ADT 2001 Annual Report Download - page 31

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29
Since the fourth quarter of Fiscal 2000, when we began
construction of the transatlantic portion of the TGN, TyCom’s
revenues have decreased due to lower third-party contract sales,
while fixed costs have generally increased due to our building
the infrastructure to support the TGN, including network oper-
ations, sales and marketing, research and development and
administration. The 26.6% decrease in revenue in Fiscal 2001 as
compared to Fiscal 2000 reflects generally the downturn in the
telecommunications industry and specifically a decrease in
third-party contract sales for undersea communication systems.
In addition, certain revenues were deferred pending customer
financing. TyCom may continue to experience softness in demand
if the current downturn in the telecommunications industry con-
tinues. However, TyCom believes that its technological capabilities
and contraction in the number of competitors should mitigate the
negative effects of industry trends on its results in the longer term.
The 56.4% increase in revenue in Fiscal 2000 over Fiscal
1999 resulted primarily from increased demand for third-party
sales of undersea communications systems and, to a much lesser
extent, the acquisition in May 1999 of Telecomunicaciones
Marinas, S.A. (“Temasa”). Excluding the effect of Temasa, the
revenue increase for the segment in Fiscal 2000 was an esti-
mated 54.0%.
The 21.7% decrease in operating income, before certain
charges, in Fiscal 2001 compared with Fiscal 2000 was princi-
pally due to the decrease in the volume of undersea cable com-
munications systems sales and services to others. The increase
in operating margins was primarily due to project completions
and certain reduced accruals due to lower profitability levels for
Fiscal 2001 and certain contractual settlements.
The substantial increase in operating income, before and
after certain charges, in Fiscal 2000 compared with Fiscal 1999
was primarily due to higher sales volume, and to a lesser extent,
the Temasa acquisition. The increase in operating income, after
certain charges, was offset by a non-recurring charge of
$13.1 million incurred in connection with the TyCom initial
public offering.
FOREIGN CURRENCY
The effect of changes in foreign exchange rates for Fiscal 2001
compared to Fiscal 2000 was a decrease in revenue of approxi-
mately $1,053.6 million and a decrease in operating income of
approximately $199.5 million. The effect of changes in foreign
exchange rates for Fiscal 2000 compared to Fiscal 1999 was a
decrease in revenue of approximately $528.6 million and a
decrease in operating income of approximately $105.9 million.
CORPORATE EXPENSES
Corporate expenses, excluding a net gain on sale of businesses
and investments of $276.6 million, a net non-recurring credit of
$163.4 million, primarily for the settlement of litigation, and a
net gain of $64.1 million on the sale of common shares of a sub-
sidiary, were $191.9 million in Fiscal 2001 as compared to
$187.4 million in Fiscal 2000 and $122.9 million in Fiscal 1999.
These increases were due principally to higher compensation
expense under our equity-based incentive compensation plans
and an increase in corporate staffing and related costs to sup-
port and monitor our expanding businesses and operations.
AMORTIZATION OF GOODWILL
Amortization of goodwill, a non-cash charge, increased
$193.0 million to $537.4 million in Fiscal 2001 compared with
Fiscal 2000. Fiscal 2000 amortization of goodwill increased to
$344.4 million from $216.1 million in Fiscal 1999. The increases
in goodwill amortization expenses were due to net increases in
goodwill balances of $10,066.2 million in Fiscal 2001 and
$3,764.4 million in Fiscal 2000, all due to acquisitions. In accor-
dance with recently adopted accounting rule changes, goodwill
will no longer be amortized beginning with our Fiscal 2002 year.
See Accounting and Technical Pronouncements within Note 1 to our
Consolidated Financial Statements for a discussion of these
accounting rule changes.
INTEREST EXPENSE, NET
Interest expense, net, increased $6.9 million to $776.5 million
in Fiscal 2001, as compared to Fiscal 2000, and increased
$284.0 million to $769.6 million in Fiscal 2000, as compared to
Fiscal 1999. These increases were due primarily to higher aver-
age debt balances, resulting from borrowings to finance acqui-
sitions and our share repurchase program, offset by lower
interest rates during Fiscal 2001. The increase in borrowings was
mitigated in part by the generation of a substantial amount of
free cash flow. The weighted-average rates of interest on Tyco
Industrial’s long-term debt outstanding at September 30, 2001
and 2000 were 4.2% and 6.6%, respectively.