ADT 1999 Annual Report Download - page 28

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through improved productivity and cost reductions in the ordinary
course of business, unrelated to acquisition or divestiture activities.
The Company regards charges that it incurs to reduce costs in the
ordinary course of business as recurring charges, which are reflected
in cost of sales and in selling, general and administrative expenses in
the Consolidated Statements of Operations.
When the Company makes an acquisition, the acquired company
is immediately integrated with the Company’s existing operations.
Consequently, the Company does not separately track the financial
results of acquired companies. The year-to-year sales comparisons
that are presented below include estimates of year-to-year sales
growth that exclude the effects of acquisitions. These estimates
assume that the acquisitions were made at the beginning of the
relevant fiscal periods.
Sales and Operating Profits
Telecommunications and Electronics
The Company’s Telecommunications and Electronics segment is com-
prised of:
• Tyco Submarine Systems Ltd. (“TSSL”), which designs, manu-
factures, installs and maintains undersea fiber optic communica-
tions cable systems;
• Tyco Electronics, including AMP, which designs and manufac-
tures connectors, interconnection systems, touch screens and
wireless systems, and Raychem, which develops and manufac-
tures high-performance electronic components; and
• Tyco Printed Circuit Group, which designs and manufactures
printed circuits, backplanes and similar components.
The AMP merger occurred in April 1999, but as required under
the pooling of interests method of accounting, AMP’s results have
been included for all periods presented. The following table sets forth
sales and operating profits and margins on the basis described above
for the Telecommunications and Electronics segment:
(unaudited)
Twelve Months
Ended
September 30,
($ in millions) Fiscal 1999 Fiscal 1998 1997
Sales $7,711.2 $7,067.3 $6,304.9
Operating profits $1,174.0 $ 835.8 $ 677.8
Operating margins 15.2% 11.8% 10.8%
The 9.1% increase in sales in Fiscal 1999 over Fiscal 1998 for
the Telecommunications and Electronics segment resulted in part
from acquisitions. These included: the acquisition in May 1999 of Tele-
comunicaciones Marinas, S.A. (“Temasa”), included in TSSL; the
acquisition in August 1999 of Raychem, included in Tyco Electronics;
and the acquisition in July 1998 of Sigma Circuits, Inc., whose results
were included in the Tyco Printed Circuit Group for all of Fiscal 1999,
but only the final quarter of Fiscal 1998. Excluding the impact of
Temasa, Raychem and Sigma Circuits, sales increased an estimated
5.1%.
The 12.1% increase in sales in Fiscal 1998 over the twelve
months ended September 30, 1997 was predominantly due to the
acquisition of AT&T Corp.’s submarine systems business. The results
of this business were included in the Company’s operations for all of
Fiscal 1998, but only from July 1997, the date of acquisition, in the
1997 period. Excluding the impact of this acquisition, sales increased
an estimated 1.9%.
The Telecommunications and Electronics segment also experi-
enced organic growth in sales in Fiscal 1999 and Fiscal 1998 at TSSL
and the Tyco Printed Circuit Group. This growth was offset in part by
decreased sales at AMP. Prior to the Company’s merger with AMP,
AMP’s sales had decreased every quarter, compared to the corre-
sponding quarter in the prior year, since the quarter ended June 1997.
AMP’s pre-acquisition sales during the six months ended March 31,
1999 were $2,675.5 million, compared to sales of $2,843.6 million dur-
ing the six months ended September 30, 1999.
The 40.5% increase in operating profits in Fiscal 1999 compared
with Fiscal 1998 was due to improved margins at AMP, the acquisition
of Raychem, and higher sales volume at TSSL and the Tyco Printed
Circuit Group. The improved operating margins in Fiscal 1999 com-
pared with Fiscal 1998 were primarily due to the implementation of
AMP’s profit improvement plan, which was initiated in the fourth quar-
ter of Fiscal 1998, cost reduction programs associated with the AMP
merger, a pension curtailment/settlement gain and the acquisition of
Raychem. For information on the implementation of the AMP profit
improvement plan and the cost reduction programs related to the AMP
merger, see Note 16 (1999 Charges and 1998 Charges) to the Con-
solidated Financial Statements. These improvements were partially
offset by $253.4 million of certain costs in Fiscal 1999 at AMP prior to
the merger with Tyco, including costs to defend the AlliedSignal Inc.
tender offer, the write-off of inventory and other balance sheet write-
offs and adjustments.
The 23.3% increase in operating profits in Fiscal 1998 as com-
pared with the twelve months ended September 30, 1997 was pre-
dominantly attributable to the inclusion of the operating results of the
AT&T Corp.’s submarine systems business in all of Fiscal 1998 but
only for the final three months of the 1997 period. The increase in oper-
ating margins in Fiscal 1998, compared with the 1997 period reflects
higher incremental margins on increased sales at Tyco Printed Circuit
Group. This was offset in part by slightly decreased margins at TSSL
and AMP.
Healthcare and Specialty Products
The Company’s Healthcare and Specialty Products segment is com-
prised of:
• Tyco Healthcare, which manufactures a wide variety of dis-
posable medical products, including woundcare products,
syringes and needles, sutures and surgical staples, incontinence
products, electrosurgical instruments and laparoscopic instru-
ments;
• Tyco Plastics and Adhesives, which manufactures flexible plas-
tic packaging, plastic bags and sheeting, coated and laminated
packaging materials, tapes and adhesives and plastic garment
hangers; and
• ADT Automotive, which provides auto redistribution services.