ADT 2011 Annual Report Download - page 237

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Commitments and Contingencies (Continued)
includes several claims, and the Company has determined that there were approximately 5,600 claims
outstanding as of September 30, 2011, which reflects the Company’s current estimate of the number of
viable claims made against it, its affiliates or entities for which it has assumed responsibility in
connection with acquisitions or divestitures. This amount includes adjustments for claims that are not
actively being prosecuted, identify incorrect defendants or are duplicative of other actions.
Annually, during the Company’s third quarter, the Company performs an analysis with the
assistance of outside counsel and other experts to update its estimated asbestos-related assets and
liabilities. Due to a high degree of uncertainty regarding the pattern and length of time over which
claims will be made and then settled or litigated, the Company uses multiple estimation methodologies
based on varying scenarios of potential outcomes to estimate the range of loss. The Company’s
estimate of the liability and corresponding insurance recovery for pending and future claims and
defense costs is predominantly based on claim experience over the past five years, and a projection
which covers claims expected to be filed, including related defense costs, over the next seven years on
an undiscounted basis. The Company has concluded that estimating the liability beyond the seven year
period will not provide a reasonable estimate, as these uncertainties increase significantly as the
projection period lengthens. The Company’s estimate of asbestos-related insurance recoveries
represents estimated amounts due to the Company for previously paid and settled claims and the
probable reimbursements relating to its estimated liability for pending and future claims. In
determining the amount of insurance recoverable, the Company considers a number of factors,
including available insurance, allocation methodologies, solvency and creditworthiness of the insurers.
On a quarterly basis, the Company re-evaluates the assumptions used to perform the annual analysis
and records an expense as necessary to reflect changes in its estimated liability and related insurance
asset. As of September 30, 2011, the Company’s estimated net liability of $82 million was recorded
within the Company’s Consolidated Balance Sheet as a liability for pending and future claims and
related defense costs of $306 million, and separately as an asset for insurance recoveries of
$224 million. Similarly, as of September 24, 2010, the Company’s estimated net liability of $106 million
was recorded within the Company’s Consolidated Balance Sheet as a liability for pending and future
claims and related defense costs of $309 million, and separately as an asset for insurance recoveries of
$203 million.
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, amount of insurance 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 as of September 30, 2011
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.
134 2011 Financials