ADT 2003 Annual Report Download - page 30

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expense); (iii) charges for the impairment of goodwill of $278.4
million; (iv) other loss of $151.8 million related to the retire-
ment of debt; (v) other charges of $148.6 million, of which
$34.0 million is included in cost of sales related primarily to
product warranty accruals and the dismantlement of customers’
ADT security systems, and $114.6 million is included in selling,
general and administrative expenses related primarily to uncol-
lectible accounts receivable, internal investigation fees, as well
as severance and facility closures, slightly offset by a credit for
changes in estimates of charges recorded in prior periods; (vi)
a charge of $91.5 million for a retroactive, incremental premium
on prior period directors and officers insurance included in
selling, general and administrative expenses; (vii) a charge of
$11.5 million relating to the write down of investments; (viii)
other interest expense of $2.4 million; (ix) other expense of
$0.1 million; (x) income from the early retirement of debt of
$24.1 million; (xi) other interest income of $18.7 million; and
(xii) net restructuring credits of $12.3 million, of which charges
of $2.4 million are included in cost of sales.
Loss from continuing operations for fiscal 2002 included a
net charge totaling $6,762.3 million ($6,091.4 million after-tax),
consisting of the following: (i) goodwill impairment charge of
$1,343.7 million relating to continuing operations; (ii) charges
for the impairment of long-lived assets of $3,309.5 million
primarily related to the write down of the Tyco Global Network
(“TGN”); (iii) net restructuring and other charges of $1,874.7
million, of which $635.4 million is included in cost of sales and
$115.0 million related to a bad debt provision is included in
selling, general and administrative expenses; (iv) a write off of
purchased in-process research and development of $17.8 mil-
lion; (v) a loss on the write off of investments of $270.8 million;
(vi) a gain on the sale of businesses of $23.6 million; and (vii)
gain from the early extinguishment of debt of $30.6 million.
Income from continuing operations for fiscal 2001 included
a net charge of $614.9 million ($546.3 million after-tax) con-
sisting of the following: (i) net restructuring, impairment and
other charges totaling $705.4 million; (ii) a write off of pur-
chased in-process research and development of $184.3 million;
(iii) a net gain on sale of businesses of $410.4 million; (iv) a loss
of $133.8 million related to the write down of an investment;
(v) a $24.5 million net gain on the sale of common shares of a
subsidiary; and (vi) a loss from the early extinguishment of debt
of $26.3 million.
We are currently assessing the potential impact of various
legislative proposals that would deny U.S. federal government
contracts to U.S. companies that move their corporate location
abroad. The legislative proposals could cover the 1997 acquisi-
tion of Tyco International Ltd., a Massachusetts corporation, by
ADT Limited (a public company that had been located in
Bermuda since the 1980s with origins dating back to the United
Kingdom since the early 1900s), as a result of which ADT
changed its name to Tyco International Ltd. and became the
parent to the Tyco group. During the fourth quarter of fiscal
2003, the State of California adopted legislation that purports
to limit the eligibility of certain Bermuda and other foreign-
chartered companies to participate in certain state contracts.
Although the California law provides that waivers may be
issued permitting such companies to participate in state con-
tracts under certain circumstances, it is unclear how that waiver
authority will be exercised. In addition, various other states and
municipalities in the U.S. have proposed similar legislation.
There also is similarly proposed tax legislation, which could
substantially increase our corporate income taxes and, conse-
quently, decrease future net income and increase our future
cash outlay for taxes.
Tyco’s revenues related to U.S. federal government and
California state contracts account for less than 2% and 0.1%,
respectively, of total net revenues for the fiscal year ended
September 30, 2003. We are unable to predict, with any level of
certainty, the likelihood or final form in which any proposed
legislation might become law, or the nature of regulations that
may be promulgated under any such future legislative enact-
ments or the impact such enactments and increased regulatory
scrutiny may have on our governmental business or on non-
governmental customers’ willingness to do business with us. As
a result of these uncertainties, we are unable to assess the impact
on us of any proposed legislation in this area and can provide
no assurance that they will not be materially adverse.
TYCO INTERNATIONAL LTD.
Management’s Discussion and Analysis of Financial Condition and Results of Operations