ADT 2001 Annual Report Download - page 57

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control panels, detection devices and system software, was pur-
chased for approximately $1,094.7 million in cash and has been
integrated within the Fire and Security Services segment. Scott,
a designer and manufacturer of respiratory systems and other
life-saving devices for the firefighting and aviation markets, was
purchased for approximately 7.5 million Tyco common shares
valued at $391.1 million and has been integrated within the Fire
and Security Services segment. CIT was purchased for
$9,455.5 million, consisting of: the issuance of approximately
133.0 million Tyco common shares, valued at $6,650.5 million, for
approximately 73% of the outstanding shares of CIT; a cash pay-
ment of $2,486.4 million to Dai-Ichi Kangyo Bank, Limited for
the purchase of approximately 27% of the outstanding shares of
CIT; and options assumed valued at $318.6 million. The
$9,455.5 million purchase price plus $29.2 million in acquisition
related costs incurred by Tyco Industrial have been reflected on
Tyco Capital’s Consolidated Balance Sheet as a contribution by
Tyco, in accordance with “push-down” accounting for business
combinations. In addition, $22.3 million was paid by Tyco Indus-
trial for acquisition related costs and have been reflected on Tyco
Capital’s Consolidated Balance Sheet as an additional capital
contribution. SecurityLink, a provider of electronic security sys-
tems to residential, commercial and government customers, was
purchased for cash of approximately $1,000.0 million and has
been integrated within the Fire and Security Services segment.
In connection with the acquisition of Mallinckrodt, the
Company obtained an appraisal from an independent appraiser
of the fair value of its intangible assets. This appraisal valued
purchased in-process research and development (“IPR&D”) of
various projects for the development of new products and tech-
nologies at $184.3 million. The purchased IPR&D was written off
during the quarter ended December 31, 2000. The value of the
purchased IPR&D was based on the value of the various projects
utilizing the discounted cash flow method. This valuation
included consideration of (i) the stage of completion of each of
the projects, (ii) the technological feasibility of each of the proj-
ects, (iii) whether the projects had an alternative future use, and
(iv) the estimated future residual cash flows that could be gen-
erated from the various projects and technologies over their
respective projected economic lives.
As of the Mallinckrodt acquisition date, there were several
projects under development at different stages of completion.
The primary basis for determining the technological feasibility
of these projects was obtaining Food and Drug Administration
(“FDA”) approval. As of the acquisition date, none of the IPR&D
projects had received FDA approval. In assessing the technolog-
ical feasibility of a project, consideration was also given to the
level of complexity and future technological hurdles that each
project had to overcome prior to being submitted to the FDA for
approval. As of the acquisition date, none of the IPR&D projects
was considered to be technologically feasible or to have any
alternative future use.
Future residual cash flows that could be generated from
each of the projects were determined based upon management’s
estimate of future revenue and expected profitability of the var-
ious products and technologies involved. These projected cash
flows were then discounted to their present values taking into
account management’s estimate of future expenses that would
be necessary to bring the projects to completion. The discount
rates include a rate of return, which accounts for the time value
of money, as well as risk factors that reflect the economic risk
that the cash flows projected may not be realized. The cash flows
were discounted at discount rates ranging from 14% to 25% per
annum, depending on the project’s stage of completion and the
type of FDA approval needed. This discounted cash flow
methodology for the various projects included in the purchased
IPR&D resulted in a total valuation of $184.3 million.
The following table summarizes the purchase accounting
liabilities recorded in connection with the Fiscal 2001 purchase
acquisitions:
SEVERANCE FACILITIES OTHER
NUMBER OF NUMBER OF
($ IN MILLIONS) EMPLOYEES RESERVE FACILITIES RESERVE RESERVE TOTAL
Original reserve established(1) 10,270 $ 367.9 349 $393.6 $ 358.5 $1,120.0
Fiscal 2001 utilization (8,201) (216.4) (172) (62.7) (249.6) (528.7)
Ending balance at September 30, 2001 2,069 $ 151.5 177 $330.9 $ 108.9 $ 591.3
(1) Included within the $1,120.0 million reserve established is $98.7 million in purchase accounting liabilities recorded by Tyco Industrial related to the acquisition of CIT and reported as
a liability of Tyco Capital.
sition for workforce reductions and the closure and consolida-
tion of an aggregate of 349 facilities. The costs of employee ter-
mination benefits relate to the elimination of 6,651 positions in
the United States, 1,559 positions in Europe, 1,354 positions in
the Asia-Pacific region and 706 positions in Canada and Latin
America, consisting primarily of manufacturing and distribu-
tion, administrative, technical, and sales and marketing person-
nel. Facilities designated for closure include 226 facilities in the
United States, 54 facilities in Europe, 48 facilities in the Asia-
Pacific region and 21 facilities in Canada and Latin America,
Purchase accounting liabilities recorded during Fiscal 2001
consist of $367.9 million for severance and related costs;
$393.6 million for costs associated with the shut down and con-
solidation of certain acquired facilities, including unfavorable
leases, lease terminations and other related fees and other costs;
and $358.5 million for transaction and other costs. These pur-
chase accounting liabilities relate primarily to the acquisitions
of Mallinckrodt, LPS, CIT, Simplex and SecurityLink.
In connection with the Fiscal 2001 purchase acquisitions,
the Company began to formulate plans at the date of each acqui-