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100
by a third party using an income approach based on the present
value of estimated future cash flows of each of the reporting
units. After the impairment write off, there is no goodwill
remaining at the Power Systems and Printed Circuit Group
reporting units.
FISCAL 2002
Under the transition provisions of SFAS No. 142, our transi-
tional benchmark analysis concluded that there was no goodwill
impairment at October 1, 2001. However, during the quarter
ended March 31, 2002, the Electronics segment recorded a
charge of $2,218.4 million related to the impairment of the
TGN, as a result of the fiber optic capacity available in the market
significantly exceeding overall market demand, thereby creating
sharply declining prices and reduced cash flows. For additional
information on the TGN impairment charge, see Note 6. An
updated goodwill valuation was completed as of March 31,
2002 for Tyco Submarine Telecommunications. The valuation
was completed using an income approach based upon the
present value of future cash flows of the reporting unit as of
March 31, 2002. However, this first step analysis resulted in no
impairment of the Submarine Telecommunications reporting
unit’s goodwill at that date.
During the quarter ended June 30, 2002, additional circum-
stances developed that indicated a potential impairment of the
value of goodwill with respect to the Company’s reporting units.
Tyco experienced disruptions to its business surrounding the
termination of its previously announced break-up plan, the
resignation of its chief executive officer, further downgrades
in its credit ratings and an additional decline in its market
capitalization. Updated valuations were completed for all
reporting units as of June 30, 2002 using an income approach
based on the present value of future cash flows of each reporting
unit. An additional discount factor was then applied to reflect a
decrease in reporting unit valuations for recent disruptions at
the Company’s corporate offices and negative publicity about
Tyco, as evidenced by the decline in the Company’s total market
capitalization. This resulted in an estimated goodwill impair-
ment of $844.4 million, $607.7 million relating to Tyco
Submarine Telecommunications and $236.7 million relating
to Tyco Infrastructure Services, a reporting unit within the
Engineered Products and Services segment.
During the quarter ended September 30, 2002, step two
analyses, as prescribed by SFAS No. 142 were completed for the
Tyco Submarine Telecommunications and Tyco Infrastructure
Services reporting units. This resulted in an incremental good-
will impairment on continuing operations of $162.0 million
($79.5 million relating to Tyco Submarine Telecommunications
and $82.5 million relating to Tyco Infrastructure Services).
During the quarter ended September 30, 2002, circumstances
associated with the restructuring charges related to the
Submarine Telecommunications reporting unit indicated
potential further impairment of the value of goodwill of this
reporting unit. An updated valuation using an income approach
based on the present value of future cash flows was completed
as of September 30, 2002. The valuation resulted in an additional
goodwill impairment on continuing operations of $337.3 mil-
lion. Following the impairments recorded during fiscal 2002
totaling $1,343.7 million, there is no goodwill remaining at the
Tyco Submarine Telecommunications and Tyco Infrastructure
Services reporting units.
During fiscal 2002 we curtailed, and in certain markets termi-
nated, the ADT dealer program. Due to a decrease in projected
purchases of customer contracts through the ADT dealer pro-
gram, an updated valuation using an income approach based
on the present value of future cash flows as of September 30,
2002 was performed for the Security Services reporting unit.
The valuation results indicated that the fair value of the report-
ing unit exceeded the book value of the reporting unit resulting
in no impairment of the Security Services reporting unit’s
goodwill at that date.
See Note 11, “Discontinued Operations of Tyco Capital
(CIT Group Inc.),” for information regarding the impairment
of goodwill relating to Tyco Capital.
Following is a reconciliation of previously reported financial
information to adjusted amounts excluding goodwill amortiza-
tion for fiscal 2001 ($ in millions, except per share data):
BASIC DILUTED
EARNINGS EARNINGS
FISCAL 2001 EARNINGS PER SHARE PER SHARE
Income from continuing
operations $3,894.9 $2.16 $2.13
Goodwill amortization
expense, net of tax 501.9 0.28 0.27
ADJUSTED INCOME FROM
CONTINUING OPERATIONS $4,396.8 2.43 2.40
Income before cumulative
effect of accounting
changes $4,147.4 $2.30 $2.26
Goodwill amortization
expense, net of tax 561.7 0.31 0.31
ADJUSTED INCOME BEFORE
EXTRAORDINARY ITEMS AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES $4,709.1 2.61 2.57
Net income $3,464.0 $1.92 $1.89
Goodwill amortization
expense, net of tax 561.7 0.31 0.31
ADJUSTED NET INCOME $4,025.7 2.23 2.20
TYCO INTERNATIONAL LTD.
Notes to Consolidated Financial Statements