ADT 2007 Annual Report Download - page 170

Off-Balance Sheet Arrangements
Sale of Accounts Receivable
Certain of Tyco’s international businesses utilize the sale of accounts receivable as short-term
financing mechanisms. The aggregate amount outstanding under the Company’s remaining international
accounts receivable programs was $76 million, $75 million and $79 million at September 28, 2007,
September 29, 2006 and September 30, 2005, respectively.
Guarantees
Certain of the Company’s business segments have guaranteed the performance of third-parties and
provided financial guarantees for uncompleted work and financial commitments. The terms of these
guarantees vary with end dates ranging from 2008 through the completion of such transactions. The
guarantees would be triggered in the event of nonperformance and the potential exposure for
nonperformance under the guarantees would not have a material effect on the Company’s financial
position, results of operations or cash flows.
There are certain guarantees or indemnifications extended among Tyco, Covidien and Tyco
Electronics in accordance with the terms of the Separation and Distribution Agreement and the Tax
Sharing Agreement. At the time of the Separation, Tyco recorded a liability necessary to recognize the
fair value of such guarantees and indemnifications in accordance with Financial Accounting Standards
Board (‘‘FASB’’) Interpretation (‘‘FIN’’) No. 45, ‘‘Guarantor’s Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others.’’ Fair values were determined
with the assistance of a third party valuation firm. The liability necessary to reflect the fair value of
these guarantees and indemnifications is $543 million, which is included in other liabilities on our
Consolidated Balance Sheets. The guarantees primarily relate to certain contingent tax liabilities
included in the Tax Sharing Agreement. See Note 16 for further discussion of the Tax Sharing
Agreement.
In addition, Tyco historically provided support in the form of financial and/or performance
guarantees to various Covidien and Tyco Electronics operating entities. In connection with the
Separation, the Company worked with the guarantee counterparties to cancel or assign these
guarantees to Covidien or Tyco Electronics. To the extent these guarantees were not assigned prior to
the Separation date, Tyco assumed primary liability on any remaining support. The estimated fair values
of those obligations are $7 million, which are included in other liabilities with an offset to shareholders’
equity on our Consolidated Balance Sheets, and were recorded in accordance with FIN No. 45.
In disposing of assets or businesses, the Company often provides representations, warranties and/or
indemnities to cover various risks including, for example, unknown damage to the assets, environmental
risks involved in the sale of real estate, liability to investigate and remediate environmental
contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and
legal fees related to periods prior to disposition. The Company does not have the ability to estimate
the potential liability from such indemnities because they relate to unknown conditions. However, the
Company has no reason to believe that these uncertainties would have a material adverse effect on the
Company’s financial position, results of operations or cash flows.
The Company has recorded liabilities for known indemnifications included as part of
environmental liabilities. See Item 1. Business—Environmental Matters for a discussion of these
liabilities.
In the normal course of business, the Company is liable for contract completion and product
performance. In the opinion of management, such obligations will not significantly affect the
Company’s financial position, results of operations or cash flows.
78 2007 Financials