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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1 ON FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) OCTOBER 1, 1998
0-16979
(COMMISSION FILE NUMBER)
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TYCO INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA NOT APPLICABLE
(JURISDICTION OF INCORPORATION) (IRS EMPLOYER
IDENTIFICATION NUMBER)
THE GIBBONS BUILDING, 10 QUEEN STREET, SUITE 301, HAMILTON, HM 11, BERMUDA
(ADDRESS OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
441-292-8674*
(REGISTRANT'S TELEPHONE NUMBER)
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* The executive offices of the Registrant's principal United States
subsidiary, Tyco International (US) Inc., are located at One Tyco Park,
Exeter, New Hampshire 03833. The telephone number there is (603) 778-9700.
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ITEM 5. OTHER EVENTS
On October 1, 1998, Tyco International Ltd. (the "Company" or "Tyco")
consummated a merger with United States Surgical Corporation ("USSC"). USSC
develops, manufactures and markets a line of surgical wound closure products and
advanced surgical products to hospitals throughout the world. Shareholders of
USSC received 0.7606 shares of Tyco common stock in exchange for each
outstanding share of USSC. A total of approximately 59.2 million shares were
issued in this transaction.
The supplemental consolidated financial statements filed herewith have been
prepared accounting for the merger using the pooling of interests method of
accounting. Upon publication of the Company's financial statements for a period
which includes October 1, 1998, these supplemental consolidated financial
statements will become the historical financial statements of the Company.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) Exhibits
Exhibit
Number Title
- ------- -----
23.1 Consent of PricewaterhouseCoopers*
23.2 Consent of Arthur Andersen LLP*
23.3 Consent of Deloitte & Touche LLP*
99.1 Supplemental Consolidated Financial Statements of Tyco International
Ltd. as of September 30, 1998 and 1997 and for the fiscal year ended
September 30, 1998, the nine month fiscal period ended September 30,
1997 and the year ended December 31, 1996, and Reports of Independent
Accountants thereon.*
99.2 Management's Discussion and Analysis of Financial Condition and
Results of Operations, as amended. (Filed herewith.)
99.3 Schedule II - Valuation and Qualifying Accounts of Tyco International
Ltd.*
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* Previously filed.
1
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TYCO INTERNATIONAL LTD.
By /s/ MARK H. SWARTZ
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MARK H. SWARTZ
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
Date: December 11, 1998
2
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EXHIBIT INDEX
Exhibit
Number
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23.1 Consent of PricewaterhouseCoopers*
23.2 Consent of Arthur Andersen LLP*
23.3 Consent of Deloitte & Touche LLP*
99.1 Supplemental Consolidated Financial Statements of Tyco International
Ltd. as of September 30, 1998 and 1997 and for the fiscal year ended
September 30, 1998, the nine month fiscal period ended September 30,
1997 and the year ended December 31, 1996, and Reports of Independent
Accountants thereon.*
99.2 Management's Discussion and Analysis of Financial Condition and
Results of Operations, as amended. (Filed herewith.)
99.3 Schedule II - Valuation and Qualifying Accounts of Tyco International
Ltd.*
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* Previously filed.
3
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EXHIBIT 99.2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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TYCO INTERNATIONAL LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis relates to the Supplemental
Consolidated Financial Statements of Tyco International Ltd and its subsidiaries
("Tyco" or the "Company") as of September 30, 1998 and 1997, and for the year
ended September 30, 1998, the nine months ended September 30, 1997 and the year
ended December 31, 1996 ("Supplemental Consolidated Financial Statements").
On October 1, 1998, Tyco consummated a merger with United States Surgical
Corporation ("USSC"). This transaction was accounted for as a pooling of
interests and, accordingly, the Supplemental Consolidated Financial Statements
reflect the combined financial position and results of operations and cash flows
of Tyco and USSC for all periods presented. Upon publication of the Company's
consolidated financial statements for a period which includes October 1, 1998,
the Supplemental Consolidated Financial Statements will become the historical
consolidated financial statements of the Company. See Notes 1 and 2 to the
Supplemental Consolidated Financial Statements.
RESULTS OF OPERATIONS
Information for all periods presented below reflects the grouping of the
Company's businesses into four business segments consisting of Disposable and
Specialty Products, Fire and Security Services, Flow Control Products, and
Electrical and Electronic Components.
In September 1997, the Company changed its fiscal year end from December 31
to September 30. References to Fiscal 1998, Fiscal 1997 and 1996 refer to the
twelve month fiscal year ended September 30, 1998, the transitional nine month
fiscal year ended September 30, 1997 and the calendar year ended December 31,
1996, respectively. In the discussions below, the results of operations for
Fiscal 1998 compare the fiscal year ended September 30, 1998 with the twelve
months ended September 30, 1997 (unaudited), and the results of operations for
Fiscal 1997 compare the nine months ended September 30, 1997 with the nine
months ended September 30, 1996 (unaudited).
Overview
Income (loss) before extraordinary items was $965.1 million, or $1.50 per
share on a diluted basis for Fiscal 1998, as compared to ($597.8) million, or
($1.08) per share, for the twelve months ended September 30, 1997. During Fiscal
1998, the Company incurred an after-tax charge of $81.1 million ($.13 per share)
primarily related to costs incurred by USSC to exit certain businesses. During
the twelve months ended September 30, 1997, the Company recorded an after-tax
charge of $1.42 billion ($2.39 per share) for merger and transaction costs,
writeoffs and integration costs associated with acquisitions (see Notes 2 and 3
to the Supplemental Consolidated Financial Statements). Excluding these
non-recurring charges, income before extraordinary items rose 27.1% to $1.05
billion, or $1.63 per diluted share for Fiscal 1998, as compared to $823.4
million, or $1.39 per diluted share in the twelve months ended September 30,
1997. The increase was attributable to margin improvements, increased sales and
results of acquired companies in each of the Company's business segments.
After each acquisition, acquired companies are immediately integrated and
Tyco does not separately track post-acquisition financial results. Accordingly,
amounts in the following analysis related to the impact of acquired companies
are estimates based on pre-acquisition results.
Sales
Sales increased 23% during Fiscal 1998 to $13.54 billion from $10.97 billion
in the twelve months ended September 30, 1997. Sales of the Disposable and
Specialty Products group increased $938.4 million to $4.67 billion, or 25%,
principally due to increased sales at Kendall, and to a lesser extent USSC, ADT
Automotive and Tyco Plastics and Adhesives. The increase at Kendall was
primarily due to the inclusion of Sherwood-Davis & Geck ("Sherwood") and CONFAB,
which were acquired in February 1998 and April 1998, respectively. Excluding the
impact of these acquisitions, sales increased an estimated $286.2 million, or
6%. Sales of the Fire and Security Services group increased $574.1 million, or
14%, to $4.74 billion primarily due to increased sales in the Company's
electronic security services business in the United States. This increase
relates to increased volume of recurring service revenues and to a lesser
extent, the inclusion of the results of companies acquired during Fiscal 1998.
Additionally, sales increased in the European security and fire protection
businesses due to an increase in service and recurring revenues and the
inclusion of the results of acquired
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companies. Sales of the Flow Control Products group increased $146.2 million to
$2.34 billion, or 7%, reflecting increased demand for the Company's valve
products in North America and Europe, higher volume at existing businesses at
Allied Tube & Conduit and Mueller and the inclusion of companies acquired in
Fiscal 1998. Sales of the Electrical and Electronic Components group increased
$905.5 million to $1.78 billion, or 103%, principally due to increased sales at
Tyco Submarine Systems Ltd. ("TSSL"), as well as increased sales at Tyco Printed
Circuit Group, offset slightly by decreased sales at Allied Electrical Conduit.
The increased sales at TSSL resulted principally from the acquisition of AT&T's
submarine systems business in July 1997. Excluding the impact of this
acquisition, sales increased an estimated $273.9 million, or 18%.
Sales increased 26% during the nine month fiscal period ended September 30,
1997 to $8.46 billion from $6.70 billion in the nine months ended September 30,
1996. Sales of the Disposable and Specialty Products group increased $620.3
million to $2.87 billion, or 28%, due to increased sales at Kendall, Tyco
Plastics, USSC and ADT Automotive. At Kendall and Tyco Plastics, the increase in
sales resulted principally from the INBRAND and Carlisle acquisitions,
respectively, as well as internal growth at Kendall's Healthcare and Polyken
businesses. Sales of the Fire and Security Services group increased $473.2
million, or 18%, to $3.15 billion due to increased sales in each geographic
region of the Company's fire protection operations, primarily as a result of an
increase in the volume of service business, as well as increases in the
Company's electronic security services businesses. Additionally, the results
include Thorn Security ("Thorn") which was acquired in July 1996. Sales of the
Flow Control Products group increased $266.8 million to $1.68 billion, or 19%,
reflecting higher volume at European Flow Control, including businesses acquired
in the last quarter of 1996 and first quarter of Fiscal 1997, from Mueller,
including businesses acquired in the third quarter of 1996, as well as increased
volume in existing businesses at Allied, including businesses acquired in the
first quarter of Fiscal 1997, and Grinnell's distribution operations, where
sales increased due to price increases. Sales were relatively unchanged at
Keystone, where growth in international operations was offset by reduced U.S.
dollar equivalents due to currency fluctuations. Sales of the Electrical and
Electronic Components group increased $396.4 million to $754.7 million, or 111%,
resulting principally from the acquisition of AT&T's submarine systems business
in July 1997 and increased sales at Simplex. Increased sales at the Printed
Circuit Group businesses were largely due to the acquisition of ElectroStar in
January 1997, and increased unit volume. Allied's electrical conduit operations
also increased sales.
Income (Loss) Before Income Taxes and Extraordinary Items
Pre-tax income (loss) before extraordinary items was $1.39 billion in
Fiscal 1998, as compared to ($597.8) million in the twelve months ended
September 30, 1997. Pre-tax income for Fiscal 1998 included charges of $92.5
million primarily related to costs incurred by USSC to exit certain businesses.
Pre-tax income for the twelve months ended September 30, 1997 included charges
of $1.57 billion for merger, restructuring and other non-recurring charges. See
Notes 11 and 15 to the Supplemental Consolidated Financial Statements. Excluding
these non-recurring charges, pre-tax income (loss) increased $263.8 million, or
22%, to $1.49 billion in Fiscal 1998. Amortization expense for goodwill and
other intangible assets was $233.1 million for Fiscal 1998 and $140.2 million
for the twelve months ended September 30, 1997. The following analysis is
presented exclusive of these non-recurring charges to better portray the
comparability of recurring operations.
Operating profits of the Disposable and Specialty Products group decreased
$160.0 million to $437.7 million in Fiscal 1998, or 26.8%. Operating profits
were 9.4% of sales in Fiscal 1998 and 16.0% in the twelve months ended September
30, 1997. The net decrease was principally due to a decrease in the operating
margin at USSC, partially offset by increased sales at Kendall, including the
effect of the acquisition of Sherwood, fixed cost reductions due to the
integration of Sherwood and increased volume and better margins at Tyco Plastics
and Adhesives. The decrease in the operating margin at USSC was primarily due to
reduced sales during the year of higher margin products in an attempt to lower
excess inventory levels at distributors and increased costs, principally related
to the accrual of approximately $105.8 million related to a commitment for
special hospital educational programs. Operating profits of the Fire and
Security Services group increased $217.5 million to $654.9 million, or 50%.
Operating profits as a percentage of sales were 13.8% in Fiscal 1998, as
compared to 10.5% in the twelve months ended September 30, 1997. The overall
increase was principally due to increases in service volume, including recurring
monitoring revenue, in the security and fire protection businesses and higher
margins in each geographic region of the Company's security services business.
The operating profits of the Flow Control Products group increased $80.3 million
to $325.9 million, or 33%. Operating profits were 13.9% of sales in Fiscal 1998,
as compared to 11.2% in the twelve months ended September 30, 1997. The increase
was due to increased volume and margins in the Company's North American and
European Flow Control Products operations, including Keystone's valve products,
which have been integrated into the Company's operations. In addition, there
were higher sales and margins at Allied Tube & Conduit. Operating profits of the
Electrical and Electronic Components group increased $208.6 million to $367.5
million, or 131%, principally due to the acquisition of AT&T's submarine systems
business in July 1997. Operating profits as a percentage of sales were 20.6% in
Fiscal 1998, as compared to 18.2% in the twelve months ended September 30, 1997.
Operating margins increased due to sales increasing at a higher rate than
expenses at Tyco Printed Circuit Group and improved operating efficiencies at
Allied Electrical Conduit, offset by slightly decreased margins at Tyco
Submarine Systems Ltd.
The effect of changes in foreign exchange rates during Fiscal 1998, as
compared to the twelve months ended September 30, 1997, was not material to the
Company's sales and operating profits.
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Operating profits of the Disposable and Specialty Products group increased
$90.9 million to $459.3 million in Fiscal 1997, or 24.7%, reflecting higher
earnings at USSC and Kendall, including improved manufacturing efficiencies and
the earnings of INBRAND, Tyco Plastics, which, in addition to internal growth in
volume and prices, includes the results of Carlisle from September 1996, and ADT
Automotive. Operating profits of the Fire and Security Services group increased
$77.9 million to $336.7 million, or 30%, due to higher margins in each
geographic region of the Company's fire protection operations and electronic
security businesses as well as the inclusion of Thorn. The higher margins in
fire protection were the result of a higher mix of service work within the
contracting business. The operating profits of the Flow Control Products group
increased $47.2 million to $193.7 million, or 32%, resulting principally from
increases in each of Company's operations, and the results of businesses
acquired in Fiscal 1997. Increases in the Company's European Flow Control
businesses were primarily due to increased margins as well as the inclusion of
acquisitions. Increases at Allied and Mueller were a combination of stronger
operating profits resulting from improved operating efficiencies as well as the
inclusion of acquisitions. Operating profits of the Electrical and Electronic
Components group increased $69.9 million to $136.4 million, or 105%, due to
increased earnings at TSSL, principally due to the acquisition of AT&T's
submarine systems business and increased operating levels. Earnings were also up
at the Printed Circuit Group businesses, including ElectroStar, and at Allied's
Electrical Conduit operations.
The effect of changes in foreign exchange rates during Fiscal 1997, as
compared to the nine months ended September 30, 1996 was not material to the
Company's sales and operating profits.
Corporate and other expenses were $68.3 million in Fiscal 1998 compared to
$56.8 million in the twelve months ended September 30, 1997. Corporate and other
expenses were $44.8 million in Fiscal 1997 and $31.4 million in the nine months
ended September 30, 1996. These increases were due principally to higher
compensation expense under the Company's performance-related, incentive
compensation plans.
Interest Expense
Interest expense increased $71.0 million to $270.1 million in Fiscal 1998,
as compared to the twelve months ended September 30, 1997, due to higher average
debt balances, as a result of monies borrowed to pay for acquisitions, partially
offset by lower average interest rates. The weighted average rate of interest on
all long-term debt during Fiscal 1998, Fiscal 1997 and 1996 was 6.5%, 7.4% and
7.9%, respectively. Interest expense decreased $8.2 million to $144.8 million
during Fiscal 1997, as compared to the nine months ended September 30, 1996, due
to lower average interest rates partially offset by higher average debt
balances, as a result of monies borrowed to make acquisitions.
Extraordinary Items
Extraordinary items in Fiscal 1998, Fiscal 1997 and 1996 included net losses
amounting to $2.4 million, $58.3 million and $8.4 million, respectively, arising
on the reacquisition of certain of the Company's senior, senior subordinated and
public notes and the write off of net unamortized deferred financing costs
related to the LYONS. Further details are provided in Notes 4 and 13 to the
Supplemental Consolidated Financial Statements.
Income Tax Expense
The effective income tax rate was 29.6% during Fiscal 1998 as compared to
32.7% in the twelve months ended September 30, 1997, and 33.5% in the nine
months ended September 30, 1997 as compared to 34.5% in the nine months ended
September 30, 1996. The decreases in the effective income tax rates were due to
higher earnings in domiciles with lower income tax rates. The effective income
tax rates for 1998, 1997 and 1996 exclude the impact of non-recurring charges.
Management believes that the Company will generate sufficient future income to
realize the tax benefits related to its deferred tax asset. A valuation
allowance has been maintained due to continued uncertainties of realization of
certain tax attributes, primarily tax loss carryforwards. See Note 7 to the
Supplemental Consolidated Financial Statements.
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LIQUIDITY AND CAPITAL RESOURCES
As presented in the Supplemental Consolidated Statement of Cash Flows, net
cash provided by operating activities was $1.69 billion in Fiscal 1998. The
significant changes in working capital were a $184.6 million increase in
inventories, a $129.3 million increase in income taxes payable, a 91.4 million
increase in contracts in process and a $91.2 million increase in accounts
receivable. The impact of changes in foreign exchange rates during Fiscal 1998
did not materially affect net working capital. Working capital requirements are
not anticipated to increase substantially in Fiscal 1999.
During Fiscal 1998, the Company used cash of $4.25 billion to acquire
companies in its four business segments, $846.2 million to purchase property,
plant and equipment, $222.6 million to purchase treasury shares and $68.8
million to pay dividends to shareholders.
The level of capital expenditures is expected to increase moderately in
Fiscal 1999, and the primary source of funds for such expenditures is expected
to be cash from operations.
Expenditures for environmental matters are not expected to have a material
effect on the Company in Fiscal 1999. See Note 16 to the Supplemental
Consolidated Financial Statements.
The source of the cash used for acquisitions was an increase in total debt,
proceeds from the sale of common shares and cash flows from operations. At
September 30, 1998, the Company's total debt was $5.61 billion, as compared to
$2.87 billion at September 30, 1997. The increase resulted principally from net
proceeds received of approximately $2.74 billion from the issuance of public
debt, discussed below, and the issuance of $300.0 million 7.25% senior notes due
2008, partially offset by the repayment of amounts outstanding under the
sterling denominated bank facility and the exchange of $155.3 million principal
balance of LYON's for common shares. Goodwill and other intangible assets were
$7.01 billion at September 30, 1998, compared to $3.30 billion at September 30,
1997. Shareholder's equity was $7.20 billion, or $11.15 per share, at September
30, 1998, compared to $4.66 billion, or $7.84 per share, at September 30, 1997.
The increase in shareholders' equity was due primarily to net proceeds of
approximately $1.25 billion from the sale of 25.3 million common shares, net
income of $962.7 million and proceeds of $348.7 million from the exercise of
options. Total debt as a percent of total capitalization (total debt and
shareholders' equity) was 44% at September 30, 1998 and 38% at September 30,
1997.
In February 1998, Tyco US entered into a new $2.25 billion credit agreement
with a group of commercial banks, giving it the right to borrow (a) up to $1.75
billion until February 12, 1999, with the ability to extend, at the option of
Tyco US, to February 12, 2000, and (b) up to $0.5 billion until February 12,
2003. Interest payable on borrowings is variable based upon the borrower's
option of selecting a Eurodollar rate plus margins ranging from 0.17% to 0.19%,
a certificate of deposit rate plus margins ranging from 0.295% to 0.315%, or a
base rate, as defined. If the outstanding principal amount of loans equals or
exceeds one-third of the commitments, the Eurodollar and certificate of deposit
margins are increased by 0.10%. Repayments of amounts outstanding under this
agreement are guaranteed by the Company. In accordance with the terms of this
agreement, in June 1998 Tyco US and Tyco International Group S.A. ("TIG"), a
wholly-owned subsidiary of the Company, elected that TIG become the borrower and
that Tyco US cease to be the borrower under this agreement. All other terms and
conditions in effect remained unchanged. Substantially all amounts outstanding
under this credit agreement have been classified as long-term, based on the
Company's ability and intent to refinance this obligation on a long-term basis.
Simultaneous with the closing of the new credit agreement, Tyco US reduced
aggregate commitments available under the previously existing credit agreement
from $1.75 billion to $950 million. In March 1998, Tyco US terminated the $950
million credit agreement. Balances outstanding at the time of termination were
repaid with net proceeds from the sale of common shares, discussed below.
In March 1998, the Company sold 25.3 million common shares for approximately
$1.25 billion under a $2.0 billion public shelf registration statement. The net
proceeds from the sale were used to repay indebtedness incurred for previous
acquisitions.
In June 1998, TIG issued $750 million 6 1/8% notes due 2001, $750 million 6
3/8% notes due 2005, $750 million 6 1/4% Dealer Remarketable Securities(sm)
("Drs.")(sm) due 2013 and $500 million 7.0% notes due 2028 under a $3.75 billion
public shelf registration statement. Under the terms of the Drs., the
Remarketing Dealer has an option to remarket the Drs. in June 2003, which if
exercised would subject the Drs. to mandatory tender to the Remarketing Dealer
and reset the interest rate to an adjusted fixed rate until June 2013. If the
Remarketing Dealer does not exercise its option then all Drs. are required to be
tendered to the Company in June 2003. Repayment of amounts outstanding under
these debt
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securities are fully and unconditionally guaranteed by Tyco. The net proceeds of
approximately $2.74 billion were used to repay borrowings under the $2.25
billion bank credit facility and uncommitted lines of credit of Tyco US. In
connection with the offering of these debt securities, TIG has entered into two
interest rate swap agreements to hedge a portion of the fixed interest rate
terms. These two swap agreements are each based on a notional amount of $650
million and are for a five and seven year term, respectively. Under the terms of
the agreements, TIG receives payments based on fixed interest rates and pays
variable rates, based on LIBOR, not to exceed a specified maximum. Interest is
received or paid semi-annually in June and December. During Fiscal 1998, the
effective interest rate on these instruments approximated the coupon rate.
In October 1998, TIG issued $800 million of debt in a private placement
offering consisting of two series of Notes: $400 million of 5.875% Notes due
November 2004 and $400 million of 6.125% Notes due November 2008. The Notes are
fully and unconditionally guaranteed by Tyco. The net proceeds of approximately
$791.7 million were used to repay borrowings under TIG's $2.25 billion bank
credit facility. In addition, TIG entered into an interest rate swap agreement
to hedge the fixed rate terms of the $400 million Notes due 2008. Under this
agreement, which expires in November 2008, TIG will receive payments at a fixed
rate of 6.125% and will make floating rate payments based on LIBOR, as defined.
See Note 4 to Supplemental Consolidated Financial Statements.
In December 1998, USSC made an offer of approximately $211 million to
purchase the debt which financed the property for the Owner Participant of the
USSC North Haven facilities.
The Company believes that its funding sources are adequate for its
anticipated requirements through expected cash flow from operations.
Backlog
Backlog at September 30, 1998 amounted to $4.15 billion, compared to $2.37
billion at September 30, 1997. Backlog increased in the Company's Electrical and
Electronic Components, Flow Control Products and Fire and Security Services
segments. Within the Electrical and Electronic Components group, backlog
increased principally due to contracts awarded to the Company's submarine
systems business. Within the Flow Control Products group, backlog increased
principally due to an increase in backlog at Earth Tech, including backlog
related to acquisitions, and in the Company's European flow control operations.
Within the Fire and Security Services group, backlog increased principally due
to an increase in backlog at the Company's worldwide security and North American
fire protection businesses.
YEAR 2000 COMPLIANCE
Year 2000 compliance programs and systems modifications were initiated by the
Company in Fiscal 1997 in an attempt to ensure that these systems and key
processes will remain functional. The Company is continuing its assessment of
the potential impact of the Year 2000 on date-sensitive information in computer
software programs and operating systems in its product development, financial
business systems and administrative functions, and has begun implementing
strategies to avoid adverse implications. This objective is expected to be
achieved either by modifying present systems using existing internal and
external programming resources or by installing new systems, and by monitoring
supplier, customer and other third-party readiness. Review of the systems
affecting the Company is progressing. The costs of the Company's Year 2000
program to date have not been material and the Company does not anticipate that
the costs of any required modifications to its information technology or
embedded technology systems will have a material adverse effect on its financial
position, results of operations or liquidity.
In the event that the Company or material third parties fail to complete
their Year 2000 compliance programs successfully and on time, the Company's
ability to operate its businesses, service customers, bill or collect its
revenues or purchase products in a timely manner could be adversely affected.
Although there can be no assurance that the conversion of the Company's systems
will be successful or that the Company's key third-party relationships will have
successful conversion programs, management does not expect that any such failure
would have a material adverse effect on the financial position, results of
operations or liquidity of the Company. The Company has day-to-day operational
contingency plans, and management is in the process of updating these plans for
possible Year 2000 specific operational requirements.
ACCOUNTING AND TECHNICAL PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which is effective for fiscal years
beginning after June 15, 1999. This statement establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value.
SFAS No. 133 also requires that changes in the derivative's fair value be
recognized currently in earnings unless specific hedge accounting criteria are
met. The Company is currently analyzing this new standard.
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FORWARD LOOKING INFORMATION
Certain statements in this report are "forward looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. All forward
looking statements involve risks and uncertainties. In particular, any statement
contained herein, in press releases, written statements or other documents filed
with the Securities and Exchange Commission, or in the Company's communications
and discussions with investors and analysts in the normal course of business
through meetings, phone calls and conference calls, regarding the consummation
and benefits of future acquisitions, as well as expectations with respect to
future sales, operating efficiencies and product expansion, are subject to known
and unknown risks, uncertainties and contingencies, many of which are beyond the
control of the Company, which may cause actual results, performance or
achievements to differ materially from anticipated results, performances or
achievements. Factors that might affect such forward looking statements include,
among other things, overall economic and business conditions; the demand for the
Company's goods and services; competitive factors in the industries in which the
Company competes; changes in government regulation; changes in tax requirements
(including tax rate changes, new tax laws and revised tax law interpretations);
interest rate fluctuations and other capital market conditions, including
foreign currency rate fluctuations; economic and political conditions in
international markets, including governmental changes and restrictions on the
ability to transfer capital across borders; the ability to achieve anticipated
synergies and other cost savings in connection with acquisitions; the timing,
impact and other uncertainties of future acquisitions; and the Company's ability
and its customers' and suppliers' ability to replace, modify or upgrade computer
programs in order to adequately address the Year 2000 issue.
