ADT 2011 Annual Report Download - page 131

possible that this estimate may differ from the ultimate loss determined in connection with the
resolution of this matter, as 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 TE Connectivity agreed, in connection with the 2007 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 investigation 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 TE Connectivity, 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 TE Connectivity.
As previously disclosed, in early 2007 certain former subsidiaries in the Company’s Flow Control
business were charged, prior to their divestiture, 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 competition law. The Company is cooperating with the FCO in its ongoing
investigation of this violation. The Company has recorded its best estimate of potential loss related to
this matter. However, it is possible that this estimate may differ from the ultimate loss determined in
connection with the resolution of this matter, as the Company may be required to pay material fines,
suffer penalties or incur settlements in amounts that may have a material adverse effect on its financial
position, results of operations or cash flows.
During the fourth quarter of 2011, the Company has concluded that its best estimate of probable
loss for these compliance matters is $34 million in the aggregate, which the Company recorded as a
liability in accrued and other current liabilities in the Consolidated Balance Sheet for the year ended
September 30, 2011. Due to the sharing provisions in the Separation and Distribution Agreement, the
Company has also recorded receivables from Covidien and TE Connectivity related to these compliance
matters in other current assets in the Company’s Consolidated Balance Sheet as of September 30, 2011.
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 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, $18.7 million of which has
been cumulatively paid through September 30, 2011. While the ultimate outcome is uncertain,
SimplexGrinnell believes that it has strong arguments that no withdrawal liability is owed to the Fund,
28 2011 Financials