ADT 2005 Annual Report Download - page 121

Except for earnings that are currently distributed, no additional provision has been made for U.S.
or non-U.S. income taxes on the undistributed earnings of subsidiaries or for unrecognized deferred tax
liabilities for temporary differences related to investments in subsidiaries, as such earnings are expected
to be permanently reinvested, the investments are essentially permanent in duration, or the Company
has concluded that no additional tax liability will arise as a result of distribution of such earnings. A
liability could arise if amounts are distributed by such subsidiaries or if such subsidiaries are ultimately
disposed. It is not practicable to estimate the additional income taxes related to permanently reinvested
earnings or the basis differences related to investments in subsidiaries.
Discontinued Operations and Divestitures
Discontinued Operations
In May 2005, Tyco announced its intent to explore the divestiture of its Plastics and Adhesives
business segment, a global manufacturer of plastic film, specialty tapes and adhesives, coated products
and garment hangers. During the third quarter of 2005, as a result of consideration for potential sale
and deteriorating operating results in the A&E Products business, the Company performed an interim
assessment of the recoverability of both goodwill and long-lived assets in the Plastics and Adhesives
segment. Estimated fair values of the reporting units and long-lived assets at Plastics and Adhesives
were developed based on probability-weighted expected future cash flows of these assets. As a result of
this assessment, the Company determined that the book value of certain long-lived assets in the A&E
Products reporting unit of Plastics and Adhesives was greater than their estimated fair value and
consequently recorded a long-lived asset impairment of $40 million. The Company also determined that
the book value of the A&E Products reporting unit was in excess of its estimated fair value which
resulted in a goodwill impairment charge of $162 million. At September 30, 2005, the Plastics and
Adhesives segment met the held for sale criteria and its results of operations have been included in
discontinued operations for all periods presented. The Company is negotiating a sales agreement with
potential buyers and expects to complete a sale transaction in 2006. The Company has assessed the
recoverability of the segment’s carrying value at September 30, 2005 and will continue to assess
recoverability based on current fair values, less cost to sell, until the businesses are sold. Depending on
the outcome of the sale negotiations, the Company may incur additional impairment charges.
During 2005, the Company divested eight businesses which were reported as discontinued
operations within Fire and Security, Plastics and Adhesives and Engineered Products and Services. The
Company reported losses on sale or additional impairments to write the carrying value of such assets
down to their estimated fair value of $56 million ($55 million after tax) during 2005. During 2004, the
Company reported losses on the sale of discontinued operations of $132 million, of which $36 million
related to goodwill impairments, to write the carrying value of such assets down to their fair value, less
cost to sell.
(Gains) losses and impairments on divestitures, net
During 2003, the Company conducted a comprehensive review of its core businesses, and as a
result, implemented a divestiture program in early 2004. During 2004, in connection with the program,
the Company divested twenty-one and liquidated four non-core businesses across all business segments
primarily within Fire and Security. During 2004, the Company recorded net losses and impairments on
divestitures of $116 million (including $60 million of goodwill impairment charges) in continuing
operations in connection with the divestiture or write-down to fair value of certain held for sale
businesses.
2005 Financials 45