ADT 2008 Annual Report Download - page 171

Capitalization
Shareholders’ equity was $15.5 billion or $32.41 per share, at September 26, 2008, compared to
$15.6 billion or $31.50 per share, at September 28, 2007. Shareholders’ equity did not change
significantly in 2008 due to net income of $1,553 million, which was offset by the repurchase of
common shares by subsidiary of $854 million, the repurchase of common shares held in Treasury of
$192 million, dividends declared of $313 million and foreign currency exchange rates of $307 million.
Total debt was $4.3 billion at September 26, 2008, as compared to $4.5 billion at September 28,
2007. Total debt as a percentage of capitalization (total debt and shareholders’ equity) was 22% at both
September 26, 2008 and September 28, 2007, respectively.
Our cash balance decreased to $1.5 billion at September 26, 2008, as compared to $1.9 billion at
September 28, 2007. This decrease in cash was primarily due to the repurchase of common shares,
capital expenditures, accounts purchased from the ADT dealer network, business acquisitions and
dividends paid. This decrease was offset by cash generated by the operating segments and proceeds
from divestitures.
Debt Tenders
In connection with the settlement of litigation arising from the Separation related to our public debt,
on June 3, 2008 we, along with our finance subsidiary Tyco International Finance S.A. (‘‘TIFSA’’), a wholly-
owned subsidiary of the Company and successor company to Tyco International Group S.A. (‘‘TIGSA’’), a
wholly-owned subsidiary of the Company organized under the laws of Luxembourg, consummated consent
solicitations and exchange offers related to certain series of debt issued under the 1998 and 2003
indentures. In connection with the exchange offers, we issued $422 million principal amount of 7.0% notes
due 2019 in exchange for an equal principal amount of 7.0% notes due 2028 and $707 million principal
amount of 6.875% notes due 2021 in exchange for an equal principal amount of 6.875% notes due 2029. In
connection with the consent solicitations, holders of our 6.0% notes due 2013, 6.125% notes due 2008,
6.125% notes due 2009, 6.75% notes due 2011, 6.375% notes due 2011, 7.0% notes due 2028 and 6.875%
notes due 2029 collectively received consent payments totaling $250 million.
The terms of the consent and exchange offers were evaluated as a debt modification in accordance
with EITF No. 96-19, ‘‘Debtor’s Accounting for a Modification or Exchange of Debt Instruments,’’ and
it was determined that the 7.0% notes due 2028 and the 6.875% notes due 2029 were extinguished
because the cash flows of the new bonds as compared to the original bonds were substantially modified.
As a result, the new bonds and the 7.0% notes due 2028 and the 6.875% notes due 2029 that were not
tendered for exchange were recorded at their fair value upon completion of the exchange offers. In
determining fair value, we measured the bonds as if they were an initial issuance to the public. This
was done by obtaining effective yield data derived from comparable pricing received from the issuance
of bonds with similar ratings and covenants by large public companies.
In connection with the consent solicitations and exchange offers, we recorded a $222 million charge
to other expense, net as a loss on extinguishment of debt. This charge is comprised of the consent
payments related to the extinguished bonds (notes due 2028 and 2029), premium on the exchanged
bonds which represents the difference between the fair value and the book value of the extinguished
bonds and the write-off of the original unamortized debt issuance costs as well as fees paid to third
parties associated with the bonds that were not deemed extinguished. The remaining portion of the
consent payment and issuance costs will be amortized over the remaining life of the bonds.
In May 2008, TIFSA commenced issuing commercial paper to U.S. institutional accredited investors
and qualified institutional buyers. Borrowings under the commercial paper program are available for
general corporate purposes. As of September 26, 2008, TIFSA had $116 million of commercial paper
outstanding, which bore interest at an average rate of 2.95%.
68 2008 Financials