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97
derivative was designated as a cash flow hedge, the effective
portions of changes in the fair value of the derivative were
recorded in other comprehensive (loss) income and were rec-
ognized in the Consolidated Statement of Operations when the
hedged item affected earnings. Ineffective portions of changes
in the fair value of cash flow hedges were recognized as a charge
or credit to earnings.
12.
Cumulative Effect of Accounting Changes
As discussed in Note 30, the Company has three synthetic lease
programs utilized, to some extent, by all of the Company’s
segments to finance capital expenditures for manufacturing
machinery and equipment and for ships used by Tyco Submarine
Telecommunications. During fiscal 2003, the Company adopted
FIN 46 and, accordingly, restructured one of the synthetic
leases to meet the requirements of FIN 46 for operating lease
accounting. The Company has reclassified the remaining two
leases as capital leases and consequently, recorded a cumulative
effect adjustment, a $75.1 million loss after-tax ($115.5 million
pre-tax) in fiscal 2003 in accordance with the provisions of
FIN 46. In addition, four joint ventures within Tyco Infra-
structure Services met the consolidation criteria set forth in
FIN 46. As a result of both the synthetic lease reclassifications
and the joint venture consolidations, the Company has increased
property, plant and equipment, net, by $433.8 million and total
debt by $562.2 million (effective July 1, 2003).
In December 1999, the SEC issued SAB 101, in which the
SEC expressed its views regarding the appropriate recognition
of revenue with respect to a variety of circumstances, some of
which are relevant to the Company. As required under SAB
101, the Company modified its revenue recognition policies
with respect to the installation of electronic security systems
(see “Revenue Recognition” within Note 1). In addition, in
response to SAB 101, the Company undertook a review of its
revenue recognition practices and identified certain provisions
included in a limited number of sales arrangements that delayed
the recognition of revenue under SAB 101. During the fourth
quarter of fiscal 2001, the Company changed its method of
accounting for these items retroactive to the beginning of the
fiscal year to conform to the requirements of SAB 101. This was
reported as a $653.7 million after-tax ($1,005.6 million pre-tax)
charge for the cumulative effect of change in accounting princi-
ple in the fiscal 2001 Consolidated Statement of Operations.
During fiscal 2003 and 2002, the Company recognized
$249.4 million and $294.2 million, respectively, of revenue that
had previously been included in the SAB 101 cumulative effect
adjustment recorded as of October 1, 2000. The impact of SAB
101 on net revenues in fiscal 2001 was a net decrease of $241.1
million, reflecting the deferral of $520.5 million of fiscal 2001
revenues, partially offset by the recognition of $279.4 million of
revenue that is included in the cumulative effect adjustment as
of the beginning of fiscal 2001.
The Company recorded a cumulative effect adjustment, a
$29.7 million loss, net of zero tax, in fiscal 2001 in accordance
with the transition provisions of SFAS No. 133, “Accounting for
Derivative Instruments and Hedging Activities.”
TYCO INTERNATIONAL LTD.
13.
Earnings (Loss) Per Common Share
The reconciliations between basic and diluted earnings (loss) per common share are as follows ($ in millions, except per share data):
YEAR ENDED SEPTEMBER 30, 2003 YEAR ENDED SEPTEMBER 30, 2002 YEAR ENDED SEPTEMBER 30, 2001
PER SHARE PER SHARE PER SHARE
INCOME SHARES AMOUNT LOSS SHARES AMOUNT INCOME SHARES AMOUNT
BASIC EARNINGS (LOSS) PER
COMMON SHARE:
Income (loss) from
continuing operations $1,034.7 1,995.0 $0.52 $(2,838.2) 1,988.5 $(1.43) $3,894.9 1,806.9 $2.16
Stock options, restricted shares
and deferred stock units —5.3 — — — 21.4
Exchange of convertible
debt due 2010 0.9 2.4 —— 1.13.3
DILUTED EARNINGS (LOSS) PER
COMMON SHARE:
Income (loss) from continuing
operations, giving effect
to dilutive adjustments $1,035.6 2,002.7 $0.52 $(2,838.2) 1,988.5 $(1.43) $3,896.0 1,831.6 $2.13