ADT 2003 Annual Report Download - page 52

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In January 2003, TIG issued $3.0 billion of 2.75% Series A
convertible senior debentures due January 2018 and $1.5 bil-
lion of 3.125% Series B convertible senior debentures due
January 2023. These debentures are fully and unconditionally
guaranteed by Tyco, and at any time prior to the stated matu-
rity, holders may convert each of their debentures into Tyco
common shares at a rate of $22.7832 and $21.7476, respectively,
per share. Additionally, holders of the Series A debentures may
require the Company to purchase all or a portion of their
debentures on January 15, 2008 and January 15, 2013, and
holders of the Series B debentures may require the Company to
purchase all or a portion of their debentures on January 15,
2015. If the option is exercised at any one of the aforemen-
tioned dates, TIG must repurchase the debentures at par plus
accrued but unpaid interest, and may elect to repurchase the
securities for cash, Tyco common shares, or some combination
thereof. TIG may redeem for cash some or all of the Series A
debentures and Series B debentures at any time on or after
January 20, 2006 and January 20, 2008, respectively. Net pro-
ceeds of $4,387.5 million, before out-of-pocket expenses, from
these debentures were used primarily to repay debt.
Also in January 2003, TIG entered into a $1.5 billion 364-day
unsecured revolving credit facility which also provides for
issuance of unsecured letters of credit. The facility, which is
fully and unconditionally guaranteed by Tyco and certain of its
subsidiaries and is guaranteed in part by various subsidiaries of
TIG, has a variable interest rate based on LIBOR. The margin
over LIBOR payable by TIG can vary depending upon changes
in its credit rating and in the market price of one of its out-
standing debt securities. TIG also pays a commitment fee of
0.50% annually on any unused portion of the line of credit. The
facility was not utilized in fiscal 2003.
At February 12, 2003, the accreted value of TIG’s zero
coupon convertible debentures with a February 2003 put option
was $1,850.8 million. On February 13, 2003, TIG purchased
$1,850.1 million accreted value of these debentures for cash.
This purchase resulted from the exercise of investors’ option
under the indenture to require TIG to purchase at accreted
values debentures validly surrendered by February 12, 2003.
In June 2003, TIG repurchased for cash all of its 6.25%
Dealer Remarketable Securities (“Drs.”) due 2013. The total
Dollar Price paid was $902 million, based upon the $750 million
par value of the Drs. plus the difference between a Base Rate of
5.55% and the then current ten-year United States Treasury
yield-to-maturity.
On July 30, 2003 and on August 1, 2003, TIG paid from cash
the entire remaining par value of its Floating Rate Notes and
4.95% Notes of approximately $488 million and $534 million,
respectively.
In November 2000, Tyco issued $4,657.5 million principal
amount at maturity of zero coupon convertible debentures due
2020 for aggregate net proceeds of approximately $3,374.0 mil-
lion. The debentures accrete interest at a rate of 1.5% per
annum. During fiscal 2003, Tyco purchased $1,085.7 million
(par value $1,415.2 million) of the debentures for cash of
approximately $1,062.8 million. On November 17, 2003, holders
of principal amount at maturity of $3,196.7 million notified
Tyco that they had exercised their option to require Tyco to
repurchase their notes at a price of $775.66 per $1,000 principal
at maturity representing the accreted value of the notes on that
date. On November 18, 2003, Tyco purchased these notes for
cash of $2,479.6 million.
Our bank credit agreements contain a number of financial
covenants, such as interest coverage, debt to EBITDA and lever-
age ratios, and minimum levels of net worth and restrictive
covenants that limit the amount of debt we can incur and
restrict our ability to (i) pay dividends or make other payments
in connection with our capital stock; (ii) make acquisitions or
investments; (iii) enter into sale/leaseback transactions; (iv)
pledge assets; and (v) prepay debt that matures after Decem-
ber 31, 2004. Specifically, TIG is the borrower under a 5-year,
$2.0 billion revolving credit facility that contains a financial
covenant based on the Company’s leverage ratio. The maxi-
mum allowable leverage ratio as defined under this agreement
is 52.5%. At September 30, 2003, this ratio declined to 46.3%
from 51.3% at September 30, 2002. We also have several syn-
thetic 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 is presently considered restrictive to
our operations.
As a result of the rating agencies’ downgrade of Tyco’s debt
in fiscal 2002, investors in one of our accounts receivable pro-
grams have the option to discontinue reinvestment in new
TYCO INTERNATIONAL LTD.
Management’s Discussion and Analysis of Financial Condition and Results of Operations