ADT 2003 Annual Report Download

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Annual Report
03
Look Inside

Table of contents

  • Page 1
    Look Inside Annual Report 03

  • Page 2
    ... part of your world. 01 Tyco Employees 06 Letter to Stakeholders 20 22 24 25 Tyco Business Segments 10 Fire and Security 12 Electronics 14 Healthcare 16 Engineered Products and Services 18 Plastics and Adhesives Operational Excellence Senior Management Team Board of Directors Financial Report

  • Page 3
    ... Karla. Karla Nunez OPERATIONS MANAGER TYCO PLASTICS AND ADHESIVES SAN PEDRO SULA, HONDURAS AMATITLAN, GUATEMALA Karla Nunez was so effective at opening, staffing and managing a distribution center in Honduras that Tyco asked her to do the same in Guatemala. Karla now divides her time between both...

  • Page 4
    ...to produce six million hypodermic needles a day? A plant manager like Martin. Ask anyone in Tyco Healthcare to name their top plant managers, and Martin Reid's name is on the list. He leads a three-shift operation of 750 people at the Kendall plant that manufactures the innovative MONOJECT MAGELLAN...

  • Page 5
    ... every day. Shu Ebe VICE PRESIDENT TYCO ELECTRONICS TOKYO, JAPAN Not only did Shu Ebe help achieve double-digit growth for the automotive electronics division in Asia - a pretty phenomenal achievement - he also contributed to a significant cost reduction program that will save the company millions...

  • Page 6
    ... National Eagle Leadership Career FOCUS Award in 2003. Rita's proudest accomplishment was securing a highly competitive training grant to help advance the skills of her fellow Tyco employees. Rita Duncan DIRECTOR OF HUMAN RESOURCES TYCO ENGINEERED PRODUCTS AND SERVICES REDWOOD CITY, CALIFORNIA, USA

  • Page 7
    05 Every day thousands of firefighters do their jobs better, thanks in part to a chemist in Wisconsin named Mitch. Mitch Hubert MANAGER OF AGENTS CHEMISTRY, R&D TYCO FIRE AND SECURITY MARINETTE, WISCONSIN, USA Mitch Hubert was a key member of the team that introduced SILV-EX foam by ANSUL - and ...

  • Page 8
    06 Tyco is accountable to millions of stakeholders. And no one takes that more seriously than Ed. Edward D. Breen CHAIRMAN AND CHIEF EXECUTIVE OFFICER Tyco Electronics Manufacturing Plant, Lickdale, Pennsylvania, USA TYCO INTERNATIONAL

  • Page 9
    ...separate business segment, established a business model, and built strong leadership teams at both the staff and business unit levels. We also increased sales volume for plastic sheeting and duct tape products, while intensifying our focus on cash ï¬,ow and cost productivity. All of us at Tyco know...

  • Page 10
    ... TYCO REVENUE BY SEGMENT ($ in billions) PLASTICS AND ADHESIVES $1.9 ELECTRONICS $10.3 FIRE AND SECURITY $11.3 Adopted best-in-class governance standards, including a strict new code of conduct, and initiated a comprehensive ethics education program for our employees worldwide. Implemented new...

  • Page 11
    ... their customers - something we will never stop striving to achieve at Tyco. Strategic Sourcing With a fundamentally new focus on strategic sourcing, Tyco's hundreds of business units have already begun to leverage, for the first time, Tyco's full buying power. For example, our sourcing teams will...

  • Page 12
    "Inside Tyco Fire and Security, there's an unwavering commitment to our customers. We know that the work we do matters - we help make the world safer." David E. Robinson ADT Call Monitoring Center, Aurora, Colorado, USA PRESIDENT, TYCO FIRE AND SECURITY

  • Page 13
    ... issues, new building codes for fire protection and other regulatory changes, the market for fire and security products and services worldwide is poised to grow into the future. The industry trend toward complete safety solutions will require innovation, strong customer service and global support...

  • Page 14
    ... technical and commercial resources to address these growth opportunities. In 2004, we are committed to extending our leadership in the development of innovative new fiber-optic, sensor, wireless and high-speed connector solutions. Accelerated the pace of new product development, with 29% of Tyco...

  • Page 15
    "Inside Tyco Electronics, our goal is to be the world's electronic components leader. We're succeeding through new technology, superior products and customer service." Juergen W. Gromer PRESIDENT, TYCO ELECTRONICS Hockenheim Formula One Racetrack, Hockenheim, Germany

  • Page 16
    "Inside Tyco Healthcare, there is a spirit of purpose that is driven by an understanding that the products we develop help save lives." Richard J. Meelia PRESIDENT, TYCO HEALTHCARE Caritas Norwood Hospital, Norwood, Massachusetts, USA

  • Page 17
    ...of the segment's strategy. In 2003, Tyco Healthcare began implementing a best-in-class product development process, known as EDGE (Encouraging Development for Global Expansion), and committed significant funding to new R&D efforts. OPERATIONAL EXCELLENCE Six Sigma and Lean Manufacturing initiatives...

  • Page 18
    ... Tech business is playing a pivotal role in projects worldwide. Recent awards include Project Aquatrine from the United Kingdom's Ministry of Defense, a large, multi-year contract to provide infrastructure upgrades and ongoing water and wastewater services. Fire and Building Products has developed...

  • Page 19
    "Inside Tyco Engineered Products and Services, we are committed to excellence every day as we provide vital industry solutions for our customers worldwide." Robert P. Mead Tyco Engineered Products and Services R&D Center, Cranston, Rhode Island, USA PRESIDENT, TYCO ENGINEERED PRODUCTS AND SERVICES

  • Page 20
    "Inside Tyco Plastics and Adhesives, our success comes from strong product platforms - and a powerful commitment to meet the needs of our customers." Terry A. Sutter Tyco Adhesives Plant, Franklin, Kentucky, USA PRESIDENT, TYCO PLASTICS AND ADHESIVES

  • Page 21
    ... its existing customer base - and capture new customers in underserved markets. New product development should add exciting organic growth opportunities and strengthen Tyco Plastics and Adhesives position in every segment. The business will focus on new sales-generating merchandising programs across...

  • Page 22
    ... In 2003, Tyco International announced a comprehensive roadmap for delivering operational excellence. The company set an aggressive goal of achieving $3 billion in benefits by the end of 2006 through programs in working capital, Six Sigma/Lean, strategic sourcing and real estate management. " The...

  • Page 23
    ... across the company and execute on plans to achieve a more efficient global manufacturing footprint... .. Tyco Healthcare completed 11 accounts receivable projects and eight inventory projects in Europe. Several segments, including Healthcare, Electronics and Engineered Products and Services have...

  • Page 24
    ... SENIOR VICE PRESIDENT CORPORATE TAX OFFICER Martina Hund-Mejean SENIOR VICE PRESIDENT CORPORATE TREASURER TYCO ELECTRONICS TYCO FIRE AND SECURITY TYCO HEALTHCARE TYCO ENGINEERED PRODUCTS AND SERVICES TYCO PLASTICS AND ADHESIVES Alan Clarke VICE PRESIDENT TELECOM OUTSIDE PLANT AND NETCONNECT...

  • Page 25
    23 Senior Management Team David Robinson Robert Mead Juergen Gromer Terry Sutter Naren Gursahaney Eric Pillmore Richard Meelia Charles Young William Lytton Dana Deasy David FitzPatrick Laurie Siegel Edward Breen

  • Page 26
    ... CHAIRMAN AND CHIEF EXECUTIVE OFFICER TYCO INTERNATIONAL LTD. Bruce Gordon FORMER PRESIDENT OF RETAIL MARKETS, VERIZON COMMUNICATIONS, INC. Mackey McDonald CHAIRMAN, PRESIDENT AND CEO VF CORPORATION Sandra Wijnberg SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, MARSH & MCLENNAN COMPANIES, INC...

  • Page 27
    Financial Report 26 Selected Financial Data 27 Management's Discussion and Analysis of Financial Condition and Results of Operations 66 Consolidated Statements of Operations 67 Consolidated Balance Sheets 68 Consolidated Statements of Shareholders' Equity 69 Consolidated Statements of Cash Flows...

  • Page 28
    ... Financial Statements. Income from continuing operations in the fiscal year ended September 30, 2001 includes a net charge of $585.3 million, of which $184.9 million is included in cost of sales, for restructuring and other charges, a charge for the write off of in-process research and development...

  • Page 29
    ... businesses have been an important part of Tyco's growth in the past, our business strategy now focuses on enhancing internal growth and operational efficiency for existing Tyco businesses. We plan to achieve this goal through new product innovation, increased market share, increasing the service...

  • Page 30
    ... 1997 acquisition of Tyco International Ltd., a Massachusetts corporation, by ADT Limited (a public company that had been located in Bermuda since the 1980s with origins dating back to the United Kingdom since the early 1900s), as a result of which ADT changed its name to Tyco International Ltd. and...

  • Page 31
    ...the Electronics, Fire and Security, Engineered Products and Services, and Healthcare segments totaled approximately $2 billion and operating income totaled approximately $55 million (excluding operating loss from the TGN of $115 million). Overall, this entire potential divestiture program represents...

  • Page 32
    ... taxes and tax valuation reserves, and the determination of discount and other rate assumptions for pension and postretirement employee benefit expenses. Actual results could differ from these estimates. Changes in estimates are recorded in the results of operations in the period that the events and...

  • Page 33
    ... various asset balances had become doubtful and $10.2 million write off representing capitalized external costs of a European financial computer system based on the Company's decision in the second quarter to discontinue the new system under development and continue to use the existing system. The...

  • Page 34
    ... 2003. Attrition rates for customers in our global electronic security services business averaged 15.9% on a trailing twelve-month basis for fiscal 2003, as compared to 13.2% for fiscal 2002. This increase relates to attrition in customer accounts acquired through our worldwide dealer program, as...

  • Page 35
    ..., plant and equipment resulting primarily from the termination of a software development project and, to a lesser extent, from the curtailment, and in certain markets, the termination of the ADT dealer program in certain non-U.S. markets. Operating income and margins in fiscal 2001 include net...

  • Page 36
    ... decrease in demand resulted in much lower manufacturing volumes which increased per unit costs. In the Submarine Telecommunications business, margins were impacted significantly by the lack of capacity sales on the TGN and a significant reduction in third party system builds. Operating loss and...

  • Page 37
    ... wound care contract, coupled with the exit of a major competitor from the traditional wound care business, new product launches and higher demand in the ultrasound market; increases in pharmaceuticals and imaging due to higher volumes and increased market share; and strong sales within the...

  • Page 38
    ... Analysis of Financial Condition and Results of Operations Net revenues for the Healthcare segment increased 11.8% in fiscal 2002 over fiscal 2001 including a 11.8% increase in product revenue and a 10.1% increase in service revenue, primarily as a result of increased sales volume resulting from...

  • Page 39
    ... recorded net credits totaling $1.4 million. Included within the $1.4 million are charges of $5.6 million related to changes in estimates recorded in connection with the Company's intensified internal audits, detailed controls and operating reviews and as a result of applying management's judgments...

  • Page 40
    ... of $199.1 million primarily related to the write off of investment banking fees and other deal costs associated with the terminated breakup plan and certain acquisitions that were not completed, costs incurred for the internal investigation, and severance. Corporate expenses were level in fiscal...

  • Page 41
    ...scal 2003, the Company recognized other expense of $8.6 million in connection with a bank guarantee on behalf of an equity investee (see "Off-Balance Sheet Arrangements - Guarantees" below for further information). During fiscal 2002, the Company sold certain of its businesses for net proceeds of...

  • Page 42
    ...in-process research and development, restructuring and other credits (charges), charges for the impairment of long-lived assets, charges for the impairment of goodwill, net gain on the sale of businesses and investments, net gain on the sale of common shares of a subsidiary and accounting change was...

  • Page 43
    ... to make July 1 the annual assessment date for all reporting units. Goodwill valuations have historically been calculated using an income approach based on the present value of future cash ï¬,ows of each reporting unit. This approach includes many assumptions related to future growth rates, discount...

  • Page 44
    ...above. Revenue Recognition Contract sales for the installation of fire protection systems, large security intruder systems, undersea cable systems and other construction-related projects are recorded on the percentage-of-completion method. Profits recognized on contracts in process are based upon...

  • Page 45
    ... of Tyco Capital through July 8, 2002 were as follows ($ in millions): FOR THE PERIOD OCTOBER 1, 2001 THROUGH JULY 8, 2002 FOR THE PERIOD JUNE 2 (DATE OF ACQUISITION) THROUGH SEPTEMBER 30, 2001 Finance income Interest expense Net finance income Depreciation on operating lease equipment Net finance...

  • Page 46
    ... relevant market-based data to calculate the estimated fair value of CIT as of March 31, 2002 based on its projected earnings and market factors expected to be used by market participants in ascribing value to CIT in the planned separation of CIT from Tyco. Management obtained relevant market data...

  • Page 47
    ... Items: Cash (provided by) used in operating activities from discontinued operations Capital expenditures (4) Dividends paid Decrease (increase in) in sale of accounts receivable programs Construction of Tyco Global Network Acquisition of customer accounts (ADT dealer program) Cash paid for purchase...

  • Page 48
    ... Financial Condition and Results of Operations The following table shows cash ï¬,ow from operating activities and other cash ï¬,ow items by segment for fiscal 2003 ($ in millions). FIRE AND SECURITY ENGINEERED PRODUCTS AND SERVICES PLASTICS AND ADHESIVES ELECTRONICS HEALTHCARE CORPORATE TOTAL...

  • Page 49
    ...of this change are set forth in detail in our Consolidated Statement of Cash Flows. The significant changes in working capital included a $627.6 million decrease in accounts payable due primarily to an overall decrease across all of our business segments resulting from improved inventory management...

  • Page 50
    ... related to certain prior period acquisitions. Holdback liabilities represent a portion of the purchase price that is withheld from the seller pending finalization of the acquisition balance sheet. Certain acquisitions have provisions which require Tyco to make additional "earnout" payments...

  • Page 51
    ... following: Operating cash flow from continuing operations (1) Purchase of property, plant and equipment, net Dividends paid Construction of TGN Acquisition of customer accounts (ADT dealer program) Cash paid for purchase accounting and holdback/earn-out liabilities Acquisition of businesses, net of...

  • Page 52
    ... and is guaranteed in part by various subsidiaries of TIG, has a variable interest rate based on LIBOR. The margin over LIBOR payable by TIG can vary depending upon changes in its credit rating and in the market price of one of its outstanding debt securities. TIG also pays a commitment fee of 0.50...

  • Page 53
    ... due 2006. In addition, subsequent to year end, TIG executed LIBOR-in-arrears interest rate swaps on notional value $875 million against these notes. Under these swaps Tyco will receive 6% and pay on average 6-month LIBOR plus 90.3 basis points. Tyco is currently negotiating a $1.5 billion 3-year...

  • Page 54
    ...corporate management, Tyco, some members of our former senior corporate management, former members of our Board of Directors and our current Chief Executive Officer are named defendants in a number of purported class actions alleging violations of the disclosure provisions of the federal securities...

  • Page 55
    ...Within the Electronics segment, backlog remained level. Backlog for Engineered Products and Services increased primarily due to several new contracts and, to a lesser extent, due to favorable foreign currency exchange rates. Backlog in the Healthcare and Plastics and Adhesives segments represents un...

  • Page 56
    ... from the sales were used to repay short-term and long-term borrowings and for working capital and other corporate purposes and are reported as operating cash ï¬,ows in the Consolidated Statements of Cash Flows. The sale proceeds are less than the face amount of accounts receivable sold by an...

  • Page 57
    ... as operating leases which are now recorded as capital leases under FIN 46. (2) (3) GUARANTEES The Company may, from time to time, enter into sales contracts whereby it will buy back (at a discount) a transaction from a customer's third-party financier in the event of a customer's default...

  • Page 58
    ... develop strong working relationships with our cadre of operating managers at our various subsidiary companies. Our new senior corporate management team's ability to complete this process has been and continues to be hindered by their need to spend significant time and effort dealing with internal...

  • Page 59
    ... and others seeking the production of voluminous documents in connection with various investigations into our governance, management, operations, accounting and related controls. The Department of Labor is investigating Tyco and the administrators of certain of our benefit plans. In addition, while...

  • Page 60
    ... products and services of our Fire and Security and Engineered Products and Services segments is significantly affected by levels of commercial construction and consumer and business discretionary spending. Most importantly, our electronic components business is heavily dependent on the end markets...

  • Page 61
    ... government or otherwise pay for the cost of cleanup of those sites and for natural resource damages. We also have a number of projects underway at several of our current and former manufacturing facilities in order to comply with environmental laws. These projects relate to a variety of activities...

  • Page 62
    ..., 2002 and 2001, respectively. If attrition rates continue to rise, ADT's recurring revenues and results of operations will be adversely affected. The Company amortizes the costs of ADT's contracts and related customer relationships purchased through the ADT dealer program using a double-declining...

  • Page 63
    ...commodity price exposures, are used with the goal of mitigating a significant portion of these exposures when it is cost effective to do so. Counter-parties to derivative financial instruments are limited to financial institutions with at least an A+ long-term debt rating. TYCO INTERNATIONAL LTD...

  • Page 64
    ... pay rate (1) Average receive rate (1) - - - - - - - - - - - - - - - 328.4 2.6% 6.5% 328.4 - - 20.9 - - Weighted-average variable interest rates are based on applicable rates at September 30, 2003 per the terms of the contracts of the related financial instruments. TYCO INTERNATIONAL...

  • Page 65
    ... are used to calculate the contractual payments to be exchanged under the contract. The amounts included in the table below are in U.S. dollars, unless noted ($ in millions). FISCAL 2004 FISCAL 2005 FISCAL 2006 FISCAL 2007 FISCAL 2008 THEREAFTER TOTAL FAIR VALUE LONG-TERM DEBT: Fixed rate (Euro...

  • Page 66
    ... No. 123 to require prominent disclosures about the method of accounting for compensation cost associated with employee share option plans, as well as the effect of the method used on reported results. The Company adopted the disclosure requirements of SFAS No. 148 and has not changed its method for...

  • Page 67
    ...•• overall economic and business conditions; the demand for Tyco's goods and services; competitive factors in the industries in which Tyco competes; changes in tax requirements (including tax rate changes, new tax laws and revised tax law interpretations); •• TYCO INTERNATIONAL LTD.

  • Page 68
    ....3) (47.5) 3,894.9 Cost of product sales Cost of services Selling, general and administrative expenses Restructuring and other (credits) charges, net Charges for the impairment of long-lived assets Goodwill impairment Write off of purchased in-process research and development OPERATING INCOME (LOSS...

  • Page 69
    ... Liabilities: Loans payable and current maturities of long-term debt Accounts payable Accrued expenses and other current liabilities Contracts in process - billings in excess of cost Deferred revenue Total current liabilities Long-Term Debt Other Long-Term Liabilities TOTAL LIABILITIES $««2,718...

  • Page 70
    ...' Equity (IN MILLIONS) YEARS ENDED SEPTEMBER 30, 2001, 2002 AND 2003 NUMBER OF COMMON SHARES COMMON SHARES $0.20 PAR VALUE SHARE PREMIUM CONTRIBUTED SURPLUS COMMON ACCUMULATED OTHER COMPACCUMULATED REHENSIVE EARNINGS INCOME (LOSS) TOTAL COMPREHENSIVE INCOME (LOSS) BALANCE AT SEPTEMBER 30, 2000...

  • Page 71
    ..., plant and equipment, net Construction of Tyco Global Network Acquisition of businesses, net of cash acquired Acquisition of customer accounts (ADT dealer program) Cash paid for purchase accounting and holdback/earn-out liabilities Net proceeds from the sale of CIT Disposal of other businesses, net...

  • Page 72
    ... The Company adopted Staff Accounting 1. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The Consolidated Financial Statements include the consolidated accounts of Tyco International Ltd., a company incorporated in Bermuda, and its subsidiaries (Tyco and...

  • Page 73
    ... research and development only. Advertising Advertising costs are expensed when incurred and rily first-in, first-out) or market value. Property, Plant and Equipment Property, plant and equipment are included in selling, general and administrative expenses. Sale of Common Shares of a Subsidiary...

  • Page 74
    ...historically been calculated using an income approach based on the present value of future cash ï¬,ows of each reporting unit. This approach includes many assumptions related to future growth rates, discount factors, future tax rates, etc. Changes in economic and operating conditions impacting these...

  • Page 75
    ...Company for costs incurred by the Company associated with maintaining and operating the ADT dealer program. Accordingly, each acquired contract and related customer relationship was recorded at its contractually determined purchase price, net of a non-refundable amount charged to dealers at the time...

  • Page 76
    ... Financial Statements Share Premium and Contributed Surplus In accordance with the Bermuda Companies Act of 1981, when Tyco issues shares for cash at a premium to their par value, the resulting premium is credited to a share premium account, a non-distributable reserve. When Tyco issues shares...

  • Page 77
    ... activities be recognized and measured at fair value when incurred as opposed to at the date an entity commits to the exit or disposal plans. Net income (loss) - as reported Add: Share-based employee compensation expense included in reported net income, net of tax Less: Total share-based employee...

  • Page 78
    ... Notes to Consolidated Financial Statements The following weighted-average assumptions were used for fiscal 2003, fiscal 2002 and fiscal 2001: 2001 2003 TYCO 2002 TYCO TYCO TYCOM Expected stock price volatility 64% Risk-free interest rate 2.48% Expected annual dividend per share $0.05 Expected...

  • Page 79
    ... years due to its focus on enhancing internal growth within its existing businesses. FISCAL 2003 During fiscal 2003, the Company purchased seven businesses within the Healthcare, Engineered Products and Services, Fire and Security and Electronics segments for an aggregate cost of $44.0 million in...

  • Page 80
    ...minority public interest of TyCom. In addition, during fiscal 2002 Tyco paid $1,139.3 million for approximately 1.4 million customer contracts for electronic security services through the ADT dealer program. In connection with these acquisitions, the Company recorded purchase accounting liabilities...

  • Page 81
    .... Termination of employees and consolidation of facilities related to fiscal 2002 acquisitions are substantially complete, except for long-term non-cancellable lease obligations and certain long-term severance arrangements. During fiscal 2002, the Company sold certain of its businesses for net...

  • Page 82
    ... during fiscal 2001 Tyco paid $798.1 million for approximately 1.0 million customer contracts for electronic security services through the ADT dealer program. In connection with these acquisitions, the Company recorded purchase accounting liabilities of $1,021.3 million for the costs of integrating...

  • Page 83
    ... Balance Sheet at September 30, 2003. Termination of employees and consolidation of facilities related to all such acquisitions are substantially complete, except for long-term non-cancellable lease obligations and certain long-term severance arrangements. In fiscal 2001, the Company sold its ADT...

  • Page 84
    ... SEPTEMBER 30, 2003 2002 2001 YEAR ENDED SEPTEMBER 30, 2003 2002 2001 OPERATING INCOME (LOSS): Fire and Security Electronics (1) Healthcare Engineered Products and Services Plastics and Adhesives Less: Corporate expenses Goodwill amortization expense Operating income (loss) (1) $«««360...

  • Page 85
    ... 2002 2001 4. Consolidated Geographic Data Selected information by geographic area is presented below ($ in millions). YEAR ENDED SEPTEMBER 30, 2003 2002 2001 TOTAL ASSETS: Fire and Security Electronics (1) Healthcare Engineered Products and Services Plastics and Adhesives Corporate Net assets...

  • Page 86
    ... ENDED SEPTEMBER 30, 2003 2002 2001 Fire and Security Electronics Healthcare Engineered Products and Services Plastics and Adhesives Corporate Less: Inventory-related amounts credited (charged) to cost of sales Bad debt provision charged to selling, general and administrative expenses Restructuring...

  • Page 87
    ... for payments on non-cancellable lease obligations. The Electronics segment recorded net restructuring and other charges of $1,504.5 million, of which $608.2 million is included in cost of sales. The initial charge included $166.1 million associated with a write down of existing inventory to market...

  • Page 88
    ...costs include building lease termination fees and other contract cancellation costs primarily for the shutdown of manufacturing plants in the United States. The supplier contract termination fees are primarily the result of the sudden and significant decrease in demand for our products and services...

  • Page 89
    ...are discussed in Note 6) related to the Engineered Products and Services segment recorded in fiscal 2002 ($ in millions): SEVERANCE NUMBER OF EMPLOYEES AMOUNT FACILITIES-RELATED NUMBER OF FACILITIES AMOUNT OTHER TOTAL Fiscal 2002 charges Fiscal 2002 utilization Ending balance at September 30, 2002...

  • Page 90
    ... in the United States, Europe and Canada. The other charges of $19.7 million consist primarily of contract cancellation costs and charges relating to an environmental remediation project. At September 30, 2003, $5.6 million of the remaining balance is included in accrued expenses and other current...

  • Page 91
    ... include building lease termination fees and other contract cancellation costs. Other charges consist of purchase commitment cancellations and payments on non-cancellable machinery and equipment leases. At September 30, 2003, $7.9 million of the remaining balance is included in accrued expenses and...

  • Page 92
    ... markets, the termination of the ADT dealer program. In addition, the Fire and Security segment recorded a charge of $109.1 million primarily related to the impairment of property, plant and equipment associated with the termination of a software development project. The software development project...

  • Page 93
    ... various projects for the development of new products and technologies in the amount of $184.3 million. The Company determined the valuation of the IPR&D using, among other factors, appraisals. The value was based primarily on the discounted cash ï¬,ow method. This valuation TYCO INTERNATIONAL LTD...

  • Page 94
    ...per annum, depending on the project's stage of completion and the type of FDA approval needed. This discounted cash ï¬,ow methodology for the various projects included in the purchased IPR&D resulted in a total valuation of $184.3 million. Although work on the projects related to the IPR&D continued...

  • Page 95
    ... shares are subject to the same terms and conditions that were applicable immediately prior to the amalgamation. Notional U.S. federal income tax expense (benefit) at the statutory rate Adjustments to reconcile to the Company's income tax provision: U.S. state income tax (benefit) provision, net...

  • Page 96
    ... goodwill if the net operating losses are utilized. The Company and its subsidiaries' income tax returns are periodically examined by various regulatory tax authorities. In connection with such examinations, tax authorities, including the Internal Revenue Service, have raised issues and proposed tax...

  • Page 97
    ... relevant market-based data to calculate the estimated fair value of CIT as of March 31, 2002 based on its projected earnings and market factors expected to be used by market participants in ascribing value to CIT in the planned separation of CIT from Tyco. Management obtained relevant market data...

  • Page 98
    ... the month of origination using methods that generally approximated the interest method. Leveraged lease income was recognized on a basis calculated to achieve a constant after-tax rate of return for periods in which Tyco Capital had a positive investment in the transaction, net of related deferred...

  • Page 99
    ... manufacturing machinery and equipment and for ships used by Tyco Submarine Telecommunications. During fiscal 2003, the Company adopted FIN 46 and, accordingly, restructured one of the synthetic leases to meet the requirements of FIN 46 for operating lease accounting. The Company has reclassified...

  • Page 100
    ....4 million shares related to the Company's zero coupon convertible debentures due 2020 and 2021, respectively, because conversion conditions have not been met. amount of accounts receivable sold by an amount that approximates the cost that would be incurred if commercial paper were issued backed by...

  • Page 101
    ... 2002, respectively. The changes in the carrying amount of goodwill for fiscal 2002 and 2003 are as follows ($ in millions): FIRE AND SECURITY ENGINEERED PRODUCTS AND SERVICES PLASTICS AND ADHESIVES ELECTRONICS HEALTHCARE TOTAL TYCO Balance at September 30, 2001 Goodwill related to acquisitions...

  • Page 102
    ... Tyco Submarine Telecommunications and Tyco Infrastructure Services reporting units. During fiscal 2002 we curtailed, and in certain markets terminated, the ADT dealer program. Due to a decrease in projected purchases of customer contracts through the ADT dealer program, an updated valuation using...

  • Page 103
    ... six-month LIBOR, calculated annually as the average of the 12 rates in effect on the first day of the month. Loans are generally repayable in ten years, except that earlier payments are required under certain circumstances, such as when an employee is terminated. In addition, the Company issued...

  • Page 104
    ...lump sum payment of $24.6 million, which represented the present value of the annual premium amounts at his termination date for the remainder of the contractual period, was made to Mr. Swartz and in return Mr. Swartz waived Tyco's obligation to continue making the premium payments. The Company has...

  • Page 105
    ... at an annual rate of $360,000 and provided Mr. Berman with health benefits, secretarial assistance, a cell phone and electronic security services for his homes. We also reimbursed Mr. Berman for legal fees and expenses incurred by him in connection with matters relating to Tyco pursuant to indemni...

  • Page 106
    ... and is guaranteed in part by various subsidiaries of TIG, has a variable interest rate based on LIBOR. The margin over LIBOR payable by TIG can vary depending upon changes in its credit rating and in the market price of one of its outstanding debt securities. TIG also pays a commitment fee of 0.50...

  • Page 107
    ... annual results of operations. Because it is not probable that the Company will have to make any payments or perform any services pursuant to the guarantee, it has not recorded any obligation related to the guarantee. The contract was entered into in July 2002 and expires at the end of the warranty...

  • Page 108
    ...on certain other interest rate swaps during fiscal 2002, totaling a net gain of $116.1 million, has been recognized in interest expense, net, along with the effective element of the changes in fair value of the interest rate swaps and the related hedged debt. OTHER Tyco uses various options, swaps...

  • Page 109
    ...or annual results of operations. As a result of actions taken by our former senior corporate management, Tyco, some members of our former senior corporate management, former members of our Board of Directors and our current Chief Executive Officer are named defendants in a number of purported class...

  • Page 110
    .... Net periodic pension benefit cost (income) is based on periodic actuarial valuations which use the projected unit credit method of calculation and is charged to the Consolidated Statements of Operations on a systematic basis over the expected average remaining service lives of current employees...

  • Page 111
    ...amounts related to the discontinued operations of CIT for all periods presented. The net periodic benefit cost (income) for all U.S. and non-U.S. defined benefit pension plans includes the following components ($ in millions): U.S. PLANS 2003 2002 2001 NON-U.S. PLANS 2003 2002 2001 Service cost...

  • Page 112
    ... Employee contributions Acquisitions Plan settlements Benefits paid Administrative expenses paid Currency translation adjustment Fair value of plan assets at end of year Funded status Unrecognized net actuarial loss Unrecognized prior service cost Unrecognized transition asset Net amount recognized...

  • Page 113
    ... consolidated, are available to pay plan benefits and are subject to the claims of the Company's creditors in the event of the Company's insolvency. The cash surrender value of these policies, net of outstanding loans, included in other noncurrent assets on the Consolidated Balance Sheet were $231...

  • Page 114
    ... change in assumed healthcare cost trend rates would have the following effects on income ($ in millions): 1-PERCENTAGE-POINT INCREASE 1-PERCENTAGE-POINT DECREASE 25. Shareholders' Equity Shares owned by subsidiaries are treated as treasury shares and are recorded at cost. In fiscal 2001, Tyco sold...

  • Page 115
    ...equal to or greater than the market price of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant. Options which have been granted under the Incentive Plan to date have generally vested and become exercisable over periods of up to five years...

  • Page 116
    ... at September 30, 2000 Pre-tax current period change Income tax benefit Activity of discontinued operations net of tax Balance at September 30, 2001 Pre-tax current period change Income tax (expense) benefit Activity of discontinued operations net of tax Balance at September 30, 2002 Pre-tax current...

  • Page 117
    ... and manufactured parts Work in process Finished goods Inventories Short-term investments Short-term investments (restricted) Contracts in process Prepaid expenses and other Other current assets Land Buildings Subscriber systems Machinery and equipment Leasehold improvements Construction in progress...

  • Page 118
    ... in cost of sales related to the dismantlement of customers' ADT security systems, and $35.8 million is included in selling, general and administrative expenses primarily related to uncollectible receivables and severance of corporate employees. Also includes charges of $11.5 million for the write...

  • Page 119
    ... this review process and resulting assessments by management during the quarter, we decided to discontinue existing product lines and terminate an information technology systems implementation project. As a result of these decisions, inventory and other asset balances were written down to their net...

  • Page 120
    ... related to the write down of property, plant and equipment within our Telecommunications business; the write off of in-process research and development of $4.4 million within our Fire and Security business; loss on the write down of investments of $123.3 million; a gain on sale of businesses...

  • Page 121
    ... shares. CONSOLIDATING STATEMENT OF OPERATIONS TYCO INTERNATIONAL LTD. TYCO INTERNATIONAL GROUP S.A. YEAR ENDED SEPTEMBER 30, 2003 ($ IN MILLIONS) OTHER SUBSIDIARIES CONSOLIDATING ADJUSTMENTS TOTAL NET REVENUES Cost of product sales Cost of services Selling, general and administrative expenses...

  • Page 122
    ... SUBSIDIARIES CONSOLIDATING ADJUSTMENTS TOTAL NET REVENUES Cost of product sales Cost of services Selling, general and administrative expenses Restructuring and other charges, net Charges for the impairment of long-lived assets Write off of purchased in-process research and development OPERATING...

  • Page 123
    121 CONSOLIDATING BALANCE SHEET TYCO INTERNATIONAL LTD. TYCO INTERNATIONAL GROUP S.A. SEPTEMBER 30, 2003 ($ IN MILLIONS) OTHER SUBSIDIARIES CONSOLIDATING ADJUSTMENTS TOTAL ASSETS Current Assets: Cash and cash equivalents Restricted cash Accounts receivable, net Inventories Intercompany ...

  • Page 124
    ... Consolidated Financial Statements CONSOLIDATING BALANCE SHEET TYCO INTERNATIONAL LTD. TYCO INTERNATIONAL GROUP S.A. SEPTEMBER 30, 2002 ($ IN MILLIONS) OTHER SUBSIDIARIES CONSOLIDATING ADJUSTMENTS TOTAL ASSETS Current Assets: Cash and cash equivalents Restricted cash Accounts receivable, net...

  • Page 125
    ... plant and equipment, net Construction of Tyco Global Network Acquisition of businesses, net of cash acquired Acquisition of customer accounts (ADT dealer program) Cash paid for purchase accounting and holdback/earn-out liabilities Disposal of businesses, net of cash sold Cash invested in short-term...

  • Page 126
    ..., plant and equipment, net Construction of Tyco Global Network Acquisition of businesses, net of cash acquired Acquisition of customer accounts (ADT dealer program) Cash paid for purchase accounting and holdback/earn-out liabilities Net proceeds from the sale of CIT Disposal of other businesses, net...

  • Page 127
    ... businesses, net of cash sold - Net sales (purchases) of long-term investments 5.9 Net decrease (increase) in intercompany loans 54.8 Net (increase) decrease in investment in subsidiaries (10,621.3) Other - Net cash used in investing activities from continuing operations (10,560.8) CIT cash balance...

  • Page 128
    ... in Tyco's Annual Report on Form 10-K. We believe that a strong control environment is a dynamic process and therefore, intend to continue to devote substantial resources to this effort. The Company has continually assessed David J. FitzPatrick Executive Vice President and Chief Financial Of...

  • Page 129
    ... Intangible Assets, in fiscal year 2002 and SEC Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements in fiscal year 2001. PricewaterhouseCoopers LLP New York, New York November 4, 2003 (except for Note 33, for which the date is November 18, 2003) TYCO INTERNATIONAL LTD.

  • Page 130
    ...Operating Activities (the most comparable GAAP measure) and FCF (the nonGAAP measure) consists of significant cash outï¬,ows that the Company believes are useful to measure its operations. The difference reï¬,ects net capital expenditures, acquisition of customer accounts (ADT Dealer Program), Tyco...

  • Page 131
    ... of Americas New York, NY 10019 SHAREHOLDER SERVICES Registered shareholders (shares held in your own name) with questions regarding your account, such as change of address, lost certificates or dividend checks, should contact our transfer agent at: Mellon Investor Services LLC 85 Challenger Road...

  • Page 132
    Tyco International Ltd. 2 ND FLOOR 90 PITTS BAY ROAD PEMBROKE HM 08 BERMUDA TYCO.COM