ADT 2007 Annual Report Download - page 168

Asbestos Matters
Tyco and some of its subsidiaries and certain subsidiaries of Covidien are named as defendants in
personal injury lawsuits based on alleged exposure to asbestos-containing materials. Pursuant to the
Separation and Distribution Agreement, Covidien has assumed all liabilities for pending cases filed
against Covidien’s subsidiaries. Consistent with the national trend of increased asbestos-related
litigation, the Company has observed an increase in the number of these lawsuits in the past several
years. A limited number of the cases allege premises liability, based on claims that individuals were
exposed to asbestos while on a subsidiary’s property. A majority of the cases involve product liability
claims, based principally on allegations of past distribution of heat-resistant industrial products
incorporating asbestos or the past distribution of industrial valves that incorporated asbestos-containing
gaskets or packing. Each case typically names between dozens to hundreds of corporate defendants.
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 the lawsuits that have been filed against it and its subsidiaries. To date, 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 28, 2007, there were approximately 5,600 asbestos liability
cases pending against the Company and its subsidiaries.
The Company estimates its pending asbestos 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
Tyco and its subsidiaries’ income tax returns periodically are examined by various tax authorities.
In connection with these examinations, tax authorities, including the 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 and related interest
that management has assessed as probable and estimable have been recorded. For a detailed discussion
of contingencies related to Tyco’s income taxes, see Item 3. Legal Proceedings—Income Tax Matters.
Compliance Matters
Tyco has received and responded to various allegations and other information that certain
improper payments were made by Tyco subsidiaries in recent years. As previously reported, we have
been informed that two subsidiaries in our Flow Control business in Italy have been named in a
request for criminal charges filed by the Milan public prosecutor’s office. Tyco has 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 (‘‘FCPA’’), that it would continue to make
periodic progress reports to these agencies, and that it would present its factual findings upon
conclusion of the baseline review. The Company has and will continue to communicate with the DOJ
and SEC to provide updates on the baseline review being conducted by outside counsel, including, as
76 2007 Financials