ADT 2008 Annual Report Download - page 239

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. Debt (Continued)
The aggregate amounts of principal debt, including capital leases, maturing during the next five
years and thereafter are as follows (in millions): $671 in 2009, $22 in 2010, $539 in 2011, $1,139 in
2012, $7 in 2013 and $1,874 thereafter.
Included in the amount of debt maturing in 2009 is $116 million of commercial paper borrowings
that the Company classified as long-term at September 26, 2008. This debt matures in 2009, but has
been classified as long-term on the Consolidated Balance Sheet as settlement of this debt is not
expected to require the use of working capital in the next year and as the Company has both the intent
and the ability to refinance this debt on a long-term basis.
The weighted-average interest rate on total debt was 6.2% and 6.3% at September 26, 2008 and
September 28, 2007, respectively, excluding the impact of interest rate swaps. The weighted-average
interest rate on short-term debt was 6.1% and 5.5% at September 26, 2008 and September 28, 2007,
respectively. The impact of the Company’s interest rate swap agreements on reported interest expense
was not material for 2008 and 2007, and a net increase of $10 million for 2006. Of this amount,
$6 million of the increase was allocated and included in discontinued operations.
14. 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 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 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
136 2008 Financials