ADT 2006 Annual Report Download - page 198

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Commitments and Contingencies (Continued)
Tyco’s involvement in asbestos cases has been limited because its subsidiaries did not mine or
produce asbestos. Furthermore, in the Company’s experience, a large percentage of these claims were
never substantiated and have been dismissed by the courts. The Company will continue to vigorously
defend these lawsuits and the Company has not suffered an adverse verdict in a trial court proceeding
related to asbestos claims. When appropriate, the Company settles claims; however, the total amount
paid in any year to settle and defend all asbestos claims has been immaterial. As of September 29,
2006, there were approximately 15,500 asbestos liability cases pending against the Company and its
subsidiaries.
The Company estimates its pending asbestos claims and claims that were incurred but not
reported, as well as related insurance and indemnification recoveries. The Company’s estimate of the
liability for pending and future claims is based on claim experience over the past five years and covers
claims expected to be filed over the next seven years. The Company believes that it has adequate
amounts recorded related to these matters. While it is not possible at this time to determine with
certainty the ultimate outcome of these asbestos-related proceedings, the Company believes that the
final outcome of all known and anticipated future claims, after taking into account its substantial
indemnification rights and insurance coverage, will not have a material adverse effect on the Company’s
financial position, results of operations or cash flows.
Income Taxes
The Company and its subsidiaries’ income tax returns are periodically examined by various tax
authorities. In connection with such examinations, tax authorities, including the United States Internal
Revenue Service (‘‘IRS’’), have raised issues and proposed tax adjustments. The Company is reviewing
and contesting certain of the proposed tax adjustments. Amounts related to these tax adjustments and
other tax contingencies that management has assessed as probable and estimable have been recorded.
While the timing and ultimate resolution of these matters is uncertain, the Company anticipates that
certain of these matters could be resolved during 2007.
The IRS continues to audit the years 1997 to 2000. In 2004 the Company submitted to the IRS
proposed adjustments to these prior period U.S. federal income tax returns, resulting in a reduction in
the taxable income previously reported. During 2006, the IRS accepted substantially all of the proposed
adjustments. These adjustments did not have a material impact on the financial condition, results of
operations or cash flows of the Company.
During 2006, the Company has developed amendments to U.S. federal income tax returns for
additional periods. On the basis of previously accepted amendments, the Company has determined that
acceptance of these adjustments is probable and accordingly has recorded them in the Consolidated
Financial Statements. Such adjustments did not have a material impact on the Company’s financial
condition, results of operations or cash flows.
Compliance Matters
Tyco has received and responded to various allegations that certain improper payments were made
by Tyco subsidiaries in recent years. During 2005, Tyco 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
the allegations. Tyco also informed the DOJ and the SEC that it has 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, that it would continue to make periodic progress
136 2006 Financials