ADT 2009 Annual Report Download - page 274

TYCO INTERNATIONAL LTD.
NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED SEPTEMBER 25, 2009
(Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
All derivative financial instruments are reported on the balance sheets at fair value. Derivatives
used to economically hedge foreign currency denominated balance sheet items are reported in
foreign currency exchange results along with offsetting transaction gains and losses on the items
being hedged. Instruments that do not qualify for hedge accounting are marked to market with
changes recognized in current earnings.
e) Other liabilities
Other liabilities primarily represent the fair values of the guarantees and indemnifications under a
Tax Sharing Agreement. See Note 3 below.
3. GUARANTEES
Tyco International Ltd. fully and unconditionally guarantees public debt facilities of approximately
CHF 4.3 billion as of September 25, 2009, issued by Tyco International Finance S.A. (TIFSA), a
subsidiary of the Company. Additionally, Tyco International Ltd. is a co-obligor under TIFSA’s
indentures dated as of June 9, 1998 and November 12, 2003.
There are certain guarantees or indemnifications extended among Tyco, Covidien Plc. (Covidien)
and Tyco Electronics Ltd. (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, Tyco
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, 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 CHF 568,902,574, which is included in other
non-current liabilities on the balance sheet at September 25, 2009. The guarantees primarily relate to
certain contingent tax liabilities included in 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 such support. The estimated fair value
of these obligations is CHF 4,177,942, which is included in other non-current liabilities on the balance
sheet at September 25, 2009, and were recorded with an offset to shareholders’ equity on the
separation date.
At September 25, 2009, the Company had one outstanding letter of credit in the amount of
CHF 1.43 million (USD 1.4 million).
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