ADT 1999 Annual Report Download - page 51

49
interest at a rate of 0.57% and will make quarterly U.S. dollar payments based on LIBOR
plus 0.60%, as well as a final payment at maturity of approximately $89.7 million.
(7) In June 1998, TIG issued $750 million 61¼8% notes due 2001, $750 million 63¼8%
notes due 2005, $750 million 61¼4% Dealer Remarketable Securities (“Drs.”) due 2013
and $500 million 7.0% notes due 2028 in a public offering. Interest is payable semi-annu-
ally in June and December. 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 securities are fully and unconditionally guaranteed by Tyco
(Note 25). The net proceeds of approximately $2,744.5 million were ultimately used to
repay borrowings under TIG’s bank credit agreement and uncommitted lines of credit. In
December 1998, TIG terminated two interest rate swap agreements with notional amounts
of $650 million each, which were entered into in June 1998 with a financial institution to
hedge a portion of the fixed rate terms of the public notes.
(8) In October 1998, TIG issued $800 million of debt in a private placement offering con-
sisting of two series of restricted 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 uncondi-
tionally guaranteed by Tyco. The net proceeds of approximately $791.7 million were used
to repay borrowings under TIG’s bank credit agreement. At the same time, TIG also
entered into an interest rate swap agreement with a notional amount of $400 million to
hedge the fixed rate terms of the 6.125% 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. Subsequently, during the third and fourth
quarters of Fiscal 1999, TIG exchanged all of the $400 million 5.875% private placement
notes due 2004 and $400 million 6.125% private placement notes due 2008 for public
notes (Note 25). The form and terms of the public notes of each series are identical in all
material respects to the form and terms of the outstanding private placement notes of the
corresponding series, except that the public notes are not subject to restrictions on trans-
fer under the United States securities laws.
(9) In October 1998, Raychem issued notes in the amount of $400 million. The notes
mature on October 15, 2008, and bear interest at a rate of 7.2% per annum.
(10) In March 1998, USSC issued $300 million 7.25% senior notes due March 2008, which
are not redeemable prior to maturity and require semi-annual interest payments. In Feb-
ruary 1999, the Company completed a tender offer in which $292 million of the $300 mil-
lion principal amount of the notes outstanding were purchased.
(11) In January 1999, TIG issued $400 million of its 6.125% notes due 2009 and $800 mil-
lion of its 6.875% notes due 2029 in a public offering. The notes are fully and uncondi-
tionally guaranteed by Tyco (Note 25). The net proceeds of approximately $1,173.7 million
were used to repay borrowings under TIG’s bank credit agreement. At the same time, TIG
also entered into an interest rate swap agreement to hedge the fixed rate terms of the $400
million notes due 2009. Under the agreement, which expires in January 2009, TIG will
receive payments at a fixed rate of 6.125% and will make floating rate payments based on
an average of three different LIBO rates, as defined, plus a spread.
(12) In July 1995, ADT Operations, Inc. issued $776.3 million aggregate principal amount
at maturity of its zero coupon subordinated Liquid Yield Option Notes (“LYONs”) maturing
July 2010. The net proceeds of the issue amounted to $287.4 million which were used to
repay in full all amounts outstanding under ADT Operations, Inc.’s previous bank credit
agreement, which was subsequently canceled. The issue price per LYON was $383.09,
being 38.309% of the principal amount of $1,000 per LYON at maturity, reflecting a yield
to maturity of 6.5% per annum (computed on a semi-annual bond equivalent basis). The
discount amortization on the LYONs is being charged as interest expense through the con-
solidated statements of operations on a basis linked to the yield to maturity. The LYONs
discount amortization amounted to $6.0 million in Fiscal 1999, $11.0 million in Fiscal 1998
and $15.9 million in Fiscal 1997. Each LYON is exchangeable for common shares of the
Company at the option of the holder at any time prior to maturity, unless previously
redeemed or otherwise purchased by ADT Operations, Inc., at an exchange rate of 54.352
common shares per LYON. During Fiscal 1999 and Fiscal 1998, respectively, 147,418 and
342,752 Notes with carrying values of $72.3 million and $155.3 million were exchanged
for 8,012,468 and 18,629,198 common shares of the Company. Any LYON will be pur-
chased by ADT Operations, Inc., at the option of the holder, as of July 2002 for a purchase
price per LYON of $599.46. At that time, if the holder exercises the option, the Company
has the right to deliver all or a portion of the purchase price in the form of common shares
of the Company. Beginning July 2002, the LYONs are redeemable for cash at any time at
the option of ADT Operations, Inc., in whole or in part, at redemption prices equal to the
issue price plus accrued original issue discount to the date of redemption. The LYONs are
guaranteed on a subordinated basis by the Company.
(13) International bank loans represent term borrowings by AMP from various commercial
banks. Borrowings are repayable in varying amounts through 2013. The weighted-aver-
age interest rate on all international bank loans as of September 30, 1999 and 1998 was
3.9% and 5.0% respectively.
(14) The financing lease obligation relates to USSC’s European headquarters office build-
ing and distribution center complex in Elancourt, France. The French franc denominated
financing lease requires principal amortization in varying amounts over the eleven year
term of the lease with a balloon payment of approximately 42 million French francs ($7
million) at the end of the lease. Interest is payable at a rate approximately 1.4% above
Paris Interbank Offered Rate (PIBOR). The effective interest rate on the financing lease
debt was approximately 4.0% and 4.55% per annum at September 30, 1999 and 1998,
respectively.
During Fiscal 1999, the Company also completed a tender offer
for its 12.0% senior subordinated notes due 2005, issued by Graphic
Controls, in which all $75 million principal amount of the notes out-
standing were purchased.
The weighted-average rate of interest on all long-term debt was
6.2%, 6.4% and 7.2% during Fiscal 1999, Fiscal 1998 and Fiscal 1997,
respectively. The impact of the Company’s interest rate swap activities
on its weighted-average borrowing rate was not material in any year.
The impact on reported interest expense was a reduction of $0.9 mil-
lion, $1.9 million and $0.8 million for Fiscal 1999, Fiscal 1998 and Fis-
cal 1997, respectively.
The aggregate amounts of total debt maturing during the next five
years are as follows (in millions): $1,012.8 in fiscal 2000, $2,777.0 in
fiscal 2001, $1,395.2 in fiscal 2002, $56.2 in fiscal 2003 and $190.8 in
fiscal 2004.
5. Sale of Accounts Receivable
The Company has an agreement under which several of its operating
subsidiaries sell a defined pool of trade accounts receivable to a lim-
ited purpose subsidiary of the Company. The subsidiary, a separate
corporate entity, owns all of its assets and sells participating interests
in such accounts receivable to financiers who, in turn, purchase and
receive ownership and security interests in those assets. As collec-
tions reduce accounts receivable included in the pool, the operating
subsidiaries sell new receivables to the limited purpose subsidiary.
The limited purpose subsidiary has the risk of credit loss on the receiv-
ables and, accordingly, the full amount of the allowance for doubtful
accounts has been retained on the Consolidated Balance Sheets. Dur-
ing Fiscal 1999, the availability under the program was increased to
$500 million from $300 million. At September 30, 1999 and 1998,
$350 million and $300 million, respectively, under the program was uti-
lized. The proceeds from the sales were used to reduce borrowings
under uncommitted lines of credit and are reported as operating cash
flows in the Consolidated Statements of Cash Flows. The proceeds of
sale are less than the face amount of accounts receivable sold, by an
amount that approximates the cost that the limited purpose subsidiary
would incur if it were to issue commercial paper backed by these
accounts receivable. The discount from the face amount is accounted
for as a loss on the sale of receivables and has been included in sell-
ing, general and administrative expenses in the Company’s Consoli-
dated Statements of Operations. Such discount aggregated