Tyco International Ltd. (TYC) filed a Form 8K - Other Events -
with the U.S Securities and Exchange Commission on October 14,
2014.
Asbestos Matters
The Company and certain of its subsidiaries, including Yarway
Corporation ("Yarway") and Grinnell LLC ("Grinnell"), along with
numerous other third parties, are named as defendants in personal
injury lawsuits based on alleged exposure to asbestos containing
materials. Over 90% of cases pending against affiliates of Tyco
International Ltd. (the "Company") have been filed against Yarway
or Grinnell, and have typically involved product liability claims
based primarily on allegations of manufacture, sale or distribution
of industrial products that either contained asbestos or were used
with asbestos-containing components. Claims filed against Yarway
derive from Yarway's purported use of asbestos-containing gaskets
and packing in the sale or distribution of steam valves and traps
and from its alleged manufacture of asbestos-containing expansion
joint packing. Yarway's alleged manufacture, distribution and/or
sale of asbestos-containing materials ceased by 1988, and Yarway
ceased substantially all of its manufacturing, distribution and
sales operations in 2003. Claims filed against Grinnell typically
allege that it manufactured, sold or distributed valves, gaskets,
piping and sprinkler systems containing asbestos.
Yarway
As previously disclosed, on April 22, 2013 Yarway filed a
voluntary petition for relief under Chapter 11 of the U.S.
Bankruptcy Code ("Chapter 11") in the United States Bankruptcy
Court for the District of Delaware ("Bankruptcy Court"). As a
result of this filing, the continuation or commencement of
asbestos-related litigation against Yarway has been enjoined by the
automatic stay imposed by the U.S. Bankruptcy Code. Yarway's goal
has been to negotiate, obtain approval of, and consummate a plan of
reorganization that establishes a trust to fairly and equitably
value and pay current and future Yarway asbestos claims, and that,
in exchange for funding of the trust by the Company and/or its
subsidiaries, provides permanent injunctive relief protecting the
Company, each of its current and former affiliates and various
other parties (the "Company Protected Parties") from any further
asbestos claims based on products manufactured, sold, and/or
distributed by Yarway. On October 9, 2014, the Company reached an
agreement in principle with Yarway, the Official Committee of
Asbestos Claimants ("ACC") appointed in the Yarway Chapter 11 case
as the representative of current Yarway asbestos claimants, and the
Future Claimants Representative ("FCR") appointed in the Yarway
Chapter 11 case as the representative of future Yarway asbestos
claimants, to fund a section 524(g) trust for the resolution and
payment of current and future Yarway asbestos claims. The agreement
in principle, which will be implemented through a Chapter 11 plan
for Yarway, will resolve the potential liability of the Company
Protected Parties for pending and future derivative personal injury
claims related to exposure to asbestos-containing products that
were allegedly manufactured, distributed, and/or sold by Yarway
("Yarway Asbestos Claims"). Under the Chapter 11 plan, an asbestos
settlement trust (the "Yarway Trust") that conforms to the
provisions of Section 524(g) of the U.S. Bankruptcy Code will be
established and, on the effective date of the Chapter 11 plan, the
Company and Yarway will contribute to the Yarway Trust a total of
$325 million in cash ("Settlement Consideration"), which includes
approximately $100 million relating to the settlement of
intercompany amounts allegedly due to Yarway. In exchange for the
Settlement Consideration, each of the Company Protected Parties
will receive the benefit of a release from Yarway and an injunction
under section 524(g) of the Bankruptcy Code permanently enjoining
the assertion of Yarway Asbestos Claims against those Parties. The
agreement in principle is subject, among other things, to the
negotiation and filing of a Chapter 11 plan of
reorganization for Yarway incorporating the terms of such
agreement (the "Plan"), acceptance of the Plan by at least 75% of
Yarway's current asbestos claimants voting on such Plan,
confirmation of the Plan by the Bankruptcy Court and approval of
the injunction in favor of the Company Protected Parties by the
United States District Court for the District of Delaware
("District Court"). On the effective date of the Plan, which is
anticipated to occur in the second half of fiscal 2015, the Company
and Yarway will pay the Settlement Consideration and Yarway
Asbestos Claims against the Company Protected Parties will be
permanently enjoined. Yarway is anticipated to become a
wholly-owned subsidiary of the Yarway Trust and, accordingly, would
no longer be owned by or be part of a consolidated group with the
Company. Unless extended by a further agreement, the agreement in
principle will expire if the order confirming the Plan and
implementing the injunction has not been entered or affirmed by the
District Court by April 30, 2015, or if the effective date of the
Plan has not occurred by September 15, 2016. As a result of the
agreement in principle to settle, the Company has recorded a charge
of $225 million during the fourth fiscal quarter of 2014.
As a result of filing the voluntary bankruptcy petition during
the third quarter of fiscal 2013, the Company recorded an expected
loss upon deconsolidation of $10 million related to the Yarway
Chapter 11 filing, which continues to represent the Company's best
estimate of its loss.
Other Claims
The Company continuously assesses the sufficiency of its
estimated liability for pending and future asbestos claims and
defense costs. On a quarterly basis, the Company evaluates actual
experience regarding asbestos claims filed, settled and dismissed,
amounts paid in settlements, and the recoverability of its
insurance assets. If and when data from actual experience
demonstrate an unfavorable discernible trend, the Company performs
a valuation of its asbestos related liabilities and corresponding
insurance assets including a comprehensive review of the underlying
assumptions. In addition, the Company evaluates its ability to
reasonably estimate claim activity beyond its current look-forward
period in order to assess whether such period is appropriate. In
addition to claims and litigation experience, the Company considers
additional qualitative and quantitative factors such as changes in
legislation, the legal environment, the Company's strategy in
managing claims and obtaining insurance, including its defense
strategy, and health related trends in the overall population of
individuals potentially exposed to asbestos. The Company evaluates
all of these factors and determines whether a change in the
estimate of its liability for pending and future claims and defense
costs or insurance assets is warranted.
During the fourth quarter of fiscal 2014, the Company concluded
that an unfavorable trend had developed in actual claim filing
activity compared to projected claim filing activity established
during the Company's most recent valuation. Accordingly, the
Company, with the assistance of independent actuarial service
providers, performed a revised valuation of its asbestos-related
liabilities and corresponding insurance assets. As part of the
revised valuation, the Company assessed whether a change in its
look-forward period was appropriate, taking into consideration its
more extensive history and experience with asbestos-related claims
and litigation (including its experience with Yarway), and
determined that it was now possible to make a reasonable estimate
of the actuarially determined ultimate risk of loss for pending and
unasserted potential future asbestos-related claims through 2056.
In connection with the revised valuation, the Company considered a
recent settlement with one of its insurers calling for the
establishment of a qualified settlement fund, and the results of a
separate independent actuarial consulting firm report conducted in
the fourth quarter to assist
the Company in obtaining insurance to fully fund all estimable
asbestos-related claims (excluding Yarway claims) incurred through
2056.
The independent actuarial service firm calculated a total
estimated liability for asbestos-related claims of the Company,
which reflects the Company's best estimate of its ultimate risk of
loss to resolve all pending and future claims (excluding Yarway
claims) through 2056, which is the Company's reasonable best
estimate of the actuarially determined time period through which
asbestos-related claims will be filed against Company
affiliates.
In conjunction with determining the total estimated liability,
the Company retained an independent third party to assist it in
valuing its insurance assets responsive to asbestos-related claims,
excluding Yarway claims.
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The full text of this SEC filing can be retrieved at:
http://www.sec.gov/Archives/edgar/data/833444/000083344414000111/form8-kx10x13x14.htm
Any exhibits and associated documents for this SEC filing can be
retrieved at:
http://www.sec.gov/Archives/edgar/data/833444/000083344414000111/0000833444-14-000111-index.htm
Public companies must file a Form 8-K, or current report, with
the SEC generally within four days of any event that could
materially affect a company's financial position or the value of
its shares.
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