ADT 2003 Annual Report Download - page 35

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account pools experiencing increased attrition, prior lifing
studies were re-examined. The Company concluded that existing
amortization methods and asset lives continue to be appropri-
ate given the observed actual attrition data for these pools.
Net revenues for the Fire and Security segment increased
42.4% in fiscal 2002 over fiscal 2001 including a 41.8% increase
in product revenue and a 42.9% increase in service revenue,
primarily as a result of higher sales volume and increased service
revenue in the worldwide security business and, to a lesser
extent, our worldwide fire protection business. The increase in
net revenues was mostly due to acquisitions as well as a higher
volume of recurring service revenues generated from our
worldwide security business dealer program and, to a lesser
extent, increased sales of fire safety and video surveillance
products and access control systems. This net revenue growth
was largely due to our focus in prior years on increasing rev-
enues by growing the business through acquisitions (including
the authorized dealer program), as compared to our current
long-term strategy, which is to grow our existing business. Net
revenues for fiscal 2002 also include the effect of the heightened
level of security concerns that followed September 11th, which
temporarily increased the demand for security-related prod-
ucts. Significant acquisitions included Simplex Time Recorder
Co. (“Simplex”) in January 2001, Scott Technologies, Inc. in
May 2001, the electronic security systems businesses of
Cambridge Protection Industries, L.L.C. (“SecurityLink”) and
Sentry S.A. in July 2001, Edison Select in August 2001,
SBC/Smith Alarm Systems in October 2001, and DSC and
Sensormatic in November 2001. Excluding the $33.5 million
increase from foreign currency fluctuations, our ADT dealer
program, the acquisitions listed above, and all other acquisitions
with a purchase price of $10 million or more, pro forma rev-
enues (calculated in the manner described above in “Overview”)
for the segment were level with prior year.
Operating income increased slightly in fiscal 2002, primarily
due to acquisitions. This increase was partially offset by net
restructuring and other charges, charges for the impairment of
long-lived assets and a charge for the write off of purchased in-
process research and development.
Operating income and margins in fiscal 2002 include a net
restructuring and other charge of $94.9 million. The net $94.9
million charge includes charges of $113.5 million, of which inven-
tory 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 stream-
lining 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 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 termi-
nation of the ADT dealer program in certain non-U.S. markets.
Operating income and margins in fiscal 2001 include net
restructuring and other charges of $84.1 million. The $84.1 mil-
lion net charge consists of charges of $85.7 million, of which
inventory write downs of $5.4 million are included in cost of
sales, primarily related to the closure of facilities that became
redundant due to the acquisitions of SecurityLink and Simplex,
partially offset by a credit of $1.6 million relating to prior years’
restructuring charges. Also included are charges of $2.8 million
for the impairment of property, plant and equipment primarily
associated with the facility closures.
Electronics The following table sets forth net revenues and
operating income (loss) and margins for the Electronics segment
($ in millions):
FISCAL 2003 FISCAL 2002 FISCAL 2001
Revenue from
product sales $««9,900.3 $10,015.5 $13,115.7
Service revenue 454.7 448.6 429.9
Net revenues $10,355.0 $10,464.1 $13,545.6
Operating income
(loss) $÷÷«457.7 $«(4,245.9) $««3,005.1
Operating margins 4.4% (40.6) % 22.2%
Net revenues for the Electronics segment decreased slightly in
fiscal 2003 compared with fiscal 2002, including a 1.2% decrease
in product revenue and a 1.4% increase in service revenue. Net
revenues at the electronic components group increased $426.3
million, or 4.4%, due to the favorable impact of foreign cur-
rency exchange rates. Net revenues at the segment’s Submarine
Telecommunications business declined $535.4 million, or 78.1%,
due to completion of third-party undersea fiber optic system
installations in fiscal 2002. Overall, the decrease in net revenues
at our Submarine Telecommunications business more than off-
set the increase in the total segment revenues due to favorable
changes in foreign currency exchange rates of $523.9 million,
and $68.9 million (calculated in the manner described above in
“Overview”) due to the acquisitions of Transpower Technologies
(“Transpower”) in November 2001, Communications Instru-
ments, Inc. (“CII”) in January 2002, and all other acquisitions
with a purchase price of $10 million or more.
TYCO INTERNATIONAL LTD.