ADT 2009 Annual Report Download - page 117

$40 million, of which $12 million is included in accrued and other current liabilities and $28 million is
included in other liabilities in 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
The Company and certain of its subsidiaries are named as defendants in bodily injury lawsuits
based on alleged exposure to asbestos-containing materials. These cases typically involve product
liability claims based primarily on allegations of manufacture, sale or distribution of industrial products
that either contained asbestos or were attached to or used with asbestos-containing components
manufactured by third-parties. Each case typically names between dozens to hundreds of corporate
defendants. While the Company has observed an increase in the number of these lawsuits over the past
several years, including lawsuits by plaintiffs with mesothelioma-related claims, a large percentage of
these suits have not presented viable legal claims and, as a result, have been dismissed by the courts.
The Company’s strategy has been, and continues to be, to mount a vigorous defense aimed at having
unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large
percentage of litigated suits have been dismissed, the Company cannot predict the extent to which it
will be successful in resolving lawsuits in the future. Of the lawsuits that have proceeded to trial since
2005, the Company 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. The
Company has appealed the verdict and believes that it will ultimately be overturned. As of
September 25, 2009, there were 4,200 lawsuits pending against the Company and its subsidiaries. Each
lawsuit typically includes several claims, and the Company has determined that it had 5,509, 6,569 and
6,461 claims outstanding as of September 25, 2009, September 26, 2008 and September 28, 2007,
respectively. These amounts reflect adjustments for claims that are not actively being prosecuted,
identify incorrect defendants or are duplicative of other actions. For a detailed discussion of asbestos-
related matters, see Note 15 to the Consolidated Financial Statements.
Income Tax Matters
The Company and its subsidiaries’ income tax returns periodically are examined by various tax
authorities. In connection with these examinations, tax authorities, including the Internal Revenue
Service (‘‘IRS’’), have raised issues and proposed tax adjustments. We are 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 for uncertain income tax positions
have been recorded through the income tax provision, equity or goodwill, as appropriate. The
calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax
regulations in a multitude of jurisdictions across our global operations. We recognize potential liabilities
and record tax liabilities for anticipated tax audit issues in the United States and other tax jurisdictions
based on our estimate of whether, and the extent to which, additional income taxes will be due. These
tax liabilities are reflected net of related tax loss carryforwards. We adjust these liabilities in light of
changing facts and circumstances.
In 2004, in connection with the IRS audit of the 1997 through 2000 years, the Company submitted
to the IRS proposed adjustments to certain prior period U.S. federal income tax returns resulting in a
reduction in the taxable income previously filed. During 2006, the IRS accepted substantially all of the
proposed adjustments. Subsequently, the Company developed proposed amendments to U.S. federal
income tax returns for additional periods through 2006. On the basis of previously accepted
amendments, the Company has determined that these adjustments will more-likely-than-not be
accepted and, accordingly, has recorded such adjustments in the Consolidated Financial Statements.
Such adjustments did not have a material impact on the Company’s financial condition, results of
2009 Financials 25