ADT 2008 Annual Report Download - page 248

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Commitments and Contingencies (Continued)
Asbestos Matters
Tyco and some of its subsidiaries are named as defendants in personal injury lawsuits based on
alleged exposure to asbestos-containing materials. 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, as a result, have been dismissed by the courts. 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 have 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.
The Company estimates its pending asbestos claims and claims that were incurred but not reported,
as well as related insurance and indemnification recoveries for certain of these claims. 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.
Compliance Matters
As previously reported in our periodic filings, we have received and responded to various
allegations and other information that certain improper payments were made by our 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. We have reported to the U.S. Department of Justice (‘‘DOJ’’) and the SEC the
investigative steps and remedial measures that we have taken in response to the allegations. We also
informed the DOJ and the SEC that we retained outside counsel to perform a company-wide baseline
review of our policies, controls and practices with respect to compliance with the Foreign Corrupt
Practices Act (‘‘FCPA’’), that we would continue to make periodic progress reports to these agencies,
and that we would present our factual findings upon conclusion of the baseline review. We have and
will continue to communicate with the DOJ and SEC to provide updates on the baseline review and
2008 Financials 145