Tyco Electronics Investor Meeting

Transcription

1 Tyco Electronics Investor Meeting June 19, 2007 Agenda Overview / Strategic Priorities Financial Overview Tom Lynch, CEO Terrence Curtin, CFO Business Segment Overviews Electronic Components Tom Lynch, CEO Network Solutions Alan Clarke, President Wireless Systems Chuck Dougherty, President Wrap-Up / Q&A All 1

2 Forward-Looking Statement / Non-GAAP Measures This presentation contains certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of These statements are based on management s current expectations and are subject to risks, uncertainty and changes in circumstances, which may cause actual results, performance or achievements to differ materially from anticipated results, performance or achievements. All statements contained herein that are not clearly historical in nature are forward-looking and the words anticipate, believe, expect, estimate, plan, and similar expressions are generally intended to identify forward-looking statements. The forward-looking statements in this presentation may include statements addressing the following subjects: future financial condition and operating results, economic, business, competitive and/or regulatory factors affecting Tyco Electronics business. In addition, Tyco Electronics historical and pro forma combined financial information is not necessarily representative of the results it would have achieved as an independent, publicly-traded company and may not be a reliable indicator of its future results. Tyco Electronics is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise. More detailed information about these and other factors is set forth in the information statement included in the Tyco Electronics Ltd. Form 8-K filing of June 8, Where we have used non-gaap financial measures, reconciliations to the most comparable GAAP measure is provided, along with a disclosure on the usefulness of the non-gaap measure, in the Appendix section of this presentation. Tyco Electronics Overview A leading global provider of engineered electronic components, network infrastructure solutions and wireless systems Global leader in attractive, growing industries Diverse customer base and industry base Global reach and scale Established track record of innovation leadership Strong cash flow generation and financial flexibility Growth and margin improvement opportunities 2

3 Formed Through the Acquisition of Industry Leaders Major Acquisitions Long-standing customer relationships Market leaders Broad product breadth Electromechanical Components Division OEM Business Primary technologies: Contact physics Materials science RF microwave Market Drivers Electronic feature growth in all industries Miniaturization and higher data-speed requirements Broadband and wireless proliferation Upgrade of global energy networks Growth Index (1980=100) World Connector Market Sales Growth: Year historical CAGR = 6.1% Dot Com Bubble & Bust Source: 2007 Connector Market Handbook, Bishop and Associates, Inc. Market dynamics should continue to drive above-gdp growth 3

4 Innovation Drives Leading Global Market Positions World s leading passive components supplier Significant player in all markets and product areas Approximately 70% of sales are from products that are # 1 in the industry # 1 Market Position # 2 or # 3 Market Position Product Family Revenue Product Family Revenue Connectors/ Cable Assemblies $7.3 Heat Shrink Tubing $0.6 Touchscreens $0.3 Undersea Telecom Systems $0.3 Total $8.5 Relays $0.8 Wireless Private Networks $0.3 Circuit Protection $0.5 Fiber Optic Interconnects $0.3 $ Billions * Source: Bishop & Associates and management estimates; actual market position could differ materially Leadership positions in $55-60 billion total served market Broad Industry Diversification 2006 Sales by Industry Telecommunications 17 % Computer 11 % Power Utilities 6% Aerospace & Defense 5% Automotive 29% Household Appliance 5% Industrial Machinery 4% Building Networks 4% Consumer Electronics 2% 13% Instrumentation 2% Commercial & Building Equipment 2% 4

5 Diverse Customer Base Top Customers Top 25 customers account for less than 30% of total sales Global Reach and Scale Balanced geographic presence Located near our customers 8,000+ engineers in global design centers 5,000+ salespeople serving customers in 150+ countries Manufacturing in 25 countries Significant presence in China $1.5 billion of local sales and $0.7 billion of exports 34,000 employees 16 manufacturing facilities Americas 39% 2006 Sales by Geography China 11% Asia ex- China 16% Asia Total 27% Europe 34% 5

6 Investing for Technology Leadership Over $600M of annual RD&E investment (~5% of sales) Products introduced in last 3 years accounted for 38% of sales in ,000+ engineers globally 17,000+ patents issued or pending Added 200+ engineers in emerging markets in 2006, up ~25% over prior year $ millions Research, Development & Engineering $650+ $637 $650 $602 $600 $528 $550 $500 $450 $ E Our Strong Cash Flow Gives Us Flexibility and Choices $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Free Cash Flow* $1,068 $1,100 $1, Stable capital requirements Cap Ex 4-5% of sales Strong balance sheet $ millions *Free cash flow is a non-gaap measure, see Appendix for reconciliation Primary Uses of Cash Fund organic growth R&D, engineering Emerging / high-growth markets State of NY wireless project Accelerate productivity improvements Footprint simplification Strategic acquisitions Return capital to shareholders 6

7 Organized in Four Business Segments 2006 Sales $12.8 Billion 2006 Operating Income $1.7 Billion * Electronic Components 73% Electronic Components 81% 6% (1.0)% Wireless Systems 7% Network Solutions 14% Wireless Systems 5% Network Solutions 15% * See Appendix for reconciliation to GAAP operating income Experienced Operating Management Team Name Tom Lynch Alan Clarke Chuck Dougherty Shu Ebe Minoru Okamoto Jorge Cervantes Steven O Neil Kevin Rock David Coughlan SVP, Automotive SVP, Energy Position Chief Executive Officer President, Network Solutions President, Wireless Systems SVP, Communications, Computer & Consumer Electronics SVP, Industrial & Commercial SVP, Aerospace & Defense SVP, Tyco Telecommunications Years of Industry Experience Management team averages over 20 years of electronics industry experience 7

8 Three-Year Objectives Organic revenue growth* of 5-7% Operating margins above 15% Free cash flow* approximately equal to net income** * Free cash flow and organic revenue growth are non-gaap measures; see Appendix for description of these items ** Before dividends and cash outflows to build the State of New York wireless network Strategic Priorities Focus the portfolio Achieve organic growth of 5 to 7% Accelerate growth in under-penetrated markets Enhance leadership position in emerging markets Improve margins by streamlining operations and improving productivity Target acquisitions to accelerate sales and income growth 8

9 Focus the Portfolio Up to 15% of current sales are underperforming / non-strategic Subscale market positions in less attractive markets Low-margin product lines within good businesses/markets Power Systems divestiture under way Began streamlining portfolio 3 years ago Sold electrical contracting business in fiscal 2004 Sold Tyco Global Network (TGN) in fiscal 2005 Sold printed circuit board business in fiscal 2007 Plan to complete process within first 2 years after separation Accelerate Growth in Underpenetrated Markets Solid growth markets with good profitability We have a presence in these markets but we are not always the leader 2006 Market Revenue Position* Energy Systems $ Aerospace & Defense $ Industrial Machinery $ Public Safety $ Consumer Electronics $ Mobile Phones $ Medical $ (in $ billions) * Market position is based on management estimates; actual market position could differ materially Our goal is to gain share and accelerate growth in these markets 9

10 Enhance Leadership Position in Emerging Markets Significant presence in emerging markets but opportunities for additional penetration Low-cost production and sourcing Existing customer migration and rapidly growing local customer base Year Number of (in $ billions) Revenue Revenue CAGR Employees* China $ 0.7 $ % 33,814 Eastern Europe $ 0.3 $ % 6,094 India $ 0.1 $ % 3,396 * As of September 30, 2006 Improve Margins by Streamlining Operations and Improving Productivity Accelerate manufacturing footprint reduction Expand low-cost capacity Leverage procurement scale more effectively Improve operating leverage Simplify our supply chain 50% 45% 40% 35% 30% 25% Reduce inventory 20% Low-Cost Country Production % of Global Production Year Target Investment of up to $400 million through

11 Finance Overview Terrence Curtin Executive Vice President & Chief Financial Officer June 19, 2007 Financial Overview Organic growth profile Operating leverage Income tax opportunities Strong cash flow generation Solid balance sheet and capital structure 11

12 Income Statement Sales $11,099 $11,890 $12,812 RD&E $528 $602 $637 % of Sales 4.8% 5.1% 5.0% Gross Income $3,128 $3,166 $3,365 % of Sales 28.2% 26.6% 26.3% Selling & Marketing $819 $831 $877 % of Sales 7.4% 7.0% 6.8% General & Administrative $724 $676 $750 % of Sales 6.5% 5.7% 5.9% Adjusted Operating Income* $1,619 $1,669 $1,725 % of Sales 14.6% 14.0% 13.5% Effective Tax Rate Pro forma 31-34% Expected Share Count Approx. 500 Million Shares * See Appendix Our greatest opportunities are Gross Margins and Income Taxes Organic Growth Profile % of Rev 73% 14% 7% 6% Organic Growth* Electronic Components Network Solutions Wireless Systems Total Electronics % 5.4% 7.2% (1.2%) 7.9% % 11.7% 4.0% 1.1% 4.5% % 15.6% 0.1% 15.6% 9.4% Long- Term 5-7% 6-8% 8-10% 5%+ 5-7% Electronic feature growth in all industries Miniaturization and higher data-speed requirements Broadband and wireless proliferation Upgrade of global energy networks * Organic revenue growth is a non-gaap measure. See Appendix. 12

13 Cost of Sales Overview 2006 Cost of Sales $9.4 billion Direct Labor 16% Materials 62% Overhead 10% Depreciation 5% RD&E 7% Approximately 1/3 of our Cost of Sales are conversion costs Operating Income and Margins Adjusted Operating Income* / Operating Margin* $billions $ % $1.7 $ % *See Appendix for reconciliation to GAAP operating income 13.5% OI% 18% 16% 14% 12% 10% 8% Cost of Copper & Gold $342 $423 $714 % of COGS 4.3% 4.8% 7.6% Gross Raw Materials Increase ($82) ($98) ($306) Held operating income essentially level due to: Pricing actions helped recover ~40% of the raw materials increase Operating leverage from volume increases offset remaining headwind Operating margin declined due to significant increases in the cost of raw materials Price Erosion 4.6% 4.1% 2.8% Copper and gold costs have increased from 4% to 8% of Cost of Sales 13

14 First Half of 2007 $1,200 $1,000 $800 Operating Income Bridge $160 $33 $45 $50 $807 $20 $13 $17 $789 $600 $400 $200 $0 1H 2006 Income Volume Leverage Net Productivity Mix Net Metals Engineering Impact Investment Restr'g 1H 2007 Income Strategic Actions Portfolio Rationalization Footprint Acceleration Financial Impact of Portfolio and Footprint Actions Portfolio Rationalization Up to 15% of sales could be exited or divested Expect impact on net income to be neutral, excluding one-time gains or losses on divestitures Expect to be largely completed in the first 2 years after separation Manufacturing Footprint Acceleration Expect to spend $70-90 million in 2007 and up to $400 million from 2008 through 2010 Approximately 75-85% of total cost will be cash Payback of 3 years on average Expected Results Better operating leverage Improved productivity Higher margin sales mix 14

15 Income Taxes Negative tax synergies due to separation Significant proportion of income generated in high-tax countries Net operating losses (NOLs) lower cash tax rates: $3.4 billion in U.S. federal $1.9 billion non-u.s. Goal to reduce effective tax rate by bps over next 3 years Effective Tax Rate Structural tax rate 28-30% Tax sharing agreement 3-4% Initial ETR Guidance 31-34% Cash Tax Rates* % % % *See Appendix for calculation of cash tax rate Cash Tax Rates should remain significantly lower than Book Tax Rates Strong and Consistent Cash Flow $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Free Cash Flow* $1,068 $1,100 $1, Stable capital expenditures at 4-5% of sales New product programs account for approximately 50% of capital expenditures State of New York wireless project investment of $500 to $550 million over 5 years Dividends - Launch rate of $280 million (20%+ payout ratio) * Free cash flow is a non-gaap measure, see Appendix for reconciliation 15

16 Solid Balance Sheet and Capital Structure Cash Accounts receivable Inventory PP&E Goodwill & Intangibles Tax Assets Total Assets Debt Accounts Payable Current Liabilities Pension Liabilities Total Liabilities Shareholder's Equity Total Liabilities & Shareholder's Equity * See Appendix for Calculation of ROIC March 2007 Proforma $ Primary Working Capital A/R Days 70 Inventory Days 80 Accounts Payable Days 48 ROIC FY2006 * w/ Goodwill 8.4% w/o Goodwill 16.1% Approx. 40% of total assets are Intangibles and Tax Assets Total debt of $3.7 billion, Net debt $3.0 billion Debt to Capital 25% Debt to Equity 33% Investment Grade Credit Ratings Summary Solid long-term organic growth Steady margin improvement Reduce tax rate by 200 to 300 bps Continued strong cash flow enables: Fund innovation Accelerate productivity improvements Target strategic acquisitions Return capital to shareholders 3-Year Objectives Organic revenue growth of 5-7% Operating margins above 15% Free cash flow approximately equal to net income * Before dividends and cash outflows to build the State of New York wireless network 16

17 Organized in Four Business Segments 2006 Sales $12.8 Billion 2006 Operating Income $1.7 Billion * Electronic Components 73% Electronic Components 81% 6% (1.0)% Wireless Systems 7% Network Solutions 14% Wireless Systems 5% Network Solutions 15% * See Appendix for reconciliation to GAAP operating income Electronic Components Tom Lynch Chief Executive Officer June 19,

18 Electronic Components Overview Global leader in passive components with significant market position in all segments 68% of sales from connectors Sales of $9.4 billion and operating income of $1.4 billion in 2006 Sales by Industry Sales by Product Automotive Connectors/ Cable Assemblies 39% 13% 16% 9% 7% 5% 4% 3% 2% 2% Computer Telecommunications Household Appliance Industrial Machinery Aerospace & Defense Instrumentation Consumer Electronics Commercial Bldg & Equip 68% 8% 5% 4% 3% 2% 2% 1% 7% Relays Circuit Protection Touch Screens Wire & Cable Heat Shrink Tubing Application Tooling Fiber Optics Strong Global Presence Balanced geographic revenue distribution Uniquely positioned to Americas service global customers 32% 4,000 salespeople Resident engineers at 76 customers around the world Design centers in every China major 14% region Low-cost manufacturing base 33 facilities worldwide Well established in emerging markets Sales by Geography Asia Total 32% Asia ex- China 18% EMEA 36% 18

19 Connector Market Size and Growth Rates* $10 $9 9.2% 14.7% Total Connector Market = $40 Billion $8 $7 $6 $5 13.3% 11.9% % $4 $3 $2 10.6% 15.6% 8.8% 15.9% $1 $0 Automotive Computer Telecom/ Datacom Source: Bishop & Associates Percentages shown are 3 year CAGR Industrial Machinery Military & Aerospace Consumer Transportation Non Auto Solid growth in all end markets Medical Strategic Priorities Improve margins by streamlining operations and improving productivity Footprint reduction Purchasing scale Six Sigma and Lean expansion Logistics simplification Enhance leadership position in emerging markets China, Eastern Europe, India Accelerate growth in under-penetrated markets Aerospace & defense Industrial machinery Mobile phones Medical Consumer electronics Focus the product portfolio 19

20 Key Market - Automotive 2006 Sales $3.7 billion EMEA 53% Sales by Geography Asia Pacific (excl China) 18% South America 3% North America 21% China Note: 5% Detroit 3 17% Market Trends / Growth Drivers Electronic content growth in vehicles Advanced driver assistance and safety systems Communications and infotainment systems Replacement of mechanical systems (braking, shifting, steering) Production migration to Eastern Europe and China Share gains by European and Japanese manufacturers; local manufacturers gaining share in China Strategic Priorities Enhance innovation leadership Continue share gains in Asia Strengthen engineering and manufacturing resources in emerging markets Improve margins by streamlining operations and improving productivity Key Market - Computer 2006 Sales $1.2 billion China 29% Sales by Geography Asia Pacific (excl China) 44% Americas 18% EMEA 9% Market Trends / Growth Drivers Miniaturization and higher data speed requirements Standardization / commoditization of low-cost products Very competitive market Strategic Priorities Optimize product portfolio and be more selective on low margin products Continue focus on innovation to maximize new product profitability Improve margins by streamlining operations and improving productivity Be more active in standards committees 20

21 Accelerate Growth in Underpenetrated Markets Aerospace & Defense Target Market*: $4.4 billion TE 2006 Sales: $0.5 billion Estimated Market Share: 11% TE CAGR 7% Market Dynamics In the midst of a strong cycle Attractive profitability Stable manufacturing base minimal migration Trend toward higher speeds, smaller and lighter interconnects Strategy Expand product portfolio with internal development and/ or acquisitions Improve supply chain Streamline and simplify operations * Management estimates of addressable market for connectors, wire & cable and relays; actual market size could differ materially Accelerate Growth in Underpenetrated Markets Mobile Phones & Consumer Electronics Mobile Phones Target Market*: $1.8 billion TE 2006 Sales: $0.2 billion Estimated Market Share: 11% TE CAGR 42% Consumer Electronics Target Market*: $1.6 billion TE 2006 Sales: $0.2 billion Estimated Market Share: 10% TE CAGR 16% Market Dynamics Long-term growth expected at 7-10% per year New features drive increased electronic component content Requirements for smaller, higher density, higher speed and performance Strategy Focus on top 5 players: Increase resident engineers Add salespeople Expand mobile phone product portfolio Continue to expand strong China presence Leverage global customer relationships * Management estimates of addressable market for connectors, cable assemblies, antennas; actual market size could differ materially 21

22 Example Top 5 Mobile Phone Manufacturer Expanded resident engineering sites to 5 locations close to customers R&D centers, added 22 engineers Expanded product portfolio to non-connector areas like Antenna (MID, FPC, Stamping), Cable Assembly Significantly increase market share in top selling model USB Data Cable Assy Full Clip SIM Full Clip SIM Connector Connector MID antenna MID antenna MID antenna SF1608/2411 SF1608/2411 SF1608/2411/3014LF SPC 3P SMT SPC 5P R/A H=2.75 Leaf Connector 5p Total Connector Potential / Unit $3.64 $3.61 $3.73 Tyco Electronics Content / Unit $0.98 $1.47 $2.40 Organized in Four Business Segments 2006 Sales $12.8 Billion 2006 Operating Income $1.7 Billion * Electronic Components 73% Electronic Components 81% 6% (1.0)% Wireless Systems 7% Network Solutions 14% Wireless Systems 5% Network Solutions 15% * See Appendix for reconciliation to GAAP operating income 22

23 Network Solutions Alan Clarke President June 19, 2007 Network Solutions Overview Global leader in infrastructure components and solutions for the energy, communication service provider, and building networks markets Sales of $1.7 billion and operating income of $0.3 billion in 2006 Sales by Product Building Networks 22% Sales by Industry Communication Service Providers 31% Sales by Geography Energy Systems 47% Heat Shrink Tubing 23% Fiber Optics 12% Wire & Cable 9% Racks & Panels 8% Americas 30% EMEA 55% Connectors/ Cable Assemblies 43% 5% Asia Pacific 15% 23

24 Energy Systems Served Market OHVT-145C 145kV outdoor termination Lumawise Intelligent lighting system Electrical Network Generation Transmission Distribution CSJA 24kV cold shrink joint Gelport Low Voltage submersible connector Communications Service Provider Served Market BT21 C Test Access Shelf FOSC 450 Gel-Sealed Fiber Optic Splice Closure DT Cabinet Fiber Deployment Cabinet FTerm UMT Fiber Aerial Terminal 24

25 Building Networks Served Market Patch Cords System Cables 10 Gb/s Connectivity Infrastructure Management Patch Panels Work Area Outlets CATV Cabling Industry Trends / Market Drivers Market Trends / Growth Drivers Energy Systems Emerging markets infrastructure build-out with low-cost, simple-to-install products Mature markets aging grid, deferred maintenance Trend toward higher voltages Market Size* / Growth Rate* Developing market size $1.9 billion, growing at 10% Mature market size $4.9 billion, growing at 4% Communication Service Providers Broadband rollouts by Telco s and MSO s Build-out of fiber FTTx Demand for products that reduce construction and maintenance costs Emerging markets infrastructure build-out with low-cost products Market size $3.5 billion Market growth rates Copper (2%) Fiber 15% Building Networks Demand for increased network speed, capacity and flexibility Trend toward higher performance cabling systems incorporating intelligent cable management Integration of voice, data, security and building control functions in cabling network solutions Market size $3.8 billion Global commercial construction market growing ~5% * Management estimates; actual market size and growth rates could differ materially 25

26 Strategic Priorities Accelerate growth through innovation Energy Systems higher performance / lower installation-cost joints, terminations, connectors, insulators and arrestors Service Provider last mile fiber optics network systems and components Building Networks Extend network cabling performance to 10g and higher Integrated software and hardware to extend capabilities of Ethernet networks Enhance market position in emerging markets Expand sales, product development and product management capabilities in China, India and Eastern Europe Streamline operations Focus the product portfolio Organized in Four Business Segments 2006 Sales $12.8 Billion 2006 Operating Income $1.7 Billion * Electronic Components 73% Electronic Components 81% 6% (1.0)% Wireless Systems 7% Network Solutions 14% Wireless Systems 5% Network Solutions 15% * See Appendix for reconciliation to GAAP operating income 26

27 Wireless Systems Chuck Dougherty President June 19, 2007 Wireless Systems Overview A leading innovator of wireless technology for: Critical communications systems and equipment RF / microwave semiconductors, components and subsystems for commercial applications Components and subsystems for defense applications Sales of $0.9 billion in 2006 Sales by Served Market Wireless Networks 43% Commercial Products 28% Sales by Geography Americas 80% EMEA 10% Aerospace & Defense 29% Asia Pacific 10% 27

28 Industry Trends / Market Drivers Business Description Wireless Networks IP-based critical communications systems, including infrastructure and terminals for public safety, utility and federal markets Leader in technology/ product innovation Awarded largest US public safety contract (NY State) Aerospace & Defense Solutions Products range from components to subsystems and small systems, including sensors, antennas, power transistors, weapons guidance systems, and IED jamming devices Long-term participation on major programs as subcontractor to Prime Contractors Market Trends / Drivers ~$6 billion global market growing 5-10%* Federal, state and local spending on safety and security Increased focus on public safety system interoperability Increased Department of Defense spending for Force Protection, including IED defeat and Combat ID Prime contractors continue as integrators Modest systems funded seeking faster time to market Commercial Products RF-based semiconductors (gallium arsenide), components and subassembly solutions Serves communications infrastructure, automotive and RFID markets Proliferation of wireless devices Convergence of RF & digital signal processing Integration and miniaturization * Management estimates; actual market size and growth rates could differ materially Wireless Networks Private wireless networks for mission-critical public safety applications Infrastructure (network, system) Equipment (mobile/ portable radios, etc.) Service / maintenance Served markets: Public safety Homeland Security U.S. Federal Utilities Transportation and transit applications: Broadband high-speed data Network interoperability 28

29 The Tyco Electronics VIDA Wireless Network Key Programs and Focused Growth Areas New York Statewide Wireless Network Largest public safety contract in North America: $2B over 20 years, including network maintenance Hybrid network model for low- and high-density regions; extremely flexible Future-ready for new technologies Broadband, WiMAX, High-Speed Data Opportunity to add counties / municipalities onto network Commonwealth of Pennsylvania Statewide system: STARNET; steady increase in users Supports all state public safety and public service agencies; opportunity to add counties onto network Integrated Wireless Network (IWN) US Federal national network Partnering with General Dynamics Significant revenue opportunity 29

30 Strategic Priorities Accelerate growth in public safety LMR business Execute on State of New York statewide system Increase market share in North America Expand international presence Develop commercial adjacencies leveraging technology innovation Focus portfolio on key high-growth business segments Summary Tom Lynch Chief Executive Officer June 19,

31 Tyco Electronics Summary A leading global provider of engineered electronic components, network infrastructure solutions and wireless systems Global leader in attractive, growing industries Diverse customer base and industry base Global reach and scale Established track record of innovation leadership Strong cash flow generation and financial flexibility Growth and margin improvement opportunities A solid foundation with significant opportunity Appendix 31

32 Operating Income Reconciliation mo 2007 GAAP Operating Income $1,619 $1,970 $1,409 $789 Goodwill Impairment - - $316 - (Gain) / Loss on Divestitures - (301) - - Adjusted Operating Income $1,619 $1,669 $1,725 $789 GAAP Operating Margin 14.6% 16.6% 11.0% 11.8% Adjusted Operating Margin 14.6% 14.0% 13.5% 11.8% Appendix The company has presented its operating income on an adjusted basis that excludes gain/losses related to divestitures and goodwill impairments. The company utilizes adjusted operating income to assess core operating performance and to provide insight to management in evaluating operating plan execution and underlying market conditions. It is also a significant component in the company s incentive compensation plans. Adjusted operating income is a useful measure for investors because it better reflects the company s underlying operating results, trends and the comparability of these results between periods. The difference between adjusted operating income and operating income (the most comparable GAAP measure) consists of the impact of (gains)/losses related to divestitures and goodwill impairments that may mask the underlying operating results and/or business trends. The limitation of this measure is that it excludes the financial impact of items that would otherwise either increase or decrease the company s reported operating income. This limitation is best addressed by using adjusted operating income in combination with operating income (the most comparable GAAP measure) in order to better understand the amounts, character and impact of any increase or decrease on reported results. Revenue Reconciliation Appendix FY2006 Net Revenue Foreign Currency Acquisition / Divestiture Organic Revenue Growth Net Revenue FY2005 Electronic Components Network Solutions Wireless Systems Total Net Revenue $ 9,386 1, $ 2, % 14.0% 0.3% 10.3% 7.8% $ (151) (24) 2 (10) $ (183) $ 11 (29) $ (18) $ $ 1, % 15.6% 0.1% 15.6% 9.4% $ 8,757 1, $ 11,890 Organic net sales growth, which is included in the discussion below, is a non-gaap financial measure. The difference between reported net sales growth (the most comparable GAAP measure) and organic net sales growth (the non-gaap measure) consists of the impact from foreign currency exchange rates, acquisitions, and divestitures. Organic net sales growth is a useful measure which we use to measure the underlying results and trends in our business. It excludes items that are not completely under management's control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity. We believe organic net sales growth provides useful information to investors because it reflects the underlying growth from the ongoing activities of our business. Furthermore, it provides investors with a view of our operations from management's perspective. We use organic net sales growth to monitor and evaluate performance, as it is an important measure of the underlying results of our operations. Management uses organic net sales growth together with GAAP measures such as net sales growth and operating income in its decision making processes related to the operations of our reporting segments and our overall company. We believe that investors benefit from having access to the same financial measures that management uses in evaluating operations. The discussion and analysis of organic net sales growth in Results of Operations below utilizes organic net sales growth as management does internally. Because organic net sales growth calculations may vary among other companies, organic net sales growth amounts presented below may not be comparable with similarly titled measures of other companies. Organic net sales growth is a non-gaap financial measure that is not meant to be considered in isolation or as a substitute for GAAP measures. The limitation of this measure is that it excludes items that have an impact on our net sales. This limitation is best addressed by using net sales growth in combination with our U.S. GAAP net sales. 32

33 Revenue Reconciliation Appendix FY2005 Net Revenue Foreign Currency Acquisition / Divestiture Organic Revenue Growth Net Revenue FY2004 Electronic Components Network Solutions Wireless Systems Total Net Revenue $ 8,757 1, $11, % 15.3% 4.3% 2.2% 7.1% $ $ 291 $ $ $ $ % 11.7% 4.0% 1.1% 4.5% $ 8,220 1, $ 11,099 Organic net sales growth, which is included in the discussion below, is a non-gaap financial measure. The difference between reported net sales growth (the most comparable GAAP measure) and organic net sales growth (the non-gaap measure) consists of the impact from foreign currency exchange rates, acquisitions, and divestitures. Organic net sales growth is a useful measure which we use to measure the underlying results and trends in our business. It excludes items that are not completely under management's control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity. We believe organic net sales growth provides useful information to investors because it reflects the underlying growth from the ongoing activities of our business. Furthermore, it provides investors with a view of our operations from management's perspective. We use organic net sales growth to monitor and evaluate performance, as it is an important measure of the underlying results of our operations. Management uses organic net sales growth together with GAAP measures such as net sales growth and operating income in its decision making processes related to the operations of our reporting segments and our overall company. We believe that investors benefit from having access to the same financial measures that management uses in evaluating operations. The discussion and analysis of organic net sales growth in Results of Operations below utilizes organic net sales growth as management does internally. Because organic net sales growth calculations may vary among other companies, organic net sales growth amounts presented below may not be comparable with similarly titled measures of other companies. Organic net sales growth is a non-gaap financial measure that is not meant to be considered in isolation or as a substitute for GAAP measures. The limitation of this measure is that it excludes items that have an impact on our net sales. This limitation is best addressed by using net sales growth in combination with our U.S. GAAP net sales. Revenue Reconciliation Appendix FY2004 Net Revenue Foreign Currency Acquisition / Divestiture Organic Revenue Growth Net Revenue FY2003 Electronic Components Network Solutions Wireless Systems Total Net Revenue $ 8,220 1, $11, % 12.8% 8.2% 0.1% 13.4% $ $ 546 $ $ $ (9) $ % 5.4% 7.2% -1.2% 7.9% $ 7,120 1, $ 9,785 Organic net sales growth, which is included in the discussion below, is a non-gaap financial measure. The difference between reported net sales growth (the most comparable GAAP measure) and organic net sales growth (the non-gaap measure) consists of the impact from foreign currency exchange rates, acquisitions, and divestitures. Organic net sales growth is a useful measure which we use to measure the underlying results and trends in our business. It excludes items that are not completely under management's control, such as the impact of changes in foreign currency exchange rates, and items that do not reflect the underlying growth of the company, such as acquisition and divestiture activity. We believe organic net sales growth provides useful information to investors because it reflects the underlying growth from the ongoing activities of our business. Furthermore, it provides investors with a view of our operations from management's perspective. We use organic net sales growth to monitor and evaluate performance, as it is an important measure of the underlying results of our operations. Management uses organic net sales growth together with GAAP measures such as net sales growth and operating income in its decision making processes related to the operations of our reporting segments and our overall company. We believe that investors benefit from having access to the same financial measures that management uses in evaluating operations. The discussion and analysis of organic net sales growth in Results of Operations below utilizes organic net sales growth as management does internally. Because organic net sales growth calculations may vary among other companies, organic net sales growth amounts presented below may not be comparable with similarly titled measures of other companies. Organic net sales growth is a non-gaap financial measure that is not meant to be considered in isolation or as a substitute for GAAP measures. The limitation of this measure is that it excludes items that have an impact on our net sales. This limitation is best addressed by using net sales growth in combination with our U.S. GAAP net sales. 33

34 Free Cash Flow Appendix Cash from Operating Activities 1,218 1,524 1,670 Less: Capital Expenditures, net (380) (448) (548) Less: Voluntary Pension Contributions Free Cash Flow 1,068 1,100 1,122 Free cash flow (FCF) is a useful measure of the company s cash which is free from any significant existing obligation. 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 existing obligation. It is also a significant component in the company s incentive compensation plans. The difference reflects the impact from: net capital expenditures, voluntary pension contributions. The impact from voluntary pension contributions is added or subtracted from the GAAP measure because this activity is driven by economic financing decisions rather than operating activity. Capital expenditures are subtracted because they represent long-term commitments. 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 show 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. See the accompanying tables to this press release for a cash flow statement presented in accordance with GAAP and a reconciliation presenting the components of FCF. Return on Invested Capital Appendix Adjusted OI 1,619 1,669 $1,725 Interest Expense (net) (311) (250) (208) Adjusted Pre-tax Income 1,308 1,419 1,517 Cash Taxes (166) (297) (277) Adjusted Net Income 1,142 1,122 1,240 Debt 5,955 4,511 3,662 Equity 8,242 9,842 11,160 Invested Capital 14,197 14,353 14,822 ROIC 8.0% 7.8% 8.4% Goodwill 7,461 7,423 7,135 ROIC excluding Goodwill 17.0% 16.2% 16.1% 34

35 Cash Tax Rate Reconciliation Appendix GAAP Operating Income $1,619 $1,970 $1,409 Interest Expense (net) (311) (250) (208) Expense (net) (102) (365) - Pre-Tax Income $1,206 $1,355 $1,201 Cash Taxes Paid (166) (297) (277) Cash Tax Rate 14% 22% 23% 35