Acquisitions

9 Months Ended

Jun. 24, 2011

Acquisitions

Acquisitions

4. Acquisitions

2011 Acquisitions

        During the quarter and nine months ended June 24, 2011, cash paid for acquisitions included in continuing operations totaled $219 million and $228 million, respectively, which primarily related to the acquisition of Oceania Capital Partners Limited's Signature Security Group. Signature Security Group is an electronic security company operating in Australia and New Zealand primarily in small business and residential markets. Cash paid for Signature Security Group totaled approximately $184 million, net of cash acquired of $2 million by the Company's Tyco Security Solutions segment.

        On March 21, 2011, the Company signed a definitive agreement to acquire a 75% equity stake in privately-held KEF Holdings Ltd. ("KEF"), a vertically integrated valve manufacturer in the Middle East, for approximately $300 million. Following the close of the transaction, the Company intends to combine KEF with the Company's Tyco Flow Control Segment. See Note 20.

2011 ADT Account Acquisitions

        During the quarter and nine months ended June 24, 2011, the Company paid $172 million and $451 million of cash, respectively, to acquire approximately 159,000 and 419,000 customer contracts for electronic security services in its Tyco Security Solutions segment.

2011 Acquisition Related Costs

        Acquisition costs are expensed as incurred. During the quarter and nine months ended June 24, 2011, the Company incurred acquisition costs of $1 million and $4 million, respectively, primarily in connection with its acquisitions of Signature Security Group and KEF. Such costs are recorded in selling, general and administrative expenses in the Company's Consolidated Statements of Operations.

        During the quarter and nine months ended June 24, 2011, the Company incurred integration costs of $8 million and $22 million, respectively, primarily in connection with its acquisition of Brink's Home Security Holdings, Inc ("BHS" or "Broadview Security"). Such costs are recorded within selling, general and administrative expenses in the Company's Consolidated Statements of Operations.

2010 Acquisitions

        During the quarter and nine months ended June 25, 2010, cash paid for acquisitions included in continuing operations totaled $448 million and $600 million, respectively, net of cash acquired of $136 million and $137 million, respectively, which primarily related to the acquisition of Broadview Security and Hiter Industria e Comercio de Controle Termo-Hidraulico Ltda ("Hiter"). Net cash paid for Broadview Security totaled $448 million by the Company's Tyco Security Solutions segment during the quarter ended June 25, 2010. During the nine months ended June 25, 2010, the Company's Flow Control segment acquired two Brazilian valve companies, including Hiter, a valve manufacturer which serves a variety of industries including the oil and gas, chemical and petrochemical markets. Net cash paid for the Brazilian valve companies totaled $104 million.

2010 ADT Account Acquisitions

        During the quarter and nine months ended June 25, 2010, the Company paid $134 million and $400 million of cash, respectively, to acquire approximately 122,000 and 356,000 customer contracts for electronic security services in the Tyco Security Solutions segment.

2010 Acquisition Related Costs

        Acquisition costs are expensed as incurred. The Company has incurred approximately $14 million and $17 million of costs directly related to the Broadview Security acquisition during the quarter and nine months ended June 25, 2010. In addition, the Company recorded $10 million of integration costs during the quarter and $11 million during the nine months ended June 25, 2010. Both acquisition and integration costs have been recorded within selling, general and administrative expenses in the Company's Consolidated Statement of Operations for the quarter and nine months ended June 25, 2010. The Company's Tyco Security Solutions segment recorded $24 million and $25 million of acquisition and integration costs for the quarter and nine months ended June 25, 2010, respectively. The Company's Corporate and Other segment recorded nil and $3 million of acquisition costs for the quarter and nine months ended June 25, 2010, respectively. In addition, the Company's Tyco Security Solutions segment recorded $13 million of restructuring expenses, in conjunction with the acquisition of Broadview Security, which have been recorded within restructuring, asset impairments and divestiture charges, net in the Company's Consolidated Statement of Operations for the quarter and nine months ended June 25, 2010.

• Acquisition of Broadview Security

        On May 14, 2010, the Company's Tyco Security Solutions segment acquired all of the outstanding equity of Broadview Security, a publicly traded company that was formerly owned by The Brink's Company, in a cash-and-stock transaction valued at approximately $2.0 billion. Under the terms of the transaction, each outstanding share of BHS common stock was converted into the right to receive: (1) $13.15 in cash and 0.7562 Tyco common shares, for those shareholders who made an all-cash election, (2) 1.0951 Tyco common shares, for those shareholders who made an all stock election or (3) $12.75 in cash and 0.7666 Tyco common shares, for those shareholders who made a mixed cash/stock election or who failed to make an election.

        Prior to its acquisition, Broadview Security's core business was to provide security alarm monitoring services for residential and commercial properties in North America. Broadview Security had a large residential recurring customer base and was also a leader in technologies and services. The acquisition of Broadview Security has expanded the Company's presence in the North American residential security business as well as enhanced the Company's service offerings to its customers.

Fair Value Calculation of Consideration Transferred

        The calculation of the consideration transferred to acquire BHS is as follows. Certain amounts below cannot be recalculated as the exact BHS common share amounts have not been presented. ($ and common share data in millions, except per share data):

Cash consideration
All cash consideration
Number of shares of BHS common shares outstanding as of May 14, 2010 electing all cash				37
Cash consideration per common share outstanding			$	13.15
	Total cash paid to BHS shareholders making all cash election		$	490
Mixed cash/stock consideration
Number of shares of BHS common shares outstanding as of May 14, 2010 electing mixed consideration or not making an election				7
Cash consideration per common share outstanding			$	12.75
	Total cash paid to BHS shareholders making a mixed election or not making an election		$	95
		Total cash consideration	$	585
Stock consideration
All cash consideration
Number of shares of BHS common shares outstanding as of May 14, 2010 electing all cash				37
Exchange ratio				0.7562
	Tyco shares issued to BHS shareholders making an all cash election			28
All stock consideration
Number of shares of BHS common shares outstanding as of May 14, 2010 electing all stock				1
Exchange ratio				1.0951
	Tyco shares issued to BHS shareholders making an all stock election			1
Mixed cash/stock consideration
Number of shares of BHS common shares outstanding as of May 14, 2010 electing mixed consideration or not making an election				7
Exchange ratio				0.7666
	Tyco shares issued to BHS shareholders making a mixed election or not making an election			6
Total Tyco common shares issued				35
Tyco's average common share price on May 14, 2010			$	38.73
		Total stock consideration	$	1,362
Fair value of BHS stock option, restricted stock unit and deferred stock unit replacement awards(1)			$	27
Total fair value of consideration transferred			$	1,974

⁽¹⁾

Represents the fair value of BHS stock option, restricted stock unit and deferred stock unit replacement awards attributable to pre-combination service issued to holders of these awards in the acquisition. The fair value was determined using the Black-Scholes model for stock option awards and Tyco's closing stock price for the restricted and deferred stock unit awards. The fair value of outstanding BHS stock-based compensation awards which, immediately vested at the effective time of the acquisition, was attributed to pre-combination service and was included in the consideration transferred. In addition, there were certain BHS stock-based compensation awards which did not immediately vest upon completion of the acquisition. For those awards, the fair value of the awards attributed to pre-combination service was included as part of the consideration transferred and the fair value attributed to post-combination service is being recognized as compensation expense over the requisite service period in the post-combination financial statements of Tyco.

Fair Value Allocation of Consideration Transferred to Assets Acquired and Liabilities Assumed

        The consideration transferred for BHS has been allocated to identifiable assets acquired and liabilities assumed as of the acquisition date. The following amounts represent the fair value of the identifiable assets acquired and liabilities assumed ($ in millions):

Net current assets(1)			$	78
	Subscriber systems			624
	Other property, plant and equipment			49
		Total property, plant and equipment		673
	Contracts and related customer relationships (10-year weighted average useful life)			738
	Other intangible assets (4-year weighted average useful life)			12
		Total intangible assets		750
Net non-current liabilities(2)				(459	)
	Net assets acquired			1,042
Goodwill(3)				932
Purchase price			$	1,974

⁽¹⁾

As of the acquisition date, the fair value of accounts receivable approximated book value. Included in net current assets is $32 million of accounts receivable. The gross contractual amount receivable was approximately $35 million of which $3 million was not expected to be collected.

⁽²⁾

Included in net non-current liabilities is approximately $456 million of deferred tax liabilities which are recorded in other liabilities in the Company's Consolidated Balance Sheet.

⁽³⁾

The goodwill recognized is primarily related to expected synergies and other benefits that the Company believes will result from combining the operations of BHS with the operations of Tyco Security Solutions. All of the goodwill has been allocated to the Company's Tyco Security Solutions segment. None of the goodwill is expected to be deductible for tax purposes.

Actual BHS Financial Results

        BHS actual results from the acquisition date, May 14, 2010, which are included in the Consolidated Statement of Operations for the quarter and nine months ended June 25, 2010, are as follows ($ in millions):

	For the Quarter and Nine Months Ended
	June 25, 2010
Net Revenue	$	54
Loss from continuing operations attributable to Tyco common shareholders		(26	)
Net loss attributable to Tyco common shareholders		(26	)

Supplemental Pro Forma Financial Information (unaudited)

        The supplemental pro forma financial information for the quarter and nine months ended June 25, 2010 is as follows ($ in millions):

	For the Quarter Ended		For the Nine Months Ended
	June 25, 2010		June 25, 2010
Net revenue	$	4,342	$	12,877
Income from continuing operations attributable to Tyco common shareholders		244		870
Net income attributable to Tyco common shareholders		248		884
Income from continuing operations per share:
Basic earnings per share attributable to Tyco common shareholders	$	0.46	$	1.69
Diluted earnings per share attributable to Tyco common shareholders	$	0.46	$	1.68

        The supplemental pro forma financial information is based on the historical financial information for Tyco and BHS. The supplemental pro forma financial information for the period ended June 25, 2010 utilized BHS' historical financial information for its fiscal fourth quarter ended December 31, 2009 and the pre-acquisition period from January 1, 2010 through the acquisition date. The supplemental pro forma financial information reflect primarily the following pro forma pre-tax adjustments:

• •

  Elimination of BHS historical intangible asset amortization and property, plant and equipment depreciation expense;

  •

  Elimination of BHS historical deferred acquisition costs amortization;

  •

  Elimination of BHS historical deferred revenue amortization;

  •

  Additional amortization and depreciation expense related to the fair value of identifiable intangible assets and property, plant and equipment acquired;

  •

  Reduction of interest income on cash used to fund the acquisition and Tyco dividends assumed to be paid to BHS shareholders; and

  •

  All of the above pro forma adjustments were tax effected using a statutory tax rate of 39%

        The supplemental pro forma financial information for the quarter and nine months ended June 25, 2010 reflect the following non-recurring adjustments:

• •

  Direct acquisition costs primarily relating to advisory and legal fees and integration costs; and

  •

  Restructuring charges primarily related to employee severance and one-time benefit arrangements

        The supplemental pro forma financial information gives effect to the acquisition, but should not be considered indicative of the results that would have occurred in the periods presented above, nor are they indicative of future results. In addition, the supplemental pro forma financial information does not reflect the potential realization of cost savings relating to the integration of the two companies.