ADT 2008 Annual Report Download - page 231

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Investments (Continued)
to be of high credit quality and interest has been paid when due and (iii) the Company has the intent
and ability to hold such investments until a recovery in the market value occurs or the securities
mature. The Company does not believe any unrealized losses represent an other-than-temporary
impairment based on its evaluation of available evidence as of September 26, 2008. If in the future the
Company determines that any decline in value of the securities is other-than-temporary, the Company
would have to recognize the loss in its Consolidated Statements of Operations. Unrealized gains and
losses are recorded in accumulated other comprehensive income in the Company’s Consolidated
Balance Sheets.
The Company recorded an other-than-temporary impairment of $5 million for the year ended
September 26, 2008. The other-than-temporary impairment related to investments in corporate debt of
Lehman Brothers Holding, Inc (‘‘Lehman’’), which filed a petition under Chapter 11 of the U.S.
Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York on
September 15, 2008. Other than the Lehman impairment, the Company did not record any additional
other-than-temporary impairment in the years ended September 28, 2007 and September 29, 2006.
The maturities of the Company’s investments in debt securities as of September 26, 2008 are as
follows (in millions):
Cost Fair
Basis Value
Due in one year or less ................................................ $ 67 $ 67
Due after one year through five years ...................................... 249 235
Due after five years through ten years ..................................... 1 1
11. Goodwill and Intangible Assets
Annually, and more frequently if triggering events occur, the Company tests goodwill for
impairment by comparing the fair value of each reporting unit with its carrying amount. Fair value for
the goodwill impairment test is determined utilizing a discounted cash flow analysis based on the
Company’s future budgets discounted using the Company’s weighted average cost of capital and market
indicators of terminal year cash flows. Other valuation methods are used to corroborate the discounted
cash flow method. If the carrying amount of a reporting unit exceeds its fair value, goodwill is
considered potentially impaired. During the annual goodwill impairment testing for the fiscal year
ended September 26, 2008, the carrying amount of goodwill in the Latin America Fire Protection
business, part of the Fire Protection Services segment, exceeded the implied fair value of goodwill. As a
result, the Company recognized a goodwill impairment of $9 million in the fourth quarter of 2008.
Furthermore, the Company believes that its goodwill balance at September 26, 2008 is recoverable.
In connection with the Separation, during the third quarter of 2007 Tyco reorganized into a new
management and segment reporting structure. As part of these organizational changes, the Company
assessed new reporting units and conducted valuations to determine the assignment of goodwill to the
new reporting units based on their estimated relative fair values. Following the relative fair value
goodwill allocation, the Company then tested goodwill for impairment by comparing the fair value of
each reporting unit with its carrying value amount. If the carrying amount of a reporting unit exceeded
its fair value, goodwill was considered potentially impaired. Where goodwill was potentially impaired,
the Company compared the implied fair value of the reporting unit goodwill to the carrying amount of
that goodwill. The carrying amount of goodwill exceeded the implied fair value of goodwill in the
128 2008 Financials