ADT 2010 Annual Report Download - page 114

involving agents retained by the Company’s EMEA water business. The Company has since resolved
this matter with German authorities while the Italian matter remains outstanding. The Company
reported to the U.S. Department of Justice (‘‘DOJ’’) and the SEC the investigative steps and remedial
measures that it has taken in response to these and other allegations and its internal investigations. In
2005, the Company informed the DOJ and the SEC that it retained outside counsel to perform a
Company-wide baseline review of its policies, controls and practices with respect to compliance with the
Foreign Corrupt Practices Act (‘‘FCPA’’), and that it would continue to investigate and make periodic
progress reports to these agencies. The Company has and will continue to communicate with the DOJ
and SEC to provide updates on the baseline review and follow-up investigations, including, as
appropriate, briefings concerning additional instances of potential improper conduct identified by the
Company in the course of its ongoing compliance activities. The baseline review, which has been
completed, has revealed that some business practices may not comply with Tyco and FCPA
requirements, and in February 2010, the Company initiated discussions with the DOJ and SEC aimed
at resolving these matters. Active discussions remain ongoing, and the Company cannot predict the
timing of their resolution or their outcome and cannot estimate the range of potential loss or the form
of penalty that may result from an adverse resolution. It is possible that the Company may be required
to pay material fines, consent to injunctions on future conduct, consent to the imposition of a
compliance monitor, or suffer other criminal or civil penalties or adverse impacts, including being
subject to lawsuits brought by private litigants, each of which may have a material adverse effect on the
Company’s financial position, results of operations or cash flows.
Covidien and Tyco Electronics agreed, in connection with the Separation, to cooperate with the
Company in its responses regarding these matters. Any judgment required to be paid or settlement or
other cost incurred by the Company in connection with the FCPA investigations matters would be
subject to the liability sharing provisions of the Separation and Distribution Agreement, which assigned
liabilities primarily related to the former Healthcare and Electronics businesses of the Company to
Covidien and Tyco Electronics, respectively, and provides that the Company will retain liabilities
primarily related to its continuing operations. Any liabilities not primarily related to a particular
segment will be shared equally among the Company, Covidien and Tyco Electronics.
As previously disclosed, in early 2007 certain former subsidiaries in the Company’s Flow Control
business were charged by the German Federal Cartel Office (‘‘FCO’’) with engaging in anti-competitive
practices, in particular with regard to its hydrant, valve, street box and fittings business. The Company
investigated this matter and determined that the conduct may have violated German anti-trust law. The
Company is cooperating with the FCO in its ongoing investigation of this violation. The Company
cannot estimate the range of potential loss that may result from this violation. It is possible that the
Company may be subject to civil or criminal proceedings and may be required to pay judgments, suffer
penalties or incur settlements in amounts that may have a material adverse effect on its financial
position, results of operations or cash flows.
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
26 2010 Financials