-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BOOKgIs8osajZEuao3av3PC6PiDcaG6oCYOPgnyumz9OBtDDWctbkb/SDJIWH5Ku fm4l0bqp1Dy3IjodllVzqg== 0000912057-99-009052.txt : 19991214 0000912057-99-009052.hdr.sgml : 19991214 ACCESSION NUMBER: 0000912057-99-009052 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TYCO INTERNATIONAL LTD /BER/ CENTRAL INDEX KEY: 0000833444 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 000000000 FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13836 FILM NUMBER: 99773127 BUSINESS ADDRESS: STREET 1: THE GIBBONS BUILDING STREET 2: 10 QUEENS STREET SUITE 301 CITY: HAMILTON HM 12 BERMU STATE: D0 BUSINESS PHONE: 4412928674 MAIL ADDRESS: STREET 1: C/O TYCO INTERNATIONAL (US) INC STREET 2: ONE TYCO PARK CITY: EXETER STATE: NH ZIP: 03833 FORMER COMPANY: FORMER CONFORMED NAME: ADT LIMITED DATE OF NAME CHANGE: 19930601 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
001-13836 (COMMISSION FILE NUMBER) TYCO INTERNATIONAL LTD. (Exact name of registrant as specified in its charter) BERMUDA NOT APPLICABLE (Jurisdiction of Incorporation) (IRS Employer Identification Number) THE ZURICH CENTRE, SECOND FLOOR, 90 PITTS BAY ROAD, PEMBROKE, HM 08, BERMUDA (Address of registrant's principal executive office)
441-292-8674* (Registrant's telephone number) ------------------------ SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED COMMON SHARES, PAR VALUE $0.20 NEW YORK STOCK EXCHANGE SERIES A FIRST PREFERENCE SHARE PURCHASE RIGHTS NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III or this Form 10-K or any amendment to this Form 10-K. /X/. The aggregate market value of voting common shares held by nonaffiliates of registrant was $63,297,592,505 as of December 3, 1999. The number of common shares outstanding as of December 3, 1999 was 1,700,010,963. DOCUMENTS INCORPORATED BY REFERENCE See pages 20 to 24 for the exhibit index. ------------------------ * The executive offices of registrant's principal United States subsidiary, Tyco International (US) Inc., are located at One Tyco Park, Exeter, New Hampshire 03833. The telephone number there is (603) 778-9700. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS INTRODUCTION Tyco International Ltd. ("Tyco" or the "Company") is a diversified manufacturing and service company that, through its subsidiaries: - designs, manufactures and distributes electrical and electronic components and designs, manufactures, installs and services undersea cable communication systems; - designs, manufactures and distributes disposable medical supplies and other specialty products, and conducts auto redistribution services; - designs, manufactures, installs and services fire detection and suppression systems and installs, monitors and maintains electronic security systems; and - designs, manufactures and distributes flow control products. See Notes 19 and 20 to the Consolidated Financial Statements for certain segment and geographic financial data relating to the Company's business. Tyco's strategy is to be the low-cost, high quality producer and provider in each of its markets. It promotes its leadership position by investing in existing businesses, developing new markets and acquiring complementary businesses and products. Combining the strengths of its existing operations and its business acquisitions, Tyco seeks to enhance shareholder value through increased earnings per share and strong cash flows. I. TELECOMMUNICATIONS AND ELECTRONICS The Telecommunications and Electronics segment consists of the following: - Tyco Electronics, including AMP Incorporated ("AMP"), which designs and manufactures electrical connectors, interconnection systems, touch screens and wireless systems, and Raychem Corporation ("Raychem"), which develops and manufactures high-performance electronic components; - Tyco Submarine Systems Ltd. ("TSSL"), which designs, manufactures, installs and services undersea communications cable systems; and - Tyco Printed Circuit Group ("TPCG"), which designs and manufactures multi-layer printed circuit boards, backplane assemblies and similar components. TYCO ELECTRONICS The principal operating company of this division is AMP, which merged with the Company on April 2, 1999. AMP designs, manufactures and markets a broad range of electronic, electrical and electro-optic connection devices and an expanding number of interconnection systems and connector-intensive assemblies, as well as wireless products including semi-conductors, radar sensors and Global Positioning Satellite systems. AMP's products have potential uses wherever an electronic, electrical, computer or telecommunications system is involved, and are becoming increasingly critical to the performance of these systems as voice, data and video communications converge. AMP manufactures and sells more than 200,000 parts in over 450 global product lines, including terminals, fiber optic, printed circuit board and cable connectors and assemblies, cable and cabling systems, and related application tools and application tooling machines. AMP's customers include original equipment manufacturers (OEMs) and their subcontractors, utilities, government agencies, distributors, value-added resellers, and customers who install, maintain and repair equipment. These customers are found in the automotive, power technology, personal computer, 1 communications, and consumer industrial industries. AMP serves over 90,000 customers located in over 143 countries, covering many diverse markets. AMP is a global marketing, sales, engineering and manufacturing interconnection systems company with a strong local presence in the geographical areas in which it operates, such as the Americas, the Asia-Pacific region, Europe and the Middle East. The acquisition of Raychem on August 12, 1999 significantly expanded the product line and complemented existing products and services offered by AMP. Raychem develops, manufactures and markets a variety of high-performance products for electronic OEMs and telecommunications, energy and industrial applications. Raychem designs, manufactures and distributes products such as circuit protection devices, heat-shrinkable tubing and molded parts, wire and cable, and computer touchscreens. In addition, Raychem designs and manufactures fiber optic and copper cable accessories, energy cable accessories and heat-tracing products and provides design, engineering and installation services. On November 23, 1999, the Company consummated its acquisition of Siemens Electromechanical Components GmbH & Co. KG ("Siemens EC") from Siemens AG. Siemens EC is the world market leader for the manufacture and sale of relays and is one of the world's leading providers of electro-mechanical components to the communications, automotive, consumer and general industry sectors. TYCO SUBMARINE SYSTEMS LTD. TSSL, which includes the Company's Simplex Technologies business and the submarine systems business acquired from AT&T Corp. in July 1997, is the world's only fully-integrated source for the design, engineering, manufacturing, installation and servicing of undersea cable communications systems. TSSL designs and builds both repeatered and non-repeatered fiber optic cable systems. Repeatered cable systems, which use Dense Wave Division Multiplexing, can provide 160 gigabits per second per fiber pair of capacity over 10,000 kilometers. Non-repeatered systems, which allow for even greater circuit capacity and reduced transmission costs, support short haul systems of several hundred kilometers. TSSL has designed, manufactured and installed approximately 350,000 kilometers of undersea optical cable. TSSL includes a world class research and development facility populated by acclaimed engineers and state of the art equipment to facilitate forward looking design work. TSSL operates one of the world's largest fleet of ships deployed worldwide to design, maintain, install and service undersea fiber optic transmission systems. TSSL also uses a variety of other undersea tools, including robotic vehicles for undersea cable burial and retrieval operations. Simplex Technologies is the primary supplier of cable and cable assemblies to TSSL. It also manufactures underwater electrical power cables and electro-mechanical cables for unique field operations. The Company's Rochester business manufactures wirelines, electro-optical products, subsea products, and sizes and draws high precision, high tensile steel wire for Simplex consumption. TSSL competes on a worldwide basis primarily against two other entities: Alcatel-Alsthom, headquartered in France, and KDD-SCS, located in Japan. Alcatel, like TSSL, is vertically integrated and produces its own cable, whereas KDD utilizes a Japanese cable manufacturer. TYCO PRINTED CIRCUIT GROUP TPCG is one of the largest independent manufacturers of complex multi-layer printed circuit boards and backplane assemblies in the United States. Printed circuit boards are used in the electronics industry to mount and interconnect components to create electronic systems. They are categorized by the number of layers and can be single-sided, double-sided or multi-layer. In general, single and double-sided boards are less advanced. Multi-layer boards provide greater interconnection density, while decreasing the number of separate printed circuit boards that are required to accommodate powerful and sophisticated 2 components. Backplane assemblies are comprised of printed circuit boards, connectors and other electronic components, and they serve as an electrical and mechanical interconnect device. TPCG manufactures double-sided and multi-layer boards, including highly sophisticated, precision tooled, custom laminated boards with layer counts up to 68. TPCG also produces sophisticated flexible-rigid circuit boards for use in commercial, aerospace and military applications. TPCG's backplane facilities produce soldered, press-fit and surface mount backplane assemblies. In addition, these facilities also provide turnkey manufacturing services including full "box build" products. Printed circuit boards and backplane products are manufactured on a job order basis to the customers' design specifications. The majority of sales are derived from high-density multi-layer boards. TPCG markets its products primarily through a direct sales force and, to a lesser extent, through a network of independent manufacturers' representatives. Customers are OEMs and contract manufacturers in the communications, computer, aircraft, military and other industrial and consumer electronics industries. The Company competes with several other large independent and captive companies that manufacture printed circuit board products primarily in the United States. Competition is on the basis of quality, reliability, price and timeliness of delivery. The Company believes that fewer competitors manufacture the more complex, high-density multi-layer printed circuit board products. II. HEALTHCARE AND SPECIALTY PRODUCTS The principal divisions in the Healthcare and Specialty Products segment are as follows: - Tyco Healthcare Group, which manufactures and distributes a wide variety of disposable medical products, including wound care products, syringes and needles, sutures and surgical staplers, incontinence products, electrosurgical instruments and laparoscopic instruments; - Tyco Plastics and Adhesives, which manufactures flexible plastic packaging, plastic bags and sheeting, coated and laminated packaging materials, tapes and adhesives, and plastic garment hangers; and - ADT Automotive, which is the second largest provider of auto redistribution services in the United States. TYCO HEALTHCARE GROUP The Tyco Healthcare Group consists of four primary business units including Kendall Healthcare, Tyco Healthcare International, U.S. Surgical and ValleyLab. Kendall Healthcare, which is comprised of Kendall, Sherwood-Davis & Geck, Ludlow, Graphic Controls and Confab, manufactures and markets worldwide a broad range of needles, syringes, electrodes and wound care, specialized paper and film, vascular therapy, urological care, incontinence care, anaesthetic care and other nursing care products to hospitals and to alternate site healthcare customers. Its Confab unit sells store brand baby diapers and incontinence and feminine hygiene products through retail outlets in the United States and Canada. Kendall Healthcare distributes its products in the United States through its own sales force and through a network of more than 250 independent distributors. The sales force is divided into five groups: vascular therapy products, medical and surgical products, alternate site markets, Ludlow and Confab. Kendall Healthcare, which operates throughout the United States, is the industry leader in gauze products with its Kerlix-Registered Trademark- and Curity-Registered Trademark- brand dressings. Kendall Healthcare's other core product category consists of its vascular therapy products, principally anti-embolism stockings, marketed under the T.E.D.-Registered Trademark- brand name, sequential pneumatic compression devices sold under the SCD-Registered Trademark- brand name and a venous plexus foot pump. Kendall Healthcare pioneered the pneumatic compression form of treatment and 3 continues to be the leading participant in the pneumatic compression and elastic stocking segments of the vascular therapy market. Kendall Healthcare is also an industry leader in the adult incontinence market serving the acute care, long-term care and retail markets. It offers a complete line of disposable adult briefs, underpads, baby diapers and other related products. Ludlow, which includes Graphic Controls, manufactures and sells a variety of disposable medical products, specialized paper and film products. These include medical electrodes and gels for monitoring and diagnostic tests and hydrogel wound care products, which are used primarily in critical care, physical therapy and rehabilitative departments in hospitals. Graphic Controls also sells operating room kits, sharps containers and other operating room related products. Tyco Healthcare International is responsible for the manufacturing, marketing, distribution and export of the Tyco Healthcare Group products outside of the United States. Tyco Healthcare International markets directly to hospitals and medical professionals, as well as through independent distributors. Its operations are organized primarily into three geographic regions, Europe, Latin America and Asia-Pacific, although the mix of product lines offered varies from country to country. On October 1, 1998, Tyco completed its acquisition of United States Surgical Corporation. U.S. Surgical develops, manufactures and markets a line of surgical wound closure products and other advanced surgical products to hospitals throughout the world. Its products include surgical staplers, sutures, disposable laparoscopic instrumentation and numerous other products in surgical and medical specialties such as spine surgery, cardiovascular surgery, and breastcare. ValleyLab, acquired by U.S. Surgical in 1998, is a leading manufacturer and marketer of electrosurgical and ultrasonic surgical products used in open and minimally invasive surgical procedures. Additional product lines relate to radio frequency energy and vessel sealing technology. TYCO PLASTICS AND ADHESIVES Tyco Plastics and Adhesives consists of Armin Plastics, Carlisle Plastics, A&E Products, Tyco Adhesives and Ludlow Coated Products. ARMIN PLASTICS Armin manufactures polyethylene film and packaging products in a wide range of size, gauge, construction strength, stretch capacity, clarity and color. Armin extrudes low density, high density and linear low density polyethylene film from resin purchased in pellet form, incorporating such additives as coloring, slip and anti-block chemicals. Armin's products include plastic supermarket packaging, greenhouse sheeting, shipping covers and liners and a variety of other packaging configurations for the aerospace, agricultural, automotive, construction, cosmetics, electronics, food processing, healthcare, pharmaceutical and shipping industries. Armin also manufactures a number of other polyethylene products such as reusable plastic pallets, transformer pads for electric utilities and a large variety of disposable gloves for the cosmetic, medical, food handling and pharmaceutical industries. Armin generates the majority of its sales through its own internal sales force and services more than 6,000 customers in the United States. Armin competes with a wide range of manufacturers, including some vertically integrated companies and companies that manufacture polyethylene resins for their own use. Armin competes in many market segments by emphasizing product innovation, specialization and customer service. 4 CARLISLE PLASTICS Carlisle is a leading producer of industrial and consumer plastic products, including trash bags, flexible packaging and sheeting. Carlisle supplies plastic trash bags to mass merchants, grocery chains, and institutional customers primarily in North America. Carlisle manufactures Ruffies-Registered Trademark-, a national brand consumer trash bag, for mass merchants and other retail stores. Carlisle also provides heavy duty trash can liners for institutional customers, such as food service distributors, janitorial supply houses, restaurants, hotels and hospitals. In the consumer trash bag market, Carlisle competes primarily with two nationally advertised brands. Carlisle has historically concentrated on mass merchants as the primary market for its branded Ruffies trash bags, while the other major national brands are marketed primarily through food retailers. Film-Gard-Registered Trademark-, Carlisle's leading plastic sheeting product, is sold to consumers and professional contractors through do-it-yourself outlets, home improvement centers and hardware stores. A wide range of Film-Gard products are sold for various uses, including painting, renovation, construction, landscaping and agriculture. A&E PRODUCTS A&E Products sells molded plastic garment hangers to garment manufacturers, national, regional and local retailers and mass merchants. Garment manufacturers put their products on A&E Products hangers before shipping to retail outlets. National retailers purchase customized hanger designs created and manufactured by A&E Products. Regional and local retailers buy standard A&E Products hanger lines for retail clothing displays, and A&E Products also supplies mass merchants with consumer plastic hangers for sale to the general public. A&E Products operates in a competitive marketplace where success is dependent upon price, service and quality. TYCO ADHESIVES The Tyco Adhesives division manufactures and markets specialty adhesive products and tapes for industrial applications, including external corrosion protection tape products for oil, gas and water pipelines. Other industrial applications include tapes used in the automotive industry for wire harness wraps, sealing and other purposes, in the aerospace industry, and in the heating, ventilation and air conditioning (HVAC) industry. Tyco Adhesives also produces duct, foil, strapping, packaging and electrical tapes and spray adhesives for industrial and consumer markets worldwide and manufactures cloth and medical tapes for Kendall Healthcare and others. Tyco Adhesives' Betham division develops and markets pressure sensitive adhesives and coatings, principally for the automotive, medical and specialty markets. Tyco Adhesives generally markets its pipeline products directly to its customer base, working with local manufacturers' representatives, international engineering and construction companies and the owners and operators of pipeline transportation facilities. Tyco Adhesives sells its other industrial products either directly to major end users or through diverse distribution channels, depending upon the industry being supplied. LUDLOW COATED PRODUCTS Ludlow Coated Products produces protective packaging and other materials made of coated or laminated combinations of paper, polyethylene and foil. Coated packaging materials provide barriers against grease, oil, light, heat, moisture, oxygen and other contaminants. The division produces structural coated and laminated products such as plastic coated kraft, linerboard and bleached boards for rigid urethane insulation panels, automotive components and wallboard panels. Other product applications 5 include packaging for photographic film, frozen foods, health care products, electrical and metallic components, agricultural chemicals, cement and specialty resins. Ludlow markets its laminated and coated products through its own sales force and through independent manufacturers' representatives. Ludlow competes with many large manufacturers of laminated and coated products on the basis of price, service, marketing coverage and custom application engineering. There are various specialized competitors in different markets. ADT AUTOMOTIVE ADT Automotive operates a network of 28 large modern auction centers in the United States, providing an organized wholesale marketplace for the sale and purchase of used vehicles. A substantial majority of the vehicles sold at ADT Automotive auctions are passenger cars and light trucks. Other vehicles sold consist of heavy trucks and industrial vehicles. Sales of vehicles from specific market sources are held on a regularly scheduled basis and additional specialized sales are scheduled as necessary. ADT Automotive operates almost exclusively in the wholesale marketplace and, in general, the public is not permitted to attend its auctions. It acts solely as an agent in auction transactions and does not purchase vehicles for its own account. The principal sources of vehicles for sale at auction are consignments by new and used vehicle dealers, vehicle manufacturers, corporate owners of vehicles such as fleet operators, rental companies, leasing companies, banks and other financial institutions, manufacturers' credit subsidiaries and government agencies. The vehicles consigned by dealers consist of vehicles of all types and ages and include vehicles that have been traded in against new car sales. Vehicles consigned by corporate and financial owners include both repossessed and off-lease vehicles and, as a result, are normally in the range of one to four years old. The principal purchasers of vehicles at auction are new and used vehicle dealers and distributors. In addition to the auction process, ADT Automotive provides a comprehensive range of vehicle redistribution services, including transportation, reconditioning, title transfer assistance, vehicle repossession and fleet management services. Vehicle reconditioning is carried out on-site and principally consists of appearance reconditioning and paint and body work to bring vehicles up to retail ready condition. More extensive body work services including body panel painting and repair of minor collision damage are also carried out. Reconditioning services are also provided for vehicles other than those going through the auction process, principally for fleet owners and insurance companies. ADT Automotive competes with two other significant auction chains and a large number of independently owned local auctions, which are members of the National Auto Auction Association. Competition is based primarily on price in relation to the quality and range of services offered to sellers and buyers of vehicles and ease of accessibility of auction locations. III. FIRE AND SECURITY SERVICES The Company, through its subsidiaries, is the largest company in the world for the following: - design, installation and servicing of a broad line of fire detection, prevention and suppression systems; - providing electronic security installation and monitoring services; and - manufacture and servicing of fire extinguishers and related products. 6 FIRE PROTECTION CONTRACTING AND SERVICES Operating under several trade names including Grinnell, Wormald, Mather & Platt, Total Walther, O'Donnell Griffin and Tyco, the Company designs, fabricates, installs and services automatic fire sprinkler systems, fire alarm and detection systems, and special hazard suppression systems in buildings and other installations. The Company's fire protection contracting and service business in North America operates through a network of offices in the United States, Canada, Mexico, Central America and Puerto Rico. The Company also operates worldwide through a network of offices in the United Kingdom, continental Europe, Saudi Arabia, United Arab Emirates, Australia, New Zealand, Asia and South America. The Company installs fire protection systems in both new and existing structures. Typically, the contracting businesses bid on contracts for fire protection installation which are let by owners, architects, construction engineers and mechanical or general contractors. In recent years, the business of retrofitting existing buildings has grown as a result of legislation mandating the installation of fire protection systems and also as a result of lower insurance premiums available to structures with automatic sprinkler systems. The Company continues to focus on system maintenance and inspection, which has become a more significant part of the business. The majority of the fire suppression systems installed by the Company are water-based. However, the Company is also the world's leading provider of custom designed special hazard fire protection systems which incorporate various specialized non-water agents such as foams, dry chemicals and gases. Systems using agents other than water are especially suited to fire protection in certain manufacturing, power generation, petrochemical, offshore oil exploration, transportation, telecommunications, mining and marine applications. The Company holds exclusive manufacturing and distribution rights in several regions of the world for INERGEN-Registered Trademark- fire suppression products. INERGEN is an alternative to the ozone depleting agent known as halon and consists of a mixture of three inert gases designed to effectively extinguish fires without polluting the environment, damaging costly equipment or harming people. In Australia, New Zealand and Asia, the Company also engages in the installation of electrical wire and related electrical equipment in new and existing structures and provides specialized electrical contracting services, including applications for railroad and bridge construction, primarily through its O'Donnell Griffin division. Substantially all of the mechanical components (and, in North America, a high proportion of the pipe) used in the fire protection systems installed by the Company are manufactured by the Company. The Company also has fabrication plants worldwide that cut, thread and weld pipe, which is then shipped with other prefabricated components to job sites for installation. The Company has developed its own computer-aided-design technology that reduces the time required to design systems for specific applications and coordinates the fabrication and delivery of system components. The Company's fire protection contracting business employs both non-union and union employees in North America, Europe and Asia-Pacific. Many of the union employees are employed on an hourly basis for particular jobs. In North America, the largest number of union employees is represented by a number of local unions affiliated with the United Association of Plumbers and Pipefitters ("UA"). In April 1994, following lengthy negotiations, contracts between the Company's Grinnell Corporation ("Grinnell") subsidiary and a number of locals of the UA were not renewed. Employees in those locations, representing 64 percent of those employees represented by the UA unions, went on strike. Grinnell has continued to operate with former union members who have crossed over and with replacement workers. The labor action has not had, and is not expected to have, any material adverse effect on the Company's business or results of operations. Generally, competition in the fire protection business varies by geographic location. In North America, the Company competes with hundreds of smaller contractors on a regional or local basis for the 7 installation of fire suppression and fire alarm and detection systems. Many of the regional and local competitors employ non-union labor. In Europe, the Company competes with many regional or local contractors on a country by country basis. In Australia, New Zealand and Asia, the Company competes with a few large fire protection contractors as well as with many smaller regional or local companies. The Company competes for fire protection contracts primarily on the basis of price, service and quality. ELECTRONIC SECURITY SERVICES The Company provides electronic security services principally under the ADT trade name and also under other trade names including Alarmguard, Thorn Security, Holmes Protection, CIPE, Zettler, Sonitrol, and Armourguard. Services are provided in the United States, Canada, the United Kingdom, Spain, France, Belgium, Greece, South Korea, The Netherlands, Germany, The Republic of Ireland, Singapore, Hong Kong, New Zealand and Australia. Electronically monitored security systems involve the installation and use on a customer's premises of devices designed to detect or react to various occurrences or conditions, such as intrusion, movement, fire, smoke, flooding, environmental conditions (including temperature or humidity variations), industrial operations (such as water, gas or steam pressure and process flow controls) or other hazards. These detection devices are connected to a microprocessor-based control panel which communicates through telephone lines to a monitoring center, often located at remote distances from the customer's premises, where alarm and supervisory signals are received and recorded. In most systems, control panels can identify the nature of the alarm and the areas within a building where the sensor was activated. Depending upon the type of service for which the subscriber has contracted, monitoring center personnel respond to alarms by relaying appropriate information to the local fire or police departments, notifying the customer or taking other appropriate action, such as dispatching employees to the customer's premises. In some instances, the customer may monitor the system at its own premises or the system may be connected to local fire or police departments. The Company provides electronic security services to both commercial and residential customers. Commercial customers include financial institutions, industrial and commercial businesses, facilities of federal, state and local government departments, defense installations, and health care and educational facilities. Residential electronic security services are provided primarily in North America. Customers are often prompted to purchase security systems by their insurance carriers, which may offer lower insurance premium rates if a security system is installed or require that a system be installed as a condition to coverage. The Company's electronic security systems and products are tailored to customers' specific needs and include electronic monitoring services that provide intrusion and fire detection, as well as card or keypad activated access control systems and closed circuit television systems. Systems may be monitored by the customer at its premises or connected to one of the Company's monitoring centers. In either case, the Company usually provides support and maintenance through service contracts. It has been the Company's experience that commercial and residential contracts are generally renewed after their initial terms. Contract discontinuances occur principally as a result of customer relocation or closure. Systems installed at commercial customers' premises may be owned by the Company or by the customer. The Company usually retains ownership of standard residential systems, but more sophisticated residential systems are usually purchased by the customer. The Company markets its electronic security services to commercial and residential customers through a direct sales force and an authorized dealer network. Commercial customers which have multiple locations in North America are serviced by a separate national accounts sales force. The Company also utilizes advertising, telemarketing and direct mail to market its services. The electronic security services business in North America is highly competitive, with a number of major firms and approximately 12,000 smaller regional and local companies. The Company also competes 8 with several national companies and several thousand regional and local companies in the United Kingdom, continental Europe, Asia, New Zealand and Australia. Competition is based primarily on price in relation to quality of service. The Company believes that the quality of its electronic security services is higher than that of many of its competitors and, therefore, the Company's prices may be higher than those charged by its competitors. MANUFACTURING The Company's Ansul subsidiary manufactures and sells various lines of dry chemical, liquid and gaseous portable fire extinguishers and related agents for industrial, government, commercial and consumer applications. Ansul also manufactures and sells special hazard fire suppression systems designed for use in restaurants, marine applications, mining applications, the petrochemical industry, confined industrial spaces and commercial spaces housing electronic and other delicate equipment. Ansul also manufactures spill control products designed to absorb, neutralize and solidify spills of various hazardous materials. The Company's Fire and Security Services segment manufactures certain alarm, detection and activation devices and central monitoring station equipment which is both installed by the Company's own units and sold to other installers of alarm and detection devices. Otherwise, the Company does not manufacture the electronic security system components which it installs, although it does provide its own specifications to manufacturers for certain security system components and undertakes some final assembly work in respect of more sophisticated systems. These products are manufactured primarily outside of the United States. IV. FLOW CONTROL PRODUCTS The Company, through its subsidiaries, manufactures and distributes flow control products in North America, Latin America, Continental Europe, the United Kingdom, and the Asia-Pacific region. Flow control products and services include: - pipe, fittings, valves, valve actuators, couplings and related products which are used to transport, control and measure the flow of liquids and gases; - fire sprinkler devices, specialty valves, plastic pipe and fittings used in commercial, residential and industrial fire protection systems; and - a broad range of environmental, consulting and engineering services. During August 1999, the Company completed the sale of certain Flow Control businesses, including The Mueller Company, a manufacturer of valves, fire hydrants and related products, and portions of Grinnell Supply Sales & Manufacturing, a manufacturer and distributor of commodity pipe fittings and related products. The reason for the sale of these businesses was due to high cyclicality and increased competition related to their products. MANUFACTURING VALVES AND RELATED PRODUCTS Tyco Flow Control manufactures a wide variety of standard and highly specialized valves and valve products on a worldwide basis. The group manufactures butterfly, ball, gate, globe, check, safety relief, knife gate, instrumentation, sanitary and other types of valves in a variety of configurations, body types, materials, pressure ratings and sizes. It also manufactures related equipment, such as valve actuators, gauges, heat tracing and leak detection systems, vapor control products and other related products, and provides repair and inspection services. These products are manufactured in the United States, the United Kingdom, France, Australia, Germany, Italy, The Netherlands, Spain, New Zealand, Belgium, Brazil, Mexico, Switzerland, South Korea, Argentina, China, Japan, Canada and India. The group's valves and 9 related products are used primarily in plumbing, HVAC systems, power generation, food and beverage, water distribution, wastewater, chemical, petrochemical, oil and gas, pulp and paper, commercial irrigation, mining, industrial process and other applications. These products are sold under several trade names, including Keystone, Anderson Greenwood, Biffi, Century Valve, Crosby, Gimpel, Hancock, Dewrance, Yarway, Valvtron, Bayard, Edward Barber, Belgicast, Charles Winn, Chemat, Descote, Fasani, Flo-Check, Intervalve, Hindle Cockburns, Hovap, Klein, Neotecha, Raimondi, Sapag, Sempell, Vanessa, Valvtec, Martins, Promet, Richards, Morin Actuators, Technaflow, Clarkson, Belucci, Intecva, Combined Instruments, Iprosa, Whessoe Varec, Chemelex and others. FIRE PROTECTION PRODUCTS The Flow Control group manufactures, sells and distributes a wide variety of products utilized by fire protection contractors and fabricators of fire protection systems. These products include a complete line of fire sprinkler devices, valves, plastic pipe and pipe fittings and ductile iron pipe couplings which are also sold to third parties as well as to the Company's fire protection contracting businesses on an arms-length basis. Products are manufactured in the United States, the United Kingdom, Germany and China. During 1999, the Company acquired Central Sprinkler Corporation which was integrated into the Flow Control group. In addition to the Central trade name, products are also sold under the Grinnell, GEM Sprinkler, Star Sprinkler, Wormald and other trade names. STEEL TUBING AND OTHER PRODUCTS Allied Tube & Conduit ("Allied") is the leading North American manufacturer of steel tubular products. Allied manufactures a full line of steel pipe for the fire protection and construction industries and for commercial, residential and institutional markets. Its Mechanical Tube Division offers steel tubing in a wide assortment of shapes and sizes for a variety of industrial and commercial applications. Allied's Fence Division is a leader in the manufacture of products for the residential, industrial and commercial fence market. The Electrical Division is a leading manufacturer of steel electrical conduit and related products. Allied also manufactures metal framing systems, steel sign post products, electrical cable tray and cable ladder and related products used in the construction, industrial and original equipment markets which are sold under the Powerstrut, Unistrut and T.J. Cope trade names. Allied's products are manufactured in the United States and in Canada. On November 22, 1999, the Company acquired AFC Cable Systems, Inc. ("AFC"). AFC is a manufacturer of pre-wired armored cable, flexible electric conduit and other related products. AFC will be integrated into Allied within the Flow Control group. The Flow Control group also manufactures welded and drawn steel tube products at several locations in the United Kingdom under the trade names of Monmore Tubes, Newman Tipper Tubes, Senior Precision Tube and others. Specialty steel strip products are manufactured under the trade names of JB&S Lees, Firth Cleveland Steel Strip and Ductile Stourbridge. Metal framing systems and specialty fasteners are manufactured under the Lindapter trade name and metal framing and support systems, cable ladder and safety systems under the Unistrut trade name. In the Asia-Pacific region, metal framing and support systems are manufactured under the Unistrut, A.C.S. and other trade names. Ductile iron pipe and steel pipe, steel fittings, valves and related products, primarily for the water industry, are manufactured at several locations in Australia. SALES AND DISTRIBUTION Valves and related products are sold in some locations directly by an internal sales force and in other geographical areas by a network of independent distributors and manufacturer's representatives. The valve industry is fragmented and the Company competes against a number of international, national, local and 10 specialized manufacturers on the basis of price, delivery, breadth of product line and specialized product capability. Flow Control's fire protection products are sold by independent distributors and, in some cases, directly by the Company to fire protection contractors and fabricators of fire protection systems. In the United States, Central maintains a network of distribution facilities which stock and sell a full line of fire protection products directly to contractors and installers. GEM Sprinkler and Star Sprinkler sell fire protection products for sale through a network of independent distributors. In Canada, Central America, South America and the Asia-Pacific region, fire protection products are sold through independent distribution and directly to fire protection contractors. In Europe and the Middle East, Flow Control operates a number of company owned distribution facilities which stock and sell a full line of fire protection, mechanical and other flow control products. Competition for fire protection products is based on price, delivery and breadth of product line. Allied competes for the sale of steel pipe with other United States and non-United States producers. The group's pipe and tube products manufactured in the United Kingdom and Australia compete primarily with other local and national manufacturers in those countries. Competition is based on price, service and breadth of product line. Competition for fence products is principally from national and regional United States producers and to a lesser extent from non-United States companies on the basis of price, service and distribution. Allied competes with many small regional manufacturers for the sale of specialized industrial tubing on the basis of price and breadth of product line. The group's electrical conduit and other electrical products are sold to independent distributors on the basis of price and service. ENVIRONMENTAL, CONSULTING AND ENGINEERING SERVICES Through its Earth Technology Corporation ("Earth Tech") subsidiary, the Flow Control Products segment provides a broad range of environmental, consulting and engineering services. Earth Tech's principal services consist of full-spectrum water, wastewater, environmental and hazardous waste management services. These services include infrastructure design and construction services for institutional, civic, commercial and industrial clients; design, construction management and operating services for water and wastewater treatment facilities for municipal and industrial clients; and transportation engineering and consulting. In 1998, Tyco acquired Rust Environmental and Infrastructure, Inc. ("Rust Environmental"). The operations of Rust Environmental and Earth Tech were combined and these businesses now operate through a network of local offices located principally throughout North America. Earth Tech competes with a number of international, national, regional and local companies on the basis of price and the breadth and quality of services. During Fiscal 1999, the Company acquired Babcock Water Engineering Ltd. in the United Kingdom, Multiservice Engenharia, Ltda. in Brazil and P&R Holdings in Canada. These businesses are also engaged in environmental, water supply, wastewater, infrastructure and transportation engineering and consulting services and have been integrated into Earth Tech to form a worldwide service network. BACKLOG At September 30, 1999, the Company had a backlog of unfilled orders of approximately $7,581.1 million, compared to a backlog of approximately $5,118.2 million as of September 30, 1998. The Company expects that approximately 79 percent of its backlog at September 30, 1999 will be filled during the year ending September 30, 2000. 11 Backlog by industry segment is as follows (in millions):
SEPTEMBER 30, SEPTEMBER 30, 1999 1998 ------------- ------------- Telecommunications and Electronics................. $4,974.5 $2,951.1 Flow Control Products.............................. 1,516.5 1,129.2 Fire and Security Services......................... 986.6 965.4 Healthcare and Specialty Products.................. 103.5 72.5 -------- -------- $7,581.1 $5,118.2 ======== ========
Backlog increased in each of the Company's business segments. Within the Telecommunications and Electronics segment, backlog increased principally due to contracts awarded to TSSL due to continually increasing demands for undersea fiber optic cable capacity. Within the Flow Control Products segment, backlog increased principally due to an increase in backlog at Earth Tech related to its water and wastewater facilities contracts. Within the Fire and Security Services segment, backlog increased principally due to an increase in backlog at the Company's worldwide security and European fire protection businesses. Within the Healthcare and Specialty Products segment, the increase resulted principally from an increase in demand for the products sold by Tyco Plastics and Adhesives. PROPERTIES The Company's operations are conducted in facilities throughout the world aggregating some 59.1 million square feet of floor space, of which approximately 34.4 million square feet are owned and approximately 24.7 million square feet are leased. These facilities house manufacturing and warehousing operations as well as sales, engineering and administrative offices. The Telecommunications and Electronics segment has manufacturing facilities in North America, Central and South America, the United Kingdom, Ireland, Belgium, Germany, China, Japan, Singapore, Italy and France. The group occupies some 21.9 million square feet, of which 14.3 million square feet are owned and 7.6 million square feet are leased. The Healthcare and Specialty Products segment has manufacturing facilities in North America, South America, the United Kingdom, Germany, Ireland, France, Spain, China, Thailand, Japan and Malaysia. There are 28 vehicle auction facilities located in the United States. The group occupies some 19.7 million square feet, of which 11.8 million square feet are owned and 7.9 million square feet are leased. The Flow Control Products segment has manufacturing facilities in North America, the United Kingdom, France, Australia, Germany, Italy, The Netherlands, Spain, New Zealand, Brazil, Mexico, Switzerland, South Korea, Argentina, China, Japan, India, Malaysia, and Scotland. The group stocks and sells products through warehouse and distribution centers in the United States, The Netherlands, the United Kingdom, Germany, France, Spain, Italy, Scandinavia, Australia, New Zealand, Singapore and the Middle East. The group occupies some 8.9 million square feet, of which 5.7 million square feet are owned and 3.2 million square feet are leased. Within the Fire and Security Services segment, the fire protection contracting and service business operates through a network of offices located in North America, Central America, South America, the United Kingdom, The Republic of Ireland, France, Spain, Belgium, The Netherlands, Germany, Italy, Austria, Hungary, Switzerland, Denmark, Norway, Sweden, United Arab Emirates, Saudi Arabia, Australia, New Zealand, Hong Kong, Singapore, Taiwan, Thailand, Vietnam and Indonesia. Fire protection components are manufactured at locations in North America, the United Kingdom, Germany, Australia, New Zealand and South Korea. The electronic security services business operates through a network of monitoring centers and sales and service offices and other properties in the United States, Canada, the United Kingdom, Spain, France, Belgium, Greece, The Netherlands and The Republic of Ireland. The 12 environmental services business operates through a network of offices throughout North America. The segment occupies some 8.6 million square feet, of which 2.6 million square feet are owned and 6.0 million square feet are leased. In the opinion of management, the Company's properties and equipment generally are in good operating condition and are adequate for its present needs. The Company does not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities. See Note 17 to Consolidated Financial Statements for a description of the Company's rental obligations. RESEARCH AND DEVELOPMENT The amounts expended for Company-sponsored research and development during Fiscal 1999, Fiscal 1998, and Fiscal 1997 were $450.5 million, $511.4 million and $326.0 million, respectively. Customer-funded research and development expenditures were $4.6 million, $6.8 million and $1.9 million, respectively. Approximately 5,600 full-time scientists, engineers and other technical personnel are engaged in product research and development activities. Research activity at TSSL involves the continuing design and development of processes for the next generation of undersea fiber optic cable, while Allied and the printed circuit companies are principally involved with process development. Activity at Tyco Electronics focuses on new product development and a continual expansion of technical capabilities. Tyco Healthcare focuses on acquiring rights to new products and technologies to complement existing product lines and applying expertise to refine and successfully commercialize such products and technologies. Research activity in the Fire and Security Services and Flow Control Products segments is related to improvements in hydraulic design which controls the motion of fluids, resulting in new sprinkler devices and flow control products. Research and development activity at the specialty packaging companies involves new product applications. RAW MATERIALS The Company is one of the largest buyers of steel and plastic resin in the United States. Other principal materials include copper, brass, plastic, polyethylene resin and film, polypropylene, electronic components, chemicals and additives, thin and flexible copper clad materials, paper, ink, foil, adhesives, cloth, wax, pulp and cotton. Certain of the materials used in the Fire and Security Services segment and the Flow Control Products segment, principally certain valves and fittings and security systems, are purchased for installation in fire protection systems or for distribution. Materials are purchased both in and outside of the United States from a large number of independent sources. There have been no shortages in materials which have had a material adverse effect on the Company's businesses. PATENTS AND TRADEMARKS The Company owns a number of patents which principally relate to electrical and electronic products, healthcare and specialty products, fire protection devices, electronic security systems, flow control products, pipe and tubing manufacture, and cable manufacture. The Company also owns a number of trademarks and is a licensee under a number of patents. Although these have been of value and are expected to continue to be of value in the future, in the opinion of management, the loss of any single patent or group of patents would not materially affect the conduct of the business in any of the Company's segments. The patents and licenses have remaining lives of from one to twenty years. Kendall sells certain products under trade names owned by its suppliers and packages certain products under customer trademarks and labels. 13 EMPLOYEES The Company employed approximately 182,000 persons at September 30, 1999, of which approximately 93,000 are employed in the U.S. and 89,000 outside the United States. The Company has collective bargaining agreements with labor unions covering approximately 29,800 employees at certain of its North American, European and Asia-Pacific businesses. While the Company believes that its relations with the labor unions and with its employees are generally satisfactory, a number of local unions affiliated with the United Association of Plumbers and Pipefitters, representing 64 percent of Grinnell Fire Protection's North American union employees at the time of their strike in 1994, continue to be on strike. The action is still pending. See discussion under "Fire and Security Services" above. ENVIRONMENTAL MATTERS The Company makes a substantial effort to operate its facilities in compliance with laws relating to the protection of the environment. Compliance has not had and is not expected to have a material adverse effect upon the capital expenditures, earnings or competitive position of the Company. The Company believes that, consistent with applicable laws and regulations, it exercises due care and takes appropriate precautions in the management of wastes. The Company has received notification from the United States Environmental Protection Agency, and from certain state environmental agencies, that conditions at a number of sites where hazardous wastes were disposed of by the Company and other persons require cleanup and other possible remedial action. The Company also has a number of projects underway at several of its manufacturing facilities in order to comply with environmental laws. In addition, the Company remains responsible for certain environmental issues at manufacturing locations sold by the Company. These projects relate to a variety of activities, including solvent and metal contamination clean up and oil spill equipment upgrades and replacement. These projects, some of which are voluntary and some of which are required under applicable law, involve both remediation expenses and capital improvements. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. Based upon the Company's experience with the foregoing environmental matters, the Company has concluded that there is at least a reasonable possibility that remedial costs will be incurred with respect to these issues in an aggregate amount in the range of $35.6 million to $124.8 million. As of September 30, 1999, the Company has concluded that the most probable amount which will be incurred within this range is $53.7 million, $29.4 million of such amount is included in accrued expenses and other current liabilities and $24.3 million is included in other long-term liabilities in the Consolidated Balance Sheet. Based upon information available to the Company, at those sites where there has been an allocation of the liability for cleanup costs among a number of parties, including the Company, and such liability could be joint and several, management believes it is probable that other responsible parties will fully pay the cost allocated to them, except with respect to one site for which the Company has assumed that one of the identified responsible parties will be unable to pay the cost apportioned to it and that such party's cost will be reapportioned among the remaining responsible parties. In view of the Company's financial position and reserves for environmental matters of $53.7 million, the Company has concluded that its payment of such estimated amounts will not have a material adverse effect on its consolidated financial position, results of operations or liquidity. ITEM 2. PROPERTIES See Item 1. "Business--Properties" for information relating to the Company's owned and leased property. 14 ITEM 3. LEGAL PROCEEDINGS For information regarding wire reports of purported stockholder class actions seeking damages against the Company and certain of its officers, see Current Report on Form 8-K filed on December 10, 1999. See the discussions under Item 1. "Business--Environmental Matters". ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. EXECUTIVE OFFICERS OF THE REGISTRANT In July 1997, a wholly-owned subsidiary of what was formerly called ADT Limited ("ADT") merged with Tyco International Ltd. ("Former Tyco"). Upon consummation of the merger, ADT (the continuing public company) changed its name to Tyco International Ltd. Former Tyco became a wholly-owned subsidiary of the Company and changed its name to Tyco International (US) Inc. ("Tyco US"). The executive officers of the Company and executive officers of certain subsidiaries are as follows: L. Dennis Kozlowski, age 53, Chairman of the Board, President and Chief Executive Officer since July 1997. Chairman of the Board of Former Tyco from January 1993 to July 1997; Chief Executive Officer of Former Tyco since July 1992, President of Former Tyco since 1989; associated with Former Tyco since 1975. Mark A. Belnick, age 53, Executive Vice President and Chief Corporate Counsel since September 1998. Prior to joining Tyco, Mr. Belnick was a Senior Partner at the international law firm of Paul, Weiss, Rifkind, Wharton & Garrison since 1987. Jerry R. Boggess, age 55, President of Tyco Fire and Security Services since August 1993. Vice President of Former Tyco since February 1996; associated with Former Tyco since 1968. Neil R. Garvey, age 44, President of Tyco Submarine Systems Ltd. since July 1997. President of Simplex Technologies from July 1995 to June 1997; Vice President of Sales and Marketing of Simplex Technologies from June 1992 to July 1995; associated with Former Tyco since 1979. Juergen W. Gromer, age 54, President of Tyco Electronics since April 1999; Senior Vice President, Worldwide Sales and Service of AMP from 1998 to April 1999; President, Global Automotive Division, and Corporate Vice President of AMP from 1997 to 1998; Vice President and General Manager of various divisions of AMP from 1990 to 1997. Robert P. Mead, age 48, President of the Flow Control Products segment since May 1993. Vice President of Former Tyco since August 1993; associated with Former Tyco since 1973. Richard J. Meelia, age 50, President of Tyco Healthcare Group since 1995; Group President of Kendall Healthcare Products Company from January 1991 to 1995. Mark H. Swartz, age 39, Executive Vice President and Chief Financial Officer since July 1997. Vice President and Chief Financial Officer of Former Tyco since February 1995; Director of Mergers and Acquisitions of Former Tyco from 1993 to 1995; associated with Former Tyco since 1991. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON SHARES AND RELATED SECURITY HOLDER MATTERS The number of registered holders of the Company's common shares at November 8, 1999 was 32,947. Tyco common shares are listed and traded on the New York Stock Exchange ("NYSE"), the London Stock Exchange and the Bermuda Stock Exchange. The following table sets forth the high and low sales 15 prices per share of Tyco common shares as reported in the NYSE Composite Transaction Tape and the dividends paid on Tyco common shares, for the quarterly periods presented below. The price and dividends for Tyco common shares have been restated to reflect two-for-one stock splits distributed on October 22, 1997 and October 21, 1999, both of which were effected in the form of a stock dividend.
FISCAL 1999 FISCAL 1998 ------------------------------------- ------------------------------------- MARKET PRICE RANGE MARKET PRICE RANGE ------------------- DIVIDEND PER ------------------- DIVIDEND PER QUARTER HIGH LOW COMMON SHARE(1) HIGH LOW COMMON SHARE(1) - ------- -------- -------- --------------- -------- -------- --------------- First......................... $39.5938 $20.1563 $0.0125 $22.7500 $17.0000 $ 0.0125 Second........................ 39.9688 33.7500 0.0125 28.7188 21.1875 0.0125 Third......................... 47.4063 35.1875 0.0125 31.5313 25.7188 0.0125 Fourth........................ 52.9375 47.1250 0.0125 34.5000 25.0000 0.0125 ------- -------- $ 0.05 $ 0.05 ======= ========
- ------------------------ (1) Prior to their mergers with Tyco, USSC paid quarterly dividends of $0.04 per share in Fiscal 1998 and AMP paid dividends of $0.27 per share in the first two quarters of Fiscal 1999, $0.26 per share in the first quarter of Fiscal 1998 and $0.27 per share in the last three quarters of Fiscal 1998. The payment of dividends by Tyco in the future will depend on business conditions, Tyco's financial condition and earnings and other factors. ITEM 6. SELECTED FINANCIAL DATA The following table sets forth selected consolidated financial information of the Company for the fiscal years ended September 30, 1999 and 1998, the nine-month fiscal period ended September 30, 1997 and the two years in the period ended December 31, 1996. This selected financial information should be read in conjunction with the Company's Consolidated Financial Statements and related notes. The selected financial data reflect the combined results of operations and financial position of Tyco, Former Tyco, Keystone, Inbrand (from January 1, 1997), USSC and AMP restated for all periods presented pursuant to the pooling of interests method of accounting. The selected financial data prior to January 1, 1997 do not reflect the results of operations and financial position of Inbrand, which was acquired in 1997 16 and accounted for under the pooling of interests method of accounting, due to immateriality. See Notes 1 and 2 to the Consolidated Financial Statements.
YEAR ENDED NINE MONTHS YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31, --------------------- SEPTEMBER 30, ----------------------- 1999(1) 1998(2) 1997(3)(4) 1996(5)(6) 1995(5)(7) --------- --------- ------------- ---------- ---------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Consolidated Statements of Operations Data: Net sales................................. $22,496.5 $19,061.7 $12,742.5 $14,671.0 $13,152.1 Operating income.......................... 2,136.8 1,948.1 125.8 587.4 1,447.5 Income (loss) from continuing operations.............................. 1,031.0 1,168.6 (348.5) 49.4 755.5 Income (loss) from continuing operations per common share: Basic................................... 0.63 0.74 (0.24) 0.02 0.55 Diluted................................. 0.62 0.72 (0.24) 0.02 0.54 Cash dividends per common share (8)....... See (9) below. Consolidated Balance Sheet Data: Total assets.............................. $32,361.6 $23,440.7 $16,960.8 $14,686.2 $13,143.8 Long-term debt............................ 9,109.4 5,424.7 2,785.9 2,202.4 2,229.7 Shareholders' equity...................... 12,332.6 9,901.8 7,478.7 7,022.6 6,792.1
- ------------------------ (1) Operating income in the fiscal year ended September 30, 1999 includes charges of $1,261.7 million for merger, restructuring and other non-recurring charges, of which $78.9 million is included in cost of sales, and charges of $335.0 million for the impairment of long-lived assets related to the mergers with USSC and AMP and AMP's profit improvement plan. See Notes 12 and 16 to the Consolidated Financial Statements. (2) Operating income in the fiscal year ended September 30, 1998 includes charges of $80.5 million primarily related to costs to exit certain businesses in USSC's operations and restructuring charges of $12.0 million related to the operations of USSC. In addition, AMP recorded restructuring charges of $185.8 million in connection with its profit improvement plan and a credit of $21.4 million to restructuring charges representing a revision of estimates related to its 1996 restructuring activities. See Note 16 to the Consolidated Financial Statements. (3) In September 1997, the Company changed its fiscal year end from December 31 to September 30. Accordingly, the nine-month transition period ended September 30, 1997 is presented. (4) Operating income in the nine months ended September 30, 1997 includes charges related to merger, restructuring and other non-recurring costs of $917.8 million and impairment of long-lived assets of $148.4 million primarily related to the mergers and integration of ADT, Former Tyco, Keystone, and Inbrand, and charges of $24.3 million for litigation and other related costs and $5.8 million for restructuring charges in USSC's operations. See Notes 12 and 16 to the Consolidated Financial Statements. The results for the nine months ended September 30, 1997 also include a charge of $361.0 million for the write-off of purchased in-process research and development related to the acquisition of the submarine systems business of AT&T Corp. (5) Prior to their respective mergers, ADT, Keystone, USSC and AMP had December 31 fiscal year ends and Former Tyco had a June 30 fiscal year end. The selected consolidated financial data have been combined using a December 31 fiscal year end for ADT, Keystone, Former Tyco, USSC and AMP for the year ended December 31, 1996. For 1995, the results of operations and financial position reflect the combination of ADT, Keystone, USSC and AMP with a December 31 fiscal year end and Former Tyco with a June 30 fiscal year end. Net sales and net income for Former Tyco for the period July 1, 17 1995 through December 31, 1995, which results are not included in the historical combined results, were $2,460.1 million and $136.4 million, respectively. (6) Operating income in 1996 includes non-recurring charges of $744.7 million related to the adoption of Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-Lived Assets to Be Disposed Of," $237.3 million related principally to the restructuring of ADT's electronic security services business in the United States and United Kingdom, $98.0 million to exit various product lines and manufacturing operations associated with AMP's operations and $8.8 million of fees and expenses related to ADT's acquisition of Automated Security (Holdings) plc, a United Kingdom company. (7) Operating income in 1995 includes a loss of $65.8 million on the disposal of the European auto auction business and a gain of $31.4 million from the disposal of the European electronic article surveillance business. Operating income also includes non-recurring charges of $97.1 million for restructuring charges at ADT and Keystone, and for the fees and expenses related to the 1994 merger of Kendall International, Inc. and Former Tyco, as well as a charge of $8.2 million relating to the divestiture of certain assets by Keystone. (8) Per share amounts have been retroactively restated to give effect to the mergers with Former Tyco, Keystone, Inbrand, USSC and AMP; a 0.48133 reverse stock split (1.92532 after giving effect to the subsequent stock splits) effected on July 2, 1997; and two-for-one stock splits distributed on October 22, 1997 and October 21, 1999, both of which were effected in the form of a stock dividend. (9) Tyco has paid a quarterly cash dividend of $0.0125 per common share since July 2, 1997, the date of the Former Tyco/ADT merger. Prior to the merger with ADT, Former Tyco had paid a quarterly cash dividend of $0.0125 per share of common stock since January 1992. ADT had not paid any dividends on its common shares since 1992. USSC paid quarterly dividends of $0.04 per share in the year ended September 30, 1998 and the nine months ended September 30, 1997 and aggregate dividends of $0.08 per share in 1996 and 1995. AMP paid dividends of $0.27 per share in the first two quarters of the year ended September 30, 1999, $0.26 per share in the first quarter and $0.27 per share in the last three quarters of the year ended September 30, 1998, $0.26 per share in each of the three quarters of the nine months ended September 30, 1997, aggregate dividends of $1.00 per share in 1996 and $0.92 per share in 1995. The payment of dividends by Tyco in the future will depend on business conditions, Tyco's financial condition and earnings and other factors. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See Management's Discussion and Analysis of Financial Condition and Results of Operations which appears on pages 78 to 93 of this Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See Management's Discussion and Analysis of Financial Condition and Results of Operations which appears on pages 78 to 93 of this Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The following consolidated financial statements and schedule are filed as part of this Annual Report: Financial Statements: Reports of Independent Accountants Consolidated Balance Sheets--September 30, 1999 and September 30, 1998 18 Consolidated Statements of Operations for the fiscal years ended September 30, 1999 and 1998 and the nine-month fiscal period ended September 30, 1997 Consolidated Statements of Shareholders' Equity for the fiscal years ended September 30, 1999 and 1998 and the nine-month fiscal period ended September 30, 1997 Consolidated Statements of Cash Flows for the fiscal years ended September 30, 1999 and 1998 and the nine-month fiscal period ended September 30, 1997 Notes to Consolidated Financial Statements Financial Statement Schedule: Schedule II--Valuation and Qualifying Accounts All other financial statements and schedules have been omitted since the information required to be submitted has been included in the consolidated financial statements and related notes or because they are either not applicable or not required under the rules of Regulation S-X. See Notes to Consolidated Financial Statements for Summarized Quarterly Financial Data (unaudited). ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information concerning the Directors of the Registrant is hereby incorporated by reference to the Registrant's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. ITEM 11. MANAGEMENT REMUNERATION Information concerning management remuneration is hereby incorporated by reference to the Registrant's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information concerning security ownership of certain beneficial owners and management is hereby incorporated by reference to the Registrant's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information concerning certain relationships and related transactions is hereby incorporated by reference to the Registrant's definitive proxy statement which will be filed with the Commission within 120 days after the close of the fiscal year. 19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) Financial Statements and Schedules--see Item 8. (b) Exhibits 2.1 Agreement and Plan of Merger, dated as of November 22, 1998, by and among Tyco International (PA) Inc., AMP Merger Corp. and AMP Incorporated, including guarantee of Tyco International Ltd. (Incorporated by reference to the Registrant's Form S-4 filed December 11, 1998.) 2.2 Agreement and Plan of Merger, dated February 4, 1997, by and among United States Surgical Corporation, USSC Del Medical, Inc. and Progressive Angioplasty Systems, Inc. (15) 2.3 First Amendment, dated August 6, 1997, by and between United States Surgical Corporation, USSC Del Medical, Inc. and Progressive Angioplasty Systems, Inc. (15) 2.4 Agreement and Plan of Merger, dated as of May 25, 1998, by and among Tyco International Ltd., T11 Acquisition Corp. and United States Surgical Corporation. (10) 2.5 Agreement and Plan of Merger, dated as of May 19, 1999, by and among Tyco International Ltd., Tyco International (PA) Inc. and Raychem Corporation. (Incorporated by reference to the Registrant's Form S-4 filed June 11, 1999.) 2.6 Agreement and Plan of Merger, dated as of August 23, 1999, by and among General Acquisition Corp., General Sub Acquisition Corp. and General Surgical Innovations, Inc. (Incorporated by reference to the Registrant's Form S-4 filed on September 24, 1999.) 2.7 Agreement and Plan of Merger, dated as of August 31, 1999, by and among AFC Cable Systems, Inc., Tyco International (NV) Inc. and Tyco Acquisition Corp. XXII, including guarantee of Tyco International Ltd. (Incorporated by reference to the Registrant's Form S-4 filed September 29, 1999.) 3.1 Memorandum of Association (as altered) (Incorporating all amendments to May 26, 1992). (1) 3.2 Certificate of Incorporation on change of name dated July 2, 1997. (6) 3.3 Bye-Laws (incorporating all amendments to April 1, 1999). (11) 4.1 Indenture relating to the senior notes dated August 4, 1993 among ADT Operations, Inc., as issuer, and ADT Limited and certain subsidiaries of ADT Operations, Inc., as guarantors, and The Chase Manhattan Bank (National Association), as trustee, and the form of senior note included therein. (2) 4.2 First Supplemental Indenture to the Indenture, dated as of August 4, 1993, among ADT Operations, Inc., the Guarantors Named Therein and The Chase Manhattan Bank, as Trustee, dated as of July 1, 1997, in respect of the $250,000,000 8 1/4% Senior Notes due 2000. (7) 4.3 Amended and Restated Indenture dated as of July 2, 1997, in respect of the $250,000,000 8 1/4% Senior Notes due 2000. (7) 4.4 Indenture dated as of July 1, 1995 among ADT Operations, Inc., ADT Limited and Bank of Montreal Trust Company, as trustee and the form of note included therein. (3) 4.5 Rights Agreement between ADT Limited and Citibank, N.A. dated as of November 6, 1996. (5) 4.6 First Amendment between ADT Limited and Citibank, N.A. dated as of March 3, 1997 to Rights Agreement between ADT Limited and Citibank, N.A. dated as of November 6, 1996. (Incorporated by reference to Form 8-A/A dated March 3, 1997.)
20 4.7 Second Amendment between ADT Limited and Citibank, N.A. dated as of July 2, 1997 to the Rights Agreement (Incorporated by reference to Form 8-A/A dated July 2, 1997.) 4.8 Indenture dated April 30, 1992 between Former Tyco and Security Pacific National Trust Company (New York). (Incorporated by reference to Former Tyco's Form 10-Q for the period ended March 31, 1992.) 4.9 First Supplemental Indenture dated April 30, 1992 between Former Tyco and Security Pacific National Trust Company (New York). (Incorporated by reference to Former Tyco's Form 10-Q for the period ended March 31, 1992.) 4.10 Second Supplemental Indenture, dated as of March 8, 1993, between Former Tyco and BankAmerica National Trust Company, as Trustee. (Incorporated by reference to Tyco International Ltd.'s Form 8-K filed on March 8, 1993.) 4.11 Form of Indenture, dated as of June 9, 1998, among Tyco International Group S.A. (TIG), Tyco and The Bank of New York, as trustee. (12) 4.12 Form of Supplemental Indenture No.1, dated as of June 9, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 6 1/8% Notes due 2001 of the Company (including the form of Notes). (12) 4.13 Form of Supplemental Indenture No.2, dated as of June 9, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 6 3/8% Notes due 2005 of the Company (including the form of Notes). (12) 4.14 Form of Supplemental Indenture No.3, dated as of June 9, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 7% Notes due 2028 of the Company (including the form of Notes). (12) 4.15 Form of Supplemental Indenture No.4, dated as of June 9, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 6 1/4% Dealer remarketable securities-SM-(Drs.-SM-) due 2013 of the Company (including the form of Drs). (12) 4.16 Form of Supplemental Indenture No.5, dated as of November 2, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 5.875% Notes due 2004 of TIG (incorporated by reference to the Registrant's Annual Report on Form 10-K for fiscal year ended September 30, 1998). 4.17 Form of Supplemental Indenture No.6, dated as of November 2, 1998, among TIG, Tyco and The Bank of New York, as trustee relating to the 6.125% Notes due 2004 of TIG. (incorporated by reference to the Registrant's Annual Report on Form 10-K for fiscal year ended September 30, 1998). 4.18 Form of Supplemental Indenture No. 9, dated as of August 31, 1999, among TIG, Tyco and The Bank of New York, as trustee relating to the Floating Rate Notes due 2000 of TIG. (Filed herewith.) 4.19 Form of Supplemental Indenture No. 10, dated as of August 31, 1999, among TIG, Tyco and The Bank of New York, as trustee relating to the Floating Rate Notes due 2001 of TIG. (Filed herewith.) 4.20 Form of Supplemental Indenture No. 11, dated as of August 31, 1999, among TIG, Tyco and The Bank of New York, as trustee relating to the 6.875% Notes due 2002. (Filed herewith.) 4.21 Form of Supplemental Indenture No. 12, dated as of August 31, 1999, among TIG, Tyco and The Bank of New York, as trustee relating to the 0.57% Notes due 2000. (Filed herewith.)
21 4.22 Form of Indenture among United States Surgical Corporation ("USSC") and The Bank of New York, as trustee relating to the 7.25% Senior Debt Securities due 2008 of USSC (incorporated by reference to Exhibit 4(a) to USSC's Form S-3 (File No. 333-46239) filed March 6, 1998). 4.23 Officer's Certificate, dated March 17, 1998, defining the terms of the debenture among USSC and The Bank of New York, as Trustee relating to the 7.25% Senior Debt Securities due 2008 of USSC. (incorporated by reference to the Registrant's Annual Report on Form 10-K for fiscal year ended September 30, 1998). 4.24 Indenture, dated as of September 15, 1995, between Graphic Controls Corporation and United States Trust Company of New York, as Trustee (incorporated by reference to Exhibit 4.2 to the Graphic Controls Corporation's Registration Statement on Form S-4 (File No. 33-99094)). 4.25 Form of 12% Senior Subordinated Notes due 2005 of Graphic Controls Corporation (incorporated by reference to Exhibit 4.2 to the Graphic Controls Corporation's Registration Statement on Form S-4 (File No. 33-99094)). 4.26 364-Day Credit Agreement, Five-Year Credit Agreement and Bridge Credit Agreement, each dated as of June 27, 1997 (Incorporated by reference to Tyco International (US) Inc.'s Form 10-K for the fiscal year ended June 30, 1997.) 4.27 Parent Guarantee Agreement dated as of July 2, 1997 (Incorporated by reference into Tyco International (US) Inc.'s Form 10-K for the fiscal year ended June 30, 1997.) 4.28 $1.75 billion 364-day Credit Agreement dated February 13, 1998 held by TIG. (8) 4.29 $500 million Extendible Credit Agreement dated February 13, 1998 held by TIG. (8) 4.30 Parent Guarantee Agreement dated as of February 13, 1998. (8) 4.31 Indenture (previously filed as Exhibit 4.1 to the Registrants' Form S-3 (File Nos. 333-50855 and 333-50855-01)). (12) 4.32 Purchase Agreement, dated October 28, 1998, among TIG, Tyco as guarantor, the Lehman Brothers Inc., J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation. (13) 4.33 Registration Rights Agreement, dated as of November 2, 1998, among TIG, Tyco as guarantor, the Lehman Brothers Inc., J.P. Morgan Securities Inc., Credit Suisse First Boston Corporation and Donaldson, Lufkin & Jenrette Securities Corporation. (13) 4.34 364-Day Credit Agreement dated as of February 12, 1999 among TIG, the Banks named therein and Morgan Guaranty Trust Company of New York, as Agent. (14) 4.35 Parent Guarantee Agreement (as amended) dated as of February 12, 1999 between Tyco International Ltd. and Morgan Guaranty Trust Company of New York, as Agent. (14) 4.36 Third Amendment between Tyco International Ltd. and Citibank, N.A., dated as of September 10, 1999 to Rights Agreement between Tyco International Ltd, and Citibank, N.A. dated as of November 6, 1996 (Incorporated by reference to an Exhibit to the Registrant's Form 8-A/A dated September 10, 1999) 10.1 Agreement and Plan of Merger, dated as of March 17, 1997, by and among ADT Limited, Limited Apache, Inc. and Former Tyco. (4) 10.2 Agreement and Plan of Merger, dated as of May 20, 1997, by and among Former Tyco, T6 Acquisition Corp. and Keystone International, Inc. (Incorporated by reference as an Exhibit to Former Tyco's Registration Statement No. 333-31631 on Form S-4 filed on July 18, 1997.)
22 10.3 Purchase Agreement dated December 20, 1997 by and among American Cyanamid Company, American Home Products Corporation, AHP Subsidiary Holding Corporation and Tyco International (US) Inc. (9) 10.4 Parent Guarantee of obligations dated December 20, 1997. (9) 10.5 First Amendment to Purchase Agreement dated February 27, 1998 by and among American Cyanamid Company, American Home Products Corporation, AHP Subsidiary Holding Corporation and Tyco International (US) Inc. (9) 10.6 Rules of the ADT UK Executive Share Option Scheme (1984), amended to reflect the reverse split of Common Shares effective June 17, 1991. (1)* 10.7 Rules of the ADT International Executive Share Option Plan, amended to reflect the reverse split of Common Shares effective June 17, 1991. (1)* 10.8 Rules of the ADT UK and International Executive Share Option Schemes (1984) New Section, amended to reflect the reverse split of Common Shares effective June 17, 1991. (1)* 10.9 Rules of the ADT Senior Executive Share Option Plan, amended to reflect the reverse split of Common Shares effective June 17, 1991. (1)* 10.10 US (1990) Stock Option Plan of ADT Limited, amended to reflect the reverse split of Common Shares effective June 17, 1991. (1)* 10.11 Agreement between ADT Automotive Holdings, Inc. and Michael J. Richardson dated as of January 29, 1997. (5)* 10.12 Incentive Compensation Agreement between ADT, Inc. and Michael J. Richardson dated as of February 10, 1997. (5)* 10.13 Severance Agreement between ADT Security Services, Inc. and Raymond Gross dated as of February 26, 1997. (5)* 10.14 Consulting Agreement between ADT, Inc. and John E. Danneberg dated as of August 28, 1996. (5)* 10.15 Form of Indemnification Agreement. (5)* 10.16 The Tyco International Ltd. Long Term Incentive Plan (formerly known as the ADT 1993 Long-Term Incentive Plan) (as amended May 12, 1999). (Incorporated by reference to the Registrant's Form S-8 filed on June 10, 1999.)* 10.17 1978 Restricted Stock Ownership Plan for Key Employees. (Incorporated by reference to Former Tyco Shareholders' Proxy Statement for Annual Meeting of Shareholders on November 21, 1978.)* 10.18 1981 Key Employee Loan Program. (Incorporated by reference to Former Tyco's Form 10-K for the year ended May 31, 1982.)* 10.19 1983 Key Employee Loan Program. (Incorporated by reference to Former Tyco's Form 10-K for the year ended May 31, 1983.)* 10.20 1983 Restricted Stock Ownership Plan for Key Employees. (Incorporated by reference to Former Tyco Shareholders' Proxy Statement for Annual Meeting of Shareholders on October 18, 1983.)* 10.21 1983 Key Employee Loan Program, as amended December 9, 1993 (Incorporated by reference to Former Tyco's Form 10-K for the year ended June 30, 1994.)* 10.22 Tyco Incentive Compensation Plan. (Incorporated by reference to Former Tyco's Form 10-K for the year ended June 30, 1994.)* 10.23 1994 Restricted Stock Ownership Plan for Key Employees. (Incorporated by reference to Former Tyco Shareholders' Proxy Statement for Annual Meeting of Shareholders on October 19, 1994.)
23 10.24 Tyco International Ltd. Supplemental Executive Retirement Plan (Incorporated by reference to Former Tyco's Form 10-K for the year ended June 30, 1995).* 10.25 The Tyco International Ltd. Long Term Incentive Plan II. (Incorporated by reference to the Registrant's Form S-8 filed March 25, 1999.)* 21.1 Subsidiaries of the registrant. (Filed herewith.) 23.1 Consent of PricewaterhouseCoopers (Filed herewith.) 23.2 Consent of Deloitte & Touche LLP (Filed herewith.) 23.3 Consent of Arthur Andersen LLP (Filed herewith.) 27 Financial Data Schedule. (Filed herewith.)
- ------------------------ * Management contract or compensatory plan. (1) Incorporated by reference to an Exhibit to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992. (2) Incorporated by reference to an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993. (3) Incorporated by reference to an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (4) Incorporated by reference to an Exhibit to the Former Tyco's Current Report dated March 17, 1997 on Form 8-K filed March 25, 1997. (5) Incorporated by reference to an Exhibit to the Registrant's Form 8-A dated November 12, 1996. (6) Incorporated by reference to an Exhibit to the Registrant's Current Report dated July 2, 1997 on Form 8-K filed July 10, 1997. (7) Incorporated by reference to an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (8) Incorporated by reference to an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1997. (9) Incorporated by reference to an Exhibit to the Registrant's Current Report dated February 27, 1998 on Form 8-K filed March 11, 1998. (10) Incorporated by reference to an Exhibit to the Registrant's Current Report dated May 25, 1998 on Form 8-K filed June 24, 1998. (11) Incorporated by reference to an Exhibit to the Registrant's Registration Statement on Form S-3 filed April 23, 1998 and Current Report dated September 10, 1999 on Form 8-K filed September 14, 1999. (12) Incorporated by reference to an Exhibit to the Registrant's and TIG's Co-Registration Statement on Form S-3 (File Nos. 333-50855 and 333-50855-01) filed June 9, 1998. (13) Incorporated by reference to an Exhibit to the Registrant's and TIG's Co-Registration Statement on Form S-4 filed January 29, 1999. (14) Incorporated by reference to an Exhibit to the Registrant's Quarterly Report on Form 10-Q for the quarter ended December 31, 1998. (15) Incorporated by reference to an Exhibit to the Registrant's Registration Statement on Form S-3 filed on March 2, 1999. 24 (c) Reports on Form 8-K. Current Report on Form 8-K filed on July 21, 1999 containing the press release of Tyco dated July 20, 1999 announcing third quarter earnings, the sale of certain of its Flow Control Products businesses and a two-for-one stock split. Current Report on Form 8-K filed on August 27, 1999 containing press releases of Tyco dated August 12, 1999 and August 18, 1999 announcing the consummation of the acquisition of Raychem Corporation and the results of the proration of the merger consideration for Raychem shareholders, respectively. Current Report on Form 8-K filed on September 14, 1999 containing an approved increase in the number of authorized Tyco common shares and an amendment to the Rights Agreement between Tyco International Ltd. and Citibank, N.A., dated as of November 6, 1996. Current Report on Form 8-K filed on October 22, 1999 announcing fourth quarter earnings and the distribution of a two-for-one stock split. Current Report on Form 8-K filed on November 9, 1999 containing Amendment No. 1 to the Agreement and Plan of Merger, dated as of August 23, 1999 by and among General Acquisition, Tyco Acquisition Corp. XXIII (successor by assignment to General Sub Acquisition Corp.), a Delaware corporation and a wholly-owned subsidiary of General Acquisition, and General Surgical Innovations, Inc. Current Report on Form 8-K filed on November 22, 1999 containing Amendment No. 1 to the Agreement and Plan of Merger, dated as of August 31, 1999 by and among Tyco (NV), Tyco Acquisition Corp. XXII, a Delaware corporation and a wholly-owned subsidiary of Tyco (NV), and AFC Cable Systems, Inc., a Delaware corporation. Current Report on Form 8-K filed on December 9, 1999 containing Company press release announcing the SEC's nonpublic informal inquiry relating to charges and reserves taken in connection with the Company's acquisitions. Current Report on Form 8-K filed on December 10, 1999 disclosing wire reports of purported stockholder class actions seeking damages against the Company and certain of its officers. 25 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TYCO INTERNATIONAL LTD. By: /s/ MARK H. SWARTZ ----------------------------------------- Mark H. Swartz EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
Date: December 13, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ L. DENNIS KOZLOWSKI ------------------------------------------- L. Dennis Kozlowski Chairman of the Board, Chief Executive Officer, President and Director (Principal Executive Officer) /s/ MICHAEL A. ASHCROFT ------------------------------------------- Director Michael A. Ashcroft /s/ JOSHUA M. BERMAN ------------------------------------------- Director, Vice President Joshua M. Berman /s/ RICHARD S. BODMAN ------------------------------------------- Director December 13, 1999 Richard S. Bodman /s/ JOHN F. FORT ------------------------------------------- Director John F. Fort /s/ STEPHEN W. FOSS ------------------------------------------- Director Stephen W. Foss
26
SIGNATURE TITLE DATE --------- ----- ---- /s/ PHILIP M. HAMPTON ------------------------------------------- Director Philip M. Hampton /s/ JAMES S. PASMAN, JR. ------------------------------------------- Director James S. Pasman, Jr. /s/ W. PETER SLUSSER ------------------------------------------- Director W. Peter Slusser /s/ MARK H. SWARTZ Executive Vice President ------------------------------------------- and Chief Financial Mark H. Swartz Officer /s/ FRANK E. WALSH, JR. ------------------------------------------- Director Frank E. Walsh, Jr.
27 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Tyco International Ltd. In our opinion, based upon our audits and the reports of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders' equity and cash flows present fairly, in all material respects, the financial position of Tyco International Ltd. and its subsidiaries at September 30, 1999 and 1998, and the results of their operations and their cash flows for the years ended September 30, 1999 and 1998, and the nine months ended September 30, 1997, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the accompanying financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We did not audit the financial statements of AMP Incorporated, a wholly owned subsidiary, at September 30, 1998, and for the year ended September 30, 1998 and the nine months ended September 30, 1997, which statements reflect total assets constituting 20.1% of consolidated total assets as of September 30, 1998, and net sales constituting 29.0% and 33.6% of consolidated net sales for the year ended September 30, 1998 and the nine months ended September 30 1997, respectively. We did not audit the financial statements of United States Surgical Corporation, a wholly owned subsidiary, for the nine months ended September 30, 1997, which statements reflect net sales constituting 6.8% of consolidated net sales for the nine months ended September 30, 1997. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for AMP Incorporated and United States Surgical Corporation, as of and for the periods described above, is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS Hamilton, Bermuda October 21, 1999 28 INDEPENDENT AUDITORS' REPORT To the Shareholders and Board of Directors, United States Surgical Corporation: We have audited the consolidated statements of operations, changes in stockholders' equity and cash flows of United States Surgical Corporation and subsidiaries for the nine month period ended September 30, 1997 and the related financial statement schedule for the nine month period ended September 30, 1997 which are not included herein. These financial statements are the responsibility of United States Surgical Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated results of operations and cash flows of United States Surgical Corporation and subsidiaries for the nine month period ended September 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth herein. DELOITTE & TOUCHE LLP Stamford, Connecticut September 30, 1998 29 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Shareholders and Board of Directors of AMP Incorporated: We have audited the consolidated balance sheet of AMP Incorporated (a Pennsylvania corporation) and subsidiaries as of September 30, 1998, the related consolidated statements of income, shareholders' equity and cash flows for the year ended September 30, 1998, and the nine months ended September 30, 1997, which are not included herein. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of AMP Incorporated and subsidiaries as of September 30, 1998, and the consolidated results of their operations and their cash flows for the year ended September 30, 1998, and the nine months ended September 30, 1997, in conformity with generally accepted accounting principles. As explained in Note 1 to the consolidated financial statements, effective January 1, 1997, the Company changed its method of accounting for costing its inventories. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. Schedule II, which is not included herein, is presented for purposes of complying with the Securities and Exchange Commission rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP Philadelphia, Pennsylvania February 12, 1999 (except with respect to the matter disclosed in Note 18--Merger with Tyco International Ltd., as to which the date is April 2, 1999) 30 TYCO INTERNATIONAL LTD. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, --------------------------------- 1999 1998 ------------ ------------ (IN MILLIONS, EXCEPT SHARE DATA) CURRENT ASSETS: Cash and cash equivalents................................... $ 1,762.0 $ 1,072.9 Receivables, less allowance for doubtful accounts of $329.8 in 1999 and $317.6 in 1998................................ 4,582.3 3,478.4 Contracts in process........................................ 536.6 565.3 Inventories................................................. 2,849.1 2,610.0 Deferred income taxes....................................... 711.6 797.6 Prepaid expenses and other current assets................... 721.2 430.7 --------- --------- Total current assets........................................ 11,162.8 8,954.9 PROPERTY, PLANT AND EQUIPMENT, NET.......................... 7,322.4 6,104.3 GOODWILL AND OTHER INTANGIBLE ASSETS, NET................... 12,158.9 7,105.5 LONG-TERM INVESTMENTS....................................... 269.7 228.4 DEFERRED INCOME TAXES....................................... 668.8 320.9 OTHER ASSETS................................................ 779.0 726.7 --------- --------- TOTAL ASSETS............................................ $32,361.6 $23,440.7 ========= ========= CURRENT LIABILITIES: Loans payable and current maturities of long-term debt...... $ 1,012.8 $ 815.0 Accounts payable............................................ 2,530.8 1,733.4 Accrued expenses and other current liabilities.............. 3,599.7 3,069.3 Contracts in process--billings in excess of costs........... 977.9 332.9 Deferred revenue............................................ 258.8 266.5 Income taxes................................................ 798.0 773.9 Deferred income taxes....................................... 1.0 15.2 --------- --------- Total current liabilities................................... 9,179.0 7,006.2 LONG-TERM DEBT.............................................. 9,109.4 5,424.7 OTHER LONG-TERM LIABILITIES................................. 1,236.4 976.8 DEFERRED INCOME TAXES....................................... 504.2 131.2 --------- --------- TOTAL LIABILITIES....................................... 20,029.0 13,538.9 --------- --------- COMMITMENTS AND CONTINGENCIES (NOTE 17) SHAREHOLDERS' EQUITY: Preference shares, $1 par value, 125,000,000 authorized, none issued............................................... -- -- Common shares, $0.20 par value, 2,500,000,000 shares authorized; 1,690,175,338 shares outstanding in 1999 and 1,620,463,428 shares outstanding in 1998, net of 11,432,678 shares owned by subsidiaries in 1999 and 6,742,006 shares owned by subsidiaries in 1998............ 338.0 324.1 Capital in excess: Share premium............................................. 4,881.5 4,035.0 Contributed surplus, net of deferred compensation of $30.7 in 1999 and $67.3 in 1998............................... 3,607.6 2,584.0 Accumulated earnings........................................ 3,955.6 3,162.6 Accumulated other comprehensive loss........................ (450.1) (203.9) --------- --------- TOTAL SHAREHOLDERS' EQUITY.............................. 12,332.6 9,901.8 --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $32,361.6 $23,440.7 ========= =========
See Notes to Consolidated Financial Statements. 31 TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS YEAR ENDED YEAR ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1997 ------------- ------------- ------------- (IN MILLIONS, EXCEPT PER SHARE DATA) NET SALES.............................................. $22,496.5 $19,061.7 $12,742.5 Cost of sales.......................................... 14,405.6 12,694.8 8,523.6 Selling, general and administrative expenses........... 4,436.3 4,161.9 2,635.8 Merger, restructuring and other non-recurring charges.............................................. 1,182.8 256.9 947.9 Charge for the impairment of long-lived assets......... 335.0 -- 148.4 Write-off of purchased in-process research and development.......................................... -- -- 361.0 --------- --------- --------- OPERATING INCOME....................................... 2,136.8 1,948.1 125.8 Interest income........................................ 61.5 62.6 43.8 Interest expense....................................... (547.1) (307.9) (170.0) --------- --------- --------- Income (loss) before income taxes, extraordinary items and cumulative effect of accounting changes.......... 1,651.2 1,702.8 (0.4) Income taxes........................................... (620.2) (534.2) (348.1) --------- --------- --------- Income (loss) before extraordinary items and cumulative effect of accounting changes......................... 1,031.0 1,168.6 (348.5) Extraordinary items, net of taxes...................... (45.7) (2.4) (58.3) Cumulative effect of accounting changes, net of taxes................................................ -- -- 15.5 --------- --------- --------- NET INCOME (LOSS)...................................... 985.3 1,166.2 (391.3) Dividends on preference shares......................... -- -- (4.7) --------- --------- --------- NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS..... $ 985.3 $ 1,166.2 $ (396.0) ========= ========= ========= BASIC EARNINGS (LOSS) PER COMMON SHARE: Income (loss) before extraordinary items and cumulative effect of accounting changes............ $ 0.63 $ 0.74 $ (0.24) Extraordinary items, net of taxes.................... (0.03) -- (0.04) Cumulative effect of accounting changes, net of taxes.............................................. -- -- 0.01 Net income (loss) per common share................... 0.60 0.74 (0.27) DILUTED EARNINGS (LOSS) PER COMMON SHARE: Income (loss) before extraordinary items and cumulative effect of accounting changes............ $ 0.62 $ 0.72 $ (0.24) Extraordinary items, net of taxes.................... (0.03) -- (0.04) Cumulative effect of accounting changes, net of taxes.............................................. -- -- 0.01 Net income (loss) per common share................... 0.59 0.72 (0.27) WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic................................................ 1,641.3 1,583.4 1,476.7 Diluted.............................................. 1,674.8 1,624.7 1,476.7
See Notes to Consolidated Financial Statements. 32 TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PREFERRED COMMON ACCUMULATED FOR THE NINE MONTHS ENDED STOCK CONTRIBUTED SHARES CONTRIBUTED OTHER SEPTEMBER 30, 1997 AND THE YEARS $5.00 SURPLUS-- $0.20 SHARE SURPLUS-- ACCUMULATED COMPREHENSIVE ENDED SEPTEMBER 30, 1998 AND 1999 PAR VALUE PREFERRED PAR VALUE PREMIUM COMMON EARNINGS INCOME (LOSS) - ----------------------------------- --------- ----------- --------- --------- ----------- ------------ -------------- (IN MILLIONS) BALANCE AT JANUARY 1, 1997, AS PREVIOUSLY RESTATED.............. $ .7 $ 190.8 $281.7 $1,262.6 $2,339.9 $2,919.4 $ 72.8 Comprehensive loss: Net loss......................... (391.3) Currency translation adjustment..................... (203.4) Unrealized gain on marketable securities..................... 1.9 Minimum pension liability adjustment..................... (8.2) Total comprehensive loss....... Effect of ASH's excluded activity......................... (.8) Liquidation of ASH's ESOP.......... 2.5 Sale of common shares.............. 9.4 639.2 5.9 Exchange of Liquid Yield Option Notes............................ 2.0 81.0 Dividends.......................... (227.7) Restricted stock grants, cancellations and tax benefits... (18.0) Warrants and options exercised, net of shares surrendered for exercises........................ 7.0 366.8 (13.4) Purchase of treasury shares........ (2.6) Amortization of deferred compensation..................... 51.1 Issuance of common shares for acquisitions..................... 1.0 91.8 Issuance of common shares for litigation settlement............ 7.0 Conversion of Series A Convertible Preferred Stock.................. (.7) (190.8) 2.6 181.6 7.3 Other treasury stock transactions..................... (.1) Tax benefit on stock transactions..................... 9.9 Other adjustments.................. (.4) .2 ----- ------- ------ -------- -------- -------- ------- BALANCE AT SEPTEMBER 30, 1997...... -- -- 303.7 2,450.2 2,559.4 2,302.3 (136.9) Comprehensive income: Net income....................... 1,166.2 Currency translation adjustment..................... (36.7) Unrealized loss on marketable securities..................... (15.6) Minimum pension liability adjustment..................... (14.7) Total comprehensive income..... Sale of common shares.............. 10.2 1,239.9 (5.1) Exchange of Liquid Yield Option Notes............................ 3.6 151.7 Dividends.......................... (305.9) Restricted stock grants, net of surrenders....................... .2 .1 Warrants and options exercised..... 8.0 344.9 35.5 Purchase of treasury shares........ (1.8) (282.1) Stock compensation expense, including amortization of deferred compensation............ 43.4 Issuance of common shares for acquisition...................... .2 19.0 Issuance of common shares for litigation settlement............ 7.8 Tax benefit on stock transactions..................... 55.1 Other adjustments.................. (.8) ----- ------- ------ -------- -------- -------- ------- BALANCE AT SEPTEMBER 30, 1998...... -- -- 324.1 4,035.0 2,584.0 3,162.6 (203.9) Comprehensive income: Net income....................... 985.3 Currency translation adjustment..................... (258.3) Unrealized gain on marketable securities..................... 12.6 Minimum pension liability adjustment..................... (.5) Total comprehensive income..... Exchange of Liquid Yield Option Notes............................ 1.6 70.7 Dividends.......................... (192.3) Restricted stock grants, net of surrenders....................... .2 13.2 Warrants and options exercised..... 8.2 846.5 17.7 Purchase of treasury shares........ (2.5) (635.3) Amortization of deferred compensation..................... 92.1 Issuance of common shares for acquisitions..................... 6.4 1,448.4 Tax benefit on stock transactions..................... 15.2 Other adjustments.................. 1.6 ----- ------- ------ -------- -------- -------- ------- BALANCE AT SEPTEMBER 30, 1999...... $ -- $ -- $338.0 $4,881.5 $3,607.6 $3,955.6 $(450.1) ===== ======= ====== ======== ======== ======== ======= FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND THE YEARS COMPREHENSIVE ENDED SEPTEMBER 30, 1998 AND 1999 (LOSS) INCOME - ----------------------------------- -------------- (IN MILLIONS) BALANCE AT JANUARY 1, 1997, AS PREVIOUSLY RESTATED.............. Comprehensive loss: Net loss......................... $ (391.3) Currency translation adjustment..................... (203.4) Unrealized gain on marketable securities..................... 1.9 Minimum pension liability adjustment..................... (8.2) -------- Total comprehensive loss....... $ (601.0) ======== Effect of ASH's excluded activity......................... Liquidation of ASH's ESOP.......... Sale of common shares.............. Exchange of Liquid Yield Option Notes............................ Dividends.......................... Restricted stock grants, cancellations and tax benefits... Warrants and options exercised, net of shares surrendered for exercises........................ Purchase of treasury shares........ Amortization of deferred compensation..................... Issuance of common shares for acquisitions..................... Issuance of common shares for litigation settlement............ Conversion of Series A Convertible Preferred Stock.................. Other treasury stock transactions..................... Tax benefit on stock transactions..................... Other adjustments.................. BALANCE AT SEPTEMBER 30, 1997...... Comprehensive income: Net income....................... $1,166.2 Currency translation adjustment..................... (36.7) Unrealized loss on marketable securities..................... (15.6) Minimum pension liability adjustment..................... (14.7) -------- Total comprehensive income..... $1,099.2 ======== Sale of common shares.............. Exchange of Liquid Yield Option Notes............................ Dividends.......................... Restricted stock grants, net of surrenders....................... Warrants and options exercised..... Purchase of treasury shares........ Stock compensation expense, including amortization of deferred compensation............ Issuance of common shares for acquisition...................... Issuance of common shares for litigation settlement............ Tax benefit on stock transactions..................... Other adjustments.................. BALANCE AT SEPTEMBER 30, 1998...... Comprehensive income: Net income....................... $ 985.3 Currency translation adjustment..................... (258.3) Unrealized gain on marketable securities..................... 12.6 Minimum pension liability adjustment..................... (.5) -------- Total comprehensive income..... $ 739.1 ======== Exchange of Liquid Yield Option Notes............................ Dividends.......................... Restricted stock grants, net of surrenders....................... Warrants and options exercised..... Purchase of treasury shares........ Amortization of deferred compensation..................... Issuance of common shares for acquisitions..................... Tax benefit on stock transactions..................... Other adjustments.................. BALANCE AT SEPTEMBER 30, 1999......
See Notes to Consolidated Financial Statements. 33 TYCO INTERNATIONAL LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS YEAR ENDED YEAR ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1997 ------------- ------------- ------------- (IN MILLIONS) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)........................................... $ 985.3 $ 1,166.2 $ (391.3) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Merger, restructuring and other non-recurring charges..... 517.1 253.7 207.4 Charge for the impairment of long-lived assets............ 335.0 -- 148.4 Write-off of purchased in-process research and development............................................. -- -- 361.0 Extraordinary items....................................... 45.4 2.4 58.3 Effect of accounting changes.............................. -- -- (22.9) Depreciation.............................................. 979.6 895.1 650.5 Goodwill and other intangibles amortization............... 331.6 242.6 123.7 Debt and refinancing cost amortization.................... 10.4 11.3 15.9 Interest on ITS vendor note............................... (12.1) (11.5) (7.7) Deferred income taxes..................................... 334.3 (8.2) (259.2) Provisions for losses on accounts receivable and inventory............................................... 211.5 192.9 76.5 Other non-cash items...................................... (6.7) 2.5 24.8 Changes in assets and liabilities, net of the effects of acquisitions and divestitures: Receivables............................................. (796.0) (88.9) (297.1) Proceeds from accounts receivable sale.................. 50.0 -- 75.0 Contracts in process.................................... 642.2 (91.4) (159.7) Inventories............................................. (124.4) (226.2) (115.6) Prepaid expenses and other current assets............... (154.1) (57.7) 56.8 Accounts payable, accrued expenses and other current liabilities........................................... 361.1 (96.4) 642.5 Income taxes payable.................................... (10.2) 66.3 232.5 Deferred revenue........................................ (54.1) (6.5) 6.2 Other, net.............................................. (96.1) 35.6 (46.8) --------- --------- --------- Net cash provided by operating activities................. 3,549.8 2,281.8 1,379.2 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property, plant and equipment................... (1,632.5) (1,317.5) (866.6) Purchase of leased property (Note 2)........................ (234.0) -- -- Acquisition of businesses, net of cash acquired............. (4,901.2) (4,251.8) (1,415.2) Disposal of businesses...................................... 926.8 -- -- Decrease (increase) in investments.......................... 10.5 6.4 (29.4) Other....................................................... (13.7) (83.1) (9.5) --------- --------- --------- Net cash utilized by investing activities................. (5,844.1) (5,646.0) (2,320.7) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net receipts of short-term debt............................. 162.3 287.1 945.7 Net proceeds from issuance of public debt................... 1,173.7 2,744.5 -- Repayment of long-term debt, including debt tenders......... (2,057.8) (1,074.6) (980.7) Proceeds from long-term debt................................ 3,665.6 802.0 253.2 Proceeds from sale of common shares......................... -- 1,245.0 654.5 Proceeds from exercise of options and warrants.............. 872.4 348.7 351.9 Dividends paid.............................................. (187.9) (303.0) (222.2) Purchase of treasury shares................................. (637.8) (283.9) (6.7) Other....................................................... (7.1) (36.5) (2.2) --------- --------- --------- Net cash provided by financing activities................. 2,983.4 3,729.3 993.5 --------- --------- --------- Net increase in cash and cash equivalents................... 689.1 365.1 52.0 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR, AS RESTATED.................................................. 1,072.9 707.8 655.8 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 1,762.0 $ 1,072.9 $ 707.8 ========= ========= ========= SUPPLEMENTARY CASH FLOW DISCLOSURE: Interest paid............................................... $ 509.1 $ 250.7 $ 186.6 ========= ========= ========= Income taxes paid (net of refunds).......................... $ 209.7 $ 345.9 $ 309.5 ========= ========= =========
See Notes to Consolidated Financial Statements. 34 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS--The Company manages its business based on the following four operating segments: TELECOMMUNICATIONS AND ELECTRONICS The Company's Telecommunications and Electronics segment is comprised of: - Tyco Electronics, including AMP Incorporated ("AMP"), which designs and manufactures electrical connectors, interconnection systems, touch screens and wireless systems, and Raychem Corporation ("Raychem"), which develops and manufactures high-performance electronic components; - Tyco Submarine Systems Ltd. ("TSSL"), which designs, manufactures, installs and services undersea communications cable systems; and - Tyco Printed Circuit Group, which designs and manufactures multi-layer printed circuit boards, backplane assemblies and similar components. HEALTHCARE AND SPECIALTY PRODUCTS The Company's Healthcare and Specialty Products segment is comprised of: - Tyco Healthcare Group, which manufactures and distributes a wide variety of disposable medical products, including woundcare products, syringes and needles, sutures and surgical staplers, incontinence products, electrosurgical instruments and laparoscopic instruments; - Tyco Plastics and Adhesives, which manufactures flexible plastic packaging, plastic bags and sheeting, coated and laminated packaging materials, tapes and adhesives and plastic garment hangers; and - ADT Automotive, which provides auto redistribution services. FIRE AND SECURITY SERVICES The Company's Fire and Security Services segment: - designs, installs and services a broad line of fire detection, prevention and suppression systems worldwide; - provides electronic security installation and monitoring services; and - manufactures and services fire extinguishers and related products. FLOW CONTROL PRODUCTS The Company's Flow Control Products segment: - manufactures and distributes pipe, fittings, valves, valve actuators, couplings and related products which are used to transport, control and measure the flow of liquids and gases; - manufactures and distributes fire sprinkler devices, specialty valves, plastic pipe and fittings used in commercial, residential and industrial fire protection systems; and - provides engineering and consulting services focusing on the design, construction and operation of water and wastewater facilities. BASIS OF PRESENTATION--The consolidated financial statements have been prepared in United States dollars in accordance with generally accepted accounting principles in the United States. As described more fully in Note 2, on July 2, 1997, a wholly-owned subsidiary of what was formerly called ADT Limited, a Bermuda company ("ADT"), merged with Tyco International Ltd., a Massachusetts corporation ("Former Tyco"). Upon consummation of the merger, ADT (the continuing public company) changed its name to Tyco International Ltd. (the "Company" or "Tyco"). Former Tyco became a wholly-owned subsidiary of 35 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) the Company and changed its name to Tyco International (US) Inc. ("Tyco US"). In addition, as more fully described in Note 2, Tyco merged with Inbrand Corporation ("Inbrand"), Keystone International, Inc. ("Keystone"), United States Surgical Corporation ("USSC") and AMP on August 27, 1997, August 29, 1997, October 1, 1998 and April 2, 1999, respectively. These transactions are referred to herein as the "mergers." The consolidated financial statements include the consolidated accounts of Tyco, a company incorporated in Bermuda, and its subsidiaries. They have been prepared following the pooling of interests method of accounting for the mergers and, therefore, reflect the combined financial position, operating results and cash flows of ADT, Former Tyco, Keystone, Inbrand, USSC and AMP as if they had been combined for all periods presented. PRINCIPLES OF CONSOLIDATION--Tyco is a holding company whose assets consist of its investments in its subsidiaries, intercompany balances and holdings of cash and cash equivalents. The businesses of the consolidated group are conducted through the Company's subsidiaries. The Company consolidates companies in which it owns or controls more than fifty percent of the voting shares unless control is likely to be temporary. The results of companies acquired or disposed of during the fiscal year are included in the consolidated financial statements from the effective date of acquisition or up to the date of disposal except in the case of mergers accounted for as pooling of interests (Note 2). All significant intercompany balances and transactions have been eliminated in consolidation. CHANGE IN YEAR END--In September 1997, the Company changed its fiscal year end from December 31 to September 30. The change in year end resulted in a short fiscal year covering the nine-month transition period from January 1 to September 30, 1997. References to Fiscal 1999, Fiscal 1998 and Fiscal 1997 throughout these consolidated financial statements are to the twelve months ended September 30, 1999 and 1998, and the nine months ended September 30, 1997, respectively. CASH EQUIVALENTS--All highly liquid investments purchased with a maturity of three months or less are considered to be cash equivalents. INVENTORIES--Inventories are recorded at the lower of cost (primarily first-in, first-out) or market value. PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is principally recorded at cost less accumulated depreciation. Maintenance and repair expenditures are charged to expense when incurred. The straight-line method of depreciation is used over the estimated useful lives of the related assets as follows: Buildings and related improvements....... 5 to 50 years Leasehold improvements................... Remaining term of the lease Subscriber systems....................... 10 to 14 years Other plant, machinery, equipment and 2 to 25 years furniture and fixtures.................
Gains and losses arising on the disposal of property, plant and equipment are included in the Consolidated Statements of Operations and were not material. GOODWILL AND OTHER INTANGIBLE ASSETS--Goodwill, which is being amortized on a straight-line basis over periods ranging from 10 to 40 years, was $10,639.3 million and $6,104.1 million, net, at September 30, 1999 and 1998, respectively. Accumulated amortization amounted to $615.6 million at September 30, 1999 and $499.7 million at September 30, 1998. Other intangible assets were $1,519.6 million and $1,001.4 million, net, at September 30, 1999 and 1998, respectively. These amounts include patents, trademarks, customer contracts and other items, which 36 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) are being amortized on a straight-line basis over lives ranging from 2 to 40 years. At September 30, 1999 and 1998, accumulated amortization amounted to $319.5 million and $207.1 million, respectively. INVESTMENTS--The Company accounts for its long-term investments that represent less than twenty percent ownership using Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This standard requires that certain debt and equity securities be adjusted to market value at the end of each accounting period. Unrealized market gains and losses are charged to earnings if the securities are traded for short-term profit. Otherwise, such unrealized gains and losses are charged or credited to shareholders' equity. Management determines the proper classification of investments in obligations with fixed maturities and marketable equity securities at the time of purchase and reevaluates such designations as of each balance sheet date. Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the Consolidated Statements of Operations and were not material. EQUITY INVESTMENTS--For investments in which the Company owns or controls twenty percent or more of the voting shares, or over which it exerts significant influence over operating and financial policies, the equity method of accounting is used. The Company's share of net income or losses of equity investments is included in the Consolidated Statements of Operations and was not material in any period presented. LONG-LIVED ASSETS--The Company periodically evaluates the net realizable value of long-lived assets, including goodwill and other intangible assets and property, plant and equipment, relying on a number of factors including operating results, business plans, economic projections and anticipated future cash flows. An impairment in the carrying value of an asset is assessed when the undiscounted, expected future operating cash flows derived from the asset are less than its carrying value. REVENUE RECOGNITION--Revenue from the sale of services or products is recognized as services are rendered or shipments are made. Subscriber billings for services not yet rendered are deferred and taken into income as earned, and the deferred element is included in current liabilities. Revenue from the installation of electronic security systems is recognized when installations are completed. Contract sales for the installation of fire protection systems, underwater cable systems and other construction related projects are recorded on the percentage-of-completion method. Profits recognized on contracts in process are based upon estimated contract revenue and related cost to completion. Revisions in cost estimates as contracts progress have the effect of increasing or decreasing profits in the current period. Provisions for anticipated losses are made in the period in which they first become determinable. Accounts receivable include amounts billed under retainage provisions primarily for fire protection contracts. Retention balances of $33.3 million at September 30, 1999, which become due upon contract completion and acceptance, are expected to be substantially collected during the fiscal year ending September 30, 2000 ("Fiscal 2000"). SHARE PREMIUM AND CONTRIBUTED SURPLUS--In accordance with the Bermuda Companies Act of 1981, when the Company issues shares for cash at a premium to their par value, the resulting premium is credited to a share premium account, a non-distributable reserve. When the Company issues shares in exchange for shares of another company, the excess of the fair value of the shares acquired over the par value of the shares issued by the Company is credited, where applicable, to contributed surplus, which is, subject to certain conditions, a distributable reserve. INCOME TAXES--Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been included in the consolidated financial statements or tax returns. Deferred tax liabilities and assets are determined based on the differences between the consolidated financial statements and the tax basis of assets and liabilities, using tax rates in effect for the years in which the 37 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) differences are expected to reverse. A valuation allowance is provided to offset any net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. RESEARCH AND DEVELOPMENT--Research and development expenditures are expensed when incurred and are included in cost of sales in the Consolidated Statements of Operations. ADVERTISING--Advertising costs are expensed when incurred. TRANSLATION OF FOREIGN CURRENCY--Assets and liabilities of the Company's subsidiaries operating outside the United States which account in a functional currency other than U.S. dollars, other than those operating in highly inflationary environments, are translated into U.S. dollars using year-end exchange rates. Revenues and expenses are translated at the average exchange rates effective during the year. Foreign currency translation gains and losses are included as a component of accumulated other comprehensive income (loss) within shareholders' equity. For subsidiaries operating in highly inflationary environments, inventories and property, plant and equipment, including related expenses, are translated at the rate of exchange in effect on the date the assets were acquired, while other assets and liabilities are translated at year-end exchange rates. Translation adjustments for these operations are included in net income (loss). Gains and losses resulting from foreign currency transactions, the amounts of which are not material, are included in net income (loss). FINANCIAL INSTRUMENTS--From time to time the Company enters into a variety of forward foreign currency exchange contracts, cross-currency swaps, currency options, forward commodity contracts and interest rate swaps in its management of foreign currency and commodity exposures and interest costs. Forward foreign currency exchange contracts and cross-currency swaps, which mitigate the impact of changes in currency exchange rates on intercompany cross-border obligations, are accounted for consistent with the related intercompany transactions. Under cross-currency swaps, which principally hedge certain net foreign currency denominated investments, changes in valuation are included in the currency translation adjustment component of accumulated other comprehensive income (loss) within shareholders' equity. The interest differentials on cross-currency swaps are included in interest expense. Forward foreign currency exchange contracts and currency options, acquired for the purpose of reducing exposure to currency fluctuations associated with expected cash flows denominated in currencies other than the functional currencies, are marked to market with realized and unrealized gains or losses reflected in selling, general and administrative expenses. Under forward commodity contracts, which hedge anticipated purchases of certain metals and other materials used in manufacturing operations, payments are received or paid based on the differential between the contract price and the actual price of the underlying commodity. Gains or losses on forward commodity contracts are recorded as adjustments to the value of the purchased commodity. Interest rate swaps hedge interest rates on certain indebtedness and involve the exchange of fixed and floating rate interest payment obligations over the life of the related agreement without the exchange of the notional amount. The interest differentials to be paid or received under interest rate swaps are recognized over the life of the underlying agreement or indebtedness, respectively, as an adjustment to interest expense. Receivables and payables related to unrealized increases and decreases in the values of derivative financial instruments are included in other current assets and other current liabilities, respectively, and are not material. 38 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) USE OF ESTIMATES--The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make extensive use of certain estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reported periods. Significant estimates in these consolidated financial statements include merger, restructuring and other non-recurring charges, purchase accounting reserves, allowances for doubtful accounts receivable, estimates of future cash flows associated with assets, asset impairments, useful lives for depreciation and amortization, loss contingencies, net realizable value of inventories, estimated contract revenues and related costs, environmental liabilities, income taxes and tax valuation reserves, and the determination of discount and other rate assumptions for pension and post-retirement employee benefit expenses. Actual results could differ from those estimates. ACCOUNTING PRONOUNCEMENTS--In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 1999, the FASB issued SFAS No. 137 which defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company is currently analyzing this new standard. RECLASSIFICATIONS--Certain prior year amounts have been reclassified to conform with current year presentation. STOCK SPLITS--Per share amounts and share data have been retroactively restated to give effect to the reverse stock split effected in connection with the merger of ADT and Former Tyco referred to in Note 2, and the two-for-one stock splits distributed on October 22, 1997 and October 21, 1999, both effected in the form of a stock dividend (See Note 10 for further discussion). 2. POOLING OF INTERESTS TRANSACTIONS On April 2, 1999, October 1, 1998, August 29, 1997 and August 27, 1997, Tyco merged with AMP, USSC, Keystone and Inbrand, respectively. A total of approximately 329.2 million, 118.4 million, 69.6 million and 20.4 million Tyco common shares, respectively, were issued to the former shareholders of these companies. On July 2, 1997, a wholly-owned subsidiary of ADT merged with the Former Tyco. Shareholders of ADT, through a reverse stock split, received 0.48133 shares (1.92532 after giving effect to the subsequent stock splits) of the Company's common stock for each share of ADT common stock outstanding, and the Former Tyco shareholders received one share (four shares after giving effect to the subsequent stock splits) of the Company's common stock for each share of the Former Tyco common stock outstanding. On a post-split basis, a total of approximately 673.6 million Tyco common shares were issued to the shareholders of Former Tyco in the merger. Each of the five merger transactions discussed above was accounted for under the pooling of interests accounting method, which presents as a single interest common shareholder interests which were previously independent. The historical consolidated financial statements for periods prior to the consummation of the combination are restated as though the companies had been combined during such periods. Aggregate fees and expenses related to the mergers and to the integration of the combined companies have been expensed in the Consolidated Statements of Operations in the period in which each transaction 39 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. POOLING OF INTERESTS TRANSACTIONS (CONTINUED) was consummated, as required under the pooling of interests method of accounting. See Notes 12 and 16 for further discussion. Combined and separate results of Tyco, USSC and AMP for the periods preceding the mergers were as follows:
TYCO USSC AMP ADJUSTMENTS COMBINED --------- --------- --------- ----------- --------- (IN MILLIONS) Six months ended March 31, 1999 (unaudited) (i) Net sales............................... $ 7,776.8 $ -- $ 2,675.5 $ -- $10,452.3 Operating income (loss)................. 877.5 -- (405.2) -- 472.3 Extraordinary items, net of taxes....... (44.9) -- -- -- (44.9) Net income (loss)....................... 388.4 -- (376.0) (3.0)(iv) 9.4 Year ended September 30, 1998 (ii) Net sales............................... 12,311.3 1,225.9 5,524.5 -- 19,061.7 Operating income (loss)................. 1,923.7 (298.5) 322.9 -- 1,948.1 Extraordinary items, net of taxes....... (2.4) -- -- -- (2.4) Net income (loss)....................... 1,174.7 (212.0) 208.5 (5.0)(iv) 1,166.2 Nine months ended September 30, 1997 (iii) Net sales............................... 7,588.2 869.6 4,284.7 -- 12,742.5 Operating (loss) income................. (476.5) 100.5 501.8 -- 125.8 Extraordinary items, net of taxes....... (58.3) -- -- -- (58.3) Cumulative effect of accounting changes, net of taxes.......................... -- -- 15.5 -- 15.5 Net (loss) income....................... (835.1) 79.1 345.7 19.0 (iv) (391.3)
- ------------------------ (i) Includes merger, restructuring and other non-recurring charges of $434.9 million and impairment charges of $76.0 million primarily related to the merger with USSC, and restructuring and other non-recurring charges of $444.4 million and impairment charges of $67.6 million related to AMP's profit improvement plan. (ii) Includes restructuring and other non-recurring charges of $164.4 million primarily related to AMP's profit improvement plan and $92.5 million principally related to costs incurred by USSC to exit certain businesses. (iii) Includes merger, restructuring and other non-recurring charges of $917.8 million and impairment charges of $148.4 million primarily related to the mergers and integration of ADT, Former Tyco, Keystone and Inbrand, and a charge of $361.0 million for the write-off of purchased in-process research and development related to the acquisition of AT&T Corp.'s submarine systems business. Also includes charges of $24.3 million for litigation and other related costs and $5.8 million for restructuring charges in USSC's operations. (iv) As a result of the combination of Tyco and AMP, an income tax adjustment was recorded to conform tax accounting. 40 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. POOLING OF INTERESTS TRANSACTIONS (CONTINUED) Combined and separate results of ADT, Former Tyco, Keystone and Inbrand for the periods preceding the mergers were as follows:
FORMER ADT TYCO KEYSTONE INBRAND COMBINED -------- -------- -------- -------- -------- (IN MILLIONS) Six months ended June 30, 1997 (unaudited) Net sales.................................... $923.9 $3,505.6 $331.2 $118.7 $4,879.4 Operating income (loss) (i).................. 99.1 435.3 39.8 (40.5) 533.7 Net income (loss)............................ 47.2 244.6 22.9 (28.9) 285.8
- ------------------------ (i) Includes merger, restructuring and other non-recurring charges of $31.4 million incurred by ADT and $25.2 million incurred by Inbrand. In connection with the USSC merger, the Company assumed an operating lease for USSC's North Haven facilities. In December 1998, the Company assumed the debt related to the North Haven property of approximately $211 million. The assumption of the debt combined with the settlement of certain other obligations in the amount of $23 million resulted in the Company acquiring ownership of the North Haven property for a total cost of $234 million. The Company also assumed USSC's agreement to potentially pay up to approximately $70.0 million in common stock as of September 30, 1998 as additional purchase price consideration relative to an acquisition consummated by USSC in 1997, if and when certain additional milestones and sales objectives are achieved. During March and April 1999, a total of 140,002 Tyco common shares, valued at approximately $5.2 million, were issued pursuant to this agreement. This matter is the subject of pending litigation. The Company does not expect to issue a material amount of additional shares pursuant to this agreement. 3. ACQUISITIONS AND DIVESTITURES FISCAL 1999 In addition to the pooling of interests transactions discussed in Note 2, during Fiscal 1999, the Company purchased businesses in each of its four business segments for an aggregate cost of $6,923.3 million, consisting of $4,546.8 million in cash, net of cash acquired, the issuance of 32.4 million common shares valued at $1,449.6 million and the assumption of $926.9 million in debt. In addition, $354.4 million of cash was paid during the year for purchase accounting liabilities related to current and prior years' acquisitions. The cash portions of the acquisition costs were funded utilizing cash on hand, the issuance of long-term debt and borrowings under the Company's commercial paper program. Each of these acquisitions was accounted for as a purchase, and the results of operations of the acquired companies have been included in the consolidated results of the Company from their respective acquisition dates. In connection with these acquisitions, the Company recorded purchase accounting liabilities of $525.4 million for transaction costs and the costs of integrating the acquired companies within the various Tyco business segments. Details regarding these purchase accounting liabilities are set forth below. At the time each purchase acquisition is made, the Company records each asset acquired and each liability assumed at its estimated fair value, which amount is subject to future adjustment when appraisals or other further information is obtained. The excess of (a) the total consideration paid for the acquired company over (b) the fair value of assets acquired less liabilities assumed and purchase accounting liabilities recorded is recorded as goodwill. As a result of acquisitions completed in Fiscal 1999, and 41 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DIVESTITURES (CONTINUED) adjustments to the fair values of assets and liabilities and purchase accounting liabilities recorded for acquisitions completed prior to Fiscal 1999, the Company recorded approximately $5,807.9 million in goodwill and other intangibles. The following table shows the fair values of assets and liabilities and purchase accounting liabilities recorded for purchase acquisitions completed in Fiscal 1999, adjusted to reflect changes in fair values of assets and liabilities and purchase accounting liabilities recorded for acquisitions completed prior to Fiscal 1999 (in millions): Receivables................................................. $ 695.0 Inventories................................................. 498.3 Prepaid expenses and other current assets................... 225.9 Property, plant and equipment............................... 988.9 Goodwill and other intangible assets........................ 5,807.9 Other assets................................................ 423.8 -------- 8,639.8 -------- Accounts payable............................................ 335.5 Accrued expenses and other current liabilities.............. 1,186.5 Other long-term liabilities................................. 194.5 -------- 1,716.5 -------- $6,923.3 ======== Cash consideration paid (net of cash acquired).............. $4,546.8 Share consideration paid.................................... 1,449.6 Debt assumed................................................ 926.9 -------- $6,923.3 ========
Thus, in Fiscal 1999, the Company spent a total of $4,901.2 million in cash related to the acquisition of businesses, consisting of $4,546.8 million of cash in purchase price for these businesses (net of cash acquired) plus $354.4 million of cash paid out during the year for purchase accounting liabilities related to current and prior years' acquisitions. Fiscal 1999 purchase acquisitions include, among others, the acquisition of Graphic Controls Corporation ("Graphic Controls") in October 1998, Entergy Security Corporation ("Entergy") in January 1999, Alarmguard Holdings, Inc. ("Alarmguard") in February 1999, certain subsidiaries in the metals processing division of Glynwed International, plc ("Glynwed") in March 1999, Telecomunicaciones Marinas, S.A. ("Temasa"), a wholly-owned subsidiary of Telefonica S.A., in May 1999 and Raychem Corporation ("Raychem") in August 1999. Graphic Controls, a leading designer, manufacturer, marketer and distributor of disposable medical products, was purchased for approximately $460 million, including the assumption of certain outstanding debt, and is being integrated within the Healthcare and Specialty Products segment. Entergy and Alarmguard were purchased for an aggregate of approximately $430 million and are being integrated within the electronic security services business of the Fire and Security Services segment. Glynwed, which is engaged in the production of steel tubing, steel electrical conduit and other similar products, was purchased for approximately $236 million and is being integrated within the Flow Control Products segment. Temasa installs and maintains undersea cable systems and was purchased for approximately $280 million. Temasa is being integrated into TSSL within the Telecommunications and Electronics 42 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DIVESTITURES (CONTINUED) segment. Raychem, a leading international designer, manufacturer and distributor of high-performance electronic products for OEM businesses and for a broad range of specialized telecommunications, energy and industrial applications, was purchased for a total of approximately $1,445.9 million in cash and the issuance of approximately 32.4 million Tyco common shares valued at approximately $1,449.6 million, plus the assumption of approximately $580.8 million of debt. Raychem is being integrated into Tyco Electronics within the Telecommunications and Electronics segment. The following table summarizes the purchase accounting liabilities recorded in connection with the Fiscal 1999 purchase acquisitions ($ in millions):
SEVERANCE FACILITIES OTHER -------------------- --------------------- -------- NUMBER OF NUMBER OF EMPLOYEES RESERVE FACILITIES RESERVE RESERVE --------- -------- ---------- -------- -------- Original reserve established.................... 5,620 $234.3 183 $174.8 $116.3 Fiscal 1999 activity............................ (3,230) (55.9) (95) (48.2) (46.0) ------ ------ --- ------ ------ Ending balance at September 30, 1999............ 2,390 $178.4 88 $126.6 $ 70.3 ====== ====== === ====== ======
Purchase accounting liabilities recorded during Fiscal 1999 consist of $116.3 million for transaction and other direct costs, $234.3 million for severance and related costs and $174.8 million for costs associated with the shut down and consolidation of certain acquired facilities. These purchase accounting liabilities relate primarily to the acquisitions of Graphic Controls, Entergy, Alarmguard, Glynwed, Temasa and Raychem. The Company is still in the process of finalizing its business plan for the exiting of activities and the involuntary termination or relocation of employees in connection with the acquisition and integration of Raychem. Accrued costs associated with this plan are estimates. In connection with the Fiscal 1999 purchase acquisitions, the Company began to formulate plans at the date of each acquisition for workforce reductions and the closure and consolidation of an aggregate of 183 facilities. The Company has communicated with the employees of the acquired companies to announce the terminations and benefit arrangements, even though all individuals have not been specifically told of their termination. The costs of employee termination benefits relate to the elimination of approximately 3,440 positions in the United States, 1,220 positions in Europe, 730 positions in the Asia-Pacific region and 230 positions in Canada and Latin America, primarily consisting of manufacturing and distribution, administrative, technical, and sales and marketing personnel. Facilities designated for closure include 78 facilities in the Asia-Pacific region, 67 facilities in the United States, 27 facilities in Europe and 11 facilities in Canada and Latin America, primarily consisting of manufacturing plants, sales offices, corporate administrative facilities and research and development facilities. Approximately 3,230 employees had been terminated and approximately 95 facilities had been closed or consolidated at September 30, 1999. In connection with the purchase acquisitions consummated during Fiscal 1999, liabilities for approximately $70.3 million in transaction and other direct costs, $178.4 million for severance and related costs and $126.6 million for the shutdown and consolidation of acquired facilities remained on the balance sheet at September 30, 1999. The Company expects that the termination of employees and consolidation of facilities related to all such acquisitions will be substantially complete within two years of the related dates of acquisition, except for certain long-term contractual obligations. During Fiscal 1999, the Company reduced its estimate of purchase accounting liabilities by $90.0 million and, accordingly, goodwill and related deferred tax assets were reduced by an equivalent amount, primarily resulting from costs being less than originally anticipated for acquisitions consummated prior to Fiscal 1999. See table in Fiscal 1998 section below. 43 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DIVESTITURES (CONTINUED) During Fiscal 1999, the Company sold certain of its businesses for net proceeds of approximately $926.8 million in cash. These primarily consist of certain businesses within the Flow Control Products segment, including The Mueller Company and portions of Grinnell Supply Sales and Manufacturing, and certain businesses within the Healthcare and Specialty Products segment. The aggregate net gain recognized on the sale of these businesses was not material. In connection with the Flow Control divestiture, the Company granted a non-exclusive license to the buyer for use of certain intellectual property and is entitled to receive future royalties equal to a percentage of net sales of the businesses sold. The Company also granted an option to the buyer to purchase certain intellectual property in the future at the then fair market value. The following unaudited pro forma data summarize the results of operations for the periods indicated as if the Fiscal 1999 acquisitions and divestitures had been completed as of the beginning of the periods presented. The pro forma data give effect to actual operating results prior to the acquisitions and divestitures. Adjustments to interest expense, goodwill amortization and income taxes related to the Fiscal 1999 acquisitions are reflected in the pro forma data. No effect has been given to cost reductions or operating synergies in this presentation. These pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisitions and divestitures had occurred as of the beginning of the periods presented or that may be obtained in the future.
YEAR ENDED SEPTEMBER 30, ------------------------ 1999 1998 --------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales................................................... $24,244.3 $21,858.0 Income before extraordinary items........................... 870.7 1,023.7 Net income.................................................. 824.7 1,021.9 Net income per common share: Basic..................................................... 0.53 0.65 Diluted................................................... 0.49 0.63
FISCAL 1998 During Fiscal 1998, the Company acquired companies in each of its business segments for an aggregate cost of $4,559.4 million, consisting of $4,154.8 million in cash, the assumption of approximately $260 million in debt and the issuance of 765,544 common shares valued at $19.2 million and 1,254 subsidiary preference shares valued at $125.4 million. The cash portions of the acquisition costs were funded utilizing cash on hand, borrowings under bank credit agreements, proceeds of approximately $1,245.0 million from the sale of common shares, and borrowings under the Company's uncommitted lines of credit. Each of these acquisitions was accounted for as a purchase, and the results of operations of the acquired companies were included in the consolidated results of the Company from their respective acquisition dates. As a result of the acquisitions, the Company recorded approximately $3,947.0 million in goodwill and other intangibles. 44 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DIVESTITURES (CONTINUED) In connection with these acquisitions, the Company recorded purchase accounting liabilities of $498.7 million for transaction costs and the costs of integrating the acquired companies within the various Tyco business segments. Details regarding these purchase accounting liabilities are set forth below. During Fiscal 1998, the Company spent a total of $4,251.8 million in cash related to the acquisition of businesses, consisting of $4,154.8 of purchase price (net of cash acquired) plus $97.0 million of cash for purchase accounting liabilities related to current and prior years' acquisitions. The following table summarizes the purchase accounting liabilities recorded in connection with the Fiscal 1998 purchase acquisitions ($ in millions):
SEVERANCE FACILITIES OTHER -------------------- --------------------- -------- NUMBER OF NUMBER OF EMPLOYEES RESERVE FACILITIES RESERVE RESERVE --------- -------- ---------- -------- -------- Original reserve established................... 4,800 $ 159.7 90 $ 278.9 $ 60.1 Fiscal 1998 activity........................... (1,600) (33.4) (70) (14.2) (51.7) Fiscal 1999 activity........................... (1,050) (67.0) (3) (48.7) (8.4) Reversal to goodwill........................... (1,150) (20.4) (4) (69.6) -- ------ ------- --- ------- ------ Ending balance at September 30, 1999........... 1,000 $ 38.9 13 $ 146.4 $ -- ====== ======= === ======= ======
Purchase accounting liabilities recorded during Fiscal 1998 consist of $60.1 million for transaction and other direct costs, $159.7 million for severance and related costs and $278.9 million for costs associated with the shut down and consolidation of certain acquired facilities. The $159.7 million of severance and related costs covers employee termination benefits for approximately 4,800 employees located throughout the world, consisting primarily of manufacturing employees to be terminated as a result of the shut down and consolidation of production facilities and, to a lesser extent, technical, sales and administrative employees. At September 30, 1999, approximately 2,650 employees had been terminated and $38.9 million in severance and related costs remained on the balance sheet. The Company expects that the remaining employee terminations will be completed in Fiscal 2000. The $278.9 million of exit costs are associated with the closure and consolidation of facilities involving approximately 90 facilities located primarily in the United States and Europe. These facilities include manufacturing plants, warehouses, office buildings and sales offices. Included within these costs are accruals for non-cancelable leases associated with certain of these facilities. Approximately 73 facilities, mainly office buildings and sales offices, had been shut down as of September 30, 1999. The remaining facilities primarily include large manufacturing plants, which are expected to be shut down in Fiscal 2000. Expenses in connection with the closure of these remaining facilities, as well as the expiration of non-cancelable leases (less any expected sublease income for facilities already closed), comprise the approximately $146.4 million for facility related costs remaining on the balance sheet as of September 30, 1999. In July 1998, the Company acquired the U.S. operations of Crosby Valve, Inc. in exchange for 1,254 cumulative dividend preference shares of a newly created subsidiary, valued at $125.4 million. The subsidiary has authorized 2,000 cumulative dividend preference shares. The holders of these preference shares have the option to require the Company to repurchase the preference shares at par value plus unpaid dividends at any time after July 2001. The outstanding preference shares were issued at $100,000 par value each and have been classified in other long-term liabilities on the Consolidated Balance Sheets. 45 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 3. ACQUISITIONS AND DIVESTITURES (CONTINUED) Cash dividends accumulate on a preferred basis, whether or not earned or declared, at the rate of $3,750 per share per annum. Upon liquidation, the holders of shares are entitled to receive an amount equal to $100,000 per share, plus any unpaid dividends. These preference shares may be redeemed by the subsidiary at any time on or after December 31, 2008 at a price per share of $100,000, plus unpaid dividends, adjusted for certain increases in the value of Tyco's stock, as defined. FISCAL 1997 In addition to the mergers discussed in Note 2, in Fiscal 1997 the Company acquired companies in each of its business segments for an aggregate of $1,523.7 million, consisting of $1,415.2 million in cash, the issuance of approximately 3.8 million common shares valued at $92.8 million and the assumption of approximately $15.7 million in debt. The cash portions of the acquisition costs were funded utilizing cash on hand, net proceeds from the sale of common shares of $645.2 million, and borrowings under the Company's uncommitted lines of credit. Each of these acquisitions was accounted for as a purchase, and the results of operations of the acquired companies were included in the consolidated results of the Company from their respective acquisition dates. As a result of the acquisitions, approximately $708.7 million in goodwill and other intangibles, net of the write-off of purchased in-process research and development, was recorded by the Company. In connection with the acquisition of AT&T Corp.'s submarine systems business, the Company allocated $361.0 million of the purchase price to in-process research and development projects that had not reached technological feasibility and had no probable alternative future uses. As of September 30, 1999, the payout for employee severance and consolidation of facilities related to these acquisitions was substantially complete. In 1995, as a result of the sale of a business in the United Kingdom, the Company holds a subordinated, non-collateralized zero coupon loan note maturing in 2004 ("Vendor Note"), together with a 10% interest in the ordinary share capital of the issuer. The Vendor Note has a L120.8 million ($199.2 million) aggregate principal amount at maturity with an issue price of $83.9 million, reflecting a yield to maturity of 10.0% per annum, and was originally valued by the Company at $74.6 million. As of September 30, 1999, the Vendor Note is included in long-term investments on the Consolidated Balance Sheet and has been accounted for at its amortized cost of $120.5 million (which approximates fair value). The fair value of the Vendor Note was estimated based on the Company's calculation of an appropriate fair value interest rate discount. This discount rate was determined based on an evaluation of current UK market conditions (private placement rates, discussions with financial sources, etc.) and the continued risk margin associated with deep discount debentures. 4. INDEBTEDNESS Long-term debt is as follows:
SEPTEMBER 30, --------------------- 1999 1998 --------- --------- (IN MILLIONS) Commercial paper program(i)............................ $ 1,392.0 $ -- Bank credit agreement(ii).............................. -- 1,359.0 Bank credit facilities(iii)............................ -- 206.9 International overdrafts and demand loans(iv).......... 184.9 429.7 8.125% public notes due 1999(v)........................ 10.5 10.5
46 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INDEBTEDNESS (CONTINUED)
SEPTEMBER 30, --------------------- 1999 1998 --------- --------- (IN MILLIONS) Floating rate private placement notes due 2000(vi)..... 499.4 -- 0.57% Yen denominated private placement notes due 2000(vi)............................................. 89.7 -- 8.25% senior notes due 2000(v)......................... 9.5 9.5 Floating rate private placement notes due 2001(vi)..... 499.1 -- 6.5% public notes due 2001............................. 299.3 299.0 6.125% public notes due 2001(vii)...................... 748.1 747.0 6.875% private placement notes due 2002(vi)............ 992.2 -- 9.25% senior subordinated notes due 2003(v)............ -- 14.1 5.875% public notes due 2004(viii)..................... 397.7 -- 6.375% public notes due 2004........................... 104.6 104.6 6.375% public notes due 2005(vii)...................... 743.7 742.6 6.125% public notes due 2008(viii)..................... 394.9 -- 7.2% notes due 2008(ix)................................ 398.8 -- 7.25% senior notes due 2008(x)......................... 8.2 300.0 6.125% public notes due 2009(xi)....................... 394.1 -- Zero coupon Liquid Yield Option Notes due 2010(xii).... 49.1 115.3 International bank loans, repayable through 2013(xiii)........................................... 208.2 188.6 6.25% public Dealer Remarketable Securities ("Drs.") due 2013(vii)........................................ 760.1 762.8 9.5% public debentures due 2022(v)..................... 49.0 49.0 8.0% public debentures due 2023........................ 50.0 50.0 7.0% public notes due 2028(vii)........................ 492.4 492.1 6.875% public notes due 2029(xi)....................... 780.5 -- Financing lease obligation(xiv)........................ 69.5 76.5 Other.................................................. 496.7 282.5 --------- --------- Total debt............................................. 10,122.2 6,239.7 Less current portion................................... 1,012.8 815.0 --------- --------- Long-term debt......................................... $ 9,109.4 $ 5,424.7 ========= =========
- ------------------------ (i) In January 1999, Tyco International Group S.A. ("TIG"), a wholly-owned subsidiary of the Company, initiated a commercial paper program under which it could initially issue notes with an aggregate face value of up to $1.75 billion. In June 1999, TIG increased its borrowing capacity under the commercial paper program to $3.90 billion. The notes are fully and unconditionally guaranteed by the Company. Proceeds from the sale of the notes are used for working capital and other corporate purposes. TIG is required to maintain an available unused balance under its bank credit agreement sufficient to support amounts outstanding under the commercial paper program. (ii) In February 1999, TIG renegotiated its $2.25 billion credit agreement with a group of commercial banks, giving it the right to borrow up to $3.40 billion until February 11, 2000, with the option to extend to February 11, 2001, and to borrow up to an additional $0.5 billion until February 12, 2003. 47 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INDEBTEDNESS (CONTINUED) TIG also has the option to increase the $3.40 billion part of the credit facility up to $4.0 billion. Interest payable on borrowings is variable based upon TIG's option to select a Euro rate plus margins ranging from 0.41% to 0.43%, a certificate of deposit rate plus margins ranging from 0.535% to 0.555%, or a base rate, as defined. If the outstanding principal amount of loans equals or exceeds 25% of the commitments, the Euro and certificate of deposit margins are increased by 0.125%. The obligations of TIG under the credit agreement are fully and unconditionally guaranteed by the Company. TIG is using the credit agreement to fully support its commercial paper program discussed above and therefore expects this facility to remain largely undrawn. The Company is required to meet certain covenants under the bank credit agreement, none of which is considered restrictive to the operations of the Company. (iii) In December 1995, USSC entered into a five year, $325 million syndicated credit agreement with a maturity of January 2001. The syndicated credit facility provided a choice of interest rates based upon the banks' CD rate, prime rate or the London Interbank Offered Rate (LIBOR) for US dollar borrowings and Tokyo Interbank Offered Rate (TIBOR) for yen borrowings. The actual interest charges paid were to be determined by a pricing schedule which considered the ratio of consolidated debt at each calendar quarter end to consolidated earnings before interest, taxes, depreciation and amortization for the trailing twelve months. During the third quarter of 1996, USSC entered into an additional conditional committed bank term loan facility of $175 million, with similar terms and conditions. Subsequent to the merger with USSC, the credit facilities were terminated. The effective interest rate on amounts outstanding as of September 30, 1998 was 5.91%. (iv) International overdrafts and demand loans represent borrowings by AMP from various banks and other holders. All overdrafts and loans mature within one year from the balance sheet date. The weighted-average interest rate on all international overdrafts and demand loans during Fiscal 1999 and Fiscal 1998 was 5.3% and 4.2%, respectively. (v) In July 1997, Tyco US tendered for its $145.0 million 8.125% public notes due 1999 and $200.0 million 9.5% public debentures due 2022, and ADT Operations, Inc., a wholly-owned subsidiary of the Company, tendered for its $250.0 million 8.25% senior notes due 2000 and $294.1 million 9.25% senior subordinated notes due 2003. The percentage of debt tendered was 92.8% of the 8.125% notes, 75.5% of the 9.5% debentures, 96.2% of the 8.25% notes and 95.2% of the 9.25% notes. The two companies paid an aggregate amount, including accrued interest, of approximately $900.8 million to the debt holders, of which $800.0 million was financed from the previously existing credit agreement. In connection with the tenders, the Company recorded an after-tax charge of approximately $58.3 million, net of related income tax benefit of $33.0 million, primarily representing unamortized debt issuance fees and the premium paid, which was reported as an extraordinary loss (Note 13). The $250.0 million 8.25% senior notes due August 2000 were issued in August 1993, through a public offering, by ADT Operations, Inc. and are guaranteed on a senior basis by the Company and certain subsidiaries of ADT Operations, Inc. The senior notes are not redeemable prior to maturity. The $294.1 million 9.25% senior subordinated notes due August 2003 were issued in August 1993 by ADT Operations, Inc., through a public offering and are guaranteed on a senior subordinated basis by the Company. The notes became redeemable in August 1998 at 103.75% and ADT Operations, Inc. redeemed the notes. 48 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INDEBTEDNESS (CONTINUED) In conjunction with the tenders described above, ADT Operations, Inc., by consent of the holders of the 8.25% senior and 9.25% senior subordinated notes, eliminated in the indentures pursuant to which such notes were issued (a) certain restrictive covenants and provisions and references to such restrictive covenants, (b) certain events of default to the extent relating to such restrictive covenants and (c) certain definitions to the extent relating to such restrictive covenants and events of default. (vi) In August 1999, TIG issued $500 million floating rate notes due 2000, $500 million floating rate notes due 2001, $1 billion 6 7/8% notes due 2002 and Y 10 billion (approximately $89.7 million) 0.57% notes due 2000. The $500 million floating rate notes bear interest at LIBOR plus 0.6% for the 2000 notes and LIBOR plus 0.7% for the 2001 notes. The net proceeds of approximately $2,080.3 million were used to repay borrowings under TIG's $3.90 billion commercial paper program discussed above. In connection with the $1 billion 6 7/8% notes, TIG entered into an interest rate swap agreement expiring in September 2002, under which TIG will receive a fixed rate of 6 7/8% and will pay a floating rate based on the average of two different LIBO rates, as defined, plus 3.755%. In connection with the yen denominated 0.57% notes, TIG entered into a cross-currency swap expiring in September 2000, under which TIG will receive a payment of Y 10 billion plus accrued interest at a rate of 0.57% and will make quarterly U.S. dollar payments based on LIBOR plus 0.60%, as well as a final payment at maturity of approximately $89.7 million. (vii) In June 1998, TIG issued $750 million 6 1/8% notes due 2001, $750 million 6 3/8% notes due 2005, $750 million 6 1/4% Dealer Remarketable Securities ("Drs.") due 2013 and $500 million 7.0% notes due 2028 in a public offering. Interest is payable semi-annually in June and December. Under the terms of the Drs., the Remarketing Dealer has an option to remarket the Drs. in June 2003, which if exercised would subject the Drs. to mandatory tender to the Remarketing Dealer and reset the interest rate to an adjusted fixed rate until June 2013. If the Remarketing Dealer does not exercise its option, then all Drs. are required to be tendered to the Company in June 2003. Repayment of amounts outstanding under these debt securities are fully and unconditionally guaranteed by Tyco (Note 25). The net proceeds of approximately $2,744.5 million were ultimately used to repay borrowings under TIG's bank credit agreement and uncommitted lines of credit. In December 1998, TIG terminated two interest rate swap agreements with notional amounts of $650 million each, which were entered into in June 1998 with a financial institution to hedge a portion of the fixed rate terms of the public notes. (viii) In October 1998, TIG issued $800 million of debt in a private placement offering consisting of two series of restricted notes: $400 million of 5.875% notes due November 2004 and $400 million of 6.125% notes due November 2008. The notes are fully and unconditionally guaranteed by Tyco. The net proceeds of approximately $791.7 million were used to repay borrowings under TIG's bank credit agreement. At the same time, TIG also entered into an interest rate swap agreement with a notional amount of $400 million to hedge the fixed rate terms of the 6.125% notes due 2008. Under this agreement, which expires in November 2008, TIG will receive payments at a fixed rate of 6.125% and will make floating rate payments based on LIBOR. Subsequently, during the third and fourth quarters of Fiscal 1999, TIG exchanged all of the $400 million 5.875% private placement notes due 2004 and $400 million 6.125% private placement notes due 2008 for public notes (Note 25). The form and terms of the public notes of each series are identical in all material respects to the form and terms of the outstanding private placement notes of the corresponding series, except that the public notes are not subject to restrictions on transfer under the United States securities laws. 49 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INDEBTEDNESS (CONTINUED) (ix) In October 1998, Raychem issued notes in the amount of $400 million. The notes mature on October 15, 2008, and bear interest at a rate of 7.2% per annum. (x) In March 1998, USSC issued $300 million 7.25% senior notes due March 2008, which are not redeemable prior to maturity and require semi-annual interest payments. In February 1999, the Company completed a tender offer in which $292 million of the $300 million principal amount of the notes outstanding were purchased. (xi) In January 1999, TIG issued $400 million of its 6.125% notes due 2009 and $800 million of its 6.875% notes due 2029 in a public offering. The notes are fully and unconditionally guaranteed by Tyco (Note 25). The net proceeds of approximately $1,173.7 million were used to repay borrowings under TIG's bank credit agreement. At the same time, TIG also entered into an interest rate swap agreement to hedge the fixed rate terms of the $400 million notes due 2009. Under the agreement, which expires in January 2009, TIG will receive payments at a fixed rate of 6.125% and will make floating rate payments based on an average of three different LIBO rates, as defined, plus a spread. (xii) In July 1995, ADT Operations, Inc. issued $776.3 million aggregate principal amount at maturity of its zero coupon subordinated Liquid Yield Option Notes ("LYONs") maturing July 2010. The net proceeds of the issue amounted to $287.4 million which were used to repay in full all amounts outstanding under ADT Operations Inc.'s previous bank credit agreement, which was subsequently canceled. The issue price per LYON was $383.09, being 38.309% of the principal amount of $1,000 per LYON at maturity, reflecting a yield to maturity of 6.5% per annum (computed on a semi-annual bond equivalent basis). The discount amortization on the LYONs is being charged as interest expense through the consolidated statements of operations on a basis linked to the yield to maturity. The LYONs discount amortization amounted to $6.0 million in Fiscal 1999, $11.0 million in Fiscal 1998 and $15.9 million in Fiscal 1997. Each LYON is exchangeable for common shares of the Company at the option of the holder at any time prior to maturity, unless previously redeemed or otherwise purchased by ADT Operations, Inc., at an exchange rate of 54.352 common shares per LYON. During Fiscal 1999 and Fiscal 1998, respectively, 147,418 and 342,752 Notes with carrying values of $72.3 million and $155.3 million were exchanged for 8,012,468 and 18,629,198 common shares of the Company. Any LYON will be purchased by ADT Operations, Inc., at the option of the holder, as of July 2002 for a purchase price per LYON of $599.46. At that time, if the holder exercises the option, the Company has the right to deliver all or a portion of the purchase price in the form of common shares of the Company. Beginning July 2002, the LYONs are redeemable for cash at any time at the option of ADT Operations, Inc., in whole or in part, at redemption prices equal to the issue price plus accrued original issue discount to the date of redemption. The LYONs are guaranteed on a subordinated basis by the Company. (xiii) International bank loans represent term borrowings by AMP from various commercial banks. Borrowings are repayable in varying amounts through 2013. The weighted-average interest rate on all international bank loans as of September 30, 1999 and 1998 was 3.9% and 5.0% respectively. (xiv) The financing lease obligation relates to USSC's European headquarters office building and distribution center complex in Elancourt, France. The French franc denominated financing lease requires principal amortization in varying amounts over the eleven year term of the lease with a balloon payment of approximately 42 million French francs ($7 million) at the end of the lease. Interest is payable at a rate approximately 1.4% above Paris Interbank Offered Rate (PIBOR). The effective interest rate on the financing lease debt was approximately 4.0% and 4.55% per annum at September 30, 1999 and 1998, respectively. 50 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. INDEBTEDNESS (CONTINUED) During Fiscal 1999, the Company also completed a tender offer for its 12.0% senior subordinated notes due 2005, issued by Graphic Controls, in which all $75 million principal amount of the notes outstanding were purchased. The weighted-average rate of interest on all long-term debt was 6.2%, 6.4% and 7.2% during Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. The impact of the Company's interest rate swap activities on its weighted-average borrowing rate was not material in any year. The impact on reported interest expense was a reduction of $0.9 million, $1.9 million and $0.8 million for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. The aggregate amounts of total debt maturing during the next five years are as follows (in millions): $1,012.8 in fiscal 2000, $2,777.0 in fiscal 2001, $1,395.2 in fiscal 2002, $56.2 in fiscal 2003 and $190.8 in fiscal 2004. 5. SALE OF ACCOUNTS RECEIVABLE The Company has an agreement under which several of its operating subsidiaries sell a defined pool of trade accounts receivable to a limited purpose subsidiary of the Company. The subsidiary, a separate corporate entity, owns all of its assets and sells participating interests in such accounts receivable to financiers who, in turn, purchase and receive ownership and security interests in those assets. As collections reduce accounts receivable included in the pool, the operating subsidiaries sell new receivables to the limited purpose subsidiary. The limited purpose subsidiary has the risk of credit loss on the receivables and, accordingly, the full amount of the allowance for doubtful accounts has been retained on the Consolidated Balance Sheets. During Fiscal 1999, the availability under the program was increased to $500 million from $300 million. At September 30, 1999 and 1998, $350 million and $300 million, respectively, under the program was utilized. The proceeds from the sales were used to reduce borrowings under uncommitted lines of credit and are reported as operating cash flows in the Consolidated Statements of Cash Flows. The proceeds of sale are less than the face amount of accounts receivable sold, by an amount that approximates the cost that the limited purpose subsidiary would incur if it were to issue commercial paper backed by these accounts receivable. The discount from the face amount is accounted for as a loss on the sale of receivables and has been included in selling, general and administrative expenses in the Company's Consolidated Statements of Operations. Such discount aggregated $15.7 million, $17.3 million, and $10.4 million, or 5.6%, 5.8% and 5.7% of the weighted average balance of the receivables outstanding, during Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. The operating subsidiaries retain collection and administrative responsibilities for the participating interests in the defined pool. 6. FINANCIAL INSTRUMENTS The Company's financial instruments consist primarily of cash and cash equivalents, accounts receivable, long-term investments, accounts payable, debt and derivative financial instruments. The notional amounts of the derivative financial instruments were as follows:
SEPTEMBER 30, ------------------- 1999 1998 -------- -------- (IN MILLIONS) Forward foreign currency exchange contracts.............. $2,717.3 $ 307.4 Currency options......................................... 160.0 153.6 Cross-currency swaps..................................... 447.9 150.0 Forward commodity contracts.............................. 104.0 79.2 Interest rate swaps...................................... 1,800.0 1,300.0
51 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 6. FINANCIAL INSTRUMENTS (CONTINUED) While it is not the Company's intention to terminate the above derivative financial instruments, fair values were estimated, based on quotes from brokers and market rates, which represented the amounts that the Company would receive or pay if the instruments were terminated at the balance sheet dates. These fair values indicated that the termination of forward foreign currency exchange contracts, cross-currency swap agreements, currency options, forward commodity contracts and interest rate swaps at September 30, 1999 would have resulted in a $52.7 million loss, a $27.0 million loss, a $0.7 million loss, a $13.0 million gain and a $66.9 million loss, respectively, and at September 30, 1998 would have resulted in a $7.6 million loss, a $22.3 million gain, a $1.4 million loss, a $4.2 million loss and a $13.1 million gain, respectively. At September 30, 1999 and 1998, the book values of derivative financial instruments recorded on the Consolidated Balance Sheets approximated fair values. The fair value of cash and cash equivalents, accounts receivable, long-term investments and accounts payable approximated book value at September 30, 1999 and 1998. The fair value of debt was approximately $10,120.4 million (book value of $10,122.2 million) and $6,631.8 million (book value of $6,239.7 million) at September 30, 1999 and 1998, respectively, based on discounted cash flow analyses using current interest rates. The Company's financial instruments present certain market and credit risks; however, concentrations of credit risk are mitigated as the Company deals with a variety of major banks worldwide and its accounts receivable are spread among a number of major industries, customers and geographic areas. None of the Company's financial instruments with off-balance sheet risk would result in a significant loss to the Company if a counterparty failed to perform according to the terms of its agreement. The Company does not require collateral or other security to be furnished by the counterparties to its financial instruments. The Company does, however, maintain reserves for potential credit losses on financial instruments, and such losses have been within management's expectations. 7. INCOME TAXES The provision (benefit) for income taxes and the reconciliation between the notional United States federal income taxes at the statutory rate on consolidated income (loss) before taxes and the Company's income tax provision are as follows:
NINE MONTHS YEAR ENDED YEAR ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1997 ------------- ------------- ------------- (IN MILLIONS) Notional U.S. federal income taxes at the statutory rate................................................. $577.9 $596.0 $ (0.1) Adjustments to reconcile to the Company's income tax provision: U.S. state income tax provision, net................... 33.6 15.8 20.2 SFAS 121 impairment.................................... 43.5 -- 49.6 Non U.S. net (earnings) losses......................... (214.9) (67.9) 118.0 Provision for unrepatriated earnings of subsidiaries... -- -- 64.1 Nondeductible charges.................................. 139.2 20.1 112.9 Other.................................................. 40.9 (29.8) (16.6) ------ ------ ------- Provision for income taxes............................. 620.2 534.2 348.1 Deferred provision (benefit)........................... 173.9 (10.0) (225.0) ------ ------ ------- Current provision...................................... $446.3 $544.2 $ 573.1 ====== ====== =======
52 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. INCOME TAXES (CONTINUED) The provisions for Fiscal 1999, Fiscal 1998, and Fiscal 1997 included $258.8 million, $210.5 million and $130.0 million, respectively, for non-U.S. income taxes. The non-U.S. component of income (loss) before income taxes was $1,359.4 million, $640.6 million and $(67.5) million for Fiscal 1999, Fiscal 1998, and Fiscal 1997, respectively. The deferred income tax balance sheet accounts result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes. The components of the net deferred income tax asset are as follows:
SEPTEMBER 30, ----------------------- 1999 1998 ---------- ---------- (IN MILLIONS) Deferred tax assets: Inventories, accrued liabilities and reserves............. $ 903.6 $1,123.1 Accrued postretirement benefit obligation................. 102.9 146.5 Tax loss and credit carryforwards......................... 506.1 431.6 Interest.................................................. 81.2 78.9 Capitalized research and development...................... 72.3 -- Other..................................................... 49.8 94.0 ------- -------- 1,715.9 1,874.1 ------- -------- Deferred tax liabilities: Property, plant and equipment............................. (440.6) (451.8) Operating lease........................................... -- (57.0) Undistributed earnings of subsidiaries.................... (155.1) (83.4) Other..................................................... (37.5) (129.4) ------- -------- (633.2) (721.6) ------- -------- Net deferred income tax asset before valuation allowance.... 1,082.7 1,152.5 Valuation allowance......................................... (207.5) (180.4) ------- -------- Net deferred income tax asset............................... $ 875.2 $ 972.1 ======= ========
As of September 30, 1999, the Company had approximately $370 million of net operating loss carryforwards in certain non-U.S. jurisdictions. Of these, $255 million have no expiration, and the remaining $115 million will expire in future years through 2014. U.S. operating loss carryforwards at September 30, 1999 were approximately $842 million and will expire in future years through 2019. A valuation allowance has been provided for operating loss carryforwards that are not expected to be utilized. In the normal course, the Company and its subsidiaries' income tax returns are examined by various regulatory tax authorities. In connection with such examinations, substantial tax deficiencies have been proposed. However, the Company is contesting such proposed deficiencies, and ultimate resolution of such matters is not expected to have a material adverse effect on the Company's financial position, results of operations or liquidity. 53 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. KEY EMPLOYEE LOAN PROGRAM Loans are made to employees of the Company under the Former Tyco 1983 Key Employee Loan Program for the payment of taxes upon the vesting of shares granted under Former Tyco's Restricted Stock Ownership Plans. The loans are unsecured and bear interest, payable annually, at a rate which approximates the Company's incremental short-term borrowing rate. Loans are generally repayable in ten years, except that earlier payments are required under certain circumstances. During Fiscal 1999, the maximum amount outstanding under this program was $91.6 million. Loans receivable under this program were $18.6 million and $22.2 million at September 30, 1999 and 1998, respectively. 9. PREFERENCE SHARES The Company has authorized 125,000,000 preference shares of $1 each, none of which were outstanding at September 30, 1999 or 1998. Rights as to dividends, return of capital, redemption, conversion, voting and otherwise may be determined by the Company on or before the time of issuance. In the event of the liquidation of the Company, the holders of any preference shares then outstanding would be entitled to payment to them of the amount for which the preference shares were subscribed and any unpaid dividends, prior to any payment to the common shareholders. In November 1996, the Board of Directors of ADT adopted a shareholder rights plan (the "Plan"). Under the Plan, each common shareholder received a distribution of rights for each common share held. Each right entitled the holder to purchase from the Company certain preference shares, or to purchase from the Company common shares at one half their market value, upon the occurrence of certain events, including a person becoming the beneficial owner of 15% or more of the Company's common shares. On August 9, 1999, the Board of Directors amended the Plan to accelerate the Plan's expiration date to September 30, 1999. The rights granted under the Plan expired on that date. 10. SHAREHOLDERS' EQUITY During the last quarter of Fiscal 1999, the Company announced that its Board of Directors had declared a two-for-one stock split in the form of a 100% stock dividend on its common shares. The split was payable on October 21, 1999 to shareholders of record on October 1, 1999. In addition, during the last quarter of Fiscal 1997, the Board of Directors declared a two-for-one stock split effected in the form of a 100% stock dividend on the Company's common shares, which was distributed on October 22, 1997. Per share amounts and share data have been retroactively adjusted to reflect both stock splits. There was no change in the par value or the number of authorized shares as a result of these stock splits. During the third quarter of Fiscal 1999, in conjunction with the approval of the merger with AMP, shareholders approved an increase in the number of authorized common shares from 1,503,750,000 to 2,500,000,000. During the second quarter of Fiscal 1998, shareholders approved an increase in the number of authorized common shares from 750,000,000 to 1,503,750,000. In December 1997 the Company filed a shelf registration to enable it to offer from time to time unsecured debt securities or shares of common stock, or any combination of the foregoing, at an aggregate initial offering price not to exceed $2.0 billion. In March 1998, the Company sold 50.6 million common shares at $25.38 per share. The net proceeds from the sale of approximately $1,245.0 million were used to repay indebtedness incurred for previous acquisitions. In April 1997, USSC redeemed all of the issued and outstanding shares of its Series A Convertible Preferred Stock by issuing approximately 12.8 million shares of common stock. In March and April 1997, 54 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) Former Tyco sold an aggregate of 46 million shares of common stock at $14.44 per share. The net proceeds from the sale of $645.2 million were used to repay indebtedness incurred for previous acquisitions. Prior to the merger of ADT with Former Tyco, the shareholders of ADT approved the consolidating of $0.10 par value common shares into new $0.20 par value common shares and an increase in the number of authorized common shares to 750,000,000. Per share amounts and per share data have been retroactively adjusted to reflect the consolidation into new par value shares. Information with respect to ADT common shares and options has been retroactively restated in connection with the merger on July 2, 1997 to reflect the reverse stock split in the ratio of 0.48133 share (1.92532 after giving effect to the subsequent stock splits) of ADT for each share or option outstanding and the issuance of one share (four shares after giving effect to the subsequent stock splits) for each share of the Former Tyco outstanding (see Note 2). Information with respect to Keystone, Inbrand, USSC and AMP common shares and options has been retroactively restated in connection with their mergers with Tyco to reflect their applicable merger per share exchange ratios of 0.48726, 0.43, 0.7606 and 0.7507, respectively (1.94904, 1.72, 1.5212 and 1.5014, respectively, after giving effect to the subsequent stock splits). The total compensation cost expensed for all stock-based compensation awards discussed below was $96.9 million, $37.1 million and $59.9 million for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. RESTRICTED STOCK--The Company maintains a restricted stock ownership plan, which provides for the award of an initial amount of common shares plus an amount equal to one-half of one percent of the total shares outstanding at the beginning of each fiscal year. At September 30, 1999, there were 22,946,562 shares authorized under the plan, of which 8,191,800 shares had been granted. Common shares are awarded subject to certain restrictions with vesting varying over periods of up to ten years. For grants which vest based on certain specified performance criteria, the fair market value of the shares at the date of vesting is expensed over the period the performance criteria are measured. For grants that vest through passage of time, the fair market value of the shares at the time of the grant is amortized (net of tax benefit) to expense over the period of vesting. The unamortized portion of deferred compensation expense is recorded as a reduction of shareholders' equity. Recipients of all restricted shares have the right to vote such shares and receive dividends. Income tax benefits resulting from the vesting of restricted shares, including a deduction for the excess, if any, of the fair market value of restricted shares at the time of vesting over their fair market value at the time of the grants and from the payment of dividends on unvested shares, are credited to contributed surplus. EMPLOYEE STOCK PURCHASE PLAN--Substantially all full-time employees of the Company's U.S. subsidiaries and employees of certain qualified non-U.S. subsidiaries are eligible to participate in an employee stock purchase plan. Eligible employees authorize payroll deductions to be made for the purchase of shares. The Company matches a portion of the employee contribution by contributing an additional 15% of the employee's payroll deduction. All shares purchased under the plan are purchased on the open market by a designated broker. STOCK OPTIONS--The Company has granted employee share options which were issued under five fixed share option plans and schemes which reserve common shares for issuance to the Company's directors, executives and managers. The majority of options have been granted under the Tyco International Ltd. Long Term Incentive Plan (formerly known as the ADT 1993 Long-Term Incentive Plan--the "Incentive Plan"). The Incentive Plan is administered by the Compensation Committee of the Board of Directors of the Company, which consists exclusively of independent directors of the Company. Options are generally 55 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) granted to purchase common shares at prices which are equal to or greater than the market price of the common shares on the date the option is granted. Conditions of vesting are determined at the time of grant. Certain options have been granted in prior years in which participants were required to pay a subscription price as a condition of vesting. Options which have been granted under the Incentive Plan to date have generally vested and become exercisable over periods of up to five years from the date of grant and have a maximum term of ten years. The Company has reserved 140.0 million common shares for issuance under the Incentive Plan. Awards which the Company becomes obligated to make through the assumption of, or in substitution for, outstanding awards previously granted by an acquired company are assumed and administered under the Incentive Plan but do not count against this limit. At September 30, 1999, there were approximately 46.2 million shares available for future grant under the Incentive Plan. During October 1998, a broad-based option plan for non-officer employees, the Tyco Long-Term Incentive Plan II ("LTIP II"), was approved by the Board of Directors. The Company has reserved 50.0 million common shares for issuance under the LTIP II. The terms and conditions of this plan are similar to the Incentive Plan. At September 30, 1999, there were approximately 35.9 million shares available for future grant under the LTIP II. In connection with the acquisitions of Raychem in Fiscal 1999 and CIPE S.A. and Holmes Protection in Fiscal 1998, options outstanding under the respective stock option plans of these companies were assumed under the Incentive Plan. In connection with the mergers occurring in Fiscal 1999 and Fiscal 1997 (see Note 2), all of the options outstanding under the Former Tyco, Keystone, Inbrand, USSC and AMP stock option plans were assumed under the Incentive Plan. These options are administered under the Incentive Plan but retain all of the rights, terms and conditions of the respective plans under which they were originally granted. Share option activity for all plans since January 1, 1997 has been as follows:
WEIGHTED AVERAGE OUTSTANDING EXERCISE PRICE ----------- ---------------- At January 1, 1997, as restated............................. 83,752,604 $15.03 Assumed from acquisition.................................. 175,600 10.19 Granted................................................... 36,196,594 22.07 Exercised................................................. (7,264,707) 9.73 Canceled.................................................. (5,599,019) 27.29 ----------- At September 30, 1997....................................... 107,261,072 17.03 Assumed from acquisition.................................. 87,232 10.23 Granted................................................... 32,011,414 23.51 Exercised................................................. (37,626,616) 9.20 Canceled.................................................. (7,281,946) 27.48 ----------- At September 30, 1998....................................... 94,451,156 24.83 Assumed from acquisitions................................. 8,883,160 37.44 Granted................................................... 30,313,362 38.44 Exercised................................................. (43,180,390) 22.79 Canceled.................................................. (4,476,021) 47.83 ----------- At September 30, 1999....................................... 85,991,267 27.91 ===========
56 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) The following table summarizes information about outstanding and exercisable options at September 30, 1999:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------ ---------------------- WEIGHTED WEIGHTED AVERAGE WEIGHTED AVERAGE REMAINING AVERAGE RANGE OF NUMBER EXERCISE CONTRACTUAL NUMBER EXERCISE EXERCISE PRICES OUTSTANDING PRICE LIFE--YEARS EXERCISABLE PRICE - ---------------- ----------- -------- ----------- ----------- -------- $ 0.00 to $ 4.98.......... 676,490 $ 4.14 3.7 676,490 $ 4.14 4.99 to 7.44.......... 8,064,944 6.51 5.4 6,345,144 6.46 7.45 to 9.98.......... 1,940,708 8.84 6.0 952,310 8.85 9.99 to 11.76.......... 1,111,392 10.91 6.5 541,908 10.89 11.77 to 14.88.......... 3,803,020 14.02 6.6 2,503,100 13.90 14.89 to 19.97.......... 13,127,514 18.89 7.5 6,474,486 18.56 19.98 to 24.93.......... 11,816,100 21.59 7.3 9,452,060 21.79 24.94 to 29.87.......... 11,129,338 28.17 8.3 3,251,948 28.11 29.88 to 31.80.......... 5,405,046 31.41 7.1 5,363,162 31.41 31.81 to 34.42.......... 2,518,496 32.77 8.7 933,536 32.97 34.43 to 44.62.......... 11,518,704 36.79 9.0 1,727,126 38.63 44.63 to 50.00.......... 9,007,113 49.35 9.3 6,545,044 49.67 50.01 to 52.01.......... 2,957,886 50.99 9.5 2,934,158 51.00 52.02 to 73.30.......... 2,914,516 59.58 5.9 2,078,414 60.90 ---------- ---------- Total 85,991,267 49,778,886 ========== ==========
As a result of the merger with USSC, approximately 14.2 million options which were not previously exercisable became immediately exercisable on October 1, 1998. Upon consummation of the merger with AMP on April 2, 1999, approximately 7.8 million options became immediately exercisable due to the change in ownership of AMP resulting from the merger. STOCK-BASED COMPENSATION--SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123") allows companies to measure compensation cost in connection with executive share option plans and schemes using a fair value based method, or to continue to use an intrinsic value based method which generally does not result in a compensation cost. The Company has decided to continue to use the intrinsic value based method and does not recognize compensation expense for the issuance of options with an exercise price equal to or greater than the market price at the time of grant. Had the fair value based method been adopted consistent with the provisions of SFAS 123, the Company's pro forma net income (loss) and pro forma net income (loss) per common share for Fiscal 1999, Fiscal 1998 and Fiscal 1997 would have been as follows:
1999 1998 1997 -------- -------- -------- Net income (loss)--pro forma (in millions)........ $821.6 $1,063.3 $(428.7) Net income (loss) per common share--pro forma Basic........................................... .50 .67 (.29) Diluted......................................... .49 .66 (.29)
57 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) The estimated weighted average fair value of Tyco and AMP options granted during Fiscal 1999 was $12.13 and $7.11, respectively, on the date of grant using the option-pricing model and assumptions referred to below. The estimated weighted average fair value of Tyco, USSC and AMP options granted during Fiscal 1998 was $8.24, $6.79 and $5.98, respectively, on the date of grant using the option-pricing model and assumptions referred to below. The estimated weighted average fair value of Tyco, Former Tyco, Inbrand, USSC and AMP options granted during Fiscal 1997 was $6.08, $4.78, $18.59, $7.15 and $9.27, respectively, on the date of grant using the option-pricing model and assumptions referred to below. There were no stock option grants for Keystone in Fiscal 1997. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used for Fiscal 1999:
TYCO AMP ---------- --------- Expected stock price volatility........................ 30% 27% Risk free interest rate................................ 5.15% 5.07% Expected annual dividend yield per share............... $0.05 1.25% Expected life of options............................... 4.2 years 6.5 years
The following weighted average assumptions were used for Fiscal 1998:
TYCO USSC AMP ---------- ---------- ---------- Expected stock price volatility............ 22% 39% 27% Risk free interest rate.................... 5.62% 5.40% 5.50% Expected annual dividend yield per share... $0.05 $0.11 1.25% Expected life of options................... 5 years 4.2 years 6.5 years
The following weighted average assumptions were used for Fiscal 1997:
FORMER TYCO TYCO INBRAND USSC AMP ---------- ---------- ---------- ---------- --------- Expected stock price volatility....... 22% 22% 55% 34% 25% Risk free interest rate............... 6.07% 6.34% 6.26% 6.45% 6.49% Expected annual dividend yield per $0.05 $0.05 -- $0.11 1.25% share............................... Expected life of options.............. 5 years 5 years 6.4 years 3.8 years 6.5 years
The effects of applying SFAS 123 in this pro forma disclosure are not indicative of what the effects may be in future years. SFAS 123 does not apply to awards prior to 1995 and additional awards in future years are anticipated. STOCK WARRANTS--During 1999 the Company had outstanding warrants to purchase common stock at per share exercise prices of $1.49 (the "A Warrants") and $1.99 (the "B Warrants"), respectively (together, the "Warrants"). The Warrants expired on July 7, 1999, at which time 6,960 A Warrants and 4,638 B Warrants remaining outstanding were forfeited. During Fiscal 1999, 175,464 A Warrants and 128,494 B Warrants were exercised. During Fiscal 1998, 62,794 A Warrants and 29,078 B Warrants were exercised. During Fiscal 1997, 73,064 A Warrants and 50,000 B Warrants were exercised. 58 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. SHAREHOLDERS' EQUITY (CONTINUED) In July 1996, as part of an agreement to combine with Republic Industries, Inc. ("Republic"), ADT granted to Republic a warrant (the "Republic Warrant") to acquire 28,879,800 common shares of the Company at an exercise price of $10.39 per common share. Following termination of the agreement to combine with Republic, the Republic Warrant vested and was exercisable by Republic in the six month period commencing September 27, 1996. In March 1997, the Republic Warrant was exercised by Republic, and the Company received $300 million in cash. TREASURY SHARES--From time to time the Company, through its subsidiaries, purchases shares in the open market to satisfy certain stock-based compensation arrangements. Such treasury shares are recorded at cost in the Consolidated Balance Sheets. During Fiscal 1998, certain executives sold approximately 5.2 million common shares to the Company at the shares' then fair market value. The executives used the after-tax proceeds from this sale primarily to repay loans that the Company had made to the executives for the payment of taxes that were due on the vesting of grants to the executives of shares of restricted stock. DIVIDENDS--Tyco has paid a quarterly cash dividend of $0.0125 per common share since July 1997. Prior to the merger with ADT, Former Tyco paid a quarterly cash dividend of $0.0125 in Fiscal 1997. ADT paid no dividends on its common shares in Fiscal 1997. USSC paid quarterly dividends of $0.04 per share in Fiscal 1998 and Fiscal 1997. AMP paid dividends of $0.27 per share in the first two quarters of Fiscal 1999, $0.26 per share in the first quarter of Fiscal 1998, $0.27 per share in the last three quarters of Fiscal 1998 and $0.26 per share in each of the three quarters in Fiscal 1997. 11. COMPREHENSIVE INCOME During the first quarter of Fiscal 1999, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting and display of comprehensive income (loss) and its components in financial statements. The purpose of reporting comprehensive income (loss) is to report a measure of all changes in equity, other than transactions with shareholders. Total comprehensive income (loss) is included in the Consolidated Statements of Shareholders' Equity, and the components of accumulated other comprehensive income (loss) are as follows:
ACCUMULATED CURRENCY UNREALIZED MINIMUM OTHER TRANSLATION GAIN (LOSS) PENSION COMPREHENSIVE ITEMS ON SECURITIES LIABILITY INCOME (LOSS) ----------- ------------- --------- ------------- (IN MILLIONS) Balance at December 31, 1996.................... $ 66.3 $ 8.9 $ (2.4) $ 72.8 Current period change, gross.................. (230.3) 1.2 (17.0) (246.1) Income tax benefit............................ 26.9 0.7 8.8 36.4 ------- ------ ------- ------- Balance at September 30, 1997................... (137.1) 10.8 (10.6) (136.9) Current period change, gross.................. (45.0) (21.5) (24.6) (91.1) Income tax benefit............................ 8.3 5.9 9.9 24.1 ------- ------ ------- ------- Balance at September 30, 1998................... (173.8) (4.8) (25.3) (203.9) Current period change, gross.................. (277.8) 18.6 5.2 (254.0) Income tax benefit (expense).................. 19.5 (6.0) (5.7) 7.8 ------- ------ ------- ------- Balance at September 30, 1999................... $(432.1) $ 7.8 $ (25.8) $(450.1) ======= ====== ======= =======
59 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. COMPREHENSIVE INCOME (CONTINUED) Certain prior year amounts within shareholders' equity have been reclassified as accumulated other comprehensive income (loss) to comply with the reporting requirements of SFAS No. 130. 12. CHARGE FOR THE IMPAIRMENT OF LONG-LIVED ASSETS Charges for the impairment of long-lived assets are as follows:
1999 1998 1997 -------- -------- -------- (IN MILLIONS) Telecommunications and Electronics.......................... $259.0 $ -- $ -- Healthcare and Specialty Products........................... 76.0 -- -- Fire and Security Services.................................. -- -- 118.8 Flow Control Products....................................... -- -- 29.6 ------ ------ ------ $335.0 $ -- $148.4 ====== ====== ======
Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires the recoverability of the carrying value of long-lived assets, primarily property, plant and equipment and related goodwill and other intangible assets, to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. Under SFAS 121 impairment losses are recognized when expected future cash flows are less than the assets' carrying value. When indicators of impairment are present, the carrying values of the assets are evaluated in relation to the operating performance and future undiscounted cash flows of the underlying business. The net book value of the underlying assets is adjusted to fair value if the sum of expected future undiscounted cash flows is less than book value. Fair values are based on quoted market prices and assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. 1999 CHARGES The Telecommunications and Electronics segment recorded a charge of $259.0 million in Fiscal 1999, which includes $198.2 million related to the write-down of property, plant and equipment, primarily manufacturing and administrative facilities, associated with AMP's worldwide operations and the combination of facilities as a result of its merger with the Company. It also includes an impairment in the value of goodwill and other intangibles of $60.8 million resulting from the combination of AMP's electronics business with that of the Company and AMP's existing profit improvement plan. The Healthcare and Specialty Products segment recorded a charge of $76.0 million in Fiscal 1999 primarily relating to the write-down of property, plant and equipment, principally administrative facilities, associated with the consolidation of facilities in USSC's operations in the United States and Europe as a result of its merger with the Company. 1997 CHARGES The Fire and Security Services segment recorded a charge of $118.8 million in Fiscal 1997, which includes $98.8 million related to subscriber security systems installed at customers' premises in the United States and Canada, determined following a review of the carrying value of the assets. It also includes an impairment in the carrying value of goodwill of $20.0 million resulting from the combination of ADT's electronic security business with that of Former Tyco. 60 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. CHARGE FOR THE IMPAIRMENT OF LONG-LIVED ASSETS (CONTINUED) The Flow Control Products segment recorded a charge of $29.6 million in Fiscal 1997 reflecting an impairment in the carrying value of goodwill resulting from the combination of Keystone's valve manufacturing and distribution business with that of Former Tyco. 13. EXTRAORDINARY ITEMS The extraordinary item in Fiscal 1999 of $45.7 million, net of tax benefit of $18.0 million, primarily relates to the write-off of net unamortized deferred financing costs related to the Company's debt tender offers (Note 4). The extraordinary item in Fiscal 1998 of $2.4 million, net of tax benefit of $1.2 million, was the write-off of unamortized deferred financing costs related to the LYONs (Note 4). During Fiscal 1997 the Company reacquired in the market certain of its long-term debt which was financed from cash on hand and borrowings under the Company's credit agreements. The extraordinary items in Fiscal 1997 of $58.3 million, net of tax benefit of $33.0 million, included the loss resulting from the reacquisition of these notes, and the write-off of unamortized deferred refinancing costs and other related fees. 14. CUMULATIVE EFFECT OF ACCOUNTING CHANGES The cumulative effect of accounting changes during Fiscal 1997 of $15.5 million, net of tax of $7.4 million, related to AMP changing the accounting practices used to develop inventory costs, including standardizing globally the definition of capacity used in determining overhead rates and changing its inventory costing methodology to include manufacturing engineering costs in inventory costs. 15. EARNINGS (LOSS) PER COMMON SHARE During the first quarter of Fiscal 1998, the Company adopted SFAS No. 128, "Earnings Per Share." SFAS No. 128 specifies the computation, presentation and disclosure requirements for earnings per share and is substantially similar to the standards issued by the International Accounting Standards Committee entitled "International Accounting Standards Earnings Per Share." Prior period earnings per common share data have been restated in accordance with the provisions of this statement. The reconciliations between basic and diluted earnings (loss) per common share are as follows:
YEAR ENDED YEAR ENDED NINE MONTHS ENDED SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 ------------------------------- ------------------------------- ------------------------------- PER SHARE PER SHARE PER SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT LOSS SHARES AMOUNT -------- -------- --------- -------- -------- --------- -------- -------- --------- (IN MILLIONS, EXCEPT PER SHARE DATA) BASIC INCOME (LOSS) PER COMMON SHARE: Income (loss) before extraordinary items and cumulative effect of accounting changes........ $1,031.0 1,641.3 $ .63 $1,168.6 1,583.4 $ .74 $(348.5) 1,476.7 $(.24) Stock options and warrants.................. -- 23.3 20.9 -- -- Exchange of LYONs debt...... 3.9 10.2 7.2 20.4 -- -- -------- ------- -------- ------- ------- ------- DILUTED INCOME (LOSS) PER COMMON SHARE: Income (loss) before extraordinary items and cumulative effect of accounting changes plus assumed conversions....... $1,034.9 1,674.8 $ .62 $1,175.8 1,624.7 $ .72 $(348.5) 1,476.7 $(.24) ======== ======= ======== ======= ======= =======
The computation of diluted income per common share in Fiscal 1999 and Fiscal 1998 excludes the effect of the assumed exercise of approximately 3.1 million and 23.8 million stock options, respectively, that were outstanding as of September 30, 1999 and 1998, because the effect would be anti-dilutive. The 61 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 15. EARNINGS (LOSS) PER COMMON SHARE (CONTINUED) effect on diluted loss per common share in Fiscal 1997 resulting from the assumed exercise of all outstanding stock options and warrants and the exchange of outstanding LYONs is anti-dilutive. 16. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES Merger, restructuring and other non-recurring charges are as follows:
1999 1998 1997 -------- -------- -------- (IN MILLIONS) Telecommunications and Electronics............ $ 841.8(i) $164.4 $ -- Healthcare and Specialty Products............. 431.4 92.5 161.4 Fire and Security Services.................... (11.5) -- 530.3 Flow Control Products......................... -- -- 256.2 -------- ------ ------ $1,261.7 $256.9 $947.9 ======== ====== ======
- ------------------------ (i) Includes $78.9 million related to the write-down of inventory which is included in cost of sales. 1999 CHARGES The Telecommunications and Electronics segment recorded merger, restructuring and other non-recurring charges of $841.8 million primarily related to the merger with AMP and costs associated with AMP's profit improvement plan. The following table provides information about these charges ($ in millions):
SEVERANCE FACILITIES OTHER -------------------- --------------------- -------- NUMBER OF NUMBER OF EMPLOYEES RESERVE FACILITIES RESERVE RESERVE TOTAL --------- -------- ---------- -------- -------- -------- Fiscal 1999 charges.................... 16,139 $ 433.7 87 $171.2 $236.9 $841.8 Fiscal 1999 activity................... (8,410) (359.2) (45) (75.4) (129.3) (563.9) ------ ------- --- ------ ------ ------ Ending balance at September 30, 1999... 7,729 $ 74.5 42 $ 95.8 $107.6 $277.9 ====== ======= === ====== ====== ======
The cost of announced workforce reductions of $433.7 million includes the elimination of 8,585 positions in the United States, 4,216 positions in Europe, 2,019 positions in the Asia-Pacific region and 1,319 positions in Canada and Latin America, consisting primarily of manufacturing and distribution, administrative, research and development and sales and marketing personnel. Included in the severance charges of $433.7 million are enhanced pension and other post-retirement benefit costs of $136.2 million provided to terminated employees. The cost of facility closures of $171.2 million includes the shut-down and consolidation of 60 facilities in the United States, 16 facilities in Europe, 6 facilities in the Asia-Pacific region and 5 facilities in Canada and Latin America, consisting primarily of manufacturing plants, distribution centers, administrative buildings, research and development facilities and sales offices. At September 30, 1999, 8,410 employees had been terminated and 45 facilities had been shut down. The other charges of $236.9 million consist of transaction costs of $67.9 million for legal, printing, accounting, financial advisory services and other direct expenses related to the AMP merger; $78.9 million related to the write-down of inventory used in AMP's operations which is included in cost of sales; lease termination costs following the merger of $9.6 million; a credit of $50.0 million related to a litigation 62 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES (CONTINUED) settlement with AlliedSignal Inc. (Note 26); and other costs of $130.5 million relating to the consolidation of certain product lines and other non-recurring changes related to the AMP merger. The remaining balance at September 30, 1999 of $277.9 million consists of $232.0 million in other current liabilities and $45.9 million in other non-current liabilities. The Company currently anticipates that the restructuring and other non-recurring activities to which all of these charges relate will be substantially completed within Fiscal 2000, except for certain long-term contractual obligations. The Healthcare and Specialty Products segment recorded merger, restructuring and other non-recurring charges of $431.4 million, consisting of a $434.9 million charge primarily related to the merger with USSC and a $3.5 million credit representing a revision of estimates related to Tyco's 1997 restructuring/non-recurring accruals discussed below. The following table provides information about these charges ($ in millions):
SEVERANCE FACILITIES OTHER -------------------- --------------------- -------- NUMBER OF NUMBER OF EMPLOYEES RESERVE FACILITIES RESERVE RESERVE TOTAL --------- -------- ---------- -------- -------- -------- Fiscal 1999 charges.................... 1,467 $124.8 45 $ 51.8 $ 258.3 $ 434.9 Fiscal 1999 activity................... (1,282) (99.3) (20) (18.3) (217.6) (335.2) ------ ------ --- ------ ------- ------- Ending balance at September 30, 1999... 185 $ 25.5 25 $ 33.5 $ 40.7 $ 99.7 ====== ====== === ====== ======= =======
The cost of announced workforce reductions of $124.8 million includes the elimination of 932 positions in the United States, 470 positions in Europe, 34 positions in Canada and Latin America and 31 positions in the Asia-Pacific region, consisting primarily of manufacturing and distribution, sales and marketing, administrative and research and development personnel. The cost of facility closures of $51.8 million includes the shut-down and consolidation of 25 facilities in Europe, 9 facilities in the United States, 8 facilities in the Asia-Pacific region and 3 facilities in Canada and Latin America, consisting primarily of manufacturing plants, distribution centers, sales offices, administrative buildings and research and development facilities. At September 30, 1999, 1,282 employees had been terminated and 20 facilities had been shut down. The other charges of $258.3 million consist of transaction costs of $53.3 million for legal, printing, accounting, financial advisory services and other direct expenses related to the USSC merger, lease termination costs following the merger of $156.8 million and other costs of $48.2 million relating to the consolidation of certain product lines and other non-recurring charges primarily related to the USSC merger. The remaining balance at September 30, 1999 of $99.7 million is included in other current liabilities. The Company currently anticipates that the restructuring and other non-recurring activities to which all of these charges relate will be substantially completed within Fiscal 2000, except for certain long-term contractual obligations. The Company recorded a credit of $15.0 million, including $11.5 million in the Fire and Security Services segment and $3.5 million in the Healthcare and Specialty Products segment referred to above, representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals. Most of the actions under Tyco's 1997 restructuring and other non-recurring plans are completed or near completion and have resulted in total estimated costs being less than originally anticipated. 63 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 16. MERGER, RESTRUCTURING AND OTHER NON-RECURRING CHARGES (CONTINUED) 1998 CHARGES During the fourth quarter of Fiscal 1998, AMP recorded charges of $185.8 million associated with its profit improvement plan, which includes the reduction of support staff throughout all its business units and the consolidation of manufacturing plants and other facilities, in addition to certain sales growth initiatives. These charges include the cost of staff reductions of $172.1 million involving the voluntary retirement and involuntary termination of approximately 2,700 staff support personnel and 700 direct manufacturing employees, and the cost of consolidation of certain facilities of $13.7 million relating to six plant and facility closures and consolidations. At September 30, 1999, these restructuring activities were substantially completed. See Note 18 for discussion of the voluntary early retirement program. During the first quarter of Fiscal 1998, AMP recorded a credit of $21.4 million to merger, restructuring and other non-recurring charges representing a revision of estimates related to its 1996 restructuring activities, which were completed in Fiscal 1998. During the fourth quarter of Fiscal 1998, USSC recorded certain charges of $80.5 million. These charges include $70.9 million of costs to exit certain businesses representing the write down of assets from earlier purchases of technology that had minimal commercial application and the adjustment to net realizable value of certain assets. In addition, merger costs of $9.6 million were recorded that represent legal and insurance costs related to the merger consummated in the first quarter of Fiscal 1999. During the first quarter of Fiscal 1998, USSC recorded restructuring charges of $12.0 million related to employee severance costs, facility disposals and asset write-downs as part of USSC's cost cutting program. USSC substantially completed its 1998 restructuring activities during Fiscal 1999. 1997 CHARGES In connection with the mergers consummated in Fiscal 1997 (Note 2), the Company recorded merger, restructuring and other non-recurring charges of $917.8 million. These charges include transaction costs of $239.8 million for legal, accounting, financial advisory services, severance and other direct costs related to the mergers. Also included are costs required to combine ADT's electronic security business, Keystone's valve manufacturing and distribution business and Inbrand's disposable medical products business with the related businesses of Former Tyco. These costs consist of the cost of workforce reductions of $130.3 million including the elimination of approximately 4,000 positions; the costs of combining certain facilities of $194.2 million involving the closure of 18 manufacturing facilities and the consolidation of sales and service offices, electronic security system monitoring centers, warehouses and other locations; the costs of disposing of excess equipment and other assets of $133.5 million; and other costs of $220.0 million relating to the consolidation of certain product lines, the satisfaction of certain liabilities and other non-recurring charges. Approximately $34.6 million of accrued merger and restructuring costs are included in other current liabilities and $41.1 million in other noncurrent liabilities at September 30, 1999. These restructurings are substantially complete. The remaining accruals primarily relate to future payments on non-cancellable lease obligations. During Fiscal 1997, USSC recorded restructuring charges of $5.8 million related primarily to employee severance costs associated with the consolidation of manufacturing and certain marketing operations, which was substantially completed during Fiscal 1998. USSC also recorded charges of $24.3 million during Fiscal 1997 for litigation and other related costs relative to patent infringement litigation, which was settled as of September 30, 1999. 64 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 17. COMMITMENTS AND CONTINGENCIES The Company occupies certain facilities under leases that expire at various dates through the year 2030. Rental expense under these leases and leases for equipment was $381.0 million, $331.7 million and $242.9 million for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. At September 30, 1999, the minimum lease payment obligations under noncancelable operating leases were as follows: $405.3 million in Fiscal 2000, $211.6 million in fiscal 2001, $151.3 million in fiscal 2002, $117.3 million in fiscal 2003, $82.6 million in fiscal 2004 and an aggregate of $347.9 million in fiscal years 2005 through 2030. 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 or results of operations. The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of site cleanup is difficult to predict given the uncertainties regarding the extent of the required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. Based upon the Company's experience with environmental remediation matters, the Company has concluded that there is at least a reasonable possibility that remedial costs will be incurred with respect to these sites in an aggregate amount in the range of $35.6 million to $124.8 million. At September 30, 1999, the Company has concluded that the most probable amount that will be incurred within this range is $53.7 million, $29.4 million of such amount is included in accrued expenses and other current liabilities and $24.3 million is included in other long-term liabilities in the Consolidated Balance Sheet. Based upon information available to the Company, at those sites where there has been an allocation of the liability for cleanup costs among a number of parties, including the Company, and such liability could be joint and several, management believes it is probable that other responsible parties will fully pay the cost allocated to them, except with respect to one site for which the Company has assumed that one of the identified responsible parties will be unable to pay the cost apportioned to it and that such party's cost will be reapportioned among the remaining responsible parties. In view of the Company's financial position and reserves for environmental matters of $53.7 million, the Company has concluded that its payment of such estimated amounts will not have a material effect on its financial position, results of operations or liquidity. The Company is a defendant in a number of other pending legal proceedings incidental to present and former operations, acquisitions and dispositions. The Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its financial position, results of operations or liquidity. 18. RETIREMENT PLANS The Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and other Postretirement Benefits," which revises financial statement disclosure requirements for pension and other postretirement benefit plans but does not change the measurement or recognition of those plans. DEFINED BENEFIT PENSION PLANS--The Company has a number of noncontributory and contributory defined benefit retirement plans covering certain of its U.S. and non-U.S. employees, designed in accordance with conditions and practices in the countries concerned. Contributions are based on periodic actuarial valuations which use the projected unit credit method of calculation and are charged to the consolidated statements of operations on a systematic basis over the expected average remaining service lives of current employees. The net pension expense is assessed in accordance with the advice of 65 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. RETIREMENT PLANS (CONTINUED) professionally qualified actuaries in the countries concerned or is based on subsequent formal reviews for the purpose. The Company's funding policy is to make annual contributions to the extent such contributions are tax deductible as actuarially determined. The benefits under the defined benefit plans are based on years of service and compensation. VOLUNTARY EARLY RETIREMENT PROGRAMS--In the fourth quarter of Fiscal 1998, AMP offered enhanced retirement benefits to targeted groups of employees. The cost of these benefits totaled $138.3 million and was recorded as part of AMP's fourth quarter restructuring charge. This amount has not been included in the determination of net periodic pension cost presented below. The net periodic pension (income) cost for all U.S. and non-U.S. defined benefit pension plans includes the following components:
U.S. PLANS ------------------------------ 1999 1998 1997 -------- -------- -------- (IN MILLIONS) Service cost...................................... $ 37.8 $ 44.7 $ 29.5 Interest cost..................................... 86.2 93.3 64.8 Expected return on plan assets.................... (96.1) (109.9) (75.6) Recognition of initial net asset.................. (0.9) (1.9) (1.2) Amortization of prior service cost................ 3.0 3.2 1.4 Recognized net actuarial gain..................... (0.6) (7.1) (0.9) Curtailment/settlement gain....................... (102.6) (48.6) -- ------- ------- ------- Net periodic benefit (income) cost................ $ (73.2) $ (26.3) $ 18.0 ======= ======= =======
NON-U.S. PLANS ------------------------------ 1999 1998 1997 -------- -------- -------- (IN MILLIONS) Service cost...................................... $ 47.4 $ 35.6 $ 25.8 Interest cost..................................... 48.0 43.1 32.3 Expected return on plan assets.................... (56.8) (53.6) (39.3) Recognition of initial net obligation............. 0.1 -- 0.1 Amortization of prior service cost................ 0.6 0.6 (0.2) Recognized net actuarial loss (gain).............. 1.1 (0.8) 0.6 Curtailment/settlement loss....................... 1.2 6.7 -- ------- ------- ------- Net periodic benefit cost......................... $ 41.6 $ 31.6 $ 19.3 ======= ======= =======
The curtailment/settlement gains in Fiscal 1999 relate primarily to the termination of employees at AMP and the freezing of AMP's pension plan. The curtailment/settlement gains in Fiscal 1998 relate primarily to the freezing of the ADT pension plan. These curtailment/settlement gains have been recorded in selling, general and administrative expenses. 66 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. RETIREMENT PLANS (CONTINUED) The net pension cost recognized at September 30, 1999 and 1998 for all U.S. and non-U.S. defined benefit plans is as follows:
U.S. PLANS NON-U.S. PLANS ------------------- ------------------- 1999 1998 1999 1998 -------- -------- -------- -------- (IN MILLIONS) (IN MILLIONS) CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year................ $1,191.8 $1,263.2 $ 835.4 $ 717.4 Service cost........................................... 35.8 43.6 45.7 34.6 Interest cost.......................................... 86.2 92.5 48.0 43.1 Employee contributions................................. -- -- 8.7 7.5 Plan amendments........................................ 8.3 9.5 0.8 1.1 Actuarial (gain)/ loss................................. (74.4) 77.1 28.1 107.6 Benefits paid.......................................... (68.8) (374.4) (49.2) (39.8) Acquisitions........................................... 190.9 5.1 404.9 5.3 Divestitures........................................... (69.8) -- (5.9) -- Plan curtailments...................................... (136.3) (28.7) (10.7) (30.9) Plan settlements....................................... (25.7) (9.8) (2.4) (33.8) Special termination benefits........................... 4.5 113.7 9.2 17.7 Currency translation adjustment........................ -- -- 27.3 5.6 -------- -------- -------- ------- Benefit obligation at end of year...................... $1,142.5 $1,191.8 $1,339.9 $ 835.4 ======== ======== ======== ======= CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year......... $ 997.4 $1,330.9 $ 700.5 $ 697.8 Actual return on plan assets........................... 169.3 28.6 86.0 32.6 Employer contributions................................. 24.7 21.0 38.8 30.8 Employee contributions................................. -- -- 8.8 7.5 Acquisitions........................................... 155.8 4.3 376.9 2.0 Divestitures........................................... (84.2) -- (7.5) -- Plan settlements....................................... (25.7) (9.8) (2.4) (33.9) Benefits paid.......................................... (68.9) (374.4) (49.2) (39.8) Administrative expenses paid........................... (2.6) (3.2) (1.8) (1.4) Currency translation adjustment........................ -- -- 25.1 4.9 -------- -------- -------- ------- Fair value of plan assets at end of year............... $1,165.8 $ 997.4 $1,175.2 $ 700.5 ======== ======== ======== ======= Funded status.......................................... $ 23.3 $ (194.4) $ (164.7) $(134.9) Unrecognized net actuarial (gain)/ loss................ (128.8) (7.5) 89.4 75.6 Unrecognized prior service cost........................ 6.7 26.3 6.0 5.7 Unrecognized transition asset.......................... (5.1) (5.6) (4.5) (3.1) -------- -------- -------- ------- Net amount recognized.................................. $ (103.9) $ (181.2) $ (73.8) $ (56.7) ======== ======== ======== =======
67 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. RETIREMENT PLANS (CONTINUED)
U.S. PLANS NON-U.S. PLANS ------------------- ------------------- 1999 1998 1999 1998 -------- -------- -------- -------- (IN MILLIONS) (IN MILLIONS) AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION Prepaid benefit cost................................... $ 29.2 $ 26.7 $ 106.8 $ 53.8 Accrued benefit liability.............................. (141.7) (234.1) (222.1) (148.4) Intangible asset....................................... 1.0 8.8 6.3 7.3 Accumulated other comprehensive income................. 7.6 17.4 35.2 30.6 -------- -------- -------- ------- Net amount recognized.................................. $ (103.9) $ (181.2) $ (73.8) $ (56.7) ======== ======== ======== =======
U.S. PLANS NON-U.S. PLANS ----------------------- ----------------------- WEIGHTED-AVERAGE ASSUMPTIONS AS OF SEPTEMBER 30, 1999 1998 1999 1998 - ------------------------------------------------ -------- -------- -------- -------- Discount rate................................. 7.75% 6.75% 5.65% 5.47% Expected return on plan assets................ 8.60 9.30 7.39 8.30 Rate of compensation increase................. 4.30 4.00 4.03 3.26
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for U.S. pension plans with accumulated benefit obligations in excess of plan assets were $186.7 million, $173.4 million and $130.7 million, respectively, as of September 30, 1999 and $767.4 million, $643.7 million and $558.0 million, respectively, as of September 30, 1998. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for non-U.S. pension plans with accumulated benefit obligations in excess of plan assets were $563.5 million, $517.1 million and $314.6 million, respectively, as of September 30, 1999 and $430.9 million, $396.0 million and $265.4 million, respectively, as of September 30, 1998. The Company also participates in a number of multi-employer defined benefit plans on behalf of certain employees. Pension expense related to multi-employer plans was $7.5 million, $1.7 million and $1.5 million for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. DEFINED CONTRIBUTION RETIREMENT PLANS--The Company maintains several defined contribution retirement plans, which include 401(k) matching programs, as well as qualified and nonqualified profit sharing and stock bonus retirement plans. Pension expense for the defined contribution plans is computed as a percentage of participants' compensation and was $73.2 million, $57.1 million and $43.1 million for Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. The Company also maintains an unfunded Supplemental Executive Retirement Plan ("SERP"). This plan is nonqualified and restores the employer match that certain employees lose due to IRS limits on eligible compensation under the defined contribution plans. Expense related to the SERP was $6.9 million, $3.7 million and $2.2 million in Fiscal 1999, Fiscal 1998 and Fiscal 1997, respectively. POST-RETIREMENT BENEFIT PLANS--The Company generally does not provide post-retirement benefits other than pensions for its employees. Certain of Former Tyco's acquired operations provide these benefits to employees who were eligible at the date of acquisition. In addition, ADT's electronic security services operation in the United States sponsors an unfunded defined benefit post-retirement plan which covers both salaried and non-salaried employees and which provides medical and other benefits. This post-retirement health care plan is contributory, with retiree contributions adjusted annually. The 68 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. RETIREMENT PLANS (CONTINUED) Company recorded a gain of $8.8 million related to the curtailment of this plan in Fiscal 1998 which was included in selling, general and administrative expenses. AMP provides post-retirement health care coverage to qualifying U.S. retirees. As a result of the merger with Tyco, a $13.7 million adjustment was recorded to conform AMP's accounting method for post-retirement benefits to Tyco's method, regarding the initial recognition of such benefits upon adoption of SFAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." In the second quarter of Fiscal 1999, AMP offered enhanced post-retirement benefits to terminated employees totaling $16.0 million, which was recorded as part of AMP's second quarter restructuring charge. This amount has not been included in the determination of net periodic benefit cost presented below. Net periodic post-retirement benefit cost reflects the following components:
1999 1998 1997 -------- -------- -------- (IN MILLIONS) Service cost (with interest)........................... $ 3.5 $ 3.2 $ 2.0 Interest cost.......................................... 12.0 9.5 7.0 Amortization of prior service cost..................... (2.2) (2.5) (3.2) Amortization of net (gain) loss........................ (0.7) (1.4) 0.1 Curtailment gain....................................... (5.8) (8.8) -- ----- ----- ----- Net periodic post-retirement benefit cost.............. $ 6.8 $ -- $ 5.9 ===== ===== =====
The components of the accrued post-retirement benefit obligation, all of which are unfunded, are as follows:
SEPTEMBER 30, ----------------------- 1999 1998 ---------- ---------- (IN MILLIONS) Benefit obligation at beginning of year............ $ 174.1 $ 157.1 Service cost..................................... 3.5 3.2 Interest cost.................................... 12.0 10.0 Amendments....................................... 4.5 (2.6) Actuarial (gain) loss............................ (4.1) 8.8 Acquisition...................................... 11.2 -- Curtailment gain................................. (15.3) -- Special termination loss......................... -- 7.3 Expected net benefits paid....................... (17.8) (9.4) Currency fluctuation loss (gain)................. 0.1 (0.3) ------- ------- Benefit obligation at end of year.................. $ 168.2 $ 174.1 ======= ======= Funded status.................................... $(168.2) $(174.1) Unrecognized net (gain) loss..................... (24.5) 5.5 Unrecognized prior service cost.................. (13.8) (21.0) ------- ------- Accrued postretirement benefit cost.............. $(206.5) $(189.6) ======= =======
69 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 18. RETIREMENT PLANS (CONTINUED) For measurement purposes, in Fiscal 1999, a 8.5% composite annual rate of increase in the per capita cost of covered health care benefits was assumed. The rate was assumed to decrease gradually to 4.75% by the year 2008 and remain at that level thereafter. The health care cost trend rate assumption may have a significant effect on the amounts reported. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
1-PERCENTAGE- 1-PERCENTAGE- POINT INCREASE POINT DECREASE -------------- -------------- (IN MILLIONS) Effect on total of service and interest cost components...................................... $0.3 $(0.3) Effect on postretirement benefit obligation....... 5.9 (5.2)
The combined weighted average discount rate used in determining the accumulated post-retirement benefit obligation was 7.75% at September 30, 1999 (6.75% at September 30, 1998). 19. CONSOLIDATED SEGMENT DATA The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for the way companies report information about operating segments. The Company's reportable segments are strategic business units that offer different products and services and are managed separately. Segment data has been presented on a basis consistent with how business activities are reported internally to management. Prior year amounts have been reclassified to conform with SFAS No. 131. The primary change relates to certain Flow Control Products business lines which were previously included in the Telecommunications and Electronics and Fire and Security Services segments. Certain corporate expenses were allocated to each operating segment's operating income (loss), based generally on net sales and other factors. For additional information, including a description of the products and services included in each segment, see Note 1. Selected information by industry segment is presented below.
AS AT AND AS AT AND NINE FOR THE YEAR FOR THE YEAR MONTHS ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1997 ------------- ------------- ------------- (IN MILLIONS) Net sales: Telecommunications and Electronics................... $ 7,711.2 $ 7,067.3 $ 4,842.5 Healthcare and Specialty Products.................... 5,742.7 4,672.4 2,869.9 Fire and Security Services........................... 5,534.0 4,393.5 2,892.2 Flow Control Products................................ 3,508.6 2,928.5 2,137.9 --------- --------- --------- $22,496.5 $19,061.7 $12,742.5 ========= ========= =========
70 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. CONSOLIDATED SEGMENT DATA (CONTINUED)
AS AT AND AS AT AND NINE FOR THE YEAR FOR THE YEAR MONTHS ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1997 ------------- ------------- ------------- (IN MILLIONS) Operating income (loss): Telecommunications and Electronics................... $ 73.2 (1) $ 671.4 (4) $ 263.7 (6) Healthcare and Specialty Products.................... 878.6 (2) 389.3 (5) 308.1 (7) Fire and Security Services........................... 918.5 (3) 630.6 (332.5)(8) Flow Control Products................................ 605.5 456.9 1.3 (9) --------- --------- --------- 2,475.8 2,148.2 240.6 Less: Corporate expenses............................. (122.9) (68.3) (44.8) Goodwill amortization expense................... (216.1) (131.8) (70.0) --------- --------- --------- $ 2,136.8 $ 1,948.1 $ 125.8 ========= ========= ========= Total Assets: Telecommunications and Electronics................... $10,728.2 $ 6,361.9 Healthcare and Specialty Products.................... 8,699.7 7,256.8 Fire and Security Services........................... 8,224.1 6,606.2 Flow Control Products................................ 3,858.6 2,960.3 Corporate............................................ 851.0 255.5 --------- --------- $32,361.6 $23,440.7 ========= ========= Depreciation and Amortization: Telecommunications and Electronics................... $ 468.4 $ 466.5 $ 355.2 Healthcare and Specialty Products.................... 287.6 262.5 130.1 Fire and Security Services........................... 417.2 269.8 205.5 Flow Control Products................................ 130.0 120.0 63.8 Corporate............................................ 8.0 18.9 19.6 --------- --------- --------- $ 1,311.2 $ 1,137.7 $ 774.2 ========= ========= ========= Capital Expenditures: Telecommunications and Electronics................... $ 488.5 $ 520.2 $ 339.2 Healthcare and Specialty Products.................... 235.9 (10) 202.9 160.8 Fire and Security Services........................... 746.3 491.4 304.8 Flow Control Products................................ 135.1 92.6 58.3 Corporate............................................ 26.7 10.4 3.5 --------- --------- --------- $ 1,632.5 $ 1,317.5 $ 866.6 ========= ========= =========
- ------------------------ (1) Includes merger, restructuring and other non-recurring charges of $841.8 million, of which $78.9 million is included in cost of sales, and charges for the impairment of long-lived assets of $259.0 million primarily related to the merger with AMP and AMP's profit improvement plan. 71 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 19. CONSOLIDATED SEGMENT DATA (CONTINUED) (2) Includes merger, restructuring and other non-recurring charges of $434.9 million and charges for the impairment of long-lived assets of $76.0 million, primarily related to the merger with USSC, and a credit of $3.5 million representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals. (3) Includes a credit of $11.5 million representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals. (4) Includes restructuring and other non-recurring charges recorded by AMP of $185.8 million related to its profit improvement plan and a credit of $21.4 million to restructuring charges representing a revision of estimates related to AMP's 1996 restructuring activities. (5) Includes non-recurring charges of $80.5 million primarily related to business exit costs and restructuring charges of $12.0 million related to USSC's operations. (6) Includes a charge of $361.0 million related to the write-off of purchased research and development costs in connection with an acquisition. (7) Includes charges of $131.3 million related to merger, restructuring and other non-recurring charges in connection with the Inbrand merger and $24.3 million for litigation and other related costs and $5.8 million for restructuring charges in USSC's operations. (8) Includes charges of $530.3 million related to merger, restructuring and other non-recurring charges and $118.8 million related to the impairment of long-lived assets in connection with the merger of ADT and Former Tyco. (9) Includes charges of $256.2 million related to merger, restructuring and other non-recurring charges and $29.6 million related to the impairment of long-lived assets in connection with the Keystone merger. (10) Excludes $234.0 million related to the purchase of leased property in connection with the merger with USSC. 72 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 20. CONSOLIDATED GEOGRAPHIC DATA Selected information by geographic area is presented below.
AS AT AND AS AT AND NINE FOR THE YEAR FOR THE YEAR MONTHS ENDED ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1997 ------------- ------------- ------------- (IN MILLIONS) Net sales: Americas (primarily U.S.)............ $14,409.0 $12,518.4 $ 8,127.7 Europe............................... 5,362.4 4,431.4 2,995.5 Asia-Pacific......................... 2,725.1 2,111.9 1,619.3 --------- --------- --------- $22,496.5 $19,061.7 $12,742.5 ========= ========= ========= Total Assets: Americas (primarily U.S.)............ $21,433.5 $16,465.0 Europe............................... 6,963.7 4,874.0 Asia-Pacific......................... 3,113.4 1,846.2 Corporate............................ 851.0 255.5 --------- --------- $32,361.6 $23,440.7 ========= =========
21. SUPPLEMENTARY BALANCE SHEET INFORMATION Selected supplementary balance sheet information is presented below.
SEPTEMBER 30, ----------------------- 1999 1998 ---------- ---------- (IN MILLIONS) Inventories: Purchased materials and manufactured parts....... $ 719.1 $ 681.4 Work in process.................................. 774.2 729.8 Finished goods................................... 1,355.8 1,198.8 -------- -------- $2,849.1 $2,610.0 ======== ======== Property, Plant and Equipment: Land............................................. $ 386.8 $ 272.0 Buildings........................................ 2,414.0 2,013.0 Subscriber systems............................... 2,703.3 2,171.5 Machinery and equipment.......................... 7,005.3 6,125.5 Leasehold improvements........................... 224.4 264.5 Construction in progress......................... 573.0 499.3 Accumulated depreciation......................... (5,984.4) (5,241.5) -------- -------- $7,322.4 $6,104.3 ======== ======== Accrued payroll and payroll related costs (including bonuses).............................. $ 723.5 $ 526.2 ======== ========
73 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 22. SUPPLEMENTARY INCOME STATEMENT INFORMATION Selected supplementary income statement information is presented below.
NINE MONTHS YEAR ENDED YEAR ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1997 ------------- ------------- ------------- (IN MILLIONS) Research and development(i)............ $450.5 $511.4 $326.0 Advertising............................ $133.1 $110.8 $ 82.2
(i) The decrease in research and development expenses during Fiscal 1999 as compared to Fiscal 1998 was due to the exiting of certain research projects of non-core businesses at USSC, as well as the consolidation or closing of selected research and development facilities of AMP and USSC in connection with their integration into the Company during Fiscal 1999. 23. COMPARATIVE RESULTS (UNAUDITED) The change in year end resulted in Fiscal 1997 covering the nine month period ended September 30, 1997. The following unaudited financial information for the twelve months ended September 30, 1997 is presented to provide comparative results to those for Fiscal 1998 included in the Consolidated Statement of Operations.
TWELVE MONTHS ENDED SEPTEMBER 30, 1997 -------------------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) Net sales................................................. $16,657.3 Gross profit.............................................. 5,383.7 Operating income.......................................... 131.0 Income taxes.............................................. (379.5) Loss before extraordinary items and cumulative effect of accounting changes...................................... (300.5) Extraordinary items, net of taxes......................... (60.9) Cumulative effect of accounting changes, net of taxes..... 15.5 Net loss.................................................. (345.9) Basic loss per common share: Loss before extraordinary items and cumulative effect of accounting changes.................................... $ (.21) Extraordinary items, net of taxes....................... (.04) Cumulative effect of accounting changes, net of taxes... .01 Net loss per common share............................... (.24) Diluted loss per common share: Loss before extraordinary items and cumulative effect of accounting changes.................................... $ (.21) Extraordinary items, net of taxes....................... (.04) Cumulative effect of accounting changes, net of taxes... .01 Net loss per common share............................... (.24)
74 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized quarterly financial data is presented below.
YEAR ENDED SEPTEMBER 30, 1999 -------------------------------------------------- 1ST QTR.(1) 2ND QTR.(2) 3RD QTR.(3) 4TH QTR. ----------- ----------- ----------- -------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales........................... $5,213.5 $5,238.7 $5,819.8 $6,224.5 Gross profit........................ 1,811.9 1,850.9 2,047.1 2,381.0 (Loss) income before extraordinary items............................. (107.7) 162.0 194.0 782.7 Net (loss) income(6)................ (110.1) 119.5 193.5 782.4 Basic (loss) income per common share: (Loss) income before extraordinary items........................... $ (.07) $ .10 $ .12 $ .47 Net (loss) income per common share........................... (.07) .07 .12 .47 Diluted (loss) income per common share: (Loss) income before extraordinary items........................... $ (.07) $ .10 $ .12 $ .46 Net (loss) income per common share........................... (.07) .07 .12 .46
YEAR ENDED SEPTEMBER 30, 1998 ----------------------------------------------- 1ST QTR.(4) 2ND QTR. 3RD QTR. 4TH QTR.(5) ----------- -------- -------- ----------- (IN MILLIONS, EXCEPT PER SHARE DATA) Net sales............................ $4,438.8 $4,561.8 $4,948.7 $5,112.4 Gross profit......................... 1,504.9 1,546.4 1,646.3 1,669.3 Income (loss) before extraordinary items.............................. 389.3 399.8 400.1 (20.6) Net income (loss)(6)................. 388.4 399.5 399.1 (20.8) Basic income (loss) per common share: Income (loss) before extraordinary items............................ $ .25 $ .26 $ .25 $ (.01) Net income (loss) per common share............................ .25 .26 .25 (.01) Diluted income (loss) per common share: Income (loss) before extraordinary items............................ $ .25 $ .25 $ .24 $ (.01) Net income (loss) per common share............................ .25 .25 .24 (.01)
- ------------------------ (1) Includes merger, restructuring and other non-recurring charges of $434.9 million and charges for the impairment of long-lived assets of $76.0 million, primarily related to the merger with USSC, and restructuring and other non-recurring charges of $182.1 million, of which $13.3 million is included in cost of sales, related to AMP's profit improvement plan. (2) Includes restructuring and other non-recurring charges of $262.3 million, of which $25.0 million is included in cost of sales, and charges for the impairment of long-lived assets of $67.6 million related to AMP's profit improvement plan. (3) Includes merger, restructuring and other non-recurring charges of $397.4 million, of which $40.6 million is included in cost of sales, and charges for the impairment of long-lived assets of $191.4 million, related to the merger with AMP and AMP's profit improvement plan. Also includes a credit of 75 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 24. SUMMARIZED QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED) $15.0 million representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals. (4) Includes charges of $12.0 million for restructuring charges in USSC's operations and a $21.4 million credit to restructuring charges representing a revision of estimates related to AMP's 1996 restructuring activities. (5) Includes non-recurring charges of $80.5 million primarily related to business exit costs in USSC's operations and charges of $185.8 million related to AMP's profit improvement plan. (6) Extraordinary items relate principally to the Company's debt tender offers and the write off of net unamortized deferred refinancing costs relating to the early extinguishment of debt. 25. TYCO INTERNATIONAL GROUP S.A. Tyco International Group S.A. ("TIG"), a wholly-owned subsidiary of the Company, indirectly owns a substantial portion of the operating subsidiaries of the Company. During Fiscal 1999 and Fiscal 1998, TIG issued public debt securities (Note 4) which are fully and unconditionally guaranteed by the Company. The Company has not included separate financial statements and footnotes for TIG because of the full and unconditional guarantee by the Company and the Company's belief that such information is not material to holders of the debt securities. The following presents unaudited consolidated summary financial information for TIG and its subsidiaries, as if TIG and its current organizational structure were in place for all periods presented.
SEPTEMBER 30, ----------------------- 1999 1998 ---------- ---------- (IN MILLIONS) Total current assets............................... $7,618.4 $6,639.5 Total non-current assets........................... 24,008.4 12,090.0 Total current liabilities.......................... 6,845.1 5,519.5 Total non-current liabilities...................... 10,553.9 6,401.5
NINE MONTHS YEAR ENDED YEAR ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1997 ------------- ------------- ------------- (IN MILLIONS) Net sales.............................. $16,668.5 $13,535.3 $8,457.8 Gross profit........................... 6,451.4 4,800.4 2,950.7 Income (loss) before extraordinary items................................ 631.7 (1) 693.9 (2) (642.2)(3) Net income (loss)(4)................... 586.0 691.5 (700.5)
- ------------------------ (1) Income before extraordinary items in Fiscal 1999 includes a credit of $15.0 million representing a revision of estimates related to Tyco's 1997 restructuring and other non-recurring accruals, and merger, restructuring and other non-recurring charges of $434.9 million and charges for the impairment of long-lived assets of $76.0 million, primarily related to the USSC merger. (2) Income before extraordinary items in Fiscal 1998 includes non-recurring charges of $80.5 million and restructuring charges of $12.0 million related to USSC's operations. (3) Loss before extraordinary items in Fiscal 1997 includes charges related to merger, restructuring and other non-recurring costs of $816.8 million and impairment of long-lived assets of $148.4 million, 76 TYCO INTERNATIONAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 25. TYCO INTERNATIONAL GROUP S.A. (CONTINUED) primarily related to the mergers and integration of ADT, Former Tyco, Keystone and Inbrand. Fiscal 1997 also includes a charge of $361.0 million for the write-off of purchased in-process research and development costs and charges of $24.3 million for litigation and other related costs, and $5.8 million for restructuring charges related to USSC's operations. (4) Extraordinary items relate principally to the Company's debt tender offers and the write-off of net unamortized deferred refinancing costs relating to the early extinguishment of debt. 26. UNSOLICITED TENDER OFFER AND DEFENSE In August 1998, AlliedSignal Inc. announced its intention to commence an offer to purchase all outstanding shares of AMP's common stock. This offer was rejected by the Board of Directors of AMP. AlliedSignal's offer was then amended twice in September 1998 to reduce the number of shares sought to be purchased. AMP incurred $15.9 million in fees in defending against AlliedSignal's bid, relating primarily to legal, public relations and financial consulting costs. In April 1999, AlliedSignal converted its AMP stock into Tyco common shares and reached a settlement with Tyco and AMP, under which AlliedSignal paid $50 million to AMP, and all parties released all claims against each other related to AMP. This amount was recorded as a credit in the merger, restructuring and other non-recurring charges line in the Consolidated Statement of Operations for Fiscal 1999. See Note 16. In addition, in September 1998, AMP's Board of Directors authorized the establishment of a Flexitrust, a grantor trust, to hold shares of AMP's common stock. AMP expected to sell to the Flexitrust an aggregate of 25 million authorized but unissued shares of common stock. AMP also announced its intention to commence a self-tender offer for 30 million shares of its common stock. AMP estimated that the total funds required to complete the self-tender would have been approximately $1.7 billion, which AMP intended to source from a proposed $2.6 billion credit facility. In November 1998, AMP announced its intention to merge with Tyco, and at that time AMP's Board of Directors rescinded its authorization for a self-tender offer and the establishment of the Flexitrust. In addition, the debt intended to fund the self-tender was never used. 27. SUBSEQUENT EVENTS (UNAUDITED) On November 3, 1999, the Company announced that the Board of Directors had authorized the Company to reacquire up to 20 million of its common shares. On November 22, 1999, the Company consummated its acquisition of AFC Cable Systems, Inc. ("AFC Cable"), a manufacturer of prewired armor cable. AFC Cable shareholders received one Tyco share for each share of AFC Cable. The Company issued approximately 12.8 million common shares in this transaction valued at approximately $562.6 million. AFC Cable is being integrated within the Company's Flow Control Products segment. The Company is accounting for the acquisition as a purchase. On November 23, 1999, the Company consummated its acquisition of Siemens Electromechanical Components GmbH & Co. KG ("Siemens EC") from Siemens AG for approximately $1.1 billion in cash. Siemens EC, with annual sales of approximately $900.0 million, is the world market leader for relays and one of the world's leading providers of components to the communications, automotive, consumer and general industry sectors. Siemens EC is being integrated within the Company's Telecommunications and Electronics segment. The Company is accounting for the acquisition as a purchase. 77 TYCO INTERNATIONAL LTD. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Information for all periods presented below reflects the grouping of the Company's businesses into four business segments consisting of Telecommunications and Electronics, Healthcare and Specialty Products, Fire and Security Services and Flow Control Products. In September 1997, the Company changed its fiscal year end from December 31 to September 30. References to Fiscal 1999, Fiscal 1998 and Fiscal 1997 are to the twelve month fiscal years ended September 30, 1999 and 1998, and the transitional nine-month fiscal period ended September 30, 1997, respectively. The discussion below of the results of operations compare Fiscal 1999 to Fiscal 1998 and Fiscal 1998 to the twelve months ended September 30, 1997 (unaudited). In Fiscal 1999, the Company consummated two mergers that were accounted for under the pooling of interests method of accounting. The merger with United States Surgical Corporation closed on October 1, 1998, and the merger with AMP Incorporated closed on April 2, 1999. As required by generally accepted accounting principles, the Company restated its financial statements as if USSC and AMP had always been a part of the Company. The Company recorded as expenses during Fiscal 1999 costs directly associated with the USSC and AMP mergers and the costs of terminating employees and closing or consolidating facilities as a result of the mergers. The Company also expensed in Fiscal 1999 the costs of staff reductions and facility closings that AMP undertook as part of a plan to improve its profitability unrelated to the Company's merger with AMP. In Fiscal 1998, the Company expensed charges for staff reductions and facility closings under the AMP profit improvement plan and charges that USSC incurred to exit certain of its businesses. These are discussed in more detail under "Liquidity and Capital Resources" below. OVERVIEW Sales increased 18.0% during Fiscal 1999 to $22,496.5 million from $19,061.7 million in Fiscal 1998. Sales in Fiscal 1998 increased 14.4% compared to the twelve months ended September 30, 1997. Income (loss) before extraordinary items and cumulative effect of accounting changes was $1,031.0 million in Fiscal 1999, as compared to $1,168.6 million in Fiscal 1998 and $(300.5) million in the twelve months ended September 30, 1997. Income before extraordinary items for Fiscal 1999 included an after-tax charge of $1,341.5 million ($1,596.7 million pre-tax) related to the mergers with USSC and AMP and costs associated with AMP's profit improvement plan. Income before extraordinary items for Fiscal 1998 included an after-tax charge of $192.0 million ($256.9 million pre-tax) primarily related to AMP's profit improvement plan and costs incurred by USSC to exit certain businesses. Loss before extraordinary items and cumulative effect of accounting changes for the twelve months ended September 30, 1997 included an after-tax charge of $1,485.5 million ($1,670.4 million pre-tax) for merger and transaction costs, write-offs and integration costs primarily associated with the mergers of ADT, Former Tyco, Keystone and Inbrand. 78 The following table details the Company's sales and earnings in Fiscal 1999, Fiscal 1998 and the twelve months ended September 30, 1997.
(UNAUDITED) TWELVE MONTHS ENDED FISCAL 1999 FISCAL 1998 SEPTEMBER 30, 1997 ----------- ----------- ------------------ (IN MILLIONS) Net sales................................................... $22,496.5 $19,061.7 $16,657.3 ========= ========= ========= Operating profit, before certain charges(i)................. $ 3,949.6(ii) $ 2,336.8 $ 2,013.7 Merger, restructuring and other non-recurring charges....... (1,261.7) (256.9) (1,283.3) Impairment of long-lived assets............................. (335.0) -- (148.4) Write-off of purchased in-process research and development............................................... -- -- (361.0) Amortization of goodwill.................................... (216.1) (131.8) (90.0) --------- --------- --------- Operating income............................................ 2,136.8 1,948.1 131.0 Interest expense, net....................................... (485.6) (245.3) (170.4) Other income................................................ -- -- 118.4(iii) --------- --------- --------- Pre-tax income before extraordinary items and cumulative effect of accounting changes.............................. 1,651.2 1,702.8 79.0 Income taxes................................................ (620.2) (534.2) (379.5) --------- --------- --------- Income (loss) before extraordinary items and cumulative effect of accounting changes.............................. 1,031.0 1,168.6 (300.5) Extraordinary items, net of taxes........................... (45.7) (2.4) (60.9) Cumulative effect of accounting changes, net of taxes....... -- -- 15.5 --------- --------- --------- Net income (loss)........................................... $ 985.3 $ 1,166.2 $ (345.9) ========= ========= =========
- ------------------------------ (i) This amount is the sum of the operating profits of the Company's four business segments set forth in the segment discussion below, less certain corporate expenses, and is before merger, restructuring and other non-recurring charges, impairment of long-lived assets, write-off of purchased in-process research and development and amortization of goodwill. (ii) Restructuring charges in the amount of $78.9 million related to the write-down of inventory have been deducted as part of cost of sales in the Consolidated Statement of Operations for Fiscal 1999. However, they have not been deducted as part of cost of sales for the purpose of calculating operating profit before certain charges in this table. These charges are instead included in the total merger, restructuring and other non-recurring charges. (iii) Amount consists of $65.0 million related to a litigation settlement and $53.4 million related to the disposal of an equity investment by ADT. The operating profits and margins for the Company's four business segments that are presented in the following discussion are stated before deductions for merger, restructuring and other non-recurring charges related to business combinations accounted for under the pooling of interests method of accounting, charges for impairment of long-lived assets, in-process research and development charges and goodwill amortization. This is consistent with how management views the operating results of the individual segments. Operating profits improved in all segments in each of Fiscal 1999 and Fiscal 1998, with the exception of the Healthcare and Specialty Products segment in Fiscal 1998 for reasons that are discussed below. The operating improvements are the result of both increased revenues and enhanced margins. Increased revenues result from organic growth and from acquisitions that are accounted for under the purchase method of accounting. The Company enhances its margins through improved productivity and cost reductions in the ordinary course of business, unrelated to acquisition or divestiture activities. The Company regards charges that it incurs to reduce costs in the ordinary course of business as recurring charges, which are reflected in cost of sales and in selling, general and administrative expenses in the Consolidated Statements of Operations. When the Company makes an acquisition, the acquired company is immediately integrated with the Company's existing operations. Consequently, the Company does not separately track the financial results of acquired companies. The year-to-year sales comparisons that are presented below include estimates of year-to-year sales growth that exclude the effects of acquisitions. These estimates assume that the acquisitions were made at the beginning of the relevant fiscal periods. 79 SALES AND OPERATING PROFITS TELECOMMUNICATIONS AND ELECTRONICS The Company's Telecommunications and Electronics segment is comprised of: - Tyco Submarine Systems Ltd. ("TSSL"), which designs, manufactures, installs and maintains undersea fiber optic communications cable systems; - Tyco Electronics, including AMP, which designs and manufactures connectors, interconnection systems, touch screens and wireless systems, and Raychem, which develops and manufactures high-performance electronic components; and - Tyco Printed Circuit Group, which designs and manufactures printed circuits, backplanes and similar components. The AMP merger occurred in April 1999, but as required under the pooling of interests method of accounting, AMP's results have been included for all periods presented. The following table sets forth sales and operating profits and margins on the basis described above for the Telecommunications and Electronics segment:
(UNAUDITED) TWELVE MONTHS ENDED FISCAL 1999 FISCAL 1998 SEPTEMBER 30, 1997 ----------- --------------- ------------------ ($ IN MILLIONS) Sales................................ $7,711.2 $7,067.3 $6,304.9 Operating profits.................... $1,174.0 $ 835.8 $ 677.8 Operating margins.................... 15.2% 11.8% 10.8%
The 9.1% increase in sales in Fiscal 1999 over Fiscal 1998 for the Telecommunications and Electronics segment resulted in part from acquisitions. These included: the acquisition in May 1999 of Telecomunicaciones Marinas, S.A. ("Temasa"), included in TSSL; the acquisition in August 1999 of Raychem, included in Tyco Electronics; and the acquisition in July 1998 of Sigma Circuits, Inc., whose results were included in the Tyco Printed Circuit Group for all of Fiscal 1999, but only the final quarter of Fiscal 1998. Excluding the impact of Temasa, Raychem and Sigma Circuits, sales increased an estimated 5.1%. The 12.1% increase in sales in Fiscal 1998 over the twelve months ended September 30, 1997 was predominantly due to the acquisition of AT&T Corp.'s submarine systems business. The results of this business were included in the Company's operations for all of Fiscal 1998, but only from July 1997, the date of acquisition, in the 1997 period. Excluding the impact of this acquisition, sales increased an estimated 1.9%. The Telecommunications and Electronics segment also experienced organic growth in sales in Fiscal 1999 and Fiscal 1998 at TSSL and the Tyco Printed Circuit Group. This growth was offset in part by decreased sales at AMP. Prior to the Company's merger with AMP, AMP's sales had decreased every quarter, compared to the corresponding quarter in the prior year, since the quarter ended June 1997. AMP's pre-acquisition sales during the six months ended March 31, 1999 were $2,675.5 million, compared to sales of $2,843.6 million during the six months ended September 30, 1999. The 40.5% increase in operating profits in Fiscal 1999 compared with Fiscal 1998 was due to improved margins at AMP, the acquisition of Raychem, and higher sales volume at TSSL and the Tyco Printed Circuit Group. The improved operating margins in Fiscal 1999 compared with Fiscal 1998 were primarily due to the implementation of AMP's profit improvement plan, which was initiated in the fourth quarter of Fiscal 1998, cost reduction programs associated with the AMP merger, a pension curtailment/settlement gain and the acquisition of Raychem. For information on the implementation of the AMP profit improvement plan and the cost reduction programs related to the AMP merger, see Note 16 (1999 80 Charges and 1998 Charges) to the Consolidated Financial Statements. These improvements were partially offset by $253.4 million of certain costs in Fiscal 1999 at AMP prior to the merger with Tyco, including costs to defend the AlliedSignal Inc. tender offer, the write-off of inventory and other balance sheet write-offs and adjustments. The 23.3% increase in operating profits in Fiscal 1998 as compared with the twelve months ended September 30, 1997 was predominantly attributable to the inclusion of the operating results of the AT&T Corp.'s submarine systems business in all of Fiscal 1998 but only for the final three months of the 1997 period. The increase in operating margins in Fiscal 1998, compared with the 1997 period reflects higher incremental margins on increased sales at Tyco Printed Circuit Group. This was offset in part by slightly decreased margins at TSSL and AMP. HEALTHCARE AND SPECIALTY PRODUCTS The Company's Healthcare and Specialty Products segment is comprised of: - Tyco Healthcare, which manufactures a wide variety of disposable medical products, including woundcare products, syringes and needles, sutures and surgical staples, incontinence products, electrosurgical instruments and laparoscopic instruments; - Tyco Plastics and Adhesives, which manufactures flexible plastic packaging, plastic bags and sheeting, coated and laminated packaging materials, tapes and adhesives and plastic garment hangers; and - ADT Automotive, which provides auto redistribution services. The Company's merger with USSC, which is included in Tyco Healthcare, occurred in October 1998. As required under the pooling of interests method of accounting, USSC's results have been included for all periods presented. The following table sets forth sales and operating profits and margins on the basis described above for the Healthcare and Specialty Products segment:
(UNAUDITED) TWELVE MONTHS ENDED FISCAL 1999 FISCAL 1998 SEPTEMBER 30, 1997 ----------- ----------- ------------------- ($ IN MILLIONS) Sales................................. $5,742.7 $4,672.4 $3,733.9 Operating profits..................... $1,386.0 $ 481.8 $ 607.2 Operating margins..................... 24.1% 10.3% 16.3%
The 22.9% increase in sales in Fiscal 1999 over Fiscal 1998, and the 25.1% increase in Fiscal 1998 over the twelve months ended September 30, 1997, were primarily the result of increased sales of Tyco Healthcare and, to a lesser extent, of Tyco Plastics and Adhesives and ADT Automotive. The increases for Tyco Healthcare were due to acquisitions and, to a lesser extent, organic growth. The acquisitions primarily responsible for the sales increase in Fiscal 1999 included: Valleylab, which was acquired in January 1998 and included in results for all of Fiscal 1999, but only part of Fiscal 1998; Sherwood-Davis & Geck ("Sherwood"), which was acquired in February 1998 and included in results for all of Fiscal 1999, but only part of Fiscal 1998; Confab, which was acquired in April 1998 and included in results for all of Fiscal 1999, but only part of Fiscal 1998; and Graphic Controls Corporation, which was acquired in October 1998. Excluding the contributions of Valleylab, Sherwood, Confab and Graphic Controls, sales for the segment increased an estimated 5.1% in Fiscal 1999 over Fiscal 1998. 81 For Fiscal 1998, the acquisitions primarily responsible for the sales increase included Sherwood and Confab. Excluding the impact of these acquisitions, the sales increase for Fiscal 1998 over the twelve months ended September 30, 1997 was 5.8%. The substantial increase in operating profits and operating margins in Fiscal 1999 over Fiscal 1998 was due to improved margins and increased sales volume at Tyco Healthcare, whose margins were depressed in Fiscal 1998. The increase in Fiscal 1999 also reflected higher sales volume and better margins at Tyco Plastics and Adhesives and ADT Automotive. The Fiscal 1998 margins at Tyco Healthcare were brought down by fourth quarter results at USSC, which lowered sales of higher margin products to reduce excess inventory levels at distributors, and recorded increased costs, principally a $105.8 million accrual for special hospital education programs. Excluding these effects, management estimates that the increase in operating profits in Fiscal 1999 over Fiscal 1998 would have been 48.6% and the operating margin for the segment in Fiscal 1998 would have been 19.6%. The increase in margins for Fiscal 1999 above the 19.6% level was primarily attributable to the effects of the cost reduction programs associated with the USSC merger, including the termination of 1,282 employees and the consolidation or closure of 20 facilities. The effect of exiting businesses of Tyco Healthcare did not significantly impact operating margins or profits. For more information on the cost reduction programs related to the USSC merger, see Note 16 to the Consolidated Financial Statements. The decrease in operating profits and margins in Fiscal 1998 from the twelve months ended September 30, 1997 reflects decreased margins at USSC, particularly as a result of the factors impacting the Fiscal 1998 fourth quarter at USSC referred to above. The decreased USSC margins were partially offset in Fiscal 1998 by the acquisition of Sherwood, fixed cost reductions due to the integration of Sherwood, and increased volume and margins at Tyco Plastics and Adhesives and ADT Automotive. Excluding the effects of the above on sales and costs in the Fiscal 1998 fourth quarter at USSC, management estimates that operating profits would have increased by 53.7% in Fiscal 1998 as compared to the 1997 period. FIRE AND SECURITY SERVICES The Company's Fire and Security Services segment: - designs, installs and services a broad line of fire detection, prevention and suppression systems worldwide; - provides electronic security installation and monitoring services; and - manufactures and services fire extinguishers and related products. The following table sets forth sales and operating profits and margins on the basis described above for the Fire and Security Services segment:
(UNAUDITED) TWELVE MONTHS ENDED FISCAL 1999 FISCAL 1998 SEPTEMBER 30, 1997 ----------- ----------- ------------------- ($ IN MILLIONS) Sales................................. $5,534.0 $4,393.5 $3,832.0 Operating profits..................... $ 907.0 $ 630.6 $ 412.5 Operating margins..................... 16.4% 14.4% 10.8%
The 26.0% increase in sales in Fiscal 1999 over Fiscal 1998 reflected increased sales worldwide in both the Company's electronic security services and its fire protection businesses. The increases were due both to a higher volume of recurring service revenues and the effects of acquisitions in the security services business. The acquisitions included: Holmes Protection, acquired in February 1998 and included in results for all of Fiscal 1999, but only part of Fiscal 1998; CIPE S.A. and Wells Fargo Alarm, both acquired in May 1998 and included in results for all of Fiscal 1999, but only part of Fiscal 1998; and Entergy Security 82 Corporation and Alarmguard Holdings, acquired in January and February, 1999, respectively. Excluding the impact of these acquisitions, the sales increase for the segment in Fiscal 1999 was an estimated 15.4%. The 14.7% sales increase in Fiscal 1998 over the twelve months ended September 30, 1997 was due to increased worldwide sales in the electronic security services business and higher sales volume in the North American fire protection businesses. The increases reflect a higher volume of recurring service revenues and, to a lesser extent, the impact of the Fiscal 1998 acquisitions. Excluding the effects of Holmes, CIPE and Wells Fargo, the sales increase for the segment in Fiscal 1998 was an estimated 7.3%. The 43.8% increase in operating profits in Fiscal 1999 over Fiscal 1998 reflects the worldwide increase in service volume, both in security services and fire protection, including the higher margins associated with recurring monitoring revenue. The increase in operating margins in Fiscal 1999 was principally due to increased volume of higher margin service and inspection work in the North American fire protection operations; increased volume due to economic improvements in the Asia-Pacific region; higher incremental margins in the European security operations from additions to the customer base; and cost reductions related to acquisitions. The 52.9% increase in operating profits in Fiscal 1998 over the twelve months ended September 30, 1997 was due to increases in service volume, including recurring monitoring revenue, in security operations worldwide and fire protection operations in North America. The increase in operating margins in Fiscal 1998 was due principally to higher margins in the security business worldwide and, to a lesser extent, to improved margins in the European fire protection business and cost reductions related to acquisitions. FLOW CONTROL PRODUCTS The Company's Flow Control Products segment: - manufactures and distributes pipe, fittings, valves, valve actuators, couplings and related products which are used to transport, control and measure the flow of liquids and gases; - manufactures and distributes fire sprinkler devices, specialty valves, plastic pipe and fittings used in commercial, residential and industrial fire protection systems; and - provides engineering and consulting services focusing on the design, construction and operation of water and wastewater facilities. The following table sets forth sales and operating profits and margins on the basis described above for the Flow Control Products segment:
(UNAUDITED) TWELVE MONTHS ENDED FISCAL 1999 FISCAL 1998 SEPTEMBER 30, 1997 ----------- ----------- ------------------ ($ IN MILLIONS) Sales................................. $3,508.6 $2,928.5 $2,786.5 Operating profits..................... $ 605.5 $ 456.9 $ 373.0 Operating margins..................... 17.3% 15.6% 13.4%
The 19.8% sales increase in Fiscal 1999 over Fiscal 1998 reflects increased demand for valve products in Europe, increased sales at Earth Tech and the impact of acquisitions. These acquisitions included: Crosby Valve, acquired in July 1998 and included in results for all of Fiscal 1999, but only part of Fiscal 1998; Rust Environmental and Infrastructure, Inc., acquired by Earth Tech in September 1998 and included in results for all of Fiscal 1999, but less than a month in Fiscal 1998; and certain subsidiaries in the metals processing division of Glynwed International plc, acquired in March 1999. 83 During August 1999, the Company completed the sale of certain businesses within this segment, including The Mueller Company, a manufacturer of fire hydrants, waterworks, valves and other components, and portions of Grinnell Supply Sales and Manufacturing, a manufacturer and distributor of commodity fittings and related products. Excluding the impacts of these acquisitions and divestitures, sales increased an estimated 11.3%. The 5.1% sales increase in Fiscal 1998 over the twelve months ended September 30, 1997 reflects increased demand for valve products in both North America and Europe, higher volume of pipe products, including those sold by Grinnell, and, to a lesser extent, the acquisition of Crosby Valve. Excluding the effect of this acquisition, the sales increase for the segment in Fiscal 1998 was an estimated 4.7%. The 32.5% increase in operating profits in Fiscal 1999 over Fiscal 1998 was primarily due to increased sales in the European flow control operations, North American valve products and Earth Tech. The increase in operating margins was principally due to cost containment programs that improved margins in the Company's North American pipe products business and the worldwide valve operations. The gain on the sale of the businesses in this segment did not significantly impact operating profits and margins in Fiscal 1999. The 22.5% increase in operating profits in Fiscal 1998 over the twelve months ended September 30, 1997 was due primarily to increased volume in the North American and European valve product operations and, to a lesser extent, in the North American pipe products business. The increase in operating margins was principally due to cost containment programs that improved margins at the North American and European valve operations. The effect of changes in foreign exchange rates during Fiscal 1999, Fiscal 1998 and the twelve months ended September 30, 1997 was not material to the Company's sales and operating profits. CORPORATE EXPENSES Corporate expenses were $122.9 million in Fiscal 1999 compared to $68.3 million in Fiscal 1998 and $56.8 million in the twelve months ended September 30, 1997. These increases were due principally to higher compensation expense under the Company's equity-based, incentive compensation plans due in part to an increase in the market value of the Company's stock price in Fiscal 1999, and an increase in corporate staffing to support and monitor the Company's expanding businesses and operations. AMORTIZATION OF GOODWILL Amortization of goodwill, a non-cash charge, increased $84.3 million to $216.1 million in Fiscal 1999 compared with Fiscal 1998. Fiscal 1998 amortization of goodwill increased to $131.8 million from $90.0 million in the twelve months ended September 30, 1997. The increase in amortization of goodwill is due to the $6,923.3 million in consideration paid for acquisitions and acquisition related costs in Fiscal 1999, which resulted in goodwill and other intangibles of $5,807.9 million, and the $4,559.4 million in consideration paid for acquisitions and acquisition related costs in Fiscal 1998, which resulted in goodwill and other intangibles of $3,947.0 million. INTEREST EXPENSE, NET Interest expense, net, increased $240.3 million to $485.6 million in Fiscal 1999, as compared to Fiscal 1998, and increased $74.9 million to $245.3 million in Fiscal 1998, as compared to the twelve months ended September 30, 1997. These increases were due to higher average debt balances, as a result of monies borrowed to pay for acquisitions, partially offset by lower average interest rates. The weighted average rate of interest on all long-term debt during Fiscal 1999, Fiscal 1998 and Fiscal 1997 was 6.2%, 6.4% and 7.2%, respectively. 84 EXTRAORDINARY ITEMS Extraordinary items in Fiscal 1999, Fiscal 1998 and the twelve months ended September 30, 1997 included net losses amounting to $45.7 million, $2.4 million and $60.9 million, respectively, relating primarily to the Company's tender offers for debt and the write-off of net unamortized deferred financing costs related to the LYONs. Further details are provided in Notes 4 and 13 to the Consolidated Financial Statements. CUMULATIVE EFFECT OF ACCOUNTING CHANGES The cumulative effect of accounting changes during Fiscal 1997 of $15.5 million related to the change in accounting practices used by AMP to develop its inventory costs, including standardizing globally the definition of capacity used in determining overhead rates and changing its inventory costing methodology to include manufacturing engineering costs in inventory costs. INCOME TAX EXPENSE The effective income tax rate, excluding the impact related to merger, restructuring and other non-recurring charges, was 27.0% during Fiscal 1999 as compared to 30.6% in Fiscal 1998 and 32.3% in the twelve months ended September 30, 1997. The decreases in the effective income tax rates were primarily due to higher earnings in tax jurisdictions with lower income tax rates. Management believes that the Company will generate sufficient future income to realize the tax benefits related to its deferred tax assets. A valuation allowance has been maintained due to continued uncertainties of realization of certain tax benefits, primarily tax loss carryforwards. See Note 7 to the Consolidated Financial Statements. LIQUIDITY AND CAPITAL RESOURCES The following table shows the sources of the Company's cash flow from operating activities and the use of a portion of that cash in the Company's operations in Fiscal 1999. Management refers to the net amount of cash generated from operating activities less capital expenditures and dividends as "free cash flow."
1999 ---- (IN MILLIONS) Operating profit, before certain charges.................... $ 3,949.6 (1) Depreciation and amortization............................... 1,095.1 (2) Net increase in deferred income taxes....................... 334.3 Less: Net increase in working capital........................... (85.5)(3) Interest expense (net).................................... (485.6) Income tax expense........................................ (620.2) Restructuring expenditures................................ (633.6)(4) Other (net)............................................... (4.3) --------- Cash flow from operating activities......................... 3,549.8 Less: Capital expenditures...................................... (1,632.5) Dividends paid............................................ (187.9) --------- Free cash flow.............................................. $ 1,729.4 =========
- ------------------------------ (1) This amount is the sum of the operating profits of the four business segments as set forth above, less certain corporate expenses, and is before merger, restructuring and other non-recurring charges, charges for the impairment of long-lived assets, and goodwill amortization. 85 (2) This amount is the sum of depreciation of tangible property ($979.6 million) and amortization of intangible property other than goodwill ($115.5 million). (3) This amount is net of $50.0 million received on the sale of accounts receivable. (4) This amount is the sum of all cash paid out for (a) merger, restructuring and other non-recurring charges in connection with business combinations accounted for on a pooling of interests basis and (b) other restructuring and non-recurring charges taken by the pooled companies prior to their combination with the Company. In addition, during Fiscal 1999 the Company paid out $354.4 million in cash that was charged against reserves established in connection with acquisitions accounted for under the purchase accounting method. This amount is included in "Acquisition of businesses, net of cash acquired" in the Consolidated Statement of Cash Flows. Business combinations are accounted for either on a pooling of interests basis or under the purchase accounting method. In Fiscal 1999, the Company made two business combinations, USSC and AMP, that were required to be accounted for on a pooling of interests basis. Under pooling of interests accounting, the merged companies are treated as if they had always been part of the Company, and their financial statements are included in the Company's Consolidated Financial Statements for all periods presented. At the time of each pooling of interests transaction, the Company establishes a reserve for transaction costs and the costs that the Company expects to incur in integrating the merged company within the relevant Tyco business segment. By integrating merged companies with the Company's existing businesses, the Company expects to realize operating synergies and long-term cost savings. Integration costs, which relate primarily to termination of employees and the closure of facilities made redundant, are detailed in Note 16 to the Consolidated Financial Statements. Reserves for merger, restructuring and other non-recurring items are taken as a charge against current earnings at the time the reserves are established. Amounts expended for merger, restructuring and other non-recurring costs are charged against the reserves as they are paid out. If the amount of the reserves proves to be greater than the costs actually incurred, any excess is credited against merger, restructuring and other non-recurring charges in the Consolidated Statement of Operations in the period in which that determination is made. In Fiscal 1999, the Company established merger, restructuring and other non-recurring reserves of $434.9 million in connection with its merger with USSC and $841.8 million in connection with its merger with AMP. At the beginning of the fiscal year, there existed merger, restructuring and other non-recurring reserves of $303.7 million related to pooling of interests transactions consummated in prior years and other restructuring charges taken by the merged companies prior to their combination with the Company. During Fiscal 1999, the Company paid out $633.6 million in cash and incurred $478.5 million in non-cash charges that were charged against these reserves. Also in Fiscal 1999, the Company determined that $15.0 million of merger, restructuring and other non-recurring reserves established in prior years was not needed and deducted that amount from the merger, restructuring and other non-recurring charges for Fiscal 1999. At September 30, 1999, there remained $453.3 million of merger, restructuring and other non-recurring reserves on the Company's Consolidated Balance Sheet, of which $366.3 million is included in current liabilities and $87.0 million is included in long-term liabilities. The Company expects to pay out approximately $350.0 million in cash in Fiscal 2000 for merger, restructuring and other non-recurring expenses that will be charged against these reserves. All other business combination transactions completed in Fiscal 1999 were required to be accounted for under the purchase accounting method. At the time each purchase acquisition is made, the Company establishes a reserve for transaction costs and the costs of integrating each purchased company within the relevant Tyco business segment. The amounts of such reserves established in Fiscal 1999 are detailed in Note 3 to the Consolidated Financial Statements. These amounts are not charged against current earnings but are treated as additional purchase price consideration and have the effect of increasing the amount of goodwill recorded in connection with the respective acquisition. Indeed, management views these costs as the equivalent of additional purchase price consideration when it considers making an acquisition. If the 86 amount of the reserves proves to be in excess of costs actually incurred, any excess goes to reduce the goodwill account that was established at the time the acquisition was made. In Fiscal 1999, the Company made acquisitions that were accounted for under the purchase accounting method at an aggregate cost of $6,923.3 million. Of this amount, $4,546.8 million was paid in cash (net of cash acquired), $1,449.6 million was paid in the form of Tyco common shares, and the Company assumed $926.9 million in debt. In connection with these acquisitions, the Company established purchase accounting reserves of $525.4 million for transaction and integration costs. At the beginning of Fiscal 1999, purchase accounting reserves were $505.6 million as a result of purchase accounting transactions made in prior years. During Fiscal 1999, the Company paid out $354.4 million in cash and incurred $16.3 million in non-cash charges against the reserves established during and prior to Fiscal 1999. Also in Fiscal 1999, the Company determined that $90.0 million of purchase accounting reserves related to acquisitions prior to Fiscal 1999 were not needed and reversed that amount against goodwill. At September 30, 1999, there remained $570.3 million in purchase accounting reserves on the Company's Consolidated Balance sheet, of which $408.0 is included in current liabilities and $162.3 million is included in long-term liabilities. The Company expects to pay out approximately $350.0 million in cash in Fiscal 2000 that will be charged against these purchase accounting reserves. The following details the Fiscal 1999 capital expenditures and depreciation by segment:
CAPITAL EXPENDITURES DEPRECIATION ------------ ------------ (IN MILLIONS) Telecommunications and Electronics................... $ 488.5 $446.2 Healthcare and Specialty Products.................... 235.9(i) 179.3 Fire and Security Services........................... 746.3 262.2 Flow Control Products................................ 135.1 87.0 Corporate............................................ 26.7 4.9 -------- ------ Total................................................ $1,632.5 $979.6 ======== ======
(i) Excludes $234.0 million related to the purchase of leased property in connection with the merger with USSC. The Company continues to fund capital expenditures to improve the cost structure of its businesses, to invest in new processes and technology, and to maintain high quality production standards. The level of capital expenditures for the Fire and Security Services segment significantly exceeded, and is expected to continue to significantly exceed, depreciation due to the large volume growth of new residential subscriber systems capitalized. The level of capital expenditures in the other segments is expected to increase moderately in Fiscal 2000. The source of funds for capital expenditures is expected to be cash from operating activities. The provision for income taxes in the Consolidated Statement of Operations for Fiscal 1999 was $620.2 million, but the amount of income taxes paid (net of refunds) during the year was only $209.7 million. After adjustment for deferred income taxes of acquired companies and other items, the net increase in deferred income taxes was $334.3 million. The increase in deferred income taxes is attributable primarily to current utilization of deductions on restructuring, other non-recurring charges and purchase accounting spending, other timing differences between book and tax recognition of income and expense, utilization of net operating loss and credit carryforwards, and the tax benefits of stock option exercises. The net change in working capital, net of the effects of acquisitions and divestitures, was an increase of $85.5 million. These changes are set forth in detail in the Consolidated Statement of Cash Flows. The increase in working capital accounts is attributable to the higher level of business activity in Fiscal 1999 as reflected in the increased sales over the prior year. Management focuses on maximizing the cash flow from 87 its operating businesses and attempts to keep the working capital employed in the businesses to the minimum level required for efficient operations. In addition, the Company used $234.0 million of cash to purchase the USSC North Haven facilities and $637.8 million to purchase its own common shares. The Company repurchases its own shares from time to time in the open market to satisfy certain stock-based compensation arrangements, such as the exercise of stock options. In November 1999, the Company announced the authorization by its Board of Directors to reacquire up to 20 million of its common shares in the open market. The Company received proceeds of $926.8 million from the sale of certain businesses in the Flow Control Products and Healthcare and Specialty Products segments and $872.4 million from the exercise of common share options. The source of the cash used for acquisitions was primarily an increase in total debt and cash flows from operations. Goodwill and other intangible assets were $12,158.9 million at September 30, 1999, compared to $7,105.5 million at September 30, 1998. At September 30, 1999, the Company's total debt was $10,122.2 million, as compared to $6,239.7 million at September 30, 1998. This increase resulted principally from borrowings under the Company's commercial paper program, net proceeds of approximately $791.7 million from the issuance of private placement notes in October 1998, net proceeds received of approximately $1,173.7 million from the issuance of public debt in January 1999 and net proceeds received of approximately $2,080.3 million from the issuance of notes in August 1999. This increase was partially offset by the Company's tender offers for outstanding debt instruments with higher interest rates and the repayment of indebtedness under its bank credit agreement. For a full discussion of debt activity, see Note 4 to the Consolidated Financial Statements. Shareholders' equity was $12,332.6 million, or $7.30 per share, at September 30, 1999, compared to $9,901.8 million, or $6.11 per share, at September 30, 1998. The increase in shareholders' equity was due primarily to the issuance of approximately 32.4 million common shares valued at approximately $1,449.6 million for the acquisition of Raychem, net income of $985.3 million and proceeds of $872.4 million from the exercise of options and warrants. Total debt as a percent of total capitalization (total debt and shareholders' equity) was 45% at September 30, 1999 and 39% at September 30, 1998. Net debt (total debt less cash and cash equivalents) as a percent of total capitalization was 37% at September 30, 1999 and 32% at September 30, 1998. The Company believes that its cash flow from operations, together with its existing credit facilities and other credit arrangements, is adequate to fund its operations. BACKLOG At September 30, 1999, the Company had a backlog of unfilled orders of approximately $7,581.1 million, compared to a backlog of approximately $5,118.2 million at September 30, 1998. Backlog by industry segment is as follows (in millions):
SEPTEMBER 30, ----------------------- 1999 1998 ---------- ---------- Telecommunications and Electronics................. $4,974.5 $2,951.1 Flow Control Products.............................. 1,516.5 1,129.2 Fire and Security Services......................... 986.6 965.4 Healthcare and Specialty Products.................. 103.5 72.5 -------- -------- $7,581.1 $5,118.2 ======== ========
Backlog increased in each of the Company's business segments. Within the Telecommunications and Electronics segment, backlog increased principally due to contracts awarded to TSSL due to continually increasing demands for undersea fiber optic cable capacity. Within the Flow Control Products segment, 88 backlog increased principally due to an increase in backlog at Earth Tech related to its water and wastewater facilities contracts. Within the Fire and Security Services segment, backlog increased principally due to an increase in backlog at the Company's worldwide security and European fire protection businesses. Within the Healthcare and Specialty Products segment, the increase resulted principally from an increase in demand for the products sold by Tyco Plastics and Adhesives. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is subject to market risk associated with changes in interest rates, foreign currency exchanges rates and certain commodity prices. In order to manage the volatility relating to its more significant market risks, the Company enters into forward foreign currency exchange contracts, cross-currency swaps, foreign currency options, commodity swaps and interest rate swaps. The Company does not anticipate any material changes in its primary market risk exposures in Fiscal 2000. The Company utilizes risk management procedures and controls in executing derivative financial instrument transactions. The Company does 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 AA long-term credit rating. 89 INTEREST RATE SENSITIVITY The table below provides information about the Company's financial instruments that are sensitive to changes in interest rates, including long-term investments, debt obligations, interest rate swaps and currency swaps. For long-term investments, the table presents cash flows of principal payments (in millions) related to a subordinated, non-collateralized zero coupon loan note, based on the amortized cost of the investment as of September 30, 1999, and the associated fair value interest rate discount. For debt obligations, the table presents cash flows of principal repayment (in millions) and weighted average interest rates. For interest rate swaps and cross-currency swaps, the table presents notional amounts (in millions) 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.
FISCAL FISCAL FISCAL FISCAL FISCAL 2000 2001 2002 2003 2004 -------- -------- -------- -------- -------- Long-term investment: Fixed Rate (British Pound)............ -- -- -- -- 120.5 Interest rate....................... 11.5% Total debt: Fixed rate (US$)...................... 15.8 769.3 1,302.7 10.0 169.8 Average interest rate............... 7.8% 6.1% 6.8% 7.1% 6.7% Fixed rate (Yen)...................... 127.3 17.3 34.3 18.3 6.9 Average interest rate............... 1.7% 2.3% 2.2% 2.4% 2.0% Variable rate (US$)................... 865.0 1,984.7 44.1 22.3 10.7 Average interest rate (i)........... 6.0% 5.7% 4.2% 4.4% 4.4% Variable rate (Yen)................... 4.7 5.7 14.1 5.6 3.3 Average interest rate (i)........... 2.3% 2.3% 2.3% 2.3% 2.3% Interest rate swap: Fixed to variable (US$)............... -- -- 1,000.0 -- -- Average pay rate.................... 5.7% Average receive rate (i)............ 6.9% Cross-currency swap: Receive US$ / Pay Japanese Yen (ii)... -- -- -- -- 150.0 Pay Japanese Yen interest............. 6.9 6.9 6.9 6.9 3.4 Receive US$ interest.................. 10.1 10.1 10.1 10.1 5.0 Pay rate............................ 4.6% 4.6% 4.6% 4.6% 4.6% Receive rate........................ 6.7% 6.7% 6.7% 6.7% 6.7% Receive US$ / Pay British Pound....... 208.2 -- -- -- -- Pay British Pound interest............ 6.7 -- -- -- -- Receive US$ interest.................. 6.9 -- -- -- -- Average pay rate.................... 5.5% Average receive rate................ 5.6% Receive Japanese Yen / Pay US$........ 89.7 -- -- -- -- Pay variable (US$) rate (ii)........ 6.1% Receive fixed (Yen) rate............ 0.6% FAIR THEREAFTER TOTAL VALUE ---------- -------- -------- Long-term investment: Fixed Rate (British Pound)............ -- 120.5 120.5 Interest rate....................... Total debt: Fixed rate (US$)...................... 4,518.8 6,786.4 6,782.8 Average interest rate............... 6.5% Fixed rate (Yen)...................... 71.0 275.1 275.4 Average interest rate............... 4.5% Variable rate (US$)................... 87.3 3,014.1 3,015.6 Average interest rate (i)........... 3.9% Variable rate (Yen)................... 13.2 46.6 46.6 Average interest rate (i)........... 2.3% Interest rate swap: Fixed to variable (US$)............... 800.0 1,800.0 (66.9) Average pay rate.................... 5.8% Average receive rate (i)............ 6.1% Cross-currency swap: Receive US$ / Pay Japanese Yen (ii)... -- 150.0 (22.2)(iii) Pay Japanese Yen interest............. -- 31.0 Receive US$ interest.................. -- 45.4 Pay rate............................ Receive rate........................ Receive US$ / Pay British Pound....... -- 208.2 0.0 (iii) Pay British Pound interest............ -- 6.7 Receive US$ interest.................. -- 6.9 Average pay rate.................... Average receive rate................ Receive Japanese Yen / Pay US$........ -- 89.7 (0.8)(iii) Pay variable (US$) rate (ii)........ Receive fixed (Yen) rate............
- ------------------------------ (i) Weighted average variable interest rates are based on applicable rates as of September 30, 1999 per the terms of the contracts of the related financial instruments. (ii) In March 1994, AMP entered into a cross-currency swap with a financial institution to hedge a portion of its net investment in its Japanese subsidiary. (iii) The fair values of the cross-currency swaps included in the table reflect the portion of the fair values of the contracts that are attributable to the interest component of the contracts. 90 EXCHANGE RATE SENSITIVITY The table below provides information about the Company's financial instruments that are sensitive to foreign currency exchange rates. These instruments include long-term investments, debt obligations, cross-currency swaps, forward foreign currency exchange contracts and currency options. For long-term investments, the table presents cash flows of principal payments (in millions) related to a subordinated, non-collateralized zero coupon loan note, based on the amortized cost of the investment as of September 30, 1999, and the associated fair value interest rate discount. For debt obligations, the table presents cash flows of principal repayment (in millions) and weighted average interest rates. For cross-currency swaps and forward foreign currency exchange contracts, the table presents notional amounts (in millions) and weighted average contractual exchange rates. For currency options, the table presents notional amounts (in millions) and weighted average contractual strike prices. 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.
FISCAL FISCAL FISCAL FISCAL FISCAL 2000 2001 2002 2003 2004 -------- -------- -------- -------- -------- Long-term investment: Fixed Rate (British Pound)............ -- -- -- -- 120.5 Interest rate....................... 11.5% Long-term debt: Fixed rate (Yen)...................... 127.3 17.3 34.3 18.3 6.9 Average interest rate............... 1.7% 2.3% 2.2% 2.4% 2.0% Variable rate (Yen)................... 4.7 5.7 14.1 5.6 3.3 Average interest rate (i)........... 2.3% 2.3% 2.3% 2.3% 2.3% Cross-currency swap: Receive US$ / Pay Japanese Yen (ii)... -- -- -- -- 150.0 Contractual exchange rate (Yen/US$)......................... -- -- -- -- 105.95 Receive US$ / Pay British Pound....... 208.2 -- -- -- -- Average contractual exchange rate... 1.58 -- -- -- -- Receive Japanese Yen / Pay US$........ 89.7 -- -- -- -- Contractual exchange rate (Yen/US$)......................... 111.50 Forward contracts: Receive US$ / Pay Australian Dollar... 224.3 -- -- -- -- Average contractual exchange rate... 0.65 -- -- -- -- Receive US$ / Pay British Pound....... 766.7 -- -- -- -- Average contractual exchange rate... 1.59 -- -- -- -- Receive US$ / Pay Canadian Dollar..... 49.6 -- -- -- -- Average contractual exchange rate... 0.67 -- -- -- -- Receive US$ / Pay Euro................ 1,534.1 -- -- -- -- Average contractual exchange rate... 1.07 -- -- -- -- Receive US$ / Pay Japanese Yen........ 142.6 -- -- -- -- Average contractual exchange rate (Yen/US$)......................... 103.62 -- -- -- -- Currency options: Receive US$ / Pay Euro................ 100.0 -- -- -- -- Average strike price................ 1.00 -- -- -- -- Receive US$ / Pay Japanese Yen........ 60.0 -- -- -- -- Average strike price (Yen/US$)...... 119.75 -- -- -- -- FAIR THEREAFTER TOTAL VALUE ---------- -------- -------- Long-term investment: Fixed Rate (British Pound)............ -- 120.5 120.5 Interest rate....................... Long-term debt: Fixed rate (Yen)...................... 71.0 275.1 275.4 Average interest rate............... 4.5% Variable rate (Yen)................... 13.2 46.6 46.6 Average interest rate (i)........... 2.3% Cross-currency swap: Receive US$ / Pay Japanese Yen (ii)... -- 150.0 0.4 (iii) Contractual exchange rate (Yen/US$)......................... -- Receive US$ / Pay British Pound....... -- 208.2 (8.8)(iii) Average contractual exchange rate... -- Receive Japanese Yen / Pay US$........ -- 89.7 4.4 (iii) Contractual exchange rate (Yen/US$)......................... Forward contracts: Receive US$ / Pay Australian Dollar... -- 224.3 (0.7) Average contractual exchange rate... -- Receive US$ / Pay British Pound....... -- 766.7 (26.3) Average contractual exchange rate... -- Receive US$ / Pay Canadian Dollar..... -- 49.6 (1.2) Average contractual exchange rate... -- Receive US$ / Pay Euro................ -- 1,534.1 (23.0) Average contractual exchange rate... -- Receive US$ / Pay Japanese Yen........ -- 142.6 (1.5) Average contractual exchange rate (Yen/US$)......................... -- Currency options: Receive US$ / Pay Euro................ -- 100.0 0.4 Average strike price................ -- Receive US$ / Pay Japanese Yen........ -- 60.0 0.3 Average strike price (Yen/US$)...... --
- ------------------------------ (i) Weighted average variable interest rates are based on applicable rates as of September 30, 1999 per the terms of the contracts of the related financial instruments. (ii) In March 1994, AMP entered into a cross-currency swap with a financial institution to hedge a portion of its net investment in its Japanese subsidiary. (iii) The fair values of cross-currency swaps included in the table reflect the portion of the fair values of the contracts that are attributable to the foreign currency component of the contracts. 91 COMMODITY PRICE SENSITIVITY The table below provides information about the Company's financial instruments that are sensitive to changes in commodities prices. Total contract dollar amounts (in millions) and notional quantity amounts are presented for forward commodity contracts. Contract amounts are used to calculate the contractual payments quantity of the commodity to be exchanged under the contracts.
FISCAL FISCAL FISCAL FISCAL FISCAL FAIR 2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE -------- -------- -------- -------- -------- ---------- -------- -------- Forward contracts: Copper Contract amount (US$)............... 25.7 18.6 2.3 -- -- -- 46.6 6.8 Contract quantity (in 000 metric tons)............................. 16.1 11.6 1.4 -- -- -- 29.1 Gold Contract amount (US$)............... 33.0 20.6 -- -- -- -- 53.6 5.6 Contract quantity (in 000 ounces)... 120.0 75.0 -- -- -- -- 195.0 Zinc Contract amount (US$)............... 3.1 0.7 -- -- -- -- 3.8 0.6 Contract quantity (in 000 metric tons)............................. 3.1 0.7 -- -- -- -- 3.8
YEAR 2000 COMPLIANCE Year 2000 compliance programs and systems modifications were initiated by the Company in Fiscal 1997 in an attempt to ensure that these systems and key processes will remain functional. The Company has assessed the potential impact of the Year 2000 on date-sensitive information in computer software programs and operating systems in its product development, financial business systems and administrative functions, and is implementing strategies to avoid adverse implications. This objective is expected to be achieved either by modifying present systems using existing internal and external programming resources or by installing new systems, and by monitoring supplier, customer and other third-party readiness. Review of the systems affecting the Company is progressing and the Company is continuing its implementation strategy. The costs of the Company's Year 2000 program to date have not been material, and the Company does not anticipate that the costs of any required modifications to its information technology or embedded technology systems will have a material adverse effect on its financial position, results of operations or liquidity. In the event that the Company or material third parties fail to complete their Year 2000 compliance programs successfully and on time, the Company's ability to operate its businesses, service customers, bill or collect its revenues or purchase products in a timely manner could be adversely affected. Although there can be no assurance that the conversion of the Company's systems will be successful or that the Company's key third-party relationships will have successful conversion programs, management does not expect that any such failure would have a material adverse effect on the financial position, results of operations or liquidity of the Company. The Company has day-to-day operational contingency plans, and management has updated these plans for possible Year 2000 specific operational requirements. ACCOUNTING AND TECHNICAL PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or liability measured at its fair value. SFAS No. 133 also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 1999, the FASB issued SFAS No. 137 which defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company is currently analyzing this new standard. 92 In September 1999, the FASB issued an Exposure Draft on the accounting for "Business Combinations and Intangible Assets." If the provisions of the Exposure Draft as currently written were to be issued as a new accounting standard, the Company would no longer be able to use the pooling of interests method of accounting. All future acquisition activity would be accounted for using the purchase method which could result in an increase in goodwill and the associated amortization of goodwill above current levels. CONVERSION TO THE EURO On January 1, 1999, 11 European countries began using the "euro" as their single currency, while still continuing to use their own notes and coins for cash transactions. Banknotes and coins denominated in euros are expected to be put in circulation and local notes and coins will cease to be legal tender during 2002. Tyco conducts a significant amount of business in these countries. Introduction of the euro has not resulted in any material adverse impact upon the Company. FORWARD LOOKING INFORMATION Certain statements in this report are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All forward looking statements involve risks and uncertainties. In particular, any statement contained herein, in press releases, written statements or other documents filed with the Securities and Exchange Commission, or in the Company's communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, regarding the consummation and benefits of future acquisitions, as well as expectations with respect to future sales, earnings, cash flows, operating efficiencies and product expansion, are subject to known and unknown risks, uncertainties and contingencies, many of which are beyond the control of the Company, which may cause actual results, performance or achievements to differ materially from anticipated results, performances or achievements. Factors that might affect such forward looking statements include, among other things, overall economic and business conditions; the demand for the Company's goods and services; competitive factors in the industries in which the Company competes; changes in government regulation; changes in tax requirements (including tax rate changes, new tax laws and revised tax law interpretations); interest rate fluctuations and other capital market conditions, including foreign currency rate fluctuations; economic and political conditions in international markets, including governmental changes and restrictions on the ability to transfer capital across borders; the ability to achieve anticipated synergies and other cost savings in connection with acquisitions; the timing, impact and other uncertainties of future acquisitions; and the Company's ability and its customers' and suppliers' ability to replace, modify or upgrade computer programs in order to adequately address the Year 2000 issue. 93 TYCO INTERNATIONAL LTD. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (IN MILLIONS)
ADDITIONS BALANCE AT CHARGED ACQUISITIONS, BEGINNING TO DISPOSALS, BALANCE AT DESCRIPTION OF YEAR INCOME AND OTHER DEDUCTIONS END OF YEAR - ----------- ---------- --------- ------------- ---------- ----------- Allowances for Doubtful Accounts: Nine Months Ended September 30, 1997..... $135.5 $ 37.6 $ 21.8 $ (36.0) $158.9 Fiscal Year Ended September 30, 1998..... 158.9 95.7 107.9 (44.9) 317.6 Fiscal Year Ended September 30, 1999..... 317.6 141.8 (9.2) (120.4) 329.8
94 EX-4.18 2 EX-4.18 EXHIBIT 4.18 TYCO INTERNATIONAL GROUP S.A. TYCO INTERNATIONAL LTD. SUPPLEMENTAL INDENTURE NO. 9 $500,000,000 Floating Rate Notes due 2000 THIS SUPPLEMENTAL INDENTURE NO. 9, dated as of August 31, 1999, among TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Company"), TYCO INTERNATIONAL LTD., a Bermuda company ("Tyco"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Company and Tyco have heretofore executed and delivered to the Trustee an Indenture, dated as of June 9, 1998 (the "Indenture"), providing for the issuance from time to time of one or more series of the Company's Securities; WHEREAS, Article Seven of the Indenture provides for various matters with respect to any series of Securities issued under the Indenture to be established in an indenture supplemental to the Indenture; and WHEREAS, Section 7.1(e) of the Indenture provides that the Company, Tyco and the Trustee may enter into an indenture supplemental to the Indenture to establish the form or terms of Securities of any series as permitted by Sections 2.1 and 2.4 of the Indenture. NOW THEREFORE: In consideration of the premises and the issuance of the series of Securities provided for herein, the Company, Tyco and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective Holders of the Securities of such series as follows: ARTICLE ONE RELATION TO INDENTURE; DEFINITIONS; RULES OF CONSTRUCTION SECTION 1.1 RELATION TO INDENTURE. This Supplemental Indenture No. 9 constitutes an integral part of the Indenture. SECTION 1.2 DEFINITIONS. For all purposes of this Supplemental Indenture No. 9, the following terms shall have the respective meanings set forth in this section. In the event of a conflict with the definition of terms in the Indenture, the definitions in this Supplemental Indenture shall control. "APPLICABLE PROCEDURES" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear or Cedel, as the case may be, that apply to such transfer or exchange. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "CEDEL" means Cedelbank, or any successor. "CUSTODIAN" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "DEFINITIVE NOTE" means a certificated Note in the form of Exhibit A hereto, registered in the name of the Holder thereof and issued in accordance with Section 2.9 hereof, except that such Note shall not bear the Global Note Legend. "EUROCLEAR" means the Euroclear Clearance System or any successor. "FLOATING RATE INTEREST PERIOD" means the period beginning on and including August 31, 1999 to but excluding the first Floating Rate Interest Payment Date and each successive period from and including a Floating Rate Interest Payment Date to but excluding the next Floating Rate Interest Payment Date. "GLOBAL NOTES" means, individually and collectively, any of the Notes issued as global notes under the Indenture. "GLOBAL NOTE LEGEND" means the legend set forth in Section 2.9(f)(ii), which is required to be placed on all Global Notes issued under the Indenture. "INDIRECT PARTICIPANT" means a Person who holds a beneficial interest in a Global Note through a Participant. "INITIAL PURCHASER" means each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., Lehman Brothers Inc., Morgan Stanley & Co. Incorporated, Credit Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Banc of America Securities LLC, Chase Securities Inc., Commerzbank Capital Markets Corporation, Warburg Dillon Read LLC, Salomon Smith Barney Inc., The Williams Capital Group, L.P., and Blaylock & Partners, L.P. "INTEREST RESET DATE" means the first day of any Floating Rate Interest Period. "LONDON BUSINESS DAY" means any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. "NON-U.S. PERSON" means a Person who is not a U.S. Person. "NOTES" has the meaning assigned to it in Section 2.1 hereof. "PARTICIPANT" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "PRIVATE PLACEMENT LEGEND" means the legend set forth in Section 2.9(f)(i) to be placed on all Notes issued under the Indenture except where otherwise permitted by the provisions of the Indenture. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "REGISTRAR" means the registrar and transfer agent of the Company in respect of the Notes which shall initially be the Trustee hereunder. The Company may appoint additional Co-Registrars or terminate the appointment of existing Registrars at any time. "REGULATION S" means Regulation S promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. "REGULATION S GLOBAL NOTE" means a global Note in the form of Exhibit A hereto bearing the Global Note Legend and the legend in Section 2.9(f)(iii) hereof and deposited with or on behalf of the Depositary and registered in the name of the Depositary or its nominee. "RESTRICTED DEFINITIVE NOTE" means a Definitive Note bearing the Private Placement Legend. "RESTRICTED PERIOD" means the period beginning on the date hereof and ending on the date of receipt by the Trustee of an Officers' Certificate from the Company certifying as to the end of the end of the 2 40-day restricted period as defined in Regulation S and any other matters required by the Applicable Procedures or Regulation S. "RULE 144" means Rule 144 promulgated under the Securities Act, any successor rule or regulation to substantially the same effect or any additional rule or regulation under the Securities Act that permits transfers of restricted securities without registration such that the transferee thereof holds securities that are freely tradeable under the Securities Act. "RULE 144A" means Rule 144A promulgated under the Securities Act or any successor rule or regulation to substantially the same effect. "RULE 144A GLOBAL NOTE" means a global Note in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee. "RULE 903" means Rule 903 promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. "RULE 904" means Rule 904 promulgated the Securities Act or any successor rule or regulation substantially to the same effect. "SEC" means the United States Securities and Exchange Commission. "SECURITIES ACT" means the United States Securities Act of 1933, as amended. "TELERATE PAGE 3750" means the display designated as page "3750' on Bridge Telerate, Inc., or such other page as may replace the 3750 page on that service or such other service or services as may be nominated by the British Bankers' Association for the purpose of displaying London interbank offered rates for U.S. dollar deposits. "UNRESTRICTED GLOBAL NOTE" means a global Note (other than a Regulation S Global Note) in the form of Exhibit A attached hereto that bears the Global Note Legend, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "UNRESTRICTED DEFINITIVE NOTE" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "U.S. PERSON" means a U.S. Person as defined in Rule 902(o) under the Securities Act. SECTION 1.3 RULES OF CONSTRUCTION. For all purposes of this Supplemental Indenture No. 9: (a) capitalized terms used herein without definition shall have the meanings specified in the Indenture; (b) all references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of this Supplemental Indenture No. 9; and (c) the terms "HEREIN", "HEREOF", "HEREUNDER" and other words of similar import refer to this Supplemental Indenture No. 9. ARTICLE TWO THE SERIES OF NOTES SECTION 2.1 TITLE OF THE SECURITIES. There shall be a series of Securities designated as the "Floating Rate Notes due 2000" (the "Notes"). 3 SECTION 2.2 FORM AND DATING. (a) GENERAL. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of the Indenture Supplement No. 9, and the Company, Tyco and the Trustee, by their execution and delivery of the Indenture Supplement No. 9, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of the Indenture Supplement No. 9, the provisions of the Indenture Supplement No. 9 shall govern and be controlling. The Company hereby designates The Depository Trust Company as the initial Depositary for the Global Notes. (b) RULE 144A GLOBAL NOTES. Notes offered and sold to QIBs shall be issued initially in the form of the Rule 144A Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee at its New York office, as custodian for the Depositary, duly executed by the Company and Tyco and authenticated by the Trustee as hereinafter provided. Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time as conclusively reflected in the books and records of the Trustee endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemption. Any change in the principal amount of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee as the custodian for the Depositary, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.9 hereof. (c) REGULATION S GLOBAL NOTES. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel, duly executed by the Company and Tyco and authenticated by the Trustee as hereinafter provided. During the Restricted Period, interests in the Regulation S Global Note must be held through Euroclear or Cedel, if the holders are Participants in such systems, or indirectly through organizations that are Participants in such systems. Following the termination of the Restricted Period, beneficial interests in the Regulation S Global Note may be held, directly or indirectly, in the account of any Participant of the Depositary. (d) EUROCLEAR AND CEDEL PROCEDURES APPLICABLE. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel shall be applicable to transfers of beneficial interests in the Regulation S Global Note that are held by Participants through Euroclear or Cedel. SECTION 2.3 LIMITATION ON AGGREGATE PRINCIPAL AMOUNT. The aggregate principal amount of the Notes shall not initially exceed $500,000,000. 4 SECTION 2.4 PRINCIPAL PAYMENT DATE. Subject to the provisions of Section 2.7 hereof and Articles Four and Twelve of the Indenture, the principal of the Notes shall be become due and payable in a single installment on September 5, 2000. SECTION 2.5 INTEREST AND INTEREST RATES. Interest on the Notes shall be payable quarterly on March 5, June 5, September 5 and December 5 of each year, beginning December 5, 1999 (each, a "FLOATING RATE INTEREST PAYMENT DATE"); PROVIDED, HOWEVER, that if a Floating Rate Interest Payment Date would otherwise be a day that is not a Business Day, such Floating Rate Interest Payment Date shall be the next succeeding Business Day, and no additional interest shall be paid in respect of such intervening period. The per annum rate of interest for each Floating Rate Interest Period will be (1) LIBOR on the second London Business Day preceding the Interest Reset Date for such Floating Rate Interest Period, referred to as the "Interest Determination Date", plus (2) .60%. The Company will determine LIBOR for each Floating Rate Interest Period in accordance with the following provisions: (i) On each Interest Determination Date, the Company will ascertain the offered rate for three-month deposits in U.S. dollars in the London interbank market, which appears on the Telerate Page 3750 as of 11:00 a.m. (London time) on such Interest Determination Date. (ii) If such rate does not appear on the Telerate Page 3750 or the Telerate Page 3750 is unavailable, the Company will request four major banks in the London interbank market, referred to as the "Reference Banks" to provide the Company with their offered quotation, expressed as a rate per annum for three-month deposits in U.S. dollars to leading banks in the London interbank market, in a principal amount equal to an amount of not less than $1 million that is representative for a single transaction in such market at such time, at approximately 11:00 a.m. (London time) on the Interest Determination Date. If at least two such quotations are provided, LIBOR in respect of that interest determination date will be the arithmetic mean of such quotations. (iii) If less than two of the Reference Banks provide the Company with such offered quotations, LIBOR in respect of that Interest Determination Date will be the arithmetic mean of the rates quoted by three major banks in The City of New York selected by the Company at approximately 11:00 a.m., New York City time, on that Interest Determination Date for three-month loans in U.S. dollars to leading European banks, in a principal amount equal to an amount of not less than $1 million that is representative for a single transaction in such market at such time; provided, however, that if the banks the Company so selected are not quoting as mentioned in this sentence, LIBOR will be LIBOR in effect on such Interest Determination Date. The interest payable on each Floating Rate Interest Payment Date shall be the amount of interest accrued from August 31, 1999 or from the most recent Floating Rate Interest Payment Date to which interest has been paid or duly provided for, as the case may be, until the principal amount of the Notes has been paid or duly provided for. Interest on the Notes will be calculated on the basis of the actual number of days in the applicable Floating Rate Interest Period divided by 360. The interest payable on any Note which is punctually paid or duly provided for on any Floating Rate Interest Payment Date shall be paid to the Person in whose name such Note is registered at the close of business on February 18, May 21, August 21 and November 20 (in each case, whether or not a Business Day), respectively, immediately preceding such Floating Rate Interest Payment Date (each, a "Regular Record Date"). Interest payable on any Note which is not punctually paid or duly provided for on any Floating Rate Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name such Note is registered at the close of business on the Regular Record Date immediately preceding such Floating Rate Interest Payment Date, and such interest shall instead be paid to the Person in whose name such Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Company to the Holders of the Notes mailed by first-class mail not less than 5 15 days prior to such record date to their last addresses as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. SECTION 2.6 PLACE OF PAYMENT. The place of payment where the Notes may be presented or surrendered for payment, where the principal of and interest and any other payments due on the Notes are payable, where the Notes may be surrendered for registration of transfer or exchange and where notices and demands to and upon the Company in respect of the Notes and the Indenture may be served shall be in the Borough of Manhattan, The City of New York, and the office or agency maintained by the Company for such purpose shall initially be the Corporate Trust Office of the Trustee. At the option of the Company, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Company, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date. SECTION 2.7 (a) ADDITIONAL AMOUNTS; CERTAIN TAX PROVISIONS. For purposes of the Notes, Sections 12.1 and 12.2 of the Indenture are amended in their entirety to read as follows: "SECTION 12.1 REDEMPTION UPON CHANGES IN WITHHOLDING TAXES. The Notes may be redeemed, as a whole but not in part, at the election of the Company, upon not less than 30 nor more than 60 days notice (which notice shall be irrevocable), at a redemption price equal to 100% of the principal amount thereof, together with accrued interest, if any, to the redemption date and Additional Amounts (as defined in Section 12.2), if any, if as a result of any amendment to, or change in, the laws or regulations of Luxembourg or Bermuda or any political subdivision or taxing authority thereof or therein having power to tax (a "Taxing Authority"), or any change in the application or official interpretation of such laws or regulations which amendment or change is announced and becomes effective after the date the Notes are issued, the Company or Tyco has become or will become obligated to pay Additional Amounts, on the next date on which any amount would be payable with respect to the Notes, and such obligation cannot be avoided by the use of reasonable measures available to the Company or Tyco, as the case may be; PROVIDED, HOWEVER, that (a) no such notice of redemption may be given earlier than 60 days prior to the earliest date on which the Company or Tyco, as the case may be, would be obligated to pay such Additional Amounts, and (b) at the time such notice of redemption is given, such obligation to pay such Additional Amounts remains in effect. Prior to the giving of any notice of redemption described in this paragraph, the Company shall deliver to the Trustee (i)(I) a certificate signed by two directors of the Company stating that the obligation to pay Additional Amounts cannot be avoided by the Company taking reasonable measures available to it or (II) a certificate signed by two executive officers of Tyco stating that the obligation to pay Additional Amounts cannot be avoided by Tyco taking reasonable measures available to it, as the case may be, and (ii) a written opinion of independent legal counsel to the Company or Tyco, as the case may be, of recognized standing to the effect that the Company or Tyco, as the case may be, has or will become obligated to pay Additional Amounts as a result of a change, amendment, official interpretation or application described above and that the Company or Tyco, as the case may be, cannot avoid the payment of such Additional Amounts by taking reasonable measures available to it. SECTION 12.2 PAYMENT OF ADDITIONAL AMOUNTS. All payments made by the Company, Tyco and any other Guarantor under or with respect to the Notes and the Guarantees will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, levies, imposts, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Taxing Authority ("Taxes"), unless the Company, Tyco or such Guarantor, as the case may be, is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. In the event that the Company, Tyco or such Guarantor is required to so withhold or deduct any amount for or on account of any Taxes from any payment made under or with respect to the Notes or the Guarantees, as the case may be, the Company, Tyco or such Guarantor, as the case may be, will 6 pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder of Notes (including Additional Amounts) after such withholding or deduction will equal the amount that such Holder would have received if such Taxes had not been required to be withheld or deducted; PROVIDED that no Additional Amounts will be payable with respect to a payment made to a Holder of Notes to the extent: (a) that any such Taxes would not have been so imposed but for the existence of any present or former connection between such Holder and the Taxing Authority imposing such Taxes (other than the mere receipt of such payment, acquisition, ownership or disposition of such Notes or the exercise or enforcement of rights under such Notes, the Guarantees or the Indenture); (b) of any estate, inheritance, gift, sales, transfer, or personal property Tax imposed with respect to such Notes, except as otherwise provided herein; (c) that any such Taxes would not have been so imposed but for the presentation of such Notes or Guarantees (where presentation is required) for payment on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever is later, except to the extent that the beneficiary or Holder thereof would have been entitled to Additional Amounts had the Notes or Guarantees been presented for payment on any date during such 30-day period; or (d) that such Holder would not be liable or subject to such withholding or deduction of Taxes but for the failure to make a valid declaration of non-residence or other similar claim for exemption, if (x) the making of such declaration or claim is required or imposed by statute, treaty, regulation, ruling or administrative practice of the relevant Taxing Authority as a precondition to an exemption from, or reduction in, the relevant Taxes, and (y) at least 60 days prior to the first payment date with respect to which the Company, Tyco or such Guarantor shall apply this clause (d), the Company, Tyco or such Guarantor shall have notified all Holders of Notes in writing that they shall be required to provide such declaration or claim. The Company, Tyco or such Guarantor, as the case may be, will also (i) make such withholding or deduction of Taxes and (ii) remit the full amount of Taxes so deducted or withheld to the relevant Taxing Authority in accordance with all applicable laws. The Company, Tyco or such Guarantor, as the case may be, will use its reasonable best efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes. The Company, Tyco or such Guarantor, as the case may be, will, upon request, make available to the Holders of the Notes, within 60 days after the date the payment of any Taxes so deducted or withheld is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by the Company, Tyco or such Guarantor or if, notwithstanding the Company's, Tyco's or such Guarantor's efforts to obtain such receipts, the same are not obtainable, other evidence of such payments by the Company, Tyco or such Guarantor. At least 30 days prior to each date on which any payment under or with respect to the Notes or Guarantees is due and payable, if the Company, Tyco or such Guarantor will be obligated to pay Additional Amounts with respect to such payment, the Company, Tyco or such Guarantor will deliver to the Trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable, the amounts so payable and will set forth such other information as is necessary to enable such Trustee to pay such Additional Amounts to Holders of Notes on the payment date. In addition, the Company, Tyco or such Guarantor, as the case may be, will pay any stamp, issue, registration, documentary or other similar taxes and duties, including interest, penalties and Additional Amounts with respect thereto, payable in Luxembourg, Bermuda or the United States or any political subdivision or taxing authority of or in the foregoing in respect of the creation, issue, offering, enforcement, redemption or retirement of the Notes or the Guarantees. 7 The foregoing provisions shall survive any termination of the discharge of the Indenture and shall apply mutatis mutandis to any jurisdiction in which any successor Person to the Company, Tyco or such Guarantor, as the case may be, is organized or is engaged in business for tax purposes or any political subdivisions or taxing authority or agency thereof or therein; PROVIDED, HOWEVER, the date on which such Person becomes a successor to the Company, Tyco or such Guarantor, as the case may be, shall be substituted for the date on which the series of Notes was issued. Whenever in the Indenture, the Notes or the Guarantees there is mentioned, in any context, the payment of principal (and premium, if any), redemption price, interest or any other amount payable under or with respect to any Notes or Guarantees, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof." (b) NO SINKING FUND. The Company shall have no obligation to redeem or purchase the Notes pursuant to any sinking fund or analogous provisions or upon the happening of any specified event or at the option of any Holder of the Notes. SECTION 2.8 CURRENCY. Principal and interest on the Notes shall be payable in United States dollars. SECTION 2.9 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary; or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Global Note be exchanged by the Company for Definitive Notes prior to the expiration of the Restricted Period. Global Notes may also be, subject to compliance with the terms of this Section 2.9, exchanged for Definitive Notes upon the request of any holder of Notes if an Event of Default has occurred and is continuing for a period of at least 180 days. Upon the occurrence of any of the preceding events, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.10 and 2.12 of the Indenture. (b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of the Indenture and the Applicable Procedures. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) TRANSFER OF BENEFICIAL INTERESTS IN THE SAME TYPE OF GLOBAL NOTE. Beneficial interests in any Rule 144A Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Rule 144A Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend. Beneficial interests in any Regulation S Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Regulation S Global Note; provided, however, that prior to the expiration of the Restricted Period beneficial 8 interests in the Regulation S Global Note may only be transferred in accordance with the Applicable Procedures of Euroclear and Cedel. Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.9(b)(i). (ii) ALL OTHER TRANSFERS AND EXCHANGES OF BENEFICIAL INTERESTS IN GLOBAL NOTES. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.9(b)(i) above, and, subject to any other requirement in this Section 2.9, the transferor of such beneficial interest must deliver to the Registrar (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in a Global Note of another type in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B), subject to Section 2.9(a), (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the exchange; provided that in no event shall Definitive Notes be issued upon the exchange of beneficial interests in the Regulation S Global Note prior to the expiration of the Restricted Period. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained herein and in the Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.9(g) hereof. (iii) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE FOR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE. A beneficial interest in Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. If any such transfer is effected at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests so transferred. (iv) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS TO AND FROM REGULATION S GLOBAL NOTES. (A) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A REGULATION S GLOBAL NOTE PRIOR TO THE TERMINATION OF THE RESTRICTED PERIOD FOR BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE.A beneficial interest in any Regulation S Global Note may be exchanged by any holder thereof for a beneficial interest in a Rule 144A Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above, and (y) the holder of the beneficial interest in the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. 9 (B) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A REGULATION S GLOBAL NOTE FOLLOWING THE TERMINATION OF THE RESTRICTED PERIOD FOR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE. A beneficial interest in any Regulation S Global Note following the termination of the Restricted Period may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 4(b) or Exhibit C with the certification set forth in paragraph 1, as applicable, completed. (C) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE FOR BENEFICIAL INTERESTS IN A REGULATION S GLOBAL NOTE. A beneficial interest in any Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in a Regulation S Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in a Regulation S Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the beneficial interest in the Rule 144A Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. (c) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN GLOBAL NOTES FOR DEFINITIVE NOTES. (i) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES TO RESTRICTED DEFINITIVE NOTES. If any holder of a beneficial interest in a Rule 144A Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note in the circumstances set forth in Section 2.9(a) hereof, such Definitive Note shall be subject to all restrictions on transfer contained therein and shall be issued, upon receipt by each of the Trustee and the Registrar of Exhibit C with the certification set forth in paragraph 2'(a) completed; (ii) intentionally omitted. (iii) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES OR REGULATION S GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. Subject to Section 2.9(a), a holder of a beneficial interest in a Rule 144A Global Note or Regulation S Global Note may exchange such beneficial interest for an Unrestricted Definitive Note only if such exchange is in accordance with the Applicable Procedures, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a)(ii) is completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel is furnished to the Trustee and Registrar to the effect that the exchange is permitted, and that upon transfer the Notes will not be restricted under the Securities Act. (iv) BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. A holder of a beneficial interest in an Unrestricted Global Note may, in the circumstances described in Section 2.9(a), exchange such beneficial interest for an Unrestricted Definitive Note. Any transfer pursuant to this Section 2.9(c) shall satisfy the requirements of Section 2.9(b)(ii). In any such case, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.9(h) hereof, and the Company shall execute and the Trustee, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Restricted Definitive Note issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.9(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect 10 Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. (d) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR BENEFICIAL INTERESTS IN GLOBAL NOTES. (i) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Rule 144A Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, then, upon receipt by each of the Trustee and the Registrar of a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed, the Trustee shall cancel the Restricted Definitive Note and increase or cause to be increased the aggregate principal amount of the appropriate Global Note. (ii) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel is furnished to the Trustee and Registrar to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted under the Securities Act. (iii) UNRESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time if permitted by the Applicable Procedures and applicable law. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. (iv) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN REGULATION S GLOBAL NOTES. A beneficial interest in any Restricted Definitive Note may be exchanged by any holder thereof who is a non-U.S. Person for a beneficial interest in a Regulation S Global Note or transferred to a Non U.S. Person who takes delivery thereof in the form of a beneficial interest in a Regulation S Global Note, if (x) the holder of the Restricted Definitive Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed and (y) if the Trustee and the Registrar so request or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Trustee and the Registrar is furnished to the Trustee and the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act. If any such exchange or transfer from a Definitive Note to a beneficial interest in a Global Note is effected at a time when a Global Note of the appropriate type has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 5 of the Indenture the Trustee shall authenticate one or more Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR DEFINITIVE NOTES. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.9(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly 11 executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.9(e). (i) RESTRICTED DEFINITIVE NOTES TO RESTRICTED DEFINITIVE NOTES. Any restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a letter in the form of Exhibit B with certification set forth in paragraph 1 completed, (B) if the transfer will be made to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or 904 under the Securities, then the transferor must deliver a letter in the form of Exhibit B with the certification set forth in paragraph 2 completed; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a letter in the form of Exhibit B with the certification set forth in paragraph 3 completed, as well as an Opinion of Counsel in form and substance acceptable to the Trustee. (ii) RESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel is furnished to the Trustee and Registrar to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted under the Securities Act. (iii) UNRESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) LEGENDS. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under the Indenture unless specifically stated otherwise in the applicable provisions of the Indenture. (i) PRIVATE PLACEMENT LEGEND. (A) Except as permitted by subparagraph (B) below, each Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO (A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES 12 ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C) OR (D) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT." (B) Notwithstanding the foregoing, any Note which is (i) a Regulation S Global Note (and any Note issued in exchange therefor or substitution thereof after the Restricted Period), or (ii) a Note which has been transferred in accordance with Rule 144, provided that in such case an Opinion of Counsel is delivered which states that the Note does not have to bear the Private Placement Legend in the cases where such opinion is required under this Indenture, shall not bear the Private Placement Legend. (ii) GLOBAL NOTE LEGEND. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN CERTAIN CIRCUMSTANCES SET FORTH IN SUPPLEMENTAL INDENTURE NO. 9, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) Regulation S Global Note Legend. The Regulation S Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). DURING THE RESTRICTED PERIOD, INTERESTS IN THIS NOTE MAY ONLY BE HELD THROUGH EUROCLEAR AND CEDEL." (g) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 of the Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such 13 Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such increase. SECTION 2.10 DEFEASANCE AND COVENANT DEFEASANCE. The provisions of Article Nine of the Indenture shall apply to the Notes. SECTION 2.11 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITY HOLDERS. In addition to provisions specified in Section 7.2 of the Indenture, Section 7.2 is supplemented to include the following as clause (c) at the end of the first paragraph thereof and deleting the ", or" immediately prior to clause (b): "or (c) change the currency denomination of Securities of any series, including the currency denomination of any interest or other payments thereon, without the consent of the Holders of each Security so affected." SECTION 2.12 DEFINITION OF PERMITTED SUBSIDIARY INDEBTEDNESS. Clause (vi) of the definition of "Permitted Subsidiary Indebtedness" in Section 1.1 of the Indenture is amended by inserting after the phrase "Acquired Indebtedness that by its terms is not" the following phrase: ", at the time it becomes Acquired Indebtedness or within 180 days thereafter," SECTION 2.13 DEFINITION OF RESTRICTED SUBSIDIARY. The definition of "Restricted Subsidiary" in Section 1.1 of the Indenture is amended in its entirety to read as follows: "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which owns or leases a Principal Property. ARTICLE THREE MISCELLANEOUS PROVISIONS SECTION 3.1 RATIFICATION. The Indenture, as supplemented and amended by this Supplemental Indenture No. 9, is in all respects hereby adopted, ratified and confirmed. SECTION 3.2 COUNTERPARTS. This Supplemental Indenture No. 9 may be executed in any number of counterparts, each of which when so executed shall be deemed an original; and all such counterparts shall together constitute but one and the same instrument. SECTION 3.3 AMENDMENTS. This Supplemental Indenture No. 9 may be amended by the Company and Tyco without the consent of any holder of the Notes in order for the restrictions on transfer contained herein to be in compliance with applicable law or the Applicable Procedures. SECTION 3.4 APPLICABLE PROCEDURES. Notwithstanding anything else herein, the Company shall not be required to permit a transfer to a global note that is not permitted by the Applicable Procedures. SECTION 3.5 GOVERNING LAW THIS SUPPLEMENTAL INDENTURE NO. 9 AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. 14 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 9 to be duly executed as of the day and year first written above. TYCO INTERNATIONAL GROUP S.A. By: ----------------------------------------- Name: Title: TYCO INTERNATIONAL LTD. By: ----------------------------------------- Name: Title: THE BANK OF NEW YORK, TRUSTEE By: ----------------------------------------- Name: Title:
15 EX-4.19 3 EX-4.19 EXHIBIT 4.19 TYCO INTERNATIONAL GROUP S.A. TYCO INTERNATIONAL LTD. SUPPLEMENTAL INDENTURE NO. 10 $500,000,000 Floating Rate Notes due 2001 THIS SUPPLEMENTAL INDENTURE NO. 10, dated as of August 31, 1999, among TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Company"), TYCO INTERNATIONAL LTD., a Bermuda company ("Tyco"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Company and Tyco have heretofore executed and delivered to the Trustee an Indenture, dated as of June 9, 1998 (the "Indenture"), providing for the issuance from time to time of one or more series of the Company's Securities; WHEREAS, Article Seven of the Indenture provides for various matters with respect to any series of Securities issued under the Indenture to be established in an indenture supplemental to the Indenture; and WHEREAS, Section 7.1(e) of the Indenture provides that the Company, Tyco and the Trustee may enter into an indenture supplemental to the Indenture to establish the form or terms of Securities of any series as permitted by Sections 2.1 and 2.4 of the Indenture. NOW THEREFORE: In consideration of the premises and the issuance of the series of Securities provided for herein, the Company, Tyco and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective Holders of the Securities of such series as follows: ARTICLE ONE RELATION TO INDENTURE; DEFINITIONS; RULES OF CONSTRUCTION SECTION 1.1 RELATION TO INDENTURE. This Supplemental Indenture No. 10 constitutes an integral part of the Indenture. SECTION 1.2 DEFINITIONS. For all purposes of this Supplemental Indenture No. 10, the following terms shall have the respective meanings set forth in this section. In the event of a conflict with the definition of terms in the Indenture, the definitions in this Supplemental Indenture shall control. "APPLICABLE PROCEDURES" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear or Cedel, as the case may be, that apply to such transfer or exchange. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "CEDEL" means Cedelbank or any successor. "CUSTODIAN" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "DEFINITIVE NOTE" means a certificated Note in the form of Exhibit A hereto, registered in the name of the Holder thereof and issued in accordance with Section 2.9 hereof, except that such Note shall not bear the Global Note Legend. "EUROCLEAR" means the Euroclear Clearance System or any successor. "FLOATING RATE INTEREST PERIOD" means the period beginning on and including August 31, 1999 to but excluding the first Floating Rate Interest Payment Date and each successive period from and including a Floating Rate Interest Payment Date to but excluding the next Floating Rate Interest Payment Date. "GLOBAL NOTES" means, individually and collectively, any of the Notes issued as global notes under the Indenture. "GLOBAL NOTE LEGEND" means the legend set forth in Section 2.9(f)(ii), which is required to be placed on all Global Notes issued under the Indenture. "INDIRECT PARTICIPANT" means a Person who holds a beneficial interest in a Global Note through a Participant. "INITIAL PURCHASER" means each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., Lehman Brothers Inc., Morgan Stanley & Co. Incorporated, Credit Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Banc of America Securities LLC, Chase Securities Inc., Commerzbank Capital Markets Corporation, Warburg Dillon Read LLC, Salomon Smith Barney Inc., The Williams Capital Group, L.P., and Blaylock & Partners, L.P. "INTEREST RESET DATE" means the first day of any Floating Rate Interest Period. "LONDON BUSINESS DAY" means any day on which dealings in deposits in U.S. dollars are transacted in the London interbank market. "NON-U.S. PERSON" means a Person who is not a U.S. Person. "NOTES" has the meaning assigned to it in Section 2.1 hereof. "PARTICIPANT" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "PRIVATE PLACEMENT LEGEND" means the legend set forth in Section 2.9(f)(i) to be placed on all Notes issued under the Indenture except where otherwise permitted by the provisions of the Indenture. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "REGISTRAR" means the registrar and transfer agent of the Company in respect of the Notes which shall initially be by the Trustee hereunder. The Company may appoint additional Co-Registrars or terminate the appointment of existing Registrars at any time. "REGULATION S" means Regulation S promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. "REGULATION S GLOBAL NOTE" means a global Note in the form of Exhibit A hereto bearing the Global Note Legend and the legend in Section 2.9(f)(iii) hereof and deposited with or on behalf of the Depositary and registered in the name of the Depositary or its nominee. "RESTRICTED DEFINITIVE NOTE" means a Definitive Note bearing the Private Placement Legend. "RESTRICTED PERIOD" means the period beginning on the date hereof and ending on the date of receipt by the Trustee of an Officers' Certificate from the Company certifying as to the end of the end of the 40-day restricted period as defined in Regulation S and any other matters required by the Applicable Procedures or Regulation S. "RULE 144" means Rule 144 promulgated under the Securities Act, any successor rule or regulation to substantially the same effect or any additional rule or regulation under the Securities Act that permits 2 transfers of restricted securities without registration such that the transferee thereof holds securities that are freely tradeable under the Securities Act. "RULE 144A" means Rule 144A promulgated under the Securities Act or any successor rule or regulation to substantially the same effect. "RULE 144A GLOBAL NOTE" means a global Note in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee. "RULE 903" means Rule 903 promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. "RULE 904" means Rule 904 promulgated the Securities Act or any successor rule or regulation substantially to the same effect. "SEC" means the United States Securities and Exchange Commission. "SECURITIES ACT" means the United States Securities Act of 1933, as amended. "TELERATE PAGE 3750" means the display designated as page '3750' on Bridge Telerate, Inc., or such other page as may replace the 3750 page on that service or such other service or services as may be nominated by the British Bankers' Association for the purpose of displaying London interbank offered rates for U.S. dollar deposits. "UNRESTRICTED GLOBAL NOTE" means a global Note (other than a Regulation S Global Note) in the form of Exhibit A attached hereto that bears the Global Note Legend, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "UNRESTRICTED DEFINITIVE NOTE" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "U.S. PERSON" means a U.S. Person as defined in Rule 902(o) under the Securities Act. SECTION 1.3 RULES OF CONSTRUCTION. For all purposes of this Supplemental Indenture No. 10: (a) capitalized terms used herein without definition shall have the meanings specified in the Indenture; (b) all references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of this Supplemental Indenture No. 10; and (c) the terms "HEREIN", "HEREOF", "HEREUNDER" and other words of similar import refer to this Supplemental Indenture No. 10. ARTICLE TWO THE SERIES OF NOTES SECTION 2.1 TITLE OF THE SECURITIES. There shall be a series of Securities designated as the "Floating Rate Notes due 2001" (the "Notes"). SECTION 2.2 FORM AND DATING. (a) GENERAL. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or 3 usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of the Indenture Supplement No. 10, and the Company, Tyco and the Trustee, by their execution and delivery of the Indenture Supplement No. 10, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of the Indenture Supplement No. 10, the provisions of the Indenture Supplement No. 10 shall govern and be controlling. The Company hereby designates the Depository Trust Company as the initial Depositary for the Global Notes. (b) RULE 144A GLOBAL NOTES. Notes offered and sold to QIBs shall be issued initially in the form of the Rule 144A Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee at its New York office, as custodian for the Depositary, duly executed by the Company and Tyco and authenticated by the Trustee as hereinafter provided. Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time as conclusively reflected in the books and records of the Trustee endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemption. Any change in the principal amount of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee as the custodian for the Depositary, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.9 hereof. (c) REGULATION S GLOBAL NOTES. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel, duly executed by the Company and Tyco and authenticated by the Trustee as hereinafter provided. During the Restricted Period, interests in the Regulation S Global Note must be held through Euroclear or Cedel, if the holders are Participants in such systems, or indirectly through organizations that are Participants in such systems. Following the termination of the Restricted Period, beneficial interests in the Regulation S Global Note may be held, directly or indirectly, in the account of any Participant of the Depositary. (d) EUROCLEAR AND CEDEL PROCEDURES APPLICABLE. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel shall be applicable to transfers of beneficial interests in the Regulation S Global Note that are held by Participants through Euroclear or Cedel. SECTION 2.3 LIMITATION ON AGGREGATE PRINCIPAL AMOUNT. The aggregate principal amount of the Notes shall not initially exceed $500,000,000. SECTION 2.4 PRINCIPAL PAYMENT DATE. Subject to the provisions of Section 2.7 hereof and Articles Four and Twelve of the Indenture, the principal of the Notes shall be become due and payable in a single installment on September 5, 2001. 4 SECTION 2.5 INTEREST AND INTEREST RATES. Interest on the Notes shall be payable quarterly on March 5, June 5, September 5 and December 5 of each year, beginning December 5, 1999 (each, a "FLOATING RATE INTEREST PAYMENT DATE"); PROVIDED, HOWEVER, that if a Floating Rate Interest Payment Date would otherwise be a day that is not a Business Day, such Floating Rate Interest Payment Date shall be the next succeeding Business Day, and no additional interest shall be paid in respect of such intervening period. The per annum rate of interest for each Floating Rate Interest Period will be (1) LIBOR on the second London Business Day preceding the Interest Reset Date for such Floating Rate Interest Period, referred to as the "Interest Determination Date", plus (2) .70%. The Company will determine LIBOR for each Floating Rate Interest Period in accordance with the following provisions: (i) On each Interest Determination Date, the Company will ascertain the offered rate for three-month deposits in U.S. dollars in the London interbank market, which appears on the Telerate Page 3750 as of 11:00 a.m. (London time) on such Interest Determination Date. (ii) If such rate does not appear on the Telerate Page 3750 or the Telerate Page 3750 is unavailable, the Company will request four major banks in the London interbank market, referred to as the "Reference Banks" to provide the Company with their offered quotation, expressed as a rate per annum for three-month deposits in U.S. dollars to leading banks in the London interbank market, in a principal amount equal to an amount of not less than $1 million that is representative for a single transaction in such market at such time, at approximately 11:00 a.m. (London time) on the Interest Determination Date. If at least two such quotations are provided, LIBOR in respect of that interest determination date will be the arithmetic mean of such quotations. (iii) If less than two of the Reference Banks provide the Company with such offered quotations, LIBOR in respect of that Interest Determination Date will be the arithmetic mean of the rates quoted by three major banks in The City of New York selected by the Company at approximately 11:00 a.m., New York City time, on that Interest Determination Date for three-month loans in U.S. dollars to leading European banks, in a principal amount equal to an amount of not less than $1 million that is representative for a single transaction in such market at such time; provided, however, that if the banks the Company so selected are not quoting as mentioned in this sentence, LIBOR will be LIBOR in effect on such Interest Determination Date. The interest payable on each Floating Rate Interest Payment Date shall be the amount of interest accrued from August 31, 1999 or from the most recent Floating Rate Interest Payment Date to which interest has been paid or duly provided for, as the case may be, until the principal amount of the Notes has been paid or duly provided for. Interest on the Notes will be calculated on the basis of the actual number of days in the applicable Floating Rate Interest Period divided by 360. The interest payable on any Note which is punctually paid or duly provided for on any Floating Rate Interest Payment Date shall be paid to the Person in whose name such Note is registered at the close of business on February 18, May 21, August 21 and November 20 (in each case, whether or not a Business Day), respectively, immediately preceding such Floating Rate Interest Payment Date (each, a "Regular Record Date"). Interest payable on any Note which is not punctually paid or duly provided for on any Floating Rate Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name such Note is registered at the close of business on the Regular Record Date immediately preceding such Floating Rate Interest Payment Date, and such interest shall instead be paid to the Person in whose name such Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Company to the Holders of the Notes mailed by first-class mail not less than 15 days prior to such record date to their last addresses as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. 5 SECTION 2.6 PLACE OF PAYMENT. The place of payment where the Notes may be presented or surrendered for payment, where the principal of and interest and any other payments due on the Notes are payable, where the Notes may be surrendered for registration of transfer or exchange and where notices and demands to and upon the Company in respect of the Notes and the Indenture may be served shall be in the Borough of Manhattan, The City of New York, and the office or agency maintained by the Company for such purpose shall initially be the Corporate Trust Office of the Trustee. At the option of the Company, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Company, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date. SECTION 2.7. (a) ADDITIONAL AMOUNTS; CERTAIN TAX PROVISIONS. For purposes of the Notes, Sections 12.1 and 12.2 of the Indenture are amended in their entirety to read as follows: "SECTION 12.1. Redemption Upon Changes In Withholding Taxes. The Notes may be redeemed, as a whole but not in part, at the election of the Company, upon not less than 30 nor more than 60 days notice (which notice shall be irrevocable), at a redemption price equal to 100% of the principal amount thereof, together with accrued interest, if any, to the redemption date and Additional Amounts (as defined in Section 12.2), if any, if as a result of any amendment to, or change in, the laws or regulations of Luxembourg or Bermuda or any political subdivision or taxing authority thereof or therein having power to tax (a "Taxing Authority"), or any change in the application or official interpretation of such laws or regulations which amendment or change is announced and becomes effective after the date the Notes are issued, the Company or Tyco has become or will become obligated to pay Additional Amounts, on the next date on which any amount would be payable with respect to the Notes, and such obligation cannot be avoided by the use of reasonable measures available to the Company or Tyco, as the case may be; PROVIDED, HOWEVER, that (a) no such notice of redemption may be given earlier than 60 days prior to the earliest date on which the Company or Tyco, as the case may be, would be obligated to pay such Additional Amounts, and (b) at the time such notice of redemption is given, such obligation to pay such Additional Amounts remains in effect. Prior to the giving of any notice of redemption described in this paragraph, the Company shall deliver to the Trustee (i)(I) a certificate signed by two directors of the Company stating that the obligation to pay Additional Amounts cannot be avoided by the Company taking reasonable measures available to it or (II) a certificate signed by two executive officers of Tyco stating that the obligation to pay Additional Amounts cannot be avoided by Tyco taking reasonable measures available to it, as the case may be, and (ii) a written opinion of independent legal counsel to the Company or Tyco, as the case may be, of recognized standing to the effect that the Company or Tyco, as the case may be, has or will become obligated to pay Additional Amounts as a result of a change, amendment, official interpretation or application described above and that the Company or Tyco, as the case may be, cannot avoid the payment of such Additional Amounts by taking reasonable measures available to it. SECTION 12.2. Payment Of Additional Amounts. All payments made by the Company, Tyco and any other Guarantor under or with respect to the Notes and the Guarantees will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, levies, imposts, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Taxing Authority ("Taxes"), unless the Company, Tyco or such Guarantor, as the case may be, is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. In the event that the Company, Tyco or such Guarantor is required to so withhold or deduct any amount for or on account of any Taxes from any payment made under or with respect to the Notes or the Guarantees, as the case may be, the Company, Tyco or such Guarantor, as the case may be, will pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder of Notes (including Additional Amounts) after such withholding or deduction will equal the amount that such Holder would have received if such Taxes had not been required 6 to be withheld or deducted; PROVIDED that no Additional Amounts will be payable with respect to a payment made to a Holder of Notes to the extent: (a) that any such Taxes would not have been so imposed but for the existence of any present or former connection between such Holder and the Taxing Authority imposing such Taxes (other than the mere receipt of such payment, acquisition, ownership or disposition of such Notes or the exercise or enforcement of rights under such Notes, the Guarantees or the Indenture); (b) of any estate, inheritance, gift, sales, transfer, or personal property Tax imposed with respect to such Notes, except as otherwise provided herein; (c) that any such Taxes would not have been so imposed but for the presentation of such Notes or Guarantees (where presentation is required) for payment on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever is later, except to the extent that the beneficiary or Holder thereof would have been entitled to Additional Amounts had the Notes or Guarantees been presented for payment on any date during such 30-day period; or (d) that such Holder would not be liable or subject to such withholding or deduction of Taxes but for the failure to make a valid declaration of non-residence or other similar claim for exemption, if (x) the making of such declaration or claim is required or imposed by statute, treaty, regulation, ruling or administrative practice of the relevant Taxing Authority as a precondition to an exemption from, or reduction in, the relevant Taxes, and (y) at least 60 days prior to the first payment date with respect to which the Company, Tyco or such Guarantor shall apply this clause (d), the Company, Tyco or such Guarantor shall have notified all Holders of Notes in writing that they shall be required to provide such declaration or claim. The Company, Tyco or such Guarantor, as the case may be, will also (i) make such withholding or deduction of Taxes and (ii) remit the full amount of Taxes so deducted or withheld to the relevant Taxing Authority in accordance with all applicable laws. The Company, Tyco or such Guarantor, as the case may be, will use its reasonable best efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes. The Company, Tyco or such Guarantor, as the case may be, will, upon request, make available to the Holders of the Notes, within 60 days after the date the payment of any Taxes so deducted or withheld is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by the Company, Tyco or such Guarantor or if, notwithstanding the Company's, Tyco's or such Guarantor's efforts to obtain such receipts, the same are not obtainable, other evidence of such payments by the Company, Tyco or such Guarantor. At least 30 days prior to each date on which any payment under or with respect to the Notes or Guarantees is due and payable, if the Company, Tyco or such Guarantor will be obligated to pay Additional Amounts with respect to such payment, the Company, Tyco or such Guarantor will deliver to the Trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable, the amounts so payable and will set forth such other information as is necessary to enable such Trustee to pay such Additional Amounts to Holders of Notes on the payment date. In addition, the Company, Tyco or such Guarantor, as the case may be, will pay any stamp, issue, registration, documentary or other similar taxes and duties, including interest, penalties and Additional Amounts with respect thereto, payable in Luxembourg, Bermuda or the United States or any political subdivision or taxing authority of or in the foregoing in respect of the creation, issue, offering, enforcement, redemption or retirement of the Notes or the Guarantees. The foregoing provisions shall survive any termination of the discharge of the Indenture and shall apply mutatis mutandis to any jurisdiction in which any successor Person to the Company, Tyco or such Guarantor, as the case may be, is organized or is engaged in business for tax purposes or any 7 political subdivisions or taxing authority or agency thereof or therein; PROVIDED, HOWEVER, the date on which such Person becomes a successor to the Company, Tyco or such Guarantor, as the case may be, shall be substituted for the date on which the series of Notes was issued. Whenever in the Indenture, the Notes or the Guarantees there is mentioned, in any context, the payment of principal (and premium, if any), redemption price, interest or any other amount payable under or with respect to any Notes or Guarantees, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof." (b) NO SINKING FUND. The Company shall have no obligation to redeem or purchase the Notes pursuant to any sinking fund or analogous provisions or upon the happening of any specified event or at the option of any Holder of the Notes. SECTION 2.8 CURRENCY. Principal and interest on the Notes shall be payable in United States dollars. SECTION 2.9 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary; or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Global Note be exchanged by the Company for Definitive Notes prior to the expiration of the Restricted Period. Global Notes may also be, subject to compliance with the terms of this Section 2.9, exchanged for Definitive Notes upon the request of any holder of Notes if an Event of Default has occurred and is continuing for a period of at least 180 days. Upon the occurrence of any of the preceding events, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.10 and 2.12 of the Indenture. (b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of the Indenture and the Applicable Procedures. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) TRANSFER OF BENEFICIAL INTERESTS IN THE SAME TYPE OF GLOBAL NOTE. Beneficial interests in any Rule 144A Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Rule 144A Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend. Beneficial interests in any Regulation S Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Regulation S Global Note; provided, however, that prior to the expiration of the Restricted Period beneficial interests in the Regulation S Global Note may only be transferred in accordance with the Applicable Procedures of Euroclear and Cedel. Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted 8 Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.9(b)(i). (ii) ALL OTHER TRANSFERS AND EXCHANGES OF BENEFICIAL INTERESTS IN GLOBAL NOTES. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.9(b)(i) above, and, subject to any other requirement in this Section 2.9, the transferor of such beneficial interest must deliver to the Registrar (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in a Global Note of another type in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B), subject to Section 2.9(a), (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the exchange; provided that in no event shall Definitive Notes be issued upon the exchange of beneficial interests in the Regulation S Global Note prior to the expiration of the Restricted Period. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained herein and in the Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.9(g) hereof. (iii) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE FOR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE. A beneficial interest in Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. If any such transfer is effected at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests so transferred. (iv) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS TO AND FROM REGULATION S GLOBAL NOTES. (A) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A REGULATION S GLOBAL NOTE PRIOR TO THE TERMINATION OF THE RESTRICTED PERIOD FOR BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE. A beneficial interest in any Regulation S Global Note may be exchanged by any holder thereof for a beneficial interest in a Rule 144A Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above, and (y) the holder of the beneficial interest in the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. (B) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A REGULATION S GLOBAL NOTE FOLLOWING THE TERMINATION OF THE RESTRICTED PERIOD FOR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE. A beneficial interest in any Regulation S Global Note following the termination of the Restricted 9 Period may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 4(b) or Exhibit C with the certification set forth in paragraph 1, as applicable, completed. (C) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE FOR BENEFICIAL INTERESTS IN A REGULATION S GLOBAL NOTE. A beneficial interest in any Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in a Regulation S Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in a Regulation S Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the beneficial interest in the Rule 144A Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. (c) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN GLOBAL NOTES FOR DEFINITIVE NOTES. (i) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES TO RESTRICTED DEFINITIVE NOTES. If any holder of a beneficial interest in a Rule 144A Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note in the circumstances set forth in Section 2.9(a) hereof, such Definitive Note shall be subject to all restrictions on transfer contained therein and shall be issued, upon receipt by each of the Trustee and the Registrar of Exhibit C with the certification set forth in paragraph 2`(a) completed; (ii) intentionally omitted. (iii) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES OR REGULATION S GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. Subject to Section 2.9(a), a holder of a beneficial interest in a Rule 144A Global Note or Regulation S Global Note may exchange such beneficial interest for an Unrestricted Definitive Note only if such exchange is in accordance with the Applicable Procedures, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a)(ii) is completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the exchange is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iv) BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. A holder of a beneficial interest in an Unrestricted Global Note may, in the circumstances described in Section 2.9(a), exchange such beneficial interest for an Unrestricted Definitive Note. Any transfer pursuant to this Section 2.9(c) shall satisfy the requirements of Section 2.9(b)(ii). In any such case, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.9(h) hereof, and the Company shall execute and the Trustee, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Restricted Definitive Note issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.9(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. (d) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR BENEFICIAL INTERESTS IN GLOBAL NOTES. 10 (i) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Rule 144A Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, then, upon receipt by each of the Trustee and the Registrar of a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed, the Trustee shall cancel the Restricted Definitive Note and increase or cause to be increased the aggregate principal amount of the appropriate Global Note. (ii) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iii) UNRESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time if permitted by the Applicable Procedures and applicable law. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. (iv) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN REGULATION S GLOBAL NOTES. A beneficial interest in any Restricted Definitive Note may be exchanged by any holder thereof who is a non-U.S. Person for a beneficial interest in a Regulation S Global Note or transferred to a Non U.S. Person who takes delivery thereof in the form of a beneficial interest in a Regulation S Global Note, if (x) the holder of the Restricted Definitive Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed and (y) if the Trustee and the Registrar so request or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Trustee and the Registrar is furnished to the Trustee and the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act. If any such exchange or transfer from a Definitive Note to a beneficial interest in a Global Note is effected at a time when a Global Note of the appropriate type has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 5 of the Indenture the Trustee shall authenticate one or more Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR DEFINITIVE NOTES.Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.9(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.9(e). 11 (i) RESTRICTED DEFINITIVE NOTES TO RESTRICTED DEFINITIVE NOTES. Any restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a letter in the form of Exhibit B with certification set forth in paragraph 1 completed, (B) if the transfer will be made to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or 904 under the Securities, then the transferor must deliver a letter in the form of Exhibit B with the certification set forth in paragraph 2 completed; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a letter in the form of Exhibit B with the certification set forth in paragraph 3 completed, as well as an Opinion of Counsel in form and substance acceptable to the Trustee. (ii) RESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iii) UNRESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) LEGENDS. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under the Indenture unless specifically stated otherwise in the applicable provisions of the Indenture. (i) PRIVATE PLACEMENT LEGEND. (A) Except as permitted by subparagraph (B) below, each Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO (A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH 12 CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C) OR (D) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT." (B) Notwithstanding the foregoing, any Note which is (i) a Regulation S Global Note (and any Note issued in exchange therefor or substitution thereof after the Restricted Period), or (ii) a Note which has been transferred in accordance with Rule 144, provided that in such case an Opinion of Counsel is delivered which states that the Note does not have to bear the Private Placement Legend in the cases where such opinion is required under this Indenture, shall not bear the Private Placement Legend. (ii) GLOBAL NOTE LEGEND. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN CERTAIN CIRCUMSTANCES SET FORTH IN SUPPLEMENTAL INDENTURE NO. 10, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) REGULATION S GLOBAL NOTE LEGEND. The Regulation S Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). DURING THE RESTRICTED PERIOD, INTERESTS IN THIS NOTE MAY ONLY BE HELD THROUGH EUROCLEAR AND CEDEL." (g) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 of the Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another 13 Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such increase. SECTION 2.10 DEFEASANCE AND COVENANT DEFEASANCE. The provisions of Article Nine of the Indenture shall apply to the Notes. SECTION 2.11 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITY HOLDERS. In addition to provisions specified in Section 7.2 of the Indenture, Section 7.2 is supplemented to include the following as clause (c) at the end of the first paragraph thereof and deleting the ", or" immediately prior to clause (b): "or (c) change the currency denomination of Securities of any series, including the currency denomination of any interest or other payments thereon, without the consent of the Holders of each Security so affected." SECTION 2.12 DEFINITION OF PERMITTED SUBSIDIARY INDEBTEDNESS. Clause (vi) of the definition of "Permitted Subsidiary Indebtedness" in Section 1.1 of the Indenture is amended by inserting after the phrase "Acquired Indebtedness that by its terms is not" the following phrase: ", at the time it becomes Acquired Indebtedness or within 180 days thereafter," SECTION 2.13 DEFINITION OF RESTRICTED SUBSIDIARY. The definition of "Restricted Subsidiary" in Section 1.1 of the Indenture is amended in its entirety to read as follows: "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which owns or leases a Principal Property. ARTICLE THREE MISCELLANEOUS PROVISIONS SECTION 3.1 RATIFICATION. The Indenture, as supplemented and amended by this Supplemental Indenture No. 10, is in all respects hereby adopted, ratified and confirmed. SECTION 3.2 COUNTERPARTS. This Supplemental Indenture No. 10 may be executed in any number of counterparts, each of which when so executed shall be deemed an original; and all such counterparts shall together constitute but one and the same instrument. SECTION 3.3 AMENDMENTS. This Supplemental Indenture No. 10 may be amended by the Company and Tyco without the consent of any holder of the Notes in order for the restrictions on transfer contained herein to be in compliance with applicable law or the Applicable Procedures. SECTION 3.4 APPLICABLE PROCEDURES. Notwithstanding anything else herein, the Company shall not be required to permit a transfer to a global note that is not permitted by the Applicable Procedures. SECTION 3.5 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE NO. 10 AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. 14 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 10 to be duly executed as of the day and year first written above. TYCO INTERNATIONAL GROUP S.A. By: ----------------------------------------- Name: Title: TYCO INTERNATIONAL LTD. By: ----------------------------------------- Name: Title: THE BANK OF NEW YORK, TRUSTEE By: ----------------------------------------- Name: Title:
15 EX-4.20 4 EX-4.20 EXHIBIT 4.20 TYCO INTERNATIONAL GROUP S.A. TYCO INTERNATIONAL LTD. SUPPLEMENTAL INDENTURE NO. 11 $1,000,000,000 6.875% Notes due 2002 THIS SUPPLEMENTAL INDENTURE NO. 11, dated as of August 31, 1999, among TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Company"), TYCO INTERNATIONAL LTD., a Bermuda company ("Tyco"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Company and Tyco have heretofore executed and delivered to the Trustee an Indenture, dated as of June 9, 1998 (the "Indenture"), providing for the issuance from time to time of one or more series of the Company's Securities; WHEREAS, Article Seven of the Indenture provides for various matters with respect to any series of Securities issued under the Indenture to be established in an indenture supplemental to the Indenture; and WHEREAS, Section 7.1(e) of the Indenture provides that the Company, Tyco and the Trustee may enter into an indenture supplemental to the Indenture to establish the form or terms of Securities of any series as permitted by Sections 2.1 and 2.4 of the Indenture. NOW THEREFORE: In consideration of the premises and the issuance of the series of Securities provided for herein, the Company, Tyco and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective Holders of the Securities of such series as follows: ARTICLE ONE RELATION TO INDENTURE; DEFINITIONS; RULES OF CONSTRUCTION SECTION 1.1 RELATION TO INDENTURE. This Supplemental Indenture No. 11 constitutes an integral part of the Indenture. SECTION 1.2 DEFINITIONS. For all purposes of this Supplemental Indenture No. 11, the following terms shall have the respective meanings set forth in this section. In the event of a conflict with the definition of terms in the Indenture, the definitions in this Supplemental Indenture shall control. "ADJUSTED REDEMPTION TREASURY RATE" means, with respect to any redemption date, the annual rate equal to the semiannual equivalent yield to maturity or interpolated (on a 30/360 day count basis) yield to maturity of the Comparable Redemption Treasury Issue, assuming a price for the comparable Redemption Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Redemption Treasury Price for such redemption date. "AGENT" means any Registrar, Paying Agent or co-registrar. "APPLICABLE PROCEDURES" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear or Cedel, as the case may be, that apply to such transfer or exchange. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York are authorized or obligated by law, executive order or governmental decree to be closed. "CEDEL" means Cedelbank or any successor. "COMPARABLE REDEMPTION TREASURY ISSUE" means the United States Treasury security selected by the Quotation Agent as having a maturity comparable to the remaining term of the Notes to be redeemed that will be utilized at the time of selection and in accordance with customary financial practice in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes. "COMPARABLE REDEMPTION TREASURY PRICE" means, with respect to any redemption date, (i) the average of the Redemption Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Redemption Reference Treasury Dealer Quotations (unless there is more than one highest or lowest quotation, in which case only one such highest and/or lowest quotation shall be excluded), or (ii) if the Quotation Agent obtains fewer than four such Redemption Reference Treasury Dealer Quotations, the average of all such Redemption Reference Treasury dealer Quotations. "CUSTODIAN" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "DEFINITIVE NOTE" means a certificated Note in the form of Exhibit A hereto, registered in the name of the Holder thereof and issued in accordance with Section 2.9 hereof, except that such Note shall not bear the Global Note Legend. "EUROCLEAR" means the Euroclear Clearance System or any successor. "EXCHANGE NOTES" means the Notes issued in the Exchange Offer pursuant to Section 2.9(f) hereof; following the exchange of interests in the Rule 144A Global Notes, the Regulation S Global Notes and any Restricted Definitive Note for Exchange Notes pursuant to an effective registration statement, the defined term "Exchange Notes" and "Notes" shall have the same meaning and be entitled to the same rights under the Indenture. "EXCHANGE OFFER" means the exchange offer by the Company of the Exchange Notes for the Notes issued in reliance upon an exemption from registration under the Securities Act on the date hereof in accordance with the provisions of the Registration Rights Agreement. "EXCHANGE OFFER REGISTRATION STATEMENT" means an exchange offer registration statement on Form S-4 (or, if applicable, on another appropriate form), and all amendments and supplements to such registration statement, including the prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein filed by the Company and Tyco in accordance with the Registration Rights Agreement in connection with the Exchange Offer. "GLOBAL NOTES" means, individually and collectively, any of the Notes issued as global notes under the Indenture. "GLOBAL NOTE LEGEND" means the legend set forth in Section 2.9(g)(ii), which is required to be placed on all Global Notes issued under the Indenture. "INDIRECT PARTICIPANT" means a Person who holds a beneficial interest in a Global Note through a Participant. "INITIAL PURCHASER" means each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, J.P. Morgan Securities Inc., Lehman Brothers Inc., Morgan Stanley & Co. Incorporated, Credit Suisse First Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation, Goldman, Sachs & Co., Bear, Stearns & Co. Inc., Banc of America Securities LLC, Chase Securities Inc., Commerzbank Capital Markets Corporation, Warburg Dillon Read LLC, Salomon Smith Barney Inc., The Williams Capital Group, L.P., and Blaylock & Partners, L.P. "LETTER OF TRANSMITTAL" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. 2 "NON-U.S. PERSON" means a Person who is not a U.S. Person. "NOTES" has the meaning assigned to it in Section 2.1 hereof. "PARTICIPANT" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "PARTICIPATING BROKER DEALER" means the Initial Purchasers and any other broker-dealer which makes a market in the Notes and exchanges Notes in the Exchange Offer for Exchange Notes. "PRIVATE PLACEMENT LEGEND" means the legend set forth in Section 2.9(g)(i) to be placed on all Notes issued under the Indenture except where otherwise permitted by the provisions of the Indenture. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "QUOTATION AGENT" means a Redemption Reference Treasury Dealer appointed as such agent by the Company. "REDEMPTION REFERENCE TREASURY DEALER" means each of Merrill Lynch, Pierce, Fenner & Smith Incorporated and four other primary U.S. Government securities dealers in The City of New York selected by the Company. "REDEMPTION REFERENCE TREASURY DEALER QUOTATIONS" means with respect to each Redemption Reference Treasury Dealer and any redemption date, the offer price for the Comparable Redemption Treasury Issue (expressed in each case as a percentage of its principal amount) for settlement on the redemption date quoted in writing to the Quotation Agent by such Redemption Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such redemption date. "REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement, dated as of August 31, 1999, by and among the Company, Tyco and the Initial Purchasers, as such agreement may be amended, modified or supplemented from time to time. "REGISTRAR" means the registrar and transfer agent of the Company in respect of the Notes which shall initially be by the Trustee hereunder. The Company may appoint additional Co-Registrars or terminate the appointment of existing Registrars at any time. "REGULATION S" means Regulation S promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. "REGULATION S GLOBAL NOTE" means a global Note in the form of Exhibit A hereto bearing the Global Note Legend and the legend in Section 2.9(g)(iii) hereof and deposited with or on behalf of the Depositary and registered in the name of the Depositary or its nominee. "RESTRICTED DEFINITIVE NOTE" means a Definitive Note bearing the Private Placement Legend. "RESTRICTED PERIOD" means the period beginning on the date hereof and ending on the date of receipt by the Trustee of an Officers' Certificate from the Company certifying as to the end of the end of the 40-day restricted period as defined in Regulation S and any other matters required by the Applicable Procedures or Regulation S. "RULE 144" means Rule 144 promulgated under the Securities Act, any successor rule or regulation to substantially the same effect or any additional rule or regulation under the Securities Act that permits transfers of restricted securities without registration such that the transferee thereof holds securities that are freely tradeable under the Securities Act. "RULE 144A" means Rule 144A promulgated under the Securities Act or any successor rule or regulation to substantially the same effect. 3 "RULE 144A GLOBAL NOTE" means a global Note in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee. "RULE 903" means Rule 903 promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. "RULE 904" means Rule 904 promulgated the Securities Act or any successor rule or regulation substantially to the same effect. "SEC" means the United States Securities and Exchange Commission. "SECURITIES ACT" means the United States Securities Act of 1933, as amended. "SHELF REGISTRATION STATEMENT" means a "shelf" registration statement of the Company and Tyco filed pursuant to the provisions of the Registration Rights Agreement on an appropriate form under Rule 415 under the Securities Act, or any similar rule that may be adopted by the SEC, and all amendments and supplements to such registration statement, including post-effective amendments, in each case including the prospectus contained therein, all exhibits thereto and all documents incorporated by reference therein. "UNRESTRICTED GLOBAL NOTE" means a global Note (other than a Regulation S Global Note) in the form of Exhibit A attached hereto that bears the Global Note Legend, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "UNRESTRICTED DEFINITIVE NOTE" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "U.S. PERSON" means a U.S. Person as defined in Rule 902(o) under the Securities Act. SECTION 1.3 RULES OF CONSTRUCTION. For all purposes of this Supplemental Indenture No. 11: (a) capitalized terms used herein without definition shall have the meanings specified in the Indenture; (b) all references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of this Supplemental Indenture No. 11; and (c) the terms "HEREIN", "HEREOF", "HEREUNDER" and other words of similar import refer to this Supplemental Indenture No. 11. ARTICLE TWO THE SERIES OF NOTES SECTION 2.1 TITLE OF THE SECURITIES. There shall be a series of Securities designated as the "6.875% Notes due 2002" (the "Notes"). SECTION 2.2 FORM AND DATING. (a) GENERAL. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of the Indenture Supplement No. 11, and the Company, Tyco and the Trustee, by their execution and 4 delivery of the Indenture Supplement No. 11, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of the Indenture Supplement No. 11, the provisions of the Indenture Supplement No. 11 shall govern and be controlling. The Company hereby designates The Depository Trust Company as the initial Depositary for the Global Notes. (b) RULE 144A GLOBAL NOTES. Notes offered and sold to QIBs shall be issued initially in the form of the Rule 144A Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee at its New York office, as custodian for the Depositary, duly executed by the Company and Tyco and authenticated by the Trustee as hereinafter provided. Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time as conclusively reflected in the books and records of the Trustee endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemption. Any change in the principal amount of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee as the custodian for the Depositary, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.9 hereof. (c) REGULATION S GLOBAL NOTES. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel, duly executed by the Company and Tyco and authenticated by the Trustee as hereinafter provided. During the Restricted Period, interests in the Regulation S Global Note must be held through Euroclear or Cedel, if the holders are Participants in such systems, or indirectly through organizations that are Participants in such systems. Following the termination of the Restricted Period, beneficial interests in the Regulation S Global Note may be held, directly or indirectly, in the account of any Participant of the Depositary. (d) EUROCLEAR AND CEDEL PROCEDURES APPLICABLE. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel shall be applicable to transfers of beneficial interests in the Regulation S Global Note that are held by Participants through Euroclear or Cedel. SECTION 2.3 LIMITATION ON AGGREGATE PRINCIPAL AMOUNT. The aggregate principal amount of the Notes shall not initially exceed $1,000,000,000. SECTION 2.4 PRINCIPAL PAYMENT DATE. Subject to the provisions of Section 2.7 hereof and Articles Four and Twelve of the Indenture, the principal of the Notes shall be become due and payable in a single installment on September 5, 2002. SECTION 2.5 INTEREST AND INTEREST RATES. Interest on the Notes shall be payable semiannually on March 5 and September 5 of each year beginning on March 5, 2000 (each, an "INTEREST PAYMENT DATE"); PROVIDED, HOWEVER, that if an Interest Payment Date would otherwise be a day that is not a Business Day, such Interest Payment Date shall be the next succeeding Business Day, and no additional interest shall be paid in respect of such intervening period. The interest rate borne by the Notes will be 6.875% per annum 5 until the Notes are paid in full subject, however, to the following provisions. In the event that (i) the Exchange Offer Registration Statement is not filed with the SEC on or prior to the 120th calendar day following the original issue of the Notes, (ii) the Exchange Offer Registration Statement has not been declared effective by the SEC on or prior to the 180th calendar day following the original issue of the Notes or (iii) the Exchange Offer is not consummated or a Shelf Registration Statement is not declared effective, in either case, on or prior to the 210th calendar day following the original issue of the Notes (each such event in clauses (i) through (iii) above, a "REGISTRATION DEFAULT"), the interest rate borne by the Notes shall be increased by an amount ("ADDITIONAL INTEREST") equal to an additional one quarter of one percent (0.25%) per annum upon the occurrence of each Registration Default, which rate will increase by an additional one quarter of one percent (0.25%) per annum each 90-day period that such Additional Interest continues to accrue under any such circumstance, provided that the maximum aggregate increase in the interest rate will in no event exceed 1.0% per annum; PROVIDED, HOWEVER, that no Additional Interest shall be payable if the Exchange Offer Registration Statement is not filed or declared effective or the Exchange Offer is not consummated as set forth above because of any changes in law, SEC rules or regulations or applicable interpretations thereof by the staff of the SEC (it being understood that in any such circumstance the Company shall be required to file a Shelf Registration Statement and Additional Interest shall be payable if such Shelf Registration Statement is not declared effective as provided in clause (iii) above); and PROVIDED FURTHER that Additional Interest shall only be payable in the case a Shelf Registration Statement is not declared effective as aforesaid with respect to notes that have the right to be included, and whose inclusion has been requested, in the Shelf Registration Statement. Following the cure of all Registration Defaults applicable to the respective Notes, the accrual of Additional Interest will cease and the interest rate will revert to 6.875% per annum. If a Shelf Registration Statement is declared effective but shall thereafter become unusable by the Holder of Notes for any reason (whether or not the Company had the right to prevent the Holders from distributing Notes during any period pursuant to the Registration Rights Agreement) and the aggregate number of days in any consecutive twelve-month period for which the Shelf Registration Statement shall not be usable exceeds 30 days, the interest rate borne by the Notes included in such Shelf Registration Statement will be increased by an amount ("ADDITIONAL INTEREST") equal to 0.25% per annum for the first 90-day period (or portion thereof) beginning on the 31st such date that such Shelf Registration Statement ceases to be usable, which rate shall be increased by an additional 0.25% per annum at the beginning of each subsequent 90-day period, provided the maximum aggregate increase in the interest rate will in no event exceed 1.0% per annum. Upon the Shelf Registration Statement once again becoming usable, the interest rate borne by the Notes included therein will be reduced to the original interest rate if the Company is otherwise in compliance with the Registration Rights Agreement with respect to such Notes at that time. Additional Interest in accordance with this paragraph shall be computed based upon the actual number of days elapsed in each 90-day period in which the Shelf Registration Statement is unusable. For all purposes of this Indenture Supplement No. 11, the term interest shall include "Additional Amounts" and "Additional Interest". The interest payable on each Interest Payment Date shall be the amount of interest accrued from August 31, 1999 or from the most recent Interest Payment Date to which interest has been paid or duly provided for, as the case may be, until the principal amount of the Notes has been paid or duly provided for. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The interest payable on any Note which is punctually paid or duly provided for on any Interest Payment Date shall be paid to the Person in whose name such Note is registered at the close of business on the February 18 or August 21 (in each case, whether or not a Business Day), respectively, immediately preceding such Interest Payment Date (each, a "REGULAR RECORD DATE"). Interest payable on any Note which is not punctually paid or duly provided for on any Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name such Note is registered at the close of business on the Regular Record Date immediately preceding such Interest Payment Date, and such interest shall instead be paid to 6 the Person in whose name such Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Company to the Holders of the Notes mailed by first-class mail not less than 15 days prior to such record date to their last addresses as they shall appear upon the Security register, such record date to be not less than five days preceding the date of payment of such defaulted interest. The Company and Tyco shall notify the Trustee within five Business Days after each and every date (an "EVENT DATE") on which an event occurs in respect of which Additional Interest is required to be paid. The obligation to pay Additional Interest shall be deemed to accrue from and including the day following the applicable Event Date. Additional Interest shall be paid by depositing with the Trustee for the benefit of the Holders of the Notes entitled to receive such Additional Interest, on or before the applicable Interest Payment Date, immediately available funds in sums sufficient to pay the Additional interest then due. Additional Interest shall be payable to the Person otherwise entitled to be paid the interest payable on the Notes on such Interest Payment Date. SECTION 2.6 PLACE OF PAYMENT. The place of payment where the Notes may be presented or surrendered for payment, where the principal of and interest and any other payments due on the Notes are payable, where the Notes may be surrendered for registration of transfer or exchange and where notices and demands to and upon the Company in respect of the Notes and the Indenture may be served shall be in the Borough of Manhattan, The City of New York, and the office or agency maintained by the Company for such purpose shall initially be the Corporate Trust Office of the Trustee. At the option of the Company, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Company, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date. SECTION 2.7 (a) REDEMPTION. The Notes are redeemable, in whole or in part, at the option of the Company at any time at a redemption price equal to the greater of (i) 100% of the principal amount of such Notes, and (ii) as determined by the Quotation Agent, the sum of the present values of the remaining scheduled payments of principal and interest thereon (not including any portion of such payment of interest accrued as of the date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the Adjusted Redemption Treasury Rate plus 12.5 basis points plus, in each case, accrued interest thereon to the date of redemption. (b) ADDITIONAL AMOUNTS; CERTAIN TAX PROVISIONS. For purposes of the Notes, Sections 12.1 and 12.2 of the Indenture are amended in their entirety to read as follows: "SECTION 12.1. REDEMPTION UPON CHANGES IN WITHHOLDING TAXES. The Notes may be redeemed, as a whole but not in part, at the election of the Company, upon not less than 30 nor more than 60 days notice (which notice shall be irrevocable), at a redemption price equal to 100% of the principal amount thereof, together with accrued interest, if any, to the redemption date and Additional Amounts (as defined in Section 12.2), if any, if as a result of any amendment to, or change in, the laws or regulations of Luxembourg or Bermuda or any political subdivision or taxing authority thereof or therein having power to tax (a "Taxing Authority"), or any change in the application or official interpretation of such laws or regulations which amendment or change is announced and becomes effective after the date the Notes are issued, the Company or Tyco has become or will become obligated to pay Additional Amounts, on the next date on which any amount would be payable with respect to the Notes, and such obligation cannot be avoided by the use of reasonable measures available to the Company or Tyco, as the case may be; PROVIDED, HOWEVER, that (a) no such notice of redemption may be given earlier than 60 days prior to the earliest date on which the Company or Tyco, as the case may be, would be obligated to pay such Additional Amounts, and (b) at the time such notice of redemption is given, such obligation to pay such Additional Amounts remains in effect. Prior to the giving of any notice of redemption described in this paragraph, the Company shall deliver to the Trustee (i)(I) a certificate signed by two directors of the Company stating that the 7 obligation to pay Additional Amounts cannot be avoided by the Company taking reasonable measures available to it or (II) a certificate signed by two executive officers of Tyco stating that the obligation to pay Additional Amounts cannot be avoided by Tyco taking reasonable measures available to it, as the case may be, and (ii) a written opinion of independent legal counsel to the Company or Tyco, as the case may be, of recognized standing to the effect that the Company or Tyco, as the case may be, has or will become obligated to pay Additional Amounts as a result of a change, amendment, official interpretation or application described above and that the Company or Tyco, as the case may be, cannot avoid the payment of such Additional Amounts by taking reasonable measures available to it. SECTION 12.2. PAYMENT OF ADDITIONAL AMOUNTS. All payments made by the Company, Tyco and any other Guarantor under or with respect to the Notes and the Guarantees will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, levies, imposts, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Taxing Authority ("Taxes"), unless the Company, Tyco or such Guarantor, as the case may be, is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. In the event that the Company, Tyco or such Guarantor is required to so withhold or deduct any amount for or on account of any Taxes from any payment made under or with respect to the Notes or the Guarantees, as the case may be, the Company, Tyco or such Guarantor, as the case may be, will pay such additional amounts ("Additional Amounts") as may be necessary so that the net amount received by each Holder of Notes (including Additional Amounts) after such withholding or deduction will equal the amount that such Holder would have received if such Taxes had not been required to be withheld or deducted; PROVIDED that no Additional Amounts will be payable with respect to a payment made to a Holder of Notes to the extent: (a) that any such Taxes would not have been so imposed but for the existence of any present or former connection between such Holder and the Taxing Authority imposing such Taxes (other than the mere receipt of such payment, acquisition, ownership or disposition of such Notes or the exercise or enforcement of rights under such Notes, the Guarantees or the Indenture); (b) of any estate, inheritance, gift, sales, transfer, or personal property Tax imposed with respect to such Notes, except as otherwise provided herein; (c) that any such Taxes would not have been so imposed but for the presentation of such Notes or Guarantees (where presentation is required) for payment on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever is later, except to the extent that the beneficiary or Holder thereof would have been entitled to Additional Amounts had the Notes or Guarantees been presented for payment on any date during such 30-day period; or (d) that such Holder would not be liable or subject to such withholding or deduction of Taxes but for the failure to make a valid declaration of non-residence or other similar claim for exemption, if (x) the making of such declaration or claim is required or imposed by statute, treaty, regulation, ruling or administrative practice of the relevant Taxing Authority as a precondition to an exemption from, or reduction in, the relevant Taxes, and (y) at least 60 days prior to the first payment date with respect to which the Company, Tyco or such Guarantor shall apply this clause (d), the Company, Tyco or such Guarantor shall have notified all Holders of Notes in writing that they shall be required to provide such declaration or claim. The Company, Tyco or such Guarantor, as the case may be, will also (i) make such withholding or deduction of Taxes and (ii) remit the full amount of Taxes so deducted or withheld to the relevant Taxing Authority in accordance with all applicable laws. The Company, Tyco or such Guarantor, as the case may be, will use its reasonable best efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes. The Company, Tyco or such Guarantor, as the case may be, will, upon request, make available to the Holders of the Notes, within 60 days after the date the payment of any Taxes so deducted or withheld is due pursuant to applicable law, 8 certified copies of tax receipts evidencing such payment by the Company, Tyco or such Guarantor or if, notwithstanding the Company's, Tyco's or such Guarantor's efforts to obtain such receipts, the same are not obtainable, other evidence of such payments by the Company, Tyco or such Guarantor. At least 30 days prior to each date on which any payment under or with respect to the Notes or Guarantees is due and payable, if the Company, Tyco or such Guarantor will be obligated to pay Additional Amounts with respect to such payment, the Company, Tyco or such Guarantor will deliver to the Trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable, the amounts so payable and will set forth such other information as is necessary to enable such Trustee to pay such Additional Amounts to Holders of Notes on the payment date. In addition, the Company, Tyco or such Guarantor, as the case may be, will pay any stamp, issue, registration, documentary or other similar taxes and duties, including interest, penalties and Additional Amounts with respect thereto, payable in Luxembourg, Bermuda or the United States or any political subdivision or taxing authority of or in the foregoing in respect of the creation, issue, offering, enforcement, redemption or retirement of the Notes or the Guarantees. The foregoing provisions shall survive any termination of the discharge of the Indenture and shall apply mutatis mutandis to any jurisdiction in which any successor Person to the Company, Tyco or such Guarantor, as the case may be, is organized or is engaged in business for tax purposes or any political subdivisions or taxing authority or agency thereof or therein; PROVIDED, HOWEVER, the date on which such Person becomes a successor to the Company, Tyco or such Guarantor, as the case may be, shall be substituted for the date on which the series of Notes was issued. Whenever in the Indenture, the Notes or the Guarantees there is mentioned, in any context, the payment of principal (and premium, if any), redemption price, interest or any other amount payable under or with respect to any Notes or Guarantees, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof." (c) NO SINKING FUND. The Company shall have no obligation to redeem or purchase the Notes pursuant to any sinking fund or analogous provisions or upon the happening of any specified event or at the option of any Holder of the Notes. SECTION 2.8 CURRENCY. Principal and interest on the Notes shall be payable in United States dollars. SECTION 2.9 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary; or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Global Note be exchanged by the Company for Definitive Notes prior to the expiration of the Restricted Period. Global Notes may also be, subject to compliance with the terms of this Section 2.9, exchanged for Definitive Notes upon the request of any holder of Notes if an Event of Default has occurred and is continuing for a period of at least 180 days. 9 Upon the occurrence of any of the preceding events, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.10 and 2.12 of the Indenture. (b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of the Indenture and the Applicable Procedures. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) TRANSFER OF BENEFICIAL INTERESTS IN THE SAME TYPE OF GLOBAL NOTE. Beneficial interests in any Rule 144A Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Rule 144A Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend. Beneficial interests in any Regulation S Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Regulation S Global Note; provided, however, that prior to the expiration of the Restricted Period beneficial interests in the Regulation S Global Note may only be transferred in accordance with the Applicable Procedures of Euroclear and Cedel. Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.9(b)(i). (ii) ALL OTHER TRANSFERS AND EXCHANGES OF BENEFICIAL INTERESTS IN GLOBAL NOTES. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.9(b)(i) above, and, subject to any other requirement in this Section 2.9, the transferor of such beneficial interest must deliver to the Registrar (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in a Global Note of another type in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B), subject to Section 2.9(a), (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the exchange; provided that in no event shall Definitive Notes be issued upon the exchange of beneficial interests in the Regulation S Global Note prior to the expiration of the Restricted Period. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained herein and in the Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.9(h) hereof. (iii) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE OR A REGULATION S GLOBAL NOTES FOR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE. A beneficial interest in Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y): (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal or via the Depositary's book-entry system in a form acceptable to the Trustee that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the 10 Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company, and such Letter of Transmittal or book-entry system certification shall satisfy the requirements of Section 2.9(ii); (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. If any such transfer is effected at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests so transferred. (iv) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS TO AND FROM REGULATION S GLOBAL NOTES. (A) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A REGULATION S GLOBAL NOTE PRIOR TO THE TERMINATION OF THE RESTRICTED PERIOD FOR BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE. A beneficial interest in any Regulation S Global Note may be exchanged by any holder thereof for a beneficial interest in a Rule 144A Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above, and (y) the holder of the beneficial interest in the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. (B) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A REGULATION S GLOBAL NOTE FOLLOWING THE TERMINATION OF THE RESTRICTED PERIOD FOR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE. A beneficial interest in any Regulation S Global Note following the termination of the Restricted Period may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 4(b) or Exhibit C with the certification set forth in paragraph 1, as applicable, completed. (C) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE FOR BENEFICIAL INTERESTS IN A REGULATION S GLOBAL NOTE. A beneficial interest in any Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in a Regulation S Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in a Regulation S Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the beneficial interest in the Rule 144A Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. 11 (c) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN GLOBAL NOTES FOR DEFINITIVE NOTES. (i) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES TO RESTRICTED DEFINITIVE NOTES. If any holder of a beneficial interest in a Rule 144A Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note in the circumstances set forth in Section 2.9(a) hereof, such Definitive Note shall be subject to all restrictions on transfer contained therein and shall be issued, upon receipt by each of the Trustee and the Registrar of Exhibit C with the certification set forth in paragraph 2`(a) completed; (ii) intentionally omitted. (iii) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES OR REGULATION S GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. Subject to Section 2.9(a), a holder of a beneficial interest in a Rule 144A Global Note or Regulation S Global Note may exchange such beneficial interest for an Unrestricted Definitive Note only if such exchange is in accordance with the Applicable Procedures, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a)(ii) is completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the exchange is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iv) BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. A holder of a beneficial interest in an Unrestricted Global Note may, in the circumstances described in Section 2.9(a), exchange such beneficial interest for an Unrestricted Definitive Note. Any transfer pursuant to this Section 2.9(c) shall satisfy the requirements of Section 2.9(b)(ii). In any such case, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.9(h) hereof, and the Company shall execute and the Trustee, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Restricted Definitive Note issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.9(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. (d) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR BENEFICIAL INTERESTS IN GLOBAL NOTES. (i) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Rule 144A Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, then, upon receipt by each of the Trustee and the Registrar of a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed, the Trustee shall cancel the Restricted Definitive Note and increase or cause to be increased the aggregate principal amount of the appropriate Global Note. (ii) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. 12 (iii) UNRESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time if permitted by the Applicable Procedures and applicable law. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. (iv) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN REGULATION S GLOBAL NOTES. A beneficial interest in any Restricted Definitive Note may be exchanged by any holder thereof who is a non-U.S. Person for a beneficial interest in a Regulation S Global Note or transferred to a Non U.S. Person who takes delivery thereof in the form of a beneficial interest in a Regulation S Global Note, if (x) the holder of the Restricted Definitive Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed and (y) if the Trustee and the Registrar so request or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Trustee and the Registrar is furnished to the Trustee and the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act. If any such exchange or transfer from a Definitive Note to a beneficial interest in a Global Note is effected at a time when a Global Note of the appropriate type has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 5 of the Indenture the Trustee shall authenticate one or more Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR DEFINITIVE NOTES. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.9(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.9(e). (i) RESTRICTED DEFINITIVE NOTES TO RESTRICTED DEFINITIVE NOTES. Any restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a letter in the form of Exhibit B with certification set forth in paragraph 1 completed, (B) if the transfer will be made to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or 904 under the Securities, then the transferor must deliver a letter in the form of Exhibit B with the certification set forth in paragraph 2 completed; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a letter in the form of Exhibit B with the certification set forth in paragraph 3 completed, as well as an Opinion of Counsel in form and substance acceptable to the Trustee. 13 (ii) RESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal in a form acceptable to the Trustee, that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iii) UNRESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) EXCHANGE OFFER; SHELF REGISTRATION STATEMENT (i) Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, the Trustee shall authenticate (x) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Rule 144A Global Notes and Regulation S Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (A) they are not broker-dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and (y) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Rule 144A Global Notes and/or Regulation S Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, authenticate and deliver to the Persons designated by the Holders of the Restricted Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount. (ii) Following the effectiveness of a Shelf Registration Statement the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5, of the Indenture the Trustee shall authenticate from time to time (x) one or more Unrestricted Global Notes, or, if there shall be at the time one or more Unrestricted Global Notes outstanding and such increase can be effected in accordance with Applicable Procedures, the Trustee shall increase or cause to be increased the aggregate principal amount thereof, in each case in an aggregate principal amount equal to the principal amount of the beneficial interests in the Global Notes sold by Persons that certify as to the consummation of such sale under the Shelf Registration Statement in a manner acceptable to the Trustee and the Company and (y) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes sold by Persons that certify as to the 14 consummation of such sale under the Shelf Registration Statement in a manner acceptable to the Trustee and the Company. Concurrently with the issuance of such Unrestricted Global Notes, the Trustee shall cause the aggregate principal amount of the applicable Rule 144A Global Notes and/or the Regulation S Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, authenticate and deliver to the Persons designated by the Holders of Restricted Definitive Notes so sold Unrestricted Definitive Notes in the appropriate principal amount. (g) LEGENDS. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under the Indenture unless specifically stated otherwise in the applicable provisions of the Indenture. (i) PRIVATE PLACEMENT LEGEND. (A) Except as permitted by subparagraph (B) below, each Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO (A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C) OR (D) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT." (B) Notwithstanding the foregoing, any Note which is (i) a Regulation S Global Note (and any Note issued in exchange therefor or substitution thereof after the Restricted Period), (ii) a Note which has been exchanged or transferred pursuant to the Exchange Offer Registration Statement or the Shelf Registration Statement, or (iii) a Note which has been transferred in accordance with Rule 144, provided that in such case an Opinion of Counsel is delivered which states that the Note does not have 15 to bear the Private Placement Legend in the cases where such opinion is required under this Indenture, shall not bear the Private Placement Legend. (ii) GLOBAL NOTE LEGEND. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN CERTAIN CIRCUMSTANCES IN THE SUPPLEMENTAL INDENTURE NO. 11, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) REGULATION S GLOBAL NOTE LEGEND. The Regulation S Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). DURING THE RESTRICTED PERIOD, INTERESTS IN THIS NOTE MAY ONLY BE HELD THROUGH EUROCLEAR AND CEDEL." (h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 of the Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such increase. SECTION 2.10 DEFEASANCE AND COVENANT DEFEASANCE. The provisions of Article Nine of the Indenture shall apply to the Notes. SECTION 2.11 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITY HOLDERS. In addition to provisions specified in Section 7.2 of the Indenture, Section 7.2 is supplemented to include the following as clause (c) at the end of the first paragraph thereof and deleting the ", or" immediately prior to clause (b): "or (c) change the currency denomination of Securities of any series, including the currency denomination of any interest or other payments thereon, without the consent of the Holders of each Security so affected." SECTION 2.12 DEFINITION OF PERMITTED SUBSIDIARY INDEBTEDNESS. Clause (vi) of the definition of "Permitted Subsidiary Indebtedness" in Section 1.1 of the Indenture is amended by inserting after the phrase "Acquired Indebtedness that by its terms is not" the following phrase: ", at the time it becomes Acquired Indebtedness or within 180 days thereafter," 16 SECTION 2.13 DEFINITION OF RESTRICTED SUBSIDIARY. The definition of "Restricted Subsidiary" in Section 1.1 of the Indenture is amended in its entirety to read as follows: "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which owns or leases a Principal Property. ARTICLE THREE MISCELLANEOUS PROVISIONS SECTION 3.1 RATIFICATION. The Indenture, as supplemented and amended by this Supplemental Indenture No. 11, is in all respects hereby adopted, ratified and confirmed. SECTION 3.2 COUNTERPARTS. This Supplemental Indenture No. 11 may be executed in any number of counterparts, each of which when so executed shall be deemed an original; and all such counterparts shall together constitute but one and the same instrument. SECTION 3.3 AMENDMENTS. This Supplemental Indenture No. 11 may be amended by the Company and Tyco without the consent of any holder of the Notes in order for the restrictions on transfer contained herein to be in compliance with applicable law or the Applicable Procedures. SECTION 3.4 APPLICABLE PROCEDURES. Notwithstanding anything else herein, the Company shall not be required to permit a transfer to a global note that is not permitted by the Applicable Procedures. SECTION 3.5 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE NO. 11 AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 11 to be duly executed as of the day and year first written above. TYCO INTERNATIONAL GROUP S.A. By: ----------------------------------------- Name: Title: TYCO INTERNATIONAL LTD. By: ----------------------------------------- Name: Title: THE BANK OF NEW YORK, Trustee By: ----------------------------------------- Name: Title:
17 EX-4.21 5 EX-4.21 EXHIBIT 4.21 TYCO INTERNATIONAL GROUP S.A. TYCO INTERNATIONAL LTD. SUPPLEMENTAL INDENTURE NO. 12 Y10,000,000,000 0.57% Notes due 2000 THIS SUPPLEMENTAL INDENTURE NO. 12, dated as of August 31, 1999, among TYCO INTERNATIONAL GROUP S.A., a Luxembourg company (the "Company"), TYCO INTERNATIONAL LTD., a Bermuda company ("Tyco"), and THE BANK OF NEW YORK, a New York banking corporation, as trustee (the "Trustee"). W I T N E S S E T H: WHEREAS, the Company and Tyco have heretofore executed and delivered to the Trustee an Indenture, dated as of June 9, 1998 (the "Indenture"), providing for the issuance from time to time of one or more series of the Company's Securities; WHEREAS, Article Seven of the Indenture provides for various matters with respect to any series of Securities issued under the Indenture to be established in an indenture supplemental to the Indenture; and WHEREAS, Section 7.1(e) of the Indenture provides that the Company, Tyco and the Trustee may enter into an indenture supplemental to the Indenture to establish the form or terms of Securities of any series as permitted by Sections 2.1 and 2.4 of the Indenture. NOW THEREFORE: In consideration of the premises and the issuance of the series of Securities provided for herein, the Company, Tyco and the Trustee mutually covenant and agree for the equal and proportionate benefit of the respective Holders of the Securities of such series as follows: ARTICLE ONE RELATION TO INDENTURE; DEFINITIONS; RULES OF CONSTRUCTION SECTION 1.1 RELATION TO INDENTURE. This Supplemental Indenture No. 12 constitutes an integral part of the Indenture. SECTION 1.2 DEFINITIONS. For all purposes of this Supplemental Indenture No. 12, the following terms shall have the respective meanings set forth in this section. In the event of a conflict with the definition of terms in the Indenture, the definitions in this Supplemental Indenture shall control. "APPLICABLE PROCEDURES" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear or Cedel, as the case may be, that apply to such transfer or exchange. "BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on which banking institutions in The City of New York, London or Tokyo are authorized or obligated by law, executive order or governmental decree to be closed. "CEDEL" means Cedelbank or any successor. "CUSTODIAN" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "DEFINITIVE NOTE" means a certificated Note in the form of Exhibit A hereto, registered in the name of the Holder thereof and issued in accordance with Section 2.9 hereof, except that such Note shall not bear the Global Note Legend. "EUROCLEAR" means the Euroclear Clearance System or any successor. "GLOBAL NOTES" means, individually and collectively, any of the Notes issued as global notes under the Indenture. "GLOBAL NOTE LEGEND" means the legend set forth in Section 2.9(f)(ii), which is required to be placed on all Global Notes issued under the Indenture. "INDIRECT PARTICIPANT" means a Person who holds a beneficial interest in a Global Note through a Participant. "INITIAL PURCHASER" means Merrill Lynch, Pierce, Fenner & Smith Incorporated. "NON-U.S. PERSON" means a Person who is not a U.S. Person. "NOTES" has the meaning assigned to it in Section 2.1 hereof. "PARTICIPANT" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "PRIVATE PLACEMENT LEGEND" means the legend set forth in Section 2.9(f)(i) to be placed on all Notes issued under the Indenture except where otherwise permitted by the provisions of the Indenture. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "REGISTRAR" means the registrar and transfer agent of the Company in respect of the Notes which shall initially be by the Trustee hereunder. The Company may appoint additional Co-Registrars or terminate the appointment of existing Registrars at any time. "REGULATION S" means Regulation S promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. "REGULATION S GLOBAL NOTE" means a global Note in the form of Exhibit A hereto bearing the Global Note Legend and the legend in Section 2.9(f)(iii) hereof and deposited with or on behalf of the Depositary and registered in the name of the Depositary or its nominee. "RESTRICTED DEFINITIVE NOTE" means a Definitive Note bearing the Private Placement Legend. "RESTRICTED PERIOD" means the period beginning on the date hereof and ending on the date of receipt by the Trustee of an Officers' Certificate from the Company certifying as to the end of the end of the 40-day restricted period as defined in Regulation S and any other matters required by the Applicable Procedures or Regulation S. "RULE 144" means Rule 144 promulgated under the Securities Act, any successor rule or regulation to substantially the same effect or any additional rule or regulation under the Securities Act that permits transfers of restricted securities without registration such that the transferee thereof holds securities that are freely tradeable under the Securities Act. "RULE 144A" means Rule 144A promulgated under the Securities Act or any successor rule or regulation to substantially the same effect. "RULE 144A GLOBAL NOTE" means a global Note in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee. "RULE 903" means Rule 903 promulgated under the Securities Act or any successor rule or regulation substantially to the same effect. 2 "RULE 904" means Rule 904 promulgated the Securities Act or any successor rule or regulation substantially to the same effect. "SEC" means the United States Securities and Exchange Commission. "SECURITIES ACT" means the United States Securities Act of 1933, as amended. "UNRESTRICTED GLOBAL NOTE" means a global Note (other than a Regulation S Global Note) in the form of Exhibit A attached hereto that bears the Global Note Legend, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "UNRESTRICTED DEFINITIVE NOTE" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "U.S. PERSON" means a U.S. Person as defined in Rule 902(o) under the Securities Act. SECTION 1.3 RULES OF CONSTRUCTION. For all purposes of this Supplemental Indenture No. 12: (a) capitalized terms used herein without definition shall have the meanings specified in the Indenture; (b) all references herein to Articles and Sections, unless otherwise specified, refer to the corresponding Articles and Sections of this Supplemental Indenture No. 12; and (c) the terms "herein", "hereof", "hereunder" and other words of similar import refer to this Supplemental Indenture No. 12. ARTICLE TWO THE SERIES OF NOTES SECTION 2.1 TITLE OF THE SECURITIES. There shall be a series of Securities designated as the "0.57% Notes due 2000" (the "Notes"). SECTION 2.2 FORM AND DATING. (a) GENERAL. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of Y100,000,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of the Indenture Supplement No. 12, and the Company, Tyco and the Trustee, by their execution and delivery of the Indenture Supplement No. 12, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of the Indenture Supplement No. 12, the provisions of the Indenture Supplement No. 12 shall govern and be controlling. The Company hereby designates The Depository Trust Company as the initial Depositary for the Global Notes. (b) RULE 144A GLOBAL NOTES. Notes offered and sold to QIBs shall be issued initially in the form of the Rule 144A Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee at its New York office, as custodian for the Depositary, duly executed by the Company and Tyco and 3 authenticated by the Trustee as hereinafter provided. Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time as conclusively reflected in the books and records of the Trustee endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemption. Any change in the principal amount of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee as the custodian for the Depositary, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.9 hereof. (c) REGULATION S GLOBAL NOTES. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel, duly executed by the Company and Tyco and authenticated by the Trustee as hereinafter provided. During the Restricted Period, interests in the Regulation S Global Note must be held through Euroclear or Cedel, if the holders are Participants in such systems, or indirectly through organizations that are Participants in such systems. Following the termination of the Restricted Period, beneficial interests in the Regulation S Global Note may be held, directly or indirectly, in the account of any Participant of the Depositary. (d) EUROCLEAR AND CEDEL PROCEDURES APPLICABLE. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel shall be applicable to transfers of beneficial interests in the Regulation S Global Note that are held by Participants through Euroclear or Cedel. SECTION 2.3 LIMITATION ON AGGREGATE PRINCIPAL AMOUNT. The aggregate principal amount of the Notes shall not initially exceed Y10,000,000,000. SECTION 2.4 PRINCIPAL PAYMENT DATE. Subject to the provisions of Section 2.7 hereof and Articles Four and Twelve of the Indenture, the principal of the Notes shall be become due and payable in a single installment on September 5, 2000 (the "Maturity Date"). SECTION 2.5 INTEREST AND INTEREST RATES. Interest on the Notes shall be payable on the Maturity Date only (the "INTEREST PAYMENT DATE"); PROVIDED, however, that if the Interest Payment Date would otherwise be a day that is not a Business Day, such Interest Payment Date shall be the next succeeding Business Day, and no additional interest shall be paid in respect of such intervening period. The interest rate borne by the Notes will be 0.57% per annum, and the interest payable on the Interest Payment Date shall be the amount of interest accrued from August 31, 1999 to but excluding the maturity date. Interest shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The interest payable on any Note which is punctually paid or duly provided for on the Interest Payment Date shall be paid to the Person in whose name such Note is registered at the close of business on the Maturity Date (the "REGULAR RECORD DATE"). Interest payable on any Note which is not punctually paid or duly provided for on the Interest Payment Date therefor shall forthwith cease to be payable to the Person in whose name such Note is registered at the close of business on the Regular Record Date immediately preceding the Interest Payment Date, and such interest shall instead be paid to the Person in whose name such Note is registered at the close of business on the record date established for such payment by notice by or on behalf of the Company to the Holders of the Notes mailed by first-class mail not less than 15 days prior to such record date to their last addresses as they shall appear upon the Security 4 register, such record date to be not less than five days preceding the date of payment of such defaulted interest. SECTION 2.6 PLACE OF PAYMENT. The place of payment where the Notes may be presented or surrendered for payment, where the principal of and interest and any other payments due on the Notes are payable, where the Notes may be surrendered for registration of transfer or exchange and where notices and demands to and upon the Company in respect of the Notes and the Indenture may be served shall be in the Borough of Manhattan, The City of New York, and the office or agency maintained by the Company for such purpose shall initially be the Corporate Trust Office of the Trustee or in Tokyo Japan at an office or agency designated by the Company. At the option of the Company, interest on the Notes may be paid (i) by check mailed to the address of the Person entitled thereto as such address shall appear in the register of Holders of the Notes or (ii) at the expense of the Company, by wire transfer to an account maintained by the Person entitled thereto as specified in writing to the Trustee by such Person by the applicable record date. SECTION 2.7. (a) ADDITIONAL AMOUNTS; CERTAIN TAX PROVISIONS. For purposes of the Notes, Sections 12.1 and 12.2 of the Indenture are amended in their entirety to read as follows: "SECTION 12.1. REDEMPTION UPON CHANGES IN WITHHOLDING TAXES. The Notes may be redeemed, as a whole but not in part, at the election of the Company, upon not less than 30 nor more than 60 days notice (which notice shall be irrevocable), at a redemption price equal to 100% of the principal amount thereof, together with accrued interest, if any, to the redemption date and Additional Amounts (as defined in Section 12.2), if any, if as a result of any amendment to, or change in, the laws or regulations of Luxembourg or Bermuda or any political subdivision or taxing authority thereof or therein having power to tax (a "Taxing Authority"), or any change in the application or official interpretation of such laws or regulations which amendment or change is announced and becomes effective after the date the Notes are issued, the Company or Tyco has become or will become obligated to pay Additional Amounts, on the next date on which any amount would be payable with respect to the Notes, and such obligation cannot be avoided by the use of reasonable measures available to the Company or Tyco, as the case may be; PROVIDED, HOWEVER, that (a) no such notice of redemption may be given earlier than 60 days prior to the earliest date on which the Company or Tyco, as the case may be, would be obligated to pay such Additional Amounts, and (b) at the time such notice of redemption is given, such obligation to pay such Additional Amounts remains in effect. Prior to the giving of any notice of redemption described in this paragraph, the Company shall deliver to the Trustee (i)(I) a certificate signed by two directors of the Company stating that the obligation to pay Additional Amounts cannot be avoided by the Company taking reasonable measures available to it or (II) a certificate signed by two executive officers of Tyco stating that the obligation to pay Additional Amounts cannot be avoided by Tyco taking reasonable measures available to it, as the case may be, and (ii) a written opinion of independent legal counsel to the Company or Tyco, as the case may be, of recognized standing to the effect that the Company or Tyco, as the case may be, has or will become obligated to pay Additional Amounts as a result of a change, amendment, official interpretation or application described above and that the Company or Tyco, as the case may be, cannot avoid the payment of such Additional Amounts by taking reasonable measures available to it. SECTION 12.2. PAYMENT OF ADDITIONAL AMOUNTS. All payments made by the Company, Tyco and any other Guarantor under or with respect to the Notes and the Guarantees will be made free and clear of and without withholding or deduction for or on account of any present or future taxes, duties, levies, imposts, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Taxing Authority ("Taxes"), unless the Company, Tyco or such Guarantor, as the case may be, is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. In the event that the Company, Tyco or such Guarantor is required to so withhold or deduct any amount for or on account of any Taxes from any payment made under or with respect to the Notes or the Guarantees, as the case may be, the Company, Tyco or such Guarantor, as the case may be, will pay such additional amounts 5 ("Additional Amounts") as may be necessary so that the net amount received by each Holder of Notes (including Additional Amounts) after such withholding or deduction will equal the amount that such Holder would have received if such Taxes had not been required to be withheld or deducted; PROVIDED that no Additional Amounts will be payable with respect to a payment made to a Holder of Notes to the extent: (a) that any such Taxes would not have been so imposed but for the existence of any present or former connection between such Holder and the Taxing Authority imposing such Taxes (other than the mere receipt of such payment, acquisition, ownership or disposition of such Notes or the exercise or enforcement of rights under such Notes, the Guarantees or the Indenture); (b) of any estate, inheritance, gift, sales, transfer, or personal property Tax imposed with respect to such Notes, except as otherwise provided herein; (c) that any such Taxes would not have been so imposed but for the presentation of such Notes or Guarantees (where presentation is required) for payment on a date more than 30 days after the date on which such payment became due and payable or the date on which payment thereof is duly provided for, whichever is later, except to the extent that the beneficiary or Holder thereof would have been entitled to Additional Amounts had the Notes or Guarantees been presented for payment on any date during such 30-day period; or (d) that such Holder would not be liable or subject to such withholding or deduction of Taxes but for the failure to make a valid declaration of non-residence or other similar claim for exemption, if (x) the making of such declaration or claim is required or imposed by statute, treaty, regulation, ruling or administrative practice of the relevant Taxing Authority as a precondition to an exemption from, or reduction in, the relevant Taxes, and (y) at least 60 days prior to the first payment date with respect to which the Company, Tyco or such Guarantor shall apply this clause (d), the Company, Tyco or such Guarantor shall have notified all Holders of Notes in writing that they shall be required to provide such declaration or claim. The Company, Tyco or such Guarantor, as the case may be, will also (i) make such withholding or deduction of Taxes and (ii) remit the full amount of Taxes so deducted or withheld to the relevant Taxing Authority in accordance with all applicable laws. The Company, Tyco or such Guarantor, as the case may be, will use its reasonable best efforts to obtain certified copies of tax receipts evidencing the payment of any Taxes so deducted or withheld from each Taxing Authority imposing such Taxes. The Company, Tyco or such Guarantor, as the case may be, will, upon request, make available to the Holders of the Notes, within 60 days after the date the payment of any Taxes so deducted or withheld is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by the Company, Tyco or such Guarantor or if, notwithstanding the Company's, Tyco's or such Guarantor's efforts to obtain such receipts, the same are not obtainable, other evidence of such payments by the Company, Tyco or such Guarantor. At least 30 days prior to each date on which any payment under or with respect to the Notes or Guarantees is due and payable, if the Company, Tyco or such Guarantor will be obligated to pay Additional Amounts with respect to such payment, the Company, Tyco or such Guarantor will deliver to the Trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable, the amounts so payable and will set forth such other information as is necessary to enable such Trustee to pay such Additional Amounts to Holders of Notes on the payment date. In addition, the Company, Tyco or such Guarantor, as the case may be, will pay any stamp, issue, registration, documentary or other similar taxes and duties, including interest, penalties and Additional Amounts with respect thereto, payable in Luxembourg, Bermuda or the United States or any political subdivision or taxing authority of or in the foregoing in respect of the creation, issue, offering, enforcement, redemption or retirement of the Notes or the Guarantees. The foregoing provisions shall survive any termination of the discharge of the Indenture and shall apply mutatis mutandis to any jurisdiction in which any successor Person to the Company, Tyco or such 6 Guarantor, as the case may be, is organized or is engaged in business for tax purposes or any political subdivisions or taxing authority or agency thereof or therein; PROVIDED, HOWEVER, the date on which such Person becomes a successor to the Company, Tyco or such Guarantor, as the case may be, shall be substituted for the date on which the series of Notes was issued. Whenever in the Indenture, the Notes or the Guarantees there is mentioned, in any context, the payment of principal (and premium, if any), redemption price, interest or any other amount payable under or with respect to any Notes or Guarantees, such mention shall be deemed to include mention of the payment of Additional Amounts to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof." (b) NO SINKING FUND. The Company shall have no obligation to redeem or purchase the Notes pursuant to any sinking fund or analogous provisions or upon the happening of any specified event or at the option of any Holder of the Notes. SECTION 2.8 CURRENCY AND PAYMENTS. (a) The Company shall make shall make principal and interest payments in respect of the Notes in Japanese Yen, subject to clause (b) of this section. All payments in respect of the Notes represented by the Global Note will be made by the Registrar, as paying agent for the Company, to the registered Holder of the Global Note. Except for Euroclear or Cedel, the payment of principal, interest and Additional Amounts, if any, to Holders of beneficial interests in Notes held through DTC shall be made in United States dollars, unless they elect to receive payments in Japanese Yen as provided herein. (b) Payments of principal of and interest on the Notes held through DTC will be converted to United States dollars in accordance with procedures established from time to time by the Trustee and DTC and paid to Cede & Co. for payment to owners of beneficial interests in the Global Notes. The amount payable in United States dollars will be equal to the amount of Japanese Yen otherwise payable exchanged into United States dollars at the (Yen)/U.S.$ rate of exchange prevailing two business days prior to the payment date. All costs of such conversion will be borne by those owners receiving United States dollars by deduction from such payments. If there is no facility in place between the Trustee and DTC for the exchange of Japanese Yen into United States dollars, payments of the aggregate amount due to all such owners on the payment date will be made in Japanese Yen outside of DTC, unless alternative arrangements acceptable to both the Trustee and DTC are made by the Company. (c) An owner of a beneficial interest in a Global Note may elect to receive payment in respect of the principal of or interest on the Notes in Japanese Yen by notifying the Participant through which its Global Notes are held at least fifteen days prior to the Maturity Date of (1) such owner's election to receive all or a portion of such payment in Japanese Yen and (2) wire transfer instructions to a Japanese Yen account with respect to any payment to be made in Japanese Yen. Such Participant must notify DTC of such election and wire transfer instructions on or prior to the twelfth day prior to the Maturity Date. DTC will notify the Trustee of such election and wire transfer instructions on or prior to the tenth day prior to the Maturity Date. If complete instructions are received by the Participant and forwarded by the Participant to DTC and by DTC to the Trustee, on or prior to such dates, the owner of the beneficial interest in the Global Note will receive payment in Japanese Yen outside of DTC; otherwise, only United States dollar payments will be made through DTC. (d) The Company shall have the right to require a Holder of a Note, as a condition of payment of the principal of or interest or any Additional Amounts on a Note, to deliver to the Trustee a certificate in such form as the Company may from time to time prescribe in order to enable the Company to determine its duties and liabilities with respect to (i) any taxes, assessments or governmental charges which the Company or the Trustee may be required to deduct or withhold from payments in respect of such debenture under any present or future law of the government of Japan or any regulation thereunder and (ii) any reporting 7 or other requirements under such law or regulation. The Company shall be entitled to determine its duties and liabilities with respect to such deduction, withholding, reporting or other requirements on the basis of information contained in such certificate or, if no certificate shall be presented, on the basis of any presumption created by any such law or regulation and shall be entitled to act in accordance with such determination. SECTION 2.9 TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 90 days after the date of such notice from the Depositary; or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Global Note be exchanged by the Company for Definitive Notes prior to the expiration of the Restricted Period. Global Notes may also be, subject to compliance with the terms of this Section 2.9, exchanged for Definitive Notes upon the request of any holder of Notes if an Event of Default has occurred and is continuing for a period of at least 180 days. Upon the occurrence of any of the preceding events, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.10 and 2.12 of the Indenture. (b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of the Indenture and the Applicable Procedures. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) TRANSFER OF BENEFICIAL INTERESTS IN THE SAME TYPE OF GLOBAL NOTE. Beneficial interests in any Rule 144A Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Rule 144A Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend. Beneficial interests in any Regulation S Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in a Regulation S Global Note; provided, however, that prior to the expiration of the Restricted Period beneficial interests in the Regulation S Global Note may only be transferred in accordance with the Applicable Procedures of Euroclear and Cedel. Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.9(b)(i). (ii) ALL OTHER TRANSFERS AND EXCHANGES OF BENEFICIAL INTERESTS IN GLOBAL NOTES. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.9(b)(i) above, and, subject to any other requirement in this Section 2.9, the transferor of such beneficial interest must deliver to the Registrar (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in a Global Note of another type in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with 8 such increase or (B), subject to Section 2.9(a), (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the exchange; provided that in no event shall Definitive Notes be issued upon the exchange of beneficial interests in the Regulation S Global Note prior to the expiration of the Restricted Period. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained herein and in the Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.9(g) hereof. (iii) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN A RULE 144A GLOBAL NOTE FOR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE. A beneficial interest in Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. If any such transfer is effected at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests so transferred. (iv) Transfer and Exchange of Beneficial Interests to and From Regulation S Global Notes. (A) Transfer and Exchange of Beneficial Interests in a Regulation S Global Note Prior to the Termination of the Restricted Period for Beneficial Interests in a Rule 144A Global Note. A beneficial interest in any Regulation S Global Note may be exchanged by any holder thereof for a beneficial interest in a Rule 144A Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above, and (y) the holder of the beneficial interest in the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. (B) Transfer and Exchange of Beneficial Interests in a Regulation S Global Note Following the Termination of the Restricted Period for Beneficial Interests in an Unrestricted Global Note. A beneficial interest in any Regulation S Global Note following the termination of the Restricted Period may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the Regulation S Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 4(b) or Exhibit C with the certification set forth in paragraph 1, as applicable, completed. (C) Transfer and Exchange of Beneficial Interests in a Rule 144A Global Note for Beneficial Interests in a Regulation S Global Note. A beneficial interest in any Rule 144A Global Note may be exchanged by any holder thereof for a beneficial interest in a Regulation S Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in a 9 Regulation S Global Note, if (x) the exchange or transfer complies with the requirements of Section 2.9(b)(ii) above and (y) the holder of the beneficial interest in the Rule 144A Global Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed. (c) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN GLOBAL NOTES FOR DEFINITIVE NOTES. (i) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES TO RESTRICTED DEFINITIVE NOTES. If any holder of a beneficial interest in a Rule 144A Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note in the circumstances set forth in Section 2.9(a) hereof, such Definitive Note shall be subject to all restrictions on transfer contained therein and shall be issued, upon receipt by each of the Trustee and the Registrar of Exhibit C with the certification set forth in paragraph 2`(a) completed; (ii) intentionally omitted. (iii) BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES OR REGULATION S GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. Subject to Section 2.9(a), a holder of a beneficial interest in a Rule 144A Global Note or Regulation S Global Note may exchange such beneficial interest for an Unrestricted Definitive Note only if such exchange is in accordance with the Applicable Procedures, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a)(ii) is completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the exchange is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iv) BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES TO UNRESTRICTED DEFINITIVE NOTES. A holder of a beneficial interest in an Unrestricted Global Note may, in the circumstances described in Section 2.9(a), exchange such beneficial interest for an Unrestricted Definitive Note. Any transfer pursuant to this Section 2.9(c) shall satisfy the requirements of Section 2.9(b)(ii). In any such case, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.9(h) hereof, and the Company shall execute and the Trustee, upon receipt of an Authentication Order in accordance with Section 2.5 of the Indenture, shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Restricted Definitive Note issued in exchange for a beneficial interest in a Global Note pursuant to this Section 2.9(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. (d) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR BENEFICIAL INTERESTS IN GLOBAL NOTES. (i) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN RULE 144A GLOBAL NOTES. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Rule 144A Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Rule 144A Global Note, then, upon receipt by each of the Trustee and the Registrar of a letter in the form of Exhibit B with the certification set forth in paragraph 1 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed, the Trustee shall cancel the Restricted Definitive Note and increase or cause to be increased the aggregate principal amount of the appropriate Global Note. (ii) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of 10 a beneficial interest in an Unrestricted Global Note only if such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iii) UNRESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN UNRESTRICTED GLOBAL NOTES. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time if permitted by the Applicable Procedures and applicable law. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. (iv) RESTRICTED DEFINITIVE NOTES TO BENEFICIAL INTERESTS IN REGULATION S GLOBAL NOTES. A beneficial interest in any Restricted Definitive Note may be exchanged by any holder thereof who is a non-U.S. Person for a beneficial interest in a Regulation S Global Note or transferred to a Non U.S. Person who takes delivery thereof in the form of a beneficial interest in a Regulation S Global Note, if (x) the holder of the Restricted Definitive Note delivers to the Trustee and the Registrar a letter in the form of Exhibit B with the certification set forth in paragraph 2 or Exhibit C with the certification set forth in paragraph 2(b), as applicable, completed and (y) if the Trustee and the Registrar so request or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Trustee and the Registrar is furnished to the Trustee and the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act. If any such exchange or transfer from a Definitive Note to a beneficial interest in a Global Note is effected at a time when a Global Note of the appropriate type has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 5 of the Indenture the Trustee shall authenticate one or more Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR DEFINITIVE NOTES. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.9(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.9(e). (i) Restricted Definitive Notes to Restricted Definitive Notes. Any restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a letter in the form of Exhibit B with certification set forth in paragraph 1 completed, (B) if the transfer will be made to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or 904 under the Securities, then the transferor must deliver a letter in the form of Exhibit B with the certification set forth in paragraph 2 completed; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a letter in the form of 11 Exhibit B with the certification set forth in paragraph 3 completed, as well as an Opinion of Counsel in form and substance acceptable to the Trustee. (ii) RESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such transfer is effected pursuant to Rule 144 of the Securities Act, a letter in the form of Exhibit B with the certification set forth in paragraph 4(a) completed, and, if the Trustee and the Registrar so request or the Applicable Procedures so require, an Opinion of Counsel to the effect that the transfer is permitted, and that upon transfer the Notes will not be restricted, under the Securities Act, is furnished to the Trustee and Registrar. (iii) UNRESTRICTED DEFINITIVE NOTES TO UNRESTRICTED DEFINITIVE NOTES. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) LEGENDS. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under the Indenture unless specifically stated otherwise in the applicable provisions of the Indenture. (i) PRIVATE PLACEMENT LEGEND. (A) Except as permitted by subparagraph (B) below, each Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER: (1) REPRESENTS THAT IT IS (A) A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) NOT A U.S. PERSON AND IS ACQUIRING THE NOTE EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION; (2) AGREES THAT IT WILL NOT RESELL OR OTHERWISE TRANSFER THE NOTE EVIDENCED HEREBY EXCEPT TO (A) THE COMPANY OR ANY SUBSIDIARY THEREOF, (B) A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (D) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR (E) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OR ANY OTHER APPLICABLE JURISDICTION; AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE NOTE EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (C) OR (D) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK, AS TRUSTEE (OR A SUCCESSOR TRUSTEE, AS APPLICABLE), SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED 12 STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT." (B) Notwithstanding the foregoing, any Note which is (i) a Regulation S Global Note (and any Note issued in exchange therefor or substitution thereof after the Restricted Period), or (ii) a Note which has been transferred in accordance with Rule 144, provided that in such case an Opinion of Counsel is delivered which states that the Note does not have to bear the Private Placement Legend in the cases where such opinion is required under this Indenture, shall not bear the Private Placement Legend. (ii) GLOBAL NOTE LEGEND. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.9 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN CERTAIN CIRCUMSTANCES IN THE SUPPLEMENTAL INDENTURE NO. 12, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) REGULATION S GLOBAL NOTE LEGEND. The Regulation S Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). DURING THE RESTRICTED PERIOD, INTERESTS IN THIS NOTE MAY ONLY BE HELD THROUGH EUROCLEAR AND CEDEL." (g) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 of the Indenture. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary to reflect such increase. SECTION 2.10 DEFEASANCE AND COVENANT DEFEASANCE. The provisions of Article Nine of the Indenture shall apply to the Notes. SECTION 2.11 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITY HOLDERS. In addition to provisions specified in Section 7.2 of the Indenture, Section 7.2 is supplemented to include the following as clause (c) at the end of the first paragraph thereof and deleting the ", or" immediately prior to clause (b): "or (c) change the currency denomination of Securities of any series, including the currency denomination of any interest or other payments thereon, without the consent of the Holders of each Security so affected." 13 SECTION 2.12 DEFINITION OF PERMITTED SUBSIDIARY INDEBTEDNESS. Clause (vi) of the definition of "Permitted Subsidiary Indebtedness" in Section 1.1 of the Indenture is amended by inserting after the phrase "Acquired Indebtedness that by its terms is not" the following phrase: ", at the time it becomes Acquired Indebtedness or within 180 days thereafter," SECTION 2.13 IN ADDITION TO PROVISIONS SPECIFIED IN SECTION 10.10 OF THE INDENTURE, SECTION 10.13 IS HEREBY ADDED TO THE INDENTURE AS FOLLOWS: Section 10.13 JUDGMENT CURRENCY NOT IN JAPANESE YEN. If pursuant to a judgment or order being made or registered against the Company or Tyco, any payment under or in connection with any Notes or any Guarantees thereof to a Holder is made or satisfied in a currency (the "Judgment Currency") other than in Japanese Yen then, to the extent that the payment (when converted into Japanese Yen at the rate of exchange on the date of payment or, if it is not practicable for such Holder to purchase Japanese Yen with the Judgment Currency on the date of payment, at the rate of exchange as soon thereafter as it is practicable for it to do so) actually received by such Holder falls short of the amount due under the terms of the Notes, each of the Company and Tyco shall, to the extent permitted by law, as a separate and independent obligation, indemnify and hold harmless such Holder against the amount of such short fall and such indemnity shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. For the purpose of this Section 10.13, "rate of exchange" means the rate at which the Holder is able on the relevant date to purchase Japanese Yen with the Judgment Currency and shall take into account any premium and other costs of exchange. Notwithstanding anything in this Section 10.13 to the contrary, a Holder (a) may only make a claim pursuant to this Section 10.13 if such Holder had properly elected to receive the payment of principal in Japanese Yen at maturity pursuant to Section 2.8(c) and (b) may not make any claim for payments under this Section 10.13 if the Holder has sought any payments under Section 10.10 of the Indenture. SECTION 2.14 DEFINITION OF RESTRICTED SUBSIDIARY. The definition of "Restricted Subsidiary" in Section 1.1 of the Indenture is amended in its entirety to read as follows: "RESTRICTED SUBSIDIARY" means any Subsidiary of the Company which owns or leases a Principal Property. ARTICLE THREE MISCELLANEOUS PROVISIONS SECTION 3.1 RATIFICATION. The Indenture, as supplemented and amended by this Supplemental Indenture No. 12, is in all respects hereby adopted, ratified and confirmed. SECTION 3.2 COUNTERPARTS. This Supplemental Indenture No. 12 may be executed in any number of counterparts, each of which when so executed shall be deemed an original; and all such counterparts shall together constitute but one and the same instrument. SECTION 3.3 AMENDMENTS. This Supplemental Indenture No. 12 may be amended by the Company and Tyco without the consent of any holder of the Notes in order for the restrictions on transfer contained herein to be in compliance with applicable law or the Applicable Procedures. SECTION 3.4 APPLICABLE PROCEDURES. Notwithstanding anything else herein, the Company shall not be required to permit a transfer to a global note that is not permitted by the Applicable Procedures. SECTION 3.5 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE NO. 12 AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE CHOICE OF LAW PRINCIPLES THEREOF. 14 IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 12 to be duly executed as of the day and year first written above. TYCO INTERNATIONAL GROUP S.A. By: ---------------------------------------- Name: Title: TYCO INTERNATIONAL LTD. By: ---------------------------------------- Name: Title: THE BANK OF NEW YORK, Trustee By: ---------------------------------------- Name: Title:
15 EX-21.1 6 EX-21.1 EXHIBIT 21.1 TYCO INTERNATIONAL LTD. Subsidiaries at 30 Sept. 1999 ARGENTINA: A&E Argentina, S.A. AMP Sociedad Anonima Argentina Comercial Industrial Y Financiera Grinnell Sistemas de Proteccion Contra Incedio S.A. de C.V. Intecva Sudamericana S.R.L. Interco Argentina S.A. Metalurgica Bellucci S.A. Raychem S.a. Industrial & Comercial AUSTRALIA: 000 233 536 Pty. Limited(1) ACN 000 343 019 Pty Ltd. ADT Security Pty. Ltd. Australian AMP Pty. Limited Auto Suture Holdings Pty. Limited Coastline Foundry (Qld) Pty Limited Command Investments Pty. Limited Complete Engineering Group Pty. Limited Danby Pty Limited Environ Pty. Limited Fire Control Pty Limited Firefair Pty Limited Firepipe Protection Pty Limited Firmagroup Operations Holdings Pty Limited Gold Energy (Aust) Pty. Limited Graphic Controls (Australia) Pty. Ltd. Grinnell Asia Pacific Pty Limited(2) Grinnell Building Products Pty. Limited Haden Engineering Pty Limited Haden F M Pty Limited Haden Staff Superannuation Fund Pty Limited Kalanda Enterprises Pty Ltd Keystone Asia Pacific Pty. Ltd. Mather & Platt Pty. Ltd. MB John Limited Metropolitan Fire Systems Pty Limited MFS Holdings Pty Limited Nationguard Security Pty Limited Panmedica Pty. Ltd. Raychem (Australia) Propietary, Ltd. Sherwood Medical Industries Pty. Limited Super Nomines (NSW) Pty Limited Steel Mains Pty Limited Swan Metal Skirtings Pty. Limited TISP Pty Limited Tyco Australia Pty. Ltd. (ACN 008 399 004)(3) Tyco Building Products Pty Limited Tyco Engineering and Construction (Asia) Pty. Ltd. Tyco Flow Control Pacific Pty. Limited Tyco Grinnell Asia Pacific Pty Limited
Tyco Healthcare Pty Limited Tyco International Pty Limited Tyco Water Pty Ltd. Valleylab Australia Pty.Limited Viking Fire Systems Pty Limited Yarway Australia Pty. Ltd. AUSTRIA: AMP Osterreich Handelsgesellschaft m.b.H. Auto Suture Austria GmbH Raychem GmbH Total Walther Feuerschutz und Sicherheit GmbH Zettler-Elektro GmbH. BAHAMAS: Newington Limited World Services Inc. BARBADOS: Central Sprinkler Export Corporation Exeter Holdings Limited Dexide Foreign Sales Corporation Graphic Controls Barbados Limited INBRAND FSC Inc. Kendall International FSC, Inc. Keystone FSC Ltd. Raychem Foreign Sales Corporation SWD Foreign Sales Corporation TSSL Foreign Sales Corporation TVM Foreign Sales Corporation Tyco International Sales Corp. USSC FSC, Inc. BELGIUM: 1991 CIPE Benelux 1994 WHICH ADT Security Services S.A. Alarm Centrale AMP Belgium Auto Suture Belgium B.V. B.V.B.A. Alarm Cebtrale S.P.R.L. Intervalve B.V. N.V. ADT Security Services S.A. N.V. Airvans Belgium S.A. N.V. CIPE Belgium S.A. N.V. Firman Schevelenbosch-Alarm-Beveiliging Systemen S.A. N.V. WHICH Belgium S.A. N.V. Wormald S.A. Raychem China Limited NV Raychem Industries NV Raychem NV Tyco Flow Control Europe Tyco Healthcare Belgium S.A. Vonk Enschede BV Wormald S.A. Zettler Belgique S.A.
BERMUDA: AMP Exports Limited Camron (Bermuda) Insurance, Ltd. Cawich Limited Electro-Protective Limited Kral Steel, Ltd. Tyco Alpha Limited Tyco Beta Limited Tyco Delta Limited Tyco Epsilon Limited Tyco Eta Limited Tyco Gamma Limited Tyco Holdings Limited Tyco Kappa Limited Tyco Lambda Tyco lota Limited Tyco Omega Tyco Omicron Tyco Rho Tyco Sigma Limited Tyco Theta Limited Tyco Zeta BORNEO: Wormald (Borneo) Sdn. Bhd. BRAZIL: AMP DO Brasil Conectores Eletricos E Eletronicos Ltda. Auto Suture do Brasil Ltda. Batts do Brazil Crosby Valve & Gage Participawes Ltd. Grinnell Sistemas de Protecao contra Incendio Ltda. Hitech Harness Industria E Comercio de Componentes Electricos E Electronicos Ltda. Keystone do Brasil, Ltda. Micro-Onda do Brasil-Comercio e Industria de Equipamentos Electronicos Ltda. Microwave Electronica E Telecomunicacoes Multiservice Engenharia Ltda. Raychem Productos Irradiados Limitada Valvulas Crosby Industria e Commercio Ltd. BRITISH VIRGIN ISLANDS: Somerset Holdings Ltd. CANADA: 1057673 Ontario Inc. 311313 Alberta Ltd. 3598900 Canada Inc. 495649 Ontario Limited 597237 Alberta Ltd. 620919 Ontario Limited 919551 Ontario Inc. 921150 Ontario Inc. ADT Finance, Inc. ADT Canada Holdings Limited (72.84%) ADT Security Services Canada, Inc. Alarmcorp. Ltd.
Alarmex Ltd. AMP of Canada, Ltd. ASL Alarm Supplier Ltd. Batts Enterprises (Canada) Ltd. Cantech Corporation Century Industries Company Code Red Fire Services, Ltd. Code Red Security Systems, Corp. Columbia-MBF Inc. (3589790) Detron Safety Inc. Drapeau Fire Protection Limited Earth Tech (Canada) Inc. Firecom Sales & Consulting Firefighter Protection/Mobile Fire Extinguisher Recharging Ltd. Fireworks Fire Protection Ltd Fireex Industries Calgary Inc. Firex Industries Inc. Foothills Fire Equipment Ltd. Freedom Systems Ltd. Forward Safety Systems (Eastern) Inc. Forward Safety Systems, Inc. Gormae Holdings Inc. Graphic Controls Canada, Ltd. Hawley Group Canada Limited Hawley International Finance Limited Hi-Line Holdings Ltd. Inbrand Corporation (Canada) Inc. Jenteck Controls Ltd. Keystone Canada, Co. M/A-COM Limited Minervatech Inc. Murphy Fire Systems Ltd. National Alarm Systems Ltd. Niagara Fire Extinguisher Co. Ltd. P.A.L. Enterprises Inc. Proctor & Redfern International Limited Protec Industries Alberta Ltd. Parkwood Security Services, Inc. Protective Alarms of Canada Inc. Raychem Canada Limited Rovalve Canada Ltd. Rust Environment & Infrastructure of Canada Inc. Serv-Alarm Limited Serv-Alarm Niagara Serv-Alarm Toronto Ltd. Sheldon Machine Shop Inc. Sheldon Valve Sales Ltd. SKS Fire & Communications Inc. Spanguard Devices, Inc. Tyco Healthcare Group Canada Inc. Tyco International of Canada Ltd.(4) Tyco Valves & Controls Canada Inc. Unistrut of Canada Limited Universal Electronic Protection Inc.
CAYMAN ISLANDS: Davis & Geck Caribe Limited Davis & Geck Limited Raychem International CHILE: AMP de Chile Conectores Electricos Y Electronicos Limitada Comercial Kendall (Chile) Limitada Grinnell Sistemas de Proteccion Contra Incedio, S.A. (Chile) Inprotecto SA Kendall de Chile de S.A. Raychem Industrial Y Comercial Limitada Simplex S.A. Tyco Flow Control Chile S.A. Unistrut Chile Comercial E. Industrial Limitada COLUMBIA: AMP de Colombia ltda. Kendall Columbia, S.A. Raychem Colombia S.A. Raychem S.A. COSTA RICA: Carlisle Costa Rica S.A. Kendall Innovadores en Cuidados al Paciente S.A. CROATIA: AMP Croatoa, d.o.c CYPRUS: Raychem Technologies Limited CZECH REPUBLIC: AMP Czech s.r.o. Raychem s.r.o. Wormald CZ s.r.o. Zettler C.R. Spol. s.r.o. Zettler CR, Ltd. DENMARK: AMP Danmark CIPE Holding ApS K.S. Kaalund A/S International KBIL 38 nr. 2201 ApS Raychem A/S TSD Tyco Holding I Aps Tyco Holding II Aps Tyco Holding III Aps Tyco Holding IV Aps Tyco Holding IX (Denmark) ApS Tyco Holding V Aps Tyco Holding VI Aps Tyco Holding VII Aps Tyco Holding VIII (Denmark) ApS Tyco Holding X (Denmark) ApS
Tyco Holding XI (Denmark) ApS Tyco Holding XII (Denmark) ApS WATER Holding ApS Wormald A/S ECUADOR: Grinnell Sistemas de Proteccion Contra Incedio, S.A. EGYPT Raychem Egypt Limited ESTONIA: AMP Eesti AS FINLAND: AMP Finland OY TSA Gap Prive Raychem OY FRANCE: Acheroise de Participations Acroba S.A. ADT Provider ADT Provider SA ADT Securite Services S.A. Alstom Vannes SA Alte AMP--SIMEL SA AMP de France S.A. AMP Export S.A.R.L. AMP Holding France S.A.S. APM SARL ASE Continuing Education Center S.A. ASE Partners S.A. Automatisation et Securite de L'Quest (A.S.O.) Auto Suture Europe S.A. Auto Suture European Services Center, S.A. Auto Suture France S.A. Bayard CEDI Fabrication CEDI Securite SA Ceditel SA CEDP CEMOS S.A. CEPA CIPE France S.A. COFILION Cormerais Electronique S.A. CPS Alarme CPS Surveillance D.S.I. Sarl (34%) Descote SA Euroville France FAB ELEC Fibaly FINASUR
Fingerkey S.A. FIRENT First Alarme Gachot S.C.A. GMC SARL Graphic Controls France S.A.R.L. Grinnell Distribution France Sarl Gubri Inbrand France SA Karner-Batts SARL Kendall Incontinence KLEIN Label S.A. Laborotoires Sherwood, Davis & Geck Mather & Platt Wormald S.A. Nomos SA Omnium de Prevention et de Protection Incendie PREFI Protel Raychem SA S.T.M.T. (s.a.r.l.) Sarthe Mayenne Telesurveillance Electronique Sayag Electronique International (S.E.I.) SCI Alain Martin Sci Becaro Sci Chanle Sci Du Mouzon Sci Mazal Sci Tov Securifin SEGE SA Sherwood, Davis and Geck Needles S.A. Societe de Communication et Telesurveillance (S.C.T.) Societe Europeenne de Protection Contre L'Incendie S.A. STPE Surgical Dynamics Europe, SAS Swair TSA Gap (34%) T.S.M.C. T.S. France SA Telesix TEP France SA Tyco Europe S.A. Tyco European Security Holdings SA Tyco European Security Management Tyco Flow Control Holding S.A. Tyco Submarine Systems SARL Visagest Sarl
GERMANY: 1994 CIPE Duetschland 1996 WHICH Deutschland 1997 TEP Deutschland 1998 JALEX ADT Security Deutschland GmbH AMP Deutschland GmbH B. Braun-Dexon GmbH (50%) CDK Holding Deutschland Chemat GmbH Armaturen fur Industrie Chemat Verwaltungsgesellschaft GmbH Chemische Fabrik Pirna-Copitz GmbH Descote GmbH Elo TouchSystems Verwaltungs GmbH Elo Touch Systems GmbH & Co. KG Erika-Stiftung e.V. Grinnell Flow Control GmbH & Co. Dist. Grinnell Flow Control GmbH H&H Med. GmbH Helmut Geissler Glasinstrumente GmbH Karner-Batts GmbH Kendall-Medizinische Erzeugnise Keystone GmbH Medolas Gesellschaft Fur Medizintechnik MBH NARVIK-Yarway GmbH Ofa Bamberg Otto Fankhanel & Sohn GmbH Rathgeber BIOFORM GmbH Raumschutzanlagenbau GmbH Raychem GmbH SABO-Armaturen Service GmbH Sempell Aktiengesellschaft Sempell Armaturen-Service GmbH SHG-Strahlenchemie Holding GmbH SHG-Vermogensverwaltungsgesellschaft mbH Sigmaform GmbH TEPG GmbH Thorn Sicherheits GmbH Total Walther Feuerschutz Loschmittel GmbH Total Walther GmbH Triangle Controls Ltd. Tyco Healthcare Deutschland GmbH Tyco Healthcare Deutschland Manufacturing GmbH \ Tyco Holding GmbH Tyco International Armaturen Holding GmbH USSC Medical GmbH USSC (Deutschland) GmbH Walter Rose GmbH Wellcom International Sales and Services GmbH Wellcom International Sales and Services GmbH & Co. Betriebs KG Zettler Hilfe e.V. GIBRALTAR: Espion (International) Limited Silver Avenue Holdings Limited
Stralen Investments Limited Valera Holdings Limited Velum 1998 Limited Verdana Holdings Limited GREECE: ADT Greece S.A. (82.5%) AMP Hellas MEPE Greene Insurance Limited Raychem Hellas E.P.E. Tyco Hellas S.A. GUATEMALA: ADT Sistemas de Seguridad, S.A. Grinnell Sistemas de Proteccion Contra Incendio, S.A. de C.V. Tyco Ingenieria y Construccion S.A. HONDURAS: A&E Hangers S.A. HONG KONG: A&E Products (Far East) Limited AMP Products Pacific Limited Batts Far East Limited Central Spraysafe Company (Hong Kong) Limited Crown Nation International Limited Dawson Engineering Limited (50%) Madison Cable Asia Limited ODG Energy Controls Limited Pioneer Faith International Limited (50%) Raychem (HK) Limited Raychem Asia Pacific Limited Raychem China Limited Raychem China Marketing Services Limited Sherwood Medical (Hong Kong) Limited Thorn Security (Hong Kong) Limited Tyco Engineering & Construction (HK) Ltd. Tyco Flow Control Hong Kong Limited Tyco Healthcare (HK) Co., Ltd. Tyco/Tudawe Trading Corporation Wormald Engineering Ltd. Wormald Engineering Services Limited HUNGARY: AMP Hungary Maufacturing Co. Ltd. AMP Hungary Trading Co. Ltd. Total Walther Contractor and Engineering INDIA: A&E India Private Limited AMP India Limited AMP Tools (India) Pvt. Ltd. Automotive Wiring Systems Private Limited Keystone India pvt. Limited
Keystone Valves (India) Pvt. Ltd. Modern Alarms & Electronics Pvt Ltd. Raychem RPG Limited Stenco Engineering Co. Pvt. Ltd. INDONESIA: P.T. ODG Wormald Indonesia IRELAND: ABA Electronics Ltd. ACE Alarm Systems Limited ADT Limited Allied Alarms & Safes Limited Allied Alarms Limited Allied Metal Products Limited Allied Security Products Limited AMP Ireland Limited AMP Reinsurance Company Limited (ARCL) B & E Electronics Limited Brangate Limited Huet Security Ltd. IAMASCO Plc Knightline Ltd. Knightlock Ltd. Knightvision Ltd. Knightwatch Alarms, Ltd. Mather & Platt (Ireland) Limited Mather & Platt Ireland (Mfg.) Limited Mid-Ulster Alarms Limited Modern Security Systems Ltd. Renalarms Ltd. Sherwood Medical Industries of ireland Limited Tyco Far East Asia Holdings Tyco International Finance Ireland Tyco Ireland Limited United States Surgical Corporation (Ireland) Limited ISRAEL: AMP Israel Products Ltd. Sintram Limited Raychem Limited ITALY: AMP Italia Products S.p.A. AMP Italia S.p.A. Auto Suture Italia, S.p.A. Belgicast Srl Biffi Italia S.r.l. Faro S.r.l. Fasani Karner-Batts SRL Kendall Medical S.R.L. Meditec s.r.l. Politermica Distribution S.r.l.
Raimondi Valvole Raychem S.p.A. Vanessa S.r.l. Wormald Italiana S.P.A. Zettler App. Eletricci S.p.A. Zettler S.R.L. JAPAN: AMP (Japan) Limited AMP Technology Japan Ltd. Ansul-Nissho, Inc. Auto Suture Japan Inc. Business Japan Co., Ltd. Central Sprinkler Japan, Limited Nihon Elcon K.K. Nippon Keystone Corporation Nippon Sherwood Medical Industries Ltd. Surgical Dynamics Japan Inc. Tyco Healthcare Products (Japan) Co., Ltd. Touch Panel Systems K.K. KOREA: AMP Korea AMP Korea Limited Auto Suture Korea, Inc. Batts Korea Ltd. Caps Co. Ltd. Dong Bang Electronic Industrial Co. Ltd. (98.5%) Kendall Medical Ltd. Keystone Valve (Korea) Limited Raychem Korea Ltd. LUXEMBOURG: 1997 CIPE Luxembourg ADT Finance S.A. ADT Luxembourg S.A. Ocarina S.A. Tyco Group S.a.r.l. Tyco International Group S.A. Valera Holdings S.a.r.l. MALAYSIA: ADT Alarm Research (M) Sdn. Bhd. AMP Connectors (Malaysia) Sdn. Bhd. AMP Products (Malaysia) Sdn. Bhd. Brunsfield Holdings Sdn. Bhd. Brunsfield Thorn Technology Sdn. Bhd. (50%) Grinnell Supply Sales (Malaysia) Sdn. Bhd. (50%) Innodouble (M) Sdn. Bhd. (51%) Keystone Valve (M) Sdn. Bhd. Kijang Merger Sdn Bhd Kumpulan Injap Kebesan (M) Sdn. Bhd. Mediquip Sdn. Bhd. Raychem Sdn. Bhd.
Thorn Security Services (Malaysia) Sdn. Bhd. (30%) Tyco Engineering & Construction (Malaysia) Sdn. Bhd. (70%) Tyco Flow Control (Malaysia) Sdn. Bhd. Tyco Grinnell KM Sdn. Bhd. (30%) MARSHALL ISLANDS: C.S. Tyco Provider, Inc. Coastal Cable Ship Co. Inc. MAURITIUS: Tyco Asia Investments Limited MEXICO: ADT Security Services, S.A. de C.V. AMP Amermex, S.A. de C.V. AMP De Mexico, S.A. Ansul Mexico, S.A. de C.V. Batts de Mexico S.A. de C.V. Carlisle Recycling de Mexico S.A. de C.V. Cima de Acuna S.A. de C.V. Especialidades Medicas Kenmex, S.A. Euro-Flex de Mexico, S.A. de C.V. Grinnell Sistemas de Proteccion Contra Incendio Mexico S.A. de C.V. Kelsar S.A. de C.V. Kendall de Mexico S.A. de C.V. Kenmex Holding Company, S.A. de C.V. Plasticos Bajacal, S.A. de C.V. Plasticos Mexical S.A. de C.V. Productos de Atencion de Salud de Mexico, S.A. Raychm Juarez, S.A. de C.V. Raychem Servicos, S.A. de C.V. Raychem Technologias, S.A. de C.V. Rust Servicios Ambientales E Infraestructura, S.A. de C.V. Tyco Engineering and Construction S.A. De C.V. Tyco Submarine Systems, S.A. de C.V. Valvulas Keystone de Mexico S.A. de C.V. NETHERLANDS: 1994 CIPE Nederland 1997 TEP Nederland ADT Canada B.V. ADT Canada Holdings B.V. ADT Finance N.V. ADT Holdings B.V. ADT Security Services B.V. ADT Security Services Holdings B.V. AMP Automative Development Centre B.V. AMP Holland B.V. AMP Laminates B.V. AMP Taiwan B.V. AMP Technology Europe B.V. AMP Plus B.V. AMP Trading B.V. Ampliversal B.V.
CIPE Nederland B.V. DE20 N.V. Grinnell Sales & Distribution B.V. Hovap Beheer B.V. Hovap Consolidated B.V. Hovap Holding B.V. Hovap International (Holland) B.V. Inbrand Benelux B.V. Kendall Nederland B.V. Keystone Valve (Europa) B.V. M/A-COM Eurotec B.V. MDC Meldkamer B.V. Narvik-Yarway B.V. Nieuwkerk BV Pompenfabriek "Anema" B.V. Pritchard Services Group BV Raychem (Nederland) BV Sherwood Medical Nederland B.V. TEP Security B.V. Thorn Security Nederland BV Total Walther B.V. TVM Europe B.V. Tyco Healthcare Nederland BV Tyco Labs Holland I B.V. Tyco Waterworks B.V. Unirax B.V. Unistrut (Benelux) B.V. Vonk Chokes B.V. Walther Brandbeveiliging B.V. Wormald B.V. Zettler Netherlands N.V. NEW ZEALAND: A.F.A. Monitoring Limited ADT Holding Co. No. 3 Limited ADT Holdings Co. No. 1 Limited ADT Holdings Co. No. 2 Limited Armourguard Security Limited Command Nominees Limited Danks Bros. Limited Enlist Consulting Limited Fire Protection Inspection Services Ltd. Holyhead Holdings Limited Key Contact Limited Keystone New Zealand Limited New Zealand AMP Limited New Zealand Valve Company Limited Nortrac Engineering Limited Raychem New Zealand Rhino Security Securacopy Services (1992) Limited Seekers Communications Limited Tyco Healthcare Limited Tyco New Zealand Limited
NORWAY: AMP Norge AS Ergoform AS Wormald International A/S Wormald Signalco A/S PANAMA: Kendall, S.A. (Panama) Tyco Submarine Systems S.A. PEOPLE'S REPUBLIC OF CHINA: AMP (China) Investment Co. Ltd. AMP Qingdao Connector Co. Ltd. AMP Shanghai, Ltd. (92.31%) AMP Shunde Connector Limited AMP Suzhou Connector Tool, Ltd. AMP Tradinng (Shanghai) Company Limited Beijing Keystone Valve Co. Ltd. Kendall-Yantai Medical Products Company, Ltd. Keystone (Jingmen) Valve Co. Ltd. (80%) Keystone Valve (China) Ltd. Raychem (Shanghai) Trading Ltd. Raychem Electronics (Shanghai) Limited Raychem Electronics (Shenzhen) Company Limited Raychem Shanghai Cable Accessories Ltd. Shenyang OYT-Grinnell Fire Door Manufacturing Company Limited Shenyang Yarway Valve Co. Ltd. Spraysafe Beijing Tak Cheong (Yau Kee) Engineering Ltd. Tyco Electronics H.K. Limited PERU: Grinnell Sistemas de Proteccion contra Incendio S.A. Raychem Del Peru S.A. PHILIPPINES: AMP Philippines Inc. Carlisle Philippines, Inc. Tyco-PIECO Corporation, Inc. POLAND: AMP Polska sp.z.o.o. Auto Suture Poland Sp.z.o.o. Raychem Polska Sp.z.o.o. Total Walther-Ochrona P. Poz i Bezpieczenstwo Sp. z.o.o. PORTUGAL: AMP Portugal--Conectores Electricos E Electronicos LDA B. Braun-Dexon (Portugal) Produtos Hospitalares Ltda. (50%) Karner-Batts, Lda. Raychem (Portugal) Productos Quimicos Limitada REPUBLIC OF SLOVENIA: AMP d.o.o.
Total Walther--Stabilne hasiace zariadenia s.r.o. RUSSIA: Auto Suture Surgical Instruments RATNERGO (ZAO RAYENERGO) SAUDI ARABIA: Abahsain-Cope, S.A. Ltd. (49%) Raychem Saudi Arabia SCOTLAND: Auto Auctions (Scotland) Limited Madison Cable Limited Modern Alarms (Scotland) Ltd. Motor Auctions (Scotland) Limited, The Security Centres (Scotland) Ltd. SINGAPORE: ACSYS Asia Pacific Pte. Ltd. AMP Manufacturing Singapore Pte, Ltd. AMP Singapore Pte. Ltd. Central Spraysafe Company PTE Limited Crosby Valve Pte Ltd Descote Asia Grinnell Supply Sales Asia Pte.Ltd. INBRAND Asia Pte.Ltd. (40%) Kendall Medical Far East Pte. Ltd. Keystone Southeast Asia Pte Ltd Raychem Singapore Pte. Ltd. Thorn Security Pte. Limited Tyco Engineering and Construction (SEA) Pte. Ltd. Tyco Flow Control Asia Inc. Tyco Flow Control Pte. Ltd. Tyco Laboratories International (1993) Pte. Ltd. Tyco Submarine Systems (S) PTE LTD SOUTH AFRICA: A&E Products Africa (Proprietary) Limited AMP Products South Africa (Proprietary) Limited Belgicast South Africa Pty. Ltd. Czechtech Intervalve (Pty) Ltd. Kendall Company of South Africa (Proprietary) Limited, The Kendall Medical (Pty) Ltd. Raychem (South Africa) (Pty) Limited Transcast (Proprietary) Limited SPAIN: 1990 CIPE Espana ADT Espana S.L. AMP Espanola, S.A. Auto Suture Espana, S.A. Automated Security International, S.A. B. Braun-Dexon Surgical S.A. (50%)
Belgicast International S.L. Controles Graphicos Ibericos, S.A. Kendall Espana S.A. Kendall Proclinics, S.L. Mondragon Telecommunications SL Raychem SA Raychem Telco S.A. Segurmatica, S.A. Telecomunicaciones Marinas, S.A. Wormald Mather & Platt Espana, S.A.(5) SRI LANKA: A&E Products Lanka (PVT) Ltd SWEDEN: AMP Svenska AB Erichs Armatur AB Karner-Batts AB Kendall Medical AB Modern Prefabspecialisten Sprinkler i Lammhult Aktiebolag Prefabspecialisten Sprinkler i Lammhult Aktiebolag Raychem AG/Raychem SA Raychem Aktiegolag Thorin & Thorin AB Wormald Fire Systems A.B. SWITZERLAND: 1990 CIPE Suisse 1996 WHICH Suisse 19997 TEP Suisse ADT Franchising AG ADT Monitoring Services AG ADT Services AG AMP (Schweiz) AG AMP (Schweiz) HFI, AG AMP (Schweiz) Produktions AG Auto Suture (Schweiz) AG CIPE (Suisse) SA Confab Services AG Decolletage SA St. Maurice Neotecha A.G. Raychem A/S Robatal SA Sherwood Services AG Sirat SA Total Walther Feurschutz A.G. Tyco Acquisition AG Tyco Alpha Services AG Tyco Beta Services AG Tyco Electronics Group AG Tyco Electronics Services AG Tyco Flow Services AG Tyco Healthcare Group AG Tyco Healthcare Schweiz AG
Tyco International Holding AG Tyco International Services AG Tyco Patents and Trademarks Services AG Tyco Plastics Services AG USSC AG WHICH (Suisse) SA Zettler AG TAIWAN A&E Taiwan Co. Ltd. AMP Manufacturing Taiwan Ltd. Carlisle Taiwan, Inc. Kendall Medical Ltd. Keystone Valve (Taiwan) Ltd. Raychem Pacific Corporation Raychem Taiwan Limited Taliq Taiwan Limited Wormald Engineering Systems Taiwan Ltd. THAILAND: ACS Asia (1996) Ltd. AMP (Thailand) Limited Kendall Gammtron Limited (85%) Kendall Medical Ltd. Keystone Valve (Thailand) Co., Ltd. Raychem Thai Limited TEAC Services Limited Tyco Earth Tech (Thailand) Limited Tyco International (Thailand) Ltd. (50%) WHC Holdings Limited TURKEY: AMP Turkey Karner-Batts Turkey Raychem Elektro Yalitium Sistemieri Limited Sirketi UNITED KINGDOM: Abbey Security International Ltd. Abbey Security Management Ltd. Access Control Syatems Limited ADT (UK) Holdings plc ADT UK Investments Limited ADT (UK) Limited ADT Aviation Limited ADT Finance plc ADT Fire & Security plc ADT Group plc ADT Linen Services Limited ADT Pension Fund Limited ADT Securities Limited ADT Security Systems Limited ADT Travel Holdings Limited ADT Travel Limited ADT Trustees Limited
Advanced Absorbent Products Ltd. Advanced Alarm Systems Limited American District Telegraph Services International Ltd. AMP Finance Limited AMP of Great Britain Limited Ansell Jones Limited Applied Maintenance Systems Limited A.R.C. Fire Protection Ltd. Argus Group plc Ariel Burglary and Fire Protection Company Ltd. Argyle Medical Industries (U.K.) Limited AS (Overseas) Ltd. Ash Capital Finance (Jersey) Ash Group Services Ltd. Ash Rentals Ltd. Atlas Fire Engineering Limited Audio Education Limited Auto Auctions Limited Auto Sec. Info. Sys. Tech. Ltd. Auto Suture U.K. Limited Automated Loss Prevention Systems International Ltd. Automated Loss Prevention Center Ltd. Automated Security (Equipment) Ltd. Automated Security (Holdings) Inc. Automated Security (Holdings) plc Automated Security (Int) Ltd. Automated Security (Properties) Ltd. Automated Security Investments Ltd. Automated Security Limited Avalon Emergency Systems Limited BCA (Auctions) Limited BCA (Mobile Homes) Limited BCA Sports Management Limited BCA Vehicle Preparation Limited Basingkirk Estates Limited Bedford Car Auctions Limited Bissell Healthcare Limited Britannia Access Systems Limited Britannia Monitring Services Limited Britannia Photovision Limited Britannia Security CI Limited Britannia Security Group Limited Britannia Security Systems (Midlands) Ltd. Britannia Security Systems (Southern) Ltd. Britannia Security Systems Limited British Car Auctions (Aviation) Limited British Car Auctions (Flying) Limited Brook Security Services Limited Camp Limited Camp Pension Trustees Limited Campeire Limited Capital Alarms Limited Central Spraysafe Company Limited Charles Winn (Valves) Limited
Cheshire Alarm Services Ltd. Chiltern Security Limited Cleaners (South West) Limited Cleaners Limited Coin Machine Sales Limited Combat Alarms Ltd. Comforta Healthcare Ltd. Communication & Tracking Services Ltd. Constabls Alarm Co. Ltd. Countrywide Leisure Holdings Limited D.C.S. Alarms Limited D J Security Alarms (Wales) Limited D J Security Alarms Limited Descote Ltd. Dicerule Limited Discreet Disposables Ltd. Donald Campbell Associates Ltd. Dong Bang Minerva (UK) Limited Ductile Steel Processors Limited Earth Tech Engineering Limited Edward Barber & Company Limited Edward Barber (UK) Limited Ellis Son & Paramore Limited Emos Information Systems Limited Emos Rentals Limited Eyelevel Electronics Limited Exbury Limited Excelsior Security Services Limited Farnham Limited Finesnatch Limited Fire Defender (UK) Ltd. (50%) Ford Electronic Services Ltd. Frome Motor Auction Sales Limited Gailey Caravan and Leisure Limited Gardner Security Grinnell (UK) Ltd.(6) Grinnell Manufacturing (UK) Limited Grinnell Sales & Distribution (UK) Ltd. Group Sonitrol Security Systems Ltd. Hertfordshire Security Systems Limited Hindle Cockburns Limited HMC Factors Limited Home Improvement Holdings Limited Huddersfield Motor Auctions Limited Hygieia Healthcare Holdings Ltd. INBRAND Ltd. INBRAND UK Ltd. Industrial Cleaners (UK) Limited Integrated (Fire & Safety) Services Limited Integrated Transport Systems Limited (10%) Itoba Limited James Deacon Security Limited JEL Building Management Limited JEL Building Management Systems Limited
JMC Rehab Limited Johnson and Sons Limited Kaldistone Limited Karner-Batts, Ltd. Keystone Valve (UK) Limited Labyrinth Investments Limited Lander Urban Renewal Ltd. Lesters Health Care Services Libas International Limited Linksview Limited M1 Car Auctions Limited M1 Motor Auctions Limited M3 Car Auctions Limited M25 Motor Auctions Limited Macron Fireater Limited Maidstone Fire Protection Markden No. 1 Limited Markden No. 2 Limited Markden No. 3 Limited Markden No. 4 Limited Markden No. 5 Limited Markden No. 6 Limited Markden No. 7 Limited Mather & Platt (Exports) Ltd. Mather & Platt Alarms Limited Mather & Platt Fire Protection Limited Measham Motor Auctions Limited Midland Counties Motor Auctions Limited Minerva Fire Defense Limited Mobile Pressure Cleaning Limited Modern Alarms Ltd. Modern Automated Security Ltd. Modern Automatic Alarms (NI) Ltd. Modern Automatic Alarms Ltd. Modern Carecell Ltd. Modern Homepack Ltd. Modern Integrated Systems Ltd. Modern Security Systems Modern Security Systems (IOM) Ltd. Modern Security Systems (Products) Ltd. Modern Telecom Ltd. Modern Telecom Security Ltd. Motor Auctions (London) Limited, The Newman Tubes Limited OCTY2 OCTY 1 ODL Limited OKD Limited OMK Limited PPR Alarms Limited Paul Fabrications Limited Priory Security Services Limited Pritchard Insurance Services Limited Pritchard Laundries Limited
Pritchard Services Group BV Pritchard Services Group Investments Limited Progressive Securities Investments Limited Prospect Cleaning Supplies Limited Prospect House Investments Limited Prospect House No. 11 Limited Prospect House No. 5 Limited Prospect House No. 7 Limited Provincal Limited Pryor & Howard (1998) Limited Raychem Limited Raynet (UK) Limited Realm Electronics Limited Redhill Security Services Llimited Region Protection (Notts) Limited S&W Bedrooms Limited Safeguard Electronics Limited Saffire Alarm Systems Limited Saffire Extinguishers Limited Screentone Limited Secure-It (UK) Limited Securis Products Ltd. Securitag International Ltd. Security Alarms Ltd. Security Centres (UK) Holdings Ltd. Security Centres (UK) Limited Security Centres Holdings Intl. Ltd. Security Centres Investments Ltd. Security Systems (Rental) Limited Security Watch Limited Shepton Holdings Limited (UK) Shield Protection Limited Show Contracts Limited Sigmaform UK Limited Sky Signs Limited Snap Printing Limited Soverign Security Systems Limited Spensall Engineering Limited Splenser Cleaning Services Limited Spraysafe Automatic Sprinklers Limited Stapp Limited Steel Support Systems Steelway Fensecure Limited Steeplock Limited Streets Machine Operating Company Stretford Security Services, Ltd. Taskman Security Services Limited Telecom Security Ltd. Ten Acre Securitites Ltd. Thameside Lock and Safe Company Limited The British Security Consurtium Ltd. Thorn Security Group Limited Thorn Security International Limited Thorn Security Limited
Thornfire Limited Tinwald Limited Tower Manufacturing Limited TSG Trustees Limited TVC Distribution Limited TVM Group UK Tyco European Metal Framing Limited Tyco European Steel Strip Limited Tyco European Tubing Limited Tyco Flow Control (UK) Limited Tyco Healthcare UK Limited Tyco Holdings (UK) Ltd. Tyco Tech Limited Tyco Valves Limited Unifast Systems Limited Unipower Limited Unirax Limited Unistrut Europe Limited Unistrut Holdings Ltd. Unistrut Limited Vernon-Carus Limited WM Fire Protection Limited Wormald Ansul (UK) Ltd.(7) Wormald Fire Systems Ltd. Wormald Holdings (UK) Ltd. Wormald Industrial Property Ltd. UNITED STATES OF AMERICA: A&E Construction Products, Inc. A&E GP Holding, Inc. A&E Hangers, Inc. A&E Products Group LP A&E Products Group, Inc. A-G Holding, Inc. I A-G Safety Services, Inc. AA Property Holdings, Inc. AAAA Dealer Services, Inc. Adhesive Technologies, Inc. ADT Automotive Holdings, Inc. ADT Automotive Paintless Dent Repair, Inc. ADT Automotive Services, Inc. ADT Automotive, Inc. ADT General Holdings, Inc. ADT Holdings, Inc. ADT Investments II, Inc. ADT Investments, Inc. ADT Maintenance Services, Inc. ADT Operations, Inc. ADT Property Holdings, Inc. ADT Security Services, Inc. ADT Security Systems, West, Inc ADT Services, Inc.
ADT Specialty Auctions, Inc. ADT Title Holding Company I ADT Title Holding Company II ADT Travel Group Limited Advanced Quick Circuits, L.P. Advanced Services Corporation AEPG, Inc. Alarmguard, Inc. Alarmtech, Inc. Allied Tube & Conduit Corporation AMP Building Technology, Inc. AMP China Incorporated AMP International Enterprises Limited AMP Investments, Inc. AMP Products Corporation AMP Services, Ltd. AMP Technologies, Inc. Anderson, Greenwood & Co. Anderson, Greenwood LP Ansul, Incorporated(8) API Security, Inc. APS Group Holding, Inc. AQC, Inc. ARR, Inc. ATC Sales Company Atcor, Inc. Auction Transport, Inc. Auto Suture Company, Australia Auto Suture Company, Canada Auto Suture Company, Netherlands Auto Suture Company, U.K. Auto Suture Eastern Europe, Inc. Auto Suture Europe Holdings, Inc. Auto Suture International, Inc. Auto Suture Norden Co. Auto Suture Puerto Rico, Inc. Auto Suture Russia, Inc. Automated Security Corp. Automated Security Holdings, Inc. Babcock Water Engineering LP Batts, Inc. Beta Acquisition Corp. British Car Auction, Inc. Building Technology Associates Burton, Adams, Kemp & King, Inc. C.S. Charles L. Brown, L.P. (75%) C.S. Global Link, L.P. (75%) C.S. Global Mariner, L.P. (75%) C.S. Global Sentinel, L.P. (75%) C.S. Long Lines, L.P. (75%) Carlisle Plastics Holding LLC Carlisle Plastics LP Carroll Touch International Ltd. CASS Water Engineering, Inc.
CCTC International, Inc. Central Castings Corporation Central CPVC Corporation Central Sprinkler Company Central Sprinkler Corporation Chemegene Corporation Confab Holding Corp. Confab International L.P. Connectware, LLC. Crosby GP Holding, Inc. Crosby Holding, Inc. I Crosby Valve International Ltd. Crosby Valve Sales & Services Corporation Crosby Valve, Inc. CSC Finance Company CSC Investment Company CVG Holding Corp. Descote, Inc. Detect, Inc. Dexide, Inc. E.C. Technologies, Inc. Earth Tech Water Engineering LP Earth Tech Architecture Inc. Earth Tech Engineers of New York, P.C. Earth Tech Environment & Infrastructure Inc. Earth Tech Holdings, Inc. Earth Tech of New York Inc. Earth Tech of North Carolina, Inc. Earth Tech of Ohio Inc. Earth Tech WE Holding Inc. Earth Tech, Inc. Earth Technology Corporation (USA), The Electro Signal Lab, Inc. Elkay Services LLC Elo Touch Systems FCI Liquidations, Inc. Fire Quip Corporation Fire Services, Inc. Firth Cleveland Steels, Inc. Flying Lion, Inc. Forever Hangers, Inc. FRM Services, Inc. GC Holding, Inc. I GC Holdings, Inc. General Acquisition Corp. General Sub Acquisition Corp. Georgia Packaging, Inc. Gimpel Corporation Graphic Controls Corporation Graphic Holdings, Inc. Grinnell Corporation(9) J.B. & S. Lees Inc. J.P. Multi-Systems, Inc. J.R. Clarkson Company, The
Kendall Holding Company Keystone France Holdings Corp. Keystone Holdings Corp. Keystone Kuwait, Inc. Keystone Middle East, Inc. Keystone Saudi, Inc. Keystone Valve-Middle East, Inc. Ludlow Canada, Inc. Ludlow Company LP, The(10) Ludlow Corporation Ludlow Jute Company Limited M/A-COM (AMP) Puerto Rico, Inc. M/A-COM Food Share, Inc. M/A-COM Foundation, The Madison Cable Corporation Management Association of M/A-COM, Inc., The Mid-Atlantic Security, Inc. Midland Automatic Sprinkler Co. MIH, Inc. Mobile Security Communications, Inc. (19%) Montclair Molding, Inc. Mueller Co. Mueller Holdings Corp. National Integration Services National Tape Corporation New England Fire Equipment Company, Inc. Newton Specialty Glass, Inc. Nobel Electronics, Inc. On Q Systems, Inc. Palomar Precision Tubes, Inc. Pasadena Fire & Safety Inc. Phoenix Security Services Limited Photovision Rentals Limited Polyken Technologies Europe, Inc. Precision Interconnect, Inc. Primary Display Corporations Private Products, Inc. Quantum Instrument Corporation Raychem (Delaware) Ltd. Raychem Asia Pacific Management Services, Inc. Raychem Colombia, Inc. (CA) Raychem Colombia, Inc (DE) Raychem Corp. of Arizona Raychem Foundation (no shareholders) Raychem Gulf Coast, Inc. Raychem International Corporation Raychem International Manufacturing Corporation Raychem Radiation Technologies, Inc. Raychem Ventures, Inc. Raychem-Essex, LLC Raythene Systems Corp. Remtek International, Inc. Remtek Sales Corp. Roe Fire & Safety Equipment Co., Inc.
Robinson Alarm Companies, Inc. Robinson Protective Alarm Company Rochester Corporation, The RTP Development Rust Architecture & Geology of North Carolina, P.C. Rust Environment & Infrastructure of Michigan Inc. Rust Environment & Infrastructure, P.E., Arch. & L.S., P.C. Security Watch, Inc. Sherwood Medical Company Sherwood Medical Company Sherwood-Accurate Inc. Sigma Circuits, Inc. Sigma GP Holding, Inc. Sigma Holding Corp. Sigmaform Corporation Sigmaform International Sigmaform Pacific Sales Corp. Simplex Technologies Inc. Skyline Fire & Communications, Inc. Sonitrol Corporation Sonitrol Limited Sonitrol Management Corporation Sonitrol Southeast, Inc. SSI Atlantic Crossing Holdings LLC SSI Atlantic Crossing LLC Star Sprinkler, Inc. Sunbelt Holding, Inc. I Sunbelt Holdings, Inc. Sunbelt Manufacturing, Inc. Surgical Dynamics, Inc. Surgical Service Corporation SWD Holding, Inc. SWD Holding, Inc. I T.J. Cope Inc. T15 Acquisition Corp. TA, Inc. Techcon International Inc. Thermacon, Inc. TKC Holding Corp. TME Management Corp. TPCG Holding Transoceanic Cable Ship Company, Inc. Tri-City Auto Auction, Inc. TSSL Finance Company, Inc. TSSL Holding Corp. Tucson Special Systems, Inc. TV&C GP Holding, Inc. TVC Holding TVC, Inc. TVM Group, Inc. TVM, Inc. Tyco (US) Holdings, Inc. Tyco Acquisition Corp VII Tyco Acquisition Corp XIII
Tyco Acquisition Corp. I (NV) Tyco Acquisition Corp. II Tyco Acquisition Corp. II (NV) Tyco Acquisition Corp. III Tyco Acquisition Corp. III (NV) Tyco Acquisition Corp. IV Tyco Acquisition Corp. IV (NV) Tyco Acquisition Corp. IX Tyco Acquisition Corp. V Tyco Acquisition Corp. V (NV) Tyco Acquisition Corp. VI Tyco Acquisition Corp. X Tyco Acquisition Corp. XI Tyco Acquisition Corp. XII Tyco Acquisition Corp. XIX Tyco Acquisition Corp. XV Tyco Acquisition Corp. XVI Tyco Acquisition Corp. XVIII Tyco Acquisition Corp. XXI Tyco Acquisition Corp. XXII Tyco Acquisition Corp. XXIII Tyco Adhesives GP Holding, Inc. Tyco Adhesives LP Tyco Adhesives, Inc. Tyco Electronics Corporation Tyco Finance Corp. Tyco Flow Control, Inc. Tyco Healthcare Group LP Tyco Holding Corp. Tyco Holdings of Nevada, Inc. Tyco Holdings, Inc. Tyco International (NV) Inc. Tyco International (PA) Inc. Tyco International (US) Inc. Tyco International Asia, Inc. Tyco Merger Sub (NJ) Inc. Tyco Printed Circuit Group Inc. Tyco Printed Circuit Group LP Tyco Receivables Corp. Tyco Receivables Funding LLC Tyco SPC Inc. Tyco Submarine Systems Ltd. Tyco Submarine Systems Projects, Inc. Tyco Technology Resources, Inc. Tyco Valves & Controls LP Tyco Valves & Controls, Inc. Tyco Worldwide Services, Inc. U.S. Capital Corporation U.S.S.C. Puerto Rico, Inc. Unistrut Corporation Unistrut International Corp. United States Construction Co. United States Surgical Corporation USS Acquisition Corp.
USSC Acquisition Corporation USSC Cal Med, Inc. USSC Financial Services Inc. USSC Tex Med, Inc. Valleylab Holding Corporation Valleylab Inc. Varec Vapor Control, Inc. W.A.F. Group, Inc. Walter Rose Co. Water Holdings Corp. Waverly Group LLC, The Whitaker Corporation, The Wormald Americas, Inc. WGV Liquidations, Inc. Yarway Corporation URUGUAY: Bethany Trading Company Raychem Uruguay SA VENEZUELA: AMP de Venezuela, C.A. Ansul de Venezuela C.A. Grinnell Sistemas de Proteccion Contra Incendio, S.A. (Venezuela) Grupo Rust International Di Venezuela C.A. Kendall de Venezuela, C.A. Raychem de Venezuela, SA Tyco Flow Control de Venezuela, CA Tyco Submarine Systems, C.A. VIETNAM: Tyco Engineering (Vietnam) Ltd. Tyco-PIECO Corporation (80%)
- ------------------------ 1 Also doing business as GAAM Fire and Rescue 2 Also doing business as Fire Guard A.F.S., Grinnell ACT, Grinnell Controlled Atmospheres, Grinnell Flow Control, Jefferson Electrical Services, O(1)Donnell Griffin, Planned Communications Australia, WF Energy Controls 3 Also doing business as ACT Plumbing Maintenance, Advanced Systems Engineering, Building Asset Maintenance, EPS Electrical Plumbing Services, Fire Control Services, FHD Airconditioning, Goldfields Fire Services, Masterbilt Industries, Olsen Engineering Company, Quintrix Communications, Safeguard Fire Systems, Simplex Fire Protection Company, Tyco Fire Monitoring, Viking Fire Sprinklers, Williams Extinguisher Service, Wormald Advanced Systems Engineering, Wormald Building Products, Wormald Control Systems, Wormald Electronics, Wormald Fire & Safety, Wormald Fire Engineering, Wormald Technology 4 Also doing business as Grinnell Fire Protection, Wormald Canada, Scotia Sprinklers, Wormald Fire Systems 5 Also doing business as Wormald Espania 6 Also doing business Grinnell Firekil, GEM Consultants 7 Also doing business as Wormald Fire Systems, Wormald Engineering, Wormald Britannia, Wormald Lintott and Lintott Process Systems 8 Also doing business as Ansul Fire Protection 9 Also doing business as Automatic Sprinkler, GEM Sprinkler Company, Grinnell Flow Control, Grinnell Fire Protection, Tyco Fire & Security Services and Zettler 10 Also doing business as Kendall Healthcare Products and Kendall International EX-23.1 7 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 333-21425, 333-33779, 333-43333, 333-50855, 333-50855-01, 333-70273, 333-73223 and 333-83087) and on Form S-8 (File Nos. 33-38249, 33-26970, 333-03975, 333-33999, 333-34001, 333-69323, 333-74397, 333-75037, 333-75713, 333-80391 and 333-90345) of Tyco International Ltd. of our report dated October 21, 1999 on our audits of the Consolidated Financial Statements and the Consolidated Financial Statement Schedule of Tyco International Ltd. as of September 30, 1999 and 1998 and for the year ended September 30, 1999 and 1998 and the nine months ended September 30, 1997, which report is included in this Annual Report on Form 10-K. PRICEWATERHOUSECOOPERS Hamilton, Bermuda December 9, 1999 EX-23.2 8 EXHIBIT 23.2 EXHIBIT 23.2 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements Nos. 333-33779, 333-43333, 333-50855, 333-50855-01, 333-70273, 333-73223, 333-83087 on Form S-3 and Registration Statements Nos. 333-33999, 333-34001, 333-69323, 333-74397, 333-75037, 333-75713, 333-80391, 333-90345 on Form S-8 of Tyco International Ltd. and Registration Statement No. 333-21425 on Form S-3 and Registration Statements Nos. 33-26970, 33-38249, 333-03975 on Form S-8 of ADT of our report dated September 30, 1998 (relating to the consolidated statements of operations, changes in stockholders' equity and cash flows for the nine month period ended September 30, 1997 of United States Surgical Corporation and its subsidiaries and the related financial statement schedule for the nine month period ended September 30, 1997, which are not included herein), appearing in this Form 10-K of Tyco International Ltd. DELOITTE & TOUCHE LLP December 9, 1999 Stamford, Connecticut EX-23.3 9 EXHIBIT 23.3 EXHIBIT 23.3 CONSENT OF INDEPENDENT ACCOUNTANTS As independent public accountants, we hereby consent to the inclusion in this Annual Report on Form 10-K and to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 333-21425, 333-33779, 333-43333, 333-50855, 333-50855-01, 333-70273, 333-73223 and 333-83087) and on Form S-8 (File Nos. 33-38249, 33-26970, 333-03975, 333-33999, 333-34001, 333-69323, 333-74397, 333-75037, 333-75713, 333-80391 and 333-90345) of Tyco International Ltd. of our report dated February 12, 1999 (except with respect to the matter disclosed in Note 18--Merger with Tyco International Ltd., as to which the date is April 2, 1999) on our audit of the consolidated balance sheets of AMP Incorporated and subsidiaries as of September 30, 1998, and the related consolidated statements of income, shareholders' equity and cash flows for the year ended September 30, 1998 and the nine months ended September 30, 1997, which financial statements are not included herein. ARTHUR ANDERSEN LLP December 9, 1999 Philadelphia, Pennsylvania EX-27 10 EXHIBIT 27
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND INCOME STATEMENT OF TYCO INTERNATIONAL LTD. AS OF AND FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-1999 OCT-1-1998 SEP-30-1999 1,762 0 4,846 330 2,849 11,163 13,307 5,984 32,362 9,091 9,109 0 0 338 11,995 32,362 22,497 22,497 14,406 14,406 0 142 486 1,651 620 1,031 0 (46) 0 985 0.63 0.62
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