ADT 2000 Annual Report Download - page 22

TWENTY
To Our Shareholders,
L. DENNIS KOZLOWSKI
Chairman of the Board and Chief Executive Officer
Fiscal 2000 was another very strong year for Tyco. I am pleased
to report that all our operating units beat their performance tar-
gets, and they are in a position to achieve excellent growth in
2001 and beyond.
Tyco’s internal revenue growth in fiscal 2000 was 14 per-
cent, a remarkable feat for a company of our size. Put another
way, our business units delivered $3.7 billion in incremental
sales last year alone—not counting acquisitions. That is what I
call a growth company.
For the seventh consecutive year, we increased revenues
and earnings substantially. Revenues rose 29 percent to $28.9
billion and earnings grew $1.2 billion to $3.7 billion, a 46 per-
cent increase over the prior year. Our diluted earnings per share
increased 42 percent to $2.18. These are outstanding numbers,
the result of our focus on lean, efficient management, continu-
ous production improvement and aggressive expansion into new
markets. Additionally, these results were achieved in the face of
three factors that hurt us, and many other multinational compa-
nies, in 2000: weakening foreign currencies, especially the euro,
sharply rising raw material prices and higher interest rates. Our
earnings per share would have been about 15 cents higher had
the euro, commodity prices and interest rates remained stable.
Despite these factors, we still had an excellent year.
I have never been more confident about Tyco’s core busi-
nesses and our growth opportunities. We generated more than
$3.3 billion in free cash flow in 2000, an amount that we hope
to increase to over $4 billion—before capital spending on the
TyCom Global Network—in 2001. We own great businesses with
leading trade names and we are well positioned to benefit from
powerful anticipated demographic, social and technological
trends. An aging global population and changing demographics
will stimulate increased healthcare spending. Increased concern
about personal and community safety will spur sales of security
and fire protection products. Sales of passive components will
rise as electronic devices proliferate. The Internet broadband
and global telecommunications explosion will require more
bandwidth, and TyCom Ltd. will supply much of it.
Fiscal 2000 was a year of many achievements. Among the
highlights:
* Our decision to invest heavily in electronics by acquiring
Siemens Electromechanical Products and Thomas & Betts’ OEM
business, among others, has turned out better than we could
have imagined. Sales at our Electronics unit rose 63 percent in
fiscal 2000, while earnings soared 127 percent.
* We launched TyCom Ltd. as an independent company (of
which Tyco still owns 86 percent). TyCom trades on the Bermuda
and New York Stock Exchanges under the symbol TCM. Sales at
our Telecommunications unit rose 56 percent in fiscal 2000
while earnings increased 63 percent. By raising $2.1 billion,
TyCom now has the resources to build the TyCom Global Network
(TGN), which, when completed, will be the largest, fastest and
most technologically advanced independent open-access under-
sea fiber optic telecommunications network, linking more than
80 percent of the world’s population.
* Our board, having concluded that Tyco stock was signifi-
cantly undervalued, approved a large share repurchase program
and in fiscal 2000 we repurchased $1.9 billion of our stock.
We believe the buyback is in the best interest of shareholders
and we are authorized to buy back an additional $1.1 billion of
our stock.
* We acquired Mallinckrodt Inc. in October 2000. The trans-
action will make us the world’s second largest producer of med-
ical devices. Mallinckrodt has many fine brands and we are most
excited about its industry-leading respiratory products, including
oxygen monitors, ventilators and home oxygen systems.
Growth on Growth
At Tyco, we have a two-pronged growth strategy. First, we seek to
achieve double-digit organic growth every year. This is growth
without ever doing another acquisition. Here are some reasons
that this internal growth rate is so powerful and predictable.
We are a leader in most of our businesses. Leadership has
its rewards, from brand recognition to economies of scale. But
many leaders falter. At Tyco, we are vigilant about making sure
that does not happen. Our continuous improvement culture
keeps costs low and focuses on innovation and speed to market.
We introduce great new products. Complacency kills. We
spent over $500 million on R&D last year so we could remain on
top. In 2000, we unveiled outstanding new products in all our
business units.
We are the low-cost producer. That is what we are in almost
all of our businesses. With that edge, you can sell products at
attractive prices and still have very good margins.