ADT 2012 Annual Report Download - page 178

Insurable Liabilities—For fiscal years 2010 through 2012, the Company was insured for product liability,
worker’s compensation, property, general and auto liabilities by a captive insurance company that is wholly-
owned by Tyco. The Company paid a premium in each year to obtain insurance coverage during these periods.
Premiums expensed by the Company were $24 million, $24 million and $18 million in 2012, 2011 and 2010,
respectively, and are included in the selling, general and administrative expenses in the Consolidated and
Combined Statements of Operations.
As of September 28, 2012 and September 30, 2011, the Company recorded insurance-related liabilities in
the Consolidated and Combined Balance Sheets of $47 million and $57 million, respectively. Due to the fact that
Tyco has retained the liability associated with claims incurred prior to the Separation, the Company has recorded
insurance receivables offsetting its liabilities related to these claims. As of September 28, 2012 and
September 30, 2011, the current portion of these insurance receivables, which totaled $11 million and $14
million, respectively, is reflected in prepaid and other current assets in the Consolidated and Combined Balance
Sheets. The non-current portion of these receivables is reflected in other assets.
General Corporate Overhead—For fiscal 2010 through fiscal 2012, the Company was allocated corporate
overhead expenses from Tyco for corporate related functions based on the relative proportion of either the
Company’s headcount or revenue to Tyco’s consolidated headcount or revenue. Corporate overhead expenses
primarily related to centralized corporate functions, including finance, treasury, tax, legal, information
technology, internal audit, human resources and risk management functions. During fiscal 2012, 2011 and 2010,
the Company was allocated $52 million, $67 million and $69 million, respectively, of general corporate expenses
incurred by Tyco which are included within selling, general and administrative expenses in the Consolidated and
Combined Statements of Operations. Further discussion of allocations is included in Note 1.
Separation and Distribution Agreements—In conjunction with the Separation, the Company entered into
Separation and Distribution Agreements and other agreements with Tyco and Pentair, which govern the
relationships among the Company, Tyco and Pentair subsequent to the Separation. The Separation and
Distribution Agreement between ADT and Tyco provided for the allocation to ADT of certain of Tyco’s assets,
liabilities and obligations attributable to periods prior to the Separation, which is reflected in the Company’s
Consolidated and Combined Balance Sheet as of September 28, 2012. This agreement also provides for certain
non-compete and non-solicitation restrictions that prohibit the Company from competing with Tyco in the
commercial security market in the United States and Canada for a period of time after the Separation.
10. Retirement Plans
The Company measures its retirement plans as of its fiscal year end.
Defined Benefit Pension Plan—The Company sponsors one noncontributory defined benefit retirement plan
covering certain of its U.S. employees. Net periodic pension benefit cost is based on periodic actuarial valuations
which use the projected unit credit method of calculation and is charged to the Consolidated and Combined
Statements of Operations on a systematic basis over the expected average remaining service lives of current
participants. Contribution amounts are determined based on U.S. regulations and the advice of professionally
qualified actuaries. The benefits under the defined benefit plan are based on various factors, such as years of
service and compensation.
Prior to the Separation, the plan was a co-mingled plan and included plan participants of other Tyco
subsidiaries. Therefore, for periods prior to September 28, 2012, the Company recorded its portion of the
co-mingled plan expense and the related obligations, which had been actuarially determined based on the
Company’s specific benefit formula by participant and allocated plan assets. The contribution amounts for
periods prior to the Separation were determined in total for the co-mingled plan and allocated to the Company
based on headcount. In conjunction with the Separation, the plan was legally separated, and assets were
reallocated based on the ERISA prescribed calculation.
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