ADT 2007 Annual Report Download - page 228

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Commitments and Contingencies (Continued)
final outcome or to estimate the amount of loss or range of possible loss, if any, that might result from an
adverse resolution of the Franklin matter or other unasserted claims from individuals that have opted-out.
Under the terms of the Separation and Distribution Agreement entered into in connection with
the Separation, each of Tyco, Covidien and Tyco Electronics are jointly and severally liable for the full
amount of the class action settlement and any judgments resulting from opt-out claims. Additionally,
under the Separation and Distribution Agreement, the companies share in the liability and related
escrow accounts, with Tyco assuming 27%, Covidien 42% and Tyco Electronics 31% of the settlement
amount.
Tyco incurred a charge to expense, for which no tax benefit is available, and a current liability of
$2.975 billion in 2007. The Company has also recovered or expects to recover certain of these costs
from insurers. As such, the Company recorded $113 million of recoveries in connection with the class
action settlement in its Consolidated Statements of Operations. Tyco borrowed under its unsecured
bridge and credit facilities to fund the liability and placed the proceeds in escrow for the benefit of the
class. In connection with the Separation, Covidien and Tyco Electronics assumed their portion of the
related borrowing. The escrow accounts will earn interest that is payable to the class. Interest is also
accrued on the class action settlement liability. Based on the Separation and Distribution Agreement, at
September 28, 2007 Tyco had a receivable from Covidien and Tyco Electronics for their portion of the
liability of $1,257 million and $927 million, respectively, and a payable to Covidien and Tyco Electronics
for their interest in the escrow accounts. Receivables and payables that pertain to the class action
settlement and related escrow accounts with the same counterparty are presented net in the
consolidated balance sheet. Tyco’s portion of the liability is $808 million. Additionally, Tyco has paid
$73 million and recorded payables of $9 million at September 28, 2007, with an offset to shareholders’
equity for amounts due to Covidien and Tyco Electronics for their portion of the insurance recovery.
If the proposed settlement were not consummated on the agreed terms or if the unresolved
proceedings were to be determined adversely to Tyco, it is possible that the Company will be required
to pay judgments or settlements and incur expenses, in excess of any insurance coverage, in aggregate
amounts that would have a material adverse effect on its financial position, results of operations or
cash flows. At this time, it is not possible to estimate the amount of loss or probable losses, if any, that
might result from an adverse resolution of these matters.
Investigations
The Company and others have received various subpoenas and requests from the SEC’s Division
of Enforcement, the United States Department of Labor, state departments of labor, the General
Service Administration and others seeking the production of voluminous documents in connection with
various investigations into the Company’s governance, management, operations, accounting and related
controls. The Department of Labor is investigating Tyco and the administrators of certain of its benefit
plans. The Company cannot predict when these investigations will be completed, nor can the Company
predict what the results of these investigations may be. It is possible that the Company will be required
to pay material fines, consent to injunctions on future conduct, lose the ability to conduct business with
government entities or instrumentalities (which in turn could negatively impact the Company’s business
with non-governmental customers) or suffer other penalties or adverse impacts, each of which could
have a material adverse effect on the Company’s business. It is not possible to estimate the amount of
loss, or range of possible loss, if any, that might result from an adverse resolution of these matters.
136 2007 Financials