ADT 2000 Annual Report Download - page 54

As a result of the merger with USSC, approximately 14.2 mil-
lion options which were not previously exercisable became immedi-
ately exercisable on October 1, 1998. Upon consummation of the
merger with AMP on April 2, 1999, approximately 7.8 million options
became immediately exercisable due to the change in ownership of
AMP resulting from the merger.
TyCom has two option plans and an employee stock purchase
plan. The exercise price of options granted under the plans is equal
to the fair market value at the date of grant of TyCom common
shares. TyCom options outstanding and exercisable at September
30, 2000 were 21,607,050 and 26,250, respectively, at prices rang-
ing from $32.00 to $44.62 per share.
STOCK-BASED COMPENSATION
SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS
123”), allows companies to measure compensation cost in connec-
tion with executive share option plans using a fair value based
method or to continue to use an intrinsic value based method, which
generally does not result in a compensation cost. The Company and
TyCom have decided to continue to use the intrinsic value based
method and do not recognize compensation expense for the
issuance of options with an exercise price equal to or greater than
the market price at the time of grant. Had the fair value based
method been adopted by Tyco and TyCom, Tyco’s pro forma net
income and pro forma net income per common share for Fiscal
2000, Fiscal 1999 and Fiscal 1998 would have been as follows:
(I N MILLI ONS, EXCEPT PER SHARE DATA) 200 0 1 9 9 9 19 9 8
Net income — pro forma $ 4 ,1 3 6 .7 $858.3 $1,063.3
Net income per common
share — pro forma
Basic 2 .4 5 0.52 0.67
Diluted 2 .4 2 0.51 0.66
The estimated weighted-average fair value of Tyco and TyCom
options granted during Fiscal 2000 was $16.26 and $17.47, respec-
tively. The estimated weighted-average fair value of Tyco and AMP
options granted during Fiscal 1999 was $12.13 and $7.11, respec-
tively, on the date of grant using the option-pricing model and
assumptions referred to below. The estimated weighted-average fair
value of Tyco, USSC and AMP options granted during Fiscal 1998
was $8.24, $6.79 and $5.98, respectively, on the date of grant using
the following option-pricing model and assumptions.
The fair value of each option grant was estimated on the date
of grant using the Black-Scholes option-pricing model. The follow-
ing weighted-average assumptions were used for Fiscal 2000:
TYCO TYCOM
Expected stock price volatility 36% 60%
Risk free interest rate 6.35% 6.19%
Expected annual dividend yield per share $0.05 —
Expected life of options 4.5 years 4.5 years
The following weighted-average assumptions were used for
Fiscal 1999:
TYCO AMP
Expected stock price volatility 30% 27%
Risk free interest rate 5.15% 5.07%
Expected annual dividend yield per share $0.05 1.25%
Expected life of options 4.2 years 6.5 years
The following weighted-average assumptions were used for
Fiscal 1998:
TYCO USSC AMP
Expected stock price volatility 22% 39% 27%
Risk free interest rate 5.62% 5.40% 5.50%
Expected annual dividend yield
per share $0.05 $0.11 1.25%
Expected life of options 5 years 4.2 years 6.5 years
The effects of applying SFAS 123 in this pro forma disclosure
are not indicative of what the effects may be in future years. SFAS
123 does not apply to awards prior to 1995. Additional awards in
future years are anticipated.
TREASURY SHARES
In November 1999, the Board of Directors authorized the Company
to reacquire up to 20 million of its common shares in the open mar-
ket, which was completed during the quarter ended March 31, 2000.
In January 2000, the Board of Directors authorized the Company to
reacquire up to an additional $2.0 billion of its common shares in
the open market, of which the Company has in excess of $0.9 bil-
lion remaining as of September 30, 2000. From time to time the
Company, through its subsidiaries, also purchases shares in the
open market to satisfy certain stock-based compensation arrange-
ments. Treasury shares are recorded at cost in the Consolidated Bal-
ance Sheets.
DIVIDENDS
Tyco has paid a quarterly cash dividend of $0.0125 per common
share since July 1997. USSC paid quarterly dividends of $0.04 per
share in Fiscal 1998. AMP paid dividends of $0.27 per share in
the first two quarters of Fiscal 1999, $0.26 per share in the first quar-
ter of Fiscal 1998 and $0.27 per share in the last three quarters of
Fiscal 1998.
FIFTY TWO