed to significant declines in
the prices of our publicly traded securities in 2002 and brought increased regulatory scrutiny upon us.
Additional negative publicity related to former senior corporate management’s actions could have a
material adverse effect on our results of operations or cash flows and the market price of our publicly
traded securities.
2007 Financials 21