ADT 2008 Annual Report Download - page 178

The Company has recorded liabilities for known indemnifications included as part of environmental
liabilities. See Item 1. Business—Environmental Matters for a discussion of these liabilities.
In the normal course of business, the Company is liable for contract completion and product
performance. In the opinion of management, such obligations will not significantly affect the
Company’s financial position, results of operations or cash flows.
The Company records estimated product warranty costs at the time of sale. For further information
on estimated product warranty, see Notes 1 and 14 to the Consolidated Financial Statements.
In 2001, a division of Safety Products initiated a Voluntary Replacement Program (‘‘VRP’’)
associated with the acquisition of Central Sprinkler. The VRP relates to the replacement of certain
O-ring seal sprinkler heads which were originally manufactured by Central Sprinkler prior to Tyco’s
acquisition. Under this program, the sprinkler heads are being replaced free of charge to property
owners. In the third quarter of 2006, the Company completed a comprehensive review of reported
claims, recent claim rates and cost trends and further assessed the future of the program. The
Company determined that an additional liability was necessary in order to satisfy the Company’s
obligation under the VRP. As a result, the Company recorded a $100 million charge which was
reflected in cost of sales. On May 1, 2007, the Consumer Products Safety Commission and the
Company announced an August 31, 2007 deadline for filing claims to participate in the VRP. The
Company will fulfill all valid claims for replacement of qualifying sprinklers received up to August 31,
2007. During the fourth quarter of 2007, the Company further assessed the expected cost to complete
the program in light of the most current claims data and determined that an additional accrual of
$10 million was necessary to satisfy the estimated remaining obligation. The ultimate cost to complete
the program will be impacted by a number of factors such as changes in material and labor costs, and
the actual number of sprinkler heads replaced. Actual results could differ from this estimate.
Settlements during 2008 include cash expenditures of $49 million related to the VRP.
Accounting Pronouncements
Recently Adopted Accounting Pronouncements—In June 2006, the Financial Accounting Standards
Board (‘‘FASB’’) issued Financial Accounting Standards Board Interpretation (‘‘FIN’’) No. 48,
‘‘Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109.’’ This
Interpretation prescribes a comprehensive model for the financial statement recognition, measurement,
presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax
returns. FIN No. 48 became effective for Tyco in the first quarter of 2008. As a result of adopting
FIN No. 48, Tyco increased its reserve for uncertain tax positions by $55 million and reduced its
deferred tax assets by $24 million with a corresponding $79 million cumulative effect adjustment to
shareholders’ equity. See Note 6 to the Consolidated Financial Statements for additional information
related to the adoption of FIN No. 48.
Recently Issued Accounting Pronouncements—In May 2008, the FASB issued Statement of Financial
Accounting Standards (‘‘SFAS’’) No. 162, ‘‘The Hierarchy of Generally Accepted Accounting
Principles’’ (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the
framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is
effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board
amendments to AU Section 411, ‘‘The Meaning of Present Fairly in Conformity with Generally
Accepted Accounting Principles’’. The Company does not expect that this standard will have a material
impact on its results of operations, financial position or cash flows.
In April 2008, the FASB issued Staff Position (‘‘FSP’’) No. 142-3, ‘‘Determination of the Useful
Life of Intangible Assets’’. FSP No. 142-3 amends the factors that should be considered in developing
renewal or extension assumptions used to determine the useful life of a recognized intangible asset
under SFAS No. 142, ‘‘Goodwill and Other Intangible Assets’’. FSP No. 142-3 is effective for Tyco in
2008 Financials 75