ADT 2008 Annual Report Download - page 177

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 $65 million, $76 million and $75 million at September 26, 2008,
September 28, 2007 and September 29, 2006, 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. The guarantees primarily relate to certain contingent tax liabilities included in the
Tax Sharing Agreement. See Note 6 to the Consolidated Financial Statements for further discussion of
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.’’ In the
absence of observable transactions for identical or similar guarantees, the Company determined the fair
value of these guarantees and indemnifications utilizing expected present value measurement
techniques. Significant assumptions utilized to determine fair value included determining a range of
potential outcomes, assigning a probability weighting to each potential outcome and estimating the
anticipated timing of resolution. The probability weighted outcomes were discounted using the
Company’s incremental borrowing rate. The liability necessary to reflect the fair value of the guarantees
and indemnifications under the Tax Sharing Agreement is $554 million and $543 million, which is
included in other liabilities on our Consolidated Balance Sheet at September 26, 2008 and
September 28, 2007, respectively. The guarantees primarily relate to certain contingent tax liabilities
included in the Tax Sharing Agreement. See Note 16 to the Consolidated Financial Statements 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 on our Consolidated Balance
Sheets, and were recorded in accordance with FIN No. 45 with an offset to shareholders’ equity on the
Separation date.
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 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.
74 2008 Financials