ADT 2009 Annual Report Download - page 209

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Goodwill and Intangible Assets (Continued)
result of a slowdown in the commercial markets including the retailer end market as well as a decline
in sales volume at its Electrical and Metal Products segment. Although the Company considered and
concluded that these factors did not constitute triggering events during the first quarter of 2009, the
continued existence of these conditions during the second quarter of 2009, along with downward
revisions to forecasted results, restructuring actions and weaker industry outlooks, caused the Company
to conclude that sufficient indicators of impairment existed for certain reporting units. Reporting units
within ADT Worldwide, Fire Protection Services and Safety Products segments continued to be
negatively impacted as a result of a slowdown in the commercial markets including the retailer end
market. Additionally, the Company’s Electrical and Metal Products reporting unit continued to be
negatively impacted by a decline in sales volume due to the downturn in the non-residential
construction market. During the second quarter of 2009, the Company determined that these
underlying events and circumstances constituted triggering events for six reporting units where such
events would more-likely-than-not reduce the fair value below their respective carrying amounts.
Specifically, the Company concluded that its Europe, Middle East and Africa (‘‘EMEA’’) Security and
EMEA Fire reporting units within the ADT Worldwide and Fire Protection Services segments,
respectively, Electrical and Metal Products reporting unit within the Electrical and Metal Products
segment and Access Control and Video Systems (‘‘ACVS’’), Life Safety and Sensormatic Retail
Solutions (‘‘SRS’’) reporting units within the Safety Products segment experienced triggering events. As
a result of the triggering events, the Company assessed the recoverability of the reporting unit’s
long-lived assets and concluded that the carrying amounts were recoverable as of March 27, 2009.
Subsequently, the Company performed the first step of the goodwill impairment test for the reporting
units.
To perform the first step of the goodwill impairment test for the six reporting units with triggering
events, the Company compared the carrying amounts of these reporting units to their estimated fair
values. The Company utilized a discounted cash flow analysis for determining the fair value of each of
the reporting units where triggering events had occurred. Based on the factors described above, actual
and anticipated reductions in demand for the reporting unit’s products and services as well as increased
risk due to current economic uncertainty, the estimates of future cash flows used in the second quarter
of 2009 discounted cash flow analyses were revised downward from the Company’s most recent test
conducted during the fourth quarter of 2008. The range of the weighted-average cost of capital utilized
was increased to reflect increased risk due to current economic volatility and uncertainties related to
demand for the Company’s products and services. The weighted-average cost of capital were as follows:
Second Quarter Fourth Quarter
of 2009 of 2008
Weighted-Average Cost of Capital .......... 10.9% to 12.8% 10.0% to 11.7%
The results of the first step of the goodwill impairment test indicated there was a potential
impairment of goodwill in each of the six reporting units identified with triggering events, as the
carrying amounts of the reporting units exceeded their respective fair values. As a result, the Company
performed the second step of the goodwill impairment test for these reporting units. The implied fair
values of goodwill were determined by allocating the fair values of each reporting unit to all of the
assets and liabilities of the applicable reporting unit including any unrecognized intangible assets as if
the reporting unit had been acquired in a business combination. The results of the second step of the
goodwill impairment test indicated that the implied goodwill amount was less than the carrying amount
2009 Financials 117