ADT 2003 Annual Report Download - page 40

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inventory and a credit of $0.2 million related to reconciliation
items). Also included within the total credits of $1.4 million are
restructuring credits of $1.0 million due to costs being less than
anticipated and a credit of $6.0 million, which is included in
selling, general and administrative expenses, related to the settle-
ment of a lawsuit. The restructuring credits of $1.0 million
include a credit of $0.4 million also recorded in connection
with the Company’s intensified internal audits. The Plastics
and Adhesives segment expects to incur additional restructur-
ing charges in future periods related to the comprehensive cost
reduction program announced on November 4, 2003.
Net revenues for the Plastics and Adhesives segment
increased 7.5%, or $130.9 million, in fiscal 2002 over fiscal
2001. The increase was solely due to the effect of acquisitions.
In addition, net revenues for fiscal 2001 included $9.9 million
related to our ADT Automotive business, which was sold in
October 2000. Excluding the $4.5 million increase from foreign
currency exchange fluctuations and the acquisition of LINQ
Industrial Fabrics, Inc. in December 2001, and all other acqui-
sitions with a purchase price of $10 million or more, pro forma
revenues (calculated in the manner described above in
“Overview”) for the Plastics and Adhesives segment decreased
an estimated 13.0%.
Operating income decreased 30.5% in fiscal 2002 compared
to fiscal 2001 primarily due to decreased margins as a result of
volume shortfalls, a shift in the product mix, lower selling
prices in certain areas and unfavorable manufacturing vari-
ances. In addition, the segment incurred increased expenses
mostly relating to inventory write downs and uncollectible
accounts receivable.
Operating income and margins for fiscal 2002 reflect net
restructuring and other charges of $10.1 million, of which
inventory write downs of $1.1 million are included in cost of
sales. These charges primarily relate to severance associated
with the consolidation of operations and facility-related costs
due to exiting certain business lines. Operating income and
margins for fiscal 2002 also include a charge for the write off of
long-lived assets of $2.6 million primarily related to the impair-
ment of long-lived assets.
Operating income and margins for fiscal 2001 include net
restructuring and other charges of $8.3 million primarily
related to the closure of several manufacturing plants. Included
within the $8.3 million are charges of $4.0 million related to
inventory write downs, which has been included in cost of
sales. Operating income and margins also include a charge of
$1.2 million for the impairment of long-lived assets related to
the closure of the manufacturing plants.
CORPORATE ITEMS
Foreign Currency The effect of changes in foreign exchange
rates for fiscal 2003 compared to fiscal 2002 was an increase in
net revenues and operating income of $1,574.2 million and
$192.1 million, respectively. The effect of changes in foreign
exchange rates for fiscal 2002 compared to fiscal 2001 was an
increase in net revenues of approximately $0.9 million and a
decrease in operating income of approximately $48.2 million.
Corporate Expenses Corporate expenses were $400.6 million in
fiscal 2003. Corporate expenses for fiscal 2003 include charges
totaling $178.9 million. Included within the $178.9 million is a
charge of $91.5 million for an incremental increase in directors
and officers insurance and charges of $38.5 million related to
internal investigation fees. Also included is a charge of $19.9
million primarily related to a severance accrual for corporate
employees and a restructuring credit of $10.6 million due to
costs being less than anticipated, both of which were 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
and estimates. Also included within the $178.9 million are net
restructuring charges of $9.0 million, other net charges of
$16.0 million included in selling, general and administrative
expenses, and charges for the impairment of long-lived assets
of $14.6 million primarily related to the closure and relocation
of corporate offices and severance. Corporate expenses were
$419.7 million in fiscal 2002. This amount includes net restruc-
turing, impairment and other charges 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 2003 as compared to fiscal 2002, excluding
all of the items noted above. Corporate expenses were $243.9
million in fiscal 2001, and included a charge of $3.4 million
related to severance. Corporate expenses were down slightly in
fiscal 2002 as compared to fiscal 2001 due to an overall decrease
in compensation expense and lower than expected advertising
costs and expenses for charitable giving. However, these
decreases were partially offset by increased insurance costs,
legal and accounting fees, and other costs associated with the
business disruptions that began during the second quarter of
fiscal 2002.
TYCO INTERNATIONAL LTD.
Management’s Discussion and Analysis of Financial Condition and Results of Operations