ADT 2014 Annual Report Download - page 155

FORM 10-K
Derivative Litigation
In May and June 2014, four derivative actions were filed against a number of past and present officers and
directors of the Company. Like the securities actions described above, the derivative actions focus primarily on
the Company’s stock repurchase program in 2012 and 2013, the buyback of stock from Corvex in November
2013 and the Company’s statements concerning its financial condition and future business prospects for fiscal
2013 and the first quarter of fiscal 2014. Three of the derivative actions were filed in the United States District
Court for the Southern District of Florida. On July 16, 2014, the Court consolidated those three actions under the
caption In re The ADT Corporation Derivative Litigation, Lead Case No. 14-80570-CIV-DIMITROULEAS/
SNOW. The fourth derivative action, entitled Seidl v. Colligan, Case No. 2014CA007529, was filed in the
Circuit Court of the 15th Judicial Circuit, Palm Beach County, Florida. On July 14, 2014, the parties agreed to
stay that action pending resolution of motions to dismiss that are expected to be filed in the securities actions
described above. The Court approved the stay on July 23, 2014. A fifth derivative action asserting similar claims
was filed in the Delaware Court of Chancery on August 1, 2014. Defendants have moved to dismiss that action,
which is entitled Ryan v. Gursahaney, C.A. No. 9992-VCP.
In March 2014, the Company also received a demand from a shareholder to initiate litigation against the
officers and directors of the Company in connection with the Company’s stock repurchase program in 2012 and
2013 and the buyback of stock from Corvex in November 2013. The Company’s Board of Directors investigated
the matters with the assistance of an outside law firm and, on July 18, 2014, decided to reject the demand. In
September 2014, the Company received a demand from another shareholder to initiate litigation with regard to
the same matters raised in the March 2014 demand. On September 19, 2014, the Company’s Board of Directors
decided to reject the demand.
Income Tax Matters
As discussed above in Note 6, in connection with the Separation from Tyco, the Company entered into the
2012 Tax Sharing Agreement with Tyco and Pentair Ltd. that governs the rights and obligations of the Company,
Tyco and Pentair for certain pre-Separation tax liabilities, including Tyco’s obligations under the tax sharing
agreement among Tyco, Covidien, and TE Connectivity entered into the 2007 Tax Sharing Agreement”. The
Company is responsible for all of its own taxes that are not shared pursuant to the 2012 Tax Sharing Agreement’s
sharing formulae. Tyco and Pentair are responsible for their tax liabilities that are not subject to the 2012 Tax
Sharing Agreement’s sharing formulae.
With respect to years prior to and including the 2007 separation of Covidien and TE Connectivity by Tyco,
tax authorities have raised issues and proposed tax adjustments that are generally subject to the sharing
provisions of the 2007 Tax Sharing Agreement and which may require Tyco to make a payment to a taxing
authority, Covidien or TE Connectivity. Although Tyco has advised ADT that it has resolved a substantial
number of these adjustments, a few significant items raised by the IRS remain open with respect to the audits of
the 1997 through 2007 tax years. On July 1, 2013, Tyco announced that the IRS issued Notices of Deficiency to
Tyco primarily related to the treatment of certain intercompany debt transactions (the “Tyco IRS
Notices”). These notices assert that additional taxes of $883 million plus penalties of $154 million are owed
based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries, as they existed at that time.
Further, Tyco reported receiving Final Partnership Administrative Adjustments (the “Partnership Notices”) for
certain U.S. partnerships owned by its former U.S. subsidiaries, for which Tyco has informed that it estimates an
additional tax deficiency of approximately $30 million will be asserted. The additional tax assessments related to
the Tyco IRS Notices and the Partnership Notices exclude interest and do not reflect the impact on subsequent
periods if the IRS challenge to Tyco’s tax filings is proved correct. Tyco has filed petitions with the U.S. Tax
Court to contest the IRS assessments. Consistent with its petitions filed with the U.S. Tax Court, Tyco has
advised the Company that it strongly disagrees with the IRS position and believes (i) it has meritorious defenses
for the respective tax filings, (ii) the IRS positions with regard to these matters are inconsistent with applicable
tax laws and Treasury regulations, and (iii) the previously reported taxes for the years in question are appropriate.
If the IRS should successfully assert its position, the Company’s share of the collective liability, if any, would be
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