ADT 2003 Annual Report Download - page 50

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cash for utilization of purchase accounting liabilities related to
prior years’ acquisitions. In addition, we paid out $100.3 million
relating to holdback/earn-out liabilities related to certain prior
period acquisitions. Holdback liabilities represent a portion of
the purchase price that is withheld from the seller pending
finalization of the acquisition balance sheet. 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
2003, we determined that $207.2 million of purchase account-
ing liabilities related to acquisitions prior to fiscal 2003 were
not needed and reversed that amount against goodwill. At
September 30, 2003, there remained $199.0 million in purchase
accounting accruals on our Consolidated Balance Sheet, of
which $79.7 million is included in accrued expenses and other
current liabilities and $119.3 million is included in other long-
term liabilities. In addition, $211.7 million of holdback/earn-out
liabilities remained on our Consolidated Balance Sheet, of
which $93.1 million are included in accrued expenses and other
current liabilities and $118.6 million are included in other
long-term liabilities.
As required by SFAS No. 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 seg-
ment. The amounts of such liabilities 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
liabilities proves to be in excess of costs actually incurred, any
excess is used to reduce the goodwill account that was estab-
lished at the time the acquisition was made. Any shortfall will
be recorded in earnings.
During the fourth quarter of fiscal 2003, the Company ini-
tiated a proposed divestiture program which includes the TGN
and other non-core businesses within all of our operating seg-
ments except Plastics and Adhesives. Combined fiscal 2003 rev-
enues for businesses under consideration for potential
divestiture totaled approximately $2 billion. The estimated
potential proceeds from sales (excluding the TGN) could be at
least $400 million. If we dispose of these businesses, we may not
fully recover their recorded book values. At September 30,
2003, however, under the held and used model, the assets of
these businesses were fully recoverable.
We continue to fund capital expenditures to improve the
cost structure of our businesses, to invest in new processes and
technology, and to maintain high quality production standards.
During fiscal 2003, we spent $112.7 million on construction of
the TGN. Construction of the TGN was completed during fis-
cal 2003. Consequently, the level of capital expenditures in the
Electronics segment is expected to decrease in fiscal 2004. The
level of capital expenditures in the other segments should not
exceed depreciation in fiscal 2004 and should approximate the
level of spending in fiscal 2003.
The provision for income taxes relating to continuing oper-
ations in the Consolidated Statement of Operations for fiscal
2003 was $764.5 million, and the amount of income taxes paid
(net of refunds) during the year was $142.5 million. The differ-
ence is due to timing differences, as well as net operating loss
carryforward and carryback utilization.
CAPITALIZATION
Shareholders’ equity was $26,369.0 million, or $13.20 per share,
at September 30, 2003, compared to $24,081.3 million, or $12.07
per share, at September 30, 2002. The increase in shareholders’
equity was due primarily to currency translation adjustments
of $1,445.4 million and net income of $979.6 million.
Tangible shareholders’ deficit was $5,359.7 million and
$7,745.0 million at September 30, 2003 and 2002, respectively.
Goodwill and other intangible assets were $31,728.7 million at
September 30, 2003, compared to $31,826.3 million at
September 30, 2002. Acquisitions have been an important part
of Tyco’s growth in prior years. While we have continued to
TYCO INTERNATIONAL LTD.
Management’s Discussion and Analysis of Financial Condition and Results of Operations