ADT 2009 Annual Report Download - page 231

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Commitments and Contingencies (Continued)
pending and future claims. In determining the amount of insurance recoverable, the Company
considers available insurance, allocation methodologies, solvency and creditworthiness of the insurers.
As of September 25, 2009, the Company’s estimated net liability of $49 million was recorded
within the Company’s Consolidated Balance Sheet as a liability for pending and future claims and
related defense costs of $240 million, and separately as an asset for insurance recoveries of
$191 million. Similarly, as of September 26, 2008, the Company’s estimated net liability of $21 million
was recorded within the Company’s Consolidated Balance Sheet as a liability for pending and future
claims and related defense costs of $194 million, and separately as an asset for insurance recoveries of
$173 million. The increase in liability from 2008 to 2009 was due to a number of factors, but was
primarily driven by the increase in mesothelioma-related claims noted above, as well as an increase in
the average cost of resolution over the past five years. The estimated insurance asset increased due to
the availability of certain insurance policies that cover a portion of the increased liability.
The amounts recorded by the Company for asbestos-related liabilities and insurance-related assets
are based on currently available information as well as estimates and assumptions. Key variables and
assumptions include the number and type of new claims that are filed each year, the average cost of
resolution of claims, the resolution of coverage issues with insurance carriers, and the solvency risk with
respect to the Company’s insurance carriers. Furthermore, predictions with respect to these variables
are subject to greater uncertainty in the later portion of the projection period. Other factors that may
affect the Company’s liability and cash payments for asbestos-related matters include uncertainties
surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of
state or federal tort legislation and the applicability of insurance policies among subsidiaries. The
Company believes that its asbestos-related reserves at September 25, 2009, are appropriate, however
actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if
assumptions used in the Company’s calculations vary significantly from actual results.
Compliance Matters
As previously reported in the Company’s periodic filings, the Company has received and responded
to various allegations and other information that certain improper payments were made by the
Company’s subsidiaries and agents in recent years. For example, two subsidiaries in the Company’s
Flow Control business in Italy have been charged, along with numerous other parties, in connection
with the Milan public prosecutor’s investigation into allegedly improper payments made to certain
Italian entities, and the Company has reported to German authorities potentially improper conduct
involving agents retained by the Company’s EMEA water business. The Company has reported to the
U.S. Department of Justice (‘‘DOJ’’) and the SEC the investigative steps and remedial measures that it
has taken in response to these allegations and its internal investigations. The Company also informed
the DOJ and the SEC that it retained outside counsel to perform a Company-wide baseline review of
its policies, controls and practices with respect to compliance with the Foreign Corrupt Practices Act
(‘‘FCPA’’), and that it would continue to investigate and make periodic progress reports to these
agencies. The Company has and will continue to communicate with the DOJ and SEC to provide
updates on the baseline review and follow-up investigations, including, as appropriate, briefings
concerning additional instances of potential improper payments identified by the Company in the
course of our ongoing compliance activities. The baseline review revealed that some business practices
may not comply with Tyco and FCPA requirements. At this time, the Company cannot predict the
outcome of these matters and other allegations reported to regulatory and law enforcement authorities
2009 Financials 139