ADT 2002 Annual Report Download - page 51

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Basis of Presentation, Restatement and Summary of Significant Accounting Policies (continued)
capacity on the TyCom network recorded in fiscal 2001 and 2002 and reverse the write-off of
$55.0 million of remaining accounts receivable relating to such transaction (ii) reverse $166.8 million of
income recognized in connection with the settlement of litigation in fiscal 2001, along with the
corresponding value assigned to intangible assets, and reverse the subsequent amount of amortization
of the intangible asset as well as the amount of loss attributable to that asset upon disposition in fiscal
2002 of the Healthcare business to which the intangible asset related and (iii) reverse $31.6 million of
charges originally recorded during the fourth quarter of fiscal 2002 and reflect this charge in the prior
quarters and years to which they relate. These charges relate primarily to intercompany profit,
capitalized costs, and account reconciliation issues within the Engineered Products and Services
segment. In addition, in connection with the Phase 2 review the Company recorded a balance sheet
adjustment of $235.6 million to goodwill and shareholders’ equity for the fair value of stock options
assumed in connection with the fiscal 2001 acquisition of Mallinckrodt, Inc.
The Company also determined that the pre-tax charges of $434.5 million recorded in the quarter
ended March 31, 2003 described above should have been greater by $71.5 million. The $71.5 million
(which relates primarily to workers’ compensation and product and general liability insurance accruals)
was previously included in the $471.4 million of charges recorded during the quarter ended March 31,
2003, described as Charges Related to Current Period Changes in Estimates. This amount has been
reversed and is reflected as part of the restatement discussed above.
In addition to the charges and adjustments discussed above, the Company also identified
previously unrecorded obligations relating to compensation arrangements with two members of former
senior management, which were funded through split dollar life insurance policies (see Note 17). The
Company’s obligations under these arrangements were entered into in recognition of services rendered
by these officers in prior fiscal periods and were not contingent upon continuing employment. The
Company previously expensed the insurance premiums funded under these arrangements of
$7.7 million, and $3.8 million in the years ended September 30, 2002, and 2001, respectively, as well as
a lump-sum payment of $24.6 million paid to one of the officers upon his termination in fiscal 2002. As
part of the restatement the Company has accrued $46.6 million and $70.9 million on our consolidated
balance sheets as of September 30, 2002 and 2001, respectively, in connection with these arrangements
and reversed the expense for the lump-sum payment recorded in fiscal 2002 related to the terminated
executive, as it is now recorded in fiscal years 2001 and 2000.
In addition, it was determined that the cumulative net deferred tax assets associated with the
above charges should have been greater by approximately $116 million as of March 31, 2003 and
$300 million as of September 30, 2002. The effect of the tax adjustment on previously reported results
of operations is to increase net income from continuing operations and net income by $49.6 million,
$103.4 million, $75.0 million and $72.0 million for the fiscal years of 2002, 2001, 2000, and fiscal years
preceding 2000, respectively.
The Company believes that the restatement addresses all of the significant remaining issues
identified as part of the Staff’s ongoing review of its periodic reports. We continue to be engaged in a
dialogue with the Staff, however, and the review is not yet complete. We are working to resolve the
remaining comments that the Staff has made on our periodic filings as expeditiously as possible. We
cannot assure you the resolution of the remaining Staff comments will not necessitate further
amendments or restatements to our previously-filed periodic reports.
The impact on the Consolidated Statements of Operations, Consolidated Balance Sheets and
Consolidated Statements of Cash Flows, as a result of the above adjustments, is as follows (in millions,
49