ADT 2003 Annual Report Download - page 93

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near future. As a result of this review, the Company decided to
abandon the project, which was still in the development and
testing stage, resulting in the write off of capitalized costs of
$109.1 million.
The Electronics segment recorded a charge of $3,150.7 mil-
lion, of which $2,581.7 million related to the impairment of the
TGN, $541.0 million primarily related to property, plant and
equipment associated with the closure of facilities as discussed
in Note 5, and $28.0 million related to the impairment of intan-
gible assets associated with undersea systems technology and
know-how acquired through acquisitions.
During fiscal 2002, the fiber optic capacity available in the
market significantly exceeded overall market demand, which
created sharply declining prices and reduced anticipated future
cash flows. As a result, the Company assessed the carrying value
of the TGN assuming a held and used model using an analysis
that employed estimates as to current and future market pric-
ing, demand and network completion costs. This analysis was
highly sensitive to changes in those estimates noted above.
Based upon these estimates, the Company concluded that the
value of its fiber optic network was partially impaired and con-
sequently recorded an impairment charge during the quarter
ended March 31, 2002. The amount of the impairment was
based upon the difference between the carrying value of each
asset group and the estimated fair value of those assets groups
as of March 31, 2002. The estimated fair value of each asset
group was determined using an income (discounted cash flow)
approach. The cash flow forecasts were prepared using the 15-
year estimated weighted-average useful life of each of the TGN
asset groups. Probability factors were applied to various scenarios
weighting the likelihood of each possible outcome. Then, each
cash flow forecast was discounted using a weighted-average
cost of capital of 15% similar to that used for SFAS No. 142
purposes, which was prepared by an independent appraiser as
part of services rendered in evaluating the Company’s enter-
prise value. Based upon these analyses, the sum of the expected
future discounted cash flows was subtracted from the carrying
values of the asset groups resulting in an impairment loss for
the TGN. The entire TGN placed in service as of March 31,
2002 was written-off at that time, as well as a portion of TGN
construction in progress. We reconsidered the factors noted
above, such as projected operating results, business plans and
an estimate of discounted future cash flows, in order to retest the
carrying value of the TGN for a further impairment at June 30,
2002 and September 30, 2002. We determined that no impair-
ment charge was necessary at June 30, 2002. However, as the
telecommunications industry further declined, an additional
impairment charge was necessary and therefore recorded as of
September 30, 2002.
The Healthcare segment recorded a charge of $2.5 million
related to the impairment of property, plant and equipment
associated with the closure of facilities discussed in Note 5.
The Engineered Products and Services segment recorded a
charge of $9.5 million related to the impairment of property,
plant and equipment associated with the closure of facilities
discussed in Note 5.
The Plastics and Adhesives segment recorded a charge of
$2.6 million related to the impairment of property, plant and
equipment associated with the closure of facilities discussed in
Note 5.
The Company recorded a charge of $29.5 million related to
the impairment of certain corporate properties associated with
the downsizing of corporate headquarters discussed in Note 5.
2001 CHARGES
The Electronics, Healthcare, Plastics and Adhesives, Engineered
Products and Services and Fire and Security segments recorded
charges of $98.5 million, $14.2 million, $1.2 million, $3.4 mil-
lion and $2.8 million, respectively, related primarily to the
impairment of property, plant and equipment associated with
the closure of facilities discussed in Note 5.
7.
Write Off of Purchased In-Process
Research and Development
During fiscal 2002, in connection with Tyco’s acquisition of
Sensormatic and DSC Group, the Company wrote-off the fair
value of purchased in-process research and development
(“IPR&D”) of various projects for the development of new
products and technologies in the amount of $17.8 million.
Management determined the value of the IPR&D using, among
other factors, appraisals.
In connection with Tyco’s acquisition of Mallinckrodt Inc.
during fiscal 2001, the Company wrote-off the fair value of
purchased IPR&D of various projects for the development of
new products and technologies in the amount of $184.3 mil-
lion. The Company determined the valuation of the IPR&D
using, among other factors, appraisals. The value was based
primarily on the discounted cash flow method. This valuation
TYCO INTERNATIONAL LTD.