ADT 2003 Annual Report Download - page 107

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synthetic lease facilities with similar covenants. Our outstanding
indentures contain customary covenants including a negative
pledge, limit on subsidiary debt and limit on sale/leasebacks.
None of these covenants are presently considered restrictive to
our operations.
The fair value of debt was approximately $21,656.0 million
(book value of $20,969.1 million) and $21,934.6 million (book
value of $24,248.1 million) at September 30, 2003 and 2002,
respectively, based on discounted cash flow analyses using cur-
rent market interest rates.
The aggregate amounts of total debt maturing during the
next five years are as follows (in millions): $2,718.4 in fiscal
2004, $2,258.6 in fiscal 2005, $3,949.2 in fiscal 2006, $704.0 in
fiscal 2007, and $122.6 in fiscal 2008.
The weighted-average rate of interest on all debt was 4.89%
and 4.69% at September 30, 2003 and 2002, respectively. The
weighted-average rate of interest on all variable debt was 5.93%
and 4.71% at September 30, 2003 and 2002, respectively. The
impact of Tyco’s interest rate swap activities on its weighted-
average borrowing rate was not material in any year. The impact
on Tyco’s reported interest expense was a reduction of zero,
$116.1 million and $9.7 million for fiscal 2003, fiscal 2002 and
fiscal 2001, respectively.
20.
Guarantees
The Company may, from time to time, enter into sales contracts
whereby it will buy back (at a discount) a transaction from a
customer’s third-party financier in the event of a customer’s
default. For such transactions that include “shared risk,” the
Company accrues a liability based on historical loss data. As of
September 30, 2003, $3.2 million was accrued related to these
contracts. In the event the Company must pay for this shared
risk, the Company’s recourse is as follows: place the lease with
a financially viable third-party financier; repossess the purchased
products or equipment; seek payment through a personal guar-
antee issued by the customer; or, alternatively, sue the customer.
The Company’s Fire and Security business has guaranteed
the performance of a third-party contractor. The performance
guarantee arose from contract negotiations, because the con-
tractor could provide cost-effective service on a telecommuni-
cations contract. In the event the contractor does not perform
its contractual obligations, Tyco Fire and Security would per-
form the service itself. Therefore, the Company’s exposure
would be the cost of any services performed, which would not
have a material effect to the Company’s financial position or
annual results of operations. Because it is not probable that the
Company will have to make any payments or perform any
services pursuant to the guarantee, it has not recorded any obli-
gation related to the guarantee. The contract was entered into
in July 2002 and expires at the end of the warranty period, July
2004. If the third-party subcontractor does not perform its
obligations, Tyco may consider withholding any future payment
for work performed by the contractor.
The Company, in disposing of assets or businesses, often
provides representations, warranties and/or indemnities to cover
various risks including, for example, unknown damage to the
assets, environmental risks involved in the sale of real estate,
liability to investigate and remediate environmental contami-
nation at hazardous waste disposal sites and manufacturing
facilities, and unidentified tax liabilities and legal fees related to
periods prior to disposition. The Company does not have the
ability to estimate the potential liability from such indemnities
because they relate to unknown conditions. However, we have no
reason to believe that these uncertainties would have a material
adverse effect on the Company’s financial position, annual
results of operations or cash flows.
The Company has recorded liabilities for known indemnifi-
cations included as part of environmental liabilities. See Note
22 for a discussion of these liabilities.
The Company has guaranteed the fair value of certain vessels
not to exceed $235 million and has accrued $10.4 million and
$4.4 million as of September 30, 2003 and 2002, respectively,
based on its estimate of fair value of the vessels (see Note 22).
Due to the Company’s downsizing of certain operations as
part of restructuring plans, acquisitions, or otherwise, the
Company has leased properties which it has vacated but has
sublet to third parties. In the event third parties vacate the
premises, the Company would be legally obligated under master
lease arrangements. The Company believes that the financial
risk of default by sublessors is individually and in the aggregate
not material to the Company’s financial position, annual results
of operations or cash flows.
In the normal course of business, the Company is liable for
contract completion and product performance. In the opinion
of management, such obligations will not significantly affect
the Company’s financial position, annual results of operations
or cash flows.
The Company generally accrues estimated product warranty
costs at the time of sale. In other instances, additional amounts
are recorded when such costs are probable and can be reasonably
estimated. For further information on estimated product
warranty, see Note 1.
TYCO INTERNATIONAL LTD.