ADT 2007 Annual Report Download - page 203

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Summary of Significant Accounting Policies (Continued)
date, management does not expect the adoption to have a material effect on the results of its
operations, financial position or cash flows.
2. Discontinued Operations and Divestitures
Discontinued Operations
During the third quarter of 2007, Tyco completed the Separation and has presented its Healthcare
and Electronics businesses as discontinued operations in all periods presented.
In each period prior to the Separation, net interest and loss on early extinguishment of debt, which
is included in other expense, net in the Consolidated Statements of Operations, amounts were
proportionally allocated to Covidien and Tyco Electronics based on the debt amounts that Tyco believes
were utilized by Covidien and Tyco Electronics historically inclusive of amounts directly incurred.
Allocated net interest was calculated using our historical weighted-average interest rate on debt
including the impact of interest rate swap agreements. These allocated amounts were included in
discontinued operations. During 2007, allocated interest income, interest expense and other expense,
net was $35 million, $242 million and $388 million, respectively. During 2006, allocated interest income,
interest expense and other expense, net was $53 million, $378 million and $0 million, respectively.
During 2005, allocated interest income, interest expense and other expense, net was $43 million,
$433 million and $608 million, respectively.
The Company has used available information to develop its best estimates for certain assets and
liabilities related to the Separation. In limited instances, final determination of the balances will be
made in subsequent periods. During the fourth quarter of 2007, $72 million was recorded through
shareholders’ equity, primarily related to the cash true-up adjustment and other items, as specified in
the Separation and Distribution Agreement, adjustments to certain pre-Separation tax liabilities, and
the impact of filing final income tax returns in certain jurisdictions where those returns include a
combination of Tyco, Covidien and/or Tyco Electronics legal entities. Additional adjustments are not
expected to be material and will be recorded through shareholder’s equity in subsequent periods as tax
returns are finalized.
During 2007, AIJ, a joint venture that was majority owned by Infrastructure Services, was sold for
$42 million in net cash proceeds and a pre-tax gain on sale of $19 million was recorded. 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. Infrastructure Services provides consulting, engineering, construction management and
operating services for the water, wastewater, environmental, transportation and facilities market. The
Company has assessed the recoverability of these businesses carrying values and will continue to assess
recoverability based on current fair value, less cost to sell, until the businesses are sold. On
September 17, 2007, the Company executed a definitive agreement to sell for approximately
$295 million in cash 100% of the stock of ETEO—Empresa de Transmissao de Energia do Oeste Ltda.,
a Brazilian subsidiary of Infrastructure Services. The transaction is subject to Brazilian regulatory
approval and normal closing conditions and is expected to close by the end of the second quarter of
fiscal 2008. The Company expects to sell the remaining portion of Infrastructure Services by the end of
fiscal 2008.
The AIJ, Infrastructure Services, Plastics, Adhesives and Ludlow Coated Products and A&E
Products businesses met the held for sale and discontinued operations criteria and have been included
in discontinued operations in all periods presented.
2007 Financials 111