ADT 2007 Annual Report Download - page 115

We continue to be responsible for a portion of our contingent and other corporate liabilities following the
Separation, primarily those relating to shareholder litigation.
Under the Separation and Distribution Agreement and other agreements, subject to certain
exceptions contained in the Tax Sharing Agreement, we, Covidien and Tyco Electronics have agreed to
assume and be responsible for 27%, 42% and 31%, respectively, of certain of our contingent and other
corporate liabilities. All costs and expenses associated with the management of these contingent and
other corporate liabilities will be shared equally among the parties. These contingent and other
corporate liabilities primarily relate to consolidated securities litigation and any actions with respect to
the separation plan or the Separation brought by any third party. Contingent and other corporate
liabilities do not include liabilities that are specifically related to one of the three separated companies,
which are allocated 100% to the relevant company.
If any party responsible for such liabilities were to default in its payment, when due, of any of
these assumed obligations, each non-defaulting party would be required to pay equally with any other
non-defaulting party the amounts in default. Accordingly, under certain circumstances, we may be
obligated to pay amounts in excess of our agreed-upon share of the assumed obligations related to such
contingent and other corporate liabilities including associated costs and expenses.
Many lawsuits are outstanding against Tyco, some of which relate to actions taken by its former
senior corporate management. On May 14, 2007, we entered into a proposed settlement with respect to
most of the class actions. We do not believe that it is feasible to predict the final outcome or resolution
of the unresolved proceedings. Although we will share any costs and expenses arising out of this
litigation with Covidien and Tyco Electronics, a failure to consummate the proposed settlement on the
agreed terms or an adverse outcome from the unresolved proceedings or liabilities or other proceedings
for which we will assume joint and several liability under the Separation and Distribution Agreement
could be material with respect to our financial condition, results of operations or cash flows in any
given reporting period.
We share responsibility for certain of our, Covidien’s and Tyco Electronics’ income tax liabilities for tax
periods prior to and including June 29, 2007.
Under the Tax Sharing Agreement, we share responsibility for certain of our, Covidien’s and Tyco
Electronics’ income tax liabilities based on a sharing formula for periods prior to and including
June 29, 2007. More specifically, we, Covidien and Tyco Electronics share 27%, 42% and 31%,
respectively, of U.S. income tax liabilities that arise from adjustments made by tax authorities to our,
Covidien’s and Tyco Electronics’ U.S. income tax returns, certain income tax liabilities arising from
adjustments made by tax authorities to intercompany transactions or similar adjustments, and certain
taxes attributable to internal transactions undertaken in anticipation of the Separation. All costs and
expenses associated with the management of these shared tax liabilities will be shared equally among
the parties. We are responsible for all of our own taxes that are not shared pursuant to the Tax Sharing
Agreement’s sharing formula. In addition, Covidien and Tyco Electronics are responsible for their tax
liabilities that are not subject to the Tax Sharing Agreement’s sharing formula.
If any party to the Tax Sharing Agreement were to default in its obligation to another party to pay
its share of the distribution taxes that arise as a result of no party’s fault, each non-defaulting party
would be required to pay, equally with any other non-defaulting party, the amounts in default. In
addition, if another party to the Tax Sharing Agreement that is responsible for all or a portion of an
income tax liability were to default in its payment of such liability to a taxing authority, we could be
legally liable under applicable tax law for such liabilities and required to make additional tax payments.
Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of our
agreed-upon share of our, Covidien’s and Tyco Electronics’ tax liabilities.
2007 Financials 23