ADT 2009 Annual Report Download - page 227

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Commitments and Contingencies (Continued)
The Company also has purchase obligations related to commitments to purchase certain goods and
services. As of September 25, 2009, such obligations were as follows: $90 million in 2010 and $5 million
in 2011 and $3 million thereafter.
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.
In connection with the Separation, the Company entered into a liability sharing agreement
regarding certain legal actions that were pending against Tyco prior to the Separation. Under the
Separation and Distribution Agreement, the Company, Covidien and Tyco Electronics are jointly and
severally liable for the full amount of any judgments resulting from the actions subject to the
agreement, which generally relate to legacy matters that are not specific to the business operations of
any of the companies. The Separation and Distribution Agreement also provides that the Company will
be responsible for 27%, Covidien 42% and Tyco Electronics 31% of payments to resolve these matters,
with costs and expenses associated with the management of these contingencies being shared equally
among the parties. In addition, under the agreement, the Company will manage and control all the
legal matters related to assumed contingent liabilities as described in the Separation and Distribution
Agreement, including the defense or settlement thereof, subject to certain limitations. Additionally, at
the time of the Separation, the Company, Covidien and Tyco Electronics agreed to allocate
responsibility for certain legacy tax claims pursuant to the same formula under the Tax Sharing
Agreement. See Note 6.
Class Action Settlement and Legacy Securities Matters
As previously reported, Tyco, and some members of the Company’s former senior corporate
management were named as defendants in a number of lawsuits alleging violations of the disclosure
provisions of the federal securities laws. In June 2007, the Company settled 32 purported securities
class action lawsuits arising from actions alleged to have been taken by prior management for
$2.975 billion. Of this amount, the Company contributed $803 million, representing its share under the
Separation and Distribution Agreement, to a $2.975 billion escrow account established in connection
with the settlement.
As a result, Tyco incurred a charge to expense, for which no tax benefit is available, and a current
liability of $2.975 billion in the third quarter of 2007. 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 Company has also recovered certain of these costs from insurers. As a result, the
Company recorded $113 million of recoveries in connection with the class action settlement in its
Consolidated Statements of Operations for 2007. Based on the Separation and Distribution Agreement,
the Company recorded payables to Covidien and Tyco Electronics for their portion of the 2007
recoveries with an offset to shareholders’ equity. The Company recovered an additional $38 million of
costs from insurers during 2008. The Company recorded payables to Covidien and Tyco Electronics for
their respective shares of the 2008 recoveries resulting in a net $10 million credit recorded to class
action settlement, net in the Consolidated Statements of Operations.
Since all legal contingencies that could have affected the settlement were exhausted on
February 21, 2008, the administration and distribution of the settlement funds in escrow has been
2009 Financials 135