ADT 2011 Annual Report Download - page 122

In addition, we could face liability for failure to respond adequately to alarm activations or failure
of our fire protection systems to operate as expected. The nature of the services we provide exposes us
to the risks that we may be held liable for employee acts or omissions or system failures. In an attempt
to reduce this risk, our alarm monitoring agreements and other contracts contain provisions limiting
our liability in such circumstances. We cannot provide assurance, however, that these limitations will be
enforced. Losses from such litigation could be material to our financial condition, results of operations
or cash flows.
We are party to asbestos-related product litigation that could adversely affect our financial condition,
results of operations and cash flows.
We, along with numerous other companies, are named as defendants in a substantial number of
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. We have observed an increase in the number of these lawsuits over the past
several years, including lawsuits by plaintiffs with mesothelioma-related claims. Our 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. We cannot predict the extent to which we will be
successful in litigating or otherwise resolving lawsuits in the future and we continue to evaluate
different strategies related to asbestos claims filed against the Company. Unfavorable rulings,
judgments or settlement terms could have a material adverse impact on our business, financial
condition, results of operations and cash flows.
We record an estimated liability related to pending claims and claims estimated to be received over
the next seven years, including related defense costs, based on a number of key assumptions and
estimation methodologies. These assumptions are derived from claims experience over the past five
years and reflect our expectations about future claim activities over the next seven years. These
assumptions about the future may or may not prove accurate, and accordingly, we may incur additional
liabilities in the future. A change in one or more of the inputs used to estimate the asbestos liability
could materially change the estimated liability and associated cash flows for pending and future claims.
Although it is possible that the Company will incur additional costs for asbestos claims filed beyond the
next seven years, we do not believe there is a reasonable basis for estimating those costs at this time.
We also record an asset that represents our best estimate of probable recoveries from insurers or other
responsible parties for the estimated asbestos liabilities. There are significant assumptions made in
developing estimates of asbestos-related recoveries, such as policy triggers, policy or contract
interpretation, success in litigation in certain cases, the methodology for allocating claims to policies,
and the continued solvency of the insurers or other responsible parties. The assumptions underlying the
recorded asset may not prove accurate, and as a result, actual performance by our insurers and other
responsible parties could result in lower receivables or cash flows expected to reduce our asbestos costs.
Due to these uncertainties, as well as our inability to reasonably estimate any additional asbestos
liability for claims that may be filed beyond the next seven years, it is not possible to predict the
ultimate outcome of the cost, nor potential recoveries, of resolving the pending and all unasserted
asbestos claims. Additionally, we believe it is possible that the cost of asbestos claims filed beyond the
next seven years, net of expected recoveries, could have a material adverse effect on our financial
position, results of operations or cash flows.
2011 Financials 19