ADT 2011 Annual Report Download - page 229

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Guarantees (Continued)
Sharing Agreement. The guarantees primarily relate to certain contingent tax liabilities included in the
Tax Sharing Agreement. At the time of the 2007 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 guarantees and indemnifications
under the Tax Sharing agreement was $436 million and $554 million on the Company’s Consolidated
Balance Sheets as of September 30, 2011 and September 24, 2010, respectively. Of these amounts
$49 million and $156 million are included in accrued and other current liabilities and the remaining
amounts in other liabilities as of September 30, 2011 and September 24, 2010, respectively. During
2011, the Company made a net cash payment of $113 million to Covidien and TE Connectivity related
to the resolution of certain audit and pre-Separation tax matters. The guarantees primarily relate to
certain contingent tax liabilities included in the Tax Sharing Agreement. See Note 7.
In addition, Tyco historically provided support in the form of financial and/or performance
guarantees to various Covidien and TE Connectivity operating entities. In connection with the 2007
Separation, the Company worked with the guarantee counterparties to cancel or assign these
guarantees to Covidien or TE Connectivity. To the extent these guarantees were not assigned prior to
the separation date, Tyco assumed primary liability on any remaining such support. The Company’s
obligations were $4 million, which were included in other liabilities on the Company’s Consolidated
Balance Sheets as of both September 30, 2011 and September 24, 2010, respectively, with an offset to
shareholders’ equity on the separation date.
In disposing of assets or businesses, the Company often provides 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. The Company has no reason to believe that these
uncertainties would have a material adverse effect on the Company’s financial position, results of
operations or cash flows. The Company has recorded liabilities for known indemnifications included as
part of environmental liabilities. See Note 15.
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.
As of September 30, 2011, the Company had total outstanding letters of credit and bank
guarantees of approximately $724 million.
The Company records estimated product warranty costs at the time of sale. See Note 1.
126 2011 Financials