ADT 2011 Annual Report Download - page 121

internal investigations, and in February 2010, we initiated discussions with the DOJ and SEC aimed at
resolving these matters, which remain ongoing. Although we have recorded our best estimate of
potential loss related to these or other similar matters, it is possible that this estimate may differ from
the ultimate loss determined in connection with the resolution of this matter, as we 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 our financial
position, results of operations or cash flows.
Our failure to satisfy international trade compliance regulations may adversely affect us.
Our global operations require importing and exporting goods and technology across international
borders on a regular basis. Certain of the products we manufacture are ‘‘dual use’’ products, which are
products that may have both civil and military applications, or may otherwise be involved in weapons
proliferation, and are often subject to more stringent export controls. From time to time, we obtain or
receive information alleging improper activity in connection with imports or exports. Our policy
mandates strict compliance with U.S. and international trade laws. When we receive information
alleging improper activity, our policy is to investigate that information and respond appropriately,
including, if warranted, reporting our findings to relevant governmental authorities. Nonetheless, we
cannot provide assurance that our policies and procedures will always protect us from actions that
would violate U.S. and/or foreign laws. Such improper actions could subject the Company to civil or
criminal penalties, including material monetary fines, or other adverse actions including denial of
import or export privileges, and could damage our reputation and our business prospects.
We continue to be responsible for a portion of our contingent and other corporate liabilities following the
2007 Separation of our electronics and healthcare businesses, primarily those relating to pre-separation
income tax liabilities.
Under agreements entered in connection with the 2007 Separation of our electronics (‘‘TE
Connectivity’’) and healthcare (‘‘Covidien’’) businesses, we, Covidien and TE Connectivity have agreed
to assume and be responsible for 27%, 42% and 31%, respectively, of certain of our contingent and
other corporate liabilities, subject to certain exceptions. All costs and expenses associated with the
management of these contingent and other corporate liabilities are generally shared equally among the
parties. These contingent and other corporate liabilities primarily relate to pre-2007 Separation income
tax liabilities. Liabilities that are specifically related to one of the three separated companies are not
allocated.
If any party responsible for such liabilities were to default in its payment, when due, of any of
these assumed obligations, each non-defaulting party would be required to pay equally with any other
non-defaulting party the amounts in default. Accordingly, under certain circumstances, we may be
obligated to pay amounts in excess of our agreed-upon share of the assumed obligations related to such
contingent and other corporate liabilities including associated costs and expenses.
We are subject to product liability claims relating to products we manufacture or install. These claims
could result in significant costs and liabilities and reduce our profitability.
We face exposure to product liability claims in the event that any of our products results in
personal injury or property damage. In addition, if any of our products prove to be defective, we may
be required to recall or redesign such products, which could result in significant unexpected costs. Any
insurance we maintain may not be available on terms acceptable to us or such coverage may not be
adequate for liabilities actually incurred. Any claim or product recall could result in adverse publicity
against us, which could adversely affect our financial condition, results of operations or cash flows.
18 2011 Financials