ADT 2008 Annual Report Download - page 142

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be
read together with the Selected Financial Data and our Consolidated Financial Statements and the
related notes included elsewhere in this Annual Report. This discussion and analysis contains forward-
looking statements that involve risks, uncertainties and assumptions. Our actual results may differ
materially from those anticipated in these forward-looking statements as a result of many factors,
including but not limited to those under the headings ‘‘Risk Factors’’ and ‘‘Forward-Looking
Information.’’
Introduction
The Consolidated Financial Statements include the consolidated results of Tyco International Ltd.,
a company organized under the laws of Bermuda, and its subsidiaries (hereinafter collectively referred
to as ‘‘we,’’ the ‘‘Company’’ or ‘‘Tyco’’) and have been prepared in United States dollars, in accordance
with accounting principles generally accepted in the United States (‘‘GAAP’’).
The Company operates in the following business segments:
•ADT Worldwide designs, sells, installs, services and monitors electronic security systems for
residential, commercial, industrial and governmental customers.
•Flow Control designs, manufactures, sells and services valves, pipes, fittings, valve automation and
heat tracing products for the water and wastewater markets, the oil, gas and other energy
markets along with general process industries.
•Fire Protection Services designs, sells, installs and services fire detection and fire suppression
systems for commercial, industrial and governmental customers.
•Electrical and Metal Products designs, manufactures and sells galvanized steel tubing, armored
wire and cable and other metal products for non-residential construction, electrical, fire and
safety and mechanical customers.
•Safety Products designs, manufactures and sells fire protection, security and life safety products,
including fire suppression products, breathing apparatus, intrusion security, access control and
video management systems. In addition, Safety Products manufactures products installed and
serviced by ADT Worldwide and Fire Protection Services.
We also provide general corporate services to our segments and these costs are reported as
Corporate and Other.
References to the segment data are to the Company’s continuing operations. Prior period amounts
have been reclassified to exclude the results of discontinued operations.
Overview and Outlook
Fiscal year 2008 was a year of progress for Tyco, as revenue increased by 9% and income from
continuing operations significantly improved compared to 2007. We also made significant progress in
executing our business strategies. Looking forward to fiscal 2009, like most businesses, we expect
market conditions to negatively affect our results. First, because over 50% of our revenue is generated
outside of the U.S., the recent significant appreciation of the U.S. dollar against most major currencies
could negatively impact our revenue in 2009. Specifically, the value of the local currencies used in our
non-U.S. operations has declined relative to the U.S. dollar by approximately 20%, mostly during the
fourth fiscal quarter and into October of 2008. If exchange rates remained at these levels, our non-U.S.
revenue would likely decline by a similar magnitude in fiscal 2009. Second, we expect the operating
margins in our Electrical and Metals segment to decline in 2009 as a result of declining steel and
copper prices. As noted in our Critical Accounting Policies, we account for our inventory on a first-in,
2008 Financials 39