2nd Floor

90 Pitts Bay Road

Pembroke HM08

Bermuda

http://www.tyco.com

T Ict I ati nat nal t99 1 A
An u e R t
T y c o y n oe r n t e r o n ailo L t d . L1 d . 9 9 9n9n u a ln R a lp o re p o r t

The Zurich Centre

Ty c o I n t e r n a t i o n a l L t d .

19
99
Annual Report

Get to

know

we are the world’s largest supplier of electronic and electrical connectors
WE ARE THE WORLD’S
LARGEST INSTALLER
AND SERVICER OF

we are the world’s largest producer of

FIRE AND SECURITY

industrial valves

SYSTEMS

w e h a v e g row n o u r ea rni ng s a t a 35% com pounded r ate for the past fi v e y ear s

we lead the burgeoning global market in undersea fiber optic telecommunications
W E H AV E 1 8 2 , 0 0 0
EMPLOYEES IN
OVER 80 COUNTRIES AROUND THE

we are a global leader in disposable health care

we achieved sales of over $22 billion in fiscal 1999 we do not make toys . . . and never have
1

1. telecommunications

and

electronics

If you knew Tyco last year, look again. The Company has evolved into a leader in the fast-paced, high-tech world of electronics. Our merger with AMP, the world’s largest maker of electrical connectors, and the acquisition of Raychem, a leading manufacturer of high-performance electrical components, created the nucleus for the formation of Tyco Electronics Corporation, the world’s largest supplier of passive electronic components. The diverse capabilities of AMP and Raychem, combined with the soaring growth of our telecommunications business, means that in fiscal 2000 Tyco will derive 40 percent of its revenue from telecommunications and electronics. The products we make are hard to see, but they are virtually everywhere — you use them every day. You’ll find AMP and
Raychem connectors, as well as wireless, touch screen and fiber optic components, in cellular products, computers, instrumentation, industrial machinery, aerospace and defense applications, automobiles, household appliances and consumer electronics. AMP and
Raychem technologies fit perfectly with the ongoing advances in telecommunications and automotive electronics. In November 1999, we acquired Siemens’ Electromechanical Components unit,

PR OD U C TS/SE RV ICE S :
D ES IGN , MA N U FA C TU R E ,
IN S TA LLATION A N D S E RV IC E
OF UNDERSEA FIBER OPTIC
TELE C OMMU N IC ATION S
CABLE
PR IN TED C IR C U IT B OA R D S
BA C K P LA N E A S S E MB LIE S
IN TE R C ON N EC TION D E V IC E S
R ELAY S A N D S WITCH E S
ELECTRONIC, ELECTRICAL,
WIRELESS AND ELECTROOPTIC CONNECTION DEVICES

Tyco’s Printed Circuit Group provides high-precision, multilayered printed circuit boards to the telecommunications, aerospace and computer industries.

Do you know:
Ty c o S u b m a r i n e S y s t e m s L td . i s t h e o n l y v e r t i c a l l y i n t e g r a t e d
2

In Eatontown, New Jersey, Tyco engineers concentrate on increasing the parameters of transoceanic systems that will be implemented in future years. Tyco’s commitment to advanced research is unique in the undersea fiber optic telecommunications cable business.

a $900 million world leader in automotive and telecommunications electronics technology.
Fiscal 1999 was a milestone year for Tyco
Submarine Systems Ltd. (TSSL). As demand for Internet connections and broadband access continued to explode, TSSL’s year-end backlog increased to a record $3.5 billion and its global market share surpassed
50 percent. In addition, Tyco became the first undersea network supplier—via TSSL—to make an equity investment in telecommunications infrastructure by supporting the development of
Worldwide Fiber’s trans-Atlantic Hibernia cable. The demand for
TSSL’s products and expert services is off the charts! To help meet this accelerating demand, we acquired Temasa, the undersea cable installation division of Telefonica, whose key assets include three cable ships that we added to our fleet of eight vessels installing and maintaining fiber optic cables throughout the world. We also became the first company ever to develop the capacity for transoceanic transmission at speeds of
640 gigabits per second over a single fiber—the equivalent of
10 million simultaneous voice circuits. To assure that our technology remains the best in its class, we built a new, state-of-theart research facility in Eatontown, New Jersey. We also added a manufacturing facility in Exeter, New Hampshire, to increase our undersea cable electronics capacity.
With these achievements, the future of undersea fiber optics is particularly promising, and our company is better positioned to take advantage of the market opportunity than ever before.

5

Throughout the world, nearly every automobile contains AMP products. AMP connectors are crucial to the world’s most sophisticated automotive systems, such as autonomous, laser-guided cruise control, computerized navigation systems and electronically controlled seats.

undersea fiber optic company in the world.

2.

healthcare and

specialty products
Tyco is a world leader in many health care categories: wound care, antiembolism products, disposable laparoscopic instrumentation, stapling and suturing products, and adult incontinence products. We significantly broadened our product line with our merger with U.S. Surgical (a leader in minimally-invasive surgical instruments), and our acquisition of Graphic Controls (a
P ROD U C T S / S E RV I C ES:
HE ALT H C A R E P R O D UCT S: leading producer of diagnostic charts and disposable
ME D I C A L S U R G I C A L SUPPL IES medical electrodes). As a result of these transactions,
S UTU R E S A N D S U R GICAL STAPL ES
W O U N D - C A R E D R E SSINGS AND we are now able to offer a much broader product line to
BANDAGES
group purchasing organizations and integrated health
SYRINGES AND NEEDLES
I NCO N T I N E N C E P R ODUCT S care networks, key health care customers where our
E LE C T R O S U R G I C A L INST RUM ENT S share is growing briskly. These transactions also resultLA PAR O S C O P I C I N S T RUM ENT S ed in a more immediate payoff. In our first year of ownURO L O G I C A L C AT H ET ERS AND
DRA I N B A G S ership, they provided higher profits and expanded our
E NTE R A L F E E D I N G PUM PS AND
SETS
O TH E R S P E C I A LT Y
P ROD U C T S A N D S E RVICES:
TA P E S A N D A D H E S I VES
GARMENT HANGERS
CO AT E D A N D L A M I N AT ED PACKAGI NG M AT E R I A L S
P LA S T I C B A G S , S H EET ING AND
FLE XI B L E PA C K A G I NG M AT ERIAL S
A UTO M O B I L E R E D I S T RIBUT ION
The health care needs of an aging world population drive increased spending. Tyco is well positioned for this trend, as we already offer many products to serve the health care needs of the elderly.

Do you know:
O v e r t h e l a s t t h r e e y e a r s , Ty c o H e a l t h c a r e ’s i n t e r n a t i o n a l
6

Tyco is one of the world’s largest global health care product providers, with leadership positions in wound-care dressings and bandages, minimally-invasive surgical instruments, electrosurgical instrumentation, syringes, catheters, sutures, incontinence products sales have risen tenfold to $1.4 billion.

and

You may not notice it, but many aircraft flown by Delta Air Lines and other carriers feature Polyken

®

products made by Tyco Adhesives.

These include flame-retardant waterproof galley tapes, cargo compartment tapes and carpet tapes for use in aircraft interior applications. Products such as foil and paper masking tapes are used in protective applications during on-ground aircraft paint and maintenance operations.

geographical scope and effectiveness.
We are taking advantage of substantial growth outside the United States, and international sales now account for more than 35 percent of our total health care business.
Our position in the fast-growing international market has never been stronger.
In fiscal 1999, Tyco Plastics and Adhesives purchased 1.2 billion pounds of resin and transformed it into thousands of polyethylene-based products people use every day. We are, for example, the world’s leading producer of plastic garment hangers, which you might find in your closet or favorite store. We are the largest U.S. maker of plastic trash bags; our Ruffies® brand is sold at WalMart, Kmart, Target, and numerous drug and grocery chains. Under the Film-Gard® brand we make plastic sheeting and we recently acquired Sunbelt
Plastics to expand our product offering in the sheeting and institutional trash can liner market. In April, we acquired Batts Incorporated, a large garment hanger manufacturer, which has opened new expansion opportunities for us in Europe. Strong demand has led to the construction of a new plastic film plant in Monroe, Louisiana, and another plastic bag plant in Santa Fe, California.
Rounding out this segment is ADT Automotive. With over $450 million in annual sales, it ranks as the second-largest company in the United States providing auto redistribution services.

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fire and

3.

securityservices

Already the worldwide leader in fire and security services, Tyco continues to grow aggressively. At the end of fiscal 1999, our ADT security unit was adding more than
70,000 residential and commercial customers each month, and is greatly expanding its dealer network to several new countries around the world. Strong organic growth supplemented by acquisitions led to growth in ADT’s global monitored base of 50 percent last year, from 2.4 million to 3.6 million customers. Key ADT acquisitions included
Entergy and Alarmguard in the United States. We have also made acquisitions overseas, primarily to expand our business in Asia and Latin America. ADT won important new commercial accounts, significantly increasing its security business at major banks and adding contracts to provide electronic security at six of the busiest airports in the United States:
O’Hare (Chicago), Dulles and Reagan National (Washington D.

P R OD U C TS/SE RV ICE S :
FIRE DETECTION,
P R E V E N TION A N D
S U P P R E S S ION S Y S TE MS
E LE C TR ON IC S E C U R ITY

C.), Detroit Metro, Hartsfield (Atlanta), and Miami International.
Last year, Tyco’s fire protection business continued its

IN STA LLATION A N D
MON ITOR IN G
FIR E EX TIN GU ISH E R S A N D
R E LATE D SE RV IC E
D E S IGN , IN STA LLATION ,
IN SP E C TION A N D
MAIN TEN A N C E OF F IR E
P R OTEC TION SY S TE MS

Tyco’s new carbon monoxide fire detector alerts people more quickly than traditional smoke detectors, especially to slow, smoldering fires. It is achieving widespread acceptance in the marketplace.

Do you know:
The five largest banks in the United States now all rely on
10

This New Hampshire home is protected by ADT Security, the world’s largest electronic security company. Industry innovator ADT offers motion detectors, child alert systems (parents can be notified when a child arrives home safely), and monitoring systems for heating, ventilation and air-conditioning equipment. ADT never sleeps—so you can, soundly and safely.

ADT to handle their electronic security needs.

For Sydney’s Stadium Australia — the centerpiece arena for the 2000 Summer Olympics—Tyco was selected to supply a $26million multi-service package of fire protection and suppression systems, fire doors and extinguishers, as well as heating, ventilation

and

geographic expansion, and increased the significance of our maintenance and inspection revenue, as planned. We made numerous acquisitions to enhance our presence in markets such as Asia, Europe and Latin America. Consider these highlights from fiscal
1999: we manufactured and installed the fire suppression system for the Jin Mao
Tower, the world’s tallest hotel, in Shanghai; we supplied an integrated fire, gas and emergency shutdown system for the Phu My Gas Plant in Vietnam; we provided inspection and maintenance for fire protection systems at more than 300 Extended
Stay America hotels throughout the United States; we created a fire protection system

12

for a Kimberly-Clark plant in Mexico; we provided the fire protection system for the Inchon
Airport in
South Korea; we completely upgraded fire protection at the General Motors Global Headquarters in Detroit; we installed a new fire detection and sprinkler system for Heineken’s 20building brewery in The Netherlands; and we manufactured and installed the sprinkler and hydrant systems in Vienna’s new Twin Tower. Every one of these projects has additional service opportunities that provide a recurring source of revenue.

13

4.

flow control products Companies use our industrial valves in the production of food, beverages, chemicals and pharmaceuticals throughout the world. Tyco Valves & Controls, the world’s largest valve company, continues to expand across the globe. We have significantly increased our product offerings in China and other parts of Asia, Sweden, Australia and Latin
America. Our steel tubing business expanded, as we acquired U.K.-based Glynwed
Metal Processing, a maker of pipes and tubular products. This represents Tyco’s first initiative to take the Allied Tube & Conduit manufacturing technology and products into other parts of the world. Tyco Flow Control also acquired

PR OD U C TS/SE RV ICE S :

Central Sprinkler Company, a major manufacturer of fire sprinkler

IN D U S TR IAL VA LVE S A N D

products throughout the world. Recurring revenues rose sharply,

VA LVE A C TU ATOR S

as we signed new contracts to inspect and recondition valves for some of our largest industrial customers.

VA LVE MAIN TEN A N C E
SE RV IC ES
STE E L PIPE , TU B U LA R A N D
ME TA L FR AMIN G PR OD U C TS

Our fast-growing Earth Tech division recently entered into a joint venture with Venezuela’s state petrochemical company,

C AB LE TR AY S
FIR E S P R IN KLE R S A N D OTH E R
FIR E P R OTEC TION P R OD U C TS
EN GIN E E R IN G C ONS U LTIN G
EN V IR ON MEN TA L CON S U LTIN G/R E MED IATION
TOTA L WATE R MAN A GE ME N T
SE RV IC ES

Tyco Flow Control makes more valves for business and municipalities than anyone in the world.

Do you know:
T y c o ’ s E a r t h Te c h d i v i s i o n i s o n e o f t h e w o r l d ’ s l e a d i n g d e s i g n e r s ,
14

In Gardner, Massachusetts, Tyco’s Earth Tech division designed and built—and currently operates—a municipal wastewater treatment plant and is now constructing a new water treatment facility for the town. Earth Tech employees routinely test wastewater to be certain the treatment process is effective.

builders and operators of water and wastewater treatment plants.
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In Val de Reuil, near Rouen, France, the manufacturing process at the Upjohn pharmaceutical plant contains a variety of
Tyco Flow Control products. The plant relies on hundreds of Keystone pneumatic actuators (in black) and Gachot ball valves
(in yellow) to produce pharmaceuticals in liquid form.

Pequiven, to manage and dramatically expand a water treatment plant, eventually increasing its processing capacity from 300 to 4,000 liters per second.
As we expanded our businesses, we also exited some, divesting Mueller Company, which manufactures fire hydrants, municipal water valves and gas products. We also sold Grinnell Supply Sales & Manufacturing. The rationale: Mueller products were

16

closely tied to the vagaries of housing construction and were too cyclical for today’s Tyco, while Grinnell Supply Sales primarily sold commodity products in an increasingly competitive marketplace. The proceeds from these divestitures have been redeployed into other areas of Tyco to generate greater returns for our shareholders.

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L. Dennis Kozlowski,
Chairman of the Board and
Chief Executive Officer

To O u r S h a r e h o l d e r s
Fiscal 1999 was an excellent year for
Tyco International. We exceeded our corporate goals and continued to build on our recurring revenue base and forge strong partnerships with our customers. We also acquired many fine companies that will provide an immediate boost to our already strong profit and cash flow and become an additional source of sustainable growth well into the future.
For the sixth consecutive year, we increased revenues and earnings substantially.
Revenues rose 18 percent to $22.5 billion and earnings grew $1.15 billion to $2.56 billion, an 82 percent increase over the prior year.
Fiscal 2000, which began for Tyco on
October 1, 1999, is off to a good start. We expect sales to exceed $26 billion and free cash flow — an important measure of our underlying business performance — to nearly double, from $1.7 billion to over $3.0 billion. This free cash flow figure is after the reinvestment of $1.6 billion in capital expenditures to strengthen our position in each of our four business areas.
Today, Tyco is healthier than ever. We are a leader in businesses accounting for 90 percent of our revenues. These are great businesses, whose strong secular growth benefits from powerful global trends. The extraordinary worldwide buildout of the
Internet creates demand for our fiber optic cable solutions and maintenance expertise. The increased use of electronics in all types of industrial and consumer products, particularly in telecommunications, spurs sales of our sophisticated elec-

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tronics products. Demographics and long-term contracts are fueling the growth of our health care business. New infrastructure projects around the world, often in emerging economies, drive sales of our industrial valves and pipes.
Global growth of the middle class stimulates new installations of our home security systems.
We aim for sustained earnings growth in excess of 20 percent, powered by increased revenues and margin expansion. We achieve this by: the elimination of overhead and burdensome bureaucracy; economies of scale; a relentless focus on costs, productivity improvements and quality; and an increase in growth in the higher-margin service components of our business. Where growth, margin improvement and cost reduction are concerned, Tyco has no finish line. This model has produced consistently strong results for well over a decade.
It is extremely important to be the low-cost, high-quality provider of solutions. In virtually all of our markets, we are already the low-cost producer, or soon will be. Manufacturing excellence is a cornerstone of our growth strategy. As the low-cost producer, we can continue to expand our position in the marketplace.
I don’t want to make this seem easier than it is; it is far from easy. Attempting to increase margins, for instance, is a constant effort.

In health care, for example, we face cost pressures, not to mention challenges from world-class competitors. In security monitoring, we recognize that our rapid growth requires us to increase the focus on customer service. We have to keep our eye on the ball at all times.
Although we have successfully integrated our major acquisitions, we never assume such success will automatically be ours. Indeed, we know the corporate landscape is littered with failed marriages, that the hope of wondrous synergies is often a mirage. Therefore, we spend hundreds of hours assessing the benefits and risks of each transaction we consider. We always ask: What’s the worst-case scenario? We perform thorough due diligence every time, and we walk away from nine out of every ten transactions we evaluate. Even when we decide that the rewards significantly outweigh the risks, we spend a great deal of time planning the integration process to minimize the difficulties inherent in each acquisition.
Although we have done well thus far, complacency just never seems to be an option.
There are new challenges every single day.
We are proud of many achievements in fiscal 1999, but a few stand out.
*Our organic growth was very strong, with companywide revenue gains in double digits.
*We became the world's largest maker of electrical connectors through our merger with AMP
Incorporated for $11.3 billion. Then, we enhanced this leadership position in electronics by purchasing Raychem Corporation and Siemens
Electromechanical Components.
*We became the first supplier of undersea fiber optic telecommunications cable to make an equity investment in a customer when we acquired a stake in Worldwide Fiber.
*Through organic growth and acquisitions, we enjoyed powerful gains in our security business.
In the United States, ADT Security acquired
Entergy Security and Alarmguard Holdings, Incorporated, two highly-ranked companies in the industry.

*We expanded our e-commerce operations.
Tyco Healthcare now does much of its purchasing online and our ADT LION Web site offers interactive, electronic automobile auctions. In October,
ADT Security launched an e-commerce site allowing customers to design and buy an electronic security system online.
Although our larger acquisitions tend to grab the headlines, we also build our business in much smaller ways, brick by brick. Every day at Tyco, behind the scenes, we are committed to reducing costs, creating sources of recurring revenue and completing the small, add-on acquisitions that help make us a better company.
But you have to pick your spots, and that's why we divested certain businesses last year. We sold the Mueller Company, which makes hydrants and valves, because we believe its revenues are more affected by economic cycles than are our other businesses. We sold
Grinnell's Supply Sales division, a manufacturer and distributor of industrial fittings, because it focuses largely on commodity products with less appealing growth rates and lower margins.
The funds generated by these divestitures have been reinvested in other parts of our businesses that we believe will deliver greater returns to our investors.
New Initiatives
We made our first equity investment in an undersea fiber optic telecommunications system for several reasons. As you would expect, we anticipate a healthy return on our investment. Additionally, such investments should help stimulate growth by creating a strong partnership between us and our customers. Demand remains overwhelming, and the capacity of many systems is sold out before they become operational. We expect to announce addi-

19

tional equity stakes this fiscal year.
Likewise, our push into electronics is a natural extension for Tyco. We were already very familiar with interconnect products through our fire and security, undersea fiber optic cable, and printed circuit board operations. By using that as a platform to expand our presence into electrical connectors, we can capture an exciting growth opportunity — particularly in telecommunications and automotive products — with worldwide sales expected to rise 6–7 percent annually.
The electronic interconnect products made by AMP, Raychem and Siemens are more ubiquitous than computer chips, but carry less risk of obsolescence. All three companies are set to prosper from the introduction of new technologies.
You can find AMP components, for example, in a majority of the world's cellular phones. The state of
Pennsylvania recently granted AMP a large contract to build its emergency wireless communications network, and many other states are looking at similar systems. Raychem, which makes fiber optic wires, fiber management systems and telecom closures, is also a major force in telecommunications. AMP, Raychem and Siemens are also in the driver's seat in the automotive market. In a powerful global trend, mechanical automotive systems are being replaced by electronics. As advanced new electronically controlled seats, navigation systems, air bags and electronics to lower fuel consumption proliferate, our electronics sales should enjoy continued growth.

unflinching focus on manufacturing efficiency. Every year, we challenge managers to make more and better units for less money. We don't have a fancy name for our continuous improvement program. It's just a way of life.
And corporate headquarters doesn't tell each business unit how to become more efficient.
We think our managers know much more about how to promote efficiency within their business than we do at the corporate level. Our role is to encourage them to buy new equipment and develop new systems to improve productivity, and then evaluate performance based on strict return-on-investment hurdles.
Cutting costs is not the same as cutting corners. When ADT Security makes acquisitions, it frequently consolidates monitoring centers to save money. As it happens, consolidating business at our state-of-the-art monitoring centers actually improves service.
We even seek efficiency in ways that seemingly run counter to our corporate culture. Tyco is extremely entrepreneurial and decentralized. We believe that a large headquarters staff is unnecessary and that almost any function can be handled better locally. But centralizing certain functions, like tax, accounting and treasury services, does save money, so we do it.
We believe the Company is extremely well positioned. We are world leaders in our markets; our business segments enjoy powerful, sustainable tailwinds; abundant opportunities exist for organic growth, strategic acquisitions and margin expansion; and, with an estimated $7 billion in free cash flow in the next two years, we think we can continue to invest in Tyco's long-term success.
Tyco's sales, earnings and cash flow over time have been, and will continue to be, the most powerful proof of Tyco's fundamental strengths.

Execution
Given a choice between brilliant strategic vision and top-flight execution, I would choose great execution every time. For us, great execution means an

Te l e c o m m u n i c a t i o n s a n d E l e c t r o n i c s
At Tyco's Telecommunications and Electronics group, earnings rose 57 percent to $1.4 billion, up from $894 million last year. Sales for the group

20

totaled $7.7 billion, compared to $7.1 billion in the prior year.
Surging demand for broadband services led to a stellar year at Tyco Submarine Systems Ltd.
Undersea fiber optic cable revenues rose
25 percent.
The market we serve is shifting dramatically, as new entrepreneurial players — differentiated from older, established telephone companies — become the major investors in undersea cable.
We value both. To meet skyrocketing demand, we boosted our undersea fiber optic cable installation and maintenance capacity with the acquisition of
Temasa. The transaction added three cable ships to our fleet, which will help meet increasing maintenance demand.
We recently introduced a unique, new undersea cable maintenance program, guaranteeing a fast response if a network is ever disabled. We have already signed two contracts worth $225 million over five years, and expect more to follow.
With the acquisition of AMP, Raychem, and
Siemens Electromechanical Components, total segment sales should exceed $10 billion in fiscal 2000.
We will provide components and systems to a large base of customers worldwide. AMP alone already serves 90,000 customers.
Each of Raychem's nine product lines fits directly into our existing businesses, and Raychem and AMP have thousands of customers in common.
Raychem, for instance, sells underground equipment for electric utilities, while AMP focuses on above-ground applications. Because the two companies often interact with the same purchasing manager, we expect to realize significant synergies, as well as increased sales going forward. R&D staff at the two companies will now work together when appropriate to develop new products for their most promising markets.
Like AMP, Raychem is the clear leader in many of its markets. Raychem is a leader in computer touch screens found in airplanes, automobiles, computers, museums, restaurants, retailers, public kiosks and casinos.

Tyco Printed Circuit Group sales rose 52 percent to more than $300 million, led by strength in the telecommunications and data networking sectors. We combined AMP's circuit board group with existing operations, which now gives us a solid presence in Europe and China.
H e a l t h c a r e a n d Sp e c i a l t y P r o d u c t s
Tyco Healthcare and Specialty Products reported excellent results in fiscal 1999. Earnings increased to $1.4 billion, compared with $482 million in the prior year. Sales grew 23 percent to $5.7 billion, as compared with $4.7 billion last year.
Aided by the recent merger with U.S. Surgical and the acquisition of Graphic Controls, Tyco
Healthcare won many large contracts with group purchasing organizations and integrated health networks in fiscal 1999. Our strategy of offering a broader array of products to health care providers is paying off.
The international health care market continues to represent an important opportunity for
Tyco. It is growing 50 percent faster than the U.S. market and is more profitable because cost pressures are often less intense. International business now accounts for 35 percent of sales but 38 percent of profits.
An even fastergrowing segment is the alternate site market (nursing homes, outpatient clinics), where sales are surging 10–11 percent per year.
We are already number one in wound care and incontinence products in this market, and we are leveraging this strength into incremental sales.
Tyco Plastics and Adhesives had a good year, with sales up 16 percent and earnings up 35 percent. Although the cost of resin, our primary raw material, surged by 45 percent by the end of the year, we passed most — but not all — of the increase

21

on to customers.
Ruffies® brand trash bags enjoyed sizable market share gains, emerging as the clear leader in the United States. Retail demand was spurred by the introduction of our new wing-tie and Ocean
Scent bags, as well as a cross-promotion involving
ADT Security. That promotion, in which a consumer who purchased specially marked packages of
Ruffies® or Film-Gard® Plastic Sheeting could get free installation of an ADT system, was successful for both Tyco Plastics and ADT.
The acquisition of Sunbelt Plastics will take us into the institutional trash-can liner market and solidify our leading position in the construction plastic sheeting market. Our purchase of Batts, Incorporated makes us the global market share leader in plastic garment hangers, and will help us expand throughout Europe.
Fire and Security Services
In Tyco's Fire and Security Services segment, earnings increased 44 percent to $907 million, from
$631 million last year. Sales reached $5.5 billion, compared to last year's $4.4 billion.
ADT Security sales rose rapidly through internal growth, supplemented by acquisitions. We increased the number of participants in our successful dealer program by 40 percent and are now rolling out the program globally. It is crucial, of course, to keep the customers you get. Last year we reduced customer attrition from 8.7 percent to just 8 percent — and we want to reduce it further.
We are constantly looking for new and innovative ways to provide the highest levels of service to all of our customers.
Security system penetration remains relatively low worldwide, giving us ample room to grow. In Germany, small business use of security systems was virtually nonexistent — until last year, when growth exploded. Such cultural shifts, combined with growing affluence, suggest the industry's double-digit growth rate should be sustainable.
In fire protection, we widened our global

22

lead. Growth came from an increase in service contracts, new construction, a rise in retrofitting projects and added regulation (as municipalities and governments become more safety-conscious).
Margins in fire protection improved, aided by strong increases in our high-margin service business. Our worldwide fire extinguisher servicing business grew substantially. We are also generating significant cross-selling revenue by targeting ADT commercial customers who do not yet rely on us for fire protection, and vice versa.
Fire protection sales were robust in Southeast Asia and Europe, a result of strengthening local economies and the growing desire of large companies to use vendors who supply global solutions. As customers expand around the world, our global footprint gives us a competitive advantage.
Flow Control Products
Earnings in Tyco's Flow Control Products segment rose to $606 million, a 33 percent increase over the
$457 million earned last year. Sales for the year grew by 20 percent to $3.5 billion from $2.9 billion in 1998.
Tyco Flow Control Products had a strong year, led by international expansion and increasing service revenue. We saw growing demand for valve reconditioning in the United Kingdom, the Asia/Pacific region, and in portions of Europe.
We recondition valves for oil companies operating in the North Sea and for nuclear power plants in Germany, as well as for many other industrial customers. Acquisitions helped drive international expansion. Our purchase of the metals processing division of U.K.-based Glynwed International represents the first step in our plan to expand our steel pipe and tubular business globally, and gives us the chance to transfer our competitive advantages in global product sourcing and operating efficiencies to Europe.

We strengthened our position in valves by expanding product offerings in existing geographies and entering new markets in Australia, New
Zealand, South Africa and Sweden. We are now much bigger and considerably more diversified geographically than we were just a year ago.
Globally, the water and wastewater treatment and environmental engineering market offers solid growth potential as industries and governments try to protect the planet as they use its resources. Earth Tech continued its international expansion into strategically important locations such as Brazil and the United Kingdom.
We improved our positioning in the sprinkler segment by acquiring Central Sprinkler Company, our largest competitor in North America. The $200 million company, known for its extensive line of fire protection products, will help us expand in the United States, Canada and Europe.
My Perspective: Confidence in the Future
We believe that shareholder value is created through higher earnings per share and strong cash flow. And this has been reflected in the performance of our share price: In the past five years, Tyco shares have appreciated four times faster than the
S&P 500. We're proud of that record, although, as we enter a new millennium, we tend to regard it as ancient history.
The questions we ask are: What have we done for you lately? What are we going to do for you in the next five years? What we have done is to establish an outstanding group of global businesses, which can do well in any economic environment. And we have given our employees incentives to achieve the first-class business and financial performance you have come to expect from Tyco.
Looking ahead, we will keep executing the same strategy that has brought us this far. We will continue to use our strong balance sheet and powerful cash flow to invest in our operations and to make strategic acquisitions to improve our product line as well as our bottom line. I promise

that we will stay focused on the business goals that matter most: seizing opportunities, generating new revenue sources, growing earnings and cash flow, and increasing shareholder value.
The future looks bright. We think we can double our earnings over the next three years.
Clearly, we have the employee talent to do it. At
Tyco, we expect a lot from our employees and, once again, they have delivered. One reason I’m optimistic about the Company is because I have confidence in the resourcefulness, vision and dedication of our employees at every level. These are special people, who prove repeatedly that hard work and devotion to excellence can lead to remarkable accomplishments. I am proud to be associated with them. My thanks to one and all.
And thank you, shareholders, for your support.

L. Dennis Kozlowski
Chairman of the Board and Chief Executive Officer
December 13, 1999

Note: Results for 1995 are Tyco as originally reported on a fiscal year end of June 30. All other years are on a fiscal year end of September 30, are before nonrecurring charges, and have been restated for mergers accounted for under the pooling-of-interests accounting method.

23

Flow Control Products

l

l

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Bahamas

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Austria

Barbados

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Bahrain

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Belgium

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Croatia

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Haiti

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Cyprus

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Fiji

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Jamaica

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Czech Republic

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Guam

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Hong Kong

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India

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Indonesia

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Japan

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Canada

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Dominican Republic

Mexico

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Australia

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Fire and Security Services

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Australia

Healthcare and Specialty Products

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Far East &

Telecommunications and Electronics

l

Flow Control Products

Fire and Security Services

t he M idd l e E a s t

Healthcare and Specialty Products

Europe, A f r i c a &

Telecommunications and Electronics

Flow Control Products

Fire and Security Services

the Caribbean

Healthcare and Specialty Products

N orth Ame rica &

Telecommunications and Electronics

worldwide locations

Bangladesh

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Brunei
China

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Denmark

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Egypt

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Estonia

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Finland

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France

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Malaysia

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Germany

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New Zealand

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Greece

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Pakistan

Hungary

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Philippines

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Italy

Puerto Rico

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Singapore

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Israel

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South Korea

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Trinidad/Tobago
United States

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U.S. Virgin Islands

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C e n t r a l & S o u t h A m e r i ca

Argentina

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Bolivia

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Kuwait

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Taiwan

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Brazil

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Liechtenstein

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Thailand

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Chile

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Luxembourg

Colombia

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Netherlands

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Northern Ireland

Costa Rica
Dominican Republic

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Vietnam

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Norway

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Ecuador

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Poland

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El Salvador

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Portugal

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Guatemala

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Republic of Ireland

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Russia

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Saudi Arabia

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Slovak Republic

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Honduras

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Nicaragua
Panama

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Paraguay

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Slovenia

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Peru

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South Africa

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Uruguay

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Spain

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Venezuela

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Sweden

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Switzerland

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Turkey

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United Arab Emirates
United Kingdom

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management’s discussion and analysis
Results of Operations

The following table details the Company’s sales and earnings in
Fiscal 1999, Fiscal 1998 and the twelve months ended September 30,

Information for all periods presented below reflects the grouping of the

1997.

Company’s businesses into four business segments consisting of
Telecommunications and Electronics, Healthcare and Specialty Products, Fire and Security Services and Flow Control Products.

(unaudited)
Twelve
Months Ended
September 30,
1997

In September 1997, the Company changed its fiscal year end

(in millions)

Fiscal 1999

Fiscal 1998

from December 31 to September 30. References to Fiscal 1999, Fis-

Net sales

$22,496.5

$19,061.7

$16,657.3

cal 1998 and Fiscal 1997 are to the twelve month fiscal years ended

Operating profit, before certain charges(1) $ 3,949.6(2)
Merger, restructuring and other non-recurring charges
(1,261.7)
—
Impairment of long-lived assets(335.0)
Write-off of purchased in-process research
—
and development
Amortization of goodwill
(216.1)
Operating income
2,136.8
Interest expense, net
(485.6)
Other income
—
Pre-tax income before extraordinary items and cumulative effect of accounting changes
1,651.2
Income taxes
(620.2)
Income (loss) before extraordinary items and cumulative effect of accounting changes
1,031.0
Extraordinary items, net of taxes
(45.7)
Cumulative effect of accounting changes, net of taxes
—
Net income (loss)
$ 985.3

$ 2,336.8

$ 2,013.7

September 30, 1999 and 1998, and the transitional nine-month fiscal period ended September 30, 1997, respectively. The discussion below of the results of operations compare Fiscal 1999 to Fiscal 1998 and
Fiscal 1998 to the twelve months ended September 30, 1997 (unaudited).
In Fiscal 1999, the Company consummated two mergers that were accounted for under the pooling of interests method of accounting. The merger with United States Surgical Corporation closed on
October 1, 1998, and the merger with AMP Incorporated closed on
April 2, 1999. As required by generally accepted accounting principles, the Company restated its financial statements as if USSC and
AMP had always been a part of the Company. The Company recorded as expenses during Fiscal 1999 costs directly associated with the
USSC and AMP mergers and the costs of terminating employees and closing or consolidating facilities as a result of the mergers. The Company also expensed in Fiscal 1999 the costs of staff reductions and facility closings that AMP undertook as part of a plan to improve its profitability unrelated to the Company’s merger with AMP. In Fiscal
1998, the Company expensed charges for staff reductions and facility

(256.9)
(148.4)

(1,283.3)

—
(131.8)
1,948.1
(245.3)
—

(361.0)
(90.0)
131.0
(170.4)
118.4(3)

1,702.8
(534.2)

79.0
(379.5)

1,168.6

(300.5)

(2.4)

—
$ 1,166.2

(60.9)

$

15.5
(345.9)

closings under the AMP profit improvement plan and charges that

(1) This amount is the sum of the operating profits of the Company’s four business seg-

USSC incurred to exit certain of its businesses. These are discussed

ments set forth in the segment discussion below less certain corporate expenses, and is

in more detail under “Liquidity and Capital Resources” below.

before merger, restructuring and other non-recurring charges, impairment of long-lived assets, write-off of purchased in-process research and development and amortization of goodwill. Overview

(2) Restructuring charges in the amount of $78.9 million related to the write-down of inven-

Sales increased 18.0% during Fiscal 1999 to $22,496.5 million from

tory have been deducted as part of cost of sales in the Consolidated Statement of Oper-

$19,061.7 million in Fiscal 1998. Sales in Fiscal 1998 increased 14.4%

ations for Fiscal 1999. However, they have not been deducted as part of cost of sales for the purpose of calculating operating profit before certain charges in this table. These

compared to the twelve months ended September 30, 1997. Income

charges are instead included in the total merger, restructuring and other non-recurring

(loss) before extraordinary items and cumulative effect of accounting

charges.

changes was $1,031.0 million in Fiscal 1999, as compared to

(3) Amount consists of $65.0 million related to a litigation settlement and $53.4 million

$1,168.6 million in Fiscal 1998 and ($300.5) million in the twelve

related to the disposal of an equity investment by ADT.

months ended September 30, 1997. Income before extraordinary

The operating profits and margins for the Company’s four busi-

items for Fiscal 1999 included an after-tax charge of $1,341.5 million

ness segments that are presented in the following discussion are

($1,596.7 million pre-tax) related to the mergers with USSC and AMP

stated before deductions for merger, restructuring and other non-

and costs associated with AMP’s profit improvement plan. Income

recurring charges related to business combinations accounted for

before extraordinary items for Fiscal 1998 included an after-tax charge

under the pooling of interests method of accounting, charges for

of $192.0 million ($256.9 million pre-tax) primarily related to AMP’s

impairment of long-lived assets, in-process research and develop-

profit improvement plan and costs incurred by USSC to exit certain

ment charges and goodwill amortization. This is consistent with how

businesses. Loss before extraordinary items and cumulative effect of

management views the operating results of the individual segments.

accounting changes for the twelve months ended September 30, 1997

Operating profits improved in all segments in each of Fiscal 1999

included an after-tax charge of $1,485.5 million ($1,670.4 million pre-

and Fiscal 1998, with the exception of the Healthcare and Specialty

tax) for merger and transaction costs, write-offs and integration costs

Products segment in Fiscal 1998 for reasons that are discussed

primarily associated with the mergers of ADT, Former Tyco, Keystone

below. The operating improvements are the result of both increased

and Inbrand.

revenues and enhanced margins. Increased revenues result from organic growth and from acquisitions that are accounted for under the purchase method of accounting. The Company enhances its margins

25

through improved productivity and cost reductions in the ordinary

The 12.1% increase in sales in Fiscal 1998 over the twelve

course of business, unrelated to acquisition or divestiture activities.

months ended September 30, 1997 was predominantly due to the

The Company regards charges that it incurs to reduce costs in the

acquisition of AT&T Corp.’s submarine systems business. The results

ordinary course of business as recurring charges, which are reflected

of this business were included in the Company’s operations for all of

in cost of sales and in selling, general and administrative expenses in

Fiscal 1998, but only from July 1997, the date of acquisition, in the

the Consolidated Statements of Operations.

1997 period. Excluding the impact of this acquisition, sales increased

When the Company makes an acquisition, the acquired company

an estimated 1.9%.

is immediately integrated with the Company’s existing operations.

The Telecommunications and Electronics segment also experi-

Consequently, the Company does not separately track the financial

enced organic growth in sales in Fiscal 1999 and Fiscal 1998 at TSSL

results of acquired companies. The year-to-year sales comparisons

and the Tyco Printed Circuit Group. This growth was offset in part by

that are presented below include estimates of year-to-year sales

decreased sales at AMP. Prior to the Company’s merger with AMP,

growth that exclude the effects of acquisitions. These estimates

AMP’s sales had decreased every quarter, compared to the corre-

assume that the acquisitions were made at the beginning of the

sponding quarter in the prior year, since the quarter ended June 1997.

relevant fiscal periods.

AMP’s pre-acquisition sales during the six months ended March 31,
1999 were $2,675.5 million, compared to sales of $2,843.6 million dur-

Sales and Operating Profits

ing the six months ended September 30, 1999.
The 40.5% increase in operating profits in Fiscal 1999 compared

Telecommunications and Electronics
The Company’s Telecommunications and Electronics segment is comprised of:
• Tyco Submarine Systems Ltd. (“TSSL”), which designs, manufactures, installs and maintains undersea fiber optic communications cable systems;
• Tyco Electronics, including AMP, which designs and manufactures connectors, interconnection systems, touch screens and wireless systems, and Raychem, which develops and manufactures high-performance electronic components; and
• Tyco Printed Circuit Group, which designs and manufactures printed circuits, backplanes and similar components.
The AMP merger occurred in April 1999, but as required under the pooling of interests method of accounting, AMP’s results have been included for all periods presented. The following table sets forth sales and operating profits and margins on the basis described above for the Telecommunications and Electronics segment:

($ in millions)

Sales
Operating profits
Operating margins

with Fiscal 1998 was due to improved margins at AMP, the acquisition of Raychem, and higher sales volume at TSSL and the Tyco Printed
Circuit Group. The improved operating margins in Fiscal 1999 compared with Fiscal 1998 were primarily due to the implementation of
AMP’s profit improvement plan, which was initiated in the fourth quarter of Fiscal 1998, cost reduction programs associated with the AMP merger, a pension curtailment/settlement gain and the acquisition of
Raychem. For information on the implementation of the AMP profit improvement plan and the cost reduction programs related to the AMP merger, see Note 16 (1999 Charges and 1998 Charges) to the Consolidated Financial Statements. These improvements were partially offset by $253.4 million of certain costs in Fiscal 1999 at AMP prior to the merger with Tyco, including costs to defend the AlliedSignal Inc. tender offer, the write-off of inventory and other balance sheet writeoffs and adjustments.
The 23.3% increase in operating profits in Fiscal 1998 as compared with the twelve months ended September 30, 1997 was pre-

Fiscal 1999

Fiscal 1998

(unaudited)
Twelve Months
Ended
September 30,
1997

$7,711.2
$1,174.0
15.2%

$7,067.3
$ 835.8
11.8%

$6,304.9
$ 677.8
10.8%

dominantly attributable to the inclusion of the operating results of the

higher incremental margins on increased sales at Tyco Printed Circuit

AT&T Corp.’s submarine systems business in all of Fiscal 1998 but only for the final three months of the 1997 period. The increase in operating margins in Fiscal 1998, compared with the 1997 period reflects
Group. This was offset in part by slightly decreased margins at TSSL and AMP.

The 9.1% increase in sales in Fiscal 1999 over Fiscal 1998 for the Telecommunications and Electronics segment resulted in part

Healthcare and Specialty Products

from acquisitions. These included: the acquisition in May 1999 of Tele-

The Company’s Healthcare and Specialty Products segment is com-

comunicaciones Marinas, S.A. (“Temasa”), included in TSSL; the

prised of:

acquisition in August 1999 of Raychem, included in Tyco Electronics;

• Tyco Healthcare, which manufactures a wide variety of dis-

and the acquisition in July 1998 of Sigma Circuits, Inc., whose results

posable medical products, including woundcare products,

were included in the Tyco Printed Circuit Group for all of Fiscal 1999,

syringes and needles, sutures and surgical staples, incontinence

but only the final quarter of Fiscal 1998. Excluding the impact of

products, electrosurgical instruments and laparoscopic instru-

Temasa, Raychem and Sigma Circuits, sales increased an estimated
5.1%.

ments;
• Tyco Plastics and Adhesives, which manufactures flexible plastic packaging, plastic bags and sheeting, coated and laminated packaging materials, tapes and adhesives and plastic garment hangers; and
• ADT Automotive, which provides auto redistribution services.

26

The Company’s merger with USSC, which is included in Tyco
Healthcare, occurred in October 1998. As required under the pooling

on the cost reduction programs related to the USSC merger, see Note
16 to the Consolidated Financial Statements.

of interests method of accounting, USSC’s results have been included

The decrease in operating profits and margins in Fiscal 1998

for all periods presented. The following table sets forth sales and oper-

from the twelve months ended September 30, 1997 reflects decreased

ating profits and margins on the basis described above for the Health-

margins at USSC, particularly as a result of the factors impacting the

care and Specialty Products segment:

Fiscal 1998 fourth quarter at USSC referred to above. The decreased
USSC margins were partially offset in Fiscal 1998 by the acquisition

($ in millions)

Sales
Operating profits
Operating margins

Fiscal 1999

Fiscal 1998

(unaudited)
Twelve Months
Ended
September 30,
1997

$5,742.7
$1,386.0
24.1%

$4,672.4
$ 481.8
10.3%

$3,733.9
$ 607.2
16.3%

The 22.9% increase in sales in Fiscal 1999 over Fiscal 1998, and the 25.1% increase in Fiscal 1998 over the twelve months ended September 30, 1997, were primarily the result of increased sales of Tyco
Healthcare and, to a lesser extent, of Tyco Plastics and Adhesives and
ADT Automotive. The increases for Tyco Healthcare were due to acquisitions and, to a lesser extent, organic growth. The acquisitions primarily responsible for the sales increase in Fiscal 1999 included:
Valleylab, which was acquired in January 1998 and included in results for all of Fiscal 1999, but only part of Fiscal 1998; Sherwood-Davis &
Geck (“Sherwood”), which was acquired in February 1998 and included in results for all of Fiscal 1999, but only part of Fiscal 1998;
Confab, which was acquired in April 1998 and included in results for

of Sherwood, fixed cost reductions due to the integration of Sherwood, and increased volume and margins at Tyco Plastics and Adhesives and ADT Automotive. Excluding the effects of the above on sales and costs in the Fiscal 1998 fourth quarter at USSC, management estimates that operating profits would have increased by 53.7% in Fiscal
1998 as compared to the 1997 period.

Fire and Security Services
The Company’s Fire and Security Services segment:
• designs, installs and services a broad line of fire detection, prevention and suppression systems worldwide;
• provides electronic security installation and monitoring services; and
• manufactures and services fire extinguishers and related products. The following table sets forth sales and operating profits and margins on the basis described above for the Fire and Security Services segment: all of Fiscal 1999, but only part of Fiscal 1998; and Graphic Controls

Fiscal 1999

Fiscal 1998

(unaudited)
Twelve Months
Ended
September 30,
1997

$5,534.0
$ 907.0
16.4%

$4,393.5
$ 630.6
14.4%

$3,832.0
$ 412.5
10.8%

Corporation, which was acquired in October 1998. Excluding the contributions of Valleylab, Sherwood, Confab and Graphic Controls, sales for the segment increased an estimated 5.1% in Fiscal 1999 over Fiscal 1998.
For Fiscal 1998, the acquisitions primarily responsible for the sales increase included Sherwood and Confab. Excluding the impact of these acquisitions, the sales increase for Fiscal 1998 over the twelve months ended September 30, 1997 was 5.8%.

($ in millions)

Sales
Operating profits
Operating margins

The 26.0% increase in sales in Fiscal 1999 over Fiscal 1998 reflected increased sales worldwide in both the Company’s electronic

The substantial increase in operating profits and operating mar-

security services and its fire protection businesses. The increases

gins in Fiscal 1999 over Fiscal 1998 was due to improved margins and

were due both to a higher volume of recurring service revenues and

increased sales volume at Tyco Healthcare, whose margins were

the effects of acquisitions in the security services business. The acqui-

depressed in Fiscal 1998. The increase in Fiscal 1999 also reflected

sitions included: Holmes Protection, acquired in February 1998 and

higher sales volume and better margins at Tyco Plastics and Adhe-

included in results for all of Fiscal 1999, but only part of Fiscal 1998;

sives and ADT Automotive. The Fiscal 1998 margins at Tyco Health-

CIPE S.A. and Wells Fargo Alarm, both acquired in May 1998 and

care were brought down by fourth quarter results at USSC, which

included in results for all of Fiscal 1999, but only part of Fiscal 1998;

lowered sales of higher margin products to reduce excess inventory

and Entergy Security Corporation and Alarmguard Holdings, acquired

levels at distributors, and recorded increased costs, principally a

in January and February, 1999, respectively. Excluding the impact of

$105.8 million accrual for special hospital education programs.

these acquisitions, the sales increase for the segment in Fiscal 1999

Excluding these effects, management estimates that the increase in

was an estimated 15.4%.

operating profits in Fiscal 1999 over Fiscal 1998 would have been

The 14.7% sales increase in Fiscal 1998 over the twelve months

48.6% and the operating margin for the segment in Fiscal 1998 would

ended September 30, 1997 was due to increased worldwide sales in

have been 19.6%. The increase in margins for Fiscal 1999 above the

the electronic security services business and higher sales volume in

19.6% level was primarily attributable to the effects of the cost reduc-

the North American fire protection businesses. The increases reflect a

tion programs associated with the USSC merger, including the termi-

higher volume of recurring service revenues and, to a lesser extent,

nation of 1,282 employees and the consolidation or closure of 20

the impact of the Fiscal 1998 acquisitions. Excluding the effects of

facilities. The effect of exiting businesses of Tyco Healthcare did not

Holmes, CIPE and Wells Fargo, the sales increase for the segment in

significantly impact operating margins or profits. For more information

Fiscal 1998 was an estimated 7.3%.

27

The 43.8% increase in operating profits in Fiscal 1999 over Fis-

During August 1999, the Company completed the sale of certain

cal 1998 reflects the worldwide increase in service volume, both in

businesses within this segment, including The Mueller Company, a

security services and fire protection, including the higher margins

manufacturer of fire hydrants, waterworks, valves and other compo-

associated with recurring monitoring revenue. The increase in operat-

nents, and portions of Grinnell Supply Sales and Manufacturing, a

ing margins in Fiscal 1999 was principally due to increased volume of

manufacturer and distributor of commodity fittings and related prod-

higher margin service and inspection work in the North American fire

ucts. Excluding the impacts of these acquisitions and divestitures,

protection operations; increased volume due to economic improve-

sales increased an estimated 11.3%.

ments in the Asia-Pacific region; higher incremental margins in the

The 5.1% sales increase in Fiscal 1998 over the twelve months

European security operations from additions to the customer base;

ended September 30, 1997 reflects increased demand for valve prod-

and cost reductions related to acquisitions.

ucts in both North America and Europe, higher volume of pipe prod-

The 52.9% increase in operating profits in Fiscal 1998 over the

ucts, including those sold by Grinnell, and, to a lesser extent,

twelve months ended September 30, 1997 was due to increases in

the acquisition of Crosby Valve. Excluding the effect of this acquisition,

service volume, including recurring monitoring revenue, in security

the sales increase for the segment in Fiscal 1998 was an estimated

operations worldwide and fire protection operations in North America.

4.7%.

The increase in operating margins in Fiscal 1998 was due principally

The 32.5% increase in operating profits in Fiscal 1999 over Fis-

to higher margins in the security business worldwide and, to a lesser

cal 1998 was primarily due to increased sales in the European flow

extent, to improved margins in the European fire protection business

control operations, North American valve products and Earth Tech.

and cost reductions related to acquisitions.

The increase in operating margins was principally due to cost containment programs that improved margins in the Company’s North

Flow Control Products

American pipe products business and the worldwide valve operations.

The Company’s Flow Control Products segment:

The gain on the sale of the businesses in this segment did not signifi-

• manufactures and distributes pipe, fittings, valves, valve actuators, couplings and related products which are used to transport, control and measure the flow of liquids and gases;

cantly impact operating profits and margins in Fiscal 1999.
The 22.5% increase in operating profits in Fiscal 1998 over the twelve months ended September 30, 1997 was due primarily to

• manufactures and distributes fire sprinkler devices, specialty

increased volume in the North American and European valve product

valves, plastic pipe and fittings used in commercial, residential

operations and, to a lesser extent, in the North American pipe prod-

and industrial fire protection systems; and

ucts business. The increase in operating margins was principally due

• provides engineering and consulting services focusing on the design, construction and operation of water and wastewater facilities. to cost containment programs that improved margins at the North
American and European valve operations.
The effect of changes in foreign exchange rates during Fiscal

The following table sets forth sales and operating profits and margins on the basis described above for the Flow Control Products seg-

1999, Fiscal 1998 and the twelve months ended September 30, 1997 was not material to the Company’s sales and operating profits.

ment:

($ in millions)

Sales
Operating profits
Operating margins

Fiscal 1999

Fiscal 1998

(unaudited)
Twelve Months
Ended
September 30,
1997

$3,508.6
$ 605.5
17.3%

$2,928.5
$ 456.9
15.6%

$2,786.5
$ 373.0
13.4%

The 19.8% sales increase in Fiscal 1999 over Fiscal 1998 reflects increased demand for valve products in Europe, increased sales at Earth Tech and the impact of acquisitions. These acquisitions included: Crosby Valve, acquired in July 1998 and included in results for all of Fiscal 1999, but only part of Fiscal 1998; Rust Environmental and Infrastructure, Inc., acquired by Earth Tech in September 1998 and included in results for all of Fiscal 1999, but less than a month in
Fiscal 1998; and certain subsidiaries in the metals processing division of Glynwed International plc, acquired in March 1999.

28

Corporate Expenses
Corporate expenses were $122.9 million in Fiscal 1999 compared to
$68.3 million in Fiscal 1998 and $56.8 million in the twelve months ended September 30, 1997. These increases were due principally to higher compensation expense under the Company’s equity-based, incentive compensation plans due in part to an increase in the market value of the Company’s stock price in Fiscal 1999, and an increase in corporate staffing to support and monitor the Company’s expanding businesses and operations.

Amortization of Goodwill

Liquidity and Capital Resources

Amortization of goodwill, a non-cash charge, increased $84.3 million to $216.1 million in Fiscal 1999 compared with Fiscal 1998. Fiscal

The following table shows the sources of the Company’s cash flow

1998 amortization of goodwill increased to $131.8 million from $90.0

from operating activities and the use of a portion of that cash in the

million in the twelve months ended September 30, 1997. The increase

Company’s operations in Fiscal 1999. Management refers to the net

in amortization of goodwill is due to the $6,923.3 million in considera-

amount of cash generated from operating activities less capital expen-

tion paid for acquisitions and acquisition related costs in Fiscal 1999,

ditures and dividends as “free cash flow.”

which resulted in goodwill and other intangibles of $5,807.9 million, and the $4,559.4 million in consideration paid for acquisitions and acquisition related costs in Fiscal 1998, which resulted in goodwill and other intangibles of $3,947.0 million.

Interest Expense, net
Interest expense, net, increased $240.3 million to $485.6 million in
Fiscal 1999, as compared to Fiscal 1998, and increased $74.9 million to $245.3 million in Fiscal 1998, as compared to the twelve months ended September 30, 1997. These increases were due to higher average debt balances, as a result of monies borrowed to pay for acquisitions, partially offset by lower average interest rates. The weighted average rate of interest on all long-term debt during Fiscal 1999, Fiscal 1998 and Fiscal 1997 was 6.2%, 6.4% and 7.2% respectively.

(in millions)

Fiscal 1999

Operating profit, before certain charges
Depreciation and amortization
Net increase in deferred income taxes
Less:
Net increase in working capital
Interest expense (net)
Income tax expense
Restructuring expenditures
Other (net)
Cash flow from operating activities
Less:
Capital expenditures
Dividends paid
Free cash flow

$3,949.6 (1)
1,095.1 (2)
334.3
(85.5)(3)
(485.6)
(620.2)
(633.6)(4)
(4.3)
3,549.8
(1,632.5)
(187.9)
$ 1,729.4

(1) This amount is the sum of the operating profits of the four business segments as

Extraordinary Items
Extraordinary items in Fiscal 1999, Fiscal 1998 and the twelve months

set forth above, less certain corporate expenses, and is before merger, restructuring and other non-recurring charges, charges for the impairment of long-lived assets, and goodwill amortization.

ended September 30, 1997 included net losses amounting to

(2) This amount is the sum of depreciation of tangible property ($979.6 million) and amor-

$45.7 million, $2.4 million and $60.9 million, respectively, relating pri-

tization of intangible property other than goodwill ($115.5 million).

marily to the Company’s tender offers for debt and the write-off of net

(3) This amount is net of $50.0 million received on the sale of accounts receivable.

unamortized deferred financing costs related to the LYONs. Further

(4) This amount is the sum of all cash paid out for (a) merger, restructuring and other nonrecurring charges in connection with business combinations accounted for on a pooling

details are provided in Notes 4 and 13 to the Consolidated Financial

of interests basis and (b) other restructuring and non-recurring charges taken by the

Statements.

pooled companies prior to their combination with the Company.

Cumulative Effect of Accounting Changes
The cumulative effect of accounting changes during Fiscal 1997 of
$15.5 million related to the change in accounting practices used by
AMP to develop its inventory costs, including standardizing globally the definition of capacity used in determining overhead rates and changing its inventory costing methodology to include manufacturing engineering costs in inventory costs.

Income Tax Expense
The effective income tax rate, excluding the impact related to merger, restructuring and other non-recurring charges, was 27.0% during Fiscal 1999 as compared to 30.6% in Fiscal 1998 and 32.3% in the twelve months ended September 30, 1997. The decreases in the effective income tax rates were primarily due to higher earnings in tax jurisdictions with lower income tax rates. Management believes that the Company will generate sufficient future income to realize the tax benefits related to its deferred tax assets. A valuation allowance has been maintained due to continued uncertainties of realization of certain tax benefits, primarily tax loss carryforwards. See Note 7 to the Consolidated Financial Statements.

In addition, during Fiscal 1999 the Company paid out $354.4 million in cash that was charged against reserves established in connection with acquisitions accounted for under the purchase accounting method. This amount is included in “Acquisition of businesses, net of cash acquired” in the Consolidated Statement of Cash Flows.
Business combinations are accounted for either on a pooling of interests basis or under the purchase accounting method. In Fiscal
1999, the Company made two business combinations, USSC and
AMP, that were required to be accounted for on a pooling of interests basis. Under pooling of interests accounting, the merged companies are treated as if they had always been part of the Company, and their financial statements are included in the Company’s Consolidated
Financial Statements for all periods presented.
At the time of each pooling of interests transaction, the Company establishes a reserve for transaction costs and the costs that the Company expects to incur in integrating the merged company within the relevant Tyco business segment. By integrating merged companies with the Company’s existing businesses, the Company expects to realize operating synergies and long-term cost savings. Integration costs, which relate primarily to termination of employees and the closure of facilities made redundant, are detailed in Note 16 to the Consolidated Financial Statements. Reserves for merger, restructuring and other non-recurring items are taken as a charge against current

29

earnings at the time the reserves are established. Amounts expended

charges against the reserves established during and prior to Fiscal

for merger, restructuring and other non-recurring costs are charged

1999. Also in Fiscal 1999, the Company determined that $90.0 million

against the reserves as they are paid out. If the amount of the reserves

of purchase accounting reserves related to acquisitions prior to Fiscal

proves to be greater than the costs actually incurred, any excess is

1999 were not needed and reversed that amount against goodwill. At

credited against merger, restructuring and other non-recurring

September 30, 1999, there remained $570.3 million in purchase

charges in the Consolidated Statement of Operations in the period in

accounting reserves on the Company’s Consolidated Balance Sheet,

which that determination is made.

of which $408.0 million is included in current liabilities and $162.3 mil-

In Fiscal 1999, the Company established merger, restructuring

lion is included in long-term liabilities. The Company expects to pay

and other non-recurring reserves of $434.9 million in connection with

out approximately $350.0 million in cash in Fiscal 2000 that will be

its merger with USSC and $841.8 million in connection with its merger

charged against these purchase accounting reserves.

with AMP. At the beginning of the fiscal year, there existed merger, restructuring and other non-recurring reserves of $303.7 million

The following details the Fiscal 1999 capital expenditures and depreciation by segment:

related to pooling of interests transactions consummated in prior years and other restructuring charges taken by the merged companies

(in millions)

prior to their combination with the Company. During Fiscal 1999, the

Telecommunications and Electronics
Healthcare and Specialty Products
Fire and Security Services
Flow Control Products
Corporate
Total

Company paid out $633.6 million in cash and incurred $478.5 million in non-cash charges that were charged against these reserves. Also in Fiscal 1999, the Company determined that $15.0 million of merger, restructuring and other non-recurring reserves established in prior

Capital
Expenditures

Depreciation

$ 488.5
235.9 (1)
746.3
135.1
26.7
$1,632.5

$446.2
179.3
262.2
87.0
4.9
$979.6

years was not needed and deducted that amount from the merger, restructuring and other non-recurring charges for Fiscal 1999. At September 30, 1999, there remained $453.3 million of merger, restructur-

(1) Excludes $234.0 million related to the purchase of leased property in connection with the merger with USSC.

ing and other non-recurring reserves on the Company’s Consolidated

The Company continues to fund capital expenditures to improve

Balance Sheet, of which $366.3 million is included in current liabilities

the cost structure of its businesses, to invest in new processes and

and $87.0 million is included in long-term liabilities. The Company

technology, and to maintain high quality production standards. The

expects to pay out approximately $350.0 million in cash in Fiscal 2000

level of capital expenditures for the Fire and Security Services seg-

for merger, restructuring and other non-recurring expenses that will be

ment significantly exceeded, and is expected to continue to signifi-

charged against these reserves.

cantly exceed, depreciation due to the large volume growth of new

All other business combination transactions completed in Fiscal

residential subscriber systems capitalized. The level of capital expen-

1999 were required to be accounted for under the purchase account-

ditures in the other segments is expected to increase moderately in

ing method. At the time each purchase acquisition is made, the Com-

Fiscal 2000. The source of funds for capital expenditures is expected

pany establishes a reserve for transaction costs and the costs of

to be cash from operating activities.

integrating each purchased company within the relevant Tyco busi-

The provision for income taxes in the Consolidated Statement of

ness segment. The amounts of such reserves established in Fiscal

Operations for Fiscal 1999 was $620.2 million, but the amount of

1999 are detailed in Note 3 to the Consolidated Financial Statements.

income taxes paid (net of refunds) during the year was only $209.7 mil-

These amounts are not charged against current earnings but are

lion. After adjustment for deferred income taxes of acquired compa-

treated as additional purchase price consideration and have the effect

nies and other items, the net increase in deferred income taxes was

of increasing the amount of goodwill recorded in connection with the

$334.3 million. The increase in deferred income taxes is attributable

respective acquisition. Indeed, management views these costs as the

primarily to current utilization of deductions on restructuring, other

equivalent of additional purchase price consideration when it consid-

non-recurring charges and purchase accounting spending, other tim-

ers making an acquisition. If the amount of the reserves proves to be

ing differences between book and tax recognition of income and

in excess of costs actually incurred, any excess goes to reduce the

expense, utilization of net operating loss and credit carryforwards, and

goodwill account that was established at the time the acquisition was

the tax benefits of stock option exercises.

made.

The net change in working capital, net of the effects of acquisi-

In Fiscal 1999, the Company made acquisitions that were

tions and divestitures, was an increase of $85.5 million. These

accounted for under the purchase accounting method at an aggregate

changes are set forth in detail in the Consolidated Statement of Cash

cost of $6,923.3 million. Of this amount, $4,546.8 million was paid in

Flows. The increase in working capital accounts is attributable to the

cash (net of cash acquired), $1,449.6 million was paid in the form of

higher level of business activity in Fiscal 1999 as reflected in the

Tyco common shares, and the Company assumed $926.9 million in

increased sales over the prior year. Management focuses on maxi-

debt. In connection with these acquisitions, the Company established

mizing the cash flow from its operating businesses and attempts to

purchase accounting reserves of $525.4 million for transaction and

keep the working capital employed in the businesses to the minimum

integration costs. At the beginning of Fiscal 1999, purchase account-

level required for efficient operations.

ing reserves were $505.6 million as a result of purchase accounting

In addition, the Company used $234.0 million of cash to purchase

transactions made in prior years. During Fiscal 1999, the Company

the USSC North Haven facilities and $637.8 million to purchase its

paid out $354.4 million in cash and incurred $16.3 million in non-cash

own common shares. The Company repurchases its own shares from

30

time to time in the open market to satisfy certain stock-based com-

Backlog

pensation arrangements, such as the exercise of stock options. In

At September 30, 1999, the Company had a backlog of unfilled orders

November 1999, the Company announced the authorization by its

of approximately $7,581.1 million, compared to a backlog of approxi-

Board of Directors to reacquire up to 20 million of its common shares

mately $5,118.2 million at September 30, 1998. Backlog by industry

in the open market.

segment is as follows:

The Company received proceeds of $926.8 million from the sale
September 30,

of certain businesses in the Flow Control Products and Healthcare and
Specialty Products segments and $872.4 million from the exercise of

(in millions)

common share options.

Telecommunications and Electronics
Flow Control Products
Fire and Security Services
Healthcare and Specialty Products

The source of the cash used for acquisitions was primarily an increase in total debt and cash flows from operations. Goodwill and other intangible assets were $12,158.9 million at September 30, 1999,

1999

1998

$4,974.5
1,516.5
986.6
103.5
$7,581.1

$2,951.1
1,129.2
965.4
72.5
$5,118.2

compared to $7,105.5 million at September 30, 1998. At September 30, 1999, the Company’s total debt was $10,122.2 million, as com-

Backlog increased in each of the Company’s business segments.

pared to $6,239.7 million at September 30, 1998. This increase

Within the Telecommunications and Electronics segment, backlog

resulted principally from borrowings under the Company’s commercial

increased principally due to contracts awarded to TSSL due to contin-

paper program, net proceeds of approximately $791.7 million from the

ually increasing demands for undersea fiber optic cable capacity.

issuance of private placement notes in October 1998, net proceeds

Within the Flow Control Products segment, backlog increased princi-

received of approximately $1,173.7 million from the issuance of pub-

pally due to an increase in backlog at Earth Tech related to its water

lic debt in January 1999 and net proceeds received of approximately

and wastewater facilities contracts. Within the Fire and Security Ser-

$2,080.3 million from the issuance of notes in August 1999. This

vices segment, backlog increased principally due to an increase in

increase was partially offset by the Company’s tender offers for out-

backlog at the Company’s worldwide security and European fire pro-

standing debt instruments with higher interest rates and the repay-

tection businesses. Within the Healthcare and Specialty Products seg-

ment of indebtedness under its bank credit agreement. For a full

ment, the increase resulted principally from an increase in demand for

discussion of debt activity, see Note 4 to the Consolidated Financial

the products sold by Tyco Plastics and Adhesives.

Statements.
Shareholders’ equity was $12,332.6 million, or $7.30 per share, at September 30, 1999, compared to $9,901.8 million, or $6.11 per

Quantitative and Qualitative Disclosures
About Market Risk

share, at September 30, 1998. The increase in shareholders’ equity was due primarily to the issuance of approximately 32.4 million com-

The Company is subject to market risk associated with changes in

mon shares valued at approximately $1,449.6 million for the acquisi-

interest rates, foreign currency exchanges rates and certain com-

tion of Raychem, net income of $985.3 million and proceeds of

modity prices. In order to manage the volatility relating to its more sig-

$872.4 million from the exercise of options and warrants. Total debt as

nificant market risks, the Company enters into forward foreign

a percent of total capitalization (total debt and shareholders’ equity)

currency exchange contracts, cross-currency swaps, foreign currency

was 45% at September 30, 1999 and 39% at September 30, 1998. Net

options, commodity swaps and interest rate swaps. The Company

debt (total debt less cash and cash equivalents) as a percent of total

does not anticipate any material changes in its primary market risk

capitalization was 37% at September 30, 1999 and 32% at Septem-

exposures in Fiscal 2000.

ber 30, 1998.

The Company utilizes risk management procedures and controls

The Company believes that its cash flow from operations,

in executing derivative financial instrument transactions. The Com-

together with its existing credit facilities and other credit arrange-

pany does not execute transactions or hold derivative financial

ments, is adequate to fund its operations.

instruments for trading purposes. Derivative financial instruments related to interest rate sensitivity of debt obligations, intercompany cross-border transactions and anticipated non-functional currency cash flows, as well as 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 AA longterm credit rating.

31

Interest Rate Sensitivity
The table below provides information about the Company’s financial

interest rate discount. For debt obligations, the table presents cash

instruments that are sensitive to changes in interest rates, including

flows of principal repayment (in millions) and weighted average inter-

long-term investments, debt obligations, interest rate swaps and cur-

est rates. For interest rate swaps and cross-currency swaps, the table

rency swaps. For long-term investments, the table presents cash flows

presents notional amounts (in millions) and weighted average interest

of principal payments (in millions) related to a subordinated, non-col-

rates. Notional amounts are used to calculate the contractual pay-

lateralized zero coupon loan note, based on the amortized cost of the

ments to be exchanged under the contract. The amounts included in

investment as of September 30, 1999, and the associated fair value

the table below are in U.S. dollars.

Fiscal
2000

Long-term investment:
Fixed Rate (British Pound)
Interest rate
To
tal debt:
Fixed rate (US$)
Average interest rate
Fixed rate (Yen)
Average interest rate
Variable rate (US$)
Average interest rate(1)
Variable rate (Yen)
Average interest rate(1)
Interest rate swap:
Fixed to variable (US$)
Average pay rate
Average receive rate(1)
Cross-currency swap:
Receive US$/Pay Japanese Yen(2)
Pay Japanese Yen interest
Receive US$ interest
Pay rate
Receive rate
Receive US$/Pay British Pound
Pay British Pound interest
Receive US$ interest
Average pay rate
Average receive rate
Receive Japanese Yen/Pay US$
Pay variable (US$) rate(2)
Receive fixed (Yen) rate

Fiscal
2001

Fiscal
2002

Fiscal
2003

Fiscal
2004

To l ta Fi ar Value

120.5

120.5

4,518.8
6.5%
71.0
4.5%
87.3
3.9%
13.2
2.3%

6,786.4

6,782.8

275.1

275.4

3,014.1

3,015.6

46.6

46.6

800.0
5.8%
6.1%

1,800.0

Thereaftr e 120.5
11.5%
15.8
7.8%
127.3
1.7%
865.0
6.0%
4.7
2.3%

769.3
6.1%
17.3
2.3%
1,984.7
5.7%
5.7
2.3%

1,302.7
6.8%
34.3
2.2%
44.1
4.2%
14.1
2.3%

10.0
7.1%
18.3
2.4%
22.3
4.4%
5.6
2.3%

169.8
6.7%
6.9
2.0%
10.7
4.4%
3.3
2.3%

1,000.0
5.7%
6.9%

6.9
10.1
4.6%
6.7%
208.2
6.7
6.9
5.5%
5.6%
89.7
6.1%
0.6%

6.9
10.1
4.6%
6.7%

6.9
10.1
4.6%
6.7%

6.9
10.1
4.6%
6.7%

150.0
3.4
5.0
4.6%
6.7%

(66.9)

150.0
31.0
45.4

(22.2)(3)

208.2
6.7
6.9

0.0

89.7

()
3

( . )(3)
08

(1) Weighted average variable interest rates are based on applicable rates as of September 30, 1999 per the terms of the contracts of the related financial instruments
.
(2) In March 1994, A M P entered into a cross-currency swap with a financial institution to hedge a portion of its net investment in its Japanese subsidiary.
( ) The fair values of the cross-currency swaps included in the table reflect the portion of the fair values of the contracts that are attributable to the interest component of the contracts
3
.

32

Exchange Rate Sensitivity
The table below provides information about the Company’s financial

table presents cash flows of principal repayment (in millions) and

instruments that are sensitive to foreign currency exchange rates.

weighted average interest rates. For cross-currency swaps and for-

These instruments include long-term investments, debt obligations,

ward foreign currency exchange contracts, the table presents notional

cross-currency swaps, forward foreign currency exchange contracts

amounts (in millions) and weighted average contractual exchange

and currency options. For long-term investments, the table presents

rates. For currency options, the table presents notional amounts (in

cash flows of principal payments (in millions) related to a subordi-

millions) and weighted average contractual strike prices. Notional

nated, non-collateralized zero coupon loan note, based on the amor-

amounts are used to calculate the contractual payments to be

tized cost of the investment as of September 30, 1999, and the

exchanged under the contract. The amounts included in the table

associated fair value interest rate discount. For debt obligations, the

below are in U.S. dollars.

Fiscal
2000

Long-term investment:
Fixed Rate (British Pound)
Interest rate
Long-term debt:
Fixed rate (Yen)
Average interest rate
Variable rate (Yen)
Average interest rate(1)
Cross-currency swap:
Receive US$/Pay Japanese Yen(2)
Contractual exchange rate
(Yen/US$)
Receive US$/Pay British Pound
Average contractual exchange rate
Receive Japanese Yen/Pay US$
Contractual exchange rate
(Yen/US$)
Forward contracts:
Receive US$/Pay Australian Dollar
Average contractual exchange rate
Receive US$/Pay British Pound
Average contractual exchange rate
Receive US$/Pay Canadian Dollar
Average contractual exchange rate
Receive US$/Pay Euro
Average contractual exchange rate
Receive US$/Pay Japanese Yen
Average contractual exchange rate
(Yen/US$)
Currency options:
Receive US$/Pay Euro
Average strike price
Receive US$/Pay Japanese Yen
Average strike price (Yen/US$)

Fiscal
2001

Fiscal
2002

Fiscal
2003

Fiscal
2004

Thereafter

Total

Fair
Value

—

—

—

—

120.5
11.5%

—

120.5

120.5

127.3
1.7%
4.7
2.3%

17.3
2.3%
5.7
2.3%

34.3
2.2%
14.1
2.3%

18.3
2.4%
5.6
2.3%

6.9
2.0%
3.3
2.3%

71.0
4.5%
13.2
2.3%

275.1

275.4

46.6

46.6

—

—

—

—

150.0

—

150.0

0.4 (3)

—
208.2
1.58
89.7

—
—
—
—

—
—
—
—

—
—
—
—

105.95
—
—
—

—
—
—
—

224.3
0.65
766.7
1.59
49.6
0.67
1,534.1
1.07
142.6

—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—

103.62

—

—

—

—

—

100.0
1.00
60.0
119.75

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

—
—
—
—

208.2
89.7

(8.8)(3)
4.4 (3)

111.50
224.3

(0.7)

766.7

(26.3)

49.6

(1.2)

1,534.1

(23.0)

142.6

(1.5)

100.0

0.4

60.0

0.3

(1) Weighted average variable interest rates are based on applicable rates as of September 30, 1999 per the terms of the contracts of the related financial instruments.
(2) In March 1994, AMP entered into a cross-currency swap with a financial institution to hedge a portion of its net investment in its Japanese subsidiary.
(3) The fair values of cross-currency swaps included in the table reflect the portion of the fair values of the contracts that are attributable to the foreign currency component of the contracts.

33

Commodity Price Sensitivity
The table below provides information about the Company’s financial

presented for forward commodity contracts. Contract amounts are

instruments that are sensitive to changes in commodities prices. Total

used to calculate the contractual payments quantity of the commodity

contract dollar amounts (in millions) and notional quantity amounts are

to be exchanged under the contracts.

Fiscal
2000

Forward contracts
:
Copper
Contract amount (US$)
Contract quantity (in 000 metric tons)
Gold
Contract amount (US$)
Contract quantity (in 000 ounces)
Zinc
Contract amount (US$)
Contract quantity (in 000 metric tons)

Fiscal
2001

Fiscal
2002

25.7
16.1

18.6
11.6

2.3
1.4

33.0
120.0
3.1
3.1

Fiscal
2003

Fiscal
2004

Thereaftr e To l ta Fi ar Value

46.6
29.1

6.8

20.6
75.0

53.6
195.0

5.6

0.7
0.7

3.8
3.8

0.6

Year 2000 Compliance

Accounting and Technical Pronouncements

Year 2000 compliance programs and systems modifications were ini-

In June 1998, the FASB issued SFAS No. 133, “Accounting for Deriv-

tiated by the Company in Fiscal 1997 in an attempt to ensure that

ative Instruments and Hedging Activities.” This statement establishes

these systems and key processes will remain functional. The Com-

accounting and reporting standards requiring that every derivative

pany has assessed the potential impact of the Year 2000 on date-sen-

instrument be recorded in the balance sheet as either an asset or lia-

sitive information in computer software programs and operating

bility measured at its fair value. SFAS No. 133 also requires that

systems in its product development, financial business systems and

changes in the derivative’s fair value be recognized currently in earn-

administrative functions, and is implementing strategies to avoid

ings unless specific hedge accounting criteria are met. In June 1999,

adverse implications. This objective is expected to be achieved either

the FASB issued SFAS No. 137 which defers the effective date of

by modifying present systems using existing internal and external pro-

SFAS No. 133 to fiscal years beginning after June 15, 2000. The Com-

gramming resources or by installing new systems, and by monitoring

pany is currently analyzing this new standard.

supplier, customer and other third-party readiness. Review of the sys-

In September 1999, the FASB issued an Exposure Draft on

tems affecting the Company is progressing and the Company is con-

the accounting for “Business Combinations and Intangible Assets.” If

tinuing its implementation strategy. The costs of the Company’s Year

the provisions of the Exposure Draft as currently written were to be

2000 program to date have not been material, and the Company does

issued as a new accounting standard, the Company would no longer

not anticipate that the costs of any required modifications to its infor-

be able to use the pooling of interests method of accounting. All future

mation technology or embedded technology systems will have a mate-

acquisition activity would be accounted for using the purchase method

rial adverse effect on its financial position, results of operations or

which could result in an increase in goodwill and the associated amor-

liquidity.

tization of goodwill above current levels.

In the event that the Company or material third parties fail to complete their Year 2000 compliance programs successfully and on

Conversion to the Euro

time, the Company’s ability to operate its businesses, service customers, bill or collect its revenues or purchase products in a timely

On January 1, 1999, 11 European countries began using the “euro” as

manner could be adversely affected. Although there can be no assur-

their single currency, while still continuing to use their own notes and

ance that the conversion of the Company’s systems will be success-

coins for cash transactions. Banknotes and coins denominated in

ful or that the Company’s key third-party relationships will have

euros are expected to be put in circulation and local notes and coins

successful conversion programs, management does not expect that

will cease to be legal tender during 2002. Tyco conducts a significant

any such failure would have a material adverse effect on the financial

amount of business in these countries. Introduction of the euro has not

position, results of operations or liquidity of the Company. The Com-

resulted in any material adverse impact upon the Company.

pany has day-to-day operational contingency plans, and management has updated these plans for possible Year 2000 specific operational requirements. 34

Forward Looking Information

results, performances or achievements. Factors that might affect such forward looking statements include, among other things, overall eco-

Certain statements in this report are “forward looking statements”

nomic and business conditions; the demand for the Company’s goods

within the meaning of the Private Securities Litigation Reform Act of

and services; competitive factors in the industries in which the Com-

1995. All forward looking statements involve risks and uncertainties.

pany competes; changes in government regulation; changes in tax

In particular, any statement contained herein, in press releases, writ-

requirements (including tax rate changes, new tax laws and revised

ten statements or other documents filed with the Securities and

tax law interpretations); interest rate fluctuations and other capital

Exchange Commission, or in the Company’s communications and dis-

market conditions, including foreign currency rate fluctuations; eco-

cussions with investors and analysts in the normal course of business

nomic and political conditions in international markets, including gov-

through meetings, phone calls and conference calls, regarding the

ernmental changes and restrictions on the ability to transfer capital

consummation and benefits of future acquisitions, as well as expecta-

across borders; the ability to achieve anticipated synergies and other

tions with respect to future sales, earnings, cash flows, operating effi-

cost savings in connection with acquisitions; the timing, impact and

ciencies and product expansion, are subject to known and unknown

other uncertainties of future acquisitions; and the Company’s ability

risks, uncertainties and contingencies, many of which are beyond the

and its customers’ and suppliers’ ability to replace, modify or upgrade

control of the Company, which may cause actual results, performance

computer programs in order to adequately address the Year 2000

or achievements to differ materially from anticipated

issue.

35

selected financial data
The following table sets forth selected consolidated financial information of the Company for the fiscal years ended September 30, 1999 and
1998, the nine-month fiscal period ended September 30, 1997 and the two years in the period ended December 31, 1996. This selected financial information should be read in conjunction with the Company’s Consolidated Financial Statements and related notes. The selected financial data reflect the combined results of operations and financial position of Tyco, Former Tyco, Keystone, Inbrand (from January 1, 1997), USSC and AMP restated for all periods presented pursuant to the pooling of interests method of accounting. The selected financial data prior to January 1, 1997 do not reflect the results of operations and financial position of Inbrand, which was acquired in 1997 and accounted for under the pooling of interests method of accounting, due to immateriality. See Notes 1 and 2 to the Consolidated Financial Statements.
Year Ended
September 30,
(in millions, except per share amounts)

Consolidated Statements of Operations Data:
Net sales
Operating income
Income (loss) from continuing operations
Income (loss) from continuing operations per common share:
Basic
Diluted
Cash dividends per common share(8)
Consolidated Balance Sheet Data:
Total assets
Long-term debt
Shareholders’ equity

1999(1)

1998(2)

$22,496.5
2,136.8
1,031.0

$19,061.7
1,948.1
1,168.6

0.63
0.62

0.74
0.72

$32,361.6
9,109.4
12,332.6

$23,440.7
5,424.7
9,901.8

Nine Months
Ended
September 30,
1997(3)(4)

$12,742.5
125.8
(348.5)
(0.24)
(0.24)
See (9) below.
$16,960.8
2,785.9
7,478.7

Year Ended
December 31,
1996(5)(6)

1995(5)(7)

$14,671.0
587.4
49.4

$13,152.1
1,447.5
755.5

0.02
0.02

0.55
0.54

$14,686.2
2,202.4
7,022.6

$13,143.8
2,229.7
6,792.1

(1) Operating income in the fiscal year ended September 30, 1999 includes charges of $1,261.7 million for merger, restructuring and other non-recurring charges, of which $78.9 million is included in cost of sales, and charges of $335.0 million for the impairment of long-lived assets related to the mergers with
USSC and AMP and AMP’s profit improvement plan. See Notes 12 and 16 to the Consolidated Financial Statements.
(2) Operating income in the fiscal year ended September 30, 1998 includes charges of $80.5 million primarily related to costs to exit certain businesses in USSC’s operations and restructuring charges of $12.0 million related to the operations of USSC. In addition, AMP recorded restructuring charges of
$185.8 million in connection with its profit improvement plan and a credit of $21.4 million to restructuring charges representing a revision of estimates related to its 1996 restructuring activities. See Note 16 to the Consolidated Financial Statements.
(3) In September 1997, the Company changed its fiscal year end from December 31 to September 30. Accordingly, the nine-month transition period ended
September 30, 1997 is presented.
(4) Operating income in the nine months ended September 30, 1997 includes charges related to merger, restructuring and other non-recurring costs of
$917.8 million and impairment of long-lived assets of $148.4 million primarily related to the mergers and integration of ADT, Former Tyco, Keystone, and
Inbrand, and charges of $24.3 million for litigation and other related costs and $5.8 million for restructuring charges in USSC’s operations. See Notes 12 and
16 to the Consolidated Financial Statements. The results for the nine months ended September 30, 1997 also include a charge of $361.0 million for the writeoff of purchased in-process research and development related to the acquisition of the submarine systems business of AT&T Corp.
(5) Prior to their respective mergers, ADT, Keystone, USSC and AMP had December 31 fiscal year ends and Former Tyco had a June 30 fiscal year end. The selected consolidated financial data have been combined using a December 31 fiscal year end for ADT, Keystone, Former Tyco, USSC and AMP for the year ended December 31, 1996. For 1995, the results of operations and financial position reflect the combination of ADT, Keystone, USSC and AMP with a December 31 fiscal year end and Former Tyco with a June 30 fiscal year end. Net sales and net income for Former Tyco for the period July 1, 1995 through December 31, 1995, which results are not included in the historical combined results, were $2,460.1 million and $136.4 million, respectively.
(6) Operating income in 1996 includes non-recurring charges of $744.7 million related to the adoption of Statement of Financial Accounting Standards No. 121
“Accounting for the Impairment of Long-Lived Assets to Be Disposed Of,” $237.3 million related principally to the restructuring of ADT’s electronic security services business in the United States and United Kingdom, $98.0 million to exit various product lines and manufacturing operations associated with AMP’s operations and $8.8 million of fees and expenses related to ADT’s acquisition of Automated Security (Holdings) plc, a United Kingdom company.
(7) Operating income in 1995 includes a loss of $65.8 million on the disposal of the European auto auction business and a gain of $31.4 million from the disposal of the European electronic article surveillance business. Operating income also includes non-recurring charges of $97.1 million for restructuring charges at ADT and Keystone, and for the fees and expenses related to the 1994 merger of Kendall International, Inc. and Former Tyco, as well as a charge of $8.2 million relating to the divestiture of certain assets by Keystone.
(8) Per share amounts have been retroactively restated to give effect to the mergers with Former Tyco, Keystone, Inbrand, USSC and AMP; a 0.48133 reverse stock split (1.92532 after giving effect to the subsequent stock splits) effected on July 2, 1997; and two-for-one stock splits distributed on October 22, 1997 and October 21, 1999, both of which were effected in the form of a stock dividend.
(9) Tyco has paid a quarterly cash dividend of $0.0125 per common share since July 2, 1997, the date of the Former Tyco/ADT merger. Prior to the merger with ADT, Former Tyco had paid a quarterly cash dividend of $0.0125 per share of common stock since January 1992. ADT had not paid any dividends on its common shares since 1992. USSC paid quarterly dividends of $0.04 per share in the year ended September 30, 1998 and the nine months ended September
30, 1997 and aggregate dividends of $0.08 per share in 1996 and 1995. AMP paid dividends of $0.27 per share in the first two quarters of the year ended September 30, 1999, $0.26 per share in the first quarter and $0.27 per share in the last three quarters of the year ended September 30, 1998, $0.26 per share in each of the three quarters of the nine months ended September 30, 1997, aggregate dividends of $1.00 per share in 1996 and $0.92 per share in 1995. The payment of dividends by Tyco in the future will depend on business conditions, Tyco’s financial condition and earnings and other factors.

36

consolidated balance sheets
September 30 (in millions, except share data)

1999

1998

$ 1,762.0
4,582.3
536.6
2,849.1
711.6
721.2
11,162.8
7,322.4
12,158.9
269.7
668.8
779.0
$32,361.6

$ 1,072.9
3,478.4
565.3
2,610.0
797.6
430.7
8,954.9
6,104.3
7,105.5
228.4
320.9
726.7
$23,440.7

$ 1,012.8
2,530.8
3,599.7
977.9
258.8
798.0
1.0
9,179.0

$

Current Assets:
Cash and cash equivalents
Receivables, less allowance for doubtful accounts of $329.8 in 1999 and $317.6 in 1998
Contracts in process
Inventories
Deferred income taxes
Prepaid expenses and other current assets
Total current assets

Property, Plant and Equipment, Net
Goodwill and Other Intangible Assets, Net
Long-Term Investments
Deferred Income Taxes
Other Assets
Total Assets
Current 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 costs
Deferred revenue
Income taxes
Deferred income taxes
Total current liabilities

Long-Term Debt
Other Long-Term Liabilities
Deferred Income Taxes
Total Liabilities

815.0
1,733.4
3,069.3
332.9
266.5
773.9
15.2
7,006.2

9,109.4
1,236.4
504.2
20,029.0

5,424.7
976.8
131.2
13,538.9

—

—

338.0

324.1

Commitments and Contingencies (Note 17)
Shareholders’ Equity:
Preference shares, $1 par value, 125,000,000 authorized, none issued
Common shares, $0.20 par value, 2,500,000,000 shares authorized; 1,690,175,338 shares outstanding in 1999 and 1,620,463,428 shares outstanding in 1998, net of 11,432,678 shares owned by subsidiaries in 1999 and 6,742,006 shares owned by subsidiaries in 1998
Capital in excess:
Share premium
Contributed surplus, net of deferred compensation of $30.7 in 1999 and $67.3 in 1998
Accumulated earnings
Accumulated other comprehensive loss

Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity

4,881.5
3,607.6
3,955.6
(450.1)
12,332.6
$32,361.6

4,035.0
2,584.0
3,162.6
(203.9)
9,901.8
$23,440.7

See Notes to Consolidated Financial Statements.

37

consolidated statements of operations

Year Ended September 30,
(in millions, except per share data)

Net Sales
Cost of sales
Selling, general and administrative expenses
Merger, restructuring and other non-recurring charges
Charge for the impairment of long-lived assets
Write-off of purchased in-process research and development

Operating Income
Interest income
Interest expense
Income (loss) before income taxes, extraordinary items and cumulative effect of accounting changes
Income taxes
Income (loss) before extraordinary items and cumulative effect of accounting changes
Extraordinary items, net of taxes

1999

$22,496.5
14,405.6
4,436.3
1,182.8
335.0
—
2,136.8
61.5
(547.1)

$19,061.7
12,694.8
4,161.9
256.9
—
—
1,948.1
62.6
(307.9)

$12,742.5
8,523.6
2,635.8
947.9
148.4
361.0
125.8
43.8
(170.0)

1,651.2
(620.2)

1,702.8
(534.2)

(0.4)
(348.1)

1,031.0
(45.7)

1,168.6
(2.4)

(348.5)
(58.3)

Cumulative effect of accounting changes, net of taxes

Net Income (Loss)
Dividends on preference shares

Net Income (Loss) Available to Common Shareholders

1998

Nine Months
Ended
September 30,
1997

$

—
985.3
—
985.3

—
1,166.2
—
$ 1,166.2

$

0.63
(0.03)

$

$

15.5
(391.3)
(4.7)
(396.0)

Basic Earnings (Loss) Per Common Share:
Income (loss) before extraordinary items and cumulative effect of accounting changes
Extraordinary items, net of taxes

$

Cumulative effect of accounting changes, net of taxes
Net income (loss) per common share

0.74
—
—
0.74

—
0.60

(0.24)
(0.04)
0.01
(0.27)

Diluted Earnings (Loss) Per Common Share:
Income (loss) before extraordinary items and cumulative effect of accounting changes
Extraordinary items, net of taxes
Cumulative effect of accounting changes, net of taxes
Net income (loss) per common share

$

0.62
(0.03)
—
0.59

$

0.72
—
—
0.72

$

(0.24)
(0.04)
0.01
(0.27)

Weighted-Average Number of Common Shares Outstanding:
Basic
Diluted

See Notes to Consolidated Financial Statements.

38

1,641.3
1,674.8

1,583.4
1,624.7

1,476.7
1,476.7

consolidated statements of shareholders’ equity

For the Nine Months Ended
September 30, 1997 and the Years
Ended September 30, 1998 and 1999 (in millions)

Balance at January 1, 1997, as Previously Restated

Preferred
Stock
$5.00
Par Value

Contributed
Surplus —
Preferred

Common
Shares
$0.20
Par Value

Share
Premium

Contributed
Surplus —
Common

$0.7

$ 190.8

$281.7

$1,262.6

$2,339.9

Comprehensive loss:
Net loss
Currency translation adjustment
Unrealized gain on marketable securities
Minimum pension liability adjustment
Total comprehensive loss

$2,919.4

$ 72.8

(391.3)
(203.4)
1.9
(8.2)

Effect of ASH’s excluded activity
Liquidation of ASH’s ESOP
Sale of common shares
Exchange of Liquid Yield Option Notes
Dividends
Restricted stock grants, cancellations and tax benefits
Warrants and options exercised, net of shares surrendered for exercises
Purchase of treasury shares
Amortization of deferred compensation
Issuance of common shares for acquisitions
Issuance of common shares for litigation settlement
Conversion of Series A Convertible
Preferred Stock
Other treasury stock transactions
Tax benefit on stock transactions
Other adjustments

$ (391.3)
(203.4)
1.9
(8.2)
$ (601.0)

(0.8)
2.5
9.4
2.0

639.2

5.9
81.0
(227.7)
(18.0)

7.0

366.8

1.0

(13.4)
(2.6)
51.1
91.8
7.0

(0.7)

Balance at September 30, 1997

(190.8)

—

—

2.6

181.6

303.7

2,450.2

7.3
(0.1)
9.9
(0.4)
2,559.4

Comprehensive income:
Net income
Currency translation adjustment
Unrealized loss on marketable securities
Minimum pension liability adjustment
Total comprehensive income

0.2
2,302.3

(136.9)

1,166.2
(36.7)
(15.6)
(14.7)

Sale of common shares
Exchange of Liquid Yield Option Notes
Dividends
Restricted stock grants, net of surrenders
Warrants and options exercised
Purchase of treasury shares
Stock compensation expense, including amortization of deferred compensation
Issuance of common shares for acquisition
Issuance of common shares for litigation settlement
Tax benefit on stock transactions
Other adjustments

10.2
3.6

1,239.9

$1,166.2
(36.7)
(15.6)
(14.7)
$1,099.2

(5.1)
151.7
(305.9)

0.2
8.0
(1.8)

344.9

—

—

324.1

0.1
35.5
(282.1)
43.4
19.0

0.2

Balance at September 30, 1998

4,035.0

7.8
55.1
(0.8)
2,584.0

Comprehensive income:
Net income
Currency translation adjustment
Unrealized gain on marketable securities
Minimum pension liability adjustment
Total comprehensive income

3,162.6

(203.9)

985.3
(258.3)
12.6
(0.5)

Exchange of Liquid Yield Option Notes
Dividends
Restricted stock grants, net of surrenders
Warrants and options exercised
Purchase of treasury shares
Amortization of deferred compensation
Issuance of common shares for acquisitions
Tax benefit on stock transactions
Other adjustments

Balance at September 30, 1999

Accumulated
Other
Accumulated Comprehensive Comprehensive
Earnings Income (Loss) (Loss) Income

1.6

$ 985.3
(258.3)
12.6
(0.5)
$ 739.1

70.7
(192.3)

0.2
8.2
(2.5)

846.5

6.4

$

—

$

—

$338.0

$4,881.5

13.2
17.7
(635.3)
92.1
1,448.4
15.2
1.6
$3,607.6

$3,955.6

$(450.1)

See Notes to Consolidated Financial Statements.

39

consolidated statements of cash flows

1999

1998

Nine Months
Ended
September 30,
1997

985.3

$ 1,166.2

$ (391.3)

Year Ended September 30,
(in millions)

Cash Flows From Operating Activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Merger, restructuring and other non-recurring charges
Charge for the impairment of long-lived assets
Write-off of purchased in-process research and development
Extraordinary items
Effect of accounting changes
Depreciation
Goodwill and other intangibles amortization
Debt and refinancing cost amortization
Interest on ITS vendor note
Deferred income taxes
Provisions for losses on accounts receivable and inventory
Other non-cash items
Changes in assets and liabilities, net of the effects of acquisitions and divestitures:
Receivables
Proceeds from accounts receivable sale
Contracts in process
Inventories
Prepaid expenses and other current assets
Accounts payable, accrued expenses and other current liabilities
Income taxes payable
Deferred revenue
Other, net
Net cash provided by operating activities

$

517.1
335.0
—
45.4
—
979.6
331.6
10.4
(12.1)
334.3
211.5
(6.7)

253.7
—
—
2.4
—
895.1
242.6
11.3
(11.5)
(8.2)
192.9
2.5

207.4
148.4
361.0
58.3
(22.9)
650.5
123.7
15.9
(7.7)
(259.2)
76.5
24.8

(796.0)
50.0
642.2
(124.4)
(154.1)
361.1
(10.2)
(54.1)
(96.1)
3,549.8

(88.9)
—
(91.4)
(226.2)
(57.7)
(96.4)
66.3
(6.5)
35.6
2,281.8

(297.1)
75.0
(159.7)
(115.6)
56.8
642.5
232.5
6.2
(46.8)
1,379.2

(1,632.5)
(234.0)
(4,901.2)
926.8
10.5
(13.7)
(5,844.1)

(1,317.5)
—
(4,251.8)
—
6.4
(83.1)
(5,646.0)

(866.6)
—
(1,415.2)
—
(29.4)
(9.5)
(2,320.7)

162.3
1,173.7
(2,057.8)
3,665.6
—
872.4
(187.9)
(637.8)
(7.1)
2,983.4
689.1
1,072.9
$ 1,762.0

287.1
2,744.5
(1,074.6)
802.0
1,245.0
348.7
(303.0)
(283.9)
(36.5)
3,729.3
365.1
707.8
$ 1,072.9

945.7
—
(980.7)
253.2
654.5
351.9
(222.2)
(6.7)
(2.2)
993.5
52.0
655.8
$ 707.8

Interest paid

$

509.1

$

250.7

$

186.6

Income taxes paid (net of refunds)

$

209.7

$

345.9

$

309.5

Cash Flows From Investing Activities:
Purchase of property, plant and equipment
Purchase of leased property (Note 2)
Acquisition of businesses, net of cash acquired
Disposal of businesses
Decrease (increase) in investments
Other
Net cash utilized by investing activities

Cash Flows From Financing Activities:
Net receipts of short-term debt
Net proceeds from issuance of public debt
Repayment of long-term debt, including debt tenders
Proceeds from long-term debt
Proceeds from sale of common shares
Proceeds from exercise of options and warrants
Dividends paid
Purchase of treasury shares
Other
Net cash provided by financing activities
Net increase in cash and cash equivalents

Cash and Cash Equivalents at Beginning of Year, as Restated
Cash and Cash Equivalents at End of Year
Supplementary Cash Flow Disclosure:

See Notes to Consolidated Financial Statements.

40

notes to consolidated financial statements
1. Summary of Significant Accounting Policies

Basis of Presentation
The consolidated financial statements have been prepared in United

Business

States dollars in accordance with generally accepted accounting prin-

The Company manages its business based on the following four oper-

ciples in the United States. As described more fully in Note 2, on July

ating segments:

2, 1997, a wholly-owned subsidiary of what was formerly called ADT
Limited, a Bermuda company (“ADT”), merged with Tyco Interna-

Telecommunications and Electronics

tional Ltd., a Massachusetts corporation (“Former Tyco”). Upon con-

The Company’s Telecommunications and Electronics segment is com-

summation of the merger, ADT (the continuing public company)

prised of:

changed its name to Tyco International Ltd. (the “Company” or “Tyco”).

• Tyco Electronics, including AMP Incorporated (“AMP”), which

Former Tyco became a wholly-owned subsidiary of the Company and

designs and manufactures electrical connectors, interconnection

changed its name to Tyco International (US) Inc. (“Tyco US”). In addi-

systems, touch screens and wireless systems, and Raychem

tion, as more fully described in Note 2, Tyco merged with Inbrand Cor-

Corporation (“Raychem”), which develops and manufactures

poration (“Inbrand”), Keystone International, Inc. (“Keystone”), United

high-performance electronic components;

States Surgical Corporation (“USSC”) and AMP on August 27, 1997,

• Tyco Submarine Systems Ltd. (“TSSL”), which designs, manu-

August 29, 1997, October 1, 1998 and April 2, 1999, respectively.

factures, installs and services undersea communications cable

These transactions are referred to herein as the “mergers.” The con-

systems; and

solidated financial statements include the consolidated accounts of

• Tyco Printed Circuit Group, which designs and manufactures

Tyco, a company incorporated in Bermuda, and its subsidiaries. They

multi-layer printed circuit boards, backplane assemblies and sim-

have been prepared following the pooling of interests method of

ilar components.

accounting for the mergers and, therefore, reflect the combined financial position, operating results and cash flows of ADT, Former Tyco,

Healthcare and Specialty Products
The Company’s Healthcare and Specialty Products segment is com-

Keystone, Inbrand, USSC and AMP as if they had been combined for all periods presented.

prised of:
• Tyco Healthcare Group, which manufactures and distributes a

Principles of Consolidation

wide variety of disposable medical products, including wound-

Tyco is a holding company whose assets consist of its investments in

care products, syringes and needles, sutures and surgical sta-

its subsidiaries, intercompany balances and holdings of cash and cash

plers, incontinence products, electrosurgical instruments and

equivalents. The businesses of the consolidated group are conducted

laparoscopic instruments;

through the Company’s subsidiaries. The Company consolidates com-

• Tyco Plastics and Adhesives, which manufactures flexible plas-

panies in which it owns or controls more than fifty percent of the vot-

tic packaging, plastic bags and sheeting, coated and laminated

ing shares unless control is likely to be temporary. The results of

packaging materials, tapes and adhesives and plastic garment

companies acquired or disposed of during the fiscal year are included

hangers; and

in the consolidated financial statements from the effective date of

• ADT Automotive, which provides auto redistribution services.

acquisition or up to the date of disposal except in the case of mergers accounted for as pooling of interests (Note 2). All significant inter-

Fire and Security Services
The Company’s Fire and Security Services segment:

company balances and transactions have been eliminated in consolidation.

• designs, installs and services a broad line of fire detection, prevention and suppression systems worldwide;
• provides electronic security installation and monitoring services; and
• manufactures and services fire extinguishers and related products. Change in Year End
In September 1997, the Company changed its fiscal year end from
December 31 to September 30. The change in year end resulted in a short fiscal year covering the nine-month transition period from January 1 to September 30, 1997. References to Fiscal 1999, Fiscal 1998 and Fiscal 1997 throughout these consolidated financial statements

Flow Control Products
The Company’s Flow Control Products segment:

are to the twelve months ended September 30, 1999 and 1998, and the nine months ended September 30, 1997, respectively.

• manufactures and distributes pipe, fittings, valves, valve actuators, couplings and related products which are used to transport,

Cash Equivalents

control and measure the flow of liquids and gases;

All highly liquid investments purchased with a maturity of three months

• manufactures and distributes fire sprinkler devices, specialty

or less are considered to be cash equivalents.

valves, plastic pipe and fittings used in commercial, residential and industrial fire protection systems; and
• provides engineering and consulting services focusing on the design, construction and operation of water and wastewater

Inventories
Inventories are recorded at the lower of cost (primarily first-in, firstout) or market value.

facilities.

41

Property, Plant and Equipment

Long-Lived Assets

Property, plant and equipment is principally recorded at cost less

The Company periodically evaluates the net realizable value of long-

accumulated depreciation. Maintenance and repair expenditures are

lived assets, including goodwill and other intangible assets and prop-

charged to expense when incurred. The straight-line method of depre-

erty, plant and equipment, relying on a number of factors including

ciation is used over the estimated useful lives of the related assets as

operating results, business plans, economic projections and antici-

follows:

pated future cash flows. An impairment in the carrying value of an asset is assessed when the undiscounted, expected future operating

Buildings and related improvements
Leasehold improvements
Subscriber systems
Other plant, machinery, equipment and furniture and fixtures

5 to 50 years
Remaining term of the lease
10 to 14 years

Revenue Recognition
2 to 25 years

Gains and losses arising on the disposal of property, plant and equipment are included in the Consolidated Statements of Operations and were not material.

Goodwill and Other Intangible Assets
Goodwill, which is being amortized on a straight-line basis over periods ranging from 10 to 40 years, was $10,639.3 million and
$6,104.1 million, net, at September 30, 1999 and 1998, respectively.
Accumulated amortization amounted to $615.6 million at September
30, 1999 and $499.7 million at September 30, 1998.
Other intangible assets were $1,519.6 million and $1,001.4 million, net, at September 30, 1999 and 1998, respectively. These amounts include patents, trademarks, customer contracts and other items, which are being amortized on a straight-line basis over lives ranging from 2 to 40 years. At September 30, 1999 and 1998, accumulated amortization amounted to $319.5 million and $207.1 million, respectively. Investments
The Company accounts for its long-term investments that represent less than twenty percent ownership using Statement of Financial
Accounting Standards No. 115, “Accounting for Certain Investments in
Debt and Equity Securities.” This standard requires that certain debt and equity securities be adjusted to market value at the end of each accounting period. Unrealized market gains and losses are charged to earnings if the securities are traded for short-term profit. Otherwise, such unrealized gains and losses are charged or credited to shareholders’ equity. Management determines the proper classification of investments in obligations with fixed maturities and marketable equity securities at the time of purchase and re-evaluates such designations as of each balance sheet date. Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the Consolidated Statements of Operations and were not material. Equity Investments
For investments in which the Company owns or controls twenty percent or more of the voting shares, or over which it exerts significant influence over operating and financial policies, the equity method of accounting is used. The Company’s share of net income or losses of equity investments is included in the Consolidated Statements of
Operations and was not material in any period presented.

42

cash flows derived from the asset are less than its carrying value.

Revenue from the sale of services or products is recognized as services are rendered or shipments are made. Subscriber billings for services not yet rendered are deferred and taken into income as earned, and the deferred element is included in current liabilities. Revenue from the installation of electronic security systems is recognized when installations are completed.
Contract sales for the installation of fire protection systems, underwater cable systems and other construction related projects are recorded on the percentage-of-completion method. Profits recognized on contracts in process are based upon estimated contract revenue and related cost to completion. Revisions in cost estimates as contracts progress have the effect of increasing or decreasing profits in the current period. Provisions for anticipated losses are made in the period in which they first become determinable.
Accounts receivable include amounts billed under retainage provisions primarily for fire protection contracts. Retention balances of
$33.3 million at September 30, 1999, which become due upon contract completion and acceptance, are expected to be substantially collected during the fiscal year ending September 30, 2000 (“Fiscal 2000”).

Share Premium and Contributed Surplus
In accordance with the Bermuda Companies Act of 1981, when the
Company issues shares for cash at a premium to their par value, the resulting premium is credited to a share premium account, a nondistributable reserve. When the Company issues shares in exchange for shares of another company, the excess of the fair value of the shares acquired over the par value of the shares issued by the Company is credited, where applicable, to contributed surplus, which is, subject to certain conditions, a distributable reserve.

Income Taxes
Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the differences between the consolidated financial statements and the tax basis of assets and liabilities, using tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance is provided to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Research and Development

Interest rate swaps hedge interest rates on certain indebtedness

Research and development expenditures are expensed when

and involve the exchange of fixed and floating rate interest payment

incurred and are included in cost of sales in the Consolidated State-

obligations over the life of the related agreement without the exchange

ments of Operations.

of the notional amount. The interest differentials to be paid or received under interest rate swaps are recognized over the life of the underly-

Advertising

ing agreement or indebtedness, respectively, as an adjustment to

Advertising costs are expensed when incurred.

interest expense.

Translation of Foreign Currency

decreases in the values of derivative financial instruments are

Assets and liabilities of the Company’s subsidiaries operating outside

included in other current assets and other current liabilities, respec-

the United States which account in a functional currency other than

tively, and are not material.

Receivables and payables related to unrealized increases and

U.S. dollars, other than those operating in highly inflationary environments, are translated into U.S. dollars using year-end exchange rates.

Use of Estimates

Revenues and expenses are translated at the average exchange rates

The preparation of consolidated financial statements in conformity

effective during the year. Foreign currency translation gains and

with generally accepted accounting principles requires management

losses are included as a component of accumulated other compre-

to make extensive use of certain estimates and assumptions that

hensive income (loss) within shareholders’ equity. For subsidiaries

affect the reported amount of assets and liabilities and disclosure of

operating in highly inflationary environments, inventories and prop-

contingent assets and liabilities at the date of the consolidated finan-

erty, plant and equipment, including related expenses, are translated

cial statements and the reported amounts of revenues and expenses

at the rate of exchange in effect on the date the assets were acquired,

during the reported periods. Significant estimates in these consoli-

while other assets and liabilities are translated at year-end exchange

dated financial statements include merger, restructuring and other

rates. Translation adjustments for these operations are included in net

non-recurring charges, purchase accounting reserves, allowances for

income (loss).

doubtful accounts receivable, estimates of future cash flows associ-

Gains and losses resulting from foreign currency transac-

ated with assets, asset impairments, useful lives for depreciation and

tions, the amounts of which are not material, are included in net

amortization, loss contingencies, net realizable value of inventories,

income (loss).

estimated contract revenues and related costs, environmental liabilities, income taxes and tax valuation reserves, and the determination

Financial Instruments

of discount and other rate assumptions for pension and post-retire-

From time to time the Company enters into a variety of forward foreign

ment employee benefit expenses. Actual results could differ from

currency exchange contracts, cross-currency swaps, currency

those estimates.

options, forward commodity contracts and interest rate swaps in its management of foreign currency and commodity exposures and inter-

Accounting Pronouncements

est costs.

In June 1998, the FASB issued SFAS No. 133, “Accounting for Deriv-

Forward foreign currency exchange contracts and cross-

ative Instruments and Hedging Activities.” This statement establishes

currency swaps, which mitigate the impact of changes in currency

accounting and reporting standards requiring that every derivative

exchange rates on intercompany cross-border obligations, are

instrument be recorded on the balance sheet as either an asset or lia-

accounted for consistent with the related intercompany transactions.

bility measured at its fair value. SFAS No. 133 also requires that

Under cross-currency swaps, which principally hedge certain net for-

changes in the derivative’s fair value be recognized currently in earn-

eign currency denominated investments, changes in valuation are

ings unless specific hedge accounting criteria are met. In June 1999,

included in the currency translation adjustment component of accu-

the FASB issued SFAS No. 137 which defers the effective date of

mulated other comprehensive income (loss) within shareholders’

SFAS No. 133 to fiscal years beginning after June 15, 2000. The Com-

equity. The interest differentials on cross-currency swaps are included

pany is currently analyzing this new standard.

in interest expense. Forward foreign currency exchange contracts and currency options, acquired for the purpose of reducing exposure to

Reclassifications

currency fluctuations associated with expected cash flows denomi-

Certain prior year amounts have been reclassified to conform with cur-

nated in currencies other than the functional currencies, are marked

rent year presentation.

to market with realized and unrealized gains or losses reflected in selling, general and administrative expenses.

Stock Splits

Under forward commodity contracts, which hedge anticipated

Per share amounts and share data have been retroactively restated to

purchases of certain metals and other materials used in manufactur-

give effect to the reverse stock split effected in connection with the

ing operations, payments are received or paid based on the differen-

merger of ADT and Former Tyco referred to in Note 2, and the two-for-

tial between the contract price and the actual price of the underlying

one stock splits distributed on October 22, 1997 and October 21, 1999,

commodity. Gains or losses on forward commodity contracts are

both effected in the form of a stock dividend (See Note 10 for further

recorded as adjustments to the value of the purchased commodity.

discussion).

43

2. Pooling of Interests Transactions

Each of the five merger transactions discussed above was accounted for under the pooling of interests accounting method, which

On April 2, 1999, October 1, 1998, August 29, 1997 and August 27,

presents as a single interest common shareholder interests which

1997, Tyco merged with AMP, USSC, Keystone and Inbrand, respec-

were previously independent. The historical consolidated financial

tively. A total of approximately 329.2 million, 118.4 million, 69.6 million

statements for periods prior to the consummation of the combination

and 20.4 million Tyco common shares, respectively, were issued to the

are restated as though the companies had been combined during such

former shareholders of these companies.

periods.

On July 2, 1997, a wholly-owned subsidiary of ADT merged with

Aggregate fees and expenses related to the mergers and to the

the Former Tyco. Shareholders of ADT, through a reverse stock split,

integration of the combined companies have been expensed in the

received 0.48133 shares (1.92532 after giving effect to the subse-

Consolidated Statements of Operations in the period in which each

quent stock splits) of the Company’s common stock for each share of

transaction was consummated, as required under the pooling of

ADT common stock outstanding, and the Former Tyco shareholders

interests method of accounting. See Notes 12 and 16 for further

received one share (four shares after giving effect to the subsequent

discussion.

stock splits) of the Company’s common stock for each share of the
Former Tyco common stock outstanding. On a post-split basis, a total

Combined and separate results of Tyco, USSC and AMP for the periods preceding the mergers were as follows:

of approximately 673.6 million Tyco common shares were issued to the shareholders of Former Tyco in the merger.
(in millions)

Six Months ended March 31, 1999 (unaudited)(1)
Net sales
Operating income (loss)
Extraordinary items, net of taxes
Net income (loss)
Year ended September 30, 1998(2)
Net sales
Operating income (loss)
Extraordinary items, net of taxes
Net income (loss)
Nine months ended September 30, 1997(3)
Net sales
Operating (loss) income
Extraordinary items, net of taxes
Cumulative effect of accounting changes, net of taxes
Net (loss) income

Tyco

$ 7,776.8
877.5
(44.9)
388.4

USSC

$

—
—
—
—

AMP

Adjustments

Combined

$

—
—
—
(3.0)(4)

$10,452.3
472.3
(44.9)
9.4

$2,675.5
(405.2)
—
(376.0)

12,311.3
1,923.7
(2.4)
1,174.7

1,225.9
(298.5)
—
(212.0)

5,524.5
322.9
—
208.5

—
—
—
(5.0)(4)

19,061.7
1,948.1
(2.4)
1,166.2

7,588.2
(476.5)
(58.3)
—
(835.1)

869.6
100.5
—
—
79.1

4,284.7
501.8
—
15.5
345.7

—
—
—
—
19.0(4)

12,742.5
125.8
(58.3)
15.5
(391.3)

(1) Includes merger, restructuring and other non-recurring charges of $434.9 million and impairment charges of $76.0 million primarily related to the merger with USSC, and restructuring and other non-recurring charges of $444.4 million and impairment charges of $67.6 million related to AMP’s profit improvement plan.
(2) Includes restructuring and other non-recurring charges of $164.4 million primarily related to AMP’s profit improvement plan and $92.5 million principally related to costs incurred by
USSC to exit certain businesses.
(3) Includes merger, restructuring and other non-recurring charges of $917.8 million and impairment charges of $148.4 million primarily related to the mergers and integration of ADT,
Former Tyco, Keystone and Inbrand, and a charge of $361.0 million for the write-off of purchased in-process research and development related to the acquisition of AT&T Corp.’s submarine systems business. Also includes charges of $24.3 million for litigation and other related costs and $5.8 million for restructuring charges in USSC’s operations.
(4) As a result of the combination of Tyco and AMP, an income tax adjustment was recorded to conform tax accounting.

Combined and separate results of ADT, Former Tyco, Keystone and Inbrand for the periods preceding the mergers were as follows:
(in millions)

Six Months ended June 30, 1997 (unaudited)
Net sales
Operating income (loss)(1)
Net income (loss)

ADT

Former
Tyco

Keystone

$923.9
99.1
47.2

$3,505.6
435.3
244.6

$331.2
39.8
22.9

Inbrand

Combined

$118.7
(40.5)
(28.9)

$4,879.4
533.7
285.8

(1) Includes merger, restructuring and other non-recurring charges of $31.4 million incurred by ADT and $25.2 million incurred by Inbrand.

In connection with the USSC merger, the Company assumed an

with the settlement of certain other obligations in the amount of

operating lease for USSC’s North Haven facilities. In December 1998,

$23 million resulted in the Company acquiring ownership of the North

the Company assumed the debt related to the North Haven property

Haven property for a total cost of $234 million.

of approximately $211 million. The assumption of the debt combined

44

The Company also assumed USSC’s agreement to potentially pay up to approximately $70.0 million in common stock as of September 30, 1998 as additional purchase price consideration relative to an acquisition consummated by USSC in 1997, if and when certain additional milestones and sales objectives are achieved. During March and April 1999, a total of 140,002 Tyco common shares, valued at approximately $5.2 million, were issued pursuant to this agreement.
This matter is the subject of pending litigation. The Company does not expect to issue a material amount of additional shares pursuant to this agreement. liabilities recorded for acquisitions completed prior to Fiscal 1999 (in millions): Receivables
Inventories
Prepaid expenses and other current assets
Property, plant and equipment
Goodwill and other intangible assets
Other assets
Accounts payable
Accrued expenses and other current liabilities
Other long-term liabilities

3. Acquisitions and Divestitures
Fiscal 1999
In addition to the pooling of interests transactions discussed in Note
2, during Fiscal 1999, the Company purchased businesses in each of

Cash consideration paid (net of cash acquired)
Share consideration paid
Debt assumed

its four business segments for an aggregate cost of $6,923.3 million,

$ 695.0
498.3
225.9
988.9
5,807.9
423.8
8,639.8
335.5
1,186.5
194.5
1,716.5
$6,923.3
$4,546.8
1,449.6
926.9
$6,923.3

consisting of $4,546.8 million in cash, net of cash acquired, the

Thus, in Fiscal 1999, the Company spent a total of $4,901.2 mil-

issuance of 32.4 million common shares valued at $1,449.6 million

lion in cash related to the acquisition of businesses, consisting of

and the assumption of $926.9 million in debt. In addition, $354.4 mil-

$4,546.8 million of cash in purchase price for these businesses (net of

lion of cash was paid during the year for purchase accounting liabili-

cash acquired) plus $354.4 million of cash paid out during the year for

ties related to current and prior years’ acquisitions. The cash portions

purchase accounting liabilities related to current and prior years’

of the acquisition costs were funded utilizing cash on hand, the

acquisitions.

issuance of long-term debt and borrowings under the Company’s com-

Fiscal 1999 purchase acquisitions include, among others, the

mercial paper program. Each of these acquisitions was accounted for

acquisition of Graphic Controls Corporation (“Graphic Controls”) in

as a purchase, and the results of operations of the acquired compa-

October 1998, Entergy Security Corporation (“Entergy”) in January

nies have been included in the consolidated results of the Company

1999, Alarmguard Holdings, Inc. (“Alarmguard”) in February 1999,

from their respective acquisition dates.

certain subsidiaries in the metals processing division of Glynwed

In connection with these acquisitions, the Company recorded

International, plc (“Glynwed”) in March 1999, Telecomunicaciones

purchase accounting liabilities of $525.4 million for transaction costs

Marinas, S.A. (“Temasa”), a wholly-owned subsidiary of Telefonica

and the costs of integrating the acquired companies within the various

S.A., in May 1999 and Raychem Corporation (“Raychem”) in August

Tyco business segments. Details regarding these purchase account-

1999. Graphic Controls, a leading designer, manufacturer, marketer

ing liabilities are set forth below.

and distributor of disposable medical products, was purchased for

At the time each purchase acquisition is made, the Company

approximately $460 million, including the assumption of certain out-

records each asset acquired and each liability assumed at its esti-

standing debt, and is being integrated within the Healthcare and Spe-

mated fair value, which amount is subject to future adjustment when

cialty Products segment. Entergy and Alarmguard were purchased for

appraisals or other further information is obtained. The excess of

an aggregate of approximately $430 million and are being integrated

(a) the total consideration paid for the acquired company over (b) the

within the electronic security services business of the Fire and Secu-

fair value of assets acquired less liabilities assumed and purchase

rity Services segment. Glynwed, which is engaged in the production

accounting liabilities recorded is recorded as goodwill. As a result of

of steel tubing, steel electrical conduit and other similar products, was

acquisitions completed in Fiscal 1999, and adjustments to the fair val-

purchased for approximately $236 million and is being integrated

ues of assets and liabilities and purchase accounting liabilities

within the Flow Control Products segment. Temasa installs and main-

recorded for acquisitions completed prior to Fiscal 1999, the Company

tains undersea cable systems and was purchased for approximately

recorded approximately $5,807.9 million in goodwill and other intan-

$280 million. Temasa is being integrated into TSSL within the

gibles.

Telecommunications and Electronics segment. Raychem, a leading

The following table shows the fair values of assets and liabilities

international designer, manufacturer and distributor of high-perfor-

and purchase accounting liabilities recorded for purchase acquisitions

mance electronic products for OEM businesses and for a broad range

completed in Fiscal 1999, adjusted to reflect changes in fair values of

of specialized telecommunications, energy and industrial applica-

assets and liabilities and purchase accounting

tions, was purchased for a total of approximately $1,445.9 million in cash and the issuance of approximately 32.4 million Tyco common shares valued at approximately $1,449.6 million, plus the assumption

45

of approximately $580.8 million of debt. Raychem is being integrated

The following table summarizes the purchase accounting

into Tyco Electronics within the Telecommunications and Electronics

liabilities recorded in connection with the Fiscal 1999 purchase

segment.

acquisitions:
Severance

($ in millions)

Original reserve established
Fiscal 1999 activity
Ending balance at September 30, 1999

Number of
Employees

5,620
(3,230)
2,390

Facilities

Reserve

Number of
Facilities

$234.3
(55.9)
$178.4

183
(95)
88

Other

Reserve

Reserve

$174.8
(48.2)
$126.6

$116.3
(46.0)
$ 70.3

Purchase accounting liabilities recorded during Fiscal 1999 con-

During Fiscal 1999, the Company sold certain of its businesses

sist of $116.3 million for transaction and other direct costs, $234.3 mil-

for net proceeds of approximately $926.8 million in cash. These pri-

lion for severance and related costs and $174.8 million for costs

marily consist of certain businesses within the Flow Control Products

associated with the shut down and consolidation of certain acquired

segment, including The Mueller Company and portions of Grinnell

facilities. These purchase accounting liabilities relate primarily to the

Supply Sales and Manufacturing, and certain businesses within the

acquisitions of Graphic Controls, Entergy, Alarmguard, Glynwed,

Healthcare and Specialty Products segment. The aggregate net gain

Temasa and Raychem. The Company is still in the process of finaliz-

recognized on the sale of these businesses was not material. In con-

ing its business plan for the exiting of activities and the involuntary ter-

nection with the Flow Control divestiture, the Company granted a non-

mination or relocation of employees in connection with the acquisition

exclusive license to the buyer for use of certain intellectual property

and integration of Raychem. Accrued costs associated with this plan

and is entitled to receive future royalties equal to a percentage of net

are estimates.

sales of the businesses sold. The Company also granted an option to

In connection with the Fiscal 1999 purchase acquisitions, the
Company began to formulate plans at the date of each acquisition for

the buyer to purchase certain intellectual property in the future at the then fair market value.

workforce reductions and the closure and consolidation of an aggre-

The following unaudited pro forma data summarize the results of

gate of 183 facilities. The Company has communicated with the

operations for the periods indicated as if the Fiscal 1999 acquisitions

employees of the acquired companies to announce the terminations

and divestitures had been completed as of the beginning of the peri-

and benefit arrangements, even though all individuals have not been

ods presented. The pro forma data give effect to actual operating

specifically told of their termination. The costs of employee termina-

results prior to the acquisitions and divestitures. Adjustments to inter-

tion benefits relate to the elimination of approximately 3,440 positions

est expense, goodwill amortization and income taxes related to the

in the United States, 1,220 positions in Europe, 730 positions in the

Fiscal 1999 acquisitions are reflected in the pro forma data. No effect

Asia-Pacific region and 230 positions in Canada and Latin America,

has been given to cost reductions or operating synergies in this pre-

primarily consisting of manufacturing and distribution, administrative,

sentation. These pro forma amounts do not purport to be indicative of

technical, and sales and marketing personnel. Facilities designated

the results that would have actually been obtained if the acquisitions

for closure include 78 facilities in the Asia-Pacific region, 67 facilities

and divestitures had occurred as of the beginning of the periods pre-

in the United States, 27 facilities in Europe and 11 facilities in Canada

sented or that may be obtained in the future.

and Latin America, primarily consisting of manufacturing plants, sales
Year Ended September 30,

offices, corporate administrative facilities and research and development facilities. Approximately 3,230 employees had been terminated

(in millions, except per share data)

and approximately 95 facilities had been closed or consolidated at

Net sales
Income before extraordinary items
Net income
Net income per common share:
Basic
Diluted

September 30, 1999.
In connection with the purchase acquisitions consummated during Fiscal 1999, liabilities for approximately $70.3 million in transaction and other direct costs, $178.4 million for severance and related

1999

1998

$24,244.3
870.7
824.7

$21,858.0
1,023.7
1,021.9

0.53
0.49

0.65
0.63

costs and $126.6 million for the shutdown and consolidation of acquired facilities remained on the balance sheet at September 30,
1999. The Company expects that the termination of employees and consolidation of facilities related to all such acquisitions will be substantially complete within two years of the related dates of acquisition, except for certain long-term contractual obligations.
During Fiscal 1999, the Company reduced its estimate of purchase accounting liabilities by $90.0 million and, accordingly, goodwill and related deferred tax assets were reduced by an equivalent amount, primarily resulting from costs being less than originally anticipated for acquisitions consummated prior to Fiscal 1999. See table in
Fiscal 1998 section below.

Fiscal 1998
During Fiscal 1998, the Company acquired companies in each of its business segments for an aggregate cost of $4,559.4 million, consisting of $4,154.8 million in cash, the assumption of approximately
$260 million in debt and the issuance of 765,544 common shares valued at $19.2 million and 1,254 subsidiary preference shares valued at
$125.4 million. The cash portions of the acquisition costs were funded utilizing cash on hand, borrowings under bank credit agreements, proceeds of approximately $1,245.0 million from the sale of common shares, and borrowings under the Company’s uncommitted lines of credit. Each of these acquisitions was accounted for as a purchase,

46

and the results of operations of the acquired companies were included

spent a total of $4,251.8 million in cash related to the acquisition of

in the consolidated results of the Company from their respective acqui-

businesses, consisting of $4,154.8 of purchase price (net of cash

sition dates. As a result of the acquisitions, the Company recorded

acquired) plus $97.0 million of cash for purchase accounting liabilities

approximately $3,947.0 million in goodwill and other intangibles.

related to current and prior years’ acquisitions.

In connection with these acquisitions, the Company recorded

The following table summarizes the purchase accounting

purchase accounting liabilities of $498.7 million for transaction costs

liabilities recorded in connection with the Fiscal 1998 purchase acqui-

and the costs of integrating the acquired companies within the various

sitions:

Tyco business segments. Details regarding these purchase accounting liabilities are set forth below. During Fiscal 1998, the Company
Severance

($ in millions)

Original reserve established
Fiscal 1998 activity
Fiscal 1999 activity
Reversal to goodwill
Ending balance at September 30, 1999

Facilities
Number of
Employees

4,800
(1,600)
(1,050)
(1,150)
1,000

Reserve

$159.7
(33.4)
(67.0)
(20.4)
$ 38.9

Other
Number of
Facilities

90
(70)
(3)
(4)
13

Reserve

Reserve

$278.9
(14.2)
(48.7)
(69.6)
$146.4

$ 60.1
(51.7)
(8.4)
—
$
—

Purchase accounting liabilities recorded during Fiscal 1998 con-

ance Sheets. Cash dividends accumulate on a preferred basis,

sist of $60.1 million for transaction and other direct costs, $159.7 mil-

whether or not earned or declared, at the rate of $3,750 per share per

lion for severance and related costs and $278.9 million for costs

annum. Upon liquidation, the holders of shares are entitled to receive

associated with the shut down and consolidation of certain acquired

an amount equal to $100,000 per share, plus any unpaid dividends.

facilities. The $159.7 million of severance and related costs covers

These preference shares may be redeemed by the subsidiary at any

employee termination benefits for approximately 4,800 employees

time on or after December 31, 2008 at a price per share of $100,000,

located throughout the world, consisting primarily of manufacturing

plus unpaid dividends, adjusted for certain increases in the value of

employees to be terminated as a result of the shut down and consoli-

Tyco’s stock, as defined.

dation of production facilities and, to a lesser extent, technical, sales and administrative employees. At September 30, 1999, approximately

Fiscal 1997

2,650 employees had been terminated and $38.9 million in severance

In addition to the mergers discussed in Note 2, in Fiscal 1997 the Com-

and related costs remained on the balance sheet. The Company

pany acquired companies in each of its business segments for an

expects that the remaining employee terminations will be completed

aggregate of $1,523.7 million, consisting of $1,415.2 million in cash,

in Fiscal 2000.

the issuance of approximately 3.8 million common shares valued at

The $278.9 million of exit costs are associated with the closure

$92.8 million and the assumption of approximately $15.7 million in

and consolidation of facilities involving approximately 90 facilities

debt. The cash portions of the acquisition costs were funded utilizing

located primarily in the United States and Europe. These facilities

cash on hand, net proceeds from the sale of common shares of

include manufacturing plants, warehouses, office buildings and sales

$645.2 million, and borrowings under the Company’s uncommitted

offices. Included within these costs are accruals for non-cancelable

lines of credit. Each of these acquisitions was accounted for as a pur-

leases associated with certain of these facilities. Approximately

chase, and the results of operations of the acquired companies were

73 facilities, mainly office buildings and sales offices, had been

included in the consolidated results of the Company from their respec-

shut down as of September 30, 1999. The remaining facilities primarily

tive acquisition dates. As a result of the acquisitions, approximately

include large manufacturing plants, which are expected to be shut

$708.7 million in goodwill and other intangibles, net of the write-off of

down in Fiscal 2000. Expenses in connection with the closure of these

purchased in-process research and development, was recorded by

remaining facilities, as well as the expiration of non-cancelable leases

the Company. In connection with the acquisition of AT&T Corp.’s sub-

(less any expected sublease income for facilities already closed),

marine systems business, the Company allocated $361.0 million of

comprise the approximately $146.4 million for facility related costs

the purchase price to in-process research and development projects

remaining on the balance sheet as of September 30, 1999.

that had not reached technological feasibility and had no probable

In July 1998, the Company acquired the U.S. operations of

alternative future uses. As of September 30, 1999, the payout for

Crosby Valve, Inc. in exchange for 1,254 cumulative dividend prefer-

employee severance and consolidation of facilities related to these

ence shares of a newly created subsidiary, valued at $125.4 million.

acquisitions was substantially complete.

The subsidiary has authorized 2,000 cumulative dividend preference

In 1995, as a result of the sale of a business in the United King-

shares. The holders of these preference shares have the option to

dom, the Company holds a subordinated, non-collateralized zero

require the Company to repurchase the preference shares at par value

coupon loan note maturing in 2004 (“Vendor Note”), together with a

plus unpaid dividends at any time after July 2001. The outstanding

10% interest in the ordinary share capital of the issuer. The Vendor

preference shares were issued at $100,000 par value each and have

Note has a £120.8 million ($199.2 million) aggregate principal amount

been classified in other long-term liabilities on the Consolidated Bal-

at maturity with an issue price of $83.9 million, reflecting a yield to

47

maturity of 10.0% per annum, and was originally valued by the Com-

(2) In February 1999, TIG renegotiated its $2.25 billion credit agreement with a group of

pany at $74.6 million. As of September 30, 1999, the Vendor Note is

commercial banks, giving it the right to borrow up to $3.40 billion until February 11, 2000,

included in long-term investments on the Consolidated Balance Sheet

with the option to extend to February 11, 2001, and to borrow up to an additional $0.5 billion until February 12, 2003. TIG also has the option to increase the $3.40 billion part of

and has been accounted for at its amortized cost of $120.5 million

the credit facility up to $4.0 billion. Interest payable on borrowings is variable based upon

(which approximates fair value). The fair value of the Vendor Note was

TIG’s option to select a Euro rate plus margins ranging from 0.41% to 0.43%, a certificate

estimated based on the Company’s calculation of an appropriate fair

of deposit rate plus margins ranging from 0.535% to 0.555%, or a base rate, as defined.

value interest rate discount. This discount rate was determined based

If the outstanding principal amount of loans equals or exceeds 25% of the commitments, the Euro and certificate of deposit margins are increased by 0.125%. The obligations of

on an evaluation of current UK market conditions (private placement

TIG under the credit agreement are fully and unconditionally guaranteed by the Company.

rates, discussions with financial sources, etc.) and the continued risk

TIG is using the credit agreement to fully support its commercial paper program discussed

margin associated with deep discount debentures.

above and therefore expects this facility to remain largely undrawn. The Company is required to meet certain covenants under the bank credit agreement, none of which is considered restrictive to the operations of the Company.

4. Indebtedness

(3) In December 1995, USSC entered into a five year, $325 million syndicated credit agreement with a maturity of January 2001. The syndicated credit facility provided a

Long-term debt is as follows:

choice of interest rates based upon the banks’ CD rate, prime rate or the London Interbank Offered Rate (LIBOR) for US dollar borrowings and Tokyo Interbank Offered Rate

September 30,

(TIBOR) for yen borrowings. The actual interest charges paid were to be determined by a
(in millions)

Commercial paper program(1)
Bank credit agreement(2)
Bank credit facilities(3)
International overdrafts and demand loans(4)
8.125% public notes due 1999(5)
Floating rate private placement notes due 2000(6)
0.57% Yen denominated private placement notes due 2000(6)
8.25% senior notes due 2000(5)
9.5
Floating rate private placement notes due 2001(6)
6.5% public notes due 2001
6.125% public notes due 2001(7)
6.875% private placement notes due 2002(6)
9.25% senior subordinated notes due 2003(5)
5.875% public notes due 2004(8)
6.375% public notes due 2004
6.375% public notes due 2005(7)
6.125% public notes due 2008(8)
7.2% notes due 2008(9)
7.25% senior notes due 2008(10)
6.125% public notes due 2009(11)
Zero coupon Liquid Yield Option Notes due 2010(12)
International bank loans, repayable through 2013(13)
6.25% public Dealer Remarketable Securities
(“Drs.”) due 2013(7)
9.5% public debentures due 2022(5)
8.0% public debentures due 2023
7.0% public notes due 2028(7)
6.875% public notes due 2029(11)
Financing lease obligation(14)
Other
Total debt
Less current portion
Long-term debt

1999

$ 1,392.0
—
—
184.9
10.5

1998

$

pricing schedule which considered the ratio of consolidated debt at each calendar quar-

—
1,359.0
206.9
429.7
10.5

ter end to consolidated earnings before interest, taxes, depreciation and amortization for the trailing twelve months. During the third quarter of 1996, USSC entered into an additional conditional committed bank term loan facility of $175 million, with similar terms and conditions. Subsequent to the merger with USSC, the credit facilities were terminated.
The effective interest rate on amounts outstanding as of September 30, 1998 was 5.91%.
(4) International overdrafts and demand loans represent borrowings by AMP from various

499.4

—

89.7
9.5

—

499.1
299.3
748.1
992.2
—
397.7
104.6
743.7
394.9
398.8
8.2
394.1

—
299.0
747.0
—
14.1
—
104.6
742.6
—
—
300.0
—

and $200.0 million 9.5% public debentures due 2022, and ADT Operations, Inc., a wholly-

49.1

115.3

by the Company and certain subsidiaries of ADT Operations, Inc. The senior notes are not

208.2

188.6

banks and other holders. All overdrafts and loans mature within one year from the balance sheet date. The weighted-average interest rate on all international overdrafts and demand loans during Fiscal 1999 and Fiscal 1998 was 5.3% and 4.2%, respectively.
(5) In July 1997, Tyco US tendered for its $145.0 million 8.125% public notes due 1999 owned subsidiary of the Company, tendered for its $250.0 million 8.25% senior notes due
2000 and $294.1 million 9.25% senior subordinated notes due 2003. The percentage of debt tendered was 92.8% of the 8.125% notes, 75.5% of the 9.5% debentures, 96.2% of the 8.25% notes and 95.2% of the 9.25% notes. The two companies paid an aggregate amount, including accrued interest, of approximately $900.8 million to the debt holders, of which $800.0 million was financed from the previously existing credit agreement. In connection with the tenders, the Company recorded an after-tax charge of approximately
$58.3 million, net of related income tax benefit of $33.0 million, primarily representing unamortized debt issuance fees and the premium paid, which was reported as an extraordinary loss (Note 13).
The $250.0 million 8.25% senior notes due August 2000 were issued in August 1993, through a public offering, by ADT Operations, Inc. and are guaranteed on a senior basis redeemable prior to maturity.

760.1
49.0
50.0
492.4
780.5
69.5
496.7
10,122.2
1,012.8
$ 9,109.4

762.8
49.0
50.0
492.1
—
76.5
282.5
6,239.7
815.0
$5,424.7

The $294.1 million 9.25% senior subordinated notes due August 2003 were issued in
August 1993 by ADT Operations, Inc., through a public offering and are guaranteed on a senior subordinated basis by the Company. The notes became redeemable in August
1998 at 103.75% and ADT Operations, Inc. redeemed the notes.
In conjunction with the tenders described above, ADT Operations, Inc., by consent of the holders of the 8.25% senior and 9.25% senior subordinated notes, eliminated in the indentures pursuant to which such notes were issued (a) certain restrictive covenants and provisions and references to such restrictive covenants, (b) certain events of default to the extent relating to such restrictive covenants and (c) certain definitions to the extent relating to such restrictive covenants and events of default.
(6) In August 1999, TIG issued $500 million floating rate notes due 2000, $500 million floating rate notes due 2001, $1 billion 6 7 ¼ 8% notes due 2002 and ¥ 10 billion (approxi-

(1) In January 1999, Tyco International Group S.A. (“TIG”), a wholly-owned subsidiary of

mately $89.7 million) 0.57% notes due 2000. The $500 million floating rate notes bear

the Company, initiated a commercial paper program under which it could initially issue

interest at LIBOR plus 0.6% for the 2000 notes and LIBOR plus 0.7% for the 2001 notes.

notes with an aggregate face value of up to $1.75 billion. In June 1999, TIG increased its

The net proceeds of approximately $2,080.3 million were used to repay borrowings under

borrowing capacity under the commercial paper program to $3.90 billion. The notes are

TIG’s $3.90 billion commercial paper program discussed above. In connection with the $1

fully and unconditionally guaranteed by the Company. Proceeds from the sale of the notes

billion 67 ¼ 8% notes, TIG entered into an interest rate swap agreement expiring in Sep-

are used for working capital and other corporate purposes. TIG is required to maintain an

tember 2002, under which TIG will receive a fixed rate of 67 ¼ 8% and will pay a floating rate

available unused balance under its bank credit agreement sufficient to support amounts

based on the average of two different LIBOR rates, as defined, plus 3.755%. In connec-

outstanding under the commercial paper program.

tion with the yen denominated 0.57% notes, TIG entered into a cross-currency swap expiring in September 2000, under which TIG will receive a payment of ¥ 10 billion plus accrued

48

interest at a rate of 0.57% and will make quarterly U.S. dollar payments based on LIBOR

issue price plus accrued original issue discount to the date of redemption. The LYONs are

plus 0.60%, as well as a final payment at maturity of approximately $89.7 million.

guaranteed on a subordinated basis by the Company.

(7) In June 1998, TIG issued $750 million 61 ¼ 8% notes due 2001, $750 million 63 ¼ 8%

(13) International bank loans represent term borrowings by AMP from various commercial

notes due 2005, $750 million 61 ¼ 4% Dealer Remarketable Securities (“Drs.”) due 2013

banks. Borrowings are repayable in varying amounts through 2013. The weighted-aver-

and $500 million 7.0% notes due 2028 in a public offering. Interest is payable semi-annu-

age interest rate on all international bank loans as of September 30, 1999 and 1998 was

ally in June and December. Under the terms of the Drs., the Remarketing Dealer has an

3.9% and 5.0% respectively.

option to remarket the Drs. in June 2003, which if exercised would subject the Drs. to

(14) The financing lease obligation relates to USSC’s European headquarters office build-

mandatory tender to the Remarketing Dealer and reset the interest rate to an adjusted

ing and distribution center complex in Elancourt, France. The French franc denominated

fixed rate until June 2013. If the Remarketing Dealer does not exercise its option, then all

financing lease requires principal amortization in varying amounts over the eleven year

Drs. are required to be tendered to the Company in June 2003. Repayment of amounts

term of the lease with a balloon payment of approximately 42 million French francs ($7

outstanding under these debt securities are fully and unconditionally guaranteed by Tyco

million) at the end of the lease. Interest is payable at a rate approximately 1.4% above

(Note 25). The net proceeds of approximately $2,744.5 million were ultimately used to

Paris Interbank Offered Rate (PIBOR). The effective interest rate on the financing lease

repay borrowings under TIG’s bank credit agreement and uncommitted lines of credit. In

debt was approximately 4.0% and 4.55% per annum at September 30, 1999 and 1998,

December 1998, TIG terminated two interest rate swap agreements with notional amounts

respectively.

of $650 million each, which were entered into in June 1998 with a financial institution to hedge a portion of the fixed rate terms of the public notes.
(8) In October 1998, TIG issued $800 million of debt in a private placement offering consisting of two series of restricted notes: $400 million of 5.875% notes due November 2004

During Fiscal 1999, the Company also completed a tender offer for its 12.0% senior subordinated notes due 2005, issued by Graphic

and $400 million of 6.125% notes due November 2008. The notes are fully and uncondi-

Controls, in which all $75 million principal amount of the notes out-

tionally guaranteed by Tyco. The net proceeds of approximately $791.7 million were used

standing were purchased.

to repay borrowings under TIG’s bank credit agreement. At the same time, TIG also entered into an interest rate swap agreement with a notional amount of $400 million to hedge the fixed rate terms of the 6.125% notes due 2008. Under this agreement, which

The weighted-average rate of interest on all long-term debt was
6.2%, 6.4% and 7.2% during Fiscal 1999, Fiscal 1998 and Fiscal 1997,

expires in November 2008, TIG will receive payments at a fixed rate of 6.125% and will

respectively. The impact of the Company’s interest rate swap activities

make floating rate payments based on LIBOR. Subsequently, during the third and fourth

on its weighted-average borrowing rate was not material in any year.

quarters of Fiscal 1999, TIG exchanged all of the $400 million 5.875% private placement

The impact on reported interest expense was a reduction of $0.9 mil-

notes due 2004 and $400 million 6.125% private placement notes due 2008 for public notes (Note 25). The form and terms of the public notes of each series are identical in all material respects to the form and terms of the outstanding private placement notes of the corresponding series, except that the public notes are not subject to restrictions on trans-

lion, $1.9 million and $0.8 million for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.
The aggregate amounts of total debt maturing during the next five

fer under the United States securities laws.

years are as follows (in millions): $1,012.8 in fiscal 2000, $2,777.0 in

(9) In October 1998, Raychem issued notes in the amount of $400 million. The notes

fiscal 2001, $1,395.2 in fiscal 2002, $56.2 in fiscal 2003 and $190.8 in

mature on October 15, 2008, and bear interest at a rate of 7.2% per annum.

fiscal 2004.

(10) In March 1998, USSC issued $300 million 7.25% senior notes due March 2008, which are not redeemable prior to maturity and require semi-annual interest payments. In February 1999, the Company completed a tender offer in which $292 million of the $300 mil-

5. Sale of Accounts Receivable

lion principal amount of the notes outstanding were purchased.
(11) In January 1999, TIG issued $400 million of its 6.125% notes due 2009 and $800 mil-

The Company has an agreement under which several of its operating

lion of its 6.875% notes due 2029 in a public offering. The notes are fully and uncondi-

subsidiaries sell a defined pool of trade accounts receivable to a lim-

tionally guaranteed by Tyco (Note 25). The net proceeds of approximately $1,173.7 million were used to repay borrowings under TIG’s bank credit agreement. At the same time, TIG

ited purpose subsidiary of the Company. The subsidiary, a separate

also entered into an interest rate swap agreement to hedge the fixed rate terms of the $400

corporate entity, owns all of its assets and sells participating interests

million notes due 2009. Under the agreement, which expires in January 2009, TIG will

in such accounts receivable to financiers who, in turn, purchase and

receive payments at a fixed rate of 6.125% and will make floating rate payments based on

receive ownership and security interests in those assets. As collec-

an average of three different LIBO rates, as defined, plus a spread.
(12) In July 1995, ADT Operations, Inc. issued $776.3 million aggregate principal amount at maturity of its zero coupon subordinated Liquid Yield Option Notes (“LYONs”) maturing

tions reduce accounts receivable included in the pool, the operating subsidiaries sell new receivables to the limited purpose subsidiary.

July 2010. The net proceeds of the issue amounted to $287.4 million which were used to

The limited purpose subsidiary has the risk of credit loss on the receiv-

repay in full all amounts outstanding under ADT Operations, Inc.’s previous bank credit

ables and, accordingly, the full amount of the allowance for doubtful

agreement, which was subsequently canceled. The issue price per LYON was $383.09,

accounts has been retained on the Consolidated Balance Sheets. Dur-

being 38.309% of the principal amount of $1,000 per LYON at maturity, reflecting a yield to maturity of 6.5% per annum (computed on a semi-annual bond equivalent basis). The

ing Fiscal 1999, the availability under the program was increased to

discount amortization on the LYONs is being charged as interest expense through the con-

$500 million from $300 million. At September 30, 1999 and 1998,

solidated statements of operations on a basis linked to the yield to maturity. The LYONs

$350 million and $300 million, respectively, under the program was uti-

discount amortization amounted to $6.0 million in Fiscal 1999, $11.0 million in Fiscal 1998

lized. The proceeds from the sales were used to reduce borrowings

and $15.9 million in Fiscal 1997. Each LYON is exchangeable for common shares of the
Company at the option of the holder at any time prior to maturity, unless previously

under uncommitted lines of credit and are reported as operating cash

redeemed or otherwise purchased by ADT Operations, Inc., at an exchange rate of 54.352

flows in the Consolidated Statements of Cash Flows. The proceeds of

common shares per LYON. During Fiscal 1999 and Fiscal 1998, respectively, 147,418 and

sale are less than the face amount of accounts receivable sold, by an

342,752 Notes with carrying values of $72.3 million and $155.3 million were exchanged

amount that approximates the cost that the limited purpose subsidiary

for 8,012,468 and 18,629,198 common shares of the Company. Any LYON will be purchased by ADT Operations, Inc., at the option of the holder, as of July 2002 for a purchase

would incur if it were to issue commercial paper backed by these

price per LYON of $599.46. At that time, if the holder exercises the option, the Company

accounts receivable. The discount from the face amount is accounted

has the right to deliver all or a portion of the purchase price in the form of common shares

for as a loss on the sale of receivables and has been included in sell-

of the Company. Beginning July 2002, the LYONs are redeemable for cash at any time at the option of ADT Operations, Inc., in whole or in part, at redemption prices equal to the

ing, general and administrative expenses in the Company’s Consolidated

Statements

of

Operations.

Such

discount

aggregated

49

$15.7 million, $17.3 million, and $10.4 million, or 5.6%, 5.8% and 5.7%

7. Income Taxes

of the weighted average balance of the receivables outstanding, during Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. The oper-

The provision (benefit) for income taxes and the reconciliation

ating subsidiaries retain collection and administrative responsibilities

between the notional United States federal income taxes at the statu-

for the participating interests in the defined pool.

tory rate on consolidated income (loss) before taxes and the Company’s income tax provision are as follows:

6. Financial Instruments
Year Ended September 30,

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, long-term investments, accounts payable, debt and derivative financial instruments. The notional amounts of the derivative financial instruments were as follows: September 30,
(in millions)

Forward foreign currency exchange contracts
Currency options
Cross-currency swaps
Forward commodity contracts
Interest rate swaps

1999

1998

$2,717.3
160.0
447.9
104.0
1,800.0

$ 307.4
153.6
150.0
79.2
1,300.0

While it is not the Company’s intention to terminate the above derivative financial instruments, fair values were estimated, based on quotes from brokers and market rates, which represented the amounts that the Company would receive or pay if the instruments were terminated at the balance sheet dates. These fair values indicated that the termination of forward foreign currency exchange contracts, cross-currency swap agreements, currency options, forward commodity contracts and interest rate swaps at September 30, 1999 would have resulted in a $52.7 million loss, a $27.0 million loss, a $0.7 million loss, a $13.0 million gain and a $66.9 million loss, respectively, and at September 30, 1998 would have resulted in a $7.6 million loss,

(in millions)

Notional U.S. federal income taxes at the statutory rate
Adjustments to reconcile to the
Company’s income tax provision:
U.S. state income tax provision, net
SFAS 121 impairment
Non U.S. net (earnings) losses
Provision for unrepatriated earnings of subsidiaries
Nondeductible chargeS
Other
Provision for income taxes
Deferred provision (benefit)
Current provision

1999

1998

$ 577.9

$596.0

33.6
43.5
(214.9)
—
139.2
40.9
620.2
173.9
$ 446.3

Nine Months
Ended
September 30,
1997

$

(0.1)

15.8
—
(67.9)
—
20.1
(29.8)
534.2
(10.0)
$544.2

20.2
49.6
118.0
64.1
112.9
(16.6)
348.1
(225.0)
$ 573.1

The provisions for Fiscal 1999, Fiscal 1998, and Fiscal 1997 included $258.8 million, $210.5 million and $130.0 million, respectively, for non-U.S. income taxes. The non-U.S. component of income
(loss) before income taxes was $1,359.4 million, $640.6 million and
$(67.5) million for Fiscal 1999, Fiscal 1998, and Fiscal 1997, respectively.
The deferred income tax balance sheet accounts result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax asset are as follows:

a $22.3 million gain, a $1.4 million loss, a $4.2 million loss and a
September 30,

$13.1 million gain, respectively. At September 30, 1999 and 1998, the book values of derivative financial instruments recorded on the Consolidated Balance Sheets approximated fair values.
The fair value of cash and cash equivalents, accounts receivable, long-term investments and accounts payable approximated book value at September 30, 1999 and 1998. The fair value of debt was approximately $10,120.4 million (book value of $10,122.2 million) and
$6,631.8 million (book value of $6,239.7 million) at September 30,

(in millions)

Deferred tax assets:
Inventories, accrued liabilities and reserves
Accrued postretirement benefit obligation
Tax loss and credit carryforwards
Interest
Capitalized research and development
Other

1999 and 1998, respectively, based on discounted cash flow analyses using current interest rates. The Company’s financial instruments present certain market and credit risks; however, concentrations of credit risk are mitigated as the Company deals with a variety of major banks worldwide and its accounts receivable are spread among a number of

Deferred tax liabilities:
Property, plant and equipment
Operating lease
Undistributed earnings of subsidiaries
Other

major industries, customers and geographic areas. None of the Company’s financial instruments with off-balance sheet risk would result in a significant loss to the Company if a counterparty failed to perform according to the terms of its agreement. The Company does not require collateral or other security to be furnished by the counterparties to its financial instruments. The Company does, however, maintain reserves for potential credit losses on financial instruments, and such losses have been within management’s expectations.

50

Net deferred income tax asset before valuation allowance
Valuation allowance
Net deferred income tax asset

1999

1998

$ 903.6
102.9
506.1
81.2
72.3
49.8
1,715.9

$1,123.1
146.5
431.6
78.9
—
94.0
1,874.1

(440.6)
—
(155.1)
(37.5)
(633.2)

(451.8)
(57.0)
(83.4)
(129.4)
(721.6)

1,082.7
(207.5)
$ 875.2

1,152.5
(180.4)
$ 972.1

As of September 30, 1999, the Company had approximately

10. Shareholders’ Equity

$370 million of net operating loss carryforwards in certain non-U.S. jurisdictions. Of these, $255 million have no expiration, and the

During the last quarter of Fiscal 1999, the Company announced that

remaining $115 million will expire in future years through 2014. U.S.

its Board of Directors had declared a two-for-one stock split in the form

operating loss carryforwards at September 30, 1999 were approxi-

of a 100% stock dividend on its common shares. The split was payable

mately $842 million and will expire in future years through 2019. A val-

on October 21, 1999 to shareholders of record on October 1, 1999. In

uation allowance has been provided for operating loss carryforwards

addition, during the last quarter of Fiscal 1997, the Board of Directors

that are not expected to be utilized.

declared a two-for-one stock split effected in the form of a 100% stock

In the normal course, the Company and its subsidiaries’ income

dividend on the Company’s common shares, which was distributed on

tax returns are examined by various regulatory tax authorities. In con-

October 22, 1997. Per share amounts and share data have been

nection with such examinations, substantial tax deficiencies have

retroactively adjusted to reflect both stock splits. There was no change

been proposed. However, the Company is contesting such proposed

in the par value or the number of authorized shares as a result of these

deficiencies, and ultimate resolution of such matters is not expected

stock splits.

to have a material adverse effect on the Company’s financial position, results of operations or liquidity.

During the third quarter of Fiscal 1999, in conjunction with the approval of the merger with AMP, shareholders approved an increase in the number of authorized common shares from 1,503,750,000 to

8. Key Employee Loan Program

2,500,000,000. During the second quarter of Fiscal 1998, shareholders approved an increase in the number of authorized common shares

Loans are made to employees of the Company under the Former Tyco

from 750,000,000 to 1,503,750,000.

1983 Key Employee Loan Program for the payment of taxes upon the

In December 1997 the Company filed a shelf registration

vesting of shares granted under Former Tyco’s Restricted Stock Own-

to enable it to offer from time to time unsecured debt securities

ership Plans. The loans are unsecured and bear interest, payable

or shares of common stock, or any combination of the foregoing, at an

annually, at a rate which approximates the Company’s incremental

aggregate initial offering price not to exceed $2.0 billion. In March

short-term borrowing rate. Loans are generally repayable in ten years,

1998, the Company sold 50.6 million common shares at $25.38

except that earlier payments are required under certain circum-

per share. The net proceeds from the sale of approximately

stances. During Fiscal 1999, the maximum amount outstanding under

$1,245.0 million were used to repay indebtedness incurred for

this program was $91.6 million. Loans receivable under this program

previous acquisitions.

were $18.6 million and $22.2 million at September 30, 1999 and 1998, respectively. In April 1997, USSC redeemed all of the issued and outstanding shares of its Series A Convertible Preferred Stock by issuing approximately 12.8 million shares of common stock. In March and April 1997,

9. Preference Shares

Former Tyco sold an aggregate of 46 million shares of common stock at $14.44 per share. The net proceeds from the sale of $645.2 million

The Company has authorized 125,000,000 preference shares of $1

were used to repay indebtedness incurred for previous acquisitions.

each, none of which were outstanding at September 30, 1999 or 1998.

Prior to the merger of ADT with Former Tyco, the shareholders of

Rights as to dividends, return of capital, redemption, conversion, vot-

ADT approved the consolidating of $0.10 par value common shares

ing and otherwise may be determined by the Company on or before

into new $0.20 par value common shares and an increase in the num-

the time of issuance. In the event of the liquidation of the Company,

ber of authorized common shares to 750,000,000. Per share amounts

the holders of any preference shares then outstanding would be enti-

and per share data have been retroactively adjusted to reflect the con-

tled to payment to them of the amount for which the preference shares

solidation into new par value shares. Information with respect to ADT

were subscribed and any unpaid dividends, prior to any payment to the

common shares and options has been retroactively restated in con-

common shareholders.

nection with the merger on July 2, 1997 to reflect the reverse stock

In November 1996, the Board of Directors of ADT adopted a

split in the ratio of 0.48133 share (1.92532 after giving effect to the

shareholder rights plan (the “Plan”). Under the Plan, each common

subsequent stock splits) of ADT for each share or option outstanding

shareholder received a distribution of rights for each common share

and the issuance of one share (four shares after giving effect to the

held. Each right entitled the holder to purchase from the Company cer-

subsequent stock splits) for each share of the Former Tyco outstand-

tain preference shares, or to purchase from the Company common

ing (see Note 2). Information with respect to Keystone, Inbrand, USSC

shares at one half their market value, upon the occurrence of certain

and AMP common shares and options has been retroactively restated

events, including a person becoming the beneficial owner of 15% or

in connection with their mergers with Tyco to reflect their applicable

more of the Company’s common shares. On August 9, 1999, the Board

merger per share exchange ratios of 0.48726, 0.43, 0.7606 and

of Directors amended the Plan to accelerate the Plan’s expiration date

0.7507, respectively (1.94904, 1.72, 1.5212 and 1.5014, respectively,

to September 30, 1999. The rights granted under the Plan expired on

after giving effect to the subsequent stock splits).

that date.

51

The total compensation cost expensed for all stock-based com-

granted. Conditions of vesting are determined at the time of grant.

pensation awards discussed below was $96.9 million, $37.1 million

Certain options have been granted in prior years in which participants

and $59.9 million for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respec-

were required to pay a subscription price as a condition of vesting.

tively.

Options which have been granted under the Incentive Plan to date have generally vested and become exercisable over periods of up to

Restricted Stock

five years from the date of grant and have a maximum term of ten

The Company maintains a restricted stock ownership plan, which pro-

years. The Company has reserved 140.0 million common shares for

vides for the award of an initial amount of common shares plus an

issuance under the Incentive Plan. Awards which the Company

amount equal to one-half of one percent of the total shares outstand-

becomes obligated to make through the assumption of, or in substitu-

ing at the beginning of each fiscal year. At September 30, 1999, there

tion for, outstanding awards previously granted by an acquired com-

were 22,946,562 shares authorized under the plan, of which

pany are assumed and administered under the Incentive Plan but do

8,191,800 shares had been granted. Common shares are awarded

not count against this limit. At September 30, 1999, there were approx-

subject to certain restrictions with vesting varying over periods of up

imately 46.2 million shares available for future grant under the Incen-

to ten years.

tive Plan. During October 1998, a broad-based option plan for

For grants which vest based on certain specified performance cri-

non-officer employees, the Tyco Long-Term Incentive Plan II (“LTIP

teria, the fair market value of the shares at the date of vesting is

II”), was approved by the Board of Directors. The Company has

expensed over the period the performance criteria are measured. For

reserved 50.0 million common shares for issuance under the LTIP II.

grants that vest through passage of time, the fair market value of the

The terms and conditions of this plan are similar to the Incentive Plan.

shares at the time of the grant is amortized (net of tax benefit) to

At September 30, 1999, there were approximately 35.9 million shares

expense over the period of vesting. The unamortized portion of

available for future grant under the LTIP II.

deferred compensation expense is recorded as a reduction of share-

In connection with the acquisitions of Raychem in Fiscal 1999

holders’ equity. Recipients of all restricted shares have the right to vote

and CIPE S.A. and Holmes Protection in Fiscal 1998, options out-

such shares and receive dividends. Income tax benefits resulting from

standing under the respective stock option plans of these companies

the vesting of restricted shares, including a deduction for the excess,

were assumed under the Incentive Plan. In connection with the merg-

if any, of the fair market value of restricted shares at the time of vest-

ers occurring in Fiscal 1999 and Fiscal 1997 (see Note 2), all of the

ing over their fair market value at the time of the grants and from the

options outstanding under the Former Tyco, Keystone, Inbrand, USSC

payment of dividends on unvested shares, are credited to contributed

and AMP stock option plans were assumed under the Incentive Plan.

surplus.

These options are administered under the Incentive Plan but retain all of the rights, terms and conditions of the respective plans under which

Employee Stock Purchase Plan
Substantially all full-time employees of the Company’s U.S. subsidiaries and employees of certain qualified non-U.S. subsidiaries are

they were originally granted.
Share option activity for all plans since January 1, 1997 has been as follows:

eligible to participate in an employee stock purchase plan. Eligible employees authorize payroll deductions to be made for the purchase of shares. The Company matches a portion of the employee contribuOutstanding

tion by contributing an additional 15% of the employee’s payroll deduction. All shares purchased under the plan are purchased on the open market by a designated broker.

Stock Options
The Company has granted employee share options which were issued under five fixed share option plans and schemes which reserve common shares for issuance to the Company’s directors, executives and managers. The majority of options have been granted under the Tyco
International Ltd. Long Term Incentive Plan (formerly known as the
ADT 1993 Long-Term Incentive Plan — the “Incentive Plan”). The
Incentive Plan is administered by the Compensation Committee of the
Board of Directors of the Company, which consists exclusively of independent directors of the Company. Options are generally granted to purchase common shares at prices which are equal to or greater than the market price of the common shares on the date the option is

52

At January 1, 1997, as restated
Assumed from acquisition
Granted
Exercised
Canceled
At September 30, 1997
Assumed from acquisition
Granted
Exercised
Canceled
At September 30, 1998
Assumed from acquisitions
Granted
Exercised
Canceled
At September 30, 1999

83,752,604

$15.03
175,600
36,196,594
(7,264,707)
(5,599,019)
107,261,072
87,232
32,011,414
(37,626,616)
(7,281,946)
94,451,156
8,883,160
30,313,362
(43,180,390)
(4,476,021)
85,991,267

Weighted
Average
Exercise
Price

10.19
22.07
9.73
27.29
17.03
10.23
23.51
9.20
27.48
24.83
37.44
38.44
22.79
47.83
27.91

The following table summarizes information about outstanding and exercisable options at September 30, 1999:
Options Outstanding

Range of
Exercise Prices

$ 0.00 to $
4.99 to
7.45 to
9.99 to
11.77 to
14.89 to
19.98 to
24.94 to
29.88 to
31.81 to
34.43 to
44.63 to
50.01 to
52.02 to
Total

Weighted
Average
Exercise
Price

$ 4.14
6.51
8.84
10.91
14.02
18.89
21.59
28.17
31.41
32.77
36.79
49.35
50.99
59.58

Number
Outstanding

4.98
7.44
9.98
11.76
14.88
19.97
24.93
29.87
31.80
34.42
44.62
50.00
52.01
73.30

Options Exercisable

676,490
8,064,944
1,940,708
1,111,392
3,803,020
13,127,514
11,816,100
11,129,338
5,405,046
2,518,496
11,518,704
9,007,113
2,957,886
2,914,516
85,991,267

Weighted
Average
Remaining
Contractual
Life — Years

3.7
5.4
6.0
6.5
6.6
7.5
7.3
8.3
7.1
8.7
9.0
9.3
9.5
5.9

Weighted
Average
Exercise
Price

Number
Exercisable

676,490
6,345,144
952,310
541,908
2,503,100
6,474,486
9,452,060
3,251,948
5,363,162
933,536
1,727,126
6,545,044
2,934,158
2,078,414
49,778,886

$ 4.14
6.46
8.85
10.89
13.90
18.56
21.79
28.11
31.41
32.97
38.63
49.67
51.00
60.90

As a result of the merger with USSC, approximately 14.2 million

The estimated weighted average fair value of Tyco and AMP

options which were not previously exercisable became immediately

options granted during Fiscal 1999 was $12.13 and $7.11, respec-

exercisable on October 1, 1998. Upon consummation of the merger

tively, on the date of grant using the option-pricing model and assump-

with AMP on April 2, 1999, approximately 7.8 million options became

tions referred to below. The estimated weighted average fair value of

immediately exercisable due to the change in ownership of AMP

Tyco, USSC and AMP options granted during Fiscal 1998 was $8.24,

resulting from the merger.

$6.79 and $5.98, respectively, on the date of grant using the option-pricing model and assumptions referred to below. The esti-

Stock-Based Compensation

mated weighted average fair value of Tyco, Former Tyco, Inbrand,

SFAS No. 123, “Accounting for Stock-Based Compensation”

USSC and AMP options granted during Fiscal 1997 was $6.08, $4.78,

(“SFAS 123”) allows companies to measure compensation cost in con-

$18.59, $7.15 and $9.27, respectively, on the date of grant using the

nection with executive share option plans and schemes using a fair

option-pricing model and assumptions referred to below. There were

value based method, or to continue to use an intrinsic value based

no stock option grants for Keystone in Fiscal 1997.

method which generally does not result in a compensation cost. The

The fair value of each option grant was estimated on the date of

Company has decided to continue to use the intrinsic value based

grant using the Black-Scholes option-pricing model. The following

method and does not recognize compensation expense for the

weighted average assumptions were used for Fiscal 1999:

issuance of options with an exercise price equal to or greater than the
Tyco

market price at the time of grant. Had the fair value based method been adopted consistent with the provisions of SFAS 123, the Company’s pro forma net income (loss) and pro forma net income (loss) per common share for Fiscal 1999, Fiscal 1998 and Fiscal 1997 would

Expected stock price volatility
Risk free interest rate
Expected annual dividend yield per share
Expected life of options

AMP

30%
5.15%
$0.05
4.2 years

27%
5.07%
1.25%
6.5 years

have been as follows:
The following weighted average assumptions were used for Fis1999

Net income (loss) — pro forma
(in millions)
Net income (loss) per common share — pro forma
Basic
Diluted

1998

1997

$821.6

$1,063.3

$(428.7)

0.50
0.49

0.67
0.66

(0.29)
(0.29)

cal 1998:
Tyco

Expected stock price volatility Risk free interest rate
Expected annual dividend yield per share
Expected life of options

USSC

AMP

22%
5.62%

39%
5.40%

27%
5.50%

$0.05
5 years

$0.11
4.2 years

1.25%
6.5 years

53

The following weighted average assumptions were used for Fiscal 1997:

Tyco

Expected stock price volatility
Risk free interest rate
Expected annual dividend yield per share
Expected life of options

Former
Tyco

Inbrand

USSC

AMP

22%
6.07%
$0.05
5 years

22%
6.34%
$0.05
5 years

55%
6.26%
—
6.4 years

34%
6.45%
$0.11
3.8 years

25%
6.49%
1.25%
6.5 years

The effects of applying SFAS 123 in this pro forma disclosure are

sold approximately 5.2 million common shares to the Company at the

not indicative of what the effects may be in future years. SFAS 123

shares’ then fair market value. The executives used the after-tax pro-

does not apply to awards prior to 1995 and additional awards in future

ceeds from this sale primarily to repay loans that the Company had

years are anticipated.

made to the executives for the payment of taxes that were due on the vesting of grants to the executives of shares of restricted stock.

Stock Warrants
During 1999 the Company had outstanding warrants to purchase com-

Dividends

mon stock at per share exercise prices of $1.49 (the “A Warrants”) and

Tyco has paid a quarterly cash dividend of $0.0125 per common share

$1.99 (the “B Warrants”), respectively (together, the “Warrants”). The

since July 1997. Prior to the merger with ADT, Former Tyco paid a

Warrants expired on July 7, 1999, at which time 6,960 A Warrants and

quarterly cash dividend of $0.0125 in Fiscal 1997. ADT paid no divi-

4,638 B Warrants remaining outstanding were forfeited. During Fiscal

dends on its common shares in Fiscal 1997. USSC paid quarterly div-

1999, 175,464 A Warrants and 128,494 B Warrants were exercised.

idends of $0.04 per share in Fiscal 1998 and Fiscal 1997. AMP paid

During Fiscal 1998, 62,794 A Warrants and 29,078 B Warrants were

dividends of $0.27 per share in the first two quarters of Fiscal 1999,

exercised. During Fiscal 1997, 73,064 A Warrants and 50,000 B War-

$0.26 per share in the first quarter of Fiscal 1998, $0.27 per share in

rants were exercised.

the last three quarters of Fiscal 1998 and $0.26 per share in each of

In July 1996, as part of an agreement to combine with Republic

the three quarters in Fiscal 1997.

Industries, Inc. (“Republic”), ADT granted to Republic a warrant (the
“Republic Warrant”) to acquire 28,879,800 common shares of the

11. Comprehensive Income

Company at an exercise price of $10.39 per common share. Following termination of the agreement to combine with Republic, the

During the first quarter of Fiscal 1999, the Company adopted State-

Republic Warrant vested and was exercisable by Republic in the six

ment of Financial Accounting Standards (“SFAS”) No. 130, “Reporting

month period commencing September 27, 1996. In March 1997, the

Comprehensive Income.” SFAS No. 130 establishes standards for the

Republic Warrant was exercised by Republic, and the Company

reporting and display of comprehensive income (loss) and its compo-

received $300 million in cash.

nents in financial statements. The purpose of reporting comprehensive income (loss) is to report a measure of all changes in equity, other

Treasury Shares

than transactions with shareholders. Total comprehensive income

From time to time the Company, through its subsidiaries, purchases

(loss) is included in the Consolidated Statements of Shareholders’

shares in the open market to satisfy certain stock-based compen-

Equity, and the components of accumulated other comprehensive

sation arrangements. Such treasury shares are recorded at cost in the

income (loss) are as follows:

Consolidated Balance Sheets. During Fiscal 1998, certain executives

(in millions)

Balance at December 31, 1996
Current period change, gross
Income tax benefit
Balance at September 30, 1997
Current period change, gross
Income tax benefit
Balance at September 30, 1998
Current period change, gross
Income tax benefit (expense)
Balance at September 30, 1999

Currency
Translation
Items

$

66.3
(230.3)
26.9
(137.1)
(45.0)
8.3
(173.8)
(277.8)
19.5
$(432.1)

Unrealized
Gain (Loss) on Securities

$

8.9
1.2
0.7
10.8
(21.5)
5.9
(4.8)
18.6
(6.0)
$ 7.8

Minimum
Pension
Liability

$ (2.4)
(17.0)
8.8
(10.6)
(24.6)
9.9
(25.3)
5.2
(5.7)
$(25.8)

Accumulated
Other
Comprehensive
Income (Loss)

$

72.8
(246.1)
36.4
(136.9)
(91.1)
24.1
(203.9)
(254.0)
7.8
$(450.1)

Certain prior year amounts within shareholders’ equity have been reclassified as accumulated other comprehensive income (loss) to comply with the reporting requirements of SFAS No. 130.

54

12. Charge for the Impairment of
Long-Lived Assets

The Healthcare and Specialty Products segment recorded a charge of $76.0 million in Fiscal 1999 primarily relating to the writedown of property, plant and equipment, principally administrative facil-

Charges for the impairment of long-lived assets are as follows:

ities, associated with the consolidation of facilities in USSC’s operations in the United States and Europe as a result of its merger

Year Ended September 30,
(in millions)

Telecommunications and
Electronics
Healthcare and Specialty
Products
Fire and Security Services
Flow Control Products

Nine Months
Ended
September 30,
1997

1999

1998

$259.0

$—

$

76.0
—
—
$335.0

—
—
—
$—

—
118.8
29.6
$148.4

—

with the Company.

1997 Charges
The Fire and Security Services segment recorded a charge of
$118.8 million in Fiscal 1997, which includes $98.8 million related to subscriber security systems installed at customers’ premises in the
United States and Canada, determined following a review of the carrying value of the assets. It also includes an impairment in the carrying value of goodwill of $20.0 million resulting from the combination of

Effective January 1, 1996, the Company adopted Statement of

ADT’s electronic security business with that of Former Tyco.

Financial Accounting Standards No. 121, “Accounting for the Impair-

The Flow Control Products segment recorded a charge of

ment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of”

$29.6 million in Fiscal 1997 reflecting an impairment in the carrying

(“SFAS 121”). SFAS 121 requires the recoverability of the carrying

value of goodwill resulting from the combination of Keystone’s valve

value of long-lived assets, primarily property, plant and equipment and

manufacturing and distribution business with that of Former Tyco.

related goodwill and other intangible assets, to be reviewed for impairment whenever events or changes in circumstances indicate that the

13. Extraordinary Items

carrying amount of an asset may not be fully recoverable. Under
SFAS 121 impairment losses are recognized when expected future

The extraordinary item in Fiscal 1999 of $45.7 million, net of tax ben-

cash flows are less than the assets’ carrying value. When indicators of

efit of $18.0 million, primarily relates to the write-off of net unamortized

impairment are present, the carrying values of the assets are evalu-

deferred financing costs related to the Company’s debt tender offers

ated in relation to the operating performance and future undiscounted

(Note 4). The extraordinary item in Fiscal 1998 of $2.4 million, net of

cash flows of the underlying business. The net book value of the

tax benefit of $1.2 million, was the write-off of unamortized deferred

underlying assets is adjusted to fair value if the sum of expected future

financing costs related to the LYONs (Note 4). During Fiscal 1997 the

undiscounted cash flows is less than book value. Fair values are

Company reacquired in the market certain of its long-term debt which

based on quoted market prices and assumptions concerning the

was financed from cash on hand and borrowings under the Company’s

amount and timing of estimated future cash flows and assumed dis-

credit agreements. The extraordinary items in Fiscal 1997 of

count rates, reflecting varying degrees of perceived risk.

$58.3 million, net of tax benefit of $33.0 million, included the loss resulting from the reacquisition of these notes, and the write-off of

1999 Charges

unamortized deferred refinancing costs and other related fees.

The Telecommunications and Electronics segment recorded a charge of $259.0 million in Fiscal 1999, which includes $198.2 million related

14. Cumulative Effect of Accounting Changes

to the write-down of property, plant and equipment, primarily manufacturing and administrative facilities, associated with AMP’s world-

The cumulative effect of accounting changes during Fiscal 1997 of

wide operations and the combination of facilities as a result of its

$15.5 million, net of tax of $7.4 million, related to AMP changing the

merger with the Company. It also includes an impairment in the value

accounting practices used to develop inventory costs, including stan-

of goodwill and other intangibles of $60.8 million resulting from the

dardizing globally the definition of capacity used in determining over-

combination of AMP’s electronics business with that of the Company

head rates and changing its inventory costing methodology to include

and AMP’s existing profit improvement plan.

manufacturing engineering costs in inventory costs.

55

15. Earnings (Loss) Per Common Share
During the first quarter of Fiscal 1998, the Company adopted SFAS No. 128, “Earnings Per Share.” SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share and is substantially similar to the standards issued by the International
Accounting Standards Committee entitled “International Accounting Standards Earnings Per Share.” Prior period earnings per common share data have been restated in accordance with the provisions of this statement.
The reconciliations between basic and diluted earnings (loss) per common share are as follows:
Year Ended
September 30, 1999

(in millions, except per share data)

Income

Shares

$1,031.0
—
3.9

1,641.3
23.3
10.2

$1,034.9

1,674.8

Year Ended
September 30, 1998
Per Share
Amount

Nine Months Ended
September 30, 1997

Per Share
Amount

Loss

Shares

Per Share
Amount

Income

Shares

$0.63

$1,168.6
—
7.2

1,583.4
20.9
20.4

$0.74

$(348.5)
—
—

1,476.7
—
—

$(0.24)

$0.62

$1,175.8

1,624.7

$0.72

$(348.5)

1,476.7

$(0.24)

Basic Income (Loss) Per
Common Share:
Income (loss) before extraordinary items and cumulative effect of accounting changes
Stock options and warrants
Exchange of LYONs debt

Diluted Income (Loss) Per
Common Share:
Income (loss) before extraordinary items and cumulative effect of accounting changes plus assumed conversions

The computation of diluted income per common share in Fiscal 1999 and Fiscal 1998 excludes the effect of the assumed exercise of approximately 3.1 million and 23.8 million stock options, respectively, that were outstanding as of September 30, 1999 and 1998, because the effect would be anti-dilutive. The effect on diluted loss per common share in Fiscal 1997 resulting from the assumed exercise of all outstanding stock options and warrants and the exchange of outstanding LYONs is anti-dilutive.

16. Merger, Restructuring and Other Non-Recurring Charges
Merger, restructuring and other non-recurring charges are as follows:

Year Ended September 30,
(in millions)

1999

$ 841.8(1)
431.4
(11.5)
—
$ 1,261.7

Telecommunications and Electronics
Healthcare and Specialty Products
Fire and Security Services
Flow Control Products

1998

$ 164.4
92.5
—
—
$ 256.9

Nine Months
Ended
September 30,
1997

$

—
161.4
530.3
256.2
$ 947.9

(1) Includes $78.9 million related to the write-down of inventory which is included in cost of sales.

1999 Charges
The Telecommunications and Electronics segment recorded merger, restructuring and other non-recurring charges of $841.8 million primarily related to the merger with AMP and costs associated with AMP’s profit improvement plan. The following table provides information about these charges: Severance

($ in millions)

Fiscal 1999 charges
Fiscal 1999 activity
Ending balance at September 30, 1999

56

Number of
Employees

16,139
(8,410)
7,729

Facilities

Reserve

$ 433.7
(359.2)
$ 74.5

Number of
Facilities

87
(45)
42

Other

Reserve

Reserve

$171.2
(75.4)
$ 95.8

$ 236.9
(129.3)
$ 107.6

Total

$ 841.8
(563.9)
$ 277.9

The cost of announced workforce reductions of $433.7 million

merger of $9.6 million; a credit of $50.0 million related to a litigation

includes the elimination of 8,585 positions in the United States, 4,216

settlement with AlliedSignal Inc. (Note 26); and other costs of $130.5

positions in Europe, 2,019 positions in the Asia-Pacific region and

million relating to the consolidation of certain product lines and other

1,319 positions in Canada and Latin America, consisting primarily of

non-recurring changes related to the AMP merger.

manufacturing and distribution, administrative, research and develop-

The remaining balance at September 30, 1999 of $277.9 million

ment and sales and marketing personnel. Included in the severance

consists of $232.0 million in other current liabilities and $45.9 million

charges of $433.7 million are enhanced pension and other post-retire-

in other non-current liabilities. The Company currently anticipates that

ment benefit costs of $136.2 million provided to terminated employ-

the restructuring and other non-recurring activities to which all of these

ees. The cost of facility closures of $171.2 million includes the

charges relate will be substantially completed within Fiscal 2000,

shut-down and consolidation of 60 facilities in the United States, 16

except for certain long-term contractual obligations.

facilities in Europe, 6 facilities in the Asia-Pacific region and 5 facilities

The Healthcare and Specialty Products segment recorded

in Canada and Latin America, consisting primarily of manufacturing

merger, restructuring and other non-recurring charges of $431.4 mil-

plants, distribution centers, administrative buildings, research and

lion, consisting of a $434.9 million charge primarily related to the

development facilities and sales offices. At September 30, 1999, 8,410

merger with USSC and a $3.5 million credit representing a revision of

employees had been terminated and 45 facilities had been shut down.

estimates related to Tyco’s 1997 restructuring/non-recurring accruals

The other charges of $236.9 million consist of transaction costs

discussed below. The following table provides information about these

of $67.9 million for legal, printing, accounting, financial advisory ser-

charges:

vices and other direct expenses related to the AMP merger; $78.9 million related to the write-down of inventory used in AMP’s operations

Sever
Facili

ance

which is included in cost of sales; lease termination costs following the ties Other

($ in millions)

Fiscal 1999 charges
Fiscal 1999 activity
Ending balance at September 30, 1999

Number of
Employees

1,467
(1,282)
185

Reserve

$124.8
(99.3)
$ 25.5

Number of
Facilities

45
(20)
25

Reserve

Reserve

$ 51.8
(18.3)
$ 33.5

$ 258.3
(217.6)
$ 40.7

Total

$ 434.9
(335.2)
$ 99.7

The cost of announced workforce reductions of $124.8 million

The other charges of $258.3 million consist of transaction costs

includes the elimination of 932 positions in the United States, 470 posi-

of $53.3 million for legal, printing, accounting, financial advisory ser-

tions in Europe, 34 positions in Canada and Latin America and 31 posi-

vices and other direct expenses related to the USSC merger, lease ter-

tions in the Asia-Pacific region, consisting primarily of manufacturing

mination costs following the merger of $156.8 million and other costs

and distribution, sales and marketing, administrative and research

of $48.2 million relating to the consolidation of certain product lines

and development personnel. The cost of facility closures of $51.8 mil-

and other non-recurring charges primarily related to the USSC

lion includes the shut-down and consolidation of 25 facilities in

merger.

Europe, 9 facilities in the United States, 8 facilities in the Asia-Pacific

The remaining balance at September 30, 1999 of $99.7 million is

region and 3 facilities in Canada and Latin America, consisting pri-

included in other current liabilities. The Company currently anticipates

marily of manufacturing plants, distribution centers, sales offices,

that the restructuring and other non-recurring activities to which all of

administrative buildings and research and development facilities. At

these charges relate will be substantially completed within Fiscal

September 30, 1999, 1,282 employees had been terminated and 20

2000, except for certain long-term contractual obligations.

facilities had been shut down.

57

The Company recorded a credit of $15.0 million, including

Former Tyco. These costs consist of the cost of workforce reductions

$11.5 million in the Fire and Security Services segment and $3.5 mil-

of $130.3 million including the elimination of approximately 4,000 posi-

lion in the Healthcare and Specialty Products segment referred to

tions; the costs of combining certain facilities of $194.2 million involv-

above, representing a revision of estimates related to Tyco’s 1997

ing the closure of 18 manufacturing facilities and the consolidation of

restructuring and other non-recurring accruals. Most of the actions

sales and service offices, electronic security system monitoring cen-

under Tyco’s 1997 restructuring and other non-recurring plans are

ters, warehouses and other locations; the costs of disposing of excess

completed or near completion and have resulted in total estimated

equipment and other assets of $133.5 million; and other costs of

costs being less than originally anticipated.

$220.0 million relating to the consolidation of certain product lines, the satisfaction of certain liabilities and other non-recurring charges.

1998 Charges

Approximately $34.6 million of accrued merger and restructuring costs

During the fourth quarter of Fiscal 1998, AMP recorded charges of

are included in other current liabilities and $41.1 million in other non-

$185.8 million associated with its profit improvement plan, which

current liabilities at September 30, 1999. These restructurings are

includes the reduction of support staff throughout all its business units

substantially complete. The remaining accruals primarily relate to

and the consolidation of manufacturing plants and other facilities, in

future payments on non-cancelable lease obligations.

addition to certain sales growth initiatives. These charges include the

During Fiscal 1997, USSC recorded restructuring charges of

cost of staff reductions of $172.1 million involving the voluntary retire-

$5.8 million related primarily to employee severance costs associated

ment and involuntary termination of approximately 2,700 staff support

with the consolidation of manufacturing and certain marketing opera-

personnel and 700 direct manufacturing employees, and the cost of

tions, which was substantially completed during Fiscal 1998. USSC

consolidation of certain facilities of $13.7 million relating to six plant

also recorded charges of $24.3 million during Fiscal 1997 for litigation

and facility closures and consolidations. At September 30, 1999, these

and other related costs relative to patent infringement litigation, which

restructuring activities were substantially completed. See Note 18 for

was settled as of September 30, 1999.

discussion of the voluntary early retirement program.
During the first quarter of Fiscal 1998, AMP recorded a credit of

17. Commitments and Contingencies

$21.4 million to merger, restructuring and other non-recurring charges representing a revision of estimates related to its 1996 restructuring

The Company occupies certain facilities under leases that expire at

activities, which were completed in Fiscal 1998.

various dates through the year 2030. Rental expense under these

During the fourth quarter of Fiscal 1998, USSC recorded certain

leases and leases for equipment was $381.0 million, $331.7 million

charges of $80.5 million. These charges include $70.9 million of costs

and $242.9 million for Fiscal 1999, Fiscal 1998 and Fiscal 1997,

to exit certain businesses representing the write down of assets from

respectively. At September 30, 1999, the minimum lease payment

earlier purchases of technology that had minimal commercial applica-

obligations under noncancelable operating leases were as follows:

tion and the adjustment to net realizable value of certain assets. In

$405.3 million in Fiscal 2000, $211.6 million in fiscal 2001, $151.3 mil-

addition, merger costs of $9.6 million were recorded that represent

lion in fiscal 2002, $117.3 million in fiscal 2003, $82.6 million in fiscal

legal and insurance costs related to the merger consummated in the

2004 and an aggregate of $347.9 million in fiscal years 2005 through

first quarter of Fiscal 1999. During the first quarter of Fiscal 1998,

2030.

USSC recorded restructuring charges of $12.0 million related to

In the normal course of business, the Company is liable for con-

employee severance costs, facility disposals and asset write-downs

tract completion and product performance. In the opinion of manage-

as part of USSC’s cost cutting program. USSC substantially com-

ment, such obligations will not significantly affect the Company’s

pleted its 1998 restructuring activities during Fiscal 1999.

financial position or results of operations.

1997 Charges

cleanup related to environmental remediation matters at a number of

In connection with the mergers consummated in Fiscal 1997 (Note 2),

sites. The ultimate cost of site cleanup is difficult to predict given the

the Company recorded merger, restructuring and other non-recurring

uncertainties regarding the extent of the required cleanup, the inter-

charges of $917.8 million. These charges include transaction costs of

pretation of applicable laws and regulations and alternative cleanup

$239.8 million for legal, accounting, financial advisory services, sev-

methods. Based upon the Company’s experience with environmental

erance and other direct costs related to the mergers. Also included are

remediation matters, the Company has concluded that there is at least

costs required to combine ADT’s electronic security business, Key-

a reasonable possibility that remedial costs will be incurred with

stone’s valve manufacturing and distribution business and Inbrand’s

respect to these sites in an aggregate amount in the range of

disposable medical products business with the related businesses of

$35.6 million to $124.8 million. At September 30, 1999, the Company

The Company is involved in various stages of investigation and

has concluded that the most probable amount that will be incurred

58

within this range is $53.7 million, $29.4 million of such amount is

Voluntary Early Retirement Programs

included in accrued expenses and other current liabilities and

In the fourth quarter of Fiscal 1998, AMP offered enhanced retirement

$24.3 million is included in other long-term liabilities in the Consoli-

benefits to targeted groups of employees. The cost of these benefits

dated Balance Sheet. Based upon information available to the Com-

totaled $138.3 million and was recorded as part of AMP’s fourth quar-

pany, at those sites where there has been an allocation of the liability

ter restructuring charge. This amount has not been included in the

for cleanup costs among a number of parties, including the Company,

determination of net periodic pension cost presented below. The net

and such liability could be joint and several, management believes it

periodic pension (income) cost for all U.S. and non-U.S. defined ben-

is probable that other responsible parties will fully pay the cost allo-

efit pension plans includes the following components:

cated to them, except with respect to one site for which the Company
U.S. Plans

has assumed that one of the identified responsible parties will be unable to pay the cost apportioned to it and that such party’s cost will

(in millions)

be reapportioned among the remaining responsible parties. In view of

Service cost
$ 37.8
Interest cost
86.2
Expected return on plan assets(96.1) (109.9)
Recognition of initial net asset
(0.9)
Amortization of prior service cost
3.0
Recognized net actuarial gain
(0.6)
Curtailment/settlement gain
(102.6)
Net periodic benefit (income) cost
$ (73.2)

the Company’s financial position and reserves for environmental matters of $53.7 million, the Company has concluded that its payment of such estimated amounts will not have a material effect on its financial position, results of operations or liquidity.
The Company is a defendant in a number of other pending legal proceedings incidental to present and former operations, acquisitions

1999

1998

$

44.7
93.3
(75.6)
(1.9)
3.2
(7.1)
(48.6)
$ (26.3)

1997

$ 29.5
64.8
(1.2)
1.4
(0.9)
—
$ 18.0

and dispositions. The Company does not expect the outcome of these
Non-U.S. Plans

proceedings, either individually or in the aggregate, to have a material adverse effect on its financial position, results of operations or liquidity.

18. Retirement Plans
The Company adopted SFAS No. 132, “Employers’ Disclosures about
Pensions and other Postretirement Benefits,” which revises financial statement disclosure requirements for pension and other postretire-

(in millions)

1999

Service cost
Interest cost
Expected return on plan assets(56.8)
Recognition of initial net obligation
Amortization of prior service cost
Recognized net actuarial loss (gain)
Curtailment/settlement loss
Net periodic benefit cost

$ 47.4
48.0
(53.6)
0.1
0.6
1.1
1.2
$ 41.6

1998

$ 35.6
43.1
(39.3)
—
0.6
(0.8)
6.7
$ 31.6

1997

$ 25.8
32.3
0.1
(0.2)
0.6
—
$ 19.3

ment benefit plans but does not change the measurement or recognition of those plans.

The curtailment/settlement gains in Fiscal 1999 relate primarily to the termination of employees at AMP and the freezing of AMP’s pen-

Defined Benefit Pension Plans

sion plan. The curtailment/settlement gains in Fiscal 1998 relate pri-

The Company has a number of noncontributory and contributory

marily

defined benefit retirement plans covering certain of its U.S. and non-

curtailment/settlement gains have been recorded in selling, general

U.S. employees, designed in accordance with conditions and prac-

and administrative expenses.

to

the

freezing

of

the

ADT

pension

plan.

These

tices in the countries concerned. Contributions are based on periodic actuarial valuations which use the projected unit credit method of calculation and are charged to the consolidated statements of operations on a systematic basis over the expected average remaining service lives of current employees. The net pension expense is assessed in accordance with the advice of professionally qualified actuaries in the countries concerned or is based on subsequent formal reviews for the purpose. The Company’s funding policy is to make annual contributions to the extent such contributions are tax deductible as actuarially determined. The benefits under the defined benefit plans are based on years of service and compensation.

59

The net pension cost recognized at September 30, 1999 and 1998 for all U.S. and non-U.S. defined benefit plans is as follows:
U.S. Plans
(in millions)

1999

Non-U.S. Plans
1998

1999

1998

Change in benefit obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Employee contributions
Plan amendments
Actuarial (gain)/loss
Benefits paid
Acquisitions
Divestitures
Plan curtailments
Plan settlements
Special termination benefits
Currency translation adjustment
Benefit obligation at end of year

$1,191.8
35.8
86.2
—
8.3
(74.4)
(68.8)
190.9
(69.8)
(136.3)
(25.7)
4.5
—
$1,142.5

$1,263.2
43.6
92.5
—
9.5
77.1
(374.4)
5.1
—
(28.7)
(9.8)
113.7
—
$1,191.8

$ 835.4
45.7
48.0
8.7
0.8
28.1
(49.2)
404.9
(5.9)
(10.7)
(2.4)
9.2
27.3
$1,339.9

$ 717.4
34.6
43.1
7.5
1.1
107.6
(39.8)
5.3
—
(30.9)
(33.8)
17.7
5.6
$ 835.4

Change in plan assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Employee contributions
Acquisitions
Divestitures
Plan settlements
Benefits paid
Administrative expenses paid
Currency translation adjustment
Fair value of plan assets at end of year

$ 997.4
169.3
24.7
—
155.8
(84.2)
(25.7)
(68.9)
(2.6)
—
$1,165.8

$1,330.9
28.6
21.0
—
4.3
—
(9.8)
(374.4)
(3.2)
—
$ 997.4

$ 700.5
86.0
38.8
8.8
376.9
(7.5)
(2.4)
(49.2)
(1.8)
25.1
$1,175.2

$ 697.8
32.6
30.8
7.5
2.0
—
(33.9)
(39.8)
(1.4)
4.9
$ 700.5

$ (194.4)
(7.5)
26.3
(5.6)
$ (181.2)

$ (164.7)
89.4
6.0
(4.5)
$ (73.8)

$(134.9)
75.6
5.7
(3.1)
$ (56.7)

$ 106.8
(222.1)
6.3
35.2
$ (73.8)

$

Funded status
Unrecognized net actuarial (gain)/loss
Unrecognized prior service cost
Unrecognized transition asset
Net amount recognized
Amounts recognized in the statement of financial position
Prepaid benefit cost
Accrued benefit liability
Intangible asset
Accumulated other comprehensive income
Net amount recognized

$

23.3
(128.8)
6.7
(5.1)
$ (103.9)
$

29.2
(141.7)
1.0
7.6
$ (103.9)

$

26.7
(234.1)
8.8
17.4
$ (181.2)

U.S. Plans

53.8
(148.4)
7.3
30.6
$ (56.7)

Non-U.S. Plans

Weighted-average assumptions as of September 30,

1999

1998

1999

1998

Discount rate
Expected return on plan assets
Rate of compensation increase

7.75%
8.60
4.30

6.75%
9.30
4.00

5.65%
7.39
4.03

5.47%
8.30
3.26

60

The projected benefit obligation, accumulated benefit obligation,

AMP provides post-retirement health care coverage to qualifying

and fair value of plan assets for U.S. pension plans with accumulated

U.S. retirees. As a result of the merger with Tyco, a $13.7 million

benefit obligations in excess of plan assets were $186.7 million,

adjustment was recorded to conform AMP’s accounting method for

$173.4 million and $130.7 million, respectively, as of September 30,

post-retirement benefits to Tyco’s method, regarding the initial recog-

1999 and $767.4 million, $643.7 million and $558.0 million, respec-

nition of such benefits upon adoption of SFAS No. 106 “Employers’

tively, as of September 30, 1998.

Accounting for Postretirement Benefits Other Than Pensions.”

The projected benefit obligation, accumulated benefit obligation,

In the second quarter of Fiscal 1999, AMP offered enhanced

and fair value of plan assets for non-U.S. pension plans with accumu-

post-retirement benefits to terminated employees totaling $16.0 mil-

lated benefit obligations in excess of plan assets were $563.5 million,

lion, which was recorded as part of AMP’s second quarter restructur-

$517.1 million and $314.6 million, respectively, as of September 30,

ing charge. This amount has not been included in the determination of

1999 and $430.9 million, $396.0 million and $265.4 million, respec-

net periodic benefit cost presented below.

tively, as of September 30, 1998.
The Company also participates in a number of multi-employer

Net periodic post-retirement benefit cost reflects the following components: defined benefit plans on behalf of certain employees. Pension expense related to multi-employer plans was $7.5 million, $1.7 million

Year Ended September 30,

and $1.5 million for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.

Defined Contribution Retirement Plans
The Company maintains several defined contribution retirement plans, which include 401(k) matching programs, as well as qualified and nonqualified profit sharing and stock bonus retirement plans. Pension expense for the defined contribution plans is computed as a percentage of participants’ compensation and was $73.2 million,
$57.1 million and $43.1 million for Fiscal 1999, Fiscal 1998 and Fiscal

(in millions)

Service cost (with interest)
Interest cost
Amortization of prior service cost
Amortization of net (gain) loss
Curtailment gain
Net periodic post-retirement benefit cost

Nine Months
Ended
September 30,
1997

1999

1998

$ 3.5
12.0
(2.2)
(0.7)
(5.8)

$ 3.2
9.5
(2.5)
(1.4)
(8.8)

$ 2.0
7.0
(3.2)
0.1
—

$ 6.8

$

$ 5.9

—

The components of the accrued post-retirement benefit obligation, all of which are unfunded, are as follows:

1997, respectively. The Company also maintains an unfunded SupSeptember 30,

plemental Executive Retirement Plan (“SERP”). This plan is nonqualified and restores the employer match that certain employees lose due

(in millions)

to IRS limits on eligible compensation under the defined contribution

Benefit obligation at beginning of year
Service cost
Interest cost
Amendments
Actuarial (gain) loss
Acquisition
Curtailment gain
Special termination loss
Expected net benefits paid
Currency fluctuation loss (gain)
Benefit obligation at end of year

$ 174.1
3.5
12.0
4.5
(4.1)
11.2
(15.3)
—
(17.8)
0.1
$ 168.2

$ 157.1
3.2
10.0
(2.6)
8.8
—
—
7.3
(9.4)
(0.3)
$ 174.1

Funded status
Unrecognized net (gain) loss
Unrecognized prior service cost
Accrued postretirement benefit cost

$(168.2)
(24.5)
(13.8)
$(206.5)

$(174.1)
5.5
(21.0)
$(189.6)

plans. Expense related to the SERP was $6.9 million, $3.7 million and
$2.2 million in Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively.

Post-retirement Benefit Plans
The Company generally does not provide post-retirement benefits other than pensions for its employees. Certain of Former Tyco’s acquired operations provide these benefits to employees who were eligible at the date of acquisition. In addition, ADT’s electronic security services operation in the United States sponsors an unfunded defined benefit post-retirement plan which covers both salaried and non-salaried employees and which provides medical and other benefits. This post-retirement health care plan is contributory, with retiree

1999

1998

contributions adjusted annually. The Company recorded a gain of
$8.8 million related to the curtailment of this plan in Fiscal 1998 which was included in selling, general and administrative expenses.

61

For measurement purposes, in Fiscal 1999, a 8.5% composite

As at and for the
Year Ended September 30,

annual rate of increase in the per capita cost of covered health care benefits was assumed. The rate was assumed to decrease gradually

(in millions)

to 4.75% by the year 2008 and remain at that level thereafter. The

Operating income (loss):
Telecommunications and
Electronics
Healthcare and Specialty
Products
Fire and Security Services
Flow Control Products

health care cost trend rate assumption may have a significant effect on the amounts reported. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
1-Percentage- 1-PercentagePoint Increase Point Decrease

(in millions)

Effect on total of service and interest cost components
Effect on postretirement benefit obligation

$0.3
5.9

$(0.3)
(5.2)

The combined weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 7.75% at
September 30, 1999 (6.75% at September 30, 1998).

19. Consolidated Segment Data
The Company has adopted SFAS No. 131, “Disclosures about Seg-

Less: Corporate expenses
Goodwill amortization expense Total Assets:
Telecommunications and
Electronics
Healthcare and Specialty
Products
Fire and Security Services
Flow Control Products
Corporate

ments of an Enterprise and Related Information,” which establishes standards for the way companies report information about operating segments. The Company’s reportable segments are strategic business units that offer different products and services and are managed separately. Segment data has been presented on a basis consistent with how business activities are reported internally to management.
Prior year amounts have been reclassified to conform with SFAS No.
131. The primary change relates to certain Flow Control Products

Depreciation and
Amortization:
Telecommunications and
Electronics
Healthcare and Specialty
Products
Fire and Security Services
Flow Control Products
Corporate

business lines which were previously included in the Telecommunications and Electronics and Fire and Security Services segments. Certain corporate expenses were allocated to each operating segment’s operating income (loss), based generally on net sales and other factors. For additional information, including a description of the products and services included in each segment, see Note 1.
Selected information by industry segment is presented below.

Year Ended September 30,
(in millions)

1999

1998

Nine Months
Ended
September 30,
1997

Capital Expenditures:
Telecommunications and
Electronics
Healthcare and Specialty
Products
Fire and Security Services
Flow Control Products
Corporate

1999

$

73.2(1)

1998

$

878.6(2)
918.5(3)
605.5
2,475.8
(122.9)

Nine Months
Ended
September 30,
1997

671.4(4)

$

389.3(5)
630.6
456.9
2,148.2
(68.3)

(216.1)
$ 2,136.8

(131.8)
$ 1,948.1

$10,728.2

7,256.8
6,606.2
2,960.3
255.5
$23,440.7

$

$

308.1(7)
(332.5)(8)
1.3(9)
240.6
(44.8)

$ 6,361.9

8,699.7
8,224.1
3,858.6
851.0
$32,361.6

263.7(6)

468.4

466.5

$

(70.0)
125.8

$

355.2

287.6
417.2
130.0
8.0
$ 1,311.2

262.5
269.8
120.0
18.9
$ 1,137.7

$

130.1
205.5
63.8
19.6
774.2

$

$

$

339.2

$

160.8
304.8
58.3
3.5
866.6

488.5

520.2

202.9
235.9(10)
746.3
491.4
135.1
92.6
26.7
10.4
$ 1,632.5
$ 1,317.5

(1) Includes merger, restructuring and other non-recurring charges of $841.8 million, of which $78.9 million is included in cost of sales, and charges for the impairment of longlived assets of $259.0 million primarily related to the merger with AMP and AMP's profit

Net sales:
Telecommunications and
Electronics
Healthcare and Specialty
Products
Fire and Security Services
Flow Control Products

improvement plan.

$ 7,711.2

$ 7,067.3

$ 4,842.5

5,742.7
5,534.0
3,508.6
$22,496.5

4,672.4
4,393.5
2,928.5
$19,061.7

2,869.9
2,892.2
2,137.9
$12,742.5

(2) Includes merger, restructuring and other non-recurring charges of $434.9 million and charges for the impairment of long-lived assets of $76.0 million, primarily related to the merger with USSC, and a credit of $3.5 million representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals.
(3) Includes a credit of $11.5 million representing a revision of estimates related to Tyco's
1997 restructuring and other non-recurring accruals.
(4) Includes restructuring and other non-recurring charges recorded by AMP of $185.8 million related to its profit improvement plan and a credit of $21.4 million to restructuring charges representing a revision of estimates related to AMP's 1996 restructuring activities. (5) Includes non-recurring charges of $80.5 million primarily related to business exit costs and restructuring charges of $12.0 million related to USSC's operations.
(6) Includes a charge of $361.0 million related to the write-off of purchased research and development costs in connection with an acquisition.
(7) Includes charges of $131.3 million related to merger, restructuring and other nonrecurring charges in connection with the Inbrand merger and $24.3 million for litigation and other related costs and $5.8 million for restructuring charges in USSC's operations.

62

(8) Includes charges of $530.3 million related to merger, restructuring and other non-

22. Supplementary Income Statement Information

recurring charges and $118.8 million related to the impairment of long-lived assets in connection with the merger of ADT and Former Tyco.

Selected supplementary income statement information is presented

(9) Includes charges of $256.2 million related to merger, restructuring and other nonrecurring charges and $29.6 million related to the impairment of long-lived assets in con-

below.

nection with the Keystone merger.
(10) Excludes $234.0 million related to the purchase of leased property in connection with the merger with USSC.

Year Ended September 30,
(in millions)

1999

1998

$450.5
$133.1

Nine Months
Ended
September 30,
1997

$511.4
$110.8

20. Consolidated Geographic Data

Research and development(1)
Advertising

Selected information by geographic area is presented below.

(1) The decrease in research and development expenses during Fiscal 1999 as compared

As at and for the
Year Ended September 30,
(in millions)

Net sales:
Americas (primarily U.S.)
Europe
Asia-Pacific

Total Assets:
Americas (primarily U.S.)
Europe
Asia-Pacific
Corporate

1999

1998

$14,409.0
5,362.4
2,725.1
$22,496.5

$12,518.4
4,431.4
2,111.9
$19,061.7

$21,433.5
6,963.7
3,113.4
851.0
$32,361.6

$326.0
$ 82.2

to Fiscal 1998 was due to the exiting of certain research projects of non-core businesses

Nine Months
Ended
September 30,
1997

$16,465.0
4,874.0
1,846.2
255.5
$23,440.7

at USSC, as well as the consolidation or closing of selected research and development facilities of AMP and USSC in connection with their integration into the Company during
Fiscal 1999.

23. Comparative Results (Unaudited)
$ 8,127.7
2,995.5
1,619.3
$12,742.5

The change in year end resulted in Fiscal 1997 covering the nine month period ended September 30, 1997. The following unaudited financial information for the twelve months ended September 30, 1997 is presented to provide comparative results to those for Fiscal 1998 included in the Consolidated Statement of Operations.

(in millions, except per share amounts)

21. Supplementary Balance Sheet Information
Selected supplementary balance sheet information is presented below. September 30,
(in millions)

Inventories:
Purchased materials and manufactured parts
Work in process
Finished goods

Property, Plant and Equipment:
Land
Buildings
Subscriber systems
Machinery and equipment
Leasehold improvements
Construction in progress
Accumulated depreciation
Accrued payroll and payroll related costs
(including bonuses)

1999

1998

$

719.1
774.2
1,355.8
$ 2,849.1

681.4
729.8
1,198.8
$ 2,610.0

$

386.8
2,414.0
2,703.3
7,005.3
224.4
573.0
(5,984.4)
$ 7,322.4

$

$

$

723.5

$

272.0
2,013.0
2,171.5
6,125.5
264.5
499.3
(5,241.5)
$ 6,104.3

Net sales
Gross profit
Operating income
Income taxes
Loss before extraordinary items and cumulative effect of accounting changes
Extraordinary items, net of taxes
Cumulative effect of accounting changes, net of taxes
Net loss
Basic loss per common share:
Loss before extraordinary items and cumulative effect of accounting changes
Extraordinary items, net of taxes
Cumulative effect of accounting changes, net of taxes
Net loss per common share
Diluted loss per common share:
Loss before extraordinary items and cumulative effect of accounting changes
Extraordinary items, net of taxes
Cumulative effect of accounting changes, net of taxes
Net loss per common share

Twelve Months
Ended
September 30,
1997

$16,657.3
5,383.7
131.0
(379.5)
(300.5)
(60.9)
15.5
(345.9)

$

(.21)
(.04)
.01
(.24)

$

(.21)
(.04)
.01
(.24)

526.2

63

24. Summarized Quarterly Financial Data (Unaudited)
Summarized quarterly financial data is presented below.
Year Ended September 30, 1999
1st Qtr.(1)

(in millions, except per share data)

Net sales
Gross profit
(Loss) income before extraordinary items
Net (loss) income(6)
Basic (loss) income per common share:
(Loss) income before extraordinary items
Net (loss) income per common share
Diluted (loss) income per common share:
(Loss) income before extraordinary items
Net (loss) income per common share

$5,213.5
1,811.9
(107.7)
(110.1)

2nd Qtr.(2)

3rd Qtr.(3)

4th Qtr.

$5,238.7
1,850.9
162.0
119.5

$5,819.8
2,047.1
194.0
193.5

$6,224.5
2,381.0
782.7
782.4

$

(0.07)
(0.07)

$

0.10
0.07

$

0.12
0.12

$

0.47
0.47

$

(0.07)
(0.07)

$

0.10
0.07

$

0.12
0.12

$

0.46
0.46

Year Ended September 30, 1998
1st Qtr.(4)

(in millions, except per share data)

Net sales
Gross profit
Income (loss) before extraordinary items
Net income (loss)(6)
Basic income (loss) per common share:
Income (loss) before extraordinary items
Net income (loss) per common share
Diluted income (loss) per common share:
Income (loss) before extraordinary items
Net income (loss) per common share

4th Qtr.(5)

2nd Qtr.

3rd Qtr.

$4,438.8
1,504.9
389.3
388.4

$4,561.8
1,546.4
399.8
399.5

$4,948.7
1,646.3
400.1
399.1

$

0.25
0.25

$

0.26
0.26

$

0.25
0.25

$

(0.01)
(0.01)

$

0.25
0.25

$

0.25
0.25

$

0.24
0.24

$

(0.01)
(0.01)

$5,112.4
1,669.3
(20.6)
(20.8)

(1) Includes merger, restructuring and other non-recurring charges of $434.9 million and charges for the impairment of long-lived assets of $76.0 million, primarily related to the merger with USSC, and restructuring and other non-recurring charges of $182.1 million, of which $13.3 million is included in cost of sales, related to AMP's profit improvement plan.
(2) Includes restructuring and other non-recurring charges of $262.3 million, of which $25.0 million is included in cost of sales, and charges for the impairment of long-lived assets of
$67.6 million related to AMP's profit improvement plan.
(3) Includes merger, restructuring and other non-recurring charges of $397.4 million, of which $40.6 million is included in cost of sales, and charges for the impairment of long-lived assets of $191.4 million, related to the merger with AMP and AMP's profit improvement plan. Also includes a credit of $15.0 million representing a revision of estimates related to Tyco's
1997 restructuring and other non-recurring accruals.
(4) Includes charges of $12.0 million for restructuring charges in USSC's operations and a $21.4 million credit to restructuring charges representing a revision of estimates related to
AMP's 1996 restructuring activities.
(5) Includes non-recurring charges of $80.5 million primarily related to business exit costs in USSC's operations and charges of $185.8 million related to AMP's profit improvement plan.
(6) Extraordinary items relate principally to the Company's debt tender offers and the write off of net unamortized deferred refinancing costs relating to the early extinguishment of debt.

64

25. Tyco International Group S.A.

fees in defending against AlliedSignal’s bid, relating primarily to legal, public relations and financial consulting costs. In April 1999, AlliedSig-

Tyco International Group S.A. (“TIG”), a wholly-owned subsidiary of

nal converted its AMP stock into Tyco common shares and reached a

the Company, indirectly owns a substantial portion of the operating

settlement with Tyco and AMP, under which AlliedSignal paid $50 mil-

subsidiaries of the Company. During Fiscal 1999 and Fiscal 1998, TIG

lion to AMP, and all parties released all claims against each other

issued public debt securities (Note 4) which are fully and uncondition-

related to AMP. This amount was recorded as a credit in the merger,

ally guaranteed by the Company. The Company has not included sep-

restructuring and other non-recurring charges line in the Consolidated

arate financial statements and footnotes for TIG because of the full

Statement of Operations for Fiscal 1999. See Note 16.

and unconditional guarantee by the Company and the Company’s

In addition, in September 1998, AMP’s Board of Directors autho-

belief that such information is not material to holders of the debt secu-

rized the establishment of a Flexitrust, a grantor trust, to hold shares

rities. The following presents unaudited consolidated summary finan-

of AMP’s common stock. AMP expected to sell to the Flexitrust an

cial information for TIG and its subsidiaries, as if TIG and its current

aggregate of 25 million authorized but unissued shares of common

organizational structure were in place for all periods presented.

stock. AMP also announced its intention to commence a self-tender offer for 30 million shares of its common stock. AMP estimated that the

September 30,
(in millions)

1998

$ 7,618.4
24,008.4
6,845.1
10,553.9

Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities

$ 6,639.5
12,090.0
5,519.5
6,401.5

Year Ended September 30,
(in millions)

Net sales
Gross profit
Income (loss) before extraordinary items
Net income (loss)(4)

total funds required to complete the self-tender would have been

1999

1999

1998

$16,668.5
6,451.4

Nine Months
Ended
September 30,
1997

$13,535.3
4,800.4

$8,457.8
2,950.7

approximately $1.7 billion, which AMP intended to source from a proposed $2.6 billion credit facility.
In November 1998, AMP announced its intention to merge with
Tyco, and at that time AMP’s Board of Directors rescinded its authorization for a self-tender offer and the establishment of the Flexitrust.
In addition, the debt intended to fund the self-tender was never used.

27. Subsequent Events (Unaudited)
On November 3, 1999, the Company announced that the Board of
Directors had authorized the Company to reacquire up to 20 million of

631.7(1)
586.0

693.9(2)
691.5

(642.2)(3)
(700.5)

(1) Income before extraordinary items in Fiscal 1999 includes a credit of $15.0 million representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals, and merger, restructuring and other non-recurring charges of $434.9 million

its common shares.
On November 22, 1999, the Company consummated its acquisition of AFC Cable Systems, Inc. (“AFC Cable”), a manufacturer of prewired armor cable. AFC Cable shareholders received one Tyco

and charges for the impairment of long-lived assets of $76.0 million, primarily related to

share for each share of AFC Cable. The Company issued approxi-

the USSC merger.

mately 12.8 million common shares in this transaction valued at

(2) Income before extraordinary items in Fiscal 1998 includes non-recurring charges of

approximately $562.6 million. AFC Cable is being integrated within the

$80.5 million and restructuring charges of $12.0 million related to USSC's operations.
(3) Loss before extraordinary items in Fiscal 1997 includes charges related to merger,

Company’s Flow Control Products segment. The Company is account-

restructuring and other non-recurring costs of $816.8 million and impairment of long-lived

ing for the acquisition as a purchase.

assets of $148.4 million, primarily related to the mergers and integration of ADT, Former
Tyco, Keystone and Inbrand. Fiscal 1997 also includes a charge of $361.0 million for the write-off of purchased in-process research and development costs and charges of $24.3

On November 23, 1999, the Company consummated its acquisition of Siemens Electromechanical Components GmbH & Co. KG

million for litigation and other related costs, and $5.8 million for restructuring charges

(“Siemens EC”) from Siemens AG for approximately $1.1 billion in

related to USSC's operations.

cash. Siemens EC, with annual sales of approximately $900.0 million,

(4) Extraordinary items relate principally to the Company's debt tender offers and the write-

is the world market leader for relays and one of the world’s leading

off of net unamortized deferred refinancing costs relating to the early extinguishment of debt.

26. Unsolicited Tender Offer and Defense
In August 1998, AlliedSignal Inc. announced its intention to commence

providers of components to the communications, automotive, consumer and general industry sectors. Siemens EC is being integrated within the Company’s Telecommunications and Electronics segment.
The Company is accounting for the acquisition as a purchase.

an offer to purchase all outstanding shares of AMP’s common stock.
This offer was rejected by the Board of Directors of AMP. AlliedSignal’s offer was then amended twice in September 1998 to reduce the number of shares sought to be purchased. AMP incurred $15.9 million in

65

report of independent accountants
To the Board of Directors and Shareholders of Tyco International Ltd.:
In our opinion, based upon our audits and the reports of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Tyco
International Ltd. and its subsidiaries at September 30, 1999 and 1998, and the results of their operations and their cash flows for the years ended September 30, 1999 and 1998, and the nine months ended September 30, 1997, in conformity with accounting principles generally accepted in the United States. These consolidated financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of AMP
Incorporated, a wholly owned subsidiary, at September 30, 1998, and for the year ended September 30, 1998 and the nine months ended September 30, 1997, which statements reflect total assets constituting 20.1% of consolidated total assets as of September 30, 1998, and net sales constituting 29.0% and 33.6% of consolidated net sales for the year ended September 30, 1998 and the nine months ended September 30,
1997, respectively. We did not audit the financial statements of United States Surgical Corporation, a wholly owned subsidiary, for the nine months ended September 30, 1997, which statements reflect net sales constituting 6.8% of consolidated net sales for the nine months ended
September 30, 1997. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for AMP Incorporated and United States Surgical Corporation, as of and for the periods described above, is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for the opinion expressed above.

PRICEWATERHOUSECOOPERS
Hamilton, Bermuda
October 21, 1999

66

common stock and dividends
The number of registered holders of the Company’s common shares at November 8, 1999 was 32,947.
Tyco common shares are listed and traded on the New York Stock Exchange (“NYSE”), the London Stock Exchange and the Bermuda
Stock Exchange. The following table sets forth the high and low sales prices per share of Tyco common shares as reported in the NYSE Composite Transaction Tape and the dividends paid on Tyco common shares, for the quarterly periods presented below. The price and dividends for Tyco common shares have been restated to reflect two-for-one stock splits distributed on October 22, 1997 and October 21, 1999, both of which were effected in the form of a stock dividend.
Fiscal 1999

Fiscal 1998

Market Price Range
Quarter

First
Second
Third
Fourth

Market Price Range

High

Low

$39.5938
39.9688
47.4063
52.9375

$20.1563
33.7500
35.1875
47.1250

Dividend Per
Common Share(1)

$0.0125
0.0125
0.0125
0.0125
$ 0.05

High

Low

$22.7500
28.7188
31.5313
34.5000

$17.0000
21.1875
25.7188
25.0000

Dividend Per
Common Share(1)

$ 0.0125
0.0125
0.0125
0.0125
$ 0.05

(1) Prior to their mergers with Tyco, USSC paid quarterly dividends of $0.04 per share in Fiscal 1998 and AMP paid dividends of $0.27 per share in the first two quarters of Fiscal 1999,
$0.26 per share in the first quarter of Fiscal 1998 and $0.27 per share in the last three quarters of Fiscal 1998. The payment of dividends by Tyco in the future will depend on business conditions, Tyco’s financial condition and earnings and other factors.

67

directors, of ficers and key management
Directors

Corporate Officers

Key Operating Management

L. Dennis Kozlowski

L. Dennis Kozlowski

Jerry R. Boggess

Chairman of the Board

President

President — Tyco Fire and Security Services

Chief Executive Officer

Michael A. Ashcroft

Diane Creel

Chairman

Mark A. Belnick

Carlisle Holdings Limited

Executive Vice President
Chief Corporate Counsel

Joshua M. Berman

President — Earth Tech

Neil R. Garvey
President — Tyco Telecommunications

Counsel to Kramer Levin

Joshua M. Berman

Naftalis & Frankel LLP

Vice President

Richard S. Bodman

Michael L. Jones

Managing General Partner

Secretary

Juergen W. Gromer
President — Tyco Electronics

Richard J. Meelia
President — Tyco Healthcare

AT&T Ventures

Mark H. Swartz
John F. Fort

Executive Vice President

Stephen B. McDonough

Chief Financial Officer

President — Tyco Plastics and Adhesives

Stephen W. Foss
Chairman and Chief Executive Officer

Robert P. Mead

Foss Manufacturing Company, Inc.

President — Tyco Flow Control

Philip M. Hampton
R.H. Arnold & Co.

Tyco International (US) Inc.
Key Management

James S. Pasman, Jr.

Judith Czelusniak

Co-Managing Director

Senior Vice President

W. Peter Slusser
President

Richard P. Johnson

Slusser Associates, Inc.

Executive Vice President
New Business Development

Frank E. Walsh, Jr.
Chairman

Jeffrey D. Mattfolk

Sandy Hill Foundation

Senior Vice President
Finance

J. Brad McGee
Senior Vice President

Patricia A. Prue
Senior Vice President
Human Resources

Michael A. Robinson
Senior Vice President
Corporate Treasurer

Scott Stevenson
Senior Vice President
Taxes

68

c o r p o r a t e d a ta

C o m pa n y D e s c r i p t i o n

Shareholder Services

Tyco International is a global manufacturer, installer and distributor of

Registered shareholders (shares held in your own name) with questions

products and systems for a broad spectrum of markets, including telecom-

regarding your account such as change of address, lost certificates or

munications, electronics, disposable medical products, plastics and adhe-

dividend checks should contact our transfer agent at:

sives, fire protection, electronic security and industrial process control. Tyco holds leadership positions in each of its four core business segments:

ChaseMellon Shareholder Services, L.L.C.

Telecommunications and Electronics, Healthcare and Specialty Products,

Overpeck Centre

Fire and Security Services and Flow Control Products.

85 Challenger Road
Ridgefield, NJ 07660 U.S.A.

R e g i s t e r e d a n d P r i n c i pa l E x e c u t i v e O ff i c e
The Zurich Centre
2nd Floor
90 Pitts Bay Road
Pembroke HM08
Bermuda
Tel: (441) 292-8674
Fax: (441) 295-9647

St o c k E x c h a n g e s
The Company is traded on the Bermuda, London, and New York Stock
Exchanges. The ticker symbol is TYC on the Bermuda and New York Stock

Tel: toll-free (in the U.S.): 800-685-4509
Outside of the U.S.: (201) 329-8810
Fax: (201) 329-8367
E-mail: shrrelations@chasemellon.com

Other shareholder inquiries may be directed to Tyco Shareholder Services at the Company’s registered office address or by calling toll-free
(in the U.S.): 877-YES-TYCO (877-937-8926) or from outside of the U.S.
(441) 292-9668. You may also e-mail us at: shareholder?@tyco.com or visit our Web site at www.tyco.com.

Automatic Dividend Reinvestment Plan/Direct
Deposit of Dividends Plan

Exchanges, and TYI on the London Stock Exchange.
Tyco offers both an Automatic Dividend Reinvestment Plan and a Direct

I n d e p e n d e n t A c c o u n ta n ts
PricewaterhouseCoopers
Dorchester House
7 Church Street West

Deposit of Dividends Plan (for U.S. residents) to its shareholders. Please contact ChaseMellon for details and enrollment materials.

Investor Relations

Hamilton HM11

Institutional investors, brokers, analysts and other members of the profes-

Bermuda

sional financial community should contact our Investor Relations Department at the executive offices of our principal United States subsidiary at:

Tyco International (US) Inc.
One Tyco Park
Exeter, NH 03833
Tel: (603) 778-9700
Fax: (603) 778-7330
E-mail: investor-relations@tyco.com

Corporate News and Information
Stay abreast of the latest Company news by visiting our Web site at www.tyco.com or use our corporate news and information service to obtain a delayed stock quote, listen to press releases and the latest earnings and dividend announcements. The service allows you to request an Investor’s Kit, our Form 10-K, Form 10-Qs, Annual Report and press releases. You may also sign up to receive copies of press releases by e-mail or fax. To access this service, please call:

Toll-Free (in the U.S.): 877-TYCOINT (877-892-6468)
Outside of the U.S.: (402) 572-4969
In keeping with our commitment to the environment, this report was printed on recycled paper.
Design: The Graphic Expression, Inc., New York

The goal of this report is to help you get to know Tyco a little better, to learn what makes us tick. The more you know, the prouder you will feel to be part of this fascinating and multifaceted company.
To begin, Tyco is even bigger than you may think. We are a world leader in a wide range of rapidly growing product categories, including worldwide security monitoring and fire protection services, disposable medical products, surgical instruments, undersea fiber optic cables, electrical connectors and interconnection systems, telecommunications components, touch screen and wireless systems, industrial valves and plastic films.
The products we create and the services we provide make the world a safer, healthier and more efficient place. We and our 182,000 employees in over 80 countries think that Tyco should be a household name — synonymous with quality, leadership and a commitment to build shareholder value. We think Tyco is a company worth knowing.

Telecommunications and Electronics

Fire and
Security Services

12
34

Healthcare and Specialty Products

Flow Control Products

00