Back to GetFilings.com
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 0-16979
- -------------------------------------------------------------------------------
ADT LIMITED
(Exact Name of Registrant as Specified in its Charter)
BERMUDA Cedar House Not Applicable
(Jurisdiction of Incorporation 41 Cedar Avenue (I.R.S. Employer
or Organization) Hamilton HM12, Bermuda Identification No.)
(Address of Principal
Executive Offices)* Not Applicable
(Zip Code)
Registrant's telephone number, including area code 441-295-2244* *See page 2
- ------------------------------------------------------------------------------
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Shares, par value
$0.10 per share 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 of this Form 10-K or any amendment to
this Form 10-K.[ ]
Based on the closing market price per Common Share of $26 7/8 on March 24,
1997, the aggregate market value of the voting shares held by non
affiliates of the registrant was $4,125.7 million.
At March 24, 1997, the number of shares outstanding of the registrant's Common
Shares par value $0.10 per share was 156,696,447 shares. A subsidiary of ADT
Limited owns 3,182,787 Common Shares which are included in the number
outstanding.
Table of Contents
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS................................ 1
ITEM 2. DESCRIPTION OF PROPERTIES.............................. 15
ITEM 3. LEGAL PROCEEDINGS...................................... 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS...................................... 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS........................ 19
ITEM 6. SELECTED FINANCIAL DATA................................ 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............ 34
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..... 34
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..... 34
ITEM 11. EXECUTIVE COMPENSATION................................. 37
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
AND MANAGEMENT......................................... 45
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......... 47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K................................ 47
SIGNATURES............................................. 52
i
ADT LIMITED ANNUAL REPORT ON FORM 10-K
The consolidated financial statements of ADT Limited (ADT Limited and its
subsidiaries, where appropriate, is sometimes referred to hereinafter as "ADT"
or the "Company") appearing in this Annual Report have been prepared in United
States dollars ("US dollars" or "$") in accordance with generally accepted
accounting principles in the United States.
This Annual Report contains translations of certain amounts from various
currencies into US dollars. The translations of such foreign currencies into
US dollars appearing in this Annual Report have been made in accordance with
the principles set out in notes 2 and 3 of the notes to consolidated financial
statements of the Company.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
ADT, through its subsidiaries, is engaged in two service businesses,
electronic security services in North America and Europe and vehicle auction
and related services in the United States.
History of ADT Limited
ADT Limited was incorporated in Bermuda on September 28, 1984 under the name
Hawley Group Limited. In December 1984, as part of a corporate
reorganization, Hawley Group Limited became the parent company of the Hawley
group of companies. Prior to this reorganization, the parent company of the
Hawley group of companies was Hawley Group PLC ("Hawley Group"), a company
into which new management had been introduced in 1977, headed by Mr. M.A.
Ashcroft, Chairman and Chief Executive Officer of ADT Limited. At the time of
the reorganization, the Hawley group of companies had a number of interests in
service and other industries. ADT Limited became a publicly traded company
under the name Hawley Group Limited on December 24, 1984 when its common
shares were listed for trading on the London Stock Exchange. Prior to this
date, the ordinary shares of Hawley Group had been listed on the London Stock
Exchange. Hawley Group Limited changed its name to ADT Limited in 1988 after
its acquisition in 1987 of ADT, Inc. (now named ADT Security Services, Inc.,
hereinafter "ADT Security Services"). ADT Limited's businesses are conducted
through its subsidiaries.
ADT Limited operates under the Companies Act, 1981 of Bermuda (as amended).
Development of ADT's Electronic Security Services Business
The electronic security services division in North America principally
consists of ADT Security Services, ADT Canada, Inc., Alert Centre, Inc.
("Alert") and API Security, Inc., a subsidiary of Automated Security
(Holdings) PLC ("ASH"). ADT built the core of its North American electronic
security services business by acquiring Electro-Protective Corporation of
America in 1981, the business of Crime Control, Inc., and ADT Security
Services in 1987. Between 1982 and 1985, ADT also acquired several small
security services businesses in North America. The electronic security
services division in Europe consists of ASH, principally doing business as
Modern Security Systems Limited in the United Kingdom, and Electric Protection
Services Limited doing business as ADT Security Systems in the United Kingdom
("Electric Protection") and other subsidiaries doing business under the ADT
name in continental Europe. Electric Protection and the principal continental
European subsidiaries were acquired as part of the acquisition of ADT Security
Services in 1987.
1
In 1990, ADT acquired Britannia Security Group PLC
("Britannia"), operating principally in the United Kingdom and, in the third
quarter of 1996 merged with and acquired ASH, which provides electronic
security services in the United Kingdom and North America. In the fourth
quarter of 1995, ADT disposed of its electronic article surveillance business
which was based in Europe and which was previously acquired as part of
Britannia. Alert, which provides electronic security services in the United
States, was acquired in the fourth quarter of 1995.
Development of ADT's Vehicle Auction Business
ADT's auction division was established in 1987 by the acquisition of The
British Car Auction Group PLC ("BCA") which, at that time, had 14 auction
centers in the United Kingdom and 12 auction centers in the United States.
BCA was established in the United Kingdom in 1946 and, during the period from
1946 to 1982, it expanded its vehicle auction business in the United Kingdom.
In 1982, BCA entered the vehicle auction business in the United States by
acquiring two vehicle auctions. From 1982 to 1987, BCA acquired and
constructed additional auction sites in both the United States and the United
Kingdom. Since 1987, the auction division has expanded its vehicle auction
operations by the purchase of eight auction businesses and four auction
centers in the United States, the development and construction of seven new
auction centers and by internal growth. In the fourth quarter of 1995, ADT
disposed of its vehicle auction businesses in the United Kingdom and
continental Europe, retaining a 10 per cent equity interest. In the United
States, the auction division consists of ADT Automotive Holdings, Inc. and its
subsidiaries (formerly Anglo American Auto Auctions).
Registered and Principal Executive Offices
The registered and principal executive offices of ADT Limited are located at
Cedar House, 41 Cedar Avenue, Hamilton HM 12, Bermuda. The executive offices
of the subsidiary which supervises ADT's North American activities are located
in the United States at 1750 Clint Moore Road, PO Box 5035, Boca Raton, Florida
33431. The telephone number there is 561-988-3600.
BUSINESS DESCRIPTION
ADT, through its subsidiaries, is engaged in two service businesses,
electronic security services in North America and Europe and vehicle auction
and related services in the United States. In this business description, the
term "ADT" is used to refer to the relevant operating subsidiary of ADT
Limited engaged in that part of the business being described where the term
appears.
ADT's principal activities in the electronic security services business are
the electronic monitoring and maintenance of its installed base of security
systems and the installation of new, monitored security systems to add to its
installed base. Monitored systems may be sold or, as is most often the case,
ADT may retain ownership of installed systems. ADT receives contractual
recurring fees for monitoring security systems through its electronic customer
monitoring centers and for maintenance of security systems installed at
customer premises and other related services. ADT sells, installs and
maintains monitored security systems, integrated electronic security systems
and other electronic security products for additional fees. Annualized
contractually recurring fees for electronic monitoring and maintenance of
security systems installed at customer premises, and other related services,
as of December 31, 1996, represented approximately 65 per cent of ADT's total
electronic security services revenues in North America and Europe for 1996.
The remainder of ADT's security revenues were derived from the outright sale
and installation of security systems, the installation of security systems in
accordance with monitoring service agreements and the maintenance of security
systems on a non-contractual basis.
2
ADT's vehicle auction business operates a network of large modern auction
centers in the United States which provide an organized wholesale marketplace
for the sale and purchase of used vehicles. Principal sellers, or consignors,
include new and used vehicle dealers, vehicle manufacturers, fleet operators,
leasing companies, financial institutions and government agencies. Principal
purchasers include franchise and non-franchise vehicle dealers and
distributors who acquire vehicles to sell in the retail market.
The following table presents the proportion of revenues derived by ADT from
electronic security services and vehicle auction services in 1995 and 1996.
Proportion of total Proportion of total
Electronic Security Services Business Revenues
Revenues
1995 1996 1995 1996
Electronic Security Services
North America 71% 75% 54% 62%
United Kingdom and Continental Europe 29% 25% 22% 20%
Proportion of total Vehicle
Auction Services Revenues
Vehicle Auction Services
United States 62% 100% 15% 18%
United Kingdom and Continental Europe 38% * 9% *
* ADT's vehicle auction services businesses in the United Kingdom and
continental Europe were disposed of in the fourth quarter of 1995.
Electronic Security Services
The Industry
The security services industry encompasses a wide range of products and
services, which can be broadly divided into electronic security products and
services and highly labor intensive manned guarding and patrol services.
ADT's electronic security services division competes primarily in the
comparatively capital intensive electronic monitoring security services sector
of the industry. Electronic security products and services consist of the
sale, installation, continuous monitoring and maintenance of electronic
security systems for commercial and residential use. This business utilizes
modern electronic devices installed in customers' businesses and residences to
provide detection of events, such as intrusion or fire, surveillance and
control of access or articles. Event detection devices may be monitored by
monitoring centers, such as ADT's customer monitoring centers, which are
linked to the customer through telephone lines. These centers are often
located at remote distances from the customer's premises. In some instances,
the customer may monitor these devices at its own premises or the devices may
be connected to local fire or police departments. The products and services
marketed in the electronic security services industry range from residential
systems that provide basic entry and fire protection to sophisticated
commercial systems incorporating closed circuit television systems and access
control.
3
The development of centrally monitored alarm systems began at the turn of the
century and, historically, these systems were considered a relatively
expensive form of security and were purchased primarily by businesses and
affluent individuals. The industry continued to evolve as telephone networks
spread and technology advanced. Progress continued steadily until the early
1970's when computer technology and semi-conductor components began to be
incorporated into monitoring systems. Since then, the development of
telecommunications technology and its application in security systems has
accelerated, and technological advances have increased the availability of
lower cost, sophisticated electronics. These advances have enabled the
industry to access a wider market by providing a broader range of monitored
security services at a variety of price levels. Concurrently with these
technological advances, demand for security systems has grown with the
increase in the general awareness of security issues and rising crime rates.
Customers also purchase security systems due to the practice in the insurance
industry of reducing premiums for customers who have a security system
installed, or requiring the installation of a security system as a condition
of coverage.
STAT Resources, Inc., an independent market research firm ("STAT Resources"),
estimates that total United States commercial electronic security systems and
services market revenues and total residential electronic security systems and
services market revenues were approximately $8.0 billion and $5.0 billion,
respectively in 1996. ADT accounted for approximately 7.7 per cent and 7.5
per cent of these amounts, respectively. Although a certain amount of
industry consolidation has taken place, the industry in North America remains
highly fragmented and STAT Resources estimates that there were approximately
13,000 companies in the United States electronic security systems and services
market in 1996. The electronic security services industry in Europe is also
highly fragmented.
Business Strategy
ADT[Registered] is a leading name in electronic security services, and ADT
believes that its name is important in the marketing of its security services
and in competing with other electronic security service providers. Before
1987, ADT's electronic security services business served predominantly
commercial customers. Since 1987, ADT's goals have been to create a lower
cost, more efficient operation, suitable for long-term growth and greater
profitability, and to take advantage of the economies of scale resulting from
increased utilization of its infrastructure. Since 1987, ADT has (i) reduced
the number of central stations and equipped its customer monitoring centers
with enhanced computer technology to further automate the monitoring process
and thus provide increased monitoring capacity, (ii) modernized and
streamlined its computer-based administration and control systems, (iii)
enhanced customer service programs through improved training programs for
sales, management, installation and service employees and (iv) intensively
marketed electronic monitoring services to residential customers to take
greater advantage of the increased monitoring capacity created by the
monitoring center consolidation and modernization program.
Between 1987 and 1993, ADT significantly reduced the number of its central
stations from 162 to 30 in North America and Europe while increasing
monitoring capacity and maintaining geographical coverage. Since then ADT has
continued to pursue its strategy of central station consolidation, although
closures have taken place at a slower rate. Further opportunities for central
station consolidation now exist following the acquisition of ASH. In the first
quarter of 1997, ADT announced that it was investing in planned enhancements
to its technological infrastructure to facilitate a further consolidation of
its monitoring center network in order to provide for future anticipated growth
opportunities while lowering costs and increasing monitoring capacity and
operating efficiency.
As a result of ADT's program implemented in 1988 to target the residential
sector in North America, as well as growth in the level of consumer concern
over crime and security generally and the availability of lower priced
systems, ADT has significantly expanded its residential customer base in North
America. Since 1988, ADT has enjoyed an annual compound growth rate in
residential unit sales in excess of 36 per cent. ADT believes that because of
the success of its sales and marketing efforts since 1988, it is uniquely
positioned to benefit from the range of technological developments that are
expanding and diversifying the types of services that ADT is able to offer.
4
During the past several years, ADT's business has been evolving from that of
primarily an intrusion alarm company into a data information company. ADT has,
in the past few years, been offering energy management products and services
to regulate the temperature and lighting in a customer's premises. This
service has been achieved through the use of a communication protocol which
utilizes the premises' existing alternating-current wiring. Another creative
use of new technologies has permitted the launch of CarCop[Registered] which
combines three significant infrastructures, cellular communications, the
global positioning satellite system and ADT's 24 hour monitoring services, to
provide a revolutionary new personal protection and vehicle security service.
ADT believes that its broad customer base, its unique national distribution
system and its highly skilled workforce provide it with a strong capacity to
exploit new technologies and, given the rapid pace of technological change, ADT
anticipates that it will explore partnering opportunities with premier
companies in a variety of industries.
ADT's overall goal is to expand its customer base in both the commercial and
residential sectors. The commercial sectors in North America, the United
Kingdom and continental Europe represent well established markets with growth
prospects closely related to the overall economic growth in these markets.
ADT's strategy is to retain a high percentage of its existing commercial and
residential customers by continuing to provide high quality service. As part
of its strategy to maintain and enhance its commercial market position in
North America, ADT has a national accounts sales team in place in the United
States to serve customers that have multiple locations. ADT believes that the
North American residential marketplace continues to represent a relatively
unpenetrated market and ADT's strategy is to continue to market and install
large numbers of new residential security systems, primarily in this market.
ADT is continuing to implement this strategy through intensive advertising and
marketing in metropolitan areas. ADT believes that incremental monitoring
revenues from new customers should enhance operating margins because
additional customers can be served through ADT's existing monitoring
facilities with very little impact on ADT's total operating costs associated
with monitoring security systems. ADT, however, incurs marketing costs
associated with the sale of new systems and incremental installation costs in
respect of each new system sold which are partly offset by a fee charged to
the customer on installation of the system. In the first quarter of 1997, ADT
announced that it was investing in planned enhancements to its technological
infrastructure to facilitate monitoring center consolidation and provide
increased capacity for future anticipated growth opportunities.
Consistent with its strategy, ADT acquired Alert in the fourth quarter of 1995
and merged with ASH in the third quarter of 1996 adding, in aggregate, over
375,000 customers to ADT's customer base. The acquisition of Alert also
provided ADT with an established dealer program under which security systems
are installed by third parties with the monitoring contracts being onsold to
ADT for monitoring. Such a program represents a cost effective way for ADT to
further enhance its operating leverage. The acquisition of ASH gave ADT
leadership in the electronic security services sector in the United Kingdom
and will provide ADT with a new marketing opportunity in the UK residential
market place.
The following table presents the approximate number of commercial and
residential customers in North America and Europe contracting with ADT for the
monitoring or maintenance of electronic security systems, together with the
aggregate annualized service revenue under contract, as of December 31, 1996,
and the annual combined discontinuance rate for commercial and residential
contracts in respect of 1996.
Number of Commercial Number of Residential Annualized Service Annual Combined
Customers Customers Revenue Discontinuance Rate
672,000 1,149,000 $920m 10.4%
Annualized service revenue and annual combined discontinuance rate are defined
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations - Results of Operations-Electronic Security Services".
5
Commercial
ADT provides electronic security services and products to financial
institutions, industrial and commercial businesses and complexes, warehouses,
facilities of federal, state and local government departments, defense
installations, and health care and educational facilities. ADT conducts its
commercial operations in the United States, Canada, the United Kingdom, Spain,
France, Belgium, Greece, The Netherlands and the Republic of Ireland. ADT
sells, installs, monitors and maintains electronic security systems and
products located at its customers' premises. These 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. ADT
also markets standard security packages for specific types of commercial
customers, such as retailers and banks. Certain commercial customers require
more complex electronic security systems. To meet this demand, ADT also sells
integrated electronic security systems that combine a variety of electronic
security services and products. These systems are integrated by ADT to
provide a single computer controlled security system. Integrated security
systems are typically owned by the customer and can range in price from a few
thousand to several million dollars. Integrated security systems may be
monitored by the customer at its premises or connected to an ADT monitoring
center. In either case, ADT usually provides support and maintenance for these
systems through service contracts.
The systems installed at commercial customers' premises may be owned by ADT
or, as in the case of most integrated systems, by the customer. When the
system is sold, the customer pays ADT the purchase price upon installation and
the customer also pays an installation fee. When monitoring equipment is
owned by ADT, as is most often the case, only an installation fee is charged.
Most customers also agree to pay an annual service charge for monitoring and
maintenance. Some customers elect to pay for maintenance on a per visit
basis. Service contracts for integrated security systems are negotiated on an
individual basis. For integrated systems, a separate fee is charged for
systems integration and installation. Service contracts are negotiated on an
individual basis depending upon the number of systems monitored, the type of
alarm transmission and the level of response services required.
STAT Resources estimates that total United States commercial electronic
security systems and services market revenues were approximately $8.0 billion
in 1996. ADT accounted for approximately 7.7 per cent of this amount.
Commercial customers are motivated to purchase security systems to protect
their property, employees and customers and by their insurance carriers which
may offer lower premium rates if a security system is installed or require
that a system be installed as a condition to coverage. Of those insurance
carriers in North America which offer lower premiums or will provide coverage
only to customers with centrally monitored alarm systems, most require the
monitoring center to be approved by Underwriters Laboratories, Inc. ("UL").
UL requires each monitoring center to meet specified design, technical and
operational standards, including back up power capability. UL confirms
compliance with its specifications through periodic on-site inspections. All
of ADT's customer monitoring centers in the United States are UL approved.
As of December 31, 1996, approximately 478,000 commercial customers, some of
which have multiple locations, were under contract in North America,
approximately 153,000 were under contract in the United Kingdom and
approximately 41,000 were under contract in continental Europe. The
electronic security services business in Europe services primarily commercial
customers. In 1996, approximately 68 per cent of ADT's total electronic
security services revenues in North America and Europe were derived from
commercial customers. The electronic security services division is not
dependent upon any single customer, as the revenue from any one customer does
not exceed one per cent of the division's total net revenues.
Contracts with commercial customers for monitoring and maintenance services
are usually for an initial five-year term, automatically renewing on a
year-to-year basis thereafter, unless canceled. A substantial number of
contracts are now beyond their initial term and are therefore on an automatic
renewal basis. It has been ADT's experience that monitoring contracts for
security systems are generally renewed upon their expiration. Contract
discontinuances, however, do occur, principally as a result of customer
relocation or closure.
ADT markets its electronic security services to commercial customers through a
direct sales force in North America and Europe and through direct mail and
print advertising. Customers which have multiple locations in North America
are serviced by a separate national accounts sales force.
6
Residential
Residential electronic security services are primarily marketed to customers
in North America and consist of the sale, installation, monitoring and
maintenance of electronically monitored security systems to detect intrusion
and fire. Residential customer service and monitoring are performed from the
same facilities as those used for commercial accounts.
STAT Resources estimates that total United States residential electronic
security systems and services market revenues were approximately $5.0 billion
in 1996. ADT accounted for approximately 7.5 per cent of this amount.
As part of its business strategy, ADT began to intensively market monitored
security systems to residential customers in North America in 1988 and ADT
believes that it has been able to sell a large number of residential security
systems due to the growing level of consumer concern over crime and security
generally and the availability of lower priced systems. In addition,
residential customers are usually able to obtain more favorable insurance rates
if an electronically monitored security system is installed in their home.
ADT targets two groups of residential customers, those who typically require
relatively inexpensive, standard electronically monitored security systems and
a smaller group of residential customers who require more sophisticated
systems.
In 1996, ADT contracted to install and monitor approximately 280,000 new
residential security systems, principally in North America, and as of
December 31, 1996, ADT had approximately 1,149,000 residential customers under
contract for monitoring services, of which approximately 90 per cent were
located in North America. In 1996, approximately 32 per cent of ADT's total
electronic security services revenues in North America and Europe were derived
from residential customers. On average, fees charged by ADT for residential
monitoring services are lower than the fees charged for commercial monitoring
services. Contracts for residential services entered into after 1990 have
usually been for an initial three-year term, automatically renewing on a
year-to-year basis thereafter, unless canceled. For contracts entered into
after April 1992, automatic renewal has been for two-year terms, unless
canceled. A substantial number of contracts are now beyond their initial term
and are therefore on an automatic renewal basis. It has been ADT's experience
that residential contracts are generally renewed upon their expiration.
Contract discontinuances, however, do occur, principally as a result of
customers relocating.
In North America, ADT usually retains ownership of standard residential
systems whereas the more sophisticated systems are usually purchased by the
customer. When the system is sold, the customer pays ADT the purchase price
upon installation and the customer also pays an installation fee. When the
system is owned by ADT, as is most often the case, only an installation fee is
charged. Substantially all residential customers agree to pay an annual
service charge for monitoring and may also subscribe for maintenance services.
Uniform package prices are offered to residential customers who purchase ADT's
standard residential security system which includes a fixed number of
detection devices. Frequently, customers add detection devices to expand the
coverage of the system for which ADT charges an additional installation fee
and an additional sales charge if the system is purchased. Pricing for
residential customers who require more sophisticated systems depends upon the
monitoring components installed, the type of alarm transmission and other
services required.
ADT markets its electronic security services to residential customers through
television and radio advertising, print advertising, telemarketing, direct
mail and through a direct residential sales force as well as through
approximately 120 independent ADT authorized dealers and through third party
affinity marketing arrangements.
Installation, Service and Maintenance
As part of its effort to provide high quality service to its commercial and
residential customers, ADT maintains a trained installation, service and
maintenance force of in North America and Europe. These employees are trained
by ADT to install and service the various types of commercial and residential
security systems which are marketed by ADT. ADT also uses sub-contracted
personnel where appropriate.
7
Product Sourcing
ADT does not manufacture any of the components used in its electronic security
services business, 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. Due to the general
availability of the components used in its electronic security services
business, ADT believes that it is not consistent with its role as a services
company to be involved in manufacturing. This policy allows ADT to obtain the
components of its systems from a number of different sources and, by so doing,
to supply its customers with the latest technology generally available in the
industry. ADT is not dependent on any single source for its supplies and
components and has not experienced any material shortages of components.
Monitored Electronic Security Systems
ADT's electronically monitored security systems involve the use on a
customer's premises of devices designed to detect or react to various
occurrences or conditions, such as intrusions, movement, fire, smoke, flooding,
environmental conditions (including temperature or humidity variations),
industrial operations (such as water, gas or steam pressure and process flow
controls) and other hazards. In most systems, these detection devices are
connected to a microprocessor based control panel which communicates through
telephone lines to an ADT monitoring center where alarm and supervisory
signals are received and recorded. Systems may also incorporate an emergency
"panic button", which when pushed causes the control panel to transmit an
alarm signal that takes priority over other alarm signals. In most systems,
control panels can identify the nature of the alarm and the areas within a
building where the sensor was activated and transmit the information to an ADT
customer monitoring center. Depending upon the type of service for which the
subscriber has contracted, monitoring center personnel respond to alarms by
relaying appropriate 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 most systems, the control panel communicates with an ADT customer
monitoring center through one of four telephone line transmission systems,
direct wire, multiplex, digital communicator or derived channel. Direct wire
and multiplex systems are used mainly for commercial customers who require a
higher level of security, whereas digital communicator or derived channel
systems are used primarily in systems where cost is more important. Direct
wire transmission uses a dedicated leased telephone line and is the most
expensive form of monitoring connection. The multiplex system uses a remote
device to receive signals from multiple customers' premises and concentrate
and retransmit them over a dedicated leased telephone line to an ADT customer
monitoring center. These two transmission methods allow ADT to continuously
monitor the customer's security system to confirm that the connection to the
monitoring center is functioning properly. The multiplex system provides the
same level of security as direct wire but is less costly due to the reduced
number of dedicated telephone lines which are necessary to monitor the same
number of customers. ADT has a continuing selective conversion program to
replace direct wire transmission systems with lower cost multiplex or digital
systems. These conversions typically replace older equipment and result in a
reduction in telephone line costs and in the frequency of customer service
calls.
A security system which utilizes a digital communicator responds to an event
by dialing the monitoring center through the customer's regular telephone
line. Unlike multiplex and direct wire systems, these systems are not
continuously monitored, and if a control panel or the telephone line is not
functioning properly the monitoring center may not be alerted. The derived
channel system, which is not available in all markets, ties into the existing
regular telephone line network but allows parallel simultaneous communication
on one line using separate distinct frequencies. Using the derived channel
system, it is possible to continuously monitor a digital communicator
connection over the customer's regular telephone line. In certain markets ADT
also offers systems with backup transmission capability through radio
frequency transmission or the local cellular telephone network.
8
Other Security Businesses
ADT entered the mobile security services market in 1996 with the launch of
CarCop[Registered], a vehicle security system introduced in the fourth quarter
of 1996 in conjunction with Mobile Security Communications, Inc. which is
responsible for the sale and installation of the CarCop product. CarCop
combines ADT's 24 hour monitoring services with cellular communications
technology and the Global Positioning Satellite system to provide constant
security coverage for a vehicle and its occupants whether the vehicle is
parked, unattended or in use. The system can detect a range of emergency
situations and, through utilizing ADT's 24 hour monitoring services and
employing satellite tracking technology, the appropriate assistance can be
despatched to the vehicle's exact location at any time, day or night.
Competition
The electronic security services business in North America is highly
competitive. New competitors, who have not necessarily had any previous
involvement in the provision of electronic security services, are continually
entering the field. Competition is based primarily on price in relation to
quality of service. ADT believes that the quality of its services is higher
than that of many of its competitors. Accordingly, ADT's prices may therefore
be higher than those charged by many of its competitors. Sources of
competition in the security services business are other providers of central
monitoring services, systems directly connected to police and fire
departments, local alarm systems and other methods of protection, such as
manned guarding. ADT believes the number of local police and fire departments
that perform monitoring has been declining for some years.
The central monitoring sector of the electronic security services business is
characterized by high fixed costs but has low marginal costs associated with
monitoring additional customers. Opportunities exist within the industry to
achieve economies of scale by consolidation of monitoring and administrative
functions and a certain amount of industry consolidation is currently taking
place. The industry in both North America and Europe, however, remains highly
fragmented. ADT believes that it services more customers through its customer
monitoring centers in North America than any other company. Individual
competitors, however, may service more customers in a given local market.
ADT competes with other major firms in North America, which have substantial
financial resources, including Ameritech Corporation (operating under the
SecurityLink from Ameritech[Registered] brand name); Borg-Warner Security
Corporation (operating under the Wells Fargo[Registered] and Pony
Express[Registered] brand names); the Honeywell Protection Services division
of Honeywell, Inc.; the Brink's Home Security division of The Pittston
Company; and approximately 13,000 smaller regional and local companies. ADT
also competes with several national companies and several thousand regional
and local companies in the United Kingdom and continental Europe.
In February 1996, a federal telecommunications reform bill was enacted which
contained provisions specific to the electronic security services industry.
Ameritech Corporation was prohibited from acquiring additional equity or
financial interests in alarm monitoring companies for five years from the date
of enactment of the law and the other regional Bell operating companies are
barred from acquiring more than a 10 per cent equity interest in alarm
monitoring companies or otherwise entering the business for five years from
the same date.
9
Regulation
ADT's operations are subject to a variety of federal, state, county and
municipal laws, regulations and licensing requirements in the United States
and national and local government laws, regulations and licensing requirements
in countries outside the United States. Many of the states and countries in
which ADT operates, as well as certain local authorities, require ADT to
obtain licenses or permits to conduct its security services business. Certain
governmental entities also require persons engaged in the alarm business to be
licensed and to meet certain standards in the selection and training of
employees and in the conduct of business. ADT believes that it is in
substantial compliance with all such licensing and regulatory requirements in
each jurisdiction in which it operates. In addition, there has been a trend
recently on the part of municipalities and other localities to attempt to
reduce the level of false alarms through various measures such as the
licensing of individual alarm systems and the imposition of fines upon
customers, revocation of licenses or non-response to alarms after a certain
number of false alarms. While such statutes and ordinances have not had a
material adverse affect on ADT's business operations to date, ADT is unable
to predict whether such statutes or ordinances, or any similar statutes or
ordinances enacted by other jurisdictions, will adversely affect ADT's
business and operations in the future. The alarm industry is also subject to
the oversight and requirements of various insurance, approval, listing and
standards organizations. Adherence to the standards and requirements of such
organizations may be mandatory or voluntary depending upon the type of
customer served, the nature of security service provided and the requirements
of the local governmental jurisdiction. ADT has not had any material
difficulties in complying with such standards and requirements in the past.
ADT's electronic security business relies upon the use of telephone lines to
transmit signals, and the cost of such lines and the type of equipment which
may be utilized are currently regulated by both the federal and state
governments in the United States and national and local governments in other
countries.
Risk Management
The nature of the services provided by ADT potentially exposes it to greater
risks of liability for employee acts or omissions or product liability than
may be inherent in many other service businesses. To attempt to reduce this
risk, ADT's electronic security service contracts contain provisions limiting
its liability and requiring indemnification by its customers. ADT also
carries insurance of various types, including general liability and errors and
omissions insurance, to protect it from product defects and negligent acts of
its employees. ADT obtains such insurance at rates and upon terms negotiated
periodically with various underwriters. The loss experience of ADT and, to
some extent, other security services companies, may affect premium rates
charged to ADT. As of December 31, 1996 such policies provided that ADT
retain liability for the first $1.0 million per occurrence. Certain of ADT's
insurance policies and the laws of some states may limit or prohibit insurance
coverage for punitive or certain other kinds of damages arising from employee
misconduct. In addition, in some states ADT's limitation of liability clause
may be ineffective in cases of gross negligence and in certain other
situations.
Patents and Trademarks
ADT Security Services holds approximately 40 active patents worldwide and has
several pending patent applications. No patents are due to expire in the near
future that would materially affect the operations of ADT's electronic
security services business. The ADT[Registered] trademark and service mark
are important to ADT's electronic security business. ADT Security Services
uses several other trademarks and service marks in marketing its products and
services,including Focus[Registered], Centrascan[Registered],
Safewatch[Registered] and Customer Link[Registered] . ADT believes that the
rights in these trademarks and service marks, including Focus, Centrascan,
Safewatch and the ADT trademark are adequately protected.
Employees
As of December 31, 1996, the electronic security services division had
approximately 16,000 employees, of whom approximately 12,000 were based in
North America and approximately 4,000 were based in Europe. The majority of
these employees are not represented by unions or covered by collective
bargaining agreements. ADT believes its relations with employees and their
unions are generally good.
10
Vehicle Auction Services
The Industry
Vehicle auctions constitute a principal channel of distribution and
redistribution for used vehicles. An auction brings together, in one
location, dealers seeking to restock and diversify their inventory of used
cars with a high volume of various makes and models provided by sellers
seeking to dispose of their vehicles. The vehicle auction industry provides a
reliable marketplace where many dealers participate in the auction's bid
process and thus establish true wholesale prices for used vehicles. Vehicle
auctions are preferred by many dealers, financial institutions and other
sellers because an auction provides an efficient, cost-effective and
convenient method of vehicle resale at the prevailing market price.
The principal sources of vehicles for sale through auctions are consignments
by new and used vehicle dealers, vehicle manufacturers, corporate owners of
vehicles such as fleet operators, daily rental companies, leasing companies,
banks and other financial institutions, manufacturers' credit subsidiaries and
government agencies. The vehicles consigned by dealers include 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 ADT's
auctions are new and used vehicle dealers and distributors.
ADT believes that the consignment of vehicles from dealers is the foundation
of the auction industry. Dealers rely on the sale of used vehicles for a
significant proportion of their profits and are both buyers and sellers at
auction.
A significant number of vehicles sold at auction in recent years has been
attributable to vehicles being disposed of by domestic and import
manufacturers who contract with certain auctions to sell used vehicles on
their behalf. In the late 1980's, vehicle manufacturers found it advantageous
to produce more vehicles than were necessary to satisfy immediate retail
demand. These vehicles were either sold to daily rental car companies with a
guarantee by such manufacturers to repurchase the vehicles or were leased to
the daily rental car companies ("Program Cars"). Upon repurchase, the vehicle
manufacturers chose to remarket these late-model cars to their dealers
primarily through the vehicle auction network. Program Car auctions are
restricted to each manufacturer's franchised dealers with the exception of
auctions for some small volume import manufacturers. According to industry
sources, the number of vehicles coming to auction from this source reached a
peak of 1.6 million units in 1991. As the industry came out of recession in
1992, volumes reduced and have stabilized at around 1.1 million vehicles per
year. When the number of cars available to daily rental companies through
manufacturers' guaranteed repurchase programs was at its peak, many of the top
rental companies obtained large numbers of their vehicles through such
programs. As manufacturers have reduced their buy back programs , the daily
rental companies have been obliged to purchase more vehicles in their own
names and, consequently, their need to remarket vehicles at the end of their
life cycle has increased.
Vehicles owned by corporations and financial institutions represent another
major source of vehicles for sale at auction and include vehicles owned by
daily rental companies, vehicles from company fleets, end of term or early
termination vehicles from leasing companies, including manufacturers' finance
subsidiaries, vehicles from finance companies, including repossessed vehicles,
and vehicles from the public sector. The dynamics of this segment are
changing, particularly as the trend towards leasing new vehicles by
individuals under manufacturers' lease programs increases.
ADT Auctions
As of December 31, 1996, ADT operated 27 vehicle auction centers in the United
States where it is the second largest provider of vehicle auction services.
In 1996 the aggregate value of vehicles sold through ADT auction centers was
approximately $8.7 billion. Substantially all of the vehicles sold at ADT
auction centers are passenger cars and light trucks with the balance
consisting of heavy trucks and industrial vehicles.
11
The following table presents the approximate number of vehicles entered and
sold through all of ADT's vehicle auction centers in the United States during
1994, 1995 and 1996.
1994 1995 1996
Vehicles Entered 1,660,000 1,798,000 1,881,000
Vehicles Sold 967,000 994,000 1,064,000
Business Strategy
ADT has been a leader in developing the wholesale vehicle auction business in
the United States. ADT aims to provide a wholesale redistribution system for
used vehicles which is efficient, economical and reliable. ADT's specific
strategies are (i) to maintain and further strengthen its current
relationships with vehicle manufacturers, fleet/lease operators, daily rental
companies and other significant vehicle suppliers and dealers that both supply
vehicles for auction and purchase vehicles at auction and (ii) to increase
ADT's share of total used vehicle transactions. ADT is pursuing these
strategies in part by encouraging more vehicle dealers to attend its auctions.
Where possible, ADT categorizes its auction sales in order to facilitate the
matching of appropriate buyers with vehicles being offered for sale. Auctions
may be categorized by the type of vehicle being sold or by age of vehicle,
mileage or source, for example ex-rental vehicles. ADT maintains a record of
dealers that are authorized to bid at its auctions and employs direct
marketing techniques to target dealers who are known buyers for the category of
vehicle being auctioned and who are registered with ADT as approved buyers.
ADT also holds closed sales for manufacturers' vehicles, including Program
Cars and fleet vehicles, restricted to dealers holding a franchise from that
particular manufacturer.
ADT keeps its site location strategy and real estate requirements under
continuous review together with the potential benefits of expanding its
network through the acquisition of vehicle auction businesses and the
development of new auction centers. ADT however believes that the geographic
coverage of its auction network in the United States is substantially
complete.
Auction Operations
ADT operates a network of large modern auction centers and provides a
comprehensive range of vehicle redistribution services. These services
include collection and transportation of a seller's vehicles to an auction
center, reconditioning the vehicles to retail standards, matching the vehicles
with the auction market most likely to generate the highest amount of sale
proceeds and delivering the vehicles to the buyer. Separate fees are charged
for each of these services. ADT acts solely as an agent in auction
transactions and does not purchase vehicles for its own account. ADT
repurchases a small number of vehicles under its buyer protection programs
which require it to repurchase vehicles that have suffered odometer tampering
or that have an undisclosed salvage history. See "Vehicle Auction
Services-Services and Fees-Insurance." ADT operates almost exclusively in the
wholesale marketplace. In general, the public is not permitted to attend
auctions.
When a vehicle arrives at an ADT auction center, it is checked in and assigned
a computer tracking number. A seller may instruct ADT to perform various
services including vehicle appraisal, appearance reconditioning and paint or
body work to prepare the vehicle for auction. The title is checked against a
computer database held by ADT. If a salvage history appears, the seller must
either disclose the damage or withdraw the vehicle from the auction. ADT
completes all requested services and holds the vehicles in secure parking
areas until the scheduled auction day. The auction centers use computerized
control systems to track vehicles through each step of the auction process.
ADT is responsible for the vehicles while they are under its control.
12
Generally, ADT's auction centers hold regularly scheduled auctions for
vehicles from specific market sources. Additional auctions are scheduled as
necessary, including auctions for specific types or categories of vehicles,
such as heavy trucks, municipal and agricultural equipment and classic cars. A
typical auction center consists of an auction hall, large paved areas for the
storage of vehicles, facilities for reconditioning and separate areas for
parking vehicles immediately prior to auction, some of which are covered.
Auction halls typically have a number of lanes through which vehicles are
normally driven, and where the auction bidding process takes place. This is a
continuous process that enables a large number of vehicles to be auctioned
quickly and efficiently. The auction hall building also contains the cashiers
and other administrative personnel, as well as cafeteria and other customer
facilities. When a vehicle is sold, the paperwork associated with a sale,
including conveyance instruments, title or title applications and tag
applications, is generally processed within one hour of the sale and immediate
delivery arrangements are made. A particular vehicle may pass through the
auction system more than once prior to being sold to a new owner.
ADT is responsible for payment to sellers upon presentation of title after a
vehicle is sold. If purchases are made other than on a cash basis, ADT
determines in advance the credit-worthiness of the buyer. It is customary for
buyers at ADT's auctions to pay by banker's draft. The auction collects funds
on drafts within an average of ten working days. ADT's bad debt experience on
these transactions is negligible.
Sources of Vehicles
The principal sources of vehicles for sale at ADT's auctions are consignments
by new and used vehicle dealers, vehicle manufacturers, corporate owners such
as fleet operators, daily rental companies, leasing companies, banks and other
financial institutions, manufacturers' credit subsidiaries and government
agencies.
The supply of consignment vehicles from dealers is relatively constant
throughout the year. The number of Program Cars and vehicles consigned to
auction by corporate fleet owners may fluctuate considerably throughout the
year. As a consequence, auction revenues may fluctuate from quarter to
quarter and at certain times during the year ADT may be storing large numbers
of vehicles awaiting auction.
ADT contracts with vehicle manufacturers for the auction of Program Cars.
These contracts, which do not require the manufacturers to sell any minimum
number of vehicles through ADT's auctions, generally have a term of one year
and may be terminated upon 30 days' notice. In 1996, approximately 27 per
cent of the vehicles sold at ADT auctions were Program Cars, compared to
approximately 31 per cent in 1995. ADT also auctions vehicles from the
manufacturers' own fleets and from manufacturers' affiliates such as their
credit subsidiaries.
During 1996, General Motors Corporation and its credit subsidiaries accounted
for approximately 8 per cent of the vehicle auction division's United States
revenues. ADT believes that its relationship with General Motors Corporation
and the other vehicle manufacturers with which it does business is good. The
loss of General Motors Corporation's business would, however, have a material
adverse effect on the auction division's operations.
Services and Fees
Auction Services: ADT receives a variety of fees for its auction services.
Entry fees are set charges assessed on the majority of vehicles registered for
auction, except Program Cars, and are payable irrespective of whether the
vehicle is sold. If the vehicle is sold, ADT also receives an auction fee
from the seller and a fee from the buyer of the vehicle. At most sales, the
buyer's auction fee is based upon the sale price of the vehicle, except for
Program Cars where a fixed fee is charged. At most sales, other than
fleet/lease consignment sales and Program Car sales, the seller's auction fee
is based on the sale price of the vehicle. For fleet/lease consignment sales,
the seller's auction fees are based on a fixed fee for national fleet/lease
consignors and on the sale price of the vehicle for local fleet/lease
consignors. For sales of Program Cars, auction fees are fixed periodically by
agreement with the vehicle manufacturers on a per vehicle sold basis.
13
Reconditioning Services: Customers may request ADT to prepare, for a fee, a
detailed condition report on vehicles entered for auction. For a separate
fee, ADT also performs on-site reconditioning services. The largest portion
of reconditioning revenue relates to appearance reconditioning and paint and
body work but more extensive body work services including body panel painting
and repair of minor collision damage are also carried out. Appearance
reconditioning services include engine steam-cleaning, washing, detailing,
buffing and waxing, and upholstery cleaning. Other services at certain
centers include replacement of parts, upholstery, tires and glass.
Most manufacturers' vehicles and some fleet/lease vehicles receive appearance
reconditioning and, if necessary, paint and body work. The reconditioning of
manufacturers' Program Cars generates a significant portion of ADT's
reconditioning revenues. Program Cars are delivered to the auction centers
directly from rental car lots or marshaling yards, financial institutions
deliver vehicles directly off-lease or after repossession and fleet operators
deliver vehicles immediately from use. These vehicles generally require
reconditioning to bring them up to sale standards. In many instances, these
sellers do not have the facilities necessary to recondition the vehicles
expediently or economically. ADT does not usually recondition vehicles
consigned by dealers, who generally bring fully serviced cars to auction
directly from their lots. Dealers who purchase reconditioned vehicles are
able to place them in their showrooms or lots immediately, thereby minimizing
the time between purchase and retail sale.
ADT also provides high quality vehicle paint and body repair services under
the Quality Image Services name for vehicles other than those going through
the auction process, principally for fleet owners and insurance companies.
The service, which is aimed at new customers in addition to traditional
auction customers, utilizes ADT's existing reconditioning facilities and
expertise.
Transportation Services: ADT collects and delivers customers' vehicles and
believes that its ability to provide transportation services at competitive
prices is extremely valuable to its marketing efforts. ADT operates a fleet
of vehicle transporters and sub-contracts any additional vehicle
transportation requirements that cannot be met by this fleet.
Insurance: ADT offers, for a fee, a 15-day power and drive train service
contract provided by a third party. ADT also undertakes to repurchase
vehicles that have suffered odometer tampering or have an undisclosed prior
salvage history. ADT also assists sellers in complying with laws regarding
title and odometer readings by providing forms which include the necessary
representations as part of the paperwork signed and delivered in connection
with the auction sale. ADT's liability for losses arising from title and
odometer insurance, power and drive train service contracts and prior salvage
history has been negligible.
Valuation and Appraisal: ADT provides valuation and appraisal advice to
customers in connection with their vehicle disposal programs with a view to
assisting its customers to obtain the best possible price for their vehicles.
Specialized Services: Specialized auctions carried out by the division include
sales of government vehicles, to which the general public is invited, sales of
plant and equipment, sales of construction vehicles, sales of heavy trucks,
sales of municipal and agricultural equipment and sales of classic cars. ADT
provides a vehicle repossession service whereby vehicles are recovered from a
defaulting party and delivered directly to an auction center for liquidation.
ADT's market expertise allows it to offer a comprehensive vehicle remarketing
service to fleet operators, ranging from collection of vehicles leaving the
fleet to advice on vehicle replacement cycles.
Competition
ADT considers its competition to be two other significant auction chains and a
large number of independently owned local auctions which are members of the
National Auto Auction Association. The competing auction chains are Manheim
Auctions, a subsidiary of Cox Broadcasting Company, and ADESA Corporation, a
subsidiary of Minnesota Power & Light Company. 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. ADT
believes it provides a higher quality of service than its competitors and its
prices may therefore be higher.
14
Regulation
Each auction center is licensed by the state in which it is located, in most
cases as a vehicle auction or dealer. These licensing authorities may revoke
a license if an auction is not conducted according to regulations then in
effect. In addition, ADT's vehicle transportation fleet is regulated by the
Interstate Commerce Commission. ADT believes that it is in substantial
compliance with the regulations to which it is subject and has not had any
material difficulties with these regulatory authorities.
Employees
As of December 31, 1996, the vehicle auction division in the United States
employed approximately 3,900 persons on a full-time basis and approximately
2,400 persons on a part-time basis. The part-time employees are utilized
primarily on auction sale days. The majority of these employees are not
represented by unions or covered by collective bargaining agreements. ADT
believes its relations with employees and their unions are generally good.
ITEM 2. DESCRIPTION OF PROPERTIES
In North America, as of December 31, 1996, ADT, through its subsidiaries,
owned 2 customer monitoring centers, leased 19 customer monitoring centers,
owned 22 offices and other properties and leased 315 offices and other
properties which were used in connection with the electronic security services
business. In the United States, as of December 31, 1996, ADT, through its
subsidiaries, owned 21 auction centers, leased 6 auction centers and owned or
leased 6 offices and other properties, which were used in connection with the
vehicle auction business. In Europe, as of December 31, 1996, ADT, through
its subsidiaries, owned 5 customer monitoring centers, leased 8 customer
monitoring centers, owned 11 offices and other properties and leased 107
offices and other properties which were used in connection with the electronic
security services business. In addition, as of December 31, 1996, ADT,
through its subsidiaries, owned approximately 1,294 acres of land and leased
approximately 284 acres of land in the United States used in connection with
the vehicle auction business.
15
ITEM 3. LEGAL PROCEEDINGS
On December 27, 1996, Westar Capital, Inc. ("WCI") filed a complaint in the
U.S. District Court for the Southern District of Florida (the "Court") against
the Company, the directors of the Company and Republic Industries, Inc.
("Republic"). The complaint alleges that the Company and its directors
breached their fiduciary duties to WCI and the Company's other shareholders
(i) by issuing to Republic a share purchase warrant for 15,000,000 Common
Shares (the "Republic Warrant") in connection with a proposed amalgamation
with Republic in July 1996 (the "Republic Merger"), (ii) by adopting the
Rights Plan, and (iii) by holding shares of the Company in one of the
Company's subsidiaries with the intention of voting those shares as needed to
entrench existing management. The complaint seeks a court order (i) declaring
the Republic Warrant null and void or preventing the Company and Republic from
exercising their rights under the Republic Warrant, (ii) directing the Company
to redeem the Rights Plan, and (iii) preventing the Company from voting the
shares held by its subsidiary.
On January 3, 1997, WCI filed an amended complaint which, in addition to the
allegations made in the prior complaints, alleges that the Company and its
directors have attempted to interfere with WCI's voting rights by seeking
certain information from WCI pursuant to procedures established in the
Company's Bye-Laws. The amended complaint seeks the same relief as the prior
complaint and also requests that the Court confirm WCI's voting rights.
On January 21, 1997, the Court granted WCI leave to file a second amended
complaint. The second amended complaint contains the same allegations as the
amended complaint and in addition alleges (i) that the Company and its
directors breached their fiduciary duties by setting a July 8, 1997 date for a
meeting of the Company's shareholders, and (ii) that the Company and its
directors violated Section 14(d) of the Securities Exchange Act of 1934, as
amended, by making a recommendation to the Company's shareholders regarding
the tender offer without first making certain filings with the Securities and
Exchange Commission ("SEC"). WCI asks for a court order (i) enjoining the
Company from holding the shareholders meeting (the "Special General Meeting")
on July 8, 1997, (ii) compelling the Company to hold the special General
Meeting on or before March 20, 1997, and (iii) declaring that the Company has
violated Section 14(d) and enjoining the Company from making any further
recommendations relating to the tender offer until the required SEC filings
are made.
On January 23, 1997, WCI filed a motion for a preliminary injunction asking
the Court to enjoin the Company from holding the Special General Meeting on
July 8, 1997, and compelling the Company to hold the Special General Meeting
on or before March 20, 1997. On March 4, 1997, WCI filed a supplemental brief
in support of its motion for a preliminary injunction representing that WCI is
no longer seeking a Special General Meeting on or before March 20, 1997 on the
grounds that such a meeting date would now be impractical. In its
supplemental brief, WCI requests that the meeting date be set 30 days after
its proxy materials for the Special General Meeting are distributed. As of
this date, the Court has not rendered any decision with respect to plaintiff's
motion for a preliminary injunction.
On January 27, 1997, the Company and its directors filed a motion to dismiss
the second amended complaint based on, among other things, the Court's lack of
personal jurisdiction over the Company and its directors and for failure to
state a claim upon which relief can be granted. WCI has filed papers in
opposition to the motion. On February 21, 997, the Court entered an order
ruling that the second amended complaint did not adequately plead personal
jurisdiction over the ADT defendants. On February 27, 1997, WCI filed a third
amended complaint. The third amended complaint contains the same allegations
as the second amended complaint and contains additional allegations relating
to personal jurisdiction.
16
On March 11, 1997, the court granted WCI leave to file a fourth amended
complaint. The fourth amended complaint contains the same allegations as
those in the third amended complaint as well as additional allegations
relating to the Amendment to the Rights Plan implemented by the Company on
March 3, 1997. In addition to the relief previously requested, the fourth
amended complaint seeks judicial nullification of the Amendment to the Rights
Plan and a rescission of actions by ADT if it is shown that a subsidiary of
ADT cast decisive votes as a shareholder with respect to those actions.
On March 17, 1997, the Company and its directors filed a motion to dismiss the
fourth amended complaint based on, among other things, the Court's lack of
personal jurisdiction over the Company and its directors and for failure to
state a claim upon which relief can be granted.
The Company and the Board believe that the allegations in the WCI's fourth
amended complaint are without merit and intend to vigorously defend against
them.
On March 24, 1997, WCI filed a motion for a preliminary injunction (i)
preventing Republic from selling or transferring any of the warrant shares
it currently owns, and (ii) preventing the Chairman of ADT from exercising the
proxy on the warrant shares. The Company and the Board have yet to respond
to this motion.
On December 26, 1996, Charles Gachot filed a complaint in the Circuit Court
for the Fifteenth Judicial Circuit in Palm Beach County, Florida against the
Company, certain of its directors, Western and WCI. The complaint was brought
on behalf of a class of all shareholders of the Company and alleges that
Western and WCI have breached their fiduciary duties to the Company's
shareholders by offering an inadequate price for the outstanding Common
Shares. The complaint seeks to enjoin Western and WCI from acquiring the
outstanding Common Shares. The complaint also alleges that the Company and
its directors have refused to negotiate with Western and WCI and that the
Republic Warrant and the Rights Plan are improper. The complaint seeks
unspecified monetary relief from all defendants. The Company and the Board
believe that the allegations in Gachot's complaint against the Company and the
directors are without merit and intend to vigorously defend against them.
On February 7, 1997, ADT Operations, Inc. ("ADT Operations"), a subsidiary of
ADT, filed a complaint in the Supreme Court of the State of New York, County
of New York against The Chase Manhattan Bank, N.A. ("Chase"). The complaint
states that Chase has been an important lender and financial advisor to ADT
Operations since 1993, and that in the course of this business relationship,
ADT Operations has disclosed confidential business information to Chase. The
complaint asserts that ADT Operations and Chase expressly agreed that Chase
would not aid any third party in a hostile takeover bid for ADT. The
complaint alleges that Chase is currently aiding Western in its attempt to
take control of ADT and that Chase's actions constitute: (i) a breach of an
express agreement between Chase and ADT Operations; (ii) a breach of the
implied covenant of good faith that is part of the express agreement between
Chase and ADT Operations; and (iii) a breach of the fiduciary duties that Chase
owes to ADT Operations. The complaint seeks $50 million in monetary damages.
The complaint also seeks to enjoin Chase from advising, funding, or
participating in Western's attempts to take control of ADT and from disclosing
any confidential information regarding ADT Operations and ADT. On March 3,
1997, Chase filed a motion for dismissal of ADT Operations' complaint or,
alternatively, summary judgment. This motion is scheduled to be heard on
April 11, 1997.
On February 7, 1997, ADT Operations filed a motion for a preliminary
injunction, seeking to enjoin Chase from: (i) advising, funding, or assisting
Western in its efforts to take over ADT or participating in these efforts; and
(ii) using or disclosing any confidential information that ADT Operations
provided to Chase. The motion was argued before the Court on February 24,
1997 and is currently pending.
On March 11, 1997, Crandon Capital Partners ("CCP") filed a complaint in the
Circuit Court for the Fifteenth Judicial Circuit in Palm Beach County, Florida
against the Company, certain of its current and former directors, and
Republic. The complaint was brought by CCP in a derivative capacity on behalf
of ADT. The complaint alleges that ADT's directors breached their fiduciary
duties and wasted corporate assets in connection with (i) the granting of
options to certain officers of ADT in 1996, (ii) the issuance of the Republic
Warrant, (iii) the implementation of the Rights Plan, and (iv) harassing and
attempting to disenfranchise WCI. The complaint seeks an unspecified amount
of damages and a court order directing ADT's directors to establish a system
of internal controls to prevent repetition of the alleged breaches of
fiduciary duty and corporate waste.
The Company and its directors believe that the allegations in the complaint
brought by CCP are without merit and intend to vigorously defend against them.
17
ADT Limited and various of its subsidiaries are defendants in a number of
other pending legal proceedings incidental to present and former operations,
acquisitions and dispositions. ADT does not expect that the outcome of these
proceedings, either individually or in the aggregate, will have a material
adverse effect upon ADT's consolidated results of operations and cash flows or
its consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the last
quarter of the period covered by this Annual Report.
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ADT Limited's common shares ("Common Shares") have been listed on the New York
Stock Exchange ("NYSE") since August 1991 and on the London Stock Exchange
since December 1984.
The following table sets forth, for the periods indicated, the high and low
sales prices for the Common Shares as reported in the consolidated transaction
reporting system on the NYSE.
High Low
$ $
1995
First Quarter 12 1/4 9 5/8
Second Quarter 12 1/4 10 1/8
Third Quarter 14 1/8 11 5/8
Fourth Quarter 15 1/4 13
1996
First Quarter 18 14
Second Quarter 19 1/2 16 1/4
Third Quarter 24 3/4 15 7/8
Fourth Quarter 23 1/4 18 1/2
1997
First Quarter to March 24 27 5/8 21 1/4
At March 24, 1997, 156,696,447 Common Shares were held of record by 15,749
record holders. Since a number of the Common Shares were held by brokers
or other nominees, the number of record holders may not be representative
of the number of beneficial holders. A subsidiary of ADT Limited owns
3,182,787 Common Shares which are included in the number outstanding.
Dividends
ADT Limited has not declared any dividends on the Common Shares since April
1991. ADT Limited has no present intention to pay any dividends on the Common
Shares but will keep its dividend policy under review in the light of
prevailing circumstances. Under the terms of the senior notes and revolving
bank credit agreement ADT Limited may not declare, pay or make any dividend or
distribution with respect to its Common Shares, except in certain defined
circumstances (see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources").
19
Exchange Controls and Other Limitations Affecting Security Holders
ADT Limited has been designated as a non-resident for exchange control
purposes by the Bermuda Monetary Authority, Foreign Exchange Control. There
are no limitations on the rights of non-Bermuda owners of the Common Shares
arising out of such designation to hold or vote their shares. Because ADT
Limited has been designated as a non-resident for Bermuda exchange control
purposes, there are no exchange control restrictions on its ability to
transfer funds in and out of Bermuda or to pay dividends to United States
residents who are holders of the Common Shares, except that ADT Limited may
not hold Bermuda dollars except external Bermuda dollars.
The transfer of Common Shares already issued between persons regarded as
resident outside Bermuda for exchange control purposes and the issue of Common
Shares for which consent has already been granted to such persons, may be
effected without specific consent under the Exchange Control Act of 1972 and
regulations thereunder. All further issues of Common Shares and any transfers
of Common Shares involving any person regarded as resident in Bermuda for
exchange control purposes require specific prior approval under the Exchange
Control Act of 1972.
In accordance with Bermuda law, share certificates are only issued in the
names of corporations, partnerships or individuals. In the case of an
applicant acting in a special capacity (for example, as an executor or
trustee), certificates may, at the request of the applicant, record the
capacity in which the applicant is acting. Notwithstanding the recording of
any such special capacity, ADT Limited is not bound to investigate or incur any
responsibility in respect of the proper administration of any such estate or
trust.
Shares purchased for those under 21 years of age must be registered in the
name of the parent or guardian but may be designated with the minor's initials
for the purpose of identification. ADT Limited will take no notice of any
trust applicable to the shares represented by such certificates.
As an "exempted company", ADT Limited is exempt from Bermuda laws which
restrict the percentage of share capital that may be held by non-residents of
Bermuda, but as an exempted company ADT Limited may not participate in certain
business transactions, including (i) the acquisition or holding of land in
Bermuda (other than that required for its business and held by way of lease or
tenancy for terms of not more than 21 years) without the express authorization
of the Bermuda legislature or the Minister of Finance; (ii) the taking of
mortgages on land in Bermuda to secure an amount in excess of $50,000; (iii)
the acquisition of securities created or issued by, or any interest in, any
local company or business, other than certain types of Bermuda Government
securities or securities of another "exempted" company, partnership or any
other corporation resident in Bermuda but incorporated abroad; or (iv) the
carrying on of business of any kind in Bermuda, except as necessary in
furtherance of the business of the ADT Limited carried on outside Bermuda or
under a license granted by the Minister of Finance of Bermuda.
Under current Bermuda law, no Bermuda withholding tax will be imposed upon
payment of dividends by ADT Limited to its common shareholders. Furthermore,
ADT Limited has received from the Minister of Finance of Bermuda, under the
Exempted Undertakings Tax Protection Act of 1966, as amended, an undertaking
that, in the event of there being enacted in Bermuda any legislation imposing
any tax computed on profits or income, including any dividend or capital gains
withholding tax, or computed on any capital assets, gain or appreciation, or
any tax in the nature of an estate or inheritance tax or duty, the imposition
of such tax shall not be applicable to ADT Limited or any of its operations,
nor to the Common Shares, preference shares or other obligations of ADT
Limited, until the year 2016. This undertaking does not, however, prevent the
application of Bermuda taxes to persons ordinarily resident in Bermuda.
Under current Bermuda law, ADT Limited is required to pay the Bermuda
Government an annual registration fee, which is calculated by a reference to
the authorized capital and share premium of ADT Limited. ADT Limited pays the
maximum fee, which is currently $25,000 per annum.
20
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from the audited
consolidated financial statements of the Company. The information presented
below should be read in conjunction with, and is qualified by reference to,
the consolidated financial statements of the Company and the related notes
thereto and the consolidated financial statement schedules and "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
Consolidated income statement data
Year ended December 31 1996 1995 1994 1993 1992
$m $m $m $m $m
Net sales 1,704.0 1,783.8 1,629.4 1,528.5 1,552.2
======= ======= ======= ======= =======
Operating (loss) income (i) (765.5) 200.8 206.0 186.8 165.3
Interest income 27.5 16.2 15.2 13.3 25.3
Interest expense (101.0) (116.3) (99.3) (76.7) (95.7)
Gain (loss) on disposal of businesses (ii) 1.7 (36.6) (0.3) - 60.5
Other income less expenses (iii) 128.8 (5.0) (4.1) 9.8 23.8
------ ------ ------ ------ ------
(Loss) income before income taxes (708.5) 59.1 117.5 133.2 179.2
Income taxes 21.8 (28.1) (34.9) (22.5) (20.1)
------ ------ ------ ------ ------
(Loss) income from continuing operations (686.7) 31.0 82.6 110.7 159.1
Loss from discontinued operations (iv) - - (3.3) - (2.7)
------ ------ ------ ------ ------
(Loss) income before extraordinary items (686.7) 31.0 79.3 110.7 156.4
Extraordinary items (net of
income taxes) (v) (8.4) (9.8) - - 5.6
------ ------ ------ ------ ------
Net (loss) income (695.1) 21.2 79.3 110.7 162.0
======= ======= ======= ======= =======
$ $ $ $ $
Primary (loss) earnings per common share (vi):
(Loss) income from continuing operations (5.01) 0.22 0.51 0.74 1.19
Loss from discontinued operations - - (0.03) - (0.02)
Extraordinary items (0.06) (0.07) - - 0.05
------ ------ ------ ------ ------
Net (loss) income per common share (5.07) 0.15 0.48 0.74 1.22
======= ======= ======= ======= =======
Consolidated balance sheet data
At December 31 1996 1995 1994 1993 1992
$m $m $m $m $m
Total assets (vii) 2,730.4 3,419.7 3,412.3 3,477.4 3,368.9
Long-term debt (including
current portion) 1,068.7 1,180.3 1,211.4 953.4 1,067.8
Convertible redeemable preference
shares (viii) - 4.9 5.2 427.2 434.6
Non-voting exchangeable shares - - - 15.0 15.1
Exchangeable redeemable preference shares - - - - 21.0
Total shareholders' equity (ix) 759.8 1,425.3 1,376.5 1,264.8 1,054.4
21
(i) Operating loss in 1996 included restructuring and other non-recurring
charges of $237.3 million relating principally to the electronic security
services divisions in the United States and the United Kingdom, and a charge
of $744.7 million relating to the impairment of long-lived assets following
the adoption by the Company of Statement of Financial Accounting Standards No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS 121"). Operating income in 1995 included
restructuring and other non-recurring charges of $34.2 million relating
principally to the United States electronic security services division and to
corporate restructuring in Europe. Operating income in 1994 included
restructuring and other non-recurring charges of $4.5 million relating to
corporate restructuring in Europe.
(ii) Loss on disposal of businesses in 1995 included a net loss of $65.8
million relating to the disposal by the Company of an interest in its United
Kingdom and Continental European vehicle auction services businesses offset by
a net gain of $31.4 million relating to the disposal by the Company of its
entire European electronic article surveillance business. Gain on disposal of
businesses in 1992 related to the disposal by the ASH group of its entire
European loss prevention business.
(iii) Other income less expenses in 1996 included a net gain of $53.4
million relating to the disposal of the Company's entire investment in
Limelight Group plc, and a net settlement gain of $65.0 million relating to an
agreement in full and final settlement of the Company's litigation against BDO
Binder Hamlyn ("BDO"). Other income less expenses in 1994 included net gains
of $21.5 million arising from the ownership of investments and a net write off
of $30.7 million relating to the Company's entire equity investment in Arius,
Inc. which was held by the ASH group. Other income less expenses in 1992
included a $50.9 million deferred net gain arising from the Company's
investment in Quoteplan PLC and a net write off of $33.7 million of the
Company's equity investment in Nu-Swift plc.
(iv) Discontinued operations comprised the disposal during 1994 of all the
Company's non-core businesses, principally Insight Travel Group. The company
no longer has any interests in non-core businesses. Included in the loss from
discontinued operations for 1994 were net losses on disposal of the non-core
businesses amounting to $3.7 million. Net sales from discontinued operations
amounted to $80.6 million in 1994, $96.9 million in 1993 and $101.4 million in
1992. These net sales are not included in net sales in the consolidated
income statement data.
(v) Extraordinary items principally were comprised of the gains and losses
arising on reacquisition/ repayment and the write off of net unamortized
deferred refinancing costs relating to the early extinguishment of certain
amounts outstanding under the Company's long-term debt obligations, and were
stated net of applicable income taxes.
(vi) The calculation of primary earnings per common share was based on the
weighted average number of common shares in issue during the period. Such
weighted average number of common shares in issue for the years ended December
31, 1996, 1995, 1994, 1993 and 1992 was 137,114,415, 138,283,458, 136,148,361,
122,043,139 and 113,480,672 common shares, respectively.
(vii) Following the adoption of SFAS 121 during 1996, the Company recorded a
charge of $744.7 million relating to the impairment of long-lived assets.
(viii) During 1994 the Company redeemed a significant proportion of its
convertible redeemable preference shares. The net effect of this transaction
was to reduce the carrying value of the convertible redeemable preference
shares by $422.0 million. The Company funded the redemption from cash on hand
and through the drawdown of long-term debt facilities.
(ix) During 1993 the Company issued common shares for cash resulting in net
proceeds of $154.8 million.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
In September 1996 the Company merged with and acquired the whole of the issued
capital of ASH, a United Kingdom quoted company. ASH is engaged in the
provision of electronic security services in North America and Europe. The
merger with and acquisition of ASH by the Company has been accounted for by
means of the pooling of interests method of accounting pursuant to Accounting
Principles Board Opinion No. 16. The pooling of interests method of
accounting assumes that the combining companies have been merged since their
inception, and the historical consolidated financial statements for periods
prior to consummation of the merger are restated as though the companies have
been combined since their inception. Accordingly, the accompanying
consolidated financial statements give effect to the transaction by means of
the pooling of interests and have been restated.
During 1995 management commenced a strategic review of the Company's business
operations and its corporate organizational structure with a view to
developing a business strategy which would place the Company in a stronger
position to deal with the changing business environment and challenges facing
its core service businesses in the late 1990s. As part of this strategic
review, management approved the redeployment of certain of the Company's assets
in order to further concentrate the Company's resources on the electronic
security services operations, principally in the United States, where
management believes the greatest potential for future growth lies.
Consequently, Actron Group, the Company's European electronic article
surveillance business, was disposed of in November 1995 and in December 1995
the Company disposed of an interest in its European vehicle auction services
businesses.
During the fourth quarter of 1995, the Company entered into an agreement for
the acquisition of Alert, the tenth largest electronic security services
company in the United States, with a predominantly residential customer base
located principally in Texas, Florida and Georgia.
As part of the strategic review of its business operations undertaken during
1995, and in the context of the acquisition of Alert and the disposal of an
interest in the European vehicle auction services businesses, management
commenced an evaluation of the entire group corporate structure, and the
administrative, accounting and management information systems of its United
States electronic security services division (the "Re-Engineering Project").
The Re-Engineering Project, which is on-going, is intended to modify and
improve the entire structure of the business operations in order to create a
more profitable, efficient organization with significantly improved marketing,
selling, installation and servicing capabilities supported by upgraded
management information systems.
During 1996 the restructuring in the electronic security services division
included a reorganization of senior management, the closure of a major
corporate office in Parsippany, New Jersey, and a realignment of the
organizational structure along the functional business lines of residential,
commercial and customer service, rather than along geographic lines.
During 1996, as a result of the acquisition of ASH and the further development
of the Re-Engineering Project under the control of new senior management, the
Company identified the need to extend the process of strategic change to
include a significantly expanded agenda. As a result, various strategic
initiatives have been added to the corporate plan and the implementation of
these plans is currently in progress and will continue throughout 1997. In
the United States the plans relate principally to a significant investment in
technological infrastructure enhancements to facilitate further consolidation
of the Company's entire customer monitoring center network down to four, state
of the art, customer service centers, and to place the Company in a stronger
position to take advantage of the significant opportunities in the changing
market place. In Europe, the plans relate principally to the merger,
integration and consolidation of the Company's existing electronic security
services businesses with that of ASH.
23
RECENT DEVELOPMENTS
In November 1996 the Company announced that it intended to dispose of the
vehicle auction services operations in the United States in order to
concentrate further on the expansion of the Company's electronic security
services business. Accordingly, the Company's vehicle auction services
business segment was then initially reclassified as a discontinued operation
for all years presented. The preliminary, summarized consolidated results of
operations of the Company for the year ended December 31, 1996 were announced
on March 3, 1997, and were filed under Schedule 14A. On March 17, 1997 the
Company announced that the aforementioned intention had been rescinded and
that the vehicle auction services operations in the United States would no
longer be disposed of. Accordingly, all consolidated financial information
set forth in this Form 10-K, including the audited consolidated financial
statements of the Company, is presented with the Company's vehicle auction
services business segment classified as a continuing operation for all years
presented. There is no net effect on the reported net income and total
shareholders' equity when comparing the preliminary, summarized consolidated
results of operations of the Company referred to above and the consolidated
financial information set forth in this Form 10-K. All differences
relate to the reclassification of the vehicle auction services business
segment from discontinued operations to continuing operations.
In December 1996 Western Resources, Inc. ("Western") announced its intention
to commence an offer to exchange all of ADT Limited's outstanding common
shares for consideration consisting of cash and shares of Western common
stock. On March 3, 1997 the Company announced that its board of directors had
determined that the offer made by Western was inadequate and not in the best
interests of ADT Limited's shareholders. On March 17, 1997 the offer made by
Western commenced.
On March 17, 1997 the Company announced that it had entered into a definitive
merger agreement, subject to shareholder approval and other customary matters,
with Tyco International Ltd. ("Tyco"), a United States quoted company engaged
in the manufacture of industrial and commercial products. Tyco shareholders
will receive one common share in the combined company for each Tyco common
share and ADT Limited shareholders, through a reverse stock split, will
receive 0.48133 common shares in the combined company for each ADT Limited
common share.
The information presented below should be read in conjunction with, and is
qualified by reference to, the consolidated financial statements of the
Company and the related notes thereto and the consolidated financial statement
schedules.
24
RESULTS OF OPERATIONS
The following discussion of results of operations addresses net sales,
operating (loss) income and certain other line items in the consolidated
financial statements.
Net sales
Year ended December 31 1996 1995 1994
$m $m $m
Electronic security services 1,406.2 1,350.9 1,253.3
Vehicle auction services 297.8 432.9 376.1
------- ------- -------
1,704.0 1,783.8 1,629.4
======= ======= =======
Operating (loss) income and (loss) income before income taxes
Year ended December 31 1996 1995 1994
$m $m $m
Electronic security services (756.5) 172.4 182.1
Vehicle auction services 27.1 70.2 62.7
Corporate expenses (36.1) (41.8) (38.8)
------- ------- -------
Operating (loss) income (765.5) 200.8 206.0
------- ------- -------
Interest income 27.5 16.2 15.2
Interest expense (101.0) (116.3) (99.3)
Gain (loss) on disposal of businesses 1.7 (36.6) (0.3)
Other income less expenses 128.8 (5.0) (4.1)
------- ------- -------
(Loss) income before income taxes (708.5) 59.1 117.5
======= ======= =======
Restructuring and other non-recurring charges 237.3 34.2 4.5
Charge for the impairment of long-lived assets 744.7 - -
Depreciation and amortization 224.8 247.9 226.7
Capital expenditures 344.4 325.8 282.6
Electronic Security Services
Net sales derived from the electronic security services division are dependent
on the volume of new customer installations and the number of customers under
contract for the provision of electronic monitoring services. A majority of
the division's revenues are derived from contractually recurring fees for
electronic monitoring and maintenance of security systems installed at
customer premises and other related services. The remainder of the division's
revenues are derived from the outright sale and installation of security
systems, the installation of security systems in accordance with a monitoring
service agreement and the maintenance of security systems on a non-contractual
basis. Security system installation revenues are recognized when the
installation of a system is complete. Where a system has been installed in
accordance with the terms of a monitoring service agreement, the Company
retains ownership of the system and all direct installation costs, which
include materials, labor and installation overheads, are capitalized and
recorded as a fixed asset under subscriber systems. These subscriber systems
are depreciated over their estimated useful life, which is principally 14
years and 10 years for commercial and residential systems, respectively, or,
in the case of commercial systems, the actual contract duration if shorter.
All selling and marketing costs are expensed in the year incurred.
25
The following table presents the approximate number of commercial and
residential customers in North America and Europe contracting with the Company
for the monitoring or maintenance of electronic security systems together with
the annualized service revenue under contract as of December 31, 1996, and the
annual combined discontinuance rate for commercial and residential contracts
in respect of 1996.
Number of Commercial Number of Residential Annualized Service Annual Combined
Customers Customers Revenue Discontinuance Rate
672,000 1,149,000 $920m 10.4%
ADT defines annualized service revenue as the annualized service billing
arising from its customer base at a point in time for monitoring, maintenance
and related services. The aggregate annualized service billings amount takes
account of cancellations or terminations, increases in contract revenues due
to new contracts, additional services to existing customers and rate
variations at the date of computation. The actual amount of service revenue
for future periods will vary in accordance with changes in the customer base
and fees charged.
ADT calculates the annual combined discontinuance rate by dividing the
annualized service revenue from contracts cancelled or reduced in price during
the year by the annualized service revenue in force at the beginning of the
year, expressed as a percentage.
Since 1987 the division's goals have been to create a lower cost, more
efficient operation, suitable for long-term growth and greater profitability,
and to take advantage of the economies of scale resulting from the utilization
of the existing infrastructure which services its commercial customer base.
During this period the Company equipped its regional customer monitoring
centers with enhanced computer technology to further automate the monitoring
process and increase monitoring capacity. As a result of increased monitoring
and service capacity, and a lower cost structure due to manpower reductions
and reduced facility costs, in the early 1990s the Company began marketing
electronically monitored security systems and services at lower installation
price points to residential customers throughout North America. As a result
of the rapid expansion of the Company's business during the recent past and a
broader business strategy adopted by the Company in a changing market place,
the Company has identified the need to improve and expand its technological
and physical capacity in order to expand its customer base and product range.
Consequently, the Company has approved a plan to significantly enhance its
monitoring capacity, service quality and ability to expand its service and
product range. The Company will continue to aggressively market residential
security systems in North America, while also focusing on opportunities for
growth in the commercial sector as the economies in North America and Europe
improve.
Further details of the electronic security services division's business
strategy are set out under "Description of Business - Business Description -
Electronic Security Services."
26
1996 compared with 1995
Net sales of the division increased 4.1 per cent in 1996 to $1,406.2 million
from $1,350.9 million in 1995. This sales increase was attributable to an
increase of $102.1 million in the sales of the North American operations offset
by a $46.8 million decline in the sales of the European operations, which was
due to the exclusion of sales of the European electronic article surveillance
operation and certain businesses operating in the ASH group, all of which were
disposed of during 1995. In North America the increase in sales was
principally due to the first time inclusion of the sales of Alert which was
acquired in December 1995, as well as increased recurring monitoring and
maintenance revenues arising from a larger base of residential security
systems. Although unit residential security systems sales in North America
increased in 1996 compared to 1995, due to price competition in the market
place, residential installation revenues in North America showed a modest
decline in 1996 compared with 1995. The commercial business in the United
States remained flat in both new system sales and installation revenues, and
growth in recurring commercial revenues continues to be affected by these
factors. In Europe, after allowing for business disposals and the effect of
foreign exchange, sales showed a modest increase in 1996 compared with 1995.
Operating results of the division declined from $172.4 million income in 1995
to a $756.5 million loss in 1996, principally due to a charge for the
impairment of long-lived assets of $731.7 million and restructuring and other
non-recurring charges of $232.5 million in 1996.
Operating income of the division before the charge for the impairment of
long-lived assets and restructuring charges increased 7.2 per cent in 1996 to
$207.7 million from $193.8 million in 1995. Operating income before the charge
for the impairment of long-lived assets and restructuring charges as a
percentage of net sales ("operating margin") increased to 14.8 per cent in
1996 from 14.3 per cent in 1995. The increase in operating income before the
charge for the impairment of long-lived assets and restructuring charges
principally reflected the first time inclusion of Alert, the disposal of the
European electronic article surveillance operation in November 1995, and the
continuing success of the North American residential security systems sales
program, which has achieved further advances in recurring revenues in 1996.
However, this improvement has been offset by continued price competition and by
increased marketing and selling costs, which have caused the contribution from
residential installation revenues and outright residential sales to show a
modest decline. The North American commercial installation revenues and
outright sales remained flat. The contribution in Europe showed a modest
increase.
1995 compared with 1994
Net sales of the division increased 9.2 per cent in 1995 to $1,350.9 million
from $1,236.6 million in 1994 (excluding net sales of $16.7 million relating
to the Company's electronic security services businesses in Australia and New
Zealand, disposed of in June 1994). This increase was attributable to
increases in net sales of $90.2 million and $24.1 million in North America and
Europe, respectively. The sales increase in North America was principally due
to increased recurring monitoring and maintenance revenues arising from a
larger base of residential security systems. In addition, the commercial
business in the United States experienced improved growth in new system sales
and installation revenues. However, corporate downsizing and cost containment
has meant that growth in recurring revenues from the commercial sector has
been modest. Sales in Canada, however, have marginally declined. The
increase in sales in Europe was due to increased sales in the commercial
business, particularly in the United Kingdom, as well as increased recurring
monitoring and maintenance revenues from commercial customers, and the
strengthening of European currencies against the US dollar.
Operating income of the division declined from $182.1 million in 1994 to
$172.4 million in 1995, principally due to restructuring and other
non-recurring charges of $21.4 million in 1995.
27
Operating income of the division before restructuring charges increased 6.5
per cent in 1995 to $193.8 million from $181.9 million in 1994 (excluding
operating income of $0.2 million relating to Australia and New Zealand,
disposed of in June 1994). Operating margin declined from 14.7 per cent in
1994 (after excluding Australia and New Zealand) to 14.3 per cent in 1995
reflecting the higher cost of adding new residential customers in North America
during 1995. The increase in operating income before restructuring charges in
North America reflected the continuing success in the United States of the
residential security systems sales program and growth in the sale of new
systems and installation revenues in the commercial sector. The growth in
residential and commercial sales resulted in increased installation fees and
related monitoring and maintenance revenues and increased utilization of the
monitoring network in the United States. In Canada, however, sales and
margins have fallen and the overall business performance was disappointing.
In Europe operating income before restructuring charges showed a modest
increase despite pressure on margins in the electronic article surveillance
business. In November 1995 the Company disposed of its entire electronic
article surveillance business.
Restructuring and other non-recurring charges
During 1995, the Company commenced a strategic review of its business
operations with a view to developing a business strategy which would place the
Company in a stronger position to deal with the changing business environment
and challenges facing its core electronic security services businesses in the
late 1990s. This strategic review process continued during 1996 following the
completion of the acquisition of Alert, the senior management reorganization
which took place in the first quarter of 1996, and the identification by the
new senior management team of the need to expand significantly the terms of
reference of the restructuring in the United States. The effects of the
Re-Engineering Project and the consequent restructuring are more fully
described in note 5(i) of the notes to consolidated financial statements. As
a consequence of the Re-Engineering Project, in each of the fourth quarters
of 1996 and 1995, senior executive management approved a restructuring plan
which resulted in a charge for restructuring and other non-recurring items of
$134.7 million and $21.4 million, respectively.
During the fourth quarter of 1996, the Company commenced a strategic and
detailed review of the electronic security services businesses acquired as
part of the acquisition of ASH in September 1996. In December 1996 senior
executive management approved a restructuring plan which is intended to merge
and integrate fully the ASH group into the ADT group by the end of 1997. As a
consequence of the restructuring plan a charge for restructuring and other
non-recurring items of $97.8 millon was recorded in the fourth quarter of
1996. Details of the restructuring are more fully described in note 5(i) of
the notes to consolidated financial statements.
Charge for the impairment of long-lived assets
Effective January 1, 1996, the Company was required to adopt SFAS 121.
Following the adoption of SFAS 121, in the first quarter of 1996 the Company
recorded an aggregate non-cash charge for the impairment of long-lived assets
of $731.7 million in the electronic security services division with a
consequential tax credit of $10.8 million. The impairment charge comprised
$397.1 million relating to the ADT group, principally all of which related to
the carrying value of goodwill and other intangibles, and $334.6 million
relating to the ASH group, of which $121.0 million related to the carrying
value of subscriber systems installed at customers' premises which are
included in property, plant and equipment, and $213.6 million related to the
carrying value of goodwill and other intangibles. Further details are set out
in note 6(i) of the notes to consolidated financial statements.
28
Vehicle Auction Services
Net sales of the vehicle auction services division are a function of the
number of vehicles handled, the number of vehicles sold at auction and the
number of vehicles handled for which ancillary services are provided. The
Company charges an entry fee for the majority of vehicles entered at auction.
On the sale of a vehicle at auction, the Company charges a separate seller's
and buyer's fee for each vehicle sold. This fee per vehicle sold is either
a fixed fee or a variable fee directly related to the sale price achieved.
The fee structure for each vehicle transaction is based upon the contractual
relationship with the customer. Revenues from additional services, which
include reconditioning, body repair, inspection, transportation and insurance
are related to the number of vehicles handled and are an additional integral
source of the division's revenue.
In December 1995 the Company disposed of an interest in its United Kingdom and
Continental European vehicle auction services businesses.
1996 compared with 1995
Net sales of the division declined from $432.9 million in 1995 to $297.8
million in 1996 due to the exclusion of the sales of European Auctions which
was sold in December 1995.
Net sales of the United States vehicle auction services business increased
10.4 per cent in 1996 to $297.8 million from $269.8 million in 1995. The
volume of vehicles sold increased by approximately 7 per cent which was
principally due to an increase in the volume of vehicles sold for fleet lease
customers of approximately 35 per cent, while the volume of vehicles sold for
vehicle manufacturers and new and used vehicle dealers declined by
approximately 5 per cent and approximately 2 per cent, respectively.
Operating income of the division declined from $70.2 million in 1995 to $25.2
million in 1996 due to a charge for the impairment of long-lived assets of
$13.0 million (see note 6(ii) of the notes to consolidated financial
statements) and the exclusion of the operating income of European Auctions.
Operating income before the charge for the impairment of long-lived assets of
the United States vehicle auction services business increased 11.4 per cent in
1996 to $38.2 million from $34.3 million in 1995. Operating margin increased
to 12.8 per cent in 1996 from 12.7 per cent in 1995. The increase in
operating income and operating margin were due principally to the increase in
the volume of vehicles sold and to an increase in the ratio of vehicles sold
to vehicles entered for sale ("conversion ratio") to 56.6 per cent in 1996
from 55.3 per cent in 1995, which was due to a higher proportion of vehicles
entered for sale by fleet lease customers.
In December 1995 the Company disposed of an interest in European Auctions for
an aggregate consideration of $334.9 million. The net loss on disposal of
$65.8 million included $136.5 million relating to the write off of net
unamortized goodwill and other intangibles and a $23.2 million charge relating
to cumulative currency translation adjustments.
1995 compared with 1994
Net sales of the division increased 15.1 per cent in 1995 to $432.9 million
from $376.1 million in 1994. This increase was attributable to increases in
net sales of $40.3 million and $16.5 million in Europe and the United States,
respectively. The increase in Europe was primarily attributable to an
increase in the number of vehicles sold in 1995 of approximately 7 per cent,
the inclusion of the vehicle reconditioning and transportation business in the
United Kingdom which was acquired in December 1994 and the strengthening of
European currencies against the US dollar. In Europe the volume of vehicles
sold for new and used vehicle dealers, fleet lease customers and vehicle
manufacturers increased by approximately 5 per cent, approximately 10 per cent
and approximately 8 per cent, respectively. In the United States the volume
of vehicles sold increased by approximately 3 per cent. This was principally
due to an increase in the volume of vehicles sold for fleet lease customers of
approximately 30 per cent, offset by a decline, in each case, in the volume of
vehicles sold for vehicle manufacturers and new and used vehicle dealers of
approximately 5 per cent.
Operating income of the division increased 12.0 per cent in 1995 to $70.2
million from $62.7 million in 1994. Operating income in Europe increased by
$6.9 million due to the increase in revenue per vehicle sold at auctions, the
inclusion of the vehicle reconditioning and transportation business in the
United Kingdom, effective overhead containment and the strengthening of
European currencies against the US dollar. Operating income in the United
States increased by $0.6 million and operating margin declined from 13.3 per
cent to 12.7 per cent. This was principally due to a decline in the
conversion ratio from 58.3 per cent in 1994 to 55.3 per cent in 1995 which was
due to a lower proportion of vehicles entered for sale by manufacturers and to
lower dealer conversion ratios.
29
Corporate expenses
Corporate expenses comprise administrative, legal and general corporate
expenses net of other income and include all central costs incurred not
directly connected with the operational management of the Company's two
businesses which are responsible for their own corporate overheads.
The effects of the Re-Engineering Project and the merger of the ASH group into
the ADT group resulted in a charge for restructuring and other non-recurring
items at the corporate level in the fourth quarter of 1996 of $4.8 million.
During 1995 management evaluated the Company's entire group corporate
structure, in particular in the United Kingdom. As a result, in December
1995, senior executive management approved a restructuring plan which resulted
in a charge for restructuring and other non-recurring items at the corporate
level of $12.8 million. The corporate restructuring charge in 1994 of $4.5
million was principally attributable to the Company's corporate administration
in the United Kingdom. Details of the restructurings are more fully described
in note 5(ii) of the notes to consolidated financial statements.
OTHER ITEMS - INCOME STATEMENT
Interest income and interest expense
Year ended December 31 1996 1995 1994
$m $m $m
Interest income 27.5 16.2 15.2
Interest expense (101.0) (116.3) (99.3)
Interest income increased in 1996 compared with 1995 principally due to the
effects of the disposal of the European vehicle auction division and the
European electronic article surveillance business in the fourth quarter of
1995, and the inclusion of $8.9 million interest income in 1996 related to the
ITS Vendor Note. Interest income increased in 1995 to compared with 1994
principally due to the increase in the level of cash deposits held by the
Company in 1995.
Interest expense declined in 1996 compared with 1995 principally due to the
effects of the refinancing which took place in the third quarter of 1995. In
1996 interest expense included $20.3 million (1995 - $9.4 million) relating
to Liquid Yield Option Notes discount amortization, and $3.7 million (1995 -
$5.3 million) relating to refinancing costs amortization. Interest expense
increased in 1995 compared with 1994 principally due to the effects of the
financing of the redemption of a significant proportion of the Company's
convertible redeemable preference shares in 1994. In 1995 interest expense
included $9.4 million (1994 - nil) relating to Liquid Yield Option Notes
discount amortization, and $5.3 million (1994 - $5.7 million) relating to
refinancing costs amortization. The Company holds no derivative financial
instruments.
See Liquidity and Capital Resources and notes 21 and 23 of the notes to
consolidated financial statements which provide details of short-term and
long-term debt, respectively.
30
Disposal of businesses
In December 1995 the Company disposed of an interest in its United Kingdom and
Continental European vehicle auction services businesses for an aggregate
consideration of $334.9 million (see notes 18 and 34 of the notes to
consolidated financial statements for further details). The net loss on
disposal of $65.8 million included $136.5 million relating to the write off of
net unamortized goodwill and a $23.2 million charge relating to cumulative
currency translation adjustments.
In November 1995 the Company disposed of its entire European electronic
article surveillance business for an aggregate consideration of $54.0 million.
The net gain on disposal of $31.4 million included a $2.1 million gain
relating to cumulative currency translation adjustments.
Other income less expenses
Year ended December 31 1996 1995 1994
$m $m $m
Gains and losses arising from the
ownership of investments 54.4 (5.0) 21.5
Write off in value of associate - - (30.7)
Settlement gain 65.0 - -
Gains and losses on currency transactions 9.7 0.9 2.1
Other income less expenses - net (0.3) (0.9) 3.0
----- ---- -----
128.8 (5.0) (4.1)
===== ==== =====
During 1996 gains arising from the ownership of investments included a net
gain of $53.4 million relating to the disposal in November 1996 of the
Company's entire investment in Limelight Group plc. The write off in value of
associate in 1994 related to the Company's entire equity investment in Arius,
Inc. which was held by the ASH group. In December 1996 the Company and BDO
entered into an agreement in full and final settlement of the Company's
litigation against BDO. The net gain arising on this settlement, after the
write off of certain deferred legal costs, amounted to $69.7 million, of which
$65.0 million was included in other income less expenses and $4.7 million was
included in interest income. See note 8 of the notes to consolidated
financial statements for further details of other income less expenses.
Income taxes
Current income taxes principally relate to state, local and other tax
liabilities incurred in the United States and other non-US tax liabilities.
The Company's effective income tax rate as adjusted for financial reporting
purposes has increased in 1996, 1995 and 1994. This effective tax rate
increase principally arose from an increase in the deferred tax charge.
During 1996 the Company's deferred income tax charge was impacted by tax
effects of the restructuring in the United States and other non-US tax
jurisdictions. See note 9 of the notes to consolidated financial statements
for further details of income taxes.
Discontinued operations
Discontinued operations comprised the disposal during 1994 of all the
Company's non-core businesses. The Company no longer has any interests in
non-core businesses. Included in the loss from discontinued operations for
1994 were net losses on disposal of the non-core businesses amounting to $3.7
million, which included $19.1 million relating to the write off of net
unamortized goodwill and other intangibles on the disposal of the non-core
businesses. The net income from operations for 1994 included in the loss from
discontinued operations amounted to $0.4 million on net sales of $80.6 million.
31
Extraordinary items
Extraordinary items in 1996 and 1995 included net losses amounting to $1.2
million and $1.5 million, respectively, arising on the reacquisition of
certain of the Company's senior subordinated notes. Further details are
provided in notes 11 and 23(ii) of the notes to consolidated financial
statements.
In September 1996 the Company repaid in full all amounts owed by the ASH group
under its senior 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 11 and 23(vi) of the notes to consolidated financial statements.
In December 1996 the Company 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 11 and 23(v) of the notes to
consolidated financial statements.
In July 1995 and December 1996 the Company repaid in full and cancelled
certain bank credit agreements as part of refinancing arrangements at the
time. Further details of the net losses amounting to $8.3 million in 1995 and
$1.0 million in 1996 which arose on these transactions are provided in notes
11, 23(iii) and 23(iv) of the notes to consolidated financial statements.
Dividends on preference shares
As a result of the redemption of a significant proportion of the Company's
convertible redeemable preference shares in 1994, dividends payable on the
balance of such shares outstanding were negligible in 1996 and 1995.
Effects of inflation
Due to the relatively low levels of inflation experienced in 1994, 1995 and
1996 in the major markets in which the Company operates, inflation did not
have a significant effect on the results of the Company in these years.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated cash flow information
The net decrease in cash and cash equivalents amounted to $135.0 million,
after the positive effect of currency translation on cash and cash equivalents
of $1.4 million. Net cash of $308.7 million provided by operating activities
was offset by net cash utilized by investing activities of $328.4 million and
net cash utilized by financing activities of $116.7 million.
Net cash provided by operating activities of $308.7 million principally
included cash provided by the Company's electronic security services and
vehicle auction services divisions less other expenses and adjusted for the net
increase in working capital. Within the net increase of $32.7 million in
working capital were increases in accounts receivable of $11.9 million and
inventories and other assets of $15.0 million and a net decrease in
liabilities of $5.8 million, principally relating to increases in accounts
payable and deferred revenue and a decrease in other liabilities. The
movement in accounts receivable was principally due to an increase in accounts
receivable in the vehicle auction services division. The movement in deferred
revenue was principally due to the timing of billings within the electronic
security services division.
Net cash utilized by investing activities of $328.4 million was principally
due to capital expenditures of $314.2 million and $25.7 million in the
electronic security services and vehicle auction services divisions,
respectively, $25.5 million relating to the acquisition of the minority
interest in Alert and $34.6 million relating to the purchase of customer
contracts to provide electronic security monitoring. These were principally
offset by $15.4 million received on the disposal of certain investments in and
loans to associates and $54.1 million received on the disposal of other
investments, principally Limelight Group plc.
32
Net cash utilized by financing activities of $116.7 million was principally
due to the repayments of long-term debt of $209.9 million, principally
relating to the ASH group, and the purchase of $23.1 million of the Company's
senior subordinated notes at a cost of $24.0 million. These were principally
offset by $86.8 million relating to the proceeds from long-term debt and $24.7
million realized on the issue of common shares.
Cash, liquid resources and sources of finance
Liquid assets available to the Company at December 31, 1996 represented cash
and cash equivalents of $215.9 million. At December 31, 1996 the Company had
available but undrawn facilities of $35.9 million under its revolving bank
credit agreement.
In July 1996, as part of the then agreement to combine with Republic
Industries, Inc. ("Republic"), ADT Limited granted to Republic a warrant
to acquire 15 million common shares of ADT Limited at an exercise price of
$20 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. On March 21, 1997 the
warrant was exercised by Republic and the Company received $300 million in
cash.
Future commitments and cash requirements
Capital expenditures during 1997 are estimated to be approximately $487
million which represent normal replacement needs and the purchase of
additional equipment, facilities and customer contracts necessary to meet
planned increases in sales. Approximately 90 per cent of the capital
expenditures projected for electronic security services relates to
installation of subscriber systems at customers' premises. This amount
does not include any amounts for acquisitions which the Company may pursue
from time to time.
The Company believes that the working capital at December 31, 1996, its
available credit facilities and the current cash flows from operations are
adequate for the Company's normal growth and operating needs, the funding of
its capital expenditures budget and the current servicing of its debt
requirements.
ADT Limited has no present intention to pay any dividends on its common shares
but will keep its dividend policy under review in the light of prevailing
circumstances. Under the terms of the senior notes and revolving bank credit
agreement ADT Limited may not declare, pay or make any dividend or
distribution with respect to its common shares, except in certain defined
circumstances. See note 23 of the notes to consolidated financial statements
for further details.
Forward looking information
Certain statements in this Form 10-K constitute "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
In particular any statements contained herein regarding the consummation and
benefits of future acquisitions, as well as expectations with respect to
future sales, operating efficiencies and product expansion, are subject to
known and unknown risks, uncertainties and contingencies, many of which are
beyond the control of the Company, which may cause actual results, performance
or achievements to differ materially from anticipated results, performance or
achievements. Factors that might affect such forward looking statements
included, among others, overall economic and business conditions, the demand
for the Company's service, competitive factors in the industry, regulatory
approvals and the uncertainty of consummation of future acquisitions.
33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ADT Limited's consolidated financial statements are included on pages F-1 to
F-77 and its consolidated financial statement schedules are included on pages
F-78 and F-79. Information required by Item 302 of Regulation S-K is included
in note 35 of the notes to consolidated financial statements and under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors and Executive Officers
Set forth below are the names, ages, positions and certain other information
concerning the current directors and executive officers of the Company and
three executive officers of subsidiaries of the Company as at December 31,
1996.
Name Age Position with Company
- ---- --- ---------------------
Michael A. Ashcroft 50 Chairman of the Board; Chief Executive
Officer
John E. Danneberg 50 Director
Raymond A. Gross 47 Senior Vice President of ADT Security
Services, Inc.
Alan B. Henderson 63 Director
Ronnie G. Lakey 42 Director of ADT (UK) Holdings PLC
James S. Pasman, Jr. 66 Director
Michael J. Richardson 60 President and Chief Executive Officer of
ADT Automotive, Inc.
Stephen J. Ruzika 41 Chief Financial Officer; Executive Vice
President; Director
W. Peter Slusser 67 Director
William W. Stinson 63 Director
Raymond S. Troubh 70 Director
_________________________
Mr. Ashcroft has been Chairman and Chief Executive Officer of the Company
since 1984 and is Chairman of the Executive Committee. He was Chairman and
Chief Executive Officer of the Company's predecessor company, Hawley Group
PLC, from 1977 to 1984. He is the non-executive Chairman of BHI Corporation.
Mr. Danneberg has been a director of the Company since December 1991 and was
previously a director of the Company from 1984 to June 1991. He was the
President of Foliage Plant Systems, Inc., an interior landscape contractor,
from 1988 to October 1995 and has been Chief Executive Officer of Sonitrol
Corporation since August 1996, under a consulting agreement with ADT, Inc.
Mr. Gross has been a Senior Vice President of ADT Security Services, Inc.
since March 1, 1996. From August 1993, he was President and Chief Executive
Officer of Alert Centre, Inc., which was acquired by ADT in December 1995, and
prior to that he was President/General Manager of Cellular One of Ohio from
November 1988.
34
Mr. Henderson has been a director of the Company since 1992 and is a member of
the Audit and Remuneration Committees. He is Chairman of Ranger Oil (UK)
Limited, an oil exploration and production company, and has been a director of
Ranger Oil (UK) Limited since 1972. He is also Chairman of Abtrust Emerging
Economies Investment Trust Plc and Abtrust New Thai Investment Trust Plc, and
is a director of Abtrust New Dawn Investment Trust Plc, Energy Capital
Investment Company PLC and Greenfriar Investment Company PLC.
Mr. Lakey has been a director of ADT (UK) Holdings PLC since its incorporation
in 1996. He has operational responsibility for the Company's electronic
security services operations in Canada and Europe. He has held various
positions with the Company since joining in 1987.
Mr. Pasman has been a director of the Company since 1992 and is a member of
the Audit and Remuneration Committees. He was President and Chief Operating
Officer of National Intergroup, Inc., an industrial holding company, from 1989
to 1991 and was Chairman and Chief Executive Officer of Kaiser Aluminum and
Chemical Corp., an aluminum and chemical company, from 1987 to 1989. He is a
director of BEA Income Fund, Inc., BEA Strategic Income Fund, Inc. and BT
Insurance Funds Trust.
Mr. Richardson has been the President and Chief Executive Officer of ADT
Automotive, Inc., which supervises the United States vehicle auction services
business, since 1982.
Mr. Ruzika has been a director and Executive Vice President of the Company
since 1987, has been Chief Financial Officer since 1989 and President of ADT
Security Services, Inc. since 1996. He is a member of the Executive
Committee. He was previously Chief Financial Officer of the Company's United
States operations. He is also a non-executive director of BHI Corporation.
Mr. Slusser has been a director of the Company since 1992 and is a member of
the Audit and Remuneration Committees. He has been the President of Slusser
Associates, Inc., a private investment banking firm in New York City, since
1988 and was previously a managing director and head of mergers and
acquisitions at PaineWebber Incorporated. He is a director of Ampex
Corporation, a leading producer of high performance television and data
storage recording systems.
Mr. Stinson has been a director of the Company since 1991. He retired as
Chairman and Chief Executive Officer of Canadian Pacific Limited in 1996 after
serving as Chief Executive Officer for 11 years. He remains a director of
that company. He is also a director of Laidlaw, Inc., Western Star Trucks
Inc., Sun Life Assurance Company of Canada, and a number of other corporations.
Mr. Troubh has been a director of the Company since 1991 and is a member of
the Audit and Remuneration Committees. He has been an independent financial
consultant since 1974. He is a director of America West Airlines, Inc., ARIAD
Pharmaceuticals, Inc., Becton, Dickinson and Company, Diamond Offshore
Drilling, Inc., Foundation Health Corporation, General American Investors
Company, Inc., Olsten Corporation, Petrie Stores Corporation, Time Warner
Inc., Triarc Companies, Inc. and WHX Corporation.
Each director is currently serving a term which expires at the next annual
general meeting. Each such director is eligible for re-election. Under the
Bye-Laws of the Company, no person other than a director retiring at a General
Meeting of the Company shall, unless recommended by the directors, be eligible
for election to the office of director unless, between six and 28 days before
the meeting date, the Secretary of the Company has been given, by a
shareholder of the Company (other than the person to be proposed) entitled to
attend and vote at the annual general meeting or special general meeting,
written notice of his intention to propose such person for election and also
written notice, signed by the person to be proposed, of his willingness to be
elected. A director may hold any other office or position of profit under the
Company (other than the office of Auditor) in conjunction with this office of
director for such period and on such terms as the Company may from time to
time determine in general meeting.
35
Meetings and Committees of the Board
During 1996, there were eleven meetings of the Board. All directors attended
at least 75 per cent of the meetings of the Board and of the committees of
which they were members.
The Board has several committees, including an Audit Committee and a
Remuneration Committee. The Audit Committee, formed in 1991, and the
Remuneration Committee, formed in 1992, consist of Messrs. Henderson, Pasman,
Slusser and Troubh each of whom is an independent director. During 1996,
there were four meetings of the Audit Committee and four meetings of the
Remuneration Committee. The function of the Audit Committee is to review the
services performed by the Company's independent accountants and to review and
act or report to the Board with respect to the scope of audit procedures and
accounting practices. The function of the Remuneration Committee is to review
and approve compensation and other employment benefits afforded certain
executive officers. The Company has no standing nominating committee.
Compensation of Directors
Directors who are not employees of the Company are paid an annual
director's fee of $25,000 each and are reimbursed for reasonable and
customary travel and other expenses incurred in performing their duties.
In addition, Messrs. Henderson, Pasman, Slusser and Troubh are each paid
an annual sum of $15,000 for their services on the Audit and Remuneration
Committees.
36
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation
Summary Compensation Table
Shown below is information concerning the annual and long-term compensation
for services in all capacities to the Company for the fiscal years ended
December 31, 1996, 1995 and 1994, of those persons who were, at December
31, 1996 (i) the Chief Executive Officer and (ii) the other four most
highly compensated executive officers of the Company, including three
executive officers of a subsidiaries of the Company (the "Named Officers").
Long-Term
Compensation
Annual Compensation(1) Awards
----------------------------------------------------------------
Securities
Underlying
Stock Options All Other
Name and principal position Year Salary Bonus (#) Compensation
- --------------------------- ---- ---------- ---------- ------------- ------------
Michael A. Ashcroft(2) 1996 $1,143,844 $2,344,880 5,000,000 $1,330,380(3)
Chairman of the Board; Chief 1995 $1,089,375 $2,233,219 1,500,000 $1,921,939
Executive Officer 1994 $1,037,500 1,945,313 750,000 $ 783,403
Raymond A. Gross 1996 $ 183,353(4) $ 82,500 100,000 -0-
Senior Vice President of ADT 1995 -0- -0- -0- -0-
Security Services, Inc. 1994 -0- -0- -0- -0-
Ronnie G. Lakey 1996 $ 248,962 $ 125,000 100,000 $ 27,020(5)
Director of ADT (UK) Holdings 1995 $ 195,866 $ 140,000 20,000 $ 14,822
PLC 1994 $ 188,827 $ 135,000 25,000 $ 14,138
Michael J. Richardson(6) 1996 $ 335,000 $ 222,705 40,000 $ 6,461(7)
Chief Executive Officer of ADT 1995 $ 314,000 $ 145,245 50,000 $ 6,461
Automotive, Inc. 1994 $ 300,000 $ 115,000 45,000 $ 6,480
Stephen J. Ruzika(8) 1996 $ 686,306 $1,100,000(9) 208,333 $ 40,323(10)
Chief Financial Officer; Executive 1995 $ 653,625 $ 250,000 500,000 $ 37,432
Vice President; Director 1994 $ 622,500 $ 200,000 250,000 $ 35,639
- ---------------------
(1) While officers enjoy certain perquisites, such perquisites did not exceed
the lesser of $50,000 or 10 per cent of each officer's salary and
bonus. Except as set forth below under "Employment Contracts,
Termination of Employment and Change in Control Arrangements", a
change in control of the Company does not of itself require the
payment of any moneys to any of the Named Officers. However, such an
event does accelerate the vesting of certain pension rights and the
exercisability of certain stock options.
37
(2) The salary, bonus and all other compensation shown in respect of 1994 and
1995 represent Mr. Ashcroft's entitlement to those amounts. Mr.
Ashcroft utilized $2,500,000 of the compensation due to him for 1995,
being the whole of his bonus entitlement of $2,233,219 and $266,781 of
his other compensation to subscribe for options, at the rate of $2.50
per option, to subscribe for Common Shares. Mr. Ashcroft also
utilized $2,500,000 of the compensation due to him for 1994, being the
whole of his bonus entitlement of $1,945,313 and $554,687 of his other
compensation entitlement to subscribe for these options.
(3) The other compensation due to Mr. Ashcroft in respect of 1996 represents
the US dollar equivalent of Pound Sterling 851,344 being an amount in
lieu of providing Mr. Ashcroft with retirement and death benefits
under a defined pension plan. The amounts in respect of 1995 and 1994,
and which are referred to in note (2) above, were the equivalents of
Pound Sterling 1,217,341 and Pound Sterling 511,126, respectively.
(4) Represents salary since joining ADT Security Services, Inc. in March
1996. Mr. Gross' annualized salary for 1996 was $220,000.
(5) Represents the amount contributed to Mr. Lakey's retirement income plan
(1995 - $14,822, 1994 - $14,138).
(6) The salary amount shown for 1996 represents Mr. Richardson's entitlement
to salary in the year. Prior to becoming entitled to receive certain
salary, however, Mr. Richardson elected to receive options at the rate
of $2.50 per option, to subscribe for Common Shares at an exercise
price of $8.625 per share, in lieu of receiving $69,444 in salary (1995
- $83,333, 1994 - $97,222).
(7) Represents $4,500 contributed to a defined contribution 401(k) pension
benefit plan (1995 - $4,500, 1994 - $4,500) and $1,961 which is the
aggregate incremental cost to the Company of providing Mr. Richardson
with enhanced group term life insurance benefits (1995 - $1,961, 1994 -
$1,980).
(8) The salary amount shown for 1996 represents Mr. Ruzika's entitlement to
salary in the year. Prior to becoming entitled to receive certain
salary, however, Mr. Ruzika elected to receive options at the rate of
$2.50 per option, to subscribe for Common Shares at an exercise price
of $8.625 per share, in lieu of receiving $80,136 in salary (1995 -
$104,167, 1994 - $128,198).
(9) Mr. Ruzika earned a bonus for 1996 of $1,100,000 (1995 - $250,000) under
a bonus arrangement by which payments are related directly to the
performance of the Common Share price.
(10) Represents $37,639 contributed to Mr. Ruzika's retirement income plan
(1995 - $35,777, 1994 - $34,003) and $2,684 which is the estimated
aggregate incremental cost to the Company of providing Mr. Ruzika
with supplemental term life insurance (1995 - $1,655, 1994 - $1,636).
38
Option Grants in Last Fiscal Year
Shown below are all grants of share options to the Named Officers during
the fiscal year ended December 31, 1996. The following table shows, along
with certain information, hypothetical realizable values of share options
granted for the last fiscal year, at assumed rates of cumulative share
price appreciation over the ten-year life of such options. These assumed
rates of appreciation are set by the rules of the SEC and are not intended
to forecast appreciation of the price of the Common Shares. These
hypothetical values have not been discounted to reflect their present
values.
Individual Grants
--------------------------------------------------------
Potential Realizable Value
% of at Assumed Annual Rates
Total Options Exercise of Share Price Appreciation
Granted or for Option Term(2)
Options to Employees Base Price Expiration
Name Granted(1) in Fiscal Year ($/share) Date 5% 10%
- ---- --------- -------------- --------- ----------- ----------- -----------
Michael A. Ashcroft 5,000,000 78.3% $15.00 Aug 4, 2003 $30,968,000 $74,713,000
Raymond A. Gross 100,000 1.6% $16.50 May 6, 2006 $ 1,017,000 $ 2,597,000
Ronnie G. Lakey 100,000 1.6% $16.50 May 6, 2006 $ 1,017,000 $ 2,597,000
Michael J. Richardson 40,000 0.6% $16.50 May 6, 2006 $ 407,000 $ 1,039,000
Stephen J. Ruzika 208,333 3.3% $15.00 April 29, 2004 $ 1,452,000 $ 3,567,000
- -------------------
(1) The options granted to Mr. Ashcroft and Mr. Ruzika represent the net
increase in the number of options which were received by Mr. Ashcroft
and Mr. Ruzika in connection with an amendment to a previously granted
option on 3,000,000 and 125,000 Common Shares, respectively. At the
same time as the number of options was increased, the exercise price
was also increased from $8.625 to $15.00. All the other terms and
conditions of the options, including the expiry dates, remained
unchanged.
Of the options granted to Mr. Gross, Mr. Lakey and Mr. Richardson, 50 per
cent are exercisable after three years from the date of grant, 25 per
cent are exercisable after 4 years from the date of grant and 25 per
cent are exercisable after five years from the date of grant.
(2) Gains are reported net of the option exercise price but before taxes
associated with exercise. The amounts shown represent certain assumed
rates of appreciation only. Actual gains, if any, on option exercises
are dependent on the future price performance of the Common Shares as
well as the option holders' continued employment through the vesting
period. The potential realizable values reflected in this table may
not necessarily be achieved.
39
Aggregate Option Exercises in Last Fiscal Year and Year-End Option Values
Shown below is information with respect to aggregate option exercises by the
Named Officers in the fiscal year ended December 31, 1996 and with respect
to unexercised options to purchase Common Shares granted in fiscal 1996 and
prior years to the Named Officers and held by them at December 31, 1996.
[CAPTION]
Value of Unexercised In-the-
Shares Value Number of Unexercised Money Options at Fiscal Year
Acquired on Realized on Options at Fiscal Year End End(1)(2)
Exercise of Exercise of -------------------------------------------------------------------
Options in Options in
Name Fiscal Year Fiscal Year Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Michael A. Ashcroft 825,000 $6,626,250 9,700,000 1,550,000 $78,437,190 $17,493,125
Raymond A. Gross -0- -0- -0- 100,000 -0- $ 637,500
Ronnie G. Lakey 32,000 $ 256,016 15,000 145,000 $ 208,125 $ 1,209,375
Michael J. Richardson 45,000 $ 318,125 270,000 135,000 $ 3,496,750 $ 1,441,875
Stephen J. Ruzika 12,000 $ 54,900 1,141,663 516,670 $12,951,731 $ 5,831,080
- --------------------
(1) Based on the closing price of $22.875 per Common Share on December 31,
1996.
(2) Messrs. Ashcroft, Richardson and Ruzika were granted certain options for
which they have paid a subscription price of $2.50 per option which has
been taken into account for the purpose of valuing these options.
Certain Defined Benefit Plans
The Company does not maintain any defined benefit or actuarial retirement
plans ("pension plans"). However, Mr. Lakey, Mr. Richardson and Mr.
Ruzika participate in pension plans that are maintained by indirect, wholly
owned subsidiaries of the Company. Certain information is set forth below
regarding the pension plans in which Mr. Lakey, Mr. Richardson and Mr.
Ruzika, as well as other employees of the Company's subsidiaries,
participate.
Mr. Richardson is a participant in the ADT Pension Plan maintained by ADT
Group PLC ("ADT Group"). Mr. Richardson is the only Named Officer who
participates in the ADT Group's Pension Plan (the "ADT Group Plan"). The
ADT Group Plan provides Mr. Richardson an annual benefit payable for life
beginning at age 60. The annual benefit is equal to 66.7 per cent of base
salary for the three years of the most recent ten years prior to retirement
that produce the highest average. Mr. Richardson's annual benefit payable
at age 60 for life is Pound Sterling146,095. Since Mr. Richardson has
already attained age 60, the benefit payable to him upon his actual
retirement will be adjusted based upon his actual retirement date.
Benefits payable under the ADT Group Plan are not offset by Social Security
benefits.
ADT, Inc. maintains a supplemental executive retirement plan (the "ADT
SERP"). Mr. Lakey and Mr. Ruzika are the only Named Officers who
participate in the ADT SERP. Benefits for Mr. Ruzika under the ADT SERP
are also supplemented under a Supplemental Benefit Agreement between Mr.
Ruzika and ADT Management Services Limited (the "Supplemental Benefit
Agreement").
40
The ADT SERP provides benefits to Mr. Lakey for a total of 20 years,
beginning at age 60. This annual benefit is equal to 60 per cent of Mr.
Lakey's base salary for the three consecutive years that produce the
highest average. This benefit is reduced by the value of any benefits
derived from employer contributions under any other retirement plan
maintained by ADT, Inc. or its affiliates. Mr. Lakey's estimated annual
benefit payable at age 60 for a total of 20 years, net of the estimated
offset attributable to employer contributions under certain defined
contribution plans, is $30,764. The estimated offset is based on the
assumption that Mr. Lakey will have 27 years of service at age 60.
Benefits are not offset by Social Security benefits.
The ADT SERP and Supplemental Benefit Agreement together provide benefits
payable to Mr. Ruzika for a total of 20 years beginning at age 55. This
annual benefit is equal to 65 per cent of base salary and bonuses for the
three consecutive years that produce the highest average. Effective for
benefits accrued after December 31, 1994, the benefit is calculated using
base salary including, for this purpose, the purchase price of any options
to purchase the Company's shares received in lieu of base salary. This
benefit is reduced by the value of any benefits derived from employer
contributions under any other retirement plan maintained by ADT, Inc. or
its affiliates.
Mr. Ruzika's estimated annual benefit payable at age 55 for a total of 20
years, net of the estimated offset attributable to employer contributions
under certain defined contribution plans, is $361,802. The estimated
offset is based upon the assumption that Mr. Ruzika will have 28 years of
service at age 55. Benefits are not offset by Social Security benefits.
Compliance with Reporting Requirements
The Company believes that, during 1996, all filing requirements under
Section 16(a) of the Exchange Act applicable to its officers, directors and
beneficial owners of more than 10 per cent of equity securities were
complied with on a timely basis.
41
Employment Contracts, Termination of Employment and Change in Control
Arrangements
The Company has entered into a written employment agreement with Mr.
Ashcroft, dated as of May 8, 1993. An amendment to the agreement was
approved on November 4, 1996, which provides that Mr. Ashcroft shall serve
as Chairman of the Board and Chief Executive Officer until March 31, 2000,
subject to renewal for additional two-year terms thereafter. Mr.
Ashcroft's initial base salary was $1,000,000 per annum subject to annual
review and adjustment by the Board but may only be reduced by a maximum of
15 per cent during the term of the agreement without Mr. Ashcroft's
consent. During 1996, Mr. Ashcroft's base salary was increased to
$1,157,625 per annum. Mr. Ashcroft is also eligible for annual bonus
payments based upon an earnings-per-share target for the Common Shares set
each year, subject to a maximum bonus of $4,000,000. The maximum bonus is
payable upon attaining 117.5 per cent of the targeted earnings per share.
As a term of the contract, Mr. Ashcroft was granted options to purchase
1,000,000 Common Shares under the ADT 1993 Long Term Incentive Plan, with
50 per cent of such options exercisable at market value on the date of
grant, as defined, 25 per cent exercisable at 110 per cent of market value,
and 25 per cent exercisable at 120 per cent of market value, vesting in
equal annual installments over a three-year period commencing one year from
the date of grant and exercisable over a ten-year period. The Company will
make annual payments to Mr. Ashcroft calculated to provide him with
retirement and death benefits no less favorable than if he were a member of
ADT Group Plan. Such annual payments will not be less than $450,000. The
Company may terminate the agreement upon Mr. Ashcroft's death, when Mr.
Ashcroft attains the age of 60, if Mr. Ashcroft is unable to perform his
duties for 180 days due to ill heath, accident or otherwise, if Mr.
Ashcroft fails to discharge his duties or engages in conduct that is
materially injurious to the Company, or if Mr. Ashcroft willfully and
continually commits a material breach of the agreement. Mr. Ashcroft may
terminate the agreement upon, among other reasons, a breach by the Company
which breach (except for a material breach) is not cured within 30 days, if
he is removed from his position as Chairman of the Board or his position as
Chief Executive Officer, or if the scope of his duties and responsibilities
becomes inconsistent with his position as an officer of the Company.
Mr. Ashcroft may also terminate the agreement without cause at any time
upon 90 days notice. In the event the agreement is terminated pursuant to
its terms by the Company or without cause by Mr. Ashcroft upon 90 days
notice, Mr. Ashcroft will be entitled to the pro rata portion of his base
salary, bonus payment, pension payment and other benefits but will not be
entitled to any additional payments. If the agreement is terminated due to
a disability, Mr. Ashcroft will be entitled to an additional payment equal
to two times his highest base salary. In the event the agreement is
terminated by the Company without cause or by Mr. Ashcroft with cause, Mr.
Ashcroft will be entitled to a severance payment equal to two times his
highest base salary and average bonus payment, annual pension payments for
the year of termination and the following two years, and one year of any
other benefits previously provided.
Mr. Ruzika entered into an employment agreement with ADT as of February
26, 1997. The agreement provides that Mr. Ruzika will serve as Chief
Financial Officer of ADT and as President of ADT Security Services, Inc.,
ADT Operations, Inc. and ADT, Inc., subsidiaries of ADT, from March 1, 1997
until February 28, 1999, subject to renewal for additional two-year terms
thereafter. Mr. Ruzika's initial annual base salary will be $694,500 and
will be subject to annual review for possible adjustments. Mr. Ruzika
will also be eligible for annual bonus payments at the discretion of the
Company as well as other compensation and benefit plans of the Company
including stock option plans. The termination provisions of this agreement
provide that in the event that agreement is terminated by ADT without cause
or by Mr. Ruzika with cause, Mr. Ruzika will be entitled to receive a
severance payment equal to twice his base salary and certain fringe
benefits.
Mr. Lakey entered into an employment agreement with ADT, Inc. as of
January 16, 1997. The agreement provides that Mr. Lakey will have
operational responsibility for ADT's electronic security operations in
Canada and Europe from January 16, 1997 until December 31, 1999, subject to
renewal for additional two-year terms thereafter. Mr. Lakey's initial
annual base salary will be $265,000. Mr. Lakey will also be eligible for
annual bonus payments at the discretion of the Company as well as certain
other enumerated benefits and relocation expenses. The termination
provisions of this agreement include a term to the effect that, in the
event that agreement is terminated by ADT without cause or by Mr. Lakey
with cause, Mr. Lakey will be entitled to receive his base salary and
certain fringe benefits for two years.
42
Under the ADT SERP (and, in the case of Mr. Ruzika, the Supplemental
Benefit Agreement), Mr. Ruzika and Mr. Lakey become fully vested in the
accrued benefits thereunder upon a Change in Control (as defined below) of
the Company or ADT, Inc. Mr. Ruzika also becomes fully vested upon a
Change in Control (as defined below) of ADT Management Services Limited.
If Mr. Ruzika or Mr. Lakey's employment is terminated within one year
from the date of a Change in Control, the terminated executive will
receive, in lieu of all other amounts due to him under the ADT SERP (and,
in Mr. Ruzika's case, the Supplemental Benefit Agreement), a lump-sum
distribution equal to the present value of his accrued benefit and an
additional amount calculated under a formula intended to put him in the
same after-tax position that he would have been in if he had received a
lump-sum distribution of his accrued benefit on his normal retirement date.
Under this formula Mr. Ruzika would currently receive an additional amount
of approximately $653,295 and Mr. Lakey would currently receive an
additional amount of approximately $54,253.
A "Change in Control" is deemed to have occurred under the ADT SERP if :
(1) any person (other than Laidlaw, Inc. or its affiliates, collectively
the "Laidlaw Group") acquires more than 40 per cent of the Company's voting
stock (the triggering percentage has been reduced from 40 per cent to 35
per cent because the Laidlaw Group's beneficial ownership of the Company's
voting stock is less than 20 per cent); (2) the Laidlaw Group becomes the
beneficial owner of more than 45 per cent of the Company's outstanding
voting stock; (3) there is a change of 50 per cent or more in the
composition of the Company's directors during any 3-year period (unless the
change in directors was approved by two thirds of the directors in office
at the beginning of such 3-year period or directors who had previously been
elected with the requisite two thirds approval); (4) a person acquires the
legal right to direct the management and policies of the Company (other
than by virtue of membership on the board of directors or a committee of
the board); (5) the Company ceases to own, directly or indirectly through
subsidiaries, at least 80 per cent of the voting stock of ADT, Inc. or (6)
the shareholders of either the Company or ADT, Inc. approve a merger,
consolidation or a sale or disposition of all, or substantially all, of the
assets of the Company or ADT, Inc. as the case may be, with the relevant
company not surviving. In the case of Mr. Ruzika, the provisions of (4),
(5), and (6) above include a change in the ownership of ADT Management
Services Limited (as well as the Company or ADT, Inc.).
Mr. Richardson entered into an employment agreement with ADT Automotive
Holdings, Inc. ("ADT Automotive Holdings"), the corporate parent of ADT
Automotive, Inc., as of November 30, 1993. The agreement provides that Mr.
Richardson will serve as Chief Executive Officer of ADT Automotive Holdings
and its subsidiaries from December 1, 1993 until July 31, 1996, subject to
renewal for additional one-year terms thereafter. The agreement was
renewed on a year-to-year basis as of July 31, 1996. The agreement
provides that the term will be extended for an additional one year period
thereafter unless either ADT Automotive Holdings or Mr. Richardson shall
have given the other notice of intention not to extend the term six months
prior to July 31, 1997. On January 29, 1997, ADT Automotive Holdings and
Mr. Richardson entered into an agreement which provides that Mr.
Richardson's time to give such notice is extended to and including April
30, 1997. Mr. Richardson's initial annual base salary will be $300,000
and will be subject to annual review for possible increases. Mr.
Richardson will also be eligible for annual bonus payments at the
discretion of the Company. The termination provisions of this agreement
include a term to the effect that, in the event that agreement is
terminated by ADT Automotive Holdings without cause or by Mr. Richardson
with cause, Mr. Richardson will be entitled to receive his base salary and
certain fringe benefits for two years or the remaining term of the
agreement, whichever is longer.
43
Mr. Richardson has also entered into an incentive compensation agreement
for payment upon the successful sale of ADT Automotive Holdings by the
Company. To the extent that the gross consideration for such sale exceeds
$430 million, on completion of the sale, ADT has agreed to pay Mr.
Richardson one-half of one per cent of such excess. Gross consideration is
deemed to be the aggregate of proceeds received by ADT and debt remaining
in the auctions group which is assumed by the purchaser other than debt
considered to be a component of working capital, including bank overdrafts.
The Remuneration Committee of the Board has considered the recommendations
of the Company's outside independent human resources consultants, and has
reviewed industry practices concerning change in control severance
benefits. In view of the need to minimize employee distractions and to
retain employee loyalty and dedication to the Company and to assure
attention to the Company's performance pending resolution of the Western
Offer, on February 27, on the recommendation of the Remuneration Committee,
the Board unanimously approved a severance agreement between Mr. Gross and
ADT Security Services, Inc. in the event of a change of control, which
severance arrangement it has determined is fair and consistent with
industry practices. The agreement provides that in the event that there is
a "Severance Change in Control" (as defined below) of ADT prior to February
9, 2000, and either (x) Mr. Gross's employment is terminated without
cause or (y) Mr. Gross terminates his employment for good reason, Mr.
Gross shall be entitled to (a) an amount of severance pay equal to twice
the total of (i) the higher of his annual full base salary as of the date
of termination or as of the date of the Severance Change in Control,
calculated on an annualized basis, plus (ii) the amount of the bonus
awarded to Mr. Gross, if any, in the year prior to the date of termination
and (b) for the twelve-month period following such termination, benefits
substantially similar to the higher of those which Mr. Gross is receiving
immediately prior to the date of termination or as of the date of the
Severance Change in Control. A "Severance Change in Control" is deemed to
have occurred under the severance agreement if: (1) any person becomes the
beneficial owner of more than 50 per cent of ADT's then-outstanding voting
securities; (2) there is a change of 50 per cent or more in the
composition of the Company's directors during the term of the agreement
(unless the change in directors was approved by two thirds of the directors
in office at the beginning of such term or directors who had previously
been elected with the requisite two thirds approval); (3) a person
acquires the legal right to direct the management and policies of the
Company (other than by virtue of membership on the board of directors or a
committee of the board); or (4) the shareholders of ADT approve a merger,
consolidation or a sale or disposition of all, or substantially all, of the
assets of ADT in which ADT is not the surviving entity.
In 1996, the Remuneration Committee of the Board resolved to increase the
subscription price and size of certain share options held by Mr. Ashcroft
and Mr. Ruzika. In 1993, Mr. Ashcroft and Mr. Ruzika were granted
options to subscribe for 3,000,000 and 125,000 Common Shares respectively
at an exercise price of $8.625 per share for which each was required to pay
$2.50 per option, representing a total payment of $7,500,000 and $312,500
respectively, as a condition of vesting. In 1996, the exercise price of
these options was increased to $15 and the number of related shares was
increased to 8,000,000 and 333,333 respectively. All the other material
terms and conditions remained unchanged. These changes were approved by
the shareholders of the Company. At the time that the Remuneration
Committee approved these changes, the closing price of the Common Shares
was $14.75. In November 1996, the Remuneration Committee resolved that the
options of Mr. Ashcroft be transferable and, at the same time, in return,
Mr. Ashcroft agreed to extend the termination date of his employment
agreement from March 31, 1998 to March 31, 2000.
44
In November 1996, the Remuneration Committee also approved a bonus plan
under which Mr. Ruzika is to receive a bonus of $200,000 when the Common
Share price exceeds $21.00 for a continuous period of 30 trading days and
$200,000 each time the Common Share price exceeds by $1.00 for a continuous
period of 30 trading days the share price level at which a bonus payment
was previously made. The plan is due to expire in 2001 or such earlier
date as the Common Share price exceeds $30.00 for a continuous period of 30
trading days. Should the share price exceed $30.00 within two and one half
years, Mr. Ruzika will receive an additional payment of $1,000,000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, with respect to
beneficial ownership (determined in accordance with Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of Common
Shares by any person known by the Company to beneficially own more than
five per cent of the outstanding Common Shares (i) as at December 31, 1996
by FMR Corp. ("FMR"); (ii) as at March 17, 1997 by WCI; (iii) as at
March 21, 1997 by Republic; and (iv) as at March 24, 1997 by (a) all
directors of the Company, (b) the named directors and officers of the
Company, including three executive officers of subsidiaries of the Company
and (c) all directors and executive officers of the Company as a group.
An asterisk indicates ownership of less than one per cent of outstanding
Common Shares.
Number of
Name of Beneficial Owner Common Shares Per cent of
or Identity of Group Beneficially Owned(1),(2) Class(3)
- --------------------------- ------------------------- -----------
Westar Capital, Inc. (4)
818 Kansas Avenue
Topeka, Kansas 66601 38,287,111 24.9%
FMR Corp.(5)
82 Devonshire Street
Boston, Massachusetts 02109 8,416,744 5.4%
Republic Industries, Inc.(6)
450 East Las Olas Boulevard
Fort Lauderdale, Florida 33301 15,000,000 9.8%
M.A. Ashcroft(6)(7) 11,525,718 7.0%
J.E. Danneberg 102 *
R.A. Gross 2,000 *
A.B. Henderson 621 *
R.G. Lakey 25,000 *
J.S. Pasman, Jr. 2,000 *
M.J. Richardson 327,837 *
S.J. Ruzika 1,307,407 *
W.P. Slusser 2,800 *
W.W. Stinson 3,010 *
R.S. Troubh 2,500 *
All directors and executive officers
as a group, 11 persons(8) 13,198,995 8.0%
45
(1) Includes Common Shares which may be acquired upon exercise of the
following number of options to purchase Common Shares from the Company
exercisable on or within 60 days of March 24, 1997 held by the
following persons: M.A. Ashcroft, 10,150,000 (excluding 15,000,000
Common Shares owned by Republic for which Mr. Ashcroft, as Chairman of
ADT, holds a proxy as described in footnote 6, but as to which Mr.
Ashcroft disclaims beneficial ownership); R.A. Gross, nil; R.G.
Lakey, 25,000; M.J. Richardson, 315,000 and S.J. Ruzika, 1,291,665.
(2) For purposes of this table, a person or group of persons is deemed to
have "beneficial ownership" of any Common Shares which such person has
the right to acquire on or within 60 days after March 24, 1997. For
purposes of computing the percentage of outstanding Common Shares held
by each person or group of persons named above, any security which such
person or persons has or have the right to acquire on or within 60 days
after March 24, 1997 is deemed to be outstanding, but is not deemed to
be outstanding for the purpose of computing the percentage ownership of
any other person.
(3) Based upon Common Shares outstanding on March 24, 1997, but excluding
3,182,787 Common Shares owned by a subsidiary of the Company.
(4) The Company has received an Amendment No. 10 to Schedule 13D dated March
17, 1997 filed with the SEC by WCI, a wholly owned subsidiary of
Western Resources Inc., in respect of ownership of 38,287,111 Common
Shares. The Company has not attempted to verify independently any of
the information contained in the Schedule 13D.
(5) The Company has received an Amendment No. 4 to Schedule 13G dated
February 14, 1997 filed with the by SEC in respect of ownership of
8,416,744 of Common Shares at December 31, 1996 by accounts under the
discretionary investment management of its wholly owned subsidiaries
Fidelity Management Research Company and Fidelity Management Trust
Company. As of December 31, 1996, FMR exercised sole voting power with
respect to 112,714 Common Shares and sole dispositive power with
respect to 8,416,744 Common Shares. The Company has not attempted to
independently verify any of the information contained in the Schedule
13G.
(6) The Company has received an Amendment No. 2 to Schedule 13D dated
March 26, 1997, describing that on March 21, 1997, Republic, through
Triangle Corporation, a Delaware corporation and a wholly owned
subsidiary of Republic ("Triangle"), purchased 15,000,000 Common Shares
by exercise of the Republic Warrant. Under the terms of the Republic
Warrant, Triangle has granted the Chairman of ADT an irrevocable proxy
to vote, at any meeting of ADT's shareholders, the 15,000,000 Common
Shares issued under the Republic Warrant, with respect to any matter
which shall be voted upon by ADT's shareholders. The proxy expires as
to any such Common Shares on the earlier of (i) September 27, 1998 and
(ii) the date such shares are no longer held by Republic or any of its
affiliates or nominees. Mr. Ashcroft, the current Chairman of ADT,
disclaims beneficial ownership of the Common Shares held by Triangle.
46
(7) The number of Common Shares beneficially owned by Mr. Ashcroft includes
718 Common Shares owned by Mr. Ashcroft's wife.
(8) The address for these officers and directors is the address of the
Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Relationships and Related Transactions
ADT, Inc., a wholly owned subsidiary of ADT, entered into a consulting
agreement with John E. Danneberg, one of ADT's directors, as of August 28,
1996. The agreement provides that Mr. Danneberg, as an independent
consultant, will serve as Chief Executive Officer of Sonitrol Corporation
("Franchisor") and certain franchisees of Franchisor owned or acquired by
affiliates of ADT, Inc. The agreement provides that the initial term of
such engagement shall be for a period of six months commencing on September
1, 1996 and shall be automatically renewed on a month to month basis unless
written notice is given by ADT, Inc. or Mr. Danneberg not to renew the
agreement at least 30 days before the end of such initial term, which
notice was not given. Under the terms of the agreement, ADT, Inc. pays Mr.
Danneberg a monthly fee of $15,000 and Mr. Danneberg is reimbursed
directly for all reasonable out-of-pocket business expenses.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Consolidated Financial Statements
Report of Independent Accountants
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994
Consolidated Balance Sheets at December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Consolidated Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
47
(b) Exhibits
2.1 Agreement and Plan of Merger by and among ADT Limited, Limited Apache,
Inc. and Tyco International Ltd. dated as of March 17, 1997.(6)
3.1 Memorandum of Association (as altered) and Bye-Laws of ADT Limited
(incorporating all amendments to May 26, 1992).(1)
3.2 Certified copy of a resolution approved at the Annual General Meeting of
common shareholders of ADT Limited held on October 12, 1993, approving
an increase in the authorized common share capital of ADT Limited from
$19.5 million to $22.0 million.(4)
4.1 Indenture relating to the senior notes dated August 4, 1993 among ADT
Operations, as issuer, and ADT Limited and certain subsidiaries of ADT
Operations, as guarantors, and The Chase Manhattan Bank (National
Association), as trustee, and the form of senior note included
therein.(2)
4.2 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)
4.3 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. (5)
4.4 Rights Agreement between ADT Limited and Citibank, N.A. dated as of
November 6, 1996.(9)
4.5 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.(9)
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)*
48
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)*
10.6 Employment Agreement dated May 8, 1993 between ADT Limited and Michael
Anthony Ashcroft.(2)*
10.7 Amendment to Employment Agreement dated December 18, 1996 between ADT
Limited and Michael Anthony Ashcroft.(9)*
10.8 Employment agreement between ADT Limited and Stephen J. Ruzika dated as
of February 26, 1997.(9)*
10.9 Employment agreement between ADT, Inc. and Ron G. Lakey dated as of
January 16, 1997.(9)*
10.10 Agreement between ADT Automotive Holdings, Inc. and Michael J.
Richardson dated as of January 29, 1997.(9)*
10.11 Incentive Compensation Agreement between ADT, Inc. and Michael J.
Richardson dated as of February 10, 1997.(9)*
10.12 Severance Agreement between ADT Security Services, Inc. and Raymond
Gross dated as of February 26, 1997.(9)*
10.13 Consulting Agreement between ADT, Inc. and John E. Danneberg dated as of
August 28, 1996.(9)*
10.14 Form of Indemnification Agreement.(9)*
10.15 The ADT 1993 Long-Term Incentive Plan (as amended February 29,
1996).(3)*
10.16 Purchase Agreement dated June 29, 1995 among ADT Operations, Inc., ADT
Limited and Merrill Lynch & Co., Inc. and the related pricing agreement
(5)
10.17 US$200,000,000 Credit Agreement dated as of January 9, 1997, among ADT
Operations, Inc., as the Borrower, and Certain Commercial Lending
Institutions as the Lenders, and the Bank of Nova Scotia as the Agent
for the Lenders.
10.18 Guaranty, dated as of January 9, 1997, made by ADT Limited in favor of
each of the Lender Parties (as defined therein).
10.19 Subsidiary Guarantor Guaranty, dated as of January 9, 1997, made by each
Subsidiary Guarantor (as defined therein) in favor of each of the Lender
Parties (as defined therein).
10.20 Pound Sterling 90,000,000 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.
10.21 ADT Limited Guarantee dated as of March 25, 1997, in respect of a
Pound Sterling 90,000,000 facility made available to ADT Finance Plc.
10.22 Pound Sterling 27,000,000 On Demand Facility Letter dated January 3,
1997, between ADT Finance Plc and The Bank of Nova Scotia.
10.23 ADT Limited Guarantee in respect of the obligations of ADT Finance Plc
under a Pound Sterling 27,000,000 Facility Letter dated January 3,
1997.
10.24 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.(7)
10.25 Agreement among ADT Limited, Thomas J. Gibson and Integrated Transport
Systems Limited dated December 29, 1995.(8)*
10.26 Agreement among ADT Limited, David B. Hammond and Integrated Transport
Systems Limited dated December 29, 1995.(8)*
10.27 Common Share Purchase Warrant issued by ADT Limited on July 1, 1996 to
Republic Industries, Inc.(10)
49
11.1 Statement regarding the computation of earnings per common share.
21.1 List of subsidiaries of ADT Limited
23.1 Consent of independent accountants to the incorporation by reference of
this Annual Report into Form S-3 and Forms S-8.
27 Financial Data Schedule (for SEC use only).
- --------------
(1) Previously filed as an Exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.
(2) Previously filed as an Exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993.
(3) Previously filed as an Exhibit to the Registrant's Registration
Statement dated May 16, 1996, on Form S-8 filed May 17, 1996.
(4) Previously filed as an Exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993.
(5) Previously filed as an Exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995.
(6) Previously filed as an Exhibit to the Registrant's Current Report
dated March 24, 1997 on Form 8-K filed March 25, 1997.
(7) Previously filed as an Exhibit to the Registrant's Current Report
dated December 29, 1995 on Form 8-K filed January 16, 1996.
(8) Previously filed as an Exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995.
(9) Previously filed as an Exhibit to the Registrant's Schedule 14D-9
dated March 3, 1997.
(10) Previously filed as an Exhibit to the Registrant's Current Report
dated July 10, 1996 on Form 8-K filed July 11, 1996.
* Management contract or compensatory plan.
50
(c) Reports on Form 8-K
Current Reports on Form 8-K were filed by ADT Limited on September 19, 1996,
October 21, 1996 and November 12, 1996 regarding the acquisition of and merger
with Automated Security (Holdings) PLC.
A Current Report on Form 8-K was filed by ADT Limited on March 25, 1997,
regarding the Agreement and Plan of Merger with Tyco International Ltd.
51
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.
ADT LIMITED
By: /s/ Stephen J. Ruzika
----------------------
Stephen J. Ruzika
Director and Executive
Vice President
Date: March 26, 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.
SIGNATURE TITLE DATE
/s/ Michael A. Ashcroft Chairman of the Board and Chief March 26, 1997
- -------------------------- Executive Officer (Principal Executive
Michael A. Ashcroft Officer)
/s/ Stephen J. Ruzika Chief Financial Officer, Executive Vice March 26, 1997
- -------------------------- President and Director
Stephen J. Ruzika (Principal Financial Officer and
Principal Accounting Officer)
/s/ John E. Danneberg Director March 26, 1997
- --------------------------
John E. Danneberg
/s/ Alan B. Henderson Director March 26, 1997
- --------------------------
Alan B. Henderson
/s/ James S. Pasman, Jr. Director March 26, 1997
- --------------------------
James S. Pasman, Jr.
/s/ W. Peter Slusser Director March 26, 1997
- --------------------------
W. Peter Slusser
/s/ William W. Stinson Director March 26, 1997
- --------------------------
William W. Stinson
/s/ Raymond S. Troubh Director March 26, 1997
- --------------------------
Raymond S. Troubh
52
ADT LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Page
Consolidated Financial Statements
Report of Independent Accountants..........................................F-2
Consolidated Statements of Income
for the years ended December 31, 1996, 1995 and 1994.....................F-3
Consolidated Balance Sheets at December 31, 1996 and 1995..................F-4
Consolidated Statements of Cash Flows
for the years ended December 31, 1996, 1995 and 1994.....................F-5
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1996, 1995 and 1994.....................F-8
Notes to Consolidated Financial Statements................................F-10
Consolidated Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts...........................F-78
The consolidated financial statements and consolidated financial statement
schedules were approved by the Board of Directors of ADT Limited on March 26,
1997.
F-1
ADT LIMITED
Report of Independent Accountants
To the Board of Directors and Shareholders of ADT Limited
We have audited the consolidated financial statements and the consolidated
financial statement schedules of ADT Limited listed in the index on page F-1.
These consolidated financial statements and consolidated financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and consolidated financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall consolidated 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 consolidated financial position
of ADT Limited as at December 31, 1996 and 1995, and the consolidated results
of its operations and cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles in the United States. In addition, in our opinion, the
consolidated financial statement schedules referred to above, when considered
in relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As discussed in note 6 to the consolidated financial statements, effective
January 1, 1996, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of".
COOPERS & LYBRAND
Hamilton, Bermuda
March 26, 1997
F-2
ADT LIMITED
Consolidated Statements of Income
Year ended December 31 1996 1995 1994
Notes $m $m $m
Net sales 4 1,704.0 1,783.8 1,629.4
Cost of sales (920.0) (990.4) (913.4)
Selling, general and administrative expenses (567.5) (558.4) (505.5)
Restructuring and other non-recurring charges 5 (237.3) (34.2) (4.5)
Charge for the impairment of long-lived assets 6 (744.7) - -
------- ------- -------
Operating (loss) income 4 (765.5) 200.8 206.0
Interest income 27.5 16.2 15.2
Interest expense (101.0) (116.3) (99.3)
Gain (loss) on disposal of businesses 7,34 1.7 (36.6) (0.3)
Other income less expenses 8 128.8 (5.0) (4.1)
------- ------- -------
(Loss) income before income taxes (708.5) 59.1 117.5
Income taxes 9 21.8 (28.1) (34.9)
------- ------- -------
(Loss) income from continuing operations (686.7) 31.0 82.6
Loss from discontinued operations 10 - - (3.3)
------- ------- -------
(Loss) income before extraordinary items (686.7) 31.0 79.3
Extraordinary items (net of income taxes) 11 (8.4) (9.8) -
------- ------- -------
Net (loss) income (695.1) 21.2 79.3
Dividends on preference shares 28 (0.3) (0.3) (13.3)
------- ------- -------
Net (loss) income available to common shareholders (695.4) 20.9 66.0
======= ======= =======
Primary and fully diluted (loss) earnings
per common share 12 $ $ $
(Loss) income from continuing operations (5.01) 0.22 0.51
Loss from discontinued operations - - (0.03)
Extraordinary items (0.06) (0.07) -
------- ------- -------
Net (loss) income per common share (5.07) 0.15 0.48
======= ======= =======
See notes to consolidated financial statements.
F-3
ADT LIMITED
Consolidated Balance Sheets
At December 31 1996 1995
Notes $m $m
Assets
Current assets:
Cash and cash equivalents 215.9 350.9
Accounts receivable - net 13 210.7 196.4
Inventories 14 39.2 38.0
Prepaid expenses and other current assets 15 117.0 34.5
------- -------
Total current assets 582.8 619.8
Property, plant and equipment - net 16 1,513.6 1,571.3
Goodwill and other intangibles - net 17 458.0 1,053.6
Investment in and loans to associate 18,34 - 88.8
Long-term investments 19 100.6 2.0
Other long-term assets 20 75.4 84.2
------- -------
Total assets 2,730.4 3,419.7
======= =======
Liabilities and shareholders' equity
Current liabilities:
Short-term debt 21 209.2 44.9
Accounts payable 138.0 112.0
Other current liabilities 22 293.6 227.2
------- -------
Total current liabilities 640.8 384.1
Long-term debt 23 910.1 1,174.8
Deferred revenue 24 146.1 137.4
Deferred income taxes 25 91.5 142.4
Other long-term liabilities 26 182.1 135.2
Minority interests 27 - 15.6
------- -------
Total liabilities 1,970.6 1,989.5
------- -------
Commitments and contingencies 32
Convertible redeemable preference shares 28 - 4.9
Shareholders' equity:
Common shares 30 14.1 13.9
Additional paid-in capital
Share premium 882.5 858.0
Contributed surplus 1,563.1 1,563.1
Treasury shares 31 (79.7) (79.7)
Accumulated deficit (1,598.8) (903.4)
Cumulative currency translation adjustments (21.4) (26.6)
------- -------
Total shareholders' equity 759.8 1,425.3
------- -------
Total liabilities and shareholders' equity 2,730.4 3,419.7
======= =======
See notes to consolidated financial statements
F-4
ADT LIMITED
Consolidated Statements of Cash Flows
Year ended December 31 1996 1995 1994
$m $m $m
Cash flows from operating activities
Net (loss) income (695.1) 21.2 79.3
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Charge for the impairment of long-lived assets 744.7 - -
Depreciation 206.2 209.0 189.0
Goodwill and other intangibles amortization 18.6 38.9 37.7
Restructuring and other non-recurring charges 217.4 32.7 4.5
Interest on ITS Vendor Note (8.9) - -
Liquid Yield Option Notes discount amortization 20.3 9.4 -
Yield maintenance amortization -
senior notes - ASH 1.5 1.1 0.6
Refinancing costs amortization 3.7 5.3 5.7
Deferred income taxes (39.5) 18.4 24.9
Extraordinary items 8.4 9.8 -
Gain on disposal of property, plant
and equipment (2.4) (1.7) (3.1)
(Gain) loss on disposal of businesses (1.7) 36.6 0.3
(Gain) loss on disposal of investment
in associates (1.2) 5.1 (4.2)
Gain arising from the ownership of investments (53.2) (0.1) (17.3)
Write off in value of associate - - 30.7
Settlement gain (69.7) - -
Gain on currency transactions (9.7) (0.9) (2.1)
Loss on disposal of discontinued operations - - 3.7
Other 2.0 1.1 (2.6)
Changes in assets and liabilities:
Accounts receivable (11.9) (36.3) (14.3)
Inventories (3.3) 0.6 (3.9)
Other assets (11.7) (5.7) 3.6
Accounts payable 11.3 6.1 16.5
Deferred revenue 4.3 2.7 8.0
Other liabilities (21.4) (16.3) 6.1
----- ----- -----
Net cash provided by operating activities 308.7 337.0 363.1
----- ----- -----
See notes to consolidated financial statements
F-5
Cash flows from investing activities
Purchase of property, plant and equipment (344.4) (325.8) (282.6)
Disposal of property, plant and equipment 10.0 8.0 13.5
Acquisition of businesses (25.5) (68.3) (14.8)
Purchase of customer contracts (34.6) (0.5) (2.3)
Purchase of other investments (6.8) (0.4) (6.1)
Disposal of businesses 3.0 254.8 10.0
Disposal of discontinued operations - - 4.6
Disposal of investment in and loans
to associates 15.4 7.8 40.2
Disposal of other investments 54.1 0.2 72.5
Other 0.4 5.6 (6.6)
----- ----- -----
Net cash utilized by investing activities (328.4) (118.6) (171.6)
----- ----- -----
Year ended December 31 1996 1995 1994
$m $m $m
Cash flows from financing activities
Net receipt (repayments) of short-term debt 10.9 (103.9) (26.2)
Repayments of long-term debt (209.9) (216.9) (1.3)
Repayment of long-term acquisition debt - (39.6) -
Proceeds from long-term debt 86.8 314.0 240.6
Debt refinancing costs - (12.0) (1.0)
Purchase of senior subordinated notes (24.0) (33.7) -
Proceeds from issue of common shares 24.7 7.0 7.3
Redemption of convertible redeemable
preference shares (4.9) - (420.2)
Dividends paid by ADT (0.3) (0.3) (18.1)
Dividends paid by ASH - (4.5) (3.3)
Other - (0.3) (11.7)
----- ----- -----
Net cash utilized by financing activities (116.7) (90.2) (233.9)
----- ----- -----
Effect of currency translation on cash
and cash equivalents 1.4 0.8 2.1
----- ----- -----
Net (decrease) increase in cash and (135.0) 129.0 (40.3)
cash equivalents
Cash and cash equivalents at beginning of year 350.9 221.9 262.2
----- ----- -----
Cash and cash equivalents at end of year 215.9 350.9 221.9
===== ===== =====
Cash payments during the year for
Interest 77.3 103.5 86.0
Income taxes 8.9 15.0 10.3
Non-cash investing and financing activities
Exchange of Liquid Yield Option Notes 0.4 - -
Conversion of convertible redeemable
preference shares - 0.1 -
Exchange of non-voting exchangeable shares - - 9.7
In conjunction with the acquisition of
businesses, net (assets) liabilities
were assumed as follows
Goodwill and other intangibles 10.3 123.0 12.7
Cash paid (net of cash assumed) (25.5) (68.3) (14.8)
----- ----- -----
Net (assets) liabilities assumed (15.2) 54.7 (2.1)
===== ===== =====
See notes to consolidated financial statements
F-6
Year ended December 31 1996 1995 1994
$m $m $m
In conjunction with the disposal of businesses,
net assets were disposed as follows
Cash received (net of cash disposed) 3.0 254.8 10.0
Notes received - 87.9 10.5
Ordinary shares received - 0.9 -
Deferred consideration - 5.6 -
Currency translation adjustments transferred on
disposal of businesses - (22.2) -
(Gain) loss on disposal of businesses (including
net unamortized goodwill and other intangibles
and cumulative currency translation
adjustments) (1.7) 36.6 0.3
--- ----- ----
Net assets disposed 1.3 363.6 20.8
=== ===== ====
In conjunction with the disposal of
discontinued operations, net assets
were disposed as follows
Cash received (net of cash disposed) - - 4.6
Loss on disposal of discontinued operations
(including net unamortized goodwill and
other intangibles) - - 3.7
--- ----- ----
Net assets disposed - - 8.3
=== ===== ====
See notes to consolidated financial statements
F-7
ADT LIMITED
Consolidated Statements of Changes in Shareholders' Equity
Cumulative
Accum- currency
Common Share Contributed Treasury ulated translation
shares premium surplus shares deficit adjustments Total
$m $m $m $m $m $m $m
At January 1, 1994 -
as previously reported 13.0 710.8 1,442.7 (102.9) (1,060.9) (45.4) 957.3
Pooling of interests with
ASH (note 3) 0.7 133.1 126.5 - 77.1 (29.9) 307.5
----- ----- ------- ------ ------- ----- -------
At January 1, 1994 -
as restated 13.7 843.9 1,569.2 (102.9) (983.8) (75.3) 1,264.8
Common shares issued 0.1 7.2 - - - - 7.3
Exchange of non-voting
exchangeable shares - - (8.1) 23.1 - - 15.0
Reversal of redemption
premium on convertible
preference shares - - 1.8 - - - 1.8
Net income - - - - 79.3 - 79.3
Dividends on ADT preference
shares - - - - (13.3) - (13.3)
Dividends on ASH
preference shares (i) - - - - (4.3) - (4.3)
Currency translation
adjustments - - - - - 25.9 25.9
----- ----- ------- ------ ------- ----- -------
At December 31, 1994 13.8 851.1 1,562.9 (79.8) (922.1) (49.4) 1,376.5
Common shares issued 0.1 6.9 - - - - 7.0
Conversion of convertible
preference shares - - 0.3 - - - 0.3
Exchange of non-voting
exchangeable shares - - (0.1) 0.1 - - -
Net income - - - - 21.2 - 21.2
Dividends on ADT
preference shares - - - - (0.3) - (0.3)
Dividends on ASH
preference shares (i) - - - - (2.2) - (2.2)
Currency translation
adjustments - - - - - (0.5) (0.5)
Currency translation
adjustments transferred
on disposal of businesses
and associates - - - - - 23.3 23.3
----- ----- ------- ------ ------- ----- -------
At December 31, 1995 13.9 858.0 1,563.1 (79.7) (903.4) (26.6) 1,425.3
Common shares issued 0.2 24.5 - - - - 24.7
Exchange of Liquid Yield
Option Notes - - 0.3 - - - 0.3
Net loss - - - - (695.1) - (695.1)
Dividends on ADT
preference shares - - - - (0.3) - (0.3)
Currency translation and
other adjustments - - (0.3) - - 5.2 4.9
----- ----- ------- ------ ------- ----- ------
At December 31, 1996 14.1 882.5 1,563.1 (79.7) (1,598.8) (21.4) 759.8
===== ===== ======= ====== ======= ===== ======
See notes to consolidated financial statements
F-8
ADT LIMITED
Consolidated Statements of Changes in Shareholders' Equity (continued)
(i) Prior to the Company's merger with Automated Security (Holdings) PLC
("ASH") in September 1996 (note 3), ASH had issued and outstanding two classes
of convertible cumulative redeemable preference shares. The dividends on
these preference shares have been charged to the accumulated deficit account
during the relevant periods. Given the terms and conditions of the preference
shares and that the holders of these preference shares received ADT common
shares at the time of the Company's merger with ASH, the dividends have not
been included in the calculation of earnings per common share in any period
presented.
See notes to consolidated financial statements
F-9
ADT LIMITED
Notes to Consolidated Financial Statements
Note 1 - Basis of consolidated financial statements
The consolidated financial statements have been prepared in United States
dollars in accordance with generally accepted accounting principles in the
United States and as described in notes 2 and 3. The preparation of
consolidated financial statements in accordance with generally accepted
accounting principles in the United States requires management to make
extensive use of estimates and assumptions that affect the reported amounts 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 reporting period. These management estimates
include an allowance for doubtful receivables, estimates of future cash flows
associated with assets, asset impairments, and useful lives for depreciation
and amortization, loss contingencies, income taxes and valuation allowances
for deferred tax assets, and the determination of discount and other rate
assumptions for pension and post-retirement employee benefit expenses. Actual
results could differ from those estimates. Certain figures at December 31,
1995 and for the years ended December 31, 1995 and 1994 have been reclassified
to conform to the 1996 presentation.
Note 2 - Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements incorporate the financial statements of
ADT Limited ("ADT"), a company incorporated in Bermuda, and its subsidiaries
(the "Company"). ADT is a holding company with no independent business
operations or assets other than its investment in its subsidiaries,
intercompany balances and holdings of cash and cash equivalents. ADT's
businesses are conducted through its subsidiaries. The Company consolidates
companies in which it owns or controls more than fifty per cent of the voting
shares unless control is likely to be temporary. The results of subsidiary
companies acquired or disposed of during the financial 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 (note
3). All significant intercompany balances and transactions have been
eliminated in consolidation.
Associates
For investments in which the Company owns or controls more than twenty per
cent of the voting shares, or over which it exerts significant influence over
operating and financial policies, the equity method of accounting is used in
the consolidated financial statements. The investment in associates is shown
in the consolidated balance sheets as the Company's proportion of the
underlying net assets of these companies plus any goodwill attributable to the
acquisitions less any write off required for a permanent diminution in value.
The consolidated statements of income include the Company's share of net
income of associates less applicable goodwill amortization.
Currency translation
The results of subsidiaries and associates located outside the United States
which account in a functional currency other than United States dollars are
translated into United States dollars at the average rate of exchange for the
year. The assets and liabilities of subsidiaries and associates located
outside the United States which account in a functional currency other than
United States dollars are translated into United States dollars at the rate
ruling at the balance sheet date. Currency translation adjustments arising
from the use of differing exchange rates from period to period are included as
a separate component in shareholders' equity.
The gains and losses arising from currency transactions are included in the
consolidated statements of income.
F-10
Cash and cash equivalents
Cash and cash equivalents include cash on hand, demand deposits and highly
liquid instruments, with an original maturity of three months or less. As a
result of the short-term maturity of these financial instruments their carrying
value is approximately equal to their fair market value.
Inventories
Inventories are carried at the lower of cost or net realizable value. Cost
includes an addition for production overheads where appropriate and is
determined on a first-in first-out basis.
Property, plant and equipment
Property, plant and equipment are carried at cost less accumulated
depreciation. Depreciation is provided to write off the cost of the assets
over their estimated useful lives, using the straight line method, at the
following annual rates:
Owned property and related improvements 2% to 4%
Leased property and related improvements term of lease
Subscriber systems shorter of actual contract
duration or 7%, and 10%
Other plant and equipment 7% to 40%
Repairs and maintenance costs are expensed as incurred. Gains and losses
arising on the disposal of property, plant and equipment are included in the
consolidated statements of income.
Goodwill and other intangibles
The goodwill that arises where the acquisition cost of subsidiaries and
associates exceeds the fair values attributable to the underlying net assets
is capitalized and is being amortized on a straight line basis over its
estimated useful life, covering periods not exceeding forty years. Goodwill
arising on the acquisition of associates is included in investment in
associates. Costs attributable to the acquisition, including the costs of any
reorganization arrangements, less related income, are treated as reducing the
value of the net assets acquired. The carrying value of goodwill is evaluated
periodically in relation to the operating performance and future undiscounted
cash flows of the underlying businesses. Where, in the opinion of the
Company, a permanent diminution in the value of goodwill has occurred, the
amount of the diminution is included in the consolidated statements of income.
Other intangibles principally comprise customer contracts which are being
amortized on a straight line basis over periods not exceeding ten years.
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 liabilities and assets are determined
based on the differences between the consolidated financial statements and tax
bases of assets and liabilities, using tax rates in effect for the years in
which the differences are expected to reverse.
F-11
Share premium and contributed surplus
In accordance with the Bermuda Companies Act 1981, when ADT 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 ADT 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 ADT is credited,
where applicable, to contributed surplus which is, subject to certain
conditions, a distributable reserve.
Net sales
Net sales represent the invoiced value of goods and services to outside
customers net of sales-related taxes.
Revenue recognition
Revenue from services or products is recognized in the consolidated statements
of income as services are rendered or deliveries made. Service charges, which
consist of subscriber billings for services not yet rendered, are deferred and
taken into income as earned and the deferred element is all included in
long-term liabilities. Revenue from the installation of electronic security
systems is recognized when installations are completed.
Pensions and post-retirement benefits
The Company operates various pension and post-retirement benefit plans
designed in accordance with conditions and practices in the countries
concerned. Contributions or accruals for costs are based on periodic actuarial
valuations and are charged to the consolidated statements of income on a
systematic basis over the expected average remaining service lives of current
employees.
Note 3 - Merger with Automated Security (Holdings) PLC
In September 1996 ADT merged with and acquired the whole of the issued capital
of ASH, a United Kingdom quoted company. ASH is engaged in the provision of
electronic security services in North America and Europe. Under the terms of
the transaction, ASH shareholders received 3 ADT common shares for every 92
ASH ordinary shares, 2 ADT common shares for every 31 ASH 5 per cent
convertible cumulative redeemable preference shares and 2 ADT common shares
for every 31 ASH 6 per cent convertible cumulative redeemable preference
shares. The total consideration in respect of the whole of the issued capital
of ASH consisted of the issue of 7,034,940 ADT common shares (note 30(i)).
The merger with and acquisition of ASH by ADT has been accounted for by means
of the pooling of interests method of accounting pursuant to Accounting
Principles Board Opinion No. 16. The pooling of interests method of
accounting assumes that the combining companies have been merged since their
inception, and the historical consolidated financial statements for periods
prior to consummation of the merger are restated as though the companies have
been combined since their inception. Accordingly, the consolidated financial
statements give effect to the transaction by means of the pooling of interests
and have been restated.
F-12
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 financial year end is November 30, with appropriate
quarterly period ends of February 28, May 31, and August 31. These periods
have not yet been amended in order to facilitate timely reporting. It is
these periods which have been used to give effect to the pooling of interests
with ADT. Certain figures of ASH for all periods presented have been
reclassified to conform to the ADT presentation.
Combined and separate results of ADT and ASH for the periods preceding the
merger were as follows:
ADT Group ASH Group Adjustments Combined
$m $m $m $m
Six months ended June 30, 1996 (unaudited)
Net sales 715.6 118.1 - 833.7
Extraordinary items (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 (9.8) - - (9.8)
Net income (loss) 41.5 (18.7) (1.6)(ii) 21.2
------ ------ ------ ------
Year ended December 31, 1994
Net sales 1,375.9 253.5 - 1,629.4
Net income (loss) 111.0 (31.7) - 79.3
------ ------ ------ ------
(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.
F-13
Note 4 - Segment information
The Company is engaged in two service businesses, electronic security services
in North America and Europe and vehicle auction and related services in the
United States. The Company's principal activities in the electronic security
services business are the electronic monitoring and maintenance of its
installed base of security systems and the installation of new, monitored
security systems to add to its installed base. The Company's vehicle auction
services business operates a network of large auction centers which provide a
range of vehicle redistribution services and an organized wholesale
marketplace for the sale and purchase of used vehicles.
Year ended December 31 1996 1995 1994
$m $m $m
Net sales
Electronic security services (i) 1,406.2 1,350.9 1,253.3
Vehicle auction services (ii) 297.8 432.9 376.1
------- ------- -------
1,704.0 1,783.8 1,629.4
======= ======= =======
Operating (loss) income
Electronic security services (i) (756.5) 172.4 182.1
Vehicle auction services (ii) 27.1 70.2 62.7
Corporate (iii) (36.1) (41.8) (38.8)
------- ------- -------
(765.5) 200.8 206.0
======= ======= =======
(i) In 1996 electronic security services operating income was stated after
a charge of $232.5 million (1995 - $21.4 million) relating to restructuring
and other non-recurring items (note 5(i)) and after a charge for the
impairment of long-lived assets of $731.7 million (note 6(i)).
During 1996 the Company disposed of a European electronic security services
business operated by the ASH group. The net gain on disposal of $1.7 million
was included in the gain on disposal of businesses (note 7(iii)).
In November 1995 the Company disposed of its entire European electronic
article surveillance business. The net gain on disposal of $31.4 million was
included in the loss on disposal of businesses (note 7(ii)).
During 1995 the Company disposed of certain of the European electronic
security services operations and businesses operated by the ASH group. The
net loss on disposal of $2.2 million was included in the loss on disposal of
businesses (note 7(iii)).
During 1994 the Company disposed of its entire Australasian electronic
security service businesses, and also disposed of certain of the North
American electronic security services operations of the ADT group and the ASH
group. The net loss on disposal of $0.3 million was included in the loss on
disposal of businesses (note 7(iii)).
F-14
The following information represents the amounts included in the electronic
security services business segment information above which related to the
businesses and operations disposed of.
Year ended December 31 1996 1995 1994
$m $m $m
Net sales 0.7 62.7 97.4
Operating loss (0.9) (5.3) (1.0)
(ii) In 1996 vehicle auction services operating income was stated after a
charge for the impairment of long-lived assets of $13.0 million (note 6(ii)).
In December 1995 the Company disposed of an interest in its United Kingdom
and Continental European vehicle auction services businesses ("European
Auctions") (notes 18 and 34). The net loss on disposal of $65.8 million was
included in the loss on disposal of businesses (note 7(i)).
The following information represents the amounts included in the vehicle
auction services business segment information above which related to the
businesses disposed of.
Year ended December 31 1996 1995 1994
$m $m $m
Net sales - 163.1 122.8
Operating income - 35.9 29.0
(iii) Corporate expenses comprise administrative, legal and general
corporate expenses net of other income. In 1996 corporate expenses were
stated after a charge of $4.8 million (1995 - $12.8 million; 1994 - $4.5
million) relating to restructuring and other non-recurring items (note 5(ii)).
In 1996 corporate expenses included $11.3 million related to professional and
other transaction costs arising in connection with the merger of ADT and ASH
and the terminated merger with Republic Industries, Inc. ("Republic"),
together with various refinancing costs incurred by the ASH group prior to the
merger with ADT of $1.6 million (1995 - $5.0 million).
(iv) The costs incurred in producing and communicating advertising are
generally expensed when incurred. The total amount of advertising expense for
the year included in the consolidated statements of income amounted to $65.7
million (1995 - $58.9 million; 1994 - $47.1 million).
F-15
Year ended December 31 1996 1995 1994
$m $m $m
Depreciation and amortization
Electronic security services 209.2 221.9 202.5
Vehicle auction services 15.0 25.4 23.5
Corporate 0.6 0.6 0.7
------- ------- -------
224.8 247.9 226.7
======= ======= =======
Capital expenditures
Electronic security services 314.2 292.4 259.2
Vehicle auction services 25.7 31.8 23.1
Corporate 4.5 1.6 0.3
------- ------- -------
344.4 325.8 282.6
======= ======= =======
Identifiable assets
Electronic security services 1,898.0 2,514.9 2,337.8
Vehicle auction services 465.1 438.1 809.8
Corporate 367.3 466.7 264.7
------- ------- -------
2,730.4 3,419.7 3,412.3
======= ======= =======
Net sales
North America 1,358.6 1,228.5 1,121.8
Europe 345.4 555.3 490.9
Australasia - - 16.7
------- ------- -------
1,704.0 1,783.8 1,629.4
======= ======= =======
Operating (loss) income
North America (483.6) 153.0 156.8
Europe (281.9) 47.8 49.0
Australasia - - 0.2
------- ------- -------
(765.5) 200.8 206.0
======= ======= =======
Identifiable assets
North America 2,300.5 2,563.8 2,295.7
Europe 429.9 855.9 1,116.6
------- ------- -------
2,730.4 3,419.7 3,412.3
======= ======= =======
F-16
Note 5 - Restructuring and other non-recurring charges
Year ended December 31 1996 1995 1994
$m $m $m
Electronic security services (i) (232.5) (21.4) -
Corporate (ii) (4.8) (12.8) (4.5)
------ ----- ----
(237.3) (34.2) (4.5)
====== ===== ====
During 1995 the Company commenced a strategic review of its business
operations and its corporate organizational structure with a view to
developing a business strategy which would place the Company in a stronger
position to deal with the changing business environment and challenges facing
its core service businesses in the late 1990s. During 1996 this strategic
review process continued and was extended to include a significantly expanded
agenda.
(i) As part of the strategic review the Company commenced an evaluation of
the administrative, accounting, management information systems and
technological infrastructures of its United States electronic security services
division (the "Re-Engineering Project"). The Re-Engineering Project, which is
on-going, is intended to modify and improve the entire structure of the
business operations. As a consequence of the Re-Engineering Project, and
incorporating the effects of the acquisition of Alert Centre, Inc. ("Alert"),
in each of the fourth quarters of 1996 and 1995 senior executive management
approved a restructuring plan which resulted in a charge for restructuring and
other non-recurring items in the United States electronic security services
division of $131.6 million and $19.4 million, respectively.
The United States electronic security services division restructuring charge
in 1996 was principally attributable to planned technological infrastructure
enhancements to facilitate further consolidation of the Company's entire
customer monitoring center network together with all related operations, which
it is expected will be substantially completed by December 1997. The
restructuring charge included the write off of certain property, plant and
equipment of $82.6 million, provision for idle property leases of $18.9
million, the termination of certain contractual obligations and other
settlement costs of $9.4 million, and other integration and restructuring
costs of $20.7 million. The amounts paid and charged in 1996 against the
provisions for the termination of certain contractual obligations and other
settlement costs, and against other integration and restructuring costs,
amounted to $4.8 million and $4.3 million, respectively.
The United States electronic security services division restructuring charge
in 1995 was principally attributable to the closure of the Parsippany, New
Jersey and associated corporate offices, which will be substantially completed
by March 1997. Full implementation of the restructuring plan will result in
the termination of approximately 250 employees of which approximately 180
employees had been terminated by December 31, 1996. Employee severance and
other associated costs included in the restructuring charge amounted to $13.6
million, the write off of certain property, plant and equipment amounted to
$1.9 million, and other integration and restructuring costs amounted to $3.9
million. The amounts paid and charged in 1996 against the provisions for
employee severance and other associated costs, and against other integration
and restructuring costs, amounted to $7.1 million and $3.5 million,
respectively.
F-17
During the fourth quarter of 1996, the Company commenced a strategic and
detailed review of the electronic security services businesses acquired as
part of the acquisition of ASH in September 1996. In December 1996 senior
executive management approved a restructuring plan which is intended to merge
and integrate fully the ASH group into the ADT group by December 1997, and
which resulted in a charge for restructuring and other non-recurring items in
the United Kingdom and the United States electronic security services
divisions of $68.6 million and $29.2 million, respectively.
The restructuring charge 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. The amounts paid and charged in 1996 against the
provisions for the termination of certain contractual obligations and other
settlement costs, and against other integration and restructuring costs,
amounted to $7.2 million and $1.0 million, respectively.
As part of the strategic review, in 1996 the Company also commenced an
evaluation of the customer monitoring center network in its Canadian
electronic security services division which resulted in a charge for
restructuring and other non-recurring items of $3.1 million. The
restructuring charge included the write off of certain property, plant and
equipment of $1.3 million and provision for idle property leases of $1.8
million, of which $0.2 million was paid and charged in 1996.
As part of the strategic review, in 1995 the Company also commenced an
evaluation of the management information systems of its United Kingdom
electronic security services division which resulted in a charge for
restructuring and other non-recurring items in 1995 of $2.0 million
principally relating to the write off of certain property, plant and equipment.
(ii) The effects of the Re-Engineering Project and the merger of the ASH
group into the ADT group resulted in a charge for restructuring and other
non-recurring items at the corporate level in 1996 of $4.8 million, comprising
other integration and restructuring costs, of which $3.0 million was paid and
charged in 1996.
During 1995 the Company also evaluated its group corporate structure, in
particular in the United Kingdom. As a result, in the fourth quarter of 1995,
senior executive management approved a restructuring plan, which was
substantially completed by December 1996, which resulted in a charge for
restructuring and other non-recurring items at the corporate level of $12.8
million.
The corporate restructuring charge included the provision for idle property
leases of $5.6 million, the termination of certain contractual obligations and
other settlement costs of $4.8 million, and employee severance for four
executives, all of whom were terminated during 1996, and other associated
costs, of $2.4 million. The amounts paid and charged in 1996 against the
provisions in the aforementioned categories were $0.6 million, $4.8 million and
$1.8 million, respectively.
The corporate restructuring charge in 1994 of $4.5 million was principally
attributable to the Company's corporate administration in the United Kingdom
and related to a provision for idle property leases.
F-18
Note 6 - Charge for the impairment of long-lived assets
Year ended December 31 1996 1995 1994
$m $m $m
Electronic security services (i) (731.7) - -
Vehicle auction services (ii) (13.0) - -
------ ------ ------
(744.7) - -
====== ====== ======
Effective January 1, 1996, the Company was required to adopt Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121").
SFAS 121 prescribes a methodology for assessing and measuring an impairment
loss that is significantly different from previous guidelines and procedures.
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 it is necessary to evaluate for and
calculate an impairment loss at the lowest level of asset grouping for which
there are identifiable cash flows. Under SFAS 121, if an asset being tested
for recoverability was acquired in a business combination accounted for using
the purchase method, the goodwill that arose in the transaction is included
in the impairment evaluation of that asset.
SFAS 121 requires that an impairment loss is recognized when the carrying
amount of an asset exceeds the sum of the estimated undiscounted future cash
flows of the asset. Under SFAS 121 an impairment loss is calculated as the
difference between the carrying amount of the asset, including the related
goodwill, and its estimated fair value. The carrying amount of the related
goodwill is eliminated before making any reduction in the carrying amount of
any other impaired long-lived asset.
Prior to the adoption of SFAS 121, the Company's policy was to evaluate for
impairment of long-lived assets, including goodwill, on an aggregate basis for
each business segment. Management has determined that within the electronic
security services division the lowest level of asset grouping referred to
above can be determined on a country by country basis and, with effect from
the first quarter of 1996, further split principally in terms of commercial
and residential sectors. 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. Within the
vehicle auction services division the lowest level of asset grouping can be
determined principally on an individual auction center basis, and the assets
principally comprise land and real estate, which are included in property,
plant and equipment, and the related goodwill. Management has estimated the
fair values referred to above by using an analysis of estimated discounted
future cash flows as the best available estimate of fair value. The basis of
the calculation was the Company's business strategy, plans and financial
projections, and an appropriate discount factor based on the Company's
estimated cost of capital.
F-19
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, in the first quarter of 1996 the
Company recorded an aggregate non-cash charge for the impairment of long-lived
assets of $744.7 million, as a separate line item in the consolidated
statements of income, with a consequential tax credit of $10.8 million. The
$744.7 million impairment charge comprised $731.7 million relating to the
electronic security services division and $13.0 million relating to the
vehicle auction services division.
(i) The $731.7 million impairment charge in the electronic security
services division comprised $397.1 million related to the ADT group and $334.6
million related to the ASH group.
The $397.1 million impairment charge in the electronic security services
division of the ADT group related to an impairment in the carrying value of
subscriber systems principally in the commercial sector, including related
goodwill which principally arose on the acquisition of ADT Security Services
in 1987 of $395.3 million and other assets of $1.8 million. 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, have now been complemented by a
significant residential electronic security services operation. This was a
major factor in the Company's decision to commence the Re-Engineering Project
in 1995, which is on-going. In the context of the Re-Engineering Project and
changes in the electronic security services business environment, the
electronic security services operations have now been reorganized along
separate commercial and residential business lines, rather than on an
aggregate geographic basis, with effect from the first quarter of 1996, and
which is fully supported by management and financial reporting systems that
now record the results and cash flows of each sector separately. When the
financial projections and estimated future cash flows of the commercial sector
were analyzed separately, they indicated that the carrying amount of the
related assets may not be fully recoverable. This is reflective of increased
competition and other pricing factors as well as changes in the business
environment. Accordingly, upon adoption of SFAS 121 the Company evaluated the
commercial sector assets for impairment with a resultant charge being
recorded. In the United States the impairment charge amounted to $303.4
million. In Canada, where the business performance has continued to be
disappointing, the impairment charge amounted to $56.7 million. In Europe,
the impairment charge amounted to $37.0 million, principally due to the
business performance of certain countries not meeting previous expectations.
The $334.6 million impairment charge in the electronic security services
division of the ASH group related to an impairment in the carrying value of
subscriber systems of $121.0 million, and the carrying value of related
goodwill and other intangibles of $213.6 million 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. The
impairment charge amounted to $211.2 million and $123.4 million in the United
Kingdom and the United States, respectively. In both the United Kingdom and
the United States, the adoption of SFAS 121 coincided 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. In addition,
the aggregate fair value of ADT common shares issued to ASH shareholders on
merger was significantly less than ASH's consolidated net asset value. It was
for all these reasons that the Company reviewed the assets for impairment upon
adoption of SFAS 121.
(ii) The $13.0 million impairment charge in the vehicle auction services
division related 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.
F-20
Note 7 - Gain (loss) on disposal of businesses
Year ended December 31 1996 1995 1994
$m $m $m
United Kingdom and Continental European vehicle
auction services businesses (i) - (65.8) -
European electronic article
surveillance business (ii) - 31.4 -
Other (iii) 1.7 (2.2) (0.3)
---- ----- ----
1.7 (36.6) (0.3)
==== ===== ====
(i) In December 1995 the Company disposed of an interest in European
Auctions (note 34) for an aggregate consideration of $334.9 million (note 18).
The net loss on disposal of $65.8 million included $136.5 million relating
to the write off of net unamortized goodwill and other intangibles (note
17(ii)) and a $23.2 million charge related to cumulative currency translation
adjustments.
(ii) In November 1995 the Company disposed of its entire European
electronic article surveillance business for an aggregate consideration of
$54.0 million, comprising cash of $48.6 million and deferred consideration of
$5.4 million. The net gain on disposal of $31.4 million included a $2.1
million gain relating to cumulative currency translation adjustments.
(iii) During 1996 the Company disposed of a European electronic security
services business operated by the ASH group for an aggregate cash
consideration of $3.0 million. The net gain on disposal amounted to $1.7
million.
During 1995 the Company disposed of certain of the European electronic
security services operations and businesses operated by the ASH group for an
aggregate consideration of $6.1 million, comprising cash of $5.9 million and
deferred consideration of $0.2 million. The net loss on disposal of $2.2
million included $2.8 million relating to the write off of net unamortized
goodwill and other intangibles (note 17(ii)) and a $1.1 million charge
relating to cumulative currency translation adjustments.
During 1994 the Company disposed of its entire Australasian electronic
security services businesses, and also disposed of certain of the North
American electronic security services operations of the ADT group and the ASH
group. The aggregate consideration on these disposals amounted to $21.6
million, comprising cash of $11.1 million and notes receivable of $10.5
million, and the net loss on disposal of $0.3 million included $10.7 million
relating to the write off of net unamortized goodwill and other intangibles.
F-21
Note 8 - Other income less expenses
Year ended December 31 1996 1995 1994
$m $m $m
Gains and losses arising from the ownership of:
Short-term investments - - 3.0
Long-term investments (i) 54.4 (5.0) 18.5
Write off in value of associate (ii) - - (30.7)
Settlement gain (iii) 65.0 - -
Gains and losses on currency transactions 9.7 0.9 2.1
Other income less expenses - net (0.3) (0.9) 3.0
----- ---- ----
128.8 (5.0) (4.1)
===== ==== ====
(i) Realized gains and losses arising from the ownership of short-term and
long-term investments are principally 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 the Company's entire investment
in Limelight Group plc, a United Kingdom quoted company, which was previously
valued and accounted for by the Company at a nominal amount, a net gain of
$1.2 million relating to the disposal of the Company's equity investment in
Integrated Transport Systems Limited (notes 18 and 34) and other net losses of
$0.2 million principally arising from the disposal of other non-core
investments.
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 the Company's entire equity investments in Compagnie
Generale de Protection et Securite SA ("CGPS") and Microtech Security (UK)
Limited ("Microtech") which were held by the ASH group (note 18), and other
net gains of $0.1 million principally arising from the disposal of other
non-core investments. The net loss on disposal of $5.0 million included $7.3
million relating to the write off of net unamortized goodwill and other
intangibles and a $1.1 million charge relating to cumulative currency
translation adjustments.
During 1994 gains arising from the ownership of long-term investments
comprised $4.2 million relating to the disposal of the Company's entire equity
investment in Nu-Swift plc, a United Kingdom quoted company, and other net
gains of $14.3 million principally arising from the disposal of other non-core
investments.
(ii) The write off in value of associate in 1994 related to the Company's
entire equity investment in Arius, Inc. ("Arius"), a United States unquoted
company, which was held by the ASH group. A detailed assessment of the
investment in Arius was carried out during 1994 and as a result a net write
off of $30.7 million was recorded, of which $26.5 million related to the write
off of net unamortized goodwill and other intangibles and $2.9 million related
to other provisions. During 1995 Arius went into voluntary liquidation.
F-22
(iii) 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 ADT 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. At December 31, 1995 ADT did not recognize the award of any
damages in its consolidated statements of income and had deferred certain
legal costs incurred in connection with the litigation amounting to $11.1
million in order to match these costs with the award when recognized. These
deferred costs were included in other long-term assets (note 20).
In December 1996 ADT 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 ADT of $77.5 million in cash (included in
other current assets (note 15)) together with a further deferred payment of
$8.6 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 less expenses and $4.7 million was included in interest income.
Note 9 - Income taxes
(i) The provision for income taxes in the consolidated statements of
income was as follows:
Year ended December 31 1996 1995 1994
$m $m $m
Current income taxes:
US (6.5) (3.1) (4.6)
Non US (11.2) (6.6) (5.4)
----- ----- -----
(17.7) (9.7) (10.0)
----- ----- -----
Deferred income taxes: (note 25)
US (principally federal income taxes) 20.9 (18.0) (22.6)
Non US 18.6 (0.4) (2.3)
----- ----- -----
39.5 (18.4) (24.9)
----- ----- -----
21.8 (28.1) (34.9)
===== ===== =====
US current income taxes in 1996 comprise federal and state income taxes, and
in 1995 and 1994 principally comprise state income taxes.
F-23
(ii) (Loss) income before income taxes included the following components:
Year ended December 31 1996 1995 1994
$m $m $m
US (loss) income (485.6) 59.5 53.8
Non US (loss) income (222.9) (0.4) 63.7
------ ---- -----
(Loss) income before income taxes (708.5) 59.1 117.5
====== ==== =====
(iii) The reconciliation between notional US federal income taxes at the
statutory rate on consolidated (loss) income before income taxes and the
Company's income tax provision was as follows:
Year ended December 31 1996 1995 1994
$m $m $m
Notional US federal income taxes at the
statutory rate 248.0 (20.7) (41.1)
Adjustments to reconcile to the Company's
income tax provision:
US state income tax provisions, net (3.1) (2.7) (3.2)
Non US net (losses) earnings (70.6) (7.1) 14.6
SFAS 121 impairment (150.2) - -
Utilization and/or recognition of tax loss
carryforwards and other items (2.3) 2.4 (5.2)
------ ---- -----
Income tax provision 21.8 (28.1) (34.9)
====== ==== =====
Note 10 - Loss from discontinued operations
During 1994 the Company disposed of all its remaining non-core businesses,
principally the Insight Travel Group. The Company no longer has any interests
in non-core businesses. The aggregate cash consideration on these disposals
amounted to $11.2 million and the net loss amounted to $3.7 million, which
included $19.1 million relating to the write off of net unamortized goodwill
and other intangibles. The net income from operations for 1994 amounted to
$0.4 million on net sales of $80.6 million.
Note 11 - Extraordinary items
During 1996 and 1995 the Company reacquired in the market certain of its
senior subordinated notes (note 23(ii)), which was financed from cash on hand.
Extraordinary items included the loss arising on reacquisition of $0.9 million
(1995 - $0.9 million) and the write off of net unamortized deferred
refinancing costs of $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 $0.2 million (1995 -
$0.2 million).
F-24
In September 1996 the Company repaid in full all amounts owed by the ASH group
under its senior notes and bank credit agreement (note 23(vi)), which were
subsequently cancelled, 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 the Company 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 the Company, and subsequently cancelled (note 23(v)), and
which was financed from cash on hand and amounts drawn down under the sterling
denominated bank credit facility (note 23(vii)). 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 the Company 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 cancelled (note 23(iv)). 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 the Company repaid in full all amounts owed by the ADT group
under its previous bank credit agreement, which was subsequently cancelled.
The Company funded the repayment from the net proceeds of the issue of its
Liquid Yield Option Notes (note 23(iii)). 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.
Note 12 - (Loss) earnings per common share
The calculation of primary (loss) earnings per common share was based on the
weighted average of 137,114,415 (1995 - 138,283,458; 1994 - 136,148,361)
common shares in issue during the year which in 1996 did not allow for the
allotment of common shares under executive share option schemes, which are
considered common stock equivalents, because their effect was anti-dilutive as
a consequence of the net loss for the year. Common stock equivalents included
in the weighted average number of common shares in issue during 1995 and 1994
were 2,921,286 and 2,503,059, respectively. Primary (loss) earnings per
common share from continuing operations was based on adjusted net loss from
continuing operations available to common shareholders of $687.0 million (1995
- - $30.7 million net income; 1994 - $69.3 million net income).
F-25
Note 13 - Accounts receivable - net
At December 31 1996 1995
$m $m
Trade accounts receivable 229.2 213.4
Less: allowance for doubtful receivables (18.5) (17.0)
----- -----
210.7 196.4
===== =====
Note 14 - Inventories
At December 31 1996 1995
$m $m
Raw materials and consumables 8.6 8.8
Work in process 18.9 14.1
Finished goods 11.7 15.1
----- -----
39.2 38.0
===== =====
Note 15 - Prepaid expenses and other current assets
At December 31 1996 1995
$m $m
Prepaid expenses 10.9 11.6
Other current assets 106.1 22.9
----- -----
117.0 34.5
===== =====
At December 31, 1996 other current assets included $77.5 million of settlement
gain proceeds (note 8(iii)).
F-26
Note 16 - Property, plant and equipment - net
At December 31 1996 1995
$m $m
Cost:
Property and related improvements 290.7 271.6
Subscriber systems 1,977.5 1,874.0
Other plant and equipment 214.8 199.0
------- -------
Total cost 2,483.0 2,344.6
------- -------
Accumulated depreciation:
Property and related improvements 56.0 41.5
Subscriber systems 762.0 614.2
Other plant and equipment 151.4 117.6
------- -------
Total accumulated depreciation 969.4 773.3
------- -------
Net book values 1,513.6 1,571.3
======= =======
Note 17 - Goodwill and other intangibles - net
1996 1995
$m $m
Cost:
At January 1 1,290.6 1,345.2
SFAS 121 impairment (note 6) (825.6) -
Acquisitions (i) 44.9 123.0
Disposals (ii) - (174.1)
Currency translation adjustments - (3.5)
------- -------
At December 31 509.9 1,290.6
------- -------
Accumulated amortization:
At January 1 237.0 233.7
SFAS 121 impairment (note 6) (203.7) -
Charge for the year 18.6 38.9
Disposals (ii) - (34.8)
Currency translation adjustments - (0.8)
------- -------
At December 31 51.9 237.0
------- -------
Net book values:
At December 31 458.0 1,053.6
======= =======
(i) In February 1996 the Company acquired the remaining 24.0 per cent of
the outstanding voting share capital of Alert, an electronic security services
company in the United States, not already owned by the Company, for an
aggregate cash consideration of $25.5 million, which was financed from cash on
hand. The amount of goodwill arising from this acquisition was $10.3 million.
During 1996 the Company purchased other intangibles, principally customer
contracts, in North America and Europe for an aggregate cash consideration of
$34.6 million which was financed from cash on hand.
F-27
In December 1995 the Company acquired 76.0 per cent of the outstanding voting
share capital of Alert, for an aggregate cash consideration of $69.0 million,
which was financed from cash on hand. The amount of goodwill and other
intangibles arising from this acquisition was $80.1 million and $40.0 million,
respectively. In January 1995 the Company acquired a vehicle auction services
business in Belgium for an aggregate cash consideration of $4.2 million, which
was disposed of in December 1995 as part of the disposal by the Company of an
interest in European Auctions (note 17(ii)). During 1995 the Company also
acquired several small electronic security services businesses in the United
States and Europe for an aggregate cash consideration of $1.0 million.
These acquisitions have been accounted for using the purchase method.
Accordingly, the respective purchase prices have been allocated to assets
acquired and liabilities assumed based on their preliminary estimated fair
values. These allocations resulted in goodwill and other intangibles of $44.9
million arising during the year (1995 - $123.0 million).
(ii) In December 1995 the Company disposed of an interest in European
auctions (notes 18 and 34). Net unamortized goodwill and other intangibles
on disposal of $136.5 million was included in the loss on disposal of
businesses (note 7(i)). During 1995 the Company disposed of certain of the
European electronic security services operations and businesses operated by
the ASH group. The net unamortized goodwill and other intangibles on
disposal of $2.8 million was included in the gain on disposal of businesses
(note 7(iii)).
(iii) The accumulated cost, accumulated amortization and net book values of
the goodwill balance included within goodwill and other intangibles at
December 31, 1996 amounted to $421.0 million, $43.0 million and $378.0
million, respectively (1995 - $1,120.1 million, $206.9 million and $913.2
million, respectively).
Note 18 - Investment in and loans to associate
At December 31 1996 1995
$m $m
Vendor Note - 83.9
Shareholder Loan Notes - 13.9
----- -----
- 97.8
Less: unamortized discount - (9.9)
----- -----
- 87.9
Investment in ordinary share capital - 0.9
----- -----
- 88.8
===== =====
In December 1995 the Company disposed of an interest in European Auctions to
Integrated Transport Systems Limited ("ITS") (note 34) for an aggregate
consideration of $334.9 million.
F-28
The aggregate consideration received by the Company on closing was comprised
of cash of $235.1 million, $187.6 million aggregate principal amount at
maturity of a subordinated deep discount zero coupon loan note issued by ITS
maturing in March 2004 ("Vendor Note"), $31.1 million aggregate principal
amount at maturity of subordinated deep discount zero coupon loan notes issued
by ITS maturing in March 2004 ("Shareholder Loan Notes"), and a 43.1 per cent
interest in the ordinary share capital of ITS at an issue price of $2.0
million.
The Vendor Note is a sterling loan note with an issue price of $83.9 million,
reflecting a yield to maturity of 10.0 per cent per annum, and was valued by
the Company at $74.6 million. There are no periodic payments of interest.
The Vendor Note is a subordinated, non-collateralized obligation of ITS and is
transferrable, under certain conditions, after December 1998. The discount on
the Vendor Note of $9.3 million will be amortized on a basis linked to the
yield to maturity over the life of the loan note as a credit to interest
income, and represents the difference between the stated yield to maturity and
the prevailing market yield to maturity of approximately 11.5 per cent per
annum, for similar types of loan notes at the time the Vendor Note was issued
in December 1995. The interest yield and discount amortization for 1996
amounted to $8.6 million and $0.3 million, respectively.
The Shareholder Loan Notes are transferrable sterling loan notes with an issue
price of $13.9 million, reflecting a yield to maturity of 10.0 per cent per
annum, and were valued by the Company at $13.3 million. There are no periodic
payments of interest. The Shareholder Loan Notes are subordinated,
non-collateralized obligations of ITS and are also subordinated to the Vendor
Note.
The aggregate fair market value of the Vendor Note and Shareholder Loan Notes
at December 31, 1995 amounted to $87.9 million, and was based on discounting
the loan notes at estimated current sterling interest rates on similar term
financial instruments.
The 43.1 per cent interest in the ordinary share capital of ITS was valued and
accounted for by the Company at $0.9 million.
In February 1996 the Company disposed of its entire interest in Shareholder
Loan Notes with an issue price of $13.9 million and valued by the Company at
$13.3 million (net of unamortized discount of $0.6 million), and 33.1 per cent
of the ordinary share capital of ITS valued by the Company at $0.9 million,
for an aggregate cash consideration of $15.4 million. The net gain arising on
the transaction amounted to $1.2 million which was included in other income
less expenses (note 8(i)).
As a result of the above transaction, the Company now holds a 10.0 per cent
interest in the ordinary share capital of ITS, valued and accounted for by the
Company at a nominal amount, together with the Vendor Note, which at December
31, 1996 is disclosed as a long-term investment (note 19) and has been
accounted for at its amortized cost.
F-29
The movement in the carrying value of investment in and loans to associate
since January 1, 1995 has been as follows:
1996 1995
$m $m
At January 1 88.8 12.6
Acquisitions - 88.8
Disposals (14.2) (12.6)
Reclassifications (74.6) -
----- -----
At December 31 - 88.8
===== =====
During 1995 the Company disposed of its entire equity investments in CGPS, a
French unquoted company, and Microtech, a United Kingdom unquoted company, for
an aggregate consideration of $8.6 million comprising cash of $7.8 million and
notes receivable of $0.8 million. The net loss on disposal of $5.1 million,
including $7.3 million relating to the write off of net unamortized goodwill
and other intangibles and a $1.1 million charge relating to cumulative
currency translation adjustments, was included in other income less expenses
(note 8(i)).
Note 19 - Long-term investments
At December 31 1996 1995
$m $m
Vendor Note (note 18) 102.0 -
Less: unamortized discount (10.0) -
----- -----
92.0 -
Other long-term investments 8.6 2.0
----- -----
100.6 2.0
===== =====
The fair market value of the Vendor Note at December 31, 1996 amounted to
$89.7 million, and is based on discounting the loan note at estimated current
sterling interest rates on similar term financial instruments. The aggregate
fair market value of other long-term investments at December 31, 1996 amounted
to $8.6 million (1995 - $2.0 million) and is based on estimates made by the
Company.
F-30
Note 20 - Other long-term assets
At December 31 1996 1995
$m $m
Deferred refinancing costs 19.4 27.1
Other long-term assets 56.0 57.1
----- -----
75.4 84.2
===== =====
In connection with the refinancing of certain long-term debt obligations of
the Company certain fees and expenses were incurred. These refinancing costs
are being amortized as interest expense through the consolidated statements
of income on a straight line basis over the terms of the respective lives of
the Company's various long-term debt obligations. The refinancing costs
amortization for the year amounted to $3.7 million (1995 - $5.3 million; 1994
- - $5.7 million). During the year $4.0 million (1995 - $13.6 million; 1994 -
nil) of net unamortized deferred refinancing costs, relating to the early
extinguishment of certain amounts outstanding under the Company's long-term
debt obligations, were written off as extraordinary items in the consolidated
statements of income (note 11).
Note 21 - Short-term debt
At December 31 1996 1995
$m $m
Bank and acceptance facilities 50.6 39.4
Current portion of long-term debt (note 23) 158.6 5.5
----- -----
209.2 44.9
===== =====
The average rate of interest on short-term debt outstanding at December 31,
1996 was 7.8 per cent (1995 - 7.9 per cent). Short-term debt is generally
repayable on demand or at an interest payment date, and is non-collateralized
except for $0.5 million of bank and acceptance facilities in 1995, and $5.5
million of the current portion of long-term debt in 1995.
F-31
Note 22 - Other current liabilities
At December 31 1996 1995
$m $m
Accruals 70.6 78.5
Payroll and employee benefits 58.1 53.5
Payments received on account 17.1 10.1
Income taxes 15.6 12.0
Interest payable 23.7 25.4
Short-term restructuring, disposition and other provisions 95.6 37.4
Other current liabilities 12.9 10.3
------- -------
293.6 227.2
======= =======
Note 23 - Long-term debt
At December 31 1996 1995
$m $m
Senior notes (i) 250.0 250.0
Senior subordinated notes (ii) 294.1 317.2
Liquid Yield Option Notes (iii) 326.8 306.8
Revolving bank credit agreement (iv) 83.0 15.0
Convertible capital bonds (v) 75.6 68.7
Bank credit agreement - ASH (vi) - 126.2
Senior notes - ASH (vi) - 56.8
Other (vii) 39.2 39.6
------- -------
1,068.7 1,180.3
Less: current portion (note 21) (158.6) (5.5)
------- -------
910.1 1,174.8
======= =======
(i) The $250.0 million 8.25 per cent senior notes due August 2000 were
issued in August 1993, through a public offering, by ADT Operations, Inc., a
company incorporated in the United States and an indirect wholly owned
subsidiary of ADT, and are guaranteed on a senior basis by ADT and certain
subsidiaries of ADT Operations, Inc. The senior notes are not redeemable
prior to maturity and interest is payable semi-annually. The indentures
governing the senior notes contain certain covenants including limitations on
indebtedness, limitations on certain payments, including dividends on the
Company's common shares, and compliance with various financial and operating
covenants and prohibitions, and certain change in control provisions. The
senior notes are non-collateralized senior obligations of ADT Operations, Inc.
ranking pari passu in right of payment with all other existing and future
senior indebtedness of ADT Operations, Inc. including indebtedness under the
revolving bank credit agreement referred to in (iv) below.
F-32
(ii) The $350.0 million 9.25 per cent 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 ADT. The senior
subordinated 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
per cent (b) August 1999 at 102.50 per cent (c) August 2000 at 101.25 per
cent, and thereafter at 100.00 per cent of the principal amount. Interest is
payable semi-annually. The indentures governing the senior subordinated notes
contain certain covenants as set out for the senior notes in (i) above. The
senior subordinated notes are non-collateralized, senior subordinated
obligations of ADT Operations, Inc. ranking pari passu with, or senior in
right of payment to, all other existing and future indebtedness of ADT
Operations, Inc. that is expressly subordinated to senior indebtedness of ADT
Operations, Inc. During 1996 the Company reacquired in the market $23.1
million (1995 - $32.8 million) face value of the senior subordinated notes at
a purchase cost of $24.0 million (1995 - $33.7 million) which was financed
from cash on hand. The loss arising on reacquisition of $0.9 million (1995 -
$0.9 million), and related costs of $0.5 million (1995 - $0.8 million), was
included in extraordinary items (note 11).
(iii) In July 1995 ADT Operations, Inc. issued $776,250,000 aggregate
principal amount at maturity of its zero coupon subordinated Liquid Yield
Option Notes ("Notes") 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 cancelled. The issue price per Note was $383.09, being
38.309 per cent of the principal amount of $1,000 per Note at maturity,
reflecting a yield to maturity of 6.5 per cent per annum (computed on a
semi-annual bond equivalent basis). There are no periodic payments of
interest. The discount amortization on the Notes is being charged as interest
expense through the consolidated statements of income on a basis linked to the
yield to maturity. The Notes discount amortization for 1996 amounted to $20.3
million (1995 - $9.4 million). Each Note is exchangeable for common shares of
ADT 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 28.23 common shares per Note. During 1996 619 Notes with a
carrying value of $0.3 million were exchanged, at the option of the holders,
for 17,472 ADT common shares (note 30). Any Note will be purchased by ADT
Operations, Inc. at the option of the holder as of July 2002 for a purchase
price per Note of $599.46. At this time, if the holder exercises the option,
ADT has the right to deliver all or a portion of the purchase price in the
form of common shares of ADT. Beginning July 2002 the Notes 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 Notes are guaranteed on a
subordinated basis by ADT. If, on or prior to maturity, there is a change in
control, the holder has the right to require ADT Operations, Inc. to purchase
the Notes at the change in control purchase price.
(iv) In August 1995 ADT Operations, Inc. entered into a new $300 million
revolving bank credit agreement which replaced in full its previous bank
credit agreement. The new agreement has a term of five years and is
guaranteed on a senior basis by ADT and certain subsidiaries of ADT
Operations, Inc. Amounts available under this facility are available for
borrowing and reborrowing (or issuance and reissuance in the case of letters
of credit up to a maximum of $100 million), subject to certain conditions at
that time, until June 2000 at which time all amounts are repayable in full.
At December 31, 1996 $83.0 million (1995 - $15.0 million) was drawn down under
the agreement, which has been classified in the current portion of long-term
debt, plus letters of credit amounting to $81.1 million (1995 - $81.0 million)
which have been issued and have terms of less than one year. The Company
utilizes letters of credit to back certain financing arrangements and
insurance policies as well as for trade purposes. The letters of credit
approximately reflect fair value as a condition of their underlying purpose.
The Company expects the counterparties to fully perform under the terms of the
agreements.
F-33
Amounts drawn down under the revolving bank credit agreement bear interest at
a floating rate equal, at the option of ADT Operations, Inc., to either the
alternative base rate plus a margin or the reserve adjusted LIBO rate plus a
margin. The average rate of interest at December 31, 1996 was 6.5 per cent
(1995 - 7.6 per cent).
The revolving bank credit agreement contains certain financial and operating
covenants, including restrictions on the Company's ability to incur additional
indebtedness, limitations on certain payments, including dividends on the
common shares of ADT and ADT Operations, Inc., and certain other financial
covenants, including a minimum cash flow coverage ratio, a minimum debt to
total capitalization ratio and a minimum level of shareholders' equity, and
certain change in control provisions.
In December 1996 ADT Operations, Inc. entered into a new $200 million
revolving 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 cancelled. The new
agreement has a term of one year and is guaranteed on a senior basis by ADT
and certain subsidiaries of ADT Operations, Inc. Amounts available under this
new facility are available for borrowing and reborrowing (or issuance and
reissuance in the case of letters of credit up to a maximum of $100 million),
subject to certain conditions at that time, until January 1998 at which time
all amounts are repayable in full. The interest rates and financial and
operating covenants in place under the new facility are substantially the same
as those referred to above for the previous bank credit agreement.
(v) The 9.5 per cent sterling denominated convertible capital bonds due
July 2006 were issued by ASH Capital Finance (Jersey) Limited, a company
incorporated in Jersey and an indirect wholly owned subsidiary of ADT, and are
unconditionally and irrevocably guaranteed on a non-collateralized and
subordinated basis by ADT. Interest is payable semi-annually. The capital
bonds are convertible, at the option of the holder, into fully paid 2.0 per
cent (fixed cumulative dividend) exchangeable redeemable preference shares in
ASH Capital Finance (Jersey) Limited with a nominal value of one pence each.
The preference shares are unconditionally and irrevocably guaranteed on a
non-collateralized and subordinated basis by ADT. The preference shares are
redeemable at their paid up value of Pound Sterling 1 each and they are also
exchangeable, at the option of the holder, for fully paid common shares of ADT
at a price of Pound Sterling 76.66 per common share, the price of which is
subject to adjustment under certain circumstances. The capital bonds are
unconditionally and irrevocably guaranteed on a non-collateralized and
subordinated basis by ASH, and were formerly convertible into ordinary shares
of ASH. Under the terms of the issue, ADT can require conversion of any
outstanding capital bond if 85 per cent of the issue has been previously
converted or purchased and cancelled, in which case the bond holders may elect
for redemption in lieu of conversion. On or after June 1, 1996, ADT may
exercise a call option at 100 per cent of the aggregate paid up amounts of the
capital bonds outstanding.
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, as set out in (vii) below, and at December 31, 1996 have been
classified in the current portion of long-term debt.
(vi) In September 1996 the Company repaid in full all amounts owed by the
ASH group under its senior notes and bank credit agreement, which were
subsequently cancelled, and which was financed from cash on hand and loans
drawn under the revolving bank credit agreement. The loss arising on
repayment of $4.2 million, and related costs of $0.4 million, was included in
extraordinary items (note 11).
F-34
During 1994 ASH issued $60.7 million of its 8.28 per cent senior notes due
January 1998 of which $5.6 million was in respect of yield maintenance. The
senior notes were collateralized obligations of the ASH group. The yield
maintenance amortization on the senior notes has been charged as interest
expense through the consolidated statements of income. The yield maintenance
amortization for 1996 amounted to $1.5 million (1995 - $1.1 million; 1994 -
$0.6 million). The effective rate of interest including yield maintenance was
10.7 per cent.
During 1995 ASH entered into a bank credit agreement totalling approximately
$134 million with a maturity date in January 1998. The amounts drawn under
the agreement were collateralized obligations of the ASH group and bore
interest principally at LIBO rate plus a margin.
(vii) Other long-term debt principally represents revolving facilities with
various banks falling due for repayment in 1999 bearing interest at a floating
rate equal, at the option of the Company, to either the alternative base rate
plus a margin or the reserve adjusted LIBO rate plus a margin. The average
rate of interest at December 31, 1996 was 7.5 per cent (1995 - 6.9 per cent).
In addition, at December 31, 1996 $0.6 million (1995 - $2.0 million) in
letters of credit have been issued under certain of these facilities and have
terms of less than one year.
In January 1997 the Company entered into a sterling denominated bank credit
facility which is repayable on demand. The amount drawn down under the
facility amounted to $26 million which was used to repay, in part, the amounts
owed under the convertible capital bonds in (v) above. The facility is
guaranteed by ADT and certain of its subsidiaries. Interest is payable at
LIBO rate plus a margin.
In March 1997 the Company entered into a new $154 million sterling denominated
bank credit facility of which $146 million is a term loan facility and $8
million is a revolving credit facility. The term loan facility was fully
drawn down and, in part, was used to repay in full the $26 million drawn down
under the sterling denominated bank credit facility referred to above. The
new facility has a term of five years and is guaranteed by ADT and certain of
its subsidiaries. Interest is payable at LIBO rate plus a margin.
The average rate of interest on all long-term debt during the year was 8.0 per
cent (1995 - 8.2 per cent; 1994 - 8.4 per cent).
Based on estimated interest rates currently available to the Company for
long-term debt with similar terms and average maturities, the fair value of
all long-term debt at December 31, 1996 amounted to approximately $1,119
million (1995 - approximately $1,241 million).
F-35
The maturities and installments with respect to long-term debt outstanding at
December 31, 1996 are as follows:
$m
Year ending December 31 1997 158.6
1998 0.9
1999 34.5
2000 251.7
2001 0.9
Thereafter 622.1
-------
1,068.7
=======
Note 24 - Deferred revenue
Deferred revenue is comprised of all subscriber billings for services not yet
rendered.
Note 25 - Deferred income taxes
The movement in deferred income taxes since January 1, 1994 has been as
follows:
1996 1995 1994
$m $m $m
At January 1 142.4 123.5 95.3
(Credit) charge for the year (note 9(i)) (39.5) 18.4 24.9
Extraordinary items (note 11) (0.7) (4.7) -
Eliminated on disposals - (3.3) -
Currency translation adjustments (0.7) 0.7 (0.2)
Reclassifications (10.0) 7.8 3.5
----- ----- -----
At December 31 91.5 142.4 123.5
===== ===== =====
F-36
The significant temporary timing differences and tax loss carryforwards that
gave rise to the deferred income tax balance at December 31, 1996 were as
follows:
US Non US Total
$m $m $m
Liabilities:
Depreciation 864.8 72.6 937.4
Other 6.9 15.2 22.1
------ ------ ------
871.7 87.8 959.5
------ ------ ------
Assets:
Tax operating loss carryforwards 436.6 99.2 535.8
Provisions for estimated costs and expenses 143.7 57.2 200.9
Interest expense 147.9 - 147.9
Post-retirement benefit obligations 78.6 - 78.6
Depreciation - 66.2 66.2
------ ------ ------
806.8 222.6 1,029.4
Valuation allowance (163.6) (155.8) (319.4)
------ ------ ------
643.2 66.8 710.0
------ ------ ------
Gross deferred income tax liability 228.5 21.0 249.5
------ ------ ------
Deferred income tax liability at
statutory tax rates 80.0 11.5 91.5
====== ====== ======
The US tax operating loss carryforwards at December 31, 1996 expire as follows:
$m
Year ending December 31 1999 6.8
2000 4.1
2001 24.2
2002 18.3
2003 7.5
2004 86.4
2005 144.4
2006 107.2
2007 24.7
2008 13.0
-----
436.6
=====
No provision has been made for deferred income taxes on undistributed earnings
of subsidiaries ($655.9 million at December 31, 1996) which are required to
finance their continuing operations.
F-37
The significant temporary timing differences and tax loss carryforwards that
gave rise to the deferred income tax balance at December 31, 1995 were as
follows:
US Non US Total
$m $m $m
Liabilities:
Depreciation 857.9 124.4 982.3
Other 5.2 14.5 19.7
------ ------ -------
863.1 138.9 1,002.0
------ ------ -------
Assets:
Tax operating loss carryforwards 428.9 94.5 523.4
Provisions for estimated costs and expenses 69.2 12.5 81.7
Interest expense 99.6 - 99.6
Post-retirement benefit obligations 66.5 - 66.5
------ ------ -------
664.2 107.0 771.2
Valuation allowance (120.0) (49.3) (169.3)
------ ------ -------
544.2 57.7 601.9
------ ------ -------
Gross deferred income tax liability 318.9 81.2 400.1
------ ------ -------
Deferred income tax liability at
statutory tax rates 111.6 30.8 142.4
====== ====== =======
Note 26 - Other long-term liabilities
At December 31 1996 1995
$m $m
Pensions (note 33(i)) 28.4 20.6
Post-retirement benefits other than pensions (note 33(iv)) 48.2 47.8
Long-term restructuring, disposition and other provisions 74.6 41.3
Other long-term liabilities 30.9 25.5
----- -----
182.1 135.2
===== =====
Note 27 - Minority interests
At December 31, 1995 minority interests represent the 24.0 per cent interest
in the outstanding voting share capital of Alert held by the minority
shareholders of Alert and not owned by the Company. The value is based on the
consolidated net assets of Alert on a historical cost basis.
F-38
In February 1996, following approval by Alert's shareholders, Alert was merged
into the Company and, as a result, those shares then held by the minority
shareholders and not owned by the Company were converted into the right to
receive in cash the price paid per share by the Company in the initial tender
offer. Accordingly, the minority interest outstanding at December 31, 1995
has been eliminated.
Note 28 - Convertible redeemable preference shares
At December 31 1996 1995 1994
$m $m $m
Authorized:
225,000 5 3/4% convertible cumulative redeemable
preference shares 2002 of $1 each (1995 - 225,000;
1994 - 225,000) (i) 0.2 0.2 0.2
500,000 6% convertible cumulative redeemable
preference shares 2002 of $1 each (1995 - 500,000;
1994 - 500,000) (ii) 0.5 0.5 0.5
125,000,000 convertible cumulative redeemable
preference shares of $1 each (1995 - 125,000,000;
1994 - 125,000,000) (iii) 125.0 125.0 125.0
----- ----- -----
125.7 125.7 125.7
===== ===== =====
The movement in convertible redeemable preference shares since January 1, 1994
has been as follows:
5 3/4% shares 6% shares
Number $m Number $m
Issued and outstanding:
At January 1, 1994 29,738 35.5 283,030 391.7
Reacquired in the market at
purchase cost (25) - - -
Redeemed (28,957) (34.6) (278,625) (385.6)
Reversal of redemption premium
on shares not redeemed - (0.1) - (1.7)
------- ------- ------- -------
At December 31, 1994 756 0.8 4,405 4.4
Converted into common
shares (note 30) - - (225) (0.3)
------- ------- ------- -------
At December 31, 1995 756 0.8 4,180 4.1
Redeemed (756) (0.8) (4,180) (4.1)
------- ------- ------- -------
At December 31, 1996 - - - -
======= ======= ======= =======
In January 1994 ADT redeemed 28,957 of its 5 3/4% convertible redeemable
preference shares for an aggregate consideration, including redemption
premium, of $34.6 million. The Company funded the redemption from cash on
hand.
F-39
In October 1994 ADT redeemed 278,625 of its 6% convertible redeemable
preference shares for an aggregate consideration, including redemption
premium, of $385.6 million. The Company funded the redemption through the
drawdown of $231.6 million under its previous bank credit agreement and $154.0
million from cash on hand.
In November 1996 ADT redeemed 756 of its 5 3/4% convertible redeemable
preference shares and 4,180 of its 6% convertible redeemable preference shares
for an aggregate consideration of $4.9 million. The Company funded the
redemption from cash on hand.
Dividends on convertible redeemable preference shares amounted to:
Year ended December 31 1996 1995 1994
$m $m $m
5 3/4% convertible redeemable preference shares - - -
6% convertible redeemable preference shares 0.3 0.3 13.3
----- ----- -----
0.3 0.3 13.3
===== ===== =====
F-40
(i) 5 3/4% convertible cumulative redeemable preference shares 2002 (par
value $1 each)
In April 1987 175,000 of these mandatorily redeemable preference shares were
issued for cash at a price of $1,000 each, and during the period to December
31, 1996 139,262 of these preference shares were converted into ADT common
shares. The holders of these preference shares were entitled to a fixed
cumulative preferential dividend at the rate of 5 3/4 per cent per annum.
These preference shares were subject to redemption, at the option of the
holders, in January 1994 at 119.625 per cent of their issue amount. ADT had
the right to require redemption or conversion of the preference shares in
certain circumstances. This right was exercised in November 1996 and all
remaining preference shares were redeemed at their carrying amount.
(ii) 6% convertible cumulative redeemable preference shares 2002 (par value
$1 each)
In September 1987 400,000 of these mandatorily redeemable preference shares
were issued for cash at a price of $1,000 each, and during the period to
December 31, 1996 225 of these preference shares were converted into ADT
common shares. The holders of these preference shares were entitled to a
fixed cumulative preferential dividend at the rate of 6 per cent per annum.
These preference shares were subject to redemption, at the option of the
holders, in October 1994 at 138.375 per cent of their issue amount. ADT had
the right to require redemption or conversion of the preference shares in
certain circumstances. This right was exercised in November 1996 and all
remaining preference shares were redeemed at their carrying amount.
(iii) Convertible cumulative redeemable preference shares (par value $1 each)
In November 1996 the board of directors of ADT determined that 2.5 million of
the 125 million authorized convertible cumulative redeemable preference shares
of $1 each be classified as Series A First Preference Shares Purchase Rights,
pursuant to the Shareholders Rights Plan referred to below, which have been
reserved for issuance upon exercise of the said Rights.
The rights attaching to the balance of 122.5 million convertible cumulative
redeemable preference shares of $1 each, none of which are issued and
outstanding, as to dividends, return of capital, redemption, conversion,
voting and otherwise may be determined by ADT on or before the time of
allotment.
In November 1996 the board of directors of ADT adopted a Shareholder Rights
Plan ("the Plan"). Under the Plan each ADT common shareholder received a
distribution of one right for each ADT common share held. Each right entitles
the holder to purchase from ADT 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 per cent or more of ADT's common shares, or commences a
tender or exchange offer which, if consummated, would result in any person
becoming the beneficial owner of 15 per cent or more of ADT's common shares.
The rights did not become exercisable on account of any person being the
beneficial owner of 15 per cent or more of ADT's common shares when the Plan
was adopted, but become exercisable if such a person increases their
beneficial ownership after that time (note 32(iv)).
F-41
If any person becomes the beneficial owner of 15 per cent or more of ADT's
common shares, or if any person who was already the beneficial owner of 15 per
cent or more of ADT's common shares when the Plan was adopted increases their
beneficial ownership, each right will enable the holder, other than the
acquiring person, to purchase, for the rights purchase price, ADT common
shares having a market value of twice the rights purchase price.
If, following an acquisition of 15 per cent or more of ADT's common shares,
ADT is involved in any mergers or other business combinations or sells or
transfers more than 50 per cent 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.
ADT 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 per cent or more of ADT's common shares. The rights will expire in
November 2005 unless exercised or redeemed earlier.
In the event of liquidation of ADT, the holders of all of ADT'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
dividends, prior to any payment to the common shareholders.
Note 29 - Non-voting exchangeable shares
The movement in non-voting exchangeable shares since January 1, 1994 has been
as follows:
Number $m
At January 1, 1994 925,537 15.0
Exchanged into common shares held as
treasury shares (note 31) (922,628) (15.0)
-------- -----
At December 31, 1994 2,909 -
Exchanged into common shares held as
treasury shares (note 31) (2,909) -
-------- -----
At December 31, 1995 and December 31, 1996 - -
======== =====
In March 1991 ADT Finance Inc., an indirect wholly owned Canadian subsidiary
of ADT, issued 1,000,000 non-voting exchangeable shares exchangeable for
common shares of ADT at the option of the holder, at any time, on a one for
one basis. Holders of non-voting exchangeable shares were entitled only to
dividends equivalent to dividends declared and paid on common shares of ADT.
F-42
Note 30 - Common shares
At December 31 1996 1995 1994
$m $m $m
Authorized:
220,000,000 shares of $0.10 each
(1995 - 220,000,000; 1994 - 220,000,000) 22.0 22.0 22.0
====== ====== ======
Issued and outstanding:
141,382,697 shares of $0.10 each
(1995 - 138,885,405; 1994 - 138,097,754) 14.1 13.9 13.8
====== ====== ======
The movement in common shares since January 1, 1994 has been as follows:
1996 1995 1994
Number Number Number
At January 1 (i) 138,885,405 138,097,754 137,364,915
Exercise of executive share options (ii) 2,479,820 780,366 35,000
Exchange of Liquid Yield Option
Notes (note 23(iii)) 17,472 - -
Conversion of convertible preference
shares (note 28) - 7,285 -
Exercise of warrants (iii) - - 697,839
----------- ----------- -----------
At December 31 141,382,697 138,885,405 138,097,754
=========== =========== ===========
(i) The number of common shares at January 1, 1994 has been restated for
the pooling of interests with ASH (note 3).
Number
At January 1, 1994 - as previously reported 130,329,975
Pooling of interests with ASH (note 3) 7,034,940
-----------
At January 1, 1994 - as restated 137,364,915
===========
(ii) ADT has granted employee share options which are 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 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. The Incentive Plan is administered by the
remuneration committee of the board of directors of ADT, which consists
exclusively of independent non-executive directors of ADT. Options are
generally granted to purchase ADT 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.
F-43
The movement in executive share options outstanding since January 1, 1994 has
been as follows:
1996 1995 1994
Number Number Number
At January 1 13,491,185 12,180,778 10,410,425
Granted 6,448,333 3,000,000 1,975,000
Exercised (2,479,820) (780,366) (35,000)
Cancelled on purchase (note 34) - (657,832) -
Lapsed/surrendered (207,298) (251,395) (169,647)
---------- ---------- ----------
At December 31 17,252,400 13,491,185 12,180,778
========== ========== ==========
The number of executive share options exercisable and available for future
grant at December 31 was as follows:
1996 1995 1994
Number Number Number
Exercisable 12,787,060 5,423,423 3,454,935
Available for future grant 2,593,335 401,668 3,385,000
---------- --------- ---------
The weighted average executive share options exercise price information since
January 1, 1994 has been as follows:
1996 1995 1994
$ $ $
Outstanding at January 1 11.52 11.08 11.32
Granted 15.32 11.97 9.24
Exercised 9.98 8.84 8.93
Cancelled on purchase (note 34) - 9.10 -
Lapsed/surrendered 17.24 12.68 15.85
Outstanding at December 31 13.06 11.52 11.08
Exercisable at December 31 13.21 12.38 12.59
----- ----- -----
The estimated weighted average fair value of executive share options granted
during 1996 was $4.33 on the date of grant using the option-pricing model and
assumptions referred to below.
F-44
The following table summarizes information about outstanding and exercisable
executive share options at December 31, 1996.
Options outstanding Options exercisable
Weighted
Range of Weighted average Weighted
exercise average remaining average
prices Number exercise price contractual Number exercise price
$ outstanding $ life-years exercisable $
8.01 to 10.00 4,292,250 8.91 6.9 3,607,748 8.87
10.01 to 13.00 2,997,250 11.68 5.6 503,080 11.52
13.01 to 15.00 8,690,400 14.95 6.8 8,523,732 14.97
15.01 to 20.00 1,163,000 16.48 9.1 43,000 15.94
20.01 to 30.00 109,500 26.43 2.5 109,500 26.43
---------- ------ ---------- -----
17,252,400 13.06 12,787,060 13.21
========== ====== ========== =====
During 1996 the Company was required to adopt Statement of Financial
Accounting Standards 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 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 the years ended December 31, 1996 and 1995 would
have been as follows:
Year ended December 31 1996 1995
Net (loss) income-proforma ($717.1m) $17.8m
-------- ------
Net (loss) income per common share-proforma ($5.23) $0.13
======== ======
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions.
Expected stock price volatility 28 per cent
Risk free interest rate 5.9 per cent
Expected dividend yield nil per cent
Expected life of options 3.7 years
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.
F-45
(iii) In April 1992 an issue was made to common shareholders of warrants to
subscribe for ADT common shares on the basis of one warrant for every six
common shares then held. Each warrant gave the holder the right to subscribe
for one common share at $10.00 per common share during the period from July 1,
1992 to June 30, 1994. All warrants not exercised at June 30, 1994 have
lapsed in accordance with the terms of the warrants.
The movement in warrants since January 1, 1994 has been as follows:
Number
At January 1, 1994 18,254,318
Exercised (697,839)
Lapsed (17,556,479)
-----------
At December 31, 1994, December 31, 1995 and
December 31, 1996 -
===========
(iv) In July 1996, as part of the then agreement to combine with Republic,
ADT granted to Republic a warrant to acquire 15 million common shares of ADT
at an exercise price of $20 per common share. Following termination of the
agreement to combine with Republic, the warrant vested and was exercisable by
Republic in the six month period commencing September 27, 1996 (note 32(iv)).
In March 1997 the warrant was exercised by Republic and the Company received
$300 million in cash.
(v) In March 1997 the Company announced that it had entered into a
definitive merger agreement, subject to shareholder approval and other
customary matters, with Tyco International Ltd. ("Tyco"), a United States
quoted company engaged in the manufacture of industrial and commercial
products. Tyco shareholders will receive one common share in the combined
company for each Tyco common share and ADT shareholders, through a reverse
stock split, will receive 0.48133 common shares in the combined company for
each ADT common share.
Note 31 - Treasury shares
The movement in treasury common shares held by a subsidiary of ADT at purchase
cost since January 1, 1994 has been as follows:
Number $m
At January 1, 1994 4,109,324 102.9
Exchange of non-voting exchangeable shares (note 29) (922,628) (23.1)
--------- -----
At December 31, 1994 3,186,696 79.8
Exchange of non-voting exchangeable shares (note 29) (2,909) (0.1)
Treasury shares given as employee remuneration (1,000) -
--------- -----
At December 31, 1995 and December 31, 1996 3,182,787 79.7
========= =====
F-46
Note 32 - Commitments and contingencies
(i) The Company leases land, buildings, motor vehicles and other equipment
under various contracts. The future total minimum rental payments required
under operating leases that have remaining noncancelable lease terms in excess
of one year at December 31, 1996 are as follows:
$m
Year ending December 31 1997 67.3
1998 54.4
1999 39.0
2000 28.3
2001 18.9
Thereafter 41.6
-----
249.5
=====
The net operating lease rental charge for the year included in the
consolidated statements of income amounted to $77.2 million (1995 - $75.3
million; 1994 - $68.6 million).
(ii) Financial instruments which potentially subject the Company to
concentrations of credit risk principally consist of cash and cash equivalents
and trade receivables. The Company places its cash and cash equivalents with
high credit quality financial institutions throughout the world and, by
policy, limits the amount of credit exposure to any one financial institution.
The Company's trade receivables primarily result from its electronic security
services and vehicle auction services businesses and reflects a broad
international customer base. Credit limits, ongoing credit evaluation and
account monitoring procedures are utilized to minimize the risk of loss. As a
consequence, concentrations of credit risk are limited. In addition, the
Vendor Note (note 19) also subjects the Company to credit risk in the event of
non-performance by ITS. However, the Company currently expects that ITS will
meet its liabilities to the Company under the terms of the Vendor Note.
(iii) At December 31, 1996 the Company had issued guarantor surety bonds of
$10.0 million (1995 - $10.0 million) to back insurance policies. These surety
bonds have unlimited duration.
(iv) In December 1996 Westar Capital, Inc. ("WCI"), a wholly owned
subsidiary of Western Resources, Inc. and a 24 per cent shareholder of ADT,
filed a complaint (as subsequently amended) in the US Courts against ADT and
its directors, among others. The complaint alleges, among other things, that
ADT and its directors breached their fiduciary duties to WCI and ADT's other
shareholders (a) by adopting the Plan (note 28(iii)), and (b) by issuing to
Republic the warrant (note 30(iv)). The complaint seeks a court order (a)
directing ADT to redeem the Plan, and (b) declaring the warrant issued to
Republic null and void or preventing ADT and Republic from exercising their
rights under the warrant or preventing Republic from selling or transferring
any of the warrant shares it currently owns. The complaint also seeks
unspecified damages, attorneys' fees and costs. Accordingly, an estimate
of any potential loss or range of possible losses, if any, cannot be made.
ADT and its board of directors believe that the allegations in WCI's
complaint against ADT and its directors are without merit and intend to
vigorously defend against them.
F-47
In December 1996 Mr. C. Gachot filed a complaint in the US Courts against ADT
and certain of its directors, among others. The complaint was brought on
behalf of a class of all shareholders of ADT and alleges, among other things,
that the Plan (note 28(iii)) and the warrant issued to Republic (note 30(iv))
are improper. The complaint seeks unspecified monetary relief. Accordingly,
an estimate of any potential loss or range of possible losses, if any, cannot
be made. ADT and its board of directors believe that the allegations in Mr.
Gachot's complaint against ADT and certain of its directors are without merit
and intend to vigorously defend against them.
In March 1997 Crandon Capital Partners ("CCP") filed a complaint in the US
Courts against ADT and certain of its current and former directors, among
others. The complaint was brought by CCP in a derivative capacity on behalf
of ADT. The complaint alleges, among other things, that ADT's directors
breached their fiduciary duties and wasted corporate assets in connection with
(a) the granting of options to certain officers of ADT in 1996, (b) the
implementation of the Plan (note 28(iii)), and (c) the issuance to Republic of
the warrant (note 30(iv)). The complaint seeks a court order directing ADT's
directors to establish a system of internal controls to prevent repetition of
the alleged breaches of fiduciary duty and corporate waste, and an unspecified
amount of damages. Accordingly, an estimate of any potential loss or range of
possible losses, if any, cannot be made. ADT and its directors believe that
the allegations in CCP's complaint against ADT and certain of its directors
are without merit and intend to vigorously defend against them.
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 the
consolidated results of operations and cash flows or the consolidated
financial position of the Company.
Note 33 - Pension and other plans
The Company operates various defined benefit pension plans 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 income 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 this purpose.
The Company's United States electronic security services operation has a
non-contributory, funded, defined benefit pension plan covering substantially
all of its employees.
The Company has two contributory, funded, defined benefit pension plans in the
United Kingdom covering substantially all salaried and non-salaried employees.
F-48
Details of the most recent independent actuarial valuations or formal reviews
are set out below:
(i) United States plan
The net pension expense for the United States plan included the following
components:
Year ended December 31 1996 1995 1994
$m $m $m
Service cost-benefits earned during year 6.5 5.1 6.1
Interest cost on projected benefit obligations 13.3 12.9 11.9
Return on assets (17.1) (16.3) (16.1)
Net amortization and deferral 4.9 (0.8) 0.1
----- ----- -----
Net pension expense 7.6 0.9 2.0
===== ===== =====
As a result of an early retirement plan implemented during 1996, a curtailment
loss of $4.8 million is included in the net amortization and deferral
component of net pension expense for the year ended December 31, 1996.
The following table sets forth the actuarial present value of accumulated
benefit obligations and funded status for the Company's United States plan:
At December 31 1996 1995
$m $m
Accumulated benefit obligations, including vested
benefits of $155.4 million (1995 - $157.8 million) 169.5 164.4
====== ======
Total projected benefit obligations 193.5 189.4
------ ------
Plan assets at fair value, primarily stocks,
bonds and money market funds 192.6 183.5
Less: Unrecognized net gain (28.1) (15.4)
Plus: Unrecognized prior service costs 0.6 0.7
------ ------
165.1 168.8
------ ------
Net pension liability (note 26) 28.4 20.6
====== ======
Benefit cover 99% 97%
------ ------
The actuarial assumptions for the expected long-term rate of return on plan
assets, weighted average discount rate, and rate of increase of future
compensation levels used in determining the actuarial present value of
accumulated benefit obligations for 1996 were 10.0 per cent, 7.5 per cent and
4.0 per cent, respectively (1995 - 10.0 per cent, 7.0 per cent and 4.0 per
cent, respectively). The actuarial valuations of the United States plan were
carried out by Kwasha Lipton in 1996 and by Buck Consultants in 1995 and 1994.
F-49
(ii) United Kingdom plans
The aggregate net pension (income) expense for the United Kingdom plans
included the following components:
Year ended December 31 1996 1995 1994
$m $m $m
Service cost-benefits earned during year 3.6 3.9 5.0
Interest cost on projected benefit obligations 7.1 8.8 7.0
Return on assets (11.5) (17.3) -
Net amortization and deferral (2.2) 6.8 (9.7)
----- ----- -----
Net pension (income) expense (3.0) 2.2 2.3
===== ===== =====
As a result of the disposal of an interest in European Auctions (notes 7(i)
and 34) a curtailment gain of $2.7 million is included in the net amortization
and deferral component of net pension income for the year ended December 31,
1996.
The following table sets forth the aggregate actuarial present value of
accumulated benefit obligations and funded status for the Company's United
Kingdom plans:
At December 31 1996 1995
$m $m
Accumulated benefit obligations, including vested
benefits of $92.8 million (1995 - $82.4 million) 92.8 82.4
===== =====
Total projected benefit obligations 101.4 91.6
----- -----
Plan assets at fair value, primarily stocks,
bonds and money market funds 133.3 116.7
Less:Unamortized net assets (13.0) (6.1)
Less: Unrecognized net gain (12.1) (21.1)
Plus: Unrecognized prior service costs - 2.1
----- -----
108.2 91.6
----- -----
Net pension asset 6.8 -
===== =====
Benefit cover 131% 127%
----- -----
The actuarial assumptions for the expected long-term rate of return on plan
assets, weighted average discount rate, and rate of increase of future
compensation levels used in determining the actuarial present value of
accumulated benefit obligations for 1996 were 9.5 per cent, 8.5 per cent and
7.0 per cent, respectively (1995 - 9.0 per cent, 8.3 per cent and 6.5 per
cent, respectively). The actuarial valuations of the United Kingdom plans
were principally carried out by William M. Mercer and by Friends Provident.
The net pension asset at December 31, 1996 is included in other long-term
assets (note 20).
F-50
(iii) The aggregate net pension expense for the year in respect of the
United States and United Kingdom plans amounted to $4.6 million (1995 - $3.1
million; 1994 - $4.3 million).
(iv) The Company's United States electronic security services operation
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.
The net post-retirement benefit expense included the following components:
Year ended December 31 1996 1995 1994
$m $m $m
Service cost 0.7 0.5 0.6
Interest cost 2.5 2.4 2.3
Net amortization and deferral (1.2) (1.3) (1.3)
---- ---- ----
Net post-retirement benefit expense 2.0 1.6 1.6
==== ==== ====
The following table sets forth the components of the plan's accumulated
post-retirement benefit obligations and benefit liability:
At December 31 1996 1995
$m $m
Retirees 27.6 22.8
Fully eligible active plan participants 5.0 7.7
Other active plan participants 6.4 4.8
---- ----
Accumulated post-retirement benefit obligations 39.0 35.3
Less: Unrecognized net loss (5.3) (3.3)
Plus: Unrecognized prior service credit 14.5 15.8
---- ----
Post-retirement benefit liability (note 26) 48.2 47.8
==== ====
During 1992 the Company 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 over a period of approximately twenty years
beginning January 1992. Effective January 1995 the Company implemented a
defined dollar benefit cap for all current and future retirees, regardless of
age.
F-51
The weighted average discount rate used in determining the accumulated
post-retirement benefit obligations was 7.5 per cent (1995 - 7.0 per cent).
The actuarial valuations of the plan were carried out by Kwasha Lipton in 1996
and by Buck Consultants in 1995 and 1994.
Note 34 - Related party transactions
In December 1995 the Company 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 the Company disposed of an interest in European Auctions.
The aggregate consideration received by the Company on closing was comprised
of cash of $235.1 million, $187.6 million Vendor Note (note 18) with an issue
price of $83.9 million and valued by the Company at $74.6 million, $31.1
million Shareholder Loan Notes (note 18) with an issue price of $13.9 million
and valued by the Company at $13.3 million, and a 43.1 per cent interest in
the ordinary share capital of ITS at an issue price of $2.0 million and valued
by the Company at $0.9 million.
In February 1996 the Company disposed of its entire interest in Shareholder
Loan Notes and 33.1 per cent of the ordinary share capital of ITS for an
aggregate cash consideration of $15.4 million (note 18). As a result, the
Company now holds a 10.0 per cent 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.
Mr. D.B. Hammond and Mr. 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 per cent and 1.7 per cent, 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 per cent of the ordinary share capital of ITS. In addition,
at closing, Mr. M.A. Ashcroft, 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 per
cent of the ordinary share capital of ITS, which interest he continues to
hold. Mr. Ashcroft is not an officer or director of ITS or any of its
subsidiaries and has no involvement in the day to day management of ITS or any
of its subsidiaries.
Upon the disposal by the Company 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 totalling $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 totalling $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
totalling $1.1 million, based on ADT's common share price on December 19,
1995, which would otherwise have been exercisable in March 1996.
F-52
Upon the disposal by the Company 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 totalling $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 the Company 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 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, the Company entered into an agreement with the ITS group whereby
the Company 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, the Company entered into an option agreement with Mr. Ashcroft
which, if exercised, would have required Mr. Ashcroft to purchase from the
Company, for cash fifty days after closing, Shareholder Loan Notes with an
issue price of up to $8.2 million and up to 19.6 per cent of the ordinary
share capital of ITS. In addition, at closing, ITS entered into an agreement
with the Company 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 the Company and Mr. Ashcroft, and under which the Company 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 the
Company and Mr. Ashcroft agreed that the mutual obligations under the option
agreement be released.
At December 31, 1995 the Company'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, the Company and Mr. Ashcroft limiting the
voting rights of each of the Company and Mr. Ashcroft to 15.0 per cent of the
voting rights of ITS and due to the fact that Mr. Hammond did not be 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.
F-53
Note 35 - Quarterly financial data (unaudited)
1996 1996 1996 1996 1996
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
$m $m $m $m $m
Net sales:
Electronic security services 336.7 347.1 355.0 367.4 1,406.2
Vehicle auction services 74.6 75.3 72.9 75.0 297.8
------ ------ ------ ------ -------
Net sales 411.3 422.4 427.9 442.4 1,704.0
====== ====== ====== ====== =======
Operating (loss) income:
Electronic security services (i) (679.2) 54.1 52.5 (183.9) (756.5)
Vehicle auction services (ii) (2.2) 12.9 9.7 6.7 27.1
Corporate (iii) (5.4) (7.2) (15.1) (8.4) (36.1)
------ ------ ------ ------ -------
Operating (loss) income (686.8) 59.8 47.1 (185.6) (765.5)
Interest income 6.5 6.3 5.4 9.3 27.5
Interest expense (27.4) (26.7) (24.5) (22.4) (101.0)
Gain on disposal of businesses - - 1.7 - 1.7
Other income less expenses (iv) (0.3) 1.0 0.7 127.4 128.8
------ ------ ------ ------ -------
(Loss) income before
income taxes (708.0) 40.4 30.4 (71.3) (708.5)
Income taxes 2.4 (9.7) (7.2) 36.3 21.8
------ ------ ------ ------ -------
(Loss) income before
extraordinary items (705.6) 30.7 23.2 (35.0) (686.7)
Extraordinary items (v) - (1.2) (4.6) (2.6) (8.4)
------ ------ ------ ------ -------
Net (loss) income (705.6) 29.5 18.6 (37.6) (695.1)
====== ====== ====== ====== =======
Dividends on preference
shares (0.1) (0.1) - (0.1) (0.3)
------ ------ ------ ------ -------
Net (loss) income available
to common shareholders (705.7) 29.4 18.6 (37.7) (695.4)
====== ====== ====== ====== =======
Primary (loss) earnings
per common share (vi) $ $ $ $ $
(Loss) income before
extraordinary items (5.20) 0.22 0.16 (0.25) (5.01)
Extraordinary items - (0.01) (0.03) (0.02) (0.06)
------ ------ ------ ------ -------
Net (loss) income per
common share (5.20) 0.21 0.13 (0.27) (5.07)
====== ====== ====== ====== =======
F-54
Notes:
(i) In the first quarter of 1996 electronic security services operating
income was stated after a charge for the impairment of long-lived assets of
$731.7 million (note 6(i)). In the fourth quarter of 1996 electronic security
services operating income was stated after a charge of $232.5 million relating
to restructuring and other non-recurring items (note 5(i)).
(ii) In the first quarter of 1996 vehicle auction services operating income
was stated after a charge for the impairment of long-lived assets of $13.0
million (note 6(ii)).
(iii) In the second and third quarters of 1996 corporate expenses included
$0.4 million and $10.9 million, respectively, related to professional and
other transaction costs arising in connection with the merger of ADT and ASH
and the terminated merger with Republic (note 4(iii)). In the fourth quarter
of 1996 corporate expenses were stated after a charge of $4.8 million relating
to restructuring and other non-recurring items (note 5(ii)).
(iv) Other income less expenses principally comprised a net gain arising
from the disposal of the Company's entire investment in Limelight Group plc, a
net settlement gain with BDO, and gains and losses on currency transactions
(note 8).
(v) Extraordinary items principally were comprised of losses on repayment
and the write off of net unamortized deferred refinancing costs relating to
the early extinguishment of debt (note 11).
(vi) Primary (loss) earnings per common share equalled fully diluted (loss)
earnings per common share in all periods except for the second quarter of
1996. In the second quarter of 1996 fully diluted earnings per common share
from income before extraordinary items, extraordinary items and net income
were $0.21, $0.01 (loss) and $0.20, respectively.
F-55
Note 35 - Quarterly financial data (unaudited) (continued)
1995 1995 1995 1995 1995
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
$m $m $m $m $m
Net sales:
Electronic security services 321.1 337.7 337.5 354.6 1,350.9
Vehicle auction services 112.3 110.7 106.5 103.4 432.9
------ ------ ------ ------ --------
Net sales 433.4 448.4 444.0 458.0 1,783.8
====== ====== ====== ====== ========
Operating income:
Electronic security services (i) 42.6 46.4 50.0 33.4 172.4
Vehicle auction services 22.7 20.3 17.2 10.0 70.2
Corporate (ii) (7.5) (7.3) (6.7) (20.3) (41.8)
------ ------ ------ ------ --------
Operating income 57.8 59.4 60.5 23.1 200.8
Interest income 3.7 3.9 4.7 3.9 16.2
Interest expense (28.3) (30.5) (30.4) (27.1) (116.3)
Loss on disposal
of businesses (iii) - (4.9) (0.5) (31.2) (36.6)
Other income less expenses (iv) 1.1 (6.9) 0.9 (0.1) (5.0)
------ ------ ------ ------ --------
Income (loss) before
income taxes 34.3 21.0 35.2 (31.4) 59.1
Income taxes (9.7) (10.7) (9.2) 1.5 (28.1)
------ ------ ------ ------ --------
Income (loss) before
extraordinary items 24.6 10.3 26.0 (29.9) 31.0
Extraordinary items (v) - - (8.0) (1.8) (9.8)
------ ------ ------ ------ --------
Net income (loss) 24.6 10.3 18.0 (31.7) 21.2
Dividends on preference
shares (0.1) (0.1) (0.1) - (0.3)
------ ------ ------ ------ --------
Net income (loss) available
to common shareholders 24.5 10.2 17.9 (31.7) 20.9
====== ====== ====== ====== ========
Primary earnings (loss)
per common share (vi) $ $ $ $ $
Income (loss) before
extraordinary items 0.18 0.07 0.19 (0.22) 0.22
Extraordinary items - - (0.06) (0.01) (0.07)
------ ------ ------ ------ -------
Net income (loss) per
common share 0.18 0.07 0.13 (0.23) 0.15
====== ====== ====== ====== =======
F-56
Notes:
(i) In the fourth quarter of 1995 electronic security services operating
income was stated after a charge of $21.4 million relating to restructuring
and other non-recurring items (note 5(i)).
(ii) In the fourth quarter of 1995 corporate expenses were stated after a
charge of $12.8 million relating to restructuring and other non-recurring
items (note 5(ii)).
(iii) In the fourth quarter of 1995 loss on disposal of businesses
principally comprised a net loss of $65.8 million arising on the disposal by
the Company of an interest in European Auctions and a net gain of $31.4 million
arising on the disposal of its entire European electronic article surveillance
business (notes 7(i) and 7(ii)).
(iv) Other income less expenses principally comprised net losses arising
from the disposal of the Company's entire equity investments in CGPS and
Microtech which were held by the ASH group (note 8(i)).
(v) Extraordinary items principally were comprised of the write off of net
unamortized deferred refinancing costs relating to the early extinguishment of
debt (note 11).
(vi) Primary earnings (loss) per common share equalled fully diluted
earnings (loss) per common share in all periods except for the third quarter
of 1995. In the third quarter of 1995 fully diluted earnings per common share
from income before extraordinary items, extraordinary items and net income
were $0.18, $0.05 (loss) and $0.13, respectively.
F-57
Note 36 - ADT Operations, Inc.
ADT Operations, Inc., a company incorporated in the State of Delaware, United
States, is an indirect wholly owned subsidiary of ADT. ADT Operations, Inc.
is a holding company that, through its subsidiaries, conducts a substantial
proportion of the Company's electronic security services businesses in the
United States and all of the Company's vehicle auction services businesses in
the United States. ADT Operations, Inc. has no independent business
operations or assets other than its investment in its subsidiaries,
intercompany balances and holdings of cash and cash equivalents.
The consolidated financial statements presented below incorporate the
financial statements of ADT Operations, Inc. and its subsidiaries ("ADT
Operations"). The basis upon which the consolidated financial statements of
ADT Operations has been prepared and the summary of significant accounting
policies applied are as described in notes 1 and 2. The consolidated
financial statements of ADT Operations have been prepared assuming that ADT
Operations will continue as a going concern. This assumption is based on the
subordinated and non-collateralized debt position of ADT Operations, its
financing structure within the ADT group of companies and ADT Operations'
financial plans and projections. In the consolidated financial statements of
ADT Operations, "affiliates" refers to certain direct and indirect wholly
owned subsidiaries of ADT which are not within the ADT Operations group of
companies.
Consolidated statements of income
Year ended December 31 1996 1995 1994
Notes $m $m $m
Net sales (i) 1,212.0 1,094.3 986.3
Cost of sales (605.2) (537.5) (491.0)
Selling, general and
administrative expenses (421.9) (369.3) (331.4)
Restructuring and other non-recurring
charges (ii) (132.1) (19.4) -
Charge for the impairment of
long-lived assets (iii) (316.4) - -
------ ------- ------
Operating (loss) income (i) (263.6) 168.1 163.9
Interest income - affiliates 1.3 - 29.7
Interest income - non-affiliates 2.4 3.1 2.6
Interest expense - affiliates (32.4) (22.5) (49.1)
Interest expense - non-affiliates (75.1) (79.9) (66.4)
Gain on disposal of businesses
to affiliates (iv) 2.0 - -
Loss on disposal of businesses to
non-affiliates (v) - - (0.4)
Other income less expenses (vi) 8.5 (6.7) (0.3)
------ ------- ------
(Loss) income before income taxes (356.9) 62.1 80.0
Income taxes (vii) 1.4 (19.0) (25.5)
------ ------- ------
(Loss) income before extraordinary items (355.5) 43.1 54.5
Extraordinary items (net of
income taxes) (viii) (1.3) (8.9) -
------ ------- ------
Net (loss) income (356.8) 34.2 54.5
====== ======= ======
F-58
Consolidated balance sheets
At December 31 1996 1995
Notes $m $m
Assets
Current assets:
Cash and cash equivalents 82.9 54.0
Accounts receivable - net - affiliates 44.4 28.9
Accounts receivable - net - non-affiliates (ix) 149.4 132.8
Inventories (x) 21.6 17.2
Prepaid expenses and other current assets (xi) 22.9 6.9
-------- --------
Total current assets 321.2 239.8
Property, plant and equipment - net (xii) 1,131.3 1,049.1
Goodwill and other intangibles - net (xiii) 351.1 698.4
Long-term notes receivable - affiliates (xiv) 51.3 -
Other long-term assets (xv) 31.2 28.9
-------- --------
Total assets 1,886.1 2,016.2
======== ========
Liabilities and shareholder's equity
Current liabilities:
Short-term debt - non-affiliates (xvi) 129.8 36.3
Accounts payable - affiliates 14.5 9.6
Accounts payable - non-affiliates 91.8 75.2
Other current liabilities - non-affiliates(xvii) 143.5 127.5
-------- --------
Total current liabilities 379.6 248.6
Long-term debt - affiliates (xviii) 690.1 130.2
Long-term debt - non-affiliates (xix) 877.2 895.4
Deferred revenue (note 24) 72.4 67.3
Deferred income taxes (xx) 78.9 92.9
Other long-term liabilities - affiliates (xxi) 117.4 129.8
Other long-term liabilities
- non-affiliates (xxii) 119.4 96.3
Minority interests (note 27) - 15.6
-------- --------
Total liabilities 2,335.0 1,676.1
-------- --------
Commitments and contingencies (xxiv)
Shareholder's equity:
Common shares (xxiii) - -
Contributed surplus 858.5 858.5
Accumulated deficit (1,307.4) (518.4)
-------- --------
Total shareholder's equity (448.9) 340.1
-------- --------
Total liabilities and shareholder's equity 1,886.1 2,016.2
======== ========
F-59
Consolidated statements of cash flows
Year ended December 31 1996 1995 1994
$m $m $m
Cash flows from operating activities
Net (loss) income (356.8) 34.2 54.5
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Charge for the impairment of long-lived assets 316.4 - -
Depreciation 144.0 120.2 104.6
Goodwill and other intangibles amortization 11.7 18.2 18.5
Restructuring and other non-recurring charges 122.0 18.4 -
Interest on long-term notes
receivable - affiliates (1.3) - -
Liquid Yield Option Notes discount amortization 20.3 9.4 -
Refinancing costs amortization 3.2 4.9 5.3
Deferred income taxes (4.3) 16.5 22.0
Extraordinary items 1.3 8.9 -
Gain on disposal of property,
plant and equipment (2.2) (1.2) (0.8)
Gain on disposal of businesses to affiliates (2.0) - -
Loss on disposal of businesses to non-affiliates - - 0.4
Gain on customer contract transactions
- affiliates (18.1) - -
Gain arising from the ownership of investments - - (3.2)
Other 3.2 2.3 -
Changes in assets and liabilities:
Accounts receivable - affiliates (7.5) (14.6) (0.4)
Accounts receivable - non-affiliates (10.5) (29.3) (3.9)
Inventories (3.5) 3.6 (4.3)
Other assets (11.0) (0.4) 1.1
Accounts payable - affiliates (7.5) (5.2) (7.4)
Accounts payable - non-affiliates 14.7 16.6 7.7
Deferred revenue 3.1 2.7 0.9
Other liabilities (5.6) (8.8) 3.5
----- ----- -----
Net cash provided by operating activities 209.6 196.4 198.5
----- ----- -----
Cash flows from investing activities
Purchase of property, plant and equipment (293.2) (221.4) (175.8)
Disposal of property, plant and equipment 6.9 3.9 5.4
Long-term notes receivable - affiliates (50.0) - 318.8
Acquisition of businesses from non-affiliates (25.5) (64.0) -
Purchase of customer contracts (4.1) - -
Disposal of businesses to non-affiliates - - 10.2
Disposal of assets to affiliates 73.2 - -
Disposal of other investments to non-affiliates - - 19.7
Disposal of trademarks to affiliates - - 150.0
Other (1.7) (1.6) (5.2)
----- ----- -----
Net cash (utilized) provided by
investing activities (294.4) (283.1) 323.1
----- ----- -----
F-60
Cash flows from financing activities
Net receipt (repayments) of
short-term debt - affiliates - - (145.3)
Net repayments of short-term
debt - non-affiliates 11.4 (19.6) (25.9)
Repayments of long-term debt - affiliates - - (430.4)
Proceeds from long-term debt - affiliates 34.3 33.0 199.9
Repayments of long-term debt - non-affiliates (15.0) (209.6) (0.2)
Repayment of long-term acquisition debt - (39.6) -
Proceeds from long-term debt - non-affiliates 83.0 312.4 231.6
Debt refinancing costs - (12.0) (1.0)
Dividends paid - - (352.5)
Other - (2.2) (3.7)
----- ----- -----
Net cash provided (utilized) by
financing activities 113.7 62.4 (527.5)
----- ----- -----
Net increase (decrease) in cash and
cash equivalents 28.9 (24.3) (5.9)
Cash and cash equivalents at beginning of year 54.0 78.3 84.2
----- ----- -----
Cash and cash equivalents at end of year 82.9 54.0 78.3
===== ===== =====
Cash payments during the year for
Interest - affiliates 31.3 21.7 49.3
Interest - non-affiliates 52.0 66.5 57.7
Income taxes 2.6 2.3 4.0
In conjunction with the acquisition of businesses from
affiliates, net assets were assumed as follows
Goodwill and other intangibles 5.4 - -
Notes issued (70.0) - -
----- ----- -----
Net assets assumed (64.6) - -
===== ===== =====
In conjunction with the acquisition of businesses from
non-affiliates, net (assets) liabilities were assumed as follows
Goodwill and other intangibles 10.3 121.0 -
Cash paid (net of cash assumed) (25.5) (64.0) -
----- ----- -----
Net (assets) liabilities assumed (15.2) 57.0 -
===== ===== =====
F-61
Year ended December 31 1996 1995 1994
$m $m $m
In conjunction with the disposal of businesses to
affiliates, net assets were disposed as follows
Short-term receivable 8.0 - -
Gain on disposal of businesses (including net
unamortized goodwill and other intangibles) (2.0) - -
----- ----- -----
Net assets disposed 6.0 - -
===== ===== =====
In conjunction with the disposal of businesses to
non-affiliates, net assets were disposed as follows
Cash received (net of cash disposed) - - 10.2
Loss on disposal of businesses (including net
unamortized goodwill and other intangibles) - - 0.4
----- ----- -----
Net assets disposed - - 10.6
===== ===== =====
Consolidated statements of changes in shareholder's equity
Common Contributed Accumulated
shares surplus deficit Total
$m $m $m $m
At January 1, 1994 - 858.5 (254.6) 603.9
Net income - - 54.5 54.5
Cash dividends - - (352.5) (352.5)
------ ------ ------- ------
At December 31, 1994 - 858.5 (552.6) 305.9
Net income - - 34.2 34.2
------ ------ ------- ------
At December 31, 1995 - 858.5 (518.4) 340.1
Net loss - - (356.8) (356.8)
Dividends (a) - - (432.2) (432.2)
------ ------ ------- ------
At December 31, 1996 - 858.5 (1,307.4) (448.9)
====== ====== ======= ======
(a) A dividend of $432.2 million was paid by ADT Operations, Inc. in
December 1996 and the consideration was the assignment to ADT Operations
Inc.'s immediate parent of a loan note owed to ADT Operations, Inc. by a
subsidiary (note (xviii)).
F-62
Note (i) - Segment information
Year ended December 31 1996 1995 1994
$m $m $m
Net sales
Electronic security services (a) 914.2 824.5 733.0
Vehicle auction services 297.8 269.8 253.3
------- ------- -------
1,212.0 1,094.3 986.3
======= ======= =======
Operating (loss) income
Electronic security services (a) (289.9) 135.2 135.6
Vehicle auction services (b) 27.1 34.3 33.7
Corporate (c) (0.8) (1.4) (5.4)
------- ------- -------
(263.6) 168.1 163.9
======= ======= =======
(a) In 1996 electronic security services operating income was stated after
a charge of $131.6 million (1995 - $19.4 million) relating to restructuring
and other non-recurring items (note (ii)) and after a charge for the
impairment of long-lived assets of $303.4 million (note (iii)).
In December 1996 ADT Operations disposed of certain of its electronic security
services operations (Sonitrol franchises) to an affiliate. The net gain on
disposal of $2.0 million was included in the gain on disposal of businesses to
affiliates (note (iv)).
During 1994 ADT Operations disposed of certain of its electronic security
services operations (Puerto Rico and US Virgin Islands). The net loss on
disposal of $0.4 million was included in the loss on disposal of businesses to
non-affiliates (note (v)).
The following information represents the amounts included in the electronic
security services business segment information above which related to the
operations disposed of.
Year ended December 31 1996 1995 1994
$m $m $m
Net sales 6.1 6.1 12.7
Operating income 0.2 0.4 2.5
(b) In 1996 vehicle auction services operating income was stated after a
charge for the impairment of long-lived assets of $13.0 million (note (iii)).
(c) Corporate expenses comprise administrative, legal and general
corporate expenses net of other income. In 1996 corporate expenses were
stated after a charge of $0.5 million relating to restructuring and other
non-recurring items (note (ii)).
F-63
(d) The costs incurred in producing and communicating advertising are
generally expensed when incurred. The total amount of advertising expense for
the year included in the consolidated statements of income amounted to $58.3
million (1995 - $49.7 million; 1994 - $38.1 million).
Year ended December 31 1996 1995 1994
$m $m $m
Depreciation and amortization
Electronic security services 140.5 123.6 108.8
Vehicle auction services 15.0 14.7 14.2
Corporate 0.2 0.1 0.1
------ ------ ------
155.7 138.4 123.1
====== ====== ======
Capital expenditures
Electronic security services 264.7 201.1 161.8
Vehicle auction services 25.7 18.9 14.0
Corporate 2.8 1.4 -
------ ------ ------
293.2 221.4 175.8
====== ====== ======
Identifiable assets
Electronic security services 1,289.0 1,513.4 1,284.6
Vehicle auction services 467.7 440.3 425.3
Corporate 129.4 62.5 90.3
------- ------- -------
1,886.1 2,016.2 1,800.2
======= ======= =======
Note (ii) - Restructuring and other non-recurring charges
Year ended December 31 1996 1995 1994
$m $m $m
Electronic security services (131.6) (19.4) -
Corporate (0.5) - -
------ ------ ------
(132.1) (19.4) -
====== ====== ======
As a consequence of the Re-Engineering Project, and incorporating the effects
of the acquisition of Alert, in each of the fourth quarters of 1996 and 1995
senior executive management approved a restructuring plan which resulted in a
charge for restructuring and other non-recurring items of $131.6 million and
$19.4 million, respectively (note 5(i)). The effects of the Re-Engineering
Project resulted in a charge for restructuring and other non-recurring items
at the corporate level in 1996 of $0.5 million (note 5(ii)).
F-64
Note (iii) - Charge for the impairment of long-lived assets
Effective January 1, 1996, ADT Operations was required to adopt SFAS 121.
Following the adoption of SFAS 121, in the first quarter of 1996 ADT
Operations recorded an aggregate non-cash charge for the impairment of
long-lived assets of $316.4 million, as a separate line item in the
consolidated statements of income, with no consequential tax effect (note 6).
The $303.4 million impairment charge in the electronic security services
division comprised $302.4 million relating to goodwill and other intangibles
and $1.0 million relating to other assets. The $13.0 million impairment
charge in the vehicle auction services division related to goodwill and other
intangibles.
Note (iv) - Gain on disposal of businesses to affiliates
In December 1996 ADT Operations disposed of certain of its electronic security
services operations (Sonitrol franchises) to an affiliate. The aggregate
consideration on disposal amounted to $8.0 million, which was financed through
a short-term receivable from an affiliate, and the net gain on disposal of
$2.0 million included $1.8 million relating to the write off of net
unamortized goodwill and other intangibles (note (xiii)).
Note (v) - Loss on disposal of businesses to non-affiliate
During 1994 ADT Operations disposed of certain of its electronic security
services operations (Puerto Rico and US Virgin Islands). The aggregate cash
consideration on disposal amounted to $10.6 million and the net loss on
disposal of $0.4 million included $4.8 million relating to the write off of
net unamortized goodwill and other intangibles.
Note (vi) - Other income less expenses
Year ended December 31 1996 1995 1994
$m $m $m
Net gain arising on customer
contract transactions - affiliates 18.1 - -
Management fees - net - affiliates (9.6) (6.7) (3.5)
Gains and losses arising from the ownership of
long-term investments - - 3.2
---- ---- ----
8.5 (6.7) (0.3)
==== ==== ====
F-65
Note (vii) - Income taxes
(a) The provision for income taxes in the consolidated statements of
income was as follows:
Year ended December 31 1996 1995 1994
$m $m $m
Current income taxes:
US (principally state income taxes) (2.9) (2.5) (3.5)
Deferred income taxes: (note (xx))
US (principally federal income taxes) 4.3 (16.5) (22.0)
---- ----- -----
1.4 (19.0) (25.5)
==== ===== =====
(b) The reconciliation between notional US federal income taxes at the
statutory rate on consolidated (loss) income before income taxes and ADT
Operations' income tax provision was as follows:
Year ended December 31 1996 1995 1994
$m $m $m
Notional US federal income taxes
at the statutory rate 124.9 (21.7) (28.0)
Adjustments to reconcile to ADT Operations'
income tax provision:
US state income tax provisions, net (2.9) (2.5) (3.2)
SFAS 121 impairment (110.7) - -
Utilization and/or recognition of tax loss
carryforwards and other items (9.9) 5.2 5.7
------ ------ ------
Income tax provision 1.4 (19.0) (25.5)
====== ====== ======
F-66
Note (viii) - Extraordinary items
During 1996 and 1995 affiliates of ADT Operations reacquired in the market
certain of ADT Operations, Inc.'s senior subordinated notes (note (xix)(a)),
which was financed from cash on hand. Extraordinary items included the write
off of net unamortized deferred refinancing costs of $0.5 million (1995 - $0.8
million), and were stated net of applicable income taxes of $0.2 million (1995
- - $0.2 million).
In December 1996 ADT Operations, Inc. 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 cancelled (note (xix)(c)). 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 revolving bank credit agreement, and were stated net of applicable
income taxes of $0.5 million.
In July 1995 ADT Operations, Inc. repaid in full all amounts owed under its
previous bank credit agreement, which was subsequently cancelled. ADT
Operations, Inc. funded the repayment from the net proceeds of the issue of its
Liquid Yield Option Notes (note (xix)(b)). 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, and were stated net of applicable income taxes
of $4.5 million.
Note (ix) - Accounts receivable - net - non-affiliates
At December 31 1996 1995
$m $m
Trade accounts receivable 160.2 144.7
Less: allowance for doubtful receivables (10.8) (11.9)
----- -----
149.4 132.8
===== =====
Note (x) - Inventories
At December 31 1996 1995
$m $m
Raw materials and consumables 6.0 6.5
Work in process 11.4 7.4
Finished goods 4.2 3.3
----- -----
21.6 17.2
===== =====
F-67
Note (xi) - Prepaid expenses and other current assets
At December 31 1996 1995
$m $m
Prepaid expenses 4.5 4.1
Other current assets 18.4 2.8
----- -----
22.9 6.9
===== =====
Note (xii) - Property , plant and equipment - net
At December 31 1996 1995
$m $m
Cost:
Property and related improvements 278.5 254.0
Subscriber systems 1,336.9 1,098.1
Other plant and equipment 156.7 136.1
------- -------
Total cost 1,772.1 1,488.2
------- -------
Accumulated depreciation:
Property and related improvements 50.3 35.9
Subscriber systems 480.6 330.8
Other plant and equipment 109.9 72.4
------- -------
Total accumulated depreciation 640.8 439.1
------- -------
Net book values 1,131.3 1,049.1
======= =======
F-68
Note (xiii) - Goodwill and other intangibles - net
1996 1995
$m $m
Cost:
At January 1 841.2 720.2
SFAS 121 impairment (note (iii)) (429.1) -
Acquisitions (a) 19.8 121.0
Disposals (b) (41.1) -
------- -------
At December 31 390.8 841.2
------- -------
Accumulated amortization:
At January 1 142.8 124.6
SFAS 121 impairment (note (iii)) (113.7) -
Charge for the year 11.7 18.2
Disposals (b) (1.1) -
------- -------
At December 31 39.7 142.8
------- -------
Net book values:
At December 31 351.1 698.4
======= =======
(a) In February 1996 ADT Operations acquired the remaining 24.0 per cent
of the outstanding voting share capital of Alert, an electronic security
services company, not already owned by ADT Operations, for an aggregate cash
consideration of $25.5 million, which was financed from cash on hand. The
amount of goodwill arising from this acquisition was $10.3 million. During
1996 ADT Operations purchased other intangibles, principally customer
contracts, for an aggregate cash consideration of $4.1 million which was
financed from cash on hand. In December 1996 ADT Operations acquired the
electronic security services business and net assets of an affiliate for an
aggregate consideration of $70.0 million which was financed through a
long-term loan from an affiliate. The amount of goodwill arising from this
acquisition was $5.4 million.
In December 1995 ADT Operations acquired 76.0 per cent of the outstanding
voting share capital of Alert, for an aggregate cash consideration of $69.0
million, which was financed from $54.0 million of cash on hand and through a
long-term loan from affiliates of $15.0 million. The amount of goodwill and
other intangibles arising from this acquisition was $80.1 million and $40.0
million, respectively. During 1995 ADT Operations also acquired several small
electronic security services businesses for an aggregate cash consideration of
$0.9 million.
These acquisitions have been accounted for using the purchase method.
Accordingly, the respective purchase prices have been allocated to assets
acquired and liabilities assumed based on their preliminary estimated fair
values. These allocations resulted in goodwill and other intangibles of $19.8
million arising during the year (1995 - $121.0 million).
F-69
(b) During 1996, ADT Operations disposed of certain of its customer
contracts to an affiliate. The aggregate cash consideration on disposal
amounted to $74.5 million and the net gain on disposal of $36.3 million was
included in other income less expenses (note (vi)). In December 1996 ADT
Operations disposed of certain of its electronic security services operations
(Sonitrol franchises) to an affiliate. The net unamortized goodwill and other
intangibles on disposal of $1.8 million was included in the gain on disposal
of businesses to affiliates (note (iv)).
(c) The accumulated cost, accumulated amortization and net book values of
the goodwill balance included within goodwill and other intangibles at
December 31, 1996 amounted to $385.7 million, $39.1 million and $346.6
million, respectively (1995 - $801.2 million, $142.8 million and $658.4
million, respectively).
Note (xiv) - Long-term notes receivable - affiliates
In September 1996 ADT Operations subscribed for $73.8 million aggregate
principal amount at maturity of subordinated deep discount zero coupon loan
notes issued by an affiliate maturing in September 2001. There are no
periodic payments of interest. The notes were issued at a price of $50.0
million, reflecting a yield to maturity of 7.9 per cent per annum. ADT
Operations funded the subscription through loans drawn down under the revolving
bank credit agreement. The interest yield for 1996 amounted to $1.3 million.
Note (xv) - Other long-term assets
At December 31 1996 1995
$m $m
Deferred refinancing costs 19.5 24.7
Other long-term assets 11.7 4.2
---- ----
31.2 28.9
==== ====
In connection with the refinancing of certain long-term debt obligations of
ADT Operations certain fees and expenses were incurred. These refinancing
costs are being amortized as interest expense through the consolidated
statements of income on a straight line basis over the terms of the respective
lives of ADT Operations various long-term debt obligations. The refinancing
costs amortization for the year amounted to $3.2 million (1995 - $4.9 million;
1994 - $5.3 million). During the year $2.0 million (1995 - $13.6 million;
1994 - nil) of net unamortized deferred refinancing costs, relating to the
early extinguishment of certain amounts outstanding under ADT Operations
long-term debt obligations, were written off as extraordinary items in the
consolidated statements of income (note (viii)).
F-70
Note (xvi) - Short-term debt - non-affiliates
At December 31 1996 1995
$m $m
Bank and acceptance facilities 46.8 36.1
Current portion of long-term debt (note (xix)) 83.0 0.2
----- ----
129.8 36.3
===== ====
The average rate of interest on short-term debt - non-affiliates outstanding
at December 31, 1996 was 6.8 per cent (1995 - 7.9 per cent). Short-term debt
- - non-affiliates is generally repayable on demand or at an interest payment
date, and is non-collateralized except for $0.2 million of the current portion
of long-term debt in 1995.
Note (xvii) - Other current liabilities - non-affiliates
At December 31 1996 1995
$m $m
Accruals 23.3 24.1
Payroll and employee benefits 40.9 41.7
Payments received on account 12.5 8.9
Income taxes 2.3 2.0
Interest payable 20.9 21.3
Short-term restructuring, disposition and other provisions 37.9 25.3
Other current liabilities 5.7 4.2
----- ----
143.5 127.5
===== =====
Note (xviii) - Long-term debt - affiliates
At December 31 1996 1995
$m $m
Interest bearing, non-collateralized,
subordinated loan notes 634.2 97.4
Senior subordinated notes held by
affiliates (note (xix)(a)) 55.9 32.8
----- -----
690.1 130.2
===== =====
The average rate of interest on the non-collateralized, subordinated notes at
December 31, 1996 was 10.8 per cent (1995 - 10.8 per cent). The average rate
of interest on the non-collateralized, subordinated loan notes during the year
was 10.6 per cent (1995 - 11.1 per cent; 1994 - 9.4 per cent). The loan notes
are repayable in December 1999 ($132.0 million), in December 2001 ($70.0
million) and in August 2003 ($432.2 million).
F-71
Note (xix) - Long-term debt - non-affiliates
At December 31 1996 1995
$m $m
Senior notes (a) 250.0 250.0
Senior subordinated notes (a) 294.1 317.2
Liquid Yield Option Notes (b) 326.8 306.8
Revolving bank credit agreement (c) 83.0 15.0
Other 6.3 6.6
----- -----
960.2 895.6
Less: current portion (note (xvi)) (83.0) (0.2)
----- -----
877.2 895.4
===== =====
(a) In August 1993 ADT Operations, Inc. issued, through a public offering,
$250.0 million of its 8.25 per cent senior notes due August 2000 guaranteed on
a senior basis by ADT and certain subsidiaries of ADT Operations, Inc. (note
23(i)) and $350.0 million of its 9.25 per cent senior subordinated notes due
August 2003 guaranteed on a senior subordinated basis by ADT (note 23(ii)).
During 1996 affiliates of ADT Operations reacquired in the market $23.1
million (1995 - $32.8 million) face value of the senior subordinated notes and
these notes are all classified under long-term debt - affiliates (note
(xviii)).
(b) In July 1995 ADT Operations, Inc. issued $776,250,000 aggregate
principal amount at maturity of its zero coupon subordinated Liquid Yield
Option Notes maturing July 2010 (note 23(iii)). 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 cancelled. The Notes discount amortization for 1996 amounted
to $20.3 million (1995 - $9.4 million). During 1996 619 Notes with a carrying
value of $0.3 million were exchanged, at the option of the holders, for 17,472
ADT common shares (note 30).
(c) In August 1995 ADT Operations, Inc. entered into a new $300 million
revolving bank credit agreement which replaced in full its previous bank
credit agreement. The new agreement has a term of five years and is
guaranteed on a senior basis by ADT and certain subsidiaries of ADT
Operations, Inc. (note 23(iv)). At December 31, 1996 $83.0 million (1995 -
$15.0 million) was drawn down under the agreement, which has been classified in
the current portion of long-term debt, plus letters of credit amounting to
$81.1 million (1995 - $81.0 million) which have been issued and have terms of
less than one year. The average rate of interest at December 31, 1996 was 6.5
per cent (1995 - 7.6 per cent).
In December 1996 ADT Operations, Inc. entered into a new $200 million
revolving 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 (note 23(iv)).
The average rate of interest on all long-term debt - non-affiliates during the
year was 7.9 per cent (1995 - 8.2 per cent; 1994 - 8.7 per cent).
F-72
Based on estimated interest rates currently available to ADT Operations for
long-term debt - non-affiliates with similar terms and average maturities, the
fair value of all long-term debt - non-affiliates at December 31, 1996
amounted to approximately $1,010 million (1995 - approximately $960 million).
The maturities and installments with respect to long-term debt -
non-affiliates outstanding at December 31, 1996 are as follows:
$m
Year ending December 31 1997 83.0
1998 0.9
1999 1.6
2000 251.7
2001 0.9
Thereafter 622.1
-----
960.2
=====
Under the terms of the indenture governing the senior subordinated notes a
payment blockage prevents ADT Operations, Inc. and its guarantor subsidiaries
and ADT from making any payment of principal, interest or premium on the
senior subordinated notes and from purchasing, redeeming or otherwise
acquiring any senior subordinated notes during the continuance of any payment
blockage period. No payment blockage is currently in effect.
At December 31, 1996, ADT Operations, Inc. had $414.1 million of Senior
Indebtedness comprised of $83.0 million of Senior Indebtedness related to
loans under the revolving bank credit agreement, $81.1 million of Senior
Indebtedness related to letters of credit issued under the terms of the
revolving bank credit agreement and $250.0 million of Senior Indebtedness
related to the Senior Notes, (in each case as defined in the Senior
Subordinated Note Indenture).
At December 31, 1996, ADT had no Guarantor Senior Indebtedness (as defined in
the Senior Note Indenture, but excluding Indebtedness in respect of guarantees
issued by ADT of debt of ADT Operations, Inc. or its subsidiaries). At
December 31, 1996, the subsidiary guarantors had $53.2 million of Guarantor
Senior Indebtedness (as defined in the Senior Note Indenture), in each case
ranking pari passu in right of payment with the Senior Note Guarantees.
All of the subsidiary guarantors under the senior notes and the revolving bank
credit agreement are direct or indirect, wholly owned subsidiaries of ADT
Operations, Inc. Separate financial statements and other disclosures for the
subsidiary guarantors are not included herein because the subsidiary
guarantors have guaranteed the senior notes on a joint and several basis, the
aggregate assets, liabilities, earnings and equity of the subsidiary guarantors
are substantially equivalent to the assets, liabilities, earnings and equity
of ADT Operations, Inc. on a consolidated basis and such separate financial
statements and other disclosures are not considered material to investors.
F-73
Note (xx) - Deferred income taxes
The movement in deferred income taxes since January 1, 1994 has been as
follows:
1996 1995 1994
$m $m $m
At January 1 92.9 74.5 52.5
(Credit) charge for the year (note (vii)(a)) (4.3) 16.5 22.0
Extraordinary items (note (viii)) (0.7) (4.7) -
Assumed on acquisitions - affiliates (9.0) - -
Reclassifications - 6.6 -
---- ---- ----
At December 31 78.9 92.9 74.5
==== ==== ====
The significant temporary timing differences and tax loss carryforwards that
gave rise to the deferred income tax balance were as follows:
At December 31 1996 1995
$m $m
Liabilities:
Depreciation 861.0 733.9
Other 6.9 5.2
----- -----
867.9 739.1
----- -----
Assets:
Tax operating loss carryforwards 406.7 331.3
Provisions for estimated costs and expenses 121.0 59.4
Interest expense 147.9 99.6
Post-retirement benefit obligations 78.6 66.5
----- -----
754.2 556.8
Valuation allowance (111.8) (83.2)
----- -----
642.4 473.6
----- -----
Gross deferred income tax liability 225.5 265.5
----- -----
Deferred income tax liability at statutory tax rate 78.9 92.9
===== =====
F-74
The tax operating loss carryforwards at December 31, 1996 expire as follows:
$m
Year ending December 31 1999 6.8
2000 4.1
2001 24.2
2002 18.3
2003 7.5
2004 80.2
2005 123.2
2006 107.2
2007 23.1
2008 12.1
-----
406.7
=====
Note (xxi) - Other long-term liabilities - affiliates
At December 31 1996 1995
$m $m
Deferred gain 117.4 129.8
===== =====
During 1994 ADT Operations assigned its interest in its trademarks, service
marks and associated goodwill to an affiliate for an aggregate consideration
of $150.0 million. In view of the fact that the assignment was to an
affiliate, and taking into account the terms of the transaction, the net gain
of $141.7 million arising on the assignment was deferred. During 1996 $12.4
million (1995 - $11.9 million) of this deferred gain was credited to the
consolidated statements of income to offset license fee payments made by ADT
Operations to the affiliate, calculated as a fixed percentage of net sales,
for use of the trademarks and service marks referred to above.
F-75
Note (xxii) - Other long-term liabilities - non-affiliates
At December 31 1996 1995
$m $m
Pensions (note 33(i)) 28.4 20.6
Post-retirement benefits other than pensions (note 33(iv)) 48.2 47.8
Long-term restructuring, disposition and other provisions 27.8 15.0
Other long-term liabilities 15.0 12.9
----- ----
119.4 96.3
===== ====
Note (xxiii) - Common shares
At December 31 1996 1995 1994
Number Number Number
Authorized:
Common shares of $0.10 each 10,000 10,000 10,000
====== ====== ======
Issued and outstanding:
Common shares of $0.10 each 1,820 1,820 1,820
====== ====== ======
There has been no movement in authorized, issued and outstanding common shares
since January 1, 1994.
Note (xxiv) - Commitments and contingencies
(a) ADT Operations leases land, buildings, motor vehicles and other
equipment under various contracts. The future total minimum rental payments
required under operating leases that have remaining noncancelable lease terms
in excess of one year at December 31, 1996 are as follows:
$m
Year ending December 31 1997 37.5
1998 35.2
1999 28.3
2000 20.3
2001 12.7
Thereafter 12.2
-----
146.2
=====
The net operating lease rental charge for the year included in the
consolidated statements of income amounted to $43.4 million (1995 - $44.1
million; 1994 - $37.8 million).
F-76
(b) Financial instruments which potentially subject ADT Operations to
concentrations of credit risk principally consist of cash and cash equivalents
and trade receivables. ADT Operations places its cash and cash equivalents
with high credit quality financial institutions and, by policy, limits the
amount of credit exposure to any one financial institution. ADT Operations'
trade receivables primarily result from its electronic security services and
vehicle auction services businesses and reflects a broad customer base.
Credit limits, ongoing credit evaluation and account monitoring procedures are
utilized to minimize the risk of loss. As a consequence, concentrations of
credit risk are limited.
(c) ADT Operations is a defendant in a number of pending legal proceedings
incidental to present and former operations, acquisitions and dispositions.
ADT Operations does not expect the outcome of these proceedings either
individually or in the aggregate to have a material adverse effect on the
consolidated results of operations and cash flows or the consolidated
financial position of ADT Operations.
Note (xxv) - Pension and other plans
(a) ADT Operations' United States electronic security services operation
has a non-contributory, funded, defined benefit pension plan covering
substantially all of its employees. Details of this pension plan are provided
in note 33(i).
(b) ADT Operations' United States electronic security services operation
sponsors an unfunded defined benefit post-retirement plan which covers both
salaried and non-salaried employees and which provides medical and other
benefits. Details of this post-retirement plan are provided in note 33(iv).
F-77
ADT LIMITED
Consolidated Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Balance at Subsidiaries Additions Deductions- Balance
beginning acquired charged to primarily at end
of period (disposed of) income write-offs of period
$m $m $m $m $m
Allowance for doubtful receivables:
Year ended December 31, 1994 22.1 (0.6) 4.0 (8.6) 16.9
====== ====== ====== ====== ======
Year ended December 31, 1995 16.9 (1.1) 6.6 (5.4) 17.0
====== ====== ====== ====== ======
Year ended December 31, 1996 17.0 - 10.6 (9.1) 18.5
====== ====== ====== ====== ======
F-78
ADT OPERATIONS, INC.
Consolidated Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
[CAPTION]
Balance at Subsidiaries Additions Deductions- Balance
beginning acquired charged to primarily at end
of period (disposed of) income write-offs of period
$m $m $m $m $m
Allowance for doubtful receivables:
Year ended December 31, 1994 8.4 - 1.9 (2.3) 8.0
====== ====== ====== ====== =====
Year ended December 31, 1995 8.0 1.5 4.4 (2.0) 11.9
====== ====== ====== ====== =====
Year ended December 31, 1996 11.9 - 4.8 (5.9) 10.8
====== ====== ====== ====== =====
F-79
EXHIBIT INDEX
2.1 Agreement and Plan of Merger by and among ADT Limited, Limited Apache,
Inc. and Tyco International Ltd. dated as of March 17, 1997.(6)
3.1 Memorandum of Association (as altered) and Bye-Laws of ADT Limited
(incorporating all amendments to May 26, 1992).(1)
3.2 Certified copy of a resolution approved at the Annual General Meeting of
common shareholders of ADT Limited held on October 12, 1993, approving
an increase in the authorized common share capital of ADT Limited from
$19.5 million to $22.0 million.(4)
4.1 Indenture relating to the senior notes dated August 4, 1993 among ADT
Operations, as issuer, and ADT Limited and certain subsidiaries of ADT
Operations, as guarantors, and The Chase Manhattan Bank (National
Association), as trustee, and the form of senior note included
therein.(2)
4.2 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)
4.3 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. (5)
4.4 Rights Agreement between ADT Limited and Citibank, N.A. dated as of
November 6, 1996.(9)
4.5 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.(9)
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)*
10.6 Employment Agreement dated May 8, 1993 between ADT Limited and Michael
Anthony Ashcroft.(2)*
10.7 Amendment to Employment Agreement dated December 18, 1996 between ADT
Limited and Michael Anthony Ashcroft.(9)*
10.8 Employment agreement between ADT Limited and Stephen J. Ruzika dated as
of February 26, 1997.(9)*
10.9 Employment agreement between ADT, Inc. and Ron G. Lakey dated as of
January 16, 1997.(9)*
10.10 Agreement between ADT Automotive Holdings, Inc. and Michael J.
Richardson dated as of January 29, 1997.(9)*
10.11 Incentive Compensation Agreement between ADT, Inc. and Michael J.
Richardson dated as of February 10, 1997.(9)*
10.12 Severance Agreement between ADT Security Services, Inc. and Raymond
Gross dated as of February 26, 1997.(9)*
10.13 Consulting Agreement between ADT, Inc. and John E. Danneberg dated as of
August 28, 1996.(9)*
10.14 Form of Indemnification Agreement.(9)*
10.15 The ADT 1993 Long-Term Incentive Plan (as amended February 29,
1996).(3)*
10.16 Purchase Agreement dated June 29, 1995 among ADT Operations, Inc., ADT
Limited and Merrill Lynch & Co., Inc. and the related pricing agreement
(5)
10.17 US$200,000,000 Credit Agreement dated as of January 9, 1997, among ADT
Operations, Inc., as the Borrower, and Certain Commercial Lending
Institutions as the Lenders, and the Bank of Nova Scotia as the Agent
for the Lenders.
10.18 Guaranty, dated as of January 9, 1997, made by ADT Limited in favor of
each of the Lender Parties (as defined therein).
10.19 Subsidiary Guarantor Guaranty, dated as of January 9, 1997, made by each
Subsidiary Guarantor (as defined therein) in favor of each of the Lender
Parties (as defined therein).
10.20 Pound Sterling 90,000,000 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.
10.21 ADT Limited Guarantee dated as of March 25, 1997, in respect of a
Pound Sterling 90,000,000 facility made available to ADT Finance Plc.
10.22 Pound Sterling 27,000,000 On Demand Facility Letter dated January 3,
1997, between ADT Finance Plc and The Bank of Nova Scotia.
10.23 ADT Limited Guarantee in respect of the obligations of ADT Finance Plc
under a Pound Sterling 27,000,000 Facility Letter dated January 3,
1997.
10.24 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.(7)
10.25 Agreement among ADT Limited, Thomas J. Gibson and Integrated Transport
Systems Limited dated December 29, 1995.(8)*
10.26 Agreement among ADT Limited, David B. Hammond and Integrated Transport
Systems Limited dated December 29, 1995.(8)*
10.27 Common Share Purchase Warrant issued by ADT Limited on July 1, 1996 to
Republic Industries, Inc.(10)
11.1 Statement regarding the computation of earnings per common share.
21.1 List of subsidiaries of ADT Limited
23.1 Consent of independent accountants to the incorporation by reference of
this Annual Report into Form S-3 and Forms S-8.
27 Financial Data Schedule (for SEC use only).
- --------------
(1) Previously filed as an Exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1992.
(2) Previously filed as an Exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993.
(3) Previously filed as an Exhibit to the Registrant's Registration
Statement dated May 16, 1996, on Form S-8 filed May 17, 1996.
(4) Previously filed as an Exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993.
(5) Previously filed as an Exhibit to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1995.
(6) Previously filed as an Exhibit to the Registrant's Current Report
dated March 24, 1997 on Form 8-K filed March 25, 1997.
(7) Previously filed as an Exhibit to the Registrant's Current Report
dated December 29, 1995 on Form 8-K filed January 16, 1996.
(8) Previously filed as an Exhibit to the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995.
(9) Previously filed as an Exhibit to the Registrant's Schedule 14D-9
dated March 3, 1997.
(10) Previously filed as an Exhibit to the Registrant's Current Report
dated July 10, 1996 on Form 8-K filed July 11, 1996.
* Management contract or compensatory plan.