ADT 2003 Annual Report Download - page 41

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Amortization of Goodwill Amortization of goodwill was $543.0
million in fiscal 2001. In accordance with accounting rule
changes, goodwill is no longer amortized beginning with
our fiscal 2002 year. See Goodwill within Note 1 to our
Consolidated Financial Statements for a discussion of these
accounting rule changes.
Other (Expense) Income, Net Tyco has repurchased some debt
prior to scheduled maturities. In fiscal 2003, the Company
recorded other income from the early retirement of debt total-
ing $24.1 million, as compared to $30.6 million in fiscal 2002,
and a loss from the early retirement of debt totaling $26.3 million
for fiscal 2001.
During fiscal 2003, the Company repurchased all of its
6.25% Dealer Remarketable Securities (“Drs.”) due 2013. The
total Dollar Price paid was $902 million based upon the $750
million par value of the Drs. The portion in excess of par of
$151.8 million was recorded as a loss on retirement of debt.
During fiscal 2003, the Company recognized a charge of
$87.1 million relating to the write down of various investments
accounted for under both the cost and equity methods, of
which $81.3 million was recorded, when it became evident that
the declines in the fair value of the investments were other than
temporary, primarily due to the continuing depressed economic
conditions specifically within the telecommunications indus-
try. Included within the $81.3 million is $75.6 million recorded
in the second quarter (see “Changes in Estimates Recorded
During the Quarter Ended March 31, 2003”). The remaining
$5.8 million charge adjusted a portion of the remaining port-
folio to its net realizable value based upon estimates received in
conjunction with our decision to sell such investments. During
fiscal 2002, the Company recognized a $270.8 million loss on
various investments, primarily related to its investments in
FLAG Telecom Holdings Ltd. (“FLAG”) when it became evident
that the declines in the fair value of FLAG and other investments
were other than temporary. During fiscal 2001, the Company
recognized a $133.8 million loss on various investments, prima-
rily related to its investment in 360networks when it became
evident that the declines in the fair value of the investments
were other than temporary.
During fiscal 2003, the Company recognized other expense
of $8.6 million in connection with a bank guarantee on behalf
of an equity investee (see “Off-Balance Sheet Arrangements
—
Guarantees” below for further information).
During fiscal 2002, the Company sold certain of its businesses
for net proceeds of approximately $138.7 million in cash that
consist primarily of certain businesses within the Healthcare
and Fire and Security segments. In connection with these dis-
positions, the Company recorded a net gain of $23.6 million.
In fiscal 2001, the Company sold its ADT Automotive business
to Manheim Auctions, Inc., a wholly-owned subsidiary of Cox
Enterprises, Inc., for approximately $1.0 billion in cash. The
Company recorded a net gain on the sale of businesses of
$410.4 million after deducting commissions and other direct
costs, principally related to the sale of ADT Automotive. This
gain is net of direct and incremental costs of the transaction, as
well as $60.7 million of special bonuses paid to key employees.
Interest Expense, Net Interest income was $107.2 million in
fiscal 2003, as compared to $117.3 million and $128.3 million
in fiscal 2002 and 2001, respectively. Interest expense was
$1,148.0 million in fiscal 2003, as compared to $1,077.0 million
in fiscal 2002 and $904.8 million in fiscal 2001. Interest expense
in fiscal 2003 includes a charge of $0.4 million related to changes
in estimates recorded during the quarter ended March 31,
2003, and a charge of $2.4 million related to the interest com-
ponent of a state sales tax charge. Fiscal 2003 interest income
includes $18.7 million related to interest received on a tax
refund. The increase in net interest expense in fiscal 2003 over
fiscal 2002 is primarily the result of the negative impact of the
cancellation of certain swaps in fiscal 2002, a decrease in capi-
talized interest due to the completion of TGN, an increase in
the weighted-average interest rate year over year, in addition to
a decrease in interest income as a result of the collection of a
note receivable. Slightly offsetting this overall increase was the
favorable impact of a lower average debt balance during fiscal
2003. The increase in fiscal 2002 as compared to fiscal 2001 was
due to a higher average debt balance for the year, which more
than offset the decrease in our weighted-average interest rate
during fiscal 2002. The weighted-average rates of interest on
our long-term debt outstanding during fiscal 2003 and 2002
were 4.7% and 4.5%, respectively. Our weighted-average rate
during fiscal 2003 increased due to the continued effects of the
credit downgrades that began in February 2002 including the
exiting of the commercial paper market and the retirement of
lower interest rate debt.
Income Tax Expense Income tax expense was $764.5 million on
pre-tax income of $1,802.8 million for fiscal 2003 as compared
to income tax expense of $208.1 million on pre-tax loss of
$2,628.7 million for fiscal 2002 and income tax expense of
$1,172.3 million on pre-tax income of $5,114.7 million for
fiscal 2001.
Our effective income tax rate was 42.4%, (7.9%) and 22.9%
during fiscal 2003, fiscal 2002 and fiscal 2001, respectively. The
difference in the rate from fiscal 2002 to 2003 is primarily the
result of a decrease in the non-recognition of tax benefits on
impairments and a decrease in other non-deductible charges.
TYCO INTERNATIONAL LTD.