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Management’s
Discussion and
Analysis of Financial
Condition and
Results of Operations
27
Results of Operations
INTRODUCTION
The Consolidated Financial Statements include the consolidated
accounts of Tyco International Ltd., a company incorporated in
Bermuda, and its subsidiaries (Tyco and all its subsidiaries,
hereinafter “we,” the “Company” or “Tyco”) and have been
prepared in United States dollars, and in accordance with
Generally Accepted Accounting Principles in the United States
(“GAAP”).
The Company operates in the following business segments:
•• Fire and Security designs, manufactures, installs, monitors
and services electronic security and fire protection systems.
•• Electronics designs, manufactures and distributes electrical
and electronic components, and designs, manufactures,
installs, operates and maintains undersea fiber optic cable
communications systems.
•• Healthcare designs, manufactures and distributes medical
devices and supplies, imaging agents, pharmaceuticals and
adult incontinence and infant care products.
•• Engineered Products and Services designs, manufactures,
distributes and services engineered products including indus-
trial valves and controls and steel tubular goods and provides
environmental and other industrial consulting services.
•• Plastics and Adhesives designs, manufactures and distributes
plastic products, adhesives and films.
OVERVIEW
Although acquisitions of complementary businesses have been
an important part of Tyco’s growth in the past, our business
strategy now focuses on enhancing internal growth and opera-
tional efficiency for existing Tyco businesses. We plan to achieve
this goal through new product innovation, increased market
share, increasing the service and repair components of our
existing businesses and continued geographic expansion. We
are also implementing initiatives across our business segments
to achieve best-in-class operating practices utilizing Six Sigma
measurements. Additionally, we announced that we are evalu-
ating the disposition of some proposed non-core businesses to
be effected during the next year.
Information for all periods presented below reflects the
grouping of Tyco’s businesses into five segments, consisting of
Fire and Security, Electronics, Healthcare, Engineered Products
and Services, and Plastics and Adhesives. During fiscal 2003, a
change was made to the Company’s internal reporting struc-
ture such that the operations of Tyco’s plastics and adhesives
businesses (previously reported within the Healthcare and
Specialty Products segment) now comprise the Company’s new
Plastics and Adhesives reportable segment. The Company has
conformed its segment reporting accordingly and has reclassi-
fied comparative prior period information to reflect this change.
References to Tyco refer to the Company’s continuing opera-
tions. Also in fiscal 2002, Tyco sold its financial services business
(Tyco Capital) through an initial public offering (“IPO”) of CIT.
The historical results of our financial services business are
presented as “Discontinued Operations.” See “Discontinued
Operations of Tyco Capital (CIT Group Inc.)” below for more
information regarding the discontinued operations of Tyco
Capital. The Company has conformed its segment reporting
accordingly and has reclassified comparative prior period
information to reflect these changes.
Net revenues increased 3.4% during fiscal 2003 to $36,801.3
million from $35,589.8 million in fiscal 2002. Net revenues
increased 4.7% during fiscal 2002 as compared to $34,002.1
million in fiscal 2001. Tyco had income from continuing oper-
ations of $1,034.7 million in fiscal 2003, as compared to a loss
from continuing operations of $2,838.2 million in fiscal 2002,
and income from continuing operations of $3,894.9 million in
fiscal 2001.
Income from continuing operations for fiscal 2003 included
net charges totaling $1,832.6 million ($1,566.8 million after-
tax) consisting of the following: (i) charges for the impairment
of long-lived assets of $814.7 million; (ii) charges recorded for
changes in estimates of $388.7 million which arose from the
Company’s intensified internal audits and detailed controls and
operating reviews discussed below (includes net restructuring
credits of $72.5 million, of which credits of $12.9 million are
included in costs of sales, charges for the impairment of long-
lived assets of $10.2 million, charges of $243.1 million included
in selling, general and administrative expenses, charges of
$123.4 million included in cost of sales, a charge of $75.6 million
relating to the write down of investments and other expense of
$8.5 million, both of which are included in other (expenses)
income, net, and a charge of $0.4 million included in interest
TYCO INTERNATIONAL LTD.