ADT 2007 Annual Report Download - page 222

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Guarantees (Continued)
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 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 $7 million, which are included in other liabilities with an offset to shareholders’
equity on our Consolidated Balance Sheets, and were recorded in accordance with FIN No. 45.
In disposing of assets or businesses, the Company often provides representations, warranties and/or
indemnities to cover various risks including, for example, unknown damage to the assets, environmental
risks involved in the sale of real estate, liability to investigate and remediate environmental
contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities and
legal fees related to periods prior to disposition. The Company does not have the ability to estimate
the potential liability from such indemnities because they relate to unknown conditions. However, the
Company has no reason to believe that these uncertainties would have a material adverse effect on the
Company’s financial position, results of operations or cash flows.
The Company has recorded liabilities for known indemnifications included as part of
environmental liabilities. See Note 16 for a discussion of these liabilities.
In the normal course of business, the Company is liable for contract completion and product
performance. In the opinion of management, such obligations will not significantly affect the
Company’s financial position, results of operations or cash flows.
The Company records estimated product warranty costs at the time of sale. For further
information on estimated product warranty, see Note 1.
Following is a roll forward of the Company’s warranty accrual for 2007 ($ in millions):
Balance at September 29, 2006 ......................................... $186
Warranties issued during the year ....................................... 27
Changes in estimates ................................................. 17
Settlements ....................................................... (69)
Currency translation ................................................. 3
Balance at September 28, 2007 ......................................... 164
In 2001, a division of Safety Products initiated a Voluntary Replacement Program (‘‘VRP’’)
associated with the acquisition of Central Sprinkler. The VRP relates to the replacement of certain
130 2007 Financials