tyco investor meeting -...
TRANSCRIPT
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Ed ArditteEd ArditteSenior Vice President, Investor RelationsSenior Vice President, Investor Relations
Tyco Investor MeetingTyco Investor Meeting
Forward Looking StatementForward Looking Statement
This presentation and/or the accompanying presentation materialsThis presentation and/or the accompanying presentation materials may contain may contain certain "forwardcertain "forward--looking statements" looking statements" within the meaning of the United States Private within the meaning of the United States Private Securities Litigation Reform Act of 1995. These statements are bSecurities Litigation Reform Act of 1995. These statements are based on ased on management's current expectations and are subject to risks, uncemanagement's current expectations and are subject to risks, uncertainty and changes rtainty and changes in circumstances, which may cause actual results, performance orin circumstances, which may cause actual results, performance or achievements to achievements to differ materially from anticipated results, performance or achiediffer materially from anticipated results, performance or achievements. All vements. All statements contained herein that are not clearly historical in nstatements contained herein that are not clearly historical in nature are forwardature are forward--looking and the words "anticipate," "believe," "expect," "estimalooking and the words "anticipate," "believe," "expect," "estimate," "plan," and te," "plan," and similar expressions are generally intended to identify forwardsimilar expressions are generally intended to identify forward--looking statements. looking statements. The forwardThe forward--looking statements in this release include statements addressinglooking statements in this release include statements addressing the the following subjects: future financial condition and operating resfollowing subjects: future financial condition and operating results. Economic, ults. Economic, business, competitive and/or regulatory factors affecting Tyco'sbusiness, competitive and/or regulatory factors affecting Tyco's businesses are businesses are examples of factors, among others, that could cause actual resulexamples of factors, among others, that could cause actual results to differ materially ts to differ materially from those described in the forwardfrom those described in the forward--looking statements. Tyco is under no obligation looking statements. Tyco is under no obligation to (and expressly disclaims any such obligation to) update or alto (and expressly disclaims any such obligation to) update or alter its forwardter its forward--looking looking statements whether as a result of new information, future eventsstatements whether as a result of new information, future events or otherwise. More or otherwise. More detailed information about these and other factors is set forth detailed information about these and other factors is set forth in Tyco's Annual in Tyco's Annual Report on Form 10Report on Form 10--K for the fiscal year ended Sept. 30, 2004, and TycoK for the fiscal year ended Sept. 30, 2004, and Tyco’’s Quarterly s Quarterly Report on Form 10Report on Form 10--Q for the quarterly period ended December 31, 2004.Q for the quarterly period ended December 31, 2004.
*Presentation materials can be found at tyco.com
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Upcoming Events…Upcoming Events…
Site Visits This SpringSite Visits This Spring
Next Investor MeetingNext Investor Meeting
““Meet and GreetMeet and Greet”” With Chris CoughlinWith Chris Coughlin
FeedbackFeedback
Tyco InternationalTyco International
2004 Revenue2004 Revenue 2004 Operating Income2004 Operating Income
$40 billion
$11.8B$11.8B
Eng ProdsEng Prods ElectronicsElectronics$6.0B$6.0B
$9.1B$9.1BHealthcareHealthcare
Plastics &AdhesivesPlastics &Adhesives
$1.7B$1.7B
$11.4B$11.4B
Fire &SecurityFire &
Security
$5.3 billion
$900M$900M
Fire &SecurityFire &
Security
$1,749M$1,749MElectronicsElectronics
Eng ProdsEng Prods$620M$620M
$2,365M$2,365MHealthcareHealthcare
Plastics &AdhesivesPlastics &Adhesives
$69M$69M
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AgendaAgenda
Healthcare ReviewSegment Update Rich Meelia, President - Tyco HealthcareInternational Update Joe Almeida - President, InternationalNew Product Overview Mark Thom - Group President, Respiratory and Imaging
Scott Drake - President, Valleylab
Operational Excellence Naren Gursahaney, Senior VP, Operational Excellence
Fire & Security ReviewSegment Update Dave Robinson, President - Tyco Fire & SecurityCommercial Update Bob Dale - VP, Commercial Sales ADT North AmericaFire Update Dean Seavers - President, SimplexGrinnell
Q&A Roundtable Breen, Meelia, Robinson, Gursahaney, Coughlin
Buffet Lunch Available
Tyco HealthcareInvesting for Growth
Rich Rich MeeliaMeeliaPresident, Tyco HealthcarePresident, Tyco Healthcare
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AgendaAgenda
Segment OverviewSegment OverviewRich Rich MeeliaMeelia –– President, Tyco HealthcarePresident, Tyco Healthcare
International Growth OpportunitiesInternational Growth OpportunitiesJoe AlmeidaJoe Almeida –– President, International DivisionPresident, International Division
New Product Development OverviewNew Product Development OverviewMark ThomMark Thom –– Group President, Respiratory & Imaging DivisionsGroup President, Respiratory & Imaging DivisionsScott DrakeScott Drake –– President, President, ValleylabValleylab DivisionDivision
Tyco Healthcare is…Tyco Healthcare is…
A large global healthcare companyA large global healthcare company
Strongly positioned in chosen segmentsStrongly positioned in chosen segments
Poised for accelerated growth Poised for accelerated growth ––present & futurepresent & future
Highly efficient and productiveHighly efficient and productive
Committed to sustaining strong margins andcash flows while making investments for growth
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Medical Device Company RankingsMedical Device Company Rankings
Johnson & JohnsonJohnson & Johnson $45.9B$45.9B
AbbottAbbott $19.6B$19.6B
MedtronicMedtronic $ 9.6B$ 9.6B
BaxterBaxter $ 9.4B$ 9.4B
Tyco HealthcareTyco Healthcare $ 9.1B$ 9.1B
Source: Last 12 months as of 9/30/04 Public Filings, Medtronics last 12 months thru 10/29/04
A Worldwide CompanyA Worldwide Company
US/CanadaRest of World
Total Tyco Healthcare Excluding Retail & Pharma
Sales $ 9,110Sales $ 9,110 Sales $ 7,124Sales $ 7,124
($ Millions)
Actual Sales 2004
31%
69%
40%
60%
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MallinckrodtMallinckrodt J.T. BakerJ.T. Baker
NellcorNellcor PuritanBennettPuritanBennett
MallinckrodtImaging
MallinckrodtImaging
U.S. Surgical Valleylab
Tyco Health-Care Retail
Tyco Health-Care Retail
Patient CareKendall
Patient CareKendall
SharpSafetyKendall
SharpSafetyKendall
Vasc. TherapyKendall
Vasc. TherapyKendall
Critical CareKendall
Critical CareKendall LudlowLudlow
Business Platforms / Operating UnitsBusiness Platforms / Operating Units
Medical$2,458
Surgical$2,329
Respiratory$1,328
Imaging$1,009
Retail$912
Pharma$1,074
Actual 2004 $ Millions
Strong Leadership PositionsStrong Leadership Positions
#1#1 #2#2OximetryOximetry Syringes & NeedlesSyringes & NeedlesWound CareWound Care StaplingStapling
Vascular CompressionVascular Compression LaparoscopyLaparoscopyIncontinent CareIncontinent Care SuturesSutures
ElectrosurgeryElectrosurgeryAirway TubesAirway Tubes
VentilatorsVentilatorsElectrodesElectrodes
Sharps ContainersSharps Containers
Source: IMS, HPIS, Internal Data, US Markets
Represents Over 80% Of Total Sales
Nuclear MedicineNuclear Medicine
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Healthcare Management StructureHealthcare Management StructurePresidentPresident
Roles & ResponsibilitiesRoles & ResponsibilitiesROW Sales, ROW Sales, MktgMktg, Dist, DistManage Local BusinessManage Local Business
Roles & ResponsibilitiesRoles & ResponsibilitiesPolicies & ControlsPolicies & ControlsOperational ExcellenceOperational ExcellenceIntegrationsIntegrationsStrategic Planning/M&AStrategic Planning/M&A
Roles & ResponsibilitiesRoles & ResponsibilitiesU.S. Sales, U.S. Sales, MktgMktg, , Dist, Dist, OperationsOperationsGlobal StrategyGlobal StrategyGlobal R&DGlobal R&D
K. GouldK. Gould CorporateCorporateM. CollinsM. CollinsJ. AlmeidaJ. Almeida
MedicalMedicalSurgicalSurgical
RespiratoryRespiratoryImagingImagingRetailRetail
EMEAJapan
Asia PacificLatin America
PharmaceuticalsPharmaceuticals
FinanceFinance
LegalLegalManufacturingManufacturing
LogisticsLogisticsHuman Res.Human Res.
RAQARAQABusiness Dev.Business Dev.
Info SystemsInfo Systems
Roles & ResponsibilitiesGlobal Management
2004 Accomplishments2004 Accomplishments
Financial HighlightsOrganic Sales Growth 4.8%Operating Margin 26%Cash Flow $2.2 billion
Operational Excellence HighlightsSix Sigma $150 millionSourcing $90 millionFootprint Reduction Reduced 354K sq ft
1.5% of Total SpaceWorking Capital
AR Days (7 days)Inventory Days (4 days)
Financial HighlightsOrganic Sales Growth 4.8%Operating Margin 26%Cash Flow $2.2 billion
Operational Excellence HighlightsSix Sigma $150 millionSourcing $90 millionFootprint Reduction Reduced 354K sq ft
1.5% of Total SpaceWorking Capital
AR Days (7 days)Inventory Days (4 days)
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2005 Outlook2005 Outlook
Financial TargetsOrganic Sales Growth 5-7%Operating Margin 26%+Cash Flow $2.5B+
Operational Excellence TargetsProduct Cost Reduction 1.2%Planned Footprint Reduction Reduce 1.2M sq ft
or 5% of Total SpaceWorking Capital
AR DaysInventory Days
Financial TargetsOrganic Sales Growth 5-7%Operating Margin 26%+Cash Flow $2.5B+
Operational Excellence TargetsProduct Cost Reduction 1.2%Planned Footprint Reduction Reduce 1.2M sq ft
or 5% of Total SpaceWorking Capital
AR DaysInventory Days
Tyco Healthcare’s Growth DriversTyco Healthcare’s Growth Drivers
DemographicsDemographics
Major Product RevitalizationMajor Product Revitalization
Investments for GrowthInvestments for Growth
Focus on Product DevelopmentFocus on Product Development
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Selling & Marketing, Cap Ex and R&D Spending TrendsSelling & Marketing, Cap Ex and R&D Spending Trends
Investing for GrowthInvesting for Growth
0
200
400
600
800
1,000
1,200
1,400
1,600
2003 2004 2005ESelling & Marketing Cap Ex - Capacity & New Products R&D
$ Millions$ Millions
Investing for GrowthInvesting for Growth
2003 2004 2005E 2006E 2007E
5,7285,728 5,9825,9826,6366,636
7,1027,102 7,3567,356Sales & Marketing HeadcountSales & Marketing Headcount
International U.S.
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R&D Spending TrendsR&D Spending Trends
Focus on Product DevelopmentFocus on Product Development
0
50
100
150
200
250
300
350
2002 2003 2004 2007E0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
% of G
lobal Revenues
% of G
lobal Revenues
Dollars in Millions Expense % of Sales
$ Millions$ Millions
R&D: New Product Pipeline OverviewR&D: New Product Pipeline Overview
ProjectsActive 132Potential 146Terminated 17
Launch ScheduleLaunched 162005E 532006E 762007E 52
ProjectsActive 132Potential 146Terminated 17
Launch ScheduleLaunched 162005E 532006E 762007E 52
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Incremental R&D InvestmentIncremental R&D Investment
Pipeline is Being Re-Directed Toward Higher Value Products That Meet Customer Needs
20022002 2005E2005E7%7%
11%11%
22%22%
60%60%
18%18%
31%31%40%40%
11%11%
Research Breakthrough Platform Derivative
Confidence in FutureConfidence in Future
Steady and Continuing Investments for GrowthSteady and Continuing Investments for Growth
Beginning to See PaybackBeginning to See Payback
TycoTyco’’s Focus on Op Ex Enhances s Focus on Op Ex Enhances HealthcareHealthcare’’s Existing Strategys Existing Strategy
Demonstrated Ability to Fund Investments Demonstrated Ability to Fund Investments and Maintain Marginand Maintain Margin
Universally Clear on Company DirectionUniversally Clear on Company Direction
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Tyco HealthcareInternational Growth Strategies
Joe Almeida Joe Almeida President, Tyco Healthcare InternationalPresident, Tyco Healthcare International
Managing the Business Through Four RegionsManaging the Business Through Four Regions
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International OverviewInternational Overview
3,4003,400Sales and MarketingSales and Marketing
10,00010,000Total EmployeesTotal Employees
158158Countries sold toCountries sold to
$2.8 Billion$2.8 BillionSalesSales
Total International
(as of December 2004)(as of December 2004)
Growth in Our International Business Growth in Our International Business
5.8% 5.6% (1.1%) 7.2%Organic Organic Revenue Revenue GrowthGrowth
$ Millions$ Millions
$2,063$2,063$2,184$2,184
$2,409$2,409
$2,838$2,838
20012001 20022002 20032003 20042004
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Diversified Sales MixDiversified Sales Mix
SegmentSegmentRegionRegion10%10%
46%46%19%19%
25%25%
5%5%
66%66%
9%9%
20%20%
EMEA Japan APAC LATAM Surgical Medical Respiratory Imaging
2004 Revenue - $2.8 Billion
International StrategyInternational Strategy
Developed Markets (90% of revenue)
Emerging Markets (10% of revenue)
Developed Markets (90% of revenue)
Emerging Markets (10% of revenue)
Sales force expansionNew market opportunitiesNew product development
Geographical expansion into new markets Go directSell locally produced products
Sales force expansionNew market opportunitiesNew product development
Geographical expansion into new markets Go directSell locally produced products
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Investing In Our International Sales ForceInvesting In Our International Sales Force
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2003 2004 2005E
Developed MarketsDeveloped Markets Emerging MarketsEmerging Markets
2,6432,643 2,9132,913
3,3483,348
365365 468468 569569
Capitalizing on a Shifting Healthcare LandscapeCapitalizing on a Shifting Healthcare Landscape
StrategyStrategy
Increased Product Increased Product OfferingOffering
Creating a separate Creating a separate PanPan--European European organization solely organization solely focused on Nonfocused on Non--Hospital Hospital business business
Develop a distribution Develop a distribution network to service the network to service the home healthcare markethome healthcare market
Issue: Growth in NonIssue: Growth in Non--Hospital SalesHospital Sales
2004 2007E
12%CAGR175175
250250
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Focused Energy in Emerging MarketsFocused Energy in Emerging Markets
26% 25%
19%
BrazilBrazil IndiaIndia ChinaChina
Go direct – Imaging / SurgicalBrazil India China
New markets through distributors
Poland / Russia / Turkey – Imaging
New sales offices opening in 2005
HungaryCzech RepublicSlovakiaVietnam
Go direct – Imaging / SurgicalBrazil India China
New markets through distributors
Poland / Russia / Turkey – Imaging
New sales offices opening in 2005
HungaryCzech RepublicSlovakiaVietnam
2001 2001 –– 2004 CAGR2004 CAGR
Tyco Clinical InstituteTyco Clinical Institute
Cutting edge training facility Cutting edge training facility for surgeonsfor surgeons
Showcase Tyco HealthcareShowcase Tyco Healthcare’’s s full line of medical products full line of medical products and services to Chinese and services to Chinese healthcare market healthcare market
Gain customer recognition Gain customer recognition
Provide internal sales and Provide internal sales and management training management training ‘‘in China for Chinain China for China’’
Commitment to Long Term Growth
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Tyco Healthcare ChinaTyco Healthcare China
Convert sales through Convert sales through distributors to a more distributors to a more direct sales force modeldirect sales force model
Create an R&D center Create an R&D center by 2006by 2006
Increase market share Increase market share for new and existing for new and existing products through Tyco products through Tyco Clinical InstituteClinical Institute
2004 2007E
44%CAGR
$100M
$33M
Opportunity: A Rapidly Growing Middle ClassOpportunity: A Rapidly Growing Middle Class
SummarySummary
Diversified growth strategyDiversified growth strategy
Significant investment in our sales forceSignificant investment in our sales force
Focused on developed markets and Focused on developed markets and emerging high growth economiesemerging high growth economies
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Tyco HealthcareGrowth from New Products
Mark ThomMark ThomGroup President, Mallinckrodt Imaging & RespiratoryGroup President, Mallinckrodt Imaging & RespiratoryScott DrakeScott DrakePresident, President, ValleylabValleylab
Oximetry
Critical Care Systems
Ventilation
Sleep
Oxygen
Puritan BennettNellcor
RESPIRATORY2 Divisions2 Divisions
2005E Revenue2005E Revenue
2005E Growth2005E Growth
Market OpportunityMarket Opportunity
$1.1B
8%
$6.1B
$1.4B
$4.2B
A Global Business A Global Business -- 60% US / 40% ROW60% US / 40% ROW
Segment Overview – Imaging & RespiratorySegment Overview – Imaging & Respiratory
Contrast Media & Delivery Systems
Nuclear Medicine
Mallinckrodt
IMAGING
7 Segments7 Segments
5%
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Puritan BennettNellcorMallinckrodtIMAGING RESPIRATORY
• New x-ray / CT contrast agents
• MRI contrast indications
• “Smart” contrast delivery
• Infection imaging• Nuclear oncology• Nuclear cardiology
• Mobile / wireless patient monitoring
• New monitoring parameters
• Patient airway solutions
• Lower acuity ventilation
• Portable oxygen therapies
• Sleep interfaces (masks)
• Diagnostics for sleep disorders
• Patient friendly sleep therapies
Targeted Areas of Investment –Imaging / RespiratoryTargeted Areas of Investment –Imaging / Respiratory
New Product Development Cycle: 18 Months to 7 Years
A Global Business A Global Business -- 40% US / 60% ROW40% US / 60% ROW
U.S. SURGICALU.S. SURGICAL VALLEYLABVALLEYLAB2 Divisions2 Divisions
4 Segments4 Segments
2005E Revenue2005E Revenue
2005E Growth2005E Growth
Market OpportunityMarket Opportunity
EndomechanicalEndomechanicalSuturesSutures
ElectrosurgeryElectrosurgeryVessel SealingVessel Sealing
12%12%
$6.5B$6.5B
$2.5B$2.5B
Segment Overview – SurgicalSegment Overview – Surgical
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BiosurgerytechnologyEndo stapling –enhanced clinical outcomes / technology developmentGlobal expansion of suture business
BiosurgerytechnologyEndo stapling –enhanced clinical outcomes / technology developmentGlobal expansion of suture business
LigaSure™• Platform
expansion• Breakthrough /
organ repairHardware platform advancementRF Ablation clinical outcomes
LigaSure™• Platform
expansion• Breakthrough /
organ repairHardware platform advancementRF Ablation clinical outcomes
U.S. SURGICAL VALLEYLAB
Targeted Areas of Investment – SurgicalTargeted Areas of Investment – Surgical
New Product Development Cycle: 18-36 months
NeutroSpec™ Imaging AgentNeutroSpec™ Imaging Agent
Radiolabels white blood Radiolabels white blood cells to diagnose equivocal cells to diagnose equivocal appendicitis in patients appendicitis in patients 5 and older5 and olderRapidRapid –– 1 hour infection 1 hour infection diagnosis helps prevent diagnosis helps prevent unnecessary unnecessary appendectomies appendectomies SafeSafe –– Requires no Requires no blood handlingblood handlingSimpleSimple –– quick and easy quick and easy ““singlesingle--injectioninjection”” prep kitprep kit
Industry’s First Major Radionuclide in 9 Years
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2005E 2006E 2007E
NeutroSpec™ Imaging AgentNeutroSpec™ Imaging Agent
Sales OutlookSales Outlook
$31M$31M$31M
$22M$22M$22M
$11M$11M$11M
Market Opportunity:Equivocal Appendicitis $70M
Ex Vivo Infection Imaging $100M
“…“…NeutroSpecNeutroSpec……could make could make it easier to diagnose it easier to diagnose appendicitis. Thatappendicitis. That’’s good s good news, because accurate news, because accurate diagnosis is a problemdiagnosis is a problem……In trials, the technique In trials, the technique diagnosed nearly 100% diagnosed nearly 100% of appendicitis cases within of appendicitis cases within an hour.an hour.””
Time Magazine, Time Magazine, ““Your Time/ HealthYour Time/ Health””July 19, 2004July 19, 2004
LigaSure™ VLigaSure™ V
Seals and divides up to Seals and divides up to 7 mm vessels7 mm vesselsJaws designed to Jaws designed to optimize tissue optimize tissue dissectiondissection5 mm shaft size 5 mm shaft size ––half the size of half the size of current technologycurrent technologyIntegrated hand Integrated hand switching switching –– increased increased surgeon control surgeon control and safetyand safety
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$300M Market Opportunity
2004 2005E 2006E
$41M$41M$41M
$29M$29M$29M
$13M$13M$13M
LigaSure™ VLigaSure™ V
Sales OutlookSales Outlook
LigaSure™LigaSure™
LigaSureLigaSureTMTM PlatformPlatform
Generator and Generator and 9 disposable 9 disposable products availableproducts availableSix products in developmentSix products in development
GrowthGrowthMarket Market –– 19%19%U.S. Surgical / U.S. Surgical / ValleylabValleylab –– 70% 70%
2003 sales $25M2003 sales $25M2005E $200M2005E $200M
“I believe the LigaSure™ System is the most significant advance in surgical instruments since the introduction of the stapler 40 years ago.”- Nadeem Abu-Rustum, M.D.
Director, Minimally Invasive Surgery, Memorial Sloan Kettering Cancer Center
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OptiVantage™ DH Dual Head Injector OptiVantage™ DH Dual Head Injector
Major enhancement to Major enhancement to ““Delivery SystemDelivery System”” strategystrategy
Helps grow/defend $400M xHelps grow/defend $400M x--ray ray contrast media franchisecontrast media franchise
Saline Saline ““pushpush”” follows contrast follows contrast injection to optimize image qualityinjection to optimize image quality
Fully programmable powerhead Fully programmable powerhead provides improved technologist provides improved technologist control and patient safetycontrol and patient safety
OptiBolusOptiBolus™™ software software (released 11/04) dramatically (released 11/04) dramatically enhances image qualityenhances image quality
Only compatible with our Only compatible with our UltrajectUltraject®® prefilledprefilled and / or and / or disposable syringes disposable syringes
Growth Via ‘Smart’ DeliveryGrowth Via ‘Smart’ Delivery
Injector Technology Fueling Pre-filled Growth
2005E 2006E 2007E
$43M$43M$43M$39M$39M$39M$35M$35M$35M
Sales OutlookSales OutlookTotal Injectors / DisposablesTotal Injectors / Disposables
2005E 2006E 2007E
Sales OutlookSales OutlookTotal PreTotal Pre--Filled SyringesFilled Syringes
$131M$131M$131M$152M$152M$152M
$175M$175M$175M
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Endo GIA™ IV StaplerEndo GIA™ IV Stapler
Vastly improved access Vastly improved access via 90via 90°° articulation articulation (current technology 45(current technology 45°°))
360360°° rotation allows for rotation allows for improved surgeon improved surgeon ergonomicsergonomics
Directional Stapling Directional Stapling Technology improves Technology improves staple formation staple formation and sealing and sealing
“Takes lap gastric bypass to the next level.”Dr. Phil Schauer, Cleveland Clinic
Market Opportunity $350M
Endo GIA™ IV StaplerEndo GIA™ IV Stapler
Sales OutlookSales Outlook
$36M$36M$36M
$24M$24M$24M
$14M$14M$14M
Market OpportunityMarket Opportunity$780M Total Market Opportunity$780M Total Market Opportunity
U.S. Surgical50%
U.S. SurgicalU.S. Surgical50%50%
Ethicon50%
EthiconEthicon50%50%
2007E2007E2007E2006E2006E2006E2005E2005E2005E
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Sleep Apnea Diagnosis / TreatmentSleep Apnea Diagnosis / Treatment
Cornerstone of Puritan Bennett Cornerstone of Puritan Bennett Homecare businessHomecare businessGrowing 40% year over yearGrowing 40% year over year7 new products over 13 months7 new products over 13 months
DiagnosticsDiagnosticsSandman EliteSandman Elite®®
SandmanSandman®® EXpressEXpress™™TherapeuticsTherapeutics
BreezeBreeze®® SleepgearSleepgear®® maskmaskGoodKnightGoodKnight®® 425 Bi425 Bi--LevelLevel®®Humidification chamberHumidification chamberDreamFitDreamFit™™ mask (2/05)mask (2/05)RoyalRoyal™™ mask (9/05)mask (9/05)
Design features promote user Design features promote user compliance and portabilitycompliance and portability
Sleep Apnea Diagnosis / TreatmentSleep Apnea Diagnosis / Treatment
2005E 2006E 2007E
$183M$183M$183M
$146M$146M$146M
$114M$114M$114M
Sales OutlookSales Outlook
Market Opportunity $1.1BMarket Growth 18%
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“…ablation will be the standard of care for cancer treatment for liver, lung and kidney tumors.”
“…ablation will be the standard of care for cancer treatment for liver, lung and kidney tumors.”
- Damian Dupuy M.D.Professor and Director of Minimally Invasive Therapy
and Ultrasound at Rhode Island Hospital
- Damian Dupuy M.D.Professor and Director of Minimally Invasive Therapy
and Ultrasound at Rhode Island Hospital
Valleylab RadioFrequency AblationValleylab RadioFrequency Ablation
Switching GeneratorSwitching Generator
Designed to treat larger Designed to treat larger lesionslesions
Provides capability to treat Provides capability to treat multiple lesions multiple lesions simultaneouslysimultaneously
Decreases procedure timeDecreases procedure time
Simplified customer Simplified customer interfaceinterface
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Valleylab RadioFrequency AblationValleylab RadioFrequency Ablation
2005E 2006E 2007E
$58M$58M$58M
$40M$40M$40M
$28M$28M$28M
Sales OutlookSales Outlook
2007 Market Size - $250M2015 Market Size - $700M - $1.5B
Operational ExcellenceBecoming Part of Tyco DNAOperational ExcellenceBecoming Part of Tyco DNA
Naren Naren GursahaneyGursahaneySVP, Operational ExcellenceSVP, Operational Excellence
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Operational Excellence – 2004 ResultsOperational Excellence – 2004 Results
Six SigmaTrained 2,400+ employees and delivered $272MExited 390 facilities totaling 7M Sq. Ft.
One Tyco SourcingOver 110 active teams, generated $318M
Working Capital8 day improvement, ~$900M impact
Six SigmaTrained 2,400+ employees and delivered $272MExited 390 facilities totaling 7M Sq. Ft.
One Tyco SourcingOver 110 active teams, generated $318M
Working Capital8 day improvement, ~$900M impact
Six Six SigmaSigma
Working Working CapitalCapital
One Tyco One Tyco SourcingSourcing
On Track to Exceed $3B by 2006
Roadmap to $3 Billion +Roadmap to $3 Billion +
Raising 2006 Target To >$4B
StatusStatus
N/A$332M$203M““To GoTo Go”” in 2006in 2006
3+ days$350M$250M$400M2005 Target2005 Target
8 days$900M$318M$272M20042004
7 days$700M$100M$125M20032003
CalculationCalculation MethodMethod
WorkingCapital
StrategicSourcingSix Sigma
Operating income Operating income benefit, net of benefit, net of incremental incremental investmentinvestment
Savings net of Savings net of commodity price commodity price
increases not passed increases not passed on to customerson to customers
Improvement in Improvement in working capital working capital velocity (days)velocity (days)
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2003 2004 2005E 2006E
$125M
$272M
$400M
$480M
Savings ImpactSavings Impact
Six Sigma – Foundation of Operational ExcellenceSix Sigma – Foundation of Operational Excellence
Manufacturing ExcellenceManufacturing Excellence(Operational Six Sigma)(Operational Six Sigma)
Process ExcellenceProcess Excellence(Transactional Six Sigma)(Transactional Six Sigma)
Design ExcellenceDesign Excellence(Design for Six Sigma)(Design for Six Sigma)
Waste ReductionWaste Reduction(Lean Manufacturing)(Lean Manufacturing)
Impacting All Aspects of Our Business
$1.25B+ by 2006
Six Sigma – Manufacturing ExcellenceSix Sigma – Manufacturing Excellence
Profile variance results in a trim loss Profile variance results in a trim loss of 1 to 1of 1 to 1--1/21/2”” of resin on each edge of of resin on each edge of polymer curtainpolymer curtainRising resin costs compound impactRising resin costs compound impact
Major drivers of edge bead Major drivers of edge bead profile variation:profile variation:•• Plug positionPlug position•• Blade positionBlade position•• Plug Plug –– Blade combinationBlade combination
Air gap & melt temperature not significantAir gap & melt temperature not significant
Implemented new process Implemented new process parameters and operating window parameters and operating window (minimal bead width)(minimal bead width)Established bead control databaseEstablished bead control database……Owned by shift supervisorsOwned by shift supervisorsOperators trained in new process Operators trained in new process and toolsand tools
Ludlow Coated Products Project ExampleLudlow Coated Products Project ExampleIssueIssue
LearningsLearnings
Impact/Control PlanImpact/Control Plan
$140k of Savings … $500k Translation Opp’ty
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Large variation in the level of Time & Large variation in the level of Time & Material (T&M) services discountingMaterial (T&M) services discounting•• $61.52/ticket average in West Region$61.52/ticket average in West Region•• $46.24/ticket average for others$46.24/ticket average for others
Lost revenues and profitsLost revenues and profits
Billing expectations are established Billing expectations are established at the time of scheduling the visitat the time of scheduling the visitTechnician knowledge and training is Technician knowledge and training is key to driving consistent results key to driving consistent results Numerous billing oversights, driven Numerous billing oversights, driven by inconsistent processby inconsistent process
Increase of $5.35/ticketIncrease of $5.35/ticketKey improvements:Key improvements:•• Performance management reportsPerformance management reports•• Standardized dispatch processStandardized dispatch process•• New web based trainingNew web based training
Six Sigma – Process Excellence Six Sigma – Process Excellence
$6.5M of Increased Revenue/Profit To Date
$3 5
$4 0
$4 5
$50
$55
$6 0
$6 5
$70
$75
Fiscal M ont h
$0
$1
$2
$3
$4
$5
$6
$7
Monthly Gain Cumulative Gain 6 Sigma Goal FY03 T&M/Ticket FY04 T&M/Ticket
IssueIssue Impact/Control PlanImpact/Control PlanADT North America ExampleADT North America Example
LearningsLearnings
Six Sigma – Design ExcellenceSix Sigma – Design Excellence
New enteral feeding platformNew enteral feeding platform……$400M global market opportunity$400M global market opportunityAggressive cost target ($100 below Aggressive cost target ($100 below current levels)current levels)Pump and disposables being developedPump and disposables being developed
Voice of Customer interviews helped Voice of Customer interviews helped identify key design characteristics:identify key design characteristics:•• Accurate volume delivery ratesAccurate volume delivery rates•• Connection port fitConnection port fit•• Minimal clogging of pump sets/tubesMinimal clogging of pump sets/tubes•• Cleaning time and effortCleaning time and effort•• Pump size and weightPump size and weight
Met all product development targetsMet all product development targets……Schedule, budget, cost, performance Schedule, budget, cost, performance $3M annual cost savings, $3M annual cost savings, 75% reduction in build times75% reduction in build timesDesign validation: 86% liked product Design validation: 86% liked product better than current offeringsbetter than current offerings
Revenues 83% Above Target, Costs 4% Below
Tyco Healthcare Project ExampleTyco Healthcare Project ExampleOpportunityOpportunity
LearningsLearnings
Impact/Control PlanImpact/Control Plan
31
Six Sigma – Waste ReductionSix Sigma – Waste Reduction
IssueIssue Impact/Control PlanImpact/Control PlanManufacture of cash valves moved from Manufacture of cash valves moved from Cullman, AL to Black Mountain, NCCullman, AL to Black Mountain, NCNumerous issues in Cullman Numerous issues in Cullman …… Large Large batch sizes, poor quality and deliverybatch sizes, poor quality and deliveryProcess flow includes offProcess flow includes off--site warehousesite warehouse
Value Stream Mapping Value Stream Mapping –– 126 days of cycle 126 days of cycle time, only 68 minutes of processingtime, only 68 minutes of processingLarge batch sizes drove long queue times Large batch sizes drove long queue times and excess inventoryand excess inventoryLean implementation could reduce floor Lean implementation could reduce floor space needs by 20%space needs by 20%
Implemented kanbans/pull system for Implemented kanbans/pull system for all raw materialsall raw materialsDesigned manufacturing cells, Designed manufacturing cells, including support resourcesincluding support resourcesProduction output measured on an Production output measured on an hourly basishourly basisDaily crossDaily cross--functional meetings to functional meetings to resolve issuesresolve issues
Big Impact on Inventory and Customer Response
LearningsLearnings
95%43/hr22/hrUnits / hr44%38 min68 minProcess Time19%$1.3M$1.6MProduct Cost68%325 ft1005 ftTravel Distance35%82d126dLead Time33%$2M$3MInventory
Impr.%AfterBeforeMeasurement
Tyco Flow Control Project ExampleTyco Flow Control Project Example
Six Sigma Staffing – Investing In Our PeopleSix Sigma Staffing – Investing In Our People
2003 2004 2005E 2006E
975
2,423 2,500 2,500
2003 2004 2005E 2006E
Employee Training Employee Training Six Sigma HeadcountSix Sigma Headcount
1,450
3,650
5,4006,150
>2% of Target Population in Full-Time Roles By 2006
GB BB MBB
32
Six Sigma – Real EstateSix Sigma – Real Estate
Reduced Footprint and Better Management of Real Estate Assets
Reduced footprint by 390 Reduced footprint by 390 facilities and 7M sq ft in 2004facilities and 7M sq ft in 2004
Additional 6M+ sq ft actively Additional 6M+ sq ft actively listed with brokers at listed with brokers at year endyear end
New policies and procedures New policies and procedures rolled out globallyrolled out globally
Rationalized real estate Rationalized real estate broker relationshipsbroker relationships
4188 39583568
3300
2002 2003 2004 2005E
131M125M
118M110M
Sq ft # facilities
Touching Every Part of Tyco’s Business
Six Sigma – Tyco-Wide ApproachSix Sigma – Tyco-Wide Approach
Language Translation (7)
“Transactional”- Administration- Commercial- Service
Lean(Waste elimination)
EMEAAsia
Latin America
Fire & SecurityEngineered ProductsPlastics & Adhesives
Corporate
2004“Expand the Core”
Green BeltTraining(100%)
CustomersSuppliers
2006+“Sustain the
Gains”
AwarenessTraining(100%)
Common Curriculum
(DMAIC, DFSS)Training
New ProductDevelopment
“Operational”- ManufacturingScope
Design for Six Sigma
(Efficient design)
Six Sigma(Variation/defect
reduction)Tools
North AmericaGeographies
Healthcare ElectronicsSegments
2005“Build the
Foundation”
2003“Build the
Foundation”
33
Strategic Sourcing – Leveraging our SpendStrategic Sourcing – Leveraging our Spend
Volume leverage/ Volume leverage/ ““One TycoOne Tyco”” TeamsTeams
eAuctionseAuctions
Low cost country Low cost country sourcingsourcing
ElectronicsElectronics
HealthcareHealthcareFire & Fire & SecuritySecurity
Engineered Engineered Products & Products &
ServicesServices
Plastics & Plastics & AdhesivesAdhesives
Spend by SegmentTotal = $19.4 B
Spend by SegmentTotal = $19.4 B
$6.0B$6.0B
$4.7B$4.7B$3.5B$3.5B
$2.6B$2.6B
$1.4B$1.4B
Corporate & Corporate & OtherOther$1.2B$1.2B
Capitalizing on the Total Buying Power of Tyco
Key StrategiesKey Strategies
Gross Headwind Net
$435M $115M$320M
Original PlanOriginal Plan
Strategic Sourcing – 2005 Update and Recovery PlanStrategic Sourcing – 2005 Update and Recovery Plan
Launched new teams to address $800M of additional spendLaunched new teams to address $800M of additional spend
Challenged existing teams to deliver incremental savingsChallenged existing teams to deliver incremental savings
Aggressively working to delay / mitigate increasesAggressively working to delay / mitigate increases
Working to Offset $100M+ of Additional Headwind
Gross Headwind Net
$435M $220M
$215M
Latest ViewLatest View
$250M
Key Recovery ActionsKey Recovery Actions
Recovery Actions
34
Strategic Sourcing – “One Tyco” TeamsStrategic Sourcing – “One Tyco” Teams
22 Category Teams, 110+ Initiatives
North AmericaNorth America••Capital Equipment Capital Equipment ••ChemicalsChemicals••Commercial PrintCommercial Print••ElectronicsElectronics••EnergyEnergy••FacilitiesFacilities••FleetFleet••HRHR••ITIT••LegalLegal••Metal FormingMetal Forming••Molded PlasticsMolded Plastics••MROMRO••Office EquipmentOffice Equipment••Office SuppliesOffice Supplies••PackagingPackaging••Resins Resins ••TelecomTelecom••Temporary LaborTemporary Labor••ToolingTooling••TransportationTransportation••TravelTravel
Latin AmericaLatin America••EnergyEnergy••FleetFleet••MROMRO••PackagingPackaging••TelecomTelecom••Temporary LaborTemporary Labor••TransportationTransportation••TravelTravel
EMEAEMEA••Capital EquipmentCapital Equipment••ElectronicsElectronics••EnergyEnergy••FleetFleet••Metal FormingMetal Forming••MROMRO••Office SuppliesOffice Supplies••PackagingPackaging••ResinsResins••TelecomTelecom••Temporary LaborTemporary Labor••TransportationTransportation••TravelTravel AsiaAsia
••ElectronicsElectronics••FleetFleet••PackagingPackaging••TelecomTelecom••Temporary LaborTemporary Labor••ToolingTooling••TransportationTransportation••TravelTravel
Strategic Sourcing – Electronics TeamStrategic Sourcing – Electronics Team
Capacitors: Second time through processCapacitors: Second time through process$27M addressed$27M addressed
$13.5M sourced via eAuction, balance was awarded via eRFQs$13.5M sourced via eAuction, balance was awarded via eRFQsIncumbent savings of $5M (18%)Incumbent savings of $5M (18%)
No switching requiredNo switching required
35% savings total opportunity (some offset by switching costs) 35% savings total opportunity (some offset by switching costs) Reduced supply base by 50%Reduced supply base by 50%
$1,200M
$70M$650M
Annual Savings
AddressableTotal Annual Spend
$39M
$5M$27M
Annual Savings
AddressedTotal Annual Spend
Total Electronics SpendTotal Electronics Spend Capacitor SpendCapacitor Spend
27% Price Reduction … 60+ Days Terms
35
2004 2005E 2006E
$0.5B
$1.0B
$1.2B
eAuction VolumeeAuction Volume
Strategic Sourcing – eAuctionsStrategic Sourcing – eAuctions
Dedicated resources in every Dedicated resources in every Segment and CorporateSegment and Corporate
Global deployment of Global deployment of eSourcing toolseSourcing tools
Ensuring Low Cost Country Ensuring Low Cost Country suppliers participationsuppliers participation
Compressed negotiation cycleCompressed negotiation cycle
Key Part of Strategic Sourcing Toolkit
Strategic Sourcing – eAuctionsStrategic Sourcing – eAuctions
11,000 freight lanes bid in 11,000 freight lanes bid in 4 events:4 events:
Pan EuropeanPan EuropeanBenelux/GermanyBenelux/GermanyItaly/SpainItaly/SpainFranceFrance
Multi Segment participation Multi Segment participation in analysisin analysis
aAuction generated 9% aAuction generated 9% additional savings over additional savings over initial bidsinitial bids
Excellent carrier participationExcellent carrier participation
EMEA Road FreightEMEA Road FreightFrance Standard > 1 tonFrance Standard > 1 ton
New Deals Delivering ~$12M USD of Savings
36
20032003 20042004
$0.8B
$1.4B
$1.9B
$2.3B
LCC SpendLCC Spend
Strategic Sourcing – Low Cost Country SourcingStrategic Sourcing – Low Cost Country Sourcing
% of Dir. Mat’l: 10 17 23 28
% of Dir. Mat’l: 10 17 23 28
Good Start in 2004 … Big Opportunity Ahead
2004 Focus on Asia 2004 Focus on Asia …… International International Purchasing Organizations established Purchasing Organizations established in China and India:in China and India:
ToolingToolingElectronicsElectronicsMetal formingMetal formingChemicalsChemicals
Expanding to Eastern Europe, Latin Expanding to Eastern Europe, Latin America & Southeast Asia in 2005America & Southeast Asia in 2005Developing local talent via ongoing Developing local talent via ongoing training training …… Sourcing, Integrity, Sourcing, Integrity, Trade ComplianceTrade ComplianceRaising awareness & overcoming Raising awareness & overcoming internal resistance in high cost countries internal resistance in high cost countries ““One TycoOne Tyco”” strategic sourcing teams in strategic sourcing teams in Latin America, China, India & Singapore Latin America, China, India & Singapore to focus on indirectto focus on indirect
2005E2005E 2006E2006E
Butterfly Valves Butterfly Valves Tyco Flow ControlTyco Flow Control
Global Sourcing Enabling Organic Growth
Objective: Reduce costs and improve market position/share in a highly competitive product line
From: Houston, Texas
To: Chennai, India
Results:29% cost reduction on 8 models$636k of annual savingsSales up 20%
Objective: Reduce costs and improve market position/share in a highly competitive product line
From: Houston, Texas
To: Chennai, India
Results:29% cost reduction on 8 models$636k of annual savingsSales up 20%
Strategic Sourcing – Low Cost Country SourcingStrategic Sourcing – Low Cost Country Sourcing
37
Strategic Sourcing RoadmapStrategic Sourcing Roadmap
Expanding Toolkit and Scope
eSourcingLeadership Training
“One Tyco”22 Teams/110+ Sub-Teams
Begin Global Expansion
Volume LeverageeSourcing
Low Cost Country Sourcing
EMEAChinaIndia
Latin America
Fire & SecurityEngineered ProductsPlastics & Adhesives
Corporate
2004“Expand the Core”
Six Sigma (Training)New Product Development
Supplier Development
Emerging MarketExpansion
2006+“Sustain the
Gains”
Trade ComplianceIT Contract
Six Sigma Sourcing7 Step Sourcing
ProcessTraining
“Global Sourcing”Continue Global
Expansion55% Spend Addressed
“Segment Specific”- 10 Teams- Limited Spend
Scope
Indirect ComplianceWorking Capital (DPO)
Traditional “Purchasing”Strategies
Eastern EuropeNorth AmericaGeographies
Healthcare ElectronicsSegments
2005“Build the
Foundation”
2003“Build the
Foundation”
Working Capital – Good Progress, More to AccomplishWorking Capital – Good Progress, More to Accomplish
12%
16%
20%
24%
Tyco 200
2
Tyco 2
003
Tyco 200
4
Tyco 2
005E GE 3M
Honeywell
Emerson
Danah
er UTX
Working Capital DaysWorking Capital Days
2003 2004 2005E
19.1% Peer Group Avg
$900M Of Cash Freed Up In 2004
Working Capital as a % of SalesWorking Capital as a % of Sales
60
70
80
90
100
2002
2004 WC: $8.1 Billion
38
Working Capital – ReceivablesWorking Capital – Receivables
Receivable DaysReceivable Days
Strong Momentum on Receivable Days
Champion: Keller Arnold Champion: Keller Arnold –– VP, Financial Planning VP, Financial Planning & Analysis& Analysis5 day improvement 5 day improvement in 2004in 2004Created TycoCreated Tyco--wide wide forum for best practice forum for best practice sharing within credit and sharing within credit and collectionscollections2003 2004 2005E
50
60
70
80
2002
2004 A/R: $6.5 Billion
Working On All Drivers of Inventory
Working Capital – InventoryWorking Capital – Inventory
Executive Champion: Naren Executive Champion: Naren Gursahaney Gursahaney –– SVP, Op ExSVP, Op Ex
10 Day improvement in 2004, 10 Day improvement in 2004, across all segmentsacross all segments
Developed playbook of Developed playbook of internal and external internal and external best practicesbest practices
Currently rolling out Currently rolling out playbook across all business playbook across all business segments globallysegments globally
Inventory DaysInventory Days
2003 2004 2005E
60
70
80
90
2002
2004 Inventory: $4.4 Billion
39
2003 2004 2005E
30
40
50
60
2002
2004 A/P: $2.7 Billion
Payable DaysPayable Days
Aggressively Working to Improve Payment Terms
Working Capital – Accounts PayableWorking Capital – Accounts Payable
Champion: Shelley Stewart Champion: Shelley Stewart –– VP, Supply Chain VP, Supply Chain DPO declined by 2 days DPO declined by 2 days in 2004in 2004Program in place to Program in place to standardize terms standardize terms Guidelines for balancing Guidelines for balancing payment terms with payment terms with discountsdiscounts
SummarySummary
Continuing to make progress on all Continuing to make progress on all fronts, in all businessesfronts, in all businesses
Expanding toolkit to address new Expanding toolkit to address new opportunities and broaden reachopportunities and broaden reach
Investing in training to fill skill gapsInvesting in training to fill skill gaps
Roadmaps in place to continue to deliver Roadmaps in place to continue to deliver impact across Tycoimpact across Tyco
Op Ex Becoming Part Of Tyco DNA
40
Progress Report
Dave RobinsonDave RobinsonPresident, Tyco Fire & SecurityPresident, Tyco Fire & Security
Helping Make the World SaferHelping Make the World Safer
Electronic Security Services and ProductsElectronic Security Services and Products
Sales Design Installation Monitoring Maintenance
Access Control
VideoSurveillance RFID Intrusion
Security
ElectronicArticle
Surveillance
41
Helping Make the World SaferHelping Make the World Safer
Fire Protection Services and ProductsFire Protection Services and Products
ProtectiveEquipment
FireSuppression
Fire Detection
Special Hazards
BreathingSystems
Sales Design Installation Monitoring Maintenance
Europe,Europe,Middle East Middle East
& Africa& Africa29%29%
Australia / NZAustralia / NZ5%5%
AsiaAsia7%7%
U.S. / CanadaU.S. / Canada58%58%
Latin America Latin America 2%2%
Strong Presence in Developed Markets Upside in High-Growth Economies
Broad Geographic CoverageBroad Geographic Coverage
2004 Revenue $11.4B2004 Revenue $11.4B
42
Global Leadership Position
Worldwide Fire MarketWorldwide Fire Market$30B$30B
TycoTyco
Worldwide Electronic Security MarketWorldwide Electronic Security Market$50B$50B
TycoTyco
$80B global fire & electronic security market$80B global fire & electronic security market
#1 player in both markets#1 player in both markets
Strong Position in Attractive Markets
3- 4%Growth
7- 10% Growth
Competitive Landscape
0
500
1,000
1,500
2,000
2,500
Tyco Brinks ProtectionOne
Monitronics0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Tyco UnitedTech./Kidde
Siemens Honeywell
Security Monitoring(US Only)
Fire Products & Services (Global)
Recurring Annual Revenue($ Millions)
7x larger than 7x larger than nearest U.S. nearest U.S. competitorcompetitor
Over 2x larger Over 2x larger than nearestthan nearestcompetitorcompetitor
Key Competitors Are 20,000+ Small Local Players
($ Millions)Annual Revenue
43
2004 Revenue 2004 Revenue $11.4 Billion $11.4 Billion
Our Business Emphasis is ServicesOur Business Emphasis is Services
56%56%
32%32%
12%12%
Worldwide FireWorldwide FireServicesServices
Worldwide Security ServicesWorldwide Security Services
$11.4B Revenue$11.4B Revenue
ResidentialResidential CommercialCommercial
8.3M Customers8.3M Customers
Most of Our Business Is Commercial
82%82%
18%18%
64%64%
36%36%
Serving 90% of Fortune 500 Companies
44
“Current Status” – 2004 Presentation“Current Status” – 2004 Presentation
Strong position in attractive markets Strong position in attractive markets
New business models to improve returnsNew business models to improve returns
Working as a teamWorking as a team……integrating & integrating & improved controlsimproved controls
Driving Operational ExcellenceDriving Operational Excellence
Gaining traction in financial performanceGaining traction in financial performance
Solid longSolid long--term growth opportunitiesterm growth opportunities
2004 Presentation2004 Presentation 2005 Perspective2005 Perspective
Progress Continues on TrackProgress Continues on Track
Markets & positionMarkets & positionNew business modelsNew business modelsTeamwork & controlsTeamwork & controls
Operational excellenceOperational excellenceFinancial performance Financial performance tractiontractionLongLong--term growthterm growth
Still attractive & strongStill attractive & strong
In place & working wellIn place & working well
StrongerStronger
Delivering resultsDelivering results
Strong cash, Strong cash, improving profitsimproving profits
Investing for futureInvesting for future
45
($Millions)($Millions)
(400)(400)
00
400400
800800
1,2001,200
1,6001,600
2,0002,000
Free Cash Flow ImprovementFree Cash Flow Improvement
$778$778
20022002 20032003
$1,496$1,496
20042004
* “Free cash flow” is a non-GAAP measure , see Appendix for cash flow reconciliation.
>> $1.5 Billion Better Run Rate in 2 Years
20042004
Worldwide Security Worldwide Security (excl. Cont. Europe)(excl. Cont. Europe)
Margin Improvement – Lines of BusinessMargin Improvement – Lines of Business
15%15%
2%2%
18%18%
10%
20032003
5%5%
13%13%
(7%)(7%)
8%
5%5%
10%10%
16%16%
4%4%
19%19%
12%
7%7%
2005 2005 TargetTarget
**Excludes Restructuring and Divestment CostsExcludes Restructuring and Divestment Costs
ADT Cont. EuropeADT Cont. Europe
Tyco Safety ProductsTyco Safety Products
Worldwide FireWorldwide Fire
Total Fire & Security*Total Fire & Security*
46
1141143,2043,204
RevenueRevenue $11,447$11,447Gross ProfitGross Profit 4,3724,372 38.2%38.2%Selling Selling 1,3111,311
G&A G&A 1,7791,779Intangible AmortizationIntangible AmortizationOperating ExpensesOperating Expenses
Operating Income*Operating Income* $1,168$1,168 10.2%10.2%
15.5%15.5%
($ Millions)($ Millions)
*See Appendix for reconciliation to GAAP Operating Income
1211213,2613,261
$10,832$10,8324,1154,115 38.0%38.0%1,2561,256
1,8841,884
$854$854 7.9%7.9%
17.4%17.4%
20032003 20042004 2005 2005
Good Progress in P&L Focus AreasGood Progress in P&L Focus Areas
Operational Excellence Driving Initial Gains
7.7%7.7%1.4%1.4% 0.6%0.6%
1.8%1.8%1.8%1.8% 1.4%1.4% 0.9%0.9%
0%0%
5%5%
10%10%
15%15%
20%20%
2003* Restructuring Fix Cont.EuropeSecurity
Sourcing Six Sigma Other G&A
OrganicGrowth
Contingency
0.4%0.4%
2006 Target
1.0%1.0% 15.0%15.0%
Divestitures
Operational Excellence FocusOperational Excellence Focus
On Track
Update on Key Margin Improvement DriversUpdate on Key Margin Improvement Drivers
*See Appendix for reconciliation to GAAP Operating Income
14% 14% --16%16%
47
Restructuring & Divestiture UpdateRestructuring & Divestiture Update
Completed major restructuring programCompleted major restructuring program$240M of cost in 2003$240M of cost in 2003--20042004Headcount reduction of 5,900Headcount reduction of 5,900Facility reduction of 164Facility reduction of 164Redefined Tyco Safety Products roleRedefined Tyco Safety Products role$180M of annualized savings in 2005 & beyond$180M of annualized savings in 2005 & beyond
25+ businesses divested, $380M proceeds25+ businesses divested, $380M proceedsTotal revenues $900M, operating income margin 4%Total revenues $900M, operating income margin 4%
10+ non10+ non--core businesses remain to be soldcore businesses remain to be soldTotal revenues <$200M, breakevenTotal revenues <$200M, breakeven
2004 Operational Excellence Results
$28Million
$59Million
$90Million
$177Million
++ ++ ==
Real Estate Six Sigma Strategic Sourcing
304 properties 304 properties exitedexited
233 Black Belts233 Black Belts563 Green Belts563 Green Belts
Exceeded targetExceeded targetof $75 Millionof $75 Million
Total Savings
Targeting $200 Million in 2005 Operational Excellence Savings
48
Driving our Worldwide Security BusinessDriving our Worldwide Security Business
Key economic leversKey economic levers
Business models Business models
Legacy challengesLegacy challenges
Residential securityResidential security
Commercial securityCommercial security
AttritionAttrition
Key Levers Improvement OutlookKey Levers Improvement Outlook
2002/2003
Revenue per UnitRevenue per Unit
Operating ExpensesOperating Expenses
Subscriber Subscriber Acquisition CostAcquisition Cost
2004 2005 Longer Term
Clear Positive Trends While Working Through Legacy Challenges
49
20022002 20032003 20042004
Accounts Acquired (000)Accounts Acquired (000)
00
500500
1,0001,000
1,5001,500
2,0002,000
2,5002,500
DealerDealer Leased SystemsLeased Systems Outright Sales Outright Sales
Percent of Accounts AcquiredPercent of Accounts Acquired
10%10%
20%20%
30%30%
40%40%
50%50%
60%60%
70%70%
20022002 20032003 2004 2004 0%0%
ADT Worldwide Acquired AccountsADT Worldwide Acquired Accounts
More Disciplined Approach
Security Account Attrition CurveSecurity Account Attrition CurveAnnual Attrition RateAnnual Attrition Rate
Predictable Pattern…Significant Retention Challenge After 36 Months
YearsYears11 22 33 44 55 66 77 88 99 1010
50
ADT New Unit Production ADT New Unit Production New Units in ThousandsNew Units in Thousands
20022002 20032003 2004200400
100100200200300300400400500500600600700700800800Subscriber Acquisition Cost (SAC)Subscriber Acquisition Cost (SAC)
Q2'03Q2'03Q1'03Q1'03Q1'01Q1'01 Q2'01Q2'01 Q3'01Q3'01 Q4'01Q4'01 Q1'02Q1'02 Q2'02Q2'02 Q3'02Q3'02 Q4'02Q4'02 Q3'03Q3'03 Q4'03Q4'03 Q1'04Q1'04 Q2'04Q2'04 Q3'04Q3'04 Q4'04Q4'04
100100
200200
300300
400400
500500
600600
Dealer UnitsDealer Units Direct UnitsDirect Units
Today Minus 36 MonthsToday Minus 36 Months
Q1'05Q1'05
On Track to Reduce Attrition Below 14% for 2006
Attrition Rate Trends – Trailing 12 MonthsAttrition Rate Trends – Trailing 12 Months
20032003--Q1Q1 20032003--Q4Q4 20042004--Q1Q1 20042004--Q4Q4 20052005--Q1Q1
US ResidentialUS Residential 13.8% 16.9% 17.6% 14.3% 14.0%
US DealerUS Dealer 15.8% 17.0% 16.7% 18.0% 19.0%
US CommercialUS Commercial 13.8% 13.1% 13.0% 13.1% 12.9%
US TotalUS Total 14.2% 15.5% 15.6% 14.9% 14.9%
ROWROW 12.3% 16.8% 15.9% 15.4% 16.5%
WorldwideWorldwide 13.6% 15.9% 15.7% 15.0% 15.4%
51
Total AccountsTotal Accounts
$3.6B $3.6B
Increased RPU Offsets Account DeclineIncreased RPU Offsets Account Decline
7,000,0007,000,000
7,200,0007,200,000
7,400,0007,400,000
7,600,0007,600,000
7,800,0007,800,000
20032003 20042004
$42$42
$41$41
$40$40
$39$39
$38$38
$37$37
Total AccountsTotal Accounts Monthly Revenue Per UserMonthly Revenue Per User Annual Monitoring RevenueAnnual Monitoring Revenue
$ RPU$ RPU
Replacing the Monitoring Revenue Decline Replacing the Monitoring Revenue Decline
3,6073,607
687687
123123
219219167167
102102 2828
2,0002,000
2,2002,200
2,4002,400
2,6002,600
2,8002,800
3,0003,000
3,2003,200
3,4003,400
3,6003,600
3,8003,800
2003 AMR2003 AMR AttritionAttrition ResalesResales ResidentialResidential CommercialCommercial RPURPUIncreaseIncrease
FX/OtherFX/Other 2004 AMR2004 AMR
3,5593,559
Annual Monitoring Revenue (AMR) ($ Millions)Annual Monitoring Revenue (AMR) ($ Millions)
52
Residential Sales Rep ProductivityResidential Sales Rep Productivity
0x0x
1x1x
2x2x
3x3x
4x4x
5x5x
6x6x
7x7x
8x8x
< 6 < 6 MosMos 6 6 MosMos -- 1 Yr1 Yr 1 Yr 1 Yr -- 2 Yrs2 Yrs > 3 Yrs> 3 Yrs
34%34%of Repsof Reps
20%20%of Repsof Reps
14%14%of Repsof Reps
32%32%of Repsof Reps
2,000 U.S. Residential Sales Reps, January 2005 2,000 U.S. Residential Sales Reps, January 2005
Units Booked / Residential Sales RepUnits Booked / Residential Sales Rep
Sales Rep Effectiveness Improves Dramatically Over Time
Sale
s R
ep P
rodu
ctiv
itySa
les
Rep
Pro
duct
ivity
Home and Away PackageMonthly Monitoring
Burglary Monitoring - Including ADT’s Quality Service Plan(Maintenance Program)
Life Safety Monitoring1
(Fire, Carbon Monoxide or Both)
Two-Way Voice
Cellular Backup
MobileSafety™ GPS
$__
$__
$__
$__
$__
Total $__
Package Total $__
Package Savings Per Month $19
FamilyPackageMonthly Monitoring
Burglary Monitoring - Including ADT’s Quality Service Plan (Maintenance Program)
Life Safety Monitoring1
(Fire, Carbon Monoxide or Both)
Two-Way Voice
Cellular Backup
Companion Services®2
$__
$__
$__
$__
$__
Total $__
Package Total $__
Package Savings Per Month $21
Family PlusPackageMonthly Monitoring
Burglary Monitoring - Including ADT’s Quality Service Plan(Maintenance Program)
Life Safety Monitoring1
(Fire, Carbon Monoxide or Both)
Two-Way Voice
Cellular Backup
Companion Services®2
$__
$__
$__
$__
$__
Total $__
Package Total $__
Package Savings Per Month $24
MobileSafety™ GPS $__
Residential RPU InitiativesResidential RPU Initiatives
53
ADT U.S. Monitoring CentersOperating Expense ProductivityADT U.S. Monitoring CentersOperating Expense Productivity
Building On Our Competitive Strength
8686888890909292949496969898
100100
20032003 20042004 Q1 2005Q1 2005
Expe
nse
per
Expe
nse
per
Mon
itore
d C
usto
mer
Mon
itore
d C
usto
mer
(Indexed to 100)(Indexed to 100)
Preparing the Foundation for GrowthPreparing the Foundation for Growth
20032003 20042004 20052005 20062006
Build Foundation for GrowthBuild Foundation for Growth
Operational ExcellenceOperational Excellence
Restructuring & DivestituresRestructuring & Divestitures
Business Model ChangesBusiness Model Changes
Control & IntegrationControl & Integration……Teamwork & CultureTeamwork & Culture
54
Increasing Sales Force to Drive GrowthIncreasing Sales Force to Drive Growth
Sales HeadcountSales Headcount
6,5006,500
7,5007,500
8,5008,500
9,5009,500
10,50010,500
11,50011,500
12,50012,500
13,50013,500
Sept '03Sept '03 Sept '04Sept '04 Jan '05Jan '05
WW WW SecuritySecurity (ex. Cont. Europe)(ex. Cont. Europe)Continental Europe SecurityContinental Europe Security
WW FireWW Fire
1,0001,000
2,0002,000
3,0003,000
4,0004,000
5,0005,000
Sep '03Sep '03 Sep '04Sep '04 Jan '05Jan '05
ADT U.S. "Feet on the Street"ADT U.S. "Feet on the Street"
ResidentialResidential CommercialCommercial
Combined With Focus on Quality & Productivity
Summary of Top Growth InitiativesSummary of Top Growth Initiatives
Expand and upgrade sales force while Expand and upgrade sales force while increasing sales force productivityincreasing sales force productivity
Increase revenue per customerIncrease revenue per customer
Provide industryProvide industry--best service packages, best service packages, leveraging technologiesleveraging technologies
Residential securityResidential security
Commercial securityCommercial security
Fire alarmsFire alarms
55
Worldwide Fire BusinessWorldwide Fire Business
38%
35%35%
45%
26%26%
Revenue $3.7BRevenue $3.7B Gross Profit $1.0BGross Profit $1.0B
20042004
13%13% 14%14%
14%14% 15%15%
Sprinkler Sprinkler ElectronicElectronic SuppressionSuppression OtherOther
Worldwide Security BusinessWorldwide Security Business
39%39%
Revenue $6.4BRevenue $6.4B20042004
34%34%
27%27%
ROW SecurityROW Security ADT North America ResidentialADT North America ResidentialADT North America CommercialADT North America Commercial
ROW SecurityROW Security$2.5B$2.5B
ADT North AmericaADT North America$3.9B$3.9B
56
Commercial SecurityBuilding on Our Strong Foundation
Bob DaleBob DaleVice President, Commercial SalesVice President, Commercial SalesADT North AmericaADT North America
39%39%
34%34%
27%27%
ROW SecurityROW Security$2.5B$2.5B
ADT North AmericaADT North AmericaResidential Residential
$1.8B$1.8B
ADT North AmericaADT North AmericaCommercialCommercial
$2.1B$2.1B
2004 Worldwide Security Business - $6.4B2004 Worldwide Security Business - $6.4B
57
ADT Commercial StrengthsADT Commercial Strengths
Clear market leadershipClear market leadership…… Peace of MindPeace of MindRevenueRevenueCustomersCustomers
ContinentContinent--wide sales and service organizationwide sales and service organization
BrandBrand…… Always ThereAlways There
Unique integration of products and servicesUnique integration of products and services
240+ Offices240+ Offices2,500+ Sales Reps2,500+ Sales Reps 6,700+ Technicians6,700+ Technicians
Commercial Sales OrganizationCommercial Sales Organization
Small Business Small Business Middle Market Middle Market National AccountsNational Accounts
RetailerRetailerGovernment Government Financial ServicesFinancial ServicesCommercial / IndustrialCommercial / Industrial
8 of 10 Top National Banks
80% of Top 100 Retailers
850 Federal Courthouses
WeWe’’re Aligned To Best Serve Our Customersre Aligned To Best Serve Our Customers’’ NeedsNeeds
90% of Fortune 500
58
National Accounts
56%
ADT North America — Commercial SecurityADT North America — Commercial Security
Middle Middle MarketMarket
35%35%
RetailerRetailer56%56%
Commercial Commercial IndustrialIndustrial
25%25%
Government Government InstitutionsInstitutions
10%10%Financial Financial ServicesServices
9%9%
Small Small BusinessBusiness
9%9%
National Accounts Breakdown
2004 Revenue: $2.1 Billion2004 Revenue: $2.1 Billion
A Growing Commercial Business A Growing Commercial Business
5% Three-Year Compound Annual Growth
1.81.8
2.02.0
2.22.2
2.42.4
20022002 20032003 20042004 2005E2005E
($ Billions)($ Billions)
ADT North America Commercial RevenueADT North America Commercial Revenue
59
National Accounts Program – A Core StrengthNational Accounts Program – A Core Strength
Dedicated, specially trained Dedicated, specially trained resourcesresources
Monitoring centerMonitoring center
Special Operations CenterSpecial Operations Center
Program Management OfficeProgram Management Office
Account specific service and Account specific service and installation delivery installation delivery
Prioritized service deliveryPrioritized service delivery
Early adopters of technologyEarly adopters of technology
Loyal customer baseLoyal customer base
Organic Growth InitiativesOrganic Growth Initiatives
Increase revenue per user (RPU)Increase revenue per user (RPU)
Improve sales force effectivenessImprove sales force effectiveness
Focus on new vertical marketsFocus on new vertical markets
60
Increase Revenue Per User Through…Increase Revenue Per User Through…InnovationIntegrating monitoring services with digital video technologyVideo Verification, Guard Tours, Video Auditing
Product ExpansionBuilding on anti-theft solutions (EAS)Alarm Management, People Counting
LeadershipCapturing new markets and capitalizing on new regulationsVisible Source Tag for soft good customersNew retailer requirements and potential new regulations
InnovationIntegrating monitoring services with digital video technologyVideo Verification, Guard Tours, Video Auditing
Product ExpansionBuilding on anti-theft solutions (EAS)Alarm Management, People Counting
LeadershipCapturing new markets and capitalizing on new regulationsVisible Source Tag for soft good customersNew retailer requirements and potential new regulations
Centrally MonitoredCentrally MonitoredVideo Guard ToursVideo Guard Tours
People CountingPeople Counting Visible SourceVisible SourceTaggingTagging
Video AlarmVideo AlarmVerificationVerification
Organic Growth Through Our Sales TeamsOrganic Growth Through Our Sales Teams
Focused recruiting efforts Focused recruiting efforts Enhanced sales trainingEnhanced sales training
Introduced Introduced ‘‘model sales callmodel sales call’’Restructured commercial Restructured commercial sales organizationsales organizationAligned sales compensationAligned sales compensationDramatic improvement in Dramatic improvement in quality of sales repsquality of sales reps
Sales Rep Productivity by TenureSales Rep Productivity by Tenure
Strong Focus on Growing and Retaining Our Sales Force
0x0x1x1x2x2x3x3x4x4x5x5x6x6x7x7x8x8x
< 6 < 6 MosMos 6 6 MosMos -- 1 Yr1 Yr 1 Yr 1 Yr -- 2 Yrs2 Yrs > 3 Yrs> 3 Yrs
39%39%of Repsof Reps
17%17%of Repsof Reps
14%14%of Repsof Reps
30%30%of Repsof Reps
Units Booked / Commercial Sales RepUnits Booked / Commercial Sales Rep
Sale
s R
ep P
rodu
ctiv
ity
61
Organic Growth Through New Vertical MarketsOrganic Growth Through New Vertical Markets
Core Markets Emerging Opportunities
Financial ServicesFinancial Services
Retailer Supply ChainRetailerRetailer
Food ProcessingFleet ManagementCommercial / IndustrialCommercial / Industrial
Homeland SecurityWater
TransportationEducation
GovernmentGovernment
Small BusinessSmall Business
Transportation Transportation
The OpportunityAnnualized physical and electronic security spending estimated at $900 millionIncreases in Department of Homeland Security funding
Our Unique PositionProminent industry-specific experience
2/3 of the nation’s largest airports6 major seaportsWMATA (Washington DC mass transit system)
Strong project and program management capabilitiesProprietary products and services
The OpportunityAnnualized physical and electronic security spending estimated at $900 millionIncreases in Department of Homeland Security funding
Our Unique PositionProminent industry-specific experience
2/3 of the nation’s largest airports6 major seaportsWMATA (Washington DC mass transit system)
Strong project and program management capabilitiesProprietary products and services
Demonstrated Competency in Growth Market
62
EducationEducation
The OpportunityAnnualized public schools physical and electronic security spending estimated at $200 million
Increased pressure to provide “safe schools”
Our Unique PositionSchool Security Expert leading our program
Prominent industry-specific experience Protecting more than 6,000 locations
Robust product and service offering through integrated monitoring solutions
The OpportunityAnnualized public schools physical and electronic security spending estimated at $200 million
Increased pressure to provide “safe schools”
Our Unique PositionSchool Security Expert leading our program
Prominent industry-specific experience Protecting more than 6,000 locations
Robust product and service offering through integrated monitoring solutions
Uniquely Positioned to Capitalize on National Standards Executed Locally
Monroe County Schools, GeorgiaMonroe County Schools, Georgia
Food ProcessingFood Processing
The OpportunityAnnualized market estimated at $300 millionFocus on food safety
New Market – New Services – New Applications
Our Unique PositionStrong service delivery platformUnique product and service offering
Combine traditional security applicationswith video auditing servicesExpand applications outside of security
Early adopters have chosen ADT standard
The OpportunityAnnualized market estimated at $300 millionFocus on food safety
New Market – New Services – New Applications
Our Unique PositionStrong service delivery platformUnique product and service offering
Combine traditional security applicationswith video auditing servicesExpand applications outside of security
Early adopters have chosen ADT standard
Innovative Applications Leveraging Core Competencies
63
Retail Supply Chain - RFID SolutionsRetail Supply Chain - RFID Solutions
The OpportunityRFID market expected to grow at 32% thru 2010Driven by Wal-Mart, Target and DoD
Our Unique PositioningSolid foundation through source tagging experience Leader in physical layer deployment solutions
Tags, readers, antennas, servicesSuccessful projects outside retail supply chain
TransportationAsset TrackingPharmaceuticals
The OpportunityRFID market expected to grow at 32% thru 2010Driven by Wal-Mart, Target and DoD
Our Unique PositioningSolid foundation through source tagging experience Leader in physical layer deployment solutions
Tags, readers, antennas, servicesSuccessful projects outside retail supply chain
TransportationAsset TrackingPharmaceuticals
Sustainable Competitive Advantage In Supply Chain Solutions
Commercial SummaryCommercial Summary
Leader in attractive and growing marketsLeader in attractive and growing markets
Strong sales and service organizationStrong sales and service organization
Moving into new vertical markets Moving into new vertical markets
Expanding beyond traditional security applicationsExpanding beyond traditional security applications
Strong Foundation For Growth
64
Dean Dean SeaversSeaversPresident, President, SimplexGrinnellSimplexGrinnell
SimplexGrinnellRepositioning for Higher Growth and Improved Profitability
2004 Fire Business Revenue2004 Fire Business Revenue
38%
35%35%
Worldwide Worldwide $3.7B$3.7B
13%13%
14%14%
Sprinkler Sprinkler ElectronicElectronic SuppressionSuppression OtherOther
57%57%
34%34%
9%9%
SimplexGrinnellSimplexGrinnell(North America)(North America)
$1.7B$1.7B
65
WorldwideWorldwide$3.7B$3.7B
Emphasizing High Recurring Margins
55%55%45%45%
Service Installation
Our Business Emphasis is ServicesOur Business Emphasis is Services
SimplexGrinnellSimplexGrinnell(North America)(North America)
$1.7B$1.7B
52%52% 48%48%
SimplexGrinnell OverviewSimplexGrinnell Overview
150150--Year Industry Leadership in Life Safety SolutionsYear Industry Leadership in Life Safety Solutions
IndustryIndustry’’s Largest Service Organizations Largest Service Organization11,500+ Employees11,500+ Employees117 Sales & Service Offices117 Sales & Service Offices3,600+ Service Technicians3,600+ Service Technicians
Uniquely Positioned to Service Multi-site Customers with a Local Presence
MarketDesign Installation Service Position
Fire Alarm X X X #1Sprinkler X X X #1Suppression X X X #1
66
Market DynamicsMarket Dynamics
Commercial construction recovery continuesCommercial construction recovery continuesIncreased retroIncreased retro--fit and upgrade opportunitiesfit and upgrade opportunities
Fire codes drive demandFire codes drive demandRhode Island nightclubsRhode Island nightclubsIllinois college dormitoriesIllinois college dormitories
Source: McGraw-Hill Construction. (Non-residential)
+ 9%+ 10%+ 3%2006E2005E2004
2006E2005E2004Targeted Verticals
7%4%9%Healthcare6%13%4%Government7%13%- 8%Education
North American NonNorth American Non--Residential Construction SpendingResidential Construction Spending
Strategy: Service Market LeadershipStrategy: Service Market Leadership
Fire AlarmFire Alarm SprinklerSprinkler SuppressionSuppression
Gain installation Gain installation market sharemarket shareIncrease conversion Increase conversion to serviceto serviceFire code mandatedFire code mandated
Maximize product Maximize product mix marginsmix marginsBalance installation Balance installation and service and service Fire code mandated Fire code mandated
CrossCross--sell to existing sell to existing customerscustomersOffer full portfolio to Offer full portfolio to new customersnew customersFire code mandatedFire code mandated
Low Capital Investment Produces High Incremental ROIC
67
Significant Repositioning in 2004 Significant Repositioning in 2004
Restructured & Aligned OrganizationRestructured & Aligned OrganizationCentralized Business PracticesCentralized Business PracticesCenters of ExcellenceCenters of ExcellenceConsolidation of Back Office SystemsConsolidation of Back Office Systems
Operational ExcellenceOperational ExcellenceInstitutionalizing Best PracticesInstitutionalizing Best PracticesSix Sigma led Process ImprovementSix Sigma led Process ImprovementStandardized Business Model & Measurement Standardized Business Model & Measurement
Before AfterField Offices 152 117Finance Centers 4 1Headcount 12,300+ 11,500+
Measuring for Future Success Measuring for Future Success
TOP FIVE SERVICE INDICATORS Total 60 days 90 Days 120 DaysDISTRICT RATIO Sprinkler X X X X
BENCHM ARK ACTUAL PERCENTAGE Fire Alarm X X X XSuppresion X X X X
SERVICE GROW TH - DOLLAR X X X Natl Accts X X X XAVERAGED REVENUE PER TR X X X Total X X X XM ARGIN PERCENTAGE X X XCRIF RETENTION PERCENTAGE X X X YTD2004 YTD2003 Variance BnchmrkCUSTOM ER SATISFACTION RATIO X X X X X X X Days
CUSTOM ER SATISFACTION 2004 2003 Variance Bnchmrk
DISTRICT RATIO M TH X X X XBENCHM ARK ACTUAL PERCENTAGE YTD X X X X
DSO in Days X X X 2004 2003 Variance BnchmrkCancellations Im puted X X X MTH X X X XA/R over 90 X X X YTD X X X XPast due Insp X X X
Total X X X 2004 2003 Variance PercentM TH X X X XYTD X X X X
2004 2003 Variance Bnchmrk T&M Fixed PM A Total %PM AAvg Rev per TR X X X X M ONTH X X X X XAvg Cost per TR X X X X YTD X X X X XCost vs Rev % X X X XAvg T&M Call X X X X Actual Credit Variance BnchmrkAvg Deficiency X X X X M ONTH X X X X XAvg Inspection X X X X YTD X X X X X
# TRsCurrent Month YTD Current M onth X Current M onth Prior Year
Beginning CRIF X X Prior M onth X $ % of Base $ % Net increases X X YTD Average X PM A X X X XNet decreases X X TR Utilization X Inspections X X X XNet RIF gain/loss X X Benchmark X Total X X X XEnding CRIF X X Em ployee Turnover XRIF Gain/loss X X Benchmark X
SERVICE DAYS SALES OUTSTANDING (DSO)
PM A CANCELLATION RATE
SERVICE M ARGIN GROW TH
PAST DUE SPECIAL ACTION
Daily Technician Productivity OVERTIME
W ARRANTY
CRIF ANALYSIS STAFFING PAST DUE INSPECTION REVENUE
Score Card across Disciplines
2004 2003 Variance BnchmrkAvg Rev per TR X X X XAvg Cost per TR X X X XCost vs Rev % X X X XAvg T&M Call X X X XAvg Deficiency X X X XAvg Inspection X X X X
Daily Technician Productivity
68
Capturing Recurring RevenueCapturing Recurring Revenue
Customer Retention ValueCustomer Retention ValueLarge project service capture rate at 60%Large project service capture rate at 60%Average 10Average 10--year cycle of service revenueyear cycle of service revenueTotal project profit 9.8 times greater than original projectTotal project profit 9.8 times greater than original project’’ss
Response & RecoveryResponse & Recovery
Customer Retention& Loyalty
Customer Retention& Loyalty
Employee MarketingCampaign
Employee MarketingCampaign
Customer Retention
Unique Product and Service OfferingsUnique Product and Service Offerings
Footprint Installation Service Installation Service Installation ServiceSimplexGrinnell National X X X X X XLocal Competitors Local X X X X X XNotifier Dealers X XSiemens Dealers X XEST Dealers X XJCI National X XS.A. Comunale Regional X X X XWestern States (API) Regional X X X XF.E. Moran Regional X X X XCOSCO Regional X X X X
Fire Alarm Sprinkler Suppression
Local Players are Fiercest Competitors
69
Providing Continent-wide Service Across the Full Portfolio
Unique Product and Service OfferingsUnique Product and Service Offerings
Footprint Installation Service Installation Service Installation ServiceSimplexGrinnell National X X X X X XLocal Competitors Local X X X X X XNotifier Dealers X XSiemens Dealers X XEST Dealers X XJCI National X XS.A. Comunale Regional X X X XWestern States (API) Regional X X X XF.E. Moran Regional X X X XCOSCO Regional X X X X
Fire Alarm Sprinkler Suppression
Organic Growth DriversOrganic Growth Drivers
Architects & Engineers Program Architects & Engineers Program
Legislative SymposiumsLegislative Symposiums
New Products and ServicesNew Products and Services
70
Architects & Engineers ProgramArchitects & Engineers Program
Increase market demandIncrease market demand
Promote SimplexGrinnell as Promote SimplexGrinnell as preferred sourcepreferred source
Conduct product and code Conduct product and code training seminarstraining seminars
Legislative SymposiumsLegislative Symposiums
Market leadership initiative Market leadership initiative Focus on emerging regulationsFocus on emerging regulations
Multiple statewide symposiumsMultiple statewide symposiums
Position Position SimplexGrinnellSimplexGrinnell as the safe choiceas the safe choice
71
Voice Intelligibility ProgramVoice Intelligibility ProgramEmerging market for audibility testingEmerging market for audibility testing
Service ProgramService ProgramHealthcare market drivenHealthcare market driven
Maintenance ProgramMaintenance ProgramBuilding customer retention and loyaltyBuilding customer retention and loyalty
New Products & ServicesNew Products & Services
SummarySummary
Repositioned for margin expansion and Repositioned for margin expansion and longlong--term growthterm growth
Focused on growing market share and Focused on growing market share and recurring servicesrecurring services
Strategy is in place & execution is Strategy is in place & execution is the prioritythe priority
72
2005 Outlook2005 Outlook
20042004 20052005OutlookOutlook
RevenueRevenue $11.4$11.4 $11.7 $11.7 –– $12.0$12.0
Operating MarginOperating Margin 10%10% 12%+12%+
Free Cash FlowFree Cash Flow $1.5$1.5 $1.5+$1.5+
($ Billions)($ Billions)
SummarySummary
Business changes driving strong cash flowBusiness changes driving strong cash flow
Expanding margins through Expanding margins through Operational ExcellenceOperational Excellence
Working through the effects of legacy modelsWorking through the effects of legacy models
Positioned for accelerated organic growthPositioned for accelerated organic growth
Execution is keyExecution is key
73
AppendixAppendix
Non-GAAP Measures
Cash Flow Reconciliation
Organic Growth Reconciliation
Fire & Security Operating Income Reconciliation
Non-GAAP Measures - EarningsNon-GAAP Measures - Earnings
“EPS from continuing operations excluding charges” is a non-GAAP measures and should not be considered replacements for GAAP results.
The company has forecast its EPS from continuing operations results excluding divestiture charges and charges relating to early retirement of debt to give investors additional perspective on the underlying business results. Because the company cannot predict the amount and timing of divestitures or debt retirement and the associated charges or gains that will be taken, it is difficult to accurately include the impact of those items in the forecast. The company has forecast its cash flow results excluding any voluntary pension contribution because it has not yet made a determination about the amount and timing of any such contribution.
74
Non-GAAP Measures - CashNon-GAAP Measures - Cash
“Cash flow excluding voluntary pension contributions” and “free cash flow” (FCF) are non-GAAP measures and should not be considered replacements for GAAP results.
The difference between cash flows from operating activities (the most comparable GAAP measure) and FCF (the non-GAAP measure) consists mainly of significant cash outflows that the company believes are useful to identify. FCF permits management and investors to gain insight into the number that management employs to measure cash that is free from any significant existingobligation. It is also a significant component in the company’s incentive compensation plans. The difference reflects the impact from:• the sale of accounts receivable programs, • net capital expenditures, • acquisition of customer accounts (ADT dealer program), • cash paid for purchase accounting and holdback/earn-out liabilities and• dividends paid.
The impact from the sale of accounts receivable programs is added or subtracted from the GAAP measure because this activity is driven by economic financing decisions rather than operating activity. Capital expenditures, the ADT dealer program and dividends are subtracted because they represent long-term commitments. Cash paid for purchase accounting and holdback/earn-out liabilities is subtracted from Cash Flow from Operating Activities because these cash outflows are not available for general corporate uses.
The limitation associated with using FCF is that it subtracts cash items that are ultimately within management’s and the Board of Directors’ discretion to direct and that therefore may imply that there is less or more cash that is available for the company's programs than the most comparable GAAP measure. This limitation is best addressed by using FCF in combination with the GAAP cash flow numbers.
FCF as presented herein may not be comparable to similarly titled measures reported by other companies. The measure should be used in conjunction with other GAAP financial measures. Investors are urged to read the company’s financial statements as filed with the Securities and Exchange Commission, as well as the accompanying tables to this press release that shows all the elements of the GAAP measures of Cash Flows from Operating Activities, Cash Flows from Investing Activities, Cash Flows from Financing Activities and a reconciliation of the company's total cash and cash equivalents for the period.
Non-GAAP Measures - GrowthNon-GAAP Measures - Growth
“Organic Revenue Growth” is a non-GAAP measures and should not be considered replacements for GAAPresults.
“Organic revenue growth” is an important measure used by the company to measure the underlying results and trends in the business. The difference between reported net revenue growth (the most comparable GAAP measure) and organic revenue growth (the non-GAAP measure) consists of the impact from foreign currency, acquisitions and divestitures, and other changes that do not reflect the underlying results and trends (for example, revenue reclassifications and changes to the fiscal year).
Organic revenue growth is an important measure of the company’s performance because it excludes items that: i) are not completely under management’s control, such as the impact of foreign currency exchange; or ii) do not reflect the underlying growth of the company, such as acquisition and divestiture activity, or revenue reclassification. It is also a component of the company’s compensation programs. The limitation of this measure is that it excludes items that have an impact on the company’s revenue. This limitation is best addressed by using organic revenue growth in combination with the GAAP numbers. See the accompanying tables to this press release for the reconciliation presenting the components of organic revenue growth.
75
Cash Flow Reconciliation - 2004Cash Flow Reconciliation - 2004
Year Ended September 30, 2004(in millions)
F&S Electronics Healthcare TEPS P&A Corp Total
Net cash provided by (used in) operating activities 2,019$ 2,147$ 2,493$ 749$ 189$ (2,213)$ 5,384$
Capital expenditures, net (335) (370) (239) (45) (28) 2 (1,015)
Dividends paid - - - - - (100) (100)
Decrease in sale of accounts receivable programs 97 20 112 - - 700 929
Acquisition of customer accounts (ADT dealer program) (254) - - - - - (254)
Cash paid for purchase acccounting and holdback/earn-out liabilities (31) (48) (12) (14) (2) - (107)
Free Cash Flow 1,496$ 1,749$ 2,354$ 690$ 159$ (1,611)$ 4,837$
Cash Flow Reconciliation – 2003Cash Flow Reconciliation – 2003
Year Ended September 30, 2003(in millions)
F&S Electronics Healthcare TEPS P&A Corp Total
Net cash provided by (used in) operating activities 1,930$ 1,890$ 2,480$ 330$ 287$ (1,608)$ 5,309$
Capital expenditures, net (508) (405) (191) (46) (19) (105) * (1,274)
Dividends paid - - - - - (101) (101)
Decrease in sale of accounts receivable programs 34 7 58 - - 20 119
Acquisition of customer accounts (ADT dealer program) (597) - - - - - (597)
Cash paid for purchase acccounting and holdback/earn-out liabilities (81) (67) (53) (66) (5) - (272)
Free Cash Flow 778$ 1,425$ 2,294$ 218$ 263$ (1,794)$ 3,184$
* Includes $113M related to the construction of TGN
76
Organic Revenue Growth ReconciliationOrganic Revenue Growth Reconciliation
Divestiture Divestiture and Other and Other
ImpactImpact
Foreign Foreign Currency Currency
ImpactImpact
Organic Organic Revenue Revenue GrowthGrowth 9/30/20039/30/2003
Revenue Revenue Revenue Revenue 9/30/20049/30/2004
(2) Revenue relates to the TGN Business held for sale.Revenue relates to the TGN Business held for sale.
(%) (%)526$ 5.0 (82)$ (0.9)560 5.5 (34) (0.7)292 3.5 (5) (0.1)
298 6.6 759 16.89 0.5 - 0.0
- NM - NM
10,832$ 10,4928,420
4,4981,731
1435,987$ 1,685$ 4.8 638$ 1.6
(%)171 1.6804 7.9403 4.8
452 10.12 0.1
11 NM1,843$ 5.2
(%)11,447$ 5.711,822 12.79,110 8.2
6,007 33.61,742 0.7
2540,153$ 11.6
NM
(1)
Fire and SecurityElectronicsHealthcareEngineered Products
and ServicesPlastics and AdhesivesCorporate and OtherTotal Net Revenues
(2)
Amount consists of $739M related to a revenue reclassification at Infrastructure Services for certain subcontract costs previouslytreated as pass through to customers and $18M of Infrastructure Services revenue which resulted from the consolidation of several joint ventures under FIN 46 during Fiscal 2004.
(1)
Year Ended September 30, 2004(in millions)
Fire & Security Operating Income ReconciliationFire & Security Operating Income Reconciliation($Millions)($Millions)
U.S. GAAP Operating IncomeGAAP Operating Margin
$8997.9%
Intensified Internal Audit Process 0
Impairments 34
Restructuring 180
Policy Conformance, Principally Bad Debt 0
$1,168$1,16810.2%10.2%
Adjusted Operating IncomeAdjusted Operating Margin
$3423.2%
266
143
10
93
$854$8547.9%7.9%
200420042003*2003*
Gain/(Loss) On Divestitures 550
*2003 results reclassified to exclude discontinued operations