<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission file number 0-16979
- --------------------------------------------------------------------------------
ADT LIMITED
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
BERMUDA Cedar House Not Applicable
(Jurisdiction of Incorporation or 41 Cedar Avenue (I.R.S. Employer Identification
Organization) Hamilton HM12, Bermuda No.)
(Address of Principal Executive
Offices)* Not Applicable
(Zip Code)
</TABLE>
Registrant's telephone number, including area code (441) 295-2244* *See page i
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
At November 4, 1996, the number of shares outstanding of the registrant's
common shares par value $0.10 per share was 141,119,159 shares. A subsidiary of
ADT Limited owns 3,182,787 common shares which are included in the number
outstanding.
<PAGE> 2
ADT LIMITED
INDEX TO FORM 10-Q
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PAGE
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<S> <C> <C>
CONSOLIDATED STATEMENTS OF INCOME FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 . . . . . . . . 2
CONSOLIDATED BALANCE SHEETS AT SEPTEMBER 30, 1996 AND
DECEMBER 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 . . . . . . . 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SIGNATURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
The consolidated financial statements were approved by the board of directors
on November 4, 1996.
REGISTERED AND PRINCIPAL EXECUTIVE OFFICES
The registered and principal executive offices of ADT Limited are located at
Cedar House, 41 Cedar Avenue, Hamilton HM12, Bermuda. The executive offices of
the subsidiary which supervises the Company's North American activities are
located in the United States at One Boca Place, 2255 Glades Road, Suite 421A,
Boca Raton, Florida 33431. The telephone number there is (561) 997-8406.
i
<PAGE> 3
ADT LIMITED
PART I FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30 1996 1995
$m $m
<S> <C> <C>
NET SALES 1,261.6 1,325.8
Cost of sales (674.2) (734.5)
Selling, general and administrative expenses (422.6) (413.6)
Charge for the impairment of long-lived assets (744.7) -
------- -------
OPERATING (LOSS) INCOME (579.9) 177.7
Interest income 18.2 12.3
Interest expense (78.6) (89.2)
Gain (loss) on disposal of businesses 1.7 (5.4)
Other income less expenses 1.4 (4.9)
------- -------
(LOSS) INCOME BEFORE INCOME TAXES (637.2) 90.5
Income taxes (14.5) (29.6)
------- -------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEMS (651.7) 60.9
Extraordinary items (5.8) (8.0)
------- -------
NET (LOSS) INCOME (657.5) 52.9
======= =======
PRIMARY (LOSS) EARNINGS PER COMMON SHARE $ $
(Loss) income before extraordinary items (4.77) 0.44
Extraordinary items (0.04) (0.06)
------- -------
NET (LOSS) INCOME PER COMMON SHARE (4.81) 0.38
======= =======
</TABLE>
See notes to consolidated financial statements
1
<PAGE> 4
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30 1996 1995
$m $m
<S> <C> <C>
NET SALES 427.9 444.0
Cost of sales (229.1) (246.9)
Selling, general and administrative expenses (151.7) (136.6)
------- -------
OPERATING INCOME 47.1 60.5
Interest income 5.4 4.7
Interest expense (24.5) (30.4)
Gain (loss) on disposal of businesses 1.7 (0.5)
Other income less expenses 0.7 0.9
------- -------
INCOME BEFORE INCOME TAXES 30.4 35.2
Income taxes (7.2) (9.2)
------- -------
INCOME BEFORE EXTRAORDINARY ITEMS 23.2 26.0
Extraordinary items (4.6) (8.0)
------- -------
NET INCOME 18.6 18.0
======= =======
PRIMARY EARNINGS PER COMMON SHARE $ $
Income before extraordinary items 0.16 0.19
Extraordinary items (0.03) (0.06)
------- -------
NET INCOME PER COMMON SHARE 0.13 0.13
======= =======
</TABLE>
See notes to consolidated financial statements
2
<PAGE> 5
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
$m $m
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents 141.8 350.9
Accounts receivable - net 261.9 196.4
Inventories 38.0 38.0
Prepaid expenses and other current assets 46.4 34.5
--------- --------
Total current assets 488.1 619.8
Property, plant and equipment - net 1,545.0 1,571.3
Goodwill and other intangibles - net 448.6 1,053.6
Long-term investments 87.4 2.0
Investment in and loans to associate - 88.8
Other long-term assets 75.6 84.2
--------- --------
TOTAL ASSETS 2,644.7 3,419.7
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt 44.4 44.9
Accounts payable 160.0 112.0
Other current liabilities 203.1 227.2
--------- --------
Total current liabilities 407.5 384.1
Long-term debt 1,027.6 1,174.8
Deferred revenue 151.2 137.4
Deferred income taxes 147.8 142.4
Other long-term liabilities 122.5 135.2
Minority interests - 15.6
--------- --------
Total liabilities 1,856.6 1,989.5
--------- --------
Convertible redeemable preference shares 4.9 4.9
Shareholders' equity:
Common shares 14.1 13.9
Additional paid-in capital
Share premium 876.7 858.0
Contributed surplus 1,563.1 1,563.1
Treasury shares (79.7) (79.7)
Accumulated deficit (1,561.1) (903.4)
Cumulative currency translation adjustments (29.9) (26.6)
--------- --------
Total shareholders' equity 783.2 1,425.3
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 2,644.7 3,419.7
========= ========
</TABLE>
See notes to consolidated financial statements
3
<PAGE> 6
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30 1996 1995
$m $m
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income (657.5) 52.9
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Charge for the impairment of long-lived assets 744.7 -
Depreciation and goodwill and other intangibles amortization 165.1 185.3
Interest on ITS Vendor Note (6.5) -
Liquid Yield Option Notes discount amortization 15.1 4.6
Yield maintenance amortization - senior notes 1.5 0.8
Refinancing costs amortization 2.8 4.4
Deferred income taxes 6.9 20.9
Extraordinary items 5.8 8.0
(Gain) loss on disposal of businesses (1.7) 5.4
(Gain) loss on disposal of investment in associates (1.2) 5.1
Other (2.5) (1.6)
Changes in assets and liabilities (39.5) (34.2)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 233.0 251.6
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment - net (247.1) (230.3)
Acquisition of businesses (25.5) (5.1)
Disposal of businesses 3.0 -
Purchase of customer contracts (20.2) -
Disposal of investment in and loans to associates 15.4 7.8
Purchase of other investments (3.8) -
Other (0.5) 6.6
------- -------
NET CASH UTILIZED BY INVESTING ACTIVITIES (278.7) (221.0)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of short-term debt (3.1) (24.9)
Repayments of long-term debt (208.2) (210.0)
Proceeds from long-term debt 53.7 310.5
Debt refinancing costs - (11.8)
Purchase of senior subordinated notes (24.0) (10.3)
Proceeds from issue of common shares 19.0 6.2
Other (0.3) (4.4)
------- -------
NET CASH (UTILIZED) PROVIDED BY FINANCING ACTIVITIES (162.9) 55.3
------- -------
EFFECT OF CURRENCY TRANSLATION ON CASH AND CASH EQUIVALENTS (0.5) 0.7
------- -------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (209.1) 86.6
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 350.9 221.9
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 141.8 308.5
======= =======
</TABLE>
See notes to consolidated financial statements
4
<PAGE> 7
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(i) BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements
incorporate the financial statements of ADT Limited ("ADT"), a company
incorporated in Bermuda, and its subsidiaries (the "Company") and have been
prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X and in accordance with generally accepted accounting principles
in the United States. Accordingly, these unaudited interim consolidated
financial statements do not include all of the disclosures required by
generally accepted accounting principles for annual consolidated financial
statements. In the opinion of management, all adjustments considered necessary
for fair presentation have been included; all such adjustments are of a normal,
recurring nature, except for the acquisition of Automated Security (Holdings)
PLC ("ASH") as discussed in note (ii), and except as discussed in note (iv)
where, effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, and except for the acquisition of Alert Centre,
Inc. ("Alert") as discussed in note (xi). The preparation of consolidated
financial statements in accordance with generally accepted accounting
principles in the United States requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. Certain figures at December 31, 1995 and for the nine months and
three months ended September 30, 1995 have been reclassified to conform to the
1996 presentation. In particular, corporate expenses have been reclassified
from other income less expenses to a separate component of operating income.
This reclassification has had no net effect on the reported earnings for income
before income taxes and net income. Results of operations for the nine months
and three months ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the full year ending December 31, 1996. For
further information, see the Company's consolidated financial statements,
including the accounting policies and notes thereto, included in the Annual
Report on Form 10-K for the year ended December 31, 1995. ADT Limited is a
holding company with no independent business operations or assets other than
its investment in its subsidiaries, intercompany balances and holdings of cash
and cash equivalents. ADT Limited's businesses are conducted through its
subsidiaries.
(ii) ACQUISITION OF AUTOMATED SECURITY (HOLDINGS) PLC
In September 1996 ADT acquired the whole of the issued capital of ASH, a United
Kingdom company. Under the terms of the transaction, ASH shareholders received
3 ADT common shares for every 92 ASH ordinary shares, 2 ADT common shares for
every 31 ASH 5 per cent convertible cumulative redeemable preference shares and
2 ADT common shares for every 31 ASH 6 per cent convertible cumulative
redeemable preference shares. The total consideration in respect of the whole
of the issued capital of ASH consisted of the issue of 7,034,940 ADT common
shares.
ASH is engaged in the provision of electronic security services in North
America and Europe. The acquisition of ASH by ADT has been accounted for by
means of the pooling of interests method of accounting pursuant to Opinion No.
16 of the Accounting Principles Board. The pooling of interests method of
accounting assumes that the combining companies have been merged from their
inception, and the historical consolidated financial statements for periods
prior to consummation of the merger are restated as
5
<PAGE> 8
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(ii) ACQUISITION OF AUTOMATED SECURITY (HOLDINGS) PLC (continued)
though the companies have been combined from their inception. Accordingly, the
accompanying consolidated financial statements give effect to the transaction
by means of a pooling of interests.
The accompanying unaudited interim consolidated financial statements should be
read in conjunction with (a) ADT's consolidated financial statements, including
the accounting policies and notes thereto, included in the Annual Report on
Form 10-K for the year ended December 31, 1995, (b) ASH's consolidated
financial statements, including the accounting policies and notes thereto,
included in the Registrant's Current Report dated September 5, 1996 on Form
8-K/A-1 filed October 21, 1996 and (c) the Registrant's Current Report dated
September 5, 1996 on Form 8-K/A-2 filed November 12, 1996.
The accompanying unaudited interim consolidated financial statements have been
prepared in United States dollars in accordance with generally accepted
accounting principles in the United States. The consolidated financial
statements of ASH have previously been presented in pounds sterling, ASH's
functional currency. For the purposes of the accompanying unaudited interim
consolidated financial statements, ASH's consolidated financial statements have
been translated into United States dollars at the appropriate exchange rates.
In addition, ASH's financial year end is November 30, with appropriate
quarterly period ends of February 28, May 31, and August 31. It is these
periods which have been used to give effect to the pooling of interests with
ADT without adjustment. Certain figures at December 31, 1995 and for the nine
months and three months ended September 30, 1995 have been reclassified to
conform to the 1996 presentation. In addition, certain figures of ASH for all
periods presented have been reclassified to conform to the ADT presentation.
Combined and separate results of ADT and ASH for the periods preceding the
merger were as follows:
<TABLE>
<CAPTION>
ADT Group ASH Group Adjustments Combined
$m $m $m $m
<S> <C> <C> <C> <C>
Six months ended June 30, 1996
Net sales 715.6 118.1 - 833.7
Extraordinary items (1.2) - - (1.2)
Net loss (347.7) (328.9) 0.5(a) (676.1)
------- ------- ---- -------
Nine months ended September 30, 1995
Net sales 1,134.4 191.4 - 1,325.8
Extraordinary items (8.0) - - (8.0)
Net income (loss) 75.3 (20.5) (1.9)(b) 52.9
------- ------- ---- -------
</TABLE>
(a) Income tax adjustment arising on preference share dividends accrued
by the ASH group but not payable following merger.
6
<PAGE> 9
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(ii) ACQUISITION OF AUTOMATED SECURITY (HOLDINGS) PLC (continued)
(b) Income tax adjustment of $0.3 million credit referred to in (a)
above, and cumulative currency translation adjustments of $2.2 million arising
on the disposal of businesses and associates by the ASH group whose
consolidated financial statements were prepared in pounds sterling - its
functional currency.
(iii) BUSINESS SEGMENTS
<TABLE>
<CAPTION>
Nine months ended September 30 1996 1995
$m $m
<S> <C> <C>
NET SALES
Electronic security services 1,038.8 996.3
Vehicle auction services 222.8 329.5
-------- --------
1,261.6 1,325.8
======== ========
OPERATING (LOSS) INCOME
Electronic security services (572.6) 139.0
Vehicle auction services 20.4 60.2
Corporate (27.7) (21.5)
-------- --------
(579.9) 177.7
======== ========
Three months ended September 30 1996 1995
$m $m
NET SALES
Electronic security services 355.0 337.5
Vehicle auction services 72.9 106.5
-------- --------
427.9 444.0
======== ========
OPERATING INCOME
Electronic security services 52.5 50.0
Vehicle auction services 9.7 17.2
Corporate (15.1) (6.7)
-------- --------
47.1 60.5
======== ========
</TABLE>
Net sales and operating (loss) income of the electronic security services and
vehicle auction services divisions are discussed in Item 2.
7
<PAGE> 10
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(iii) BUSINESS SEGMENTS (continued)
Corporate costs for the nine months ended September 30, 1996 included $11.3
million related to professional and other transaction costs arising in
connection with the merger of ADT and ASH and the terminated merger with
Republic Industries, Inc. ("Republic"), together with various refinancing costs
incurred by the ASH group prior to the merger with ADT of $1.6 million (1995 -
$2.6 million).
Corporate costs for the three months ended September 30, 1996 included $10.9
million related to professional and other transaction costs arising in
connection with the merger of ADT and ASH and the terminated merger with
Republic, together with, in respect of 1995, various refinancing costs incurred
by the ASH group of $0.6 million.
(iv) CHARGE FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company was required to adopt Statement of
Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
As a result of the adoption of SFAS 121, in the first quarter of 1996 the
Company recorded an aggregate non-cash charge for the impairment of long-lived
assets of $744.7 million, as a separate line item in the consolidated
statements of income, with a consequential tax credit of $10.8 million. The
$744.7 million impairment charge comprised $731.7 million relating to the
electronic security services division and $13.0 million relating to the vehicle
auction services division.
The impairment charge in the electronic security services division comprised
$397.1 million relating to the ADT group all of which related to the carrying
value of goodwill and other intangibles, with no consequential tax effect, and
$334.6 million relating to the ASH group, of which $121.0 million related to
the carrying value of subscriber systems installed at customers' premises which
are included in property, plant and equipment, and $213.6 million related to
the carrying value of goodwill and other intangibles, with a consequential tax
credit of $10.8 million.
The impairment charge in the vehicle auction services division comprised $13.0
million relating to the ADT group all of which related to the carrying value of
goodwill and other intangibles, with no consequential tax effect.
Further details are set out in the Company's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1996.
(v) INTEREST INCOME AND INTEREST EXPENSE
Interest income and interest expense are discussed in Item 2.
8
<PAGE> 11
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(vi) OTHER INCOME LESS EXPENSES
During the nine months ended September 30, 1996 other income less expenses
included non-recurring net gains of $1.2 million (note (x)) (1995 - $5.1
million net losses) relating to the disposal of investment in associates.
During the three months ended September 30, 1995 other income less expenses
included non-recurring net gains of $1.6 million relating to the disposal of
investment in associates.
(vii) EXTRAORDINARY ITEMS
In September 1996 the Company repaid in full all amounts owed by the ASH group
under its senior notes and existing bank credit agreement, which was financed
from cash on hand and loans drawn under the revolving bank credit agreement.
Extraordinary items included the loss arising on repayment of $4.2 million and
the write off of net unamortized deferred refinancing costs of $0.4 million
relating to the early extinguishment of all amounts outstanding under the
senior notes and bank credit agreement owed by the ASH group, with no
consequential tax effect.
During the second quarter of 1996 and the third quarter of 1995 the Company
reacquired in the market certain of its senior subordinated notes, which was
financed from cash on hand. Extraordinary items included the loss arising on
reacquisition of $0.8 million (1995 - $0.5 million gain) and the write off of
net unamortized deferred refinancing costs of $0.6 million (1995 - $0.3
million) relating to the early extinguishment of certain amounts outstanding
under the senior subordinated notes, and were stated net of applicable income
taxes of $0.2 million (1995 - $0.1 million).
In July 1995 the Company repaid in full all amounts owed by the ADT group under
the previous bank credit agreement which was subsequently cancelled. The
Company funded the repayment from the net proceeds of the issue of its zero
coupon subordinated Liquid Yield Option Notes. Extraordinary items in 1995
included the write off of net unamortized deferred refinancing costs of $12.8
million relating to the early extinguishment of all amounts outstanding under
the previous bank credit agreement owed by the ADT group, and were stated net
of applicable income taxes of $4.5 million.
(viii) EARNINGS PER COMMON SHARE
The calculation of primary (loss) earnings per common share in the nine months
ended September 30, 1996 was based on the weighted average of 136,823,772 (1995
- - 137,813,540) common shares in issue during the period, which in 1996 did not
allow for the allotment of common shares under executive share option schemes,
which are considered common stock equivalents, because their effect was
anti-dilutive as a consequence of the net loss for the period. Common stock
equivalents included in the weighted average number of common shares in issue
during the nine months ended September 30, 1995 was 2,554,132. Primary (loss)
earnings per common share was based on adjusted net loss of $657.7 million
(1995 - $52.6 million net income).
9
<PAGE> 12
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(viii) EARNINGS PER COMMON SHARE (continued)
The calculation of primary earnings per common share in the three months ended
September 30, 1996 was based on the weighted average of 143,650,559 (1995 -
138,885,822) common shares in issue during the period after allowing for the
allotment of common shares under executive share option schemes and the full
conversion rights attaching to non-voting exchangeable shares which are
considered common stock equivalents. Primary earnings per common share was
based on adjusted net income available to common shareholders of $18.6 million
(1995 - $17.9 million).
(ix) INVENTORIES
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
$m $m
<S> <C> <C>
Raw materials and consumables 9.5 8.8
Work in process 15.7 14.1
Finished goods 12.8 15.1
----- -----
38.0 38.0
===== =====
</TABLE>
(x) INVESTMENT IN AND LOANS TO ASSOCIATE
In February 1996, the Company disposed of its entire interest in Shareholder
Loan Notes with an issue price of $13.9 million and valued by the Company at
$13.3 million and 33.1 per cent of the ordinary share capital of ITS valued by
the Company at $0.9 million, for an aggregate cash consideration of $15.4
million. The net gain arising on the transaction amounted to $1.2 million which
was included in other income less expenses (note (vi)).
As a result of the above transaction, the Company now holds a 10.0 per cent
interest in the ordinary share capital of ITS, valued by the Company at a
nominal amount, together with the Vendor Note, which at September 30, 1996 is
disclosed as a long-term investment amounting to $81.8 million.
(xi) MINORITY INTERESTS
In February 1996, following approval by Alert's shareholders, Alert was merged
into the Company and, as a result, those shares then held by the minority
shareholders and not owned by the Company were converted into the right to
receive in cash the price paid per share by the Company in the initial tender
offer. Accordingly, the minority interest outstanding at December 31, 1995 has
been eliminated.
10
<PAGE> 13
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(xii) COMMON SHARES
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
<S> <C> <C>
Number of common shares of $0.10 each:
Authorized 220,000,000 220,000,000
Issued and outstanding 140,824,159 138,885,405
</TABLE>
In July 1996, as part of the then agreement to combine with Republic, ADT
issued to Republic a warrant to acquire 15 million common shares of ADT at an
exercise price of $20 per common share. Following termination of the agreement
to combine with Republic, the warrant is exercisable by Republic in the six
month period commencing September 27, 1996.
11
<PAGE> 14
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(xiii) ADT OPERATIONS, INC.
ADT Operations, Inc., a company incorporated in the State of Delaware, United
States, is an indirect wholly owned subsidiary of ADT Limited. ADT Operations,
Inc. is a holding company that, through its subsidiaries, conducts a
substantial proportion of the Company's electronic security services business
in the United States and all of the Company's vehicle auction services business
in the United States. ADT Operations, Inc. has no independent business
operations or assets other than its investment in its subsidiaries,
intercompany balances and holdings of cash and cash equivalents.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Nine months ended September 30 1996 1995
$m $m
<S> <C> <C>
NET SALES 899.0 811.8
Cost of sales (444.2) (399.9)
Selling, general and administrative expenses (307.9) (269.9)
Charge for the impairment of long-lived assets (316.4) -
------- -------
OPERATING (LOSS) INCOME (169.5) 142.0
Interest income - affiliates 0.3 -
Interest income - non-affiliates 2.1 2.0
Interest expense - affiliates (23.9) (16.4)
Interest expense - non-affiliates (56.0) (60.4)
Gain on disposal of assets to affiliates 26.8 -
Other expenses less income (5.2) (4.8)
------- -------
(LOSS) INCOME BEFORE INCOME TAXES (225.4) 62.4
Income taxes (19.7) (20.7)
------- -------
(LOSS) INCOME BEFORE EXTRAORDINARY ITEMS (245.1) 41.7
Extraordinary items (0.4) (8.5)
------- -------
NET (LOSS) INCOME (245.5) 33.2
======= =======
</TABLE>
12
<PAGE> 15
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(xiii) ADT OPERATIONS, INC. (continued)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended September 30 1996 1995
$m $m
<S> <C> <C>
NET SALES 305.9 273.9
Cost of sales (152.6) (135.6)
Selling, general and administrative expenses (105.3) (91.1)
------- -------
OPERATING INCOME 48.0 47.2
Interest income - affiliates 0.3 -
Interest income - non-affiliates 0.6 1.2
Interest expense - affiliates (8.4) (5.8)
Interest expense - non-affiliates (18.6) (20.5)
Other expenses less income (2.1) (1.5)
------- -------
INCOME BEFORE INCOME TAXES 19.8 20.6
Income taxes (5.6) (6.4)
------- -------
INCOME BEFORE EXTRAORDINARY ITEMS 14.2 14.2
Extraordinary items - (8.5)
------- -------
NET INCOME 14.2 5.7
======= =======
</TABLE>
13
<PAGE> 16
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(xiii) ADT OPERATIONS, INC. (continued)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
$m $m
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents 71.6 54.0
Accounts receivable - net - affiliates 48.2 28.9
Accounts receivable - net - non-affiliates 196.0 132.8
Inventories 19.5 17.2
Prepaid expenses and other current assets 14.3 6.9
-------- --------
Total current assets 349.6 239.8
Long-term notes receivable - affiliates 50.3 -
Property, plant and equipment - net 1,141.4 1,049.1
Goodwill and other intangibles - net 340.8 698.4
Other long-term assets 26.3 28.9
-------- --------
TOTAL ASSETS 1,908.4 2,016.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt - non-affiliates 41.2 36.3
Accounts payable - affiliates 21.4 9.6
Accounts payable - non-affiliates 130.9 75.2
Other current liabilities - non-affiliates 115.3 127.5
-------- --------
Total current liabilities 308.8 248.6
Long-term debt - affiliates 187.9 130.2
Long-term debt - non-affiliates 922.1 895.4
Deferred revenue 70.7 67.3
Deferred income taxes 109.8 92.9
Other long-term liabilities - affiliates 120.5 129.8
Other long-term liabilities - non-affiliates 94.0 96.3
Minority interests - 15.6
-------- --------
Total liabilities 1,813.8 1,676.1
-------- --------
Shareholders' equity:
Common shares - -
Contributed surplus 858.5 858.5
Accumulated deficit (763.9) (518.4)
-------- --------
Total shareholders' equity 94.6 340.1
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 1,908.4 2,016.2
======== ========
</TABLE>
14
<PAGE> 17
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(xiii) ADT OPERATIONS, INC. (continued)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended September 30 1996 1995
$m $m
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income (245.5) 33.2
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Charge for the impairment of long-lived assets 316.4 -
Depreciation and goodwill and other intangibles amortization 114.0 101.9
Liquid Yield Option Notes discount amortization 15.1 4.6
Refinancing costs amortization 2.4 4.1
Deferred income taxes 17.1 18.2
Extraordinary items 0.4 8.5
Gain on disposal of assets to affiliates (26.8) -
Other (2.6) (1.1)
Changes in assets and liabilities (32.4) (19.6)
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 158.1 149.8
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property, plant and equipment - net (200.0) (158.5)
Long-term notes receivable - affiliates (50.0) -
Acquisition of businesses from non-affiliates (25.5) (0.9)
Purchase of customer contracts (4.0) -
Disposal of assets to affiliates 73.5 -
Other (1.2) (0.5)
------- -------
NET CASH UTILIZED BY INVESTING ACTIVITIES (207.2) (159.9)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of short-term debt - non-affiliates (2.6) (22.1)
Proceeds from long-term debt - affiliates 34.3 5.0
Repayments of long-term debt - non-affiliates (15.0) (209.6)
Proceeds from long-term debt - non-affiliates 50.0 297.4
Debt refinancing costs - (11.8)
Other - (2.2)
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 66.7 56.7
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 17.6 46.6
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 54.0 78.3
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 71.6 124.9
======= =======
</TABLE>
15
<PAGE> 18
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(xiii) ADT OPERATIONS, INC. (continued)
<TABLE>
<CAPTION>
BUSINESS SEGMENTS
Nine months ended September 30 1996 1995
$m $m
<S> <C> <C>
NET SALES
Electronic security services 676.2 606.0
Vehicle auction services 222.8 205.8
------- -------
899.0 811.8
======= =======
OPERATING (LOSS) INCOME
Electronic security services (190.5) 112.9
Vehicle auction services 20.4 29.6
Corporate 0.6 (0.5)
------- -------
(169.5) 142.0
======= =======
Three months ended September 30 1996 1995
$m $m
NET SALES
Electronic security services 233.0 207.0
Vehicle auction services 72.9 66.9
------- -------
305.9 273.9
======= =======
OPERATING INCOME
Electronic security services 36.7 38.9
Vehicle auction services 9.7 8.4
Corporate 1.6 (0.1)
------- -------
48.0 47.2
======= =======
</TABLE>
16
<PAGE> 19
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(xiii) ADT OPERATIONS, INC. (continued)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
$m $m
<S> <C> <C>
INVENTORIES
Raw materials and consumables 6.7 6.5
Work in process 9.2 7.4
Finished goods 3.6 3.3
----- ------
19.5 17.2
===== ======
</TABLE>
LONG-TERM DEBT - NON-AFFILIATES
Under the terms of the indenture governing the ADT Operations, Inc. senior
subordinated notes a payment blockage prevents ADT Operations, Inc. and its
guarantor subsidiaries and ADT Limited from making any payment of principal,
interest or premium on the senior subordinated notes and from purchasing,
redeeming or otherwise acquiring any senior subordinated notes during the
continuance of any payment blockage period. No payment blockage is currently in
effect.
At September 30, 1996, ADT Operations, Inc. had $381.2 million of Senior
Indebtedness comprised of $50.0 million of Senior Indebtedness related to loans
under the revolving bank credit agreement, $81.2 million of Senior Indebtedness
related to letters of credit issued under the terms of the revolving bank
credit agreement and $250.0 million of Senior Indebtedness related to the
Senior Notes, (in each case as defined in the Senior Subordinated Note
Indenture).
At September 30, 1996, ADT Limited had no Guarantor Senior Indebtedness (as
defined in the Senior Note Indenture, but excluding Indebtedness in respect of
guarantees issued by ADT Limited of debt of ADT Operations, Inc. or its
subsidiaries). At September 30, 1996, the subsidiary guarantors had $47.6
million of Guarantor Senior Indebtedness (as defined in the Senior Note
Indenture), in each case ranking pari passu in right of payment with the Senior
Note Guarantees.
All of the subsidiary guarantors under the senior notes and the revolving bank
credit agreement are direct or indirect, wholly owned subsidiaries of ADT
Operations, Inc. Separate financial statements and other disclosures for the
subsidiary guarantors are not included herein because the subsidiary guarantors
have guaranteed the senior notes on a joint and several basis, the aggregate
assets, liabilities, earnings and equity of the subsidiary guarantors are
substantially equivalent to the assets, liabilities, earnings and equity of ADT
Operations, Inc. on a consolidated basis and such separate financial statements
and other disclosures are not considered material to investors.
17
<PAGE> 20
ADT LIMITED
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (continued)
(xiii) ADT OPERATIONS, INC. (continued)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
COMMON SHARES
<S> <C> <C>
Number of common shares of $0.10 each:
Authorized 10,000 10,000
Issued and outstanding 1,820 1,820
</TABLE>
18
<PAGE> 21
ADT LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion of results of operations addresses net sales,
operating income and certain other line items in the consolidated financial
statements. The discussion is based on the segmental information set out below.
NET SALES
<TABLE>
<CAPTION>
Nine months ended September 30 1996 1995
$m $m
<S> <C> <C>
Electronic security services 1,038.8 996.3
Vehicle auction services 222.8 329.5
-------- --------
Net sales 1,261.6 1,325.8
======== ========
OPERATING (LOSS) INCOME AND (LOSS) INCOME BEFORE INCOME TAXES
Nine months ended September 30 1996 1995
$m $m
Electronic security services (572.6) 139.0
Vehicle auction services 20.4 60.2
Corporate expenses (27.7) (21.5)
-------- --------
Operating (loss) income (579.9) 177.7
-------- --------
Interest income 18.2 12.3
Interest expense (78.6) (89.2)
Gain (loss) on disposal of businesses 1.7 (5.4)
Other income less expenses 1.4 (4.9)
-------- --------
(Loss) income before income taxes (637.2) 90.5
======== ========
Charge for the impairment of long-lived assets 744.7 -
Depreciation and goodwill and other intangibles amortization 165.1 185.3
Capital expenditures 252.0 236.5
</TABLE>
The charge for the impairment of long-lived assets, other income less expenses
and corporate expenses are discussed in Item 1.
19
<PAGE> 22
ADT LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
NET SALES
<TABLE>
<CAPTION>
Three months ended September 30 1996 1995
$m $m
<S> <C> <C>
Electronic security services 355.0 337.5
Vehicle auction services 72.9 106.5
------ ------
Net sales 427.9 444.0
====== ======
OPERATING INCOME AND INCOME BEFORE INCOME TAXES
Three months ended September 30 1996 1995
$m $m
Electronic security services 52.5 50.0
Vehicle auction services 9.7 17.2
Corporate expenses (15.1) (6.7)
------ ------
Operating income 47.1 60.5
------ ------
Interest income 5.4 4.7
Interest expense (24.5) (30.4)
Gain (loss) on disposal of businesses 1.7 (0.5)
Other income less expenses 0.7 0.9
------ ------
Income before income taxes 30.4 35.2
====== ======
Depreciation and goodwill and other intangibles amortization 57.2 60.6
Capital expenditures 91.8 82.7
</TABLE>
Corporate expenses and other income less expenses are discussed in Item 1.
20
<PAGE> 23
ADT LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
ELECTRONIC SECURITY SERVICES - RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Net sales of the division, which represented approximately 82 per cent of the
Company's consolidated net sales, increased 4.3 per cent in 1996 to $1,038.8
million from $996.3 million in 1995. This sales increase was attributable to an
increase of $83.0 million in the sales of the North American operations offset
by a $40.5 million decline in the sales of the European operations, which was
due to the exclusion of sales of the European electronic article surveillance
operation and certain businesses operating in the ASH group, all of which were
disposed of during 1995. In North America the increase in sales was due to the
first time inclusion of the sales of Alert which was acquired in December 1995,
as well as increased recurring monitoring and maintenance revenues arising
from a larger base of residential security systems. Although unit residential
security systems sales in North America increased in 1996 compared to 1995,
due to price competition in the market place, residential installation
revenues in North America showed a modest decline in 1996 compared with 1995.
The commercial business in the United States experienced modest growth in new
system sales and installation revenues, and growth in recurring commercial
revenues continues to be affected by these factors. In Europe, after allowing
for business disposals, sales showed a modest increase in 1996 compared with
1995.
Operating results of the division declined from $139.0 million income in 1995
to a $572.6 million loss in 1996, due to a charge for the impairment of
long-lived assets of $731.7 million.
Operating income of the division before the charge for the impairment of
long-lived assets increased 14.5 per cent in 1996 to $159.1 million from $139.0
million in 1995. Operating income before the charge for the impairment of
long-lived assets as a percentage of net sales ("Operating margin") increased
to 15.3 per cent in 1996 from 14.0 per cent in 1995. The increase in operating
income before the charge for the impairment of long-lived assets principally
reflected the first time inclusion of Alert, the disposal of the European
electronic article surveillance operation in November 1995, and the continuing
success of the North American residential security system sales program, which
has achieved further advances in recurring revenues in 1996. However, this
improvement has been offset by continued price competition, which has caused
the contribution from residential installation revenues and outright
residential sales to show a modest decline, and by increased marketing and
selling costs.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales of the division, which represented approximately 83 per cent of the
Company's consolidated net sales for the quarter, increased 5.2 per cent in
1996 to $355.0 million from $337.5 million in the third quarter of 1995. This
sales increase was attributable to an increase of $28.2 million in the sales of
the North American operations offset by a $10.7 million decline in the sales of
the European operations, which was due to the exclusion of sales of the
European electronic article surveillance operation and certain businesses
operating in the ASH group, all of which were disposed of during 1995. In North
America the increase in sales was due to the first time inclusion of the sales
of Alert which was acquired in December 1995, as well as increased recurring
monitoring and maintenance revenues arising from a larger base of residential
security systems. Although unit residential security systems sales in North
America increased in the third quarter of 1996 compared with the third quarter
of 1995, due to price competition in the market place, residential
21
<PAGE> 24
ADT LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
installation revenues in North America showed a modest decline in the third
quarter of 1996 compared with 1995. The commercial business in the United
States remained flat in installation revenues, and there was a modest increase
in new system sales, and growth in recurring commercial revenues continues to be
affected by these factors. In Europe, after allowing for business disposals,
sales showed a modest increase in 1996 compared with 1995.
Operating income of the division increased 5.0 per cent in 1996 to $52.5
million from $50.0 million in the third quarter of 1995. Operating margin
remained flat at 14.8 per cent in the third quarter of 1996 compared to the
third quarter of 1995. The continuing success in North America of the
residential security systems sales program and the related increase in
recurring revenues were offset by increased marketing, selling and service
costs, and by continued price competition, which has caused the contribution
from residential installation revenues and outright residential sales to show a
modest decline.
VEHICLE AUCTION SERVICES - RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Net sales of the vehicle auction services division declined from $329.5 million
in 1995 to $222.8 million in 1996 due to the exclusion of the sales of
European Auctions which was sold in December 1995.
Net sales of the United States vehicle auction services business, which
represented approximately 18 per cent of the Company's consolidated net sales,
increased 8.3 per cent in 1996 to $222.8 million from $205.8 million in 1995.
The volume of vehicles sold increased by approximately 6 per cent which was
principally due to an increase in the volume of vehicles sold for fleet lease
customers of approximately 34 per cent, while the volume of vehicles sold for
vehicle manufacturers and new and used vehicle dealers declined by
approximately 9 per cent and approximately 1 per cent, respectively.
Operating results of the division declined from $60.2 million in 1995 to $20.4
million in 1996 due to a charge for the impairment of long-lived assets of
$13.0 million and the exclusion of the operating income of European Auctions.
Operating income before the charge for the impairment of long-lived assets of
the United States vehicle auction services business increased to $33.4 million
in 1996 from $29.6 million in 1995. Operating margin increased to 15.0 per cent
in 1996 from 14.4 per cent in 1995. The increases in operating income and
Operating margin were due principally to the increase in volume of vehicles
sold and to an increase in the ratio of vehicles sold to vehicles entered for
sale to approximately 57 per cent in 1996 from approximately 56 per cent in
1995 which was due to a higher proportion of vehicles entered for sale by fleet
lease customers.
22
<PAGE> 25
ADT LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales of the vehicle auction services division declined from $106.5 million
in 1995 to $72.9 million in 1996 due to the exclusion of the sales of European
Auctions which was sold in December 1995.
Net sales of the United States vehicle auction services business, which
represented approximately 17 per cent of the Company's consolidated net sales
for the quarter, increased 9.0 per cent in 1996 to $72.9 million from $66.9
million in the third quarter of 1995. The volume of vehicles sold increased by
approximately 7 per cent which was principally due to an increase in the volume
of vehicles sold for fleet lease customers of approximately 31 per cent, while
the volume of vehicles sold for vehicle manufacturers and new and used vehicle
dealers declined by approximately 5 per cent and approximately 3 per cent,
respectively.
Operating results of the division declined from $17.2 million in 1995 to $9.7
million in 1996 due to the exclusion of the operating income of European
Auctions.
Operating income of the United States vehicle auction services business
increased to $9.7 million in 1996 from $8.4 million in the third quarter of
1995. Operating margin increased to 13.3 per cent in 1996 from 12.6 per cent in
1995. The increases in operating income and Operating margin were due
principally to the increase in the volume of vehicles sold.
The Company announced on November 6, 1996 that it intends to sell its vehicle
auction operations in the United States in order to further concentrate on the
expansion of the Company's electronic security services business.
INTEREST INCOME AND INTEREST EXPENSE
<TABLE>
<CAPTION>
Nine months ended September 30 1996 1995
$m $m
<S> <C> <C>
Interest income 18.2 12.3
Interest expense (78.6) (89.2)
Three months ended September 30 1996 1995
$m $m
Interest income 5.4 4.7
Interest expense (24.5) (30.4)
</TABLE>
During the nine months and three months ended September 30, 1996 interest
income included $6.5 million and $2.2 million, respectively, relating to the
ITS Vendor Note.
Interest expense declined in 1996, principally due to the effects of the
refinancing which took place in the third quarter of 1995. During the nine
months ended September 30, 1996 interest expense included $15.1 million (1995 -
$4.6 million) relating to Liquid Yield Option Notes discount amortization, $1.5
million (1995 - $0.8 million) relating to yield maintenance amortization -
senior notes and $2.8 million (1995 - $4.4 million) relating to refinancing
costs amortization. During the three months ended September 30, 1996 interest
expense included $5.1 million (1995 - $4.6 million) relating to Liquid Yield
Option Notes discount
23
<PAGE> 26
ADT LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
amortization, $0.5 million (1995 - $0.3 million) relating to yield maintenance
amortization - senior notes and $0.9 million (1995 - $1.4 million) relating to
refinancing costs amortization.
LIQUIDITY AND CAPITAL RESOURCES
The net decrease in cash and cash equivalents amounted to $209.1 million, after
the negative effect of currency translation on cash and cash equivalents of
$0.5 million. Net cash of $233.0 million provided by operating activities was
offset by net cash utilized by investing activities of $278.7 million and
$162.9 million utilized by financing activities.
Net cash provided by operating activities of $233.0 million principally
included cash provided by the Company's electronic security services and
vehicle auction services divisions less other expenses and adjusted for the net
increase in working capital. Within the net increase of $39.5 million in
working capital, net increases in accounts receivable of $65.6 million and
other assets of $7.9 million were offset by a net increase in liabilities of
$34.0 million, principally relating to increases in accounts payable and
deferred revenue and a decrease in other liabilities. The movements in
accounts receivable and accounts payable were principally due to the timing of
cash receipts and payments in the vehicle auction business in respect of
vehicle sales which took place in the latter part of September 1996. The
movement in deferred revenue was principally due to the timing of billings
within the electronic security services division.
Net cash utilized by investing activities of $278.7 million was principally due
to capital expenditures of $223.5 million and $17.0 million in the electronic
security services and vehicle auction services divisions, respectively, $25.5
million relating to the acquisition of the minority interest in Alert and $20.2
million relating to the purchase of customer contracts to provide electronic
security monitoring, which was offset by $15.4 million received on the disposal
of certain investments in and loans to associates.
Net cash utilized by financing activities of $162.9 million was principally due
to the purchase of $23.2 million face value of the Company's senior
subordinated notes at a cost of $24.0 million and the repayments of long-term
debt of $208.2 million, which was offset by $19.0 million of proceeds from the
issue of common shares and the proceeds from long-term debt of $53.7 million.
A market purchase program in respect of Liquid Yield Option Notes due 2010,
with a market value of up to $100 million, was approved by the board of
directors in August 1996, to be carried out at prevailing market prices from
time to time, depending upon market conditions and other considerations.
On October 11, 1996 the Company gave notice to the holders of the Company's
5-3/4 per cent and 6 per cent convertible cumulative redeemable preference
shares, of which 756 and 4,180 respectively were outstanding, that all such
outstanding preference shares, not previously converted, would be redeemed on
November 11, 1996 at their issue amount of $1,000 per share. All such
preference shares were redeemed.
The Company believes that the working capital at September 30, 1996, its
available credit facilities and the current cash flows from operations are
adequate for the Company's normal growth and operating needs, the
24
<PAGE> 27
ADT LIMITED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
funding of its capital expenditures budget, the funding of the purchase and
redemption programs referred to above and the current servicing of its debt
requirements.
FORWARD LOOKING INFORMATION
Certain statements in this Form 10-Q constitute "forward looking statements"
within the meaning of the Private Securities Litigations Reform Act of 1995. In
particular any statements contained herein regarding the consummation and
benefits of future acquisitions, as well as expectations with respect to future
sales, operating efficiencies and product expansion, are subject to known and
unknown risks, uncertainties and contingencies, many of which are beyond the
control of the Company, which may cause actual results, performance or
achievements to differ materially from anticipated results, performance or
achievements. Factors that might affect such forward looking statements
include, among others, overall economic and business conditions, the demand for
the Company's services, competitive factors in the industry, regulatory
approvals and the uncertainty of consummation of future acquisitions.
25
<PAGE> 28
ADT LIMITED
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11.1 Statement regarding the computation of earnings per common share.
27 Financial Data Schedule (for SEC use only).
(b) Current Reports on Form 8-K were filed by ADT Limited on July 10,
1996, July 16, 1996, and September 30, 1996 comprising certain
details of the proposal to combine with Republic Industries, Inc.
Current Reports on Form 8-K were filed by ADT Limited on September
19, 1996, October 21, 1996 and November 12, 1996 regarding the
acquisition of Automated Security (Holdings) PLC.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
ADT LIMITED
/s/ Stephen J. Ruzika
November 12, 1996 ---------------------------------
Stephen J. Ruzika
Chief Financial Officer, Executive Vice President and Director
(Principal Financial Officer and Principal Accounting Officer)
</TABLE>
26
<PAGE> 29
ADT LIMITED
INDEX TO EXHIBITS TO QUARTERLY REPORT
ON FORM 10-Q
FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
EXHIBIT PAGE NUMBER
<S> <C>
11.1 Statement regarding the computation of earnings per
common share.
27 Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
ADT LIMITED
Exhibit No. 11.1
Computation of (Loss) Earnings per Common Share
<TABLE>
<CAPTION>
Nine months ended September 30 1996 1995
$m $m
<S> <C> <C>
Net (loss) income (657.5) 52.9
Dividends on convertible redeemable preference shares (0.2) (0.3)
------------ ------------
Adjusted net (loss) income available to common shareholders -
primary and fully diluted (loss) earnings per common share (657.7) 52.6
============ ============
Nine months ended September 30 1996 1995
Number Number
Weighted average number of common shares in issue 136,823,772 135,259,408
Weighted average number of common stock
equivalents in issue resulting from:
- Executive share option schemes - 2,551,873
- Non-voting exchangeable shares - 2,259
------------ ------------
Weighted average number of common shares in issue as used
in the computation of primary (loss) earnings per common share 136,823,772 137,813,540
Executive share option schemes - 693,354
------------ ------------
Weighted average number of common shares in issue as used
in the computation of fully diluted earnings per common share - 138,506,894
============ ============
Nine months ended September 30 1996 1995
$ $
Primary (loss) earnings per common share (4.81) 0.38
============ ============
Fully diluted earnings per common share - 0.38
============ ============
</TABLE>
Notes
(i) A certain number of common stock equivalents resulting from
executive share option schemes are anti-dilutive in the calculation
of primary and fully diluted (loss) earnings per common share in
1996 and 1995.
(ii) The effect on fully diluted earnings per common share resulting
from the assumed exchange of Liquid Yield Option Notes, which were
issued in July 1995, is anti-dilutive in 1996 and 1995. The effect
on fully diluted earnings per common share resulting from the
assumed conversion of convertible capital bonds is anti-dilutive
in 1996 and 1995. The effect on fully diluted earnings per common
share resulting from the assumed conversion of convertible
redeemable preference shares is anti-dilutive in 1996 and 1995.
<PAGE> 2
ADT LIMITED
Exhibit No. 11.1
Computation of Earnings per Common Share
<TABLE>
<CAPTION>
Three months ended September 30 1996 1995
$m $m
<S> <C> <C>
Net income 18.6 18.0
Dividends on convertible redeemable preference shares - (0.1)
------------ ------------
Adjusted net income available to common shareholders -
primary and fully diluted earnings per common share 18.6 17.9
============ ============
Three months ended September 30 1996 1995
Number Number
Weighted average number of common shares in issue 137,560,690 135,523,785
Weighted average number of common stock
equivalents in issue resulting from:
- Executive share option schemes 6,089,869 3,361,057
- Non-voting exchangeable shares - 980
------------ ------------
Weighted average number of common shares in issue as used
in the computation of primary earnings per common share 143,650,559 138,885,822
Executive share option schemes - 760,109
------------ ------------
Weighted average number of common shares in issue as used
in the computation of fully diluted earnings per common share 143,650,559 139,645,931
============ ============
Three months ended September 30 1996 1995
$ $
Primary earnings per common share 0.13 0.13
============ ============
Fully diluted earnings per common share 0.13 0.13
============ ============
</TABLE>
Notes
(i) A certain number of common stock equivalents resulting from
executive share option schemes are anti-dilutive in the calculation
of primary and fully diluted earnings per common share in 1996 and
1995.
(ii) The effect on fully diluted earnings per common share resulting
from the assumed exchange of Liquid Yield Option Notes, which were
issued in July 1995, is anti-dilutive in 1996 and 1995. The effect
on fully diluted earnings per common share resulting from the
assumed conversion of convertible capital bonds is anti- dilutive
in 1996 and 1995. The effect on fully diluted earnings per common
share resulting from the assumed conversion of convertible
redeemable preference shares is anti-dilutive in 1996 and 1995.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT SEPTEMBER 30, 1996, (UNAUDITED) AND THE
CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996,
(UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 141,800
<SECURITIES> 0
<RECEIVABLES> 261,900
<ALLOWANCES> 0
<INVENTORY> 38,000
<CURRENT-ASSETS> 488,100
<PP&E> 1,545,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,644,700
<CURRENT-LIABILITIES> 407,500
<BONDS> 1,027,600
4,900
0
<COMMON> 14,100
<OTHER-SE> 769,100
<TOTAL-LIABILITY-AND-EQUITY> 2,644,700
<SALES> 0
<TOTAL-REVENUES> 1,261,600
<CGS> 0
<TOTAL-COSTS> 674,200
<OTHER-EXPENSES> 744,700<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,600
<INCOME-PRETAX> (637,200)
<INCOME-TAX> 14,500
<INCOME-CONTINUING> (651,700)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,800)
<CHANGES> 0
<NET-INCOME> (657,500)
<EPS-PRIMARY> (4.81)
<EPS-DILUTED> (4.81)
<FN>
<F1>Represents a charge for the impairment of long-lived
assets as a result of the adoption of SFAS 121.
</FN>
</TABLE>
