ADT 2011 Annual Report Download - page 235

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
15. Commitments and Contingencies (Continued)
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 2007 Separation, the Company entered into a liability sharing agreement
regarding certain legal actions that were pending against Tyco prior to the 2007 Separation. Under the
Separation and Distribution Agreement, the Company, Covidien and TE Connectivity 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 were not specific to the business operations of
any of the companies. Substantially all of these legacy matters have been resolved. Additionally, at the
time of the 2007 Separation, the Company, Covidien and TE Connectivity agreed to allocate
responsibility for certain legacy tax claims pursuant to the same formula under the Tax Sharing
Agreement. A number of the legacy tax claims remain outstanding. See Note 7.
Legacy Matters
During the fiscal quarter ended December 24, 2010, certain contingencies related to the previously
disclosed settlement of the Stumpf v. Tyco International Ltd. class action lawsuit elapsed. This matter,
which was subject to the liability sharing provisions of the Separation and Distribution Agreement with
Covidien and TE Connectivity had previously received final court approval for its settlement. As a
result of the lapsing of time periods for certain class members to state a claim against the Company,
the Company adjusted its remaining reserve for this and other legacy securities matters and recognized
a net gain of $7 million during the quarter ended December 24, 2010. Since June 2007, the Company
has resolved substantially all of the legacy claims related to securities fraud and similar matters, with
the exception of the claims related to former management and Mr. Frank Walsh Jr., a former director,
described below.
Tyco is a party to several lawsuits involving disputes with former management, among which are
affirmative cases brought by Tyco against Mr. Dennis L. Kozlowski, Mr. Mark Swartz and Mr. Frank
Walsh Jr. In connection with these affirmative actions, Mr. Kozlowski, through counterclaims, and
Mr. Swartz, through demand letters, are seeking an aggregate of approximately $138 million allegedly
due in connection with their compensation and retention arrangements and under the Employee
Retirement Income Security Act (‘‘ERISA’’).
With respect to Mr. Kozlowski, on December 1, 2010, the U.S. District Court for the Southern
District of New York ruled in favor of several of the Company’s affirmative claims against him before
trial, while dismissing all of Mr. Kozlowski’s counterclaims for pay and benefits after 1995. With respect
to Mr. Swartz, on March 3, 2011, the same Court granted the Company’s motion for summary
judgment. The Court further ruled that issues related to damages will need to be resolved at trial. No
trial date has been set. The Company expects Mr. Kozlowski and Mr. Swartz to contest these decisions.
As a result, the Company has and will continue to maintain the reserve recorded in its Consolidated
Balance Sheet for the amounts allegedly due under their compensation and retention arrangements and
under ERISA until the appeals process is complete. Although the ultimate resolution of these matters
could differ materially from these estimates, the Company does not believe such resolution would have
a material adverse effect on its financial position, results of operations or cash flows.
Tyco has also brought an action against Mr. Walsh in connection with the damages suffered by
Tyco arising from Mr. Walsh’s breach of his fiduciary duties to Tyco. In October 2010, the U.S. District
132 2011 Financials