ADT 2008 Annual Report Download - page 133

Environmental Matters
Tyco is involved in various stages of investigation and cleanup related to known environmental
remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given
the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and
regulations and alternative cleanup methods. As of September 26, 2008, Tyco concluded that it was
probable that it would incur remedial costs in the range of approximately $37 million to $76 million. As
of September 26, 2008, Tyco concluded that the best estimate within this range is approximately
$43 million, of which $10 million is included in accrued and other current liabilities and $33 million is
included in other liabilities on Tyco’s Consolidated Balance Sheet. In view of the Company’s financial
position and reserves for environmental matters, the Company believes that any potential payment of
such estimated amounts will not have a material adverse effect on its financial position, results of
operations or cash flows.
Asbestos Matters
As previously reported in its periodic filings, Tyco and some of its subsidiaries are named as
defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. Each
case typically names between dozens to hundreds of corporate defendants. The complaints generally
seek monetary damages for personal injury or bodily injury resulting from alleged exposure to products
containing asbestos. The Company will continue to vigorously defend the lawsuits that have been filed
against it and its subsidiaries, but cannot predict whether it will be successful in those cases that
proceed to trial. When appropriate, the Company settles claims. Although in the past the total amount
paid in any year to settle and defend all asbestos claims has been immaterial, Tyco has recently
experienced an increase in the number of lawsuits that have proceeded to trial. Of the lawsuits that
proceeded to trial in 2008, Tyco has won or settled all but one case, with that one case returning an
adverse jury verdict for approximately $7.7 million, which included both compensatory and punitive
damages. Tyco has filed post-trial motions seeking to overturn the verdict or order a new trial, and
believes that the verdict will ultimately be overturned. As of September 26, 2008 there were
approximately 4,600 asbestos liability cases pending against the Company and its subsidiaries.
Income Tax Matters
During the third quarter of 2007, the IRS concluded its field examination of certain of Tyco’s U.S.
federal income tax returns for the years 1997 through 2000 and issued anticipated Revenue Agents’
Reports (‘‘RARs’’) which reflect the IRS’ determination of proposed tax adjustments for the periods
under audit. The RARs propose tax audit adjustments to certain of the Company’s previously filed tax
return positions. The Company agreed with the IRS on adjustments totaling $498 million, with an
estimated cash impact to the Company of $458 million, and during the third quarter of 2007, the
Company paid $458 million, of which $163 million related to the Company’s discontinued operations.
The Company appealed other proposed tax audit adjustments totaling approximately $1 billion relating
to Tyco, Covidien and Tyco Electronics, and, as Audit Managing Party as specified in the Tax Sharing
Agreement, the Company intends to vigorously defend its prior filed tax return positions.
During the second quarter of 2008, the IRS issued additional RARs asserting a withholding tax
liability of approximately $106 million associated with the prior proposed tax adjustments related to
Tyco, Covidien and Tyco Electronics for the 1997 to 2000 period. The withholding tax amount asserted
against Tyco is immaterial. During the first quarter of fiscal 2009, the Company reached an agreement
with the IRS appeals team to work towards timely resolution of all unagreed issues related to this time
period. The Company, as Auditing Managing Party as specified in the Tax Sharing Agreement, intends
to vigorously defend its prior filed tax return positions and determined that no adjustment is required
to the Company’s guarantees and indemnifications liability recorded in conjunction with the Tax
Sharing Agreement as discussed in ‘‘Guarantees’’ within Management’s Discussion and Analysis of
30 2008 Financials