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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM JANUARY 1, 1997 TO SEPTEMBER 30, 1997
0-16979
(COMMISSION FILE NUMBER)
TYCO INTERNATIONAL LTD.
(FORMERLY ADT LIMITED)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA NOT APPLICABLE
(JURISDICTION OF INCORPORATION) (IRS EMPLOYER
IDENTIFICATION NUMBER)
THE GIBBONS BUILDING, 10 QUEEN STREET, SUITE 301, HAMILTON, HM11, BERMUDA
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
441-292-8674*
(REGISTRANT'S TELEPHONE NUMBER)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
COMMON STOCK, PAR VALUE $0.20 NEW YORK STOCK EXCHANGE
SERIES A FIRST PREFERENCE SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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 [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III or this Form 10-K or any amendment to this
Form 10-K. [X].
The aggregate market value of voting common stock held by nonaffiliates of
registrant was $21,264,547,978 as of November 30, 1997.
The number of shares of common stock outstanding as of November 30, 1997
was 549,690,687.
DOCUMENTS INCORPORATED BY REFERENCE
See pages 19 and 22 for the exhibit index.
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* The executive offices of registrant's principal United States subsidiary, Tyco
International (US) Inc., are located at One Tyco Park, Exeter, New Hampshire
03833. The telephone number there is (603) 778-9700.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Tyco International Ltd. ("Tyco" or the "Company") is a diversified
manufacturing and service company that, through its subsidiaries, operates in
four segments: (i) the manufacture and distribution of disposable medical
supplies and other specialty products, and the conduct of vehicle auctions and
related services; (ii) the design, manufacture, installation and service of fire
detection and suppression systems, and the installation, monitoring and
maintenance of electronic security systems; (iii) the manufacture and
distribution of flow control products; and (iv) the manufacture and distribution
of electrical and electronic components, and the design, manufacture,
installation and service of undersea cable communication systems. See Notes 19
and 20 to the Consolidated Financial Statements for certain segment and
geographic financial data relating to the Company's business.
Tyco's strategy is to be the low-cost, high quality producer and provider
in each of its markets. It promotes its leadership position by investing in
existing businesses, developing new markets and acquiring complementary
businesses and products. Combining the strengths of its existing operations and
its business acquisitions, Tyco seeks to enhance shareholder value through
increased earnings per share and strong cash flows.
On July 2, 1997, a wholly-owned subsidiary of what was formerly called ADT
Limited ("ADT") merged with Tyco International Ltd. (the "Former Tyco"). Upon
consummation of the merger, ADT (the surviving corporation) changed its name to
Tyco International Ltd. Former Tyco became a wholly-owned subsidiary of the
Company and changed its name to Tyco International (US), Inc. ("Tyco US"). In
addition, Tyco merged with INBRAND Corporation ("INBRAND") and Keystone
International, Inc. ("Keystone") on August 27, 1997 and August 29, 1997,
respectively. These mergers are more fully described in Notes 1 and 2 to the
Consolidated Financial Statements. In September 1997, the Company changed its
fiscal year from December 31 to September 30. Fiscal 1997 refers to the nine
month period ended September 30, 1997. References to 1996 and 1995 represent the
corresponding calendar years.
I. DISPOSABLE AND SPECIALTY PRODUCTS
The principal subsidiaries in the Disposable and Speciality Products group
are Kendall International ("Kendall"), ADT Automotive and the Tyco Plastics
Group.
Kendall manufactures and distributes medical supplies, disposable medical
products, personal absorbent products, adhesive products, tapes and other
products. ADT Automotive is the second largest provider of vehicle auction
services in the United States. The Tyco Plastics Group manufactures polyethylene
films and packaging, industrial and consumer plastic products, molded plastic
garment hangers, and laminated and coated products.
Kendall
Kendall conducts its operations through four business units: Kendall
Healthcare, Kendall International, Kendall-Polyken and Ludlow Technical
Products. In each of its business units, Kendall competes with numerous
companies, including a number of larger, well-established companies. Kendall
relies on its reputation for quality and dependable service, together with its
low cost manufacturing and innovative products, to compete in its markets.
The Kendall Healthcare business unit manufactures and markets a broad range
of wound care, vascular therapy, urological care, incontinence care, anesthetic
care and other products to hospitals in the United States and Canada and to
alternate site health care customers. Kendall Healthcare is the industry leader
in gauze production with its Kerlix(R) and Curity(R) brands. Kendall
Healthcare's other core product category consists of its vascular therapy
products, principally anti-embolism stockings, marketed under the T.E.D.(R)
brand name, sequential pneumatic compression devices sold under the SCD(TM)
brand name and a venous plexus
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foot pump. Kendall Healthcare pioneered the pneumatic compression form of
treatment and continues to be the dominant participant in the pneumatic
compression and elastic stocking segments of the vascular therapy market.
Kendall Healthcare has become an industry leader in the adult incontinence
market serving both the acute care and long term care markets. It offers a
complete line of disposable adult briefs, underpads and other related products.
INBRAND also manufactures a broad range of disposable personal absorbent
products, including adult incontinence products, feminine hygiene products and
baby diapers for the clinical and retail markets in North America and Europe.
Kendall Healthcare distributes its products through its own sales force and
through a network of more than 250 independent distributors. Kendall
Healthcare's sales force is divided into three groups: one promoting its
vascular therapy products, one promoting its wound care and other health care
products and one selling all of its products into the alternate site markets.
Most of the distributors in the United States also sell similar products made by
Kendall's competitors, a practice common in the industry.
Kendall International is responsible for the manufacturing, marketing,
distribution and export of Kendall products worldwide. Kendall International
markets directly to hospitals and medical professionals, as well as through
independent distributors. Its operations are organized primarily into three
geographic regions: Europe, Latin America and the Far East. The range of
products marketed is similar to that of Kendall Healthcare, although the mix of
product lines varies from country to country.
The Kendall-Polyken division manufactures and markets specialty adhesive
products and tapes for industrial applications, including external corrosion
protection tape products for oil, gas and water pipelines. Other industrial
applications include tapes used in the automotive industry for wire harness
wraps, sealing and other purposes, and tapes used in the aerospace and heating,
ventilation and air conditioning (HVAC) industries. Kendall-Polyken also
produces duct, foil, strapping, packaging and electrical tapes and spray
adhesives for industrial and consumer markets worldwide and manufactures cloth
and medical tapes for Kendall Healthcare and others. Kendall's Betham division
develops and markets pressure sensitive adhesives and coatings, principally for
the automotive, medical and specialty markets.
Kendall-Polyken generally markets its pipeline products directly, working
with local manufacturers' representatives, international engineering and
construction companies and the owners and operators of pipeline transportation
facilities. Kendall-Polyken sells its other industrial products either directly
to major end users or through diverse distribution channels, depending upon the
industry being supplied.
The Ludlow Technical Products division manufactures and sells a variety of
disposable medical products, specialized paper and film products. These products
include transcutaneous electrical nerve stimulation electrodes and related
products which are used primarily in physical therapy and other forms of
rehabilitative medicine, medical electrodes for EKGs and similar diagnostic
tests, gels which are used with medical electrodes for testing and other
monitoring purposes, hydrogel wound care products and neonatal electrodes,
diagnostic and monitoring electrodes, defibrillation electrodes, electrotherapy
electrodes and cable and lead wires. The division also produces adhesive tapes
used for business forms and in printing applications, high quality facsimile
paper and recording chart papers for medical and industrial instrumentation.
These products are marketed primarily by the division's own sales force.
Competitors vary from small regional firms to larger firms that compete on a
national basis. Competition is on the basis of price and quality.
ADT Automotive
ADT Automotive operates a network of 27 large modern auction centers in the
United States, providing an organized wholesale marketplace for the sale and
purchase of used vehicles. A substantial majority of the vehicles sold at ADT
Automotive auctions are passenger cars and light trucks. Other vehicles sold
consist of heavy trucks and industrial vehicles. Sales of vehicles from specific
market sources are held on a regularly scheduled basis and additional
specialized sales are scheduled as necessary. ADT Automotive operates almost
exclusively in the wholesale marketplace and, in general, the public is not
permitted to attend its auctions. It acts solely as an agent in auction
transactions and does not purchase vehicles for its own account.
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The principal sources of vehicles for sale at auction are consignments by
new and used vehicle dealers, vehicle manufacturers, corporate owners of
vehicles such as fleet operators, rental companies, leasing companies, banks and
other financial institutions, manufacturers' credit subsidiaries and government
agencies. The vehicles consigned by dealers consist of vehicles of all types and
ages and include vehicles that have been traded in against new car sales.
Vehicles consigned by corporate and financial owners include both repossessed
and off-lease vehicles and, as a result, are normally in the range of one to
four years old. The principal purchasers of vehicles at auction are new and used
vehicle dealers and distributors.
In addition to the sale process, ADT Automotive provides a comprehensive
range of vehicle redistribution services including transportation,
reconditioning, title transfer assistance, vehicle repossession and fleet
management services. Vehicle reconditioning is carried out on-site and
principally consists of appearance reconditioning and paint and body work to
bring vehicles up to retail ready condition. More extensive body work services
including body panel painting and repair of minor collision damage are also
carried out. Reconditioning services are also provided for vehicles other than
those going through the auction process, principally for fleet owners and
insurance companies.
ADT Automotive competes with two other significant auction chains and a
large number of independently owned local auctions which are members of the
National Auto Auction Association. Competition is based primarily on price in
relation to the quality and range of services offered to sellers and buyers of
vehicles and ease of accessibility of auction locations.
Tyco Plastics Group
The Tyco Plastics group consists of Armin Plastics, Carlisle Plastics, A&E
Products and Ludlow Coated Products.
Armin
Armin manufactures polyethylene film and packaging products in a wide range
of size, gauge, construction strength, stretch capacity, clarity and color.
Armin extrudes low density, high density and linear low density polyethylene
film from resin purchased in pellet form, incorporating such additives as
coloring, slip and anti-block chemicals. Armin's products include plastic
supermarket packaging, greenhouse sheeting, shipping covers and liners and a
variety of other packaging configurations for the aerospace, agricultural,
automotive, construction, cosmetics, electronics, food processing, healthcare,
pharmaceutical and shipping industries. Armin also manufactures a number of
other polyethylene products such as reusable plastic pallets, transformer pads
for electric utilities and a large variety of disposable gloves for the
cosmetic, medical, food handling and pharmaceutical industries. Armin generates
the majority of its sales through its own internal sales force and services more
than 6,000 customers in the United States.
Armin competes with a wide range of manufacturers, including some
vertically integrated companies and companies that manufacture polyethylene
resins for their own use. Armin competes in many market segments by emphasizing
product innovation, specialization and customer service.
Carlisle
Carlisle is a leading producer of industrial and consumer plastic products,
including trash bags, flexible packaging and sheeting. Carlisle supplies plastic
trash bags to mass merchants, grocery chains, and institutional customers
primarily in North America. Carlisle manufactures Ruffies(R), a national brand
consumer trash bag, for mass merchants and other retail stores. Carlisle also
provides heavy duty trash can liners for institutional customers, such as food
service distributors, janitorial supply houses, restaurants, hotels and
hospitals.
In the consumer trash bag market, Carlisle competes primarily with two
nationally advertised brands. Carlisle has historically concentrated on mass
merchants as the primary market for its branded Ruffies(R) trash bags, while the
other major national brands are marketed primarily through food retailers.
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Film-Gard(R), Carlisle's leading plastic sheeting product, is sold to
consumers and professional contractors through do-it-yourself outlets, home
improvement centers and hardware stores. A wide range of Film-Gard products are
sold for various uses, including painting, renovation, construction, landscaping
and agriculture.
A&E Products
A&E Products sells molded plastic garment hangers to garment manufacturers,
national, regional and local retailers and mass merchants. Garment manufacturers
put their products on A&E Product's hangers before shipping to retail outlets.
National retailers purchase customized hanger designs created and manufactured
by A&E Products. Regional or local retailers buy standard A&E Products hanger
lines for retail clothing displays and A&E Products also supplies mass merchants
with consumer plastic hangers for sale to the general public.
Carlisle and A&E Products operate in a competitive marketplace where
success is dependent upon price, service and quality.
Ludlow Coated Products
Ludlow Coated Products produces protective packaging and other materials
made of coated or laminated combinations of paper, polyethylene and foil. Coated
packaging materials provide barriers against grease, oil, light, heat, moisture,
oxygen and other contaminants. The division produces structural coated and
laminated products such as plastic coated kraft, linerboard and bleached boards
for rigid urethane insulation panels, automotive components and wallboard
panels. Other product applications include packaging for photographic film,
frozen foods, health care products, electrical and metallic components,
agricultural chemicals, cement and specialty resins.
Ludlow markets its laminated and coated products through its own sales
force and through independent manufacturers' representatives. The Company
competes with many large manufacturers of laminated and coated products on the
basis of price, service, marketing coverage and custom application engineering.
There are various specialized competitors in different markets.
II. FIRE AND SECURITY SERVICES
The Company, through its subsidiaries, is the largest company in the world
for the design, manufacture, installation and service of fire detection,
suppression and sprinkler systems and is the largest provider of electronic
security services in North America and the United Kingdom.
Fire Protection Contracting and Service
Operating under several trade names including Grinnell, Wormald, Mather &
Platt, Total Walther, O'Donnell Griffin and Tyco, the Company designs,
fabricates, installs and services automatic fire sprinkler systems, fire alarm
and detection systems, special hazard suppression systems and security systems
in buildings and other installations.
The Company's fire protection contracting and service business in North
America operates through a network of offices in the United States, Canada,
Mexico, Latin America and Puerto Rico. The Company also operates worldwide
through a network of offices in the United Kingdom, continental Europe, Saudi
Arabia, United Arab Emirates, Australia, New Zealand, Asia and South America.
The Company installs fire protection systems in both new and existing
structures. Typically, the contracting businesses bid on contracts for fire
protection installation which are let by owners, architects, construction
engineers and mechanical or general contractors. In recent years, the business
of retrofitting existing buildings has grown as a result of legislation
mandating the installation of fire protection systems and also as a result of
lower insurance premiums available in respect of structures with automatic
sprinkler systems.
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The majority of the fire suppression systems installed by the Company are
water-based. However, the Company is also the world's leading provider of custom
designed special hazard fire protection systems which incorporate various
specialized non-water agents such as foams, dry chemicals and gases. Systems
using agents other than water are especially suited to fire protection in
certain manufacturing, power generation, petrochemical, offshore oil
exploration, transportation, telecommunications, mining and marine applications.
The Company holds exclusive manufacturing and distribution rights in several
regions of the world for INERGEN(R) fire suppression products. INERGEN(R) is an
alternative to the ozone depleting agent known as halon and consists of a
mixture of three inert gases designed to effectively extinguish fires without
polluting the environment or damaging costly equipment.
In Australia, New Zealand and Asia, the Company also engages in the
installation of electrical wire and related electrical equipment in new and
existing structures and provides specialized electrical contracting services,
including applications for railroad and bridge construction through its
O'Donnell Griffin division.
Substantially all of the mechanical components (and, in North America, a
high proportion of the pipe) used in the fire protection systems installed by
the Company are manufactured by the Company. The Company also has fabrication
plants worldwide that cut, thread and weld pipe, which is then shipped with
other prefabricated components to job sites for installation. The Company has
developed its own computer-aided-design technology that reduces the time
required to design systems for specific applications and coordinates the
fabrication and delivery of system components.
The Company's fire protection contracting business employs both non-union
and union employees in North America, Europe and Asia-Pacific. Many of the union
employees are employed on an hourly basis for particular jobs. In North America,
the largest number of union employees is represented by a number of local unions
affiliated with the United Association of Plumbers and Pipefitters ("UA"). In
April 1994, following lengthy negotiations, contracts between the Company's
Grinnell Corporation ("Grinnell") subsidiary and a number of locals of the UA
were not renewed. Employees in those locations, representing 64 per cent of
those employees represented by the UA unions, went on strike. Grinnell has
continued to operate with former union members who have crossed over and with
replacement workers. The labor action has not had, and is not expected to have,
any material adverse effect on the Company's business or results of operations.
Generally, competition in the fire protection business varies by geographic
location. In North America, the Company competes with hundreds of smaller
contractors on a regional or local basis for the installation of fire
suppression and fire alarm and detection systems. Many of the regional and local
competitors employ non-union labor. In Europe, the Company competes with many
regional or local contractors on a country by country basis. In Australia, New
Zealand and Asia, the Company competes with a few large fire protection
contractors as well as with many smaller regional or local companies. The
Company competes for fire protection contracts primarily on the basis of price,
service and quality.
Electronic Security Services
The Company provides electronic security services principally under the ADT
trade name and also under other trade names including Modern, Thorn Security,
Zettler, Sonitrol, Securesys, Securiville and Armourguard Security. Services are
provided in the United States, Canada, the United Kingdom, Spain, France,
Belgium, Greece, The Netherlands, Germany, The Republic of Ireland, Malaysia,
Singapore, Hong Kong and New Zealand.
Electronically monitored security systems involve the installation and use
on a customer's premises of devices designed to detect or react to various
occurrences or conditions, such as intrusion, movement, fire, smoke, flooding,
environmental conditions (including temperature or humidity variations),
industrial operations (such as water, gas or steam pressure and process flow
controls) or other hazards. These detection devices are connected to a
microprocessor-based control panel which communicates through telephone lines to
a monitoring center, often located at remote distances from the customer's
premises, where alarm and supervisory signals are received and recorded. In most
systems, control panels can identify the nature of the alarm and the areas
within a building where the sensor was activated. Depending upon the type of
service for which the subscriber has contracted, monitoring center personnel
respond to alarms by relaying appropriate
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information to the local fire or police departments, notifying the customer or
taking other appropriate action, such as dispatching employees to the customer's
premises. In some instances, the customer may monitor the system at its own
premises or the system may be connected to local fire or police departments.
Thorn Security manufactures certain alarm, detection and activation devices
and central monitoring station equipment which is both installed by the
Company's own units and sold to other installers of alarm and detection devices.
Otherwise, the Company does not manufacture the electronic security system
components which it installs, although it does provide its own specifications to
manufacturers for certain security system components and undertakes some final
assembly work in respect of more sophisticated systems.
Commercial and Residential Security Services
The Company provides electronic security services to both commercial and
residential customers. Commercial customers include financial institutions,
industrial and commercial businesses, facilities of federal, state and local
government departments, defense installations, and health care and educational
facilities. Residential electronic security services are provided primarily in
North America. Customers are often prompted to purchase security systems by
their insurance carriers which may offer lower insurance premium rates if a
security system is installed or require that a system be installed as a
condition to coverage.
The Company's systems and products are tailored to customers' specific
needs and include electronic monitoring services that provide intrusion and fire
detection, as well as card or keypad activated access control systems and closed
circuit television systems. Systems may be monitored by the customer at its
premises or connected to one of the Company's monitoring centers. In either
case, the Company usually provides support and maintenance through service
contracts. It has been the Company's experience that commercial and residential
contracts are generally renewed after their initial terms. Contract
discontinuances occur principally as a result of customer relocation or closure.
Systems installed at commercial customers' premises may be owned by the Company
or by the customer. The Company usually retains ownership of standard
residential systems, but more sophisticated residential systems are usually
purchased by the customer.
The Company markets its electronic security services to commercial and
residential customers through a direct sales force. Commercial customers which
have multiple locations in North America are serviced by a separate national
accounts sales force. The Company also utilizes advertising, telemarketing and
direct mail to market its services.
The electronic security services business in North America is highly
competitive with a number of major firms and approximately 12,000 smaller
regional and local companies. The Company also competes with several national
companies and several thousand regional and local companies in the United
Kingdom, continental Europe, Asia and New Zealand. Competition is based
primarily on price in relation to quality of service. The Company believes that
the quality of its services is higher than that of many of its competitors and,
therefore, the Company's prices may be higher than those charged by its
competitors.
Manufacturing
The Company manufactures most of the components which are used in its own
fire protection contracting business, as well as a variety of products for sale
to other fire protection contractors. In North America, the Company manufactures
pipe and pipe fittings, fire hydrants, sprinkler heads and substantially all of
the mechanical sprinkler components used in automatic fire suppression systems.
In the United Kingdom, France, Germany and the Asia-Pacific region, the Company
manufactures and sells sprinkler heads, specialty valves, fire doors and
electronic panels for use in fire detection systems. In Mexico, the Company
manufactures fire extinguishers, fire hose and related equipment.
The Company's Ansul subsidiary manufactures and sells various lines of dry
chemical, liquid and gaseous portable fire extinguishers and related agents for
industrial, government, commercial and consumer applications. Ansul also
manufactures and sells special hazard fire suppression systems designed for use
in restaurants, marine applications, mining applications, the petrochemical
industry, confined industrial spaces
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and commercial spaces housing electronic and other delicate equipment. Ansul
also manufactures spill control products designed to absorb, neutralize and
solidify spills of various hazardous materials.
Fire protection products are sold through the Company's flow control
products distribution network, discussed in "Flow Control Products" below, and
through independent distributors.
Environmental Services
Through its Earth Technology Corporation ("Earth Tech") subsidiary, the
Company provides a broad range of environmental, consulting and engineering
services. Earth Tech's principal services consist of full-spectrum environmental
and hazardous waste management services. These include infrastructure design and
construction services, facilities engineering and construction management
services for institutional, civic, commercial and industrial clients, and
contract operations and management services for water and wastewater treatment
facilities operated by municipal and industrial clients.
Earth Tech has a network of 40 offices located throughout North America. It
competes with a number of national, regional and local companies on the basis of
price and breadth and quality of services.
III. FLOW CONTROL PRODUCTS
The Company, through its subsidiaries, manufactures and distributes flow
control products in North America, Latin America, Europe, Asia and the Pacific
region. Flow control products include pipe, fittings, valves, meters and related
products which are used to transport, control and measure the flow of liquids
and gases. The principal subsidiaries in the Flow Control Products group are
Grinnell Corporation ("Grinnell"), Allied Tube & Conduit ("Allied"), Mueller Co.
("Mueller") and Keystone International ("Keystone"). The group also includes a
number of other specialized manufacturers of valves, fittings and couplings.
Manufacturing
The Company manufactures and distributes a wide range of flow control
products, including pipe and pipe fittings, tubing, valves, meters, couplings,
pipe hangers, strut and related components. These products are used in plumbing,
heating, ventilation and air conditioning (HVAC) systems, mechanical
contracting, power generation, food and beverage products, water and gas
utilities, wastewater treatment, oil and gas exploration, pulp and paper,
petrochemical and numerous other industrial applications. The Company also
manufactures certain related products such as steel tubing, custom iron
castings, malleable iron pipe fittings and fencing materials.
Allied is the leading North American manufacturer of pipe and other tubular
products. Allied manufactures a full line of steel pipe for the fire protection
and construction industries and for commercial, residential and institutional
markets. Its mechanical tube division offers steel tubing in a wide assortment
of shapes and sizes for a variety of industrial and commercial applications.
Allied's fence division is a leader in the manufacture of products for the
residential, industrial and commercial fence markets. Allied also manufactures
metal framing systems used in the construction, industrial and original
equipment manufacturer markets. In November 1996, the Company acquired Unistrut
Europe, a manufacturer and distributor of metal framing, cable ladder and safety
systems and, in January 1997, acquired American Tube and Pipe Co., Inc., a
manufacturer and distributor of steel pipe for the fire protection and fence
markets and steel products for the housing market.
Mueller, a manufacturer of water and gas distribution products,
manufacturers fire hydrants, iron butterfly and gate valves, service-line brass
valves and fittings, gas valves and meter bars, water meters, backflow
preventers and related products for sale to independent distributors and, to a
lesser extent, directly to waterworks contractors, municipalities and gas
companies throughout the United States and Canada.
In August 1997, the Company acquired Keystone, one of the world's leading
manufacturers of valves and flow control products. Keystone operates on a
worldwide basis through two groups, Industrial Valves and Controls and
Engineered Products, manufacturing valves and other industrial products that
control the flow of liquids, gases and fibrous and slurry materials.
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The Flow Control Products group, operating under several trade names
including Grinnell Corporation, Mueller, Hersey, Keystone, Anderson-Greenwood,
Yarway, Henry Pratt Co., James Jones Company, Edward Barber & Co., Neotecha,
Belgicast, Hindle Cockburns, Charles Winn (Valves) Ltd., Sempell, Smith Valve,
Anvil, Canvil and others, supplies a wide range of valves and flow control
devices to the chemical, power, food and beverage, oil and gas, processing,
water utility, wastewater treatment, power generation and other industries.
Products are manufactured and assembled at facilities in the United States,
Canada, the United Kingdom, France, Italy, Spain, Germany, The Netherlands,
Switzerland, South Korea, China, India, Malaysia, Australia, New Zealand, Mexico
and Brazil.
Distribution
The Company sells flow control and fire protection products in North
America through a distribution network of five regional distribution centers,
strategically located in Georgia, Illinois, California, Pennsylvania and Texas,
which support local branches' product needs and ship directly to customers. Each
center stocks more than 8,500 products. The Company's worldwide flow control
operations stock and sell products through distribution centers in Europe,
Australia, New Zealand, the Middle East and Asia. In Europe, the Company
distributes fire protection products, industrial valves and products for
mechanical markets through warehouses located in The Netherlands, the United
Kingdom, Germany and France. Products are sold principally to fire protection
contractors and in some instances to mechanical and industrial contractors and
original equipment manufacturers. In Asia, the Pacific region and the Middle
East, the Company distributes fire protection and flow control products through
warehouses located in Australia, New Zealand, Dubai and Singapore. Products are
sold directly to fire protection and other contractors as well as to mechanical
and industrial contractors and independent distributors. While distribution
patterns vary, most centers stock an extensive line of valves, fittings, pipe
and other products for fire protection systems, components for HVAC
installations and water and gas distribution and specialized valves and piping
for the chemical, food, power and beverage processing industries.
Grinnell's North American distribution network competes with independent
manufacturers' representatives and other manufacturers and, to a lesser extent,
with local and regional supply houses all of which carry lines from other United
States and non-United States manufacturers. Grinnell competes on the basis of
price, the breadth of its product line, service and quality. Grinnell competes
for the sale of gray iron pipe fittings, malleable and ductile iron fittings and
other flow control products and fire protection sprinklers and devices
principally with other United States producers as well as with non-United States
manufacturers of fittings. Grinnell uses an internal sales force for the sale of
certain other iron castings sold direct to original equipment manufacturers and
other end users.
Allied competes for the sale of steel pipe, which is sold through
Grinnell's distribution network, with pipe from other United States and
non-United States producers. Competition for the sale of pipe is based on price,
service and breadth of product line. Fence and other specialized industrial
tubing is sold to wholesalers, original equipment manufacturers and other
distributors. Competition for the sale of fence products is principally from
national and regional United States producers and to a lesser extent from
non-United States companies, on the basis of price, service and distribution.
The Company competes with many small regional manufacturers for sales of
specialized industrial tubing on the basis of price and breadth of product line.
Mueller's water and natural gas distribution flow control products are sold
through independent distributors, and, to a lesser extent, directly to
utilities, municipalities and gas distribution companies. Certain of its gas
distribution products are also sold through the Grinnell distribution network.
The Company competes for the sale of these products on the basis of product
quality, service, price, breadth of product line and conformity with municipal
codes and other engineering standards. The Company competes with several other
manufacturers in the United States and Canada for the sale of iron and brass
flow control devices for water and natural gas distribution systems.
Keystone's products are sold both in the United States and internationally.
The Company has numerous competitors in these markets, which, in some instances,
are divisions of larger corporations and, in some
8
<PAGE> 10
instances, are companies with limited product lines. Advanced technology, global
presence, experienced personnel and price are the primary factors in
competition.
IV. ELECTRICAL AND ELECTRONIC COMPONENTS
The Electrical and Electronic Components group consists of Tyco Submarine
Systems Ltd. ("TSSL"), Allied's Electrical Conduit division and the Tyco Printed
Circuit Group ("TPCG"). TSSL designs, manufactures, installs and services
undersea communications cable systems. Allied manufactures and distributes
electrical conduit and related components used in commercial electrical
installations. TPCG manufactures printed circuit boards and assembles backplanes
for the electronics industry.
Tyco Submarine Systems
TSSL, which includes the Company's Simplex Technologies business and the
submarine systems business acquired from AT&T Corp. in July 1997, is the world's
only fully-integrated source for the design, engineering, manufacturing,
installation and servicing of undersea cable communication systems. TSSL designs
and builds both repeatered and non-repeatered cable systems. Repeatered cable
systems, using Wave Division Multiplexing, can provide 20 gigabytes per second
of capacity over 10,000 kilometers. Non-repeatered systems, which allow for even
greater circuit capacity and reduced transmission costs, support short haul
systems of several hundred kilometers. Over the past ten years, TSSL has
designed, manufactured and installed approximately 140,000 kilometers of
undersea optical cable.
TSSL also operates one of the world's largest fleet of ships designed to
install and service undersea fiber optic transmission systems. These ships lay
cable, perform upgrades and repairs, monitor transmission quality and perform
system tests. TSSL also uses a variety of other undersea tools, including
robotic vehicles for undersea cable burial and retrieval operations.
Simplex Technologies has been the primary supplier of cable and cable
assemblies to the United States Navy for use in data-gathering systems for more
than thirty years. It also manufactures underwater electric power cable and
optical ground wire for use by power authorities and utilities, and
electro-mechanical cable for unique field operations. In September 1996, the
Company acquired Rochester Corporation which manufactures wire rope, wirelines,
electro-optical products and subsea products.
TSSL competes on a worldwide basis primarily against two other entities:
Alcatel-Alsthom, headquartered in France, and KDD, located in Japan. Alcatel,
like TSSL, is vertically integrated and produces its own cable, whereas KDD
utilizes a Japanese cable manufacturer.
Allied Electrical Conduit
Allied's Electrical Conduit division is one of the leading producers of
steel electrical conduit in the United States. Electrical conduit is galvanized
steel tubing designed to contain current-carrying electrical wires both inside
and outside building structures. The conduit also serves as an electrical
ground, which ensures proper operation of circuit interrupters, and provides a
channel into which additional wires can be inserted as requirements change. The
division manufactures a full line of electrical conduit as well as metal framing
and other products.
The division's electrical conduit and related products are sold to
wholesale electrical distributors through Allied's distribution facilities by an
internal sales force and a network of commissioned sales agents. The division
competes for the sale of electrical products primarily with several other large
United States manufacturers. Competition in the electrical conduit industry is
primarily based upon price, quality, delivery and breadth of product line.
Tyco Printed Circuit Group
TPCG is one of the largest independent manufacturers of complex
multi-layered printed circuit boards and assemblers of backplanes in the United
States. Printed circuit boards are used in the electronics industry to mount and
interconnect components to create electronic systems. They are categorized by
the number of
9
<PAGE> 11
sides or layers that contain circuitry and can be single-sided, double-sided or
multi-layer. In general, single and double-sided boards are less advanced.
Multi-layer boards provide greater interconnection density while decreasing the
number of separate printed circuit boards which are required to accommodate
powerful and sophisticated components. Backplanes include printed circuit boards
and are assemblies of connectors and other electronic components which
distribute power and interconnect printed circuit boards, power supplies and
other system elements. The group maintains manufacturing facilities in
Connecticut, California and Utah, which provide its customers with prompt
service and delivery capabilities.
TPCG manufactures highly sophisticated double-sided, mass molded boards of
up to eight layers, precision tooled, custom laminated multi-layer boards of up
to 68 layers and sophisticated flex-rigid circuit boards for use in
environmentally demanding conditions. The majority of sales are derived from
high-density multi-layer boards. The backplanes facility produces fully
assembled units utilizing press-fit or soldered connection technology, custom
pin grid array sockets and surface mounted assembly. Printed circuit boards and
backplanes are manufactured on a job order basis to the customers' designs and
specifications.
TPCG markets its products mainly through independent manufacturers'
representatives and, to a lesser extent, through its own internal sales
organization. Customers are generally original equipment manufacturers in the
telecommunications, aircraft, computer, military and other industrial and
consumer electronics industries. The Company competes with several large
companies which manufacture less complex single-sided and double-sided printed
circuit boards in the United States, as well as with many companies that have
their own in-house manufacturing capabilities. Competition is on the basis of
quality, price, reliability and timeliness of delivery. The Company believes
that fewer competitors manufacture the more complex, high-density double-sided
and multi-layer boards.
BACKLOG
At September 30, 1997, the Company had a backlog of unfilled orders of
approximately $2.3 billion, compared to a backlog of approximately $1.5 billion
as of December 31, 1996. The Company expects that approximately 86 per cent of
its backlog at September 30, 1997 will be filled during the year ending
September 30, 1998.
Backlog by industry segment is as follows (in millions of dollars):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Disposable and Specialty Products........... $ 81.7 $ 59.0
Fire and Security Services.................. 1,061.8 986.3
Flow Control Products....................... 316.6 253.9
Electrical and Electronic Components........ 798.3 230.5
-------- --------
$2,258.4 $1,529.7
======== ========
</TABLE>
The increase in backlog in the Fire and Security Services segment is
primarily due to increased orders in the United States and Asia-Pacific fire
protection businesses, as well as an increase in the funded backlog at Earth
Tech. The increase in Flow Control Products was primarily due to increases at
Keystone and in the Company's European flow control operations. Within the
Electrical and Electronic Components segment, the increase is principally due to
the acquisition of the submarine systems business from AT&T in July 1997 and new
contracts awarded to TSSL. TSSL normally sells undersea cable communications
systems under long-term multi-million dollar contracts, and the amount of its
backlog as of any date is affected by contract issuance for major systems and by
timing of completion of such systems.
PROPERTIES
The Company's operations are conducted in facilities throughout the world
aggregating some 40.0 million square feet of floor space, of which approximately
25.3 million square feet are owned and approximately 14.7 million square feet
are leased. These facilities house manufacturing and warehousing operations as
well as sales, engineering and administrative offices.
10
<PAGE> 12
Within the Fire and Security Services group, the fire protection
contracting and service business operates through a network of offices located
in North America, South America, the United Kingdom, The Republic of Ireland,
France, Spain, Belgium, The Netherlands, Germany, Italy, Austria, Hungary,
Switzerland, Denmark, Norway, Sweden, United Arab Emirates, Saudi Arabia,
Australia, New Zealand, Hong Kong, Singapore, Taiwan, Malaysia, Thailand,
Vietnam and Indonesia. Fire protection components are manufactured at locations
in North America, the United Kingdom, Germany, Australia, New Zealand and
Malaysia. The electronic security services business operates through a network
of monitoring centers and sales and service offices and other properties in the
United States, Canada, the United Kingdom, Spain, France, Belgium, Greece, The
Netherlands and The Republic of Ireland. The environmental services business
operates through a network of offices throughout North America. The group
occupies some 10.5 million square feet, of which 4.3 million square feet are
owned and 6.2 million square feet are leased.
The Disposable and Specialty Products group has manufacturing facilities in
North America, the United Kingdom, Germany, France, Spain, China, Thailand and
Malaysia. There are 27 vehicle auction facilities located in the United States.
The group occupies some 12.7 million square feet, of which 8.6 million square
feet are owned and 4.1 million square feet are leased.
The Flow Control Products group has manufacturing facilities in North
America, the United Kingdom, Germany, Switzerland, Spain, Scotland, The
Netherlands, Italy, China and Malaysia. Products are distributed in North
America through a branch distribution network and through five regional
distribution centers. The group also stocks and sells products through warehouse
and distribution centers in The Netherlands, the United Kingdom, Germany,
France, Australia, New Zealand, Singapore and the Middle East. The group
occupies some 14.7 million square feet, of which 10.8 million square feet are
owned and 3.9 million square feet are leased.
All of the Electrical and Electronic Components group manufacturing
locations are in the United States. The group occupies some 1.9 million square
feet, of which 1.5 million square feet are owned and 0.4 million square feet are
leased.
In the opinion of management, the Company's properties and equipment
generally are in good operating condition and are adequate for its present
needs. The Company does not anticipate difficulty in renewing existing leases as
they expire or in finding alternative facilities. See Note 16 to Consolidated
Financial Statements for a description of the Company's rental obligations.
RESEARCH AND DEVELOPMENT
The amounts expended for Company-sponsored research and development during
Fiscal 1997, 1996, and 1995 were $45.0 million, $39.8 million and $40.2 million,
respectively. Customer-funded research and development expenditures were $0.5
million, $0.6 million and $1.4 million, respectively.
Approximately 475 full-time scientists, engineers and other technical
personnel are engaged in product research and development activities.
Research activity in fire and safety services and flow control products is
related to improvements in hydraulic design which controls the motion of fluids,
resulting in new sprinkler devices and flow control products. Research and
development activity at the specialty packaging companies involves new product
applications. Kendall focuses on acquiring rights to new products and
technologies to complement existing product lines and applying expertise to
refine and successfully commercialize such products and technologies. Activity
at TSSL involves the continuing design and development of processes for the next
generation of undersea fiber optic cable, while Allied and the printed circuit
companies are principally involved with process development.
RAW MATERIALS
The Company is one of the largest buyers of steel and of plastic resin in
the United States. Other principal materials include scrap iron of various types
and grades, copper, brass, plastic, polyethylene resin and film, polypropylene,
electronic components, chemicals and additives, thin and flexible copper clad
materials,
11
<PAGE> 13
paper, ink, foil, adhesives, cloth, wax, pulp and cotton. Certain of the
materials used in the Fire and Security Services group and the Flow Control
Products group, principally certain valves and fittings and security systems,
are purchased for installation in fire protection systems or for distribution.
Materials are purchased both in and outside of the United States from a large
number of independent sources. There have been no shortages in materials which
have had a material adverse effect on the Company's businesses.
PATENTS AND TRADEMARKS
The Company owns a number of patents which principally relate to healthcare
and specialty products, fire protection devices, electronic security systems,
flow control products, pipe and tubing manufacture, and cable manufacture. The
Company also owns a number of trademarks and is a licensee under a number of
patents. Although these have been of value and are expected to continue to be of
value in the future, in the opinion of management, the loss of any single patent
or group of patents would not materially affect the conduct of the business in
any of the Company's segments. The patents and licenses have remaining lives of
from one to seventeen years. Kendall sells certain products under trade names
owned by its suppliers and packages certain products under customer trademarks
and labels.
EMPLOYEES
The Company employed approximately 75,400 persons at September 30, 1997, of
which approximately 44,900 are employed in the U.S. and 30,500 outside the
United States. The Company has collective bargaining agreements with labor
unions covering approximately 16,300 employees at certain of its North American,
European and Asia-Pacific businesses. While the Company believes that its
relations with the labor unions and with its employees are generally
satisfactory, a number of local unions affiliated with the United Association of
Plumbers and Pipefitters, representing 64 per cent of Grinnell Fire Protection's
North American union employees, are on strike. See discussion under "Fire and
Security Services" above.
ENVIRONMENTAL MATTERS
The Company makes a substantial effort to operate its facilities in
compliance with laws relating to the protection of the environment. Compliance
has not had and is not expected to have a material adverse effect upon the
capital expenditures, earnings or competitive position of the Company.
The Company believes that, consistent with applicable laws and regulations,
it exercises due care and takes appropriate precautions in the management of
wastes. The Company has received notification from the United States
Environmental Protection Agency, and from certain state environmental agencies,
that conditions at a number of sites where hazardous wastes were disposed of by
the Company and other persons require cleanup and other possible remedial
action.
The Company also has a number of projects underway at several of its
manufacturing facilities in order to comply with environmental laws. In
addition, the Company remains responsible for certain environmental issues at
manufacturing locations sold by the Company. These projects relate to a variety
of activities, including solvent and metal contamination clean up and oil spill
equipment upgrades and replacement. These projects, some of which are voluntary
and some of which are required under applicable law, involve both remediation
expenses and capital improvements.
The ultimate cost of site cleanup is difficult to predict given the
uncertainties regarding the extent of the required cleanup, the interpretation
of applicable laws and regulations and alternative cleanup methods. Based upon
the Company's experience with the foregoing environmental matters, the Company
has concluded that there is at least a reasonable possibility that remedial
costs will be incurred with respect to these issues in an aggregate amount in
the range of $9.8 million to $38.0 million. As at September 30, 1997, the
Company has concluded that the most probable amount which will be incurred
within this range is $17.6 million and such amount is included in the caption
"accrued expenses and other current liabilities" in the accompanying
consolidated balance sheet. Based upon information available to the Company, at
those sites where there has been an allocation of the liability for cleanup
costs among a number of parties, including the Company, and such liability could
be joint and several, management believes it is probable that other responsible
parties will
12
<PAGE> 14
fully pay the cost allocated to them, except with respect to one site for which
the Company has assumed that one of the identified responsible parties will be
unable to pay the cost apportioned to it and that such party's cost will be
reapportioned among the remaining responsible parties. In view of the Company's
financial position and reserves for environmental matters of $17.6 million, the
Company has concluded that its payment of such estimated amounts will not have a
material adverse effect on its consolidated financial position, results of
operations or liquidity.
ITEM 2. PROPERTIES
See Item 1. "Business -- Properties" for information relating to the
Company's owned and leased property.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings.
See also the discussions under Item 1. -- "Environmental Matters" and Note
7 to the Consolidated Financial Statements -- Income Taxes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special General Meeting of the Company was held on July 2, 1997. This
meeting was held prior to the consummation of the merger between ADT and Former
Tyco and prior to the mergers with Keystone and INBRAND (as described in Notes 1
and 2 to the Consolidated Financial Statements.) All proposals submitted to the
meeting were passed. The following is a brief description of each matter voted
upon at the meeting.
PROPOSAL 1. ISSUE OF SHARES -- The issuance of common shares to
shareholders of Former Tyco in connection with the merger of a subsidiary of the
Company and Former Tyco.
PROPOSAL 2. REVERSE STOCK SPLIT -- A reverse stock split in the ratio of
0.48133:1 and an increase in the authorized number of common shares by
500,000,000 shares.
PROPOSAL 3. ELECTION OF DIRECTORS -- The expansion of the size of the board
of directors to eleven, the removal of all but three of the directors then in
office and the election of eight new directors. The directors elected at the
meeting included L. Dennis Kozlowski, Joshua M. Berman, Richard S. Bodman, John
F. Fort, Steven W. Foss, Richard A. Gilleland, Phillip M. Hampton and Frank E.
Walsh, Jr. The continuing directors included Michael A. Ashcroft, James S.
Pasman, Jr. and W. Peter Slusser.
PROPOSAL 4. CHANGE OF NAME -- The change of the Company's name from ADT
Limited to Tyco International Ltd.
PROPOSAL 5. APPROVAL OF SHARE OPTION ARRANGEMENTS -- Amendments to the ADT
1993 Long Term Incentive Plan, including an increase in the maximum number of
common shares that may be granted in respect of all awards under the plan to 44
million, ratification and approval of all share options granted pursuant to that
plan and the Company's other share option and incentive plans and the assumption
of Former Tyco's obligations under its share option and incentive plans and
warrants.
PROPOSAL 6. BYE-LAW AMENDMENT -- An amendment to the Company's Bye-Laws
granting the power to adjourn meetings of the Company's shareholders to the
Board of Directors.
PROPOSAL 7. INCREASE IN AUTHORIZED CAPITAL -- An increase in the Company's
authorized number of common shares by an additional 140,000,000 shares.
13
<PAGE> 15
The following is a tabulation of the votes submitted in respect of the
proposals considered at the July 2, 1997 Special Meeting; proxy votes giving
discretion to the chairman of the meeting have been included in the votes for
each proposal.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF BROKER
TOTAL NUMBER OF VOTES AGAINST NON-VOTES AND
SHARES VOTED VOTES FOR OR WITHHELD ABSTENTIONS
------------ ---------- ------------- ----------------
<S> <C> <C> <C> <C>
Proposal 1. 89,350,111 89,230,299 82,587 37,225
Proposal 2. 89,350,111 89,187,467 103,944 58,700
Proposal 3. 89,350,111 89,177,611 106,584 65,916
Proposal 4. 89,350,111 89,150,140 120,095 79,876
Proposal 5. 89,350,111 83,553,710 5,523,394 273,007
Proposal 6. 89,350,111 86,600,610 2,457,894 291,607
Proposal 7. 89,548,087 80,795,433 8,593,744 158,910
</TABLE>
A Special General Meeting of the Company, requisitioned by Westar Capital,
Inc. prior to the mergers of ADT, Former Tyco, Keystone and INBRAND (as
described in Notes 1 and 2 to the Consolidated Financial Statements), was held
on July 8, 1997. None of the proposals submitted to the meeting were passed. The
following is a brief description of each matter voted upon at the meeting.
PROPOSAL 1. REMOVAL OF DIRECTORS -- The removal of the members of the Board
of Directors.
PROPOSAL 2. REDUCTION IN SIZE OF BOARD -- A reduction in the size of the
Board of Directors to two.
PROPOSAL 3. ELECTION OF DIRECTORS -- The election of two new directors
designated by Westar Capital, Inc.
The following is a tabulation of the votes submitted in respect of the
proposals considered at the July 8, 1997 Special Meeting; proxy votes giving
discretion to the chairman of the meeting have been included in the votes
against each proposal.
<TABLE>
<CAPTION>
NUMBER NUMBER OF BROKER
TOTAL NUMBER OF VOTES AGAINST NON-VOTES AND
SHARES VOTED VOTES FOR OR WITHHELD ABSTENTIONS
------------ --------- ------------- ----------------
<S> <C> <C> <C> <C>
Proposal 1. 84,146,502 1,051,092 82,668,382 427,028
Proposal 2. 84,110,502 1,087,843 82,658,772 363,887
Proposal 3. 84,110,502 1,012,834 82,656,724 440,944
</TABLE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company and executive officers of certain
subsidiaries are as follows:
L. Dennis Kozlowski, age 51, Chairman of the Board and Chief Executive
Officer since July 1997. Chairman of the Board of Former Tyco from January 1993
to July 1997; Chief Executive Officer of Former Tyco since July 1992, and
President and Chief Operating Officer of Former Tyco since December 1989;
President of Grinnell since 1984; President of Ludlow Corporation from 1981 to
1984; associated with Former Tyco since 1975.
Jerry R. Boggess, age 53, President of Grinnell Fire Protection since
August 1993. Vice President of Former Tyco since February 1996; Executive Vice
President of Grinnell from 1989 to 1993; associated with Former Tyco since 1968.
David P. Brownell, age 53, Senior Vice President since July 1997. Senior
Vice President of Former Tyco since May 1993; Executive Vice President of
Grinnell Flow Control Division from 1991 to May 1993; Executive Vice President
of Grinnell Supply Sales from 1989 to 1991; Vice President Marketing of Grinnell
Corporation from 1988 to 1989; Regional Vice President of Grinnell Fire
Protection Systems from 1986 to 1988; associated with Former Tyco since 1984.
Robert P. Mead, age 46, President of the Flow Control Division of Grinnell
Corporation since May 1993. Vice President of Former Tyco since August 1993;
Executive Vice President of Allied Tube and Conduit Corp. from July 1992 to May
1993; Managing Director of Asia-Pacific region from April 1991 to July 1992;
Executive Vice President--Manufacturing Division of Grinnell from January 1989
to April 1991; Vice President--Finance of Grinnell from February 1985 to January
1989; associated with Former Tyco since 1973.
14
<PAGE> 16
Richard J. Meelia, age 48, President of the Kendall Company since July
1995. Vice President of Former Tyco since February 1996; Group President of
Kendall Healthcare from January 1991 to July 1995; prior to 1991, Mr. Meelia was
President of Infusaid/Pfizer Hospital Product Group, a manufacturer and marketer
of implantable drug delivery products.
Barbara S. Miller, age 48, Vice President and Treasurer since July 1997.
Vice President of Former Tyco since February 1996; Treasurer of Former Tyco
since May 1993; associated with Former Tyco since 1989.
Mark H. Swartz, age 37, Executive Vice President and Chief Financial
Officer since July 1997. Vice President and Chief Financial Officer of Former
Tyco since February 1995; Director of Mergers and Acquisitions of Former Tyco
from 1993 to 1995; associated with Former Tyco since 1991.
15
<PAGE> 17
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SECURITY HOLDER
MATTERS
The approximate number of registered holders of the Company's common shares
at December 10, 1997 was 29,000.
Tyco common shares are listed and traded on the New York Stock Exchange
("NYSE"), the London Stock Exchange and the Bermuda Stock Exchange. The
following table sets forth the high and low sales prices per share of Tyco
common shares as reported in the NYSE Composite Transaction Tape, and the
dividends paid on such Tyco common shares, for the quarterly periods presented
below. The price and dividends for Tyco common shares have been restated to
reflect the 0.48133 reverse stock split related to the merger and a two-for-one
stock split effected in the form of a stock dividend which was distributed on
October 22, 1997. The prices per Tyco common shares listed in the table for
periods prior to the merger of ADT and Former Tyco on July 2, 1997 are for
common shares of ADT.
<TABLE>
<CAPTION>
FISCAL 1997(1) 1996
-------------------------------------- --------------------------------------
MARKET PRICE RANGE MARKET PRICE RANGE
--------------------- DIVIDEND --------------------- DIVIDEND
QUARTER HIGH LOW PER SHARE(2) HIGH LOW PER SHARE(2)
- ------- -------- -------- ------------ -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
First $28.6965 $22.0743 $ -- $18.6982 $14.5430 $ --
Second 35.4487 25.4503 -- 20.2564 16.8803 --
Third 43.0000 34.4099 .025 25.7100 16.4908 --
Fourth 24.3466 19.0877 --
----- -----
$.025 $ --
===== =====
</TABLE>
- ---------------
(1) Fiscal 1997 represents the transitional nine month fiscal year ended
September 30, 1997.
(2) Prior to the merger with Former Tyco, ADT had not declared any dividends on
its common shares since April 1991. Former Tyco declared quarterly dividends
of $0.025 per common share for the periods presented above prior to the
consummation of the merger. Keystone declared quarterly dividends of $0.19
per share in Fiscal 1997 and 1996. Tyco declared an initial dividend of
$0.025 per common share. The payment of dividends by Tyco in the future will
depend on business conditions, Tyco's financial condition and earnings and
other factors.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial information
of the Company for the nine month fiscal year ended September 30, 1997 and the
four years in the period ended December 31, 1996. This selected financial
information should be read in conjunction with the Company's Consolidated
Financial Statements and related notes. The selected financial data reflects the
combined results of operations and financial position of Tyco International
Ltd., Tyco International (US) Inc. and Keystone International, Inc. restated for
all periods presented pursuant to the pooling of interests method of accounting.
The selected financial data prior to January 1, 1997, does not reflect the
results of operations and financial position of INBRAND, which was acquired in
1997 and accounted for under the pooling of interests method of accounting, due
to immateriality. The combinations are collectively referred to as the
"Mergers". See Notes 1 and 2 to the Consolidated Financial Statements.
16
<PAGE> 18
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------------------------
1997(1) 1996 1995(5) 1994(5) 1993(5)
------------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations
Data:
Net sales.............................. $ 7,588.2 $8,103.7 $6,915.6 $6,240.9 $5,964.0
Operating (loss) income(2)(3)(4)....... (476.5) (18.8) 649.6 653.6 522.5
(Loss) income from continuing
operations.......................... (776.8) (296.7) 267.5 304.8 244.3
(Loss) income per share from continuing
operations(6)....................... (1.50) (.62) .57 .66 .55
Cash dividends per common share........ See (7) below
Consolidated Balance Sheet Data:
Total assets........................... 10,447.0 8,471.3 7,357.8 7,053.2 7,098.9
Long-term debt......................... 2,480.6 1,878.4 1,760.7 1,755.3 1,800.8
Convertible redeemable preferred
shares.............................. -- -- 4.9 5.2 427.2
Shareholders' equity................... 3,429.4 3,288.6 3,342.7 3,030.0 2,674.2
</TABLE>
- ---------------
(1) In September 1997, the Company changed its fiscal year end from December 31
to September 30. Accordingly, the nine month transition period ended
September 30, 1997 is presented.
(2) Operating loss in Fiscal 1997 results include charges related to merger,
restructuring and other non-recurring costs of $917.8 million and impairment
of long-lived assets of $148.4 million primarily related to the mergers and
integration of ADT, Former Tyco, Keystone, and INBRAND. See Notes 11 and 15
to the Consolidated Financial Statements. Fiscal 1997 also includes a charge
of $361.0 million for the write-off of purchased in-process research and
development related to the acquisition of AT&T's submarine systems business.
(3) Operating loss in 1996 includes non-recurring charges of $744.7 million
related to the adoption of Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets to be Disposed Of",
$237.3 million related principally to the restructuring of ADT's electronic
security services business in the United States and United Kingdom and $8.8
million of fees and expenses related to the ASH merger. See Notes 11 and 15
to Consolidated Financial Statements.
(4) Operating income in 1995 included a loss of $65.8 million on the disposal of
the European auto auction business and a gain of $31.4 million from the
disposal of the European electronic article surveillance business. See Note
3 to the Consolidated Financial Statements. Operating income also includes
non-recurring charges of $97.1 million for restructuring charges at ADT and
at Keystone and for the fees and expenses related to the Kendall merger, as
well as a charge of $8.2 million relating to the divestiture of certain
assets by Keystone. See Notes 11 and 15 to Consolidated Financial
Statements.
(5) Prior to the Mergers, ADT and Keystone had a calendar year end and the
Former Tyco had a June 30 fiscal year end. The historical results have been
combined using a calendar year end for ADT, Keystone and the Former Tyco for
the year ended December 31, 1996. For 1995, 1994 and 1993 the results of
operations and financial position reflect the combination of ADT and
Keystone with a calendar year end and the Former Tyco with a June 30 fiscal
year end. Net sales and net income for the Former Tyco for the period July
1, 1995 through December 31, 1995 (which results are not included in the
historical combined results) were $2.46 billion and $136.4 million,
respectively.
(6) Per share amounts for all periods presented have been restated to give
effect to the Mergers, including the reverse stock split, and a two-for-one
stock split distributed on October 22, 1997 effected in the form of a stock
dividend.
(7) Prior to the Merger, with Former Tyco, ADT had not declared any dividends on
its common shares since April 1991. Former Tyco declared quarterly dividends
of $0.025 per share in the first two quarters of Fiscal 1997, $0.10 per
share in 1996, 1995 and 1994 and $0.095 per share in 1993. Keystone declared
quarterly dividends of $0.19 per share in each of the three quarters in
Fiscal 1997, of $0.76 per share in
17
<PAGE> 19
1996, 1995 and 1994 and $0.74 per share in 1993. Tyco declared a dividend of
$0.025 per share in the third quarter of Fiscal 1997. The payment of dividends
by Tyco in the future will depend on business conditions, Tyco's financial
condition and earnings and other factors.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
OPERATING RESULTS
See Management's Discussion and Analysis of Financial Condition and
Operating Results which appears on pages 65 to 69 of this Form 10-K.
ITEM 7A. FINANCIAL INSTRUMENT DISCLOSURE
See Management's Discussion and Analysis of Financial Condition and
Operating Results which appears on pages 65 to 69 of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements and schedules are filed as
part of this Annual Report:
Financial Statements:
Reports of Independent Accountants
Consolidated Balance Sheets -- September 30, 1997 and December 31, 1996
Consolidated Statements of Operations for the nine month fiscal year
ended September 30, 1997 and each of the two years in the period ended
December 31, 1996
Consolidated Statements of Shareholders' Equity for the nine month
fiscal year ended September 30, 1997 and each of the two years in the
period ended December 31, 1996
Consolidated Statements of Cash Flows for the nine month fiscal year
ended September 30, 1997 and each of the two years in the period ended
December 31, 1996
Notes to Consolidated Financial Statements
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts
All other financial statements and schedules have been omitted since the
information required to be submitted has been included in the consolidated
financial statements and related notes or because they are either not applicable
or not required under the rules of Regulation S-X.
See Notes to Consolidated Financial Statements for Summarized Quarterly
Financial Data (unaudited).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE> 20
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Directors of the Company will be filed by an
amendment to this Form 10-K within 120 days after the close of the fiscal year.
ITEM 11. MANAGEMENT REMUNERATION
Information concerning management remuneration will be filed by an
amendment to this Form 10-K within 120 days after the close of the fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning security ownership of certain beneficial owners and
management will be filed by an amendment to this Form 10-K within 120 days after
the close of the fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning certain relationships and related transactions will
be filed by an amendment to this Form 10-K within 120 days after the close of
the fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) (1) and (2) Financial Statements and Schedules -- see Item 8.
(b) Exhibits
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger, dated as of July 13, 1994, by and among
Former Tyco, T Acquisition Corp. and Kendall International, Inc.
(Incorporated by reference to Former Tyco Form 8-K filed July 26, 1994).
2.2 Agreement and Plan of Merger, dated as of March 17, 1997, by and among
ADT Limited, Limited Apache, Inc. and Former Tyco.(4)
2.3 Agreement and Plan of Merger, dated May 12, 1997, by and among Former
Tyco, T5 Acquisition Corp. and INBRAND Corporation (Incorporated by
reference as an Exhibit to Former Tyco's Registration Statement No.
333-31227 on Form S-4 filed on July 14, 1997.)
2.4 Agreement and Plan of Merger, dated as of May 20, 1997, by and among
Former Tyco, T6 Acquisition Corp. and Keystone International, Inc.
(Incorporated by reference as an Exhibit to Former Tyco's Registration
Statement No. 333-31631 on Form S-4 filed on July 18, 1997.)
3.1 Memorandum of Association (as altered) (Incorporating all amendments to
May 26, 1992).(1)
3.2 Certificate of Incorporation on change of name dated July 2, 1997.(8)
3.3 Bye-Laws of Tyco International Ltd. (incorporating all amendments to
July 2, 1997).(8)
4.1 Indenture relating to the senior notes dated August 4, 1993 among ADT
Operations, Inc., as issuer, and ADT Limited and certain subsidiaries of
ADT Operations, Inc., as guarantors, and The Chase Manhattan Bank
(National Association), as trustee, and the form of senior note included
therein.(2)
4.2 First Supplemental Indenture to the Indenture, dated as of August 4,
1993, among ADT Operations, Inc., the Guarantors Named Therein and The
Chase Manhattan Bank, as Trustee, dated as of July 1, 1997, in respect
of the $250,000,000 8 1/4% Senior Notes due 2000.(9)
4.3 Amended and Restated Indenture dated as of July 2, 1997, in respect of
the $250,000,000 8 1/4% Senior Notes due 2000.(9)
</TABLE>
19
<PAGE> 21
<TABLE>
<S> <C>
4.4 Indenture relating to the senior subordinated notes dated August 4, 1993
among ADT Operations, as issuer, and ADT Limited, as guarantor, and
NationsBank of Georgia, National Association, as trustee, and the form
of senior subordinated note included therein.(2)
4.5 First Supplemental Indenture to the Indenture, dated as of August 4,
1993, among ADT Operations, Inc., ADT Limited, as Guarantor, and The
Bank of New York, as Trustee, date as of July 1, 1997, in respect of the
$350,000,000 9 1/4% Senior Subordinated Notes due 2003.(9)
4.6 Amended and Restated Indenture dated as of July 2, 1997, in respect of
the $350,000,000 9 1/4% Senior Subordinated Notes due 2003.(9)
4.7 Indenture dated as of July 1, 1995 among ADT Operations, Inc., ADT
Limited and Bank of Montreal Trust Company, as trustee and the form of
note included therein.(3)
4.8 Rights Agreement between ADT Limited and Citibank, N.A. dated as of
November 6, 1996.(7)
4.9 First Amendment between ADT Limited and Citibank, N.A. dated as of
March 3, 1997 to Rights Agreement between ADT Limited and Citibank, N.A.
dated as of November 6, 1996.(7)
4.10 Second Amendment between ADT Limited and Citibank, N.A. dated as of
July 2, 1997 to the Rights Agreement (Incorporated by reference to
Form 8-A/A dated July 2, 1997.)
4.11 Indenture dated April 30, 1992 between Former Tyco and Security Pacific
National Trust Company (New York). (Incorporated by reference to Former
Tyco's Form 10-Q for the period ended March 31, 1992.)
4.12 First Supplemental Indenture dated April 30, 1992 between Former Tyco
and Security Pacific National Trust Company (New York). (Incorporated by
reference to Former Tyco Form 10-Q for the period ended March 31, 1992.)
4.13 Second Supplemental Indenture, dated as of March 8, 1993, between Former
Tyco and BankAmerica National Trust Company, as Trustee. (Incorporated
by reference to Tyco International Ltd.'s Form 8-K filed on March 8,
1993.)
4.14 L90,000,000 Facility Agreement dated March 17, 1997, among ADT Finance
Plc, as the Borrower, ADT (UK) Holdings PLC and Others as Guarantors,
The Bank of Nova Scotia as Arranger and as Agent and Others.(10)
4.15 ADT Limited Guarantee dated as of March 25, 1997, in respect of a
L90,000,000 facility made available to ADT Finance Plc.(10)
4.16 L27,000,000 On Demand Facility Letter dated January 3, 1997, between ADT
Finance Plc and The Bank of Nova Scotia.(10)
4.17 ADT Limited Guarantee in respect of the obligations of ADT Finance Plc
under a L27,000,000 Facility Letter dated January 3, 1997.(10)
4.18 364-Day Credit Agreement, Five-Year Credit Agreement and Bridge Credit
Agreement, each dated as of June 27, 1997 (Incorporated by reference to
Tyco International (US) Inc.'s Form 10-K for the fiscal year ended
June 30, 1997.)
4.19 Parent Guarantee Agreement dated as of July 2, 1997 (Incorporated by
reference into Tyco International (US) Inc.'s Form 10-K for the fiscal
year ended June 30, 1997.)
10.1 Rules of the ADT UK Executive Share Option Scheme (1984), amended to
reflect the reverse split of Common Shares effective June 17, 1991.(1)*
10.2 Rules of the ADT International Executive Share Option Plan, amended to
reflect the reverse split of Common Shares effective June 17, 1991.(1)*
10.3 Rules of the ADT UK and International Executive Share Option Schemes
(1984) New Section, amended to reflect the reverse split of Common
Shares effective June 17, 1991.(1)*
10.4 Rules of the ADT Senior Executive Share Option Plan, amended to reflect
the reverse split of Common Shares effective June 17, 1991. (1)*
10.5 US (1990) Stock Option Plan of ADT Limited, amended to reflect the
reverse split of Common Shares effective June 17, 1991.(1)*
</TABLE>
20
<PAGE> 22
<TABLE>
<S> <C>
10.6 Agreement between ADT Automotive Holdings, Inc. and Michael J.
Richardson dated as of January 29, 1997.(7)*
10.7 Incentive Compensation Agreement between ADT, Inc. and Michael J.
Richardson dated as of February 10, 1997.(7)*
10.8 Severance Agreement between ADT Security Services, Inc. and Raymond
Gross dated as of February 26, 1997.(7)*
10.9 Consulting Agreement between ADT, Inc. and John E. Danneberg dated as of
August 28, 1996.(7)*
10.10 Form of Indemnification Agreement.(7)*
10.11 The Tyco International Ltd. Long Term Incentive Plan (formerly known as
the ADT 1993 Long-Term Incentive Plan) (as amended July 2, 1997).
(Incorporated by reference as an Exhibit to the Proxy Statement dated
June 3, 1997 on Amendment No. 3 to Form S-4 dated June 3, 1997.)*
10.12 Purchase Agreement dated June 29, 1995 among ADT Operations, Inc., ADT
Limited and Merrill Lynch & Co., Inc. and the related pricing
agreement.(3)
10.13 Agreement dated December 29, 1995 among ADT (UK) Limited, ADT Holdings
BV, Ruskin Limited, ADT Limited, Loanoption Limited and Integrated
Transport Systems Limited for the sale and purchase of European
Auctions.(5)
10.14 Agreement among ADT Limited, Thomas J. Gibson and Integrated Transport
Systems Limited dated December 29, 1995.(6)*
10.15 Agreement among ADT Limited, David B. Hammond and Integrated Transport
Systems Limited dated December 29, 1995.(6)*
10.16 Keystone International, Inc. 1985 Incentive Stock Plan as amended
(Incorporated by reference to an Exhibit to Keystone's Registration
Statement No. 33-37053.)*
10.17 Keystone's 1994 Director's Stock Option Plan (Incorporated by reference
to an Exhibit to Keystone's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.)*
10.18 Keystone International, Inc. voluntary deferred compensation plan
(Incorporated by reference to Keystone International, Inc.'s Form 10-K
for the year ended December 31, 1996).*
10.19 1978 Restricted Stock Ownership Plan for Key Employees. (Incorporated by
reference to Former Tyco Shareholders' Proxy Statement for Annual
Meeting of Shareholders on November 21, 1978.)*
10.20 1981 Key Employee Loan Program. (Incorporated by reference to Former
Tyco's Form 10-K for the year ended May 31, 1982.)*
10.21 1983 Key Employee Loan Program. (Incorporated by reference to Former
Tyco's Form 10-K for the year ended May 31, 1983.)*
10.22 1983 Restricted Stock Ownership Plan for Key Employees. (Incorporated by
reference to Former Tyco Shareholders' Proxy Statement for Annual
Meeting of Shareholders on October 18, 1983.)*
10.23 1983 Key Employee Loan Program, as amended December 9, 1993
(Incorporated by reference to Former Tyco's Form 10-K for the year ended
June 30, 1994.)*
10.24 Tyco Incentive Compensation Plan. (Incorporated by reference to Former
Tyco's Form 10-K for the year ended June 30, 1994.)*
10.25 1994 Restricted Stock Ownership Plan for Key Employees. (Incorporated by
reference to Former Tyco Shareholders' Proxy Statement for Annual
Meeting of Shareholders on October 19, 1994.)
10.26 Tyco International Ltd. Supplemental Executive Retirement Plan
(Incorporated by reference to Former Tyco's Form 10-K for the year ended
June 30, 1995).*
11.1 Earnings Per Share Computation. (Filed herewith.)
21.1 Subsidiaries of the registrant. (Filed herewith.)
23.1 Consent of Coopers & Lybrand. (Filed herewith.)
</TABLE>
21
<PAGE> 23
<TABLE>
<S> <C>
23.2 Consent of Coopers & Lybrand L.L.P. (Filed herewith.)
23.3 Consent of Arthur Andersen LLP (Filed herewith.)
27 Financial Data Schedule. (Filed herewith.)
</TABLE>
- ---------------
(1) Incorporated by reference to an Exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.
(2) Incorporated by reference to an Exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993.
(3) Incorporated by reference to an Exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995.
(4) Incorporated by reference to an Exhibit to the Former Tyco's Current Report
dated March 17, 1997 on Form 8-K filed March 25, 1997.
(5) Incorporated by reference to an Exhibit to the Registrant's Current Report
dated December 29, 1995 on Form 8-K filed January 16, 1996.
(6) Incorporated by reference to an Exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995.
(7) Incorporated by reference to an Exhibit to the Registrant's Schedule 14D-9
dated March 3, 1997.
(8) Incorporated by reference to an Exhibit to the Registrant's Current Report
dated July 2, 1997 on Form 8-K filed July 10, 1997.
(9) Incorporated by reference to an Exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997.
(10) Incorporated by reference to an Exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1996.
* Management contract or compensatory plan.
(c) Reports on Form 8-K.
A Current Report on Form 8-K was filed by the registrant on July 10, 1997
regarding the merger of Former Tyco and the Company which was consummated on
July 2, 1997.
A Current Report on Form 8-K was filed by the registrant on September 19,
1997 regarding the change in fiscal year end from December 31 to September 30.
22
<PAGE> 24
SIGNATURES
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.
TYCO INTERNATIONAL LTD.
By /s/ MARK H. SWARTZ
------------------------------------
MARK H. SWARTZ
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER)
Date: December 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ---------------------------------- ------------------
<C> <S> <C>
/s/ L. DENNIS KOZLOWSKI Chairman of the Board, Chief
- ----------------------------------- Executive Officer, President and
L. DENNIS KOZLOWSKI Director (Principal Executive
Officer)
/s/ MICHAEL A. ASHCROFT Director
- -----------------------------------
MICHAEL A. ASHCROFT
/s/ JOSHUA M. BERMAN Director, Vice President
- -----------------------------------
JOSHUA M. BERMAN
/s/ RICHARD S. BODMAN Director
- -----------------------------------
RICHARD S. BODMAN
/s/ JOHN F. FORT Director December 24, 1997
- -----------------------------------
JOHN F. FORT
/s/ STEPHEN W. FOSS Director
- -----------------------------------
STEPHEN W. FOSS
/s/ RICHARD A. GILLELAND Director
- -----------------------------------
RICHARD A. GILLELAND
/s/ PHILIP M. HAMPTON Director
- -----------------------------------
PHILIP M. HAMPTON
/s/ JAMES S. PASMAN, JR. Director
- -----------------------------------
JAMES S. PASMAN, JR.
/s/ W. PETER SLUSSER Director
- -----------------------------------
W. PETER SLUSSER
/s/ MARK H. SWARTZ Executive Vice President and Chief
- ----------------------------------- Financial Officer
MARK H. SWARTZ
/s/ FRANK E. WALSH, JR. Director
- -----------------------------------
FRANK E. WALSH, JR.
</TABLE>
23
<PAGE> 25
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Tyco International Ltd.
We have audited the consolidated balance sheets of Tyco International Ltd.
(the "Company", formerly known as ADT Limited) as of September 30, 1997 and
December 31, 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows and the related consolidated financial
statement schedule for the nine months ended September 30, 1997 and for each of
the two years in the period ended December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based upon our audits. We did not audit the financial statements of
Tyco International (US) Inc. (formerly known as Tyco International Ltd. prior to
the merger with ADT Limited), a wholly-owned subsidiary, as of December 31, 1996
and for the year ended December 31, 1996 and the year ended June 30, 1995, which
statements reflect total assets constituting 61.4 % of consolidated total assets
as of December 31, 1996 and net sales constituting 70.6% and 65.6% of
consolidated net sales for the years ended December 31, 1996 and 1995,
respectively, and of Keystone International, Inc., a wholly owned-subsidiary, as
of December 31, 1996 and for each of the two years in the period ended December
31, 1996, which statements reflect total assets constituting 6.4% of
consolidated total assets as of December 31, 1996 and net sales constituting
8.4%, and 8.6% of consolidated net sales for the years ended December 31, 1996
and 1995, respectively. Those statements were audited by other auditors whose
reports have been furnished to us, and our opinion, insofar as it relates to
data included in the consolidated financial statements for such entities, is
based solely on the reports of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Tyco International Ltd., as of
September 30, 1997 and December 31, 1996, and the consolidated results of its
operations and its cash flows for the nine months ended September 30, 1997, and
for each of the two years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
consolidated financial statement schedule referred to above, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND
Hamilton, Bermuda
November 21, 1997
24
<PAGE> 26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Tyco International Ltd.
We have audited the consolidated balance sheet of Tyco International Ltd.
(since renamed Tyco International (US) Inc.) as of December 31, 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
and the related consolidated financial statement schedule for the years ended
December 31, 1996 and June 30, 1995 (not presented separately herein). These
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Subsequent to the balance sheet date, the company merged with and became a
wholly-owned subsidiary of ADT Limited (subsequently renamed Tyco International
Ltd.).
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Tyco
International Ltd. as of December 31, 1996 and the consolidated results of its
operations and its cash flows for the years ended December 31, 1996, and June
30, 1995, in conformity with generally accepted accounting principles. In
addition, in our opinion, the consolidated financial statement schedule referred
to above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
July 10, 1997
25
<PAGE> 27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors,
Keystone International, Inc.:
We have audited the consolidated balance sheet of Keystone International,
Inc. (a Texas corporation) and subsidiaries as of December 31, 1996, and the
related consolidated statements of income, changes in shareholders' investment
and cash flows for each of the two years in the period then ended, which are not
included herein. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Keystone
International Inc. and subsidiaries as of December 31, 1996, and the results of
their operations and their cash flows for each of the two years in the period
then ended, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
January 31, 1997
Houston, Texas
26
<PAGE> 28
TYCO INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(IN MILLIONS, EXCEPT SHARE DATA) 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................................. $ 369.8 $ 324.2
Receivables, less allowance for doubtful accounts of $107.7 in 1997
and $84.2 in 1996.................................................... 1,912.3 1,288.4
Contracts in progress.................................................. 138.3 131.6
Inventories............................................................ 1,124.8 946.5
Deferred income taxes.................................................. 389.4 144.9
Prepaid expenses and other current assets.............................. 174.2 217.4
--------- --------
Total current assets................................................... 4,108.8 3,053.0
PROPERTY, PLANT AND EQUIPMENT, NET..................................... 2,924.0 2,590.9
GOODWILL AND OTHER INTANGIBLE ASSETS, NET.............................. 2,933.2 2,439.0
LONG-TERM INVESTMENTS.................................................. 108.5 100.6
DEFERRED INCOME TAXES.................................................. 144.0 67.2
OTHER ASSETS........................................................... 228.5 220.6
--------- --------
TOTAL ASSETS........................................................... $10,447.0 $8,471.3
========= ========
CURRENT LIABILITIES:
Loans payable and current maturities of long-term debt................. $ 250.0 $ 587.9
Accounts payable....................................................... 1,012.0 722.0
Accrued expenses and other current liabilities......................... 2,005.7 1,016.9
Contracts in process -- billings in excess of costs.................... 141.4 153.3
Deferred revenue....................................................... 152.3 146.1
Income taxes........................................................... 403.5 121.2
Deferred income taxes.................................................. 26.9 12.9
--------- --------
Total current liabilities.............................................. 3,991.8 2,760.3
LONG-TERM DEBT......................................................... 2,480.6 1,878.4
OTHER LONG-TERM LIABILITIES............................................ 497.5 419.6
DEFERRED INCOME TAXES.................................................. 47.7 124.4
--------- --------
TOTAL LIABILITIES...................................................... 7,017.6 5,182.7
--------- --------
COMMITMENTS AND CONTINGENCIES
CONVERTIBLE REDEEMABLE PREFERENCE SHARES............................... -- --
SHAREHOLDERS' EQUITY:
Common shares, $.20 par value, 750,000,000 shares authorized:
536,357,498 shares outstanding in 1997 and 481,045,721 shares
outstanding in 1996.................................................. 107.3 96.2
Capital in excess:
Share premium........................................................ 2,041.3 1,081.0
Contributed surplus, net of deferred compensation of $2.2 in 1997 and
$31.4 in 1996..................................................... 2,305.7 2,168.8
Currency translation adjustment........................................ (161.6) (42.5)
Accumulated deficit.................................................... (863.3) (14.9)
--------- --------
Total shareholders' equity............................................. 3,429.4 3,288.6
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $10,447.0 $8,471.3
========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE> 29
TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ---------------------
(IN MILLIONS EXCEPT PER SHARE DATA) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales............................................. $7,588.2 $8,103.7 $6,915.6
Cost of sales......................................... 5,102.6 5,475.2 4,665.3
Selling, general and administrative expenses.......... 1,534.9 1,656.5 1,495.4
Merger, restructuring and other nonrecurring
charges............................................. 917.8 246.1 97.1
Charge for the impairment of long-lived assets........ 148.4 744.7 8.2
Write off of purchased in-process research and
development......................................... 361.0 -- --
-------- -------- --------
Operating (loss) income............................... (476.5) (18.8) 649.6
Interest income....................................... 24.2 31.5 19.0
Interest expense...................................... (137.5) (193.3) (187.5)
Other income less expenses............................ -- 119.4 (5.0)
-------- -------- --------
(Loss) income before income taxes and extraordinary
items............................................... (589.8) (61.2) 476.1
Income taxes.......................................... (187.0) (235.5) (208.6)
-------- -------- --------
(Loss) income before extraordinary items.............. (776.8) (296.7) 267.5
Extraordinary items, net of taxes..................... (58.3) (8.4) (12.4)
-------- -------- --------
Net (loss) income..................................... (835.1) (305.1) 255.1
Dividends on preference shares........................ -- (.3) (.3)
-------- -------- --------
Net (loss) income available to common shareholders.... $ (835.1) $ (305.4) $ 254.8
======== ======== ========
(Loss) earnings per common share:
(Loss) income before extraordinary items.............. $ (1.50) $ (.62) $ .57
Extraordinary items................................... (.11) (.02) (.03)
-------- -------- --------
Net (loss) income per common share.................... $ (1.61) $ (.64) $ .54
======== ======== ========
Weighted average common and common equivalent shares
outstanding......................................... 519.5 475.6 469.6
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 30
TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, COMMON CURRENCY ACCUMULATED
1997 SHARES $0.20 SHARE CONTRIBUTED TRANSLATION (DEFICIT)
(IN MILLIONS, EXCEPT PER SHARE DATA) PAR VALUE PREMIUM SURPLUS ADJUSTMENT EARNINGS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1995, as previously
reported, reflecting the pooling of interests
with ASH and Former Tyco (see Note 2)........ $ 82.8 $ 997.9 $ 1,870.4 $ (90.3) $(117.2)
Pooling of interests with Keystone (as
described in Note 2)....................... 6.8 128.3 5.2 146.1
------ -------- -------- ------- -------
Balance at January 1, 1995, as restated........ 89.6 997.9 1,998.7 (85.1) 28.9
Conversion of convertible preference
shares..................................... .3
Net income................................... 255.1
Dividends.................................... (56.2)
Restricted stock grants, cancellations, tax
benefits and other......................... 1.4 16.6 .8
Warrants and options exercised............... 3.6 54.6 (1.2)
Purchase of treasury stock................... (.4) (19.0)
Amortization of deferred compensation........ 9.5
Minimum pension liability adjustment......... (6.1)
Currency translation adjustments............. 30.4
Currency translation adjustments transferred
on disposal of businesses and associates... 23.3
------ -------- -------- ------- -------
Balance at December 31, 1995................... 94.2 1,052.5 2,004.9 (31.4) 222.5
Effect of the Former Tyco's excluded activity
(as described in Note 1)................... 2.9 (19.6) 121.2
Exchange of Liquid Yield Option Notes........ .3
Net loss..................................... (305.1)
Dividends.................................... (57.6)
Restricted stock grants, cancellations, tax
benefits and other......................... .2 25.8 .5
Warrants and options exercised............... .4 28.5 (.2)
Purchase of treasury stock................... (4.4)
Amortization of deferred compensation........ 15.7
Minimum pension liability adjustment......... 3.6
Issuance of stock for acquisition............ 1.4 129.0
Other treasury stock transactions............ (4.7)
Currency translation and other adjustments... (.5) 8.5
------ -------- -------- ------- -------
Balance at December 31, 1996................... 96.2 1,081.0 2,168.8 (42.5) (14.9)
Pooling of interests with INBRAND (as
described in Note 1)....................... 2.0 15.9 (.2) 27.6
------ -------- -------- ------- -------
Balance at December 31, 1996, as restated...... 98.2 1,081.0 2,184.7 (42.7) 12.7
Effect of ASH's excluded activity (as
described in Note 2)....................... (.8)
Liquidation of ASH's ESOP.................... 2.5
Sale of common shares........................ 4.7 639.2 10.6
Exchange of Liquid Yield Option Notes........ 1.0 82.0
Net loss..................................... (835.1)
Dividends.................................... (43.4)
Restricted stock grants, cancellations, tax
benefits and other......................... (18.0)
Warrants and options exercised............... 3.3 321.1 (1.5)
Amortization of deferred compensation........ 48.5
Minimum pension liability adjustment......... .6
Other treasury stock transactions............ (.1)
Currency translation and other adjustments... .1 (.5) (118.9) .2
------ -------- -------- ------- -------
Balance at September 30, 1997.................. $107.3 $2,041.3 $ 2,305.7 $(161.6) $(863.3)
====== ======== ======== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 31
TYCO INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------
(IN MILLIONS) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income....................................................... $ (835.1) $ (305.1) $ 255.1
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Merger, restructuring and other non-recurring charges................. 207.4 217.4 47.1
Charge for the impairment of long-lived assets........................ 148.4 744.7 8.2
Write off of purchased in-process research and development............ 361.0 -- --
Extraordinary items................................................... 91.3 8.4 12.4
Depreciation.......................................................... 286.3 339.0 320.7
Goodwill and other intangibles amortization........................... 92.3 88.3 89.5
Debt and refinancing cost amortization................................ 15.9 25.5 15.8
Interest on ITS vendor note........................................... (7.7) (8.9) --
Deferred income taxes................................................. (295.7) 32.7 35.9
(Gain) loss on disposal of businesses................................. -- (1.7) 36.6
(Gain) loss on disposal of investment in associates................... -- (1.2) 0.5
Gain arising from the ownership of investments........................ -- (53.2) (0.1)
Settlement gain....................................................... -- (69.7) --
Gain on currency transactions......................................... -- (9.7) (0.9)
Provisions for losses on accounts receivable and inventory............ 58.1 36.2 21.4
Other noncash items................................................... -- .6 (.8)
Changes in assets and liabilities:
Receivables......................................................... (110.1) (99.8) (115.7)
Proceeds from accounts receivable sale.............................. 75.0 -- 75.0
Contracts in process................................................ (159.7) 17.8 (9.4)
Inventories......................................................... (6.2) (33.3) (55.6)
Accounts payable, accruals and other liabilities.................... 542.8 (135.8) 32.0
Income taxes payable................................................ 269.3 (13.0) (7.1)
Deferred revenue.................................................... 6.2 4.3 2.7
Other, net.......................................................... 37.9 34.6 16.4
--------- --------- -------
Net cash provided by operating activities............................. 777.4 818.1 779.7
--------- --------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............................... (519.1) (532.9) (469.9)
Acquisition of businesses............................................... (1,344.8) (822.6) (218.5)
Purchase of other investments........................................... -- (6.8) (.4)
Disposal of business.................................................... -- 3.0 259.6
Disposal of other investments........................................... -- 69.5 8.0
--------- --------- -------
Net cash utilized by investing activities............................. (1,863.9) (1,289.8) (421.2)
--------- --------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net receipts (repayments) of short-term debt............................ 918.5 232.6 (400.3)
Repayment of long-term debt, including debt tender...................... (961.6) (269.6) (266.1)
Proceeds from long-term debt............................................ 234.6 386.6 483.2
Debt refinancing costs.................................................. -- -- (12.0)
Purchase of senior subordinated notes................................... -- (24.0) (33.7)
Proceeds from sale of common shares..................................... 654.5
Proceeds from exercise of options and warrants.......................... 322.9 32.3 58.1
Redemption of convertible redeemable preference shares.................. -- (4.9) --
Dividends paid.......................................................... (37.9) (56.7) (54.6)
Purchase of treasury stock and warrant.................................. -- (9.7) (19.4)
Other................................................................... -- -- (.3)
--------- --------- -------
Net cash provided (utilized) by financing activities.................. 1,131.0 286.6 (245.1)
--------- --------- -------
Net increase (decrease) in cash and cash equivalents.................... 44.5 (185.1) 113.4
Cash and cash equivalents at beginning of year.......................... 324.2 429.8 316.4
Adjustment for INBRAND's cash and cash equivalents at January 1, 1997
(as described in Note 1).............................................. 1.9 -- --
Effect of the excluded results of ASH and Former Tyco (as described in
Notes 1 and 2)........................................................ (0.8) 79.5 --
--------- --------- -------
Cash and cash equivalents at end of year................................ $ 369.8 $ 324.2 $ 429.8
========= ========= =======
SUPPLEMENTARY CASH FLOW DISCLOSURE:
Interest paid........................................................... $ 161.0 $ 166.0 $ 173.8
========= ========= =======
Income taxes paid (net of refunds)...................................... $ 139.6 $ 152.9 $ 125.5
========= ========= =======
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 32
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation -- The consolidated financial statements have been
prepared in United States dollars in accordance with generally accepted
accounting principles in the United States. As described more fully in Note 2,
on July 2, 1997 a wholly-owned subsidiary of what was formerly called ADT
Limited ("ADT") merged with Tyco International Ltd. (the "Former Tyco"). Upon
consummation of the merger, ADT (the surviving corporation) changed its name to
Tyco International Ltd. (the "Company" or "Tyco"). Former Tyco became a
wholly-owned subsidiary of the Company and changed its name to Tyco
International (US), Inc. ("Tyco US"). In addition, as more fully described in
Note 2, Tyco merged with INBRAND Corporation ("INBRAND") and Keystone
International, Inc. ("Keystone") on August 27, 1997 and August 29, 1997,
respectively. These transactions are referred to herein as the "mergers". These
consolidated financial statements include the consolidated accounts of Tyco, a
company incorporated in Bermuda, and its subsidiaries. They have been prepared
following the pooling of interests method of accounting for the mergers and
therefore reflect the combined financial position, operating results and cash
flows of ADT, Former Tyco and Keystone as if they had been combined for all
periods presented. The restated combined financial statements do not include the
financial position, operating results and cash flows of INBRAND prior to January
1, 1997, due to immateriality. In accordance with the pooling of interests
method of accounting, the Fiscal 1997 beginning Accumulated (Deficit) Earnings
balance in the Consolidated Statement of Shareholders' Equity has been restated
to record the merger with INBRAND. Prior to the mergers, ADT and Keystone had
calendar year ends and the Former Tyco had a June 30 fiscal year end. The
Consolidated Balance Sheets, Statements of Operations, Shareholders' Equity and
Cash Flows as of and for the year ended December 31, 1996 reflect the
combination of the calendar year end consolidated financial position, results of
operations and cash flows for ADT, Keystone and the Former Tyco. The
Consolidated Statements of Operations, Shareholders' Equity and Cash Flows for
of the year ended December 31, 1995 reflect the combination of the calendar year
end financial position, results of operations and cash flows of ADT and Keystone
and the June 30, 1995 fiscal year end financial position and results of
operations and cash flows of the Former Tyco. The results of operations and cash
flows for the Former Tyco from July 1, 1995 to December 31, 1995, which have
been excluded from these consolidated financial statements, are reflected as
adjustments in the 1996 Consolidated Statements of Shareholders' Equity and Cash
Flows.
Principles of Consolidation -- Tyco is a holding company whose assets
consist of its investments in its subsidiaries, intercompany balances and
holdings of cash and cash equivalents. The businesses of the consolidated group
are conducted through the Company's subsidiaries. The Company consolidates
companies in which it owns or controls more than fifty percent of the voting
shares unless control is likely to be temporary. The results of companies
acquired or disposed of during the fiscal year are included in the consolidated
financial statements from the effective date of acquisition or up to the date of
disposal except in the case of pooling of interests (see Note 2). All
significant intercompany balances and transactions have been eliminated in
consolidation.
Change in Year End -- In September 1997 the Company changed its fiscal year
end from December 31 to September 30. The change in year end resulted in a short
fiscal year covering the nine month transition period from January 1 to
September 30, 1997. References to Fiscal 1997, 1996 and 1995 throughout these
consolidated financial statements refer to the nine months ended September 30,
1997 and the calendar years ended December 31, 1996 and 1995, respectively.
Cash Equivalents -- All highly liquid investments purchased with a maturity
of three months or less are considered to be cash equivalents.
Inventories -- Inventories are recorded at the lower of cost (primarily
first in, first out) or market value.
31
<PAGE> 33
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment -- Property, plant and equipment are
principally recorded at cost less accumulated depreciation. Maintenance and
repair expenditures are charged to expense when incurred. The straight-line
method of depreciation is used over the estimated useful lives of the related
assets as follows:
<TABLE>
<S> <C>
Buildings and related improvements 2 to 50 years
Leasehold improvements remaining term of the lease
Subscriber systems 10 to 14 years
Other plant, machinery, equipment and 2 to 20 years
furniture and fixtures
</TABLE>
Gains and losses arising on the disposal of property, plant and equipment
are included in the consolidated statements of operations.
Associates -- For investments in which the Company owns or controls more
than twenty percent of the voting shares, or over which it exerts significant
influence over operating and financial policies, the equity method of accounting
is used. The consolidated statements of operations include the Company's share
of net income of associates less applicable goodwill amortization.
Goodwill and Other Intangible Assets -- Goodwill is being amortized on a
straight-line basis over periods ranging from 10 to 40 years. Accumulated
amortization amounted to $332.5 million at September 30, 1997 and $275.1 million
at December 31, 1996. Impairment of goodwill, if any, is measured periodically
on the basis of whether anticipated undiscounted operating cash flows generated
by the acquired businesses will recover the recorded net goodwill balances over
the remaining amortization period.
Other intangible assets include patents, trademarks, customer contracts and
other items which are being amortized on a straight-line basis over lives
ranging from 2 to 30 years. At September 30, 1997 and December 31, 1996,
accumulated amortization amounted to $76.9 million and $60.9 million,
respectively.
Revenue Recognition -- Revenue from the sale of services or products is
recognized as services are rendered or shipments are made. Subscriber billings
for services not yet rendered are deferred and taken into income as earned, and
the deferred element is included in current liabilities. Revenue from the
installation of electronic security systems is recognized when installations are
completed.
Contract sales for installation of fire protection systems and other
construction related projects are recorded on the percentage-of-completion
method. Profits recognized on contracts in process are based upon estimated
contract revenue and related cost to completion. Revisions in cost estimates as
contracts progress have the effect of increasing or decreasing profits in the
current period. Provisions for anticipated losses are made in the period in
which they first become determinable. Contract sales for the installation of
underwater cable systems are also recorded on the percentage-of-completion
method.
Accounts receivable include amounts billed under retainage provisions for
fire protection contracts. Retention balances of $29.2 million at September 30,
1997 which become due upon contract completion and acceptance are expected to be
substantially collected during the fiscal year ending September 30, 1998
("Fiscal 1998").
Share Premium and Contributed Surplus -- In accordance with the Bermuda
Companies Act 1981, when the Company issues shares for cash at a premium to
their par value, the resulting premium is credited to a share premium account, a
non-distributable reserve. When the Company issues shares in exchange for shares
of another company, the excess of the fair value of the shares acquired over the
par value of the shares issued by the Company is credited, where applicable, to
contributed surplus, which is, subject to certain conditions, a distributable
reserve.
Income Taxes -- Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been included in the
consolidated financial statements or tax returns. Deferred tax
32
<PAGE> 34
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
liabilities and assets are determined based on the differences between the
consolidated financial statements and tax basis of assets and liabilities, using
tax rates in effect for the years in which the differences are expected to
reverse. A valuation allowance is required to offset any net deferred tax assets
if, based upon the available evidence, it is more likely than not that some or
all of the deferred tax assets will not be realized.
Research and Development -- Research and development expenditures are
expensed when incurred.
Translation of Foreign Currency -- Assets and liabilities of the Company's
subsidiaries operating outside of the United States which account in a
functional currency other than U.S. dollars, other than those operating in
highly inflationary environments, are translated into U.S. dollars using
year-end exchange rates. Revenues and expenses are translated at the average
exchange rates effective during the year. Foreign currency translation gains and
losses are included as a separate component of shareholders' equity. For
subsidiaries operating in highly inflationary environments, inventories and
property, plant and equipment, including related expenses, are translated at the
rate of exchange in effect on the date the assets were acquired, while other
assets and liabilities are translated at year-end exchange rates. Translation
adjustments for these operations are included in net (loss) income.
Gains and losses resulting from foreign currency transactions, the amounts
of which are not material, are included in net (loss) income.
Interest Rate Swaps, Currency Options and Other Contracts -- From time to
time the Company enters into a variety of interest rate swaps, interest rate
locks of future fundings, currency options and cross-currency swaps in its
management of interest costs and foreign currency exposures.
Interest rate swaps and interest rate locks hedge interest rates on certain
indebtedness and involve the exchange of fixed and floating rate interest
payment obligations over the life of the related agreement without the exchange
of the notional amount. The interest differentials to be paid or received under
interest rate swaps or locks are recognized over the life of the underlying
agreement or indebtedness, respectively, as an adjustment to interest expense.
Currency options, acquired for the purpose of hedging foreign operating
income generally for periods not exceeding twelve months, are marked to market
with any realized and unrealized gains or losses reflected in selling, general
and administrative expenses. Under cross-currency swaps, which hedge certain net
foreign investments, changes in valuation are recorded in the currency
translation adjustment account. The interest differentials from swaps are
recorded in interest expense.
Use of Estimates -- The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make extensive use of certain estimates and assumptions that affect the reported
amount of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reported periods.
Significant estimates in these consolidated financial statements include
allowances for doubtful accounts receivable, estimates of future cash flows
associated with assets, asset impairments, useful lives for depreciation and
amortization, loss contingencies, net realizable value of inventories, estimated
contract revenues and related costs, environmental liabilities, income taxes and
tax valuation reserves, and the determination of discount and other rate
assumptions for pension and post-retirement employee benefit expenses. Actual
results could differ from those estimates.
Net (Loss) Income Per Share -- Net (loss) income per share is calculated on
the basis of net (loss) income available to common shareholders divided by the
weighted average number of shares outstanding, which includes common equivalents
shares to reflect stock options and warrants using the treasury stock method
except where their effect would be anti-dilutive.
Accounting Pronouncements -- In February 1997, the Financial Accounting
Standards Board (the "FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 128, "Earnings Per Share",
33
<PAGE> 35
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
which is effective for fiscal years ending after December 15, 1997, including
interim periods. Earlier adoption is not permitted. The statement requires
restatement of all prior period earnings per share data presented after the
effective date. SFAS No. 128 specifies the computation, presentation and
disclosure requirements for earnings per share and is substantially similar to
the standard recently issued by the International Accounting Standards Committee
entitled International Accounting Standards, "Earnings Per Share". The Company
will adopt SFAS No. 128 in Fiscal 1998 and the impact is not expected to be
material.
In June 1997, the FASB issued two additional statements. SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information" are both effective for years beginning
after December 15, 1997. Adoption of these standards are not expected to impact
the financial results of the Company.
Reclassifications -- Certain prior year amounts have been reclassified to
conform with current year presentation.
2. MERGERS
Tyco's Merger with Keystone -- On August 29, 1997 Tyco consummated a merger
with Keystone International, Inc. Shareholders of Keystone received 0.48726
shares of Tyco common stock in exchange for each share of Keystone outstanding.
A total of approximately 17.4 million shares were issued, prior to the effect of
the two-for-one stock split, as described in Note 10.
Tyco's Merger with INBRAND -- On August 27, 1997 Tyco merged with INBRAND
Corporation. Shareholders of INBRAND received 0.43 shares of Tyco common stock
in exchange for each share of INBRAND outstanding. A total of approximately 5.1
million shares were issued, prior to the effect of the two-for-one stock split.
ADT's Merger with the Former Tyco -- On July 2, 1997 a wholly-owned
subsidiary of ADT merged with the Former Tyco. Shareholders of ADT, through a
reverse stock split, received 0.48133 shares of the Company's common stock for
each share of ADT common stock outstanding, and the Former Tyco shareholders
received one share of the Company's common stock for each share of the Former
Tyco common stock outstanding. A total of approximately 168.4 million shares
were issued, prior to the effect of the two-for-one stock split.
Each of the three merger transactions discussed above qualifies for pooling
of interests accounting treatment, which is intended to present as a single
interest, common shareholder interests which were previously independent. The
historical consolidated financial statements for periods prior to the
consummation of the combination are restated as though the companies had been
combined during such periods. As discussed in Note 1, the consolidated financial
statements for periods prior to January 1, 1997 do not include INBRAND due to
immateriality. In addition, all historical common share and per share data of
the Company have been retroactively restated to reflect the reverse stock split
and two-for-one stock split discussed above.
Aggregate fees and expenses related to the three mergers discussed above
and to the integration of the combined companies have been expensed in the
accompanying consolidated statement of operations for the nine months ended
September 30, 1997 as required under the pooling of interests accounting method.
This includes transaction costs of approximately $239.8 million relating to
legal, printing, accounting, financial advisory services, severance costs
payable at the effective time of the merger and other direct expenses. It also
includes charges of approximately $678.0 million to reflect the combination of
the four companies, including severance costs, integration costs, the costs
associated with the elimination of excess facilities and the satisfaction of
certain liabilities. In addition the Company recorded a charge of $148.4 million
for the impairment of long-lived assets. See Notes 11 and 15 to the Consolidated
Financial Statements.
34
<PAGE> 36
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Combined and separate results of ADT, Former Tyco, Keystone and INBRAND for
the periods preceding the merger were as follows:
<TABLE>
<CAPTION>
FORMER
ADT TYCO KEYSTONE INBRAND(I) COMBINED
-------- -------- -------- ---------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Six Months ended June 30, 1997 (unaudited)
Net sales.................................. $ 923.9 $3,505.6 $331.2 $118.7 $4,879.4
Net income (loss).......................... 47.2 244.6 22.9 (28.9) 285.8
Year ended December 31, 1996
Net sales.................................. 1,704.0 5,721.8 677.9 -- 8,103.7
Extraordinary items, net of taxes.......... (8.4) -- -- -- (8.4)
Net (loss) income.......................... (695.1) 348.1 41.9 -- (305.1)
Year ended December 31, 1995(ii)
Net sales.................................. 1,783.8 4,534.7 597.1 -- 6,915.6
Extraordinary items, net of taxes.......... (9.8) (2.6) -- -- (12.4)
Net income................................. 21.2 214.0 19.9 -- 255.1
</TABLE>
- ---------------
(i) The restated combined financial statements for periods prior to January 1,
1997 do not include INBRAND due to immateriality (see Note 1).
(ii) Prior to the mergers, ADT and Keystone had calendar year ends and the
Former Tyco had a June 30 fiscal year end. The historical results have been
combined using a calendar year end for ADT, Former Tyco and Keystone for
the year ended December 31, 1996. For 1995 the results reflect the
combination of ADT and Keystone with a calendar year end and the Former
Tyco with a June 30 fiscal year end. Net sales and net income for the
Former Tyco for the period July 1, 1995 through December 31, 1995 (which
results are not included in the historical combined results) were $2.46
billion and $136.4 million, respectively.
ADT's Merger with Automated Security (Holdings) PLC ("ASH")
In September 1996, ADT merged with and acquired the whole of the issued
capital of ASH, a United Kingdom quoted company (the "ASH merger"). ASH is
engaged in the provision of electronic security services in North America and
Europe. The total consideration in respect of the whole of the issued capital of
ASH consisted of the issue of 6,772,255 ADT common shares. The ASH merger was
accounted for as a pooling of interests.
The consolidated financial statements of ASH have previously been presented
in pounds sterling, ASH's functional currency. For the purposes of these
consolidated financial statements, ASH's consolidated financial statements have
been translated into United States dollars at the appropriate exchange rates. In
addition, ASH's fiscal year end was November 30. ASH has been accounted for as a
pooling of interests and its results have been combined with ADT's using the
November year end. The results of operations and cash flows for ASH for the
month of December 1996, which have been excluded from these consolidated
financial statements, are reflected as adjustments in the 1997 consolidated
statements of shareholders' equity and cash flows.
35
<PAGE> 37
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Combined and separate results of ADT and ASH for the periods preceding the
ADT and ASH merger were as follows:
<TABLE>
<CAPTION>
ADT ASH ADJUSTMENTS COMBINED
-------- ------- ----------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Six months ended June 30, 1996 (unaudited)
Net sales...................................... $ 715.6 $ 118.1 $-- $ 833.7
Extraordinary items, net of taxes.............. (1.2) -- -- (1.2)
Net loss....................................... (347.7) (328.9) 0.5(i) (676.1)
Year ended December 31, 1995
Net sales...................................... 1,525.4 258.4 -- 1,783.8
Extraordinary items, net of taxes.............. (9.8) -- -- (9.8)
Net income (loss).............................. 41.5 (18.7) (1.6)(ii) 21.2
</TABLE>
- ---------------
(i) Income tax adjustment arising on preference share dividends accrued by the
ASH group but not payable following merger.
(ii) Income tax adjustment of $0.6 million credit referred to in (i) above, and
a $2.2 million charge relating to cumulative currency translation
adjustments on the disposal of businesses and associates by the ASH group
whose consolidated financial statements were prepared in pounds
sterling -- its functional currency.
All fees and expenses related to the ASH merger have been expensed as
required under the pooling of interests accounting method. Such fees and
expenses amounted to $8.8 million in 1996.
Former Tyco's Merger with Kendall International, Inc. -- On October 19, 1994,
a wholly-owned subsidiary of the Former Tyco merged with Kendall International,
Inc. ("Kendall"). Shareholders of Kendall received 1.29485 shares of the Former
Tyco common stock for each share of Kendall common stock. The transaction was
accounted for as a pooling of interests. Accordingly, the historical financial
statements of the Former Tyco and Kendall for periods prior to the consummation
of the combination were restated as though the companies had been combined
during such periods. Revenues and net income for the quarter ended September 30,
1994 (the most recent interim period prior to the pooling) were $827.6 million
and $32.6 million, respectively, for the Former Tyco and $226.6 million and
$20.7 million, respectively, for Kendall.
All fees and expenses related to the Kendall merger and to the integration
of the combined companies have been expensed as required under the pooling of
interests accounting method. Such fees and expenses amounted to $37.2 million in
1995.
3. ACQUISITIONS AND DIVESTITURES
In addition to the mergers discussed in Note 2, in Fiscal 1997 the Company
acquired companies in each of its business segments for an aggregate of $1.36
billion, including $1.34 billion in cash and the assumption of approximately
$15.7 million in debt. The cash portion of the acquisitions were made utilizing
cash on hand, funding from equity offering of $645.2 million as well as
borrowings under the Company's uncommitted lines of credit. Each of these
acquisitions was accounted for as a purchase and the results of operations of
the acquired companies were included in the consolidated results of the Company
from their respective acquisition dates. As a result of the acquisitions,
approximately $531.7 million in goodwill and other intangibles, net of write off
of purchased in-process research and development, was recorded by the Company,
which reflects the adjustments necessary to allocate the individual purchase
prices to the fair value of assets acquired, liabilities assumed and additional
purchase liabilities recorded. Additional purchase liabilities recorded include
approximately $13.8 million for transaction and other direct costs, $42.2
million for severance and related costs and $20.6 million for costs associated
with the shut down and consolidation of
36
<PAGE> 38
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
certain acquired facilities. At September 30, 1997 liabilities for approximately
$2.2 million in transaction and other costs, $19.7 million in severance costs
and $15.5 million for facility related costs remained on the balance sheet. In
connection with the acquisition of AT&T's submarine systems business the Company
allocated $361.0 million of the purchase price to in-process research and
development projects that had not reached technological feasibility and had no
probable alternative future uses. The Company expects that its termination of
employees and consolidation of facilities related to these acquisitions will be
substantially complete by the end of Fiscal 1998.
The following unaudited pro forma data summarize the results of operations
for the periods indicated as if these acquisitions had been completed on January
1, 1996. The pro forma data give effect to actual operating results prior to the
acquisitions and adjustments to interest expense, goodwill amortization and
income taxes. These pro forma amounts do not purport to be indicative of the
results that would have actually been obtained if the acquisitions had occurred
on January 1, 1996 or that may be obtained in the future. The pro forma data do
not give effect to acquisitions completed subsequent to September 30, 1997.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C>
Sales...................................... $8,267.1 $ 9,530.4
Loss before extraordinary item............. (792.3) (332.9)
Net loss................................... (850.6) (341.6)
Net loss per share......................... (1.64) (0.72)
</TABLE>
During 1996, the Company acquired companies in each of its business
segments for an aggregate of $1.1 billion, including $822.6 million in cash, 3.5
million shares of the Company's common stock valued at $130.4 million and the
assumption of approximately $155.0 million in debt. The cash acquisitions were
made utilizing cash on hand, proceeds of approximately $300 million of 6 1/2%
public notes, as well as borrowings under the Company's uncommitted lines of
credit. Each of the acquisitions was accounted for as a purchase and the results
of operations of the acquired companies were included in the consolidated
results of the Company from their respective acquisition dates. As a result of
the acquisitions, approximately $859.2 million in goodwill was recorded by the
Company, which reflects the adjustments necessary to allocate the individual
purchase prices to the fair value of assets acquired, liabilities assumed and
additional purchase liabilities recorded. Additional purchase liabilities
recorded include approximately $27.0 million for transaction and other direct
costs, $44.0 million for severance and related costs and $23.5 million for costs
associated with the shut down and consolidation of certain acquired facilities.
At September 30, 1997 liabilities for approximately $1.1 million in transaction
and other costs, $10.4 million in severance costs and $10.9 million for facility
related costs remained on the balance sheet. The Company expects to complete its
termination of employees and consolidation of facilities in fiscal 1998.
During 1996, gains arising from the ownership of long-term investments
comprised a net gain of $53.4 million relating to the disposal in November 1996
of the Company's entire investment in Limelight Group plc., a United Kingdom
quoted company. The net gain is included in other income (Note 12).
During 1995, the Company acquired companies in its flow control products,
disposable and specialty products, and fire and safety services segments for an
aggregate of $218.0 million in cash. The acquisitions were accounted for as
purchases, and the results of operations of the acquired companies were included
in the consolidated results of the Company from their respective acquisition
dates. The effect of these transactions on the Company's financial position and
results of operations in the year of acquisition was not significant.
During 1995, the Company disposed of an interest in its United Kingdom and
Continental European vehicle auction services businesses ("European Auctions"),
its entire European electronic article surveillance business and certain
European electronic security services operations for net cash proceeds of $254.8
million,
37
<PAGE> 39
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
notes receivable of $87.9 million, shares received of $0.9 million and deferred
consideration of $5.6 million. The loss on the sale of these businesses was
$36.6 million. European Auctions was sold to Integrated Transport Systems
("ITS"). As a result of this transaction the Company now holds a 10.0% interest
in the ordinary share capital of ITS, valued and accounted for by the Company at
a nominal amount, together with a subordinated, non-collateralized deep discount
zero coupon loan note issued by ITS maturing in 2004 ("Vendor Note"). The Vendor
Note has a $187.6 million aggregate principal amount at maturity with an issue
price of $83.9 million, reflecting a yield to maturity of 10.0% per annum, and
was originally valued by the Company at $74.6 million. There are no periodic
payments of interest. As of September 30, 1997, the Vendor Note is included in
long-term investments on the balance sheet and has been accounted for at its
amortized cost of $94.6 million (the fair market value of the Vendor Note at
September 30, 1997 amounted to $83.4 million).
On December 29, 1995, the Company sold certain assets, including trademarks
and patents, of the Curad(R) and Futuro(R) consumer healthcare products business
owned by its Kendall subsidiary. Under the agreements, Kendall will continue to
manufacture certain Curad(R) and Futuro(R) products for the buyer under
long-term supply agreements. The Company received net cash proceeds of $49.8
million on the sale of the brand names and certain domestic assets. The Company
will continue to receive other payments, including payments under royalty and
noncompete agreements, through 2000. The Company has also granted to the buyer
options to acquire certain additional trademarks, patents and other
international assets.
During 1991, a lengthy review and evaluation of the businesses and assets
acquired in 1990 in respect of Britannia Security Group PLC ("Britannia") was
undertaken by the Company. This review revealed that, at the time of the
acquisition of Britannia by ADT certain assets, particularly subscriber systems
installed at customer premises, had been included in the consolidated financial
statements of Britannia at values materially in excess of their net realizable
value. During 1992 the Company commenced legal proceedings against Britannia's
auditors at the time of acquisition, BDO Binder Hamlyn ("BDO"), to seek recovery
of the damages suffered. In December 1995 the High Court of Justice in England
awarded damages of approximately $160 million (including interest) against BDO,
plus the reimbursement of certain legal costs incurred in connection with the
litigation. BDO then appealed against the judgment. In December 1996 the Company
and BDO entered into a settlement agreement, subject to completion of certain
additional documentation which was signed in February 1997, which included the
payment to the Company of $77.5 million in cash together with a further deferred
payment of $48.6 million, in full and final settlement of the aforementioned
proceedings, including the judgment, accrued interest and costs. As a result of
the settlement BDO have withdrawn their appeal. The net gain arising on this
settlement amounted to $69.7 million, of which $65.0 million was included in
other income and $4.7 million was included in interest income in 1996.
38
<PAGE> 40
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INDEBTEDNESS
Long-term debt is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN MILLIONS)
<S> <C> <C>
Bank and acceptance facilities............................. $ 56.4 $ 50.6
Bank credit agreement(i)................................... 1,400.0 100.0
Bank credit agreement -- ADT(i)............................ -- 83.0
Uncommitted lines of credit(ii)............................ 38.5 254.7
Variable rate term loan due 1998(iii)...................... 97.1 --
8.125% public notes due 1999(iv)........................... 10.5 144.9
8.25% senior notes due 2000(iv)............................ 9.5 250.0
6.34% senior notes due 2000 -- Keystone.................... 45.0 45.0
6.5% public note due 2001(v)............................... 298.7 298.5
Sterling denominated bank facility due 2002(vi)............ 137.5 --
9.25% senior subordinated notes due 2003(iv)............... 14.1 294.1
6.375% public notes due 2004............................... 104.5 104.4
9.5% convertible capital bonds due 2006(vii)............... -- 75.6
Zero coupon Liquid Yield Option Notes due 2010(viii)....... 259.6 326.8
9.5% public debentures due 2022(iv)........................ 49.0 199.6
8.0% public debentures due 2023............................ 50.0 50.0
Other...................................................... 160.2 189.1
-------- --------
Total debt................................................. 2,730.6 2,466.3
Less current portion....................................... 250.0 587.9
-------- --------
Long-term debt............................................. $ 2,480.6 $1,878.4
======== ========
</TABLE>
- ---------------
(i) In June 1997, Former Tyco renegotiated its $300 million credit agreement
with a group of commercial banks and increased it to $1.75 billion giving
it the right to borrow (a) up to $500 million until December 1997, (b) up
to $750 million until June 1998 and (c) up to $500 million until June
2002. The principal amounts then outstanding will be due and payable at
those times. Interest payable on borrowings is variable based upon Former
Tyco's option of selecting a Eurodollar rate plus margins ranging from
0.175% to 0.195%, a certificate of deposit rate plus margins ranging from
0.30% to 0.32% or a base rate, as defined. In July 1997, Former Tyco
borrowed $600 million under the new credit agreement to partially fund the
acquisitions discussed in Note 3. Also in July 1997, Former Tyco borrowed
$800 million under the new credit agreement to fund the debt tenders
discussed below. The weighted average interest rate for these borrowings
was 5.93%. Repayment of amounts outstanding under this agreement is
guaranteed by Tyco.
Subsequent to fiscal year end, Former Tyco terminated the $500 million
component of the agreement due in December 1997. The balance outstanding
was repaid through the issuance of $475 million private placement notes,
of which $225 million are due in March 1998 and $250 million are due in
June 1998. These notes bear interest at LIBOR plus 0.25%. The $475 million
private placement notes, in addition to the remainder of the $1.4 billion
credit agreement which become due in fiscal 1998 have been classified as
long term liabilities based on the Company's ability and intent to
refinance these obligations on a long term basis. The specific terms of
the refinancing have not been finalized.
During Fiscal 1997, ADT Operations, Inc., a wholly-owned subsidiary of the
Company, canceled its $200 million senior, revolving bank credit
agreement.
39
<PAGE> 41
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ii) Uncommitted lines of credit are borrowings by Tyco US from commercial
banks on an "as offered" basis. Borrowings and repayments occur daily and
contain no specific terms other than due dates and interest rates. The due
dates generally range from overnight to 90 days, and interest rates
approximate those available under Tyco US's credit agreement. The weighted
average interest rate was 6.0% at September 30, 1997.
(iii) In May 1997, a Tyco subsidiary entered into a L60 million term loan, due
in March 1998, with a bank to refinance certain intercompany loans with
external debt. Interest payable on borrowings are variable based upon
U.K. LIBOR plus 0.35%. The interest rate at September 30, 1997 was 7.60%.
(iv) In July 1997, Tyco US tendered for its $145.0 million 8.125% public notes
due 1999 and $200.0 million 9.5% public debentures due 2022, and ADT
Operations, Inc. tendered for its $250.0 million 8.25% senior notes due
2000 and $294.1 million 9.25% senior subordinated notes due 2003. The
percentage of debt tendered was 92.8% of the 8.125% notes, 75.5% of the
9.5% debentures, 96.2% of the 8.25% notes and 95.2% of the 9.25% notes.
The two companies paid an aggregate amount, including accrued interest, of
approximately $900.8 million to the note holders, of which $800.0 million
was financed from the new credit agreement discussed above. In connection
with the tender, the Company recorded an after-tax charge of approximately
$58.3 million, net of related income tax benefit of $33.0 million,
primarily representing unamortized debt issuance fees and the premium
paid, which was reported as an extraordinary loss (Note 13).
The $250.0 million 8.25% senior notes due August 2000 were issued in
August 1993, through a public offering, by ADT Operations, Inc. and are
guaranteed on a senior basis by the Company and certain subsidiaries of
ADT Operations, Inc. The senior notes are not redeemable prior to
maturity.
The $294.1 million 9.25% senior subordinated notes due August 2003 were
issued in August 1993, through a public offering, by ADT Operations, Inc.,
and are guaranteed on a senior subordinated basis by the Company. The
notes are redeemable in whole or in part, at the option of ADT Operations,
Inc., at any time after August 1998 at the following redemption prices:
during the twelve month period beginning (a) August 1998 at 103.75%, (b)
August 1999 at 102.50%, (c) August 2000 at 101.25%, and thereafter at
100.00% of the principal amount. During 1996 the Company reacquired in the
market $23.1 million face value of the senior subordinated notes at a
purchase cost of $24.0 million which was financed from cash on hand. The
loss arising on reacquisition of $0.9 million, and related costs of $0.5
million, were included in extraordinary items (Note 13).
In conjunction with the tenders described above, ADT Operations, Inc.,
through consent of the holders of the senior and senior subordinated
notes, eliminated in the indentures pursuant to which such notes were
issued (a) certain restrictive covenants and provisions and references to
such restrictive covenants, (b) certain events of default to the extent
relating to such restrictive covenants and (c) certain definitions to the
extent relating to such restrictive covenants and events of default.
(v) In October 1996, Tyco US issued $300.0 million principal amount of 6.5%
notes due 2001. The net proceeds were used to redeem debt assumed with the
acquisition of Carlisle Plastics, Inc. as well as to reduce certain
amounts outstanding under Tyco US' credit agreement and uncommitted lines
of credit.
(vi) In March 1997, ADT Finance entered into a sterling denominated bank credit
facility of which $137.5 million (L85 million) is a term loan facility and
$8 million is a revolving credit facility. The term loan facility was
fully drawn down and was used to repay in part the $26 million drawn down
under another sterling denominated bank credit facility entered into in
January 1997. The new facility has a term of five years and is guaranteed
by the Company and certain of its subsidiaries. Interest is payable at
LIBOR plus a margin. The interest rate at September 30, 1997 was 7.73%.
(vii) In December 1996, ASH Capital Finance (Jersey) Limited gave notice to all
bond holders that in January 1997 it would redeem all of the capital
bonds then outstanding at a price equating to the denomination of each
capital bond together with all accrued interest due. Accordingly, in
January 1997 the capital bonds were fully redeemed at their carrying
amount, which was financed from cash on hand and amounts drawn down under
the sterling denominated bank credit facility.
40
<PAGE> 42
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(viii) In July 1995, ADT Operations, Inc. issued $776.3 million aggregate
principal amount at maturity of its zero coupon subordinated Liquid Yield
Option Notes ("LYONs") maturing July 2010. The net proceeds of the issue
amounted to $287.4 million which was used to repay in full all amounts
outstanding under ADT Operations Inc.'s previous bank credit agreement,
which was subsequently canceled. The issue price per LYON was $383.09,
being 38.309% of the principal amount of $1,000 per LYON at maturity,
reflecting a yield to maturity of 6.5% per annum (computed on a
semi-annual bond equivalent basis). The discount amortization on the
LYONs is being charged as interest expense through the consolidated
statements of operations on a basis linked to the yield to maturity. The
LYONs discount amortization for Fiscal 1997 amounted to $15.9 million
(1996 -- $20.3 million; 1995 -- $9.4 million). Each LYON is exchangeable
for common shares of the Company at the option of the holder at any time
prior to maturity, unless previously redeemed or otherwise purchased by
ADT Operations, Inc., at an exchange rate of 27.176 common shares per
LYON. During 1997 and 1996, respectively, 188,290 and 619 Notes with
carrying values of $83.0 and $0.3 million were exchanged for 5,116,923
and 16,820 common shares of the Company. Any LYON will be purchased by
ADT Operations, Inc., at the option of the holder, as of July 2002 for a
purchase price per LYON of $599.46. At this time, if the holder exercises
the option, the Company has the right to deliver all or a portion of the
purchase price in the form of common shares of the Company. Beginning
July 2002, the LYONs are redeemable for cash at any time at the option of
ADT Operations, Inc., in whole or in part, at redemption prices equal to
the issue price plus accrued original issue discount to the date of
redemption. The LYONs are guaranteed on a subordinated basis by the
Company. If, on or prior to maturity, there is a change in control, as
defined, the holder has the right to require ADT Operations, Inc. to
purchase the LYONs at the change in control purchase price, as defined.
The average rate of interest on all long-term debt during the nine months
ended September 30, 1997 was 7.6% (1996 -- 8.0%; 1995 -- 8.3%).
The aggregate amounts of total debt maturing during the next five years are
as follows (in millions): $250.0 in Fiscal 1998, $932.6 in Fiscal 1999, $93.5 in
Fiscal 2000, $817.1 in Fiscal 2001 and $56.9 in Fiscal 2002.
At September 30, 1997, the Company had an interest rate swap agreement with
a financial institution having a total notional amount of $50 million, which
effectively converts fixed rate debt to variable rate debt. Under this
agreement, the Company will receive payments at an average fixed rate of 5.56%
and will make payments based on six month LIBOR, which, at September 30, 1997,
was 5.84%. This agreement expires in March 1998. The impact of the Company's
interest rate swap activities on its weighted average borrowing rate was not
material in any year. The impact on reported interest was a reduction of $0.8
million, a reduction of $1.8 million, and an increase of $1.0 million for Fiscal
1997, 1996, and 1995, respectively.
At September 30, 1997, the Company had interest rate lock agreements with a
financial institution for a total notional amount of $500 million. These
instruments hedge the cost of indebtedness and any resulting interest
differentials to be paid or received will be recognized over the term of the
indebtedness. At September 30, 1997, the fair value of the interest rate locks
was $12.3 million in excess of the notional amount.
5. SALE OF ACCOUNTS RECEIVABLE
The Company has an agreement under which one of its operating subsidiaries
sells a defined pool of trade accounts receivable to a limited purpose
subsidiary of the Company. The subsidiary, a separate corporate entity, owns all
of its assets and sells participating interests in such accounts receivable to
creditors who, in turn, purchase and receive ownership and security interests in
those assets. As collections reduce accounts receivable included in the pool,
the operating subsidiary sells new receivables. The limited purpose subsidiary
has the risk of credit loss on the receivables and, accordingly, the full amount
of the allowance for doubtful
41
<PAGE> 43
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accounts has been retained on the Company's consolidated balance sheet. At
September 30, 1997, the $300 million available under the program was fully
utilized. At December 31, 1996 the $225 million available under the program was
fully utilized. The proceeds from the sales were used to reduce borrowings under
uncommitted lines of credit and are reported as operating cash flows in the
Company's Consolidated Statement of Cash Flows. The proceeds of sale are less
than the face amount of accounts receivable sold by an amount that approximates
the purchaser's financing costs of issuing its own commercial paper backed by
these accounts receivable. The discount from the face amount is accounted for as
a loss on the sale of receivables of $10.4 million, $12.1 million, and $8.2
million during Fiscal 1997, 1996 and 1995, respectively, and has been included
in selling, general and administrative expense in the Company's Consolidated
Statement of Operations. The operating subsidiary, as servicing agent for the
purchaser, retains collection and administrative responsibilities for the
participating interests in the defined pool.
6. FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of cash in banks,
temporary investments, accounts receivable and debt. The Company also has
currency options (notional amount of $54.0 million), as well as interest rate
swaps. At September 30, 1997 and at December 31, 1996 the fair value of interest
rate swaps approximated book value, and the fair value of long-term debt was
approximately $2,482.6 million (book value of $2,480.6 million), based on
current interest rates. The fair value of financial instruments included in
working capital approximated book value.
None of the Company's financial instruments represent a concentration of
credit risk as the Company deals with a variety of major banks worldwide and its
accounts receivable are spread among a number of major industries, customers and
geographic areas. None of the Company's off-balance sheet financial instruments
would result in a significant loss to the Company if a counterparty failed to
perform according to the terms of its agreement.
7. INCOME TAXES
The (benefit) provision for income taxes and the reconciliation between the
notional United States federal income taxes at the statutory rate on
consolidated (loss) income before taxes and the Company's income tax provision
are as follows:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
------------- -----------------
1997 1996 1995
------------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Notional U.S. federal income taxes at the
statutory rate................................. $(206.4) $(21.5) $166.6
Adjustments to reconcile to the Company's income
tax provision:
U.S. state income tax provision, net........... 16.2 22.4 19.1
SFAS 121 impairment............................ 49.6 150.2 --
Non U.S. net losses (earnings)................. 121.4 75.5 14.4
Provision for unrepatriated earnings of
subsidiaries................................ 64.1 -- --
Nondeductible restructuring charges............ 112.9 -- --
Other.......................................... 29.2 8.9 8.5
------ ------ ------
Provision for income taxes..................... 187.0 235.5 208.6
Deferred benefit (provision)................... 257.4 (38.6) (43.4)
------ ------ ------
Current provision.............................. $ 444.4 $196.9 $165.2
====== ====== ======
</TABLE>
42
<PAGE> 44
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provisions for Fiscal 1997, 1996, and 1995 included $101.1 million,
$45.3 million and $38.8 million, respectively, for non-U.S. income taxes. The
non-U.S. component of (loss) income before income taxes was $(183.9) million,
$(117.7) million and $69.5 million, for Fiscal 1997, 1996, and 1995,
respectively. In accordance with Accounting Principals Board Opinion No. 23, a
provision of $64.1 million has been made for undistributed earnings of
subsidiaries. The remaining earnings are expected to be permanently reinvested.
The deferred income tax balance sheet accounts result from temporary
differences between the amount of assets and liabilities recognized for
financial reporting and tax purposes. The components of the net deferred income
tax asset are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN MILLIONS)
<S> <C> <C>
Deferred tax assets:
Accrued liabilities and reserves......................... $ 603.4 $ 228.8
Accrued postretirement benefit obligation................ 59.5 60.2
Tax loss carryforwards................................... 284.7 319.7
Interest................................................. 92.7 51.8
Other.................................................... 5.1 21.6
------ ------
1,045.4 682.1
------ ------
Deferred tax liabilities:
Property, plant and equipment............................ (433.4) (393.2)
Contracts................................................ (6.1) (6.8)
Accrued liabilities and reserves......................... (17.0) (12.2)
Other.................................................... (14.7) (38.8)
------ ------
(471.2) (451.0)
------ ------
Net deferred income tax asset before valuation
allowance............................................. 574.2 231.1
Valuation allowance...................................... (115.4) (156.3)
------ ------
Net deferred income tax asset............................ $ 458.8 $ 74.8
====== ======
</TABLE>
As of September 30, 1997, the Company had approximately $223.6 million of
net operating loss carryforwards in certain non-U.S. jurisdictions. Of these,
$204.1 million have no expiration, and the remaining $19.5 million will expire
in future years to 2004. U.S. operating loss carryforwards at September 30, 1997
were approximately $578.8 million and will expire in future years to 2011. A
valuation allowance has been provided for operating loss carryforwards that are
not expected to be utilized. During Fiscal 1997, the Company had a $37.8 million
reduction of its valuation allowance, as a result of a change in estimate as to
realization, with a corresponding reduction in intangible assets.
In the normal course, the Company and its subsidiaries' income tax returns
are examined by the regulatory tax authorities and, in connection with such
examinations, significant assessments could arise. During 1995, the United
States Internal Revenue Service ("IRS") examined the Former Tyco's 1991 and 1992
income tax returns. In connection with such examination, one item is currently
under review by the IRS National Office which could result in a significant
assessment of additional taxes. Ultimate resolution of this matter is not
expected to have a material adverse effect on the Company's financial position,
results of operations or liquidity.
43
<PAGE> 45
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. KEY EMPLOYEE LOAN PROGRAM
Loans are made by the Former Tyco to employees of the Company under the
Former Tyco 1983 Key Employee Loan Program for the payment of taxes upon the
vesting of shares granted under the Former Tyco's Restricted Stock Ownership
Plans. The loans are unsecured and bear interest, payable annually, at a rate
which approximates the Former Tyco's incremental short-term borrowing rate.
Loans are generally repayable in ten years, except that earlier payments are
required under certain circumstances. Loans under this program were $12.3
million and $15.3 million at September 30, 1997 and December 31, 1996,
respectively.
9. CONVERTIBLE REDEEMABLE PREFERENCE SHARES
The Company has authorized (a) 225,000 5 3/4% convertible cumulative
redeemable preference shares of $1 each, (b) 500,000 6% convertible cumulative
redeemable preference shares of $1 each and (c) 125,000,000 convertible
cumulative redeemable preference shares of $1 each, of which none was
outstanding at September 30, 1997 or December 31, 1996. Of the 125,000,000
convertible cumulative redeemable preference shares authorized, 7,500,000 have
been classified as Series A First Preference Shares and are reserved for
issuance pursuant to the Shareholder Rights Plan described below. Rights as to
dividends, return of capital, redemption, conversion, voting and otherwise of
the remaining 117,500,000 convertible cumulative redeemable preference shares of
$1 each, none of which are issued and outstanding, may be determined by the
Company on or before the time of allotment.
In November 1996, the Board of Directors of ADT adopted a Shareholder
Rights Plan, which was amended in March 1997 and July 1997 (the "Plan"). Under
the Plan, each common shareholder has received a distribution of rights for each
common share held. After giving effect to the exchange ratio related to the
merger between ADT and Former Tyco and the two-for-one stock split distributed
on October 22, 1997, the number of Rights associated with each common share is
1.03879. Each right entitles the holder to purchase from the Company shares of a
new series of first preference shares at an initial purchase price of $90 per
one-hundredth of a first preference share. The rights will become exercisable
and will detach from the common shares a specified period of time after any
person becomes the beneficial owner of 15% or more of the Company's common
shares, or commences a tender or exchange offer which, if consummated, would
result in any person becoming the beneficial owner of 15% or more of the
Company's common shares. Once exerciseable each right will entitle the holder,
other than the acquiring person, to purchase, for the rights purchase price,
common shares having a market value of twice the rights purchase price.
If, following an acquisition of 15% or more of the Company's common shares,
the Company is involved in any mergers or other business combinations or sells
or transfers more than 50% of its assets or earnings power, each right will
entitle the holder to purchase, for the rights purchase price, common shares of
the other party to such transaction, having a market value of twice the rights
purchase price. The merger between ADT and the Former Tyco (see Note 2) was
specifically excluded from these provisions by an amendment to the Plan in July
1997.
The Company may redeem the rights at a price of $0.01 per right at any time
prior to the specified period of time after a person has become the beneficial
owner of 15% or more of the Company's common shares. The rights will expire in
November 2005 unless exercised or redeemed earlier.
In the event of liquidation of the Company, the holders of all of the
Company's convertible redeemable preference shares are together entitled to
payment to them of the amount for which the preference shares were subscribed
and any unpaid dividend, prior to any payment to the common shareholders.
44
<PAGE> 46
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. SHAREHOLDERS' EQUITY
During the last quarter of Fiscal 1997, the Board of Directors declared a
two-for-one stock split effected in the form of a 100% stock dividend on the
Company's common shares. Per share amounts and share data have been
retroactively adjusted to reflect the stock split.
In January 1997, the Former Tyco filed a shelf registration to enable it to
offer from time to time unsecured debt securities or shares of common stock, or
any combination of the foregoing, at an aggregate initial offering price not to
exceed $900 million. In March and April 1997, the Former Tyco sold an aggregate
of 23,000,000 shares of common stock off the shelf at $28.88 per share. The net
proceeds from the sale of $645.2 million were used to repay indebtedness
incurred for previous acquisitions.
Prior to the merger of ADT with the Former Tyco, the shareholders of ADT
approved the consolidating of $0.10 par value common shares into new $0.20 par
value common shares and an increase in the number of authorized common shares to
750,000,000. Per share amounts and per share data have been retroactively
adjusted to reflect the consolidation into new par value shares. Information
with respect to ADT common shares and options has been retroactively restated in
connection with the merger on July 2, 1997 to reflect the reverse stock split in
the ratio of 0.48133 share of ADT for each share or option outstanding and the
issuance of one share for each share of the Former Tyco outstanding (see Note
2). Information with respect to Keystone and INBRAND common shares and options
have been retroactively restated in connection with their mergers with Tyco to
reflect their applicable merger exchange ratios of 0.48726 and 0.43,
respectively.
All treasury shares held were retired in Fiscal 1997.
Restricted Stock -- The Former Tyco's 1978 Restricted Stock Ownership Plan
(the "1978 Plan") provided for the award of 9,600,000 shares of common stock to
key employees through November 30, 1988. Under the 1978 Plan, 9,547,400 shares
were granted, net of surrenders. The 1983 Restricted Stock Ownership Plan (the
"1983 Plan") provided for the award of 13,600,000 shares of common stock to key
employees through October 18, 1993. Under the 1983 Plan, 13,465,200 shares were
awarded, net of surrenders. The Former Tyco's 1994 Restricted Stock Ownership
Plan (the "1994 Plan"), which was assumed by the Company, provides for the award
of an initial amount of shares of common stock plus an amount equal to one-half
of one percent of the total shares outstanding at the beginning of each fiscal
year. At September 30, 1997, there were 5,858,268 shares available, of which
2,744,424 shares had been granted. Common shares are awarded subject to certain
restrictions with vesting varying over periods of up to ten years.
For grants which vest based on certain specified performance criteria, the
fair market value of the shares at the date of vesting is expensed over the
period the performance criteria are measured. For grants that vest through
passage of time, the fair market value of the shares at the time of the grant is
amortized (net of tax benefit) to expense over the period of vesting. The
unamortized portion of deferred compensation expense is recorded as a reduction
of shareholders' equity. Recipients of all restricted shares have the right to
vote such shares and receive dividends. Income tax benefits resulting from the
vesting of restricted shares, including a deduction for the excess, if any, of
the fair market value of restricted shares at the time of vesting over their
fair market value at the time of the grants and from the payment of dividends on
unvested shares are credited to contributed surplus.
Keystone also issued restricted shares under its incentive stock plans.
Shares issued under the stock grant plans are owned by the employees at the time
of grant, subject to certain restrictions, principally continued employment with
Keystone for a period set by the committee, typically ranging from one to ten
years. Upon consummation of the merger between Tyco and Keystone, all such
restrictions on the Keystone restricted stock grants lapsed.
45
<PAGE> 47
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The total compensation cost expensed for these stock-based compensation
awards was $48.5 million, $15.8 million and $9.3 million for fiscal 1997, 1996
and 1995, respectively, including $29.6 million in Fiscal 1997 related to
accelerated vesting in connection with changes in control provisions.
Tyco Stock Options -- The Company has granted employee share options which
were issued under five fixed share option plans and schemes which reserve common
shares for issuance to the Company's executives and managers. The majority of
options have been granted under the Tyco International Ltd. Long Term Incentive
Plan (formerly known as the ADT 1993 Long-Term Incentive Plan -- the "Incentive
Plan"). The Incentive Plan was originally approved by shareholders of ADT in
October 1993 and certain subsequent amendments to the Incentive Plan were
approved by shareholders of ADT in April 1996 and July 1997. The Incentive Plan
is administered by the compensation committee of the Board of Directors of the
Company, which consists exclusively of independent non-executive directors of
the Company. Options are generally granted to purchase the Company common shares
at prices which equate to or are above the market price of the common shares on
the date the option is granted. Conditions of vesting are determined at the time
of grant. Certain options have been granted in which participants were required
to pay a subscription price as a condition of vesting. Options which have been
granted under the Incentive Plan to date have generally vested and become
exercisable in installments over a three year period from the date of grant and
have a maximum term of ten years. The Company has reserved 44.0 million common
shares for issuance under the Incentive Plan. At September 30, 1997 there were
10,869,346 shares available for future grant.
In connection with the mergers occurring in Fiscal 1997 (see Note 2), all
of the options outstanding under the Former Tyco, Keystone and INBRAND stock
option plans were assumed by Tyco's Incentive Plan. These options are
administered under the Incentive Plan but retain all of the rights, terms and
conditions of the respective plans under which they were originally granted.
During 1995, the Former Tyco established a stock option plan under which
certain employees, excluding officers and directors, have been granted options
to purchase common stock at a price equal to fair market value on the date of
grant. The options vest on a pro-rata basis over five years, with 50% becoming
exercisable at the end of the third year and the remaining exercisable at the
end of the fifth year. Grants are for periods generally not in excess of ten
years.
Keystone granted share options under its incentive stock option plans for
the benefit of its key employees and directors. Stock options were generally
issued at exercise prices which are not less than the fair market value at the
date of grant. The options vest after one to five years and expire after five to
ten years from the date of grant.
During 1993, INBRAND adopted The INBRAND Corporation Stock Incentive Plan
("the INBRAND Incentive Plan"). Awards under the INBRAND Incentive Plan were in
the form of qualified and non-qualified stock options and/or stock appreciation
rights (SAR's). Grants under the INBRAND Incentive Plan could be made to any
employee of INBRAND, any Director of the company, or any other person to whom
the Compensation Committee determines that making such a grant is in the best
interests of the company. The INBRAND Incentive Plan provides for a
performance-based stock option format which governs the vesting of option
awards. The INBRAND Incentive Plan provided that the exercise price shall not be
less than the fair market value of the common stock as of the determination or
grant date. Each option granted will be exercisable only during the term fixed
by the Compensation Committee, with such term ending from five to ten years
after the grant date. If an option holder is still employed by the company
thirty days prior to the option's expiration date, the options will fully vest.
The INBRAND Incentive Plan contains provisions that restrict the transferability
of grants and limit their exercise in the event of termination of employment or
the disability or death of the grantee.
46
<PAGE> 48
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The movement in share options outstanding for all plans since January 1,
1995 has been as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
OUTSTANDING PRICE
----------- --------
<S> <C> <C>
At January 1, 1995............................................ 18,713,144 $ 9.35
Granted..................................................... 9,315,522 13.26
Exercised................................................... (6,701,240) 3.96
Canceled.................................................... (1,153,649) 10.59
----------
At December 31, 1995.......................................... 20,173,777 12.91
Effect of Former Tyco's excluded activity................... 39,500
Assumed from acquisitions................................... 1,090,212 16.27
Granted..................................................... 7,896,075 17.14
Exercised................................................... (2,765,668) 10.57
Canceled.................................................... (832,694) 16.65
----------
At December 31, 1996.......................................... 25,601,202 14.49
Adjustment for INBRAND merger (Note 1)...................... 895,128 20.37
Granted..................................................... 8,524,470 36.31
Exercised................................................... (2,111,636) 11.01
Canceled.................................................... (594,442) 18.64
----------
At September 30, 1997......................................... 32,314,722 20.22
==========
</TABLE>
The following table summarizes information about outstanding and
exercisable options at September 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -------------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING PRICE LIFE -- YEARS EXERCISABLE PRICE
- ---------------- ----------- -------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.00 to $ 4.95 24,098 $ 2.32 3.4 24,098 $ 2.32
6.93 to 7.60 31,390 7.59 4.7 31,390 7.59
8.31 to 8.97 766,769 8.50 6.2 766,769 8.50
9.14 to 13.35 11,048,080 12.17 7.2 5,068,663 10.91
13.58 to 16.56 8,530,673 15.55 6.1 8,303,451 15.54
17.14 to 29.06 4,287,157 21.98 8.0 1,530,119 23.85
29.25 to 38.31 7,123,011 37.16 9.6 22,511 29.74
40.42 to 52.82 503,544 41.04 9.3 30,344 50.61
---------- ----------
32,314,722 15,777,345
========== ==========
</TABLE>
Stock-Based Compensation -- During 1996, the Company was required to adopt
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123
allows companies to measure compensation cost in connection with executive share
option plans and schemes using a fair value based method, or to continue to use
an intrinsic value based method which generally does not result in a
compensation cost. The Company has decided to continue to use the intrinsic
value based method and no compensation cost has been
47
<PAGE> 49
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
recorded. Had the fair value based method been adopted consistent with the
provisions of SFAS 123, the Company's proforma net (loss) income and proforma
net (loss) income per common share for Fiscal 1997, 1996 and 1995 would have
been as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net (loss) income -- proforma (in millions)... $(854.0) $(335.0) $ 250.9
Net (loss) income per common
share -- proforma........................... (1.64) (.70) .53
</TABLE>
The estimated weighted average fair value of Tyco, Former Tyco and INBRAND
options granted during Fiscal 1997 was $12.15, $9.55 and $37.17, respectively,
on the date of grant using the option-pricing model and assumptions referred to
below. There were no stock option grants for Keystone in Fiscal 1997.
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing model. The following weighted average
assumptions were used for Fiscal 1997:
<TABLE>
<CAPTION>
TYCO FORMER TYCO INBRAND
-------- ------------ ----------
<S> <C> <C> <C>
Expected stock price volatility................... 22% 22% 55%
Risk free interest rate........................... 6.07% 6.34% 6.26%
Expected annual dividends......................... $0.10 $0.10 --
Expected life of options.......................... 5 years 5 years 6.4 years
</TABLE>
The following weighted average assumptions were used for 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
--------------------------------------- ---------------------------------------
ADT FORMER TYCO KEYSTONE ADT FORMER TYCO KEYSTONE
---------- ---------------- -------- ---------- ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
Expected stock price
volatility.............. 28% 22% 26% 28% 22% 26%
Risk free interest rate... 5.9% 5.8% 6.4% 5.9% 5.8% 6.1%
Expected annual
dividends............... -- $0.10 per share 3.8% -- $0.10 per share 3.8%
Expected life of
options................. 3.7 years 3.7 years 7 years 3.7 years 3.7 years 6 years
</TABLE>
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995
and additional awards in future years are anticipated.
Stock Warrants -- The Company has outstanding warrants to purchase common
stock at per share exercise prices of $2.99 (the "A Warrants") and $3.98 (the "B
Warrants"), respectively (together, the "Warrants"). The Warrants expire on July
7, 1999. During fiscal 1997, 36,532 A warrants and 25,000 B warrants were
exercised. During 1996, 30,240 A Warrants and 25,120 B Warrants were exercised.
During 1995, 5,198,256 A Warrants and 5,438,868 B Warrants were exercised. At
September 30, 1997, 234,136 A Warrants and 150,542 B Warrants were outstanding.
In July 1996, as part of the then agreement to combine with Republic
Industries, Inc. ("Republic"), ADT granted to Republic a warrant (the "Warrant")
to acquire 14,439,900 common shares of the Company at an exercise price of
$20.78 per common share. Following termination of the agreement to combine with
Republic, the Warrant vested and was exercisable by Republic in the six month
period commencing September 27, 1996. In March 1997, the Warrant was exercised
by Republic and the Company received $300 million in cash.
Dividends -- In the third quarter of Fiscal 1997 the Company declared a
cash dividend of $0.025 per share. The dividend was paid on November 11, 1997 to
shareholders of record on October 1, 1997. Former Tyco declared cash dividends
of $0.025 per Former Tyco common share in each of the first two quarters in
Fiscal 1997 preceding the merger and Former Tyco declared cash dividends of
$0.10 per Former Tyco
48
<PAGE> 50
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common share in 1996 and 1995. ADT paid no dividends on its common shares in
Fiscal 1997, 1996, and 1995. Keystone declared quarterly dividends of $0.19 per
share in each of the three quarters in Fiscal 1997 and $0.76 per share in 1996
and 1995.
11. CHARGE FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
Charges for the impairment of long-lived assets are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ----
(IN MILLIONS)
<S> <C> <C> <C>
Fire and Security Services......................... $118.8 $731.7 $--
Flow Control Products.............................. 29.6 -- 8.2
Disposable and Specialty Products.................. -- 13.0 --
------ ------ ----
$148.4 $744.7 $8.2
====== ====== ====
</TABLE>
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
to Be Disposed Of" ("SFAS 121"). SFAS 121 requires the recoverability of the
carrying value of long-lived assets, primarily property, plant and equipment and
related goodwill and other intangible assets to be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be fully recoverable. Under SFAS 121 impairment losses are
recognized when expected future cash flows are less than the assets' carrying
value. When indicators of impairment are present, the carrying values of the
assets are evaluated in relation to the operating performance and future
undiscounted cash flows of the underlying business. The net book value of the
underlying assets are adjusted if the sum of expected future cash flows is less
than book value.
1997 Charges
The Company recorded charges of $148.4 million for the impairment of
long-lived assets in Fiscal 1997.
The Fire and Security Services group recorded a charge of $118.8 million.
This includes $98.8 million related to subscriber security systems installed at
customers' premises in the United States and Canada, determined following a
review of the carrying value of the assets. It also includes an impairment in
the carrying value of goodwill of $20.0 million resulting from the combination
of ADT's electronic security business with that of Former Tyco.
The Flow Control Products group recorded a charge of $29.6 million
reflecting an impairment in the carrying value of goodwill resulting from the
combination of Keystone's valve manufacturing and distribution business with
that of Former Tyco.
1996 Charges
Following the adoption of SFAS 121, in particular the change in methodology
requiring the Company to evaluate assets at the lowest level of asset grouping,
rather than on an aggregate basis, the Company recorded a charge of $731.7
million in the Fire and Security Services segment relating to the electronic
security services business of ADT. The assets principally comprise subscriber
systems installed at customers' premises, which are included in property, plant
and equipment and the related goodwill and other intangible assets.
Of this charge, $397.1 million related to an impairment in the carrying
value of subscriber systems, principally in the commercial sector, including the
related goodwill, which principally arose on the acquisition of ADT Security
Services in 1987. Since 1989, the Company's electronic security services
operations in the residential sector have developed at a very rapid rate based
principally on internally generated growth. As a consequence, the Company's
operations in the commercial sector, which were acquired principally in 1987,
49
<PAGE> 51
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
have now been complemented by a significant residential electronic security
services operation and operations have been reorganized along separate
commercial and residential business lines, rather than on an aggregate
geographic basis. When the financial projections and estimated cash flows of the
commercial sector were analyzed separately, they indicated that the carrying
value of the related assets may not be fully recoverable. The impairment charge
amounted to $303.4 million in the United States, $56.7 million in Canada and
$37.0 million in Europe.
The remaining $334.6 million impairment charge relates to the electronic
security services of the ASH Group which principally arose on the acquisition of
certain of the businesses of Modern Security Systems in 1989 and 1990, API
Security in 1989 and the Sonitrol Group in 1992. After a review of the carrying
value of subscriber systems and related goodwill and other intangibles in
connection with a reorganization of both the commercial and residential business
sectors to address, in part, changes in the electronic security services
business environment and performance similar to those being addressed by the ADT
group, an impairment charge in the carrying values of the assets was recorded.
In addition, the aggregate fair value of ADT common shares issued to ASH
shareholders was significantly less than ASH's consolidated net asset value. It
was for all of these reasons that the Company reviewed the assets for impairment
upon adoption of SFAS 121. The impairment charge amounted to $211.2 million in
the United Kingdom and $123.4 million in the United States.
An impairment charge of $13.0 million was recorded in the Company's vehicle
auction business, included in the Disposable and Specialty Products segment,
relating to an impairment in the carrying value of property and related
improvements, including related goodwill, which principally arose on the
acquisition of ADT Automotive in 1987.
1995 Charges
In connection with the divestiture of underperforming assets associated
with their 1995 restructuring charge (see Note 15), Keystone recognized a charge
of $8.2 million relating to the impairment of certain long-lived assets held for
sale as part of the divestiture.
12. OTHER INCOME LESS EXPENSES
Other Income Less Expenses consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Gains and losses arising from the ownership of:
Long-term investments(i).......................... $ -- $ 54.4 $(5.0)
Settlement gain (See Note 3)...................... -- 65.0 --
------ ------ ----
$ -- $119.4 $(5.0)
====== ====== ====
</TABLE>
- ---------------
(i) Realized gains and losses arising from the ownership of short-term and
long-term investments are stated before carrying costs of interest,
administrative and other expenses. During 1996 gains arising from the
ownership of long-term investments comprised a net gain of $53.4 million
relating to the disposal in November 1996 of ADT's entire investment in
Limelight Group plc, a United Kingdom quoted company, which was previously
valued and accounted for by ADT at a nominal amount, a net gain of $1.2
million relating to the disposal of ADT's equity investment in Integrated
Transport Systems Limited (Notes 3 and 18) and other net losses of $0.2
million principally arising from the disposal of other non-core investments.
50
<PAGE> 52
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1995 losses arising from the ownership of long-term investments
comprised $5.1 million relating to the disposal, principally during the
second quarter of 1995, of ADT's entire equity investments in Compagnie
General de Protection et Securite SA ("CGPS") and Microtech Security (UK)
Limited ("Microtech") which were held by the ASH group, and other net gains
of $0.1 million principally arising from the disposal of other investments.
13. EXTRAORDINARY ITEMS
During Fiscal 1997, 1996 and 1995 the Company reacquired in the market
certain of its senior, senior subordinated and public notes, which was financed
from cash on hand and new credit agreements (See Note 4). Extraordinary items
included the loss arising on reacquisition of these notes of $79.7 million
(1996 -- $0.9 million; 1995 -- $0.9 million) and the write off of net
unamortized deferred refinancing costs and other related fees of $11.6 million
(1996 -- $0.5 million; 1995 -- $0.8 million) relating to the early
extinguishment of certain amounts outstanding under the senior subordinated
notes, and were stated net of applicable income taxes of $33.0 million
(1996 -- $0.2 million; 1995 -- $0.2 million).
In September 1996, ADT repaid in full all amounts owed by the ASH group
under its senior notes and bank credit agreement, which were subsequently
canceled, and 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.
In December 1996, ADT gave notice to all convertible capital bond holders
that all of the outstanding capital bonds owed by the ASH group would be fully
redeemed by ADT, and subsequently canceled, and which was financed from cash on
hand and amounts drawn down under the sterling denominated bank credit facility.
Extraordinary items included the write off of net unamortized deferred
refinancing costs of $1.6 million relating to the early extinguishment of all
amounts outstanding under the convertible capital bonds owed by the ASH group,
with no consequential tax effect.
In December 1996, ADT entered into a new bank credit agreement, subject to
completion of certain additional documentation which was signed in January 1997,
which replaced in full its previous bank credit agreement and which was
subsequently canceled. Extraordinary items included the write off of net
unamortized deferred refinancing costs of $1.5 million relating to the early
extinguishment of all amounts outstanding under the bank credit agreement owed
by the ADT group, and were stated net of applicable income taxes of $0.5
million.
In July 1995, ADT repaid in full all amounts owed by the ADT group under
its previous bank credit agreement, which was subsequently canceled. ADT funded
the repayment from the net proceeds of the issue of its Liquid Yield Option
Notes. Extraordinary items 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.
In connection with the refinancing of Kendall's subordinated notes, the
Former Tyco recorded a charge of $4.3 million ($2.6 million after-tax),
representing unamortized debt issuance fees and a call premium, as an
extraordinary loss during 1995.
14. (LOSS) EARNINGS PER COMMON SHARE
The calculation of primary (loss) earnings per common share was based on
the weighted average of 519,487,853 (1996 -- 475,552,956; 1995 -- 469,626,634)
common shares in issue during the year which in Fiscal 1997 and 1996 did not
allow for the allotment of common shares under executive share option and
51
<PAGE> 53
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
restricted stock plans, which are considered common stock equivalents, because
their effect was anti-dilutive as a consequence of the net loss for those years.
Common stock equivalents included in the weighted average number of common
shares in issue during 1995 were 9.0 million. Primary (loss) earnings per common
share from continuing operations was based on adjusted net loss from continuing
operations available to common shareholders of $776.8 million (1996 -- $297.0
million net loss; 1995 -- $267.2 million net income).
15. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES
Merger, Restructuring and Other Non-recurring Charges are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ -----
(IN MILLIONS)
<S> <C> <C> <C>
Fire and Security Services................................ $530.3 $246.1 $34.2
Flow Control Products..................................... 256.2 -- 25.7
Disposable and Specialty Products......................... 131.3 -- 37.2
------ ------ -----
$917.8 $246.1 $97.1
====== ====== =====
</TABLE>
1997 Charges
In connection with the mergers consummated in Fiscal 1997 (Note 2), the
Company recorded merger, restructuring and other nonrecurring charges of $917.8
million. Transaction costs of $239.8 million to effect the mergers relate to
legal, accounting, financial advisory services, severance and other costs
payable at the effective time of the mergers as well as other direct expenses.
These were expensed as is required under the pooling of interests accounting
method. Also incurred were costs required to combine ADT's electronic security
business, Keystone's valve manufacturing and distribution business and INBRAND's
disposable medical products business with the related businesses of Former Tyco.
These costs include the cost of workforce reductions of $130.3 million including
the elimination of approximately 4,000 positions, the combination of certain
facilities of $194.2 million involving the closure of 18 manufacturing
facilities and the consolidation of sales and service offices, electronic
security system monitoring centers, warehouses and other locations, disposing of
excess equipment and other assets of $133.5 million and other costs of $220.0
million relating to the consolidation of certain product lines, the satisfaction
of certain liabilities and other nonrecurring charges. Approximately $456.4
million of accrued merger and restructuring costs are included in other current
liabilities and $84.5 million in other noncurrent liabilities of September 30,
1997. The Company currently anticipates that the restructurings will be
substantially completed by September 30, 1998, except for certain long-term
contractual obligations.
1996 Charges
During 1995, ADT commenced a strategic review of its electronic security
services business operation and ADT's related corporate organizational structure
with a view to developing a business strategy which would place ADT in a
stronger position to deal with the changing electronic security business
environment and challenges facing its electronic security service businesses in
the late 1990's. During 1996, this strategic review process continued and was
extended to include a significantly expanded agenda including an evaluation of
the administrative, accounting, management information systems and technological
infrastructures of its United States electronic security businesses which is
ongoing. This project is intended to modify and improve the entire structure of
the business operations.
During 1996, a charge was recorded which was principally attributable to
planned technological infrastructure enhancements to facilitate further
consolidation of ADT's entire United States monitoring center network together
with all related operations. The charge amounted to $136.4 million and included
the write-off of certain property, plant and equipment of $82.6 million,
provision for idle property leases of $18.9
52
<PAGE> 54
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million, the termination of certain contractual obligations and other settlement
costs of $9.4 million and other integration and restructuring costs of $25.5
million.
Also in 1996, ADT commenced a strategic and detailed review of the
electronic security services businesses acquired as part of the acquisition of
ASH in September 1996. This review was intended to integrate fully the ASH group
into ADT's existing electronic security service businesses in the United Kingdom
and the United States. A restructuring charge of $97.8 million was recorded
which included the write off of certain property, plant and equipment of $13.2
million, provision for idle property leases of $22.5 million, the termination of
certain contractual obligations and other settlement costs of $35.2 million and
other integration and restructuring costs of $26.9 million.
As part of the strategic review, ADT also commenced an evaluation of the
customer monitoring network in its Canadian electronic security services
business, which resulted in a charge for restructuring and other nonrecurring
items of $3.1 million which included the writeoff of certain property, plant and
equipment of $1.3 million and provision for idle property leases of $1.8
million.
Approximately $61.8 million of costs related to these charges are included
in other current and noncurrent liabilities at September 30, 1997. These
restructurings are anticipated to be completed by September 30, 1998.
The fees and expenses related to the ASH merger were expensed as required
under the pooling of interests accounting method. Such fees and expenses
amounted to $8.8 million in 1996.
1995 Charges
In 1995, ADT recorded a restructuring charge for its United States
electronic security businesses, principally attributable to the closure of its
Parsippany, New Jersey facility and associated corporate offices. The charge
amounted to $19.4 million and included employee severance and other associated
costs of $13.6 million, the write-off of certain property, plant and equipment
of $1.9 million and other integration and restructuring costs of $3.9 million.
In 1995, ADT also evaluated its group corporate structure, particularly in
the United Kingdom and recorded a restructuring charge of $12.8 million which
included a provision for idle property leases of $5.6 million, employee
severance for four executives and other associated costs of $2.4 million,
certain contractual obligations and other settlement costs of $4.8 million. ADT
also commenced an evaluation of the management information systems in the United
Kingdom electronic security services business which resulted in a charge for
restructuring and other nonrecurring items of $2.0 million principally relating
to the write-off of certain property, plant and equipment.
During 1995, Keystone recorded a charge of $22.8 million for restructuring
and severance related costs in connection with a worldwide workforce reduction
at Keystone and restructuring plans aimed at further streamlining operations and
the divestiture of underperforming assets. The charge includes severance and
related costs of $17.7 million, the write down of certain assets totaling $2.7
million and other costs associated with divesting assets of $2.4 million.
Keystone also recorded plant closure costs of $2.9 million in connection with
the closure of a manufacturing facility in Indiana. All of these actions were
completed in 1996 and 1997.
Approximately $10.1 million of costs related to these charges are included
in other current and noncurrent liabilities at September 30, 1997. These
restructurings are substantially complete.
The fees and expenses related to the merger of Former Tyco with Kendall
were expensed as is required under the pooling of interests accounting method.
Such fees and expenses amounted to $37.2 million in 1995.
53
<PAGE> 55
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. COMMITMENTS AND CONTINGENCIES
The Company occupies certain facilities under leases that expire at various
dates through the year 2021. Rental expense under these leases and leases for
equipment was $153.5 million, $178.8 million and $151.8 million for fiscal 1997,
1996, and 1995, respectively. At September 30, 1997, the minimum lease payment
obligations under noncancelable operating leases were as follows: $199.2 million
in Fiscal 1998, $164.0 million in Fiscal 1999, $105.5 million in Fiscal 2000,
$96.5 million in Fiscal 2001, $53.6 million in Fiscal 2002 and an aggregate of
$149.2 million in years Fiscal 2003 through 2021.
In the normal course of business, the Company is liable for contract
completion and product performance. In the opinion of management, such
obligations will not significantly affect the Company's financial position or
results of operations.
The Company is involved in various stages of investigation and cleanup
related to environmental remediation matters at a number of sites. The ultimate
cost of site cleanup is difficult to predict given the uncertainties regarding
the extent of the required cleanup, the interpretation of applicable laws and
regulations and alternative cleanup methods. Based upon the Company's experience
with the foregoing environmental matters, the Company has concluded that there
is at least a reasonable possibility that remedial costs will be incurred with
respect to these sites in an aggregate amount in the range of $9.8 million to
$38.0 million. At September 30, 1997, the Company has concluded that the most
probable amount that will be incurred within this range is $17.6 million, and
such amount is included in the caption "accrued expenses and other current
liabilities" in the accompanying consolidated balance sheet. Based upon
information available to the Company, at those sites where there has been an
allocation of the liability for cleanup costs among a number of parties,
including the Company, and such liability could be joint and several, management
believes it is probable that other responsible parties will fully pay the cost
allocated to them, except with respect to one site for which the Company has
assumed that one of the identified responsible parties will be unable to pay the
cost apportioned to it and that such party's cost will be reapportioned among
the remaining responsible parties. In view of the Company's financial position
and reserves for environmental matters of $17.6 million, the Company has
concluded that its payment of such estimated amounts will not have a material
effect on its financial position, results of operations or liquidity.
The Company is a defendant in a number of other pending legal proceedings
incidental to present and former operations, acquisitions and dispositions. The
Company does not expect the outcome of these proceedings either individually or
in the aggregate to have a material adverse effect on its financial position,
results of operations or liquidity.
54
<PAGE> 56
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. RETIREMENT PLANS
Defined Benefit Pension Plans -- The Company has a number of
noncontributory and contributory defined benefit retirement plans covering
certain of its U.S. and non-U.S. employees, designed in accordance with
conditions and practices in the countries concerned. Contributions are based on
periodic actuarial valuations which use the projected unit credit method of
calculation and are charged to the consolidated statements of operations on a
systematic basis over the expected average remaining service lives of current
employees. The net pension expense is assessed in accordance with the advice of
professionally qualified actuaries in the countries concerned or is based on
subsequent formal reviews for the purpose. The Company's funding policy is to
make annual contributions to the extent such contributions are tax deductible as
actuarially determined. The benefits under the defined benefit plans are based
on years of service and compensation.
The net periodic pension cost for all defined benefit pension plans
includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Service cost............................................ $ 21.4 $ 23.4 $ 21.7
Interest cost........................................... 46.1 53.6 50.4
Actual return........................................... (141.8) (68.4) (73.9)
Net amortization and deferral........................... 83.9 4.4 17.5
------- ------ ------
Net periodic pension expense............................ $ 9.6 $ 13.0 $ 15.7
======= ====== ======
</TABLE>
Accrued (prepaid) pension cost at September 30, 1997 for defined benefit
plans is as follows:
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS TOTAL
------------- ------------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested......................................... $ 682.0 $ 127.6 $809.6
Non-vested..................................... 12.1 14.1 26.2
------- ------ ------
Total............................................ 694.1 141.7 835.8
Effect of future salary increases................ 61.1 8.2 69.3
------- ------ ------
Projected benefit obligations.................... 755.2 149.9 905.1
Plan assets at fair value........................ 863.2 62.7 925.9
------- ------ ------
Plan assets (in excess of) less than projected
benefit obligations............................ (108.0) 87.2 (20.8)
Unrecognized transition asset (liability)........ 12.3 (0.8) 11.5
Unrecognized prior service cost.................. (4.4) (13.7) (18.1)
Additional minimum liability..................... -- 11.0 11.0
Unrecognized net gain............................ 51.7 1.7 53.4
------- ------ ------
Accrued (prepaid) pension cost................... $ (48.4) $ 85.4 $ 37.0
======= ====== ======
</TABLE>
55
<PAGE> 57
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Accrued (prepaid) pension cost at December 31, 1996 for defined benefit
plans is as follows:
<TABLE>
<CAPTION>
ASSETS ACCUMULATED
EXCEED BENEFITS
ACCUMULATED EXCEED
BENEFITS ASSETS TOTAL
----------- ----------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Actuarial present value of accumulated benefit
obligations:
Vested............................................ $ 450.4 $ 271.0 $721.4
Non-vested........................................ 9.2 24.2 33.4
------ ------ ------
Total............................................... 459.6 295.2 754.8
Effect of future salary increases and other......... 15.2 28.2 43.4
------ ------ ------
Projected benefit obligations....................... 474.8 323.4 798.2
Plan assets at fair value........................... 549.2 251.2 800.4
------ ------ ------
Plan assets (in excess of) less than projected
benefit obligations............................... (74.4) 72.2 (2.2)
Unrecognized transition asset (liability)........... 13.2 (0.8) 12.4
Unrecognized prior service cost..................... (1.8) (7.5) (9.3)
Additional minimum liability........................ -- 10.6 10.6
Unrecognized net (loss) gain........................ (8.8) 27.3 18.5
------ ------ ------
Accrued (prepaid) pension cost...................... $ (71.8) $ 101.8 $30.0
====== ====== ======
</TABLE>
Pursuant to the provisions of SFAS 87, "Employers' Accounting for
Pensions," the Company recorded, in other liabilities, an Additional Minimum
Pension Liability Adjustment of $11.0 million and $10.6 million as of September
30, 1997 and December 31, 1996, respectively, representing the amount by which
the accumulated benefit obligation exceeded the fair value of plan assets plus
accrued amounts previously recorded. The additional liability has been offset by
an intangible asset, included in goodwill and other intangible assets, to the
extent of previously unrecognized prior service cost. The amount in excess of
previously unrecognized prior service cost is recorded, net of the related
deferred tax benefit, as a reduction of shareholders' equity in the amount of
$1.9 million at September 30, 1997 and $2.5 million at December 31, 1996,
respectively.
In fiscal 1997, 1996, and 1995, the Company terminated certain defined
benefit pension plans and distributed the plans' assets to the participants.
Gains and losses resulting from terminations were not material. In addition the
Company recognized liabilities for certain plans related to business
acquisitions in each of the years presented, the amounts of which were not
material.
Of the total plan obligations in fiscal 1997, 53% relate to U.S. plans and
47% relate to non-U.S. plans (in 1996, 55% and 45%, respectively). The average
discount rate used in determining the actuarial present value of the projected
benefit obligation, weighted in relation to plan obligations, was 7.5% at
September 30, 1997 (7.5 -- 8.5% at December 31, 1996). The average rate of
increase in future compensation levels was 4.8% at September 30, 1997
(4.0 -- 7.0% at December 31, 1996). The weighted average long-term rate of
return on assets was 9.6% at September 30, 1997 (9.5 -- 10.0% at December 31,
1996). Plan assets are invested principally in equity and fixed income
instruments.
The Former Tyco also participates in a number of multi-employer defined
benefit plans on behalf of certain employees. Pension expense related to
multi-employer plans was $1.5 million, $2.0 million, and $2.5 million for fiscal
1997, 1996, and 1995, respectively.
Defined Contribution Retirement Plans -- The Company maintains several defined
contribution retirement plans, which include 401(k) matching programs, as well
as qualified and nonqualified profit sharing and stock
56
<PAGE> 58
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
bonus retirement plans. Pension expense for the defined contribution plans is
computed as a percentage of participants' compensation and was $28.0 million,
$31.2 million and $23.5 million for fiscal 1997, 1996, and 1995, respectively.
During 1995, the Former Tyco established an unfunded Supplemental Executive
Retirement Plan ("SERP"). This plan is nonqualified and restores the employer
match that certain employees lose due to IRS limits on eligible compensation
under the defined contribution plans. Expense related to the SERP was $2.2
million, $1.7 million and $0.4 million in fiscal 1997, 1996 and 1995,
respectively.
Post-retirement Benefit Plans -- The Company generally does not provide
post-retirement benefits other than pensions for its employees. ADT's electronic
security services operation in the United States sponsors an unfunded defined
benefit post-retirement plan which covers both salaried and non-salaried
employees and which provides medical and other benefits. This post-retirement
health care plan is contributory, with retiree contributions adjusted annually.
In addition, certain of Former Tyco's acquired operations provide these benefits
to employees who were eligible at the date of acquisition.
Net periodic post-retirement benefit cost reflects the following
components:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Service cost................................................ $ 0.6 $ 0.9 $ .9
Interest cost............................................... 5.5 6.8 7.1
Net amortization and deferral............................... (3.6) (4.2) (4.2)
----- ----- -----
Net periodic post-retirement benefit cost................... $ 2.5 $ 3.5 $ 3.8
===== ===== =====
</TABLE>
The components of the accrued post-retirement benefit obligation, all of
which are unfunded, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN MILLIONS)
<S> <C> <C>
Accumulated post-retirement benefit obligation:
Retirees......................................... $ 73.6 $ 71.3
Fully eligible active plan participants.......... 18.7 16.1
Other active plan participants................... 8.3 7.6
------ ------
100.6 95.0
Unrecognized prior service benefit................. 30.1 31.0
Unrecognized net gain.............................. 17.6 13.7
------ ------
Accrued post-retirement benefit cost............... $148.3 $139.7
====== ======
</TABLE>
For measurement purposes, in Fiscal 1997, a 9.3% composite annual rate of
increase in the per capita cost of covered health care benefits was assumed. The
rate was assumed to decrease gradually to 4.75% by the year 2008 and remain at
that level thereafter. The health care cost trend rate assumption may have a
significant effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rate by one percentage point would increase the
accumulated post-retirement benefit obligation as of September 30, 1997 by $5.2
million and the aggregate of the service and interest cost component of net
periodic post-retirement benefit cost for the year then ended by $0.3 million.
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligation was 7.5% at September 30, 1997 (7.5 -- 7.75%
at December 31, 1996).
During 1992, ADT adopted amendments to the plan that reduced benefits
attributable to prior service. These amendments resulted in approximately a $20
million decrease in the obligation for benefits attributable to prior service.
This decrease is being amortized as a reduction of plan costs on an actuarially
calculated basis
57
<PAGE> 59
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
over a period of approximately twenty years beginning January 1992. Effective
January 1995 ADT implemented a defined dollar benefit cap for all current and
future retirees under the ADT plan, regardless of age.
18. RELATED PARTY TRANSACTIONS
In December 1995, ADT entered into an agreement with Integrated Transport
Systems Limited ("ITS"), a United Kingdom unquoted company, and its wholly-owned
subsidiaries Loanoption Limited and ITS Finance Limited, under which ADT
disposed of an interest in European Auctions (see Note 3). The aggregate
consideration received on closing was comprised of cash of $235.1 million, a
$187.6 million Vendor Note with an issue price of $83.9 million and valued at
$74.6 million, $31.1 million Shareholder Loan Notes with an issue price of $13.9
million and valued at $13.3 million, and a 43.1% interest in the ordinary share
capital of ITS at an issue price of $2.0 million and valued at $0.9 million.
In February 1996, ADT disposed of its entire interest in Shareholder Loan
Notes and 33.1% of the ordinary share capital of ITS for an aggregate cash
consideration of $15.4 million. As a result, the Company now holds a 10.0%
interest in the ordinary share capital of ITS, valued and accounted for by the
Company at a nominal amount, together with the Vendor Note which has been
accounted for at its amortized cost. D.B. Hammond and T.J. Gibson are both
directors of ITS. Mr. Hammond was, until April 1996, Deputy Chairman of ADT, and
Mr. Gibson was the Chief Executive Officer of ADT Auction Group Limited. Mr.
Hammond and Mr. Gibson subscribed $10.4 million and $0.8 million, in total,
respectively, to the capital of ITS and, as a result, were interested in
Shareholder Loan Notes with issue prices of $9.4 million and $0.7 million,
respectively, and 22.3% and 1.7%, respectively, of the ordinary share capital of
ITS. Other senior management and employees of European Auctions subscribed $3.7
million to the capital of ITS and, as a group, were interested in Shareholder
Loan Notes with an issue price of $3.3 million and 8.0% of the ordinary share
capital of ITS. In addition, at closing, M.A. Ashcroft, who was, until July
1997, Chairman and Chief Executive Officer of ADT, subscribed $7.0 million to
the capital of ITS and, as a result, was interested in Shareholder Loan Notes
with an issue price of $6.3 million and 15.0% of the ordinary share capital of
ITS.
Upon the disposal by ADT of an interest in European Auctions, ADT share
options held by directors and employees of European Auctions became immediately
exercisable. ADT entered into arrangements with Mr. Gibson under which share
options held by him at the time of the disposal by the Company of an interest in
European Auctions were purchased by ADT for an aggregate economic value totaling
$1.2 million, based on ADT's common share price on December 19, 1995, of which
Mr. Gibson invested $0.8 million in the capital of ITS, referred to above. ADT
also entered into similar arrangements with other senior management and
employees of European Auctions under which ADT purchased share options held by
them for an aggregate economic value totaling $0.6 million, in order to enable
them to invest in the capital of ITS. In addition, in order to further enable
Mr. Hammond to invest in the capital of ITS, ADT purchased from him share
options with an aggregate economic value totaling $1.1 million, based on ADT's
common share price on December 19, 1995, which would otherwise have been
exercisable in March 1996.
Upon the disposal by ADT of an interest in European Auctions, Mr. Gibson
received a severance payment of $0.3 million and other senior management and
employees of European Auctions, as a group, received severance payments totaling
$0.4 million.
A company controlled by Mr. Ashcroft made non-collateralized loans to Mr.
Hammond, or companies controlled by him, of an aggregate of $7.8 million, solely
for the purpose of enabling Mr. Hammond or these companies to invest in the
capital of ITS.
The cash consideration paid to ADT on closing was obtained by the ITS group
through the subscription of $26.5 million in the capital of ITS and
approximately $209.7 million through the drawdown of sterling term loans under a
bank credit agreement entered into between the ITS group and a group of banks.
The bank
58
<PAGE> 60
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
credit agreement has a term of seven years and obligations thereunder are
guaranteed and collateralized by a first priority pledge of the shares and
assets of all the companies comprising European Auctions and the ITS group.
At closing, ADT entered into an agreement with the ITS group whereby ADT
granted to ITS and its subsidiaries permission to use the ADT name and certain
trademarks for a period of up to three years for a total cash consideration,
paid at closing, of $0.6 million.
At closing, ADT entered into an option agreement with Mr. Ashcroft which,
if exercised, would have required Mr. Ashcroft to purchase from ADT, for cash
fifty days after closing, Shareholder Loan Notes with an issue price of up to
$8.2 million and up to 19.6% of the ordinary share capital of ITS. In addition,
at closing, ITS entered into an agreement with ADT and Mr. Ashcroft under which
ITS agreed to use its reasonable efforts, for a forty-five day period after
closing, to find unrelated third party investors to purchase Shareholder Loan
Notes and ordinary share capital of ITS from ADT and Mr. Ashcroft, and under
which ADT and Mr. Ashcroft agreed to certain voting restrictions in respect of
their holdings of the ordinary share capital of ITS as described below. In
February 1996, ADT and Mr. Ashcroft agreed that the mutual obligations under the
option agreement be released.
At December 31, 1995, ADT's investment in the ordinary share capital of ITS
was accounted for as an unconsolidated subsidiary under temporary control, due
to an agreement between ITS, ADT and Mr. Ashcroft limiting the voting rights of
each of ADT and Mr. Ashcroft to 15.0% of the voting rights of ITS and due to the
fact that Mr. Hammond did not seek re-election to the board of directors of ADT
at the 1996 annual general meeting. Accordingly, at December 31, 1995 the equity
method of accounting was used in the consolidated financial statements, and the
Vendor Note and Shareholder Loan Notes were accounted for at their amortized
cost.
An opinion regarding the fair value of the transactions described above was
provided to the independent non-executive directors of ADT by a leading European
investment banking firm and the transactions were approved unanimously by the
independent non-executive directors of ADT.
R.A. Gilleland, former President of Kendall and a Company director, sold
870,140 and 595,112 shares respectively, of its common stock to Former Tyco at
$13.24 and $13.11 per share, respectively, the shares then fair market value,
for an aggregate purchase price of $19.3 million pursuant to his rights under
the Kendall restricted stock grant to provide for his required income tax
withholdings.
19. CONSOLIDATED SEGMENT DATA
Selected information by industry segment is presented below.
<TABLE>
<CAPTION>
AS AT AND
AS AT AND FOR THE YEAR
FOR THE NINE ENDED
MONTHS ENDED DECEMBER 31,
SEPTEMBER 30, -----------------------
1997 1996 1995
------------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Sales:
Disposable and Specialty Products..... $ 2,000.3 $2,001.0 $1,819.7
Fire and Security Services............ 3,149.1 3,694.9 3,054.3
Flow Control Products................. 1,684.1 1,928.8 1,611.5
Electrical and Electronic
Components......................... 754.7 479.0 430.1
--------- -------- --------
$ 7,588.2 $8,103.7 $6,915.6
========= ======== ========
</TABLE>
59
<PAGE> 61
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS AT AND AS AT AND
FOR THE NINE FOR THE YEAR
MONTHS ENDED ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996 1995
------------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Operating (loss) income:
Disposable and Specialty Products..... $ 197.4 (1) $ 358.9 (5) $ 265.6 (7)
Fire and Security Services............ (312.4)(2) (621.3)(6) 247.2 (8)
Flow Control Products................. (92.1)(3) 198.0 126.6 (9)
Electrical and Electronic
Components......................... (224.6)(4) 89.0 76.4
Corporate and other expenses.......... (44.8) (43.4) (66.2)(10)
--------- -------- --------
$ (476.5) $ (18.8) $ 649.6
========= ======== ========
Total Assets:
Disposable and Specialty Products..... $ 2,270.8 $1,961.3 $1,281.7
Fire and Security Services............ 4,338.2 4,343.1 4,238.1
Flow Control Products................. 1,865.9 1,758.8 1,587.0
Electrical and Electronic
Components......................... 1,606.0 283.9 165.6
Corporate Assets...................... 366.1 124.2 85.4
--------- -------- --------
$10,447.0 $8,471.3 $7,357.8
========= ======== ========
Depreciation and Amortization:
Disposable and Specialty Products..... $ 64.5 $ 67.8 $ 65.3
Fire and Security Services............ 205.5 254.0 254.3
Flow Control Products................. 63.8 78.3 71.0
Electrical and Electronic
Components......................... 25.2 11.7 11.0
Corporate............................. 19.6 15.5 8.6
--------- -------- --------
$ 378.6 $ 427.3 $ 410.2
========= ======== ========
Capital Expenditures:
Disposable and Specialty Products..... $ 119.7 $ 90.5 $ 78.2
Fire and Security Services............ 304.8 362.0 318.4
Flow Control Products................. 58.3 69.4 61.7
Electrical and Electronic
Components......................... 32.8 9.7 10.9
Corporate............................. 3.5 1.3 0.7
--------- -------- --------
$ 519.1 $ 532.9 $ 469.9
========= ======== ========
</TABLE>
- ---------------
(1) Includes charges of $131.3 million related to merger, restructuing and
other non-recurring charges in connection with the INBRAND merger.
(2) Includes charges of $530.3 million related to merger, restructuring and
other non-recurring charges and $118.8 million related to the impairment of
long-lived assets in connection with the merger of ADT and Former Tyco.
(3) Includes charges of $256.2 million related to merger restructuring and
other non-recurring charges and $29.6 million related to the impairment of
long-lived assets in connection with the Keystone merger.
(4) Includes a charge of $361.0 million related to the write off of purchased
research and development costs in connection with an acquisition.
60
<PAGE> 62
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) Includes a charge of $13.0 million related to the impairment of long-lived
assets in ADT's vehicle auction services operations.
(6) Includes charges of $731.7 million related to the impairment of long-lived
assets and $237.3 million relating to restructuring and other non-recurring
items in ADT's electronic security services operations and $8.8 million
related to professional and other transaction costs in connection with the
ASH merger.
(7) Includes a loss of $65.8 million on the disposal of the European Auto
Auctions business.
(8) Includes charges of $34.2 million related to restructuring and other
non-recurring items in ADT's electronic security services operations.
(9) Includes charges of $22.8 million for restructuring and severance costs,
$8.2 million for the impairment of assets held for sale and $2.9 million
related to plant closures and related costs in connection with Keystone's
work force reduction and divestiture of underperforming assets in 1995.
(10) Includes a charge of $37.2 million related to professional and other
transaction costs in connection with the Kendall merger.
20. CONSOLIDATED GEOGRAPHIC DATA
Selected information by geographic area is presented below.
<TABLE>
<CAPTION>
AS AT AND
FOR THE NINE AS AT AND FOR THE YEAR
MONTHS ENDED ENDED DECEMBER 31,
SEPTEMBER 30, --------------------------
1997 1996 1995
----------------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
Sales:
Americas (primarily U.S.).......... $ 5,447.5 $5,675.6 $4,785.0
Europe............................. 1,457.1 1,587.8 1,488.2
Asia-Pacific....................... 683.6 840.3 642.4
--------- -------- --------
$ 7,588.2 $8,103.7 $6,915.6
========= ======== ========
Operating (loss) income:
Americas (primarily U.S.).......... $ (371.6) $ 125.6 $ 551.4
Europe............................. (104.0) (194.0) 63.3
Asia-Pacific....................... (0.9) 49.6 34.9
--------- -------- --------
$ (476.5) $ (18.8) $ 649.6
========= ======== ========
Total Assets:
Americas (primarily U.S.).......... $ 7,498.6 $6,070.5 $4,931.5
Europe............................. 1,992.8 1,740.1 1,873.6
Asia-Pacific....................... 589.5 536.5 467.3
Corporate assets................... 366.1 124.2 85.4
--------- -------- --------
$10,447.0 $8,471.3 $7,357.8
========= ======== ========
</TABLE>
61
<PAGE> 63
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
21. SUPPLEMENTARY BALANCE SHEET INFORMATION:
Selected supplementary balance sheet information is presented below.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(IN MILLIONS)
<S> <C> <C>
Inventories:
Purchased materials and manufactured parts............... $ 262.7 $ 243.9
Work in process.......................................... 294.4 153.4
Finished goods........................................... 567.7 549.2
-------- --------
$ 1,124.8 $ 946.5
======== ========
Property, Plant and Equipment:
Land..................................................... $ 160.3 $ 214.7
Buildings................................................ 679.7 579.5
Subscriber systems....................................... 1,737.6 1,977.5
Machinery and equipment.................................. 1,860.3 1,546.7
Leasehold improvements................................... 74.8 61.0
Construction in progress................................. 211.6 99.2
Accumulated depreciation................................. (1,800.3) (1,887.7)
-------- --------
$ 2,924.0 $ 2,590.9
======== ========
Accrued payroll and payroll related costs.................. $ 147.9 $ 182.2
======== ========
</TABLE>
22. SUPPLEMENTARY INCOME STATEMENT INFORMATION:
Selected supplementary income statement information is presented below.
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ---------------
1997 1996 1995
------------- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Research and development............................. $45.0 $39.8 $40.2
Advertising.......................................... 71.1 94.5 98.2
</TABLE>
62
<PAGE> 64
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
23. COMPARATIVE RESULTS (UNAUDITED)
The change in year end resulted in a short fiscal year covering the nine
month transition period from January 1, 1997 to September 30, 1997. The
following unaudited financial information for the nine months ended September
30, 1996 is presented to provide comparative interim results to those for Fiscal
1997 included in the accompanying Statement of Operations (in millions, except
per share amounts).
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
------------------
<S> <C>
Net sales............................................. $5,871.6
Gross profit.......................................... 1,925.2
Operating loss........................................ (37.3)
Income taxes.......................................... (205.0)
Loss before extraordinary item........................ (364.8)
Extraordinary item, net of taxes...................... (5.8)
Net loss.............................................. (370.6)
Loss per share:
Loss before extraordinary item...................... $ (0.76)
Extraordinary item.................................. (0.01)
Net loss............................................ (0.77)
</TABLE>
24. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data is presented below.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
--------------------------------------
1ST(1) 2ND(1) 3RD(1)(2)(5)
--------- --------- ------------
(IN MILLIONS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Sales............................................... $2,332.8 $2,546.6 $ 2,708.8
Gross profit........................................ 765.2 864.8 855.6
Income (loss) before extraordinary item............. 147.3 138.5 (1,062.6)
Net income (loss)................................... 147.3 138.5 (1,120.9)
Income (loss) per share before extraordinary
items............................................. .28 .25 (2.00)
Net income (loss) per share......................... .28 .25 (2.11)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------
1ST(3)(4) 2ND(4)(5) 3RD(4)(5) 4TH(5)(6)(7)
--------- --------- --------- ------------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Sales.................................... $1,833.1 $1,968.1 $2,070.4 $ 2,232.1
Gross profit............................. 598.3 658.5 668.4 703.3
(Loss) income before extraordinary
item................................... (616.8) 135.6 116.4 68.1
Net (loss) income........................ (616.8) 134.4 111.8 65.5
(Loss) income per share before
extraordinary items.................... (1.30) 0.28 0.24 0.14
Net (loss) income per share.............. (1.30) 0.28 0.23 0.13
</TABLE>
- ---------------
(1) Includes charges of $9.6 million in the first quarter, $47.0 million in the
second quarter and $861.2 million in the third quarter related to merger,
restructuring and other nonrecurring charges primarily in connection with
the merger of ADT and Former Tyco and the Keystone and INBRAND Mergers.
63
<PAGE> 65
TYCO INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) Includes a charge for the impairment of long-lived assets of $148.4 million
and $361.0 million for the write-off of purchased in-process research and
development costs.
(3) Includes a charge of $744.7 million related to the impairment of long-lived
assets.
(4) Includes a charge of $0.7 million in the first quarter, $1.3 million in the
second quarter and $10.9 million in the third quarter related to
professional and other transaction costs arising in connection with the
merger of ADT and ASH, the terminated merger with Republic and refinancing
charges incurred by ASH prior to the merger.
(5) Extraordinary items were comprised principally of losses on repayment and
the write off of net unamoritized deferred refinancing costs relating to the
early extinguishment of debt.
(6) Includes a charge of $237.3 million in 1996 related to restructuring and
other non-recurring charges in ADT's electronic security services and
corporate operations.
(7) Includes a net gain arising from the sale of ADT's investment on Limelight
Group plc of $53.4 million and a net gain on litigation settlement of $65.0
million.
25. SUBSEQUENT EVENTS
The Company has entered into an agreement to acquire the Sherwood-Davis &
Geck ("Sherwood") division of American Home Products Corporation ("AHP") for
cash of $1.77 billion. Sherwood is a manufacturer of medical and surgical
devices, such as catheters, needles and syringes, sutures, thermometers and
other specialized disposable medical products with annual revenues of
approximately $1.0 billion. The Company intends to account for the acquisition
as a purchase. The acquisition is subject to approval of various regulatory
agencies and certain other conditions. The transaction has been approved by
Tyco's and AHP's respective boards of directors and is expected to close in the
second quarter of Fiscal 1998.
The acquisition will be financed initially with bank debt through a new
credit facility currently being arranged by the Company. Terms and conditions
are expected to be similar to Former Tyco's existing $1.75 billion agreement.
The Company expects to promptly file a $2.0 billion universal shelf registration
statement with the Securities and Exchange Commission to be used to refinance
the purchase price of the acquisition with a combination of equity and public
debt.
64
<PAGE> 66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
INTRODUCTION
On July 2, 1997, a wholly-owned subsidiary of what was formerly called ADT
Limited ("ADT") merged with Tyco International Ltd. ("Former Tyco"). Upon
consummation of the merger, ADT (the surviving corporation) changed its name to
Tyco International Ltd. (the "Company" or "Tyco"). In August 1997, the Company
acquired Keystone International, Inc. and INBRAND Corporation. All three of
these transactions were accounted for as a pooling of interests and,
accordingly, the Consolidated Financial Statements reflect the combined
financial position and results of operations and cash flows of ADT, Former Tyco,
Keystone and INBRAND for all periods presented except that the consolidated
financial statements for periods prior to January 1, 1997 do not include INBRAND
due to immateriality. See Notes 1 and 2 to the Consolidated Financial
Statements. In addition, during Fiscal 1997 and 1996, the Company completed
several acquisitions accounted for as purchases. The results of operations of
these acquisitions were included in the consolidated results of the Company from
their respective acquisition dates. See Note 3 to the Consolidated Financial
Statements.
RESULTS OF OPERATIONS
Information for all periods presented below reflects the grouping of the
Company's businesses into four business segments consisting of Disposable and
Specialty Products, Fire and Security Services, Flow Control Products, and
Electrical and Electronic Components.
In September 1997, the Company changed its fiscal year end from December 31
to September 30. References to Fiscal 1997, 1996 and 1995 refer to the
transitional nine month fiscal year ended September 30, 1997 and calendar years
ended December 31, 1996 and 1995, respectively. In the discussions below, the
results of operations for Fiscal 1997 compare the nine months ended September
30, 1997 with the nine months ended September 30, 1996, (unaudited).
Overview
Loss before extraordinary item was ($776.8) million, or ($1.50) per share,
for Fiscal 1997 compared with ($364.8) million, or ($0.76) per share, for the
nine months ended September 30, 1996. Excluding the $1.32 billion ($2.54 per
share) after-tax charge for merger and transaction costs, write offs and
integration costs associated with the acquisitions (see Notes 2 and 3 to the
Consolidated Financial Statements), income before extraordinary item rose 42.8%
to $543.0 million, or $0.98 per share. The increase was attributable to margin
improvements, strong earnings and results of acquired companies in each of the
Company's business segments.
Sales
Sales increased 29% during Fiscal 1997 to $7.59 billion from $5.87 billion
in the nine months ended September 30, 1996. Sales of the Disposable and
Specialty Products group increased $580.3 million to $2.0 billion, or 41%, due
to increased sales at Kendall, Tyco Plastics and ADT Automotive. At Kendall and
Tyco Plastics, the increase in sales resulted principally from the INBRAND and
Carlisle acquisitions, respectively, as well as internal growth at Kendall's
Healthcare and Polyken businesses. Sales of the Fire and Security Services group
increased $473.2 million, or 18%, to $3.15 billion due to increased sales in
each geographic region of the Company's fire protection operations, primarily as
a result of an increase in the volume of service business, as well as increases
in the Company's electronic security services businesses and at Earth Tech.
Additionally, the results include Thorn Security ("Thorn") which was acquired in
July 1996. Sales of the Flow Control Products group increased $266.8 million to
$1.68 billion, or 19%, reflecting higher volume at European Flow Control,
including businesses acquired in the last quarter of 1996 and first quarter of
Fiscal 1997, from Mueller, including businesses acquired in the third quarter of
1996, as well as increased volume in existing businesses at Allied, including
businesses acquired in the first quarter of fiscal 1997, and Grinnell's
65
<PAGE> 67
distribution operations, where sales increased due to price increases. Sales
were relatively unchanged at Keystone, where growth in international operations
was offset by reduced U.S. dollar equivalents due to currency fluctuations.
Sales of the Electrical and Electronic Components group increased $396.4 million
to $754.7 million, or 111%, resulting principally from the acquisition of AT&T's
submarine systems business in July 1997 and increased sales at Simplex.
Increased sales at the Printed Circuit Group businesses were largely due to the
acquisition of ElectroStar in January 1997, and increased unit volume. Allied's
electrical conduit operations also increased sales.
Sales increased 17% during calendar 1996 to $8.10 billion from $6.92
billion in calendar 1995. Sales of the Disposable and Specialty Products group
increased $181.3 million to $2.0 billion, or 10%. Increased sales at Kendall and
Tyco Plastics were partially offset by Kendall's sale of Futuro in December of
1995. Kendall's sales include the sales of Professional Medical Products, Inc.
which was acquired during the first quarter of fiscal 1996. Sales at ADT
Automotive decreased as a result of the disposal of the European auctions
business in December 1995. Excluding the impact of the sale, sales at the U.S.
auction business increased due to volume of vehicles sold. Sales of the Fire and
Security Services group increased $640.6 million to $3.69 billion, or 21%, due
to increased sales in the North American, European, including Thorn, and
Asia-Pacific contracting businesses, offset by a slight decline due to the
exclusion of sales of the European electronic article surveillance operation and
certain businesses in the ASH Group, all of which were disposed of in 1995.
Increased sales resulted from acquisition of Alert in December 1995 and Earth
Tech in the first quarter of 1996. Sales of the Flow Control Products group
increased $317.3 million, or 20%, to $1.93 billion, reflecting higher volume at
Allied, including businesses acquired by Allied in the second half of 1995 as
well as from Grinnell's distribution operations, Keystone, Mueller and European
Flow Control. Sales of the Electrical and Electronic Components group increased
$48.9 million to $479.0 million, or 11%, resulting principally from higher sales
of undersea communications cables at Simplex as well as at the Printed Circuit
Group businesses and at Allied's electrical conduit operations.
(Loss) Income Before Income Taxes and Extraordinary Item
Pre-tax loss before extraordinary item was $589.8 million in Fiscal 1997
and $159.8 million in the nine months ended September 30, 1996. Pre-tax income
increased 40.5%, excluding these acquisition related and non-recurring charges.
Fiscal 1997 results include pre-tax charges of $1.43 billion for costs
associated with acquisitions. The charges include $917.8 million of merger and
transaction costs, restructuring and integration costs related to the
consolidation of the businesses, $148.4 million related to the impairment of
long-lived assets and $361.0 million for write offs of purchased in-process
research and development. See Notes 11 and 15 to the Consolidated Financial
Statements. Following the adoption of SFAS No. 121 in 1996, ADT recorded a
non-recurring charge for the impairment of long-lived assets of $744.7 million,
primarily related to goodwill and other intangibles in the Electronic Security
Services business. In addition during 1996 the Company incurred $246.1 million
related to merger, restructuring and other nonrecurring costs. The following
analysis is presented exclusive of these amounts to better portray the
comparability of recurring operations.
Operating profits of the Disposable and Specialty Products group increased
$52.4 million to $328.7 million in Fiscal 1997, or 19%, reflecting higher
earnings at Kendall, including improved manufacturing efficiencies and the
earnings of INBRAND, Tyco Plastics, which, in addition to internal growth in
volume and prices, includes the results of Carlisle from September 1996, and ADT
Automotive. Operating profits of the Fire and Security Services group increased
$77.9 million to $336.7 million, or 30% due to higher margins at each geographic
region of the Company's fire protection operations and electronic security
businesses and Earth Tech, as well as the inclusion of Thorn. The higher margins
in fire protection were the result of a higher mix of service work within the
contracting business. The operating profits of the Flow Control Products group
increased $47.2 million to $193.7 million, or 32%, resulting principally from
increases in each of Company's operations, and the results of businesses
acquired in Fiscal 1997. Increases in the Company's European Flow Control
businesses were primarily due to increased margins as well as the inclusion of
acquisitions. Increases at Allied and Mueller were a combination of stronger
operating profits resulting from improved operating efficiencies as well as the
inclusion of acquisitions. Operating profits of the Electrical and Electronic
Components group increased $69.9 million to $136.4 million, or 105%, due to
increased earnings at TSSL,
66
<PAGE> 68
principally due to the acquisition of AT&T's submarine systems business and
increased operating levels. Earnings were also up at the Printed Circuit Group
businesses, including ElectroStar and at Allied's electrical conduit operations.
The impact on the consolidated sales and results of operations from changes
in foreign exchange rates relative to the value of the U.S. dollar for Fiscal
1997 as compared to the nine months ended September 30, 1996 was not material.
Operating profits of the Disposable and Specialty Products group increased
$40.5 million to $371.9 million in calendar 1996, or 12%, primarily due to
increases at Kendall and Tyco Plastics, partially offset by the disposition of
European auctions, discussed above. Operating profits of the Fire and Security
Services group rose $75.1 million to $356.5 million, or 27%, due to higher
margins at fire protection operations in each geographic region, as well as the
inclusion of earnings from Alert which was acquired in December 1995, and Earth
Tech, which was acquired during the first quarter of 1996. Operating profits of
the Flow Control Products group increased $37.5 million to $198.0 million, or
23%, resulting from increased earnings principally at Allied and Mueller and, to
a lesser extent, at the group's other operating units. Operating profits of the
Electrical and Electronic Components group increased $12.6 million to $89.0
million, or 17%, due to increased earnings at Simplex, the Printed Circuit Group
businesses and at Allied's electrical conduit operations.
The impact on the consolidated sales and results of operations from changes
in foreign exchange rates relative to the U.S. dollar for 1996 as compared to
1995 was not material.
Corporate and other expenses rose to $44.8 million in Fiscal 1997 from
$31.4 million in the nine months ended September 30, 1996 due principally to
higher compensation expense under the Company's incentive compensation plans.
Corporate and other expenses rose to $43.4 million from $29.0 million in
calendar 1995 due principally to higher compensation expense under the Company's
incentive compensation plans and to an increase in expense associated with the
Company's accounts receivable financing program. Under the program, the discount
on accounts receivable is included in selling, general and administrative
expense and is excluded from interest expense. See Note 5 to the Consolidated
Financial Statements.
Interest Expense
Interest expense decreased $7.5 million to $137.5 million during Fiscal
1997, as compared to the nine months ended September 30, 1996, due to lower
average interest rates partially offset by higher average debt balances, as a
result of monies borrowed to make acquisitions. Interest expense increased $5.8
million to $193.3 million during 1996 due to higher average debt levels
partially offset by lower average interest rates.
Extraordinary Items
Extraordinary items in Fiscal 1997, 1996 and 1995 included net losses
amounting to $58.3 million, $1.2 million and $1.5 million, respectively, arising
on the reacquisition of certain of the Company's senior, senior subordinated and
public notes. Further details are provided in Notes 4 and 13 to the Consolidated
Financial Statements.
In September 1996, ADT repaid in full all amounts owed by the ASH group
under its senior, senior subordinated notes and bank credit agreement. Further
details on the net loss amounting to $4.6 million which arose on these
transactions are provided in Notes 4 and 13 to the Consolidated Financial
Statements.
In December 1996, ADT gave notice that it would redeem in full all amounts
outstanding to the convertible capital bond holders owed by the ASH group.
Further details on the net loss amounting to $1.6 million which arose on this
transaction are provided in Notes 4 and 13 to the Consolidated Financial
Statements.
In December 1996 and July 1995, ADT repaid in full and canceled certain
bank credit agreements as part of refinancing arrangements at the time. Further
details of the net losses amounting to $1.0 million in 1996 and
67
<PAGE> 69
$8.3 million in 1995 which arose on these transactions are provided in Notes 4
and 13 to the Consolidated Financial Statements.
Income Tax Expense
Income tax expense was $187.0 million in Fiscal 1997 and $205.0 million in
the nine months ended September 30, 1996. See Note 7 to the Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
As presented in the Consolidated Statement of Cash Flows, net cash provided
by operating activities was $777.4 million in Fiscal 1997. The significant
changes in working capital were a $542.8 million increase in accounts payable,
accruals and other liabilities primarily related to accrued restructuring and
other costs, a $269.3 million increase in income taxes payable, a $159.7 million
increase in contracts in progress, a $110.1 million increase in accounts
receivable and $75.0 million of proceeds on the sale of accounts receivable. The
impact during Fiscal 1997 of a strengthened dollar on foreign currency
denominated net working capital was not material. Working capital requirements
are not anticipated to increase substantially in fiscal 1998.
During Fiscal 1997, the Company used cash of $1,344.8 million to acquire
companies in each of its business segments, $519.1 million to purchase property,
plant and equipment and $37.9 million to pay dividends to shareholders.
The level of capital expenditures is expected to increase moderately in
Fiscal 1998, and the primary source of funds for such expenditures is expected
to be cash from operations.
Expenditures for environmental matters are not expected to have a material
effect on the Company in Fiscal 1998. See Note 16 to the Consolidated Financial
Statements.
At September 30, 1997, the Company's total debt was $2,730.6 million as
compared to $2,466.3 million at December 31, 1996. The Company utilized
borrowings under Former Tyco's $1.75 billion credit agreement, funding from an
equity offering of $645.2 million, as well as under its uncommitted lines of
credit to partially finance its acquisitions in Fiscal 1997.
The Company believes that its funding sources are adequate for its
anticipated requirements, including the acquisition of Sherwood in the second
quarter of Fiscal 1998, through expected cash flow from operations, established
financing arrangements, accessing equity markets and pending bank funded
facilities.
Shareholders' equity was $3,429.4 million, or $6.39 per share, at September
30, 1997 compared to $3,288.6 million, or $6.83 per share, at December 31, 1996.
The decrease is due principally to a $776.8 million net loss before
extraordinary items, which includes acquisition related charges and the
after-tax extraordinary item of $58.3 million related to the tendering for
certain Former Tyco and ADT public debt, partially offset by an increase related
to issuance of 23.0 million shares of common stock.
The total debt of the Company as a percent of total capitalization (total
debt and shareholders' equity) was 44% at September 30, 1997 and 43% at December
31, 1996.
Backlog
Backlog at September 30, 1997 amounted to $2.3 billion, compared to $1.5
billion at December 31, 1996. The increased backlog is due to increases in each
of the Company's four business segments.
The increase in backlog in the Fire and Security Services segment is
primarily due to increased orders in the United States and Asia-Pacific fire
protection businesses, as well as an increase in the funded backlog at Earth
Tech. The increase in Flow Control Products is primarily due to increases at
Keystone and in the Company's European flow control operations. Within the
Electrical and Electronic Components segment, the increase is principally due to
the acquisition of the submarine systems business from AT&T in July 1997. TSSL
normally sells undersea cable communications systems under long-term
multi-million dollar contracts,
68
<PAGE> 70
and the amount of its backlog as of a particular date is affected by contract
issuance for major systems and by timing of the completion of such systems.
Accounting and Technical Pronouncements
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share" which is effective for fiscal years ending after December 31, 1997,
including interim periods. Earlier adoption is not permitted. However, the
statement permits disclosure of pro forma earnings per share amounts computed
under SFAS No. 128 in the notes to the financial statements in periods prior to
adoption. The statement requires restatement of all prior period earnings per
share data presented after the effective date. SFAS No. 128 specifies the
computation, presentation and disclosure requirements for earnings per share and
is substantially similar to the standards recently issued by the International
Accounting Standards Committee entitled "International Accounting Standards,
Earnings Per Share". Company will adopt SFAS No. 128 in fiscal 1998 and the
impact is not expected to be material.
In June 1997, the FASB issued two additional statements. SFAS No. 130,
"Reporting Comprehensive Income", and SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information", are both effective for years
beginning after December 15, 1997. Adoption of these standards are not expected
to impact the financial results of the Company.
Financial Reporting Release No. 48, issued by the Securities and Exchange
Commission requires certain quantitative and qualitative disclosures about
market risks in derivative financial instruments. Potential near term losses in
cash flows and earnings from derivative financial instruments held by the
Company at September 30, 1997 would not have a material impact on the Company's
financial position, results of operations or liquidity.
FORWARD LOOKING INFORMATION Certain statements in this Form 10-K are "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. All forward looking statements involve risks and
uncertainties. 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 other things, overall economic and business
conditions, the demand for the Company's goods and services, competitive factors
in the industries in which the company competes, changes in government
regulations and the timing, impact and other uncertainties of future
acquisitions.
69
<PAGE> 71
TYCO INTERNATIONAL LTD.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN MILLIONS)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT CHARGED ACQUISITIONS
BEGINNING TO DISPOSALS, BALANCE AT
DESCRIPTION OF YEAR INCOME AND OTHER DEDUCTIONS(2) END OF YEAR
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Allowances for doubtful accounts(1)..... 51.2 15.2 (1.9) (11.9) 52.6
Year Ended December 31, 1996:
Allowances for doubtful accounts(1)..... 52.6 47.2 (.5) (15.1) 84.2
Fiscal Year Ended September 30, 1997:
Allowances for doubtful accounts(1)..... 84.2 31.0 23.5 (31.0) 107.7
</TABLE>
- ---------------
(1) Deducted from assets.
(2) Write-off of accounts receivable considered uncollectible.
70
<PAGE> 1
EXHIBIT 11.1
TYCO INTERNATIONAL LTD.
EARNINGS PER SHARE COMPUTATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Calculation of earnings per share:
PRIMARY:
(Loss) income before extraordinary items $(776.8) $(296.7) $ 267.5
Adjustment for dividends on preference shares -- (.3) (.3)
------- ------- -------
Adjusted (loss) income before extraordinary items (776.8) (297.0) 267.2
Extraordinary items, net of taxes (58.3) (8.4) (12.4)
------- ------- -------
Net (loss) income available to common shareholders $(835.1) $(305.4) $ 254.8
======= ======= =======
Weighted average common shares outstanding 519.5 475.6 460.6
Dilutive effect of the restricted stock
plan, stock options and warrants using
the treasury stock method -- -- 9.0
------- ------- -------
Weighted average common and common equivalent
shares outstanding, as adjusted 519.5 475.6 469.6
======= ======= =======
(Loss) earnings per common share:
Before extraordinary items $ (1.50) $ (.62) $ .57
Extraordinary items, net of taxes (.11) (.02) (.03)
------- ------- -------
Net (loss) income per common share $ (1.61) $ (.64) $ .54
======= ======= =======
FULLY DILUTED:(1)(2)
(Loss) Income before extraordinary items $(776.8) $(296.7) $ 267.5
Adjustment for dividends on preference shares -- (.3) (.3)
------- ------- -------
Adjusted (loss) income before extraordinary items (776.8) (297.0) 267.2
Extraordinary items, net of taxes (58.3) (8.4) (12.4)
------- ------- -------
Net (loss) income available to common shareholders $ 835.1 $(305.4) $ 254.8
======= ======= =======
Weighted average common shares outstanding 519.5 475.6 460.6
Dilutive effect of the restricted stock
plan, stock options and warrants using
the treasury stock method -- -- 9.7
------- ------- -------
Weighted average common and common equivalent
shares outstanding, as adjusted 519.5 475.6 470.3
======= ======= =======
(Loss) earnings per common share:
Before extraordinary items $ (1.50) $ (.62) $ .57
Extraordinary items, net of taxes (.11) (.02) (.03)
------- ------- -------
Net (loss) income per common share $ (1.61) $ (.64) $ .54
======= ======= =======
</TABLE>
(1) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by Footnote 2 to Paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%.
(2) 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 all years presented. The effect on fully
diluted earnings per common share resulting from the assumed conversion
of convertible capital bonds, which were redeemed in January 1997, 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 outstanding in 1996 and 1995 is
anti-dilutive.
<PAGE> 1
EXHIBIT 21.1
TYCO INTERNATIONAL LTD.
LIST OF SUBSIDIARIES
Subsidiary Place of Incorporation
---------- ----------------------
ARGENTINA
Grinnell Sistemas de Proteccion Contra
Incedio S.A. de C.V. Argentina
AUSTRALIA
ACN 007 664 253 Pty. Limited (1) Australia
ACN 069 907 384 Pty. Limited Australia
ADT Security Systems Limited Australia
Command Investments Pty. Limited Australia
Complete Engineering Group Pty. Limited Australia
Complete Engineering Service Division Pty. Ltd. Australia
Environ Pty. Limited Australia
Fire Control Pty Limited Australia
Fire Guard A.F.S. Pty Ltd. Australia
Firefair Pty Limited Australia
Firmagroup Operations Holdings Pty Limited Australia
G.F.P.S. Pty Limited (2) Australia
ACN 000 233 536 Pty. Limited (3) Australia
GAAM Engineering Pty. Ltd. Australia
Gold Energy (Aust) Pty. Limited Australia
Grinnell Asia Pacific Pty Limited (4) Australia
Kendall Australasia Pty Ltd. Australia
Tyco Building Products Pty Limited (5) Australia
Keystone Asia Pacific Pty. Ltd. Australia
Keystone Pacific Pty. Ltd. Australia
MB John Limited Australia
Mather & Platt Pty. Ltd. Australia
Newmac Building Products Pty. Limited Australia
Silan Pty Limited Australia
Super Nominees (NSW) Pty Limited Australia
TESP Pty. Limited Australia
TISP Pty Limited Australia
Tyco Australia Pty Ltd. (ACN 008 399 004) (6) Australia
Tyco Engineering and Construction (Asia) Pty. Ltd. Australia
Tyco Grinnell Asia Pacific Pty Limited Australia
Tyco International Pty Limited Australia
Viking Fire Systems Pty Limited (7) Australia
Yarway Australia Pty. Ltd. Australia
AUSTRIA
Total Walther Feuerschutz und Sicherheit GmbH Austria
<PAGE> 2
Subsidiary Place of Incorporation
---------- ----------------------
BAHAMAS
Brent Limited Bahamas
Newington Limited Bahamas
BARBADOS
Exeter Holdings, Inc. Barbados
INBRAND FSC Barbados
Kendall International FSC, Inc. Barbados
Keystone FSC Ltd. Barbados
BELGIUM
ADT Security Services S.A. Belgium
N.V. ADT Security Services S.A. Belgium
Wormald S.A. Belgium
Zettler Belgique S.A. Belgium
BERMUDA
Camron (Bermuda) Insurance Ltd. Bermuda
Camron Finance (Bermuda) Limited Bermuda
Cawich Limited Bermuda
Electro-Protective Limited Bermuda
Flying Lion Limited Bermuda
Kral Steel, Ltd. Bermuda
BORNEO
Wormald Borneo Sdn. Bhd. Borneo
BRAZIL
Grinnell Sistemas de Protecao contra Incendio Ltda. Brazil
Keystone do Brasil Ltda. Brazil
BRITISH VIRGIN ISLANDS
A-G Casualty Ltd. British Virgin Islands
Somerset Holdings Ltd. British Virgin Islands
CANADA
495649 Ontario Limited Canada
919551 Ontario, Inc. Canada
921150 Ontario, Inc. Canada
ADT Canada Holdings Limited Canada
ADT Finance, Inc. (72.8%) Canada
ADT Security Services Canada, Inc. Canada
Century Industries Company Canada
Hawley Group Canada Limited Canada
Hygieia Holdings (Canada) Inc. Canada
Kendall Canada, Inc. Canada
Keystone Canada, Co. Canada
Ludlow Canada, Inc. Canada
Tyco International of Canada Ltd.(8) Canada
<PAGE> 3
Subsidiary Place of Incorporation
- ---------- ----------------------
Unistrut of Canada Limited Canada
Universal Health Care Products (Canada) Inc. Canada
CAYMAN ISLANDS
Anderson-Greenwood Overseas Ltd. Cayman Islands
CHILE
Interco Alarmas De Chile, S.A. Chile
Santex, S.A. (50%) Chile
Unistrut Chile Ltda Chile
COLUMBIA
Kendall Columbia, S.A. Columbia
COSTA RICA
Carlisle Costa Rica S.A. Costa Rica
Kendall Innovadores en Cuidados al Paciente S.A. Costa Rica
CZECH REPUBLIC
Stabilni Hasici Zarizeni spol s.r.o. Czech Republic
Zettler C.R. Spol. s.r.o. Czech Republic
DENMARK
Thorn Security Danmark A/S Denmark
Wormald A/S Denmark
ECUADOR
Grinnell Sistemas de Proteccion Contra Incedio, S.A. Ecuador
FRANCE
ADT Securite Services France
ADT Security Services S.A. (99.5%) France
Acheroise de Participations France
Ansul S.A. France
Bon & Naga S.A. France
Gachot, SCA France
Grinnell Distribution France Sarl France
INBRAND France SA France
JEL S.A. France
Kendall S.A. France
Labrotoire Alaune France
Mather & Platt Wormald S.A. France
Omnium de Prevention et de Protection Incendie France
Sidalec S.A. France
Societe Europeene de Protection Control L'Incendie S.A. France
Societe Industrial de Rosheim - S.I.R.ROS S.C.A. France
Tyco Europe S.A. France
Zettler France S.A.R.L. France
<PAGE> 4
Subsidiary Place of Incorporation
- ---------- ----------------------
GERMANY
ARBO Medizin-Technologie GmbH Germany
ARBO-tec Sensor-Technologie GmbH Germany
AZ Elektroanlagenbau GmbH Germany
AZ Immobilien GbR Germany
Babcock Sempell AG Germany
Babcock Sempell Armaturen-Service GmbH Germany
CDK Holding Deutschland GmbH Germany
CDK Holding GmbH Germany
Chemat GmbH Germany
Chemat Verwaltungs GmbH Germany
Erichs Armatur AB Germany
GH Montage GmbH Germany
Grinnell Flow Control GmbH Germany
Grinnell Flow Control GmbH & Co. Distribution OHG Germany
Helmut Geissler Glasinstrumente GmbH Germany
Kendall Medizinische Erzeugnisse GmbH Germany
Keystone GmbH Germany
Med. Holding GmbH Germany
Otto Fankhanel & Sohn GmbH Germany
Rathgeber BIOFORM GmbH Germany
Raumschutzanlagenbau GmbH Germany
SABO-Armaturen Service GmbH Germany
Sempell Valves (Pvt) Ltd. Germany
Thorn Sicherheits GmbH Germany
Total Walther Feuerschutz Loschmittel GmbH Germany
Total Walther GmbH Germany
Triangle Controls Ltd. Germany
Tyco Holding GmbH Germany
Tyco International Armaturen Holding GmbH i Gr. Germany
Vonk Enschede BV Germany
Zettler Hilfe e.V. Germany
GREECE
ADT Greece S.A. (82.5%) Greece
Greene Insurance Limited Greece
GUAM
ADT Automotive Services of Guam, Inc. Guam
GUATEMALA
Grinnell Sistemas de Proteccion Contra Incendio,
S.A. de C.V. (Guatamala) Guatemala
Tyco Engineering and Construction S.A. Guatemala
<PAGE> 5
Subsidiary Place of Incorporation
---------- ----------------------
HONG KONG
A&E Products (Far East) Limited Hong Kong
Crown Nation International Limited (50%) Hong Kong
Dawson Engineering Limited (50%) Hong Kong
Kendall (Asia) Medical Products Limited Hong Kong
Keystone Valve Hong Kong, Ltd. Hong Kong
ODG-Energy Controls Limited Hong Kong
Pioneer Faith International Limited (50%) Hong Kong
Thorn Security (Hong Kong) Limited Hong Kong
Wormald Engineering Services Ltd. Hong Kong
HUNGARY
Total Walther Contractor and Engineering Hungary
INDIA
Keystone Valves (India) Pvt. Ltd. India
Modern Alarms & Electronics Pvt Ltd. India
INDONESIA
P.T. ODG Wormald Indonesia (80%) Indonesia
IRELAND
A.E.L. Video (Ireland) Limited Ireland
ABA Electronics Ltd. Ireland
ACE Alarm Systems Ltd. Ireland
ADT Limited Ireland
ADT Ltd. Ireland
Abel Alarms Ireland Ltd. Ireland
Allied Alarms & Safes Ltd. Ireland
Allied Alarms Ltd. Ireland
Allied Metal Products Ltd. Ireland
Allied Security Products Ltd. Ireland
Exeter Insurance Company Limited Ireland
Huet Security Ltd. Ireland
IAMASCO Plc Ireland
Knightline Ltd. Ireland
Knightlock Ltd. Ireland
Knightvision Ltd. Ireland
Knightwatch Alarms, Ltd. Ireland
Mather & Platt (Ireland) Limited Ireland
Mather & Platt Ireland (Manufacturing) Limited Ireland
Modern Security Systems Limited Ireland
Sandalwood (Ireland) Ireland
Securitag Ltd. Ireland
<PAGE> 6
Subsidiary Place of Incorporation
---------- ----------------------
Security Control Risk & Monitoring Ltd. Ireland
Tyco Ireland Limited Ireland
ITALY
Biffi Italia S.r.l. Italy
Keystone Vanessa S.r.l. Italy
Wormald Italiana S.P.A. Italy
Zettler App. Eletricci S.p.A. Italy
JAPAN
Nihon Kendall K.K. Japan
Nippon Keystone Corporation Japan
KINGDOM OF SAUDI ARABIA
Abahsain-Cope, S.A. Ltd. (49%) Kingdom of
Saudi Arabia
KOREA
Keystone Valve (Korea) Limited Korea
LUXEMBOURG
ADT Finance S.A. Luxembourg
ADT Luxembourg S.A. Luxembourg
Ocarina S.A. Luxembourg
Tyco Group S.a.r.l. Luxembourg
MALAYSIA
Brunsfield Holdings Sdn. Bhd. (50%) Malaysia
Brunsfield Thorn Technology Sdn. Bhd. Malaysia
Grinnell Supply Sales (Malaysia) Sdn. Bhd. (50%) Malaysia
Innodouble (M) Sdn. Bhd. (51%) Malaysia
Keystone Valve (M) Sdn. Bhd. Malaysia
Kijang Merger Sdn Bhd Malaysia
Kumpulan Injap Kebesan (M) Sdn. Bhd. Malaysia
Mediquip Sdn. Bhd. Malaysia
Thorn Security Services (Malaysia) Sdn. Bhd. (30%) Malaysia
Tyco Engineering & Construction (Malaysia) Sdn. Bhd. Malaysia
Tyco Flow Control (Malaysia) Sdn. Bhd. Malaysia
Tyco Grinnell KM Sdn. Bhd. (30%) Malaysia
MARSHALL ISLANDS
Coastal Cable Ship Co. Inc. Marshall Islands
MEXICO
Ansul Mexico, S.A. de C.V. Mexico
Carlisle Recycling de Mexico S.A. de C.V. Mexico
Cima de Acuna S.A. de C.V. Mexico
Especialidades Medicas Kenmex, S.A. Mexico
Grinnell Sistemas de Proteccion Contra Incendio Mexico
S.A. de C.V. Mexico
Kemex Holding Company, S.A. de C.V. Mexico
<PAGE> 7
<TABLE>
<CAPTION>
Subsidiary Place of Incorporation
---------- ----------------------
<S> <C>
Kendall de Mexico S.A. de C.V. Mexico
Plasticos Bajacal, S.A. de C.V. Mexico
Plasticos Mexical S.A. de C.V. Mexico
Productos de Atencion de Salud de Mexico, S.A. Mexico
Tyco Engineering and Construction S.A. De C.V. Mexico
Valvulas Keystone de Mexico S.A. de C.V. Mexico
NETHERLANDS
ADT Canada B.V. Netherlands
ADT Canada Holdings B.V. Netherlands
ADT Finance B.V. Netherlands
ADT Holdings B.V. Netherlands
ADT Security Services B.V. Netherlands
ADT Security Systems Holdings B.V. Netherlands
Ansul B.V. Netherlands
Automated Loss Prevention Systems BV Netherlands
Automated Security Intl. BV Netherlands
Grinnell Sales & Distribution B.V. Netherlands
INBRAND Europe B.V. Netherlands
Julian T. Holdings B.V. Netherlands
Keystone Valve (Europa) B.V. Netherlands
Nieuwkerk B.V. Netherlands
Pritchard Services B.V. Netherlands
Pritchard Services Group B.V. Netherlands
Thorn Security Nederland B.V. Netherlands
Thulszorg Direct B.V. (90%) Netherlands
Total Walther B.V. Netherlands
Tyco Labs Holland I B.V. Netherlands
Tyco Waterworks B.V. Netherlands
Unistrut (Benelux) B.V. Netherlands
Vital Disposables BV ("INBRAND Benelux") Netherlands
Vital Medical BV Netherlands
Walther Brandbeveiliging B.V. Netherlands
Wormald B.V. Netherlands
Zettler Netherlands N.V. Netherlands
NETHERLANDS ANTILLES
ADT Finance N.V. Netherland Antilles
NEW ZEALAND
A.F.A. Monitoring Limited New Zealand
ADT Holding Co. No. 3 Limited New Zealand
ADT Holdings Co. No. 1 Limited New Zealand
ADT Holdings Co. No. 2 Limited New Zealand
Armourguard Security Limited New Zealand
Command Nominees Limited New Zealand
Danks Bros. Limited New Zealand
Enlist Consulting Limited New Zealand
Fire Protection Inspection Services Ltd. (19%) New Zealand
Holyhead Holdings Limited New Zealand
</TABLE>
<PAGE> 8
Subsidiary Place of Incorporation
- ---------- ----------------------
Key Contact Limited New Zealand
Keystone New Zealand Limited New Zealand
New Zealand Valve Company Limited New Zealand
Nortrac Engineering Limited New Zealand
Securacopy Services (1992) Limited New Zealand
Seekers Communications Limited New Zealand
Tyco New Zealand Limited New Zealand
NORWAY
Ergoform A.S. (71.5%) Norway
Thorn Security Norge AS Norway
Wormald Control Systems A/S Norway
Wormald Signalco A/S Norway
PANAMA
Finser International Holidays, Inc. Panama
Kendall Panama (pending) Panama
Kendall, S.A. (Panama) Panama
Serleni World Holdings, Inc. Panama
PEOPLE'S REPUBLIC OF CHINA
Kendall-Yantai Medical Products Company, Ltd. Peoples Republic of China
Keystone (Jingmen) Valve Co. Ltd. (80%) Peoples Republic of China
Keystone Valve (China) Ltd. Peoples Republic of China
Shenyang OYT-Grinnell Fire Door Manufacturing
Company Limited (50%) Peoples Republic of China
Shenyang Yarway Valve Co. Ltd. (56%) Peoples Republic of China
PHILIPPINES
Carlisle Philippines, Inc. Philippines
SINGAPORE
Grinnell Supply Sales Asia Pte. Ltd. Singapore
INBRAND Asia Pte. Ltd. Singapore
Keystone Southeast Asia Pte. Ltd. Singapore
Thorn Security Pte. Limited Singapore
Tyco Engineering and Construction (SEA) Pte. Ltd. Singapore
Tyco Laboratories International (1993) Pte. Ltd. Singapore
SOUTH AFRICA
Intervalve (Pty) Ltd. South Africa
Kendall South Africa (50%) South Africa
SPAIN
ADT-Prosegur Sistemas de Seguridad S.A. (50%) Spain
Belgicast Internacional S.L. Spain
Division 7 Spain
INBRAND Espana Spain
Productes Clinics S.A. Spain
Productes del Latex, S.A. Spain
Serveis de Productes Sterilizats, S.L. Spain
<PAGE> 9
Subsidiary Place of Incorporation
Total Walther S.A. Spain
Wormald Mather & Platt Espana S.A.(9) Spain
SWEDEN
Wormald Fire Systems A.B. Sweden
Zedilla AB Sweden
SWITZERLAND
ADT Franchising AG Switzerland
ADT Monitoring Services AG Switzerland
ADT Services AG Switzerland
Neotecha A.G. Switzerland
Total Walther Feuerschutz A.G. Switzerland
TAIWAN
Carlisle Taiwan, Inc. Taiwan
Keystone Valve (Taiwan) Ltd. Taiwan
Wormald Engineering Systems Taiwan Ltd. Taiwan
THAILAND
Kendall Gammatron Limited (85%) Thailand
Keystone Valve (Thailand) Ltd. (50%) Thailand
Tyco International (Thailand) Ltd. (50%) Thailand
TURKS AND CAICOS
Langport Limited Turks and Caicos
Waveney Investments Limited Turks and Caicos
US VIRGIN ISLANDS
Ferrari Medical International, Inc. US Virgin Islands
Rochester Cable and Rope (FSC) Co., Inc. US Virgin Islands
Tyco International Sales Corp. US Virgin Islands
UNITED ARAB EMIRATES
Anderson-Greenwood Middle East (50%) United Arab Emirates
UNITED KINGDOM
A.R.C. Fire Protection Ltd. United Kingdom
A.S. (Overseas) Ltd. United Kingdom
ADT United Kingdom
ADT (UK) Holdings plc United Kingdom
ADT (UK) Limited United Kingdom
ADT Alarms Limited United Kingdom
ADT Aviation Limited United Kingdom
ADT Finance PLC United Kingdom
ADT Group PLC United Kingdom
ADT Linen Services Limited United Kingdom
ADT Pension Fund Limited United Kingdom
ADT Properties Limited United Kingdom
ADT Securities Limited United Kingdom
ADT Security Systems Limited United Kingdom
<PAGE> 10
<TABLE>
<CAPTION>
Subsidiary Place of Incorporation
---------- ----------------------
<S> <C>
ADT Travel Group Limited United Kingdom
ADT Travel Holdings Limited United Kingdom
ADT Travel Limited United Kingdom
ADT Trustees Limited United Kingdom
ADT UK Investments Limited United Kingdom
AFA-MINERVA Limited United Kingdom
ATG Manufacturing Ltd. United Kingdom
Abbey Security International Ltd. United Kingdom
Abbey Security Management Ltd. United Kingdom
Access Control Systems Limited United Kingdom
Advanced Absorbent Products Holdings Ltd. United Kingdom
Advanced Absorbent Products Ltd. (UK) United Kingdom
Advanced Alarm Systems Limited United Kingdom
Airfone Communications Limited United Kingdom
American District Telegraph Services International Limited United Kingdom
Applied Maintenance Systems Limited United Kingdom
Ariel Burglary and Fire Protection Company Limited United Kingdom
Ash Capital Finance (Jersey) Limited United Kingdom
Ash Group Services Ltd. United Kingdom
Ash Rentals Limited United Kingdom
Atlas Fire Engineering Limited United Kingdom
Audio Education Limited United Kingdom
Auto Auctions (Scotland) Limited United Kingdom
Auto Auctions Limited United Kingdom
Automated Loss Prevention Systems International Ltd. United Kingdom
Automated Loss Prevention Systems Limited United Kingdom
Automated Loss Prevention Systems, Ltd. United Kingdom
Automated Security (Equipment) Limited United Kingdom
Automated Security (Holdings) PLC United Kingdom
Automated Security (International) Limited United Kingdom
Automated Security (Investments) Limited United Kingdom
Automated Security (Properties) Ltd. United Kingdom
Automated Security Information Systems Technology Limited United Kingdom
Automated Security Limited United Kingdom
Avalon Emergency Systems Limited United Kingdom
BCA (Auctions) Limited United Kingdom
BCA (Mobile Homes) Limited United Kingdom
BCA Sports Management Limited United Kingdom
BCA Vehicle Preparation Limited United Kingdom
Basingkirk Estates Limited United Kingdom
Bedford Car Auctions Limited United Kingdom
Bissell Healthcare Limited United Kingdom
Blackbushe Airport Limited United Kingdom
</TABLE>
<PAGE> 11
Subsidiary Place of Incorporation
---------- ----------------------
Britannia Access Systems Limited United Kingdom
Britannia Monitoring Services Limited United Kingdom
Britannia Photovision Limited United Kingdom
Britannia Security C.I. Limited United Kingdom
Britannia Security Group Limited United Kingdom
Britannia Security Systems (Midlands) Limited United Kingdom
Britannia Security Systems (Southern) Limited United Kingdom
Britannia Security Systems Limited United Kingdom
British Car Auctions (Aviation) Limited United Kingdom
British Car Auctions (Flying) Limited United Kingdom
British Car Auctions Limited United Kingdom
Broadway Finance Systems Limited United Kingdom
Brocks Alarms Limited United Kingdom
CDK U.K. Limited United Kingdom
Camp Limited United Kingdom
Camp Pension Trustees Limited United Kingdom
Campeire Limited United Kingdom
Capitol Alarms Limited United Kingdom
Carraun plc United Kingdom
Cellularm Limited United Kingdom
Charles Winn (Valves) Limited United Kingdom
Cheshire Alarm Services Ltd. United Kingdom
Chiltern Security Limited United Kingdom
Cleaners (South West) Limited United Kingdom
Cleaners Limited United Kingdom
Coin Machine Sales Limited United Kingdom
Combat Alarms Limited United Kingdom
Comforta Healthcare Ltd. (UK) United Kingdom
Communication & Tracking Services Limited United Kingdom
Community Action Trust Crimestoppers Limited United Kingdom
Constable's Alarm Company Limited United Kingdom
Countrywide Leisure Holdings Limited United Kingdom
D.C.S. Alarms Limited United Kingdom
D.J. Security Alarms (Whales) Limited United Kingdom
D.J. Security Alarms Limited United Kingdom
Dicerule Limited United Kingdom
Discount Disposables Ltd. United Kingdom
Donald Campbell Associates Limited United Kingdom
Dong Bang Minerva (UK) Limited United Kingdom
EMOS Rentals Limited United Kingdom
Edward Barber & Company Limited United Kingdom
Edward Barber (U.K.) Limited United Kingdom
Electric Protection Services Limited United Kingdom
Ellis Son & Paramore Limited United Kingdom
<PAGE> 12
<TABLE>
<CAPTION>
Subsidiary Place of Incorporation
---------- ----------------------
<S> <C>
Emos Information Systems Limited United Kingdom
Exbury Limited United Kingdom
Excelsior Security Services Limited United Kingdom
Eyelevel Electronics Limited United Kingdom
Farnham Limited United Kingdom
Finesnatch Limited United Kingdom
Fire Defender (U.K.) Ltd. (50%) United Kingdom
Ford Electronic Services Limited United Kingdom
Freedom Systems Ltd. United Kingdom
Frome Motor Auction Sales Limited United Kingdom
Gailey Caravan & Leisure Limited United Kingdom
General Cleaning Contractors Limited United Kingdom
Grinnell (U.K.) Ltd. (10) United Kingdom
Grinnell Manufacturing (U.K.) Limited (11) United Kingdom
Grinnell Sales & Distribution (U.K.) Ltd. United Kingdom
Group Sonitrol Security Systems Limited United Kingdom
HMC Factors Limited United Kingdom
Hawley International Finance Limited United Kingdom
Hertfordshire Security Systems Limited United Kingdom
Hindle Cockburns Limited United Kingdom
Home Improvement Holdings Limited United Kingdom
Huddersfield Motor Auctions Limited United Kingdom
Hygieia Healthcare Holdings Ltd. United Kingdom
Hygieie Healthcare Ltd. (UK) United Kingdom
Industrial Cleaners (UK) Limited United Kingdom
Intergrated Transport Systems Limited (10%) United Kingdom
Itoba Limited United Kingdom
JEL Building Management Limited United Kingdom
JEL Building Management Systems Limited United Kingdom
JMC Rehab Limited United Kingdom
James Deacon Security Limited United Kingdom
Johnson and Sons Limited United Kingdom
KS Lift Services Limited United Kingdom
Kaldistone Limited United Kingdom
Kean & Scott Limited United Kingdom
Kendall Company (U.K.) Limited, The United Kingdom
Keystone Valve (U.K.) Ltd. United Kingdom
Lander Urban Renewal Limited United Kingdom
Lastonet Products Limited United Kingdom
Leprodux Limited United Kingdom
Lesters Health Care Services Limited United Kingdom
Libas International Limited United Kingdom
Linksview Limited United Kingdom
Litepeel Limited United Kingdom
</TABLE>
<PAGE> 13
Subsidiary Place of Incorporation
---------- ----------------------
Live-In-Style Furniture Limited United Kingdom
Loss Prevention Ltd. United Kingdom
M1 Car Auctions Limited United Kingdom
M1 Motor Car Auctions Limited United Kingdom
M25 Motor Auctions Limited United Kingdom
M3 Car Auctions Limited United Kingdom
Markden No. 1 Limited United Kingdom
Markden No. 2 Limited United Kingdom
Markden No. 3 Limited United Kingdom
Markden No. 4 Limited United Kingdom
Markden No. 5 Limited United Kingdom
Markden No. 6 Limited United Kingdom
Mather & Platt (Exports) Ltd. United Kingdom
Mather & Platt Fire Protection Limited United Kingdom
Mather and Platt Alarms Limited United Kingdom
Measham Motor Auctions Limited United Kingdom
Midland Counties Motor Auctions Limited United Kingdom
Minerva Fire Defence Limited United Kingdom
Mobile Pressure Cleaning Limited United Kingdom
Modern Alarms (Scotland) Limited United Kingdom
Modern Alarms Limited United Kingdom
Modern Alarms Limited United Kingdom
Modern Automated Security Limited United Kingdom
Modern Automatic Alarms (N.I.) Limited United Kingdom
Modern Automatic Alarms Limited United Kingdom
Modern Carecall Limited United Kingdom
Modern Homepack Limited United Kingdom
Modern Integrated Systems Limited United Kingdom
Modern Security Systems (IOM) Ltd. United Kingdom
Modern Security Systems (Products) Limited United Kingdom
Modern Security Systems Limited United Kingdom
Modern Telecom Limited United Kingdom
Modern Telecom Security Limited United Kingdom
ODL Limited United Kingdom
OKD Limited United Kingdom
OMK Limited United Kingdom
PPR Alarms Limited United Kingdom
Phoenix Security Services Limited United Kingdom
Photovision Rentals Limited United Kingdom
Priory Security Services Limited United Kingdom
Pritchard Insurance Services Limited United Kingdom
Pritchard Laundries Limited United Kingdom
Pritchard Services Group Investments Limited United Kingdom
<PAGE> 14
Subsidiary Place of Incorporation
---------- ----------------------
Progressive Securities Investment Trust Limited United Kingdom
Prospect Cleaning Supplies Limited United Kingdom
Prospect House Investments Limited United Kingdom
Prospect House No. 11 Limited United Kingdom
Prospect House No. 5 Limited United Kingdom
Prospect House No. 7 Limited United Kingdom
Provincial Limited United Kingdom
Pryor & Howard (1988) Limited United Kingdom
Redhill Security Services Limited United Kingdom
Region Protection (Notts) Limited United Kingdom
Renalarms Ltd. United Kingdom
S&W Bedrooms Limited United Kingdom
Screentone Limited United Kingdom
Securis Products Ltd. United Kingdom
Securitag International Limited United Kingdom
Security Alarms Limited United Kingdom
Security Centres (Scotland) Limited United Kingdom
Security Centres (UK) Holdings Limited United Kingdom
Security Centres (UK) Limited United Kingdom
Security Centres Holdings Intl. Ltd. United Kingdom
Security Centres Holdings Limited United Kingdom
Security Centres Investments Limited United Kingdom
Security Systems (Rental) Limited United Kingdom
Security Watch Limited United Kingdom
Shepton Holdings Limited United Kingdom
Shield Protection Limited United Kingdom
Show Contracts Limited United Kingdom
Sky Signs Limited United Kingdom
Snap Printing Limited United Kingdom
Sonitrol Limited United Kingdom
Sovereign Security Systems Limited United Kingdom
Spensall Engineering Limited United Kingdom
Splendour Cleaning Services Limited United Kingdom
Stapp Limited United Kingdom
Steel Support Systems Limited United Kingdom
Steeplock Limited United Kingdom
Streets Machine Operating Company Limited United Kingdom
Stretford Security Services Limited United Kingdom
TSG Trustees Limited United Kingdom
TVX Ltd. United Kingdom
Taskman Security Services Limited United Kingdom
Telecom Security Limited United Kingdom
Ten Acre Securities Ltd. United Kingdom
<PAGE> 15
Subsidiary Place of Incorporation
---------- ----------------------
Thameside Lock and Safe Company Limited United Kingdom
The British Car Auction Group Limited United Kingdom
The British Security Consortium Limited United Kingdom
The City Laundry (Norwich) Limited United Kingdom
The Commercial Motor Auctions Limited United Kingdom
The Expedier Development Company Limited United Kingdom
The G B Auction Group Limited United Kingdom
The Mirror Laundries Limited United Kingdom
The Motor Auctions (Derby) Limited United Kingdom
The Motor Auctions (London) Limited United Kingdom
The Motor Auctions (Scotland) Limited United Kingdom
The Motor Auctions Group Limited United Kingdom
Thorn Security Group Limited United Kingdom
Thorn Security International Limited United Kingdom
Thorn Security Limited United Kingdom
Thornfire Limited United Kingdom
Tinwald Limited United Kingdom
Total Lift Services Limited United Kingdom
Tunite Limited United Kingdom
Tustin Machine Tools Limited United Kingdom
Tyco Holdings (UK) Ltd. United Kingdom
Tyco Valves Limited United Kingdom
Tyne CarAuction Limited United Kingdom
UCP Universal Consumer Products Limited United Kingdom
Ultra Security Alarms Limited United Kingdom
Unifast Systems Limited United Kingdom
Unipower Limited United Kingdom
Unirax Limited United Kingdom
Unistrut Europe Ltd. United Kingdom
Unistrut Holdings Ltd. United Kingdom
Unistrut Limited United Kingdom
Vic Engineering Limited United Kingdom
Vital Communications International Ltd. United Kingdom
W&S Freeman Limited United Kingdom
Wealdpoint Limited United Kingdom
White Group Electronics Limited United Kingdom
Wholematch Limited United Kingdom
Willow (Whales) Limited United Kingdom
Wormald Ansul (U.K.) Ltd. (12) United Kingdom
Wormald Engineering Ltd. United Kingdom
Wormald Fire Systems Ltd. United Kingdom
Wormald Holdings (U.K.) Ltd. United Kingdom
Wormald Industrial Property Ltd. United Kingdom
<PAGE> 16
Subsidiary Place of Incorporation
- ---------- ----------------------
Zettler Limited United Kingdom
URUGUAY
Bethany Trading Company Uruguay
VENEZUELA
Ansul de Venezuela C.A. Venezuela
Equipos Y Suministras Keystone de Venezuela C.A. Venezuela
Kendall de Venezuela, C.A. Venezuela
- -------------------------------------------------------------------------------
UNITED STATES OF AMERICA
A&E Construction Products, Inc. Delaware, U.S.
A-G Safety Services, Inc. Delaware, U.S.
AA Property Holdings, Inc. Delaware, U.S.
AAAA Dealer Services, Inc. Delaware, U.S.
Adaptive Design Technologies, Inc. Florida, U.S.
ADT Automotive Holdings, Inc. Delaware, U.S.
ADT Automotive Services, Inc. Delaware, U.S.
ADT Automotive, Inc. Delaware, U.S.
ADT Aviations, Inc. Delaware, U.S.
ADT Business Holdings, Inc. Delaware, U.S.
ADT General Holdings, Inc. Delaware, U.S.
ADT Holdings, Inc. Delaware, U.S.
ADT, Inc. Florida, U.S.
ADT Investments II, Inc. Delaware, U.S.
ADT Investments, Inc. Delaware, U.S.
ADT Maintenance Services, Inc. Delaware, U.S.
ADT Operations, Inc. Delaware, U.S.
ADT Property Holdings, Inc. Delaware, U.S.
ADT Security Services, Inc. Delaware, U.S.
ADT Security Systems, Manufacturing, Inc. Delaware, U.S.
ADT Security Systems, West, Inc. Delaware, U.S.
ADT Services, Inc. Delaware, U.S.
ADT Speciality Auctions, Inc. Michigan, U.S.
ADT Title Holding Company II Delaware, U.S.
ADT Title Holding Company I Delaware, U.S.
ADT Travel Services, Inc. Delaware, U.S.
ALS Holdings, Inc. Delaware, U.S.
API Security, Inc. Delaware, U.S.
ATC Sales Company Delaware, U.S.
Allied Tube & Conduit Corporation Delaware, U.S.
Alternative Ways, Inc. New Jersey, U.S.
<PAGE> 17
Subsidiary Place of Incorporation
Anderson, Greenwood & Co. Delaware, U.S.
Ansul, Incorporated(13) Delaware, U.S.
Arius Inc. Delaware, U.S.
Armin Plastics Fairmont, Inc. Delaware, U.S.
Armin Plastics, Inc.(14) Delaware, U.S.
Atcor, Inc. Delaware, U.S.
Auction Transport, Inc. Delaware, U.S.
Automated Security Corp. Delaware, U.S.
Automated Security Holdings, Inc. Delaware, U.S.
British Car Auctions, Inc. Delaware, U.S.
CCTC International, Inc. Delaware, U.S.
Carlisle Plastics, Inc. Delaware, U.S.
Earth Tech, Inc. California, U.S.
Earth Technology Corporation (USA), The Delaware, U.S.
Electro Signal Lab, Inc. Delaware, U.S.
FCI Liquidations, Inc. Delaware, U.S.
Flying Lion, Inc. Delaware, U.S.
Grinnell Corporation(15) Delaware, U.S.
Henry Pratt Company Delaware, U.S.
J.B. Smith Mfg. Co. Oklahoma, U.S.
James Jones Company California, U.S.
Kendall Holding Company(17) Georgia, U.S.
Keystone France Holdings Corp. Delaware, U.S.
Keystone Germany Holdings Corp. Delaware, U.S.
Keystone International Holdings Corp. Delaware, U.S.
Keystone International, Inc. Texas, U.S.
Keystone Kuwait, Inc. Delaware, U.S.
Keystone Middle East, Inc. Delaware, U.S.
Keystone Saudi, Inc. Texas, U.S.
Keystone Valve-Middle East, Inc. Texas, U.S.
Keystone Valves and Controls, Inc. Texas, U.S.
Ludlow Corporation(16) Massachusetts, U.S.
Ludlow Jute Company Limited Massachusetts, U.S.
Mid-Atlantic Security, Inc. Delaware, U.S.
Mobile Security Communications, Inc. (19%) Delaware, U.S.
Mueller Co. Illinois, U.S.
Mueller Co. Foundation Illinois, U.S.
Mueller Holdings Corp. Illinois, U.S.
Mueller Service Co. Delaware, U.S.
Polyken Technologies Europe, Inc. Delaware, U.S.
Rochester Corporation, The Delaware, U.S.
SSI Atlantic Crossing Holdings LLC Delaware, U.S.
SSI Atlantic Crossing LLC Delaware, U.S.
<PAGE> 18
Subsidiary Place of Incorporation
---------- ----------------------
Simplex Technologies Inc. Massachusetts, U.S.
Sonitrol Corporation Delaware, U.S.
Sonitrol Management Corporation Delaware, U.S.
Star Sprinkler, Inc. Delaware, U.S.
T.J. Cope Inc. Delaware, U.S.
TME Management Corp. Delaware, U.S.
Team Engineering, Inc. Massachusetts, U.S.
Techcon International Inc. Delaware, U.S.
Transoceanic Cable Ship Company, Inc. New York, U.S.
Tri-City Auto Auction, Inc. Washington, U.S.
Twitchell Corporation Alabama, U.S.
Tyco Holdings, Inc. Delaware, U.S.
Tyco International Asia, Inc. Delaware, U.S.
Tyco International (US) Inc. Massachusetts, U.S.
Tyco Printed Circuit Group Inc. Florida, U.S.
Tyco Receivables Corp. Delaware, U.S.
Tyco Submarine Systems Ltd. Delaware, U.S.
Unistrut Corporation Delaware, U.S.
Unistrut International Corp. Delaware, U.S.
United States Construction Co. Delaware, U.S.
WGV Liquidations, Inc. Delaware, U.S.
Water Holdings Corp. Delaware, U.S.
Wormald Americas, Inc. Delaware, U.S.
White Mountain Insurance Company Vermont, U.S.
Yarway Corporation Pennsylvania, U.S.
- ---------------
The above direct and indirect subsidiaries are included in the Consolidated
Financial Statements of Tyco International Ltd., which is incorporated in
Bermuda.
- ---------------
<PAGE> 19
(1) Also doing business under the following name: Firegard (Australia) Company
(2) Also doing business under the following name: Guardian Fire Protection Co.
(3) Also doing business as GAAM Fire & Rescue.
(4) Also doing business under the following names: Fire Guard A.F.S., Grinnell
ACT, Grinnell Controlled Atmospheres, Grinnell Flow Control, Grinnell
Supply Sales, Jefferson Electrical Services, O'Donnell Griffin, Planned
Communications Australia, WF Energy Controls
(5) Also doing business under the following names: Cecon Fire Doors (NSW only),
Fire Systems Engineering, Metalbilt, Padde, Sealeck Doors & Windows.
(6) Also doing business under the following names: ACT Plumbing & Maintenance,
Advanced Systems Engineering, Building Asset Maintenance, E.P.S. Electrical
& Plumbing Services, Fire Control Services, FHD Airconditioning, Goldfields
Fire Services, Masterbilt Industries, Olsen Engineering Company, Quintrix
Communications, Safeguard Fire Systems, Simplex Fire Protection Company,
Tyco Fire Monitoring, Viking Fire Sprinklers, Williams Extinguisher
Service, Wormald Advanced Systems Engineering, Wormald Building Products,
Wormald Control Systems, Wormald Electronics, Wormald Fire & Safety,
Wormald Fire Engineering, Wormald Technology
(7) Also doing business under the following name: Viking Fire Sprinklers (SA
and NT only)
(8) Also doing business under the following names: Canvil, Mueller Canada,
Grinnell Fire Protection, Grinnell Supply Sales, Wormald Canada, Scotia
Sprinklers, Wormald Fire Systems
(9) Also doing business under the following name: Wormald Espania
(10) Also doing business under the following names: Grinnell Firekil, GEM
Consultants
(11) Also doing business under the following names: The Ansul Fabrication,
Debro Engineering & Presswork
(12) Also doing business under the following names: Wormald Fire Systems,
Wormald Engineering, Wormald Britannia, Wormald Lintott and Lintott
Process Systems
(13) Also doing business under the following name: Ansul Fire Protection.
(14) Also doing business under the following names: Armin Plastics -
Western Region, Armin Plastics California, Armin Thermodynamics,
Armin Plastics Northeast Region, Armin Poly-Version, Armin
Polyethylene Bag, Armin Roto-Lith, Armin Plastics - Southeast
Region, Armin Plastics North Carolina, Armin Plastics - Central,
Armin Plastics - Midwest Region, Armin Plastics Oklahoma.
(15) Also doing business under the following names: Anvil Products, Gem
Sprinkler Company, Grinnell Flow Control, Grinnell Supply Sales
Company, Grinnell Fire Protection Systems Company, Hersey Products,
Tyco Flow Control, Tyco Fire and Security Services
(16) Also doing business under the following names: Accurate Forming,
Ludlow Coated Products, Ludlow Technical Products, Twitchell,
Uni-Patch.
(17) Also doing business under the following names: Kendall Healthcare,
Kendall International, Kendall Polyken.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-3 (File No. 333-21425) and on Form S-8 (File Nos. 33-38249, 33-26970 and
333-03975 of Tyco International Ltd. (formerly named ADT Limited) of our report
dated November 21, 1997 on our audits of the Consolidated Financial Statements
and the Consolidated Financial Statement Schedule of Tyco International Ltd. as
of September 30, 1997 and December 31, 1996 and for the nine months ended
September 30, 1997 and for each of the two years in the period ended December
31, 1996, which report is included in this Transition Report on Form 10-K.
COOPERS & LYBRAND
Hamilton, Bermuda
December 24, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements on
Form S-3 (File No. 333-21425) and on Form S-8 (File Nos. 33-38249, 33-26970, and
333-03975) of our report dated July 10, 1997, which is included in this
Transition Report on Form 10-K on our audits of the Consolidated Financial
Statements and the Consolidated Financial Statement Schedule of Tyco
International Ltd. (subsequently renamed Tyco International (US) Inc.) as of
December 31, 1996 and for the years ended December 31, 1996 and June 30, 1995
(not presented separately herein).
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
December 24, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in this
Transition Report on Form 10-K and to the incorporation by reference in the
Registration Statements on Form S-3 (File No. 333-21425) and on Form S-8 (file
Nos. 33-38249, 33-26970 and 333-03975) of Tyco International Ltd. of our report
dated January 31, 1997 on our audits of the Consolidated Financial Statements of
Keystone International, Inc. and subsidiaries as of December 31, 1996 and for
each of the two years in the period then ended, which financial statements are
not included herein. It also should be noted that we have not audited any
financial statements of Keystone International, Inc. and subsidiaries subsequent
to December 31, 1996 or performed any audit procedures subsequent to the date of
our report.
ARTHUR ANDERSEN LLP
December 23, 1997
Houston, Texas
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND INCOME STATEMENT OF TYCO INTERNATIONAL LTD. AS OF AND FOR THE NINE
MONTH FISCAL YEAR ENDED SEPTEMBER 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 370
<SECURITIES> 0
<RECEIVABLES> 1,668
<ALLOWANCES> 108
<INVENTORY> 1,125
<CURRENT-ASSETS> 4,109
<PP&E> 4,724
<DEPRECIATION> 1,800
<TOTAL-ASSETS> 10,447
<CURRENT-LIABILITIES> 3,992
<BONDS> 2,481
0
0
<COMMON> 107
<OTHER-SE> 3,322
<TOTAL-LIABILITY-AND-EQUITY> 10,447
<SALES> 7,588
<TOTAL-REVENUES> 7,588
<CGS> 5,103
<TOTAL-COSTS> 5,103
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 31
<INTEREST-EXPENSE> 113
<INCOME-PRETAX> (590)
<INCOME-TAX> 187
<INCOME-CONTINUING> (777)
<DISCONTINUED> 0
<EXTRAORDINARY> 58
<CHANGES> 0
<NET-INCOME> (835)
<EPS-PRIMARY> (1.50)
<EPS-DILUTED> (1.50)
</TABLE>
