ADT 2001 Annual Report Download - page 34

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Reserves for restructuring and other non-recurring items
are taken as a charge against current earnings at the time the
reserves are established. Amounts expended for restructuring
and other non-recurring costs are charged against the reserves
as they are paid out. If the amount of the reserves proves to be
greater than the costs actually incurred, any excess is credited
against restructuring and other non-recurring charges in the
Consolidated Statement of Operations in the period in which
that determination is made.
In Fiscal 2001, we recorded net restructuring and other non-
recurring charges of $331.8 million, of which charges of
$98.2 million are included in cost of revenue, consisting of
charges of $498.6 million, related primarily to the closure of
manufacturing plants, sales offices, warehouses and adminis-
trative offices in the Electronics and Fire and Security Services
segments, partially offset by a $166.8 million credit to litigation
reserves established in the prior year. In addition, we incurred a
non-recurring charge of $86.7 million related to the sale of
inventory which had been written-up under purchase account-
ing, which has been included in cost of revenue. At Septem-
ber 30, 2000, there existed merger, restructuring and other
non-recurring reserves of $365.9 million. During Fiscal 2001, we
paid out $215.5 million in cash and incurred $228.7 million in
non-cash charges that were charged against these reserves. At
September 30, 2001, there remained $340.2 million of merger,
restructuring and other non-recurring reserves on Tyco Indus-
trial’s Consolidated Balance Sheet, of which $304.9 million is
included in accrued expenses and other current liabilities and
$35.3 million is included in other long-term liabilities.
All business combinations completed in Fiscal 2001 were
accounted for under the purchase accounting method. At the
time each purchase acquisition is made, we establish a reserve
for transaction costs and the costs of integrating the purchased
company within the relevant Tyco business segment. The
amounts of such reserves established in Fiscal 2001 are detailed
in Note 2 to the Consolidated Financial Statements. These
amounts are not charged against current earnings but are
treated as additional purchase price consideration and have the
effect of increasing the amount of goodwill recorded in connec-
tion with the respective acquisition. We view these costs as the
equivalent of additional purchase price consideration when we
consider making an acquisition. If the amount of the reserves
proves to be in excess of costs actually incurred, any excess is
used to reduce the goodwill account that was established at the
time the acquisition was made.
In Fiscal 2001, Tyco Industrial made acquisitions that
were accounted for under the purchase accounting method
at an aggregate cost of $14,741.5 million. Of this amount,
$10,956.6 million was paid in cash, net of cash acquired
(excluding $2,156.4 million of cash acquired from Tyco Capital),
and $3,784.9 million was paid in the form of Tyco common
shares. Debt of acquired companies aggregated $1,592.3 mil-
lion. In connection with these acquisitions, we established pur-
chase accounting reserves of $1,021.3 million for transaction and
integration costs. In addition, purchase accounting liabilities
of $103.7 million and a corresponding increase to goodwill
and deferred tax assets were recorded during Fiscal 2001.
Changes in estimates related to acquisitions consummated prior
to Fiscal 2001, primarily related to revisions associated with
finalizing the exit plans of the electronic OEM business of
Thomas & Betts, AFC Cable, Critchley and Siemens, all acquired
during Fiscal 2000. At the beginning of Fiscal 2001, purchase
accounting reserves were $372.6 million as a result of purchase
accounting transactions made in prior years. During Fiscal 2001,
we paid out $894.4 million in cash (including approximately
$105.7 million relating to purchase price adjustments and
earn-out liabilities on certain acquisitions and $51.5 mil-
lion relating to the acquisition of Tyco Capital) and incurred
$7.2 million in non-cash charges against the reserves estab-
lished during and prior to Fiscal 2001. Also, in Fiscal 2001, we
determined that $68.9 million of purchase accounting reserves
related primarily to acquisitions prior to Fiscal 2001 were not
needed and reversed that amount against goodwill. At Septem-
ber 30, 2001, there remained $702.1 million in purchase account-
ing reserves on Tyco Industrial’s Consolidated Balance Sheet, of
which $583.1 million is included in accrued expenses and other
current liabilities and $119.0 million is included in other long-
term liabilities.
The following details the Fiscal 2001 capital expenditures
and depreciation by segment for Tyco Industrial:
CAPITAL
($ IN MILLIONS) EXPENDITURES DEPRECIATION
Electronics $ 587.8 $ 429.0
Fire and Security Services 897.1 456.9
Healthcare and Specialty Products 159.6 257.0
Telecommunications 113.0(1) 89.1
Corporate 40.0 11.1
$1,797.5(2) $1,243.1
(1) Excludes $2,247.7 million in spending for construction of the TGN.
(2) Includes $427.7 million received in sale-leaseback transactions.
We continue to fund capital expenditures to improve the
cost structure of our businesses, to invest in new processes and
technology, and to maintain high quality production standards.
The level of capital expenditures for the Fire and Security Ser-
vices segment significantly exceeded, and is expected to con-
tinue to significantly exceed, depreciation due to the substantial
growth in the number of new security system installations. The
level of capital expenditures in the other segments is expected
to increase moderately in Fiscal 2002. During Fiscal 2001, TyCom
spent $2,247.7 million on construction of the TGN. We expect our
expenditures on construction of the TGN to be approximately
$1,500.0 million in Fiscal 2002. The source of funds for capital
expenditures and construction of the TGN is expected to be cash
from operating activities.