ADT 2011 Annual Report Download - page 168

Interest Rate Exposures
Our long-term debt portfolio primarily consists of fixed-rate instruments. The Company manages
its interest rate risk through the use of interest rate swap transactions with financial institutions acting
as principal counterparties, which were designated as fair value hedges for accounting purposes. These
interest rate swap transactions manage the exposure to interest rate risk by converting interest rates of
fixed-rate debt to variable rates. During the second quarter of 2011, TIFSA also entered into interest
rate swaps contracts to hedge $155 million notional amount of the 4.125% public notes due 2014. In
these contracts, TIFSA agrees with financial institutions acting as principal counterparties to exchange,
at specified intervals, the difference between fixed and floating interest amounts calculated on an
agreed-upon notional principal amount. In connection with the maturity of the 6.75% public notes
during the second quarter of 2011, TIFSA settled the corresponding interest rate swaps. As of
September 30, 2011 and September 24, 2010, the total gross notional amount of the Company’s interest
rate swap contracts was $1.2 billion and $1.5 billion, respectively. A 100 basis point increase in interest
rates relative to interest rates as of September 30, 2011 would result in a $29 million net decrease in
the fair value of the contracts. Conversely, a 100 basis point decrease in interest rates relative to
interest rates as of September 30, 2011 would result in a $30 million net increase in the fair value of
the contracts.
Commodity Exposures
We are exposed to volatility in the prices of raw materials used in some of our products and may,
in limited circumstances, enter into hedging contracts to manage those exposures. These exposures are
monitored as an integral part of our risk management program. During 2011 and 2010, the Company
entered into commodity swaps for copper which are not designated as hedging instruments for
accounting purposes. These swaps did not have a material impact on the Company’s financial position,
results of operations or cash flows. Additionally, a 100 basis point increase or decrease in the price of
copper as of September 30, 2011 would not have a material impact on the Company’s financial
position, results of operations or cash flows.
2011 Financials 65