ADT 2005 Annual Report Download - page 183

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Cumulative Effect of Accounting Change (Continued)
assessment of which party to VIE’s, if any, bears a majority of the risk to its expected losses, or stands
to gain from a majority of its expected returns.
The Company has programs under which it sells machinery and equipment to investors who, in
turn, purchase and receive ownership and security interests in those assets. As such, the Company may
have certain investments in those affiliated companies whereby it provides varying degrees of financial
support and where the investors are entitled to a share in the results of those entities, but the
Company does not consolidate these entities. While these entities may be substantive operating
companies, they have been evaluated for potential consolidation under FIN No. 46.
The Company had 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 2003, the Company adopted FIN No. 46 and,
accordingly, restructured one of the synthetic leases to meet the requirements of FIN No. 46 for
off-balance sheet accounting. The Company reclassified the remaining two leases as capital leases and,
consequently, recorded a $75 million after-tax loss ($115 million pretax) cumulative effect adjustment.
One of the capital leases expired in December 2004 and the other is scheduled to expire in July 2006.
9. Earnings Per Share
The reconciliations between basic and diluted earnings per share for 2005, 2004 and 2003 are as
follows ($ in millions, except per share data):
2005 2004 2003
Per Share Per Share Per Share
Income Shares Amount Income Shares Amount Income Shares Amount
Basic earnings per share:
Income from continuing operations $3,199 2,012 $1.59 $2,948 2,001 $1.47 $ 882 1,995 $0.44
Share options, restricted shares and
deferred stock units ......... — 17 — 15 — 5
Exchange of convertible debt due
2010, 2020, 2021 ............ 74 138 113 205 24 49
Diluted earnings per share:
Income from continuing operations,
giving effect to dilutive
adjustments ............... $3,273 2,167 $1.51 $3,061 2,221 $1.38 $ 906 2,049 $0.44
The computation of diluted earnings per share in 2005, 2004 and 2003 excludes the effect of the
potential exercise of options to purchase approximately 72 million, 67 million and 110 million shares,
respectively, because the effect would be anti-dilutive.
Diluted earnings per share for 2003 also excludes approximately 94 million shares and 49 million
shares related to the Company’s convertible senior debentures due 2018 and 2023, respectively, because
the effect would be anti-dilutive.
10. Sale of Accounts Receivable
Tyco utilized several programs under which it sold participating interests in accounts receivable to
investors who, in turn, purchased and received ownership and security interests in those receivables. As
collections reduced accounts receivable included in the pool, the Company sold new receivables. The
2005 Financials 107