ADT 2006 Annual Report Download - page 171

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Discontinued Operations and Divestitures (Continued)
In 2005, Tyco announced its intent to explore the divesture of its Plastics, Adhesives and Ludlow
Coated Products businesses, as well as the A&E Products business, a global manufacturer of plastic
film, specialty tapes and adhesives, coated products and garment hangers. 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 and
determined that the book value of certain long-lived assets in the A&E Products business was greater
than their estimated fair value and consequently recorded a long-lived asset impairment of $40 million
and goodwill impairment charge of $162 million. Fair value used for the impairment assessment was
based on probability-weighted expected future cash flow of the assets.
During 2005, the Company divested 8 businesses which were reported as discontinued operations
within Fire and Security, Engineered Products and Services and the Plastics and Adhesives business
segment. The Company reported losses on sale or additional impairments to write the carrying value of
such assets down to their estimated fair value less costs to sell of $60 million during 2005.
During 2004, the Company reported losses on the sale of discontinued operations of $132 million
to write the carrying value of such assets down to their fair value less cost to sell.
For the additional 8 businesses in 2005 and the divested businesses in 2004, fair value used for the
impairment assessment was primarily based on the terms and conditions included or expected to be
included in the sales agreements.
Net revenue, income from operations, loss on sale and income taxes for discontinued operations
for 2006, 2005 and 2004 are as follows ($ in millions):
2006 2005 2004
Net revenue ........................................ $1,195 $2,475 $3,082
Pre-tax income from discontinued operations ................. $ 16 $ 87 $ 76
Pre-tax loss on sale of discontinued operations ............... (291) (262) (132)
Income taxes ........................................ (73) 129 7
Loss from discontinued operations, net of income taxes ......... $(348) $ (46) $ (49)
(Gains) losses on divestitures
During 2004, 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 in continuing operations in connection with the
divestiture or write-down to fair value of certain held for sale businesses.
During 2005, Tyco agreed to sell the TGN, its undersea fiber optic telecommunication network.
The sale was consummated on June 30, 2005. As part of the sale transaction, Tyco received gross cash
proceeds of $130 million, and the purchaser assumed certain liabilities. In connection with this sale,
Tyco recorded a $301 million gain which is reflected in (gains) losses on divestitures in the
Consolidated Statement of Income for 2005. The Company has presented the operations of the TGN in
continuing operations as the criteria for discontinued operations were not met.
During 2005, the Company divested 10 businesses that were reported as continuing operations in
Fire and Security, Healthcare and Engineered Products and Services. The Company recorded net losses
and impairments on divestitures of $32 million, including a $3 million charge reflected in cost of sales,
2006 Financials 109