ADT 1999 Annual Report Download - page 29

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The Company’s merger with USSC, which is included in Tyco
Healthcare, occurred in October 1998. As required under the pooling
of interests method of accounting, USSC’s results have been included
for all periods presented. The following table sets forth sales and oper-
ating profits and margins on the basis described above for the Health-
care and Specialty Products segment:
(unaudited)
Twelve Months
Ended
September 30,
($ in millions) Fiscal 1999 Fiscal 1998 1997
Sales $5,742.7 $4,672.4 $3,733.9
Operating profits $1,386.0 $ 481.8 $ 607.2
Operating margins 24.1% 10.3% 16.3%
The 22.9% increase in sales in Fiscal 1999 over Fiscal 1998, and
the 25.1% increase in Fiscal 1998 over the twelve months ended Sep-
tember 30, 1997, were primarily the result of increased sales of Tyco
Healthcare and, to a lesser extent, of Tyco Plastics and Adhesives and
ADT Automotive. The increases for Tyco Healthcare were due to
acquisitions and, to a lesser extent, organic growth. The acquisitions
primarily responsible for the sales increase in Fiscal 1999 included:
Valleylab, which was acquired in January 1998 and included in results
for all of Fiscal 1999, but only part of Fiscal 1998; Sherwood-Davis &
Geck (“Sherwood”), which was acquired in February 1998 and
included in results for all of Fiscal 1999, but only part of Fiscal 1998;
Confab, which was acquired in April 1998 and included in results for
all of Fiscal 1999, but only part of Fiscal 1998; and Graphic Controls
Corporation, which was acquired in October 1998. Excluding the con-
tributions of Valleylab, Sherwood, Confab and Graphic Controls, sales
for the segment increased an estimated 5.1% in Fiscal 1999 over Fis-
cal 1998.
For Fiscal 1998, the acquisitions primarily responsible for the
sales increase included Sherwood and Confab. Excluding the impact
of these acquisitions, the sales increase for Fiscal 1998 over the
twelve months ended September 30, 1997 was 5.8%.
The substantial increase in operating profits and operating mar-
gins in Fiscal 1999 over Fiscal 1998 was due to improved margins and
increased sales volume at Tyco Healthcare, whose margins were
depressed in Fiscal 1998. The increase in Fiscal 1999 also reflected
higher sales volume and better margins at Tyco Plastics and Adhe-
sives and ADT Automotive. The Fiscal 1998 margins at Tyco Health-
care were brought down by fourth quarter results at USSC, which
lowered sales of higher margin products to reduce excess inventory
levels at distributors, and recorded increased costs, principally a
$105.8 million accrual for special hospital education programs.
Excluding these effects, management estimates that the increase in
operating profits in Fiscal 1999 over Fiscal 1998 would have been
48.6% and the operating margin for the segment in Fiscal 1998 would
have been 19.6%. The increase in margins for Fiscal 1999 above the
19.6% level was primarily attributable to the effects of the cost reduc-
tion programs associated with the USSC merger, including the termi-
nation of 1,282 employees and the consolidation or closure of 20
facilities. The effect of exiting businesses of Tyco Healthcare did not
significantly impact operating margins or profits. For more information
on the cost reduction programs related to the USSC merger, see Note
16 to the Consolidated Financial Statements.
The decrease in operating profits and margins in Fiscal 1998
from the twelve months ended September 30, 1997 reflects decreased
margins at USSC, particularly as a result of the factors impacting the
Fiscal 1998 fourth quarter at USSC referred to above. The decreased
USSC margins were partially offset in Fiscal 1998 by the acquisition
of Sherwood, fixed cost reductions due to the integration of Sherwood,
and increased volume and margins at Tyco Plastics and Adhesives
and ADT Automotive. Excluding the effects of the above on sales and
costs in the Fiscal 1998 fourth quarter at USSC, management esti-
mates that operating profits would have increased by 53.7% in Fiscal
1998 as compared to the 1997 period.
Fire and Security Services
The Company’s Fire and Security Services segment:
• designs, installs and services a broad line of fire detection, pre-
vention and suppression systems worldwide;
• provides electronic security installation and monitoring ser-
vices; and
• manufactures and services fire extinguishers and related
products.
The following table sets forth sales and operating profits and mar-
gins on the basis described above for the Fire and Security Services
segment:
(unaudited)
Twelve Months
Ended
September 30,
($ in millions) Fiscal 1999 Fiscal 1998 1997
Sales $5,534.0 $4,393.5 $3,832.0
Operating profits $ 907.0 $ 630.6 $ 412.5
Operating margins 16.4% 14.4% 10.8%
The 26.0% increase in sales in Fiscal 1999 over Fiscal 1998
reflected increased sales worldwide in both the Company’s electronic
security services and its fire protection businesses. The increases
were due both to a higher volume of recurring service revenues and
the effects of acquisitions in the security services business. The acqui-
sitions included: Holmes Protection, acquired in February 1998 and
included in results for all of Fiscal 1999, but only part of Fiscal 1998;
CIPE S.A. and Wells Fargo Alarm, both acquired in May 1998 and
included in results for all of Fiscal 1999, but only part of Fiscal 1998;
and Entergy Security Corporation and Alarmguard Holdings, acquired
in January and February, 1999, respectively. Excluding the impact of
these acquisitions, the sales increase for the segment in Fiscal 1999
was an estimated 15.4%.
The 14.7% sales increase in Fiscal 1998 over the twelve months
ended September 30, 1997 was due to increased worldwide sales in
the electronic security services business and higher sales volume in
the North American fire protection businesses. The increases reflect a
higher volume of recurring service revenues and, to a lesser extent,
the impact of the Fiscal 1998 acquisitions. Excluding the effects of
Holmes, CIPE and Wells Fargo, the sales increase for the segment in
Fiscal 1998 was an estimated 7.3%.