ADT 2008 Annual Report Download - page 132

ERISA Partial Withdrawal Liability Assessment and Demand
On June 8, 2007, SimplexGrinnell received a notice alleging that it had partially withdrawn from
the National Automatic Sprinkler Industry Pension Fund (the ‘‘Fund’’). Under Title IV of ERISA, if
the Fund can prove that an employer completely or partially withdraws from a multi-employer pension
plan such as the Fund, the employer is liable for withdrawal liability equal to its proportionate share of
the plan’s unfunded vested benefits. The alleged withdrawal results from a 1994 labor dispute between
Grinnell Fire Protection Systems, SimplexGrinnell’s predecessor, and Road Sprinkler Fitters Local
Union No. 669.
ERISA requires that payment of withdrawal liability be made in full or in quarterly installments
commencing upon receipt of a liability assessment from the plan. A plan’s assessment of withdrawal
liability generally may be challenged only in arbitration, and ERISA requires that quarterly payments
must continue to be made during the pendency of the arbitration. If the employer prevails in
arbitration (and any subsequent court appeals), its quarterly withdrawal liability payments are refunded
with interest. The Fund’s total withdrawal liability assessment against SimplexGrinnell is approximately
$25 million. The quarterly withdrawal liability payments are $1.1 million, $6.6 million of which have
been paid to date. While the ultimate outcome is uncertain, SimplexGrinnell believes that it has strong
arguments that no withdrawal liability is owed to the Fund, and it plans to vigorously defend against
the Fund’s withdrawal liability assessment. The matter is currently in arbitration. The Company has
made no provision for this contingency and believes that its quarterly payments are recoverable.
Subpoenas and Document Requests From Governmental Entities and Related Litigation
As previously reported in our periodic filings, 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. We are
cooperating with these investigations and are complying with these requests.
In 2002, certain of our employees received subpoenas from the SEC’s Division of Enforcement
seeking testimony related to past accounting practices for dealer connect fees that ADT had charged to
its authorized dealers upon purchasing customer accounts. The investigation related to accounting
practices employed by our former management, which were discontinued in 2003. Although we settled
with the SEC in 2006, a number of former dealers and related parties have filed lawsuits against us
alleging breach of contract and other claims related to ADT’s decision to terminate certain authorized
dealers in 2002 and 2003. While it is not possible at this time to predict the final outcome of these
lawsuits, we do not believe these claims will have a material adverse effect on the Company’s financial
position, results of operations or cash flows.
As previously reported in our periodic filings, in November 2004, we received an order from the
SEC to report facts and circumstances involving our participation, if any, in the United Nations Oil for
Food Program governing sales of Iraqi oil. On January 10, 2005 and November 8, 2005, we responded
to the order and provided information concerning transactions under the United Nations Oil for Food
Program. On January 31, 2006, we received a subpoena from the SEC to produce additional documents
and information related to the participation of three of our businesses in the United Nations Oil for
Food Program. The SEC notified us on June 7, 2006 that it was not recommending any enforcement
action against Tyco in connection with its investigation of the United Nations Oil for Food Program.
Subsequently, we discovered additional product sales that may have been responsive to the SEC’s
order, investigated these transactions and presented the results of our investigation to the SEC Staff.
While it is not possible at this time to predict the final outcome of this matter, we do not believe this
discovery will have a material adverse effect on the Company’s financial position, results of operations
or cash flows.
2008 Financials 29