ADT 2002 Annual Report Download - page 82

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Restructuring and Other Charges (Credits), Net (continued)
(excluding impairments of long-lived assets which are discussed in Note 6) related to the Electronics
segment recorded in fiscal 2002 ($ in millions):
Severance Facilities-Related
Number of Number of
Employees Amount Facilities Amount Inventory Other Total
Fiscal 2002 charges .......... 8,996 $198.1 31 $250.2 $ 943.6 $138.9 $1,530.8
Fiscal 2002 reversals ......... (356) (2.5) (1) (8.1) — — (10.6)
Fiscal 2002 utilization ........ (4,336) (79.6) (13) (77.7) (164.7) (1.7) (323.7)
Ending balance at September 30,
2002 ................... 4,304 $116.0 17 $164.4 $ 778.9 $137.2 $1,196.5
The cost of announced workforce reductions of $198.1 million includes the elimination of 8,996
positions across all regions consisting primarily of manufacturing personnel. Facilities-related costs of
$250.2 million include building lease termination fees and other contract cancellation costs for the
shutdown of 31 facilities, primarily manufacturing plants in the United States. At September 30, 2002,
4,336 employees had been terminated and 13 facilities had been shut down.
The $943.6 million inventory charges include $608.2 million of inventory write-downs and
$335.4 million of supplier contract termination fees. The inventory write-downs and the supplier
contract termination fees are primarily the result of the sudden and significant decrease in demand for
our products and services, primarily in the telecommunications end markets. As a result, the Company
determined that its current and committed inventory levels are in excess of forecasted needs. There
were no significant sales of previously written-down or written-off inventory during the year ended
September 30, 2002. Of the $608.2 million, $143.1 million of inventory has been scrapped as of
September 30, 2002. We expect the remaining written-off inventory to be scrapped over the next three
to six months. Also, as a result of the uncertainty related to the continued financial viability of a certain
customer in the telecommunications industry, a bad debt provision of $115.0 million was recorded to
selling, general and administrative expenses, which is included in the ‘‘Other’’ column above. In
addition to the $115.0 million bad debt provision, the remaining other charges also include a write-off
of an uncollectible receivable of $5.7 million as a result of the downturn in the telecommunications
industry. To the extent that any of the bad debt provisions are not utilized, the excess amounts will be
reversed as a credit to the selling, general and administrative expenses line in the Consolidated
Statement of Operations and will be described as a credit in Tyco’s Consolidated Financial Statements
and Managements’ Discussion and Analysis. To the extent that any of the inventory is subsequently
sold, the related amount of income, if any will be disclosed separately as a credit in Tyco’s Consolidated
Financial Statements and Managements’ Discussion and Analysis.
The Healthcare segment recorded a net restructuring and other charge of $44.8 million. The
$44.8 million net charge consists of charges of $48.7 million, of which charges of $0.5 million are
included in cost of sales, related primarily to severance associated with the consolidation of operations
and facility-related costs due to exiting certain business lines. These charges were partially offset by a
credit of $3.9 million representing a revision in estimates of current and prior years’ restructuring
charges. The following table provides information about the restructuring and other charges (excluding
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