ADT 2008 Annual Report Download - page 240

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Guarantees (Continued)
the Separation date, Tyco assumed primary liability on any remaining support. The estimated fair values
of those obligations are $7 million, which are included in other liabilities on our Consolidated Balance
Sheets, and were recorded in accordance with FIN No. 45 with an offset to shareholders’ equity on the
Separation date.
In disposing of assets or businesses, the Company often provides representations, warranties and/or
indemnities to cover various risks including, for example, unknown damage to the assets, environmental
risks involved in the sale of real estate, liability to investigate and remediate environmental
contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and
legal fees related to periods prior to disposition. The Company has no reason to believe that these
uncertainties would have a material adverse effect on the Company’s financial position, results of
operations or cash flows.
The Company has recorded liabilities for known indemnifications included as part of environmental
liabilities. See Note 16 for a discussion of these liabilities.
In the normal course of business, the Company is liable for contract completion and product
performance. In the opinion of management, such obligations will not significantly affect the
Company’s financial position, results of operations or cash flows.
The Company records estimated product warranty costs at the time of sale. For further information
on estimated product warranty, see Note 1.
Following is a roll forward of the Company’s warranty accrual for 2008 ($ in millions):
Balance at September 28, 2007 ................................... $162
Warranties issued during the year ................................. 26
Changes in estimates .......................................... (7)
Settlements ................................................. (78)
Currency translation .......................................... 2
Balance at September 26, 2008 ................................... $105
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
2008 Financials 137