ADT 2011 Annual Report Download - page 291

TYCO INTERNATIONAL LTD.
NOTES TO THE FINANCIAL STATEMENTS FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2011
(Continued)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 value of the guarantees and indemnifications under a
Tax Sharing Agreement. See Note 3.
3. GUARANTEES
Tyco International Ltd. fully and unconditionally guarantees public debt facilities of approximately
CHF 3,683 million and CHF 4,065 million as of September 30, 2011 and September 24, 2010,
respectively, issued by Tyco International Finance S.A. (TIFSA), a subsidiary of the Company.
Additionally, the Company guarantees TIFSA’s two credit facilities of approximately CHF 1,385 million
and CHF 1,667 million as of September 30, 2011 and September 24, 2010, respectively, and TIFSA’s
commercial paper program approximately $1,000 million (CHF 900 million) and $1,000 million (CHF
986 million) as of September 30, 2011 and September 24, 2010, respectively.
Effective June 29, 2007, Tyco completed the spin-offs of Covidien Plc. (Covidien) and TE
Connectivity Ltd. (TE Connectivity), formerly the Healthcare and Electronics businesses, respectively,
into separate, publicly traded companies (the ‘‘2007 Separation’’) in the form of a distribution to Tyco
shareholders. There are certain guarantees or indemnifications extended among Tyco, Covidien and TE
Connectivity 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 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 the guarantees and indemnifications
under the Tax Sharing Agreement was CHF 392,854,027 (of which CHF 44,430,553 is included in
accrued and other current liabilities and the remaining amount in other non-current liabilities) on the
Company’s balance sheet as of September 30, 2011. The liability was CHF 546,299,418 (of which CHF
153,523,360 was included in accrued and other current liabilities and the remaining amount in other
non-current liabilities) as of September 24, 2010. 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 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
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