Tyco International Business Report FY2006

Business Highlights

Financial overview
(in million dollars) FY2006
FY2005 Rate of


Net revenue  40,960 39,305 4.2 See note 1.
Operating income  5,474  5,768 (5.1) See note 2.


Net revenue  12,724 11,774 8.1 See note 3.
Operating income 1,808 1,849 (2.2) See note 4.
FY2006 : FY ended Sep. 2006
FY2005 : FY ended Sep. 2005

1) Net revenue increased $1.7 billion, or 4.2%, for 2006 as compared to 2005, as a result of growth in all segments, led by Electronics and Engineered Products and Services. Foreign currency exchange rates and the impact of acquisitions and divestitures negatively impacted 2006 revenue growth by $326 million and $125 million, respectively.

2) Operating income decreased $294 million, or 5.1%, for 2006 while operating margin decreased 1.3 percentage points to 13.4%. Operating income for 2006 was unfavorably impacted by charges of $426 million, consisting of separation costs of $169 million; incremental stock option charges of $161 million as required under Statement of Financial Accounting Standards (‘‘SFAS’’) No. 123R, ‘‘Share-Based Payment,’’ charges of $63 million related to purchased in-process research and development and net restructuring and impairment charges of $33 million, of which $6 million is included in cost of sales.
Foreign currency exchange rates negatively affected operating income by $52 million.

3) Net revenue for Electronics increased $950 million or 8.1% in 2006 as compared to 2005, including a 7.7% increase in product revenue. The increase in net revenue reflects broad-based volume growth across most customer end markets, especially premise wiring, industrial machinery and equipment, consumer electronics, communications equipment manufacturing and communication service provider markets. These increases were partially offset by the impact of unfavorable changes in foreign currency exchange rates of $148 million.

4) Operating income and operating margin for 2006 decreased as compared to 2005 due primarily to increased material costs of $306 million, incremental stock option charges of $40 million required under SFAS No. 123R and negative changes in foreign currency exchange rates of $23 million. Additionally, operating income for 2006 included net restructuring, divestiture and impairment charges of $16 million, of which $6 million is reflected in cost of sales, as compared to net restructuring and other credits of $10 million in 2005. Operating income for 2006 also includes $3 million related to the Proposed Separation.

New manufacturing facility
In December 2006, Tyco Electronics AMP K.K., the world's leading supplier of connectors and relays for automotive use located in Kawasaki city, announced that it would establish a second factory in China dedicated exclusively to production of auto parts in the end of 2007 at the earliest. The company obtained a factory site, which is adjacent and similar in scale to its Suzhou plant that began operations in the end of 2005. The new plant will produce automotive connectors and modules integrating connectors and their peripherals. Although the details on this product have to be worked out later, an investment level in construction, facilities and equipment is expected to run up three billion yen. (From an article in the Nikkan Jidosha Shimbun on Dec.1)


R&D Expenditure
(in million dollars) FY2006 FY2005 FY2004 FY2003
Overall 914 836 777 661
Electronics 504 440 427 379

R&D Structure
-Approximately 6,200 full-time scientists, engineers and other technical personnel were working in product development activities as of September 29, 2006.

New product development
In January 2006, Tyco Electronics AMP K.K. (TEA) announced that it has developed "loopback C-LOK spring", to be incorporated in the steering. The new product is an electronic circuit to connect a steering column with a steering wheel, whose multi-functionalization is increasing as with airbags and audio control. Large reduction in sizes, weight and operation noise has been accomplished with the new product compared to the previous ones. It will be produced at the affiliates' plants in Hungary and India. The company plans to approach Japanese automakers sell the product. (From a story in the Nikkan Jidosha Shimbun on Jan. 13)

Investment Activities

Capital Expenditure

(USD in million) FY2006 FY2005 FY2004 FY2003
Overall 1,514 1,263 987 1,255
Electronics 549 449 370 404

Overseas investment
In 2006, Tyco Electronics constructed for the first time in China a plant dedicated exclusively to production of auto parts in Suzhou. Jiangsu Province, and held an opening ceremony. The new plant built on land of about 18,000 square meters will start operation with 430 employees, and the workforce will be increased to 1,500 by 2008. This new plant "Tyco Electronics (Suzhou)" will be placed under management of Tyco's Japanese corporation, Tyco Electronics AMP K.K. The Chinese plant manufactures mainly connectors for automobiles, and has a comprehensive production line from stamping, molding, plating to assembly at a cost of about 3 billion yen. Products will be supplied not only to Japanese and foreign affiliated automakers in China, including Shanghai GM and Shanghai VW, but also to major auto parts suppliers such as Bosch, Siemens, Delco and Hella, as well as harness makers. Furthermore, leveraging price advantages, the company intends to export products to Japan, as well. Tyco Electronics also started operation of its Qingdao plant earlier this month to produce computer components. The Suzhou plant is its 18th production facility in China. (From a story in the Nikkan Jidosha Shimbun on Jun 24)