ADT 2010 Annual Report Download - page 108

Covenants in our debt instruments may adversely affect us.
Our bank credit agreements contain financial covenants, including a limit on the ratio of debt to
earnings before interest, taxes, depreciation, and amortization and limits on incurrence of liens and
subsidiary debt. Our indentures contain customary covenants including limits on negative pledges,
subsidiary debt and sale/leaseback transactions.
Although we believe none of these covenants are restrictive to our operations, our ability to meet
the financial covenants can be affected by events beyond our control, and we cannot provide assurance
that we will meet those tests. A breach of any of these covenants could result in a default under our
credit agreements or indentures. Upon the occurrence of an event of default under any of our credit
facilities or indentures, the lenders or trustees could elect to declare all amounts outstanding
thereunder to be immediately due and payable and terminate all commitments to extend further credit.
If the lenders or trustees accelerate the repayment of borrowings, we cannot provide assurance that we
will have sufficient assets to repay our credit facilities and our other indebtedness. Furthermore,
acceleration of any obligation under any of our material debt instruments will permit the holders of our
other material debt to accelerate their obligations, which could have a material adverse affect on our
financial condition. See Item 7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations.
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. However, material adverse legal judgments, fines, penalties or settlements arising
from litigation and similar contingencies 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
dividend payments;
• increase our vulnerability to 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.
Risks Relating to Tax Matters
We share responsibility for certain of our, Covidien’s and Tyco Electronics’ income tax liabilities for tax
periods prior to and including June 29, 2007.
Under the Tax Sharing Agreement, we share responsibility for certain of our, Covidien’s and Tyco
Electronics’ income tax liabilities that result in cash payments, based on a sharing formula for periods
prior to and including June 29, 2007. More specifically, we, Covidien and Tyco Electronics share 27%,
42% and 31%, respectively, of income tax liabilities that arise from adjustments made by tax authorities
20 2010 Financials