ADT 2010 Annual Report Download - page 271

TYCO INTERNATIONAL LTD.
NOTES TO THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 24, 2010
(Continued)
3. GUARANTEES (Continued)
separation date, Tyco assumed primary liability on any remaining such support. The Company’s
obligations were CHF 3,678,153 and CHF 4,177,942, which were primarily included in other
non-current liabilities on the balance sheet as of September 24, 2010 and September 25, 2009,
respectively, and were recorded with an offset to shareholders’ equity on the separation date.
At September 24, 2010, the Company had two outstanding letters of credit totaling CHF 3,954,860.
As of September 25, 2009, the Company had one outstanding letter of credit in the amount of
CHF 1,437,660.
4. COMMITMENTS AND CONTINGENCIES
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.
The Company and certain of its officers and directors were subject to a number of lawsuits
alleging violations of federal and state securities laws and related claims. Since June 2007, the Company
has resolved substantially all of these claims, although a number of matters have not reached final
resolution. The most significant of these is the Stumpf v. Tyco International Ltd. matter, a class action
lawsuit arising from Tyco’s July 2000 initial public offering of common stock of TyCom Ltd, for
$79 million. The settlement received final court approval on August 25, 2010 from the United States
District Court for the District of New Jersey, although certain contingencies for the matter will remain
outstanding until the end of calendar year 2010. The settlement is subject to the liability sharing
provisions of the Separation and Distribution Agreement with Covidien and Tyco Electronics. The
Company believes its remaining reserve related to legacy securities matters is sufficient to satisfy the
final resolution of this matter.
The Company has received and responded to various allegations and other information that certain
improper payments were made by the Company’s subsidiaries and agents in recent years. For example,
two subsidiaries in the Company’s Flow Control business in Italy have been charged, along with
numerous other parties, in connection with the Milan public prosecutor’s investigation into allegedly
improper payments made to certain Italian entities, and the Company has reported to German
authorities potentially improper conduct involving agents retained by the Company’s EMEA water
business. The Company has since resolved this matter with German authorities while the Italian matter
remains outstanding. The Company reported to the U.S. Department of Justice (‘‘DOJ’’) and the
Securities and Exchange Commission (‘‘SEC’’) the investigative steps and remedial measures that it has
taken in response to these and other allegations and its internal investigations. The Company also
informed the DOJ and the SEC that it retained outside counsel to perform a Company-wide baseline
review of its policies, controls and continue to investigate and make periodic progress reports to these
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