ADT 2007 Annual Report Download - page 246

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
19. Share Plans (Continued)
As a result of the adoption of SFAS No. 123R, the Company’s selling, general and administrative
expenses for the years ended September 28, 2007 and September 29, 2006 include incremental share-
based compensation expense of $66 million and $82 million, respectively. Total share-based
compensation cost recognized during 2007 was $297 million, which includes $155 million in selling,
general and administrative expenses, $13 million in restructuring and asset impairment charges, net,
$6 million in separation costs and $123 million in discontinued operations. Total share-based
compensation cost recognized during 2006 was $288 million, which includes $155 million in selling,
general and administrative expenses and $133 million in discontinued operations. Total share-based
compensation cost recognized during 2005 was $108 million, which includes $59 million in selling,
general and administrative expenses and $49 million in discontinued operations. The Company has
recognized a related tax benefit associated with its share-based compensation arrangements during
2007, 2006 and 2005 of $78 million, $85 million and $36 million, respectively, of which $31 million,
$41 million and $14 million is included in discontinued operations, respectively.
Prior to October 1, 2005, the Company accounted for stock-based compensation plans in
accordance with the provisions of APB Opinion No. 25, as permitted by SFAS No. 123, and accordingly
did not recognize compensation expense for the issuance of options with an exercise price equal to or
greater than the market price of the stock at the date of grant. Had the fair value based method as
prescribed by SFAS No. 123 been applied by Tyco, the effect on net income and earnings per share for
2005, adjusted for the impact of the Separation and the one for four reverse stock split, would have
been as follows ($ in millions, except per share data):
2005
Net income, as reported ............................................. $3,094
Add: Employee compensation expense for share options included in reported net
income, net of income taxes ........................................ 23
Less: Total employee compensation expense for share options determined under fair
value method, net of income taxes .................................... (169)
Net income, pro forma .............................................. $2,948
Earnings per share:
Basic—as reported ............................................... $ 6.15
Basic—pro forma ................................................ 5.86
Diluted—as reported .............................................. 5.85
Diluted—pro forma .............................................. 5.60
During 2004, the Tyco International Ltd. 2004 Stock and Incentive Plan (the ‘‘2004 Plan’’)
effectively replaced the Tyco International Ltd. Long Term Incentive Plan, as amended as of May 12,
1999 (the ‘‘LTIP I Plan’’), the Tyco International Ltd. Long Term Incentive Plan II (the ‘‘LTIP II
Plan’’), as well as the Tyco International Ltd. 1994 Restricted Stock Ownership Plan for Key Employees
(the ‘‘1994 Plan’’) for all awards effective on and after March 25, 2004. The 2004 Plan provides for the
award of stock options, stock appreciation rights, annual performance bonuses, long term performance
awards, restricted units, restricted stock, deferred stock units, promissory stock and other stock-based
awards (collectively, ‘‘Awards’’).
154 2007 Financials