ADT 2007 Annual Report Download - page 195

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation—The Consolidated Financial Statements include the consolidated accounts of
Tyco International Ltd., a company organized under the laws of Bermuda, and its subsidiaries (Tyco
and all its subsidiaries, hereinafter collectively referred to as the ‘‘Company’’ or ‘‘Tyco’’) and have been
prepared in United States dollars and in accordance with generally accepted accounting principles in
the United States (‘‘GAAP’’). Unless otherwise indicated, references in the Consolidated Financial
Statements to 2007, 2006 and 2005 are to Tyco’s fiscal year ended September 28, 2007, September 29,
2006 and September 30, 2005, respectively.
Effective June 29, 2007, Tyco completed the spin-offs of Covidien and Tyco Electronics, formerly
Healthcare and Electronics businesses, respectively, into separate, publicly traded companies (the
‘‘Separation’’) in the form of a distribution to Tyco shareholders. The distribution was made on
June 29, 2007, to Tyco shareholders of record on June 18, 2007, the record date. Each Tyco shareholder
received 0.25 of a common share of each of Covidien and Tyco Electronics for each Tyco common
share held on the record date. Tyco shareholders received cash in lieu of fractional shares for amounts
of less than one Covidien or Tyco Electronics common share. The distribution was structured to be
tax-free to Tyco shareholders except to the extent of cash received in lieu of fractional shares. While we
are a party to Separation and Distribution, Tax Sharing and certain other agreements, we have
determined that there is no significant continuing involvement between us and Covidien or Tyco
Electronics as discussed in Statement of Financial Accounting Standards (‘‘SFAS’’) No. 144,
‘‘Accounting for the Impairment or Disposal of Long-Lived Assets,’’ and Emerging Issues Task Force
(‘‘EITF’’) Issue No. 03-13, ‘‘Applying the Conditions of Paragraph 42 of SFAS No. 144 in Determining
Whether to Report Discontinued Operations.’’ Therefore, we have classified Covidien and Tyco
Electronics as discontinued operations in all periods presented.
Additionally, on the distribution date, the Company, as approved by its Board of Directors,
effected a reverse stock split of Tyco’s common shares, at a split ratio of one for four. Shareholder
approval for the reverse stock split was obtained at the March 8, 2007 Special General Meeting of
Shareholders. Share and per share data for all periods presented have been adjusted to reflect the
reverse stock split.
During 2007 and 2006, the Company incurred pre-tax costs related to the Separation of
$1,083 million and $169 million, respectively. The costs include loss on early extinguishment of debt,
debt refinancing, tax restructuring, professional services and employee-related costs. Of this amount,
$105 million and $49 million is included in separation costs, $259 million in 2007 related to loss on
early extinguishment of debt is included in other expense, net and $719 million and $120 million is
included in discontinued operations, respectively. Additionally, 2007 includes tax charges related to the
Separation primarily for the write-off of deferred tax assets that will no longer be realizable of
$183 million, of which $95 million is included in income taxes and $88 million is included in
discontinued operations.
In connection with the Separation, the Company has realigned its management and segment
reporting structure. See Note 21.
During the first quarter of 2007, we sold Aguas Industriales de Jose, C.A. (‘‘AIJ’’), a joint venture
that was majority owned by Infrastructure Services. Additionally, during the fourth quarter of 2007, the
remaining portion of Infrastructure Services met the held for sale criteria and its results of operations
have been included in discontinued operations for all periods presented.
2007 Financials 103