ADT 2008 Annual Report Download - page 220

TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Acquisitions
Acquisitions
As part of the Company’s strategy to strengthen its product and service offerings and market
positions, the Company acquired Winner Security Services LLC (‘‘Winner’’), Sensormatic Security Corp.
(‘‘SSC’’) and FirstService Security (‘‘FirstService’’) during 2008.
On June 5, 2008, the Company’s ADT Worldwide segment acquired substantially all of the assets
of Winner for $90 million. The franchise was originally granted by Sensormatic Electronics Corporation
and granted Winner rights to sell, install and service certain Sensormatic products and entitled Winner
to commissions on Sensormatic products sold, installed or shipped into its franchise territories.
Sensormatic products are sold through ADT Worldwide and Safety Products.
On July 9, 2008, the Company’s ADT Worldwide segment acquired substantially all of the assets of
SSC, including franchise rights, and agreed to settle a related legal matter for total consideration of
approximately $86 million. SSC was a franchisee of Sensormatic Electronics Corporation in the states
of Virginia and Maryland and in the District of Columbia. It was the last remaining major Sensormatic
franchise. Under the original franchise agreement, SSC was granted rights to sell, install and service
certain Sensormatic products and was entitled to commissions on Sensormatic products sold, installed
or shipped into its franchise territories. Sensormatic and SSC also settled the previously disclosed
litigation between the parties related to the SSC franchise for $6 million in connection with the
transaction. The value ascribed to the settlement of the legal matter was determined based on the
consideration paid in excess of the fair value of the franchise and franchise rights acquired.
These transactions were accounted for as business combinations and the Company applied EITF
Issue No. 04-1, ‘‘Accounting for Preexisting Relationships between the Parties to a Business
Combination,’’ since there were preexisting relationships between the Company and Winner and SSC
that needed to be assessed and accounted for separately. After assessing the specific facts and
circumstances related to these transactions, the Company recorded charges of $38 million and
$20 million for Winner and SSC, respectively during 2008 for the reacquisition of franchise rights that
were deemed to be unfavorable to the Company when compared to pricing for current market
transactions for similar arrangements. The Company utilized an income method valuation approach in
measuring the value of the preexisting relationship. Since these charges relate to a change in the
manner in which the Company will conduct business in these territories, they have been reflected as
restructuring charges. The remaining purchase price for Winner was $52 million, which consists of a
$46 million indefinite-lived intangible asset, $1 million of customer lists which are amortizable over a
10-year period and $5 million of goodwill. The remaining purchase price for SSC was $60 million,
which consists of a $52 million indefinite-lived intangible asset, $4 million of customer lists which are
amortizable over a 10-year period and $4 million of goodwill. Goodwill associated with the Winner and
SSC transactions is deductible for tax purposes.
On June 30, 2008, the Company’s ADT Worldwide segment acquired FirstService Security, a
division of FirstService Corporation, for approximately $187 million. FirstService Security is a
commercial security systems integrator and provides a full range of integrated security system services,
including design, engineering, installation, servicing and monitoring of access control, closed-circuit
television and intrusion systems. The purchase price for FirstService has been allocated on a
preliminary basis and consists of $38 million of net working capital and other assets, $5 million of
property, plant and equipment, net, $52 million of intangible assets and $92 million of goodwill.
Goodwill associated with the FirstService transaction is not deductible for tax purposes.
Additionally during 2008, cash paid for acquisitions included in continuing operations, primarily
within ADT Worldwide and Safety Products, totaled $38 million. During 2007, cash paid for
2008 Financials 117