For fiscal 2001, income before non-recurring charges and credits, extraordinary items, and the adoption of SAB 101, rose to $2.81 per diluted share, a 29 percent increase over last year's diluted per share earnings of $2.18. After giving effect to such items, diluted earnings per share were $2.17 for fiscal 2001 compared to $2.64 in fiscal 2000. Included in the prior year's $2.64 is 59 cents resulting from a gain on the issuance of shares by subsidiary. Revenues for the twelve months increased to $36.3 billion, 25 percent higher than last year's $28.9 billion.
"Tyco's diversified mix of businesses once again showed that we can indeed continue to grow through both good and bad economic environments," said L. Dennis Kozlowski, Chairman and Chief Executive Officer of Tyco.
"In this tough environment, I am pleased to report that our mix of businesses continues to perform very well. Included in our business mix are businesses such as Healthcare, Fire and Security, and Tyco Capital, which are less affected by economic conditions and can provide consistent results and outperform in difficult times. Additionally, strong cash flow generation throughout all of our businesses funds further investment in these businesses and provides the means to opportunistically expand them as circumstances allow. We have taken immediate cost reduction actions in our Electronics business, which will allow us to continue to deliver strong earnings results despite weak end markets and will position us ahead of the curve in taking advantage of eventual economic recovery."
The quarterly segment profits and margins for the Company's Electronics, Healthcare and Specialty Products, Fire and Security Services, and Telecommunications businesses that are presented in the discussions below are operating profits before non-recurring charges and credits, goodwill amortization and the adoption of SAB 101. Results for the Company's Tyco Capital business are pre-tax profits before goodwill amortization. All dollar amounts are stated in millions.
ELECTRONICS
September 30, 2001 September 30, 2000
Segment revenues $ 2,950.5 $ 3,244.0
Segment profit $ 769.5 $ 815.9
Segment margins 26.1% 25.2%
The decrease in sales resulted in large part from the continued softening in customer demand in the markets the Company serves. The weakness seen in North America in the third quarter, which has spread to Europe, continues. Additionally, other regions have also been negatively impacted. The business units most impacted by this were Communications, Printed Circuit Group, and Computer and Consumer Electronics. The slowdown has been partially offset by acquisitions such as Lucent Power Systems. The decrease in profit is due to the reduced sales level partially offset by reduced spending on selling, general and administrative expenses and cost reduction initiatives.
HEALTHCARE AND SPECIALTY PRODUCTS
September 30, 2001 September 30, 2000
Segment revenues $ 2,341.1 $ 1,673.8
Segment profit $ 609.3 $ 404.3
Segment margins 26.0% 24.2%
Tyco Healthcare's increase in revenues is attributable primarily to the acquisition of Mallinckrodt, but also reflects strong performances by the other operating units. Kendall Healthcare, US Surgical and International healthcare sales all increased, with particularly strong growth in the export regions, surgical products in Europe and increased market penetration in Australia. Margins continued to improve as benefits from the integration of Mallinckrodt were realized and we took advantage of favorable raw material pricing.
FIRE AND SECURITY SERVICES
September 30, 2001 September 30, 2000
Segment revenues $ 3,117.8 $ 2,300.1
Segment profit $ 662.3 $ 438.7
Segment margins 21.2% 19.1%
Tyco Fire and Security recurring revenue increased to a record level for the quarter. U.S. security sales increased as a result of both direct sales and sales through our Authorized Dealer program. With the completion of the acquisition of SecurityLink during the quarter, an additional 1 million accounts were added to our already strong recurring revenue base. Our security account base continues to expand outside the U.S. as well. Latin America and Asia showed strong growth in new markets. In addition, the services and facility management side of the business gained several new contracts worldwide, and fire protection showed strong growth and the award of several new contracts in Europe.
TELECOMMUNICATIONS
September 30, 2001 September 30, 2000
Segment revenues $ 173.2 $ 587.5
Segment profit $ 94.0 $ 144.2
Segment margins 54.3% 24.5%
TyCom Ltd.'s (NYSE:TCM;BSX:TCM) overall revenues decreased due to delays in timing on third-party systems projects and capacity sales on the TyCom Global Network. At the same time, margins increased due to project completions and certain reduced accruals required due to lower profitability levels for the fiscal year and certain contractual settlements.
The shortfall in revenue related to third-party system sales is primarily caused by a deferral of revenue recognition for the C2C project. During the quarter, C2C was required to seek outside financing to fill a funding gap caused by the bankruptcy filing of a major customer of C2C. Full financing for the project is anticipated to be in place during the first fiscal quarter of 2002.
On the capacity side, the TyCom Transatlantic system now has 400 gigabits of capacity lit, with nearly 50% of this allocated to customers. TyCom is ahead of schedule on a planned upgrade to 560 gigabits. Capacity sales for the quarter were lower than forecast in part because of timing factors. A $63 million capacity agreement scheduled to close in the quarter instead shifted to the first week of October, and will be recognized in the first fiscal quarter of 2002. Additionally, $130 million capacity transaction with a major carrier was accounted for as a swap and is not recognized as revenue; however, it will lower the future cash cost of the TGN build out.
Given current market conditions, TyCom has initiated a series of cost reduction actions intended to bring its cost structures in line with current production expectations.
As previously announced, Tyco has offered to acquire the outstanding 11% minority interest in TyCom.
TYCO CAPITAL
September 30, 2001
Segment revenues $ 1,497.8
Segment pretax earnings $ 367.4
Revenues for the quarter reflected improved lending margins and strong fee generation. Equipment lending and leasing volumes were flat sequentially, while commercial finance volumes were strong as a result of tighter bank lending and demand for restructuring financing. Factoring volume was also up for the quarter as a result of seasonal increases. Margin improvement reflects lower short-term interest rates, tighter market liquidity and the sale of non-strategic assets. Including today's announced sale of the recreational vehicle portfolio, asset sales for the year now exceed $5 billion. Credit losses and reserves trended up slightly, principally as a result of a weaker economy.
FREE CASH FLOW
Free cash flow, excluding operating cash of Tyco Capital and before spending of approximately $940 million related to the TyCom Global Network, was approximately $1.7 billion in the fourth quarter of fiscal 2001. For the fiscal year, free cash flow was approximately $4.75 billion, which represents 92 percent of income before non-recurring charges and credits, the adoption of SAB 101, and extraordinary items. Included as a reduction of operating cash flows in the quarter is $102 million and in the fiscal year is $216 million, related to cash spending on restructuring and other non-recurring items. Tyco refers to the net amount of cash generated from operating activities, excluding those of Tyco Capital, less capital expenditures (excluding spending related to the TyCom Global Network) and dividends as "free cash flow."
In addition, the Company paid out in cash $299 million during the quarter and $766 million during the fiscal year, related to purchase accounting spending. Free cash flow is calculated before these expenditures.
NON-RECURRING CHARGES AND CREDITS
The fourth quarter results discussed above are before non-recurring charges and credits. During the quarter, the Company recorded approximately $337 million ($218 million after-tax) in charges within the Electronics business related primarily to cost reduction actions. Approximately $169 million of these charges are cash charges, principally related to severance and facility closures, and $168 million are non-cash charges. These cash outlays are expected to occur during Fiscal 2002. The Company expects to realize savings of approximately $130 million in operations as a result of these actions, which will mitigate the effect of continuing market deterioration.
The Company also recorded non-recurring charges and credits of approximately $87 million ($52 million, after-tax) during the quarter, related primarily to acquisitions in the Fire and Security and Healthcare businesses. Of these charges, approximately $57 million are cash charges and $30 million are non-cash charges. These cash outlays are expected to occur during Fiscal 2002.
ACCOUNTING CHANGES
The Company adopted the provisions of SAB 101, related to revenue recognition, in the fourth quarter of fiscal 2001. Accounting rules require that the Company adopt the provisions effective as of October 1, 2000, and results for the first three quarters of fiscal 2001 be restated. The results for the fourth quarter discussed above exclude the impact of SAB 101. The impact of SAB 101 for the fourth quarter and fiscal year ended September 30, 2001 is a decrease in revenues of $65 million and $241 million, respectively, a decrease in income before extraordinary items of $26 million and $111 million, respectively, and a decrease in diluted earnings per share of $0.01 and $0.06, respectively. In addition, we recorded an adjustment of $653.7 million which reflects the cumulative effect of SAB 101 as of the beginning of the fiscal year.
In June 2001, the U.S. Financial Accounting Standards Board issued statement of Financial Accounting Standards No.142 (SFAS 142), "Goodwill and Other Intangible Assets." Under this new standard goodwill associated with acquisitions consummated after June 30, 2001 is not amortized. Additionally, as of October 1, 2001, goodwill amortization will no longer be required for past acquisitions. Prior year results are not to be restated.
FISCAL 2002 GUIDANCE
Tyco is reiterating its earnings per share guidance for fiscal 2002 of $3.70, in a range of $3.50 to $3.90. The earnings range reflects uncertainty about the near-term outlook for the Electronics end markets. While we see likelihood of further weakness within these end markets, our incremental cost reduction actions are designed to allow us to achieve our earnings target. Guidance for the first quarter of fiscal 2002 remains $0.72 per share. This guidance includes the impact of SAB 101 and SFAS 142.
CONFERENCE CALL
The company will discuss fourth quarter results on a conference call for investors today at 8:30 am EDT. Interested parties, including investors of TyCom Ltd. (NYSE:TCM;BSX: TCM), may access the conference call live today, or by replay through October 25, 2001, at the following website: investors.tycoint.com/medialist.cfm.
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Tyco International Ltd. is a diversified manufacturing and service company. Tyco is the world's largest manufacturer and servicer of electrical and electronic components; the world's largest designer, manufacturer, installer and servicer of undersea telecommunications systems; the world's largest manufacturer, installer and provider of fire protection systems and electronic security services and the world's largest manufacturer of flow control valves. Tyco also holds strong leadership positions in medical device products, financing and leasing capital, plastics and adhesives. Tyco operates in more than 100 countries and had fiscal 2001 sales of approximately $36.3 billion.
FORWARD-LOOKING INFORMATION
This release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained in the forward-looking statements. The forward-looking statements in this release include statements addressing the following subjects: future financial and operating results and timing and benefits of acquisitions.
Economic, business, competitive and/or regulatory factors affecting Tyco's businesses are examples of factors, among others, that could cause actual results to differ materially from those described in the forward-looking statements.
More detailed information about these factors is set forth in Tyco's filings with the Securities and Exchange Commission, including Tyco's Annual Report on Form 10-K for the fiscal year ended September 30, 2000, TyCom's Annual Report on Form 10-K for the fiscal year September 30, 2000, Tyco's Annual Report to Shareholders and CIT's Annual Report on Form 10-K for the fiscal year ended December 31, 2000. Tyco is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.