ADT 2006 Annual Report Download - page 170

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Separation Transaction
On January 13, 2006, the Company announced that its Board of Directors approved a plan to
separate the Company into three separate, publicly traded companies—Tyco Healthcare, Tyco
Electronics and a combination of Tyco Fire and Security and Engineered Products and Services (the
‘‘Proposed Separation’’). The Company intends to accomplish the Proposed Separation through tax-free
stock dividends to Tyco shareholders. Following the Proposed Separation, Tyco’s shareholders will own
100% of the equity in all three companies. Tyco expects to file Registration Statements in connection
with the Proposed Separation during the second quarter of 2007.
In connection with the Proposed Separation, the Company expects to incur cost related primarily
to tax restructuring, debt refinancing, professional services and employee-related costs. During 2006, the
Company incurred $169 million of costs related to the Proposed Separation primarily related to legal,
accounting and consulting work associated with executing the transaction.
Consummation of the Proposed Separation is subject to certain conditions, including final approval
by the Tyco Board of Directors, receipt of certain tax rulings, necessary opinions of counsel, the filing
and effectiveness of registration statements with the Securities and Exchange Commission (‘‘SEC’’) and
the completion of any necessary debt refinancings. Approval by the Company’s shareholders is not
required as a condition to the consummation of the Proposed Separation. Tyco has received an initial
private letter ruling from the IRS regarding the U.S. federal income tax consequences of the Proposed
Separation noting it will qualify for favorable tax treatment.
3. Discontinued Operations and Divestitures
Discontinued Operations
During 2006, the Company consummated the sale of the Plastics, Adhesives and Ludlow Coated
Products businesses as well as the A&E Products business for $975 million and $6 million in gross cash
proceeds, respectively. Working capital and other adjustments resulted in net proceeds of $882 million
for the sale of the Plastics, Adhesives and Ludlow Coated Products businesses. During 2006, the
Company also recorded a $30 million receivable due from the purchaser of the Plastics, Adhesives and
Ludlow Coated Products businesses based on the decline of average resin prices during fiscal year 2006,
as contemplated in the definitive sale agreement. This amount is payable to Tyco no later than
January 2007. Net cash proceeds received for the sale of the A&E Products business was $2 million,
which does not include working capital provisions which are expected to be settled prior to the end of
calendar year 2006. Both businesses met the held for sale and discontinued operations criteria and have
been included in discontinued operations in all periods presented.
During 2006, the Company recorded a $261 million and $26 million pre-tax loss on sale from
discontinued operations related to the Plastics, Adhesives and Ludlow Coated Products businesses and
A&E Products business, respectively, which include $275 million and $22 million, respectively, of
pre-tax impairment charges to write the businesses down to their fair values less costs to sell. Fair
values used for the respective impairment assessments were based on existing market conditions and
the terms and conditions included or expected to be included in the respective sale agreements.
During 2006, the Company approved a plan to divest the Printed Circuit Group (‘‘PCG’’) business,
a component of the Electronics segment, and also entered into a definitive sale agreement to sell PCG
for $226 million in cash. During 2006, the Company recorded a $4 million pre-tax loss on sale from
discontinued operations for PCG related to the divestiture of the PCG Spain business as well as certain
other costs to sell. The sale of PCG was completed in October 2006. See Note 28—Subsequent Events.
The PCG business met the held for sale and discontinued operations criteria and has been included in
discontinued operations in all periods presented.
108 2006 Financials