ADT 2009 Annual Report Download - page 153

backlog decreased by $145 million primarily due to unfavorable exchange rates of $15 million and
decreased bookings of $130 million.
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 $55 million, $65 million and $76 million as of September 25, 2009,
September 26, 2008 and September 28, 2007, respectively.
Guarantees
Certain of our 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 2009 through the completion of such transactions. The guarantees
would typically be triggered in the event of nonperformance and performance under the guarantees, if
required, would not have a material effect on our 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. At the time of the Separation, we recorded a liability necessary to recognize
the fair value of such guarantees and indemnifications. In the absence of observable transactions for
identical or similar guarantees, we 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 our incremental borrowing rate. The liability necessary to reflect the
fair value of the guarantees and indemnifications under the Tax Sharing Agreement is $554 million,
which is included in other liabilities on our Consolidated Balance Sheets as of September 25, 2009 and
September 26, 2008. 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.
In addition, we 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, we 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, we assumed primary liability on any remaining such support. The estimated fair value of these
obligations is $4 million and $7 million, which are included in other liabilities on our Consolidated
Balance Sheets as of September 25, 2009 and September 26, 2008, respectively, with an offset to
shareholders’ equity on the Separation date.
In disposing of assets or businesses, we often provide 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. We have no reason to believe that these uncertainties
would have a material adverse effect on our financial position, results of operations or cash flows.
We have recorded liabilities for known indemnifications included as part of environmental
liabilities. See Item 1. Business—Environmental Matters and Note 15 to the Consolidated Financial
Statements for a discussion of these liabilities.
2009 Financials 61