ADT 2002 Annual Report Download - page 149

in the current year related to impairment of long-lived assets as well as the restructuring and other
charges incurred, and related improvements resulting from such charges. We expect these increases to
be partially offset by increased costs associated with enhancing our security business’ internal sales
force and softness in the domestic contracting market, which is expected to generate lower margins as a
result of increased competition.
Operating income and margins in fiscal 2002 include a net restructuring and other charge of
$94.9 million. The net $94.9 million charge consists of charges of $113.5 million, of which inventory
write-downs of $0.7 million and a charge of $18.7 million related to the write-up of inventory under
purchase accounting are included in cost of sales. These charges are primarily related to severance and
facility-related charges associated with streamlining the business, slightly offset by a credit of
$18.6 million relating to current and prior years’ restructuring charges. Also included within operating
income for fiscal 2002 is a charge of $17.8 million for the write-off of purchased in-process research
and development associated with the acquisitions of Sensormatic and DSC Group and a charge of
$114.7 million for the impairment of property, plant and equipment resulting primarily from the
termination of a software development project and, to a lesser extent, from the curtailment, and in
certain markets, the termination of the ADT dealer program in certain non-U.S. markets.
The following table provides information about the fiscal 2002 restructuring and other charges
related to the Fire and Security Services segment:
Facilities- Inventory-
Severance Related Related Other Total
Fiscal 2002 charges .......................... $43.5 $15.7 $ 19.4 $34.9 $113.5
Fiscal 2002 reversals ......................... (0.3) (3.0) — (0.8) (4.1)
Fiscal 2002 utilization ........................ (23.8) (0.1) (19.4) (2.7) (46.0)
Balance at September 30, 2002 .................. $19.4 $12.6 $ — $31.4 $ 63.4
As a result of the charges recorded within the Fire and Security Services segment during fiscal
2002, we estimate that our overall cost structure will be reduced due to the impact of these charges by
approximately $115 million (approximately $105 million cash and $10 million non-cash) on an
annualized basis, $105 million of which relates to other selling, general and administrative expenses and
$10 million to amortization. However, since business conditions do not remain constant, the actual
reductions in cost may significantly differ from these amounts.
Revenue increased 23.0% in fiscal 2001 over fiscal 2000, including a 27.5% increase in product
revenue and a 19.3% increase in service revenue primarily due to acquisitions and, to a lesser extent,
higher sales volume and increased recurring service revenue in fire protection in North America and
Asia, and increased recurring revenues in the worldwide electronic security services business. These
acquisitions include: Simplex in January 2001; Scott in May 2001; and SecurityLink in July 2001.
Excluding the $338.1 million decrease from foreign currency exchange fluctuations, our ADT dealer
program, the acquisitions listed above and all other acquisitions with a purchase price of $10 million or
more, pro forma revenue (calculated in the manner described above in ‘‘Overview’’) increased an
estimated 4.7%.
Operating income increased 6.6% in fiscal 2001 over fiscal 2000 primarily due to acquisitions and
increased service volume in the fire protection business in North America and Asia and worldwide
security business, partially offset by net restructuring and other charges. The decrease in operating
margins was primarily due to net restructuring and other charges partially offset by increased service
revenues in fire protection.
Operating income and margins in fiscal 2001 include net restructuring and other charges of
$84.1 million. The $84.1 million net charge consists of charges of $85.7 million, of which inventory
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