ADT 2002 Annual Report Download - page 178

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Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risk associated with changes in interest rates, foreign currency exchange
rates and certain commodity prices. In order to manage the volatility relating to our more significant
market risks, we enter into forward foreign currency exchange contracts, cross-currency swaps, foreign
currency options, commodity swaps and interest rate swaps. We do not anticipate any material changes
in our primary market risk exposures in fiscal 2003.
We utilize risk management procedures and controls in executing derivative financial instrument
transactions. We do not execute transactions or hold derivative financial instruments for trading
purposes. Derivative financial instruments related to interest rate sensitivity of debt obligations,
intercompany cross-border transactions and anticipated non-functional currency cash flows, as well as
commodity price exposures, are used with the goal of mitigating a significant portion of these exposures
when it is cost effective to do so. Counter-parties to derivative financial instruments are limited to
financial institutions with at least an A+ long-term debt rating.
Interest Rate Sensitivity
The table below provides information about our financial instruments that are sensitive to changes
in interest rates, including debt obligations and interest rate swaps. For debt obligations, the table
presents cash flows of principal repayment and weighted-average interest rates. For interest rate swaps,
the table presents notional amounts and weighted-average interest rates. Notional amounts are used to
calculate the contractual payments to be exchanged under the contract. The amounts included in the
table below are in U.S. dollars ($ in millions).
Fiscal 2003 Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007 Thereafter Total Fair Value
Total debt:
Fixed rate (US$) ....... 3,283.5 3,639.0 1,227.0 1,725.1 1.1 5,206.0 15,081.7 13,410.3
Average interest rate . . . 3.2% 1.6% 6.4% 6.0% 9.4% 6.5%
Fixed rate (Euro) ....... 14.0 9.4 494.6 6.4 584.7 668.6 1,777.7 1,422.4
Average interest rate . . . 2.1% 1.1% 4.3% 0.9% 6.0% 5.3%
Fixed rate (Yen) ........ 25.8 3.4 0.4 0.4 0.4 49.4 79.8 79.8
Average interest rate . . . 2.3% 2.5% 1.4% 1.4% 1.4% 5.0%
Fixed rate (British Pound) . 0.5 6.4 20.0 0.2 0.2 732.7 760.0 560.1
Average interest rate . . . 0.3% 4.8% 4.4% 5.0% 5.0% 6.4%
Fixed rate (Other) ...... 5.9 3.0 0.8 0.6 0.3 3.7 14.3 14.3
Average interest rate . . . 2.7% 8.4% 2.6% 1.5% 2.9% 2.9%
Variable rate (US$) ...... 4,351.5 1.3 1.8 2,000.2 0.2 15.6 6,370.6 6,326.0
Average interest rate(1) . . 4.7% 5.5% 5.1% 4.9% 10.9% 1.5%
Variable rate (Euro) ..... 18.4 14.5 11.2 11.2 15.4 21.1 91.8 91.8
Average interest rate(1) . . 3.5% 4.0% 4.2% 4.4% 4.4% 4.5%
Variable rate (Other) .... 19.4 3.6 0.1 0.1 — 6.7 29.9 29.9
Average interest rate(1) . . 5.3% 4.0% 8.3% 6.5% 0.2%
Interest rate swap:
Fixed to variable (British
Pound) ............. —————198.0 198.0 2.5
Average pay rate(1) ...... 3.4%
Average receive rate ..... 6.5%
(1) Weighted-average variable interest rates are based on applicable rates at September 30, 2002 per the terms of the contracts
of the related financial instruments.
Exchange Rate Sensitivity
The table below provides information about our financial instruments that are sensitive to foreign
currency exchange rates. These instruments include debt obligations and forward and option foreign
currency exchange contracts. For debt obligations, the table presents cash flows of principal repayment
and weighted-average interest rates. For forward and option foreign currency exchange contracts, the
table presents notional amounts and weighted-average contractual exchange rates. Notional amounts
176