ADT 2002 Annual Report Download - page 170

portion of the purchase price that is withheld from the seller pending finalization of the acquired
company’s net assets or purchase paid over time. Certain acquisitions have provisions which require
Tyco to make additional ‘‘earn-out’’ payments to the sellers if the acquired company achieves certain
milestones subsequent to its acquisition by Tyco. These earn-out payments are tied to certain
performance measures, such as revenue, gross margin or earnings growth. Also, in fiscal 2002, we
determined that $189.4 million of purchase accounting reserves related to acquisitions prior to fiscal
2002 were not needed and reversed that amount against goodwill. At September 30, 2002, there
remained $539.0 million in purchase accounting reserves on our Consolidated Balance Sheet, of which
$324.1 million is included in accrued expenses and other current liabilities and $214.9 million is
included in other long-term liabilities. In addition, $268.2 million of holdback/earn-out liabilities
remained on our Consolidated Balance Sheet, of which $124.5 million are included in accrued expenses
and other current liabilities and $143.7 million are included in other long-term liabilities.
As required by SFAS 142, all business combinations completed in fiscal 2002 were accounted for
under the purchase accounting method. At the time each purchase acquisition is made, we recorded
transaction costs and the costs of integrating the purchased company within the relevant Tyco business
segment. The amounts of such reserves established in fiscal 2002 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 connection 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. Any shortfall will be recorded in
earnings.
During fiscal 2002, the Company sold certain of its businesses for net proceeds of approximately
$138.7 million in cash that consist primarily of certain businesses within the Healthcare and Fire and
Security Services segments. In connection with these dispositions, the Company recorded a net gain of
$23.6 million.
During fiscal 2001, we entered into an agreement to acquire C.R. Bard, Inc., a healthcare products
manufacturer. On February 6, 2002, Tyco and C.R. Bard, Inc. mutually terminated the merger
agreement. Each party bore its own costs, and no break up fee was paid.
During fiscal 2002, we entered into an agreement to acquire McGrath RentCorp, a leading rental
provider of modular offices and classrooms and electronic test equipment. On July 1, 2002, McGrath
RentCorp elected to terminate the transaction agreement. Tyco reimbursed McGrath’s cost and
expenses in the amount of $1.25 million.
The following details the fiscal 2002 capital expenditures, net, and depreciation by segment ($ in
millions):
Capital
Expenditures, net Depreciation
Fire and Security Services ...................... $ 820.4 $ 569.0
Electronics ................................. 1,597.9(1) 479.3
Healthcare ................................. 273.1 240.6
Engineered Products and Services ................ 78.7 123.4
Plastics and Adhesives ........................ 31.7 39.5
Corporate ................................. 23.0 12.3
$2,824.8(2) $1,464.1
(1) Includes $1,146.0 million in spending for construction of the TGN.
(2) Net of $29.5 million received in sale-leaseback transactions and $166.5 million of proceeds received on sale of property, plant
and equipment.
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