ADT 2002 Annual Report Download - page 63

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Basis of Presentation, Restatement and Summary of Significant Accounting Policies (continued)
of Debt.’’ Accordingly, the Company elected to early adopt this provision during the fourth quarter of
fiscal 2002, which resulted in increased pre-tax income of $30.6 million in fiscal 2002. We reclassified
prior year extraordinary losses related to the early retirement of debt to other (expense) income in our
Consolidated Statements of Operations, which decreased pre-tax income by $26.3 million and
$0.3 million in fiscal 2001 and 2000, respectively. However, net income remains unchanged in both
periods. See Note 8 for further information. The adoption of the remaining provisions of this new
standard did not have a material impact on our results of operations or financial position.
In July 2002, the FASB issued SFAS No. 146, ‘‘Accounting for Costs Associated with Exit or
Disposal Activities,’’ which is effective for exit or disposal activities that are initiated after
December 31, 2002. This statement nullifies Emerging Issues Task Force Issue No. 94-3, ‘‘Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring).’’ This statement requires that liabilities associated with exit
or disposal activities initiated after adoption be recognized and measured at fair value when incurred as
opposed to at the date an entity commits to the exit or disposal plans. We expect the adoption of this
new standard to have an impact on the timing of any future restructuring charges.
Reclassifications—Certain prior year amounts have been reclassified to conform with current year
presentation.
Stock Splits—Per share amounts and share data have been retroactively restated to give effect to
the two-for-one stock split on October 21, 1999, effected in the form of a 100% stock dividend (see
Note 23).
2. Acquisitions and Divestitures
Fiscal 2002
During fiscal 2002, the Company purchased businesses for an aggregate cost of $4,889.8 million,
consisting of $2,823.1 million in cash (includes $1,139.3 million related to the purchase of residential
security monitoring contracts under the ADT dealer program), net of $158.0 million of cash acquired,
the issuance of approximately 47.8 million common shares valued at $1,918.8 million, plus the fair value
of stock options and pre-existing put option rights assumed of $147.9 million ($102.6 million of the put
option rights have been paid in cash). The Company purchased all of the voting equity interests in each
of the businesses acquired. In connection with these acquisitions, the Company recorded purchase
accounting liabilities of $194.6 million for the costs of integrating the acquired companies and
transaction costs. Details regarding these purchase accounting liabilities are set forth below. Tyco also
issued approximately 17.7 million common shares valued at $819.9 million in connection with its
amalgamation with TyCom (see Note 9). Fair value of debt of acquired companies aggregated
$799.1 million. During fiscal 2002, the Company paid $474.8 million of cash for purchase accounting
liabilities related to current and prior years’ acquisitions. In addition, the Company paid cash of
approximately $149.3 million relating to holdback and earn-out liabilities primarily related to certain
prior year acquisitions. Holdback liabilities represent a portion of the purchase price withheld from the
seller pending finalization of the acquired company’s net assets or purchase price paid over time.
‘‘Earn-out’’ liabilities are payments to the sellers that are the result of the acquired company having
achieved 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 over a specified
period of time, and are accrued when the milestones are met and contingent consideration becomes
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