ADT 2010 Annual Report Download - page 123

$2.0 billion, with $585 million in cash being used to fund the acquisition. Broadview Security is being
integrated into the Company’s ADT Worldwide segment. Broadview Security’s core business is to
provide security alarm monitoring services for residential and commercial properties in North America.
It has a large residential recurring customer base, which has enhanced ADT’s presence in the North
American residential security business. Broadview Security is also a leader in technologies and services
which are expected to enhance ADT Worldwide’s service offerings to its customers. In connection with
the integration of Broadview Security into the ADT Worldwide segment, the Broadview Security brand
has been discontinued, and we expect to realize cost savings and other synergies through operational
efficiencies including consolidation of both marketing and general and administrative functions. During
the fourth quarter of fiscal 2010, we initiated a program to fully integrate Broadview Security into our
ADT Worldwide segment. We anticipate that Broadview Security will be fully integrated into our ADT
Worldwide segment’s North America business during the first half of 2011. As a result, Broadview
Security’s operating results, including its revenue and income from continuing operations, will be
reflected in the operating results of our ADT North America business and will no longer be reported
separately.
Due to the integration of operations, we have estimated that Broadview Security contributed
approximately $193 million to our consolidated net revenue and a loss from continuing operations of
$25 million during 2010. We incurred approximately $17 million of costs directly related to the
acquisition and $18 million of integration costs for a total of $35 million during 2010. Of this amount,
$32 million has been recorded in our ADT Worldwide segment and $3 million in Corporate and Other.
Both acquisition and integration costs have been recorded within selling, general and administrative
expenses in our Consolidated Statement of Operations during 2010. In addition, our ADT Worldwide
segment recorded $14 million of restructuring expenses related to combining the Broadview Security
and ADT Worldwide businesses, which have been recorded within restructuring, asset impairments and
divestiture charges, net in our Consolidated Statement of Operations during 2010.
Also, during the third quarter of 2010, we announced our intention to pursue a tax-free spin-off of
our Electrical and Metal Products business. On November 9, 2010, we announced an agreement to sell
a 51% interest in our Electrical and Metal Products business. In connection with this announcement,
we no longer plan to pursue the tax-free spin-off of our Electrical and Metal Products business as
proposed on April 27, 2010. See Note 25 to the Consolidated Financial Statements.
Overview
Net revenue for 2010 increased $134 million, or 0.8%, as compared to 2009. The increase was
primarily driven by the favorable impact of changes in foreign currency exchange rates of $624 million,
or 3.7%. This increase was partially offset by net revenue declines experienced in our Flow Control and
Fire Protection Services segments. Flow Control’s decline in net revenue was primarily the result of
reduced volume in its valves business driven by decreased demand in our end markets. Weakness in the
commercial end market resulted in a decline in product and systems installation revenue within our
Fire Protection Services segment.
Service revenue continued to grow as a percentage of our overall revenue to 41% for 2010 as
compared to 40% and 36% for 2009 and 2008, respectively. Our service revenues are principally
derived from our ADT Worldwide and Fire Protection Services businesses, and represent a predictable
and consistent source of revenue. Recurring revenue in our ADT Worldwide business represents
approximately 58% of ADT’s total revenue compared to approximately 54% in 2009 and 51% in 2008.
Recurring revenue represents revenue associated with monitoring and maintenance services under
contractual arrangements. In the Fire Protection Services business, service revenue continued to
increase as a percentage of Fire Protection’s total revenue to 52% in 2010, as compared to 49% and
48% in 2009 and 2008, respectively. Net revenue was also favorably impacted by approximately
2010 Financials 35