ADT 2009 Annual Report Download - page 212

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Goodwill and Intangible Assets (Continued)
Intangible Assets
As previously reported, the Company began to experience a decline in revenue during the first
quarter of 2009 at its ADT Worldwide and Safety Products segments due to a slowdown in the
commercial markets including the retailer end market. Although the Company considered and
concluded 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 indefinite-lived intangible assets.
This deterioration of the business environment related to the retailer business of the Company’s ADT
Worldwide and Safety Products segments resulted in a further lowering of management’s projections of
revenues from the retailer end market during the second quarter of 2009.
Based on these factors and uncertainties, estimates of future cash flows used in determining the
fair value of the Company’s Safety Products Sensormatic tradename as well as its ADT Worldwide
franchise rights relating to Winner and SSC during the second quarter of 2009 were revised downward
relative to the estimates used in the Company’s most recent test during the fourth quarter of 2008. The
range of the discount rates 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 discount
rates were as follows:
Second Quarter Fourth Quarter
of 2009 of 2008
Discount Rate .................................... 12.0% to 12.3% 10.4%
The results of the impairment test conducted during the second quarter of 2009 indicated that the
Safety Products Sensormatic tradename and ADT Worldwide Winner and SSC franchise rights
estimated fair values were less than their respective carrying amounts. As such, the Company recorded
an aggregate non-cash impairment charge of $64 million ($40 million after-tax) during the second
quarter of 2009. The non-cash impairment charge was recorded in goodwill and intangible asset
impairments in the Company’s Consolidated Statements of Operations for fiscal 2009. Specifically, the
Company recorded the following non-cash intangible asset impairment charges to reduce the carrying
amount of the following indefinite-lived intangible assets ($ in millions):
Pre-tax After-tax
Intangible Asset Charge Charge
Sensormatic tradename ....................................... $42 $26
Winner franchise rights ....................................... 14 9
SSC franchise rights ......................................... 8 5
Total .................................................... $64 $40
Annually, in the fiscal fourth quarter, and more frequently if triggering events occur, the Company
tests indefinite-lived intangible assets for impairment. The Company believes that its intangible assets
balance as of September 25, 2009 is recoverable.
Indefinite-lived intangible assets consisting primarily of trade names and franchise rights are tested
for impairment using either a relief from royalty method or excess earnings method. The impairment
120 2009 Financials